Q4 2019 Earnings Call
Good afternoon, ladies and gentlemen, thank you free standing by and welcome City, you eat Pharmaceuticals fourth quarter 2018 earnings Conference call.
At this time all participants are in listen only mode. Later, we'll conduct a question answer session and instructions will follow at the time today's conference call will be recorded.
That is now about pressured the turned up for overtime Easter vector of Investor Relations I needed fishy used to go ahead.
Thank you Maria good afternoon, and thank you for joining US with me today, our Vince Anido varies chairman and Chief Executive Officer, Tom My job Aries, President Chief operating officer richer be now as Chief Financial Officer, and John The rocket or General Counsel. Please call is also being webcast live on our website investors that every pharma dot com and it will be available for replay at the end.
Located in our press release now for forward looking statements and non-GAAP financial measures on this call we will make certain forward looking statements, including statements forecasts and guidance regarding our future financial and operating performance, including or 2020, net revenue guidance and guidance for 2020 net cash used in operations and our expectation regarding operating expenses.
Net revenue per bottle, they miss one could observations associated with our commercialization of Rhopressa and Roclatan in the United States. They will also include expectations regarding success timing and cost of our clinical trials. Additionally, we will discuss progress through regarding maintaining requesting or pending approval from our regulatory agencies of arc.
Products and product candidates, including our strategies and capabilities with respect to international expansion.
Finally, we will address our manufacturing activities and capabilities, our financial liquidity and other statements related to future events. These statements are based on the belief and expectations of management as of today. Our actual results may differ materially from our expectations investor should read carefully the risks and uncertainties described in today's press release as well as the risk factors. So.
Included in our filings with the FCC, we assume no no obligation to revise or update forward looking statements, whether as a result of new information future events or otherwise. Please note that we will it expects to file our 10-K within the next two business days. In addition, during this call we'll be discussing certain adjusted or non-GAAP financial measures for additional just.
She was relating to these non-GAAP financial measures, including a reconciliation to the most directly comparable GAAP measures. Please see today's press release, which is posted on the Investor Relations section of our websites with that I will turn the call over to bed hi, Thanks on me and good afternoon, everybody. Thanks for joining the call have a focus today's call will be to provide an update on how we ended up 29.
Team will also give you some additional color on significant progress we've made across all facets of our business and lastly point to our expectations for 2020. So let me start with the headlines as you saw on our earnings release, our net revenue for full year 2019 amounted to just shy of $70 million were about $103 per bottle on a franchise phase.
Our net revenue performance exceeded the high end of our guidance at 60 166 million as a result of a few factors that ultimately bode very well for the future performance as well.
Our net cash used in operating activities.
Amounted to 115 million, reflecting management's a.
Management of expenses in line with our expectations and its performance yielded a strong year and.
Ending cash cash equivalents in investment balance of just shy of 310 million given that's meaningful liquidity as we entered yet another growth here at this point I know, there's a very significant interest in our 2020 guidance and as such we're guiding to a net revenue for 2020 in the range of 100 210 million or for.
Your 2020 guidance for net cash used in operations of 110 to 120 million reflects continued revenue growth, while maintaining consistent levels of expenses from 29 to 2020, as we have but advice you in the past.
The question I'm sure you your focus on relates to how we manage to exceed the red net net revenue guidance. We gave you in early November by so much as it remember we also I've given you an earlier guidance of 70 to 80 million and obviously our performance ended up reaching the bottom end of that range.
I'll tell you right now that there was no channel effect as our wholesale inventories have remained fairly consistent from Q3 and to Q4 and meaning that our days on hand, where within days of each other.
We did experience stronger volumes and expected the last two months of year, recognizing as we've said all along at the end of the year is more unpredictable then the balance of the year.
We also saw lower than expected co pay coupon card utilization for patients covered by commercial plans and now. This is the second time, we see nantwich at two quarters in a row, there, where we've had a lower than expected co pay.
Card utilization.
The commercial formulary coverage of 80% or better for our franchise, we continue to see patients.
It's been a use the coupons much less since or co pays are already at affordable levels.
The largest single driver of hot higher net revenues with the impact of Medicare part D coverage gap as you know the Medicare part D benefit is on an annual cycle for the patients perspective. It starts with the deductible enters initial coverage phase that is government funded and enters a coverage gap that is 70% funded by pharma and then ultimate.
Yeah catastrophic coverage phase that as government funded.
We received our fourth quarter in voice from CMS for our portion of the coverage gap in a few weeks ago and it was much lower than we had expected.
It is important to note that we and other pharmaceutical companies have little or no information as to when patients are entering or exiting the coverage gap that is determined by CMS based on all the drugs a patient is taking we learn about the level of effect when we get the actual invoice.
Well 29 team being our first year of having all four quarters, you've been voice carrying us through the full continuum of care. We now have better insight on how the coverage gap exposure will materialize in the future assuming there is no further changes and the law.
Our current net revenue guidance range reflects our best estimates what the coverage gap exposure will be for 2020.
Complicating if someone is the size of the coverage graph is increasing in 2020 from 2019. The initial coverage phase will now start about $200 higher and so and then the ended the coverage gap is increasing by almost $1600 whitening Whiting exposure for pharma to fun.
That 70% level.
Said, another way that donut hole used to start at $3820 and now it's moving up to 4020 and a catastrophic kicks in now at 9719 versus in the past 8140.
There are elements included in our guidance include volume growth increased penetration of coverage to count potential minor increases uncovered throughout 2020.
