Aerie Pharmaceuticals, Inc. (AERI) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon. Thank you for standing by and welcome to the Aerie Pharmaceuticals First Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. Also 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: Thank you, Jeff. 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, 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 including 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, our collaboration in Japan and prospects for a potential collaboration in Europe. 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 long with - with the associated business strategies regarding these products and product candidates. Finally, we will address 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 - investors should carefully read 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'll 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.
Vince Anido: Thanks Ami, and good afternoon everybody. Thanks for joining us today.
Tom Mitro: Thank you, Vince. So just as we reported in our previous calls, our glaucoma franchise continue to outperform the glaucoma market and all other branded glaucoma products. Our first quarter 2021 franchise prescriptions were up nearly 15% or 20,000 prescriptions over the first quarter of 2020 while the glaucoma market was down 6% or down 550,000 prescriptions for the same period. I'll remind you the comparisons to Q1 of 2020 are particularly challenging given that was the last quarter that was unaffected by COVID. I'm looking at the last 12 months ending March of 2021, so it'll be clear that's April of 2020 through March of 2021 our franchise grew by 135,000 prescriptions or 29% while the glaucoma market declined by 5% or over 1,590,000 prescriptions when compared to the previous 12 months. To see our franchise continuing to produce significant growth where the market has experienced significant declines provides plenty of reason for optimism. Our sales out data which reports bottles of our products that are shipped from wholesalers in the pharmacies matched our prescription data. Our first quarter 2021 sales out units were up 50% compared to the first quarter of 2020 with bottles in the month of March of 2021 alone exceeding 101,000 bottles. Again this comparison shows a healthy growth rate even though first quarter of 2020 was largely unaffected by COVID well, first quarter of 2021 was in fact yielder held down by COVID. Looking at very recent data, our sales out in the month of April we're up nearly 32% compared to April of 2020, another strong sign of recovery. Now, there have been several key drivers for our growth in our briefly mentioned three. The first is that our Rep Activity, meaning our face-to-face calls with targeted physician has shown steady increases as COVID has declined. The vast majority of physicians offices have opened and importantly have been very receptive to our reps are highly encouraging sign for the future. While our call quantity is not yet back to pre-COVID days, it's consistently climbing, which is another good sign for the future. Last week, we held our first in-person meeting in the last 12 months with our sales management and medical affairs team. The meeting followed two sales training meetings, which were also in person. And each of these meetings the enthusiasm from the team was outstanding and contagious. Our sales team, like the physicians is very eager to return to pre-COVID normalcy. And the sales management meeting, we were able to brainstorm and develop action plans for each of our district sales managers, the sharing of plans among our leadership team to strengthen them all. The intensity and depth of our week-long discussions was simply not possible through Zoom.
Vince Anido: Thanks, Tom. Regarding our research efforts, we continue to make great strides towards not only continue to explore additional scientific and therapeutic avenues for both Rhopressa and Rocklatan, but also we're spending quite a bit of time building out the pipeline and developing those so that we have sustainable growth. Over the last couple of months, we've reported our new publications that have explored netarsudil role in improving the health of steroid damaged trabecularmesh work in animals coupled with a retrospective look at the decrease in intraocular pressure in patients with steroid damaged trabecular meshwork and that was simply accomplished by adding Rhopressa to a number of products that they were already using. The important finding here, the important finding here is that it appears that Rhopressa as we expected based on all the animal work we've done is in fact in humans restoring trabecular meshwork health. Now as we prove that out over time we think that that's going to be a great, incredible finding for the treatment of glaucoma patients. In addition, we have quite a few posters at the upcoming ARVO meeting on both new research of our existing products, some of that is things we've done, others are things that folks outside the company has been reported on. But in addition to that we have everything from that too. We're going to be reporting on a new novel corticosteroid class of drugs that appeared to control one of the major adverse event of steroid therapy in ophthalmology, which is that they cause spikes in intraocular pressure. So our new class of steroids actually is able to control that. Now this finding may revolutionize the anti-inflammatory ophthalmic space and you will certainly be hearing quite a bit more about that in the near future. Again this is something that our research scientists here in RTP have been able to put together in a very short period of time. Now turning to our dry eye product candidate AR-15512, as you know, we initiated the Phase 2b trial named COMET-1 October of 2020. The trial is powered as a Phase 3 and it's testing two different concentrations of product comparing it to vehicle. Important news we just released a few days ago is that despite the COVID and severe weather et cetera that trial is now fully enrolled with 369 patients compared to the target of 360 patients and we are seeing a pretty low rate of drop out in the study. As we expected with about 30 million dry eye sufferers in the United States enrollment completed at a pretty healthy pace. As background, the active ingredient to AR-15512 is a potent selective agonist of TRPM8 ion channel cold sensor and osmolarity sensor that regulates tear production and blink rate in the eye. Interestingly activating the TRPM8 sensor may reduce ocular discomfort by promoting a cooling sensation. We believe the systemic benefit could ultimately be quite a differentiator for this product candidate. And we always need to remember that dry eye sufferers always are complaining about whatever symptom it is that they're suffering from. So it is a symptom driven disease. To be clear, 512 is designed to impact the underlying etiology of dry eye addressing the neurosensory component and modulating corneal TRPM8 receptors, again the cold sensing thermoreceptors on the corneal nerve endings. It is very different from the anti-inflammatories or other products that simulate, stimulate reflex tears or the artificial tear products and their derivatives. The primary endpoints for COMET-1 are ocular discomfort, which is a symptom and tear production, which is the sign. We've also added several secondary endpoints to the trial, so that we can learn as much as possible about the drug's performance, should also get ready for building a complete package, not only for approval, but also as we go out and start talking once the drug is approved, start talking in managed care environment. A trial that we're conducting is for 90 days in duration with the primary endpoints for signs and symptoms at day 28. It will be important to evaluate the timeframe the greatest separation through the 90-day measurement period. That's a greater separation between active and the vehicle and ultimately those findings will inform the design of any future Phase 3 trials. The measure success for COMET-1 is statistically significant differences in signs compared to vehicle and step statistically significant difference in symptoms compared to vehicle. Now there's been a lot of questions, I want to make sure we clarify that there is no required minimum yield in terms of millimeters for the Schirmer's test which measure signs. All we need to do is be statistically significant versus vehicle