BioDelivery Sciences International, Inc.
Q2 2015 Earnings Call Transcript

Published: 10 Aug 2015

[Operator:]

Good day and welcome to the BioDelivery Sciences Second Quarter 2015 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 morning everyone and welcome to the BioDelivery Sciences second quarter 2015 earnings conference call. Leading us through the call today are Dr. Mark Sirgo, President and Chief Executive Officer; and Erney 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. I will now read the company's safe harbor statement. Certain statements of 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 believes 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 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 BDSI’s 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 BDSI’s products and development 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 laws. You are advised to review BDSI’s SEC filings for Risk Factors that could impact the ability to achieve these goals described in the forward-looking statements. And with that I will turn the call over to Mark Sirgo. Mark?

[Mark Sirgo:]

Thank you, Al, and good morning everyone, and thank you for joining BDSI’s second quarter 2015 financial results conference call. The second quarter was another highly productive period for our company. We continue to be well positioned for long-term success, which is our overriding objective for our company and our shareholders. On today’s call, I'll review our key achievements from the second quarter and reiterate our upcoming plans and milestones for the remainder of 2015. So let me begin by providing you with an update on the status of the opioid dependence market and our ongoing launch efforts with BUNAVAIL. Importantly the market for buprenorphine formulations for opioid dependence according to Symphony Health continue to expand with 6% growth in prescriptions in the last quarter compared to the same period last year, yielding sales of over $480 million. Looking specifically at BUNAVAIL, nearly 14,000 prescriptions were dispensed during the second quarter of 2015. This represents a 27% increase in prescription sales over the first quarter. Also BUNAVAIL’s prescriber base continues to increase as we added over 680 new prescribers during the second quarter to bring the total to approximately 1700 physicians having prescribed BUNAVAIL. As a reminder, this is out of the approximately 3800 active prescribers that we are targeting. Additionally, we achieved our highest weekly sales total during the third week of July with over 1400 prescriptions dispensed. Importantly, we expect to see steady and more substantial growth during the second half of the year compared to the first half as we progress into 2016 as we benefit from the improved and additive managed care coverage, particularly on the Medicaid side, which was lacking in our initial launch phase. With that let me review with you the signs that we are following and what we believe demonstrates we are building momentum behind this launch. You will recall our five key areas of focus around the BUNAVAIL launch. First sales, where we’re using new prescriber and managed care data to better target physicians with good managed care access to BUNAVAIL. Second managed care access, where we continue to expand product access through contracting, particularly through Medicaid formulary additions, where we had no success when we launched, or no access when we launched. Third, pharmacy stockings, we are assuring better pharmacy stocking in placement of BUNAVAIL, particularly in areas of the country to align with our managed care coverage. Fourth our product marketing is driving increased product awareness, and fifth, clinical programs’ lifecycle management is focused on improving physician experience and building upon the competitive profile of BUNAVAIL. More specifically, as it relates to sales, we are reallocating our resources based on Managed Care access. This is showing early signs of success for us in places such as Tennessee and Massachusetts, where I will provide specific data momentarily. In order to further support our sales leadership efforts, we have recently hired four highly experienced and successful former Salix Pharmaceuticals’ sales and managers to complement our existing team in advancing the launch of BUNAVAIL. We have also expanded from four to five sales regions giving our regional sales managers fewer representatives allowing them to spend more time with each representative. With regards to managed care access, as I told you on our last call, we have secured managed-care access to BUNAVAIL with contracts finalized with three of the largest PBMs including Express Scripts, OptumRx and CVS Caremark. We also have multiple additional commercial contracts in process. And while you may have heard that [Indiscernible] was moved to the excluded list with CVS Caremark last week, BUNAVAIL remains in a favorable tier 3 formulary position now. In the second half of the year, we continue to focus on the top 40 accounts that drive 90% of covered commercial lives. At this point we estimate that we have third tier access to approximately 180 million commercial lives of which 90% is unrestricted. We continue to secure Medicaid coverage in some of the larger Medicaid states, such as Tennessee and Massachusetts, while also having more recently been added to formularies in states including Illinois, Michigan, and South Carolina among others. In total, BUNAVAIL is now in the formulary with access at least at parity to Suboxone in 19 states. As I mentioned earlier, it is in some of these areas where we are dedicating more significant sales force resources. For example, we now have eight representatives in the State of Tennessee versus two previously, along with special pharmacy stocking programs. This strategy is already paying off. In Tennessee, prescription growth in the second quarter grew by 125% over Q1 versus the national average of 27% over the same period, and Tennessee now represents over 10% of our business. Likewise, in Massachusetts, where we also have placed additional resources, sales grew by 57% in Q2 over Q1. We will continue to