Aerie Pharmaceuticals, Inc.
Q3 2014 Earnings Call Transcript

Published: 12 Nov 2014

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. And welcome to the Aerie Pharmaceuticals’ Third Quarter 2014 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, Sir.

[Rich Rubino:]

Well, thank you, Patrick. Good afternoon and thank you for joining us today. With today being Veterans Day, on behalf of all Aerie employees, we honor and celebrate those who have served in the U.S. Armed Forces. Participating with me today are Vince Anido, our Chairman and Chief Executive Officer; and Tom Mitro, our President and Chief Operating Officer. 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 earnings release. Before I turn the call over to Vince, I will address forward-looking statements and non-GAAP financial measures. On this call, we will be making certain forward-looking statements, including statements and forecasts regarding our future financial and operating performance. The success, timing, and cost of our clinical trials, the clinical effectiveness, commercial launch and potential future sales of our product candidates 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 our earnings 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 on or about November 12, 2014. 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 earnings release, which is posted on our website. With that, I will turn the call over to Vince.

[Vince Anido:]

Thank you, Rich and good afternoon everybody. Thank you for participating on this call with us today. As you probably saw in our third quarter earnings release, we discussed and also what we discussed at our Investor Day back in September, we are focused on building a major ophthalmic pharmaceutical company. As a result, I’d like to give you a quick update on where we stand not only on the products that we have in the clinic, but also a little bit more about sort of what our plans are going forward in terms of ex-U.S. markets as well as new products we may bring into our pipeline. We are very pleased with the current status of the Rhopressa Phase 3 trials. Just as a reminder, we have three registration trials, three separate ones, all comparing Rhopressa to timolol. Its Rocket 1 is a 90-day efficacy-only trial, that’s been conducted at about 40 sites or so in the U.S. Rocket 2 is a 1-year safety study in the U.S. roughly about 50 to 60 sites. It also has a 90-day interim efficacy readout. And the third one, Rocket 3 is a one year safety study done in Canada. The current status is as follows. Rocket 1 is enrolling at a very, very rapid pace. In fact, we think that the trial will probably – got pretty good chance of being fully enrolled by the end of the year. Rocket 2 is on track. It is slightly behind Rocket 1 and it’s not surprising, because it is a 1-year trial. So, it does take a little longer to convince the patients to stay on drug for that long, but it is on track. And Rocket 3 is at early stages and serves mainly as a backup for safety. Remember, we do need 100 patients on our drug for 1 year prior to submitting the NDA. So, Rocket 3 will provide some additional patients for that metric. And it also opens the door for us with Canadian ophthalmologists, as maybe a reminder we are maintaining North American rights. We know a lot of the ophthalmologists in the U.S. very, very well that are beginning to get to know the Canadian ophthalmologists as well. We expect that the Phase 3 efficacy data results will be released in mid-2015, again assuming that the enrollment continues as planned. And if the trials are successful like we expect them to be, the NDA filing will occur by the middle of 2016. We will provide an updated assessment of our efficacy read-out timeline as the trial progresses and as we complete the enrollment of those trials. Now, I can tell you that the response for Rhopressa had been very, very positive in the ophthalmic community. As we saw firsthand at the recent American Academy of Ophthalmology Conference, doctors were excited about the first meaningful new drug with multiple new mechanisms of action and we haven’t had a new drug in glaucoma in over 20 years. This is a drug that finally targets the trabecular meshwork, which is the diseased tissue in glaucoma. And it’s one of several mechanisms of actions that we have for the drug. There are never increasing number of articles not only about our drugs but also about our company that are appearing in eye-care trade journals. So, certainly the name of our drugs and the name of Aerie is getting to be better and better known in the ophthalmology circles not only in North America but ex-U.S. as well. On Roclatan we are currently underway preparing our Phase 3 clinical trials which are scheduled to commence over the next 6 to 9 months. The trial design for the Phase 3 is expected to be very similar to the Phase 2 trial results, I am sorry to the Phase 2 protocol that you saw us implement earlier this year. You recall that the Phase 2b performance result that we released in June and the potential for Roclatan to become the most efficacious glaucoma medication in the market, that’s pretty consistent with our hope that we have seen a major breakthrough in the treatment of glaucoma not only with Rhopressa but certainly with Roclatan. To get at the AAO, physicians were quite enthusiastic about the prospects for this product with four distinct mechanisms and a single drop of product per day, and very high efficacy and tolerability. Now as a reminder one of the Roclatan trials maybe conducted in Europe. Now this facilitate enrollment of the trial allow us to gain useful knowledge about the market. It is very possible that because the European regulations are different that the protocol that we implement in Europe will be different perhaps doing a head to head comparison with a known combination that’s available in European market. This will help us not only from a marketing point of view and approval point of view, but certainly something we’ve discussed with the FDA and it’s something that they are very open to in terms of making now to second pivotal trial. We do plan on continuing our internal capabilities to facilitate the growth of our operations. We are actively expanding our operations to advance our goal of becoming a major pharmaceutical company. Thanks to the Deerfield financing, as a reminder we did a $125 million convertible debt financing recently. It does give us the resources to take our products all the way through commercialization. It also provides enough dry powder for us to take advantage of strategic growth opportunities that we see in the marketplace. We still plan on commercializing our own, these products in North America and possibly in Europe depending on the outcome of number of the partnering discussions that we’re having. Also as we explained in our Investor Day this past September, we are working to broaden our product portfolio through both internal discovery and third-party sourcing. An example, we are screening our extensive proprietary library of ROCK inhibitors from possible ophthalmic uses about the - on glaucoma and further exploring the effects of Rhopressa on the trabecular meshwork; especially the long-term impact of treating the trabecular meshwork with our products. On the partnering front those discussions are progressing with a number of different companies looking at evaluating our products both Japan and possibly Europe. As we mentioned during the Investor Day now that we are fully financed, we don’t really have a requirement or a timeline for a partnering transaction. We are exploring a number of different alternatives on how best to handle both the European and the Japanese markets. Also as we discussed on the Investor Day, we are focused on building our pipeline via both internal discovery and external opportunity. Great news is that we’re beginning to recover quite a few exciting new potential product candidates and technologies that are available today that could help us build into a major ophthalmic company. In summary, we are very, very happy with the progress and we’re making and certainly the image and the visibility that we’re getting within the ophthalmic community and we’re very excited about the prospects for our company. With that I’ll turn it over to Rich.

