BioDelivery Sciences International, Inc.
Q4 2014 Earnings Call Transcript

Published: 17 Mar 2015

[Operator:]

Good day and welcome to the BioDelivery Sciences, Fourth Quarter and Full Year 2014 Earnings Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Al Medwar, Vice President of Marketing and Corporate Development. Please go ahead sir.

[Al Medwar:]

Good afternoon. This is Al Medwar, Vice President of Marketing and Corporate Development for BioDelivery Sciences, and welcome the BioDelivery Sciences fourth quarter and full year 2014 earnings conference call, our first earnings conference call. Leading us through the call today are Dr. Mark Sirgo, President, Chief Executive Officer and Ernest De Paolantonio, Chief Financial Officer. Andrew Finn, Executive Vice President of Product Development will join us for the question-and-answer session following prepared remarks from Mark and Erney. Before we begin today I’ll be reading a notice and disclaimer regarding forward-looking statements. Certain statements of BDSIs 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 believes and assumptions about the future but are not statements of fact and therefore involves and are subject to significant risks and uncertainties. Forward looking statements may include without limitation statements with respect to BDSIs plans, objectives, projections, expectations and intentions and other similar statements about the future. Forward-looking statements are typically identified by words such as projects, may, will, could, would, should, believes, expects, anticipates, estimates, intends, plans, potential or similar expressions. These statements are based upon the current beliefs and expectations of the BDSIs management and are subject to significant risks and uncertainties, including those detailed in today’s conference call as well as BDSIs filings with the Securities and Exchange Commission. Please note that actual results, including without limitation results for the commercial launch of BUNAVAIL and the clinical trials for an FDA review of BDSIs products and development may differ significantly from those set forth in the forward-looking statements. The risks and uncertainties related to forward-looking statements are also subject to change based on various factors, many of which are beyond BDSIs control. BDSI undertakes no obligation to publically update any forward-looking statements, whether as a result of new information, future events or otherwise except as required by applicable law. You are advised to review BDSIs SEC filings for Risk Factors that could impact BDSIs ability to achieve these goals described in the forward-looking statements. And with that, I’ll turn the call over to Mark Sirgo, Mark.

[Dr. Mark Sirgo:]

