Q2 2020 Flexion Therapeutics Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the friction Therapeutics Conference call. My name is Shannon and I'll be your coordinator today.
At this time, all participants are in listen only mode.
We will be facilitating the question answer session at the end of today's call.
If at any time during the call you require assistance. Please press star followed by zero and coordinate will be happy to affect you.
I'll now turn the call over to the company.
Good morning. This is Scott Young Vice President corporate Communications and Investor Relations.
Earlier today, we issued a press release, which announced preliminary zilretta net sales for the second quarter.
That will lease and our latest commercial metrics can be found under the investors tab of the company's website flexion therapeutics Dot com.
Today's discussion will be led by Flexions, Chief Executive Officer, Dr., Michael claim and.
Also on the call for Melissa Lehman, Flexions, Chief commercial officer, and David Archuleta, Flexions Chief Financial Officer.
On todays teleconference, we will be making statements relating to future financial and business performance market conditions strategies, and other business matters, including expectations regarding revenues cash utilization clinical regulatory and commercial developments and anticipated milestones which are.
Forward looking statements within the meaning of the private Securities Litigation Reform Act.
Flexion cautions that these forward looking statements are subject to various assumptions risks and uncertainties, which change over time.
These forward looking statements speak only as of the date of this call inflection assumes no duty to update such statements.
Additional information on the factors and risks that could affect flux and business financial conditions and results of operations are contained inflections filings with the FCC, which are available at FCC dot Gov as well as Flexions website.
I will now turn the call over to my plan.
Thanks, Scott and thank you all for joining the call as you are all keenly aware since March the Cobot 19 pandemic has had a profound impact on virtually every aspect of American lights, and no business has been unaffected.
Collection is no exception recognizing that these are unprecedented times in may we provide an update on our progress during the first half of the second quarter.
With that in mind, we felt it was important to provide our investors with visibility into our performance for the full quarter as soon as feasible and today, we reported preliminary zilretta net sales of $15.4 million for the second quarter.
Based on the circumstances, we're very pleased with our performance and we are optimistic about what it portends for the future.
Melissa will provide details on our commercial efforts, but first I'll summarize what we experienced in the second quarter.
As you know in late March we instructed all our employees, including our sales team or muscular skeletal business managers to work from home.
This coincided with various stay at home orders and social distancing measures, which were implemented across the country.
As a result of these changes many patients who would have been treated with zilretta opted to postpone visits to their physician or in many cases, particularly in the early days of Cobot 19. Their doctors offices were closed to non emergency cases, all together.
In turn demand for Zilretta dropped precipitously in the latter part of March and that decline continued into early April when we purchases of Zilretta by health care providers dropped to as low as 627 units.
Despite the dramatic impacts of Cobot 19 on Zilretta sales, our commercial organization never lost their focus tenacity or commitment.
In fact, we had a month over month growth throughout the quarter with purchases by accounts, reaching 4863 units 13547 units and 18287 units in April May and June respectively.
In total approximately 36700 units of Zilretta were purchased in the second quarter, which is essentially on par with what we saw in the first quarter.
With the nation's still tightly in the grip of cobot 19, it is impossible to predict what will happen in the coming months or quarters. However, it is clear that physician practices are adjusting to the new normal while patient volumes remain down practices are now able to see patients by implementing new protocols, which include.
Telemedicine visits use of personal protective equipment temperature checks, social distancing and virtual waiting rooms.
To enable the save treatment of patients in the office setting.
In addition, while some areas of the nation are experiencing an increasing coven 19, others are relaxing restrictions and all of our MB EMS are now conducting in pursuing calls in their territories.
Importantly, we are pleased to announce that we intend to restart manufacturing of Zilretta in the fourth quarter to help ensure that we have an adequate and omniture up did supply to meet future demand.
David will provide additional information on our manufacturing activities and inventory levels, but at this point I would now like to turn it over to Melissa to walk through the commercial metrics and provide color on our commercial efforts.
Thank you Mike.
Our first quarter earnings call I discussed how we were pleased with the way Q1 was progressing prior to the onset of covert Nike.
