OptiNose, Inc.
Q4 2017 Earnings Call Transcript

Published: 18 Mar 2018

[Operator:]

Good day, ladies and gentlemen. And welcome to the OptiNose Q4 2017 Earnings Call. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to introduce your host for today's conference, Mr. Jonathan Neely, VP for Investor Relations. Please go ahead.

[Jonathan Neely:]

Good morning and thank you for joining us today as we review OptiNose's 2017 performance and our plans for 2018. I'm joined today by our CEO, Peter Miller; Ramy Mahmoud, our President and Chief Operating Officer; Keith Goldan, our CFO; and Tom Gibbs, our Chief Commercial Officer. The slides that will be presented on this call can be viewed on our website, optinose.com in the Investor Section. Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements. All statements that are not historical facts are hereby identified as forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could actual results to differ materially from those indicated by such statements. Additional information regarding these factors is discussed under the cautionary note on forward-looking statements section of the earnings release that we issued this morning, as well as under the risk factor section of OptiNose's 2017 annual report on Form 10-K that is filed with the SEC and available at their website, sec.gov and on our website at optinose.com. You are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements during this conference call speak only as of the original date of this call and we undertake no obligation to update or revise any of these statements. We will now make prepared remarks and then we will move to a question-and-answer session. With that, I will now turn the call over to Peter Miller. Peter?

[Peter Miller:]