Increase penetration puts downward pressure on pricing, but on the heels or the net price per bottle of $103 for full year 2019, we do believe it it's safe to assume that the net revenue per bottle will not drop below $90 in 2020.
Changing gears briefly before I turn it over to Tom I drove a further commercial inside lucky touch on other important initiatives that we have in our company our sustained release retina programs continue and as we now expect topline data from our phase II clinical trial for a our 11 no five by the end. The 2020 remember this is our.
Our next methadone answered for a number of retinal conditions.
In addition, we'll be completing our enrollment of the first in human clinical study for a our 13th five three later this year.
Also we continue to expect to commence in the second half of 2020, the phase Twob trial, which will be powered as a phase three trial for our dry eye product candidate that we obtained through our acquisition of events are actually at the end of last year.
In early January of this year, we filed the new corporate slide deck that shows the phase II. A result for the visitor extra I product candidate the phase two a data showed meaningful improvement in both signs and symptoms in a very small number of patients.
And if you review the data you will see why we're so excited about the prospects for this product going forward [noise] <unk>.
Important point here is by the end of 2021, just roughly a two years from now we expect to have adequate clinical data from our dry eye and retina programs. So that we can decide how to proceed with our product candidates were the best chances of further clinical and ultimately commercial success.
Certainly as we continue to grow the topline with that refreshment Rocco 10 in the U.S. When you add these pipeline products for plus our globalization efforts that we have especially in Europe and Japan, you can see why is set to suffer very exciting future.
That's out of U.S., we await our rocket and Iraq Landa Mercury three data for Europe topline data from Mercury three is expected in the second half of this year of 2020. We also here hopefully here that rock land is approved by the European authorities by the end of this calendar year.
We will continue to evaluate the commercial prospects to regard products in Europe based not only on the Mercury data, but also the commercial opportunity not only throughout the region, but in specific countries as well.
For Japan, we are preparing to commence our phase III trial programs for Rhopressa, they're gonna be conducted in Japan as we continue to explore the partnership options, we have talked about in the past.
On the manufacturing side, we of course got terrific news earlier this year that we received FDA approval to produce Rocco Tan and our Athlone, Ireland facility and they'll be providing product in the U.S. as we enter summer we're not very helpful to get the same approval for Rhopressa later this year out of that facility.
But I'd like to do now lets turn it over to Tom to cover his perspectives on our position that glaucoma landscape as we continue to build our franchise for the years ahead, Tom. Thank you Vincent good afternoon, everyone. We're experiencing very good momentum on the commercial for the physician and patient experiences have continued to be quite positive it's getting greater experience.
On a physician by physician basis, we're fine tuning our physician targeting practices to generate the highest script yields.
Currently 97% of our Desso nine and 10 physicians have prescribed in every product that's very good news and it shows the interest in our products is widespread I was reminder, each desktop prescribes 10% of the glaucoma products in the market. So these desso nine and 10 doctors prescribe 20%.
Of the glaucoma market prescriptions.
Overall, two thirds or 67% of our target physicians have prescribed at every product again, showing widespread interest and excellent penetration or target audience.
From a productivity standpoint, our average prescriber prescribes seven bottles per month, but if you're taking a look at the thus all nine and 10 prescribers that number jumps to 28 bottles per month, which is impressive and shows that they have moved from trial to adoption of our products.
The key to further raising the physician productivity is a new data that would just begin using in the field.
The first is a very positive data from our recently completed phase four study, which we named most.
Which study Rhopressa and that we shared with you on our third quarter call you recall that in this trial Rhopressa dropped patient I LP by an incremental four plus millimeters of Mercury, regardless of whether Rhopressa was added to a PJ as a second therapy used or if it was added as a third or fourth product in the regimen.
We also saw very impressive results when we're pressing issues as a first line therapy.
So this data would differentiate rhopressa is a very effective I hope you lowering agents and we'll be very important to our rhopressa commercializations going efforts going forward will also help solidify rhopressa as a gateway to rock, okay as physicians become more experience with Rhopressa it'll naturally lead them to you additional convenience and efficacy offer.
By rocking chair.
The second data as you expanded managed care access for Rhopressa Rhopressa is now covered for approximately 77% of part D lives when the L.I.S. for low income subsidy lives are included.
Rocklin part D coverage is approximately 54%, which as you know is very good for product launch less than nine months ago.
Now on the commercial five refreshments covered for approximately 84% of logs for Rockwell can it's covered for 82% of lives.
Slide <unk> level of coverage will make it easier for number one physicians to prescriber products, meaning less necessity for them to performed prior authorizations and number two for patients. It's actually obtain their area glaucoma prescriptions as they were keenly find very reasonable co pays.
We've also made excellent progress with product recognition and usage. We now have nearly 13500 physicians, who prescribed area glaucoma product up almost 90% from last December and our Africa prescribers define this having written at least nine prescriptions in the last 13 weeks has grown from over.
4000 to nearly 8000 in the same time period.
We currently have 4000 weekly prescribers and an additional 3500, who write monthly.
Our critical goal. We are currently focused on is to convert these monthly prescribers. So weekly prescribers by using the combination of the most data and improved managed care access and we believe will begin to see further uptick and violence is we communicate this data and we enter the April or May timeframe.
We've already getting very impressive traction and I believe there's much more to Tom as we continue to build our franchise.
We said before we expect that ask physicians gain experience with our efficacious and tolerable products their propensity to prescribe for new patients were continuing increase I.
