Insys Therapeutics' (INSY) CEO John Kapoor on Q2 2016 Results - Earnings Call Transcript

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Insys Therapeutics, Inc. (NASDAQ:INSY) Q2 2016 Earnings Conference Call August 3, 2016 10:00 AM ET


Lisa Wilson - IR

John Kapoor - Chairman, President and CEO

Darryl Baker - CFO

Santosh Vetticaden - Chief Medical Officer


Randall Stanicky - RBC Capital Markets

David Amsellem - Piper Jaffray

Kenneth Trbovich - Janney Montgomery Scott

Rohit Vanjani - Oppenheimer

David Steinberg - Jefferies


Good day, ladies and gentlemen and thank you for standing by. Welcome to the Insys Therapeutics Second Quarter 2016 Earnings Conference.

At this time, all participants are in a listen-only mode to prevent background noise. Later we will have a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded for replay purposes.

And I would like to welcome and turn the call to Ms. Lisa Wilson. Please go ahead.

Lisa Wilson

Thank you, Carmen. Welcome to the Insys Therapeutics’ second quarter 2016 earnings call. This is Lisa Wilson, Investor Relations for Insys.

With me on today's call are Insys’ Chairman of the Board, President and Chief Executive Officer, Dr. John Kapoor; Chief Financial Officer, Darryl Baker; and Chief Medical Officer, Dr. Santosh Vetticaden.

This morning, the Company issued a press release detailing financial results for the second quarter ended June 30, 2016. This call can be accessed through the Investor Relations section of the Insys website at, and you can also access the webcast of this call from there.

Before we get started, I would like to remind everyone that all statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the Company's future performance are considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Insys’ management as of today and involve risks and uncertainties, including those noted in this morning's press release and the Insys’ filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Insys specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.

A telephone replay of the call will be available shortly after today's call completion for one week. You'll find the dial-in information in today's press release. The archived webcast will be available for one year on the Company's website

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 03, 2016. Since then, Insys may have made announcements related to the topics discussed. So please reference the Company's most recent press releases and SEC filings.

And with that, I would like to turn the call over to Insys' Chairman, CEO and President, Dr. John Kapoor.

John Kapoor

Thank you, Lisa and good morning, everyone and thank you for joining this call. I am pleased to be with you today to discuss our second quarter 2016 results and to update you on our products and pipeline and further recent events.

Our company continues to focus on the four key priorities we outlined last quarter and they are, to stabilize and ultimately return to growth our Subsys sales, to launch and commercialize Syndros, to advance our new product pipeline and to resolve the DOJ investigation.

Let me begin with Syndros, we're very pleased that Syndros, our dronabinol oral solution receive approval from the FDA in early July and will become the second commercial product in our portfolio. This is especially exciting as it marks the first innovation in the delivery of dronabinol since the FDA first approved Marinol in the mid 1980s.

As an organization, we're looking forward to the commercial launch of Syndros, which should take place in the second half of this year. We are currently awaiting a scheduling decision from the DEA, which we expect in the next few months.

Syndros has been approved for two indications. First it is approved for the treatment of nausea and vomiting associated with chemotherapy in patients who have not responded adequately to the conventional treatments. The second approved indication is for the treatment of anorexia associated with weight loss in patients with AIDS.

Our sales approach will be to target healthcare professionals who currently prescribe Marinol as we highlight the benefit and new delivery system of Syndros as an alternative.

Looking ahead we believe that Syndros will be well received by the prescribers and patients and has potential of becoming a $200 million plus per year product at its peak. We are comfortable that our current sales force is well equipped to handle the detailing of both Subsys and Syndros.

Now turning to Subsys, which is part of the Transmucosal Immediate-Release Fentanyl or TIRF class. In the first half of this year we saw a decline of roughly 30% in prescription written in the TIRF market overall, from roughly 10,000 per month to approximately 7,000 per month. The fall-up in the prescriptions in this class reflects both the general public discussion regarding opioid prescribing and the opioid misuse and abuse.

This increased scrutiny has constrained the TIRF market and the increased scrutiny has caused third party payers to make it more difficult for patients to secure reimbursement for their prescriptions. Adverse publicity has also had a negative impact on our Subsys scripts.

Even in the face of this drop-off, Subsys consistently maintained its commending 44% market share. We continue to believe that Subsys will continue to provide a very solid financial foundation as we grow and mature as a company and we expand its commercial presence.

