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Aerie Pharmaceuticals Inc. (NASDAQ:AERI)

Q2 2014 Earnings Conference Call

August 7, 2014 05:00 PM ET

Executives

Richard Rubino – CFO

Vicente Anido – Chairman & CEO

Thomas Mitro – President & COO

Analysts

Adnan Butt – RBC Capital Markets

Annabel Samimy – Stifel

Corey Davis – Canaccord

Elliot Wilbur – Needham & Company

Operator

Good day, ladies and gentlemen, thank you for standing by. And welcome to the Aerie Pharmaceuticals Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. Today's conference call will be recorded.

It is now my pleasure to turn the floor over to Aerie's Chief Financial Officer, Rich Rubino. Please go ahead, Sir.

Richard Rubino

Thank you, Ben and good afternoon, and thank you for joining us today. With me today are Vince Anido, our Chairman and Chief Executive Officer; and Tom Mitro, our President and Chief Operating Officer. 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 earnings release.

Before I turn the call over to Vince, I will address forward-looking statements and non-GAAP financial measures. On this call we will be making certain forward-looking statements, including statements and forecast regarding our future financial and operating performance. The success, timing, and cost of our clinical trials, clinical effectiveness, commercial launch of potential future sales of our product candidates, as well as 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 our earnings 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, reason out that we expect to file our 10-Q on or about August 7, 2014.

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 our reconciliation to the most directly comparable GAAP measures, please see today's earnings release which is posted on our website.

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

Vicente Anido

Thanks, Rich and good afternoon, everybody. Thanks for joining us today. As you saw, not only in our second quarter earnings press release today, but also in recent releases, we are making excellent progress on a multitude of fronts. I'd first like to talk little bit more about our quadruple-action product Roclatan, remember that's a combination of Rhopressa and latanoprost. Our Phase 2 results for Roclatan showed the highest levels of efficacy ever achieved for a glaucoma therapy, certainly at this stage of testing exceeding the previously market leading product latanoprost by pretty wide efficacy margin with statistical superiority, at all nine measurement time points, and also exceeding the guideline of one to three millimeters of mercury, it's one of those time points.

Obviously, as a result of the data as a level of excitement that we have seen and the physician community has been very very remarkable, there has been a lot of publications, and a lot of noise about the products in the marketplace and the physician marketplace, and that has also helped us in our recruiting efforts as we have talked to a number of physicians about being part of the various clinical trials that we are currently conducting. We believe our product Roclatan could be a game changer, not only for the glaucoma treatment, and certainly for our company.

The Phase 2 results have further strengthened our expectations for the Phase 3 programs for Roclatan. A study designed for the Phase 3 registration trials is expected to be virtually identical to the Phase 2 protocol that we've just conducted, except for the fact that – actually a couple of different things. First of all, the Phase 3 study, we will look at the drug over treatment period of 90-days instead of 28-days, and instead of having two different concentrations of Roclatan, we'll talk to the FDA but we probably can get away with just simply one concentration at 0.02% concentration of Roclatan. And as expected, that we will need to do a 12-month safety study on Roclatan because it is a new combination, and so we'll have to follow our patients out over a 12-month period to get at least 100 patients on the combo Roclatan, prior to filing the NDA. All of the Phase 3 prep work is already underway and the trials are expected to start next summer, that is, the middle of 2015. As we said previously, the Roclatan is essentially tracking within about one year following Rhopressa.

With regards to Rhopressa, our two Phase 3 Rhopressa trials in the U.S. started earlier in July, and we – you may have seen the announcement when we dosed our first patient earlier in the month. And we recently announced that we had – we've been given the green light to commence our Phase 3 safety study in Canada, which we do plan on starting before the end of this quarter. To remind you, the Phase 3 trial design is set up to demonstrate non-inferiority to timolol, which is a beta blocker used for the treatment of glaucoma, and for the most widely used competitor in Phase 3 trials for the treatment of glaucoma. In addition to the efficacy part, we do have to have 12-months of safety on at least 100 patients on Rhopressa prior to filing the NDA. And so that's why when we talk about the result of Rhopressa Phase 3 trials, as we talk about the efficacy results coming out in the middle of 2015, and then later on in 2015 towards the end of the year we'll have the safety completed, and then following that will be the NDA filing which is anticipated in mid 2016.

As an aside, what's interesting is we've been working – doing some work with the European authorities, regulatory authorities, and we believe that the efficacy work that we are doing in North America will suffice to file for the product in the EMEA. And what's interesting is, with the safety components that we're looking at as part of the various trials in North America, we may have actually enough safety data to also file in Europe, so more to come there as we get closer and closer to looking at that data and seeing the kind of enrollment that we get.

