Aerie Pharmaceuticals' (AERI) CEO Vince Anido on Q2 2016 Results - Earnings Call Transcript

| About: Aerie Pharmaceuticals, (AERI)

Aerie Pharmaceuticals Inc (NASDAQ:AERI)

Q2 2016 Results Earnings Conference Call

August 03, 2016, 5:00 pm ET

Executives

Vince Anido - Chairman of the Board, Chief Executive Officer

Rich Rubino - Chief Financial Officer

Analysts

Adnan Butt - RBC Capital Markets

Annabel Samimy - Stifel Nicolaus

John Newman - Canaccord

Serge Belanger - Needham & Company

Elemer Piros - Cantor

Difei Yang - Brean Capital

Donald Lee - JMP Securities

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Aerie Pharmaceuticals' second quarter 2016 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. 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.

Rich Rubino

Well, thank you, Nicole. Good afternoon and thank you for joining us today. With me today is Vince Anido, Aerie's Chief Executive Officer and Chairman. Tom Mitro, our President and COO, who with us on this call, is currently in Europe on Aerie business as we continue to advance our international presence. Today's call is also being webcast live on our website, investors.aeriepharma.com and it will be available for replay as indicated in our press release.

Now for forward-looking statements and non-GAAP financial measures. On this call, we will make certain forward-looking statements, including statements, forecast and guidance regarding our future financial and operating performance, cash burn, the success, timing and cost of our clinical trials, the clinical effectiveness, commercial launch and the potential future sales of our product candidates and the potential of our preclinical research findings, 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 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 later this week.

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 press release which is posted on our website.

As a financial update for the quarter, our second quarter 2016 GAAP net loss attributable to common stockholders was $23.2 million or $0.87 per share compared to $18.8 million or $0.73 per share for the second quarter of 2015. The net loss for the quarter includes non-cash charges for stock-based compensation expense of $3.9 million. When excluding the non-cash stock-based compensation expense, second quarter 2016 adjusted operating expenses for R&D and G&A totaled $12.5 million and $6.3 million, respectively.

Total adjusted net loss for the quarter was $19.3 million. The $19.3 million adjusted net loss or $0.72 per share compares to $15.3 million or $0.59 per share for the second quarter of 2015. Our second quarter financial performance and cash burn are consistent with the 2016 guidance we previously provided. You will recall that we expect our 2016 cash burn to be approximately $75 million based on our current business plans. Our year-to-date cash burn was $40.3 million through June 30 and we closed the second quarter with over $112 million of cash, cash equivalents and investments on our balance sheet.

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

Vince Anido

Thanks Rich and good afternoon everybody and thanks for joining us today. This will be a brief update since we are pretty all focused on the two key upcoming events and the good news is that both of them are on track.

The first is the NDA filing for Rhopressa. All of our employees are working diligently to finalize the submission and we fully expect to file later on this quarter. Pending a successful review, it can take about a year or so to obtain FDA approval. So the launch Rhopressa could take place by the end or certainly the back end of 2017. And in fact, we are already entering the launch mode, as we have said earlier. We recently hired an ad agency. We are building out our commercial team and it's had an ever-growing presence in the major ophthalmology meetings.

In addition to that, we will go ahead and start ourselves for deployment planning process which we started as well on the way year here earlier this quarter. Now I do want to remind everybody that while we are starting this deployment planning process, we certainly don't expect to be hiring any sales force until the time that we receive the NDA approval.

The second key event for the quarter will be the 90 day interim efficacy readout for Mercury 1 which is the first Phase 3 clinical trial for our combination product Roclatan. We have consistently pointed to this quarter for that readout and today we are narrowing the expectations to the month of September. We will not be providing any more granularity on the specific time for data release in September as a trot close out is still ongoing.

Now Mercury 2, which is the second of the ongoing Phase 3 clinical trials for Roclatan, is a 90 day efficacy trial that commenced in March and the readout for this trial is expected in Q2 of 2017. Now if both Mercury 1 and Mercury 2 are successful, as we hope, we would expect to file our Roclatan NDA in the second half of 2017 and probably just about the same time or little later than hopefully the NDA approval for Rhopressa.

Now on the European front, Rocket 4, our trial designed to provide adequate six-month safety data for Rhopressa for the European regulatory agencies remain on track for a fourth quarter 2016 readout.

