Insys Therapeutics, Inc. (NASDAQ:INSY) Q3 2018 Earnings Conference Call November 5, 2018 5:00 PM ET
Jackie Marcus - Alpha IR Group
Saeed Motahari - President and Chief Executive Officer
Andrew Long - Chief Financial Officer
Mark Nance - General Counsel and Chief Legal Officer
Steve Sherman - Senior Vice President of Regulatory Affairs.
Ken Trbovich - Janney
Ashley Ryu - RBC Capital Markets
David Amsellem - Piper Jaffray
David Steinberg - Jefferies
Good day, ladies and gentlemen, and welcome to the Insys Therapeutics Third Quarter 2018 Results 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. [Operator Instructions] As a reminder, this conference is being recorded.
I would now turn the call over to Jackie Marcus at the Alpha IR Group. Please go ahead, Jackie.
Thank you, Lydia. Welcome to the Insys Therapeutics third quarter 2018 results conference call. With me on today's call are President and Chief Executive Officer, Saeed Motahari; Chief Financial Officer, Andrew Long; Mark Nance, General Counsel and Chief Legal Officer and Steve Sherman, Senior Vice President of Regulatory Affairs.
Earlier today, the company issued a press release detailing financial results for the third quarter ended September 30, 2018, as well as a separate press release announcing the initiation of a process to review strategic alternatives for the company's opioid related assets. We also published a set of supplemental slides to accompany the remarks made on today's call. You can access these materials through the Investors section of the company website, where you can also access a webcast replay of this call later today.
Before we continue, 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 the company management as of today and involve risks and uncertainties, including those noted in today's press release and the company's 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 Therapeutics specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.
In addition to reporting all financial information required in accordance with Generally Accepted Accounting Principles, the company is also reporting adjusted EBITDA, adjusted net loss and adjusted net-net loss per diluted share, which are non-GAAP financial measures. Since adjusted EBITDA, adjusted net loss and adjusted net loss per diluted share are non-GAAP financial measures, they should not be used in isolation or as a substitute for consolidated statements of comprehensive income or loss and cash flow data prepared in accordance with GAAP.
In addition, the company's definitions of adjusted EBITDA, adjusted net loss and adjusted net loss per diluted share may not be comparable to similarly titled non-GAAP financial measures reported by other companies. For a full reconciliation of adjusted EBITDA and adjusted net loss to GAAP net income, please see the attachments to the earnings release.
And with that, I'll turn the call over to the company's President and Chief Executive Officer, Saeed Motahari.
Thank you, Jackie, and thanks to everyone on the line for joining us today. First, I would like to start by covering recent progress and our strategic priorities in line with our vision to become the leading cannabinoid company, and then Andy will provide an overview of the financial results for the third quarter. I will conclude my remarks with a recap of clinical and regulatory milestones, including several that are upcoming. And after that, Steve, Mark, Andy and I will take your questions.
Before we continue, I would like to take a minute to discuss the press release issued this afternoon about commencing a process to review strategic alternatives for our opioid-related assets. These assets include our first commercial product, SUBSYS, as well as formulations buprenorphine and the combination of buprenorphine/naloxone. Since I joined INSYS, we have been very clear about our aspiration to transform the company into a leader in the pharmaceutical cannabinoids and spray technology and shift our focus on opioids. We have invested more than $200 million in R&D since 2016. And because of this investment, [TIRF] has advanced and matured to become the primary focus and driving force of our future growth.
In several upcoming clinical and regulatory milestones, which I'll cover later in the call, we believe now is appropriate time to undertake such a process. I must caution that there can be no assurance that this process will result in any change in our ownership of these assets. I appreciate your understanding that this is a fluid process and has just begun. So we are unable to answer decent questions about at this time. I look forward to updating you on our progress.
With that, I would like to proceed by highlighting recent progress in our strategic plans as shown on Slide 3. We remain highly focused on four key priorities. On the legal front, we announced our settlements agreement in principle with The Department of Justice that was consistent with our previously publicly statements and disclosures. In addition, we continue to work with state AGs to resolve outstanding claims.
