Aerie Pharmaceuticals, Inc.
Q1 2018 Earnings Call Transcript

Published: 9 May 2018

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Aerie Pharmaceuticals First Quarter 2018 Earnings conference call. [Operator Instructions]. It is now my pleasure to turn the floor over to Aerie's Chief Financial Officer, Rich Rubino. Please go ahead sir.

[Richard Rubino:]

Well, thank you, Ginger. Good afternoon, and thank you for joining us today. With me today are Vince Anido, Aerie's Chairman and Chief Executive Officer; Tom Mitro, Aerie's President and Chief Operating Officer; and John LaRocca, Aerie's General Counsel. Today's call is also being webcast live on our website, investors.aeriepharma.com and it will be available for replay as indicated in our press release. Now for forward-looking statements and non-GAAP financial measures. On this call, we will make certain forward-looking statements including statements forecasting guidance regarding our future financial and operating performance. These statements will include projections associated with our Rhopressa commercial launch in the United States including at revenue expectations and cash burn. They will also include expectations regarding the success, timing and cost of our clinical trials. Additionally, we will discuss progress regarding maintaining, requesting or obtaining approvals from the FDA or other regulatory agencies about product and product candidate including our efforts on international expansion. Lastly, we will address the timing and cost of our manufacturing activities and the potential of our preclinical research findings as well as other statements related to future events. These statements are based on the beliefs and expectations of management as of today. Our actual results may different materially from our expectations. Investors should read carefully the risks and uncertainties described in today's press release as well as the risk factors included in our filings with the SEC. We assume no obligation to revise or update forward-looking statements whether as the result of new information, future events or otherwise. Please note that we'll file our 10-Q tomorrow. In addition, during this call, we will be discussing certain adjusted or non-GAAP financial measures. For additional disclosures relating to these non-GAAP financial measures, including our reconciliation to the most directly comparable GAAP measures, please see today's press release which is posted on our Website. As a quick financial update our first quarter 2018 GAAP net loss was $40.7 million or $1.05 per share. The net loss for the first quarter 2018 includes non-cash stock-based compensation expense of $8.7 million. When excluding the non-cash stock-based compensation expense, our total adjusted net loss was $32.0 million or $0.83 per share. Adjusted operating expenses for the first quarter 2018 total $32 million of which over $21 million were adjusted SG&A expenses including prelaunch commercialization activities of approximately $4 million. You will see a larger contribution to expenses from the sales force in the second quarter and a full quarter affect in the third quarter. For additional information regarding our first quarter 2018 results and prior period comparisons, please refer to today's press release and tomorrows Form 10-Q filing. Our 2018 first quarter cash burn was approximately $50 million. We ended the first quarter with $334 million in cash, cash equivalence and investments and $39.5 million shares outstanding reflecting the January financing activity we discussed on our year-end call. We are reiterating the full-year 2018 guidance we provided on our year-end call which you'll recall included net revenues in the range of $20 million to $30 million on a U.S. GAAP basis and $200 million to $210 million in cash burn. With that I will turn the call over to Vince.

[Vincente Anido:]