and then that works as long as we also improved symptoms in statistically significant way, a pathway to approve a perspective, safety and efficacy need to be demonstrated in at least two well-controlled clinical trials. Efficacy for signs and symptoms do not need to be shown in the same trial, but must be shown in multiple trials. As a reminder, our COMET-1 trial is powered as a Phase 3, so if successful, it may count as a pivotal trial. With COMET-1 now fully enrolled, we remain on track to readout topline data in Q3 of this year. Now turning to our retinal pipeline, we continue discussions with the regulatory authorities in both the U.S. and Europe to determine the most efficient and effective Phase 3 pathway for our dexamethasone sustained release implant known as AR 1105. We do expect to have a Phase 3 plan determined and we expect to enter trials in the second half of this year. The Phase 2 study top line data we released back in July, indicated that six months of sustained efficacy in retinal vein occlusion for this product candidate, which is very different profile in terms of efficacy period versus other injectable steroids in the markets as is Ozurdex, which generates about $400 million in revenues in the U.S. and Europe combined. It is important to remember that based on current market dynamics, the commercial potential for 1105 would likely be greater in Europe as opposed to the U.S. with Europe being threefold the U.S.-based on current market data. As I said before, it's very interesting how the preclinical models predicted the Phase 2 results for 1105. This points to the advantage of our print technology platform. It is a manufacturing platform that has provided predictability and flexibility. We can continue and potentially customize product illusion rate, create various blends of bio-erodible polymers, which allow for longer treatment periods and thus reduce injection frequency and opens up the opportunities to a greater diversity of drug targets using small molecule drugs. We believe that our PRINT technology is an exciting platform for future innovation. It's provided to tie levels of flexibility and predictability ultimately shortening target in molecule selection and potentially helping determine probabilities of clinical success much earlier in the development cycle. From a cost perspective on the retina side, the cost to achieve proof of principle for any one of these retinal inserts is typically in the range of $5 million to $6 million and takes us about a couple of years to get there, so it's very short period of time before we see the fruits of everything that we're doing. And that leads us to our newest entrant in our pipeline designated as AR-14034, which we introduced last quarter. 14034 is a pre-clinical intravitreal implant that combines a small molecule pan VEGF inhibitor axitinib with proprietary blend of bio-erodible polymers to provide controlled drug release with the potential to treat wet AMD or DME patients for as long as 12 months with a single injection. This indeed is a prime example of how the flexibility of our PRINT platform, the blending of custom polymers allow us to create the right formulation to control the delivery of the active ingredient selected, and in this case, it happens to be axitinib. Many of you know the retina space pretty well and you know that the doctors actually inject more frequently any VEGF to inject more frequently in the early days, in the early months of the patient being on therapy and then start tapering off over time, the advantage of our PRINT technology is we can actually design the release of drug over that same period of time with just simply one insert and get it to last full 12 months. Axitinib is a pan-VEGF inhibitor, meaning that inhibits signaling from all four isoforms of VEGF including A, B, C, and D unlike any other currently marketed VEGF inhibitors, plus it has a higher efficacy and less off target activity than other small molecule VEGF inhibitors. As many of you know, axitinib is a known molecule. It is a tyrosine kinase inhibitor and was approved back in 2012 for systemic use in the treatment of renal cell carcinoma. Now if successful, this preclinical insert may provide significant benefits to total cost of health care for wet AMD and DME patients. Based on the preclinical data, there is potential that this preclinical insert will require only one injection as what I mentioned before to treat these patients for up to a year. Less frequent injections enable the continuous releases of a potent small molecule active agent and there is potentially substantial benefits for physicians and patients alike. So right now we are conducting IND enabling preclinical studies for 14034, and we plan to file an IND later in 2022. As a reminder, we can utilize PRINT technology to manufacture tiny sustained release implants at a rate of about 500,000 units per year in our 1,000 square foot CGMP facility here in RTP in North Carolina. As I mentioned, I've been here at corporate headquarters where that facility resides and I was, had a chance to visit with the team that runs that facility and a lot of the recent improvements that they've made on the manufacturing process, et cetera, may actually increase the capacity of that facility tremendously using the same footprint. We do believe the efficiency in our manufacturing processes and they also contribute to sizable margin opportunity for our product candidates, when and if they are approved and commercialized while again also driving overall economic value for patients and physicians. Lastly, the first in human clinical trials for AR-13503, Rho-kinase and Protein kinase C inhibitor sustained release implant product candidate continues to progress forward. Aerie currently expect to complete the dose escalation safety evaluation with a current implant design in Q1 of '22. Regarding 503, we have high level of confidence in our PRINT technology will deliver the active ingredient over desired released period based on my earlier comments, but we are currently focused on - is trying to figure out exactly how much of that active ingredient needs to be in the insert in order to get the desired results in the retina. I've the opportunity to meet with many on the research and discovery teams here, they develop new methodologies that have actually allowed us to more predictively figure out what the right dose response curve is and in Rho-kinase inhibition area, it actually at the top end it becomes a U-shape where we can add enough Rho-kinase to get to the point of getting max efficacy and we see that, we see the efficacy drop. Well with the new information we have, we actually were able to achieve that. So now we have a much better picture in terms of what the concentration needs to be. Lastly, shifting to our globalization strategy, our Santen collaboration is moving forward on schedule and the first Phase 3 trial in Japan is well underway and enrollment. We'll plan to readout the top line results for this trial later on this year. We believe Santen is an excellent partner in Japan and ultimately in South Korea, Indonesia, Malaysia, and some other countries as well. With a full regulatory approval of our glaucoma franchise in the EU and the recent approval of Rocklanda or Rocklatan in Great Britain along with the positive Mercury 3 data, we are in discussions with potential collaborators in the region. Some have expressed an interest beyond Europe including other parts of the world such as China and the Middle East, even Latin America. We believe that we should be able to complete a collaboration agreement before year-end '21. While these discussions continue, we are proceeding on our own to begin the processes of obtaining pricing in Germany. So it's at no time is lost, is consistent with what we did in Japan where we negotiated with the PMDA on the Phase 3 pathway before we sign with a partner to ensure continuous forward momentum. As we have pointed out in the past the glaucoma market in top five European nations alone totaled 105 million bottles in 2019 compared to just 55 million bottles here in the U.S. We believe the volumes in Europe will represent an excellent opportunity to further utilize our Athlone facility in Ireland, which is already growing in volume due to the production for the U.S. market and we ultimately anticipate producing for the Japan market as well. At this point, I'd like to turn it over to Rich to cover the financials.