Just a quick reported how we performed through the lens of the broader market. In addition to the growth into prescriber, an advocate base I. Just mentioned, we also achieved the falling from the end of 2018 to the end of 2019, along with obviously launching rock okay.
The person's reflect our franchise level performance according to our trivia down.
Total prescriptions for our products grew by 115% persons or glaucoma market growth of just 3%.
Sales how would you recall is units of our product sold from wholesalers in pharmacies grew by 112%.
Matching the growth of prescriptions.
We surpassed five established brand products in both new and total prescription market share, including buys also so I often so brienza close up here in April.
We moved our products to the six higher selling brand mccomber products in terms of dollars up for spots from the from last December and now only behind Lumigan comp again, Trevor Tansy, Oh forget nasal.
We moved very to six in company sales for glaucoma products behind O'callaghan Novartis Pfizer, partially in April and we grew our trx or total prescription market share to 1.5%, we hope for much more to car to put that 1.5 share infrastructure for you the leading product loom again.
Has the share of just 6.6% and number two come again has a share of 5.2. So we're really not that far behind kind of course as mentioned before we made significant strides in formulary coverage across our franchise.
Importantly, we're refining our commercial approach in a matter that we believe we you a meaningful script growth bolstered by a cooperative the excellent most data for Rhopressa and the approved managed care access and the continually broaden broadly positive patient and healthcare professional responses to our products.
As it relates to our commercialization efforts. We of course, we made exclusively focused on building our glaucoma Eyedrop franchise and that's different than most of our competitors allergy and for example is strategically focused on their from enterprise to insert and Novartis is certainly focused on their dry eye product, especially since our lead product Trevor Tansy recently won Jeanette.
Right.
Simply put we don't see any one company, putting as much energy into glaucoma hydrops as we are and I believe it will pay off in the long run and really have seen in the share of voice data. The most active promoters or products in the glaucoma space, our Allergan and area and we continue continued to ensure that our franchise is in front of the mines in the physician.
And now I'd like to turn it over to rich to wrap up with the financials rich. Thanks, Tom will combine rhopressa and Roclatan revenues fourth quarter, 2019 totaled $24.7 million or $120 per bottle, bringing our full year 2019 total revenues to $69.9 million.
The stronger than expected fourth quarter results.
Thanks, Vince his opening remarks on the Medicare part D coverage.
Franchise net revenues reflect volumes of nearly 206000 bottles for fourth quarter 2019, and over 680000 bottles for full year 2019.
Gross margin for the quarter ended December 32019 was 93.2%.
Normalized gross margin was approximately 92.4% when considering inventory costs that were expensed prior to FDA approval of our products.
Our fourth quarter 2019, GAAP net loss was $55.1 million for $1.21 cents per share when excluding the $11.2 million of stock based compensation expense. A total adjusted net loss was $43.9 million were 96 cents per share.
Adjusted total operating expenses for the fourth quarter of 2019 were $61.7 million with adjusted selling general and administrative expenses of $28.3 million adjusted pre approval commercial manufacturing expenses of $5.5 million.
And adjusted research and development expenses of $28.0 million.
For additional information regarding our fourth quarter results. The prior period comparisons. Please refer to todays press release, and our form 10-K, which we expect to file was in the next two business days.
Regarding cash burn or measures have evolved overtime, but from now on we will be using net cash used in operating activities as reported in our statement of cash flows for full year 2019, our net cash used in operating activities was $150.4 million and we had 309.2 million dollar.
Hours and cash cash equivalents and investments remaining on our balance sheet as of December 31, 2019 shares outstanding at quarter end totaled 46.5 million shares and now I would like to turn the call over to the operator for questions Maria.
At this time, if he would like to ask a question you want me to press Star one all your telephone keypad at the end to withdraw your question press the pound.
Your first question comes from the line of antibodies for money from Stifel. Your line is open.
Hi.
Graduations on a quarter I guess, there is a reliance on Medicare not playing Brian Roberts and yet.
So maybe we can talk about how we think the price trajectory is kind of play out in 2020, what do you think the cadence is gonna be going from an average.
Great and what you said was probably an average or.
Not below 90, or 90, and what does the average price that your guidance is based on.
And then secondly, just trying to understand a little bit of trying to frame of reference interrupt the tests were not really seeing the cannibalization of our process with aggressive Rafa 10.
Is this because you're reaching new doctors or our preferences between repressing brought the Tam pretty entrenched. So in other words, you kind of thing some level of market bifurcation with some oil loyally in the market. Thanks.
Okay, Hi, Annabel yeah from from an average price point of view as Rich said, we expect that we're going to go from about 100 traded to $90 or so on average and so we think that you will see sort of an attrition over time, because we're getting more and more.
Patients coming through with that program the Tom laid out what we're going to focus mainly on her pressure, where we have quite a bit dramatic Medicare part D coverage those contracts have rebates or it little bit higher than what we see on on the rocket hand side and we have more contracts.
So if I can just.
Paraphrase, what Tom was describing it as if you think about a single doctor.
What we think will happen is the most data we'll get that dr. to add Rhopressa does something.
Neither out one drug to drugs, three drugs et cetera, because of the four millimeter drop exit experience that we've seen in their clinical trial, then as that patient or is that dr. gets more and more experience with those patients then they'll start looking at those patients, especially those with there just on one other agents say prostate gland and plus Rhopressa and then start.