[Rich Rubino:]

Thanks, Vince. Before I get into the numbers for the quarter, quite a bit has taken place on the finance front over the past couple of months. As you know we completed our senior secured convertible debt financing with Deerfield in September raising $125 million at a 1.75% interest rate with a 30% conversion premium and seven year maturity. With this financing along with the proceeds from our IPO, we have raised over $190 million. As of the end of the third quarter, our cash, cash equivalents and investments totaled over $171 million. Also as you have seen, we filed our S-3 shelf registration statement on November 3, which has since been declared effective. The SEC allows you to file a shelf after 1 year of going public and we filed on our 1-year anniversary. Our shelf was sized at $150 million, including a $50 million at-the-market component, all within the sizing of the many comparable filings. The filing is useful for a period of 3 years. This was a routine filing and we currently have no immediate need to issue additional new shares, especially after our recent Deerfield financing. Turning to the quarter, our GAAP net loss attributable to common stockholders for the three months ended September 30, 2014 was $13.1 million or $0.54 per share. The net loss includes non-cash charges for stock-based compensation expense of $2.4 million. When excluding the non-cash stock-based compensation expense, adjusted operating expenses for R&D and G&A totaled $8 million and $2.8 million respectively for the third quarter 2014. Total adjusted net loss was $10.8 million for the third quarter 2014, $10.8 million in adjusted net loss or $0.44 per share compares to $4.6 million for the same quarter in 2013. The increase in operating expenses for the 2014 period compared to that of 2013 includes increased clinical and non-clinical research and development expenses and other activities associated with our product pipeline as well as activities to support the growth of our operations. Our cash burn rate will increase from our historical rates going forward as we expand our operations, we expect that our cash and investments as of the end of the third quarter, as Vince mentioned, will provide sufficient resources to complete all currently known non-clinical and clinical requirements of product commercialization for Rhopressa and Roclatan and provide the flexibility to potentially pursue strategic opportunities to broaden our presence in ophthalmology. Now, I will turn the call over to Patrick for questions and answers. Patrick?