Rich Rubino: Well thanks, Vince. As Vince discussed our combined Rhopressa and Rocklatan revenues in the first quarter of 2021 totaled $23.0 million. Our normalized gross margin for the first quarter was 90%, which is consistent with previous quarters. In addition, layered on top of cost of sales is approximately $4.4 million in Athlone plant overhead associated with start-up commercial production. Since we are in the early stages of production that idle capacity number will fluctuate quarterly depending on the number of batches produced in a quarter whether for commercial or clinical supply, but we expect it to trend downward on an annual basis as we continue to add volumes to the Athlone plant. The first quarter 2021, GAAP net loss was $42 million or $0.91 per share. When excluding the $8.7 million of stock-based compensation expense, our total adjusted net loss was $33.2 million or $0.72 per share. For the first quarter of 2021, adjusted cost of goods sold was $6.2 million and adjusted total operating expenses were $42.2 million with adjusted selling, general, and administrative expenses of $26.3 million and adjusted research and development expenses of $15.9 million. For the first quarter of 2021, our net cash used in operating activities was $30.1 million and we had $208.2 million in cash, cash equivalents, and investments as of March, 31, 2021. Importantly, the net cash used in operating activities of $30.1 million in the first quarter 2021 is much improved from the first quarter of 2020 for which we reported $41.8 million in net cash used. This reflects revenue growth and continued expense controls. Shares outstanding at quarter end totaled $46.9 million. For additional information regarding our first quarter and prior period comparisons, please refer to today's earnings release and our Form 10-Q, which we expect to file tomorrow. And now I would like to turn the call over to the operator for questions. Jeff?
Operator: Your first question comes from the line of Annabel Samimy from Stifel. Your line is open.
Annabel Samimy: Congratulations on growing through a declining market. So now that the majority of the age demographic is vaccinated and offices are opening up, have you actually, have the offices actually been seeing patients come in, at what point do you think the broader glaucoma market is going to turnaround, do we see turnaround and what types of patients are coming in, are they presenting is more severe than they were in the past requiring more aggressive treatment? And then second question on rebate. I think I missed your comment, but has the rebate negotiations with payers completed and should we assume that the current net price has rebate benefits or is that something that's going to improve over the course of the year. Thank you.
Vince Anido: So I'm going to have Tom give you a little bit of color here on just what we're seeing around the country relative to the COVID reopenings and the impact of patients, the kind of patients et cetera because we were able to listen to all 14 of our district managers present the outlook for their particular districts and so we got pretty granular in some, in some cases. But overall, we do see the markets opening up again, many of the major markets as Tom mentioned in his remarks, there were some of the biggest markets that we had like New York and Illinois and places like that. And even to some degree is California haven't rebounded yet because the governors haven't opened them up yet, but the good news is that as far as we can tell and certainly has been reported that many of those governors are thinking that they're going to open up this summer. So we do think that we still have maybe a couple of months to go, there will be slow trickling and maybe some improvement in the overall market for glaucoma products, but then certainly for the second half of the year, we expect, who knows, maybe we'll be back to the growth rates that we would expect to see from the market perspective overall. So let me turn it over to Tom to give you any more color that he may want to add.
Tom Mitro: Sure, thanks. So thanks Annabel. For the question. Just to note on the physicians what we commonly hear they talk about, is that they are really eager get their existing patients back into the office because what they're finding is as patients have come back in many of the patients have lost some of their vision and of course patients don't really realize that because it's is very slow progression. But in the last year, because they weren't coming in and maybe their compliance slipped because they weren't coming in, but they did find that the glaucoma progress. So that's what the physicians are very eager to find their existing patient base and get them back in there as quickly as we can. And we think that, well, like Vince had said will fuel the growth of the market especially in the second half. And also asked about rebates, are we done that, I don't think we're done there, we will see things in all of our agreements, a couple of our agreements, better said for the Part D, Medicare Part D changes that will come into play next year, won't be this year, but will come into play next year and our team is talking to a lot of the managed care accounts, both in the commercial as well as Part D about redoing our agreements and lowering our rebate amount. So I know it's going to be an ongoing process for us and hopefully we'll continue to have ongoing success as well.
