BioDelivery Sciences International, Inc.
Q4 2017 Earnings Call Transcript

Published: 16 Mar 2018

[Operator:]

Good day, and welcome to the BioDelivery Sciences Fourth Quarter and Full Year 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Al Medwar, Senior Vice President of Corporate and Business Development. Please go ahead, sir.

[Albert Medwar:]

Thank you. Good afternoon, this is Al Medwar, and welcome to BioDelivery Sciences Fourth Quarter and Year-end 2017 Earnings Conference Call. Leading us through the call today are Scott Plesha, President; Mark Sirgo, Executive Vice Chairman; and Ernie De Paolantonio, Chief Financial Officer. Mike Bullock, National Director of Managed Markets will join us for the question-and-answer session following prepared remarks from Scott. In order to best communicate the data that will be discussed during this call, we will be using slides. Those on the webcast will be able to follow along with the presentation, and for those joining by phone, the slides are posted on the BDSI website. That said, I'll now read the company's safe harbor statement. Certain statements that BDSI's management made during today's call or in responding to questions and any other public documents of BDSI or statements of its management may contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management's current beliefs and assumptions about the future, but are not statements of fact, and therefore, involve and are subject to significant risks and uncertainties. Forward-looking statements may include, without limitation, statements with respect to BDSI's plans, objectives, projections, expectations and intentions and other similar statements about the future. Forward-looking statements are typically defined by words such as projects, may, will, could, would, should, beliefs, expects, anticipates, estimates, intends, plans, potential or similar expressions. These statements are based upon the current beliefs and expectations of BDSI's management and are subject to significant risks and uncertainties including those detailed in today's conference call as well as BDSI's filings with the Securities and Exchange Commission. Please note that actual results, including without limitation, results of the commercialization of BUNAVAIL and BELBUCA may differ significantly from those set forth in the forward-looking statements. The risks and uncertainties relating to forward-looking statements are also subject to change based on various factors, many of which are beyond BDSI's control. BDSI undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. You're advised to review BDSI's SEC filings for risk factors that could impact BDSI's ability to achieve these goals described in the forward-looking statements. With that, I'll now turn the call over to Scott. Scott?

[Scott Plesha:]