follow this strategic approach, where we place our resources against our best managed care coverage, while assuring pharmacy access. In addition, we are becoming more aggressive, albeit selective and strategically in our negotiations with managed care organizations, that may help us drive enhanced growth in the future. Our third area of focus is pharmacy stocking. We continue to work to improve pharmacy stocking through special programs and other initiatives with chains, independents, and mail order. We worked with Walgreens on special stocking programs in the State of Tennessee and Masschuchets that have been successful. One additional initiative which was rolled out in mid-June is our BUNAVAIL pharmacy locator program, which has been well received by physicians and is quickly helping to address issues with pharmacy access. The program provides healthcare providers and their patients with a toll free number, which they can call to identify pharmacies in their area for BUNAVAIL stock to reduce the potential frustration a patient may have in locating BUNAVAIL. At this point, our service has been able to identify pharmacies with BUNAVAIL stock for 100% of patients calling at an average of less than 4 miles from their location. While pharmacy stocking has been a challenge since the beginning of the BUNAVAIL launch, programs such as the pharmacy locator service and other stocking incentive programs were changed from Walgreens and contracts with selective, large regional independent chains in key sales regions are allowing us to gain more meaningful traction and address a significant barrier to success. Fourth in marketing, our efforts in the second quarter continued to be focused on expanding the level of awareness at BUNAVAIL and communicating the inherent benefits of our advanced BEMA delivery technology, which provides the highest bioavailability of any Buprenorphine formulation, the ability to talk and swallow during administration, and a reduced incidence of constipation. Our most recent data shows that awareness of BUNAVAIL has increased over 90% among our targeted physician audience. Additionally, we continue to make available to healthcare providers other useful resources and tools to help assure that patients have a successful and satisfying experience with BUNAVAIL. Many of these initiatives can be found at BUNAVAIL.com. Now I have personally visited with dozens of doctors across the country with our sales representatives in the past 6 to 8 months and I could tell you not one denies that BUNAVAIL is the best product in the category. The differences it offers are just starting to be appreciated by not only doctors, but the managed care organizations we meet with everyday. For instance, in this world of misuse and abuse, consider the fact that BUNAVAIL contains half the amount of buprenorphine as the market leader, and we’re working on other potential benefits in areas that I believe will be the turning point in future to this category because this category has a number of challenges and subsequently offers a lot of opportunity. We plan to continue to drive innovation in this category. Finally regarding Phase 4 clinical program’s life cycle management, we recently initiated a new BUNAVAIL Phase 4 patient experience clinical study. We will be collecting new clinical data on the use of BUNAVAIL in clinical practice, including additional data on the tolerability and patient acceptance of BUNAVAIL. To date we have 67 sites eligible to enroll patients into this study, and we have 149 patients that have been enrolled to date. We would expect to have top line results in the second quarter of next year. So in summary, our strengthened commercial team, along with our cumulative efforts, towards improving product access and enhancing product access through constantly improving managed care access and pharmacy stockings are expected to drive a more steady incremental growth in BUNAVAIL prescriptions month-on-month throughout the remainder of 2015 with a strong year-end providing a solid set up for 2016. In addition, more significant growth could occur to the upside if we are able to secure a few selective agreements with key managed care providers that we’re currently negotiating. So moving on beyond BUNAVAIL, we have a number of additional exciting near-term opportunities including BELBUCA, formerly known as buprenorphine for chronic pain. As you know, our commercial partner Endo Pharmaceuticals submitted an NDA for this product late last year and we have an upcoming PDUFA date of October 23 of this year. As we have said previously, we see a peak sales opportunity for BELBUCA that could be in excess of $500 million in a multi-billion-dollar category. Importantly, the potential approval of BELBUCA later this year would trigger up to a $50 million milestone payment from Endo. We are also eligible to receive up to $55 million in potential sales milestones based on achieving certain sales targets and a mid-to-upper teen royalty based on increasing sales, and as we have said before, this is an extremely attractive financial agreement for BDSI. During the second quarter, pivotal trial data from the two Phase 3 studies of BELBUCA was presented by Endo at the American Pain Society 2015 Annual Scientific Conference. The data demonstrated BELBUCA consistently decreased pain towards comparative placebo with very favorable tolerability profile. Additional BELBUCA related abstracts were also presented at the International Conference on Opioids in June and several additional publications are in process to support the product launch. As for the NDA review, I would summarize at this point as completely standard with the normal back and forth you typically see between the sponsor and FDA. So there has been an active but normal review thus far. I will now discuss Clonidine Topical Gel for the treatment of painful diabetic neuropathy. As you know, we announced in late March that the primary efficacy end point in the Phase 3 clinical study compared to placebo for the treatment of painful diabetic neuropathy did not reach statistical significance, although certain secondary end points showed statistical significant improvement