Vince Anido: And I will just to be, just perfectly kept, Annabel, just to be perfectly clear we do expect to see some continuous improvement in the $89 per bottle even yet this year while Tom is absolutely right that there'll be more coming in, will trickle into next year as well. There is still some ways to go even this year.
Operator: Your next question comes from the line of Serge Belanger from Needham & Company. Your line is open.
Serge Belanger: Wanted to revisit the increase in place per bottle, I think last quarter you had talked about a potential 4% increase over 2021. Obviously you've exceeded that greatly so far, maybe just walk us through the 11% in the first quarter, how much of that was the price increase and how much was the negotiations with wholesaler agreements?
Vince Anido: So the majority of the change was due to the wholesalers. There was a small price increase with low single digits, kind of thing and so it was not near as dramatic as you know we don't net out 100% of that, so it was pretty low relative to the overall impact, but it was really driven by just the beginnings of what the wholesaler impact was going to be, as you know, had to be in the first quarter of the year, we always are cautious about any surprises that we may see on the Medicare Part D side in terms of any tailing rebates that are coming in and things like that. So, we just have to be a little bit cautious until we see that final bill, but I think it's it was good news for us this time. There was no surprises relative to that. So we're able to see the full brunt of the efforts that Tom and his team executed on. So that's how we got from the roughly $80 that we reported for Q4 to the $89 for this year, for the first quarter. Okay.
Serge Belanger: Okay. And I think in the past, you talked about a target of about a $100 per bottle, is that still on track?
Vince Anido: It certainly looks a hell of a lot better today than it did when we were at $77, done it. So, yeah I think so, I think that we're just, we're getting bigger, so we're able to negotiate better deals with wholesalers. And as Tom said, we're not done yet and we're not done yet with the managed care side and things like that and we are analyzing all that. So I think you will start trickling, you'll see us to continue to trickle up towards that $100 mark. We just can't commit at this time as to when we're going to hit that.
Serge Belanger: Okay and then my next question is just about, it's I think it was the last year around this time you announced the expansion of Medicare Part D coverage, maybe just talk about that pull through in those plans a year later.
Vince Anido: So we continue to report on the pull-through that we see. I mean let Tom give you some highlights in terms of what we've been able to accomplish with that big plan that we signed up last year right around the May time frame. But the pattern that we set in some of the things that we've been able to do in terms of adding telesales et cetera, certainly have supplemented the efforts of our field force that Tom?
Tom Mitro: Sure, sure, be happy to give you some data, and as we talked about this at the beginning of last year and in May we actually got on one of the largest plans in the Part D space. Since that time, our volume in our market share specific in that plant has doubled and where we're quite pleased with adding, quite proud of that, because as you might guess, the field activity went down obviously for the reasons everybody knows about COVID and those sorts of things, so even in a muted with a muted sales force, we were able to double our market share and double our volume and we did that by developing specific pull through plans that are aimed at individual doctors and individual territories that are important to the plan. So we're talking about things that make very, have a great deal of importance with the physicians and obviously that helps quite a bit, so, and by the way, that's not the only plan we have, pull-through plans going on with many accounts throughout the nation now because we think that that is very, very important because obviously that's on physicians minds and obviously it's on our mind, so hope that gives you some color to it, but we have a double share and double our volume in that plan that we talked about.
Operator: Your next question comes from the line of Stacy Ku from Cowen and Company. Your line is open.
Stacy Ku: Thanks for taking my questions, congratulations on the continued progress, I have a few questions. And so first with this kind of increasing coverage around Rocklatan, our sales reps going to push in terms of switching from Rhopressa to Rocklatan and are you finding that there are certain preferences or prescribing habits among some of these high prescribing clinicians? And then my second question is if you have any updates on the number of bottles per script, so those 90-day bottles that you noted in the last quarter and then I have a follow-up on the pipeline?
Vince Anido: Okay, so kind of, the Rhopressa and Rocklatan in terms of the better coverage and what physicians are doing, I think the rates in the very beginning of the launching those two when we had both of them in the market, we were very, we thought we were very clear in terms of positioning and it's taken us a while to make sure that, that all gets translated into the doctors beginning to understand, Stacy, we have doctors that won't use Rocklatan or just focused on Rhopressa adjunctive therapy and are just perfectly happy there, we have other doctors that weren't really Rhopressa riders jump right on Rocklatan and just started using that and alike of them we have a whole bunch in the middle that use a little bit of both, and have found a home for both products. And so a lot of it is purely driven by the success that they have when they add products, these products to their armamentarium and as we increased coverage as we're seeing and some of our major markets where that big managed care plan we're taking place the minute that we get the efficacy message established with the doctor and they see that it's reimbursed at a decent rate for their patients. They start writing it and then some of them, the more they write the more they use in terms of one or the other or both. And so we don't see any, any particular pattern there is trending one way or another. In terms of the number of bottles, I think in the industry I'm going to let Rich answer that because we've been tracking that now for quite a while. As a reminder, we did see a significant bump when as we were entering COVID because folks didn't want and we're not sure whether we're going to leave their homes or not. And so we were starting to get up, getting up to more industry averages relative to our bottles per script. But let me just have Rich give you the latest on that.
Rich Rubino: That's right. So, Vince, going back to the pre-COVID quarter the first quarter of 2020, we were seeing about 1.35 bottles per script. For the first quarter of 2021 on average that is now up to 1.44 bottles per script. And we've seen some weeks that have gone beyond that. So I would say right now, when the 1.45 zone, potentially going upward from here.
Stacy Ku: And if I could just clarify some of the earlier questions that $89 net price per bottle, is that something that you expect to be kind of a trough net price for the year or I guess asked another way, do you expect it to continue to improve throughout the year?
