Aerie Pharmaceuticals, Inc.
Q3 2016 Earnings Call Transcript

Published: 3 Nov 2016

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Aerie Pharmaceuticals Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Today's conference call will be recorded. It is now my pleasure to turn the call over to Aerie's Chief Financial Officer, Rich Rubino. Please go ahead, sir.

[Richard Rubino:]

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, and Tom Mitro, Aerie's President and Chief Operating Officer. Today's call is also being Webcast live on our Web-site, 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, forecasts and guidance regarding our future financial and operating performance, cash burn, the success, timing and cost of our clinical trials, the timing of and our ability to request, obtain and maintain FDA or other regulatory approval of our product candidates, the clinical effectiveness, commercial launch and potential future sales of our product candidates, 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 differ 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 a result of new information, future events or otherwise. Please note that we expect to file our 10-Q later this week. 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 a reconciliation to the most directly comparable GAAP measures, please see today's press release which is posted on our Web-site. As a quick financial update for the quarter, our third quarter 2016 GAAP net loss attributable to common stockholders was $23.8 million or $0.81 per share, compared to $18.0 million or $0.69 per share for the third quarter of 2015. The net loss for the quarter includes non-cash charges for stock-based compensation expense of $4.1 million. When excluding the non-cash stock-based compensation expense, third quarter 2016 adjusted operating expenses for R&D and G&A totaled $12.0 million and $7.2 million respectively. Total adjusted net loss for the quarter was $19.7 million. The $19.7 million adjusted net loss or $0.67 per share compares to $14.6 million or $0.56 per share for the third quarter of 2015. Our cash burn for September year-to-date amounted to $62.4 million and we continue to guide to the $85 million full-year cash burn number I provided at our October 5th Investor Day. We closed the third quarter with over $255 million of cash, cash equivalents and investments on our balance sheet, reflecting our recent financing activity. Our share count as of September 30, 2016 amounted to approximately 33.4 million shares, also consistent with what I provided as guidance on Investor Day. With that, I will turn the call over to Vince.

[Vicente Anido:]