We have some good news related to the separate legacy issue as we received confirmation from the SEC that it has concluded its investigation of the company and they do not intend to recommend any important action. Regarding the advancing of our organizational capability, we welcome another new Board member in the third quarter, Betsy Bolin. More recently, we added a new General Counsel and Chief Legal Officer, Mark Nance, to our Executive Management team. Betsy is a Chief Operating Officer at Archdiocese of Chicago, where she oversees the organization administrative functions. She joined the organization in 2011, after 16 years at McKinsey, where as a partner she provided strategic counsel to multinational companies across the retail, consumer and healthcare industries. Mark Nance brings over 20 years in General Counsel role at both public and private held companies in the pharmaceutical, healthcare and technology sectors. Most recently, he was a General Counsel of Mylan. Previously Mark led the legal teams at G.E. Healthcare Medical Diagnostic and G.E. Healthcare Life Sciences.
Also related to our organizational structure, we have taken several steps this year to control operating expenses, including one implemented last week that primarily effected the commercial organization. This fact has reduced the size of our commercial organization, including the sales force by about 60%. In Q1 of 2018, our actual sales and marketing expenses was $9 million, but as a result of these actions, now we are forecasting for that to go up to $5 million in the first quarter of 2019, which represent a 44% reduction. While difficult, we believe these actions are necessary in light of the significant decline in the current market.
Regarding R&D, we continue to advance our product pipeline throughout the quarter. First, we received Fast Track designation from FDA for our epinephrine nasal spray product candidate in late August. We also continued enrolling patients in our tree company-sponsored CBD clinical trials, Phase II trial in childhood absence epilepsy and Prader-Willi syndrome as well as the Phase III trial in infantile spasms.
In addition, we expanded our collaboration with the USC San Diego Center for Medicinal Cannabis Research to include two additional studies beyond autism, specifically early psychosis and anxiety in anorexia nervosa.
Finally, we completed the PK study of dronabinol inhalation, which had future potential as an investigational treatment for a variety of the conditions, including anorexia and cancer. Separately we continue to support an ongoing study of CBD as a potential treatment for cocaine dependence with the University of Montreal at the Canadian institutes of Health Research. Altogether, we are involved in seven clinical trials of CBD, three as a fully sponsor and four as a key collaborator.
On the commercial front, we achieved two milestones up north in the third quarter in addition to initiating the strategic review process for our opioid-related assets announced earlier today. First, we signed a definitive licensing agreement with Lunatus to commercialize SUBSYS in Middle East. We are also actively continuing to work on licensing SUBSYS in several other regions, including Europe and Asia. And second, we received FDA approval of SNDA for SYNDROS to expand the label, enabling the product to be delivered through a feeding tube for patients with cancer and AIDS.
Now, for a review of the commercial performance, let's turn to Slide 4. Focusing on SUBSYS, the current market remains under considerable pressure and down 40% year-to-date and 75% in 2016. However, there are some positive sides from our perspective. SUBSYS remained the market leader among branded TIRF product and it still captures 27.2% prescription share and 31.6% unit shares of the overall TIRF market in third quarter.
More importantly, more than 50% of the new patients, who are prescribed a TIRF product, received a prescription for SUBSYS, which speaks to the highly differentiated profile of our product in this highly regulated class.
With that, I would like to turn the call over to Andy, who will provide an overview of our third quarter financial performance. Andy?
Thank you, Saeed. I'll begin with the review of our third quarter financial results and conclude with some high level guidance for Q4. On Slide 5 of our accompanying presentation, provides a summary of our key financial highlights for the third quarter of 2018 compared both sequentially and year-over-year.
Starting with the top of the P&L, we reported net revenue of $18.3 million, which is comprised of $17.3 million from SUBSYS and $1 million from SYNDROS. Total net revenue was down compared to $23.5 million last quarter and $30.7 million last year. The sequential top line decline was entirely attributable to SUBSYS, and was driven by three main factors. First, we experienced lower prescription demand along with the entire TIRF market. Second, was a reduction in channel inventory during the quarter, while inventory levels at our wholesalers as measured by days on hand were in with the normal range based on historical performance, they were lower than where we finished in Q2 by a few days. Third and partially offsetting these declines in net revenue are the actions we've taken to reduce sales returns, which resulted in a $3 million improvement compared to Q2. Based on returns data through October, it appears that this situation is now behind us.