However at that time, the pandemic made it impossible for us to predict how sales would be affected in the following quarters and this let us to withdraw our full year Zilretta revenue guide.
There's so many unknowns and moving pieces, but directionally, we're very encouraged by what we have seen recently.
As Mike mentioned RMB EMS began working remotely in March and as they transition to virtual detailing they found that many accounts for not only receptive to call.
We're able to access health care providers, who were previously unreachable and to have richer conversations with prescribers, who would have normally been busy seeing patients are performing surgery.
Correspondingly our marketing team conducted a series of focus groups with physicians around the country. We confirmed that due to covert 19, there's a growing population of patients facing extensive delays to knee replacement surgery, and others opting to postpone surgery indefinitely.
All of these patients and their health care providers find themselves and urgent need of durable options to manage pain associated with osteoarthritis of the me and in response to that need in April we developed an entire campaign focused on the concepts that well surgery can be postponed Bain capital.
We believe the read it can play an important role and providing effective durable pain relief for patients to defer or decline surgery.
Fact, we recently conducted a survey of roughly 30 orthopedists from across the country, which revealed that more than 60% of these responded are using the red in this way and they indicated that about one third of their current so ready for this purpose.
Now I'd like to review our commercial metrics updated to include Q2 results.
You can see in the first of all commercial metrics slides as of June 33858 of our target accounts had purchased so rather.
This reflects the addition of 186 new accounts in Q2.
By the ended the quarter 2983, or 77% of purchasing account a place at least one reorder, which is unchanged from Q1.
Slide three shows our quarterly sales progression since launch punctuated by the estimated 15.4 in Q2 net sales, which has more than 75% of the net sales delivered in the first quarter. Despite limited practice operations and patient flow for a significant proportion acute care.
We believe it's already continued penetration of the markets throughout the course of Q2 results from a combination of pent up demand surgical delays and cancellations in a disciplined effort of our sales team to effectively segments target and persistently connect with our customers remotely.
On this last point recent call data shows that in Q2, our sales team conducted 25000 more calls going in Q1, I'm 3500 of those calls with health care providers, we had not previously reached.
This represents the highest number of overall, new healthcare provider contacts and the greatest single quarter increase seen in the last two years.
We believe this suggest the potential for increased already use driven by both new users on existing users expanding into new patient type for example, both awaiting surgery.
Our Q2 sales achievement is encouraging given the drastic effective covert 19 on orthopedic practice throughout the quarter.
Slide four or five and six or updated views of the rather purchasing patterns across our growing campaign, which is comprised of practices clinics and hospitals have varying sizes and potential.
Slide four shows the cumulative number of accounts that have purchased zilretta since launch as well as the distribution of quarterly purchase volumes across our account base.
In Q2, we continued to see growth across all of the purchasing breakpoints of one to 10 11 be 50, and 51 or more unit.
Accounts continued to increase their utilization of the red hat, despite the pervasive reductions in practice operations and patient flow throughout the quarter.
So we've stated it often on past calls it bears repeating that accounts generally gain initial experience with Loretta with small purchases of one to 10 units and then as their comfort and confidence grows they generally advanced lung utilization continue on into the 51 plus category.
And while there are a growing number of accounts purchasing in these volumes today, we believe that non has fully realize their purchasing potential. So we still have tremendous opportunity to increase the ready utilization within each of the purchasing group and across all of our target account watch nationally.
Slide five described the distribution of cumulative zilretta purchases by account.
Purchases by cap in the second quarter alone totaled approximately 36500 unit, which is roughly the same as the number of units purchased in the first quarter.
We find is very encouraging person has occurred at a time, a patient flow and practice operations were significantly impacted by covert 19th.
Through Q2, 2020 accounts that had purchased more than 50 units contributed 86% of all units purchased since launch.
In our final slide number six we break out the rest of purchasing by new and existing accounts.
In Q2 hundred 86, new accounts purchase so rather.
We believe the results describing these last three slides suggests great potential to drive news already you through the introduction of new prescribers into our customer base as well as expand existing prescriber youth into new patient type as the new normal for practice operation continues to evolve.