Restoring Subsys scripts to a growth path remains a priority and we have realigned the sales territories to ensure that we are optimizing the way we target and reach the appropriate healthcare professionals. We continue to focus on providers, who are current riders of Subsys as well as TIRF-REMS enrolled prescribers who are not currently prescribing Subsys.

We have also identified oncologists who are riding, long-acting opioids to include on our call list. In the midst of the opioid discussion, it is important that the CDC guidelines published in March, were aimed at patients who were receiving chronic opioids and did not apply to those getting active cancer treatment. To us that suggests that cancer treatment falls into a special category.

The American Society of Clinical Oncology policy statement went even further indicating that the cancer patients should not be subject to the dosing restriction and limits and that because they represent such a unique population their management or pain is best left to their physician.

This is a key acknowledgement that opioid constitute an important therapeutic category and meet a therapeutic need for physicians and oncologists who are managing patients with cancer breakthrough pain. We remain optimistic about the flattening out of the TIRF scripts and about our ability to eventually return to growth and maintain our market dominance going forward.

With regard to research and development we remain extremely committed to our ongoing efforts. We're very proud of both our talent pool and our promising pipeline of products, which Dr. Santosh will review in detail shortly.

We believe we're making important clinical progress with our sublingual spray platform and this will remain a key focus throughout the second half of 2016.

Our Phase 3 trial for buprenorphine product candidate for acute pain has been completed and the data will be available by end of this month. We have a date scheduled to meet with FDA before yearend to discuss the filing of the NDA.

Similarly we have completed our Phase 1 trial with naloxone and our meeting with FDA to discuss the path forward. Finally, we have requested a meeting with FDA to discuss the clinical development path for our dronabinol inhalation aerosol project.

Concerning cannabinoid, Insys has completed our Phase 1, 2 clinical trial in pediatric refractory epilepsy and will be meeting with FDA to discuss the next step.

We are continuing to make progress with respect to Department of Justice Investigation. We have provided an enormous amount of documentation and are engaged in substantive discussion. It is our hope that we are able to bring a resolution to this matter in a orderly fashion and in a relatively short period of time.

With that I would like to turn the call over to Darryl Baker, our Chief Financial Officer to review our second quarter financial results. Darryl?

Darryl Baker

Thanks John. Despite recent challenges, Insys remains profitable with a strong debt free balance sheet. We reported total net revenue of $67.1 million for the second quarter of 2016, which was a decrease of 13.5% from the $77.6 million in the quarter a year ago.

As expected Subsys prescription trends experienced softness in the second quarter of 2016. The decline in Subsys revenue was a reflection of the heightened publicity surrounding the national opioid epidemic and the resulting sensitivity by some healthcare providers to prescribe opioid. This sensitivity has affected the entire TIRF class.

At current prescription levels, we expect to remain profitable and to continue to fund our R&D efforts. GAAP net income for the second quarter of 2016 was $4.4 million or $0.06 per diluted share compared to net income of $7.3 million or $0.10 per diluted share for the second quarter of 2015.

Non-GAAP adjusted net income per diluted share for the second quarter of 2016 was $0.13 compared to $0.21 per diluted share for the second quarter of 2015. Gross margin was 90.7% for the second quarter of 2016 compared with 89.3% for the comparable period in 2015.

Sales and marketing expenses totaled $19.7 million during the second quarter of 2016 as compared to $22 million for the second quarter of 2015. As a percentage of revenue, sales and marketing expense was 29.3% during the second quarter of 2016 compared to 28.3% in the second quarter of 2015.

In the second quarter of 2016, R&D expense increased to $22.9 million up from $17.8 million for the second quarter of 2015. The rise reflects continued investment in our diverse products pipeline. We're very excited about our pipeline, both in sprays and cannabinoids and believe our commitment to R&D will result in significant value creation for stock holders and will help patients with many unmet needs.

General and administrative expenses were $13.9 million for the second quarter of 2016 compared to $15.3 million for the second quarter of 2015. Operating margin for the second quarter of 2016 was 6.5% compared to 9.4% for the second quarter of 2015. Cash, cash equivalents and short and long-term investments totaled $193.7 million as of June 30, 2016.

Thank you. I will now turn the call over to Dr. Santosh Vetticaden, our Chief Medical Officer. Santosh?

Santosh Vetticaden

Thanks, Darryl. As Dr. Kapoor mentioned earlier, we take a lot of pride and we're very excited about our diverse product pipeline and to that end, we're investing the resources that we need to achieve our goals. All of our products and development, focus on areas where we believe there is unmet or undeserved medical patient need.