Now what I like to do is refer back just for a moment to the Roclatan Phase 2 trial in which Rhopressa was one of the treatment arms. This gives a chance to take a look at another set of 28-day data for Rhopressa, and importantly, in this trial Rhopressa performed quite well compared to the latanoprost arm in the study. And in fact, we believe that Rhopressa actually did better in the Roclatan Phase 2 studies than it did in its own Phase 2 study that were conducted and reported on roughly about a year or so ago. In this particular trial, in the Roclatan trial, when you compare the Rhopressa arm to the latanoprost arm, what was interesting was that in fact, we were not inferior to latanoprost, which gives us an awful lot of confidence, not that we were lacking that anyway relative to our performance for Rhopressa, it only gives us quite a bit of additional confidence because as you know, we're going to be comparing our product Rhopressa to timolol in the Phase 3 trials, and timolol is known to be at least one millimeter of mercury less effective at lowering intraocular pressure than latanoprost is. So you could see why there is strong expectation that Rhopressa will prove to be non-inferior to timolol in the Phase 3 Rhopressa trials as well.

As we've said previously, the Phase 3 trial for Rhopressa is expected to enroll a total of 1,300 patients, a 1,300 patients in North America, I remember that's for three different studies, and we believe that we should be able to recruit patients quickly considering the levels of interest we're seeing so far. We'll be giving you more data later on September as we get out of the summer months. I can tell you now that we've had great interest, there has been a lot of patients that have already – not only been enrolled but huge number of patients have been screened to get into the trials. So we're very happy with the way we exited July from that perspective, we're just curious to see what's going to happen in August as many of you know, in fact, some of you may actually get paid vacation this year and unfortunately August is when everybody takes vacation. So we'll have to see how well we progress there.

On the general business front, as promised we did start our business development activities, we have reconnected with many of the folks who had expressed interest in our products before, we have – just shy of about 20 different companies the we've been talking to over the last month, many of them have already signed CDAs and have started looking at the data rooms, and sent questions our way, etcetera. So we're pleased with the progress even though it's only been for about 30 days or so. Again, here because many of these companies are European, we're expecting August to be a slow month, although we will continue to answer whatever questions are sent our way and sign some additional CDAs in order to get other companies to take a look at the products that we have. So we'll be able to report some more on that as we come out of August, and we get to see everybody back in September.

Now as mentioned before, we are planning an R&D Day on September 10 in New York to be held over the lunch hour. Invitations have already been sent out, and it will also be webcast in case you can't attend live. During the R&D Day, we do plan to review more details of the Roclatan Phase 2b study, including the Rhopressa component, we do expect to be able to provide an update on the Rhopressa Phase 3 enrolment. And also provide further insights into the commercialization expectations among other top picks that we maybe able to bring up. A number of you have reached out to us and we've seen quite a few investors and analysts over the last few weeks, and there is a lot of folks that are wondering what kind of additional information we maybe able to provide. And as you can imagine, we're doing a pretty deep dive into the data on the Roclatan Phase 2 study. There is quite a bit of exciting information in there that we think we'll be able to share and just, to give you a feel for the kinds of things we're going to be looking at; the first thing that you had to remember is that while each arm had about 72 to 75 patients enrolled, as we start looking further into the data, we're going to lose statistical significance and so some of the things that we're going to be looking at and discussing maybe of real high interest to us but it's only a gleam in our eye more than anything. So quite a bit of additional work needs to be done internally but it certainly gives us an interesting direction to pursue.

As an example, we have reported in the Roclatan Phase 2b trial how impressed we were about the percent of patients with intraocular pressures that decline to 18 millimeters of mercury or below, and we stated then that we had about 50% of the Roclatan patients who got to 16 millimeters and below. And then when you compare that to Rhopressa, Rhopressa had about 21% of the patients who have got down that low, and latanoprost had 18% of the patients that got down that low. I remember just as a starting point, our average pressure in the U.S. is roughly in the 20 millimeters, 21 millimeters range, so these are pretty low pressures in our post dosing. It's pretty good to see these drugs get this many patients down that far. But as we took a look at that lower than 16 millimeters from mercury on day 29 data, what was really interesting is, when you compare the three different arms that we compare which is basically Rhopressa, Roclatan 0.02%, and latanoprost, a couple of things stuck out.