Thank you, Al. Good afternoon everyone, and thank you for joining BDSI’s inaugural quarterly earnings call. Going forward, we intend to host these calls in association with reporting our quarterly financial results. This call comes at the most exciting time in our company’s history. 2014 was truly a transformational year for BDSI. We evolved from a clinical development focused company to a fully integrated specialty pharmaceutical company with multiple compelling assets focused on high growth areas of pain and addiction medicine. On today’s call, I will review our key achievements from 2014 and outline our upcoming milestones for the remainder of 2015, which could become the most prolific year on history as it relates to creating shareholder value. Now, let me begin by giving you a very top-line look at some of our 2014 accomplishments. Starting with the NDA approval of BUNAVAIL for the maintenance treatment of opioid dependence and its subsequent launch in November of last year, the two positive Phase 3 trials with BELBUCA which we formerly referred to as BEMA Buprenorphine for chronic pain followed by an NDA submission in December of last year. We completed enrolment of the first of two Clonidine Phase 3 pivotal trials, and we ended the year with the in-licensing of a 30-day buprenorphine injectable product for the treatment of opioid addiction as well as chronic pain. So 2014 was quite a year, but we believe we have potential and even more compelling year in front of us in 2015, starting with our launch of BUNAVAIL. As many of you know, we formerly launched BUNAVAIL in the U.S. in November 2014, and although we battled through the shortened holiday weeks in November and December and inclement weather in various parts of the country since then, we have and continue to make steady progress in implementing our launch plans and growing usage. But before I provide some more detailed commercial color on the products, I’d like to take a moment to layout BUNAVAIL’s key benefit that drive our enthusiasm for the product’s long term and that is resonating with doctors and patients who have begun to use it. First, BUNAVAIL is the only buccal film delivery system for the maintenance treatment of opioid dependence. All other buprenorphine products, including Suboxone must be placed under the tongue and given they have no muco-adhesive properties, patients must attempt to keep it place while it dissolves without talking or swallowing for a minimum of 10 minutes. Frankly, I think that’s a crude way to administer these important products in the 21st century. The advanced BEMA delivery platform, however, utilized with BUNAVAIL allows for easy and convenient patient use. Once placed on the inside lining of your cheek, it adheres in seconds. Patients can then go about the normal daily routine that includes talking and swallowing, things we take for granted while the medication is being consistently absorbed. Importantly, BUNAVAIL has demonstrated twice the bioavailability of buprenorphine versus Suboxone, a current market leader. This allows patients to get the same benefit as Suboxone with only half the dose. This lower dose used with BUNAVAIL could potentially lessen the incidence of certain side effects such as constipation, which is what we saw in our 201-study, as well as less than the amount of drug available for misuse and diversion, which unfortunately occurs at very significant levels. So overall, we are pleased with our initial launch efforts and the early physician and patient receptivity to BUNAVAIL. As I mentioned previously, earlier feedback suggests that BUNAVAIL’s benefits are resonating well with physicians and patients. Additionally this market continued to grow over the past year with prescription growth remaining in double digits. As a result of this growth, market from buprenorphine products for the treatment of opioid dependence now approaches 1.8 billion. We launched BUNAVAIL using our 60 person sales force, which is focused on our initial target physician audience for approximately 3,800 doctors and we have completed over 19,000 calls to date, with an average about five calls per physician target. In addition, we’ve completed more than 110 peer to peer exchange or speakers programs with many more to come. These meetings have drawn approximately 10 to 12 healthcare providers per session and all led by our key opinion leaders. We are seeing some favorable trends in prescription and user data we’d received to date. This began the year after getting through the ups and down in prescription volume associated with the thanksgiving through New Year’s series of holidays. We have generally seen continued steady week over week growth in prescriptions. Importantly, we are seeing good repeat use among early adopters. In addition, we continue to receive positive feedback from physicians with respect to their prescribing experiences with BUNAVAIL. Let me share one example with you that sticks in my mind, and this comes directly from a physician in California who was treating a sales person previously taking Suboxone. This individual worked in a luxury car dealership, with the opportunity to sell a car that can come up in any moment without notice. Each time he had to take his dose of Suboxone, he would go into his office, lock the door and go through the ritual of placing the product under this tongue for 10 to 15 minutes without speaking of swallowing. During that period of time, he was unable to take sales calls or approach new customers. One day, a physician suggested he try BUNAVAIL and he did and during his first week on BUNAVAIL he had a customer come into the dealership and went on to approach the customer while the BUNAVAIL film was dissolving and he initiated a sale. While the sales person sold a car that day and reported back to the doc that he was finally able to work without fear of interruption now that he was talking BUNAVAIL. This plays with the psychology of taking these types of products unfortunately. This is just one of many examples we’ve heard and this example along with others point out the difference that BUNAVAIL can make in the daily life of those being treated with Buprenorphine for opioid dependence. While looking at sales to-date over 10,000 prescriptions have been dispensed for BUNAVAIL and we are seeing steady growth in the number of physicians prescribing BUNAVAIL, a key metric we follow as a prerequisite for continued growth. Through the end of February, a total of 900 physicians had prescribed BUNAVAIL at least once. We also continue to work diligently to make progress in our efforts of pure managed care access to BUNAVAIL, which is already a significant challenge for any new product launch, particularly in a category with multiple branded and generic products available. Our goal into the launch of the secure, tier 3 access with commercial plan, and to show a high level of discipline around the discounting in order to gain plan access. We are pleased with the progress we have made to-date with BUNAVAIL now being covered in approximately 165 to 175 million lives. In those lives, BUNAVAIL in available in tier 3 but no restrictions in 90% of patients lives. We continue to use contracting judiciously to avoid restrictions. Overall, we are meeting our commercial managed care access goals. Simultaneously, we submitted bids for Medicate, Medicare coverage, which is a lengthier process. As a result of our launch timing in fourth quarter of last year, we were only able to bid certain portions of this business coming into 2015 that will