Aerie Pharmaceuticals, Inc.
Q4 2016 Earnings Call Transcript

Published: 8 Mar 2017

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Aerie Pharmaceuticals Fourth Quarter and Year End 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 floor over to Aerie's Chief Financial Officer, Rich Rubino. Please go ahead.

[Richard Rubino:]

Thank you, Charlotte. 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 our 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, 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 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-K 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 year, our full year 2016 GAAP net loss attributable to common stockholders was $99.1 million or $3.40 per share. The net loss for the year includes non-cash charges for stock-based compensation expense of $16.8 million. When excluding the non-cash stock-based compensation expense, 2016 adjusted operating expenses for R&D and G&A totaled $48.6 million and $31.5 million respectively. Total adjusted net loss for 2016 was $82.3 million. The $82.3 million adjusted net loss or $2.82 per share compares to $61.4 million or $2.38 per share for full year 2015. For additional information regarding our fourth quarter 2016 results, please refer to today's press release. For additional information regarding our full year results please refer to our Form 10-K again to be filed later this week. Our 2016 cash burn was inline with our guidance at $85 million. We ended 2016 with over $233 million of cash, cash equivalents and investments and our preliminary guidance for 2017 is to burn approximately $100 million of cash. Also to help you with our non-GAAP measures, we expect to incur approximately $25 million in non-cash stock-based compensation expense in 2017, which will be included in our GAAP expense, but is excluded from the $100 million cash burn guidance. In comparing 2017 and 2016, we expect expenses to be essentially flat year-over-year with an increase of approximately $16 million of capital expenditures layered on top in 2017. Our clinical expenses are declining in 2017 as we wind down our U.S. based trials and offsetting this decrease, our planned increases and commercialization and scale-up expenses in 2017 including build-up commercial product supply and growth of our medical affairs team along with the addition of sales and managed care leadership. The $16 million in capital expenditures it is mentioned relates to the build out of our new manufacturing plant in Athlone, Ireland consistent with what we disclosed in our January 9th Ireland plant press release. Other initiatives included in our 2017 guidance are Roclatan and Mercury 3 trial, which is schedule to commerce in mid-2017 in Europe and the commencement of clinical activities as we pursue regulatory approval for Rhopressa in Japan. With that, I will turn the call over to Vince.

[Vicente Anido:]