Thanks, Rich, and good afternoon, everybody. Thanks for joining us today. I'm going to go through really about four topics as I go through my prepared remarks. First I'm obviously going to spend a little bit of time on the Rhopressa launch update. I think everybody is going to be very, very excited about some of the prospects that we see out there. Give you an update on Roclatan in terms of our filing and our expectations for that product and I'll move on to global expansion and things that we're doing in both Europe as well as in Japan and then I'll finish up talking a little bit about our pipeline. I'm obviously pretty happy to report that Rhopressa has launched in the U.S. In fact, even though we've been doing an awful lot of work on -- in terms of prelaunch activities it was a week ago Monday that our sales reps actually hit the street and started visiting doctors’ offices and so the field team that Judy Robertson and others have built is just an incredible accumulation of an awful lot of talent that we have, it includes four regional sales directors, 14 district managers and a hundred territory managers and they are all in full execution mode. We hired from a talent pool of well over 5000 applicants who's sought employment with us. Interesting, many of the applicants told us that, when they contacted us, that they did so on the advice of an ophthalmologist which happened to be a friend of theirs and this obviously speaks to the awareness and the reputation of our company and the product -- and our products. We certainly have generated an awful lot of interest in the ophthalmology community. Self-directors and district managers joined us with significant pharma and ophthalmology experience and the territory monitors joined us with approximately 13 years of pharma sales experience and about six years on average of ophthalmology experience. So again, they're very talented folks who have been well decorated in the companies that they came from and our sales force is now well trained and on the ground. We have more than ample product supply and manufacturing capacity and we're on an excellent trajectory toward formulary coverage, and as many of you know, I promised that we would give you sort of a running commentary of where we stood with that because we're convinced that that managed access component is critical to the success of our launch. Additionally, our medical affairs team is now trained and we have full deployment of our field based medical science liaisons and they're out there interacting with physicians and answering questions and preparing them to be speakers, etc. So we're very pleased with all of the interactions that we've had to-date. Many of the introductory meetings between the field team and physicians have taken place and distribution and samples to the physicians’ offices is well underway. And in fact, I'll note that even before the sales reps actually were out there calling on the physicians, we started generating prescriptions for Rhopressa. So we're very, very excited about that and so sometimes towards the end of -- or sometime next week, you'll be hearing a little bit more and seeing actually some of the details -- or some of the information about the number of prescriptions written in our first full week of launch. We are delighted with the physician responses to Rhopressa at this early stage of the launch. Prior to the launch by our sales force, we conducted several peer-to-peer programs to educate physicians about Rhopressa. They started out in the Hawaiian Eye Meeting earlier in the year and then we progressed to the American Glaucoma Society meeting, it was held in New York just a few months ago. In addition we executed a Rhopressa launch broadcast across the United States. We had about -- this was beamed out to about 40 different sites and approximately 500 ophthalmologists actually participated in this program. Each of these programs included a panel of glaucoma KOL's and included a thorough review of the Rhopressa product profile. I had the chance to actually attend one of the dinners and was very encouraged by the physician reactions to Rhopressa and to tell them of the ongoing questions and our ability to answer all of the questions these doctors had. There is a tremendous amount of excitement among the eye care professionals and we are seeing very high demand for the samples and I think the docs are really excited about having something new for their glaucoma patients. Interestingly, I just joined many members of the Aerie team last week to participate in the ARVO meeting at the Association of Research in Vision and Ophthalmology. Because it took place in Hawaii, there were a number of physicians from many nations around the world including from Asia and Europe. I was frankly surprised with the level of familiarity that they had in Rhopressa and the interest that they had not only in Rhopressa but as well as Roclatan including asking when the products will be available for them in their respective countries. We had a number of presentations that were made or actually posters that were presented at ARVO including one by Dr. Janet Serle, a well-respected glaucoma specialist from Mount Sinai medical center in New York. She presented a poster on Rhopressa efficacy and it was just frankly just standing room only around her poster. It was hard to get down that aisle when she was presenting. A medical affairs team also took several questions at the last few ophthalmology conferences not only about Rhopressa's efficacy and safety but also about the potential for using rho-kinase inhibition for other indications such as corneal healing and other potential benefits. And so there's a growing body of awareness out there and knowledge about our products and rho-kinase inhabitation in general and so we're certainly very excited about what lies ahead for us. Back to the Rhopressa launch, we believe that most physicians will provide one sample to each patient which assuming acceptable performance should be followed by prescriptions. Many times the doctor, because of healthcare plans, has to give both the sample and the prescription at the same time because they can't see the patients as regularly as they would like and so, again, we're seeing some of that play out in the marketplace now. As I mentioned, back over a number of different calls, we have a great market access team. They've been on board now for well over 12 months. They've done a great job in just getting us ready for this launch and of course the important component to uptake is that market access. As you saw on our recent press releases, we are making excellent progress in securing