Thanks, Jonathan and good morning, everybody. We appreciate you joining our first earnings call as a public company. 2017 was an important year for OptiNose with the approval of our lead product XHANCE for the treatment of nasal polyps and our IPO. As exciting as 2017 was for the Company, we believe 2018 will be even more important with the launch of XHANCE and the initiation of trials to expand our label with an additional indication to increase the potential of the product. We've been busy preparing for our launch and could not be more excited to already be in the market which I will detail later in the presentation. Starting on Slide 3; at OptiNose we are focused on building a leading ENT/Allergy specialty company. We believe our lead product XHANCE will service the foundation of that effort. XHANCE has the potential to be a very important treatment option for patients suffered from Chronic Rhinosinusitis or CRS for short, a disease with significant unmet need. Our first area of focus will be in the ENT/Allergy specialty segment where approximately 3.5 million patients of which 1.2 million of nasal polyps are being treated by relatively small universe of roughly 15,000 physicians. The market space is very attractive because in addition to being very efficient, there is limited pharmaceutical promotional activity targeting nasal diseases. As I mentioned, XHANCE has pipeline and a product potential with our Phase 3b trial designed to seek an additional indication for chronic sinusitis. Importantly, there is currently no product in the United States or the world that we're aware of that has this indication. This additional indication is important for us as we believe it will increase the value of a broad promotional expansion into primary care where we believe an additional 6 million patients are being treated. Since we've established and infrastructure in the ENT/Allergy space to support XHANCE, longer term we will focus on pursuing additional complementary pipeline products for patients treated by these physicians. Given the limited activity of major pharma companies in the ENT/Allergy space, we believe we have a potential to become a partner of choice to in-license ENT/Allergy products. We'll also look to develop additional products to leverage our OptiNose exhalation delivery systems or EDS for this market. We also believe our OptiNose EDS approach is a valuable platform technology with multiple additional applications including the CNS market space. For these opportunities outside of ENT/Allergy, we plan to seek out suitable partnerships because the focus of our capital allocation would be on XHANCE and other ENT/Allergy products. Turning to Slide 4; we have heard that there was a common perception that most launches today struggle but we believe this is not necessarily true. In fact, our analysis suggests that products which fail to gain traction during the launch phase may not have all the necessary elements that enable a successful launch. To evaluate this question, we work with data providers to research over 300 product launches between 2010-2016 to understand what makes launches succeed or fail. What we found is that successful launches are differentiated from unsuccessful launches by four key factors. First, you need an attractive market that also has a high degree of unmet need. Second, you need a differentiated product. Third, you need sufficient market access. And fourth, you need high product awareness among prescribers. It's really not that surprising to us that the majority pharmaceutical product launches that have met these criteria have generally enjoyed good success, all those that did not meet these criteria have generally struggled. As I'll review in the slides ahead, we believe that with XHANCE we have a product that delivers on the first two factors and we have focused substantial efforts since the approval in September and ensure it's success in the other two factors. We say all the time that you only get one chance to launch a product and our goal is to have awareness and market access in place during the launch so that XHANCE becomes one of the products in the successful launch column. Turning to Slide 5; Chronic Rhinosinusitis, the broad category of disease for which XHANCE is being developed includes a large population with relatively severe symptomps and should not be confused with allergic rhinitis. Allergic rhinitis is highly prevelant but most sufferers have only mild to moderate symptopms. The treatment of allergic rhinitis is largely with OTC in generic prolyps [ph] and good relief is usually possible with traditional INS sprays. Chronic Rhinosinusitis, while related is a different disorder. It is believed to affect approximately 30 million adults in the U.S. who generally suffer from a more severe degree of symptoms. We estimate that approximately 9.75 million of these patients are currently being treated by physicians and as many as 7 million cumulatively have actually undergone surgery for the condition, though surgery is frequently non-curative. As we see on the slide, an estimated one-third of the overall CRS population develops nasal polyps. In the first indication that we received from the FDA firsthand is for the treatment of these polyps in adults. The remainder of the overall population, those without nasal polyps generally fall within a group called chronic sinusitis by the FDA for drug development purposes and other target of the additional indication that we are working on with clinical trials expected to start in the fourth quarter of this year. Turning to Slide 6; the core issue with CRS is chronic inflammation, not infection as many people sometimes assume. This inflammation occurs on narrow labyrinthian slit like passages, high and deep in the nasal cavity and leads to multiple chronic symptoms. The four core symptomps, part of the diagnostic critera, whether you have CRS with nasal polyps or CRS without nasal polyps include congestion, rhinorea, facial pain and pressure, and loss of sense of smell and taste. The disease normally develops in adulthood and often persists for many years. In addition to suffering baseline symptoms for much of the year, people with this disease are also susceptible to acute flairs which occur several times per year on average and often require treatment with antibiotics and other prescriptions. A staggering statistic is that of the 180 million antibiotic prescriptions written in the U.S. every year; multiple publications suggest that approximately 20% are written for people with CRS, that's 36 million prescriptions. If the inflammation could be better managed, many of these antibiotic prescriptions could be prevented and the risk of emerging antibiotic resistance maybe reduced. Although this disease doesn't often result in mortality, it has a big impact on quality of life. It is not so much about taking years from life; it's about taking life from your years. In fact, the quality of life impact has been measured and the level of harm has measured in multiple domain such as bodily pain, social functioning and mental health, it's comparable of the burden of other serious conditions including chronic heart failure, COPD and Angina. Turning to Slide 7; because of the high burden of disease, patients try many alternatives to attempt to manage their symptoms. What our data show however is that existing treatment options are often suboptimal. Patients often start off with a prescription for topically