Thank you, Al. Good afternoon, everyone, and thank you for joining BDSI's fourth quarter and full year 2017 financial results conference call. While I've actually participated in the past calls and been leading the commercial effort at BDSI for over 2.5 years. This is my first call as President of BDSI, and I'm pleased to have the opportunity to review our fourth quarter and year-end 2017 performance, update you on our recent progress and accomplishments and discuss the opportunities in front of us as we move through 2018. Following my prepared remarks, we'll take questions. 2017 was an important year for BDSI and one of great change. The return of BELBUCA at the beginning of the year has markedly changed the dynamics of the company by placing in our hands, an important and well differentiated product to treat those patients with chronic pain, who have failed other therapies and require treatment within opioid. We took on the commercial challenge, and we're successful in relaunching and significantly growing BELBUCA in 2017. As we all know, the treatment of chronic pain with opioid is under intense scrutiny. However, BELBUCA provides BDSI with the opportunity to be a key player and the effort to provide an effective, responsible option for those suffering with chronic pain, who require opioid treatment. BDSI is the only company providing options for both the treatment of chronic pain and opioid-used disorder by focusing on the novel characteristics of the buprenorphine molecule. As scrutiny intensifies of the safe use of opioid, there continues to be increased positive attention on the benefits of buprenorphine. As a reminder, being a partial mu-opioid agonist, buprenorphine is the only Schedule III option for the treatment of chronic pain, meaning less abuse and addiction potential versus Schedule II opioids and as the scientific literature supports, buprenorphine appears to demonstrate a ceiling effect on respiratory depression, which is the cause of death in overdose. So based on these important attributes, we continue to firmly believe buprenorphine and BELBUCA, in particular, will play an increasing role in the management of chronic pain going forward in the midst of the current opioid crisis. And this good evidence of this view is gaining traction as healthcare providers, payers and government officials continue to look for any-and-all ways to address the opioid crisis and a Schedule III option it is an important step in the right direction. Let me begin with a brief high-level review of our recent key accomplishments. First, we achieved very strong top line revenue growth in both the fourth quarter and for the full year. For the fourth quarter of 2017, net revenue totaled $12.5 million, an increase of 11% over the third quarter of this year and substantially greater than the $3.9 million for the same period last year. Importantly, sales in the fourth quarter of this year were driven by strong BELBUCA revenue growth, which increased 47% to $9.4 million. For full year 2017, net revenue totaled $62 million versus $15.5 million for full year 2016. Keep in mind, $20 million of the reported net revenue for 2017 as noncash deferred revenue recognized as part of the reacquisition of BELBUCA and termination of the Endo licensing agreement in January 2017. This overall revenue growth was driven predominantly by strong growth in BELBUCA prescriptions. Fourth quarter prescriptions for BELBUCA reached nearly 25,000, which is an increase of 10% over the third quarter of 2017 and 2017 prescription showed an impressive 84% increase over full year 2016. As a reminder, we only assumed control over this product in January 2017, so we are extremely pleased with the progress we made in our first year commercializing BELBUCA and by its growing demand. I'll expand further on revenue and BELBUCA prescription growth shortly, and of course, Ernie will cover the fourth quarter and full year financials in more detail a bit later. Notably, we have made significant managed care progress over the last several months. This includes not only adding important new managed care contracts, but also improving current ones, and I'm pleased to report that Humana has just added BELBUCA as a preferred agent for both their commercial and Medicare patients. This is a very important addition for us and BELBUCA, as Humana is the second largest Medicare provider in the country. This agreement was reached and the timeline for implementation accelerated to become effective March 1. I'll further review both new and improved coverage in more detail shortly, however, we believe recent events signal a change in the way payers are viewing the role of buprenorphine in the management of chronic pain and thus provides us with an important opportunity for 2018 and beyond. Also, Purdue Pharma Canada launched BELBUCA at the end of January. The first commercial sale of BELBUCA in Canada triggered a milestone payment to BDSI from Purdue this quarter. BDSI will also receive low-digit -- double-digit royalties on net sales and will be eligible for potential future milestones. Early feedback from Purdue Canada is positive with the reports that healthcare providers are enthusiastic and very receptive to the availability of BELBUCA. Also last month, we entered into a key Paragraph IV settlement agreement with Teva Pharmaceuticals involving BELBUCA. As part of the agreement, BDSI entered into a nonexclusive license with Teva that will not allow them to begin selling the generic version of BELBUCA in the U.S. until January 2027 or potentially earlier under certain conditions. This agreement followed a similar settlement with Teva in the fourth quarter of 2017 surrounding BUNAVAIL. That nonexclusive license will not allow Teva to begin selling a generic version of BUNAVAIL in the U.S. until July of 2028 or potentially earlier under certain conditions. As such, these settlements provide additional certainty with respect to our patent portfolio, while averting future costs associated with the litigation. Now, let me review BELBUCA performance in more detail and share with you some key recent sales metrics. First, looking at 4-week rolling average, BELBUCA prescriptions since the beginning of the fourth quarter, we continue to see an upward trend in prescribing, excluding the holiday weeks with particularly steady growth since the first of this year. We ended 2017 in a strong position with BELBUCA and have started 2018 with solid momentum. On the next slide, you'll see the impact of this growth on monthly total prescriptions for BELBUCA. We reached a new all-time high in January 2018 with over 8,600 total prescriptions. We're extremely pleased with the growth we delivered in less than full year of active promotion, which can be heavily attributed to the focus and strong execution accomplished by our commercial team. To highlight and summarize our BELBUCA performance metrics, I'd like to make some comparisons between January 2017, when we first reacquired the product in January 2018. Based on data from Symphony Health, total prescriptions in January 2017 were 5,851 versus 8,627 in January 2018. This represents an increase of 47%, and I believe that speaks volumes to our commercial team as well as efficacy and safety messaging. Additionally, our share of the buprenorphine marked for chronic pain, which consists of BELBUCA and buprenorphine transdermal patches both branded and generic has increased from 9% to 17%. Finally, the average price per BELBUCA prescription increased to $387 in January 2018, according to data from Symphony, compared to $325 in January of 2017. This represents an increase of nearly 20%, as HCP is continuing to gain familiarity and comfort with