In looking at our pipeline, it useful to break it down into two broad platforms. The first is the spray platform and the second is the cannabinoid platform.

The majority of our pipeline products employ either our proprietary sublingual spray technology or leverage our expertise and capabilities in the pharmaceutical cannabinoid space where we are leader in domestic production, research and development.

Subsys, our first commercial product is an example of the spray platform. This is an exciting and rapidly growing area for us. Our approach is to look at commercial drugs with no safety and efficacy histories, 505 B2 pathways and address clinical shortcomings by developing a spray version.

Our goals here are two fold, rapid onset of release and patient convenience. When we create a new formulation of an existing product, we can therefore expect a high profitability of success.

Our spray pipeline today includes buprenorphine, buprenorphine/naloxone combination and naloxone in clinical development and multiple of the sprays in varying stages of early developing such as ondansetron, rizatriptan and sildenafil.

Near-term milestones include the buprenorphine sublingual spray that we're currently developing. Our pivotal Phase 3 for acute pain has been completed and we expect to meet the FDA by the end of this year and are planning on filing an NDA subsequent to the meeting.

As mentioned previously, the buprenorphine studies in chronic pain are targeted for 2017 since the data from the acute buprenorphine study and the discussions with the FDA will need to be considered prior to embarking on that development.

Next we have Naloxone, a sublingual spray used to treat Opioid toxicity. This is a proprietary formulation that has fast track designation for the treatment of known or suspected opioid overdose. The benefits from Naloxone include a novel delivery mechanism that allows the treatment to enter the bloodstream in less than five minutes, potentially reducing overdose fatalities.

We believe our product will meet the criteria for attaining blood levels needed for effectiveness and matching or exceeding the levels achieved by the intramuscular formulation. We anticipate meeting with the FDA by the end of the year and filing the naloxone NDA subsequent to this meeting.

Initial trials for buprenorphine naloxone sublingual spray for opioid dependence have been completed. We are currently refining this formulation and target completion of the program in 2017.

Other compounds in this category are in varying stages of development. These include Ondansetron, the Zofran equivalent that is under development as a spray and a number of non-opioid analgesic including migraine treatments.

In summary, the sublingual represents a promising and diverse component of the Insys pipeline. The data and analytics that we gathered through our studies assist us in developing sublingual spray products for other molecules providing faster onset and improved bio availability.

We continue to explore multiple additional molecules as we deepen our pipeline and bring more advanced candidates closer to commercialization. Now let me turn to the cannabinoids.

Our research team is committed to the development and commercialization of synthetic pharmaceutical cannabinoids. With more than seven years of R&D in the space, Insys has an extremely promising program in the cannabinoids or CBD space today.

Syndros is part of our cannabinoid platform and as mentioned earlier, it receives approval from the FDA in early July and scheduling decision is still pending. It is an orally administered liquid formulation of the pharmaceutical cannabinoid dronabinol, a pharmaceutical version of Tetrahydrocannabinol.

Syndros offers the benefits of detectible plasma concentration within 15 minutes of administration and a low intra-subject variability of 14%. We look forward to the product launch this year and are confident Syndros will be an important commercial product in our portfolio and a significant long-term opportunity for Insys.

Cannabinoid or CBD manufacturing takes place at our FDA inspected and DEA approved facilities in Round Rock, Texas and gives us the advantage of being able to ramp up production of pharmaceutical cannabinoid to support future demand.

A second and equally important advantage for Insys is that based on available data, we can produce pharmaceutically, pharmaceuticals CBD that is a chemically identical to the CBD extracted from cannabis and our CBD is produced in a controlled environment rendering it 99.5% pure.

We're developing cannabinoids that is the non-psychotropic component of the cannabinoid platform for a number of indications. CBD has a significant market potential for the treatment of several forms of pediatric epilepsy. We recently announced that we completed our Phase I/II study in refractory pediatric epilepsy and are targeting a meeting with the FDA to determine next steps and the potential Phase III path.

We also have a trial ongoing in infantile spasms another epilepsy indication. If successful our CBD product will provide an important treatment option for this catastrophic childhood epilepsy and offer certain infants and children the potential to attain seizure control and achieve an improved level of development.

It is important to emphasize here that our formulation does not contain alcohol. It’s a medium change triglyceride formulation and this is the key consideration when targeting a very young population. In circumstances where a drug is taken chronically and an alcohol free product can avoid some of the development issues that may exist with the treatment that it does contain alcohol.