over placebo. Since we have on multiple occasions described in detail the results of this study, including the sub-population analysis, I will simply reiterate that we believe there is meaningful data that supports that Clonidine Topical Gel is a potentially, and I reiterate potentially, effective treatment for painful diabetic neuropathy and could be an important advance in its treatment. As such, a smaller scale study that could considerably be used as a pivotal study, whereby we have significantly tightened the screening criteria for these patients is currently being pursued. As currently you can see, this study will include additional patient selection and training components designed to increase accuracy and reduce variability in pain reporting and thereby enhance the probability of detecting a difference between Clonidine and placebo. Final revisions to [Indiscernible] are in process and the study is planned to start in the fourth quarter of this year. We anticipate the cost to be in the range of $3 million to $5 million, with top line results by fourth quarter of next year. As it relates to our pipeline, we recently identified the formulation we plan to advance in the clinic for our long acting BEMA Buprenorphine depot product for the maintenance treatment of opioid dependence and chronic pain. Preclinical studies are continuing and we anticipate filing an IND for this product candidate by the end of the year with pre-IND meeting with FDA in the fourth quarter. We would then have a plan to conduct our first-in-man study in the first quarter of 2016. Now the results of this first study will allow us to potentially define the thirty-day product profile along with its tolerability. Therefore although this product appears early in development the outcome of this first-in-man study will have important evaluation implications given we know buprenorphine works for both of these indications. As we have said previously, we believe an injectable formulation of buprenorphine provides the opportunity to address two of the greatest challenges in opioid dependence treatment, the adherence to treatment and diversion potential. We also have plans to pursue an indication for the treatment of chronic pain, where no long-lasting injectable product currently exists. These two products that will only be separated by product strength each have peak sales potential in the $300 million range. In addition to an exciting pipeline, we continue to look for late stage and marketed products that will not only be complementary to BUNAVAIL, but potentially expand our commercial footprint. These product opportunities will potentially include products in the areas of pain and addiction, in addition to psychiatry, keeping in mind that many opioid addicted patients suffer from concomitant conditions such as anxiety, sleep and depression. Such products could potentially be detailed by our current sales force. Finally we continue to consider our options for the commercialization of ONSOLIS in the US, which is intended for the management of breakthrough cancer pain, and it is a product we reacquired North American rights from META earlier this year. Currently we are anticipating to receive a decision from FDA on the reformulation any day. Based on this outcome and timing we believe we will have sufficient time to make the right decision on how we commercialize ONSOLIS, but the current expectation is that we would foresee the product once again being sold in the US during 2016. We continue to receive enquiry through parties interested in licensing the product from us. Next I would like to provide a very positive update on several important patent matters, involving [Indiscernible] MonoSol. In the past quarter we continue to prevail, as well as remain undefeated in our long battle in the Federal Courts and patent offices against MonoSol and [Indiscernible]. We had two very positive outcomes in our intellectual property strategy, which I will highlight here. In June, the U.S. Patent and Trademark Office rejected and rendered unpatenable all challenged claims of [Indiscernible] 832 Orange Book listed patent in an Inter Partes Review procedure we filed. The challenged claims were rejected for both anticipation and obviousness by The Patent Trial and Appeal Board. [Indiscernible] may appeal this decision in federal courts, however the board’s decision was well reasoned and we believe that the outcome of an appeal would not be different. Last week, the US U.S. Patent and Trademark Office again ruled in our favor initiating a decision upholding all claims of our Orange Book listed US patent 019, which MonoSol challenged in an IPR proceeding. This patent protects all of our BEMA products and thus sets up a strong barrier to generic competition in the future. BEMA has the right to request rehearing in the patent office, while they may appeal the decision in federal courts, regardless we believe that any appeal will lead to our patent being upheld. Needless to say if either of these matters is appealed [Indiscernible] or MonoSol we will continue to vigorously defend our very strong position, which as referenced earlier, have always been agreed to by the patent office as well as district courts over the years. We get a lot of questions on these patent and litigation matters from our investors regarding these two companies. Over the years, but let me set the record straight for everyone. We have won five out of five Inter Partes reexamination since November of 2010, where either all claims were cancelled in the patents contested were significantly narrow. With the 019 and [Indiscernible] cases now essentially being over we have won two of two Inter Partes Reviews under the new system. And we have also won the only district court case that has been decided. Therefore we are keeping track that [Indiscernible]. This is a tribute to our knowledge of this space alongside our extremely talented internal and external legal and IT counsel. Now let me turn the call over to Ernie De Paolantonio, our CFO, to discuss our financials, then I will come back to review the key milestones in front of us for the remainder of 2015 before taking questions. Ernie?