Vince Anido: We do expect it to continue to improve throughout the year. And I may not all be, all one quarter or the other, we've made stabilized in a quarter and then it starts creeping back up the next, that kind of thing, but we do expect this look forward to be better as the year progresses.
Operator: Your next question comes from the line of Louise Chen from Cantor. Your line is open.
Louise Chen: I have a few here. So first question I had was, do you expect the first quarter '21 ASP of $89 a bottle to be a trough in '21, meaning every quarter will be above this or is there some one-time reason why the 1Q '21 ASP was higher. And then can you talk about the market opportunity and unmet need for your intravitreal pipeline you have a few products there, they seem pretty interesting and could be market leading. And then last question I have was that dry eye is becoming more of a crowded space with several products in development and some newly approved products. So just curious how you're product will fit in the treatment paradigm if it move forward into commercialization? Thank you.
Vince Anido: Sure. Louise. So we expect that the $89 as I mentioned earlier is sustainable and we do expect it to go up from there. Now what may not happen is, like for example, it could be that we stick around the $89- $90 range for the next quarter and then it creeps up a little bit more beyond that before exiting the year. So it's not a steady climb to a particular number. It will be sort of like a stair-step fashion because we do have further discounts that are coming in, I'm sorry, further reductions and rebates that are coming our way as the year progresses. But we think we're pretty comfortable in putting $89 as the floor for the year. On the retinal insert side, we think that there is a great opportunity, we think that if you start with the closest one in which is 1105, the market as I mentioned is principally in Europe and combined, we'd be targeting the market opportunity that OZURDEX has taken over and they currently sell roughly $400 million on a worldwide basis and we think that that product works mainly to some patients, three months, so we think that having the 6-month efficacy on this product is going to be well worth the while for the patient satisfaction and the treatment of diabetic macular edema, et cetera, and it is principally a European thing, the retina doctors in Europe tend to use steroids first and then for a number of different conditions and that add VEGF. In U.S., it's a little bit different, they haven't been satisfied with some of the things that they've seen, so they immediately go to VEGF, and so for them it's going to be, it's going to take a little bit for us to help explain to them that, in fact, we really do last for six months and some of them are beginning to see data, certainly we have a lot of the big time retina guys that are working with us on this program. So they are very much pushing us to develop the product for the U.S., they think there'll be a home here forward beyond what we currently see for products like OZURDEX. So there is great opportunity there. On the small molecule VEGF inhibitor, everybody has been targeting six months, whether it's a big protein or some sort of a drug delivery system. There's all sorts of mechanisms being used, as you know, the proteins are drug delivery systems or in a case of one company where they try to link it, they are taking an antibody and linking into a polymer. And so we - but all of those seem to be sort of in that four to six-month range in terms of efficacy. So, we think that the ability to leapfrog all of that and go straight to 12 months and be able to mimic what they do with multiple injections by one small insert, we think, has a huge potential for us that would allow us to supplant many of these things, plus the fact that it is a pan-VEGF inhibitor, not just blocking the VEGF-A. So, that's a big positive for us. On the dry eye side, we think we're pretty clear in our slide deck and the number of presentations we've made about 512 in a sense that with mechanism of action that we have, we're very much differentiated from the anti-inflammatories that are out there from those that are actually looking at reflex steering or activating the reflex steering receptor as a way of increasing tear production and/or the artificial tears. And so, we think that the cold-sensing receptor is a broad-based play. And we could be used on our own or if patients need it, our product can be used in combination with some of the other ones. And so we do think that while it is a crowded market don't forget that only 2 million or 3 million patients were actually treated whereas there is about 30 million they get diagnosed. So it’s a huge opportunity still.
Operator: Your next question comes from the line of Yigal Nochomovitz from Citi. Your line is open.
Unidentified Analyst: Hi, this is Carly on for Yigal. Thanks for taking our questions. The first question we had was just given volumes have well surpassed pre-COVID levels at this point. Can you talk a bit about what you need to see to feel comfortable reintroducing that new guidance for Rhopressa and Rocklatan? And then we had a couple of follow-ups on guidance?
Vince Anido: So specifically what I've been talking about Carly it's the opening up of all the major states. And as I said there's at least two or three big ones that are yet to open fully. And so we were struggling to come up with the right number and provide a range that would be meaningful to you and the other analyst. Until those things happen because we don't know how quickly they really are going to open up. As Tom said, we've got a bunch of states like my home state which is Florida that we've got 95% access which is terrific. But then we have some other ones that are down to 70%. And then there are major states. These are some of the states that were top of the list last year before COVID. And so as they open up and I think again based on what we're hearing could be later on this summer. So by the time that we're finishing up Q3 then maybe by then we'll be in a position to make some of those kind of calls. But until then it's just hard from to predict what the impact of their slow openings are going to be.
Unidentified Analyst: And then I guess just turning to the dry eye program. Can you talk a bit about the rationale for selecting ocular discomfort as the primary symptom and point for the Phase 2b over other potential symptom end points for a dry eye like dryness for example. And then similarly the rationale for selecting care production as the primary sign over other potentially approvable signs for dry eye like ocular shaving or redness or something?
Vince Anido: Right. So we got Dr. David Hollander on the call. One of the advantages of having David on our team is that he’s cornea trained doc. We also have on our board guy who's the chair of ophthalmologist at John Hopkins who's also a cornea trained doc. So you know we know quite a bit about the space. We know a lot of the dry eye specialists around the country. And what we do know is that from a patient treatment point of view this is a symptom driven disease. And so we think that that's a big deal, so patients don't really care that they're increasing Tier production. They don't really care that they're corneal staining is good or bad. It's just they just want their eyes to feel better, but let me have David talked to you a little bit more about why we take that particular endpoint.
