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Edited Transcript of AERI earnings conference call or presentation 7-Aug-19 9:00pm GMT

Q2 2019 Aerie Pharmaceuticals Inc Earnings Call

Bedminster, Aug 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Aerie Pharmaceuticals Inc earnings conference call or presentation Wednesday, August 7, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ami Bavishi

Aerie Pharmaceuticals, Inc. - Director of IR

* Richard James Rubino

Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer

* Thomas A. Mitro

Aerie Pharmaceuticals, Inc. - President & COO

* Vicente J. Anido

Aerie Pharmaceuticals, Inc. - CEO & Chairman

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Conference Call Participants

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* Annabel Eva Samimy

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Difei Yang

Aegis Capital Corporation, Research Division - Analyst

* Elemer Piros

Cantor Fitzgerald & Co., Research Division - Analyst

* Elliot Henry Wilbur

Raymond James & Associates, Inc., Research Division - Senior Research Analyst

* Esther P. Rajavelu

Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst

* Kenneth Charles Cacciatore

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Oren Gabriel Livnat

H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst

* Serge D. Belanger

Needham & Company, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by. And welcome to the Aerie Pharmaceuticals Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Today's conference call will be recorded.

It is now my pleasure to turn the floor over to Aerie's Director of Investor Relations, Ami Bavishi. Please go ahead, Ami.

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Ami Bavishi, Aerie Pharmaceuticals, Inc. - Director of IR [2]

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Thank you, Don. Good afternoon, and thank you for joining us. With me today are Vince Anido, Aerie's Chairman and Chief Executive Officer; Tom Mitro, Aerie's President and Chief Operating Officer; Rich Rubino, Aerie's Chief Financial Officer; Casey Kopczynski, Aerie's Chief Scientific Officer, and John LaRocca, Aerie's General Counsel. Today's call is also being webcast live on our website investors.aeriepharma.com and it will be available for replay as indicated 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 forecast and guidance regarding our future financial and operating performance, including our updated full year 2019 net revenue and net cash burn guidance. These statements will include observations associated with our commercialization of Rhopressa and Rocklatan in the United States. They will also include expectations regarding the success, timing and cost of our clinical trials.

Additionally, we will discuss progress regarding maintaining, requesting or obtaining approvals from regulatory agencies of our products and product candidates, including our efforts on international expansion. Lastly, we will address our manufacturing activities and capabilities, the potential of our pre-clinical product candidates and research findings, our financial liquidity and other statements related to future events. These statements are based on the beliefs and expectations of management as of today.

Our actual results may differ materially from our expectations. Investors should read carefully the risks and uncertainties described in today's press release as well as the risk factors included in our filings with the SEC. We assume 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 file our 10-Q by tomorrow.

In addition, during this call, we will be discussing certain adjusted or non-GAAP financial measures for additional disclosures 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 our website.

With that, I will turn the call over to Vince.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [3]

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Hi, thanks, Ami, and good afternoon everybody. Thanks for joining us. I recognize that all the current interest lies in the performance of our glaucoma franchise in the marketplace. And certainly that's what we're going to spend most of our time today. We haven't seen this level of volatility or tumultuous stock performance for our company since back in roughly 2015, days when we missed the primary endpoint for Rocket 1. Certainly it's been -- that was a tough year, and certainly, we came back from that pretty strongly and I certainly believe we're going to do the same thing now.

Today, we're a lot stronger than we've ever been with 2 innovative glaucoma products in the market that are performing very well on the patients that are trying it.

We have expansion plans underway in Europe and Japan that are proceeding very nicely in 2 exciting sustained-release implant product candidates for retina that are in our pipeline. And I personally believe that, and certainly have more confident in our future, today, than any point in our history. Certainly, we de-risked the company and plan on moving forward towards achieving our goal of becoming the next major ophthalmic pharmaceutical company.

Now getting to the short-term concerns on Wall Street as I'm sure you saw in our earnings release, we are lowering our full year 2019 net revenue guidance range to $70 million to $80 million, down from $110 million to $120 million. The approach to the updated guidance was to anchored only on the trends we've seen in our very short commercialization story. I view the updated guidance range is conservative case as this calculated based on the recent historical growth rate.

We obviously will be aiming to achieve revenue levels beyond the updated guidance range for 2019. Now we will continue to provide regular updates, we'll talk about our Med D wins, we'll talk about shipments out from wholesalers to retailers, et cetera, so none of that is going to change on a going-forward basis. Now as we look at where we are today, we see consistent growth in our product line and we're going to be talking about that during this call.

In fact, this recent reference point -- last week, our sales out to pharmacies achieved a new record of nearly 14,200 units, which is roughly about 1,000 units more when we saw in the prior week, and so we're very excited about many of the things that are happening, and we'll be talking about those.

Let's start by looking at second quarter result and associated commentary that will help further clarify what we are seeing in the market. Our combined pressure of Rocklatan revenues in Q2 totaled $15.8 million, bringing our year-to-date total revenues to just shy of $27 million. As a reminder, we launched Rocklatan in May of this year, so we just have 3 months of experience, and we launched Rhopressa roughly about 15 months ago. So again very new into the marketplace with both products.

As we said in our press release, our net revenues per bottle for the franchise is $94 for the second quarter and $96 year-to-date, not surprising that as we continue to penetrate Medicare Part D. As we said before, our net price will decline. Remember that the rebates are steeper in Medicare Part D, plus we are required by law now to pay for the 70% pharma funded portion of the donut hole. We expect that net revenues per bottles may continue to decline slightly to the extent our Medicare Part D mix continues to increase.

If you take a look at our latest corporate presentation, if you look at Slide 4 and to get a feel for how much of our business is coming from Medicare Part D, roughly 51% versus commercial pay portion of it, which is about 34%. This is roughly in line with what's happening with other glaucoma products in the marketplace.

We internally view netarsudil as a franchise in both Rocklatan and Rhopressa specific segments to fill in that glaucoma market. This is we haven't guided to revenues for Rhopressa versus Rocklatan. We also did not break out the actual net revenues for Rhopressa versus Rocklatan. It's very early in the US Rocklatan launch and Rocklatan revenues were immaterial to this quarter, but the pricing of each product is ultimately consistent. Remember, we priced them pretty darn close to each other.

And so as Rocklatan picks up additional coverage, we do expect that the range between -- or the price difference between the 2 products to narrow. Of course, for those of you who are interested, you can look at our separate sales out volumes to pharmacies, which we report on a monthly basis for both Rhopressa and Rocklatan and you can see sort of which way the products are trending.

Over the last month or 2, many of us, certainly, Tom and I and others on the commercial side of the organization have spent an awful lot of time in the field because we wanted to understand what the issues were that was keeping us from achieving some of the revenue projections that we put out there. And the good news is that we didn't find that there were any issues related to the products themselves. The physicians and the patients are very happy with what they're getting with Rhopressa, as well as Rocklatan.