acting intra-nasal steroids; these drug are broad-spectrum anti-inflammatories and the disease is characterized by chronic inflammation, so the problem with these treatments is not usually the drug. In fact, most physicians have higher regard for drugs like fluticasone. The problem is that this type of drug is topically acting, relying on physical contact with inflamed tissue with the inflamed tissue area to be efficacious; so the issue is in the delivery systems. It has long been recognized by many physicians that current intra-nasal sprays are limited by difficulty in adequately delivering medication high and deep in the nasal cavitiy where nasal polyps originate and sinuses emulate and drain. As a result, unlike with allergic rhinitis, 80% of patients with this condition are frustrated with a lack of symptom from traditional nasal steroid sprays. Physicians also recognize this high level of dissatisfaction and 75% of physicians agree in part that traditional intra-nasal sprays do not work well because the delivery systems do not get sufficient drug to the site of inflammation high and deep in the nose. For many patients sinus surgery becomes the only alternative that they believe can provide relief and in fact, for a period filing surgery, many patients do feel better. However, because surgery may not solve the core issue of inflammation and upto 80% of patients there is a recurrence of symptoms. In addition to being painful and evasive, surgery can also be quite expensive. Turning to Slide 8; it's a difficult challenge to get drug high and deep in the nasal cavity due to factors like narrow labyrinthian passages, the obstructing surfaces and other factors that are collectively unique to the nose. In fact, with a regular nasal spray, less than half of the drug gets meaningfully beyond the nasal valve, with what does pass the valve mostly being pulled down and along the floor of the nose towards the back of the throat where drug is swallowed. The OptiNose exhalation delivery system overcomes these challenges with an innovative, simple and elegant approach. The EDS has a sealing nose piece that is specifically shaped to fill tightly in the nostril, to act as a stent in the nasal valve and to allow for the transfer of pressure from the mouth into the nose. Our OptiNose EDS also has a flexible mouthpiece which enables a broad range of patients to more easily use the device while maintaining a seal on the nostril. The device works by what I'd like to call the magic of the breath. Patients exhale into the mouthpiece which cause the soft pellet to naturally elevate in the back of the throat creating a seal that separates the nasal cavity from the throat and lower airway. This is the same thing that happens when you blow off the balloon and you can push air into the balloon without having air escape out of your nose. The exhaled air passes through the OptiNose EDS and then enters one nostril through a sealing nose piece. The breath seeking exit can't find it's normal route down the back of the throat because the soft pellet is sealed shut. With the medication entrained in the breath, it broadly fills the nasal spaces travelling high and deep and flowing around in otomical structures until it eventually passes behind the nasal septum and eventually exits out the other nostril. I wish I could demo it live for you because while a lot is happening in the verbal description, it all happens simply and quickly; and the OptiNose EDS system has been proven to be quite easily used by patients. Turning to Slide 7; the result of the exhalation mechanism of delivery is the drug is deposited high and deep in the nasal cavity. This is very important in the treatment of Chronic Rhinosinusitis because inter-nasal steroids are broad-spectrum topically acting in the inflammatories and the inflammation associated with this disease is high and deep in the nose where the sinus is drained and nasal polyps originate. As you can see in the gamma-santography [ph] images on the slide, there is dramatic difference in the deposition pattern of an OptiNose EDS with exhalation when compared to a nasal spray without exhalation in healthy subjects. Turning to Slide 10; the deposition pattern achieved by OptiNose EDS suggests that delivering a steroid with an EDS should work well in nasal polyps and our clinical program proved that we in fact do work very well. We started XHANCE in a large clinical program including five studies and involving more than 1,500 patients treated for upto one year. Some of the highlights of what we found in this program include; XHANCE produced statistically significant benefits on both of the co-primary endpoints, a reduction in nasal congestion at 4-weeks and a reduction in nasal polyp grade at week-16. In addition to the core primary efficacy endpoints we also assess the number of secondary endpoints in which XHANCE demonstrated improvement of all four defining symptoms of nasal polyps, similar improvements in patients with and without nasal polyps in open label trials and medical polyp elimination in some patients; in fact, upto almost 30% elimination in one nostril after 6 months in the open label expansion of our pivotal trial. Additionally, XHANCE was able to show a magnitude of belief comparable to surgery, a reduction in the need for surgery is to find in the study protocol and a substantially higher percent of patients being reported much or very much improved versus placebo. We also have a safety profile generally as expected based on studies in similar populations treated with steroids, delivered by traditional intra-nasal delivery systems for similar durations. Turning to Slide 11; relative to meeting the critical criteria outlined for successful launch, I hope it's apparent that XHANCE will be entering the market with high unmet need with a differentiated and important clinical profile. Now we're going to turn to our commercialization strategy and outline our plan to build XHANCE into a leading product. We've defined three waves or phases of our integrated brand strategy that will enable XHANCE to realize it's full commercial potential. In the first wave we plan to enter the high density ENT and Allergy specialty market treating approximately 3.5 million CRS patients, 1.2 million of whom we estimate have nasal polyps. These patients are being treated by relatively small audience of approximately 15,000 ENTs allergist and primary care physicians. We ultimately plan to reach 14,000 of these physicians with approximately 120 sales representatives and the other 1,000 physicians through digital and non-personal promotion. Importantly, as we have already stated; we believe we have a significant advantage because the market has very little competition. This approach has also historically been a successful way to build a target, first targeting the specialty [ph] within the market space before expanding more broadly. In the second wave, we can facilitate broader adoption in a primary care audience. Potential future chronic sinusitis indication will increase the value of broadening our target market, something we may pursue with a co-promote partner. This expansion will allow access to an additional 6 million patients being treated by approximately 50,000 additional primary care physicians. In the third wave, we plan to activate patient demand from nearly 20 million additional patients that we believe suffer from CRS, those who are not actively pursuing treatment through a