Aerie Pharmaceuticals' (AERI) CEO Vicente Anido on Q3 2017 Results - Earnings Call Transcript

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Aerie Pharmaceuticals, Inc. (NASDAQ:AERI) Q3 2017 Earnings Conference Call November 8, 2017 5:00 PM ET

Executives

Richard Rubino - CFO

Vicente Anido, Jr. - Chairman and CEO

Thomas Mitro - President and COO

Analysts

Annabel Samimy - Stifel

Tyler Van Buren - Cowen & Company

Adnan Butt - Guggenheim Securities

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Aerie Pharmaceuticals Third Quarter 2017 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, Giles. Good afternoon and thank you for joining us today. With me today are Vince Anido, Aerie's Chairman and Chief Executive Officer, and Tom Mitro, Aerie's 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 press release.

Now for forward-looking statements and non-GAAP financial measures. On this call, we will make certain forward-looking statements including statements, forecasts and guidance regarding our future financial and operating performance, cash burn, the success, timing and cost of our clinical trials, and the timing of and our ability to request, obtain and maintain FDA or other regulatory approval of our product candidates. We will also discuss the clinical effectiveness, commercial launch and potential future sales of our product candidates, the timing and cost of our manufacturing activities, 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 will file our 10-Q tomorrow. In addition, during this call, we will be discussing certain adjusted or non-GAAP financial measures. For additional disclosures relating to these non-GAAP financial measures, including a reconciliation to the most directly comparable GAAP measures, please see today's press release which is posted on our website.

As a quick financial update, our third quarter 2017 GAAP net loss was $32.4 million or $0.89 per share. The net loss for the third quarter 2017 includes non-cash stock based compensation expense of $6.6 million. When excluding the non-cash stock based compensation expense, our total adjusted net loss was $25.8 million or $0.71 per share. For additional information regarding our third quarter 2017 results full year results and prior period comparisons please refer to today's press release and tomorrow's Form 10-Q filing.

We ended the third quarter 2017 with $282 million of cash, cash equivalents and investments. Our third quarter year-to-date 2017 cash burn was $74 million, which is in line with our previous full year guidance of $100 million to $110 million. The recent asset acquisition which we announced on October 5, reflected a total cost of approximately $25 million including $10.5 million in cash and 263,000 shares of Aerie stock for the remainder of $25 million.

With that on a full year basis, we are now guiding to cash burn in the range of $115 million to $120 million, which includes the $10.5 million towards the asset purchase, and importantly an acceleration of preparatory expenses associated with Rhopressa commercialization. Our year-end 2017 cash, cash equivalents and investments balance is now expected to be approximately $240 million.

From a modeling perspective, please ensure that you'll include the additional 263,000 shares from the asset acquisition early in the fourth quarter in your share count estimates. Also your model for fourth quarter EPS should assume the entire $25 million from the asset acquisition announced on October 5 is recorded to R&D expense or in the fourth quarter.

With that I will turn the call over to Vince.

Vicente Anido, Jr.

Thanks Rich and good afternoon everybody. Thanks for joining us today. We're currently at the American Academy of Ophthalmology Conference here in New Orleans. And we're just very proud of everything we've accomplished to date, that we're hearing quite a bit of buzz about our company Aerie, especially our products Rhopressa and Roclatan and really just fueled by the fact that not only we've had success in the clinic but also a very successful FDA Advisory Committee meeting on October 13 on Rhopressa. And certainly there, while the overwhelming positive panel vote is not a guarantee of ultimate FDA approval on our February 28, 2018 PDUFA data, we surely are delighted with the Advisory Committee outcome.

During the panel it was clear that there was an unmet need in treating Glaucoma and it was certainly understood that Rhopressa is effective at lowering intraocular pressure dosed once a day with tolerable adverse event profile. As Rich mentioned earlier in light of the good news at the Advisory Committee meeting as well as from our contract manufacturing perspective, that I'm sure you've heard about here in recent days, we are accelerating certain of our commercialization preparation expenses for Rhopressa from early 2018 into 2017.