Thanks, Rich, and good afternoon everybody. Thanks for joining us today. This will be sort of a brief update since we updated you last week on our successful Rocket 4 efficacy results for Rhopressa as well as the expected timing for our Rhopressa NDA resubmission. Nothing really has changed from what we discussed last week. We are very impressed with how Rhopressa performed in Rocket 4, achieving non-inferiority to timolol, all the way up to below 29 mmHg, and certainly are focused on ensuring that when our product contract manufacturer is ready for their preapproval FDA inspection, that we'll be ready to file our NDA immediately. Now as I mentioned last week, that is expected to be in January of 2017. Now of course on top of excellent Roclatan IOP lowering we saw in Mercury 1, we also note how well Rhopressa performed in that trial, with statistical non-inferiority to market leading latanoprost at below 25 mmHg. So, overall we are very, very pleased with the way things have unfolded for Rhopressa and obviously with Roclatan. Now as I mentioned last week, at the end of every year we always have the option of filing any new information that we have either from completed trials or ongoing trials, like we did for example with Rocket 4 or Mercury 1, et cetera, but we have to decide whether we're going to file it to the IND or to the NDA at year-end. Our strategy was always to do that to the IND in terms of the data from Rocket 4 or Mercury 1, but as we said last week, since we now have a January resubmission date, we now expect that we'll add the data from both of those clinical trials, i.e., Rocket 4 and Mercury 1, certainly the efficacy data, short-term safety, we'll add that to the NDA when we re-file it. We'll file it as supportive data, making what's already a robust file even stronger. Now remember, while the Rhopressa NDA filing is expected to be delayed by about five months from the original filing date, assuming again that we file in January of 2017, the full-on commercialization of Rhopressa, if approved, is only expected to be delayed by two or three months. Our global strategy for expansion remains intact and consistent with what we discussed during our last Investor Day on October 5th. Rich and I will be visiting Ireland next week and hopefully negotiating a successful lease agreement for our own manufacturing plant in Ireland. This will be a major step in controlling our manufacturing capability in the future. It also makes perfect financial sense. You will recall that back in 2015, we actually migrated our ex-North American intellectual property offshore as we revised our corporate structure to align with our global business strategy. Now it doesn't mean that we're going to get rid of our contract manufacturers, it just means that we'll have more of the manufacturing under our direct control, as we do this plant in Ireland. A couple of weeks ago we attended the AAO and the Ophthalmic Innovation Summit meetings in Chicago, and I could tell you that the level of interest in our product candidates among ophthalmologists continues to grow. Our CMO, Rick Lewis, explained during Investor Day that there is significant need for new medications for the treatment of glaucoma and ocular hypertension, and the ability of our products to target the diseased tissue and drive pressures down to low normal levels have proven intriguing to the physician community. And that was before our recent success with Rocket 4 readout on Rhopressa. Now as we continue to explore other things that Rhopressa can do, we now have positive news on another potentially novel feature of the product, its ability to lower intraocular pressure at night while you're sleeping in a lying down position which normally causes intraocular pressures to climb. You may recall that we've always talked about the 8 AM time point in all of our clinical studies being the highest pressure of the day, and that's because the patient has been sleeping most of the night. So when they come in to get tested, that's a pretty high pressure. So, what we've done is, we do a lot of probe study, we did a small-scale, placebo-controlled pilot with eight subjects on Rhopressa and four on placebo. The study lasted about a week. We measured intraocular pressure for 24 hours, four of them during the night, we did 9 PM, midnight, 3 AM and 6 AM, and four time points during the day, 9, noon, 3 PM and 6 PM. Now, in that study Rhopressa met the primary efficacy endpoint demonstrating statistically significant change from baseline to the nocturnal intraocular pressure. It reduced the nocturnal intraocular pressure by 3.5 mmHg versus placebo only 0.4 mmHg. Now, the important thing, and probably even more important, is the fact that the way that we lowered pressure at night, that nocturnal IOP lowering efficacy, was actually equal to its efficacy during the day. If that holds up in larger clinical trials, that's a big deal, that's certainly a new news that we haven't seen for any other ophthalmology product. The first patients – the reason all of this is important is not only because the pressures are higher while the patient is sleeping, but it's also because most folks end up sleeping for a big chunk of the day. And so we don't want to see an awful lot of variability in a control of that pressure because it obviously – if the pressures go up, it obviously impacts the additional pressure on the optic nerve, which is how they end up losing eyesight. You want that medication to lower intraocular pressure for a full 24 hours, not just during the day, which is what Rhopressa showed in this 24-hour study. Now secondly, a number of studies have shown that currently available glaucoma medications are either less effective or not effective at all at lowering intraocular pressure at night. For example, there was a study done back in 2004 by Dr. Weinreb of San Diego where timolol only lowered nocturnal intraocular pressure by 0.3 mmHg and latanoprost only by 2 mmHg. Now obviously both of those drugs work much better during the day. So again, if our drug can work equally well at night as during the day, that becomes a big deal for us. So, with so much success under our belt, we now set our sights on 2017 with the expected Rhopressa NDA resubmission in January of 2017. We also have the Mercury 2 readout. Remember that's a 90-day Roclatan efficacy trial which will be the second of the two pivotals that we have for Roclatan. We'll also have the six-month Rocket 4 readout expected in Q2 of next year. So, both Mercury 2 readout and Rocket 4 the six-month readout would be in the same quarter. We'll start the Mercury 3 trial, which again is for European purposes as a comparison trial of our drug Roclatan with a known combination in Europe. That's starting in the first half of next year. And we expect to file the Roclatan NDA towards the end of 2017. Now, on the preclinical front, we remain excited about the prospects for our molecule, AR-13154, for wet AMD and it is our intention to proceed rapidly in further understanding this promising molecule which reduces the lesion size in wet AMD models through inhibition of Rho kinase and protein kinase C. We're also making good progress in evaluating a couple of different delivery technologies to deliver our product candidates to both the front and to the back of the eye. Wrapping up, as Rich pointed out, we're now very, very well-financed. We're in an entering launch mode, and as you heard during Investor Day, we've got an awful lot of activities going as we get ready for commercialization in early 2018. That pretty much sums up all the progress we've made to-date, and with that what I'll do, I'll turn it over to the operator for any questions that you may have.