Hi. Thanks Rich and good afternoon everybody and thanks for joining us today. The most important recent news and very good news that is that we refiled our Rhopressa NDA just right around a week or so ago as we previously discussed the filing not only included pivotal data from Rocket 2 and supportive from Rocket 1, but also we were able to include in the NDA filing data from Rocket 4 and Mercury 1. Our ability to add the supportive data was to rely and the delay with the refiling especially considering Rhopressa performance in Rocket 4 as well as Mercury 1, which is very, very solid. Release of these additional data, we believe our NDA filing is even more robust than it was previously. As we said before, after 2000 patients has been exposed to our two product candidates in the clinic, it has only provided us with a real strong understanding of the product profiles for both Rhopressa and Roclatan. We do expect the FDA to conduct a 12-month review which is standard draft from the date of refiling and if Rhopressa is approved in the first quarter of 2018, we would expect to have our full U.S. sales force in place by the end of the second quarter of 2018. Just a reminder, this year we are going to do an awful lot of the commercial prep work as Rich has already mentioned, but we don't start hiring anybody for the sales force until we actually get the approval letter from the FDA. And as Rich has mentioned, we are building our medical affairs team in 2017 and also adding some key folks on the commercialization side specifically we are adding a VP of managed care who work directly with the medical affairs team calling on the various managed care plans around the country and we will also bring in a VP of sales as well. And all of this in order to ensure that we do everything that we can to be prepared for a successful 2018 launch for Rhopressa. Now, regarding Rhopressa, we continue to learn more and more about this molecule. Last year, we shared with you the result of the 24-hour pilot study, which we saw that Rhopressa lower intraocular pressure consistently around the clock. Now, the importance to this as you know is that timolol doesn't work particularly well at night and prostaglandins and their overnight studies appear to work about half as well at night as they do during the day. And so you can imagine from a differentiation point of view, if we are able to continue to see these kinds of result in overnight studies Rhopressa will be well differentiated as perhaps the only product that works equally well at night as during the day. Well, recently in fact just a few days ago at the American Glaucoma Society Meeting, Dr. Arthur Sit of the Mayo Clinic presented data; the results of the mechanisms of action study conducted in 10 healthy human subjects with Rhopressa. At the meeting, Dr. Sit reported that has previously seen in preclinical models Rhopressa meaningfully increased its outflow through the trabecular meshwork and reduces episcleral venous pressure in Humans. And it may also reduce fluid production as seen in his study. Other trabecular outflow drug currently under clinical development Rhopressa is the first to demonstrate the ability to increase trabecular outflow in humans. Dr. Sit's presentation is available on the research section of our Aerie Web site. Now, looking forward to the second quarter of this year, we are expecting a lot of different things not the least of which are two trial -- clinical trial read-out. The first is six-month read-out from Rocket 4. Remember that Rocket 4 is designed to provide adequate six-month safety data for approval in Europe, but we do need at least 300 patients on drug for six months, in addition to what we need here in the U.S. which is a 100 patients on drug for 12 months. As you recall, the 90-day efficacy results for Rocket 4 that we read-out in October of 2016 were quite positive where Rhopressa achieved non-inferiority to timolol up to the specified range of about 20 millimeters of Mercury to below 28 millimeters of Mercury and was successful all the way up to 29 millimeters of Mercury as well. The 90-day efficacy results for the Mercury 2 study read-out are also expected in the second quarter of this year. Mercury 2 is the second of the Phase III clinical trials for Roclatan and its only 90 days in duration. The Mercury 1 study, you may remember is a 12-month Phase III safety trial and we released a positive top line data from that trial in September of last year. We do expect top line 12-month safety and efficacy data for Mercury 1 in Q3 of this year. And again, this is a remainder, the only difference between the protocols for Mercury 1 and 2 are that in Mercury 1, we held on to the patients over a longer period of time to get the 12-month data and Mercury 2, it's only a 90-day efficacy trial. The rest of the study, the Mercury 1 and 2 are identical in structures as I mentioned the same enrollment criteria, same competitor et cetera and so we are looking forward to see the result of Mercury 2 in Q2 as we mentioned. If Mercury 1 and 2 are both successful and we do expect to file the Roclatan NDA either late this year or early in 2018, which maybe prior to obtaining the approval for Rhopressa. In addition, in this quarter, or in second quarter our Mercury 3 trial for Roclatan is expected to commence in Europe and Mercury 3 is not needed for the U.S. at all -- certainly not needed for the NDA filing of Roclatan. Mercury 3 will be a non-inferiority trial comparing Roclatan to another widely prescribed fixed dose combination that is available in Europe, it's called Ganfort, which is a combination of the Bimatoprost along with timolol, its marketed by Allergan in Europe. And we think that having that combination do a non-inferiority against that, it's the perfect way to cap-off our clinical development program for Roclatan. As we have discussed in the past, combinations are far more important in Europe than they are anywhere else in the world and certainly far more oriented towards combinations in Europe than they certainly are in the United States. Now regarding Japan, we recently held a meeting with their PMDA, which is their equivalent of their FDA to further discuss the studies that are necessary to gain our regulatory approval. This path is not materially different than what we had previously understood and communicated with you and that we expect to commence our clinical programs for Japan later this year. We do plan to initiate Phase I and II enrollment in the United States on Japanese patients later on this year and we did get agreement with the PMDA to do both of those Phase I and II trials here in the United States. Sometimes towards the end of 2018, assuming we get positive result in Phase I and II, sometimes in 2018 to the back end, we do expect to commence Phase III trials in Japan. Also briefly on a pre-clinical front, we remain very, very excited about the prospects for our product AR-13154 for the treatment of wet AMD and in prior animal studies, we shown to reduce the lesion size in wet AMD models through the inhibition of Rho Kinase as well as Protein Kinase C. We also continued to make good progress in valuating different delivery technologies to deliver our products to both front and back of the eye. So we are excited about looking for something for Rhopressa, there is an intracameral injection for the treatment of Glaucoma in front of the eye hopefully something that lasts about six months. And for AR-13154 for wet AMD, we are expecting to find a drug delivery system that we deliver that small molecule for the back of the eye for the same period of time. That pretty much sums up our current progress to near term milestones for now. And with that, I will turn the call over back to the operator.