Moving those patients over to rockets and because of the <unk> one bottle one drop a day kind of a convenience and so we do think that overtime building more rhopressa volume is going to start bringing that price continue to have that price drop from the hundred three down to the 90, we're still hold price on on Rocco.
And that all that for a while there will still be higher because we don't have to chase the big rebates.
Yeah, we would have to do in order to get rocket hand on all the remaining formulary shorter happy with where we are and if we get some more great, but if we don't that's okay too. So I think is going to be that tension, but I think the most important thing is the program. Tom described about the Doctor. So let me have him to deal with that and just second.
I'd also say too about the cannibalization because it perhaps what's holding back a little bit is because we're personnel. So much better coverage than rocket 10 does right. Now has been said, we're not fighting to give away or product to get it on formulary. So we're still doing just that product in or time, we'll get that others. So really what we're doing out in the field Annabel as you heard about the data where you.
Using the other thing were doing is shortening our call list I don't want to go into a lot of details on this for competitive reasons for what that's going to allow us to do is increased the frequency on the people that we are targeted because we think the data. We have is very powerful so what we want to do is.
Shorten the time from I'm hearing data understanding the data to prescribing the way to do and there is to increase frequency buyer salesforce and that's the lessons what will be implementing has just begun implementing effect.
Great. Thanks.
HM.
And your next question comes from your line of Ken Cacciatore from Cowen and company. Your line is open.
Guys. Congratulations on all the progress just wanted to drill down a little bit more on on managed care and trying to understand a little bit of the messaging. So it sounds like you were talking about maybe even a more of an inflection in April and in May and I don't know if that was specific to rockwood and lower both both products, but can you just talk about pacing through the balance of the.
Year of more part D coverage for Rockwood 10, when do you think it will be equal or normalized versus rhopressa or do we think that.
It could be a little bit more elongated and we're just going to focus on rhopressa for the time being and then second question on retention rates just feedback from your sales reps in the fields.
About retention and what they're seeing in terms of patient refills and hyperemia any any kind of kind of anecdotal feedback you can give us. Thank you.
Okay.
Hi, Ken Thanks, So I'm going to take care of the you know the first question relative to managed care coverage and so what what you heard relative to the April may timeframe had nothing to do with managed care had a lot to do with the new commercial plan that Tom put in place with the Salesforce using the the most.
Data and that we're going to be focused on those monthly prescribers and trying to get them down the weekly prescribers and and because of the what we're asking the salesforce do which is basically call on each one of those guys twice a month by and it typically takes anywhere from four to six calls in order to see a change in prescribing.
Habit, we're guiding you towards that April may timeframe. When we take we will have called on all of those memory writers four to six times to see whether we see that inflection point on rhopressa.
As we see more more prescription start building up for Rhopressa that sets up those individual doctors to eventually become more rocket Tan riders and it's going to be so that's why we're going to see someone from an attrition on the on the rhopressa or overall franchise prices more and more refreshes use because of the Medicaid better managed care costs.
Average there and then as they slip more of those patients over to rocket Tan than we see the upward pressure on pricing at that point.
So I think that's sort of explains why we're expecting to see from a managed care point of view, let me turn it over to Tom for some of the anecdotally that you're looking for yeah. I think the thing we're seeing Ken is a lot of what we're hearing the same thing that we saw in our most trial, which was a real world experience trial, just remind you of what we saw from the AG perspective on that.
We ask patients how well to do tolerate the drug 90% of the patients either said, they say tolerated it well, mostly well are very well. So that's different than you probably saw in our phase three trial because.
Physicians are hyper vigilant about above reporting a he is not I'm not saying that's wrong at all but any little data that are iron little Brent flashing in there I would have been treated as hyperemia. So the numbers are commonly overstated from what you see the real world settings, where we don't see is people dropping off the other comment I'll make as we've been able to tell physicians, who may want to try used.
And Rhopressa earlier on in the addition, instead of being a third or fourth product at it and a regimen, making the second product right and backed off the prosigna right. After the prostate gland and what they find comedy as I stated was poor I tell you see less hyperemia well that it makes sense about my Bob start going off of they say that I get why because I'm only using two products instead of three.
We are four or five products were ball by BARDA yard. So I think we're not I don't I don't think of bear the retention rate is an issue at all force effect, it's really turning into a benefit.
Okay, great. Thank you.
And your next question comes from the line of Serge Belanger from need had your line is open.
Hi, good afternoon, thanks for taking my questions.
Just wanted to revisit the 14 19 numbers.
First Vince can you.
Maybe confirmed that we saw growth in both real quick 10, and Rhopressa during the fourth quarter and then just on a unit volume did we saw just short of 5% growth.
In a in bottle volume.
How does that reconcile with the growth that we saw in.
The acuvue bottle volume that we are tracking.
I'm going to have rich rich talked about that yes, so with regard to surge too.
The quarterly dynamics.
The Q be a bottle data.
Since you see that all the time, if you take that data and multiply times to factor that we've been talking about prolong while which is 1.25 to take the Acuvue bottles times 1.25 dollar would be very close to the sales out that continues.
The wholesale volume growth.
It is a shipments to wholesalers will be a little more choppy and as we said that gets a little less predictable when you get to the fourth quarter, but the sales out activity in the dynamics from third quarter to fourth quarter for sales out a very comparable to Q via vital dynamics for the third quarter to the fourth quarter.
Okay.
And then and then on Rhopressa and wrote would tend to be you saw growth on both products throughout the fourth quarter.