And speaking of the new normal in orthopedic practice.
We have conducted multiple ways of research with physician practices to better understand changing practice dynamic.
Five leading indicators for the Red is evolving role in the treatment of Oahe pain.
At the end of June we surveyed a national sample of orthopedic and practices to see how their office operations surgical practice and patient flow has evolved.
As we had prophesies, though office hours have largely returned to pre cobot norm and access to Oh was for elective surgery has been restored in most states.
Patient group put in both setting has dropped significantly versus pre covered level.
In general we found that while office hours have all but we're trying to prior status patient flow to office is back to only about 70% of prequalified level.
The impact of cobot on orthopedic surgeries is even more pronounced with surgeons, citing a return of 70% of free cobot or time, but the number of cases conducted in it given week today is estimated at just above 50% of the pre cobot Hey.
The suggest further potential to expand the read his role as an important option for patients who continue to await knee replacement surgery due to reduce availability of orthopedic or time.
It's also worth noting that of the physician surveyed roughly 30% believed that it would be three to six months before patient flows resumes to their pre koby cadence across both setting and roughly 25% believed it would be six months or more of course surgical patient flow is fully restored.
So while it is impossible to predict what this means for future Zilretta utilization, we remain cautiously optimistic about the multiple avenues for potentials already growth and we have tremendous confidence in our commercial teams ability to capitalize on the opportunity that is ahead of us.
Thank you and at this point I'll turn it over to David.
Thanks, Melissa as Mike mentioned, we recently in foreign page of our intent to restart manufacturing of Zilretta in the fourth quarter.
As we've previously discussed we had cost our manufacturing early in the second quarter to ensure we did not build up excess inventory of finished product.
We utilize a condominium model pay John in the UK, where we have dedicated manufacturing suites and resources to manufacturers Iretta infrastructure provides us with significant operational flexibility.
While our current inventory levels of finished product remain more than sufficient to meet our anticipated demand through the remainder of this year and beyond the restarted manufacturing will help ensure we are well positioned to meet anticipated future demand.
It is important to note that while we paused manufacturing we continue to incur fixed costs associated with paid me ons dedicated space and resources at their manufacturing facility.
For Q2, these costs will be reflected in our cost to sales and.
And as a result, our gross margin as a percent of sales also known as the gross margin percentage will be lower than what we have reported over the last several quarters.
We expect to get back to a more normalized gross margin percentage once we have fully ramped manufacturing back up.
I'm not before 2021.
As Mike mentioned, so retro purchases by accounts in the second quarter, where essentially in line with the first quarter.
These accounts, which are physicians clinics and certain medical centers or hospitals generally purchase zilretta directly from distributors.
We recognize revenue on Zilretta sales when product is received by our distributors.
In the early days of the pandemic.
Purchases of Zilretta by accounts dropped abruptly and significantly this resulted in higher than normal inventory levels held by our distributors at the ended the first quarter.
With the increasing purchases of to write a by accounts throughout the second quarter inventory levels at our distributors returned to levels consistent with that of other quarters by the end of May and we ended Q2 with distributor inventories within the one to three week level that we target.
Finally, our preliminary Zilretta net sales of 15.4 million for Q2 reflect an estimated gross to net reduction of 15%.
This gross to net reduction includes rebates to health care providers that are variable and based on the volume of product purchase and use provider rebates contributed 5% of the Q2 total gross to net reduction.
The remaining gross to net reduction of 10% is comprised of distributor and service fees returns reserve and mandatory government discounts rebates, such as Medicaid 340 be institutions and veterans administration and department of defense.
At this point I would ask the operator open up the line for Q1 day. Thank you.
Thank you very much that concludes our prepared remarks, we'll now open the call for questions.
You have any depressed start wondering your telephone to withdraw your question press the pound key please stand by what we've compiled acuity roster.
Our first question comes from Randall Stanicky with RBC capital markets. Your line is open.
Great. Thanks, guys can we just go back to slide four I mean it shows.