have an impact beginning mid-year. We expect to make inroads on a state-by-state basis, particularly as we move into the second half of 2015. In addition to our work on the managed care side, we continue to provide significant financial support programs to the combination of both a new co-pay and cash-pay support program. These are all competitive necessities. As we move further into 2015, we will continue to execute of our launch plan with multiple key ongoing initiatives focused on five key areas. Starting with sales, while through the use of better prescribing and managed care data, we will be better targeting physicians where there is a willing to prescribe, but more importantly we have managed care access in that office that allows us for prescription reimbursement. We will also be expanding the sales force selectively and strategically in higher performing areas. Now turning to managed markets, we plan to continue expansion through 2015, including access to the Medicare and Medicaid programs where we do not currently have coverage. This will be a second half of the year opportunity for BUNAVAIL access. This represents approximately 20% to 25% of the total business. With regard to pharmacy stocking, we will continue to work with the largest chains to better assure our product is not only stocked, but there is a reordering mechanism. In marketing will continue to increase product awareness via expanded peer-to-peer speaker programs, conference attendance such as the substantial presence we will have American Society of Addition Medicine meeting in April of this year and other key regional meetings. We will also continue the use of enhanced digital and social media and as mentioned earlier, maintaining aggressive co-pay and prior authorization support programs. And finally the implementation of our phase 4 clinical program, which is designed to increase physician experience and exposure to BUNAVAIL or generating an important additional clinical data, first of which will kick off in the second quarter of this year. Now based on the cumulative efforts we anticipate steady sustained growth in BUNAVAIL prescriptions throughout 2015. As we have said in the outset, this is not a hockey stick type launch, but we believe we are building a strong solid foundation to support long term growth and would encourage everyone to follow our quarterly results. Now we will move on to discuss another exciting opportunity for the company in 2015, which is BELBUCA, formally known as BEMA Buprenorphine for the treatment of chronic pain. 2014 was a milestone laden year for this product as well. We reported two robustly positive in terms of efficacy phase 3 trials for the product. Both trials met the primary efficacy to the end point and BELBUCA demonstrated significant improvement in pain compared to placebo. The study’s secondary endpoints were also supportive of BELBUCAs efficacy, while the safety profile was unremarkable in each card. These results drove an NDA submission for the product late last year by our commercial partner Endo Pharmaceuticals. That NDA filing has since been accepted and our PDUFA date is October 23 of this year. The acceptance of the NDA filing triggered a $10 million millstone payment form Endo as well and the potential approval BELBUCA this year would trigger up to an additional $50 million milestone payment on Endo. Now Endo will be responsible for the marketing and sales of BELBUCA through their highly experienced and effective commercial organization that has had a long successful history of selling products in the pain space, such as Opana ER, Lidoderm and Voltaren Gel. Based on our understanding of this market, including our own quantitative market research and given the unique benefits of BELBUCA, BDSI sees a peak sales opportunity that could be in excess of $500 million. And just to the milestone payments I just mentioned, we are also eligible to receive up to $55 million in potential sales milestones based on achieving certain sales targets and a mid upper teen royalty based on increasing sales. Let me now discuss Clonidine Topical Gel for the treatment of painful diabetic neuropathy, which we believe has the potential to become the most valuable assets in our entire portfolio. This is an area of high unmet medical needs as over 25 million in the United States suffer from diabetes. Neuropathy is the most commonly complication associated with diabetes with 50% or more patients suffering from painful diabetic dreadful neuropathy. Available products have modest efficacy from uses limited by adverse effects and drug interactions. Importantly, there is no topical treatment available. Within the next two weeks we expect to release data from our phase 3 trial with Clonidine Topical Gel. As you may recall, in 2014 we announced encouraging results from an interim analysis of this trial and based on this analysis we adjusted the sample size to maintain 90% power and optimize our chances of success. As to the results, the first Phase 3 study be positive, we have planned to file an application with the European regulatory authority in the second half of this year. A U.S. submission would follow positive results from a second Phase 3 that buying would occur likely in the first half of 2016. FDA has also confirmed fast track designation for this program, which recognizes the need for developing new therapies for this serious and debilitating condition. And as it relates to partnering in the European Union, we have had several enquiries to date. So we are extremely excited about this opportunity and see estimated annual peak sales of Clonidine Topical Gel in excess of $300 million. Certainly given the uniqueness of this topical product and the limited competition, we anticipate the managed care environment should be quite accepting of this product and thus potentially align for positive patient access. All in all, a very exciting near term opportunity for the company. As it relates to our pipeline, we continue to look for products that would complement our current portfolio and our expertise in pain and addition medicine. And as such, last year we entered into an exclusive agreement with Evonik Corporation to develop and commercialize a proprietary injectable form of buprenorphine potentially capable of providing 30 days continuous therapy following a single subcutaneous injection. We believe an injectable formulation of buprenorpine provides the opportunity to address two of the greatest challenges in opioid dependence treatment; adherence to treatment and diversion potential. We also have the option to peruse in indication for the treatment of chronic pain with this technology. So we really have two products from the same technology platform within the same deal. Finally we had an additional commercial opportunity to our product portfolio earlier this year, when we reacquired the North American marketing rights for ONSOLIS for the management for breakthrough pain in patients with cancer. During the process of submitting the data this month that we believe will allow FDA to move this product back into the U.S. market place, we are also reviewing proposals to potentially out license the product. And needless to say, we have another extremely exciting year in front of us. We hope we are able to continue to build sustainable long term value for our shareholders. With that, I will now turn the call over to Ernest De Paolantonio, our CFO for his further review of the fourth quarter and full year 2014 financials after which we will move to the Q&A. Erney.