Well by definition, if the if the sales out are tracking to the accu via data and the Acuvue data did show growth and so to the des sales out there yes, okay.
And then for 2020, you can you just give us a little more color on what we should expect for.
Seasonality just quarterly progression.
Yeah, I think with you again, we don't call out the quarters. So we're not going to get into into that I think that you can expect that we're gonna be seen because now we have the two products on the market have had them out there for enough quarters to get a feel for it.
We're going to see exactly what you see for almost every other major pharmaceutical company, you're going to see the fourth quarter coming in pretty light because January February are always light as you know fate as folks go through their deductibles and stuff like that and then starts picking up in the March time. So the only change that we may see is if we have.
Incredible March but again most companies don't typically count on that you'll see the pickups in Q2 and and Q3.
And then as we've said before the big wildcard every year is going to be the fourth quarter.
Two reasons number one it you know we didn't expect to see the volumes command because of all the holidays and everything else, but they did and then on top of that we had the extra benefit of having the.
Diversity to the accruals with a lower CMS Bill that we got and so as I said before and I said multiple times.
Starting with about September of last year, we're going to be pretty conservative as we call out these numbers and so but from a pattern point of view again I think you look at a somewhat softer flat Q1 getting better in Q2, Q3, and then a big wildcard and for.
Okay.
Just one more on the nice thing Sir.
Certainly we have experienced now so if you just we have limited experience, but if you look at the fourth quarter of 18 wholesale shipments compared to the first quarter 19. It was down slightly you might recall about 4% that's totally.
Okay.
And then a one more for you rich.
Just on Cogs I think last year. When you launch vehicle 10, there was still product that you had expense you R&D just wanted to know where that is and how should we think as oh.
Okay that line as a the Arland plant comes on over the summer.
Yes, Hey, my prepared remarks, I gave you the the two gross margin numbers. The one we actually book in the adjusted one if we had not expensive prior inventory, they're getting very close now as we work through that previously Expensed inventory now what will happen with the ethylene plant operational as well that overhead is.
It's going to be depreciated.
And along with.
The ongoing operating expenses of the plant that will flow into cost of sales. So like any other plant startup that we'll have the effect of increasing your unit cost.
It's just a matter of time as we build the plant up to capacity over the next several quarters that will normalize that then the day the costs will go down but as it relates to 2020.
Full year 2020, I do expect our gross margin to come down as a result of the ethanol plant coming up to capacity.
Thank you.
Thank you.
Your next question comes from the line of Aster Roger values have opened hyper your line is open.
Hey, guys. Thanks for taking my question Munis step aside from the guidance I'm in the quarter and just asking a couple of questions in Kansas for you.
Pipeline.
You mentioned potential Japanese partnership what is the ideal time, I mean, you you're getting ready to start to see see what's ideal time from your perspective to find a pipe.
And then I have a time.
So.
The interesting part for US is that we always talked about that we were going to do all the development ourselves all the way through and then find a partner for commercialization we were I.
I guess I shouldn't we shouldn't have been particularly surprised given the efficacy that we saw in that low tension patients in Japan. When we completed the phase two trial that all the sudden several of the Japanese companies began to approach us about doing a partnership what we have seen is that there's been a pretty significant difference in some of the that.
Potential deal structure numbers that we have seen.
Now versus what we were talking to folks about way back when we started in Japan.
So it's pretty clear the longer you hold onto an asset like this and you continue to have success in the clinic the the better the deal got to the you know that's not all that surprising and so what we've seen a we continue to talk to all the companies, they're in and including the two or three major ones and and we will continue putting.
Our best foot forward there, but at the same time in parallel we're going to talk to the PMTA, which is as you know the Japanese sta.
And start the the progress or start to programs in terms of or the process by which will come up with our phase three programs and.
Well just assume that we're going to continue those and somewhere along the line will reach a point at which the offer exceeds.
Anything that we could ever think up so at that point, that's the best time, but there's.
No really preset notion on our part about when is the best time to do a deal.
Okay, and then can you give us a lot more information on the TV Oh, one team mechanism I try and one into your decision to invest in the product.
Sure. If you go back into the November timeframe, we'll see a slide deck that and actually you don't even have to do that you can look at our corporate slide deck and you'll actually see some information about the products and so but we did report out that some some interesting.
Background information on the acquisition when we made it back last year, but basically this is an agonist.
To the trip and eight.
Receptor in the eyes, the cold sensing receptor in the eyes. So when you guys.
We haven't made in New Jersey office today, So when I came out of the hotel. This morning. It was about 18 degrees and so as soon as I did my I started tearing up well what happens is the cold sensing receptor the trip a mate eight got activated and it produce more tiers.
And that's the whole basis for this so our patent covers all molecules that activate that receptor.
And when you look at the phase two eight data, which will saw in a very very small number of patients is that we were able to achieve with only 26 patients in the arm statistical significance on what's called Termers test, which is to your production Thats what it measures and then we got really really close on.
On the symptom score, we didn't quite get to statistical significance with a 26 patients, but we got awfully close and so thats would make it made it very very exciting.
But most importantly, not only does the drug works, but it also works within the first four weeks and so when you compare it to.
Other products out there like side, right and Restasis that take multiple months for him to work.
We think that we had something that's pretty unique it isn't I dropped so that differentiates as well from other products that are being studied that for dry eye today.
Thank you.
Your next question comes from the line, it's Greg seizure from Suntrust. Your line is open.