Second quarter growth and providers purchasing one to 10 units, which which which seems to suggest.
You are at your continued to add new practices during the downturn and obviously, that's an important metric that we're all watching because those.
You know purchasers of one to 10 units become purchases of more going forward. So can you just talk to your ability over the last couple of months to add accounts and how you see that trend given.
What's been obviously logistically complex situation.
Melissa.
Sorry about that I was muted.
We are encouraged by the ability to add a 186 new accounts in the second quarter in light of the fact that.
Practices were compromising their abilities the patients.
What was I think perhaps.
More profound of a finding for US was in looking at the number of new health care providers that we were able to reach through our remote detailing effort.
And the vast majority of those be incremental 2500, 3500 that we were able to connect with that we previously had not resided in existing account.
They were single health care providers in account that has a history of purchasing zilretta footwear, perhaps themselves getting a first time exposure to it.
So we think that the combination of the addition of new account in Q2 as well as the connection with.
Previously Unreached health care providers should add fuel to our ability to continue to add new users and you use of the reta in subsequent quarters.
Well I and then Melissa if we think if we look at the numbers and we breakout June half of the volume roughly half the volume for the quarter what's in June so.
You know you talked about bridging somebody surgeries by with what's already use in the short term, but how relevant of or run rate.
Should we think of June being because if that's a true run rate than obviously.
There's upside to the back half relative to where consensus right now.
So we think that our performance in the second quarter and certainly June is attributable to the combination of pent up demand. So patients that were scheduled to get is already injection prior to the onset of coping with it maybe weren't able to.
Surgical delays as you just reference and potentially cancellation of surgery as well and then of course the effort at the sales team to continue to connect with our health care providers and account persistently throughout the quarter.
We can't really provide guidance about future sales at this point or suggests that the run rate should be but we're definitely encouraged by that performance in June as well as in the second quarter in total.
Okay and then thanks and then my last question what percent would you say of your total details are for Schalit discipline.
At this point, it's an excellent question I.
I couldn't really put too fine a point, depending on the individual MBM territory in the degree to which.
This is our what we reopened and our availing themselves of industry visit it could range anywhere from.
10% the detailed being virtual said, you know 50% or more.
Okay, great. Thanks, guys.
Thanks Randall.
Next question comes from Elliot Wilbur with Raymond James Your line is open.
Thanks, and good morning first question for Melissa with respect to some of the metrics that you provided earlier based on primary research around [laughter] recovery rates in Teekay procedures.
Wondering if you have the ability to connect those numbers with.
Some of.
Your.
Higher purchasing accounts, whether or not there's significant differences in in practice behaviour in some of your key customers versus what you're seeing in some of those there's more right general metric just trying to get a sense. If you guys have kind of real time read on where your some of your highest purchases are in terms of recovery rates.
And then more specifically do you have actual programs in place that specifically provide financial incentives to prescribers to utilize zilretta in instances, where they have patients that are in fact awaiting a PK procedures, but just you know have.
Not been able to have those performed.
So let me sort of take them one by one I think you know as we cited in the prepared remarks.
So largest.
Fortune.
Our contribution to total sales.
Since launch comes from those larger purchasing accounting to 51 plus category.
They contributed 86% older units purchased since launch and we've seen that be a distant contribution from that larger purchasing group quarter over quarter.
With regard to your second question do we have financial incentives in place too.
To motivate our customer sees the red up for Teekay delayed we don't with the exception of the rebate program that.
First rolled out in the third quarter.
2019, and that we have continued.
Do you.
Each quarter since then.
So to the extent that a practice has an influx of patients.
Our had an influx of patients in this quarter and in subsequent quarters.
That are waiting.
Surgery.
Philadelphia has been higher volumes and realize higher rebate is certainly available to all of our customers.
Okay, and then a quick follow up at some of the metrics Friday earlier around new contacts or did you said 2500 3500, just any anecdotes in terms of initial success rates would actually getting.
That sort of new call audience to actually utilize the product.
Yeah.
Be an interesting metric to be able to look at art.
Mcdonnell report.