[Operator:]

Thank you [Operator Instructions] And it looks like our first question comes from the line of Annabel Samimy from Stifel. Your line is now open.

[Annabel Samimy:]

Hi. Guys, thanks for taking my question. Really quickly the launch of Rhopressa, I don't think you might launch -- since the launch of Rhopressa and Roclatan we are going to possibly fall close together, where you potentially going to wait for Rhopressa launch, hold-off the Rhopressa launch, the Roclatan, can you just talk about the launch plans a little bit, I have vague memories that you might have been doing that? And then, the second thing was the -- I guess the landscape now seems to be possibly going to be changing within about a year or so. I know there is some competitive players coming in. But it is also, I mean that's long acting for Bimatoprost, I know these are not novel mechanisms, but how do you feel the landscape playing out with several entrants coming into the space at the same time? Thanks.

[Vicente Anido:]

So Annabel, the timing of the Rhopressa launch versus Roclatan in the U.S. really hasn't changed much at all. We do think that Rhopressa will get approval some time back this time next year. And we have always expected Roclatan to be about a year or later. So, that's never been an issue. We never thought about holding up the Rhopressa launch to launch Roclatan first, which you maybe thinking about is that because of pricing considerations in Europe, we do expect to get Rhopressa approved there over the next year or two, or year-and-a-half and we will hold up the launch in Europe until we get the launch of Roclatan under our belt. So, we get that approved and priced because we think the Roclatan in Europe will be the far more interesting product. And so that maybe what you are thinking about.

[Annabel Samimy:]

Yes. Thank you for reminding me now again. Now, I understand why I was thinking it. Okay, thanks for clarifying that. And just on the competitive landscape then?

[Vicente Anido:]

As far as competitive landscape, there are some products that are coming out certainly, the first one will come out, it's probably the Valeant /B&L product called Vyzolta, which is latanoprostene bunod and certainly we have had now our eye on that for a while. And it was a product that was discussed at the recent American Glaucoma Society Meeting. The clinical trials, the Phase III trials indicate for that drug that it -- that it was not inferior to timolol, which is exactly the same kind of clinical trial what we did. And the results were not dramatically different than the results that we are seeing years and years ago when latanoprost did a similar trial showing non-inferiority to timolol. And so while, I'm sure that the company is going to be trying to make hay with a number of different things and mechanistically and things like that they are trying to find some niche for it. At the end of the day, given the feedback that we got or that we heard at the Glaucoma meeting, is that, it's just simply another prostaglandin and it will be branded prostaglandin competing in a generic space. And so, it will have their handful when it relates to that. Even if they are successful, we don't think that's a bad thing for us because remember we have shown synergism of our product, Rhopressa to prostaglandins and so we would fully expect, so we will have synergistic effect with latanoprost. And so, we don't think that it will muddy the marketplace at all, it's a segment that, we think will be crowded on either prostaglandin market and we have to go after that. On the Bimatoprost injection that they are working on certainly, we think that's something that for some patient makes an awful lot of sense. We have done a quite a bit of work because obviously, we are interested in similar thing for Rhopressa and look at intracameral injection that lasts up to six months. We are keeping close tabs on the clinical trials that have been done for that particular product i.e., the Bimatoprost in-plant. And certainly, they are looking like they can get efficacy in three months and little tougher after that. So, we do think there is a sub-segment of patients where that product could be useful, but we don't think it takes over the market much at all.

[Annabel Samimy:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Adnan Butt from RBC Capital Markets. Your line is now open.