Great. Thanks for taking my question on the plan to hold operating expenses stable key provide some more color on the mix between as cheating R&D and how should we think about that preapproval manufacturing. It's that's why in 2020 and had a quick follow up on file growth and.
Turning to speak to the trends so far in 2020 and weather while growth has been similarly proportional to guide Q via data in terms of at 1.25 times factor.
[noise] so the the expenses for 2020 or so.
Essentially going to be pretty close to flat with what you saw in 2019.
Maybe if you look at the mix, maybe SDMA will go up a little in R&D will go down a little remember in the fourth quarter. We did the a visit Rex deal that was $10 million and that was recorded as R&D expense.
But.
At this point, you're not going to see that much fluctuation between SG nay or R&D with regard to the pre commercial manufacturing expenses overtime. Those will go down I don't expect them to disappear in 2020, but they will go down for sure.
It was.
It's come down of course from.
From 18 to 19 by about $5 million into full year basis, and it will continue to.
Decline could you repeat your volume question again, I'm not sure I got the Angola.
And just you talked about bottle growth and the 1.25 times faster relative to Q, Yeah, I'm curious that 2020 January and February to date.
The trend you've been seeing and whether that 1.25 times is still.
Relevant are still the same note yeah.
Yeah, it's really not going to change dramatically know if you look at it we could have time it might bounce up and down when you look at a sizeable chunk of time like a quarter, it's going to balance out to the same relationship.
Okay. Thank you.
Thank you.
Your next question comes from the line of Joseph Bizzaro from Piper Sandler Your line is open.
Hey, guys that thanks for taking my questions here I guess first one for me I think last year. At this time, you said you expected Rocco 10 volumes to be three axis of of Rhopressa by year end 20, just curious how you guys are thinking about that now and what we should expect at year end 2020, and then along those lines just going back can you.
Say, what the split was in revenues between Rhopressa and Roclatan and Fourq you.
So hey, Joe So just as a reminder, what we talked about was that at somewhere in 2020, we talked a rock the 10 rhopressa would be roughly the same.
But that ultimately we would see the three acts in favour of Rocklin hand over time as we got similar coverage for managed care. We didn't talk about a three X difference next year. It was just simply we thought that rock with hand would end up potentially catching rhopressa.
So and we did an awful lot of that discussion prior to getting the most data.
So with the most data.
What we believe is going to happen based on the work that we've done with the doctors as we've released that data to them and had discussions with them.
And which is why we changed our commercial.
Approach is that we're going to use that data to focus more on rhopressa because of the managed care coverage. So it's easier for the doctor to add something as opposed to replace so what we expect to see is in a as as mentioned earlier and that April may timeframe is to see the rhopressa numbers start growing again.
And then over time those rhopressa patients many of them, we'll get switched off to rock the Tan and so what you may see is a little bit of a delay in rocket pan catching up with Rhopressa now that we have this adjunctive data available and ultimately, though that leads to more rockets hansgrohe.
Ships.
Is that help.
Yeah, that's that's helpful.
No I guess my follow up with the Mercury three data expected in second half 2020 can you just help us.
I think about that the timing of pricing discussions discussions in the EU and the eventual timing of the other potential rocket 10 launch.
Yeah. So just as a reminder, because I want to make sure everybody gets has so the mercury three data, which will get towards the end of this year is not for anything other than pricing. So we do expect that Iraq Lando is going to get at rocket Hana is gonna get approved in Europe before the end of the year, but I'm going to have Tom talk little bit more about the pricing or.
Discussions that we may enter in as we get that data sure Joe. So the way. This works is that you get a product approved and then you launched products you normally have normally in most countries.
Yeah, our year, where you go out and sell the product at the price that you in fact pick the company picks.
There appear to time, you come back and they've come back and then you talk with the pricing authorities about that justification for why you pick that price and if you pick the right price there's nothing to do if you pick if they think you could just far higher pricing you might raise your price a little bit or if you think you can't justify their price that you may all the government stop.
Back to the matter is you do have a year that to run with and so we should have a pretty good feel for what we can once we get their Merck with three data.
Just as a reminder, you know we're not going to be launching throughout Europe at first what we'll start with is one country, Germany, where we'll be able to show our proof of concept make sure that our product in fact does resonate with the physicians.
In their minds and again, we'll be working with repricing authorities and again, that's what the purpose of Mercury three as Vince has set a couple of times.
Okay, Great. That's helpful. I just want to follow up on my first question if I may.
Would you be able to say the splitting in revenues between Rhopressa and rock with 10 in Fourq you.
[noise] out we don't report out the various products to close as you can get is to take a look at the prescription activity for my Q and you get a feel for that and if you take a look at the a that the.
Shipments from wholesale to retail we report you see the franchise number and alike. So you can make sense as pretty good stab at it but.
But we don't report out so.
Great. Thanks for taking my questions.
Uh huh.
And your next question comes from the line of Louise Chen from Cantor Fitzgerald. Your line is open.
Hi, Thanks, so much this is John Kim on for Louise I've two questions. The first just to echo some of the prior questions regarding quarterly variability on that revenue per bottle I think you've previously given color and you said that you expect you expected it to bottom out at the bottom at the backend of the second part of 2020 or the summer of 2020.
Is that in general the same way that we should think about it like in the range of that 90 to $103 per bottle that it should bottom out in the middle and figure and then start growing again and then also in that.