While we fully expect a Feb 28 of next year PDUFA data, we believe it is wise to prepare for the same, to accelerate. Now certainly we're doing everything we possibly can with the FDA to answer all their questions. As you know from the Advisory Committee meeting we actually got into label discussion as part of that meeting et cetera. So it is important for us to be ready in case the FDA decides to give us an early Christmas present and approve the drug earlier. So we are accelerating some of those commercialization expenses in order to do that.

We're now at the late stages preparation for Rhopressa commercialization, including hire additional sales executives, marketing access folks and certainly a lot of medical affairs folks in order to get our messages out. The team is making excellent progress in refining the launch plan, including completing volume and revenue assumptions. We expect to provide you with guidance on key assumptions pending approval next year.

As we've discussed previously, we do plan on hiring a sales force of about 100 sales representatives. The sales force won't get hired until we get the approval letter. Assuming a February 28 approval the sales reps are expected to be trained by the end of the second quarter and begin their detailing efforts and sampling efforts et cetera in a meaningful level during the third and fourth quarters of 2018. Note that in the back half of 2018, we expect to be ramping up with coverage on commercial formularies only.

Medicare Part D formularies, which represent about half of the U.S. market really won't cater till beginning of 2019, since they’re on an annual cycle. Because of our February 28 PDUFA date we do expect that the company April submissions for CMS reimbursement that we should be on many of the plans, that are relevant when they make their submissions in April, which will allow us then to get coverage in the beginning of 2019.

In the meantime, our medical and scientific meeting for the top payers have gone very, very well. We look forward to commencing contract negotiations pending the potential approval of Rhopressa.

Now moving on to Roclatan, our programs there remain on track. We’re preparing for filing our NDA sometime in the second quarter of 2018, as we await the 12 months stability data on our manufacturing batches, which are necessary before we file.

The level excitement among physicians about Roclatan are very, very high, and we’re seeing quite a bit of that here at the AAO this week, especially as we start meeting with a lot of physicians and share the story, and share the data.

Moving beyond the U.S. in addition to the European Phase 3 trial, Mercury 3, which is underway in Europe for Roclatan, we’re also about to commence our Phase 2 trials on Japanese and Japanese Americans in the U.S. as a precursor to conducting Phase 3 trials in Japan for Rhopressa. With these trials in process, our global expansion strategy is moving forward, very, very quickly.

Now let’s look at earlier stage pipeline, including our pre-clinical retina program. As you may know the retina market in the U.S. is about 5 billion in 2016, roughly double the size of the glaucoma market. We’re fortunate enough to have two pre-clinical product candidates for this market. The first one we’ve talked about in the past, it's AR-13154, which is a Rho kinase inhibitor that also inhibits protein kinase C with the potential to treat both diabetic macular edema and Wet Age related macular degeneration.

Now this is completely new pathway for treating these diseases and A-13154 has shown in preclinical experience, to meaningfully add to the efficacy of market leading Eylea, while being very efficacious on its own, on a standalone basis. As part of our recent acquisition of the PRINT technology from Envisia we now have a second product designated as AR-1105, which is dexamethasone steroid for the treatment of diabetic macular edema in the PRINT technology.

Pre-clinical activities are ongoing for both 154 and 1105. And we’re enthusiastic about each molecule's potential in the marketplace. The capabilities we now have to our DSM collaboration, provide exciting opportunity to get long-term sustained release for small molecules, such as our product 154. Now on top of that, we also have manufacturing platform to make ocular implants in precise shapes and sizes, through our exclusive ophthalmic rights to the PRINT implant manufacturing technology which we acquired just at the beginning of this quarter.

Further, as you know, we own a very sizable library of kinase molecules each with unique features and attributes that ultimately, they serve a purpose beyond treating diseases of the eye. We’re commencing the screening of our molecule library for additional indications beyond ophthalmology, where Rho kinase inhibition may provide a benefit.

