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Edited Transcript of AERI.OQ earnings conference call or presentation 5-Nov-20 10:00pm GMT

·58 min read

Q3 2020 Aerie Pharmaceuticals Inc Earnings Call Bedminster, Nov 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Aerie Pharmaceuticals Inc earnings conference call or presentation Thursday, November 5, 2020 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ami Bavishi Aerie Pharmaceuticals, Inc. - Director of IR * David A. Hollander Aerie Pharmaceuticals, Inc. - Chief Research & Development Officer * 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 ================================================================================ Conference Call Participants ================================================================================ * Dana Carver Flanders Guggenheim Securities, LLC, Research Division - Senior Analyst * Daniel Christopher Clark Mizuho Securities USA LLC, Research Division - Research Associate * François Daniel Brisebois Oppenheimer & Co. Inc., Research Division - Research Analyst * Gregory Daniel Fraser Truist Securities, Inc., Research Division - Research Analyst * Kenneth Charles Cacciatore Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * Kevin Becker * Louise Alesandra Chen Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD * Nicholas Carl Rubino Stifel, Nicolaus & Company, Incorporated, Research Division - Associate * Serge D. Belanger Needham & Company, LLC, Research Division - Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Aerie Pharmaceuticals Third Quarter 2020 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. -------------------------------------------------------------------------------- Ami Bavishi, Aerie Pharmaceuticals, Inc. - Director of IR [2] -------------------------------------------------------------------------------- Thank you, Jerome. Good afternoon and thank you for joining us. With us 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; David Hollander, Aerie's Chief Research and Development 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, forecasts and observations regarding our future financial and operating performance, impacts of the COVID-19 pandemic and our observations regarding ongoing operating expenses and net revenue per bottle. These statements will include observations associated with our commercialization of Rhopressa and Rocklatan in the United States. They will also include plans and 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 strategies and plans with respect to international expansion and associated collaborations. Finally, we will address our manufacturing activities and capabilities, our financial liquidity and other statements related to future events. These statements are based on the 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 expect to file our 10-Q 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 the Investor Relations section of our website. With that, I will turn the call over to Vince. -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [3] -------------------------------------------------------------------------------- Thanks, Ami, and good afternoon, everybody. Thanks for joining us. I realize that there's an awful lot of activity today. And certainly, the external environment has been very fluid and challenging for everybody. Our glaucoma franchise showed a very positive momentum in Q3, with unit sales in the wholesalers increasing to 261,000 units in the third quarter, up over 12% from the 232,000 units in the second quarter. Our September year-to-date net revenues of nearly $60 million, up about 30% over the prior year and our volumes have certainly helped by significant gains in payer coverage this year, along with increased awareness of our product profiles. The net revenues of over $20 million for the third quarter increased around 12% compared to the $18 million in the second quarter and further penetrating our formulary contracts aided by what we estimate to be approximately 85% of physicians' offices being opened in Q3 compared to only about 75% in the second quarter. Our Q2 -- during our Q2 earnings call, we called out an expectation regarding future stability in our net revenue per bottle. In fact, our third quarter net revenue per bottle of $77 per bottle was only $1 off from the second quarter number, even though our Medicare Part D share increased from the second quarter by another 2 percentage points. And so again, just as a reminder, Medicare Part D is where we give out our biggest rebates. And so the fact that while we increased Medicare Part D coverage by 2 points relative to our overall mix, our dollar -- our price per bottle only dropped by $1. So we think that, that's pretty darn good performance on the contracting side. As we discussed previously, our strategy to increase the net revenue per bottle over time includes renegotiating wholesaler agreements and refining some of our managed care formulary contracts, both of which are ongoing, along with taking price increases as we deem reasonable. What I'd like to do now is turn the call over to Tom Mitro to cover his U.S. commercial update on our glaucoma franchise before I cover other important highlights for the quarter. Tom? -------------------------------------------------------------------------------- Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [4] -------------------------------------------------------------------------------- Well, thank you, Vince. Our franchise of Rhopressa and Rocklatan continued to outperform the glaucoma market and all other branded glaucoma products. Our year-to-date through September, franchise prescriptions are up 55%, while the glaucoma market was down 2%. In the third quarter, our franchise prescription volumes were up 32% or 37,000 prescriptions compared to the same 3 months of last year, while the glaucoma market was actually down 4% or 342,000 prescriptions. In September, we set new records for both total prescriptions and sales out units, which reached 90,000 units from wholesalers in the pharmacies. In fact, looking back over the last 8 weeks, our sales out have averaged over 21,000 units per week, which demonstrates excellent progress. The success we're having has been driven by a number of factors. For example, looking at our recent data from our awareness, trial and usage, or ATU study, we found the top reasons for prescribing Rhopressa include efficacy and its unique MOA, which explains the reason why Rhopressa is so effective as an adjunctive agent. The top reason for prescribing Rocklatan is efficacy. The survey also indicated that physicians are becoming increasingly aware of, number one, the very positive data for Rhopressa from our Phase IV study, which we call the MOST trial; as well as number two, our new formulary coverage levels for both Rhopressa and Rocklatan. As an example of that, we recently announced that we signed a major contract with one of the largest Medicare Part D plans in the nation that made both Rhopressa and Rocklatan available on their formulary effective May 1 of this year. Now since that time, our market share in that plan has grown by nearly 60%, which is strong evidence of our pull-through capabilities upon gaining formulary coverage for our products. Now the third reason I'll mention is that our field force has been rapidly increasing the number of face-to-face calls they're making with physicians. Where there's still some preference for virtual calls by a small minority of physicians, the overwhelming majority of physicians want to meet and speak with our representatives in person, and many are willing and able to attend our educational dinner programs as well. In fact, in October, our field force ran more educational speaker meetings than any month prior to that, which is a great indicator of physician interest in our products. Now I'm on prescriber data. Our base of weekly and monthly prescribers continues to grow. We currently have 4,500 weekly prescribers and 9,000 monthly prescribers, with over 16,500 eye care professionals having written at least 1 script since exception. Over 99% of decile 9 and 10 physicians, the highest prescribers of glaucoma medications, have written a script for either Rhopressa or Rocklatan, and these highest decile prescribers average over 30 prescriptions of our products per month. Now as a reminder, our Aerie sales team is now calling on the 10,400 highest prescribers of glaucoma products. On top of that, in July, we added a contract sales force, or CSO, to call on the next 1,400 highest prescribers. Also in May, we