formulary coverage. What you have to remember first of all is that in the glaucoma market about half the coverage is through commercial plans and the other half is Medicare Part D. And the other thing you have to remember is that just recently we ended up filing for the Medicare Part D plans but those won't take effect until January 1 of next year. And so while there's no guarantee that this is going to happen, it is possible that some of those Part D plans actually start covering us a little bit early. Now one of the important things that sometimes we forget to mention to you as we talk about the launches is the importance of getting on the drug databases. These are databases that are followed by payers and utilized to classify drugs. Rhopressa has been classified as a new drug class. It's called ophthalmic rho-kinase inhibitors. Now this is important as it facilitates the addition to formularies. So it's not like considered a prostaglandin or any known class, this gives us a totally different class of compound in which we're the sole product in that class. As of today Rhopressa is covered in Tier 3 and on preferred formulary tier with plans representing the majority of commercially covered lives in the U.S. This is excellent news and as expected, we have no step therapy. For patients covered under commercial plans such as the majority we already have in Tier 3 for those that are not covered at all, we are offering co-pay assistance -- a co-pay assistance card that makes the out-of-pocket expenses for the patient known and affordable. With a copay assistance card, covered patients out-of-pocket promotes is limited to $20.00 and if they're not covered it's limited to $50.00. We currently expect Rhopressa will progress into preferred tiers as we go deeper in 2018 as we've mentioned to you multiple times with the majority expected in Tier 2 by or around year-end. So as we progress into the subsequent quarters, each quarter you'll see more and more of the plans moving us into Tier 2. For Medicare Part D plans we expect to enter 2019 with a majority of the coverage of preferred tiers and while not certain at this point, as I mentioned, it is possible that some of these Medicare plans may actually accelerate coverage into late 2018 and part in response to Rhopressa being in an entirely new drug class. And of course, we are not permitted by law to offer any coupons to patients covered under the Medicare Part D plans. That's the general update on the Rhopressa launch at this point. And moving on to Roclatan, our programs remain on track. We continue to expect -- to submit our NDA with the FDA later on this quarter. The level of excitement around physicians, Roclatan is very high, obviously as I mentioned not only in the U.S. but also ex U.S., we're looking forward for our potential Roclatan FDA approval in roughly about 12 months from now. Please remember that we do plan to use the same sales force for Roclatan as we are now using for Rhopressa. There is no need for a separate sales force. As we look at the global initiatives, in addition to the European Phase 3 trials named Mercury 3, which is underway in Europe for Roclatan, and remember, this is mainly for pricing not necessarily for efficacy and safety. We're also undergoing -- we've got a couple of ongoing Phase 2 trials for Rhopressa enrolling Japanese and Japanese-American patients in the U.S., as a precursor to investing the ultimate Phase 3 trials in Japan. With these trials at process, our global expansion strategy continues to progress. Now as I look at the earlier stage pipeline, we are continuing to charge ahead with our two free clinical product candidates for the retina market. Remember, as a reminder, we have a product, AR-13503 which inhibits both rho-kinase inhibitor and protein-kinase C with the potential to treat both diabetic macular edema or DME and age related macular degeneration or AMD. Remember, this is a small molecule, it's sort of a cousin to Rhopressa. We believe that this is a completely new pathway for treating this disease which gives us an awful lot of hope and excitement about what we can be providing for patients and 503 has shown in preclinical experiments the ability to provide additive efficacy as an adjunct to market leading Eylea while being very efficacious on a standalone basis. In fact, regressing for a minute, going back to ARVO, one of the posters we presented is actually one of our scientists, Kevin Carbajal, actually presented a poster where in addition to showing that we were as good as Eylea and a little bit better and that we were additive, he actually figured out a way to in that model to use sub-therapeutic doses in both Eylea and 503 and he dosed them independently to make sure he didn't get an effect and he took the same thing [indiscernible] therapeutic doses of each, put them together and the result of that actually exceeded that of Eylea by itself. And so we were pretty excited about that and that was, by the way, Eylea full strength. So again, showing that it is very much additive efficacy, our product 503's additive efficacy to the adjunct market leading Eylea. We're also advancing AR-1105, dexamethasone steroid implant to the treatment of diabetic macular edema. Pre-clinical activities are ongoing for both of those, 503 and 1105 and was very, very enthusiastic about the potential for both of those products. The capabilities we now have through our DSM collaboration provides an exciting opportunity to gain long-term sustained release for small molecules such as 503. We also have a manufacturing platform to make ocular implants in precise shapes and sizes through exclusive ophthalmic rights to the print implant manufacturing technology that we acquired last year. We do still plan on filing the IND for 1105 later on this year following shortly in early 2019 with the IND for 503. And again, as I mentioned that at ARVO we had a number of posters, focus on our retina program there was an awful lot of excitement around that and certainly there was an awful lot of excitement about our use of both the DSM polymer and the print manufacturing technology. And finally, as you know, we do own a very sizable rho-kinase molecule library. We've been testing those for a number of different diseases outside of ophthalmology and as I mentioned last time that we spoke, we do have some data already on some pulmonary diseases including asthma and as we progress with our testing of those molecules in those other -- in non-ophthalmic diseases, we will be reporting those to you as we get that information. So with that I'd like to conclude the prepared remarks and turn it back over to the operator.