So that's terrific from a long-term perspective because we do think that, that allows us to continue viewing these products in a same light as we've always looked at in terms of Rhopressa being roughly $350 million future revenues and Rocklatan hitting that billion-dollar mark. The majority of the feedback we're receiving from the field continues to be very positive as it relates to the performance of both of these products in patients. And some of you and many others have done -- independently performed physician surveys could also confirm this kind of feedback. Again, the products we are doing what we expected them to do in the marketplace.

Physicians often tell us that the biggest hurdle to greater Rhopressa and Rocklatan usage is managed care coverage, not product performance and we think this points to a very bright future because the coverage will come. Our number of prescribers continues to grow with total nearly 11,000 eye care professionals having prescribed either Rhopressa or Rocklatan, which represents roughly 75% of our total target audience or about 14,000 eye care professionals.

Well over 3,400 physicians are writing netarsudil that is Rhopressa or Rocklatan scripts on a regular basis. And by the way, just about a couple of weeks ago, that number was 3,000 and now we have 3,400. So we continue to grow the number of prescribers that are writing for one or the other on a regular basis, in this case, weekly. We have about 6,600 of our target audience that are now writing monthly, which means that over time, these guys will continue to build the amount of prescriptions they are writing for our products in their practices and they too will move towards writing on a weekly basis.

Focusing on Rocklatan, we have over 1,900 physicians have already written Rocklatan prescription. We also currently have over 300 writers of Rocklatan only. And interesting, about 2/3 of those have also become weekly writers. We are -- as part of that of the 300 or so, we have about 200 of those physician who have never prescribed a Rhopressa prescription, but have written for Rocklatan. So we do think that there is an awful lot of positive that's going on in the marketplace in terms of what's happening and I view this is an impressive sign recognizing that it is early in the launch.

Another important metric is that approximately 17% of all prescribers already writing prescriptions for both Rhopressa and Rocklatan as they are now gaining experience within netarsudil franchise and learning how best to use our products in their treatment regimen. Netarsudil market share in a top-decile practices is double what we're seeing in all practices and about 2.5% market share in the top decile 7, 8, 9 and 10 versus just about 1% or so everywhere else. These large volume practices will continue to lead our volume growth going forward while a smaller practices continue to make gains.

Another interesting note is that many optometrists are becoming early adopters of Rocklatan. We have roughly about 2,000 -- 2,500 of our call audience that represents optometry. So we're very excited about the fact that those are becoming early adopters for Rocklatan.

All this leads to growth in prescription volume. Our franchise prescriptions grew 26% in Q2 over Q1. It's pretty nice growth compared to the overall glaucoma market, which grew at only 2%. Each product just simply needs time to settle in. We have guided in prior calls that once we get to complete coverage north of 75% Med D coverage for both Rhopressa and Rocklatan that's when we're going to see these products truly beginning to find their niche and settle into their prescribing habits of the physicians.

If you're looking for examples that we can give you in terms of which -- what we're seeing and the closest example that what we're experiencing now for Rocklatan is what we saw back in 2007 when Combigan was launched by Allergan. Alphagan (inaudible) was one of the flagship products for the company, it's an alpha-blocker. Peak revenues about $350 million or so in the marketplace. It had launched in 1997. For those of you who don't know Combigan in as a combination of Alphagan plus Timolol. So Alphagan was launched 10 years later Combigan was launched. And so that is the -- or that's the only example that we can come up with that is close to the Rhopressa Rocklatan story.

What's interesting is when Combigan once launched, it took about 9 to 12 months for each of the products that find its place. So again, like we are seeing in the marketplace today between Rhopressa and Rocklatan, there's an awful lot of churn going on in the doctor's office as they find a place for both products.

What's interesting also is that this is when Allergan was at its prime. So this is -- it was in their heydays and so even they couldn't force any bigger adoption of COMBIGAN even though they thought that was a much better product over Alphagan had been out for a long time, and so we're seeing many of the same dynamics occurring and awful lot of churn as the doctors try to figure out a home for both products. But this is as close to a good example as we can give you as to what we see happening in the marketplace today between Rhopressa and Rocklatan.

Another important gauge or demand that we look at it, which is valuable leading indicators of prior authorization volume, which is obviously part of the Medicare Part D programs. Rocklatan has generated more than double the number of prior authorizations that we saw for the same period of time during the Rhopressa launch. This is an excellent indicator of demand and helps point to greater likelihood of gaining market access sooner as payers try to minimize their costs. By that I mean that is -- we get more and more prior authorizations written that certainly incense the plans, the managed care plans to sign up contracts with its for rebates et cetera to bring their overall costs down.

From a retail outlet perspective, we have now about 25,000 retail pharmacies across the country that have failed the Rhopressa or Rocklatan prescription, up from about 21,000 we reported for our first quarter earnings call in early May. That represents nearly 40% of the retail outlets in the country. However, even with that growth in the number of dispensing pharmacies, inventory levels at retail, are essentially the same today as they were back at the end of 2018. So we've not seen any inventory build at retail as some folks have tried to speculate in terms of how we reach our revenue targets.

To give you some further statistics on this, at the end of 2018, the number of bottles in the retail channel is in the 45,000 bottle range, that's when we would be -- at that time, we only had about 17,000 pharmacies that fill the prescription for Rhopressa at the time. As of now, our products are being filled across 25,000 pharmacies and a number of bottles in the retail channel remains right at 45,000. Additionally, for Rhopressa, wholesale inventories will remain 2 weeks of future demand, demonstrating our sales growth is a real growth. Wholesale channel inventory for Rhopressa at the end of the second quarter was approximately 2 weeks of future demand consistent with the beginning of the quarter.

Rocklatan of course is consistent with what we saw with Rhopressa in the second quarter of last year and that there is more of a channel effect, which will diminish over the next quarter or 2 as it did for Rhopressa. So what are the things we're hearing out in the field? Let me just point to a couple of -- to a few of them. Physicians are gathering increased experience with Rhopressa and they are impressed with levels of intraocular pressure reduction they're seeing.

Hyperemia, while still occurring, does not appear to be a major issue with large majority of patients that is generally transient, mild and not causing high levels of discontinuations. Rhopressa is primarily being used as add-on therapy where patients are already on 1 or more other drugs. There are some eye care professionals who are hesitant to change from the historic prescribing practice, or not as inclined to remove therapies.

This came as surprise to us and as recent as a couple of weeks ago, I had dinner with a number of glaucoma physicians. I was really surprised that once they get the patient under control, say, by adding Rhopressa even on top of 3 other medications, they are not in a hurry to start decreasing the number of prescription that patient is getting because they're pretty happy, once they get those pressures down as low as possible.