David Hollander: Sure. Thank you, Vince. Great question. So going back to the actual MOA as well as the TRPM8 receptor. We know that by delivering this drug we're going to produce a cooling sensation. And one of the biggest things that dry eye patients complain about is ocular discomfort and discomfort in their eyes. And we also know that providing this cooling sensation will satisfy it and reduce that discomfort. So ocular discomfort was selected as our primary. We are as part of this IIB study also including other end points, which will potentially inform later studies. So we are looking at dryness. We are looking at ocular pain. We are looking at the standard Sandy questionnaire. So all of those are part of it but discomfort we think best fits with the mechanism of action. As far as tear production with signs there are also other signs you can look at. But based on the MOA this TRPM8 will stimulate basal tear production. So not an acute reflex tear but the actual basal tear production as this is involved in the overall tear film homeostasis. So it's purely based on MOA as well as you know what the patients really will benefit from in terms of that symptom and discomfort which they will feel as well as the MOA for the signs. So that gives you a little clarity hopefully on the rationale for the sign and symptom.
Unidentified Analyst: Yes, that's really helpful. Thank you. And then if I could just squeeze in one more sort of a hypothetical question. You mentioned that the Phase 2b is powered as a Phase 3. So I guess assuming that that the data looked good in the third quarter and you achieved statistical significance on both the symptom and the sign is the plan to then run another trial pretty much identical and designed to call it one to serve as a second pivotal study. I understand the next steps will probably depend on the details of the data, but just wanted to get any early thoughts on how you're thinking about the clinical development plan beyond the Phase 2b?
Vince Anido: Yes that's a good question because we could simply run it and as you saw it only takes us about a year or so to start to finish to get that done. It is obviously the highest risk. Unfortunately, the track record in front of us has not been particularly positive, getting an approval with just two trials and so you know we could hedge your bets and do two additional trials just simply to hedge your bets. And then in addition to that, we're going to have to do 12 months safety. So but it does give us a lot of opportunities but the great thing about it if the first one works it certainly makes your life a lot easier and gives you an awful lot of options about how you can move forward quickly to get approval. So but we're looking at all that, but like you said very smartly it's all going to depend on the balance of the data well because if it's right on the cusp then we may not want to take as much of a risk. So we'll just have to wait and see.
Operator: Your next question comes from the line of Dana Flanders from Guggenheim. Your line is open.
Dana Flanders: I just had two quick ones I guess first what's just the gating factor on the kind of EU partnership discussions? I mean it sounds like you're close to the finish line, but just curious if there's any more color there is it you know around economics just an agreement on geographies any more color would be helpful? And then I noticed Alcon’s purchase of Simbrinza I would be curious to get your take on them as a potential competitor and then also just the price they paid I mean it seems like a somewhat favorable comp for Rocklatan and in light of Rocklatan’s potential but we'd love to get your take on that as well? Thanks.
Vince Anido: Sure. So I’ll address that one first. So as we think about the Alcon piece and you know Simbrinza has been around for a long time. It’s a combination of two products that are dosed three times a day. If you look at the prescription data, do the doctors sort of start with one and add the other one. And the answer is not very often. And so - but - while there are growth sales are probably a few hundred million, their net sales are roughly half of that. So, to pay, we're guessing, but call it 7x or so net revenues for that product that declined 21% in Q1 on a year-over-year basis. And that seems pretty steep. And we like the fact that it could end up being a good competitor in terms of the value of Rhopressa and Rocklatan in terms of a good valuation metric. So, I thank you for that. Can you repeat the first part of the question though?
Dana Flanders: I've just - take on them as a competitor. And it sounds like you answered tough comp question. And then, I had a question just on kind of the gating factor for your EU partnership?
Vince Anido: The European partner, yes, I’m sorry. So, on the European side, it's kind of interesting. So again, I'm sitting here in RTP visiting with the folks that are actually happen to interface with Santander as a partner and all the different territories. Japan is pretty straightforward. We've got a team over in Japan that's helping them out there and doing a lot of the work supported by the folks here. But in addition to that, they have Korea and a bunch of other smaller countries. The amount of work that is required to go into some of these countries is pretty dramatic. And so, one of the things that we're really wrestling with is, as we think about partnerships, and we talked about some of them wanting in addition to Europe, they wanted Latin America and the Middle East and things like that. It's - we're still a small company. And we still have, including the Salesforce show about 400 people in total and like - and so, we’re trying to figure out whether the difference in economics in some of these deals are worth it to go after some of those smaller markets relative to the fact that we're going to end up having to increase staff in order to support those kinds of partnerships. And so that's just simply a balancing act. But you're right. We're just trying to finalize the economics, the use of our facility in Athlone as manufacturing et cetera, et cetera. But none of these are apples-to-apples comparison. So it just takes a little while longer just to like in our own minds just try to settle on what we want to do. But as soon as we can do that we're going to sign it. And as we said earlier we think we'll do that this year.
Operator: Your next question comes from the line of Greg Fraser from Truist and Securities. Your line is open.
Greg Fraser: You mentioned the volume of prior authorization for Rocklatan and Rhopressa which I think speaks to the motivation of docs to get their patients on the drugs. I'm curious about on the commercial side what portion of covered lives now require prior authorization?
Vince Anido: So I'll let Tom answer that.
Tom Mitro: Yes. So very few. Because we have coverage in about 90% of the commercial lives on a nationwide basis. So that would be 10% would require a prior authorization. But so it's very, very small in commercial side.