Bottoming out of 90 or above revenue per bottle is that how you think about 2021 and beyond.
And my second question is just on Opex in 2020, Theres a lot of activity in the pipeline and the second half with the trip M-.
Yes in Japan is it reasonable to expect ramp up in the back half of the here.
So let's talk about the.
The R&D expenses first and then we'll get into the other discuss the other question that you had so from an R&D point of view in the second half of this year. The a lot of these programs are pretty small that we're running especially for the retina programs what.
We're talking about half, it's more than handfuls of patient, but there are certainly.
They're not any scale at all so the expenses associated with those are relatively minimal.
So they're not like full blown retina trials by any means and with the visitor Xol, we're going to talk about for the second half of this year is actually getting into the clinic as opposed to see in a large number of patients, which Macy's more expenditures for next year as it relates to that for Japan.
Our discussions with the P.M.D.A. won't occur until.
Later on in the first half of this year.
It takes a while to get the meeting scheduled and things like that and then once we get that going then we can start scheduling or the clinical trials and so.
The number of clinical trials required in Japan can range anywhere from two to four depending on what we're trying to achieve but a lot of that we can't comment on until after we have our discussions with PMDA, but I think relative to this year in the first half or second half a expenses in Japan are going to be.
Pretty much controlled by just simply how long it takes to get things started over there. So again not a major inflection point from an expense point of view.
So.
And on the net revenue, what where it's going to bottom out I think.
We shouldn't test ourselves with regard to what quarter, it's going to bottom out which quarter will pick up there is always going to be a certain amount of volatility from quarter to quarter. It's it's normal we've seen it.
So the end of the day I would just go with our with our guidance, which is we don't expect to fall below 90, there are many variables going on whether it is increased penetration of covered accounts.
News with regard to the coverage gap, which will be increasing size has been said this year.
Along with potential price increases et cetera, so I'd, rather not point to any specific dip will rise in any individual quarter, just used $103 a bottle, we experienced full year 2019 and use that as your baseline for purposes of.
2020, but.
We're not going to be pointing to low points and high points through the year.
Alright, thanks, so much.
Your next question comes from the line of Jason Gerberry from Bank of America. Your line is open.
Hi, good evening and thanks for taking my question.
Most have been at already but just wanted to come back too. So the previous commentary about Rockwell can achieving sort of more of a normalized part D coverage level by end of QQ 20, trying to put that with the commentary today about only a minor increase expected in formulary.
Access so is that just being conservative.
Just wondering if there's a change as it pertains to that and how will you be providing a peak sales update.
When you do reach that normalized formulary situation with respect to Rockwell 10.
Yeah, I think that.
Jason the biggest thing that has changed for US is the availability of this most data and the feedback that we gather the doctors about the importance of that as it relates to rhopressa and so again going back to Tom's comments about what we're going to do from a commercial point of view in the U.S. of using the most data focus on a monthly writers and getting them to address.
Said to whatever it is that they're currently using so that they can experience at four millimeter drop any incremental drop in pressure, we think thats going to drive more and more rhopressa business starting in that April may timeframe as we've already guided we think that that ultimately means that the following we think that repression numbers start growing.
We still digit continuum, because we still have a lot of doctors that have already mood for monthly writers to weekly writers. They have a bulk of patients coming through system and then they start looking at those patients and then they start realizing that you know I can really help the patient load here are the patient with his.
Medication load by simply moving them from say two or three medications to only rocket Tan, which is just one drop today and then again, we have the opportunity there to use prior authorizations et cetera, and get better pricing.
With managed care, what we have seen is by not being in such a rush.
To sign up managed care contracts that we've been able to slow down that the price attrition and so we expect to continue that and so again all of this changed when we saw the most data and were able to then get that into the field in the hands as some of the doctors.
The that no they follow is pretty well and get their feedback in terms of what their expectations were and so that allowed US then to make further fine tuning of our managed care strategy. So instead of getting to equilibrium on a Medicare part D with rocket and really really quickly we decided to hold line.
Good.
You take a look we have roughly about not quite 40% Medicare part D coverage on rock the 10 now versus up in the seventies for Rhopressa, but on top of that we have the low income subsidy patients. It at about another 18 points on top of the roughly 40. So we really are not in that big of a rush to close off the.
The last 40%, but as we've done in the past if we decide to sign one of those contracts that I'd say that adds repress, whereas rockets hand to a rhopressa contract, we'll let you know.
Thank you.
Your next question comes from the line AFUDC Yang from Mizuho. Your line is open.
Hi.
Good afternoon, Thanks for taking my question.
Just a quick to their quick two questions Hawaii is related to how should we think about part D gap liability 20 twond.
And then on the fat on the high level to help push to understand how exactly does the government.
Calculate that invoice and is it backward looking forward looking.
It's back we'd look so it's based on actual claims.
So it's a detailed is actually on a claim by claim basis with regard to the the part D GAAP liability in 2020.
As it relates to 2019, the big thing to look out for is what we mentioned earlier, which is the increase in the size of the coverage gap pit is 70% funded by pharma.
So in terms of a single patient the coverage gap, which is funded by pharma has going from.
$4300 to about $5700. So the exposure on pharma is greater.
And then you also have to factor in of course, the continued penetration of the Medicare part D covered accounts.
So again as a day do I expect our coverage gap exposure to go up.
In 2020 compared to 2019, the simple answer is yes.
And Thats one of the reasons why you see us pointing to directionally going from the $103 per bottle and 2019 to the Ninetys as we get into 2020.