From a couple of different sales territories across the country.
Where they were able to accessing new health care provider.
That provider after having giving consideration to the backlog of surgical delayed.
Went forward and made a purchase.
In one case actually we have an anecdotal reported.
An initial purchase of 100 kit.
In other cases, we have reports of smaller volumes as they are trying it for this purpose.
We.
I would hope that in future quarters, we would have the ability to identify and we should have the ability to identify.
What degree of those.
3500, new health care providers reach.
Subsequently translated into new user purchases.
Okay and just one last quick question for you, let's as well.
With respect to the the June unit metric.
I'm curious how close that number is to a record level seems pretty close if not at record monthly level just wanted to [laughter].
Get some perspective on that thanks.
I think in terms of being a record for a monthly level.
Instead, it demands record for us.
Thank back to previous quarters. For example, the first one that we launched the rebate program in as well as certain other quarters throughout the launch window.
But very we're definitely we with in the month of June that reach.
Reached an all time high for us or at least reach what we would characterize probably is one of the top three highest demand weeks that we've seen since launch.
Thank you.
Question comes from Serge Belanger with Needham and company. Your line is open.
Hey, good morning.
A couple of questions for David.
I think on the.
First quarter updates.
For you announced the various cost measures you call you talked about cost savings of 43 to 53 million for the year.
With the manufacturing restarting in the fourth quarter.
How does that change and should we expect.
Any modifications to the the Opex guidance.
Yes. Good morning search so we had previously disclosed as you alluded to that we expected.
Full year 2020, operating expenses, and that's including cost of sales R&D NFC and expenses.
In the range of 167 million 277 million into that and that reflected the savings range that you just mentioned.
We will be providing any updates to this when we provide our Q2 earnings later this quarter.
Okay.
And then in regards to the volume base, we're building program.
Are there any plans to get more aggressive with that in the second half says the business continues to rebound.
Yes, so solar.
Every every quarter.
We have applied learnings from prior quarters in kings, designing and implementing our rebate offerings and in fact for Q2. For example, we took into consideration the impact of Cobot 19 on the operations of our end customers the.
Riders and how that could impact their purchases of Zilretta and as a result, we modified our Q2 rebate offering to ensure that we could.
Continue to enhance the value proposition for Zilretta for them and we will continue to do that thoughtful judicious fashion going forward. So we dating a discounting is an important tactic and we're going to continue to thoughtfully and judiciously look for ways to enhance the value proposition for and customer.
And then.
One last one for Mike I'm.
Well some pretty significant.
Significant rebounding in the in June.
You think about reestablishing guidance.
What do you need and when do you think you'll be in that position.
Yes.
[noise] surge is well this is the topic of substantial internal discussion.
And our view is now is not the time to provide guidance and we need to see.
A bit more run to make another assessment about wet weather will be appropriate to provide guidance in the future. There's so many moving parts here and so much uncertainty that put our stake in the ground at this point just strikes us collectively is premature and.
We would very much like to be able to provide guidance in the future with that depends on clarity on.
Kobin 19, surges office practices et cetera, So I'd simply say stay tuned about that.
Got it.
Thanks for taking the questions.
Sure. Thanks surge.
Our next question comes from Gary Nachman wins with BMO capital markets. Your line is open.
Hi, Good morning, first for Melissa from all your a survey work.
The delays and surgeries how much are teekays down overall, how much should that trend shift from April to June and what percent of elective surgeries do you think will be pushed to 2021.
Hi, Gary So we didn't.
We've quantified specifically the impact to.
Teekay procedures in 2020 to 2021, what we can say that going into 2020. There was there were a million teekays predicted to be conducted and if you think about colgate as predominantly having impacted.
Second quarter, where.
Injuries were cancelled you can roughly roughly estimate that maybe 250000.
Plan, teekays, where either delayed or cancelled altogether.
In early conversations with our advisors back in April when we ask that.
Predictive when they thought they'd be able to move effectively through the backlog of surgeries that we're beginning to build up many of US many of them told us at that point that they expect a bit it could be six or nine months or more and in the research that I cited in the prepared remark.