physician. Importantly, data suggest that majority of this population was at onetime under the care of our physician; in fact, about 95% have previously tried prescription nasal spray but has since lapsed, possibly due to dissatisfaction with current treatment options. However, we know from our population survey that a large number of patients are still suffering. Having run large OTC businesses, I'd like to say, given the large population, high dissatisfaction and symptomatic nature of the condition, this could be a DTC product made in heaven. Turning to Slide 12; we developed multiple methodologies to estimate the number of patients currently being treated by our physicians for CRS to understand the market potential for waves 1 and 2 of our strategy. In the study of patient's claims for more than 40 million individuals, we found 3.9% of records included quote for CRS. When we apply that rate to the U.S. adult population, the result is an estimate of 9.75 million patients who are currently actively seeking treatment. Turning to Slide 13, in order to size the market opportunity for XHANCE, it's important to understand our pricing strategy. We choose a wholesale acquisition price for XHANCE of $425 for one month of therapy, which is 11% discount to branded Nasonex at nasal polyp dose. There are two reasons we choose to price XHANCE at a discount to a product in a class where patients are frustrated with their symptom relief. First of all, that is a price level where extensive payer of research suggest that payers are not likely to actively manage XHANCE through significant hard edits like prior authorizations but instead would likely place XHANCE in a Tier-3 single step edit placement. This is the position that we are targeting. The second reason we choose this price is because we could, in other words, some of the elegance of our OptiNose EDS is that we have a reasonable cost of goods and believe we are capable of achieving satisfactory pharma margins at this price. Off note, this price compares very favorably to the cost of alternatives such as surgery or the future biologics which are being developed for the treatment in nasal polyps. Turning to Slide 14; the size of the total market opportunity for XHANCE, we used IMS and NDTI data to determine where the approximately 9.75 million patients are being treated. In this analysis, we found that roughly 3.5 million are being treated by the audience of approximately 15,000 ENT/Allergy and primary care physicians to be targeted in wave 1 of our launch; the balance are being treated in the broader primary care universe. To dollarize the market, we assume the patient value per year of roughly $1,000. This is calculated based on an assumed net selling price for one month supply of XHANCE at the approved dose prescriptions combined within this assumed average of four filled prescriptions per year. The estimate of four months on therapy is based on duration of moderate to severe symptoms experienced by patients annually, as well as current prescribing practices. The total addressable market that this data collectively suggests is an approximately $3.4 billion of market within the ENT/Allergy and primary care physicians to be targeted in wave 1, and an additional roughly $6 billion opportunity with the expansion of the broader primary care segment to be targeted in wave 2 for a total estimate $9.5 billion market opportunity. Turning to Slide 15; in order to understand the potential for XHANCE in the market, we also did a lot of work to understand physician interest in the product profile. In a study of 700 physicians, we found significant interest, frankly much higher than one has seen for a new product. Specifically, interest in prescribing XHANCE based on a profile included the nasal polyp's indication alone among ENTs, Allergists and especially like PCPs ranges from 70% to 78%. Interest in prescribing a product with a profile similar to XHANCE with both, the nasal polyps and chronic sinusitis indication among ENTs, Allergists and especially like PCPs was found at range from 70% to 80%. This level of interest is among the highest that I've personally seen in my 30 years commercializing products. Turning to Slide 16; now that we've described view of the long-term commercial opportunities for XHANCE, I would like to focus on the first leg of that journey, the launch of XHANCE as a treatment for adults with nasal polyps. I cannot tell you how excited I am to be watching XHANCE. Ramy Mahmoud, OptiNose's President and I have been working for 8 years from pre-IND through to this moment of product launch to make this great opportunity real. We have the tremendous benefit of having been intimately involved in all aspects of the development and pre-commercialization activities for this product, so I believe we have a very good understanding of the market and our product. In our time together, we have shared a philosophy of playing the long games and have worked very hard to gather data and make decisions designed to maximize the products potential. One of the most important things we believe we are doing is despite having been approved in September of last year; we decided to make sure we had sufficient market access and awareness in place to support our full retail launch. As our analysis could suggest, these factors are important for success. We set aggressive goals of achieving approximately 65% market access, 85% aided awareness during the launch and I'm delighted to tell you, we expect to achieve both of these goals for our planned retail launch in early April. As I will describe in the coming slides, our commercial capabilities are build, we have an early trial program already up and running, ahead of what we expected and as mentioned, we expect to have XHANCE broadly available in retail pharmacies in early April. Our tech-ops team frankly beat our original timelines to achieve this. As some of you may know, we have previously communicated a goal of 2Q and we are obviously at a very leading edge of that window. Turning to Slide 17; our launch execution priorities are focused on, 1) extending our commercial capabilities, 2) accentuating brand differentiationg, 3) accelerating awareness trial z adoption, and 4) expanding market access. I will focus on our efforts to address each of these in the next few slides. Turning to Slide 18; we hired as OptiNose's employees what I believe is an exceptional first-line sales leadership team. This team averages almost 11 years of prior sales management experience with 5.5 years of that in the respiratory space and 90% having prior launch experience. These leaders have been intrinsically involved in recruiting and training about 80 fully dedicated territory managers through our contract sales organization. This team is also very experienced with average of 13-years of pharmaceutical sales experience and 10-years of specialty sales experience. Over 70% have prior respiratory experience and importantly, about one-third of our territory managers will be calling on ENT and allergy physician they have previously called on. Our sales team started detailing physicians on March 5 and will initially target approximately 8,000 healthcare providers as our plan is to focus our launch in territories where we expect to have 65% market access. If we are successful in our efforts to increase the number of commercial covered lives with access to XHANCE, then we expect to grow to approximately 120 territory managers