added a telesales team to call on the next 4,400 highest prescribers. We believe that this approach represents an efficient way to gain access with as many physicians as possible and the early data point to positive gains from these additions to our sales strategy. For example, our telesales team has increased the new Rx share in its particular audience by 15% from its pre-promotion baseline month of April. Our CSO team has also generated success. The new Rx share in its particular audience has increased 24% from its pre-promotion baseline month of June. And our Aerie sales force has continued to gain share. Our new Rx share in its called-on audience has increased 13% in February when we started what we called our Pulse Strategy, which resulted in increased frequency of calls on the highest prescribing physician. So in summary, and before I turn the call back over to Vince, we're certainly regaining and surpassing the momentum we established prior to COVID. Our glaucoma products are clearly capturing the imaginations and prescriptions of many eye care practitioners. And with our excellent managed care coverage, our strategy to move monthly prescribers to weekly prescribers, our additional share of voice initiatives and, of course, doctors' offices seeing our reps and more patients, I believe we are poised for continual growth. Vince, back to you. -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [5] -------------------------------------------------------------------------------- Thanks, Tom. Just as we've been growing our glaucoma franchise quite strongly in the United States, we continue to make significant progress in executing our international strategy. Just last week, we announced our license agreement with Santen, a market leader for prescription ophthalmic pharmaceuticals in Japan with a presence in over 60 countries. Obviously, we're all very excited about this relationship and look forward to many years of successful collaboration with the Santen team to ultimately commercialize in not only Japan, but also South Korea, Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam and Taiwan. Again, they're very, very strong in a number of countries, and we certainly -- and in Japan, they're clearly #1 in the majority of the ophthalmic categories. As you saw in the announcement, Santen will pay an upfront of about $50 million to us, which will take place within 30 days of signing. And we're eligible to earn up to $99 million in clinical, regulatory and commercial milestones. Upon commercialization, Aerie will receive royalties in excess of 25% consisting of cost of products supplied to Santen, plus an intellectual property component. Santen will be responsible for sales, marketing and pricing decisions related to the licensed products, Rhopressa and Rocklatan. They're also responsible for all the development and commercialization costs and activities related to the products, except that we will fund half of the cost of the first Phase III trial for Rhopressa in Japan, which is expected to commence by the end of this calendar year. As we mentioned previously, we had a virtual meeting with the PMDA, the equivalent of FDA in Japan. It was done in April and have excellent clarity on our path forward there. We expect to have 3 Phase III trials, 2 of which will be 28-day trials and 1 will be a 12-month safety trial. We will, as I mentioned, co-fund the first of the 28-day trials. It's obviously a strong performance by not only our Japan team. They did a great job in putting all this together and fronting all of our discussions with the PMDA, but also our global team made up of regulatory and QA folks, et cetera, that has led to this kind of performance. Once we move forward from -- with the Japan team, and they get this study completed, the first of the Phase III trials, we will obviously move them more into the dry eye programs as it relates to Japan. Of course, our international expansion opportunity extends beyond Japan and some of the other Asian countries covered under the Santen agreement. Just like when we announced the Phase IIb trial in Japan, and all of a sudden, the Japanese company started calling and wanting to look at partnership opportunities, our recent successful 3-month interim top line readout of the 6-month Mercury 3 trial shows the potential of our glaucoma franchise in Europe. What's surprising is, in Europe, there are 105 million glaucoma bottles that are filled in the top 5 nations in Europe alone in 2019, that's compared to 55 million bottles in the U.S. So they do use glaucoma products pretty extensively over there. For Rocklatan, known as Roclanda in Europe, to have performed so well compared to the most commercially successful glaucoma product in Europe is a major accomplishment. As you know, in our Mercury 3 press release, Rocklatan and Roclanda performed even better in Mercury 3 than it had in the U.S. trials, averaging 9.5 millimeters of mercury in pressure reduction and achieving non-inferiority to Ganfort when comparing the efficacy of the 2 products. Importantly, we believe Roclanda has a safety advantage as Roclanda unlike Ganfort and other PGA combination products in Europe does not contain a beta blocker. So we believe that Roclanda taken on its own eliminates the heart and lung concern to come with PGA combination products that are common in any elderly population. We expect that Roclanda to be approved in early 2021 by the European Commission, and that the European opportunity will materialize. You might expect, we are seeing quite a bit of inbound interest from potential partners regarding the commercialization of our glaucoma franchise in Europe. As I mentioned before in a number of different calls, Mercury 3 was not for approval. It was mainly for to help us with the pricing in Europe. So as a result of achieving non-inferiority there, we think that we are able to get a great price in the European markets. Now shifting gears to our manufacturing prospect. The growth of our franchise in the U.S. and the potential in Europe and Japan will certainly benefit our Athlone manufacturing facility where we're already seeing a reduction in the idle capacity as volumes begin to increase at that plant. As you saw, Athlone is now approved to manufacture Rhopressa as well as Rocklatan for commercial distribution in the U.S. market and will manufacture product for Japan as part of the Santen collaboration. We will also be making clinical supplies as we conduct clinical trials in Japan. Turning to our pipeline. We announced last week, we initiated the Phase IIb trial for our dry eye product candidate, AR-15512, that we obtained through our late 2019 acquisition of Avizorex in Spain. We met with the FDA late in the second quarter and will test 2 concentration of this product candidate in a highly powered 90-day Phase IIb trial, and we'll have about 360 subjects in that trial. We think, assuming success, this could be potentially considered a pivotal trial. The active ingredient in 512 is the potent and selective agonist of the TRPM8 ion channel. It's a cold sensing and osmolarity sensor that regulates the tear production and blink rate in the eye. Interestingly, activating the TRPM8 sensor may also reduce ocular discomfort by promoting a cooling sensation. For the upcoming trial known as COMET-1, we expect the primary end points to be ocular discomfort, which is a symptom and tear production, which is a sign. We're also adding a number of secondary end points to the trial such that we can learn as much as possible about the drug's performance. With 30 million dry eye sufferers in the U.S., we expect rapid enrollment in the program, and we're targeting a top line readout in Q3 of 2021. Now turning to our retina pipeline. The more we learn about the retina market in the U.S. and even so more in Europe, the more excited we get about the prospects of our sustained-release steroid product, AR-1105. The Phase II study top line data we released a couple of months ago indicated up to 6 months sustained efficacy in retinal vein occlusion for this dexamethasone implant. We believe this further validates the potential of our sustained-release technology based on the very flexible PRINT manufacturing technology along with the use of biodegradable polymers. The closest injectable steroid competitor generates about $400 million in total. About $100 million of that comes from the U.S., and surprisingly, about $300 million come from European sales. An interesting point is that this competitor with $300 million in sales in Europe generates over -- that generated twice the sales of