[Adnan Butt:]

Hey, thanks folks for the question. First on Rhopressa, can you share with us if the facility has been inspected yet by the FDA or if there is an inspection planned?

[Vicente Anido:]

So, the [indiscernible] facility that we are going to make Rhopressa, it was obviously having issues before which is why we had to pull the MDA and refiled it. So, all we know for sure is that they are currently ready to be reinspected because we had to be able to certify that before we file the MDA. But, the FDA doesn't have to tell you when they are coming in for an inspection. And so, we don't know when that plant will be inspected. History tells us that at least for Rhopressa, but it's typically in the back half of the 12 months of a review that the plant or the pre-approval inspection occurs but again in this particular situation, we just don't know.

[Adnan Butt:]

Okay. And then, shifting to Roclatan, for the M1 study, Vince you are following safety data up to 12 months, or you will also look at IOPs, and then, visual store metrics would you update us in the third quarter, if any?

[Vicente Anido:]

In the third quarter, again, the primary use for this particular clinical trial are the extension of Mercury 1 is for safety. And so while we are -- but like anything else and any other studies we have been doing, we are tracking efficacy all the way out there. And so as we have done in the past, we will be open about sharing information on the product that the primary use of the data or the extension of the clinical trial was for safety.

[Adnan Butt:]

Okay. And just post-approval type of a question, do you see [indiscernible] that therapy at all and if they do decide do it, how that be addressed, will it be pair level or the replenishing level?

[Vicente Anido:]

Adnan, I'm sorry. You broke up a second. What was your question again?

[Adnan Butt:]

If players, if there is any possibility that could institute steps therapy and if they do, how to address that either at the pair level or at the replenishing level?

[Vicente Anido:]

Well, certainly, we talked to managed care now since about 2012 and certainly things like step therapy and prior authorizations was not been part of the discussions, they just don't think its necessary. By default, products like Rhopressa do go through step therapy in a sense that, the majority of the patients they go on a second drug are those who -- where the prostaglandin was unable to hold their pressure or get it down to the level that the doctor felt was important. So, we have somewhat of a built-in step therapy anyway. And so, we just again based on all discussions we have had, we just don't think that that's going to be a particular issue for us.

[Adnan Butt:]

And can I get one for Rich, maybe the SG&A Rich, what are the components this quarter that sort of drove it up, and is that kind of the trend lines to expect for 2017? Thanks.

[Richard Rubino:]

Right. So, when you look at G&A for just the quarter, looking at the same quarter last year excluding stock-comp it was up about $6 million. The vast majority of that increase was really product manufacturing, commercial manufacturing for Rhopressa. And you see that same increase sequentially as well. So, this is commercial inventory that we are building, but because the product is not yet approved, we are not putting it on the balance sheet as inventory. So, you see it coming through as expense.

[Adnan Butt:]

Understood. Thank you folks.

[Richard Rubino:]

Thank you.

[Operator:]

Thank you. Our next question comes from the line of Serge Belanger from Needham & Company. Your line is now open.

[Serge Belanger:]

Hi, good afternoon. First question is a follow-up on Adnan's question regarding the B&L facility, you could come from if you think the facility will see its first inspection as part of the Rhopressa MDA review. Or do you think the FDA will be inspecting prior to that?

[Vicente Anido:]

It's only a guess on our part Serge and good afternoon. So, we think that, if you just look at the metrics, they actually refiled the latanoprostene bunod, not refiled, but they actually send in a file answering the complete response letter issues regarding the manufacturing. And so, if I'm not mistaken, the timelines of responding to CRL is six months. And so that means that in all likelihood, the inspection for the latanoprostene bunod which is by the way caused all the problems at this facility in the first place, should take place in that six month period. And what we really don't know is whether it's part of bad inspection, they will also take a look at our manufacturing Rhopressa there or whether they will just simply do it on their normal course, which again, there is no way of knowing, but typically they have done that in the second half of the 12-month period during a standard review process.