Greg Fraser: And then question for Rich. How do we think about gross margin trend in the coming quarters? And do you expect the idle capacity cost to decline materially this year from the Q1 level? I know you expect them to trend down on the annual basis over time. So just curious whether that could be material improvement in the next few quarters?
Rich Rubino: Well will bounce around from quarter-to-quarter, actually sequentially came down a bit. I do expect on an annualized basis right, so you really can't peg it specifically quarter-to-quarter, because it will fluctuate based on commercial batches or critical product that's produced, but I believe you'll see a notable decline in that out of capacity charge this year versus last year. And for reference last year with $17 million, so we will see a decline this year and it should continue to decline from there based on continued volume growth from the U.S. business and ultimately of course unless we do a European deal that will make a big difference with regard to that capacity utilization as Vince just mentioned.
Operator: Your next question comes from the line of Difei Yang from Mizuho Securities. Your line is open.
Difei Yang: Just three questions. The first one is for Tom. Tom would you help us to clarify I think in the prepared remarks you mentioned April year-over-year growth was 32%. Was it for bardos growth or was it for net sales growth? And the second question is also along the line for power strategy. Would you give us a quick update on where things are and if you are seeing the results you’ll - you were looking for? Thank you.
Vince Anido: Sure. Let me handle the first one, that's easy that 32% was in bottles, so that's shipments from wholesalers into individual pharmacies in units or bottles. Okay.
Difei Yang: Great. Thank you. Yes. And I am sorry the second question I missed?
Vince Anido: It’s for our strategy.
Rich Rubino: He doesn’t. Yeah that pulse strategy has worked very, very well I mean we - as we do we're trying to increase the number of monthly prescribers and weekly prescribers that we’ve had. The interesting thing is even in the year of COVID both monthly and weekly prescribers were increased by over 1,200 so that just shows you just during the focus to increase the frequency of calls so we can make those doctors really help and of course then we supplemented that with our contract sales organization that we put in they gain share and the stellar sales team they also gain share. So we're very happy with the results of our poll strategy and how we were able to execute with that.
Difei Yang: Thank you, Tom. And then I just have a couple of follow-up questions on the R&D side. So with regards to AR-1105 what are the gating factors to start the Phase 3? And then the next question is on the cash front given all these additional R&D activities do you expect to do additional capital raise? Thank you.
Vince Anido: Sure. So the gating factor on AR-1105 is the final feedback from both the email as well as that the FDA in terms of what the clinical trial design needs to be. Remember what we're trying to do is harmonize the two requirements and have one common protocol realizing that we may have to analyze the data differently depending on whether we're trying to get EU approval or U.S. approval. As you can imagine dealing with two regulatory guys and trying to get them to agree on anything is not the easiest thing in the world to do so it's taken us some have some time to kind of square that up and determine what the best path forward is because the market is principally in Europe we’ll lean towards satisfying the European requirements prior to the FDA ones but until we have the final meetings which will - which should take place over the next few months we're not going to be able to determine that. And so from that perspective we feel pretty good about starting it at the end of the year. But we're not 100% sure yet how best to harmonize that. So that's the primer. That is the gating item.
Difei Yang: Thank you. The final question was on cash runway.
Vince Anido: So as we reported, we've got a couple hundred million dollars’ worth of cash. We continue to have a low cash burn for the years per quarter as Rich already outlined. And because we do expect that we're going to be able to sign a European deal before the end of the calendar year. That's like doing another financing. And so just as a stake in the ground we've mentioned that you should be thinking that it’s at least is as beneficial to us as the Japanese deal was. Realizing that this is going to be at least that big of a territory, it could be bigger because of some of the additional territories et cetera. So but if you need a stake in the ground now you could use the same financial structure in the light that we saw in the Japanese deal. So it'll add a significant amount of cash to towards and so that'll help quite a bit, plus the fact that our business continues to grow. So we continue to decrease our cash burn.
Operator: Your next question comes from the line of Frank Brisebois from Oppenheimer. Your line is open.
Frank Brisebois: A lot's been asked and answered here so just a quick one here on AR-14034. You talked about the one year duration, but you talked about potentially having a better efficacy profile here. Is this something that's just based on the fact it's PEN VEGFs or is there any data on the preclinical side that would you know explain this potential better efficacy?
Vince Anido: Yes, we do believe that so far no one's have been able to prove out that blocking all the VEGFs is the right thing to do. There has been a lot of speculation about the rent of doctors, but that's exactly the right thing to do in terms of get the kind of results that they're looking for. But no one's been able to run that trial. There's a few companies as you know on the - in the retinal space that with drug delivery systems that are trying now to take some of these small molecule pan-VEGF inhibitors out there its David Hollander actually mentioned to me that one of the VEGF inhibiters out there actually does A and B and I think it's Eylea do you remember David?
David Hollander: Yes - that's true. We're looking at a pan-VEGF and we believe that it will certainly be as good as if not the potential for better by covering all the isoforms. So that's where it's coming from as well as the duration as well as potentially no loading dose required as everything else is requiring essentially three injections up front. So we think those are sort of the trifecta of elements that could really lead this to be a standout.
Operator: Your next question comes from the line of Elliot Wilbur from Raymond James. Your line is open.