[Ernest De Paolantonio:]

Thank you, Mark. I will now briefly review our key financials for the second quarter and six months as of June 30, 2015. For a more thorough review of our second quarter financial results, please see our 10-Quarter, which we will file this morning. Net revenue for the three months ended June 30, 2015 was $1.7 million, compared to $13.9 million in the corresponding period of 2014. Revenues in the most recently completed quarter include $0.8 million for BUNAVAIL, $0.5 million of product royalty revenue related to net sales of BREAKYL, and $0.4 million of contract revenue. In the second quarter of 2014, net revenue did not include product revenue from BUNAVAIL, $0.9 million was for product royalty revenue related to net sales of BREAKYL, $10.6 million was for contract revenue, including a $10 million milestone based on chronic pain database lock, and $2.3 million in R&D reimbursement revenue under our licensing agreement with Endo. Total operating expenses for the second quarter ended June 30 were $17.8 million, compared to $15.2 million in the corresponding period of 2014. R&D expenses in the most recently completed quarter were $4.5 million and primarily for the development of Buprenorphine Depot Injection, BUNAVAIL and Clonidine Topical Gel. Selling, general and administrative costs for the second quarter were $13.3 million and primarily sales and marketing expenses for the commercialization of BUNAVAIL. Included in the operating expenses were $4.2 million of non-cash stock compensation. For 2015, we continue to expect total expenses to be in the mid-to high teen range on a quarterly basis. Net loss for the second quarter ended June 30 was $19.2 million or $0.37 per diluted share compared to $6.7 million or $0.14 per diluted share in the second quarter of 2014. Year-to-date net revenue for the six months ended June 30 was $14.8 million compared to $34.6 million in the corresponding period of 2014. Revenues for the first six months include $1.5 million for BUNAVAIL, $0.7 million of product loyalty revenue related to net sales of BREAKYL, $11.8 million of contract revenue of which $10 million was for the milestone for BELBUCA NDA acceptance from the FDA, as well as $0.8 million of R&D reimbursement revenue under our license agreement with Endo. In the first six months of 2014, net revenue did not include product revenue from BUNAVAIL, $1.8 million was for product loyalty revenue related to net sales of BREAKYL, $22 million of contract revenue including two $10 million milestones for chronic pain database locks, and $10.8 million in R&D reimbursement revenue under our licensing agreement with Endo. Total operating expenses for the six months ended June 30 were $37.5 million compared to $34.5 million in the corresponding period of 2014. Six month R&D expenses through June were $11.1 million and primarily for development of Buprenorphine Depot, BUNAVAIL, BELBUCA and Clonidine Topical Gel. Year-to-date selling, general and administrative costs were $26.5 million and primarily sales and marketing expenses for the commercialization of BUNAVAIL. Included in the six-month year-to-date expenses are $7.7 million of non-cash stock compensation. Net loss through June 30 was $27.4 million or $0.53 per diluted share compared to $11.3 million or $0.24 per diluted share in the second quarter of 2014. As of June 30, we had $67.7 million in cash and cash equivalents as compared to $70.5 million as of December 31, 2014. Even without the $50 million BELBUCA NDA milestone payment from Endo and making no adjustments to the operating plan, we continue to believe we have sufficient cash for the next 12 months. Now let me turn this back over to Mark for the update and Q&A session.