The list of potential indications is long, but there perhaps the obvious to us include pulmonary health, such as pulmonary fibrosis, bronchial asthma, lung dermatology and cancer. We will report on our progress in these efforts over the next several quarters.

So in conclusion, we made tremendous progress over the last few weeks and months. And I'd like at this point to turn it over, back to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Your first question comes from the line of Annabel Samimy from Stifel. Annabel, your line is open.

Annabel Samimy

Hi guys, thanks for taking my question, and congratulations on a positive outcome [ph] I haven’t talked to you since. And speaking of AdCom so, there was some discussion about specifying IOP levels in the label and I know that you had mentioned that there were some [indiscernible] in the outcome, we saw in black line version. So you've spoken in the past of IOP not being carved out for other drugs. Do you think that this might be a possibility in your drug, is it a major negotiating point there, and is there anything else in the conversion of the FDA supply that that you take issue with or you would want to negotiate with them?

Vicente Anido, Jr.

Hi, Annabel, Vince here. So we don't think that they’re going to use this particularly to make a point here, because there are other studies or other products that have been approved, that have used lower baseline pressures and there has been no mention of that internally, if you go back to the transcript of the Advisory Committee Meeting, I thought that [indiscernible] President of the FDA was pretty clear about those kinds of things and they are included on the label and they do approve things, just based on specific indications, which I think ours is going to be general just like everybody else is.

And as we've said before, we think the dimension of intraocular pressures is going to show up in the clinical section of the package label, which is exactly where they had it in the draft label that they started with. And so I think it's important to note, and while we certainly are negotiating pretty hard that we thought that the draft label that they proposed was relatively tame [ph] and pretty straight forward. And so it's great starting point for us.

Annabel Samimy

Okay. Great, yeah, I thought so as well. So then on moving over to the manufacturing side, obviously outside of regulatory approvals, that's comforting because now it seems like that hurdle is out of the way for your PDUFA for Rhopressa. Now you’d mentioned you’re still looking for twelve months stability for Roclatan. So is that implying that the FDA has no interest in using the older batches and you can’t push that forward, the filling forward or have you not had that discussion with the FDA?

Vicente Anido, Jr.

So, again for Rhopressa we made those batches all the way back in 2015. So there is no issues from a manufacturing point of view. So we think we're pretty clean there and we do agree with you, and very happy to, there is not often that we're happy to see a potential competitor get approved. But certainly here is a case where we were.

On the Roclatan batches, remember we had to redo those batches at the beginning of this year because they didn't get -- the original batches we made at [indiscernible] in terms of the issues that they were facing. And so we've talked to the FDA about that, and as we've said before, and we do we talk to them but they are still insisting that we do the twelve months stability again. So given that, that's why we've been calling out that we are going to see an NDA submission for Roclatan sometime in Q2 of next year of 2018.

Annabel Samimy

Okay. If I can entertain one more question, just moving to international, you I guess you are about to initiate a Phase 2 in Japanese patients. Can you tell us what the specific clinical requirements are of the Japanese study? I know obviously FDA requires comparisons against [indiscernible], I can imagine it's the same thing in Japan or maybe it is, maybe you can just give us an idea of what their studies might look like?

Vicente Anido, Jr.

Everybody has different things to do in Japan to get their drugs approved and we're no exception. And so we have another Rho kinase inhibitor in Japan called Glanatec, that was approved about 2.5 years ago. And so that gives us a little bit of -- it gave us a little bit of understanding as to what may come our way and in fact they did. Once we complete our Phase 2 trials on Japanese and Japanese Americans here in the U.S. the Phase 3 trials in Japan are going to be twofold, number one, we do believe that we're going to have to do a trial where you take Prostaglandin patients, then you split them up in to half and you take one side gets only Prostaglandin and the other side gets Prostaglandin plus Rhopressa, so adjunctive therapy.