We are also planning to conduct a third Phase 3 clinical trial for Roclatan, which would be obviously Mercury 3 in Europe which will compare Roclatan to a fixed dose combination product which is currently marketed in Europe. This trial is currently scheduled to commence in the first-half of 2017 and like many of our other of Mercury trials typically takes anywhere north of 12 months or so to run. We still expect to finalize our strategy for European commercialization by the end of 2016.

In addition to that, we have already attended a number of different European meetings. Most recently, we went to European Glaucoma Society meeting just a few weeks ago in Prague. And I think response to our Aerie products was extremely positive. In fact after the various presentations and meetings and et cetera, it really just felt for us like any of the major ophthalmic meetings here in the United States where given the emphasis that we have in the glaucoma market and the knowledge folks have about our products and their excitement we were well received and had plenty of meetings to show for that.

Now in addition to that in Europe, we are also continuing to evaluate our plans for a potential Aerie owned manufacturing facility in Ireland. It is an important component of our global long-term sourcing plan.

Now that with regard to Japan, the team and I recently met in Japan with PMDA, which is the Japanese equivalent of the FDA. We gained further clarity on the potential clinical path for Rhopressa approval and we expect to have our plans fully crystallized by the end of this calendar year. In Japan as well, we are observing a high level of interest for Rhopressa in particular from the local KOLs. And in fact, we have probably the leading glaucoma specialist in Japan, who was at Tokyo University who is our clinical sponsor for a potential filing with regulatory authorities in Japan.

As we said, a large portion of Japanese glaucoma patients have lower average intraocular pressure. In fact while the average pressure in the United States is roughly 20, in Japan it's about three millimeters pressure lower than that. And so we believe the Rhopressa could be a very, very important drug for this patient population.

Now turning to the research front. We continued for the disease modification potential for Rhopressa in preclinical models, including the anti-fibrotic effects, the ability to increase perfusion and other differentiating characteristics. We also remain very excited about the neuroprotective potential of Rhopressa that we have observed preclinically and obviously understand the challenges of proving that in a clinical setting, but hopefully we will get a chance to do that.

We have also continued to evaluate sustained release formulation technologies with the capability of delivering Rhopressa over several months to the front of the eye for the treatment of glaucoma. This might be an exciting opportunity for us as we continue to build out our pipeline for future growth.

Our preclinical molecule for wet AMD designated AR-13154 is also the subject of ongoing and very promising preclinical research. It may ultimately become a very interesting addition to our pipeline. We continue to explore sustained delivery technology for this small molecule as well and we are testing a number different options with this and are hoping to achieve roughly about a six month delivery of this product to the back of the eye for the treatment of wet AMD.

So overall that pretty much sums up our progress for now and with that, I will turn the call over to the operator for any questions and answers we can provide. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from the line of Adnan Butt from RBC Capital Markets. Your line is open.

Adnan Butt

Thanks. Vince, I know you said no further granularity, but before or after Labor Day would be super helpful. Okay. So a question on just clarifying the endpoints, right. So there is nine time points. I just wanted to confirm Roclatan has to be statistics superior at every time point for the trial to meet its primary endpoint?

Vince Anido

That's true. So if you look at the guidance provided by the FDA, the main guidance is the statistical significant difference in favor of a combination at each of the nine time points. Now in addition to that, as we have said before, guidance not rigged, also they like to see a one to three millimeter separation at those time points. But given the history, we do know that several other combination products, most notably Simbrinza, did not achieve the minimum of one millimeter at a couple of different time points in their trials, but yet they still got approved.

Adnan Butt

Okay. And then in the Mercury 1 study, I think this is the system longer on one year study. Are you looking at efficacy time points beyond 90 days?

Vince Anido

We are. We will continue doing that. Obviously the primary endpoint here for efficacy is a 90 day one. But we will continue measuring pressure all the way out.

Adnan Butt

Okay. Last question. The reason I ask is because if you saw the Ripasudil data at ARVO, the posters there at least claim that the benefit seems to increase over time. Are you seeing something similar? Do you expect something similar with your Rho kinase inhibitor?

Vince Anido

I am not sure what poster you are referring to. Certainly as we came back from Japan, that product is deemed to be pretty weak. And the efficacy that we saw on Ripasudil was pretty consistent over 12 month period. It didn't seem to increase over time at all.

Adnan Butt

Okay. That's it for me. Thank you.

Operator

Your next question comes from the line of Annabel Samimy from Stifel. Your line is open.