the use of the full range of BELBUCA dosage strengths. We are very excited about what we've accomplished with BELBUCA to date and look forward to future success through 2018. In order to maximize the significant opportunity we have with BELBUCA, we recently increased our number of territory managers from 65 to 85. Overall, this adds over 3,500 new high prescribing healthcare practitioner targets and multiple new geographies, not previously covered by our sales force. Importantly, we now have increased reach and frequency among our key prescriber targets. In order to ensure continued excellence from this expanded sales force, we've also increased the number of regional sales directors from 5 to 9. We also plan to add nonpersonal promotions to support the sales effort behind BELBUCA. We will do this in a very targeted and cost-effective manner. It will include such things as web and general advertising as well as efforts to continue to expand buprenorphine education. This will help to further ensure that our strong product message is reaching target HCPs with increased frequency. Now let's turn to the continued progress we're making with managed care access for BELBUCA. I'm pleased to report that we just signed an important agreement with Humana adding BELBUCA as a preferred agent for both our commercial and Medicare business. This win is important as Humana is the second largest Medicare provider in terms of covered lives, and BELBUCA will be available as a preferred agent and without the requirement of a prior authorization or PA, which is a meaningful advantage for BELBUCA in this category. What does this contract mean for BELBUCA? Humana is a second largest provider in terms of Medicare lives under management with more than 7.7 million currently participating in Humana Part D benefits. In the last 12 months, there were nearly 1.8 million claims for long-acting opioids within Humana's Medicare business and nearly 82,000 within their commercial business, which is a business we now have access to effective March 1, that we previously did not have access to. If you look only at the branded opioid prescriptions within Humana's Medicare and commercial plans, that represents over 132,000 claims per year. Currently, BELBUCA holds a very little market share with Humana with less than 1/10 of a percentage share of a Medicare business. So we believe the opportunity is important and could have a meaningful impact on our business. Separate from Humana, BELBUCA went from nonformulary not covered to a preferred agent as of January 1, 2018, under ProCareRx plans. Additionally, as of early this year, United Healthcare has removed the step-through requirements for BELBUCA. This means that patients are no longer required to step through tramadol or another long-acting opioid prior to accessing BELBUCA. Patients are now able to step up from an immediate release opioid directly to BELBUCA. This will only further the momentum we've seen with United Healthcare. Also effective January 1, 2018, BELBUCA moved to the preferred tier under CVS/caremark's plans. And in order to access Butrans, patients must first try and fail BELBUCA. Importantly, we have made solid progress with payers pointing to the value and well-differentiated features of BELBUCA. In summary, payer coverage for BELBUCA is strong and is improving in significant ways. BELBUCA is now covered on formularies that represent approximately 85% of the commercial prescription claims within this category with BELBUCA approved over 80% of the time. While our coverage is strong, formulary position is what is critical driving use, and we are very pleased that in a short period of time from only December to this month, we've seen an increase in covered lives with preferred access to BELBUCA go from 3% to 15% in the commercial channel and 3% to 21% in Medicare. As we move through this year, we are actively working to improve access on plans where BELBUCA is not yet covered or is covered with the restrictions. In some plans, patients are required to use more addictive Schedule II opioids such as oxycodone and fentanyl before they have access to BELBUCA. However, in the midst of an opioid epidemic, we anticipate continued pressure on payers to make available products and therapies with lower abuse and addiction potential. This is an excellent type example of one where BDSI is actively lending its voice to the discussion in Washington D.C., which leads me to the topic of our government policy activities. The rapidly evolving national conversation on opioids, pain management and addiction treatment are major topics in the news media and among policymakers in Washington. As detailed on our last call, we are proactively working to educate law and policymakers on the potential role of buprenorphine in the treatment of chronic pain. As such, we have put into place a regulatory and policy plans to support BELBUCA intended to improve patient access to the product. We're focused on supporting the ongoing conversation around pain and opioids to include the need for safe and effective alternatives such as buprenorphine. Specifically, we are looking for appropriate inclusion of buprenorphine for chronic pain and key treatment guidelines such as those provided by the CDC and support behind improved access to CIII opioids such as BELBUCA through payers. The grounds all around this issue appears to be mounting. A recent example of this is a publication that appears in the February 22 addition of the New England Journal of Medicine and the article in the New York Times that cites potential safety benefits of buprenorphine over Schedule II opioids. While pointing out that a number of insurers continue to favor less expensive, Schedule II options over Scheduled III products such as buprenorphine. Additionally, a letter from a group of 15 Senate Democrats, including Senators Markey, Feinstein and Warren were sent to the major payers urging them to examine their current policies to identify practices that could be contributing to the opioid epidemic and to improve access to non- or less-addictive pain treatments. So there are many eyes on this issue and it's not going away. And we look forward to continuing to work with all key stakeholders to ensure buprenorphine is prominently and appropriately position in the marketplace and the barriers to access are lowered, and we are seeing changes beginning to take shape. In summary, as we look at catalysts that will continue to BELBUCA sales, our primary emphasis will remain on our focused sales efforts, which is supported by our new promotional campaign, newly implemented nonpersonal promotional activities as well as our ongoing educational programs. We now have a greater share of voice in the field as we have increased our number of sales representatives from 65 to 85 at a time when the number of other players in the category such as Endo, Purdue and Depomed have stepped away. We also expect to drive sales in 2018 through a new and improved managed care access, which will provide appropriate access to BELBUCA. Finally, we are excited about the new recent launch of BELBUCA in Canada, and I look forward to its growth in the Canadian market. So in summary, we are very pleased with our strong fourth quarter and full year 2017 results, and I feel we have built momentum behind BELBUCA moving into 2018. I look forward to a strong year ahead in my new role and believe we can provide meaningful growth in BELBUCA sales in 2018 with our expanded sales force, new managed care opportunities and the growing support we're seeing behind BELBUCA. With that, I'll turn things over to Ernie to cover the financials in more detail, and then we'll open things up to Q&A.