[Ernest De Paolantonio:]

Thank you, Mark. I will now briefly review some of our key fourth quarter and full year 2014 financial results. For a more thorough review of our full year financial results, please see our 10-K which we will file tonight. First, before we get into the key financials, let me start off with an explanation of how we are accounting for BUNAVAIL sales. Since we just launched BUNAVAIL and don’t have a history of BUNAVAIL returns, accounting guidance requires that we differ revenue and use third party prescription data to record sales until we have a history and can more accurately forecast returns. What that means is that instead on reporting on x-factory sales, we are differed sales and are recognizing revenues as scripts are written and have accounted for x-factory sales as differed revenue on our balance sheet. Also prescription data is usually available four to five weeks after the months close, and therefore 2014 reflects only the first month’s sales, which consisted of the initial three weeks of approximately $100,000. Now let me move of to our key financials. Net revenue for the fourth quarter ending December 31, 2014 was $2.5 million compared to $4 million in the corresponding period of 2013. Revenues in the most recently completed quarter include BUNAVAIL product revenue, royalty revenue for BREAKYL, our partnered BEMA Fentanyl product with Meda in Europe, contract revenue from differed Endo milestones, as well as R&D reimbursements revenue from Endo for the development of BELBUCA. In the fourth quarter of 2013 with the exception of BUNAVAIL product revenue, revenues came from the same sources as 2014. Total operating expenses for the fourth quarter ended December 31 was $17.8 million compared to $15.4 million in the corresponding period of 2013 and lower than the $20.4 million we reported last year. Our commercial cost remain nearly the same in Q4, but our R&D spending decreased as the BELBUCA program concluded, making up the difference compared to Q3. Going forward we expect total expenses to be in the mid to high teens range on a quarterly basis in 2015. Net loss for the fourth quarter was $17.6 million or $0.51 per diluted share compared to $12.8 million or $0.33 per diluted share in the corresponding period for 2013. Now for the full year 2014 financials. Net revenue was $38.9 million compared to $11.4 million for 2013. 2014 revenues include BUNAVAIL product revenue, royalty revenue from BREAKYL, research and development reimbursements from Endo for the development of BELBUCA and contract revenue from differed Endo milestones. Revenues in 2013 with the exception of BUNAVAIL product revenue came from the same sources as 2014. Total operating expenses for full year 2014 were $72.7 million compared to $65.7 million for full year 2013, an increase of approximately 11%. R&D expenses in 2014 were primarily driven by the development programs for BUNAVAIL, BELBUCA and Clonidine Topical Gel, which was similar to our R&D expense breakdown in 2013, but with a slightly different distribution among the products. Commercial costs that apply to selling, general and administrative costs including BUNAVAIL sales and marketing expenses mostly were driven by the preparation associated with the launch, Other selling general and administrative costs include legal, patent, accounting, insurance and expenses associated with medical and regulatory affairs, wages and nearly $7 million of non-cash related stock based compensation expense. In 2013 general and administrative costs included the same type of expenses without the commercial expenses. Net loss for the year ended December 31, 2014 was $54.2 million or $1.12 per diluted share compared with $57.4 million or $1.51 per diluted share for the year ended December 31, 2013. As of December 31 we had $70.5 million in cash and cash equivalents as compared to $23.2 million on December 31, 2013. We believe we have sufficient cash for the next 12 months irrespective of receiving the Endo $50 million milestone payment. Now let me turn it back over to Mark for the Q&A session.

[Dr. Mark Sirgo:]

Thank you, Ern. We’d be happy to take any questions at this time.

[Operator:]

[Operator Instructions] We’ll now take our first question from Charles Duncan with Piper Jaffray.

[Charles Duncan:]

Hi guys, thanks for taking the question and congratulations on a good year of progress. So Mark, my first question is regarding BUNAVAIL. I’m wondering if you’re just kind of philosophically focused on broadening the prescriber base or are you more focused on driving depth within a practice for prescriber, and when a prescriber has broadly adopted BUNAVAIL¸ do you know why and what are the elements and what can you point to in terms of your strategy?

[Dr. Mark Sirgo:]

Yes Charles, thank you for the question, good question. And of course, we’re still early in this launch, and we’re just now getting probably some of the best data that we’ve been able to collect up to this point. We needed enough usage out there and enough time to be able to collect enough data and make some interpretations of that information more reliably. With that in mind, I think what we’ve seen – we’re tracking what we call loyalists which are physicians who are prescribing over 20 prescriptions per week. We’ve got the next group, which we refer to as the doctors that are writing between 11 and 20 per week and then we’ve got users that are writing between two and 10 and then what we call trialists that have written at least one. So we’re really focused on the loyalists and the adopters right now. To your point to drive deeper into those practices to make sure that we’re capturing as many of the patients in those practices as possible, because obviously there’s been a compelling reason why they are interested in using BUNAVAIL. So, I don’t know that I can give you any greater information around those loyalists and adopters at this point in time, but I think they were clearly physicians who began writing the product very early on after launch and they have continued to write, which tells us that the product is performing according to its profile, which as I indicated at the outset is all technology driven. The BEMA technology is really where all the benefits are derived; a very efficient way to deliver Buprenorphine. We give half the amount of drug to get twice – we give half the drug to get the same plasma concentration as Suboxone; less drug, always beneficial , potentially less diversion, less misuse, less potential side effects and so on. Those are the messages that we’ve been delivering to these physicians from the very beginning, and those are the ones that are beginning to be fed back to us is the drivers behind the adoption. The question is how can we get more or why do these are those that have yet to write and I think that’s where we are beginning to focus more of our attention. But I can tell you that Buprenorphine works extremely well and physicians have had access to this wonderful molecule for a better part of a dozen years, and they basically can rest assure that if the patient takes the Buprenorphine product they are going to get positive results, but the part of the patients that requires more attention by these physicians are the cycle social needs of these patients. So the psychological counseling, the social counseling, getting these people back into society; I mean when these people begin treatment, they are broken, they are at very bottom, they are at the depths of despair, and that’s where the doctor tends to spend the majority of their time, because if you don’t cure them, you’ll never break them of the habit. So what I’m saying is that there’s been a heavy reliance on Buprenorphine. Physicians are comfortable with it. They know it works; it works within 24 to 48 hours, so they are not really focusing on Buprenorphine therapy as much as they are with the other needs of the patient. Therefore, you need to consider that doctors have not had treatment options before and therefore have gotten accustomed to some of the shortcomings of what they have been using, and it will take certain doctors longer to convert them to BUNAVAIL we believe based on that. What we do see is that most docs who have converted to BUNAVAIL, they continue to write more.