[Serge Belanger:]

Okay. And I guess for 2017, the ramp up in commercialization is actually focused on, if you could talk about some of the recent hires you have done for the team and I know you mentioned of the couple of positions that also need to be filled between now and at the end of the year? So, I guess you can also talk about some of the pre-commercial activities you are planning?

[Vicente Anido:]

Sure. So, I will let Tom sort of fill in the details for 2017 since most of the folks report to him. As you know, we did hire Robert seem to be our Chief Commercial Officer towards the end of last year, comes with great experience with both the J&J as well as [CelCon] [ph]. And so, she has been leading the effort along with the fact that last year, we also hired in medical affairs, someone out of Shire. And Beth Schultz actually is running our medical affairs team. So we started setting the stage with those two hires at the end of last year, let me turn it over to Tom to talk about our plans for this year.

[Tom Mitro:]

Sure. So, we will be filling out the rest of the organization through the remainder of the year especially in the area of marketing, product marketing and strategic marketing as well as, as Vince has mentioned also our managed care organization both in the marketing as well as from the sales standpoint. So, now doing with people, what we are doing certainly from the organization standpoint is, getting a very good success putting presentations on podiums. If you look at the American Glaucoma Society that Vince mentioned, if you look at [indiscernible] and the American Glaucoma Society, all that will occur in the next -- just occurred or will be occurring in the six weeks or so, we will have eight or -- we have eight different podium presentations and five different poster sections on our product. So, just getting fantastic receptivity by the organizers of those committees to get these new products some awareness from the podium as well as from the poster sessions as well. And we will be continuing that throughout the entire year.

[Serge Belanger:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Dewey Steadman from Canaccord. Your line is now open. Pardon me Dewey Steadman, your line is now open. Dewey Steadman, can you check your mute button

[Vicente Anido:]

We can move on.

[Operator:]

Okay. Our next question comes from the line of Donald Ellis from JMP. Your line is now open.

[Donald Ellis:]

Thank you. Good afternoon guys.

[Vicente Anido:]

Hey, how are you?

[Donald Ellis:]

Couple of quick questions. There is no reason to believe that in the manufacturing preparedness issues with Rhopresso will cause any impact on Roclatan? And then, secondly could you give us maybe an update on what's going on with GrayBug? Thanks.

[Vicente Anido:]

So, Rhopresso and Roclatan are both manufactured at same facility, the plant in Tampa that obviously went into have the issues. And so, we are pretty comfortable with that. everything has been addressed in that facility and so the impact on Rhopresso, like I said, we are done with that issue. And we are doing our site with Roclatan. We did make some batches at B&L facility, while some of the issues were occurring and so but we plan on making three fresh batches. I know every -- all of the equipment is put in place and so that's why when we talk about the approval, we are talking about anywhere from the end of this year to the beginning of this year because we think we have enough stability on a number of different batches there to show that we have got 12 months stability without having to make these three batches but we do think making three fresh batches, sort of after its all set and done especially -- the product is going to be the largest one, make all the sense in the world because that will obviously the longest dating opportunity that we can have, should the drug get approved year or so after we submit. And so, it did have some impact we did make the batches at the same time, as they were having these issues. But, we are hoping to solve that by just simply making three fresh batches.

[Donald Ellis:]

Okay. And then, any update on your partnership with GrayBug?

[Vicente Anido:]

I'm sorry. On GrayBug, we reported back a little while ago [indiscernible] kick the tire deals, the things that we are going to go in and out of. And GrayBug was one of those. And so, GrayBug, we think has great technology for our products that we were trying to get through there. There was an interaction of our drug with [other pharma] [ph]. So, we decided that it just didn't make any sense to continue to pursue that because we would have to pick other molecules in our library that we didn't think were the best ones for us pursue. So this continued effort on both 154 and Rhopressa at GrayBug.

[Donald Ellis:]

Terrific. Thanks a lot.

[Operator:]

Thank you. Our next question comes from the line of Difei Yang with Aegis. Your line is now open.