[Mark Sirgo:]

Thanks Ernie. So I’m going to review the key milestones for the remainder of 2015, before we go on to Q&A. First, the anticipated approval of BELBUCA on October 23 and an associated milestone payment grant from Endo of $50 million, as Ernie just stated. Second the approval of a data package any day now that could reintroduce [Indiscernible] into the US marketplace in 2016. Third a pre-IND meeting with FDA and the filing of an investigational new drug application for Buprenorphine Depot by the end of the year, and finally the initiation of our next and definitive clinical trial for Clonidine Topical Gel will likely determine the future for that program. Finally people routinely tell me about the so-called perceived overhang to our story from time to time. And over the past six months there have been three main concerns that have been raised to me that I would like to address now. First not surprising I have heard that our BUNAVAIL launch is weaker than expected, second that we maybe undercapitalized and having to raise capital soon, and third, concerns over the outcomes of a IP litigation with MonoSol and [Indiscernible]. Now there are many the others, but those are the three that I have heard most often and I believe I have already addressed them today, but let me summarize them again for you. First the launch is slower than anticipated. But I hope you have heard this morning the progress that we are making in every facet of the launch and our strong belief that this product will reach its sales potential that we have set for it based on its beneficial and differentiated profile and a very strong sales and managed market team that we now have in place. Second, we closed the debt financing in June as Ernie has pointed out. We did that transaction to give us four quarters of runway, which did not include the Endo milestone payment. So although we always look strategically and opportunistically embracing capital, our balance sheet does not require that now under current circumstances. And finally as I mentioned, [Indiscernible] with the two recent wins around 832, and 019, and we will continue to vigorously defend any of the current or other threats that might be brought forward in the future. So for those of you who have raised these points I’m hopeful your comfort level around these matters has been improved along with the very promising prospect in front of us at BDSI. So with that I will close the formal comments and turn it over to questions.

[Operator:]

Thank you. [Operator Instructions] We'll go first to Scott Henry with Roth Capital.

[Scott Henry:]

Thank you and good morning. Just a couple of questions, BUNAVAIL has been the number I think you said was approximately 800,000, looking at the prescriptions that would imply a revenue prescription of around $60 versus say a $120 or higher which I would expect it to be. Can you just tell me why it’s not a higher number maybe, there may be other factors coming into play, just hoping for any color on that?