[Charles Duncan:]

Okay, that’s helpful. And so you haven’t received any adverse effects from say some of the trialists that is maybe inhibiting their prescribing behavior and then secondarily, you did point to five initiatives including sales selectively expanding. I believe that was certain territories. Can you give us a sense as to the number of sales people you might add; is that 10%, is it 20%, what kind of numbers are we talking about in general?

[Dr. Mark Sirgo:]

Yes, let me go back to your prior question, because you wanted to know if we got any adverse feedback on the product, and I would say that there has been nothing significant and nothing consistent and what I would point out, I think most importantly is that we’ve had absolutely no feedback around the fact that the product isn’t working, and one of the more recent product launches in this category has had that feedback. So we have not heard anything negative that would lead us to believe that there was any issue with this product whatsoever quite the contrary. To answer your next question about the sales force, we have some areas of the country right now that are doing extremely well, and with 60 sales people, there was adequate coverage for these 3800 physicians. They are large territories. So we’ve said from the beginning that if we see positive activity that would support another sales individual in one of these high growth areas, we would consider putting one in and that’s what we’re talking about. So selectively, strategically we’d add more, we are considering it right now. Percentage wise, I think probably in the range that you’ve indicated, 5% to 10% over the coming, probably 12 months, but that’s an early prediction.

[Charles Duncan:]

Okay, that’s helpful. And one last question and I appreciate your patience. Moving over to Clonidine Gel and the near term Phase 3 read, can you provide us a little bit of – or remind us perhaps a little bit of color on the elements of trial design that gives you confidence in the potential for there to be a positive readout and specifically are you stratifying for functional pain receptors and is that going to be a primary analysis and for that trial. Thanks.

[Dr. Mark Sirgo:]

Good question Charles. I’ll turn it over to Drew Finn who heads up the supply department. Drew.

[Andrew Finn:]

Hi, Charles. Yes, we’re actually only selecting patients that have functioning pain receptors in their feet. So unlike the previous study that was done by Dr. Campbell, we’re only selecting the patients that were responders in his group and then we are even going further with a placebo washout in patients that are – we have two factors in there; one that came from the Campbell study and one that we’ve included ourselves. So we think we have enriched it about as far as it can go given the population. It is a parallel group study, not a randomized withdrawal dose there. As you recall, we did the interim analysis back in the summer and that interim analysis used a primary outcome measure and use the analysis that was going to be used in the final analysis. That interim analysis indicated we needed some additional patients. We increased the sample size by about 100 patients. That sample size now is four times the sample size that was in the Campbell study that had the same criteria of functioning pain receptors in their feet. Did I answer your question Charles?

[Charles Duncan:]

Yes, I believe so. And with this readout, is it possible that you could – if you had noisy data, is it possible that, I’ll call it a partial win, one that you understand in terms of the patient characteristics could still result in a second Phase 3. And then the alternative is, if it’s a big win, is it possible that you might consider discussing that with the agency for US regulatory path or is it just definite that you’ll need a second Phase 3 for that path?

[Andrew Finn:]

I think if it was close, but didn’t reach the primary outcome or statistical value that we set, the alpha value, we would meet with the agency and discuss it with them, because there’d be two studies right in a row that came to the same physician. We’re on track for starting our second Phase 3 study right, so there is no deviation in that plan.

[Charles Duncan:]

Okay, thanks for the info.

[Operator:]

We’ll take our next question from Tim Lugo with William Blair.

[Tim Lugo:]

Thanks for the question and congratulations on the progress as well. Drew, for the Clonidine study readout that was just coming up, can you remind us besides the enrichment, maybe some of the additional changes between the Phase 2 and the Phase 3. Can you talk maybe about the run in period and if these patients have failed the number of oral therapies and maybe any rescue medication is allowed.

[Andrew Finn:]

Tim, the Clonidine is used as an add-on in this study to whatever the patient is receiving at the time they enter. So they don’t have to stop anything, they don’t have to use this in place of anything. So it’s a wonderful design in terms of just supplementing whatever the subject is on. We are enriching the trial as I indicated earlier with a placebo washout, so everyone goes onto placebo to start with. Unlike the BELBUCA trials where everyone titrates to an effective dose and then gets randomized either placebo or active, in this trial all the subjects are started off on a placebo and those that have a response to placebo don’t randomize. So we moved that group from the randomized portion of the study and that’s the additional element of enrichment that’s going beyond what was done in the Campbell study. Is that helpful?

[Tim Lugo:]

That’s very helpful. And I believe back at the original interim you mentioned upsizing to 220 patients and then it became 263 or so in December. Can you just talk about your ideas behind that enrollment? Is it just really increasing the power, did you see anything on dropouts? Any color you could give would be appreciated.

[Andrew Finn:]

There’s nothing on dropouts Tim. It’s all just been a matter of how many patients are loaded into the funnel and a lot of what we were giving you earlier were estimates of the number of subjects that would make it through the funnel, so they would start off and be screened, be tested for their capsaicin response and then go in through the placebo washout that I just described previously. So the earlier numbers were estimates of where we were going to end up based on some calculator predications. Where we ended up right now is right in the range of where we specified previously, somewhere north of 250 subjects.