[Operator:]

(Operator Instructions) Our first question comes from Adnan Butt with RBC Capital Markets. Your line is open.

[Adnan Butt:]

Hey, thanks for taking the question. I have two first Vince to ask a bit on enrollment, you have updated us on numbers in the past, is that something you can do this time around?

[Vince Anido:]

Right now, no, we are sort of in the midst of adding a bunch of stuff up. We hope to do that certainly as the year winds up. We are just waiting on couple of different things, because we like to as you can imagine provide updates on both Rocket 1 as well as Rocket 2. So, I will, but not at this point. Following that, again we have got a pretty good shot at finishing up the entire enrollment for Rocket 1 before the end of the calendar year and that is little faster than we expected, but Rocket 2 is pretty much on plan and don’t see any changes in that timeline.

[Adnan Butt:]

Vince, just the enrollments are different, would the company awaits till the efficacy endpoints are measured from both even the Rocket 1 term before data is presented or would you present us data that comes available?

[Vince Anido:]

Yes, it really depends, Adnan, in terms of whether the – we are waiting a week or two or whether we are waiting a month or so. And so, if it’s really, really close in terms of the availability of one side of data versus the other, yes, we maybe tempted the way, because we would rather give you a complete picture instead of having one release one day and then week or two later having a second one. If it looks like it’s going to be more than that, then yes, we will separate them out. I think that makes more sense to us.

[Adnan Butt:]

And then last question please, for the Phase 3 European combination requirement, it is not a new disclosure, but in terms of U.S. is a combination product required or can a U.S. study be for Roclatan be conducted versus latanoprost by itself or is that to be determined?

[Vince Anido:]

So, there is a requirement in the U.S. that we have to do the superiority trial pretty much the same way that we did the Phase 2b, where we have to show superiority of the combination versus each of the individual components. The FDA has confirmed that. In addition to that, they have also confirmed that they are open for the second trial to be a different protocol. It still has to be against an active comparator and they are open based on our discussions. They are open to having that trial not only run in Europe, but also be against a combination currently available in Europe. And those two trials would be sufficient, we are assuming that we are going to have to do safety as well, so there will be three trials, so that would be the package that we would have available for both – the Roclatan for both North America as well as Europe.

[Adnan Butt:]

And then in terms of what the competitor agent might be, if that’s to be determined and whether it has to be – whether it can be non-inferiority versus the competitor?

[Vince Anido:]

That’s right. That’s the discussion we need to have.

[Adnan Butt:]

Okay. Thank you.

[Operator:]

Our next question comes from Annabel Samimy with Stifel. Your line is open.

[Annabel Samimy:]

Hi, thanks for taking my question. Just curious on enrollment again, have you mentioned that Rocket 1 was faster and Rocket 2 is on plan. Is there any kind of competition in terms of the enrollment there? Do you expect Rocket 2 to potentially accelerate once the enrollment of Rocket 1 is done? I mean, what’s the dynamic there? And then secondly, it has to do with your enrollment of Roclatan, are you going to be in a similar situation which than you’re competing for enrollment on Roclatan, possibly?