And then we'll have to run those out for some specified period of time. So that will be for efficacy. Then we'll have to do with a separate safety trail to run out twelve months. And so based on the discussions that we've had with their PMDA, which is their equivalent of the FDA, those are the two Phase 3 trials that they currently believe we'll have to do. Obviously all this can change pending any results out of Phase 2 but we don't -- we've been in enough studies now, where we don't expect any surprises there.

Annabel Samimy

Okay. And that Phase 2 you said is an open label?

Vicente Anido, Jr.

No, it's just very traditional Phase 2 trial. We have to do dose ranging specifically on Japanese and Japanese Americans and things like that. So -- but it one of those where we have to compare different concentrations.

Annabel Samimy

Okay, got it, great. Thank you.

Vicente Anido, Jr.

Thanks Ann.

Operator

Your next question comes from the line of Tyler Van Buren from Cowen & Company. Tyler your line is open.

Tyler Van Buren

Hi, guys. Good afternoon and thanks for taking the questions. Vince in your prepared remarks you mentioned a potential early Christmas present, which kind of peaked my interest. In terms of the Advisory Committee Panel you had a pretty good sense on when the timing would be for that. So just curious to hear some additional thoughts on, I guess why it could potentially come out early. Clearly, we're all expecting February. And is it just a matter of the kind of advanced discussions that you guys had on the label with the Advisory Committee or is there anything else in particular that leads you to believe that it might come that early.

Vicente Anido, Jr.

Well, there is two really two points that lead to the potential for an early approval. And again one of those was the fact that they did have the label as part of the Advisory Committee meeting. I can't find anybody that's in my position in any point that is gone through Advisory Committee meetings where actually they showed a draft copy of a label. So that was a bit unusual, and -- but we think that's a positive, because I think that, that shows that we made an off a lot of progress certainly with the clinical section of the FDA.

On the CMC side, the Chemistry manufacturing controls, we think that the recent approval for that -- the contract manufacturing site is certainly is real positive for us. They have another approval for another PDUFA date for another one of their products coming up before the end of the calendar year. So that would give us a second shot on goal, and again assuming everything continues to be positive, we'd like to think that we've answered all the other CMC questions. But they really have to go and do all their finish all their inspections and things like that.

And so they can always hold up something for any number of reasons and hold it to the PDUFA date. But on the other hand things have gone really well so and we tried to answer all their questions. And so maybe they'll feel like they'd like to get another feather in their cap and get another approval into the calendar year. And so certainly we are trying to do everything we possibly can to make that happen.

Tyler Van Buren

Great, that's helpful color. And hopefully you guys do get an early Christmas present. With respect to the payer conversations clearly you guys have done a lot of surveys over the years and have a pretty well defined plan when it comes to pricing and access. But maybe you could just give us a little more clarity, in these more recent meetings you'll have leading up to a potential approval. And then once you guys get approval, how those conversations change with respect to the formal presentations and how you would expect the coverage by commercial plans to progress over the course of the months following the approval and the launch?

Vicente Anido, Jr.

Yeah, as you know we get to cheat a little bit because we have somebody in Rich that certainly knows this space very, very well. I haven't been on the other side. So the nice thing is out since we both got here back and over years ago we haven't seen any changes in the feedback we've gotten from managed care. But to be a little bit more specific. Let me turn it over to Tom, the managed access guys report up to him. So I'll let him chime in here.

Thomas Mitro

Hello Tyler, so it's Tom Mitro. So what we're finding with our managed care organization is first off we're getting a lot of organizations that are requesting presentations from us. So they really want to do two things, Tyler. They want to get a scientific presentation that explains what our drug does, why our drug is different and how it performs. And they're very eager to hear that presentation. By the way not just for Rhopressa but actually very early even for Roclatan.