the largest glaucoma products in Europe which, by the way, the largest one happens to be Ganfort, who generates about $100 million to $150 million in revenues. In practice, the steroids are often injected -- or at least the steroid is currently available, it's injected every 2 months as steroid releases earlier are not sustained. We believe our product has the potential to yield a differentiating benefit by requiring less frequent injections, therefore, reducing the burden on the retina physicians and the patients. The European market has always been more open to injectable steroids than the U.S. market, which tends to favor, as you know, the anti-VEGF products. We believe that well-tolerated 6-month steroid injection that is favorably priced to competitive steroids and, certainly, the anti-VEGFs has the potential to not only obtain share in that steroid space but also to expand the steroid market within the $10 billion combined U.S. and European retina markets. Additionally, we have a capability where we can utilize our PRINT technology to manufacture these tiny implants at a rate of about 500,000 per year and only about 1,000 square feet in our facility at our corporate headquarters in Durham, North Carolina. We believe that the efficiency of our manufacturing process may also contribute to sizable margin opportunities if the product is ultimately approved and commercialized, while also driving overall economic value to the patients and the physicians. From a commercialization perspective, the size of the retinal sales forces can be quite small. In fact, when -- you may remember that we talked about, if we commercialized on our own in Europe on the glaucoma side, we would need about 75 sales representatives in the top 5 markets. Now we think as we think about the European market for retina, we would need considerably less than half of that size sales force in order to be successful. So again, we feel very strongly that we have great opportunities in Europe from a partnering point of view on the glaucoma franchise as we, on our own, pursue the 1105 molecule -- 1105 product in that market. The next steps for 1105 are to evaluate prospects for both Europe and the U.S., is to meet the regulatory agencies in those markets in order to harmonize the development across both regions (inaudible) our great progress on the safety trial for AR-13503 for wet AMD and DME. Remember, this is the most active metabolite of Rhopressa or netarsudil, which -- and as -- after we complete the safety component of Rhopressa or netarsudil, which -- and after we complete the safety component, we'll evaluate its prospect as we gain more information. At this point, I'd like to turn the call over to Rich to cover the financials. -------------------------------------------------------------------------------- Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [6] -------------------------------------------------------------------------------- Well, thanks, Vince. As Vince discussed, our combined Rhopressa and Rocklatan net revenues in the third quarter of 2020 totaled $20.1 million. Our normalized gross margin for the 3 months ended September 30, 2020 was 92.1%. On top of that, we absorbed about $3.8 million in Athlone plant overhead associated with start-up commercial production. As you'll recall, prior to the approval of the Athlone plant for commercial distribution of Rocklatan in the U.S. at the end of January 2020, these plant overhead expenses were charged to pre-commercial manufacturing expenses within operating expenses. Pre-commercial manufacturing expense in the third quarter of 2020 was essentially $0, demonstrating once again it is more a matter of where these costs are classified in our income statement. As I just mentioned, the idle capacity cost in the third quarter 2020 was $3.8 million, reflecting a sequential decline from the $5.0 million recorded in the second quarter. We expect the idle capacity costs to decline further over time as volumes produced at the Athlone plant continue to grow now that we have approval to manufacture Rhopressa in addition to Rocklatan for U.S. commercial distribution, plus we have opportunities outside of the U.S., such as production for Japan as part of the Santen collaboration. Further, with the level of interest we are seeing regarding a potential European collaboration and with Rhokiinsa already approved in Europe and Roclanda expected to obtain approval in the short term, there is near-term growth potential from the very large European market. To reiterate Vince's earlier observation, glaucoma bottle volumes in the top 5 European nations were 105 million bottles in 2019 compared to the 55 million in the U.S. Now for some additional financial metrics. Our third quarter 2020 GAAP net loss was $39.6 million or $0.86 per share. When excluding the $9.8 million of stock-based compensation expense, our total adjusted net loss was $29.8 million or $0.65 per share. For the third quarter of 2020, adjusted cost of goods sold was $4.9 million and adjusted total operating expenses were $39.0 million, with adjusted SG&A expenses of $25.3 million, adjusted pre-approval commercial manufacturing expenses of $0.1 million and adjusted R&D expenses of $13.6 million. For the third quarter of 2020, our net cash used in operating activities was relatively low, $22.4 million and we had $218.4 million in cash, cash equivalents and investments as of September 30, 2020. The net cash used in operating activities of $22.4 million was better than the second quarter equivalent to $22.9 million, reflecting continued progress in containing operating expenses. Let me emphasize an important point. We used about $22 million of cash in the third quarter, and we ended the quarter with $218 million of cash. The additional $50 million from the Santen licensing agreement obviously further bolsters our cash position. Consider also that the burden of funding the Phase III trials in Japan for Rhopressa and Rocklatan is materially reduced, and prospects for future collaborations are on the rise. With that, an ongoing revenue growth, we have a substantial cash runway. And I'm going to say this slowly. There is no current need, nor desire, nor plan to raise equity capital. Finally, shares outstanding at quarter end totaled 46.8 million. For additional information regarding our third quarter results and prior period comparisons, please refer to today's earnings release and our Form 10-Q, which we expect to file tomorrow. Now I would like to turn the call over to Jerome for questions. Jerome? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from the line of Ken Cacciatore from Cowen & Company. -------------------------------------------------------------------------------- Kenneth Charles Cacciatore, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- Rich, I think you said it even slow enough for someone not as smart as me to understand. So thanks for clarifying that. On Rocklatan, just wondering, guys, if you can talk about further work on managed care for Part D. I know we have pretty good coverage. Just wondering if we can expand it. And when do you think we'll be able to? And then second question is around what you hear from the clinicians in terms of hyperemia. From time to time on clinician checks, it comes up. Wondering if you could put this into some perspective in terms of what type of retention rates, which I think would be the best way to monitor this, what type of retention rates do you see in prostaglandins, other prostaglandins? And can you compare that to Rhopressa and Rocklatan in terms of the retention rates that we're seeing here from a refill level? I think that would probably cut through the clutter a little bit of the hyperemia issue. -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [3] -------------------------------------------------------------------------------- So again, let me try to cover the increase in managed care coverage. So at the very beginning and certainly a couple of quarters ago, we talked about that we weren't going to be in a particular hurry to sign contracts where we had to give excessive rebates just to get on formularies. And so we think that the last contract that we signed with the managed care organization that I mentioned has about 20% -- or almost 20% of the Medicare lives, that took us about 18 months or almost 2 years to conclude. And so the level of rebates that they were asking for are just too excessive. And so we drove prior authorizations and made it pretty expensive for them not to cover us and eventually got them back to the negotiating table and