We believe this change in practice will happen, however, through time as they gain confidence in Rhopressa's effectiveness and also as the patients begin wanting to decrease the number of eye drops that they're subject to on a given day -- on any given day. Those are gravitating towards to just Rhopressa on top of the PGA, which we believe is the ideal combination, are seeing good efficacy with just the 2 drops, along with less hyperemia as eyes exposed to fewer eye drops.

While Rhopressa has majority formulary access across both commercial and Medicare Part D plans, we still have more to go. Some of this relates to plans with which we have contracted, but where the underlying formularies have not yet instituted coverage. This may include custom formularies or other instances where newly-merged payers still don't have Rhopressa on all of their underlying formularies. We experienced the latter with the recent contract with a large PBM that recently merged with an insurance company. But we have yet to gain coverage in the legacy insurance company formulary.

We do expect to obtain that coverage later this year as we conduct separate discussions with that particular formulary team. So we do have the contracts in place, but not all of the set plans are signing up for it. So again, we think that has something to do with some of the uptake issues that we've been seeing.

Experience thus far with Rocklatan has been very promising. Physicians are not only sampling Rocklatan and getting great results, but what's interesting is, and it's perhaps because they're only on 1 eye drop or perhaps because the efficacy rates are so much better. There's not a whole lot of feedback that we're getting relative to hyperemia associated with Rocklatan.

Since Rocklatan is in the early stages of gaining formulary placement after the Rocklatan samples are provided and coverage is not yet available, we are seeing doctors wait for the covered or provide either a sample or prescription of Rhopressa to be taken on top of their favorite prostaglandin on an interim basis until the Rocklatan is covered. This is an addition to the prior authorization activity, I discussed earlier.

Now this creates a situation where the patients need to return to the physician's office a few times, not only to get their interim Rhopressa script, but also ultimately to get their Rocklatan script. The cycle time for this churn as I call it could take months, especially when you consider that some of the busy practices may not be able to schedule the patients for a return visit for up to 60 days.

Herein lies a key reason why comparison of the Rocklatan launch to Rhopressa launch is short sighted and doesn't really reflect the ultimate potential for Rocklatan. Launches are very different. Rhopressa was approved in December of 2017. We did a soft launch, including sampling to the top prescribers in March of 2018 and launched -- and physically actually launched the product in May of 2018 once our sales force was in place.

Rocklatan was approved in March of this year. Launched in May of this year. And with that we sampled over the launch and with Rhopressa already on the market. This causes a different launch dynamic, but with the success of Rocklatan, a 12 or so weeks after launch is premature to say the least.

The single most important message here is that the unique position of gaining coverage for Rocklatan, while we continue to grow Rhopressa. We haven't had too many of the companies try to do this in the glaucoma space and I said, the only example I can give you was roughly about 12 years ago.

Physicians are learning the benefits of both Rhopressa and Rocklatan in their practices and their experience with product performance has been quite positive and this is why we believe so strongly that the ultimate value of this franchise is going to be as we've always talked about. With that, the long-term promise of both Rhopressa and Rocklatan remain intact and we continue to believe Rhopressa ultimately has the annual sales potential as I mentioned earlier of $350 million plus in US annual sales, and we believe Rocklatan ultimately has a potential to reach over $1 billion in annual sales in the US.

It's the first and only fixed-dose combination product in this country for the reduction of IOP that includes a prostaglandin. And the only fixed-dose combination product available in the United States that is dosed once a day.

Just look at our Phase 3 data on how effective Rocklatan was in getting pressures down to low normal ranges. In fact in that data from our Mercury trial Rhopressa also performed even better than it did in its own clinical trials and certainly it did better than even latanoprost did in getting patients' pressures down to really low ranges.

Now, we need to be patient and work through the transitional phase where Rhopressa continues to gain share not only by additional coverage, but further penetration of covered lives, but by physician continuing to experience to see the positive aspect of where Rhopressa and Rocklatan fit into each treatment and to each patient's treatment paradigm.

Catalyst for growth in the remainder of this year and into the future will be formulary coverage for Rocklatan. We expect that by the end of this quarter, that commercial coverage for Rocklatan will be consistent with where we were relative to Rhopressa for the same period of time last year.

Very importantly, as we progress through this quarter Rocklatan Medicare Part D market access is exceeding where Rhopressa was at the same period of time last year. We are pointing to 30% Medicare Part D access for Rocklatan, compared to 12% that we had for Rhopressa at the end of Q3 last year. We're also aiming to have majority formulary coverage for Medicare Part D for Rocklatan by the end of 2019, which would be significantly more accelerated than we experience with Rhopressa.

As a reminder, today, we have about 75% Medicare Part D coverage with Rhopressa and about 90% coverage on the commercial side and we did that about a year or so after launch. All of the aspects of the Rhopressa and Rocklatan launch, I just walked through, are the drivers for our revised guidance. Quite simply, while the franchise potential is unchanged, the volumes obviously are taking more time to build than we originally estimated. The issue is simply time.

When all the dust settles and doctors had thorough experience with both products, we do believe Rocklatan will become the leader in the marketplace with this proven efficacy and 1 drop convenience, and we believe Rhopressa will settle in as the add-on, just on top of the prostaglandin. Those are the original positioning statements for both products. With that, I am confident, we will achieve incredible long-term success.

I'm going to change topics briefly as we continue to derisk our supply sourcing, I'm happy to report that our own Ireland plant is making excellent progress in terms of readiness and is expected to be ready for commercial production in early 2020 time frame. It's on top of the FDA approval of a second drug contract manufacturer that I mentioned last quarter.

Turning to our initiatives beyond the United States, we expect to obtain European regulatory determination of Rhokiinsa that's Rhopressa in Europe which had the approval later this year, which assuming it's positive will result in us filing for ROCLANDA, which is Rocklatan in Europe sometime early next year.

We also expect to readout topline Mercury 3 result in the first half of next year. As a reminder, Mercury 3 is a Rocklatan study and only in Europe comparing it to Ganfort the leading combination product in Europe, but it's done primarily for pricing research. The biggest positive surprise for us was the extraordinary level of interest in Rhopressa in Japan, which allowed us to enroll our Japanese Phase 2 trial faster than we ever anticipated. We now plan to read out Phase 2 data by the end of this year on that Japanese Phase 2 trial.

Moving on to our retinal implant programs in (inaudible) and I will say is AR-1105, our sustained-release steroid program is progressing well in the clinic, and we expect our Rho kinase protein kinase C inhibitor AR-13503 to enter the clinic very shortly. Early stage research initiatives are also advancing as we explore own molecules in the dry eye space and psoriasis are just 2 examples of what we're doing.

Now before I turn the call over to Rich, I'd like to address one of the other concerns that investors have had and that's our perceived need for financing. As always, our job to ensure that we're adequately financed and it's also our job to obtain financing at the lowest possible cost. And with the least amount of dilution possible. And so, as a reminder, and let's just do some quick math. Our opening cash balance for 2019 was over $200 million and our updated net cash burn guidance for 2019 is now between $160 million and $170 million.