First of all, all the patients that got the 16 and below had about the same increased pressures, that is, they all started out about 24.5 millimeters of mercury before they came into the trial and they were assigned to one of the different arms. What was surprising for us, it wasn't – first of all, what wasn't surprising is, how well Roclatan worked. It did exactly as advertised, it dropped the pressures well over 10 millimeters of mercury and as patients where again the entry was 24.5. What was interesting though is that Rhopressa actually dropped pressures about 10 millimeters of mercury as well, off the base of 24.5 millimeters, and both Roclatan and Rhopressa did so at each of the days that we studied. So day 8, day 15, and day 29, we had almost identical pressure graphs, about 10 millimeters more on each one of those days. The interesting part of, though was that while latanoprost also had the same entry pressures for these patients that got the 16 and below, the results really varied by day, and so you had things like, on one day it was only about 7 millimeter drop, and then on the best day it was about a 10 millimeter drop. So there is lot of variability in the latanoprost results whereas in R2 drug, Rhopressa and Roclatan, it was a very steady drop in the three days that we measured. So we are very very excited about that.

And looking as even further and by the way losing even further statistical significance because the number of patients dropped dramatically, we looked at only the really high pressures, and they are again – we have significant drops in pressure when we gave the patients Roclatan, they dropped 12 to 14 millimeters from mercury, so that was not unexpected, but what was unexpected that it was on the Rhopressa arm where the average pressure was about 28 millimeters, again, we're looking only the very very highest pressures. We had about a 12 millimeter drop, again we've always looked at Rhopressa's having on average about a 6 percentage millimeter drop, in this particular study it actually dropped pressures in a number of patients, in about 10% of the patients about 12 point. And so it certainly was unexpected and positively so for us, and so we're very very pleased that the drug continues to work and that we're finding out more and more about this drug as time progresses.

So again, we're very excited about everything that we're finding about the drugs and about the progress that we're making in the company, so I'm wrapping up. And we're also excited about the blockbuster potential for both, Rhopressa and Roclatan, which were designed to serve the majority of the glaucoma market, and I'm certainly pleased with the execution thus far. Everything that we said that we were going to do when we took the company public back in October of last year, we've been able to not only achieve and get it on time, in some instances we're actually little quicker than we expected.

So now I'll turn it over to Rich for a quick financial overview.

Richard Rubino

Thanks, Vince. Our GAAP net loss attributable to common stockholders for the three months ended June 30, 2014 was $11.8 million, the net loss includes non-cash charges for stock compensation expense, it was $2.4 million. And excluding the non-cash stock compensation expense, adjusted operating expenses for research and development, and general and administrative totaled $6.4 million and $3 million respectively for the second quarter of 2014, this $9.4 million in adjusted operating expenses compares to $4.9 million for the same quarter in 2013.

The increased operating expenses for 2014 compared to those of 2013 including increased clinical and non-clinical research and development, and other activities associated with our product pipeline, as well as growth in the business associated with having gone public in October of 2013. And finally, we have effectively managed our cash burn to date as of the other, the second quarter our cash investments totaled $56.6 million, although our cash burn rate will increase from our historical rates, going forward as we expand our clinical trial activity, we continue to expect that the $57 million we had at quarter end will last us through the expected NDA filing for triple-action Rhopressa in mid 2016, and that this amount will also cover Phase 3 prepatory work for quadruple-action Roclatan.

Now I will turn the call over to the operator for questions and answers. Ben?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Adnan Butt of RBC Capital Markets. Your line is open, please go ahead.

Adnan Butt – RBC Capital Markets

Hi, good afternoon everybody and couple of question here. First, on the Roclatan Phase 2b, could you tell us bit more about what the Phase 3 enabling activities might be, what's needed to be done before the Phase 3 can be started and how long will those items take? And is there end of Phase 2 scheduled with the FDA?

Vicente Anido

Hey Adnan, Vince here. I'm going to have Tom answer some of the questions relative to the CMC work that still needs to be done, etcetera, but relative to our discussions with the FDA, we don't really need a Phase 2 meeting, we actually had a meeting towards the end of June with the FDA regarding Roclatan. So we got pretty good guidance, not only in terms of what we needed to do with the Phase 3 prep work but also in terms of the trial design for the Phase 3 trial. So – we obviously, go back to the FDA with a final protocol etcetera, and just make sure that that we're in sync here after we share with them the Phase 2b results, but we certainly don't have to go back for another end of Phase 2 meeting on Roclatan.

So with that, let me turn it over to Tom and he will answer your questions relative to the prep work that still needs to be done.

Thomas Mitro

Sure, there is only a couple of things that really needs to be done, one from the ocular tox and ocular PK needs to be done in animals, and again, that won't take us that long, we should be able to finish that certainly by the end of our first quarter of next year. I think from the manufacturing side, we have to validate some of our analytical methods or finished validation over analytical methods in order for us to go into Phase 3, again, that should be completed by the end of Q1 as well.

Adnan Butt – RBC Capital Markets

Okay. So that getting from data from the Phase 3 Rhopressa study is not a great limiting step here, you could potentially start the Phase 3 Roclatan even without seeing the efficacy data?