Our CBD program also has orphan drug designations for three other indications glioma, glioblastoma multiforme, and pediatric schizophrenia. There's also a wide body of literature suggesting the potential benefits of cannabinoid in treating numerous conditions and we are therefore looking at several other indications for which cannabinoid hold promise.

We believe that our formulation which is free from both sesamoid and alcohol, offer advantages over others and that our synthetic pharmaceuticals CBD can be produced at a significantly lower cost.

Our inhalation development program in both THC and CBD continues to progress well and we plan to meet with the FDA for a pre-IND meeting for the inhaled THC development program by the end of the year.

In summary, we continue to advance our pipeline on several fronts. We are pursuing multiple paths to getting to the market with our cannabinoid product. In addition by yearend, we will meet with the FDA to discuss our pivotal trials for buprenorphine acute pain our naloxone spray for opioid overdose and we’re targeting NDA filings subsequent to these meetings.

With that, I will turn the call back over to Dr. Kapoor for his closing remarks. Dr. Kapoor.

John Kapoor

Thank you, Santosh. Insys has significant near-term organic growth drivers that will continue to help us achieve our goals going forward. Our management team has a proven track record and our intellectual property is well protected through patents. We remain focused on maintain our market leadership position with Subsys and eagerly await the launch of our second commercial product Syndros.

Our pipeline is deep and future product candidates both in sprays and cannabinoid hold great promise. As always we remain committed to serving the patients who rely on our compounds while delivering value to Insys shareholders.

Thank you for your interest and support. We will now open up the line for questions. Please remember that the purpose of today's call is to discuss our quarterly results. Thank you very much and operator you can open the line for questions.

Question-and-Answer Session


Thank you. [Operator Instructions] And our first question is from the line of Randall Stanicky with RBC Capital Markets. Please go ahead Randall.

Randall Stanicky

Great. Thanks guys. Can you just talk about the strategy for the launch of Syndros? How are you going to hit both markets with the current rep base? John you said, you're not going to add addition reps.

And then secondly, how does that strategy change if you do get Schedule III, how does that from a commercial opportunity perspective, does that change your view?

And then finally just for Darryl and its related to the prior two questions. Where should we expect the $20 million run rate for sales and marketing to go? I assume this can be promo spend as you roll out even if you're not adding reps. So how should we think about the ramp in spend from there? Thanks guys.

John Kapoor

Thank you, Randall. This is John Kapoor. I think our strategy of Syndros is to target current Marinol writers. We have identified these writers and we've over 200 reps in the field right now. And the way we analyzed the Syndros market is the current writers of Marinol that are also potential writers of Subsys.

So, that makes it one call by our rep and they can sell Subsys as well as Syndros and then we have identified other writers of Syndros and primarily they happen to be the infectious disease guys who see AIDS patients that are not writing Subsys, so we have to go out of the Subsys call cycle to call on those guys.

But with our 200 plus reps, we feel we can cover almost 80% of the writers in this category and reach 75% of the market. So we think that, that is enough as we launch this product.

Now if this product gets reschedule at some point into Schedule III, I don’t think it's going to have a great difference in how we will be calling on these writers except it will have -- we can make some adjustments in our distribution system that's Schedule II.

Our distribution system is restricted in the sense that some pharmacies carry get it Schedule II product, but we have adjusted our distribution system to adapt to Schedule II. As you know we always felt that it will be a Schedule II product. So all our preparation for launch is around Schedule II and we feel pretty confident that we can get the product to the patients even though this will be a Schedule II product.

And then your question about the launch expenses, are they going to significantly change our percentage of sales and marketing expenses? I think you got to keep in mind we have 200 some reps and they only sell one product. So we have a great operating leverage.

So, we don’t see a significant change in our marketing expenses except the initial launch expense. For example, we have to have a launch meeting where we're planning to maybe bring all the reps together, but that too we do it very efficiently.

We decided that at least in the initial phase, we'll do a webinar with all our reps and then get them in each district and they can listen into the web, so that minimizes our launch cost. But then we have our national sales meeting, which is scheduled to be in end of January and we could just have a big launch of our product in January meeting. So we don’t think it's going to significantly affect our market expenses. Darryl, if you want to add?

Darryl Baker

Sure. What I would add Randall, we think of our sales and marketing expense largely it's variable to revenue and we were at roughly 29% of revenue in this quarter which is at the high end of the range where we would like to be. And so our expectation is that as we begin to start record revenue from the sale of Syndros that our sales and marketing as a percentage of revenue will continue to decline.

Randall Stanicky

That's helpful. And the one quick follow-up I had just for John, when you talk about peak sales of 200 plus, is peak year three or year five or how are you thinking about how many years it will take you to get peak to peak?