[Vince Anido:]

Alright, so I will start with the rationale. So remember Rocket 1 is only 90 days, it was pretty easy to convince folks to stay on drug for 90 days, stay on the regimen, come back on a regular basis, etcetera, etcetera. So, that doesn’t throw them out of whack. The one-year requirement on Rocket 2 is what slows it up a little bit. So that’s the big difference between the two. And so we certainly have had a series of high enrollment sites in Rhopressa’s Rocket 1 that have completed, because as you know the FDA doesn’t like to have one site or come in with 50 patients to 60 patients out of a couple of hundred. So we have to limit how many they can enroll for any one particular study. So what we have been able to do is a way of trying to accelerate Rocket 2 is as we cap out a site that was previously on Rocket 1, and it was a high enrolling site, they still have plenty of patients, we are able to toggle them over and have them get started on Rocket 2. And we think that facilitates the enrollment. There was a little bit of competition back and forth, and it was really amazing, because there was no rhyme or reason as to why some sites prefer to be on Rocket 1 versus Rocket 2, there was no correlation between size or geography or anything like that, it was just preference. So there was not really any competition from that perspective. Now, regarding Roclatan, remember, so by the time we start Roclatan over the next 6 months to 9 months, the one Phase 3 study here in the U.S., which will be the superiority trial, the Rhopressa studies will already have been fully enrolled, and those patients will already be – certainly the Rocket 2 patients will be already going into just a safety portion and the Rocket 1 patients will be out of the study already by then. And so we think that doing the Roclatan pivotal here in the U.S., we should be able to pick up a lot of patients and a lot of sites and we are not too concerned about that, and we think that the incremental advantages doing that second study for Roclatan in Europe, certainly will take some of the pressure of having to roll everything in the U.S. So we are not going to see any tension as a result of that.

[Annabel Samimy:]

Okay.

[Vince Anido:]

Does that help?

[Annabel Samimy:]

Yes, it does actually. And if I can ask another question, with regard to the manufacturing, supply for Roclatan, is that completely on schedule, are you feeling that you’ve got – you’re onboard with getting all the pre-Phase 3 work done?

[Tom Mitro:]

Sure, Annabel, its Thomas Mitro, thanks for the question. Yes, certainly we continue to work on the manufacturing for Roclatan to make sure that we are in the position we expect to be, and that is going full force from a manufacturing point at the end of the first quarter into the second quarter to prepare to start the trial about mid-year.

[Annabel Samimy:]

That’s the part – that’s the primary rate-limiting step to manufacturing?

[Tom Mitro:]

There’s nothing our way at this point. No, there is no issue in our way, we certainly have validation to do of many of our met – not many, few of our methods that are knocked off, but we have been knocking them off month-by-month as we go through a processes, so far so good, so.

[Annabel Samimy:]

Okay.

[Tom Mitro:]

No real concerns, we are doing fine.

[Annabel Samimy:]

Okay. And if I can ask just one more question, just may be you can talk a little bit about the competitive landscape, there seems to be, I mean yours is clearly the novel mechanism that’s out there, but there seems to be another that’s emerging, targeting the trabecular meshwork, and I was wondering if you could help us understand that mechanism a little bit more and how that might play in when you guys are out in the market with your different mechanisms possibly or both targeting trabecular meshwork?

[Vince Anido:]

So the company that’s out there right now has a product, which is an adenosine mimetic, and basically it’s like a fibrinolytic if you will. So the way that I describe it is, it doesn’t really work to relax a trabecular meshwork, what it does is, it actually cleans up the trabecular meshwork, it’s like a drain in your sink or a drain in your bathtub that has got it’s full hair and they just put it on top of there and it just breaks up the hair. And then just allows more fluid to start flowing through the drain. So that’s basically the way it works. And so it’s an interesting mechanism of action, they have been studying it for quite a while. I think we have been pretty upfront as you know in terms of describing all of our clinical work and doing all of our studies versus active competitors and trying to, because we are the first glaucoma product that’s been introduced in so long. We want to make sure that the investment community understands how we plan on studying our drugs. The pretty tried and true methods in terms of the Phase 2 trials being conducted versus active comparisons, the same protocol that we used in Phase 2 will also be used in Phase 3, so you can have a lot of predictability. And so as folks are looking at that one, I think that you could use ours as a guide and then just do a straight up comparison based on what’s available in S-1. They appear to be a couple of years behind us. Some of those studies are considerably different than things that we have laid out. But again we think that what we have laid out is more of the traditional kinds of protocols and studies that will allow folks to pretty quickly determine, whether we have drugs that are approvable or not.

[Annabel Samimy:]

Okay, great. Thank you.