[Ernest De Paolantonio:]

Thanks, Scott, and good afternoon, everyone. In the fourth quarter of 2017, BDSI recorded total net revenue of $12.5 million and 11% increase versus $11.3 million in the third quarter and a 220% increase over the $3.9 million during the same period last year. BELBUCA revenue in the fourth quarter totaled $9.4 million, up 47% over third quarter revenue of $6.4 million. Increased prescription sales, price per prescription and an improvement in the gross to net rate were the main drivers behind both the sales and profitability increases. BUNAVAIL fourth quarter revenue totaled $1.7 million and is unchanged versus the third quarter of 2017. For the year ended December 31, 2017, total net revenue was $62 million versus net revenue of $15.5 million in 2016. 2017 net revenue consist of $27 million for BELBUCA, $7.9 million for BUNAVAIL, $5.1 million for ex-U.S. royalty revenue, $1.2 million of BELBUCA Canadian milestone revenue, $0.8 million of R&D reimbursement revenue and $20 million of noncash deferred revenue recognized as part of the reacquisition of BELBUCA and termination of the Endo licensing agreement in January of 2017. In the fourth quarter, gross to net discounts for BELBUCA decreased to approximately 30% due to lower use of co-pay cards as patient met their insurance deductibles. We expect to see gross to net discounts in the mid- to upper-30s going forward and as the use of co-pay cards often increases in the first quarter as insurance deductibles reset. BUNAVAIL's gross to net discount percentage also decreased in the fourth quarter, reflecting the increased profitability of the TennCare contract. Total operating expenses for the fourth quarter ended December 31 were $21.6 million compared to $16.8 million in the fourth quarter of 2016. The increase in 2017 operating expenses is the result of a onetime charge associated with joining the opioid consortium, which is a collaborative effort among manufacturers of long-acting opioids to jointly satisfy FDA post-marketing study requirements. For the fourth quarter of 2017, our net loss was $16.2 million compared to $15.9 million year-over-year, resulting in a net loss of diluted share of $0.29 for both 2017 and 2016. For the year ended December 31, 2017, we had net income of $5.3 million or $0.09 per diluted share compared to a net loss of $67.1 million or $1.25 per diluted share in 2016. As of December 31, our cash balance was $21.2 million. During the fourth quarter, net cash used was $12.9 million. Finally, we accessed $15 million from our lender CRG based on our meeting certain revenue and market cap requirements. I will now turn it over to Scott for the question-and-answer session. Scott?

[Scott Plesha:]

Thank you, Arnie.

[Operator:]

[Operator Instructions]. We'll take our first question from Brandon Folkes with Cantor Fitzgerald.

[Brandon Folkes:]

Firstly, could you just provide a little bit of additional color how should we think about net revenue per script in 2018 over 2017? Just particularly any concessions you needed to make to increase the coverage there. And then following on from that perhaps the propensity for additional formulary wins in 2018. And then lastly just a high-level question, how do you think about consolidation among paying companies? I know there is a few small responsible paying companies out there who are doing good things, but how do you think about consolidation to take some overhead out of the system?

[Scott Plesha:]

Yes. Thank you, Brandon. We'll let Ernie handle the question about net revenue, and then Mike on managed care.

[Ernest De Paolantonio:]

Yes. Net revenue per script will be going from $250 to $260. And there was an 9% increase that we had at the end of January and that factors that into it.

[Scott Plesha:]

And now Michael, talk about future manged care.

[Michael Bullock:]

Yes. So from the manged care perspective, what we believe we see is a trend towards, as Scott mentioned, improved access to BELBUCA based on the environment that we're in. So the expectation we would see that, that would continue with other payers that may come online or certainly improve access to BELBUCA based on the clinical profile of the product.

[Scott Plesha:]

And then I'll take the last question on consolidation. When I look at the products that are out there, I know you talked about different smaller companies, we firmly believe we're clearly differentiated product and our message is quite different and I'm not sure that -- actually I don't believe that putting the two products in the same bag would be productive because you're basically counterdetailing each other. It's really that CII versus CIII messaging. And again, we think we're very -- positioned very well evident by the growth that we've experienced in 2017 and now into 2018.

[Operator:]

For our next question we'll go to Oren Livnat with H.C. Wainwright.

[Oren Livnat:]

One more actually on that net revenue and gross to net. That dollar amount you reported was really strong this quarter. And if I just divide it by scripts, I think, I'm coming out over $340 a script, if I'm doing my math right, which is a substantial sequential improvement over last quarter and sort of the previous trend or -- and the $250 to $260 you just mentioned. So was there an adjustment in this quarter that we're not aware of? Or is fourth quarter just seasonally always going to be much stronger than as we start low in the year and move up, up through the year? And second question is, I guess, I know you're not giving guidance, but this quarter obviously just flatlined from Q4 is ahead of, I think, guidance for, I mean, ahead of a consensus for 2018. So things are obviously going pretty well on your end, and I'm just wondering without giving revenue guidance. Can you give us a ballpark expectations around when you think you might be cash -- operating cash flow breakeven?

[Scott Plesha:]

So we'll let Ernie talk about the revenue side also per scripts, and then the second question as well.

[Ernest De Paolantonio:]

Yes. Okay. On the fourth quarter, what we saw was that it was an increase in orders and a lot of times you will see that at the end of the year. You'll see some spec buying ahead of price increases. So that as well as to hold inventory over the holiday, and we saw that at the end of 2017.

[Scott Plesha:]

As far as -- yes, we will not provide guidance at this time. We are really pleased with the growth we've. We've had really strong trends, especially the last 4 weeks. As a matter of fact, we are ahead of our internal estimates at this time.

[Oren Livnat:]

And just to that first answer, are you able to quantify, I mean, it sounds sort of like an inventory effect. Are you able to quantify that amount? I know last 2 quarters you had adjustments, especially last quarter you specified it. Can you give us the sort of normalized number revenue wise this quarter?