and expand our [indiscernible] universe to approximately 14,000 healthcare providers. Turning to Slide 19; we designed a program to drive awareness prior to launch and are well on our way to achieving our goal of 85% aided awareness and approximately 10,000 ENT and allergy physicians within our wave 1 target audience. These efforts have driven aided brand awareness upto 73% as of the end of February with 86% awareness among allergists. This is up from 28% last September and is being driven by a variety of outreach activities. After the approval of XHANCE, we started the multi-channel integrated marketing program to increase awareness of the brand and through electronic media, we were able to reach 10,000 ENT and allergists and generate 700,000 impressions. We also trained and deployed approximately 85 clinical nurse educators shortly after the approval of XHANCE. Overall, our CNEs have already reached approximately 5,000 targeted ENT and allergists and have delivered over 10,000 presentations. In addition to being aware of the product, importantly physicians are responding positively to XHANCE. Another key component of this effort, the XHANCE experience launched early in March and is expected to help drive early trial and adoption and I will describe it further on the next slide. Turning to Slide 20; on March 5 we officially launched XHANCE Xperience, a very innovative program designed to drive early adoption of the product. Xperience is a limited product availability program offering select physicians and their patients an opportunity to gain initial experience with XHANCE. Enrolled patients receive upto two prescriptions filled at XHANCE at no cost of them, in other words, zero dollar co-pay. A full service pharmacy coordinates fulfillment shipping product directly to each Xperience patient. Near the end of the first month of therapy, patients were offered the opportunity to receive a second month supply at no cost to the patient in exchange for responding to a brief survey about their experience. This will create the ability to share early experienced patient data with prescribing physicians to help them understand how their patients feel about their new treatment with XHANCE. When compared to traditional sampling programs, we believe Xperience has the potential to result in a higher ROI, drives prescribing behaviors and gives us the opportunity to generate immediate real-world data on customer satisfaction. It is very early but we are very pleased to report that as of March 12, more than 130 unique physicians had written more than 250 prescriptions for XHANCE. This program will be available throughout the initial phase and while it will negatively influence our growth to net discounts during this period, we believe it represents a highly effective vehicle to accelerate adoption and an excellent supplemental alternative traditional launch sampling. Turning to Slide 21; we're also pleased with our progress on the important market access front. In the past 6 months, we've engaged with nearly 40 payers representing roughly 85% of commercial lives. Based on the number of lives already under contract, combined with where we are with negotiations, we expect to achieve our goal of approximately 65% of commercial lives covered during the retail launch of XHANCE. We will not stop at 65% coverage however, as we have set an objective of achieving approximately 75% coverage of commercialize by year end 2018. We believe that the economic [indiscernible] for XHANCE is a strong source of support in this effort, particularly when we are working with payers that have outcomes risk. In estimates that we have shared with payers, the favorable health economics driven by surgical costs savings has the potential to more than offset the pharmaceutical acquisition costs associated with XHANCE. Turning to Slide 22; to summarize the prospects for the launch of XHANCE, I'd like to revisit the four key factors I described earlier that we believe differentiates successful launches from unsuccessful launches. First, we believe XHANCE is entering an attractive market with high unmet need. The market is large, has limited competition and more than 80% of patients are frustrated with current INS while 75% of physicians report dissatisfaction with current INS relative to the problem XHANCE may address. Second, we believe XHANCE is an importantly differentiated product and if physician's exposure of the product portfolio report an average intent to prescribe ranging between 70% and 80%. Third, based on our experience and interaction to-date, we expect that we will achieve our target of approximately 65% access for commercial lives during product launch. And finally, we believe our pre-launch efforts are succeeding in achieving a high degree of product awareness, 85% or more, in our target ENT and allergist audience. Turning to Slide 23; as I noted earlier, in addition to the launch of XHANCE, we believe significant additional value could be created by expanding our label to include the chronic sinusitis indication. Against this objective we will also continue to make progress, because this is an indication which has not been previously achieved, even though it is the subject from an FDA guidance document, we have worked with a range of experts to better understand how to define and measure endpoints and we plan to submit a direct protocol to the FDA in the first half of 2018 for the review and comments. The studies are expected to require co-primary endpoints including an objective measure of inflammation and a subjective measure of symptom relief. In parallel with that effort, we have already begun the process of selecting our CRO and study locations. Assuming interactions with the FDA goal as planned, we expect the first patients to enroll in the fourth quarter of 2018. Turning to Slide 24; in conclusion, we believe that 2018 stands to be an important year for OptiNose with multiple key events. We've worked hard to put ourselves in a position to achieve a successful launch and are now focused on superior execution. We understand that the best laid plans in our sight first did not survive first contact and are prepared to closely monitor and adapt to changing market circumstances. To that end, we are setting up key market intelligent systems to gather data intended to enable us to analyze trends and to remain nimble. As stated, we're on-target to achieve our goal of 85% aided product and awareness among the approximately 10,000 ENT and allergy physicians within our wave 1 target audience. We are on-target to secure market access for XHANCE to greater than 65% of patients with commercial insurance plans during our launch, and we are on-target to successfully launch XHANCE in early April which is at the leading edge of our targeted objective window in the second quarter of 2018. As I just discussed, we are progressing towards our objective to initiate clinical studies with XHANCE in the fourth quarter 2018 to support our future chronic sinusitis indication. And finally, we believe our efforts to strengthen our balance sheet in 2017 will be a benefit in 2018. We raised $250 million in gross proceeds to three rounds of financing, a series due in May, our IPO in October, and a debt financing in December. We ended the year with $235 million in cash as of December 31, 2017 and as a result, can now focus our energy on executing our business strategy in 2018. Thank you, all. Now I'd like to open it up for Q&A.