Okay, Great thing and then thanks.
A follow up question just yeah, a Medicare part D coverage for Rocklin 10, just one you took farm that I hear correctly some good alike.
You will have a different strategy for rockwell attend that.
Ah part D copper each person is real crack so you did I hear that correctly.
Yes, you actually you did they know what again using the new data that we got unrest head towards the end of last year, we determined that we don't need to be and as big of a hurry to sign Rocco Tan.
Medicare part D contracts as we were with Rhopressa you may remember with Rhopressa, we got out of the gate in month or two after we got that we had about 15% Medicare part D. Coverages jumped up to about 40% six months later and and got up into the sixth season seventies about nine months. After launch we don't have to do that with with rock.
And we don't have to give up those kind of rebates at this point because a we have roughly 36% or just shy of 40% coverage already for Medicare part D. We have the low income subsidy folks that.
That are on top of that and in because we have now rhopressa already covered and we have this new data, we can sit tight and not have to give up as much in rebates on rocket hand, so were not as big of a hurry to sign those contracts. So if we get the opportunity and we find that signing the contract.
At that much.
Lower rebates than we originally were approach to do by the managed care organizations is the right thing to do because it allows us to bill higher volumes and ultimately higher revenues and of course will do it but we're just not in that big of a hurt.
Yes, Thank you very helpful.
Good.
And your last question. He comes from the line of Al You told me from Raymond James Your line is open.
Thanks, Good evening I do you guys wouldn't forget about me just wanted to go back in as question of Tom regarding some of your earlier commentary around the Mercury three trial and the impact on rock Landa in Europe. So.
That is not a go no go outcome with respect to that trial correct. I mean, it sounds like there's a range of possibilities just depending on how the data readout I want to confirm that and then maybe could just help frame for us what you would think or how you would sort of defined a win in that.
Well, obviously, it's a comparative versus.
Again for it so if if he showed non inferiority is that basically means you can get ganfort pricing across all the major GPU markets and that's that's good enough for there's possibility it sounds like four or premium pricing or if you show superiority just want to get maybe a little bit more granularity in terms of.
How you think about the range of outcomes and their tie into price.
Yes, sorry, after you've got a lot of her right. There just assume first off that we show Noninferiority again, Scantron, that's a win for us because.
We show equal efficacy, but that we don't have the beta blocker side effects again for has because better different has a beta blocker. There. So we would be seen as a safer alternative with equal efficacy. So first off that would be a win that would allow us to get at least we believe at least equal.
Equal pricing.
Perhaps a little bit of a premium.
But in our plan. We have is if we showed on for your already will also test for superiority, which is the other words that you mentioned if we go to that then that we could get a much higher prices. If we can show superiority, but again remember the nice thing is is just showing better fiori is without a doubt not a tie it's a win for us. So it's it's that's where we look for US we're hoping to go.
Yeah, So far we really can't tell what's going on in the study because.
As you well know it's that's all part of studies. So we don't know the answers, but we're not hearing any catastrophes, author or real problems out there, where where anyone product is not performing very well. So it sounds like things are pretty well in the southern hopefully, we'll be able to a wrap it up but they're not too distant future.
Okay, and just one final question for rich thinking about revenue progression over the course of 2020 it looks like.
Late third quarter or or maybe mid mid to the mid forced to year end you are going to be dangerously close to a cash flow breakeven just want to get your observations on that comment.
Well, obviously I gave you the net cash used in operations, which the guidance is still over a $100 million. So.
We're still going to be a.
Not quite there, but if you think about the progression.
Of of the units in the course of the year.
I think you'll see what would you are expecting which is as Vince mentioned earlier, the first quarter will be a somewhat slower start as it is in every pharma company and as you go through the year those volumes will pick up and that's especially the case for us because we're still in launch club.
All right Elliot I guess.
It's all good so.
With that.
Yeah.
There are no further questions at this time, Sir I would turn to call back she Vince Anido Chairman CEO for final remarks.
Yeah, I want to thank everybody for joining the call. This afternoon, hopefully you get what are you got from the call is our focus on or the the commercialization of repression Rocco 10 in the U.S first and you heard from Tom, but all the things that we're doing that will allow us to drive.
Revenues in and success in the market as we implement the a the revised strategy that was pes facilitated by the use of the most trial data and so we're excited about the prospects for that in addition to that.
We do continue to to believe very strongly in the pipeline will continue building that the shortage term program that we have in terms of going to market assuming success in the clinic is out of our dry eye product Division Rx and will be entering a before the end of this year. The phase Twob trial that is powered as a phase three trial.
And you could look at them on our website for the latest slide deck and you can actually see.
The data that shows you why we're so excited about that in addition to that we continue to have a great results in and doing all awful lot of work on the retina programs and while we will have.
Much earlier trial information available, we'll start with that later on this year with the information on a 11.54 retinal diseases, which is our steroids in that area and sometime in towards the middle of next year with five of three which is the real kind age protein kinase inhibitor, let's not forget the focus that we also have.
On the globalization efforts in both Europe, and Japan, and those are progressing very nicely. So overall, a while 2019 was certainly a tumultuous year for US we think that we came out of it very strongly with with revenues that we were able to project to achieve for the calendar year insert that.
Along with the pipeline and globalization efforts, which is in great position to build the company going forward. So good. Thank you would have a good evening.
That's right.
This concludes today's conference call. Thank you for participating you may now disconnect.
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