[Ernest De Paolantonio:]

For the fourth quarter?

[Oren Livnat:]

Yes.

[Ernest De Paolantonio:]

For the fourth quarter, it was a smaller increase, and it came in the last week, but it's normal. It's normal to see increased sales again at the end of the year as there is some spec buying that goes in prior to anticipated price increases.

[Operator:]

We will go now to Scott Henry with Roth Capital.

[Scott Henry:]

A couple of questions. First, the European royalties for fentanyl looks pretty strong in the third quarter and in the fourth quarter, is that a onetime adjustment? Or is that business stronger than typical?

[Ernest De Paolantonio:]

Yes. What we're seeing, Scott, is on one of our contracts, the income is higher. So we've been seeing higher income as well as timing of shipments. So we had a lot that we shipped out right at the end of last year. It was finished early. So -- but we have been seeing stronger revenue on our ex-U.S. fentanyl shipments.

[Scott Henry:]

Okay. And then BUNAVAIL, I mean, if I look at the numbers it was $1.3 million in 2Q, $1.7 million in Q3 and I kind of expected it to go back towards the $1.3 million, and it was $1.7 million again. What do you think the truer run rate? Is there anything going on there? Or it's just seems like it's been strong a couple of quarters in a row now.

[Ernest De Paolantonio:]

Yes. Well, again, Scott, that's because of the better profitability that we have on our TennCare contract that kicked in, in the fourth quarter, and we expect that to go forward as well.

[Scott Henry:]

Okay. So the $1.7 million will be a go-forward number? Great. And then the increase in reps from 60 to 85, when did that take effect?

[Scott Plesha:]

Hey, Scott. It's Scott. So we basically made offers to reps at the end of Q4. They were trained this second week in January. So really their first full week in the field was the third week in January. So they've already starting to make an impact in some areas. We expect really that major impact of that 20 reps expansion to take place in Q2.

[Scott Henry:]

Okay. And the consortium expense, I assume, that's showing up in R&D. Can you quantify that? And is that a onetime event? Or will you have to make another payment in 2018? How should we think about modeling that?

[Ernest De Paolantonio:]

Yes. Scott, that was a onetime payment. And the onetime payment was for all activity that was done prior to BDSI joining the consortium, and that was $4.3 million. Going forward, it is not that type of a payment.

[Scott Henry:]

Okay. And then the organic R&D, without giving guidance, can you speak directionally for 2018? Would you expect it to be similar, I guess, you'd expect it to be down, there was some high numbers. I guess, would you expect it to be similar to the second half of '17?

[Ernest De Paolantonio:]

It probably will be similar to total '17, Scott, and that's because of the post-marketing commitments that we have for BELBUCA.

[Scott Henry:]

Okay. And I assume you're excluding the onetime consortium payment for that payment?

[Scott Plesha:]

Yes, I am. Yes, I am.

[Operator:]

We will now take our next question from Ken Trbovich with Janney.

[Kenneth Trbovich:]

Scott, congratulations on the contract wins, I guess, I just want to better understand what it means to be a preferred agent. Are we talking about a Tier 2 co-pay, a Tier 3? And what does it mean for Butrans, for example, when on CVS/caremark they no longer have to try and fail, does that means Butrans are excluded sort of can you give us anymore detail there?

[Scott Plesha:]

Well, I'm going to let Mike, again, handle that since he was intimately involved with those discussions.

[Michael Bullock:]

Yes. Essentially, what it means is, it's just easier access to the product. So your preferred -- we don't talk much about tier position anymore only because it's tiers are very complicated and elaborate these days, but it's more about whether you're in a preferred position versus nonpreferred. So the advantage there is that it's an improvement, an easier pathway to BELBUCA. That's what the advantage of being preferred means.

[Kenneth Trbovich:]

Sure. Did Butrans moved to nonpreferred then in any of those circumstances?

[Michael Bullock:]

In some cases, they were in nonpreferred and we just basically moved ahead of them.

[Scott Plesha:]

And again, Ken, I think, some of the -- one of the important things these wins is, again, with Humana being preferred. We don't have to do a PA there. I mean, that's a big deal because almost just a normal process within managed care right now, especially in the pain space with all the regulations and scrutiny are requiring PAs. So not to have to do that. As a matter of fact, we're going to be one of a group of products others have to step through. I mean, we don't have -- they won't have to specifically step through us, it can be one of the others as well, but we're on that list. And then no step that it's now United and the same with CVS. So we're not having to trial and fail another product before we get access to BELBUCA.

[Kenneth Trbovich:]

Sure. So the access is not just improved in terms of covered lives, it's also improved in terms of the ease of access when the physician actually decides they're going to write?

[Scott Plesha:]

That's correct. Now, going to one of the slides, we do have over 80% of our commercial claims are getting through. Now the question is how much work does that take? And what specifically do they have to step through? And we've improved that greatly here in the last 3 months.