came out with a contract that was acceptable to us. As Tom mentioned, we signed that contract in May, and we were able to get quite a bit of pull-through, about a 60% increase in the market share within that plan. And so once we get to about doubling, then we pretty much pay for all the rebates that we pay off. So they're part of the deal. And so it's that kind of deal that we would be looking for as we try to close the gap between where we are today with Medicare Part D coverage and where -- for Rocklatan and where we are with Rhopressa. There's a number of plans out there that we currently are bidding for and looking for those kinds of situations where we can do that. But again, we're not in a particular hurry to just give up rebates just to get coverage and basically kill our price. We're trying to strike that balance. We also have a number of managed care contracts where we're looking at restating those contracts and perhaps given up a favorable position where we don't think it's actually going to hurt us by taking a step back, paying off a little bit less rebate and actually increasing our net price within the plan and not losing revenues, in fact, continuing to gain revenues. And so all that combined, I think, will help us. I'm going to have Tom talk a little bit more about the hyperemia rate and as it relates to retention. He's obviously been close to what's been going on in the field recently and can give you a little perspective on that. Tom? -------------------------------------------------------------------------------- Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [4] -------------------------------------------------------------------------------- Sure. Thank you again. So thanks for the question about hyperemia. Here's sort of what we think about from the hyperemia and really what we hear from our physicians. Certainly, one of the first things physicians notice with our products is that it causes -- they cause hyperemia. What we suggest to the physicians is to keep the patients on the bottle, the sample. The sample last for at least 30 days. Write a prescription because the longer they stay on the product, most of the time, the hyperemia starts dissipating. Doesn't completely go away in many cases, but it dissipates. It becomes very, very manageable. When I asked them about what's our retention rates do you think comparing either Rocklatan and even Rhopressa compared to the prostaglandins, they comment and say it's very similar. I wouldn't see a difference. And they start recounting to us things like, well, when the prostaglandins first came out because they all caused a degree of hyperemia, we had a lot of trouble with hyperemia that we got used to it. And then we told patients, hold on, keep using the product, enjoy the fact that you're getting very good IOP control. And sure enough through time, their eyes got wider and less red. So I don't know that it's any -- I don't know that's materially different. I mean I've never had a physician say, no, this is far worse than any product I've used before. If they've used a significant amount of the product, and we always tell the physicians that the more you use, the more you get accustomed to managing hyperemia. And I think the less you'll see, your patients will be happier as well, too. So we don't think it was that big of an issue. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Your next question comes from the line of Serge Belanger from Needham & Company. -------------------------------------------------------------------------------- Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [6] -------------------------------------------------------------------------------- Vince, can you talk about the business environment right now given the COVID pandemic? Have you seen any improvements throughout the quarter? I know you mentioned that patient flow at ophthalmologist offices improved from 75% to 85%. Do you expect that to continue improving into the fourth quarter and 2021? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [7] -------------------------------------------------------------------------------- So Serge, we do think it's going to continue improving. Certainly, we do have some outbreaks occurring in various states. And the various state governors are responding very, very differently to those outbreaks and things like that. And so it all depends sort of almost on a state-by-state case in terms of what we think is going to happen. But generally, we think this should continue to improve and more and more practices will continue to expand and open up and gain some balance between sort of where they were pre-COVID and where they are today. What's interesting, we do see about 5% of the practices that simply aren't responding at all, I mean, in the sense that they're not particularly open or they may not be open at all. And so we can't help but wonder whether that small percent of the total practices are simply going to go and be bought up by somebody in private equity or just simply decide to retire because of the change in the environment. But overall, we think that, that's going to continue to progress. And as long as we don't go back to the days of where they shut down elective surgeries, which basically killed ophthalmology or hit ophthalmology harder than any other specialty group. I will say I'll go back to that, I think even on a state-by-state basis, I think we're going to do pretty good. The practices that we do go into are now very, very flexible. Everybody's got their own rules and regs that our reps have to follow when they walk in there. But overall, I like the direction that we're going in. It's very positive. -------------------------------------------------------------------------------- Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [8] -------------------------------------------------------------------------------- Okay. And then second question is just about current payer mix. It sounds like you've made some pretty significant progress with the new Medicare Part D plan. So what is the current Medicare and commercial mix right now? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [9] -------------------------------------------------------------------------------- Rich may have latest data. So I'm going to give him a couple of seconds to open that up. But it is in our latest slide deck that we put out there, Serge. But Rich? -------------------------------------------------------------------------------- Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [10] -------------------------------------------------------------------------------- Yes. So the Part D and Medicaid mix in the second quarter was 57%. And now at the end of the third quarter, we averaged about 59%. So as Vince said in his prepared remarks, we went up about 2%, and that was pretty much at the expense of commercial shrinking a bit and the other government shrinking a bit. -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [11] -------------------------------------------------------------------------------- Serge, the thing to watch for here is sort of the rebound in the economy. We saw a huge increase in the economy quarter-over-quarter. It depends on how quickly folks go back to work. Because all of a sudden, they get -- started getting coverage under commercial pay, that may also be swinging some of these numbers around a little bit. And don't forget, the more commercial coverage, the better our net price gets. And so that's a positive thing. But again, it's just -- it's -- we're going to watch it closely, but we're still thinking that getting to that balance is a good thing for us, and staying in the high 70s is certainly doable based on where we think the mix is. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- And your next question comes from the line of Dana Flanders from Guggenheim Partners. -------------------------------------------------------------------------------- Dana Carver Flanders, Guggenheim Securities, LLC, Research Division - Senior Analyst [13] -------------------------------------------------------------------------------- Great. I have -- first one on -- a commercial question. And I know this can vary by physician, but just wanted to get a sense from you just for where you think Rhopressa and Rocklatan are generally being used as a line of therapy. Is it second line, third line, fourth? And then as you think about the market opportunity, how important is it for you to move up the treatment paradigm from where you are now? And what is the active sales strategy and messaging around that? And then my second question on your dry eye candidate. What do you think you need to show? And what do you want to show for the FDA to consider this as a pivotal study beyond, I suppose, just a clear sign of efficacy? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [14] -------------------------------------------------------------------------------- All right. So on the commercial side, I'm going to have Tom give you some more details. But right from the very beginning, we always thought that Rhopressa would be primarily an adjunctive therapy. So it would be added to whatever regimen the doctor had his patient on, it would be. And so depending on whether it was added second or third or fourth, they would have a role to play there. And eventually, as doctors got more experience, that they would move from that Rhopressa adjunctive therapy to saying, "Oh, look, what kind of pressure drops I'm getting, and then I'm going to move that -- perhaps get that patient off of everything except a move into Rocklatan where they can get the IOP drop with only 1 eye drop." But let me have Tom give you some details, and then I'll take the call back -- the answer back for your dry eye question. -------------------------------------------------------------------------------- Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [15] -------------------------------------------------------------------------------- Sure. So what we see with Rhopressa to begin with, Rhopressa, most of the time, is the third or fourth medication. Now that's not surprising, realizing that most people who have been on glaucoma medications for many years, have gone into prostaglandin, started losing control, a second and a third drug was added. So that happens to be the biggest opportunity. So that's just because more -- most of the time it's used there, it doesn't mean that that's where physicians really want to use it. What we're seeing now though is certainly physicians are using it more and more often when patients come in just with a prostaglandin and for some reason, they're not going to Rocklatan. It may be a coverage for that individual patient or some other driver, but they are using Rhopressa much earlier in the treatment paradigm, and that's clearly what our sales force is talking to physicians about, not just because they can use the most data to show the effectiveness of it, but also because we think that cuts down on hyperemia because they're just using less products in their eye. So that's a nice sweet spot for physicians. And the more they try it there, I think the more they adopt that. Rocklatan is just -- it's very easy. Rocklatan is a switch from a prostaglandin. And instead of adding a second medication or trying a different prostaglandin, they switch them right over to Rocklatan. That's good as well, too, because there really aren't that many new starts in glaucoma every year. It's really going back getting your ability to switch patients instead of start new ones off is a long-term key to success. So that's really what our messaging is all about. -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [16] -------------------------------------------------------------------------------- So the answer to your -- on the dry eye side is, remember, this is a Phase IIb study. We are powering it as a III. So we have 360 patients that we're going to enroll in the trials and looking at 2 different concentrations plus vehicle. And so we think that if we get stat sig on both the sign and the symptom, so the sign being the tear production, the symptom being ocular discomfort that, that would serve as a strong pivotal, and then we would only have to do one more study. We are watching pretty closely or we will be watching closely the additional information that we get because, as I mentioned in prior calls, we did back -- we are backing up the truck, looking at all sorts of potential secondary end points, looking at using the chamber or not using the chamber or dry eye chamber, et cetera, just to really be able to, in this one study, fully characterize the activity of the drug. Because as we move forward, it's not only making sure -- and certainly, the job 1 is trying to get a drug approved assuming that everything comes out the way we expect it to, but also make sure we characterize properly because those advantages that we see in the secondary end points could certainly help build a strong picture for us as we look at contracting with managed care. Does that help? -------------------------------------------------------------------------------- Dana Carver Flanders, Guggenheim Securities, LLC, Research Division - Senior Analyst [17] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Your next question comes from the line of Frank from Oppenheimer. -------------------------------------------------------------------------------- François Daniel Brisebois, Oppenheimer & Co. Inc., Research Division - Research Analyst [19] -------------------------------------------------------------------------------- In terms of the awareness and the effort you've made for -- would you say it was the awareness that was the biggest issue in terms of reimbursement? It seems like docs maybe weren't aware of the wins, especially the win from May 1. And in terms of making them aware, was this something you had to battle because of COVID? Or was this expected to be an educational process for your sales force? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [20] -------------------------------------------------------------------------------- Yes. What I can tell you is this awareness issue in terms of what kind of coverage we get is probably one of the most frustrating ones that we have because sometimes it doesn't make any difference how many times you tell a doctor that our drug is covered. In fact, both of our drugs are covered for your particular plans that the majority of your patients have. Many times, they just don't remember. They remember the early days perhaps where we had limited coverage. I'll give you a great example. When we won this last contract, we made a point of calling all the doctors, especially in the state of Florida, where we had great coverage with this one plan, and the majority of the patients that are on Medicare Part D are covered by this one plan that we just signed. And so there was a doctor that spoken at one of the investment conferences and actually talked about our -- that we didn't have particularly good coverage in this area. And he happened to be in the middle of Florida on the East Coast. And so even though our reps have been in there multiple times, the doctor only remembered that when he first tried to prescribe Rhopressa and Rocklatan, it wasn't covered in all the trials and tribulations he went through with prior authorizations, et cetera. So it is something that not only frustrating, but we certainly addressed with the pulsing strategy that Tom mentioned, with the use of contract sales organization and also with telesales. So we're using them to not to call the doctors to let them know that we're covered, but to call their staffs to let them know about our coverage because we certainly have access to data that tells us which plans are most important to that particular practice. And so we can target those calls pretty easily. So certainly, we've ramped up our efforts. So again, that's where the opportunity is, but it's also been frustrating because even when we get the coverage and tell the doctor multiple times, they still don't remember because they've had busy practices. It's not just because of COVID. It's just part of the way things go. -------------------------------------------------------------------------------- François Daniel Brisebois, Oppenheimer & Co. Inc., Research Division - Research Analyst [21] -------------------------------------------------------------------------------- Understood. Okay. And then lastly, I think touching on the rest of the pipeline, there's a lot going on especially not just the pipeline, but internationally and whatnot. So on the 6-month side on AR-1105, that data was clearly very impressive. From there, can you just help us understand a little bit the plans going forward, what potential drug to use? And once you understand the platform works, what's the next move? And then on the EU side for glaucoma, clearly, the market is gigantic. You got non-inferiority. Can you also help us understand the plan in terms of timing on commercial launch there? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [22] -------------------------------------------------------------------------------- Sure. So what I'm going to do is cover off the commercial component of both 1105 and the glaucoma franchise, and I'm going to turn it over to David Hollander to talk a little bit about the next steps on the development of 1105. On the commercial side, let me just put this in perspective. While the glaucoma market in terms of dollars in the EU is quite a bit less than it is here in the United States, mainly because the prices are so low, we compared ourselves to Ganfort in the Mercury 3 trial because that is the highest price combination products. And we got non-inferiority, so we think we will get that price, which is in the mid to upper 20s per bottle. As a reminder, there are 110 million bottles of glaucoma medications prescribed. So it's a huge market at very, very low prices. And so we think that the interest that we've generated will allow us to look at the commercial opportunity in terms of partnering in that space. And so that's going to dictate when we can launch. But assuming we get approval in the early part of '21 for Roclanda or Rocklatan, as we expect, we're going to be moving pretty quickly to gauge interest and see whether we -- what kind of deal where we can put together for a partnership so that we can launch Roclanda and, ultimately, Rhopressa into the European markets on a timely basis. A big product in Europe for glaucoma would be about $125 million to $150 million, as I mentioned earlier. So just keep that in perspective. As we think about 1105 in Europe, as I mentioned, the closest competitor that we have is OZURDEX, and it sells $300 million only in Europe. And our drug works over a longer period of time, for 6 months versus OZURDEX, 2 to 3 months. And so even if we price it the same, we think we can generate huge revenues in Europe as a result of the longer activity. So for us, as we think about it, the opportunity on the retina side with 1105 in Europe is 3x or so larger than the glaucoma. So partnering with somebody who already has a sales force and already can just lay our product on top of their infrastructure certainly sounds pretty attractive. If we get up into the hundreds of millions of dollars, let's say, $150 million in Europe with, say, Roclanda, it translates to about 5 million bottles or so. Well, that's what we get. It certainly takes care of a lot of our capacity in the Athlone facility, so that's a net positive for us. And so again, we're very excited about both. But one where we certainly expect a partner, meaning the glaucoma, the other one with 1105, is something that we want to make sure that we maximize the opportunity for ourselves there and then maybe that we do the whole thing, including commercialization. So with that, let me turn it over to David to talk a little bit about next steps on 1105. David? -------------------------------------------------------------------------------- David A. Hollander, Aerie Pharmaceuticals, Inc. - Chief Research & Development Officer [23] -------------------------------------------------------------------------------- Yes. Thank you, Vince. So you saw from our press release, we are studying 2 different formulations of these bioerodible implants. We're very excited. Both implants showed very strong efficacy. One of the implants showed a little bit longer duration, which is the one we're going to go forward with. The 6-month threshold is something that investigators have been looking for, for quite some time. So we think that this is a huge accomplishment. We are already preparing to meet with regulators both in Europe as well as the U.S. to discuss development plans across posterior segment diseases. So not just RVO, which we had looked at in this first study, but across posterior segment diseases. As you know, OZURDEX and dexamethasone steroid in general are used for a number of different diseases of the retina. We're looking ultimately to harmonize the program, so essentially the same trials for both Europe and the U.S. We're going to have to get agreement from the regulators on comparators and study duration, but we should have that in the coming months, and we look forward to having a harmonized program across both regions. Hopefully, that answers your questions. -------------------------------------------------------------------------------- François Daniel Brisebois, Oppenheimer & Co. Inc., Research Division - Research Analyst [24] -------------------------------------------------------------------------------- No. It does. I've heard about the 6 months sweet spot for many years now. So congrats on that. That's it for me. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Your next question comes from the line of Greg Fraser from Truist Securities. -------------------------------------------------------------------------------- Gregory Daniel Fraser, Truist Securities, Inc., Research Division - Research Analyst [26] -------------------------------------------------------------------------------- How much of the interactions that the sales force is having with prescribers is face-to-face? I'm guessing there's a lot of variability across territories in terms of the access that the reps are getting. And can you comment on how overall touch points, both inverse and virtual, compared now with pre-COVID levels? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [27] -------------------------------------------------------------------------------- Sure. I'm going to have Tom do that. -------------------------------------------------------------------------------- Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [28] -------------------------------------------------------------------------------- Sure. I'd be happy to. First off, about 86% on our last report of our interactions with physicians are face-to-face. The other 13% are virtual. So we're very happy with that number, and that number has been increasing month by month by month, but it's very, very good. From an overall activity or number of calls we're making, while I won't give the exact number of calls we're making for competitive reasons, I can tell you that we're very close to the pre-COVID numbers, meaning that January is a good month. Comparing now to where we were in January, we are just a little shy of where we were in January, but certainly within shouting distance, very, very close to it. So overall, we're quite happy with the reach that our sales force is getting and the receptivity that they're getting from the physicians. -------------------------------------------------------------------------------- Gregory Daniel Fraser, Truist Securities, Inc., Research Division - Research Analyst [29] -------------------------------------------------------------------------------- Got it. That's very helpful. You've been growing share in what has been a pretty challenging environment for new products, but what do you need to do? And what can you do to accelerate share growth, particularly if we don't get back to a more normal environment for some time? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [30] -------------------------------------------------------------------------------- Well, we certainly think that the approach that Tom has already laid out, which is the Pulse Strategy where we're focusing our own sales force on a very specific portion of the audience who are doing a terrific job and growing share there and growing it faster than had we not used the Pulse Strategy and really limited the number of doctors that they need to call on. And so we think that, that was very important first step. The second great step that -- and decision that was made was to bring in a contract sales organization to pick up a number of the physicians that our own sales force is not going to call on. And as you heard Tom mention, the CSO came on board in July of this year and has already done a great job of growing market share within the physicians that they call on. So it is paying off. Third one is the use of the telesales, and that's got 2 components. Number one, they certainly are calling on the doctors. They're sort of the lowest prescribers, and they're reaching out to those and getting started and having great success in getting those doctors to write prescriptions for either Rhopressa or Rocklatan. So we're happy with that, and it's an easy and very inexpensive way I reach them and one that we can expand easily. One of the most important roles we're asking that group to play is what I mentioned in my response to one of the frustrating things that we have about making sure doctors understand what kind of coverage we have, using telesales to call on doctors' offices, not necessarily to talk to the doctor or talk to their staff but the kind of coverage we have in that particular area is, we believe, critical to making sure that we don't lose script because the doctor remembers the days when we weren't covered. And so we think that, that's -- those are the kinds of things we have to be able to do to continue getting the pull-through that Tom mentioned we had in this plan that we signed in May where we've seen a 60% increase in our market share within that plan in a very, very short period of time. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Your next question comes from the line of Yigal Nochomovitz from Citigroup. -------------------------------------------------------------------------------- Kevin Becker, [32] -------------------------------------------------------------------------------- This is Kevin Becker on for Yigal. On net pricing, can you provide some color if it's reasonable for us to expect the comparable increase in net revenue per bottle from $94 net in 3Q '19 to $120 net in 4Q '19 due to end-of-year Medicare Part D coverage gap impact? -------------------------------------------------------------------------------- Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [33] -------------------------------------------------------------------------------- I will take that. Yes. So I wouldn't really be looking at those trends from last year. Yes, last year was our first full year of having to manage through the coverage gap. But Kevin, the way we account for the coverage gap exposure is we accrue it evenly through the year. And now, of course, we have much more experience than we had last year. So you shouldn't be anticipating a significant quarter-over-quarter impacts on net revenue per bottle based on the coverage gap dynamic in the course of the year. -------------------------------------------------------------------------------- Kevin Becker, [34] -------------------------------------------------------------------------------- Okay. Great. And about your new partnership with Santen, can you clarify the conditions or breakdown under which Aerie is eligible in excess of 25% of product net sales? How should we think about the net royalties for the products in Japan? -------------------------------------------------------------------------------- Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [35] -------------------------------------------------------------------------------- Well, the -- go ahead, Vince. -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [36] -------------------------------------------------------------------------------- So we're only divulging a certain component, Kevin, so we've agreed with our partner in terms of the kinds of things we can talk about. All we could say is that it's up to greater than 25% royalty, a portion of that is going to be the COGS component and the balance is going to be royalty on our intellectual property. And so the -- as, for example, our COGS go down, the overall cap on -- or the actual royalty number stays the same. So the royalty component for the IP stake goes up. And so that's as close to sort of a detailed explanation that we can give you without actually giving you stuff that we're not going to divulge. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Your next question comes from the line of Louise Chen from Cantor. -------------------------------------------------------------------------------- Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [38] -------------------------------------------------------------------------------- I had a few. So first question I have for you is, how should we think about that $50 million coming in, in the fourth quarter? How is that going to be accounted for? And then you mentioned this EU collaboration a few times. When do you think we'll hear another update? Could it be before the end of the year? Or is it more a 2021 event? And last question I just had here was just, how we think about unemployment in 2021 if that will impact any of your reimbursement for your products? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [39] -------------------------------------------------------------------------------- So let me talk about the EU, and I'll do the unemployment thing. I'm going to have Rich talk a little bit more about the accounting on the $50 million. So relative to the EU partnership, again, these were mainly inbound calls that just started shortly after we got the Mercury 3 data. Pretty consistent with what we saw in Japan when we announced the Phase II results over there, and all of a sudden, we started getting the inbound calls. The difference between the 2 is when we were looking at the Japanese data, it was specific for that market, even though on the Santen deal, we ultimately negotiated for Korea and a number of other smaller countries. In this -- currently, the inbound call is it's principally for Europe. But certainly, among the many areas that folks want to talk about or like some of them want to do European only, others want to do Europe but are also asking questions about China and Middle East and Latin America and things like that. And so it -- the honest answer is it's going to depend on how complex the deal ends up being and how many territories are included, et cetera, in terms of what the timing is. It took us roughly a year to go through and get everything done, or actually not quite a year to get the Japanese deal done. So hopefully, it doesn't take that long, and we'll be able to move through a little bit faster than that. But it's -- until we get everybody into the data room and see sort of how complex of a deal they're talking about relative to territories and things like that. It's a little bit too early to tell how long and can we guide you for that. But certainly, there's no way that we're going to be able to sign it between now and December or the end of December. So that much I can tell you. And let me just have Rich talk to you about the $50 million. I'm sorry. Let me do the unemployment thing now. So we think that the unemployment has impacted the movement of patients into other sorts of conditions with some of them just lose it all altogether and they're stuck with having to pay cash, which is the ultimate nightmare scenario for those patients as they move into Medicaid components and some other government programs, et cetera, et cetera. And so we think that the unemployment rate numbers relative to reimbursement of our products sort of have played out now. And so we do see that we've seen those hits, if you will, as we get to that high 70s net price per bottle. So I don't think that, that's going to impact -- be impacted dramatically on a going-forward basis. All of a sudden, we have another 30%, 40% increase in the economy in the fourth quarter. Perhaps you'll see more folks going back to work, and we'll see some more folks being covered by commercial plans and our net price goes up a little bit. But we think that the ballpark of that high 70s sort of gives us a pretty good area to be in, at least for the time being. So that's on the unemployment. So let me have Rich talk to you about how the accounting on the $50 million. -------------------------------------------------------------------------------- Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [40] -------------------------------------------------------------------------------- We're still evaluating the accounting on the $50 million this quarter, but it is probable at this point based on the work we've done to date that, of course, we'll put the cash on the balance sheet. It's unfettered cash. And we'll probably take the offset not to revenue but to deferred revenue on the balance sheet, so we manage through the balance sheet. I'll say this slowly again since I've been speaking slowly tonight, do not put revenue in your model for the fourth quarter for the Santen deal. -------------------------------------------------------------------------------- Operator [41] -------------------------------------------------------------------------------- Your next question comes from the line of Nick Rubino from Stifel. -------------------------------------------------------------------------------- Nicholas Carl Rubino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [42] -------------------------------------------------------------------------------- This is Nick on for Annabel. Congrats on the quarter. First off, this may be a little earlier optimistic, but what do you think might change in the trajectory for Rhopressa or Rocklatan in a "normalized" environment? Any changes in your initiatives or expense structures? And then secondly, with several dry eye programs emerging in the landscape, where do you see your TRPM8 inhibitor fitting in? Is it acute, chronic, pre-steroid, with steroid? And at what level of patient severity? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [43] -------------------------------------------------------------------------------- So on the Rhopressa-Rocklatan commercialization efforts and things like that, we've gone through the various steps here and we talked about the contract sales organization being added to our own guys. And then on top of that, we added telesales. I think that -- and Tom, during his prepared remarks, talked a lot about the continued movement and the -- of some of the programs that we've been running, some educational programs. And so we think that, that general mix is going to stay the same. The sole exception, at least in my mind, is going to be on that incremental support on the telesales side because we've got to do whatever we need to do in order to make sure that the doctors understand that our products are covered. That's the single most important thing that the telesales team is going to be able to do to supplement the efforts of both our own field folks as well as the CSO. So we don't see dramatic changes in the cost structure associated with that. But certainly, those are the components. We'll continue with our own sales force, continue the contract group. And if anything, build out the sales team or the telesales group, but that is also the lowest cost option that we have. We will continue the non -- our manpower promotional components and the educational programs and things like that. But given the -- as Tom mentioned, the level of activity we have seen in that, I don't think it changes our expense structure dramatically. On the dry eye side, we think that the unique mechanism of the drug in terms of basically the cold sensing receptor in the eye is it becomes a big deal because we do know that the drug works. It's just like you walking out on a really cold windy day, and immediately, your eyes tear up. Well, that's the receptor we're talking about. And so as it cools down, the eye feels better. And so that's where we get the improvement in the symptoms side in addition to the increase on the tear production side. We see our drug working as a standalone. We see our drug working in conjunction with other drugs, whether it's RESTASIS or Xiidra or CEQUA or any of the other products who are out there or the -- if they've got them on a -- they've got a patient that are they're trying to get on RESTASIS or Xiidra and they provide a run-in with a steroid, we're not going to negatively impact the use of those. I think it's going to be -- as we think about those 30 million patients out there where we've only -- we're only treating 2 million or 3 million -- 2 million, 2.5 million of them, there's a bunch of them that aren't getting treated maybe because of the drugs that they try aren't working or maybe they use one prescription or another. We think that many of them will give this drug a shot, especially if we're able to replicate in our Phase IIb study or in our clinical trials or in our going-forward clinical trials the same results we saw in the Phase IIa. And so again, we see it used pretty broad-based. And in terms of the severity, it's a little bit too early to tell. But again, we think that the mechanism plays well across a number of different fronts here, and I think it's going to be driven mainly by patient acceptance -- individual patient acceptance as opposed to any broad gauge of mild, moderate, severe patients. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Your next question comes from the line of Difei Yang from Mizuho. -------------------------------------------------------------------------------- Daniel Christopher Clark, Mizuho Securities USA LLC, Research Division - Research Associate [45] -------------------------------------------------------------------------------- This is Dan Clark on for Difei. Just one from us. Following the coverage win in 2Q '20, how should we think about the potential further uplift in volumes from that win over the next several quarters? And any further implications the net price from that deal for the remainder of the year and into 2022? -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [46] -------------------------------------------------------------------------------- So we think that the continued penetration into that particular plan is going to continue to grow. As I mentioned earlier, we're up 60% or Tom mentioned, we were up 60% already. After just a few months, we think that, that trajectory will continue to grow. We've got folks that are up 2.5x from their baselines. And so we think that there's an awful lot of room for growth and continued growth. And we see that, by the way, across all plans because the things that we're doing in the plan that we've signed back in May, we're duplicating across the country with all the plans where we have contracts. And as I mentioned, this telesales activity to making sure people know that what plans we have coverage in, we'll spread that out over the country. So we hope that those revenues will continue. We're not making any projections about Q4. I got to tell you that we do see some pretty nice growth already in terms of our net sales out from wholesalers to retail, and we report those out. And you could see sort of the trajectory of those numbers in our latest slide deck that we put up on the site. And so again, we do see that occurring, but making projections at this point, we're not quite ready. And as I mentioned, the only thing that we don't know is are we going to see, because of some spike in 1 state, sort of a contraction of the business there or a handful of those states. And so that's the only reason why I can't actually be predictive about this. And so that does make it a little bit more difficult for us. And in terms of the impact on net price, we've seen most of the hit already relative to that new -- the newest contract. And so anytime that -- if we sign another big deal just like the one that we signed back in May, we'll tell you about it, and we'll let you know whether that's going to have any kind of impact on net price. But we're being pretty careful about the kinds of deals we signed just to make sure we balance out the opportunity relative to growing the business if we're going to give up rebates. And so for now, I think we're -- we've got a pretty steady hand on this thing. And that upper 70s is as good a number as we can give you right now. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Thank you. There are no further questions at this time. I would now like to turn the call over back to Vince Anido, Aerie's Chairman and Chief Executive Officer, for final remarks. -------------------------------------------------------------------------------- Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [48] -------------------------------------------------------------------------------- Thanks, Jerome, and thanks, everybody, for the questions. And I know you're in a busy time, and appreciate you taking the time to listen to our call. We think that we had a great quarter. And so everything from a commercial point of view in terms of what we've been able to do with Rhopressa and Rocklatan, along with building the pipeline and looking at the prospects for products like 1105 out into the marketplace is great and then also continuing to build our overall company with the international efforts. And that Santen deal was a great first step and are looking forward to seeing we can duplicate the success there as we start talking about Europe and other territories. And so we're excited about everything that we've been able to accomplish. We certainly are excited about the financial prospects. I don't have to talk as slowly as Rich did in terms of making sure that you understand, I think you do, that we had a great financial quarter. Adding the upfront payment from the Japanese deal on top of our cash balances, combined with the continued growth of our revenues, along with control on expenses, that certainly has led us to low cash burn rates. And we're excited about being able to perform that way and look forward to doing so on an ongoing basis. So again, thank you for the time, and have a good evening. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- Thank you. This concludes today's conference call. You may now disconnect.