[Operator:]

[Operator Instructions]. Your first question comes from Adnan Butt with Guggenheim Securities, your line is open.

[Adnan Butt:]

Congrats on the launch. First on the sampling program, Vince, can you tell us at this time what percentage of samples are turning into prescriptions or will you be able to tell us that in the future?

[Vincente Anido:]

I think we should be able to tell you that in the future but right now given that we've only had the sales force out there for roughly about a week or so it's kind of hard to make that call right now. So it may be after we've had it out there for a few months where we get a better feel for that.

[Adnan Butt:]

But we are seeing prescription data come up in IMS, do you expect that to be representative of sales?

[Vincente Anido:]

I'm sorry, say that again?

[Adnan Butt:]

Prescription data, is Rhopressa going to be trackable via prescription? We're seeing it already.

[Vincente Anido:]

Yes, we've already seen prescriptions out there.

[Adnan Butt:]

Okay, and then just the last one on the pipeline, for the Roclatan NDA, you were waiting on stability lots if I remember. Is that work done and are you just waiting to finish the application or are you still waiting on the filing?

[Vincente Anido:]

We're still actually just taking the data that we received and putting it into the final filing. So it takes a while to go through QC etc., and then so that's why we still think that it's this quarter.

[Operator:]

Your next question comes from Annabel Samimy with Stifel.

[Andrew Santos:]

This is Andrew in for Annabel. I just wanted to get your thoughts on the first day of launch without Medicare Part D. It seems like some eye care products are having some trouble getting traction without it. Kind of how are you thinking about launch without Medicare Part D for now and…

[Vincente Anido:]

Well, we have a couple of different things that are going our way which are different than the most recent launch that you've seen. First of all, given that we're a totally different class, and as I mentioned rho-kinase inhibitors, it does give us an ability to get out there and as I mentioned, we don't have any step edits or anything like that that are blocking those prescriptions so they are going through. And so it is only for those patients, which is half of the patients, that are not part of Medicare so there's still -- if you stop and think about the overall market, there's about 37 million prescriptions or so we get -- we have about half of those and the patients that are getting those that are eligible to get Rhopressa, so we'll see a little bit of that. So we took that into consideration as we gave you the guidance for the year. So we assumed that it would be slow this year and as I mentioned before, Q2 is going to be pretty light from a revenue point of view only because we've got an awful lot of samples going out there and we're starting, in essence, at the beginning of this quarter so it's going to be later on in Q3 and Q4 when you start seeing more revenues coming through. But as we close out the year, again, our expectation is that not only will be in preferred tiers on the commercial plans but that we will see maybe some of the plans actually with Part D trickling in. So we think we will see some prescriptions there. So we do believe that it's because it is a new chemical class that we should be able to get some traction whereas with the most current or the most recent launch that came out of an existing class so I think that's adding to their problems.