John Kapoor

I would say three years.

Randall Stanicky

Okay. It's great. Thanks, guys.


And our next question is from the line of David Amsellem with Piper Jaffray. Please go ahead.

David Amsellem

Thanks. Just a couple. So on cannabidiol, you mentioned the meeting with the FDA, are you going to actually disclose efficacy data or any end points later this year, maybe talk us through what kind of top line data results or even data presentation at medical meetings that you're planning on the cannabidiol product rather this year even next year?

And then secondly, I may have missed this earlier, but can you just talk about how we should think about gross to net on Subsys through the back half of the year? And also the first quarter of next year just bearing in mind that you had a pretty big gross to net in the first quarter and there was some seasonality. So just help us set our expectations for that as well? Thanks.

John Kapoor

Okay. Santosh, you want to take the cannabidiol and then I'll come back?

Santosh Vetticaden

Yes. Let me add to the cannabidiol question first. As you know the study was not designed to be an efficacy study. As we said in the past, it was a Phase I, Phase II study designed to understand the safety and the PK across a diverse pediatric populations with their refractory epilepsy. Clearly, as part of the study, we'll look at some of their seizure data, but that's very different from designing a study tended to address that.

So our meeting with the FDA is really to carve out a path -- subsequent path towards the Phase III. So we'll share the safety data. We'll share the PK data and discuss both the study design and the appropriate dose to take forward into Phase III. So that's the intent.

So as far as sharing the efficacy data, I don’t think that should be an expectation. So it's possible that at some point we might, but clearly that was not the intent of the study.

John Kapoor

And just to add to Santosh what he is saying as we outlined in our discussions, our CBD program covers lot of indications. There is a lot of effort going on. Some we will point out as we make progress and for obvious reasons we don’t want to get into that in an open forum.

But we have a huge investment in CBD. We have always said that. We have a plant that can produce kilos, and kilos and kilos of the material, which if this product becomes commercial for whoever is going to require a huge amount of quantities because it's a safe product even in grand quantities and will require a huge amount of product to meet the demand.

So we have a program that we are very committed to it and as I outlined, we are developing inhalation delivery system as well on CBD right to be followed by our THC program, which is we're moving very aggressively forward as you know the need for THC inhalation is huge and we think that would be a real good product to follow Syndros.

On the Subsys, your question regarding gross to net as we outlined that we've maintained our market share at the 44% level and even though the prescriptions have dropped which means that the whole market dropped and we being the market leader, we feel we have an impact on the market.

If we go down, everybody goes down and if we go up, everybody goes down. But in order to meet our market share of commitments we did lose some pricing adjustments and what have you. So our gross to net has widened and Darryl you might want to mention any comments here.

Darryl Baker

Sure. I'll give you a little bit of color on that, David. Our Q2 gross to net roughly it's coming it at rough -- we're netting roughly 60%. Historically we'd been at about two thirds that we've netted. And again I think the continued pressure from third party payers has required us to step in and provide a little more support.

We expect David that, that will continue to be a challenge as we move throughout the balance of 2016 and we expect there to be further downward pressure on our revenue as a result of that as we move throughout the balance of the year and into 2017.

John Kapoor

And we're confident that we can maintain the market share, which we believe is very important to us. And there is a lot of -- we are doing a lot of work in the Subsys area that we didn’t really talk about today, but for example we just completed a study on the opioid naïve patients with Subsys that is going to be published shortly, which we're going to use that information to pursue indications like in the ER as far as in some other procedures.

So there is a lot of activity that is going on in the Subsys space from us and we believe we are the only company out there in TIRF market that’s doing any research. So we think that eventually all that is going to help our Subsys sales and therefore, it’s important for us to maintain the market share we have.

And we believe we have the best product in the space with the features we have and the acceptability by their CPEs and the patients is huge and so we will stay competitive.


And our next question is from the line of Kenneth Trbovich with Janney. Please go ahead.

Kenneth Trbovich

Thanks for taking the questions. I’ve got a couple. Darryl, I guess the first question, can you give us an update on channel inventories. I know when we started the year, you had made a comment about channel inventories essentially being drawn down and obviously, there was a potential that you would see that sort of return to more normalized levels. Can you give us a sense as to where we’re at and how much of that adjusted during the quarter?

Darryl Baker

Sure Ken. We’ve consistently strived to maintain our channel inventory levels at roughly between 25 to 30 days worth of inventory on hand, and that has been consistent. So as of the end of Q2, we’re in that 25 to 30-day channel inventory range.