There were about a quarter of the 30 orthopedics that we surveyed that said at that point in time, which was at the end of June they expected that surgical scheduled wouldn't be fully restored to pre cobot levels.
For more than six month.
In the future, which would put at that 2021.
Okay.
And then with with all of that strength in June or should we think about a seasonality effect going into the summer month or is that sort of thrown out the window into the new Kobe environment.
Our insights would suggest that that thrown out the window in the code environment, where you might normally expected to see a decline.
In procedures in the high summer month.
With practices and individual surgeon focused on being able to get back to the conduct of medical practice and cash flow into their practices.
Our thinking that they'll be looking to capitalize on every available opportunity to conduct surgeries or to see patient.
Clearly the red is still ramping.
It's not unreasonable to look at other I product and how they track throughout the course of the year.
Historically basing their weakest sales in Q1 in Q3.
That said, it's virtually impossible for us to ascertain the specific impact that seasonality on the right at this stage.
Okay, and then lastly in response to what a randles questions you said, 10% to 50% of the rep visits or virtual so a lot as an offset I mean, a free openings and up reversing and office visits go down a lot.
But what do you think that is going to do just in terms of the momentum that you've been seeing so how much have in office visits been helping so you know if we see that shift we should anticipate maybe a little bit more of a slowdown. Thanks.
It's a good question.
We think that this success that we've seen in Q2 and the success that we expect to continue to seek throughout the back half of the year results from a combination.
The unprecedented degree of access that we got when we were 100% remote detailing.
The.
Steady ability to return to face to face detailing in the event that.
There is resurgence across.
Areas of the you asked that would have practically shutdown issued Florida industry visit.
It.
Our expectation that we would.
Remote detailing to the extent that.
That is warranted.
And continue along the.
Path that we began to carve at the beginning of Q2, where we spent considerable quality time with all of our customers and in particular, some that we had previously reach and thinking about the opportunity to use zilretta as that bridge.
The rate for in place to cancel keep pace.
Patient flow reason.
Okay. Thanks, a lot.
Thank you once again, which we wish second question at this time. Please press Star then one on your Touchtone telephone.
Next question comes from Jay Compute Wells Fargo your line of them.
Hey, good morning.
Just a quick most my questions have been answered, but maybe if you just have any commentary for trends early in July relative to June and go if you're seeing.
Any impact from in some states, where there is additional restrictions or closures and some counties.
So.
We will provide any insight into what we see beyond.
Second quarter, however, so far where there has been resurgence state.
Only.
That's been provided those states and a handful of in Texas, Arizona part to California, our with regard to the shutting down again of elective procedures.
But not that the closing.
Office practices to face to face visits with patients. So if you think about it in kind of perverse way the shutdown.
Back to procedures really.
Creates more opportunity for zilretta, because those are more procedures that authentically would end up delayed or canceled and.
Which could create more room more opportunity for more use of the bread.
As that bridge to those surgery surgeries, if and when they ultimately occur.
Thank you.
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Thank you. Our next question comes from Dana Flanders with Guggenheim Your initial company.
Great. Thank you very much for the questions. My first one is.
I know you mentioned patient flow is maybe 70% of normal.
Given some of these protective measures in place I mean, what's your sense for these offices ability to get back to 100% capacity.
Over the next six months and is it your sense that that number will increase that 70% will increase throughout the year.
And then my second quick question.
Maybe just comment on how Colgate is impacting your patient mix.
From a payer perspective, if it is at all thank you.
So thanks.
Absolutely.
Survey that we cited in the prepared from.
We actually.
We did query the responding on.
They thought they would get back to normal patient flows both in the office setting.
And in the surgical setting the while they were exciting.
We're back to on average 70% to pre Kobe level in the office setting.
They also cited that they thought within three to six month, they would be back to pre Kobe patients the level I, 100%.
That may have been as much hope and that was prediction.
And your second question with regard to changes in our patient mix.
We we don't have a line of sight.
Two whether or not.
Impact of coal bed on employment and subsequently insurance.