Now when you add back in our available credit facility of $200 million, that leaves us with the projected year-end 2019 liquidity of over $200 million. We've been spending roughly about $200 million to $220 million over the last couple of years, and if we were to do that next year, we have enough cash almost to make it through the entire year even if you assume we don't sell 1 bottle of either Rhopressa or Rocklatan. So I do think that we have the liquidity that we need and the financial capacity that we need in order to sustain ourselves and move forward and continue building our company.

Now with that, I'll turn it over to Rich to cover the financials. Rich?

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [4]

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Thanks, Vince. As Vince mentioned, we recorded $15.8 million of net revenues in the second quarter, a 46% increase over the first quarter of 2019. Our franchise net revenues reflect volumes of over 169,000 bottles for the second quarter.

Our gross margin for the quarter ended June 30, 2019 was 95.5%. Our normalized gross margin was approximately 94.5% when considering inventory costs that were expensed prior to FDA approval of our products. Our second quarter 2019 GAAP net loss was $47.2 million or $1.04 per share. When excluding the $10.7 million in stock-based compensation expense, our total adjusted net loss was $36.5 million or $0.80 per share.

Adjusted total operating expenses for the second quarter of 2019 were $50.5 million with adjusted selling, general and administrative expenses of $27.4 million, adjusted pre-approval commercial manufacturing expenses of $5 million and adjusted research and development expenses of $18.1 million. For additional information regarding our second quarter results and prior period comparisons, please refer to today's press release and our Form 10-Q, which will be filed by tomorrow.

Net cash burn for the 6 months ended June 30, 2019, totaled approximately $92 million, with $109.4 million in cash and cash equivalents remaining on our balance sheet as of June 30, 2019. Shares outstanding at quarter end totaled 45.9 million. Vince already discussed our revised net revenue guidance at length. Also as Vince, just outlined, our net cash burn guidance has been updated as a result of the cash flow effects of the lowered revenue guidance.

Net cash burn for the full year 2019 is now estimated at $160 million to $170 million compared to the previous guidance of $130 million to $140 million. Once again, we have $109 million in cash and cash equivalents on our balance sheet as of June 30, 2019, plus we have the $200 million undrawn credit facility giving us total liquidity as of June 30, 2019 in excess of $300 million.

And now, I would like to turn the call over to the operator for questions. Don?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Annabel Samimy from Stifel.

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Annabel Eva Samimy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [2]

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I have a few. So I'm going to ask the obvious question first. So when you think about the original guidance that you gave, I guess, what are some of the assumptions that went into that trajectory and why did you think it would be so much stronger than what you're experiencing now? And I guess with the $92 million burn, a $109 million left clearly that should attenuate over time as you have increased sales. So how should we think about coming out of the year and into next year and where that cash might take you? So that's first question. And maybe you can help us understand also on price, I have -- I understand that price sometimes they're below [$90], I imagine it's clearly about the Medicare and commercial mix, but what's going to allow you to bring that back up to that [$100] level that you targeted? And then lastly, just on some recent work that we've done a good majority of docs who were using Rocklatan had used probably less than 50% of their patients. And you also mentioned that you're reaching new target, some of them being optometrists and maybe even lower decile physicians. So do you have any plans to expand your target audience beyond just the high deciles and maybe take advantage of some of that interest from the optometrists population that could be a vast audience for you?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [3]

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All right, let me see if I've got all those straight.

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Annabel Eva Samimy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [4]

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I can repeat them if you want.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [5]

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I've got these. So I've got -- so on the sales assumption stuff, like you, we did a lot of market research and everybody else did too and if you sit out there and you start showing these doctors the product profiles and the differences between Rhopressa and Rocklatan, everybody tells you immediately that they're going to use an awful lot of Rocklatan, and maybe they'll find a home for Rhopressa. Nowhere in the market research and nowhere that we've done or anybody else has done, did anybody ever get into this churn thing it was more of a, yes, as soon as I get it in my hands, I'm going to use it. Some of you have had physicians on some of your panels and they talk about immediately moving all their patients over to Rocklatan they were on Rhopressa et cetera, et cetera. So it always leaves you with a feeling like it's all going to move very, very fast and in reality, as we've talked about before, what's happening in the marketplace, a lot of it is attenuated considerably by managed care coverage. And so that certainly gives you a dose of reality. And so when we put the assumptions together, it was trying to do a balancing act between the fact that no new product have been introduced in mix category for over 20 years, plus the enthusiasm that we saw for the kind of data that we were showing in the clinical trials and so we certainly felt very good about sort of the uptake here. When reality hit and we started seeing the managed care impact where we were doing really well in some of the markets and not too well on others where we didn't have the coverage, even if they were writing prior authorizations, only about 40% of those prior authorizations even though almost 80%, 90% were approved, only 40% of the ones that were approved were actually picked up because the co-pays are too high. So the patients were coming back. So that's why we're creating an awful lot of churn. So again the basic assumptions that we made didn't factor in as much of this reality picture as we are now seeing, we thought that just the product profiles themselves and the enthusiasm for that the doctors had especially the high-end glaucoma guys, we would move through some of the stuff pretty quickly and it just reality hit and just didn't happen. So those are the basic differences in the assumptions and now we're just going back to only doing what we've already accomplished, which is just watching our own growth patterns and forecasting off of that and if they accelerate, I guarantee it will be the first ones to tell you. So that's on the sales assumptions. On the price, we do expect that we'll get back to again the guidance that we provided of roughly $100 per bottle price over time as we take price increases because again when you first get hit with all these rebates and carrying the donut hole, et cetera, et cetera, et cetera, the Medicare Part D coverage takes the biggest whack out of the rebates, so it's the highest rebates we give, versus the commercial side, where we can use co-pay cards. And so over time, as we take further price increases, remember we took 1 in late fall of last year and so as we take other ones, we will start seeing that price start hitting the floor and then start bouncing back up. We do currently have all the sales force that we need to move forward. The reaching lower decile doctors over the years just hasn't been particularly fruitful for any company and so expanding just to get more of those just don't make much sense and as I mentioned during the call or during the prepared remarks about 2,000, 2,500 of our current call audience, 14,000 already optometrists and so those are the high volume guys which is -- or that's why they're on our call list. And so we expect that's going to continue. On the cash side, which I think was actually, your second question, I'm going to turn that over to Rich, so that he can give you some more details.