Thomas Mitro

Yes, in fact, that's what we're assuming. We're not assuming that we're going to wait until we get the Phase 3 results from Rhopressa to start the Phase 3 Roclatan.

Adnan Butt – RBC Capital Markets

Okay. And if I can ask a question that I do get somewhat frequently, in the Phase 2b study for one or two of time points that there was some variability in terms of IOP going up and down. You described some variability with latanoprost today, I mean does it help to set further live on the Phase 2b Roclatan data that you presented earlier?

Vicente Anido

Yes, it is the same degree and the same stat, when you look at the nine time points and for those of you who are trying to follow this, we do have on our website the latest slide deck that you can refer to and it's going to be on slide 22. And basically what you see is a lot of variability day-to-day, and so what's more startling is when you look at – even on latanoprost information, there is a huge amount of variability interday on the last day, whereas with the Rhopressa, as well as the Roclatan data, it's relatively steady and pretty predictable. And so, unfortunately, this is just the nature of the disease, the intraocular pressure in normal patients rises and falls everyday, throughout the day, and it doesn't rise and fall the same everyday. And so we're going to see a lot of this variability, and what we try to do is, as we've stated earlier, we don't generate a lot of concern on our part when we see variances of 0.5 millimeters, plus or minus, because that's well within, just cynically the margin of error of the testing. And so – we just don't spend a lot of time worrying about that. We try to do – what we try do is match up the efficacy day to day, and so for example, like on the Roclatan, we see on the first day, the very first time point at 8 AM we drop the pressures down to 17, and on day 15 it was 16.5, and 16.9 on the last day. So that's pretty steady, but again, there will always be a little bit of variability. So we're not too concerned, we've seen it with every product not only latanoprost, we've looked at Travatan, and saw it's Phase 3 results and it was all over the place in each of those. And so we don't worry about those.

Adnan Butt – RBC Capital Markets

Thanks. And Vince, if I can just have one question about the Phase 3, are you able to quantify how many patients screened versus enrolled? And what's the investigator sentiment, you expressed that they were enthusiastic, what you implied about Roclatan is that similar for Rhopressa, how the study is basically enrolling?

Vicente Anido

Again, we'll give you more data in September. I mean, I promise you that, we'll give you more data. It's just right now what I worry about is, that all of a sudden everybody will take vacation in the last two weeks of August and I want to do great in July and nothing in August. So I'm waiting until we get passes this month before I start making any predictions. But we've had a fairly high level of patients enrolled in the trial after they have been screened. We just don't see that big of a drop off, typically, if I put numbers on it I'd say about maybe 75% or so of the patients at least would make it through screening into enrollment.

Adnan Butt – RBC Capital Markets

Okay, thanks. I'll get in line.

Vicente Anido

Yes, we'll give you more data in September because then we'll have two months of data, that's better than certainly just one month.

Adnan Butt – RBC Capital Markets

Sure.

Vicente Anido

Thanks

Operator

Thank you. Our next question comes from the line of Annabel Samimy from Stifel. Your line is open, please go ahead.

Annabel Samimy – Stifel

Hi, thank you for taking my question. One of the questions that I get a lot is that, we've seen a lot of good data on 28-days, and in the past you've had a number of ROCK inhibitors that were dogged by duration, so what gives you comfort on a 90-day, maybe you can speak to that. And then you had mentioned Rhopressa performs better in the Roclatan study than it did in its own study, and so in Phase 2b study, maybe you can speak to – if there was any different enrolment type criteria in the Roclatan study, is there anything that would have caused it to perform better? Thanks.

Vicente Anido

Sure. Hey Annabel, so relative to the efficacy slide that you were talking to, of all of Rho Kinases that we've looked at that only occurred in one of them, and we've been very open about that and that was one of the two programs that we had going on at Aerie when we were still private back – in fact, as the data came out late – in the middle of last year. And for that product it was a very very highly specific product that only blocked Rho Kinase and nothing else. And so when that product started losing efficacy overtime, it was pretty evident right out of the gate, it started occurring in day-14 and day-15 of the clinical trials and it continued through the last day of the 28-day, 29-day trials and so it was pretty obvious that it was losing efficacy.