[Kenneth Trbovich:]

Sure. And one question just with regard to the sales force expansion, can you give us an understanding as to how sort of post-expansion your territory overlaps with Humana covered lives? Because I'm guessing there is going to be places in certain plans, where you may not have the same sort of coverage that you do with other plans?

[Scott Plesha:]

Yes, that's a great question. So Humana is very heavy in Florida, Texas and even the Midwest into Kentucky and Indiana in that area. So when we expanded, we actually added 3 reps in Orlando. So we now have 8 representatives in Florida itself. So a large percentage. What I can promise you is we have a very focused target list, focused on the right doctors and Humana CVS, United, ProCare and any other plan where we feel we have better access. So we're going to drive sales through those plans the next 6 months to a year and take advantage of the wins we have.

[Kenneth Trbovich:]

Terrific. And then just last question, just in light of what you said about the differences between promoting the CII and the CIII, can you give us a sense of maybe how you folks are leaning towards trying to optimize the ONSOLIS asset?

[Scott Plesha:]

Yes, that's a great question, Ken. So I'll let Al touch on that and I may have a few added comments.

[Albert Medwar:]

Yes. Ken, we are still assessing our options, including promoting with our own sales force. There are couple of things. There appears to be a pretty close match between the physicians who are currently covering with our sales force, and those who are prescribing transmucosal fentanyl products. And I know you know this space pretty well, and that there's been a shift in managing some of these patients, more towards the pain management specialists, much like what we've seen with primary care shifting over to pain management specialists. So there are some good reasons why there maybe solid overlap. We do still think that there is an opportunity to do this very responsibly and we'll stick with our theme of being a responsible company, as we said, with what we're doing with BELBUCA. And I think really by focusing on the special needs of patients, who have breakthrough cancer pain, we can still have that same message.

[Scott Plesha:]

Ken, the last one, so I think, it's really important that Al shared. We view that product -- we obviously have to always sell on label and it's a breakthrough cancer pain product. We believe we should be use on the BELBUCA side before fentanyl should ever be used on the chronic pain side. So there is a clear differentiation for those two products when you're out there selling in front of doctors.

[Kenneth Trbovich:]

Sure. Make sense. And then just last question with regards to the consortium. I know typically there is some sort of an annual costs, I'm assuming that your expenses already include that cost as part of the SG&A item?

[Ernest De Paolantonio:]

Yes. Ken, it does for 2017, and it's included in our budget going forward. Does that answer your question?

[Kenneth Trbovich:]

Yes. I believe so. I just want to make sure that we're talking about separate and distinct cost that the one in the fourth quarter was specific to the R&D and not the normal sort of annual fee that is charged just to the consortium to be part of it?

[Ernest De Paolantonio:]

Right. The expenses, we get a share of those expenses for all companies that belong to the consortium, and that would be our fee going forward. It's around $2 million for 2018, maybe that helps.

[Kenneth Trbovich:]

Yes. No, it does. I'm just trying to clarify that, that normal fee is in SG&A as opposed to R&D?

[Ernest De Paolantonio:]

No, we've included it in R&D.

[Kenneth Trbovich:]

So it is part of R&D? Okay.

[Operator:]

[Operator Instructions]. We will take our next question from Matt Kaplan with Ladenburg Thalmann.

[Matthew Kaplan:]

Congrats on all the progress and especially on the managed care wins.

[Scott Plesha:]

Thank you, Matt.

[Matthew Kaplan:]

Just it looks like you've put it in place a lot of the metrics that you need to really be successful in 2018 in terms of expanding the sales force and then also the managed care stuff kind of start in Jan 1 and also at the beginning of this month in March. Can you give us a sense in terms of where you started 2017 and where you ended 2017 with respect to managed care coverage? And so I think that will give us a better sense in terms of where 2018, now that you have these other pieces in place, what type of year that could be especially for BELBUCA?

[Scott Plesha:]

Yes. Go ahead, Mike. Mike will take that back.

[Michael Bullock:]

So I think a lot of it has to do with where we're positioned on these formularies. So part of it is the contractual things that we've done, but as important or maybe more important are the, what Scott talked about earlier, it's the access to the product. So if you look at plans like United and CVS/caremark be the trends that we're seeing over time from 2017 to 2018 is basically moving from a position where, yes, we were on formulary, but there were certain hurdles that we had to cross before patients could access to products. Over the year, those hurdles were removed. So although we didn't necessarily execute a new contractual agreement, we did improve our positioning through the clinical messaging that we've done with those plans. So that's an important improvement that may not show up in terms of the contract, but it's very important to our sales force and our sales reps when they're out there and our physicians, when they are out there trying to prescribe the product. Contractually, we've seen things like Humana that just came online, that's a brand new agreement. So we'll try and continue on both the fronts whether it's contractual or just through a clinical repositioning, I guess, of the product over time.

[Matthew Kaplan:]

Okay. That's helpful. And then in terms of messaging and the educational process, it looks like one of the hurdles for the product is kind of educational in terms of getting people more familiar with the characteristics of BELBUCA -- of BELBUCA and buprenorphine in general, and how it's also a potent analgesic, I mean, painkiller. Can you tell us a little bit about your strategy there in terms of educational efforts to help grow BELBUCA?