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [6]

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Thanks, Vince. Hi, Annabel. So as you mentioned, we do have the net cash burn in the first half of the year of $92 million. The second half of the year, it will be less by definition because we will have increasing revenues over the next couple of quarters, while our gross cash burn remains fairly even in the back half of the year. In fact, gross cash burn may be slightly less in the back half of the year than the front half of the year. So remember we gave a new range for net cash burn of $160 million to $170 million. For this year if you just pick the midpoint $165 million, we're already at $92 million in the first half of the year, then you're going to end up with about $72 million in net cash burn in the back half of the year. So you can see it declining first half from $92 million to say about $72 million or so in the back half of the year. And also Vince gave some math toward the end of his prepared remarks just to address liquidity. We started 2019 with $203 million in cash and equivalents on the balance sheet. With a net burn in the mid-range of the current guidance of $165 million that leaves you with about $38 million of cash at the end of the year -- end of '19. Then you have the credit facility for $200 million that you can add on top of it and you end up with the year-end 2019 liquidity of about $238 million. The point that Vince was making was even if we had 0 revenue next year, that $238 million in liquidity could carry our gross expenses through the entire year next year.

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Operator [7]

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Your next question comes from Ken Cacciatore from Cowen & Company.

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Kenneth Charles Cacciatore, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [8]

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Thanks for all the different metrics. For the first time in a long time, I put my pen down, there were so many, but just wanted to cut through a little bit of what you're trying to say about the managed care and taking a little bit more time. Could you just talk about how you're supporting those patients so as your Rocklatan sampling program a little bit heavier and a little bit longer than you would have thought? And then also similarly we've been doing doc checks and hearing back that the hyperemia with Rocklatan is surprisingly lower than Rhopressa. Just actually curious as to why? It sounds like that's what you're hearing as well. And then just lastly, can you just remind us, it was, I think you gave us the information, but by the end of the year where the coverage should stand for Rocklatan?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [9]

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It's a good thing that we're taking this thing so that you can follow up on some of those numbers, right? I'm going to answer one of the 2 questions that you asked regarding the hyperemia rates et cetera because we're pretty excited about so what we're seeing in the marketplace and I'm going to let Tom talk a little bit more about the commercial side of the commercial question that you asked. And so, on the hyperemia rate, yes, this is kind of interesting. So again, we've been out in the field talked to a lot of the docs and some of these guys are surmising the following. Rhopressa's position with a lot of the high-end glaucoma guys has always been sort of max medical therapy than they add Rhopressa to it. Those patients may be on 3 or 4 medications already and their eyes -- that's an awful lot of preservative that's hitting those eyes to begin with, much less the fact that some of these drugs are also irritants to the eye on top of that. Until about time you add the fourth one, they're already pretty sensitive and so they may have been seeing a little bit more of a sensitivity reaction to the basal dilation caused by Rhopressa. It wasn't pain, it wasn't irritation or anything like that. It was just the basal dilation causing the eyes to go a little bit further -- get a little bit redder and they became a little bit more noticeable for them. And so what's really interesting about all that and again the drop, what we're seeing from an attrition rate when they do get the hyperemia after either adding into a prostaglandin or after max medical therapy is that the IOP goes down, the same number of patients that we always talked about, there are roughly about 10% or 15% of them just really can't tolerate it so they're basically saying, hey, look, yes, I know my pressure is lower, but I just can't do this red-eye thing. That means that the balance, roughly 90% of them are pretty happy with the lower pressure and with whatever incremental hyperemia they're getting -- they're saying what it's worth it given that my pressure is lower. So we like that, but in case of Rocklatan, we think that it's simply because in many cases, they're not adding it to a lot of stuff, they are just using it by itself. So it's just 1 eye drop, 1 load of benzalkonium chloride or BAK which is our favorite preservative in the industry and therefore they're not seeing some of those effects and also balanced out by the way, with really low pressures. And so I think it's the key. I think it's -- the hyperemia is a problem, if you don't get a good pressure drop and if you do -- if you get a great pressure drop they're willing to live with hyperemia and they just don't talk about it as much. So let me turn it over to the first question to Tom.

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [10]

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Sure. Well, thanks. So I'll talk a little bit about the commercial aspect of managed care. Here's what we found. First off, we're quite happy with our coverage for Rhopressa, where it's been really in the first year of having a product on the market with a brand new company. We've actually done very, very well. The thing I'd say that really drove the PAs that our field force was able to -- I encourage the physicians to prescribe because PAs really in essence made managed care really pay attention to Rhopressa. So anyway that was very good, but what we find on the other side from managed care is that many of them as you know have gone through consolidations and acquisitions. And when you put 2 organizations together, usually what happens is all formulary movements -- it's additions stop until the organizations come together. That's certainly happened to us earlier this year with the second-largest player in the marketplace, who had suggested to us that we were going to get Rhopressa on their formulary early in the first quarter and that turned out to be the middle of the second quarter as a good example. Nonetheless I think managed care is still a very good story for us. If you look at Rocklatan, you'll see that as Vince said, we're running towards 30% there. We're just shy of that now. And we already have the #1 plan in the nation that is covering Rocklatan. We think others are going to come as the year progresses. So that's kind of our answer, Ken. If I can help with anything else, please let me know.

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Operator [11]

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Your next question comes from Serge Belanger from Needham & Company.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [12]

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Question for me on Rocklatan and Rhopressa. Since you've mentioned it was a matter of time, but you still believe in the long-term prospects of both products. You're expecting to see a big bump or a bump in Medicare coverage at the end of Q3 here. When do you expect to see an inflection in Rocklatan? Should -- should we see that in the fourth -- starting in the fourth quarter?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [13]

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Well, with the current win -- the most recent win in terms of Rocklatan occurring, it actually occurred earlier this month. And so, towards the back end of this month and beginning of September, you will start seeing some inflection point there. Obviously, right now because of vacations and all ideas as you know, it's sort of get to tenured a little bit, but in fact, we think that some of the growth that we're seeing in the marketplace in terms of shipments from wholesale to retail, it's simply, it could be reflecting not only more uptake for Rocklatan, but also and because of the better coverage, but also just the normal increase, we would see just because it is covered much better than it was just a few months ago. So it's a regional issue. The plan that we signed when it's a national plan, it is concentrated on parts of the country. So it's not in every state, but it's certainly in many of the states. And so we are seeing some nice bumps there. And so, but if this win meaning getting to roughly 30% after 3 to 4 months relative to Rhopressa getting to about 12% in the same period of time is any indicator and hopefully we'll be able to speed up our rates to get to about 75% Medicare Part D coverage and do it sooner than we did with Rhopressa. Remember, Rhopressa took us about a year and so if we can get there, then say as we exit this year beginning of next is when we'll start seeing sort of both products in the marketplace, and then the physician being able to write for either one depending on which he prefers.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [14]

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And maybe this next one is for Tom. Can you just comment on any recent changes in salesforce? And at this point in the launch, do you think it's adequately sized and staffed to promote both Rhopressa and Rocklatan?