[Difei Yang:]

Hi, good afternoon. Thanks for taking my question. I was just wondering, if you can talk about the night time IOP control versus the longer term clinical benefits? And if you were to take the study with the objective of eventually get into labeling, what does it require?

[Vicente Anido:]

Hi, Difei. We are obviously pretty excited about the results that we got for the night time study. When we first rolled those results out, showing that we were just as well at night as we did during the day to our clinical SAB. They were ecstatic and certainly felt that given that is only approach study, the results were really just first rate and certainly better than anything they have seen with any drug. And so what the recommendation was and we are going to pursue it, is that we go ahead and do a larger study. And so by that we mean, we will be looking at multiple sites and looking at night time control of intraocular pressure with our drug. And so, in parallel, we will talk to the FDA about what it's going to take to get the drug or the results of these trials put on the label. Certainly historically we haven't seen any moment from the FDA, half of their stance that for Glaucoma medication that goes on the label is, the principle studies that you do for your primary endpoint. So, it's a pretty general and pretty standard label. So, I'm not sure we will be able to get it quote on the label, but its certainly a study that we think that if we expand a number of site and increase the number of patients, then we should get -- be able to get published. And so we will be able to disseminate that in a proper way to physicians.

[Difei Yang:]

Okay. Thank you. And then, turning to the study in Japan, would you tell us -- would you talk about how much it will cost from Phase I all the way to Phase III and how many patients you might need for the pivotal trials?

[Vicente Anido:]

We are not 100% sure about the total number of patients, what we do know is that the Phase I study will probably be 20 patients or so in the United States on Japanese patients. For Phase II, we are looking at two or three arms and again, not very many patients maybe 60 to 70 per arms, you are looking maybe 180 to 200 patients. And then, in the Phase III trials, we are looking at doing one efficacy and one safety. But, some of that may in terms of the size and the number of patients may change depending on what we find in Phase II studies. We have caused out our sort of our best guess total patients for Japan and we think that their total cost development of our Rhopressa in Japan is between $25 million and $30 million.

[Difei Yang:]

Okay. Thank you, Vince.

[Operator:]

Thank you. Our next question comes from the line of Corey Davis from Wainwright. Your line is now open.

[Corey Davis:]

Thanks. This is probably for Rich. Can you remind us, how much you have left in NOLs and when you expect you might start paying tax and when you do, what do you expect a steady state tax rate to be? Also, like when you would expect your own manufacturing facility to be online?

[Richard Rubino:]

Okay. Manufacturing facility online by the end of 2019, early 2020. Regarding NOLs, you will see in our 10-K that we have federal NOLs at the end of 2016 of approximately $100 million. We would expect to have our first full year of tax obligations probably in 2020. And the tax rate -- effective tax rate, you should expect when are domestic only is about 35% because we have implemented a state income tax strategy that should mitigate the majority of the state income tax burden. And once we are global, our effective tax rate by the middle of say around 2025 or so, should be potentially below 30% when we take full advantage of the extent what the American IP migration to Cayman and Ireland.

[Corey Davis:]

Okay. Thanks. So, with $230 million in cash, internally, is any of that allocated towards BD activities or do you think you are going to need the most of that, just to fund the launches of both Rhopressa and Roclatan?

[Tom Mitro:]

So, right. We are opening the year with $230 million. We know we're going to spend on the aforementioned R&D and SG&A activities about $100 million. We also having that $100 million guidance what we are doing in Japan vis-à-vis starting our Phase I and Phase II work, and obviously, starting Mercury 3 for Europe. We haven't earmarked anything material for BD at this point, we will take it has it comes. As Vince said earlier, we have had a kick the tires approach to the various BD opportunities we have experienced thus far. We will continue with that. And if something comes up, we will deal with it perspectively.

[Corey Davis:]

Okay. That's all I had. Thanks very much.

[Operator:]

Thank you. Our next question comes from the line of Sa'ar Yaniv from ROTH Capital. Your line is now open.

[Sa'ar Yaniv:]

Hi, guys. Thank you so much for taking my questions. I appreciate it. Regarding the third party manufacturing facility, I know that you guys have also spoken in the past about a secondary sort of back-up facility. I wanted to know, if you have had any kind of information on that?