Kenneth Trbovich

Okay. And then just with regard to Syndros, I know, obviously, it’s exciting to have the approval and we don’t even have the scheduling, but there has been some talk in the past, you folks have talked about the possibility of doing studies to expand, potentially the indication.

Where would that fall in terms of priorities for development, obviously got a full pipeline, is that something that you see as being three to five years out, as a means of continuing to grow the brand or do you see that as something that’s important to help to define the use of the product in the shorter term?

John Kapoor

This is John Kapoor. We had identified a number of indications that we felt we can pursue with Syndros but we wanted to wait till we have the final approval, because we didn’t want to go to the FDA and discuss INDs and what have you for new indications while we were still waiting for the Syndros approval.

Now that we have the approval, we're going to be approaching FDA’s to see what other indications we can pursue with Syndros and Dr. Santosh, maybe you want to point couple that you're looking at.

Santosh Vetticaden

No. As Dr. Kapoor mentioned that really was always the plan as we didn’t want to muddy up the discussions with new indications, while the FDA’s has our application under review and other discussions are ongoing, but I think now the time, it’s the right time for us to start those discussions.

In the past we’ve talked about a number of indications. I think there is a lot of potential for THC and some of the ones that we’ve highlighted in the past, for example, Alzheimer’s Dementia, millions of patients with Alzheimer’s experience Dementia. There has been data that we've presented in prior forms that show that THC could potentially be a benefit in those settings.

And so we have designed those trials. We’ve spent a great deal of time, thinking about it, timing it and I think now is the question of discussing that. Other indications that we’ve also looked at for example, currently our indication is for anorexia, so if there is weight loss in AIDS, there is certainly a data out there addressing weight loss in other patient settings.

Oncology is an example and so that dovetails well with some of the other areas that we are focused on. So that’s another area under consideration. This is a short list. Just like the other cannabinoids, we look at a variety of indications and then prioritize them.

Kenneth Trbovich

Okay. And then from a scheduling standpoint, have you gotten any feedback from the DEA with regard to or even the FDA with regard to the recommendation on the scheduling or timing? Should we be looking at the 90-day window and thinking that that’s reasonable or are there other factors of play here that may be alter the timing on scheduling for Syndros?

John Kapoor

I think your 90-day estimate is a good one.

Kenneth Trbovich

Okay. And they just finally on CBD, I have couple of quick questions. Obviously, GW has good data from Dravet and LGS, certainly has a plan to try to move forward, can you talk strategy-wise whether or not you look for an opportunity in epilepsy and other indication perhaps or whether you try to do simultaneous developments on indications, epilepsy being one, but perhaps outside of epilepsy, where the orphan designation is not going to prevent you from moving forward?

John Kapoor

So with CBD, I think our position has not changed. We remained focused on epilepsy. Currently with GW also being in the space, it remains to be seen and we've said that until a drug is approved, there are -- we will continue to look at epilepsy as a space and part of our FDA discussion will span around opportunities related to that.

Having said that, CBD is based on the literature, there’s a number of indications for which CBD may potentially provide benefit and so we constantly look at this and we have internally look at indications that we’ll be pursuing in addition. Infantile spasm is an example of that, that happens to be in epilepsy, but we’re also looking at non-epilepsy indications that we will potentially pursue.

So our philosophy or it’s our approach is that there are multiple avenues to get CBD developed and on the market and we’ll pursue one or more of these opportunities, depending upon the landscape.

Kenneth Trbovich

Okay. And then last question, just with regard with the CBD Phase I/II PK study that you’ve completed, is there anything you can comment on with regard to the drug interaction with actually Clobazam and whether or not the interaction that you’ve seen is consistent with what’s been published in the literature or different?

John Kapoor

I will not comment specifically on our data, but I think it’s commonly understood that both CBD and Clobazam go through the P450 system in the liver and so they will interact or likely to interact, that certainly has been reported with the CBD trials in the past.

And so it’s something that has to be considered when a trial has to be designed because the challenges that certainly Clobazam is known to have efficacy in both Dravet and potentially LGS and so the question is, how do you ensure that any efficacy that you see is not confounded by the levels of Clobazam already in place.

And that’s something that will be incorporated into our design considerations when we anticipate moving into Phase III. I’m not sure if all of the trials that have been done to date have incorporated that strategy, but I think they’ll be an important one to consider for anybody developing drugs in the space with CBD.

Kenneth Trbovich

Okay. Thank you. Appreciate it.