[Mark Sirgo:]

Hi Scott, number one, you also have your gross to net utilization of trial card which is going to effect that revenue as well as what is being prescribed as a prescription may or may not be 30 days, it maybe up to 30 days or in some cases more than 30 days. So, when you look at that that’s why the prescription number isn’t going to be right onto what you’re thinking.

[Scott Henry:]

Then I guess, put in other way, would you expect that number that 60 to be moving higher in the near term?

[Mark Sirgo:]

Yes.

[Scott Henry:]

Okay, thank you for that color. And how many current reps do you have on BUNAVAIL, do you expect that number to – has that number moved higher, lower overtime and do you expect it to move higher or lower in the future?

[Mark Sirgo:]

Scott, this is Mark. It is 60 which is why it is launched and the process is moving higher certainly are there. Again, as mentioned in the call, we’re strategically looking at areas of the country where we’ve got managed care coverage and where we think we can drive product. And when we find that we’ll add people if we think that’s the right thing to do as we’ve done in Tennessee and Massachusetts more recently, we’ve reallocated people. So far we haven’t added any one new but certainly will do if the business reports it.

[Scott Henry:]

Okay. And just a final question, Clonidine Gel, I guess you’re going to do a smaller phase III with the target D if successful there to have one confirmatory and then file, is that the game plan?

[Andrew Finn:]

Scott this is Andrew Finn. The answer is yes, if the study is successful we would need to do one confirmatory study for U.S. submission.

[Scott Henry:]

Okay, great. Well, that’s it from me right now, thank you for taking the questions.

[Mark Sirgo:]

You’re welcome.

[Operator:]

We’ll go next to Matt Kaplan with Ladenburg Thalmann & Company.

[Matt Kaplan:]

Hi, good morning guys.

[Mark Sirgo:]

Hi Matt.

[Matt Kaplan:]

A question just following up on the Scott’s and your prepared remarks with respect to BUNAVAIL getting some traction in select areas with respect to uptake of the product, what do you think you can do to replicate that success and expand it more broadly to other locations such that you are having increased uptake of the product more broadly. Can you talk a little bit about that and how you are going to -- when we should start to see increase uptake of scripts as you apply that?

[Mark Sirgo:]

Well first of all, the two states we are in right now, we are putting a lot of effort in Massachusetts and Tennessee we are far from finished there, there is a lot of headroom for us to grow. And so, that’s where we are focused right now. Again, as we can line up good managed care coverage including Medicaid which we had no Medicaid coverage as you recall when we launched combined that with commercial -- we will put more resources against that. And so, there are some other areas of the country that we are looking at right now, that are coming in line. And as they do, we think we’ll begin to see improvement overall on the sales, but very much aligned what we are seeing in Massachusetts and Tennessee.

[Matt Kaplan:]

Okay, great. Fair enough. And then in terms of your recent IT you call victory or win, is there a way that you can apply those and kind of turn the tables perhaps on [indiscernible]?

[Mark Sirgo:]

I think, our goal and hope the other parties goal is to reconcile our differences at some point in time clearly this is not a productive effort can be distracting at time certainly costly of times and so on so. And, I’d like to think that at some point in time good business people sit down and work things out. And so, I’d like to think there might in the future [Matt]. But, in the meantime, we are comfortable with our position here and I think we’ve got a very, very solid proving track record. And we’ll see what do next steps take us.

[Matt Kaplan:]

Great. Thanks Al and Mark.

[Operator:]

We will go next to Tim Lugo with William Blair.

[Tim Lugo:]

Thanks for taking my question. Mark, you mentioned some key exclusive agreements potentially for BUNAVAIL, can you give us some sense on the timing and we’ve obviously seeing the PDUFA being dropped from CVS Caremark, how still or always impact BUNAVAIL script just for the CVS Caremark portion?