Elliot Wilbur: I’ve a couple of questions for Tom on both the market and then marketing and then I have one additional follow-up after these. So Tom with respect to just the market in general outside of your data point that reps are indicating that they think that practice re-openings are roughly 80% to 90%. Do you have any sense of what patient flow metrics may be within that in terms of you know kind of where things stand with respect to diagnosis visits? Just trying to get a sense potentially of sidelined or pent-up demand I don't know if looking at the trailing 12 months and glaucoma Rx has been down 5% is a good metric or not it seems like a relatively light number I guess given the drop off in patient traffic. But just trying to get a sense of you know whether or not you could see a more pronounced acceleration in terms of our Rx generation once we get back to sort of you know a 100% or if you think that you know that 5% is kind of a good representation of what may be sidelined? And then as a follow-up to that just thinking about the marketing game plan going forward you know what tools techniques or lessons have been learned and I guess over the course of the pandemic, do you think will materially alter the strategy going forward. Just seems like companies are able to do a lot more with less? So I don't know what happens when you kind of get back to normal in terms of some of the traditional techniques companies use with respect to physician - physician meetings and alike or you just sort of add on top of that with the contract organization and in a telehealth efforts, but just trying to get a sense of kind of what you think is sort of that the new normal in terms of the specialty promotional model?
Tom Mitro: Sure, Elliot well and let me go back to your first question that went about in essence what you're saying if you think there really is pent-up demand there. I think it's a very astute question because I think there is. We know that from data that we received from IQVIA last year that there were about 600,000 ophthalmology diagnostic visits that were not - this did not happen last year. And like I was saying earlier to one of the questions we know that ophthalmologists are highly concerned about glaucoma patients because many that they've seen have lost vision. And the patient may not realize that until the doctor tells them, right. They say look at your record here. You've lost vision. You can't recoup that vision. So there is a big concern there. And that's when ophthalmologists are trying to get them back in to their offices for. Now there is that type of situation. If you look at something like cataract surgery right because the cataract surgery they will wait for their cataract surgery, all those sorts of things. Now obviously there's a financial gain for the physician there. But the key thing is they really want to get those glaucoma patients back in their offices and they're doing whatever they can including calling patients and trying - to get them back in touch with them, get them to encourage them to come back to the office. So that's what we think the market will come back and come back in a very nice way because they will not forget about those 600,000 visits that they don't have. They're trying to recoup them and make them happen again. The second part of really what's going to change now and what were the lessons learned? Well a lot of - as you know a lot of specialties learned things like you can do Zoom meetings with physicians and all those sorts of things real like telemedicine. And you can have presentations that are given via Zoom by representatives as well, that doesn't really work in ophthalmology very well. I mean, on a broad sense ophthalmology is far more personable specialty. And with the work that we've done with our market research asking physicians how it would change, they continue to say we want to see reps. We enjoy the communication we have with reps. We understand they like the learnings that they get from representative about what's happening with their company those sorts of things. So there’ll always be a place for those types of Zoom type costs for physicians that will be far and few between. Physicians, as an example that are very difficult to get to, those sorts of things are quite easy to Zoom, but on a broad-based system, I don’t think so. I do think though that one of the things that we’ve seen time-to-time again is the impact of educational meetings kind of have with ophthalmology because they like sitting around talking about new products like ours, finding out where they work, one of the best ways to use them. How do you do - how do you treat hyperemia? How do you get through those sorts of things and learning just from the people that prescribe it off a lot because they found the ways through it first. So, I think we'll continue to invest heavily in those like I said in my prepared remarks. And I think that we'll continue to invest heavily in making face-to-face calls with the practitioners that are out there in the marketplace. It may sound like old school than - really, that's what the customers really want.
Elliot Wilbur: Then I have one just quick follow-up question is well with respect to price, no shortage the question is on the topic, but I guess outside of the rapid assembly and a bunch of late-stage assets, it's been kind of the story of the past several months. So, I guess I can understand the mechanics of the renegotiation of wholesaler agreements and those can be rather significant in terms of impacting the net price? I guess what's a little bit less clear to me is what's happening on the managed care side that would allow you to sort of renegotiate some of those rebate agreements. Not sure, if it's just changes in the category or competitive behavior, but really, what's the lever there in terms of being able to renegotiate price points with managed care?
Tom Mitro: Yes, truly it's simple. When we first started calling on managed care, we had absolutely no leverage at all, right. I mean we had no products on the market those sorts of things. So, we were sort of beholding to what managed care deltas right. And if they said no here's the rebate you've got to pay and we negotiated the best we could all those sorts of things but they had all the leverage on their side of the table. Well now they're sitting there and they're looking at the growth that we've had with the products - with our products and they also recognize the number of prior authorizations that have been submitted, right and they realize that there's position demand there. So now leverage is coming back to our side that happened both with managed care as well as wholesalers by the way, but with that we can sit there and say demand is not going away. We need to get - we need to do something with our rebates here to make us more of an even trade between where we both win both the managed care entity as well as us. And so that's really what's done, but it's all been demand generated by physicians both prescriptions as well as the prior authorizations that have gotten managed care to actually listen to us and that's what - and then we think that will continue as we've said before it's not a one-time deal we think that this will be an ongoing process through us through the years so that's really what's driven it.
Operator: Turning the call back to Vince Anido, Aerie's Chairman and CEO for the final remarks.
Vince Anido: Well thanks all for joining the call, as you could see from not only the presentations and the prepared remarks, but also from the Q&A that we've been an awful lot of progress on the commercial side. We've been really working hard to get our net prices up we were able to do that we've been able to get the managed care coverage and we've now been able to get to pull through. And I think as we're pretty well-positioned relative to the market as Tom mentioned as to - better take advantage of as patients start coming back and we see more and more states opening up. We haven't missed a beat relative to building the pipeline and the teams anywhere from our research and discovery all the way through our clinical and regulatory side have done a great job in moving everything forward. And last but not least we're very, very comfortable in where we are from the global partnership point of view and the decisions we're going to make as the year progresses. And so again, I want to thank all of you. You can rest assured that we’ll maintain our usual level of transparency as we progress throughout the year. So have a great evening.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