[Tim Lugo:]

Okay, great. And Mark, during the initial several months of launch, is there anything that has changed your opinion that BUNAVAIL has over 250 million product at peak.

[Dr. Mark Sirgo:]

Yes, hi Jim. No, I mean it’s still very, very early in this launch. So we certainly wouldn’t be able state that we have any information that would allow us to change what we think our peak forecast would be at this time, so no, we’re still bullish. As I said, we got much better data now at our disposal, which we’re using to better target the sales people, including managed care data, so that when they approach an office that we know are willing and able to write BUNAVAIL, they also had a proper managed care coverage that aligns with our coverage. So we’re not wasting their time, we’re not wasting the physicians time. This is data that honestly we didn’t have when we launched the product, so all that allows us to better focus to these people that we’ve got in the field out there. Another thing I’d say again is that the amount of time that we have access to this physicians. All the sales people indicated this is the first launch that they’ve ever had with this type of accessibility. These physicians are certainly more than willing to listen about a new product and so having good access, we just to make sure we’re in the right places going forward to effectively sell the product.

[Tim Lugo:]

And it sounds like all the initial feedback your getting from actual physicians in the field and from your sales force in the field has been very positive, but for those on a street who watch the weekly scripts can you just maybe point towards when you expect to see those ramp?

[Dr. Mark Sirgo:]

Well again, I just indicate that we’ve never indicated its going to be a hockey stick launch by any means. But in terms of continued month-on-month, quarter-over-quarter growth, I think you’re going to see it continue. The second half of the year the Medicare opportunity will kick in. There’s a lot of work going on there right now and we’re making good strides to secure contracts there and I think the rest of it is on the commercial side where we’re in a much better understanding of where the key prescribers are, the line up with our coverage and also we’re seeing a lot on the cash based side and we’ve stayed very competitive there. We just adjusted our trial card, our co-pay card, so that we have a comparable card to our competitors, so we’re no longer disadvantaged there. We went out with that launch for the better program and our competition quickly responded to that and so we made an ingestional judgment just last week. So, I think we are making proper adjustments to what we’re seeing in the field in real time and I think it’s going to pay off long term.

[Tim Lugo:]

Great, thanks for the questions.

[Operator:]

We’ll take our next question from Matt Kaplan with Ladenburg Thalmann.

[Matt Kaplan:]

Hey guys, can you hear me? Hello?

[Dr. Mark Sirgo:]

Hey Matt.

[Matt Kaplan:]

A couple of questions, first on follow up, focusing on BUNAVAIL a little bit, just talk a little bit more about the access in terms of patient access to the drug when you typically go into a doctor’s office. What percentage of the patients now have coverage?

[Dr. Mark Sirgo:]

Right. So on the manucare side, the commercial side we’ve got between $165 million and $175 million lines and that’s at the large PBM level. We have encountered some plans below the large PBMs that can operate autonomously that may not adhere to the same contractual arrangement that we have with that larger PBM and that goes on frequently. We have encountered it to be more of the exception in the rule, but when it happens and the doctor’s office that might be inclined to write BUNAVAIL has a large population within that plan and we’re basically out of that office. So we’re just starting to understand where some of those plans exist and where they do we’ll either try to negotiate with those plans specifically or we’ll just avoid those offices. Again, this is not widespread, but it only takes a couple of rejections at a physician’s office for them to stop writing a product, so that’s what I mean by better targeting. I mentioned the Medicaid, Medicare is something we don’t have access to right now, but we’re in the throws of negotiating those contracts and that will be a second half, probably starting at the end of the second quarter, that’s really a second half opportunity for us and that’s 20% to 23% in the overall business. And then finally the cash pay, which we’ve seen a significant amount of within the prescriptions that have been written for BUNAVAIL. We remain extremely competitive there. So I think we’re well positioned and we’ve learned quickly where we may be disadvantaged or challenged and we’re working aggressively to overcome those.

[Matt Kaplan:]

And in terms of availability, once a script is written, are you running into any issues of patients being able to get a script filled.

[Dr. Mark Sirgo:]

Well, as I mentioned, just in the managed care areas where we may not be on formula and its only Medicaid and Medicare, but that will be loosening up as we move into the latter part of the second quarter. At the pharmacy level there’s been some challenges there, which again is typical to the new product launch, because nobody really auto stocks to these new products anymore, but we’ve run into some challenges on the pharmacy side in selective areas of the country, where pharmacy won’t stock the product until the prescription shows up. But the problem with this patient population is when they will decide to enter into treatment, they need the product and they don’t want to be told it maybe a day or two before they can get the product in. Likewise, some chains do not automatically reorder and in those cases when someone comes back for a refill, they may not have another box on the shelf for them and they run into the same problem they have when they try to get the original prescription filled. So I’m just telling you this in transparency. It’s not a permanent problem for us whatsoever, but when your launching a product you’d like to try to avoid these things as best you can, because anything that keeps a patient from getting the prescription filled and called back to the doctor, because of that often times persuade the doctor to go back to writing what they were accustomed to until those types of problems are solved. But we’re working through things with the managed care and the managed care challenges I mentioned and certainly at the retail level, pharmacy level as well.