[Operator:]

Your next question comes from Dewey Steadman with Canaccord Genuity.

[Dewey Steadman:]

I've got sort of a wonky one on Roclatan Medicare coverage. So you mentioned for Rhopressa that Medicare is delayed and you could see it by the beginning of the year. Now with Roclatan, is it the same process in terms of timing and then waiting till the end of the year or is it a simpler process given that Rhopressa is already approved?

[Vincente Anido:]

I think we're still going to have to go through the same things with Roclatan. So obviously a lot of it is going to depend on from a timing point of view to the filing and when we actually get the approval. Remember with Rhopressa what clearly helped is the fact that we got an early approval, it gave us plenty of time to make the submissions, etc., etc., etc. From a contracting point of view, the guys that run our managed access group probably will tell me how hard it is to get them on there but at the end of the day having Rhopressa already signed up and ready to go, it should help get Roclatan in there as well. Again, it's all going to be driven by when can we get approval so that we can negotiate the price and hopefully we'll be able to do that prior to the required submissions and so we're hopeful that that will happen.

[Dewey Steadman:]

And what are those required submissions, is that April time frame?

[Vincente Anido:]

Yes, there are some -- midyear add-ons, if you will, and especially for the larger products and so I think that could help us. But again, until we know for sure what the review process is going to look like, etc., it's too early to make that call.

[Dewey Steadman:]

Okay, and then -- and finally, just some of the pushback that I get from folks, they wonder if docs really do care about an extra 1 or 2 millimeters of mercury reduction based on -- compared to standard of care right now. Is that really important for docs and maybe just opine a bit on that.

[Vincente Anido:]

Sure, we see that there's a couple of different things that are playing out as we talk to physicians. First of all, when they look at the clinical trial data of only like an extra millimeter or two, they're seeing very, very different results when they actually put them -- give it to their patients. And the reason for that is several fold, number one, many of the drugs that they've been adding on are three times a day or two times a day and so compliance has become an issue. They're dosed at different times of the day from where they're prostaglandins are and so they don't have the advantage of being once-a-day. And so the fact that we're once-a-day, dosed exactly at the same time as the prostaglandins are, i.e., in the evening, it's still allowing about a ten minute delta between dosing the two products. We think that that's going to play out very, very well. The other thing that hasn't escaped any of these physicians is the data that we have out there that's been public now for a while, almost a year, on Roclatan. And so they're looking at the responder analysis there and realizing how much better and how many more patients get to lower pressures when you add Rhopressa to say Latanoprost which is what we did with Roclatan and they're saying, yep, it's two eye drops but I think I may be able to get those effects. And so getting a bigger chunk of their patients down to lower pressures is a big deal.

[Operator:]

[Operator Instructions]. Your next question comes from Serge Belanger with Needham & Company.

[Serge Belanger:]

A couple of questions on -- I apologize if you covered this, jumping around calls tonight. On your sampling efforts, can you just tell us how long -- the sampling efforts just begin with the launch last week or did physicians have access to samples prior to that?

[Vincente Anido:]

Yes, they did have access. Why don't I just have Tom walk you through a little bit of what our sampling program looked like, sort of ahead of the reps getting out there.

[Thomas Mitro:]

Sure, well Serge we ran a couple of key educational programs for ophthalmologists. We did it at the Hawaiian Eye Meeting and as Vince mentioned in his prepared remarks, The American Glaucoma Society meeting we did a national broadcast and as well as at ASCRS. So these are major meetings for ophthalmology. For people that attended those sessions, they could sign up for samples because we wanted them educated first and then they could sign up to receive samples. So we sent samples to those physicians and it was several hundred physicians that we actually sent the samples out to and that was obviously, as I said, or Vince said, prior to our sales force actually entering the offices which just occurred last week.