[Operator:]

[Operator Instructions] Your first question comes from the line of Adnan Butt from RBC Capital. Your line is open.

[Adnan Butt:]

Two questions, first on the NDA re-filing, why not re-file with R4 and R2 as the pivotals instead of supportive for R4? Is it because the study isn't complete or is there another reason?

[Vicente Anido:]

So it's really that, and thanks for calling in, because Rocket 4 in its entirety won't be over until after we get the six-month safety data. It's really not going to be ready here sometime in later Q2 where we'll have top line for Rocket 4. But the new regs are that we have to submit the CFRs in there, and that takes a few more months. So it would really push off the resubmission pretty late. And frankly, as we've said before, we think we have a robust data set with both Rocket 2 and Rocket 1, we've had that discussion with the FDA, we think that the efficacy data for 90 days that we have now with Rocket 4 along with the 90 day efficacy data we have Rhopressa in the Mercury 1 study, both of those will simply show the FDA that Rocket 2 and Rocket 1 were very successful. So again, that's why supportive is all we need right now.

[Adnan Butt:]

Okay. And then one on the earlier stage pipeline, for 13154 or EG-30, when do you expect those to get closer to the clinic?

[Vicente Anido:]

I think that for 154 the big thing right now is that we've got zeroed in on the level of activity that it has. We sent it out to a number of different drug delivery companies that we're using to test to see which one makes the most sense for us. For all of these chemical structures, you have to pick the right delivery system because there is no one delivery system that works on every chemical structure. And so, we're doing all the testing, we do have a target that we're trying to show that it will work for six months, and so once we get close to that, we'll be able to start doing the talks, enabling trials, et cetera, et cetera. And so, it will probably be probably 18 to 24 months to get it into the clinic.

[Adnan Butt:]

Okay. I'll get back in line. Thank you.

[Operator:]

Your next question comes from the line of Annabel Samimy from Stifel. Your line is open.

[Annabel Samimy:]

I want to better understand the nocturnal IOP lowering. Is this something that you think is very specific to Rhopressa or is it just a matter of how the regimen is administered? I mean if you think about timolol, it's given several times a day and at night. If you think about the prostaglandins, they are given in the morning. So is it just a matter of the timing of when the drug is administered and is it fair to make a comparison to the others if you haven't really seen a similar type of administration profile?

[Vicente Anido:]

The nice thing about this, Annabel, is that there aren't too many sites in this country that actually do these night-time studies. And so, while we don't have direct comparisons vis-a-vis any of these other products, their activity at night is pretty well known. First of all, none of these drugs, we don't think the regimen has anything to do with it because both Rhopressa as well as latanoprost and all the prostaglandins are dosed at night, timolol is dosed both at night and in the morning. And so the common element is everybody gets a night dose. So, the fact that there is nothing going on with timolol, and frankly with Alphagan as well, tells you that it's really that there's a natural suppression of the development of aqueous humor, which is where they work. They actually decrease the amount of fluid being produced. And so, at night when you're asleep, that's shut down – I shouldn't say shut down, but certainly diminished considerably. And so, there's not a whole lot of pressure being created by that. So it's really more of the positional issue that's creating the pressure. With latanoprost, we don't really know why it doesn't work so well at night. All we know is that during the day, it's not unusual to see an IOP drop of 6 mm or 7 mm off the baseline, but at night with the same IOP baseline you only see about a 2 mm drop. And so, again, we're not 100% sure why that is. But certainly the important feature for us is that we worked equally well whether at night or during the day. So it's more consistent control.