[Operator:]

[Operator Instructions] And our first question comes from Gary Nachman from BMO Capital Markets. Your line is open.

[Gary Nachman:]

On the clinical Xperience program, how aggressively you deal with that? How many physicians total will be participating? How much product will you be giving away and how might that impact the initial prescriptions we'll be tracking in QV-IMS? And then just a follow-up; you could answer that. Also, the growth in that, obviously it's going to negatively impact that; so what are they expected to be for the first few quarters of the launch?

[Peter Miller:]

Relatively to the experienced program, I'm going to be -- as always I am Gary, straight up with you; this is a program that has frankly not been done to our knowledge. So we're frankly going to read it, we have very good tracking system set up, the key to expansion frankly is going to come down to making sure we get conversion after the second script into an ongoing customer and that's obviously something we're going to set up to track, make sure we understand that conversion. But as of right now, I'm not going to give specific numbers, I will tell you that we are targeting the top prescribers in the ENT and allergy space; and if it goes well, and we feel we're getting good conversion, we may actually keep it going. If we feel it's not achieving the objective, we'll just sort of go back to some of the more traditional means of sampling. Relative to the gross to net in the first few quarters, I'll pass it to Keith.

[Keith Goldan:]

First, I just wanted to address your question regarding the QVA [ph] data. We're working with the pharmacy that's doing the dispensing under the Xperience program to provide the script data to QVA [ph], so the buy side and analysts like yourself will have access to that data. If we're not able to fully integrate their reporting into the QVR dataset, then we will likely report that data separately. So please standby as we work to integrate the reporting so you guys can have one version of the truth, one dataset.

[Gary Nachman:]

And then the impact on the gross to net.

[Keith Goldan:]

Yes, with respect to the impact on the gross to net, you know, Peter made in his prepared comments -- mentioned that we expect the experienced program to negatively influence the gross to net discounts. This program is largely -- one of the objectives of this program is to encourage trial and in that respect it's displacing some of the sampling that we would otherwise be doing. So the revenue that we're getting under this program even at a pretty heavy gross to net discount is revenue and gross profit contribution nevertheless, something that we would not have if we were doing traditional sampling. So we're not going to give specific guidance at this point but the gross to net discounts will be significant because we are -- as Peter mentioned, buying them co-pays for patients that get our access in this program down to zero, whether or not they are covered by commercial insurance.

[Peter Miller:]

And they are covered if they have a high deductible plan; we're buying that down as well. So, we're going to watch it, we're going to monitor it, I think it's a really, truly innovative program and we're going to honestly just have to see how it goes in the market.

[Gary Nachman:]

And then just one more for Peter or maybe even Tom; when you saw you will achieve 65% commercial coverage during the launch, how long will it take to get there? So how many of the territories will have that on day one? And where you're anticipating most of the initial share for XHANCE is going to come from? Thanks.

[Peter Miller:]

Relatively to -- you know, we really have a good bit of confidence at this stage Gary that the 80 territories that we mapped, the majority of them will have 65% market access during launch. We're sort of defining that phase Gary as the launch, we sort of thought of candidly sort of 2Q as the launch phase of the product. So our goal is that we hope to achieve it during that kind of a timeframe. And what was the third part of the question -- well, Gary, I think share is going to come -- there -- as you know, there are a lot of patients that are dissatisfied on current therapies for the treatment in nasal polyp patients, in particular, they are a very tough population obviously. And we think it's very likely to come from generic fluticasone; that is the largest share of the category written right now is generic intra-nasal sprays, and -- Tom jump in but I think it's fair to say that's going to be the likely place where we still share.

[Tom Gibbs:]

I think that's correct. And if we look at where the business will be sourced from, my sense is it's going to pretty equally among ENT and allergists.

[Peter Miller:]

The thing that will happen Gary too at longer term, probably not initially is I think there is a real opportunity to expand category because we do know a significant number of patients have lapsed, they are not using INS sprays anymore because they are terribly satisfied with them. So there is the opportunity to actually get a patient back in who hasn't been using an intra-nasal spray.

[Operator:]

Thank you. And our next question comes from David Amsellem from Piper Jaffray. Your line is open.

[David Amsellem:]

So just a couple; first on managed care access. Can you provide some specifics on contracts with certain national plans that you've put in place? Just wanted to get more granularity on that, you mentioned Tier-3; walk us through your thinking on the step added through conventional intra-nasal steroids and whether that's something that actually materializing or even more generous coverage? So that's number one. And then number two, just turning to the trial in non-polyp patients, you've talked about objective measure; I believe it's some form of imaging, looking at nasal mucosa, mucosal outcome. So maybe just give us some details on what that endpoint is going to look like and whether you have buy-in from the FDA on that? And then also just give us some color on the inclusion criteria in that study and what I'm really interested in is the extent to which you're having the most severe, most interactible non-polyp patients enrolled and how you expect to capture those patients in the trial population? Thanks.