[Scott Plesha:]

Sure, Matt. We believe that it is important to educate, the HCP is going forward around buprenorphine. We feel like the awareness around it has really improved over the year that we've had the product. I think, we've taken a little bit different approach and talk more about the molecule probably than others have in the past. We're going to continue to do appropriate speaker programs and have peer-to-peer education. We'll have presence at all the major pain conferences. And I've mentioned all the other products, the other companies walking away from the space. I think our share of voice is going to resonate to a greater degree, I mean, part of it's addition by subtraction. But us going from 60 to 85, I imagine at these pain meetings we're not going to see as many companies there. So we'll have a physician there and then we also believe it's important to do some nonbranded buprenorphine messaging as well. We've -- finally we have started doing general ads those have just started to hit as well. So we're just getting started on really about a lot of that support.

[Operator:]

We will go next to Tim Lugo with William Blair.

[Ashiq Mubarack:]

This is Ashiq Mubarack on for Tim. Just first the one on cash runway in 2018, what are your thoughts there on the burn? And what, if necessary, are your financing plans for later this year? And then on the Paragraph IV Teva settlements, can you talk a little bit about what scenarios might enable them to launch a generic BELBUCA before 2027?

[Ernest De Paolantonio:]

Yes. On the cash runway, with the cash that we have on hand with our current operating plan, we should get -- we will get into the second half of 2018. And for the financing, I'm going to let Mark Sirgo handle that.

[Mark Sirgo:]

Thanks, Ernie for that. Well, really and truly as part of my transition working with Scott and Ernie on the financial management of the company. So in that regard, I think the best way for us to extend the cash runway further into the year is by selling more BELBUCA. I think that goes without saying and as Scott pointed out, we're trending ahead of forecast in Q1. I think, the second thing that company can certainly, as we've done in the past, control our spending particularly around R&D and G&A to stretch out the cash runway a bit further. We're also going to be looking at, I think, strategic ways in which we can generate revenue, including potential divesting or partnering of BUNAVAIL and now with ONSOLIS. And I think in addition, on the second half of the year, we may have access, we may qualify for the third tranche of the CRG loan, which is approximately $15 million. And, of course, we have access to the equity markets, which by the way, we've not accessed since 2014. So we're always very, very mindful of dilution to our shareholders. So I think as you can see, we've got a number of options, but our main initiative in this regard is to ramp the BELBUCA sales, which as we've described are very, very strong going into the first quarter of this year. So hopefully that helps a bit.

[Ashiq Mubarack:]

Yes, that does. And on the divestiture side, I assume your targets would be additional abroad partnerships? Any updates there particularly in Europe?

[Scott Plesha:]

We continue to look for partnership opportunities with BELBUCA, and there's been a good amount of interest. So our focus, obviously, is the U.S. and Canadian markets, since 80% of opioid consumption really comes out of those 2 regions. We do have interest, the challenge tends to be more around the pricing in some of these other markets. So if we can identify a market that's got a decent pricing structure, I believe that there is still some opportunities for us going forward. And we still get -- we continue to get an interest in ONSOLIS as well, and if there are opportunities there, we will continue to look for partnership opportunities there, too.

[Ashiq Mubarack:]

Okay. Great. And then on the Paragraph IV settlement, a question what might enable them to enter the generic earlier than 2027?

[Mark Sirgo:]

Yes, this is Mark Sirgo again. I was involved with negotiation of those agreements. Those areas were actually redacted from the agreement. So we can't really talk about that. But I think if you look at some agreements that Teva typically have done has had better -- more exposure of the actual contract, you're probably be able to see the types of things that they do. But a lot of it involves market share disruption or lowering.

[Ashiq Mubarack:]

Okay. Great. And then one last one, if you don't mind. What can we expect from the Canadian launch? And with Purdue backing out of the OxyContin and pulling back from their marketing efforts with OxyContin, does that help you? Will there be an increase focus on BELBUCA? Any thoughts there?

[Albert Medwar:]

Yes. I mean, as you know, it wasn't until the end of January before Purdue actually launched in Canada. So right now data-wise, they only have through the month of January. So it's tough to say so far. So what we hear is anecdotal, and we are in pretty close contact with the team at Purdue Canada. And their feedback so far from physicians has been very strong. So they are encouraged by what they are hearing so far. They were, of course, promoting Butrans and with Butrans losing patent protection and also again on the shift of focus to buprenorphine, we know that BELBUCA is, from a pain perspective priority, a top priority for them. As for our expectations, I have to leave that in the hands of Purdue around what they expect for sales. We know that Butrans sales are in the vicinity of about $15 million a year. That's just an example of what another buprenorphine product is doing, but they have not set a specific number for their expectation.

[Operator:]

We will next take a follow-up with Oren Livnat H.C. Wainwright.