But then they want a categorical review because it's really been a long time since they've actually dug their teeth into what the difference between our beta blocker and alpha [ph] and what are the upsides and downsides in all that kind of stuff. Of course what we can't to do as you know at this point is begin any sort of negotiation around our product at this time. But once you get through their questioning is we get a sense for some of the positioning they're thinking about in their mind that we're very favorable for them.

The other thing is they've -- managed care though they want to get obviously the best price they can get the other thing they want to do, and they're very clear on that is they don't want to keep new MOAs or new medicines away from the clientele that they cover. So to our viewpoint from where we are right now they seem to be very eager to have next round of questioning which will occur when we get the final approval, then get down to the negotiation part.

But the good thing we are seeing is we are not seeing people shaking their head on the other side of the table when our folks are talking to him, giving us a sense of we would have a major uphill large client, quite the opposite they seem very eager to work with us to get the product cover on the formulary.

Tyler Van Buren

And you still think eventually getting Tier-2 is it possible overtime?

Vicente Anido, Jr.

With our dollar [ph] figures it's highly possible, obviously not in every case but in the vast majority of cases that’s exactly what we are going to and we know that -- we certainly believe that people form the best majority of managed care organization.

Thomas Mitro

That’s right. That’s the ultimate goal. We don’t expect to land on Tier-2 on day one, with all the plans of course. Sometimes it takes a few quarters but that’s the goal.

Tyler Van Buren

That’s really encouraging, thanks for the thoughts.

Operator

Your next question comes from the line Adnan Butt of Guggenheim Security. Adnan, your line is open.

Adnan Butt

Thanks, and congrats from me too on the panel vote.

Vicente Anido, Jr.

Welcome back.

Adnan Butt

Thank you, Vince and team. So first question on -- in terms of your payer conversations even if the FDA is not focused on IOP level, is that possible for the payers to show a preference for IOP level for -- in terms of having the drug -- in terms of paying for the drug. And then second, I imagine you do not expect step therapy for Rhopressa but for Roclatan have those discussion come up, or is it too early?

Vicente Anido, Jr.

So the -- again nothing has changed since the very beginning of our start into managed care all the way back to 2012, and it seems like the, most important thing for them at this point based on the scientific/medical discussion we have been having with them, really the fact that's it's a novel mechanism of action. It is once a day, and it does treat patients pretty consistently and because of the clinical trials that we have done, not with only with Rhopressa but then with Roclatan, where there is Prostaglandin then on broad, we have been able to show pretty darn good efficacy across all IOP levels.

And so we think that most of their reimbursement is going to be not driven just purely by IOP because they certainly have an awful lot of drugs, that have never been shown to be non-inferior to Timolol, that are reimbursed. And so we think that it’s going to be on again the mechanism, be novel, the fact that it is once day et cetera and so an adjunctive therapy.

Thomas Mitro

Yes. Adnan, it's Tom, I just wanted to add one more thing. Remember most of these managed care organizations they don’t understand ophthalmology exceptionally well, and they don’t -- may not have somebody on staff that understands it well. So they will call the local ophthalmologist and have them on their panel in essence.

Now when they start talking about our product versus the existing adjunctive therapy market, the number one things that comes of course is the safety because ophthalmologists will time and time again say I'm tired of dealing with these significant safety issues that might be caused by some of these adjunctive medication, you know the heart lung issues that might be caused with a beta blockers, just as an example, the cymose, it might be caused by the alpha agonist, along with the multi times a day dosing.

So the good news is from our view point is when they call the community ophthalmologists or even the KOLs to ask him that they get an earful from the KOLs and that’s a very positive for our view point.

Vicente Anido, Jr.

I think to your other part of your question, on Roclatan getting stepped, I view that as unlikely as long as we price Roclatan responsibly, which is just a slight premium over Rhopressa. And then there will be no basis to step as long as the spread is equal to or less than the cost of the generic latanoprost, I don’t see any step therapy for Roclatan.

Adnan Butt

Okay, that’s helpful. And then in terms of launching how soon after approval would you be prepared to launch and is there a plan for sampling?