[Peter Miller:]

I'll cover the contracts; market access, Tom could potentially add color and then I'll pass it to Ramy for your question on our trial. Relative to contracts, something I can tell you David is that we do have significant number of lives under contract currently. We're not disclosing our contracts because frankly in many cases we're not allowed to based on our relationship, based on our contracts with those guys. You're very soon are going to be able to see them because it will start showing up and you can track it publicly but we are based on our -- as I said on the contracts, that we have -- we frankly can't disclose it without their permission and because it's going to be happening so soon in the market, we're just going to let it roll out in the marketplace. Relatively to the step, we're generally having good success candidly with the payers relative to the position that we're trying to achieve which is this Tier-3 single step. We actually have done a lot of work David to understand how physicians are going to react to that. And at this point, based on the interaction we've had with physicians, we're feeling like that's a -- it's a good place to be, they do not -- the physicians that we've interacted with do not see the Tier-3 single step as this is very onerous. So at this point, it's not done till it's done David and I just want to be careful saying that but we're feeling very good, we are going to achieve the 65% market access, with the majority of lives in that Tier-3 single step position.

[Tom Gibbs:]

I would just add that, to-date the lives under contract include both Tier-3 unrestricted, as well as Tier-3 single step added.

[Ramy Mahmoud:]

So David, your other question about the trial -- the FDA guidance document for the indication of chronic sinusitis does require both, an objective and subjective endpoints. The objective endpoint we intend to pursue is by imaging, we're currently conceiving of this as CT imaging looking for mucosal thickening in the sinuses. Our plan as Peter mentioned earlier in the prepared comments, is to be very specific about exactly how we intend to do that, write that proposal into a draft protocol and send that down to FDA for discussion; so we're going to try to get agreements on exactly the approach to that with FDA before we initiate the trial. With regard to the inclusion criteria, it sounds like you were asking about whether we plan to sort of include the worst of the worst patients, and that really is not -- that's our intent. So it's not final until we reach agreement with the FDA, so I can't tell you yet how it will turn out when we actually start enrolling but our initial thinking is not that it be the worst of the worst.

[David Amsellem:]

So if I may ask a follow-up on that; so for instance what are your baseline -- what baseline scores -- symptom scores are or should we be looking for here in terms of the inclusion criteria?

[Ramy Mahmoud:]

So, it is likely that the symptomatic outcome that we're measuring is not the same as in the pivotal trials that we've already completed; the FDA guidance document uses a combined symptom outcome looking at several of the symptoms of the disease. So probably the patients will be at least moderately ill, rather than being a requirement that they be severely ill. Again, we're not going to know for certain how that looks until we have reached agreement with FDA.

[Peter Miller:]

David, one thing I'll remind you; you know, this is in our Phase 3 program, we did have significant number of chronic sinusitis -- chronic rhinosinusitis patients without polyps in our open-label trials, that data is available, seen it. And that was sort of an all commerce, we didn't necessarily restrict by severe, it was modest to severe, we didn't take the worst of the worst there and we had -- as you know, very good symptom relief among that population.

[Ramy Mahmoud:]

So I don't know if this is answering your question in a way that's helpful to you but we do intend right now to enroll a mixture of sort of all commerce who have and have not had prior surgery, just as we did in our previous trials.

[Operator:]

And our next question comes from Randall Stanicky from RBC Capital Markets. Your line is open.

[Randall Stanicky:]

Peter, as you look back over the last 6 months from approval to -- what's about to be launched, what have been the biggest pushes and pulls and changes to your outlook around launch? You guys were -- you had done a ton of work at the beginning, what are some of the surprises if there are any that you've seen as you've gone to that process? That's number one. Number two, I know you've talked about your focus on the specialty group, primary character can come later but what are your expectations for primary care in terms of script opportunity? And then finally Keith, just a quick one on the spend outlook for the year and if you can just help us with OpEx [ph] and maybe guidance as to think about quarters going forward; that would be great.

[Peter Miller:]

I'm looking at Tom, and relative to pushes and pulls and surprises, I mean you know, Randall and I said it in my prepared remarks, we candidly have been studying this market for 8 years, so there is always like subtle sort of changes that you make but I'm feeling really, exceptionally good about the deployment of our educator program, that was a new program that owes well, no matter where have we done in a pre-launch mode, the way we did it. And I reported some of the statistics there as you know, I think I've told -- I was out on a number of visits with clinical nurse educators, that went very well; I'm very, very pleased with that. The Xperience program to-date; it's early but again, we're hearing really good things from both, docs and patients relative to that program. So the things that have been – I thought we've said we made huge adjustments, we've obviously made subtle adjustments in some of the messaging, in getting our core visit down and make sure we really nail the messages that's obviously important but I don't want to make something up, so I got to be honest with you. I don't think we've made dramatic changes. Having said that, I do think, we -- as I mentioned in the remarks, we have a lot of good market intelligence systems in place and we know we're not going to have everything right on the front-end and we're absolutely going to be prepared to adjust and be nimble. Relative to primary care, I think you know our initial target audience of 14,000 caught on docs, 15,000 total, some of them being on personal promotion; but there are a number of primary care docs, roughly 4,000 to 5,000 of those docs will be primary care docs. Some of the advantage of that and those -- we'd like to call those docs sort of specialists like if you will, they're seeing a lot of chronic rhinosinusitis patients with nasal polyps, chronic sinusitis with nasal polyps; they have a huge population of that. And they are absolutely appropriate to target in this wave but the good news is we're going to learn a lot about targeting that broader audience in this first wave, so as we pursue the chronic sinusitis indication and look to expand our audience, we have some key learnings about how that population should reacting to promotion.