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [15]

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Yes. First off to answer your second part of the question, first. Yeah, we definitely think that we're adequately sized to handle the people that are right in the most of our common prescriptions in the marketplace. It's been said that includes about 2,500 or so uptime. Just the rest being ophthalmologists. So we don't see any material change in the size there. To the other question, what we think is going on here is that we think that our sales force is doing a really nice job. We've certainly had our changes in the sales force, which is common when you put in an organization in your first year, you'll find some people that say I really want to be with a small company and I really want that spotlight every day and sometimes they don't. Sometimes they come in quite natural for them to say actually I'm much better with a larger company where it probably don't have as much attention on me. But we've gone through those growing pains and we think our sales force from a quality standpoint is in fantastic shape right now and we're quite happy with their productivity and what they are able to do with both products at this point.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [16]

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Okay. And I guess one last one. Vince you walked us through some of the cash burn projections and expected cash balances. I think some of the retinal programs are expected to readout either late this year or early 2020. Does this higher cash burn kind of change your strategy with advancing these programs of Phase 3 trials?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [17]

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It really doesn't. When you think about the timing related to some of the programs that we've currently got going. So, the retinal programs, they actually would be reading out a little bit later this year or the first part of next year. So about time we sort those out and actually get more clinical trials back out having talked to the FDA, et cetera, et cetera, et cetera. We're looking at those things impacting more in the second half of next year, so their impact is not as dramatic as perhaps you would expect it to be. It's much like what we're seeing with the Japanese study. I mean, we were able to accelerate it. So we actually get results this year. And then we'll sit back and kind of formulate based on the results what the protocol should look like, go back to the FDA version of in Japan, the PMDA and go talk to them. But by the time that we get back out into the clinic there, it could be in the back end of next year. So as a result, we'll have plenty of runway by then. We think the products will continue growing and our -- and certainly will decreasing our cash burn because we'll be selling more. So I don't think it impacts the Phase 3 because we don't have anything scheduled to come out where the Phase 3 -- huge Phase 3 program would start early next year. Everything sort of back-end loaded.

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Operator [18]

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Your next question comes from Esther Rajavelu from Oppenheimer.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [19]

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I have a couple Vince for you, can you expand a little bit on the trend of optometrists prescribing the portfolio of products and what's driving that? And it sounds like you were a little surprised by that, and just kind of curious to see how that compares to optometrists prescriptions for other glaucoma products, historically?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [20]

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Well, typically, we have a situation where glaucoma specialists or -- I'm sorry an optometrist who focuses on patients and sees a lot of glaucoma in their practice tends to say, yes, they are the first ones to identify it and to diagnose it and in many cases, we'll ship it off and send it off to a local glaucoma doc. And so that's relatively common and then we'll will start picking up prescriptions from them later on a few months later when the glaucoma doc has actually got the patient on a prescription and then the patient comes back to the optometrists and the optometrists is following up. And so you'll see a little bit of that dynamic. What's interesting is and I take it back to the optometrists that we know, especially the high-end guys who are really more clinical optometrists than anything else view themselves as the patient's advocates. And so, what we may be seeing here is that for those optometrists -- for those doctors that they view something like Rocklatan where they can just give them 1 eye drop and get 2 powerful drugs, get their pressures down really, really low decreasing their copays, et cetera, et cetera, that they may be seen as like their perfect answer for what their patients are really looking for, they may be more than willing to do that for a number of different reasons. Maybe they get to keep the patients longer, then we'll have to refer them up because the pressures are under control. And again some of these guys are really high-end from a clinical point of view. So I think it's 55,000 optometrists. So I'm not sure that I can take our 2,500 and project that out to the full 55,000, which certainly the guys that we're talking to that are writing these scripts are the highest-end optometrists that write glaucoma meds and so it's a hell of a start for us. But again, surprising that they just popped out that quickly, I have to admit that. But again as we thought about and talked about it internally, I happened to visit with one of them in the Fort Lauderdale area and he was all over Rocklatan and he had not had much experience with Rhopressa, but then he sort of told me what I just told you, which is he viewed himself as a patient's advocate. So, and this was a perfect drug for them.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [21]

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Got you. And then in terms of the churn, you had mentioned that about a churn of about 2 to 3 months. Do you anticipate a step up for doc visits among the patients who walked away with the sample, let's say in 2Q or early 3Q, later this year and how does that kind of work itself off over 2020?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [22]

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So we think that the -- what we're seeing with the higher decile doctors that are supporting us the most, they're sort of -- they're accommodating for more patient visits and they're trying to get these patients back in a little bit sooner. Some of them try to sort of bypass it by giving the patient sample of Rocklatan and saying, hey, if you don't have any troubles, call me and will set up something later on if you can tolerate it, et cetera, et cetera. Other ones want to see them back in a shorter period of time because maybe their pressure isn't under control and it's sort of spiking and they're worried about it. So they're making room form, but I think every practice is different. So, not everybody can bring them back on a short basis, so could very well be that the high volume guys have such a big sort of turnover in their practice meaning a lot of patients on any given day that maybe -- for some of them it's easier to slot these patients in, because of other patients not showing up et cetera, et cetera. We are seeing quite a bit of that churn, but it's very practice specific.

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Operator [23]

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Your next question comes from Elemer Piros from Cantor.

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Elemer Piros, Cantor Fitzgerald & Co., Research Division - Analyst [24]

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Maybe a couple of numbers related questions to Rich, if I may. Rich, I presume that the pre-approval manufacturing line item would disappear beginning in the third quarter. Would you be able to confirm that, please?

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [25]

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It will basically get smaller over time and it will be pretty much gone when we get into next year.

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Elemer Piros, Cantor Fitzgerald & Co., Research Division - Analyst [26]

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Okay. So it's a declining number?

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [27]

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That's correct.

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Elemer Piros, Cantor Fitzgerald & Co., Research Division - Analyst [28]

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Okay. So if I'm correct, if I remember correctly, your first half revenue was $26.7 million. And I also see $25.7 million in accounts receivable. Would you please tell us what is the trend in terms of days sales outstanding as we moved into this year?

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [29]

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Yes, so you really have to look at accounts receivable not so much from the beginning of the year to the end of this quarter, but you have to look at how we progress in the course of the year. So at the end of the first quarter, our accounts receivable were about $14.8 million, now it's $25.7. From a DSO, or days sales outstanding perspective, you're really dealing with just a few wholesalers or distributor, if you will, each of whom has their own terms. The terms can range to about 60 days, give or take. Some are little bit more, some are little bit less. So there is not an issue with regard to collections. Everyone's paying in accordance with their individual contracts. And you should just, Elemer, just follow the trends, again not using the starting point of the year, but follow the quarters and follow the revenue growth and going forward, you'll see it, you'll see a more consistent relationship.

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Elemer Piros, Cantor Fitzgerald & Co., Research Division - Analyst [30]

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And Vince, I was wondering if you could address how you're going to address the first potential sustained-release eye drop that might come to the market next year?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [31]

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You mean that the bimatoprost?