[Andrew Finn:]

Yes, so let me start with that one first. It's tough, its good question difficult one to answer. But, typically there is a transition period when something like this happens so we would expect to see if here which would probably go over several months. So, I think any changes that we might benefit from will probably later in the year certainly in the next year. I think as we continue to negotiate for commercial and public opportunities on the managed care side we do think we have some opportunities where we may be able to get better access than we’ve done up to this point in time and with certain providers. And so, we are very selectively and strategically looking at these types of things right now. So, I think between now and years and we may see something along those lines occur that it should happen. But, I think as we go forward we always having to renegotiate contracts on a regular basis. So, I think the point is we are eight months into this now, we have got a much better picture on what’s going on in the field and we are going to try to apply that to our negotiating.

[Tim Lugo:]

Understood and those are almost likely be press released when you signed those deals.

[Mark Sirgo:]

It will [indiscernible] the press release, absolutely.

[Tim Lugo:]

Okay. And maybe going into deepening our thing Depot injection, can you just describe what are -- what some of the differentiation it’s been delta into the prior act and maybe how many doses you will be looking at in your first demand study?

[Andrew Finn:]

Understood that, we are anticipating a 30-day coverage at clinical issue to get plasma concentrations for both opioid dependents and chronic pain. The first study will be done in opioid dependent subjects and we’ll be looking at a dose range that’s are quite large actually, but we will be starting low and working our way up then we will expand coverage for both of those indications. And initially, there will be single dose studies and the subsequent study would be multiple dose studies in all on opioid depended subjects and then advance with FDA in the Phase III. Did that answer your question?

[Tim Lugo:]

Sure. Is it going to be escalating that you start single dose wait 30-day move up?

[Mark Sirgo:]

It's going to be escalating yes. And but we and -- exactly in that manner.

[Tim Lugo:]

Okay and that would be interesting. And, Mark maybe going back to the sales force of those 60, how many of those are internalized or what is the kind of structure you think of going out with the next year?

[Mark Sirgo:]

Internalized meaning not contract?

[Tim Lugo:]

Yes.

[Mark Sirgo:]

Yes so, right now we’ve got all the five regional managers employees at BDSI sales team, sales representatives are still contracted through quintiles.

[Tim Lugo:]

Okay. And that’s probably going to be plan going forward or do you look at it later day kind of thing?

[Mark Sirgo:]

No, the idea would be that we would internalize the sales team as well. But, at the point in time where we feel more comfortable in doing that based on the sales that we are seeing.

[Tim Lugo:]

Understood. Thanks guys.

[Operator:]

We will take our next question from Jim Molloy with Laidlaw.

[James Molloy:]

Hey, guys thanks for taking my question. I had question on cost of goods, can you talk a little bit what happened in the quarter, and is this a run rate going forward. It seems like a pretty good jump not a corresponding jump in [production]?

[Ernest De Paolantonio:]

Sure. Hi, Jim. It's [Tony] during the quarter we did see a little bit of an arbitration in that. We were invoiced 0.9 million for batches that did not meet specifications. We didn't have that in the first quarter. BDSI recruits these invoices when they are received. However, invoices for batches not meeting specifications are subsequently reviewed for potential credits against future production. And those invoices are currently being reviewed. In addition, as of the second quarter, we are still in a bad scale of mode and it isn't uncommon for batches to have lower yields or did not meet specifications especially until volume reaches a point where the production schedule is consistent on an ongoing basis. We had seen production increase recently and believe that we will see production volume consistent during the remainder of 2015.

[James Molloy:]

And do you think all of those should get to a steady state high volume production and what kind of cogs do you expect to have typical pharma 10%, 12%, 15% cog?

[Ernest De Paolantonio:]

Yes.

[James Molloy:]

Okay, great. Then perhaps -- you hit a point in Tennessee and Massachusetts being pretty good markets for you. What are some other markets that are you guys have seen some successes and you talk a little bit about uptake you are looking there?