And our next question is from the line of Rohit Vanjani with Oppenheimer. Please go ahead.

Rohit Vanjani

Hi. Good morning. Thanks for taking the questions. For the FDA meeting for buprenorphine/naloxone and the third one, I think it was for CBD in refractory epilepsy. Are those separate meetings? Are they all around the same time or even at the same meeting?

John Kapoor

So it was buprenorphine in acute pain, just to correct that. So we have a few meetings coming up. Three or four to be precise, one is the CBD development and we’ll be having that meeting shortly.

Subsequent to that is our meeting for naloxone spray for Opioid toxicity. That’s also going to that happen by the end of the year. The third will be the buprenorphine in acute pain. So not buprenorphine/naloxone but buprenorphine in acute pain and that also we anticipate to happen by the end of the year.

Additionally, we mentioned that we are likely to also have a pre-IND meeting for the THC inhaled development. So there’s I should say, a flurry of activity as far as meeting with the regulatory bodies is concerned, which is all good because when that -- that means that we have a number of drugs that are in the stage of development, where two of them potentially NDA filings after we have the FDA meetings, which is the buprenorphine in acute pain and naloxone spray and of course CBD will be covering the path forward, and then similarly for THC inhaled it’s defining the develop strategy. So a lot of exciting development activity towards the -- as we move towards the end of the year.

Santosh Vetticaden

Rohit, buprenorphine/naloxone, we have been in touch with FDA on an ongoing basis because that program has been ongoing for the last year or so and there has been a back-and-forth communication with the FDA on that development and that’s also moving along?

Rohit Vanjani

Okay. And then you discussed first I think last quarter and this quarter, you discussed first stabilizing with Subsys scripts and then after returning to growth trajectory. I guess I was confused by some of the commentary because your share is stable.

I’m just wondering if you feel largely that you’ve accomplished that stabilization phase and you're expecting quarterly growth for the second half of '16 or is there still a lot more work to be done for that stabilization?

John Kapoor

Well, what that means is that our market share is stable means that if the scripts have gone down, it’s because the entire market has gone down. Nobody is not like we lost scripts and it was picked up by somebody else or our competitors. That’s the point we wanted to make.

But we do admit that the market in entirety has gone down because of the publicity and what have you and some of our adverse publicity has had impact specifically on us.

But what happens is because we are the market leader, if we go down, everybody else goes down. So that’s an interesting phenomenon. So what that means to us is that as we move forward and implement some of the strategies that we've been talking about in Subsys, that we will be able to have influence on this market.

Now looking at quarter-to-quarter and say, have we reached the bottom, we think the market share had stabilized, so look at the market share, that’s very important to us and it may go down a little bit overall market, but I think we’re -- the total market is hitting the bottom. As they say, bouncing around at the bottom.

So we’re like bouncing around up-and-down, up-and-down kind of a situation, but we believe that as we move forward, the fact that the we pointed out the CDC guidelines do exempt cancer patients and the ASCO guidelines are more specific, and trying to educate people SETs that hey, if you have cancer patients, opioids -- you can use opioid, don’t be afraid and that’s something that we plan to do and have started doing.

So I think some of these things are going to have impact as we keep moving forward. But the fact that we maintain our market share and have the major market share is important to us and is a good sign.

Rohit Vanjani

Okay. And then you mentioned the CDC guidelines for chronic opioid users versus cancer patients, do you know what percent of Subsys patients are cancer versus non-cancer?

John Kapoor

Well, we don’t track that because we leave to it up to the physicians, but we believe significant part of our population is in oncology patients.

Rohit Vanjani

Okay. And then I think last quarter you said there was a about $7 million wholesaler inventory reduction, did you get that most all that back in Q2?

Darryl Baker

Rohit, again, we talk about days in inventory in the channel 25 to 30 days, so the phenomena we experienced in Q1, the draw down was just a function of the 30% decline in overall demand for the product. And with demand having largely stabilized, Q2 compared to Q1, and wholesale inventories maintaining at that 25 to 30-day level, relatively consistent channel inventory levels from the end of Q1 to the end of Q2.

Rohit Vanjani

Okay. And then just the last one for me, the G&A, I think, the G&A component of the SG&A was lower than what I was anticipating, is that any indication that the litigation expenses are winding down? Or is there any update where kind of see an end of sight there?

John Kapoor

Well, as we mentioned, we have provided millions of documents. Every time we have to provide documents, it costs a lot of money to the company. And that part has been winding down. So you’re seeing impact of that in our SG&A.