When we've looked at 320 or Rhopressa, we didn't see anything that looked like what we saw with the original product at the company, the 286. And we also had Casey Kopczynski, our Chief Scientific Officer, who looked at all of the other Rho Kinases that have been studied, that have actually done okay in the clinic, none of them lost efficacy, they got way late for one of two reasons; one was either their efficacy was never high enough, maybe 2 millimeters, 3 millimeters of mercury drop versus the 6 millimeter or so that we saw on average for the Rhopressa trials, or they had a lot of adverse events. And so we've not had any of those things happened to R's [ph], and so we then looked further into the chemical structures and the activity profiles of the Rho Kinases that actually didn't lose any efficacy. And on the Rho Kinase part, there were a lot like Rhopressa in a sense that they were more general kinase inhibitors, so they blocked other kinases. And what we found is the one common element among all of them that worked well, and worked overtime including all the way through 90-days, like the one product that I think – it was Synacthen [ph] Novartis had. It was that, they all block Protein KinaseC in addition to being a Rho Kinase inhibitor, and that is not something that our product 286 did, it did not block Protein KinaseC. It's about a fact that we have seen other kinases, Rho Kinases, that have worked well over 90-days and we have identified that this apparent, more general kinase blocking prohibitory [ph] activity that keeps the activity level high in terms of dropping intraocular pressure.

We think that gives us an awful lot of confidence, and also lets not forget that for Rhopressa, we have two other mechanisms of action that have worked as well, which did not exist at all in 286 and that is the ability to decrease the amount of fluid being produced, the norepinephrine transport inhibition ability, that was not present in 286 but it is in Rhopressa; and also the ability to drop episcleral venous pressure by 35%, at least in animals, that was not present in 286, and it is for Rhopressa. So, as a result of the very very different profile, we think that that gives us an awful lot of confidence that the product will work be on the 28-days, and all the way through the 90-days and beyond. So let me stop there, does that answer your first question?

Annabel Samimy – Stifel

It does answer my first question, thank you. That was a thorough response.

Vicente Anido

No, I just wanted to make sure because it's something I know that you guys get, and we certainly get it as well, and then so, relative to the other one, we're still looking at some of the profile of these patients in the Rhopressa arm of the Roclatan trial, the one that really high IOPs where we got the 12 millimeter drop and trying to see whether there is something peculiar about them. Whether – but there was no real difference in the entry criteria, I mean it was all about the same. I think maybe there was a one millimeter difference at the bottom end of the range, maybe a two millimeter difference at the top end of the range. But again, we can't see any major differences at this point, it's just that – we think that maybe there is 10%, 15% of patients out there where we're going to get great results and so, that will give us – as Tom tells me, that's going to give physicians an awful lot of confidence if they can actually start patients on product like Rhopressa, and it that's enough, that will hold them great, and if it's not enough, they can start thinking about adding something else. So we'll see how it turns out in Phase 3.

Annabel Samimy – Stifel

Great. I guess this is related to my next question on the – I guess the whole point of that question was Rhopressa was sort of characterized as a drug that worked better in the low IOPs, and you would target that market, and then Roclatan would be for the higher IOPs and it seems like that Rhopressa had such good strength in the Roclatan study where the IOPs were typically higher. Did that change the profile that you were sort of thinking about for Rhopressa? And I guess, also with regard to the nine different time points of the day, I guess the higher IOPs were during the early part of the day and the lower IOPs were in the later part of the day and it seems like the highest ends in the earlier part of the day, so I was a little bit surprised about that because which kind of process does a modification from the higher IOP. So, I guess, are you thinking about the profile at this point?

Vicente Anido

I'll let Tom really answer the profile part but let me just correct one thing, so again, we have to be careful about making too many assumptions and changes because some of the data that we're giving you has not lost it's statistical significance because again, we're doing data dice, alright. If we're losing the number of patients and so it's kind of hard to project them, so we're comparing them to known data and trying to understand sort of what the differences are, and it gives us some clues about where to look next. So we just have to be careful about re-characterizing the drug, but let me – as Tom talks a little bit more about the – his thoughts relative to the positioning.

Thomas Mitro

Sure, Annabel. Frankly, we did talk to quite a few positions about this both, in our market research, as well as – I'm just outside of a conversation, what we do know is that – but we don't believe is that the fiscal change the profile of what – how we would position our products, that is Rhopressa will go for patients that are in their mid-20s, call a 26, and certain bit lower, whereas Roclatan will go for high pressures or probably better said than high pressure, just those that need maximum medical therapy. Certainly some of those patients and most of them have higher IOPs, 30, 35 that sort of thing, or they actually have lower IOPs too but they are losing vision for some reason and the physician feels very frustrated as those patient will doubt but the physician feels like they have to throw everything they possibly can at them and they run maximum medical therapy now, well this provides a new definition for maximum medical therapy, that is Roclatan. So – now again, then the thing about Rhopressa, remember it is better for lower IOPs and it is also significantly differentiated for those lower IOPs as well, and when I'm speaking up there, of course, the IOP is even below 20 that we found in some of the work that we've done as well. Does that help?

Annabel Samimy – Stifel

Yes, that does. Thank you.

Operator

Thank you. Our next question comes from the line of Corey Davis of Canaccord. Your line is open, please go ahead.