Has affected our patient mix or certain patients ability to get access to the red I, what I can say that today, we've had no anecdotal reports of that and we have spoken number of our customers and ask them about that specifically and thus far.
We haven't had any reports of patients to my previously had been covered through there and.
Employer insurance plan.
Rather that are now not.
Thank you.
Thank you. Our next question comes from Patrick Trucchio H.C. Wainwright Your line is open.
Thanks. Good morning, first can you discuss which regions in the U.S. had been driving the uptick or is that broad based across the entire country and then secondly, if the demand being driven by smaller practices further from the city centers or larger practices in the city is also driving.
Increased demand among a few follow ups.
Okay, So with regard to the region.
No in has not really been geographically specific throughout the cobiz window, it's really very practice specific in terms of.
Who is contributing to the uptick.
Really I.
I think it's been mostly dependent on the given practices ability to mobilize quickly in the face of the cobot related restrictions and find ways to continue to see patients.
Above and beyond just those who are most critical any given market you might have one practice.
That is successful at being able to do that and you know a couple of blocks away. Another practice that has not been so we've not seen any correlation in terms of demand and areas of the country that they've been more or less close off the patient visits.
And.
I'm sorry, what was your second question.
This is the you know the demand being driven by smaller practices further from the city centers or is it primarily larger practices in cities driving a demand.
The mix of practice types driving the demanded that that drove the demand in Q2, it pretty consistent with the mix of practice takes that have driven our demand in the past theres not a.
A change in the mix of practice type.
That is using zilretta today or that that we're purchasing or or using the right in Q2 versus prior quarters.
Okay. That's helpful. Then just regarding distributor dynamics and payer dynamics a few questions.
First can you tell us if the strength of units in May and June flow directly to reported sales in the second quarter or if some of the strength will impact reported sales and a third quarter and then it related to this have distributor inventory levels normalized and if so you know it's an uptick in demand in a third quarter practices is actually elite.
<unk> increased recorded net sales sequentially in a third quarter or traditional inventories have to be worked through and then.
I think the rebates and discounts to payers around 14%, we've got consistent in the second quarter and how do you foresee rebates and discounts trending in the second half 2021.
Yeah, Hey, Hey, Pat it's David I can answer though so.
As it relates to distributor inventory levels and demand, which are the purchases by our accounts or the health care providers from distributors.
What we what we at what we talked about in our prepared remarks, and what we talked about previously is we ended the first quarter.
With distributor inventories at above our target one to three week level and that was because starting in mid March due to cope with 19 accounts hurt is dropped substantially.
In abruptly resulting in a as I said distributors holding inventory levels.
In excess of that one to three weeks, we talked about the fact that would be burned off.
During Q2, and that's exactly what you saw in Q2 a.
A burn off of that destocking of that inventory level.
And we ended the second quarter with distributor inventory levels that are consistent with what we've seen in at other quarter ends in that one to three we target level.
So what that means going forward is we'll continue to work with our distributors.
And monitor and manage their inventory levels to ensure that were within that one to three we target on a go forward base.
And then your second question was.
As it relates to rebates so our gross to net in Q1 was 11%.
As we just disclosed.
Estimated to be 15% in Q2 rebates were 2% of that 11% in Q1 rebates were 5% of that 15% in Q2.
Really all all we can say as it relates to rebates on a go forward basis, we are going to continue to look for ways to enhance the value proposition round Zilretta rebates is a really important tool to do that and we're going to do so in a thoughtful and judicious fashion going forward.
That's helpful. Thank you very much.
Thank you there no additional questions I would now like to turn the call back over to the company for closing remarks.
Hi, This is Mike again, I just wanted to say, thank you to everybody for joining us today.
And although we're only halfway through 2020 I think it is safe to say this year has been unlike any in our lifetimes. Despite the fact that koby 19 shows no signs of going away anytime soon we know that healthcare practitioners are looking for non surgical options treat their patients Oh, a knee pain.
And we're encouraged by the increasing rolls already can play in the treatment paradigms.
Thank you all and stay safe.
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