[Operator:]

Our next question comes from Elliot Wilbur with Needham & Company. Your line is open.

[Elliot Wilbur:]

Thanks. Good afternoon. Vince, I could have sworn you were describing liquid plumber when you are talking about (indiscernible)…

[Vince Anido:]

I will tell you what, why don’t you call that company and tell them that that’s their trade name they should use.

[Elliot Wilbur:]

I’m probably not going to do that, but anyway. Just real quickly in terms of about using your new found financial resources here and sort of weighing the possibility of bringing in an already commercialized product versus a pipeline asset, may be you can just sort of talk about the asset landscape, what are you seeing out there in terms of available opportunities and sort of given the recent financing how are you thinking about potentially pulling forward the revenue curve by actually bringing in an already approved product and may be accelerating the infrastructure build?

[Vince Anido:]

That’s a great question. One of the things that we have always looked at and certainly in our history is we would always been interested in bringing in marketed products and the like. Right now, there just aren’t that many of them. There is – we don’t really know what’s going to happen here over the next month or so as the big boys, Valeant and Allergan sort of sort through what they are going to do, whether there is – might be any products, if in fact there is a merger there, whether there’s going to be any products that have to be spun out and certainly we’d be interested in looking at those kind of things that they are significant enough. There are some smaller products out there that have either being launched or about to be launched in the back of the eye space that makes you wonder whether a rollup strategy there can make some sense, but again they are not truly significant, and certainly they are not in the glaucoma space. And so we just don’t see all that many things that would make sense for us. So, we really are spending a lot of products that are currently in the clinic. Very, very excited about doing further work in glaucoma, we think that there are things in terms of restoration by regenerating nerves that the nerves in optic nerve are (indiscernible) optic nerve that have been damaged. We think that there is – that’s a great opportunity there to maybe take a look at some technologies that are currently available. Certainly, there is new guidance that the FDA has published relative to action, which we think could open up the door for a drug to finally get approved there, not having to conduct a 7-year, 8-year study that memantine had to do. Certainly things like cell therapy and gene therapy making off a lot of sense in the category as well as to this drug delivery. So, we’re looking at all those areas specific to the glaucoma category. We’re also looking at some of the other major markets and they are certainly the most largest one, it is unserved as a Dry AMD market. (Technical Difficulty) space and there are some vetted mechanisms that appear to be at work and so we may (Technical Difficulty).

[Rich Rubino:]

Hello Vince, it’s Rich. Your phone is breaking up.

[Vince Anido:]

(Technical Difficulty), cell phone if we have to hear. But the - so anyway so those are the areas that we’re looking at (Rover).

[Elliot Wilbur:]

Okay. And then just one additional follow-up as well, I believe that at one point you were discussing whether or not to pursue a single or multiple strengths of Roclatan in the pivotal Phase 3. I am just wondering if in fact that has been finalized yet?

[Vince Anido:]

So, in Phase 3 for Roclatan, we’re just going to do the 0.02.

[Elliot Wilbur:]

Okay, alright. Those were my only questions. Thank you.

[Operator:]

(Operator Instructions) Our next question comes from Caroline Corner with Cantor Fitzgerald. Your line is open.

[Caroline Corner:]

Hi guys, congratulations on the progress and thanks for taking the question. I know you discussed this in the Analyst Day, but given that was a few months ago and I am sure you’ve had many physician interactions since then especially given the major meetings. I was wondering if you could talk a little bit about how if they approved Rhopressa and Roclatan will be positioned in the market, are you still expecting that Roclatan will be for patients who failed other therapies with higher pressures and Rhopressa would be used for PGA non-responders. And then with Roclatan specifically would you expect that one given that it’s targeting higher pressures to be competing with some of the microsurgical or stem product that are either out there or perhaps will be out there down the road? Thanks.