[Matt Kaplan:]

And then in terms of your sales program that you put in place, for example the Dr. Dinners, what do you see as being kind of most successful in converting doctors to using BUNAVAIL?

[Dr. Mark Sirgo:]

Well, I think we’ve got some great key opinion leaders that lead these meetings and we’ve had great attendance. As I mentions, 10 to 12 healthcare personnel attending these meetings, many of them being physicians, but there are nurse practitioners. There’s physician assistance and there could be other staff there that are instrumental in treating these patients. So we’ve had great attendance led by great key opinion leaders I think have been well trained on the product and we track these physicians coming in, in terms of whether they’ve written or not-written and we of course track them once they’ve left these meeting and those who came in writing, all appear to be writing more and those who didn’t write, coming in appear to be writing once they’ve had one these meetings, or been through one of the sessions. So we think they’ve been extremely effective. We’ve done over a 100 of them to-date and we continue to do them and we think it’s one of the more meaningful ways to get patients to try the product when they have a colleague that they respect that is using the product and walk them through the advantages that they are seeing.

[Matt Kaplan:]

Great, thanks, that’s helpful. And then just question for Drew I guess on Clonidine with the Phase 3 data coming out pretty soon. Could you remind us in terms of what we are looking for in terms of the primary end point and how this study was powered to show different treatment in placebo?

[Andrew Finn:]

Sure. From the outcome measures, the difference between the placebo and the quality and the change from base line from zero to 12 weeks. So we expect that all patients in the randomized portion of the segment, the main numbers will drop in both groups in the randomize portion of the study, but the drop in the Clonidine treatment group will drop will be more. We powered the study for a difference between treatments of approximately 1.0 in our net sale of zero to 10 and we had 90% power planned at the outset and we adjusted accordingly at the interim analysis.

[Matt Kaplan:]

Very good. And then in terms of the study, identifying patients with active receptors, using the cap phasing [ph] test, are you also validating the pen test as well in the study.

[Andrew Finn:]

Yes we are using the land score in addition to that, which is a validated instrument for evaluating patients with neuropathic symptoms. So we are using that along with an inclusive Neuropen and to broaden out the capability of assessing patients in further studies.

[Matt Kaplan:]

Well, congrats on the progress and thanks for talking the question.

[Dr. Mark Sirgo:]

Thanks Matt.

[Operator:]

We will take our next question from Scott Henry with Roth Capital Markets.

[Scott Henry:]

Thank you and good afternoon. Just a couple kind of nuts and bolts questions. Starting on BUNAVAIL, I guess I didn’t quite understand, there was some comments about script data only being available for a couple of weeks. Did I hear that correct? I’m not sure why you wouldn’t have the full script data for the fourth quarter, at this point in time.

[Dr. Mark Sirgo:]

Are you talking about earnings we’re reporting?

[Scott Henry:]

Yes, it had to do with the $100,000 reported and some of the comments that you related to only … [Cross Talk]

[Dr. Mark Sirgo:]

About five weeks at the end and we put our numbers to rest, Scott. So we only reported the sales out of November. The December sales will be in the first two months of the quarter, and it will be part of – it will have December and then the first two months will be in this quarter and subsequently otherwise you are going to have a mismatch as well, but those sales are...

[Scott Henry:]

Do you guys have a one month lag in your reporting of data or...

[Ernest De Paolantonio:]

Scott, the reason being, you I know you always track weekly as do we, but for reliability purposes, we used the rolled up monthly data, because its generally more reliability and it captures all the channels. So the monthly data lags behind slightly.

[Scott Henry:]

Yes, I mean isn’t it available in the middle of January. I guess I’m confused.

[Ernest De Paolantonio:]

December data doesn’t become available until February.

[Scott Henry:]

Okay, I guess we use different prescriptions services that is. Moving on, could you give any sense of what the gross to net is on BUNAVAIL?

[Dr. Mark Sirgo:]

Yes, Scott this is Mark. We are not going to be in position to talk about gross to net for a while. We are still under negotiations for several of these managed care contracts and as you know things fluctuate as you go through the early launch period with discounts and rebates and so on. So we are still sort of in a period of time where we would not be able to give reliable information around gross to net at this point, but we will report on that as we get a bit more confidence with all the numbers that are not yet completed.

[Scott Henry:]

Okay, certainly fair enough. And then looking at Q4, I think by my math it’s the three of the annual. I messed up something in the prior quarter, was it about $2.5 million in revenues. Could you break that out? I know $100,000 of that was BUNAVAIL, but $2.4 million, was there a big break on the quarter or is it research contract revenues. I’m just trying to figure out how to get that on.

[Dr. Mark Sirgo:]

Yes, it was more break out revenues Scott in the fourth quarter.

[Scott Henry:]

Okay, what was the research contract, that still …

[Dr. Mark Sirgo:]

No, it was small. Fourth quarter was small.

[Scott Henry:]

Okay. And then shifting down, I’m just trying to think about the quarters in the model. It looks like gross margins were negative in the quarter. Am I doing that right or is that because of BUNAVAIL. Just trying to think of how to model cogs with the new product launch?