[Annabel Samimy:]

And how big a selling point would this be for a physician? Is this something they focus on regularly because it's not like they are measuring IOP pressures at night that often?

[Thomas Mitro:]

It's Tom Mitro. So, yes, it will be a very big selling point for physicians because it just makes good sense to them that they want 24 hour control. They know that it's been said well you can't get it with today's therapy or can't get it consistently with today's therapy. So to have this point of differentiation, that's the key thing, differentiation, will be a big selling point for Rhopressa.

[Annabel Samimy:]

Okay. And if I could just ask a follow-up question, so with the resubmission of your NDA in January, how does that change I guess the competitive development landscape for you? I mean now that another competitor, I think Inotek, is releasing Phase 3 data towards the end of the year, so maybe a pivotal data, so does that put them in a more competitive position against you as you might be sort of emerging in the marketplace at the same time, maybe you can comment on how this changes the competitive landscape for you?

[Vicente Anido:]

As you know, we've read all of our clinical trials in parallel, and so we think that the NDA filing being in January is only going to push us back two or three months from the actual launch. It's our understanding that not only Inotek but some of the other drugs that are being studied really are just further back. My understanding is that Inotek is still focused on serial development, meaning they're going to finish this first trial and then start their clinical trials. And so, by the time we still get on the market, they will not have finished their clinical trials, and so they will still be 18 to 24 months behind us in the marketplace.

[Annabel Samimy:]

Okay, so they are not pivotal, they are not in pivotal stages right now?

[Vicente Anido:]

All we know is that it is a Phase 3 trial but it is dose-ranging. But that's all I could tell you that they are waiting for that before they move into their next set of trials.

[Annabel Samimy:]

Okay, great. Thank you.

[Operator:]

[Operator Instructions] Your next question comes from the line of Serge Belanger from Needham & Company. Your line is open.

[Serge Belanger:]

Just one question on Rhopressa. In the past, you've talked about it as playing a role of an adjunctive treatment. Has that changed now that you've seen some pretty solid data from Mercury 1 and both Rocket 4, and should we expect additional small studies such as the nocturnal one that you are reporting tonight, additional studies that further differentiate Rhopressa from what's out there in the market?

[Vicente Anido:]

I'll let Tom answer the first part of your question, but on the second one, yes, we do expect to continue to do additional studies. We'll take the night-time study that we did, we're obviously looking at expanding that, maybe looking at multiple different sites and an increase in the number of patients, et cetera, because we do think it's a big deal, especially if we can get the exact same data readout that we just got. And so, you can expect some more news down that path. But let me turn over to Tom for the first part of your question.

[Thomas Mitro:]

So, no, our positioning is not changed. I will say this that the positioning resonates very strongly with physicians. They clearly believe that Rhopressa has a wonderful chance of becoming the standard adjunctive therapy to prostaglandins in displacing today's current therapy. There is though a line of thought from physicians to try to pull Rhopressa into first line therapy. By the way, that's a positive thing. And of course the reason they do that is because Rhopressa performed very well against latanoprost, as you know, in the Mercury trial as well as our previous Phase 2b trial showing non-inferiority to latanoprost, which is a great thing, and then also as they learn about the preclinical work that we've been able to complete showing things like the anti-fibrotic effect that Rhopressa has, it's infatuating to them and they like that benefit. So that's the answer. It is, our positioning hasn't changed, but as time goes on, there will be a chance to perhaps move it somewhat into first-line therapy, but not immediately upon launch.

[Serge Belanger:]

Okay. Thanks.

[Operator:]

Your next question comes from the line of Difei Yang from Aegis Capital. Your line is open.