Annabel Samimy

Hi guys. Thanks for taking my question. I had a few more questions on the clinical trial design or rather at the clinical endpoints. So you mentioned that FDA said, you had said between one and three. Is there a certain powering that you have at each of the time points? Does it have to meet at least one? Or is it powered for something greater than one? Can you just help us understand that? And I think you already answer the question about not necessarily meeting all time points. Sorry, go ahead.

Vince Anido

Yes. So we powered it at one.

Annabel Samimy

You powered it at one. Okay. So if we think about it that way, then let's just say, you powered at one. You met all the statistical significance you need to meet at each of the time points. So when physicians look at this, that's not necessarily clinically relevant to them? So how do you think that might -- I mean is there -- are you looking at an average over the nine time points? How should we think about how you awe going to present the data? Or how the physicians are going to read the data in totality?

Vince Anido

Well, we expect that we will show not exactly the same graphs or chart the same that we showed for Roclatan Phase 2b, but many those that are similar to that. So you can see exactly how we did it at each one of those nine time points. And as part of that, so you will see the separation and there, if you remember, we had a range of deltas between Roclatan and either one of the components was right around 1.6 to as high as 3.2, 3.3 millimeters in Mercury, depending on which time point you wanted to look at. And overall it was little over two millimeters for Mercury.

So we think that overall we should be able to show those kind of charts. And we are hoping that data will be similar. But in addition to that, don't forget that we also showed as part of that was the responder analysis i.e., meaning how low did the patients get. And we started off with roughly about below 18 millimeter or below 20 millimeters for Mercury and then went on down and we think that what will get the physicians excited, in addition to just the fact that they have a combination of two pretty strong products, is that in the Phase 2 for Roclatan, we had almost 50% of the Roclatan patients achieve pressures of 16 millimeters and below when compared to latanoprost, which only had about 20% of their patients at 16 millimeters or below.

So we are hoping that the data will be the same for the Phase 3 trials, but certainly that will be a great, great benefit for Roclatan.

Annabel Samimy

Okay. And can you just remind us what the confidence interval or what the powering is for that one millimeter?

Vince Anido

The confidence interval, we don't show because this is not noninferiority. So the P value, it's powered for 90%.

Annabel Samimy

Okay. All right. Great. And sorry, one last question. I missed the comment about your manufacturing plant in Ireland. Are you going to have that complete for Rhopressa? Or is that in addition to what you may have now?

Vince Anido

Yes. We have contract manufacturing in place today, but one of the things that obviously these, we think, are going to be pretty substantial products. We do have worldwide rights for these products. So just forcing them all out of one facility just doesn't make any sense to us. And so that's why we turned and looked at a number of different areas and focused on the trying to do something in Ireland, obviously consistent with the fact that about a year and change ago, we transferred our ex-North American intellectual property offshore and we do have an Irish subsidiary that's very active already.

And we are conducting all of our clinical trials and all the work we are doing ex-U.S. or ex-North America is conducted through that office. And so we think that the manufacturing facility in Ireland from the day we start to the day we are ready to push product out the door, is roughly about a three-year process or so. And so we think that it will be for both Rhopressa and Roclatan, but for Rhopressa it will be about, we won't start sourcing until about the second year or so. After approval for Roclatan, it will be year or so after approval.

Annabel Samimy

Okay. Great. Thank you.

Operator

Your next question comes from the line of John Newman from Canaccord. Your line is open.

John Newman

Hi guys. Thanks for taking the question. Just one in terms of the NDA package for Rhopressa. If you have received an indication or gotten any sense from the agency that they may be interested in studies beyond Rocket 1 or Rocket 2? Or at this point, you think that's all they are going to require for this review cycle?

Vince Anido

Hi John. So all the back to when that we had our meetings with the FDA last year, which was our pre-NDA meeting, both they and us were fixed on the data being Rocket 2 as primary and the data from Rocket 1 as supportive of the Rocket 2 data. So that's all they are expecting to see. As we have said before, any trials that are conducted, for example like Rocket 4 will be ongoing by the time we file the NDA but once we have data and certainly safety data, more importantly, we will have to file to the IND. But it won't be filed directly to the NDA. The FDA will have a chance to look at it if they choose to, but it will not be officially part of the NDA package.

John Newman

But wouldn't you normally submit a safety update from any of the ongoing studies if you already --

Vince Anido

We would at the end of the year, yes. So that's the annual report that is required. So we would do that to the IND, not to the NDA.

John Newman

Okay. And then I just had one other question on the statistical analysis. Are there any analyses that you will be doing that are contingent upon prior analysis? Are there any gating factors such that if you have a number of different endpoints, you have to hit statistical significance on, for example the primary endpoint before you can go to the secondary? Or are they independent?