[Tom Mitro:]

Sure. This is Tom again. So, we’ve got the position pretty close that as Rhopressa will be for IOPs of under 26 and also as a additive to prostaglandins when people don’t want to switch off of prostaglandin yet. Okay. So because you remember Rhopressa really has a differentiation and it has lowest pressure than of any other product as the patient has a lower baseline IOP. So, that’s where its differentiation comes into play. Roclatan will be for people that need maximum medical therapy. That may mean that they have “run away IOP” as some physicians call it that as IOP that is very high or IOP that is call it 26 or 27 yet their glaucoma continues to progress meaning that their vision continues to deteriorate and that’s really where Roclatan will be primary used. Now the only complexity to throw in there is when you talk to these physicians it’s not as quite scientific as we just laid it for you, there’s a lot of heart to it. Physicians will say things like instead of adding Rhopressa to the prostaglandin I just may switch them off of that and go with one drop a day and use Roclatan as an example. So, there will be a lot of mixing and matching but that’s why it’s also good to have two entries into this, obviously the biggest market in ophthalmology. Now the other question you asked is will Roclatan really compete against some of the surgical devices. We really don’t think so that they will always be in back of drops because there’s always a big – first up there is always a big risk. Anytime you take a patient into the operating room as you might guess. And it doesn’t take many, don’t think very many complications to occur where for physicians to say well I am going to exhaust my repertory of drops first before I go in the OR. And we think that because our drops are so convenient to take and free of side-effects that they will give our drops, try certainly before they go into any surgical case.

[Caroline Corner:]

Okay, thanks. That’s helpful. And then just, another question I know it’s really early for this conversation. But for the pricing of Roclatan, would we expect that to be a significant premium to Rhopressa plus latanoprost given the convenient factor of having one drop or are you going to have to price it pretty close because of price pressure?

[Tom Mitro:]

We believe that there will be a premium to Roclatan over Rhopressa and over the prostaglandins to the branded prostaglandins, and so it could be in the marketplace, but it certainly won’t be doubled, that is – what I mean by that is, Roclatan will not be the price of Rhopressa plus a branded prostaglandin, there will be certainly a discount there, so that the managed care peers will look at it and say okay, we’ve certainly got a break there, by going with Roclatan versus the two products, and of course the other breaks will be able to sell things you brought up to about things like example like convince of using one drop a day versus two different products and those sort of things, but it won’t be double the price of two individual agents.

[Caroline Corner:]

Thanks. I appreciate the color. Thanks.

[Tom Mitro:]

Yes.

[Vince Anido:]

Thank you.

[Operator:]

Our next question comes from Corey Davis with Canaccord Genuity. Your line is open.

[Lidia Liu:]

Hi, this is Lidia on for Corey. I missed the first half of the call, so I just want to make sure that was correctly. So Rocket 1 or pat enrollment finished by the end of the this calendar year, is that correct?

[Vince Anido:]

That’s right. That’s what we said. It’s moving along pretty quickly and it looks like right now it’s very possible, it will be done by the end of the calendar year. That’s ahead of schedule.

[Lidia Liu:]

Great. And since it’s a 90-day trial, then generally the data should be expected at around April, May, am I thinking about it correctly?

[Vince Anido:]

Yes, we haven’t really called out exactly when we will release the data yet, because one of the things that we always have to look at after we close off enrollment is to make sure that our dropout rate doesn’t change there at the last minute, so once we have some clarity around that, then we can announce if we are going to change the timeline.

[Lidia Liu:]

Okay, great. Thank you so much.

[Vince Anido:]

Yes.

[Operator:]

Thank you. I’d now like to turn the call back over to Dr. Vicente Anido, Chairman and Chief Executive for final remarks.

[Vince Anido:]

Well thank you and thanks everybody for participating with us this afternoon, as you can tell we are making great progress in the company as we move forward building a major ophthalmic company. Very pleased with the progress we are making on the clinical front with both Rhopressa and looking forward to bringing Roclatan into the clinic here over the next 6 months to 9 months. And certainly are ecstatic about what’s happening relative to the building the pipeline component, not only our own internal discovery efforts, but also as we look at other opportunities outside of our own company, we think there is a great set of products and technologies available in ophthalmology today. So again thank you and hope all have a great day. Bye-bye.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s program. This concludes the program. You may all disconnect.