[Dr. Mark Sirgo:]

What happened is the, there were certain inefficiencies and lots that we produced that we weren’t able to put in the comments because of the start-up. It’s especially common with the new product and those have to be recognized as a loss in the quarter.

[Scott Henry:]

Okay, so it’s kind of one-time event in Q4.

[Dr. Mark Sirgo:]

Yes.

[Scott Henry:]

Okay and then in Q4 what would you estimate were the shelving expense for BUNAVAIL. I know we have the SG&A line. I’m just trying to break out selling versus G&A. Any sense of that number?

[Ernest De Paolantonio:]

About $17 million Scott were all the commercial expenses.

[Scott Henry:]

Okay, so that’s for the year then, for 2014. Okay, that is all very helpful. I guess just shifting gears to thinking more strategically a couple of assets that could be partnered be it Onsolis and Clonidine E.U. Any sense as to the timing? I mean would you like to partner one of those certainly in 2015. I guess on Onsolis you’d probably like to have partnered by the end of 2015, but just trying to get a sense of the timing of those events.

[Dr. Mark Sirgo:]

Yes, I think Onsolis for sure and I think we should be able to do that before the end of 2015 and then with Clonidine, I mean if we have a positive first trial we’ve already had enquiries regarding that product from several European companies. So we think we could probably move relatively quickly there, but these things all talk about nine months on average. So it depends on how aggressive people want to become on the Clonidine one, but again in Europe there is one pivotal trial required for the submission there. So that’s why there is a high level of interest should this be positive. So I think to answer your question Scott, I think it’s truly Onsolis before the end of the year and it depends one, we need a positive outcome in this first trial and then secondly, move relatively aggressively to get something done, but there is already interest. So that cuts off a lot of the upfront time.

[Scott Henry:]

Okay, great. Well that should do it for me. Hey congratulations on a great year and look forward to continued positive momentum with this Clonidine Gel data coming up.

[Dr. Mark Sirgo:]

Thank you, Scott.

[Operator:]

Our final question today comes from [Indiscernible].

[Unidentified Analyst:]

Hey guys. Thank you so much for talking my call. I’ll be quick. Basically sort of have two questions here. The first one I’m just sort of trying to work with the Clonidine patient population. Obviously the Clonidine works really, really well when you do the capsaicin challenge test which shows that patients have active pain receptors. I was wondering if could talk about sort of percentage wise, sort of how that plays out in sort of the overall patient – the diabetic patient population and if once on market, do you feel like physicians would do a challenge test just to make sure that they are going to prescribe something that will work for these patients.

[Andrew Finn:]

Yes, first of all to answer your first question, the percentage of the patients with functioning nociceptors, because typically patients that are early on in their painful neuropathy, later on they don’t – their receptors get burned out. So you are looking at a substantial portion of patients early on. I would guess on the order of 30% to 50% of the subjections are going to have functioning pain receptors in their feet. So that’s the answer to your first question. The answer to your second is we are doing a correlation in the first study to compare the results of the capsaicin test with what I indicated earlier, a land scorer, which is the lead assessment of neuropathic symptoms and we believe the lead assessment of neuropathic symptoms will be a pretty good estimate of whether has functioning pain receptors in their feet, so the physicians will not have to use capsaicin to test for that activity and we hope that the results will be positive and then we can incorporate that in the package insert in the future.

[Unidentified Analyst:]

All right, perfect. And sort of my last sort of question; I know that you guys are talking about expanding into the Medicare and the Medicaid range for the second half of the year. I was just sort of wondering if you could just sort of walk me through how that process goes. Obviously this is sort of a mid-cycle negotiation and so that you had to sort of go state by state. Are you going to be specifically focusing on certain states first and foremost or how would you – sort of describe that process going forward?

[Dr. Mark Sirgo:]

Yes, it really isn’t a lot different from the commercial side, so there is some large PBMs that manage a lot of the pharmacy benefits for certain state Medicaid, so we’re in negotiation with those PBMs. At the same time there is a state to state negotiations. You got your managed Medicaid and then you got your pay-per-service. So we’re working both sides to that right now and yes, there are selected states that we are most interest in and for competitive reasons I’ll probably not mention who they are, but they clearly will be the highest usage of these products under Medicare and Medicaid. So yes, that’s why it is sort of a length process, but I think again we’ll get some of those wins I think before the end of the second quarter and then it should continue into the second half of the year.

[Unidentified Analyst:]

All right, great. No, that’s all I was going to ask. Thank you guys.

[Dr. Mark Sirgo:]

You’re welcome.

[Operator:]

That concludes today’s question-and-answer session. Mr. Sirgo at this time I would like to turn the conference back to you for any additional or closing remarks.

[Dr. Mark Sirgo:]

Yes, thank you again for participating on this first quarterly earnings call. As I said at the outset, 2014 was clearly a transformational year for the company and we think 2015 has the potential of being even more meaningful for our company and our shareholders. So we look forward to keeping you updated on our progress throughout 2015. So thank you again and good night.

[Operator:]

That concludes today’s presentation. Thank you for your participation.