[Serge Belanger:]

Okay. Do you expect any physicians to start using Rhopressa with Latanoprost ahead of Roclatan being available?

[Thomas Mitro:]

Yes, without a doubt. I mean, I think that physicians will use Rhopressa as an additive because in our package insert we have the instructions that you wait ten minutes or so between giving eye drops. So this is a market that does that. They start commonly with prostaglandins and then adds another product. I think they look at Rhopressa, at least what they're telling us is there's a lot of excitement. They see a once a day product that fits very nicely with the prostaglandins because they are both dosed at night so in essence, it's like a one time a day dosing schedule. They like the efficacy that Rhopressa was able to show in the Phase 3 trials and certainly like the very clean and well-tolerated AE profile. So there's a lot to like about the product and that's what we're hearing from the physicians and that's where they're eager to try it and certainly one of the places they'll try it is just an adjunct to the current medications.

[Serge Belanger:]

Okay. And just wanted to follow-up on Adnan's question regarding INS prescription tracking. Will the numbers we see reflect Rhopressa demand where we're sampling -- will it be compounded by sampling and other issues?

[Thomas Mitro:]

Yes, it will always be compounded by sampling, some sampling. But that will come out some time and I think the other thing is you've got to ask, does IMS cover the whole nation and every prescription? The answer to that of course is no, they don't cover everything. They may not cover closed or managed care plans, they may not cover all of mail order as an example. They just may not cover all of it. So it's always a good estimation, but it's never quite exact.

[Serge Belanger:]

Okay. And one last question regarding the pipeline. I think in the press release you mentioned three IND activities for two of your pipeline candidates. Do you expect both of them to be in the clinic by next year?

[Vincente Anido:]

Yes.

[Operator:]

Your next question comes from Serge Belanger with Mizuho.

[Difei Yang:]

Just a couple of quick ones from beta tracking perspective, do you think at some point we'll be able to tell the usage of Rhopressa whether it was used for single entity or in combination with others.

[Vincente Anido:]

Yes, I think you will be able to see that. I think it all depends on what databases you're buying but certainly we'll be able to get data showing how often we do it by itself or with combination or in combination with something else and what those combinations look like.

[Difei Yang:]

Does IMS give us all that data?

[Vincente Anido:]

Yes, it depends on what data -- how much of it you're buying.

[Difei Yang:]

Oh yes, that's true. So then the second question on cash. With $334 million, would you say this is adequate to get the company to breakeven point?

[Richard Rubino:]

Yes.

[Operator:]

And there are no further questions queued up at this time. I'll turn the call back over to Vince Anido.

[Vincente Anido:]

Okay, thank you. Want to thank everybody again for joining us this evening. We're obviously very, very excited about the progress that we've made, about finally getting to launch our first product. We look forward to the next quarters call where Rich will actually have to talk to you a little bit about revenues, hopefully, and hopefully that will go well. We are going to obviously be tracking very closely how our guys are going out there and certainly if any of those -- if preliminary feedback that we're getting is any indication, I think there is an awful lot of excitement about Rhopressa out there and then obviously we look forward to, on the next call, talking about the filing of Roclatan, the timing of that and our expectations and being able to more fully answer some of the questions that you all asked today. And again, as always, we'll continue tracking and describing to you more information about our pipeline. We are still very active on the business development front so throughout the year as things progress and come to conclusion and we are able to close something, we'll be able to report on that but again we see an awful lot of great opportunities out there because of the position we're in now with having full integration including a sales force. So again, I want to thank everybody for joining us today and have a good evening.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, you have a wonderful day. You may all disconnect.

[Vincente Anido:]

Thank you.