Corey Davis – Canaccord

Thanks very much, a couple of questions, just a follow on what you've been talking about. So, if there is no real explanation you can find as to why Rhopressa worked better in the Roclatan Phase 2 than it did in his own and given all the natural variability that you've talked about, could it simply do the chance that that happened in that trial or do you really think that there is enough here that we should start to get more excited about, the prospects for Rhopressa, than we previously thought?

Vicente Anido

I think that – first of all, there is – it's certainly a great signal because we didn't see any results like this in the Phase 2 trials, I mean we scoured those and the most drops we saw were roughly 7 millimeters to 8 millimeters and Rhopressa so – to get a 12 millimeter drop in a patient that's got an IOP entry pressure of about 28 millimeter is pretty significant, and certainly not something that too many of the drugs other than the prostaglandins have been able to achieve regardless of the pressure. And so, it just simply an indicator in terms of what we think that the drug maybe capable of doing, we'll know more when we get into the Phase 3 trials. But also don't forget that nice thing about this is that what we're shooting for is to get physicians more confidence about using the drug period, and we think that from that perspective, you should be getting excited because remember Rhopressa comes out a year before Roclatan. And so the more the physicians get to try the drug, the better off we're going to be, and better off the patients will be, and then when Roclatan comes out, the natural sort of division will occur in terms of where a physician should use one versus the other. So, it's certainly – again, cautiously optimistic because of the number of patients that were in the subset analysis but certainly it gives us an awful lot of hope. And by the way we just got this data here about a week or so ago as we started unveiling a lot of it, and so we still have to do deep dives in terms of understanding each individual patient here and alike. So, hopefully we'll have more data that will clarify why we had such activity that we didn't see in the original trials. Tom has also got some thoughts.

Thomas Mitro

Yes, Corey, I just wanted to add couple of things. One, remember what has been said early on, in the Roclatan trial, Rhopressa was shown to be non-inferior to latanoprost, that's okay. Remember that was also showed in the Rhopressa Phase 2 trial for IOPs under 26. The good point is that point did not escape the folks that we had, the 200 U.S. physicians and 100 European physicians that were in our marketing research. In fact, it's they said this is the first time a drug has been shown to effectively control IOP, as well as the prostaglandin like latanoprost. So, it was a big thing for them because they saw Rhopressa having a different MOA and a chance for them to get away from the modest side-effects that all prostaglandins cause like the ocular tolerability issues that we talked about before. So, it is not – they are very excited about it now, I think exceptionally excited, probably the best way to put it.

Corey Davis – Canaccord

And then on the enrollment of the Rhopressa Phase 3, you're effectively not changing any material inclusion exclusions, and now that you've got more data you can show them unless you said get them exceptionally excited about it, it's the only thing that I can think of that may affect the enrolment rates would be other competitive drugs in development. So how would you describe the landscape there?

Vicente Anido

Let me just clarify one thing, so the changes in enrolment we just described were for the Roclatan Phase 2 relative to the original Phase 2 for Rhopressa. As a reminder, for the Phase 3 for Rhopressa, we're enrolling patients that are in the range of about 20 millimeters from mercury, and below 27, so above 20 and below 27. So that is different, so we did change that focus on the – towards the lower end of the IOP ranges. But relative to enrollment, we think that the excitement that we had coming out of the investigators meeting in Chicago, where we had a couple of – almost 200 people showing up there, and it's by far the largest of the glaucoma meetings that they've had – investigator meetings that they had. We're just not seeing a lot of competition out there for patients, it is just – it's always difficult when you start a program in the summer because you just don't know sort of, with the vacation schedules etcetera, how that's going to go but we're very very pleased and we've got off to a fast start. Again, I think there is just not enough – there is no competitive programs going on out there that are impacting our ability to enroll, and so hopefully we'll see that also play out in Canada on the safety trial up there but again, we should have more data on all three trials in terms of the enrollments and alike by the time we get together in September at our R&D Day.

Corey Davis – Canaccord

Okay. And then the last question on what you described as your pick-up in business development activities with all the companies filing new CDAs, once again, mostly focused on Europe but what are the chances that that triggers someone to say at least we don't want just European rights, we want global rights, and we want to buy the entire company. And how –

Vicente Anido

So the interest in the company by the way is not just for Europe, obviously we are talking to a number of Japanese companies as well, and they are in the mix there, and so all of that has gotten off the ground pretty quickly. So, we can never stop someone from wanting to have all the rights and wanting to have – as a result of that buying the company, etcetera. So we're just – I think it is because of our prior history in ophthalmology, having built up an operating business before, we know how to do that and so we're more than just incredible throughout to do that. So somebody wants to take us out, then they can certainly put an alpha in the table if they choose to. So beyond that it's kind of hard to comment.