[Ernest De Paolantonio:]

Sure, I mean -- I guess we’ve been very focused on the Medicaid state as of late, Jim and two other areas for us are West Virginia and Kentucky. So, the appellation state, this is unfortunately very big problem with rejection there and I think the States where we’ve got good coverage, we are expecting to again put more resource and drive greater volume. So, I think that’s one area that country is specifically where we are seeing opportunities right now.

[James Molloy:]

And then last question. I know that the Senators Markey and Paul were pushing for the treat actually removes the limits on doctors, to treat patients. Any thoughts on where that I [indiscernible] what are your thoughts on where that stand currently, do you think that might come to plans and how you guys ahead of the curve talking about the vitamin move? And then could you talk about sort of next step in patent litigation you looking for? Thanks.

[Mark Sirgo:]

Sure. So, well we know there is a lot of subcommittee activity on hill regarding this very issue you pointed out one piece of legislation it's being pushed around. There is really sort of two schools of thought a group that obviously understand this problem like in the State of Massachusetts and Kentucky where it's extremely high and there are other areas of the country where unfortunately Congress people don't have a clue as to what’s really going on and they are thinking that people are there this is the substitute for [narrow one]. So, they are battling in the subcommittees right now. I mean, ultimately we are going to have to see that cap lifted. I don't see any other way. I can't think of any other disease state where you have got a waiting list of patients who can't get care. So, I think smarter people will ultimately went out here. It's a matter of education more than anything else that’s lacking and of course helping you in services is pushing hard behind this as well. So, I don't know that this is going to -- still not going to – I don't believe happen this year Jim. But hopefully, perhaps by the – before the end of 2016 we will see something move through. On the patent front, other than some district cases that are ongoing not converted it's relatively quiet. So, yet to be returned whether we will stay there or not, but for the time being it's relatively quiet and peaceful.

[James Molloy:]

Thanks for taking the question.

[Operator:]

We will go next to Chiara Russo with Janney Montgomery Scott.

[Chiara Russo:]

Yes, hey guys. Thank you for taking the question. Just wanted to sort of touch on the Clonidine gel trial I was sort of under the impression that the initial trial actually had a fairly enriched patient population, I was wondering you should be more specific on your screen criteria and patient education for this upcoming?

[Andrew Finn:]

Yes Chiara, this is Andrew Finn. We did enrich the study, the previous study, but the enrichment process was used sort of the caption score that was identified as being successful in the prior study and was not an entry criteria this last study the study that we did, we felt like that caption score was too low. So, we adjusted that upwards going forward, and in addition we’ve identified a lot being working with some study design consultants both statistical and pain study experts to modify the entry criteria from the prior trial to select patients that are able to demonstrate the ability to distinguish various levels of pain and translates to levels into an accurate port on the pain field. That was one thing that we didn't do in the previous study. And thirdly, we are going to exclude patients that have either too much improvement in pain scores during the baseline testing which we did before, but also now highly bearable pain response during this baseline testing. So we are going to – we think we are going to tighten these up significantly from what was done in the previous study.

[Chiara Russo:]

Okay, are you still going to be using the same type of data collection methods as the previous study?

[Andrew Finn:]

Yes.

[Chiara Russo:]

Okay. All right. And I think you touched on your script growth for the next group. So, expense levels going forward do you see sort of this quarter carrying through to rest of the second half of the year?

[Mark Sirgo:]

Yes. We do.

[Chiara Russo:]

Going forward. Okay?

[Mark Sirgo:]

Yes.

[Chiara Russo:]

All right. Yes, those kind of all the questions that I had. Rest of them are has been answered. Thanks guys.

[Mark Sirgo:]

Thank you.

[Operator:]

[Operator Instructions] There are no questions in the queue at this time. I will now turn the call back over to Mark Sirgo.

[Mark Sirgo:]

Well, I just like to thank everybody for joining our call today. And we look forward to a positive second half of the year. So, thanks for joining us. Good-day.

[Operator:]

And, that concludes today’s conference call. Thank you for your participation.