Vince Anido

No. They are all independent.

John Newman

Okay. Great. All right. Thanks.

Vince Anido

Yes, sir.

Operator

Your next question comes from the line of Serge Belanger from Needham & Company. Your line is open.

Serge Belanger

Hi. Good afternoon. Just a few questions. I won't push you on additional granularity for the September Mercury I results, but I guess can you tell us if you plan on presenting these results at a fall conference?

Vince Anido

We certainly have. The major conference coming up after we expect to have data, will be the AAO and certainly we will have an ability to, worst-case, set up our own way of delivering news to the physicians that attend. They do have a latebreaking component there and we will obviously do our best to get included in that. But at this point, it's too early to tell. But that will be the first one that's in the late October or early November timeframe.

But for you all and for a lot of physicians, we will have the same kind of calls that we have had in the past where we unveiled Rocket 1 and Rocket 2 data and we spent quite a bit of time on the phone with the clinical and medical teams going over the data with you. And so that everybody has a clear understanding of what we have. So you get, I am not sure how big the slide deck will be but in the past it's been 10 to 15 slides or something like that. So you get quite a bit of the information before it's even published.

Serge Belanger

Okay. And then you mentioned you were in launch mode as you get closer to NDA filing for Rhopressa. I think in the past you have talked about launching with about 100 reps in U.S. and I guess for the European plans, that's still to be determined by year-end. But I guess one of the options on the table was launching with your own sales force. Can you just tell us how many reps that would require in Europe?

Vince Anido

In Europe, so again, you are correct that in the U.S. it will be 100 sales representatives. In Canada, by the way, it's going to be roughly about 20 or so. So that will give us complete coverage there and in Canada maybe about a six to eight month delay or after the Rhopressa launch in the U.S. Now as far as Europe is concerned, a lot of it really depends on sort of what happens here and which of the markets we decide to go after. Because it could very well be that if we focus on just some of the major markets like the U.K. and Germany and France and some of these, that will dictate how big the sales force really needs to be.

So it totally depends on where we get the approvals. And right now, as you can imagine, the pan-EMEA approval is sort of up in the air with this whole Brexit thing. So we are just trying to get a better understanding, which is one of the reasons why Tom is over in Europe now to try and get a real good understanding of what are some of our options over there. So I am hedging in a way, because the sales force size in Europe is purely a function of which countries we go after first.

Serge Belanger

Okay. And you are still on track for EMEA filing around mid-2017?

Vince Anido

We are but the issue is, we are not sure it's going to be EMEA filing or whether it's going to be individual country filing.

Serge Belanger

Sure. Okay. And then one last question on potential manufacturing plants for Ireland. Can you just ballpark the required capital investment for that facility?

Vince Anido

Yes. It's probably the total all-in and not just in terms of capital, but when you look at the rent and everything else, it's sort of the way we look at the total expenses is a better way to look at it, it's roughly $20 million. None of these are particularly capital-intensive, but overall we are looking at roughly at $20 million to $25 million or something like that and just for that because everybody looks at, so why do that? We expect that the cost of goods of the product coming out of that facility will be roughly 50% of the cost of anything that we have under contract manufacturing. So given the volumes, not only of the finished product for sale but also for the samples that we would be using, it's certainly a significant savings and plus it gives us an alternate manufacturing site because again we don't want to be relying on just one just in case something happens.

Serge Belanger

Okay. All right. Thanks for the update.

Operator

Your next question comes from the line of Elemer Piros from Cantor. Your line is open.

Elemer Piros

Yes. Good afternoon. I would like to ask you about the way we are looking at in the second quarter expenses at this sort of steady-state level for the next foreseeable future until you finish or start winding down clinical trials. Is this a reliable sort of number where we are here in R&D and also the SG&A component?

Rich Rubino

Well, you won't be too far off, Elmer. When we gave our guidance over the past couple of quarters, we said that based on the $75 million in burn for this year, about 55% of it would be incurred in the first half. So you may see a bit of a softening in the overall expenses in the back half of the year compared to the first half. Looking forward to 2017, it's too early for us to be give 2017 guidance. But we have said certainly with regard to the clinical burden that should ease up somewhat 2017 compared to 2016. This is clearly our heaviest clinical burn year.

Elemer Piros

Yes. And if I may just ask a follow-up. The $20 million all-in expense of the Irish facility, the lion share would be incurred in 2016 or 2017?