Corey Davis – Canaccord

That's all I have. Thanks everyone.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Elliot Wilbur of Needham & Company. Your line is open, please go ahead.

Elliot Wilbur – Needham & Company

Thanks, good afternoon. The first question I guess would be for Tom and Vince as well. When you spoke about the Roclatan Phase 2 study back in late June, you had that mentioned that you had to manage your commissions on primary market research looking at both, Europe and the U.S. I'm just wondering, a month and a week later, if there is anything, only additional insights that have come out of that at this point that you think are interesting and worth sharing with us. And what I really wanted to or I was hoping to get, maybe was some just updated perspective on potential pricing points for the product, obviously, you've talked – historically about being able to command premium pricing and that seems pretty intuitive based on the data itself, but I guess the tendency here has been sort of to model this as a certain percentage premium to some of the branded products that are out there and now, in particularly, Xalatan and depending on whose model you will get 20% or 25% premium, something on net. But given that this is the first MOA to be potentially introduced in the market and in a very long period of time, just sort of wondering how you're feeling about relatively modest premiums versus price points that frankly were established some 15 years ago, and if we shouldn’t be thinking about something very different and live at the data that we've seen?

Thomas Mitro

Yes, Elliot, this is Tom, first of all thank you for your question. Let me take your price first. Here is what we know at pricing, we have spend sometime talking with people in the industry including some of the peers, and some of this was teased out of the research. Certainly what we're thinking of today is that Rhopressa is obviously our first product out. We always have a slight premium to the branded prostaglandins, okay. Not a tremendous premium like 50% or 40% but a slight premium to the prostaglandins that are out there today. And of course, when we come out with Roclatan; Roclatan will have a premium to Rhopressa because it will be offering two products in one, right, so there is a better fit to the patient, there is also from a company standpoint, compliance standpoint, and convenience standpoint, and obviously, an effectiveness standpoint too. So that will have a premium and it will be a nice premium to Rhopressa. The things [ph] that I will remind you is that we've said before, managed care was okay when we talked in general terms about these price points or this pricing philosophy as long as we were able to provide rebates like every other pharmac and every other pharmaceutical company does, so we will have to provide rebates on the other side, good manageable rebates, not tremendous rebate, I think you see in many of the larger markets where there are 10 or 12 products in different category, these are unique products, it will have unique positioning and because of that will also demand unique pricing.

Just a couple of comments on the market research, as I said 200 physicians in the U.S., 100 physicians in Europe, so quite robust. What we were very happy with is a couple of things; number one, the physicians are really excited about not necessarily a new products coming into the glaucoma market, but a new product with a new MOS. They all know that the race to the trabecular meshwork has been going on for – since glaucoma was first discovered and started, and then there is – no one has since crossed their finish line, we're very excited about out products being the first there. So, their enthusiasm around new products entering this market has to do with a new MOA.

The second thing is, when they looked at our product profiles and the data associated with them, they saw their products would do a couple of things for products [indiscernible] cannot do, and that is specifically with Rhopressa, that is lower the IOP to a significant amount when the patient has a lower baseline IOP to begin with, commonly causing normal tension or low tension glaucoma patients. But they are not just those people, they are also the people that have IOPs in the 19 or 20 range. That's a highly unsatisfied market right there with those IOPs, not just from a patient standpoint but also from a physician standpoint, and they looked at our data and that's why they are excited about that. So they also liked some of the mix of both of our product meetings, the fact that it is a new MOA but also once a day dosage which is something that they don't take for granted because issued only about half the market today is, once the date goes product, those are PGAs, that whole other half of the market which are some of you're talking about, the U.S., Europe or Japan is all two to three times a day.

So, when we looked at it and thought we've got products that performed very very well, performed uniquely, and uniquely different than other products in the market that can make a major impact in this marketplace. What I can tell us is the good news is that the physicians, whether they were here or across the pond, also said the same thing back. So we'll be happy to share more of that market research when we have our meeting in September with you all as well.

Elliot Wilbur – Needham & Company

Okay, sounds good. In the meantime, I have one follow-up question for the entire team. Back in late June when you released the data, obviously there was very enthusiastic response in the marketplace and since that time of course, the value of [indiscernible] has declined pretty substantially and there certainly have been quite a few macro factors, as well as some micro factors that have influenced that. But I guess, the question really is, as you talk to people in the investment community, you obviously must be encountering some points of skepticism around the product with the values – products, and the kind of value that they offer. I'm just sort of curious what some of the things that you've encountered in terms of like shot stumbling blocks just sort of appreciating the value proposition of the product. And just to share, I guess the thing that we run into most often this sort of questioning the clinical relevance of Roclatan versus Xalatan standalone, in terms of the additional IOP lowering effect, it's just sort of what the incremental value of that is, but just curious what other variables or factors you guys maybe hearing in terms – from some of the skeptics or non-believers out there?