Vicente Anido, Jr.

Well, I will answer for Tom because this can go on for a while but I guarantee you there is a plan for sampling and typically in these kinds of things for chronic med, sampling is one of the -- is certainly not the largest expense, because headcount is, the sales force but it's certainly the largest of all the commercial expenses that we are going to face. And so there is certainly a pretty extensive sampling plan involved and we are not going to get into the details for that.

But we think that -- again we don’t hire, we hired an awful lot of folks in order to get ready for the launch, and you see those announcements coming out from us all the time. We do not hire the sales force until the day we get approval, and we think that roughly 90 days or so after we get the approval we'll have the sales force ready to go, been trained and start going out calling on the docs. And so in order to do that we have to have product and we have to have everything set up for them. So that's about the timeline that we've provided.

Adnan Butt

Okay last one, I can't help myself on the pipeline. When do you expect to take those compounds into the clinic either for the retina and Vince, I am mystified, the steroid, what's the thought there?

Vicente Anido, Jr.

So for the steroid you have to -- let's start there. So we think that the steroid has a shot at going into -- certainly getting ready to go into the clinic towards the end of the calendar '18. We think a steroid for back of eye for diabetic macular edema, we think our particular formulation of our steroid allows us to deliver it where there is a gap. Right now you've got one product in OZURDEX that only works for about three months or so maybe, you've got another product that goes out to maybe three years or so.

I think that there is an awful lot of room between the three months and the three years doctors would like to see something. And perhaps that has a lower adverse event rates in terms of the intraocular spikes. So the market is pretty sizable and so we think that we've got a better product to deliver for the patients, it'll get some utilization and actually have a -- give us a component to have on our own shop with our drug delivery technology.

On the 154 for age related macular degeneration, we think that's going to be the back end of 2018 for to get it into the clinic. We still have an awful lot of work to do. But we're doing everything we possibly can to get it out in the first half of '18 if possible.

Adnan Butt

Okay. Thank you, enjoy AAO.

Vicente Anido, Jr.

Thanks,

Operator

Your last question comes from the line of Difei Yang from Mizuho Securities. Difei, your line is open.

Vicente Anido, Jr.

That would be Difei.

Unidentified Analyst

Hey guys, it's actually Alex for Difei. How are you?

Vicente Anido, Jr.

Hi, Alex. Well, Rich corrected it.

Unidentified Analyst

Cool so just coming back to the manufacturing. Do you guys still expect the preapproval inspection at the Florida facility?

Vicente Anido, Jr.

We have certainly pinged the FDA continually about whether there is going to be something or not. We know that they've been at that manufacturing facility a couple of times since we've been involved in the property, more than twice. Since we've been involved there we do know that they've looked at our data. Just based on the questions that we're getting and things like that. And so because there is another product in front of us meaning that they have a product called Luminas [ph] out of that site, that has PDUFA date of December 27. If in fact they choose to go back in there, I suspect that they may take another look at our stuff.

But I think they've already been looking. So there is no guarantees either way that they won't look again.

Unidentified Analyst

Okay great. That's helpful. And then one last one, just on the reimbursement front, could you just remind us what the ongoing rebate percentages are for a drug in tier 2 versus tier 3? And what those rebates might look like for you?

Vicente Anido, Jr.

Right. So normally if you have a competitive product like we believe we have, it can also land on Tier 3 with little or no rebating at all. With regards to getting into tier 2 it could be in the 25% to 35% off of gross -[Technical Difficulty]

Unidentified Analyst

Okay that's helpful, thank you.

Operator

I would now like to turn the floor over to Vince Anido for closing remarks.

And I want to thanks everybody for listening this afternoon. We've had a great, great three quarters for the company and looking forward to the next few months as we get ready for approval on launch of Rhopressa. Again, thank you and have a great day.

Operator

This concludes today’s conference call. You may now disconnect.

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