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Elemer Piros, Cantor Fitzgerald & Co., Research Division - Analyst [32]

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Yes. Yes.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [33]

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Yes. So we've known about this drug quite a while. And so it is a surgically-induced procedure that's going to have to take place. We are aware of a number of different things, specifically that there are some doctors that will try it and for some patients, the procedure itself and the kind of patients that are likely to be able to take advantage of something like this, or it's not the entire market, it's certainly not all prostaglandin taking patients, because the size of the angle that is required for that inserted fit is got to be pretty big. So only certain patients are going to even qualify for it. #2, if you take a look at the clinical trial results, and while they were able to achieve what they wanted to achieve, it's -- they're not as good as if you did the same thing with a high drop version of their drug. So, it's purely for convenience sake, so for compliance sake. And so, and a lot of it is going to determine, it will be determined in terms of their uptake by the patients well initially do a surgery and the co-pays associated with that relative to taken at once a day eye drop and the co-pays associated with that, especially by the time that this product gets out the door, the matter of price will be genericized. So it's going to be an interesting sort of reimbursement fight for them. And so from our perspective, again there -- they were shown to be non-inferior to Timolol, not as good as their own eye drop and yet our drug Rocklatan was actually shown to be better than [Rocklatan]. And so I think I'd rather have our drug than theirs.

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Operator [34]

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Your next question comes from Difei Yang from Mizuho Securities.

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [35]

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Just a few here. So the first question is with regards to Rhopressa commercial coverage that we -- that I think you have talked about at 90%. I'm just curious out of these 90%, what percent are all the way flow through to the participant trend level?

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [36]

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Difei, it's Rich. Did you clarify -- are you asking how much of it ultimately goes to the benefit of the patient?

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [37]

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No, how much actually, I think, Vince was talking about when you signed these management...

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [38]

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I got it. You're asking with regards to the 90% which is overall contract access, what is the underlying specific formulary access?

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [39]

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Exactly. So to what extent the patients from..

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [40]

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They're very close, actually. It's -- as I recall, in the 80 plus percent range. So in that case, it's fairly narrow. What happens remember with Rhopressa we started getting our coverage very early. So you get that contract coverage and then it takes you sometimes a few months to get all of the underlying formulary coverage as Vince explained in his prepared remarks. So right now, those 2 numbers are very close on the Rhopressa commercial side.

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [41]

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Okay. What about for Medicare side?

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [42]

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Medicare has got a little bit more to go using the example that Vince also used in his prepared remarks, but we do have the majority for Med D for Rhopressa covered. So the contract coverage is 75% as we've said, and over 50% is already covered in the formularies. And again that's spread will narrow over time.

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [43]

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Yes. So then as you gain access to all of these coverages, more specifically with regards to the Medicare coverage, we went from 40% to 75% on May 1, do you think we have seen the inflection point from prescription perspective or are you expecting to see that inflection point?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [44]

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So we started seeing some of the inflection point, if you go back into the April time frame, the May timeframe, remember, we were sort of stuck at halfway through the first quarter, things were moving well. We are expecting a big win, we didn't get it in Q1, it ended up trickling into Q2 and then as soon as we got it, we started seeing a nice bump. We're starting to see another nice bump now and so it just -- it feels like it's going to be a not as dramatic, a big step as we had with Rhopressa, where we were up to 12% and all of a sudden we 3, 4 months later we jumped up to 40% and then in another 3 or 4 months, later we jumped up to 75%. I think it's going to be a steadier growth rate to the ultimate target of in excess of 75% Medicare Part D. So it's kind of hard not to believe that the increase that we just had -- that I was talking about for the last week and shipments from wholesale to retail have jumped into 1,000 units in 1 week wasn't in part due to the incremental coverage we've received. We see Rocklatan continuing to grow really, really nicely relative to the market and yet we still see Rhopressa growing. So I think it's both sides are just winning, which is a great thing for us.

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [45]

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Then changing subject to Rocklatan. So when you go out to have these coverage or managed care coverage discussions, how is Rocklatan viewed as a class of the drug? Is it viewed as a ROCK inhibitor or is viewed as a PGA or maybe something else?

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [46]

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Yes, I can handle that. This is Tom, by the way. So every managed care organization may do it a little bit differently, but in most of time, they look at it is a fixed-dose combination product. So either a Rho kinase inhibitor nor (inaudible) prostaglandin, but a fixed-dose combination product.

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [47]

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So it's categorized by itself?

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [48]

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In many situations. I can't say all, but it's certainly in many situations.

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Difei Yang, Aegis Capital Corporation, Research Division - Analyst [49]

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Then my final question with regards to liquidity needs. So given the increased cash burn, do you still feel comfortable that with your current liquidity, you are able to get to breakeven point?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [50]

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Yes. So, there is no increasing cash burn, right. So, the gross cash burn now is still expected to be $210 million to $220 million. That's what it was when we gave guidance. Remember to say there is an offset to that gross cash burn to get us down to net cash burn and that's basically the collections of accounts receivable from revenue offset by some rebate payments. That cash -- that net cash burn rate is going to decline. I tried to explain this earlier. So, we had net cash burn in the first half of this year of $92 million, but the fully year range is net cash burn of $160 million to $170 million. So by definition, in the back half of the year, that net burn declines and so should be the case as our revenue continues to build over the next several quarters.

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Operator [51]

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Your next question comes from Elliot Wilbur from Raymond James.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [52]

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Just following on that line of question real quickly. So based on all the commentary around cash resources and expectations for performance of the franchise. It doesn't really sound like there's going to be any real changes to the game plan over the next 4 to 6 quarters at least in terms of trying to become a little bit more fiscally prudent or cash conservative.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [53]

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But we're obviously going to keep watching everything that we're doing now, Elliot. We welcome back the -- I think the -- we look at these things that we want to continue growing the business we want to make sure that we're prudent with the cash that we do have, and we feel pretty comfortable, obviously with the guidance that we've provided and are comfortable with our liquidity. But it also -- we know the timing of things that are going to be happening. And so it's not because we plan it, it just happens sometimes you get lucky. From a planning point of view, we know that, as I mentioned earlier that some of the big expenses aren't going for clinical trials aren't going to start kicking in until the back end of next year. And so, that does help us sort of feel pretty good about not having to scale back a whole lot. I mean we're always cautious about adding heads, cautious about capital expenditures, cautious about all sorts of different things, but it's, I wouldn't say we're going to do it any differently than we've done in the past.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [54]

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And then, I just want to ask you a question going back to your comments at the beginning of the call regarding peak sales expectations for Rhopressa and Rocklatan and you're consistent with the numbers you put out there historically. Question really is more about time to realization. I guess if you look at historical launch models, I mean most product sort of, reached peak number kind of in the 5 to 7 year time frame, but it just seems like in the current environment, launch curves just seem like they're a little bit more compressed kind of on the front end. So I just want to get your thoughts sort of around timeline to realization of the peak numbers that you put out there.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [55]