And as we move forward, obviously when and if we settle this, then there will be another step down in our SG&A, primarily from the legal expense side…

Rohit Vanjani

Okay. All right. Thanks for taking the question.


And our next question is from the line of David Steinberg with Jefferies. Please go ahead.

David Steinberg

Thanks and good morning. I wanted to get a little more granularity on the Syndros opportunities and specifically some of the revenue buckets within it. So essentially two types of patients, the cancer patients and the AIDS HIV patients.

And I just curious given one of the key attribute of the drug is more rapid absorption, the patients with in support of share oncology where they have nausea need quick relief. With the product in your mind do better in that population versus the product weight gain patients?

And secondly in terms of reimbursement, also with the oncology perhaps a bigger revenue opportunities in the sense given those patients are on commercial paid plans whereas in HIV AIDS, most are Medicare and Medicaid patients?

Darryl Baker

Well I think we -- although these features are there, we've done some KOL meetings and what have you and those features are appealing, but the patient experience will determine more when we launch the product. And you're right about the two markets one being, AIDS market being more Medicaid, Medicare and the other one little more flexible market and we are prepared for both sides of the markets.

I think one thing is the current product Marinol is a generic product. It has absolutely no support. As you know, it goes through the generic channels means the manufacturers sell it to the wholesalers and then to the retail. So there is no support to the product. I don’t even know how many of the riders, have been riding it for years and years and nobody has gone and told them about the product, what it can do or so on and so forth.

So we think we could create a lot of interest. We're going to support the product in terms of prior off and few other areas where the doctors we have talked to or prescribers have to spend time and they don’t have time and if we can support the product. So there is lot of things we are doing that we think is going to give us the market share that we are counting on getting.

But time will tell that’s why we say the peak of potential 200 million in three years, we're not saying we're going to get it in the first year. But we are giving ourselves time. We think we're very optimistic and time will tell. So we're very ready to launch the product. Our sales people are ready. Our cost as I mentioned earlier is going to be minimal in terms of -- we have operating leverage and we're very excited.

David Steinberg

And John, just thinking about maximizing the opportunity, are you working on or have you considered doing superiority study to Marinol particularly given the fact that your product likely to be priced higher than generics and you want further reason for doctors to prescribe your drug, is that in the works, is that something you're considering?

John Kapoor

That’s something we are looking into as down the road. But the launch is going to be based on primarily on our current data. That’s depending upon what the regulatory would allow us but there are features in there that are appealing to our SEPs already.

David Steinberg

Okay. And just one follow-up, I know you have a share repurchase program opened, did you buy any shares in the most recent quarters and if so, how many?

John Kapoor

Yeah, David let me grab that for you. I will tell you in total we have repurchased to date roughly just under $33 million of the $50 million that was authorized by the Board, I am trying to -- download for you, what we did in the quarter. We purchased just over 200,000 shares during the second quarter.

David Steinberg

Okay. Thank you.


[Operator Instructions] And our next question is from the line of Ken Trbovich with Janney. Please go ahead.

Kenneth Trbovich

Thanks for taking the follow-up. John I know mentioned just earlier, just in response to a question that you folks winded down the process of responding to the subpoenas on document for the preparation or response back to them on that side?

And earlier in the call you mentioned the possibility of relatively short time, does that for a potential settlement, does that mean we're still on track for settlements for the end of the year?

John Kapoor

Well we're hoping, but you know dealing with the government, they have their own pace. I wish we could sit down with them and resolve it tomorrow, but it doesn’t work that way but we're very optimistic that it could happen by end of the year.

But again I qualify that by saying we're dealing with government and elections and what have you, but if there is any delay, it's not from our side and we continue to have dialog with them on an ongoing basis.

Kenneth Trbovich

Okay. Terrific. Thanks for taking the question.


And ladies and gentlemen, this concludes our Q&A session for today. I would like to turn the call back Dr. Kapoor for final remarks.

John Kapoor

Well, I just want to thank everybody for taking your time and listening to our quarterly results. I think this is as you can see we spend over $20 million in R&D in the last quarter and with $60 million some in revenue. So that shows our commitment to future of the company and I would like you all to pay attention to that aspect of this company.

We have a great product in Subsys and it’s giving us the resource which we are spending wisely and developing new products and as they come on the market, we have a great operating leverage. So we're really very optimistic about the company. I have never felt better about the company then before.

So with that I will close and look forward to our next quarter call and giving you update as things develop in the mean time. Have a very good day. Thank you.


Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day, everyone.

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