[Vicente Anido:]

Yes. Hi. Vince here. So, we have probably 18 or probably 24 months ago, we started putting a second manufacturing facility in place not because of the bad time, we were thinking if something was going to go wrong at B&L just because we thought that given the size of the products, we thought it was exactly the right thing to do and Thank God we did. And so, right now that manufacturing facility which is again a contract manufacturing facility is roughly 6 months behind where we are today with B&L. So, one of the things that they will be ready to go is a back-up manufacturer. We won't include them in the NDA and inserting them into the NDA is a possibility, but we wouldn't do that if we thought it was going to delay the approval process by any means at all. And so really, what makes the most sense for us right now is to plan on the launch of the Rhopresso being done via B&L manufacturing. And then, but we will have a back-up available shortly after approval.

[Sa'ar Yaniv:]

Okay, great. And when you are looking at the capacity of, of the manufacturing facility, can you comment on that at all?

[Vicente Anido:]

Sure. We think that the combination of the three facilities the B&L, the back-up that we have, again the contract manufacture back-up and ours combine should be enough to not only handle all the sampling that our sales team thinks that we are going to need. But also, we think it will be enough to generate revenues in excess of $3 billion. So, I think we have more than our manufacturing capacity.

[Sa'ar Yaniv:]

Got. That sounds nice.

[Vicente Anido:]

By the way, that's only in one shift. So, if our sales guys decide they can sell more, we should be able to make more.

[Sa'ar Yaniv:]

Okay. Another question is, how are you looking at the commercialization efforts in Europe and potentially the rest of the world?

[Vicente Anido:]

So, what we are really focused on is obviously United States, first; Canada is second; in Europe we took on the development responsibilities for both Rhopresso and Roclatan and so we think that over the next 18 to 24 months we will have both products approved with a little bit luck. And so, we do have some time, we have not made decisions about whether we are going to partner in Europe or whether we are going to do it ourselves. And so, we'll simply just wait to see what makes the most sense as we get better look at the profiles. We see what changes are occurring in the European marketplace et cetera. And as I mentioned during Annabel's Q&A, we do expect that we would wait the launch of Rhopresso until after we get Roclatan approved in Europe. And so, it's not -- we are probably a year, year-and-a-half away from having to really think hard about the commercial options in Europe.

[Sa'ar Yaniv:]

Great.

[Vicente Anido:]

And in Japan, really it's more of a focus on development. And so, we have taken all the responsibilities, we are getting Rhopresso approved in Japan and do the same thing for Roclatan and they will find a commercial partner.

[Sa'ar Yaniv:]

So, you definitely look for a commercial partner in Japan?

[Vicente Anido:]

Yes.

[Sa'ar Yaniv:]

And in Europe, have you been, I mean like you said, it is maybe within 24 months before those products are approved, but have you started talking to potential partners?

[Vicente Anido:]

Yes.

[Sa'ar Yaniv:]

Okay. Thank you. And then, the last question I have is regarding the -- I think Corey addressed that, regarding your BD opportunities, do you have anything at all in the -- in your own pipeline?

[Vicente Anido:]

Yes. We talk about AR-13154, which is a small molecule for the treatment of wet AMD that we have been developing. We do have all the animal models that we run. The next major step there is selecting a drug delivery system that will deliver the small molecule over six months, which we hope to complete sometime before the end of the calendar year. And then, hopefully then move into all the word that will get us into filing IND shortly after that. And so, we will be in the clinic again sometime in the 2018, backend of 2018 hopefully.

[Sa'ar Yaniv:]

Okay, great. Thank you so much for taking the questions.

[Vicente Anido:]

Sure.

[Operator:]

Thank you. Our final question comes from the line of Dewey Steadman from Canaccord. Your line is now open.

[Dewey Steadman:]

Hi, guys. Can you hear me?

[Vicente Anido:]

Yes. We can hear you fine now.