Rich Rubino

No. It's going to be over a period of three to four years. So you are not going to get -- yes, it's over a protracted period of time.

Elemer Piros

Okay. That's all that I had.

Vince Anido

Elmer, the expenses on the manufacturing facility are typically backend loaded because we have to make three complete batches of each of the products that we will be selling out of there. And so typically, you don't that for the first year-and-a-half or two, make it sort of all towards the backend. And so that would be the year where the biggest expense comes from that plant.

Elemer Piros

Yes. Well, thank you very much for clarifying.

Vince Anido

Thank you.

Operator

Your next question comes from the line of Difei Yang from Brean Capital. Your line is open.

Difei Yang

Hi. Good afternoon. Thanks for taking my question. Just [indiscernible], the first one is on Rhopressa NDA submission. What were your expectations from the time of submission to the time when the FDA will say, okay, it's accepted. Is it s 30-day, 60-day process? Would you remind us?

Vince Anido

No. Typically they have up to 60 days to give you a refusal to file notice. But there is other gates that happen prior to that, some as early as a few days where we need to make sure that the file because it is electronic, the file makes it to their portal. So there is a whole series of gates like that. But we will start getting information from them relatively quickly. The good news about the ophthalmology group, based on our experience is, that they tend to communicate pretty quickly and start asking questions and they have done that in the past for us. So we will know sort of whether we are really on track or not. But officially it's really more of a 60 day window where they are required to let you know whether there is a problem.

Difei Yang

Okay. Thanks. And then just a question on what you are studying in general. So just to clarify, the primary endpoint is measured at six monthly. But you are going to collect additional data on longer time frames? So I guess my question is that, what happens if you measure six months far? Do you still have to meet the monthly primary endpoint? What if you missed some of nine points?

Vince Anido

No. The primary endpoint is the one where we use the nine time points. So that's at the 90-day mark.

Difei Yang

Yes.

Vince Anido

The other ones are just for informational purposes. And obviously we are pretty confident that the combination will continue working because both Rhopressa and latanoprost have been shown to be pretty stable in terms of their efficacy looking out over 12 months.

Difei Yang

Yes. Okay. Got it. And then the last question is for the conversation you had with the KOLs and the regulatory agency in Japan. Would you give us a little bit more color with regards to, you said they are excited. What are the top couple attributes of either Rhopressa or Roclatan that they are excited about?

Vince Anido

Well, the past that we have said most of the time or the product we have spent the most time on is Rhopressa because that's the first one in. And so what they are excited about is the data that we have already shown and we have shown you all about how well the drug works, especially at the lower pressures. And remember that, as I said earlier, the average pressure in Japan is roughly 17, 18 millimeters of Mercury. And so when you conduct a study in Japan and you open up the pressures from as low assay, 12 or 13 or 14 and go all the way to 36, we did that here in the U.S., the average pressure would be about 26 in a clinical trial. In Japan, it's in the high teens. And so they are very excited about the prospects of a once-a-day product that has a synergistic effect with prostaglandins that they can then add to their patients. And so they believe that the ability to decrease pressure by our three mechanisms, especially the episcleral venous pressure reduction, which is what leads especially, what we think, leads to the very low pressure or high pressure reductions at the low-end, that's what they are excited about primarily. So it's the once-a-day. But it's really the efficacy at the lower pressures.

Difei Yang

Thank you. And that's all my questions.

Vince Anido

Thank you ma'am.

Operator

Your next question comes from the line of Donald Lee from JMP Securities. Your line is open.

Donald Lee

Thank you very much. Actually my questions have been asked and answered. Thanks.

Vince Anido

All right Don. Thank you.

Operator

I am showing no further questions at this time. I would now like to turn the conference back over to Vince Anido, Chairman and CEO.

Vince Anido

Thank you and thanks everybody for listening. Obviously we are very, very excited. There is an awful lot of folks running around our multiple different sites, including now our office in Dublin who are very tired and just trying to get the ball over the goal line here and getting not only the NDA filed, but as you can imagine what it's like for a small 90-person company to go through and not only get an NDA filed which is a huge event in any company, much less a little one, but also at the same time unveil what we think is going to be a major a clinical trial for us in Mercury 1 for Roclatan. And so again, the excitement level here is pretty high. I think it is matched by the excitement level we hear from the KOLs literally in all the continents that we have visited. So we are excited about the prospects for our product and again thank you for taking the time this afternoon to listen to the call. Have a great day.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!