Vicente Anido

Elliot, the questions that were asked today during this call are pretty much mooring what we hear which is, the fact I do probably count on one hand the folks that are talking about the relevance of the two millimeter drop when no other drug has ever been able to show that versus latanoprost. And so, when you look at the combination products that have all shown, that have been very very successful in the markets and were safely launched like for example, especially in Europe where they have about 20% market share. Everyone of those products only showed a millimeter of improvement or less, and not at all time points. And so – yes, they were incredibly successful product launches in Europe, and so I think that it's just – perhaps, I don't know, a lack of understanding of what physicians are looking for because certainly as you listen to Tom, and I've talked to physicians directly many times, the kind of graphs that we're looking at here are not things that they had seen, especially when you consider what I was describing earlier, how low the pressures are getting on some of these patients, that's just not something that they normally see.

Likewise, they just don't normally see a patient coming in with intraocular pressure of 18, and still having little bit of glaucoma meeting damage to the optic nerve, and then having the pressure graph to 12 or 13, they just don't get those kinds of results with any other drugs out there as either single entities, and in some cases as combination, and so we don't see that one. We do see the attrition, lack of efficacy overtime, and frankly, that's all driven by the initial product that the company talked about years ago, and in fact, that we had to kill that program because it really did lose efficacy, we haven’t seen those things, efficacy losses, for this one. For a while there, there was questions regarding the hyperemia rate, etcetera, more recently, we've actually started showing what a photo of the patients in terms of what they look like based on the severity of the hyperemia, and when you get 80% of the patients mild, then you can barely tell when you look at the photograph that they have – didn't get any blood in their eyes, and likewise, with even moderate, it's not particularly severe, so that's sort of gone away.

And so – and I think the two things that we see for the bare case if you will, are the developments in terms of the two millimeter graph but again nobody has ever been able to do that before, so that one is – again, I'm not sure whether it's a cycle understanding or haven’t talked to enough physicians yet. And two is, is a loss of efficacy which again is frankly driven by drug that didn't have all of the different modes of action and mechanisms of action that Rhopressa did. So – and we just don't think the comparison is relevant but those are the cases. Did that help?

Elliot Wilbur – Needham & Company

Yes, thank you. That's all I had, I appreciate it.

Vicente Anido

Thank you.

Operator

Thank you. Our next question is a follow-up from the line of Corey Davis from Canaccord. Your line is open, please go ahead.

Corey Davis – Canaccord

Thanks, just one more. Given the novel [ph] MOA and espistatical possibility to alter the progression of the disease that you've talked about is, is there ever a study that could be reasonably done to prove that, beyond just a 90-day IOP trial or gives the timeframe for the progression in glaucoma just too long, that kind of study that ever be feasible or practical to conduct?

Thomas Mitro

Corey, it's Tom. I'm happy to try to answer your question but what I can tell you is that we're speaking to a lot of researchers now that are wrestling with that very same question which the idea of being how can we come up with an answer that is representative of the long-term remodeling of the trabecular meshwork and restoration of the health that that tissue once had. So hopefully, it won't be years and years and years away from it but an essence we can walk towards that through various models in animals and to show you what happens to the trabecular meshwork as the fluid and the nutrients were again to limit to that tissue because by the way, the question just said it's one that many ophthalmologists are highly encouraging about taking to look at as well too.

Corey Davis – Canaccord

And how predictive are these animal models of the actual human disease?

Thomas Mitro

How about this, the methods are replicated, that is, in most – many glaucoma models, they are off certainly in animals, and we've got a number of them with our products certainly. And they are very believable, I mean physicians serving will sit around, take a look at it, and then encourage you to take the next step, no doubt about it.

Corey Davis – Canaccord

Great, that's all I have, thanks for answering.

Thomas Mitro

You're welcome.

Operator

Thank you. And with no further questions, I would like to turn the conference back over to Dr. Vince Anido, Chairman and Chief Executive Officer, for closing remarks.

Vicente Anido

It's my pleasure to spend some time with you today just walking over our – or just walking through our results for the quarter, and also the progress that we've made on both, Roclatan, as well as Rhopressa. We're very very pleased as we mentioned in terms of what we think both of these drugs bring into the marketplace, both of them we do believe will be blockbusters for different reasons in various parts of the world. And so we're happy with the progress we've made today, and we'll do what we can to providing quite a bit of additional information when we get together on September 10 for the R&D Day.

So with that I will sign off, and I wish everybody a good evening. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the program and you may all disconnect. Have a great rest of the day.

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Source: Aerie Pharmaceuticals Inc. (AERI) CEO Vicente Anido on Q2 2014 Results - Earnings Call Transcript
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