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Well, as I said earlier, we always started the uptake would be a little bit better than it obviously has been mainly because of everything that we were hearing everything that the docs are feeding in back relative to their expectations of how quickly they would start writing for 1 or the other product et cetera, et cetera. And so, but I think that the normal trend would be based on what we're seeing now, you would expect to see a little bit of delay. And so if we thought that we're going to get to peak sales in 5, maybe it becomes 6 or 7 years kind of time horizon. The difference is, which is what I've been trying to point to, which is that assumes certain trajectory in terms of your managed care uptake. And so if we are able to accelerate our managed care uptake and we are as successful, if not more successful with Rocklatan as we were with Rhopressa getting into that again 75% Med D coverage after a year, 90% commercial. So if we can move that up a little bit for Rocklatan that could allow us perhaps to start bouncing back from sort of this churn period and things like that to where we can get back to more an accelerated timeline or back to our original kind of timeline. So again it goes back to how fast can we get to that sort of 75% Medicare Part D component. And the sooner we do it, the better off we're going to be and the sooner, we'll get to those peak set of revenue numbers. And by the way, while we're talking about all this, looking at the sort of the uptake on managed care for some of the other glaucoma products that have been launched in the same relative period of time, whether it (inaudible) or any one of those, it's getting to where we did with Rhopressa in 1 year. The 75% Med D, and 90% commercial stands out pretty nicely for us. And so it's certainly not happening. It's not happening across the board that quickly. So we like that.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [56]

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And then last question, any updated data points you can provide with respect to Rhopressa and some more specific metrics in terms of combination use of the product. I guess the reason I asked the question I always assume that Rhopressa was obviously being used extensively in combination therapy and most likely in combination with latanoprost, so it's really just a sort of a Rocklatan proxy and when Rocklatan launched obviously thought that there would be a strong uptake, but there'll be much greater cannibalization for Rhopressa then there has been thus far. So maybe that impression is not correct. Maybe in fact utilization and combination with latanoprost has just been a little bit lower than we had anticipated, but I'm just curious sort of on thoughts as to why Rocklatan perhaps has a cut in the Rhopressa franchise is much as we would have anticipated. And you could sort of see that in the fact that I guess that at least as of the latest week launch is still a little bit behind where Rhopressa was trading at a similar point in time.

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [57]

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This is Tom. I'm happy to take a stab at a couple of your questions. First off, we do know that about 15% of Rhopressa's current business is for initial therapy or treatment-naive patients. So they're not -- and those are people that for some reason are not candidates for prostaglandins, right because that's what normally people will start off with. So, by the way, we're quite happy with that. The second thing is, when Rhopressa first came out, it was added on to therapy, meaning it was what we call maximum medical therapy or at the end of line therapy prior to surgery, so the patient may already be using 3 products, they throw in Rhopressa just to see what happen. Many were impressed with the results that they got because they certainly did not expect much and found out that they were getting a lot. So now what they're doing is they are moving it up in their treatment paradigm and in many cases are replacing therapies with Rhopressa meaning that they're using as a second or third line, but not the fourth line that's where I think so. So we like that. The other thing, we'll see. It's interesting because you're talking about the trade-off with Rhopressa and Rocklatan there and how Rocklatan you assumed might eat into the Rhopressa business. Quickly, I can give you this fact since the launch of Rocklatan, which of course was just in May, we have picked up 1,400 new prescribers of Rhopressa. And we believe the primary driver for that is the physicians get infatuated with IOP lowering of Rocklatan, they tried Rocklatan found that it wasn't recovered, had a high co-pay to it, brought the patient back to the office and then they gave them a Rhopressa because they in essence, now they're expected to use 2 models than rather 1 in Rocklatan, but they just use 2 bottles. So, we like that. I mean we like the fact that we picked up more. I mean 1,400 new Rhopressa prescribers since May, even in the face of having what we consider to be the most efficacious or appeal oriented on the market.

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Operator [58]

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Your next question comes from Oren Livnat from H.C. Wainwright.

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Oren Gabriel Livnat, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [59]

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There's been a lot. Obviously, I just want to follow up on that combination product answer with regards to the reception you're getting for Rocklatan from some payers. It occurred to me that maybe and you can confirm if this isn't the case -- are any payers sort of paying Rocklatan like it's in a vacuum and not really thinking about hey you're the Rhopressa guys coming with your second products such that. Then looking, hey, Rocklatan just a combination of 2 drugs that are out there and we have a policy for long line of companies before you that have tried to do certain line extensions and convenience players, then we say no on all of those things or we pushed back pretty hard and are you seeing that? And if that is the case, is it possible that you won't be able to get any premium over Rhopressa in some number of times?

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [60]

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The answer to that really is, no. There is -- nobody is really putting us to a vacuum thinking or they thinking this is just like any other combination product. And there's really 2 reasons for that. First off, this is the first time they have ever had a company come in and say, this product has statistically better IOP lowering than the top-selling product in the United States in fact the world (inaudible), right. So this is a whole different playing field for them. The second thing, remember the pricing strategy that we took forward with Rocklatan was to price it very minimally above Rhopressa. So at the end of the day, it doesn't really make a material difference for them, whether they're going to use or reimburse Rocklatan or Rhopressa. It's not a monetary issue for them. So because of that they were quite willing to accept where we are with Rocklatan.

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Operator [61]

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At this time, I would like to turn it back to the Aerie's Chairman and Chief Executive Officer, Vince Anido for any further comments.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [62]

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Thanks. Well, I thank everybody for joining us this afternoon. We try to give you some clarity about why we made the guidance changes et cetera and hopefully we've achieved that and more importantly, however, hopefully you're walking away from the call, trying and -- with a clear understanding about how we feel about the long-term prospects for both these products, Rhopressa and Rocklatan. There's nothing that we have seen in the marketplace that it gives us any pause at all to -- that wouldn't want to continue to make us bullish about the future for both of these products. Everything that we're seeing is positive from a patient and doctor interaction point of view. This is all about 2 things; #1, making sure that we get enough managed care coverage and as we pointed to in the past, try to get about 75% in Medicare Part D, 90% commercial is really sort of the trigger where just about every doctor out there can write either product Rhopressa, Rocklatan to the heart's content for a specific patient needs, and that's what we're trying to strive for. #2 is, until we get there, we're seeing an awful lot of churn in the practices and that's what's taking an awful lot of time to finally get those prescriptions out to show into the retail market et cetera. The good news is that we are making that progress, we are getting the managed care wins and are coming and so hopefully over time the churn will decrease and in not too distant future, we start seeing the physician practices around the country find the 2 home, which are both Rhopressa and Rocklatan. So and while that's not the entire story of the company, certainly that's where we wanted to focus today and hopefully we've answered everybody's questions. So again, I want to thank everybody for listening and sorry that we ran a little bit long today, but have a good evening. Thanks.

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Operator [63]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful evening. You may all disconnect.