[Difei Yang:]

So with regards to the NDA filing, would you describe, give us a little bit more color with regards to the problem at the third-party manufacturer and how much do they have at stake such that they will not [indiscernible] the January 2017 deadline?

[Vicente Anido:]

In discussions that we've had both with the FDA and our third-party contract manufacturer, it looks like everything seems to be in line with their ability to accept the preapproval inspection on our drug sometime in the January timeframe. And we think they do have an awful lot on the line, not only because it impacts our product and they know that they are primary contract manufacturer, but they also make an awful lot of other products for themselves out of that same line and they do have another product on their own that is being held up for the same reasons. And so, they have an awful lot to lose not just on our product. So that's why – and certainly everything that we've seen, the discussions we've had with the plant management and the QA folks there and the discussions we've had with the FDA lead us to believe that we're on solid footing at this point relative to a January re-filing for ourselves.

[Difei Yang:]

Okay, thank you. So just to follow up, would it be right or correct to assume the manufacturing issue is not product specific, it's not Rhopressa specific, it is more of a general issue that happened with that line that happen to be, will be used to make Rhopressa?

[Vicente Anido:]

That's exactly right. It has nothing to do with Rhopressa. We went back to all the manufacturing records on the batches that we made through there. There was no inkling of anything that went wrong with the manufacturing of our product. And so this is purely driven by the fact that when we re-file the NDA, when we file the NDA, we have to certify that the plant is ready for preapproval inspection, and at the end of the 60-day period we could not say that they were ready. And so it's purely – it has nothing to do with our product.

[Difei Yang:]

Okay, thanks. And then the next question is about the sales force buildout. I remember, Vince, you had talked about you are going to wait for the NDA approval before building out the sales force, and how long do you see that wait time will have to be?

[Thomas Mitro:]

We think that we'll get the NDA approved as you know early in the first quarter of next year, right, because we'll file this January, so we're looking for a year from now, a year from January to get approval. From approval, we believe it will take us three or four months to fully build our sales force, have them trained and out calling on physicians.

[Difei Yang:]

Okay, thanks. And then just a follow-up, if I work out the timeline, at that time Roclatan is almost approved. So, would it make any sense to just launch both at the same time?

[Vicente Anido:]

Difei, the way that we're currently describing the submission for Roclatan, it will be submitted now about the same time that we would get approval for Rhopressa, so it will be towards the beginning of 2018, it will be – we've always talked about Roclatan NDA being submitted at the end of 2017. So, it will still be roughly a year behind.

[Difei Yang:]

Okay, thank you.

[Operator:]

There are no further questions at this time. I would now like to turn the conference back over to Vince Anido, Chairman and CEO, for final remarks.

[Vicente Anido:]

Thanks again to all of you for joining the call today. As I mentioned last week on our Rocket 4 call, it's important to pause and think about how much data we now have on Rhopressa alone. We have nearly couple of thousand patients that have gone through our clinical trials to date on Rhopressa, and also we look forward to our next key milestone for Rhopressa, which is obviously the expected resubmission in January of 2017. Now, after that, we look forward to the Rocket 4 six-month top line safety during Q2 of 2017. We're also as you know – we described building from our library a Roclatan clinical data on top of successful Phase 2. We've got the Mercury 1 90-day efficacy we've already talked about. Mercury 2, the second registration trial for Roclatan, is well underway and we expect the 90-day efficacy data readout sometime in Q2 of 2017, followed later in the year with a 12-month top line safety for Mercury 1. Now remember, we'll need all of that in order to be able to file the NDA for Roclatan towards the end of 2017. And we also at the beginning of the year, in the first half, we expect to commence Mercury 3, which is the European trial for Roclatan in the first half of 2017. And so we still have an awful lot to do. We're very, very pleased with the progress that we've made to date and expect to continue being able to hit our milestones and move the Company forward. So again, thanks to all of you for joining and have a great evening.

[Operator:]

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