[Oren Livnat:]

I don't think it came up on the call at all, but when you're talking about the general tailwinds in the industry with regards to the opioid epidemic, I think you will recall CMS might be talking about implementing some hard morphine equivalent dispensing caps at the pharmacy level. And I'm just wondering, one, if I'm current and that's really supposed to be happening. And two, if that does happen, how you think that will affect BELBUCA?

[Albert Medwar:]

Yes, so this is Al. So there is right now a common -- there was a common period to CMS and from what we've heard there's been some pretty strong push back against putting those limits in place, particularly for chronic pain. We've seen other examples of putting these limits in place, it's typically been around acute pain. It was surprising to see it there for chronic, but I think that they're getting some pretty strong push back. And we, as part of our efforts on the government side, have also been working on the CMS side as well.

[Oren Livnat:]

That sounds like we shouldn't hold our breath for any step change in public policy on that front anytime really soon?

[Albert Medwar:]

Well, I mean, they are supposed to finish the common period and rollout some of their changes in the month of April. I don't know if that piece of it will actually get that far. Just kind on a side note, and Scott made reference to this, the strength of the push right now that's going on behind making sure that there is availability to less addictive opioids. I don't know if you have opportunity to see it, it is out there in the public domain. But a grouping of about, I don't know, dozen or so, 15 senators have actually sent a letter out to all the major payers. And what they're doing is they're advocating the -- that they need to look at their current practices with regards to prescribing and the availability and access to as then they say nonaddictive option. So there is such a strong push out there, and I think the push is going to include through to CMS.

[Oren Livnat:]

And just actually one last one while I have you. Can you talk about gross margins? It seems like they sort of move around quarter-to-quarter. And can you remind us why those would be lumpy? And I guess, where should we expect that to be in 2018?

[Ernest De Paolantonio:]

Okay. Don't forget, our gross margins do include fair value that we had for the inventory. So going through the year, there were some quarters where we had $1 million to $2 million worth of fair value. So having said that, as we look forward to 2018, all the fair value of the inventory that we purchased from Endo has gone through our P&L with the last piece of it going through this quarter. Looking forward to 2018 for BELBUCA, we're looking at plus 80% gross profit.

[Oren Livnat:]

So we should actually see that on the income statement hopefully going forward?

[Ernest De Paolantonio:]

Right.

[Operator:]

And we will take our next question from Scott Henry with Roth Capital.

[Scott Henry:]

Just a couple of quick follow-ups. Ernie, I believe in the past 2 quarters, you've called out some onetime items. I think $2.3 million in the second quarter and $1.8 million in the third quarter. Maybe you put a slide up with it, but what were the onetime items for fourth quarter?

[Ernest De Paolantonio:]

Okay. So usually what I do is I put in the fair value. So we have $300,000 of fair value in the inventory of BELBUCA cost of goods for the fourth quarter. We had our $1.125 million of amortization of the BELBUCA intangible for a total of $4.5 million.

[Scott Henry:]

Okay. Were there any others in the quarter?

[Ernest De Paolantonio:]

Not on the onetimers. The only other thing we would've had, Scott, was the stock comp and...

[Scott Henry:]

And just the pipeline, I don't know when the last time you updated it was, but what is the time line for the long acting injectable buprenorphine? Where does that stand now?

[Albert Medwar:]

Yes. So this is Al. So I think as we've said before, we have the product formulated in where we've got the IND open, we'd be ready to go forward. Right now the focus of our resource is just really behind BELBUCA, but we'd be in a position to move forward with the injectable formulation at some point. But like I said, right now the focus is on BELBUCA.

[Scott Henry:]

Okay. So it's temporarily on hold?

[Albert Medwar:]

Yes, no immediate plan to start it.

[Scott Henry:]

Okay. Fair enough. And where does ONSOLIS stand right now?

[Albert Medwar:]

Okay. So we're reassessing right now our plans for ONSOLIS. So as I've made reference to, we appeared to have a pretty close link between the physicians that we currently call on and those who are treating patients with breakthrough cancer pain with the fentanyl products, we still have to do the final analysis of it and some additional work on. We'd also have to make some changes in our agreement to that we've got with in place with Meda-Mylan. But we'll be assessing that and wrapping that up over the next few weeks. We'll in a position to file for our new manufacture next month. And with that, we would hope to have that manufacture qualified and everything approved a little bit later this year.

[Scott Plesha:]

Yes. Scott, this is Scott. That's a great question, too, because when I look at our sales force, I feel like we've built a very strong commercial organization. And right now, we are in front of pain management. For the most part, we're selling one product. So if we were -- we need to do very a in-depth analysis on this, see if it fits in our bag. It'd be a great way to leverage that commercial infrastructure that we've built and really kind of defer some of our costs there. Any incremental revenue would be, obviously, a huge benefit to the company.

[Operator:]

That concludes today's question-and-answer session. At this time, I'll turn the conference back to Mr. Scott Plesha for any additional remarks.

[Scott Plesha:]

Okay. Thank you. In closing, I want to thank our employees for all the hard work and dedication and also our shareholders for their continued support. I look forward to updating everyone at our Q1 earnings call. Thank you, though.

[Operator:]

This does conclude today's conference. Thank you for your participation. You may now disconnect.