[Dewey Steadman:]

Okay. I'm sorry about that earlier. Following on the line of question about pipeline and in-plant, looking blue sky like 10, 15 years from now, could you envision the in-plant being as big or a larger opportunity than drops in Glaucoma therapy given the need for compliance?

[Vicente Anido:]

No. We have an awful lot of folks in the company that have been involved in the same plant stuff especially for Glaucoma. For quite a while we also have looked at a huge number of the opportunities for drug delivery system whether there is surface, whether they are injectable. And so, really the claim to fame here is, that most of our compliance secondarily -- certainly for the injections to the front part of the eye. There are some early indications that maybe you will see a little bit of efficacy. But, we think that it's actually some segment of the patient population that actually prefers something other than eye drops and specifically if you are comparing it to a once a day eye drop. I mean, when you look at and pull patients and you talk to them and all the market research that have been done even by the drug delivery companies, it's awfully hard for the -- for all of these devices to be once a day eye drop in terms of convenience. And so, sure there is an awful a lot of compliance issues, if they are on two or three drugs. And so, if you could actually deliver something for an extended period of time that's great. But, it's not for every patient, really also depends on the reimbursement and which plant they belong to et cetera. So it's a longwinded answer. The bottom-line is, no, we don't think it's going to have a huge impact on the eye drop business especially if your drop is once -- if your drug is once a day.

[Dewey Steadman:]

Okay. And then, in the Irish facility, what's the process you actually shipped manufacturing there, is it something like a CBE-30 we see with generic, look very simple. Or is it a more complex application and review process there? And then, what's the impact on gross margin, if you are able to shift to Ireland? And then, how much of that 35% tax contemplate -- shipped to Ireland?

[Vicente Anido:]

Okay. So, I will take care of the technical stuff and I will let Rich answer the finance stuff when I'm done. So, on the technical side, it's really just like starting a plant from scratch and doesn't make any difference whether it's in Ireland or whether it's here. You still have to go from zero to full fledge development, you have to go validate at each step of the way. There is no -- there are no shortcuts. It typically takes roughly about three calendar years in order to get it all done and that's basically what we have in the plants right now. You do end up having to make three final batches there that you said in for validation and there is all sorts of other bells and whistles that are attached to that. but, the bottom-line is, a) no shortcuts and b) it is about a three year process.

[Dewey Steadman:]

Okay.

[Richard Rubino:]

And with regard to your other question, of course, we will be manufacturing in our Ireland and shipping from Ireland globally. So, with regard to shipping into the U.S., there would be transfer pricing, for example, for shipping into the U.S. The income rate -- income tax rate in Ireland when it's all set and done ends up being below 10%. So any income that's recognized in Ireland and in countries that have tax treaties with Ireland, will be at a very low rate, which is why I mentioned the below 30% consolidated effective tax rate by the time it gets to 2015. From a cost of sales perspective, by manufacturing on our own, we will save nearly half on the cost of sales, figure about 40%. So, as I mentioned before we are already starting out with third party suppliers with an expected gross margin of well over 90%. So that only gets even better when we are manufacturing on our own.

[Dewey Steadman:]

All right. Great Thank you so much.

[Richard Rubino:]

Thank you.

[Operator:]

Thank you. At this time, we have no further questions. And I would like to turn the call back over to Vince Anido, CEO and Chairman.

[Vicente Anido:]

Thank you. And I want to thank everybody again for joining us this afternoon. We are obviously very excited about the -- with the progress of the company through 2016. And we are certainly off to a great start in 2017 with the resubmission of the Rhopressa NDA and with a lot of upcoming milestones in Q2 as well as Q3. Obviously, our focus right now is, we are in launch mode with Rhopressa. And so, you start seeing a lot of activity and AGS was a great launch platform for us, where we introduced an awful lot of additional things and not the least of which was our first booth that was manned by our medical affairs team that allowed us to highlight the progress of the company and our products. And so, we look forward to a lot of more that as we get ready to launch both of these exciting drugs. Again, thank you for listening this afternoon. And have a great day. Bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great day.