[Keith Goldan:]

Randall, with respect to your question on OpEx guidance for 2018 if you look back in the 10-K for the financials for 4Q, we've spent about $20 million in the fourth quarter and recall that was prior to onboarding the sales force. So if you think about that on a monthly basis, about $6.5 million or $7 million a month, we wouldn't be surprised to see the number grow 50% or slightly more on a monthly basis in 2018. Now that we're carrying a full sales force of 80 reps plus another circuit 12 RBLs as their original business leaders or what we call our district managers. It somewhat depends to be honest on our success in securing additional market access because as Peter made in his prepared remarks, that's going to be one of the drivers that will trigger adding additional territory managers growing from the 80 that we have in the field today, upto an eventual circle 120 which is the number of territories that we cut the country up into.

[Operator:]

And our next question comes from David Steinberg from Jefferies. Your line is open.

[David Steinberg:]

If you look at some of the launches in the last few years where the product offered symptomatic relief in fairly short period of time; some of the launches have been very strong, particularly aided by direct-to-consumer advertising, I know you touched on but could you give us a little more clarity on your roll out of DTC, the type of DTC you're going to do will be branded or unbranded or both? And some of the launches you've done particularly well when your TV ads involved although another expense within -- sort of what sort of budget are you looking at in terms of DTC? And then secondly, just to pick up on prior question about scripts and the transaparency; assuming you work closer to data providers and they do what you want them to do, does that mean that a 100% of the samples will be picked up by IMS? I know that in some cases depending on the type of sampling you do, the script can be understated but just want to get a better sense of the transparency…

[Peter Miller:]

I want to clarify the question. Is it samples or the Xperience program?

[David Steinberg:]

I guess, I'm making the two together. I guess it will be some sampling and some of the Xperience, in other words, will the script usage be picked up so that we can -- will 100% of it be visible or in some cases will be understated relative to what's actually happening in the marketplace?

[Peter Miller:]

I'll take the first one. Relative to DTC David, it obviously -- it's about we're at fits instead of the rollout if you will and initially we're not going to be doing extensive DTC at the start of the program, we're going to do some very targeted online stuff because as you know, it's vital to build awareness among docs and really sort of cement if you will how docs think about the product before we start driving any significant patients and to talk to doc. So in the initial phases, it's really just going to be sort of test and learn type stuff, not significant in terms of driving it. Post the 6 month mark, which is my view of sort of the timeframe that you sort of need to allow docs to sort of begin to understand the product. I'm going to be candid with you David, we're talking about how we can do some real test and learn with that phase but it's -- none of the plans have been sort of finalized because as you've said and I said in my remarks, because it's symptomatic DTC can definitely have a component here. Now whether it's truly longer term or whether it's in the near term, we're going to have to evaluate that. As a reminder too, we are having a more limited, we're going to have to evaluate that. As a reminder too, we are having a more deployment at the start; 15,000 docs, we're not broad at the start, so that's one other thing that's going to go into our consideration of how we deploy DTC. And in terms of budget, we don't in the initial phase have significant budget. As I've said, it's going to be mostly test and learn stuff.

[Tom Gibbs:]

And then on the data transparency David; I'll first talk about the Xperience program. We've been working with ICUVIA [ph] and the prescription level data will be captured what's at the physician level which is the exponent data. It will not initially be translated into the national audit data which you receive on a weekly and monthly basis, we obviously buy physician level data, so we'll be able to track it and have a perfect integration. I'm not sure the visibility that you have -- if in fact, we cannot get the data projected in the national audit data, as Keith said, we will work in terms of making sure that we can provide updates based on the data that's being generated through the specialty pharmacy. From a sample perspective, we tracked samples based upon compliance but that's obviously not reportable and much more difficult to track for why guys.

[David Steinberg:]

I know that in your initial call you've not given guidance; some companies when they are launching a product give some sort of revenue guidance, others don't but I can understand that. But just curious, you have had a chance to look at published analysts and there is a consensus out there in terms of revenues; I'm just curious could you comment whether you feel comfortable with the currently published 2018-2019 revenue estimates that are out there? Thanks.

[Peter Miller:]

David, we've historically said we're just not going to comment on that. So as I -- we're feeling terrific about the launch, we're feeling very good about where things stand but we're just not going to comment in terms of any kind of revenue guidance. So with that, I think I'm going to close out the call. I would like to thank everybody for joining. David, thanks -- David Steinberg, thanks again, so early out on the West Coast but we appreciate you all joining and thanks for listening. At that point, we'll close the call.

[Operator:]

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