We reported gross margin of 87% this period compared to 75.6% in the year ago period and up from 84.7% in the second quarter of this year. The year-over-year improvement in gross margin was driven largely by a $3 million reduction in our excess and obsolescence expense. This improvement in performance is directly tied to our efforts to improve inventory dating in our supply chain.
As we move to operating expense, you will find additional detail on Page 6. There you will see that our total operating expense before legal costs and settlements, in Q3, was $30.8 million, down $12.9 million, or 29.5%, year-over-year. Breaking down the components of our Q3 operating expense before legal and settlements costs, you can see that sales and marketing expense was $7.4 million, down $5.4 million, or 42%, from the prior year period, driven by cost controls in our commercial organization in light of lower revenue. The actions we've taken in 2018 are expected to reduce our sales and marketing expense from $48.9 million for the full year of 2017 to approximately $20 million in 2019, a reduction of almost 60% in one year.
Our R&D expense of $14.5 million in the current quarter is lower by $5.1 million compared to Q3 of 2017, largely driven by the timing of our clinical trial expenses, which can vary from quarter-to-quarter. Also we incurred approximately $2 million of expense in the comparable quarter last year related to the filing of our NDA for buprenorphine.
Our general and administrative expense of $8.9 million was $2.4 million lower than last year as a result of ongoing costs containment efforts. We will continue to be disciplined with our cost structure while appropriately investing in our pipeline, which is the key to realizing our vision to transform Insys into a leader in the pharmaceutical cannabinoids and spray technology.
Turning to legal expense, we reported $16 million in legal expense in the quarter, an increase of $11.6 million compared to the prior year period. On a year-to-date basis, we have reported $37.5 million in legal expenses, a $21.5 million increase year-over-year. It's important to note that over 50% of our year-to-date legal costs are related to the indemnification obligations covering two of our former executives. While the company does not dispute it's in indemnification obligations to these executives, it is disputing the reasonableness of the criminal defense costs and is evaluating the reasonableness of the civil defense costs incurred to date for one of these executives.
The company is accruing for 100% of the disputed costs incurred for the defense of this individual. However, cash payments related to these expenses have been significantly reduced. In addition, the company continues to make efforts to reduce its non-indemnification-related expenses as well. These actions include the consolidation of legal efforts by outside firms, the replacement of higher cost firms at lower cost options, and the pursuit of insurance reimbursement. The majority of the benefit of these actions is expected to be realized in future quarters.
Moving onto to tax and earnings which is back on Page 5 of the presentation, during the quarter, we identified an error in the accounting for uncertain income tax positions resulting from our implementation of ASU 2016-09 relating to the treatment of employee equity-based compensation dating back to the first quarter of 2017. The impact of this error on our year-end 2017 financial statements resulted in the overstatement of our uncertain tax position liabilities by approximately $2.9 million, including accrued interests.
In addition, we identified an error in the calculation of our weighted average shares outstanding dating back to 2016, which resulted in a decrease in net loss per share of $0.02 and $0.01 in the three and nine months ended September 30, 2017, respectively. We assess the materiality of both of these errors on our financial statements and concluded that the errors were not material to our financial statements. However, to correctly present the 2017 financial statements for comparative purposes, management revised its previously issued consolidated balance sheets and statements of stockholders equity as of December 31, 2017, the statements of operations and comprehensive loss for the three and nine months ended September 30, 2017, and the statements of cash flows for the nine months ended September 30, 2017.
With that said, we recorded tax expense of $240,000 this quarter compared to a $9 million tax benefit in the third quarter of 2017. This reduction in tax benefit is a direct result for the full valuation allowance against our deferred tax assets taken in Q4 of last year. During Q4 of this year, we will amend our 2015 federal tax return in conjunction with the recently completed IRS audit. Based on this, we expect to receive approximately $12 million in income tax refunds in 2019.
Our net loss in the quarter was $30.6 million, which compares to a net loss of $166.3 million in the prior year quarter. As you recall, last year, we recorded $150 million minimum liability payable over five years related to the Department of Justice investigation, which was confirmed in August of this year with the agreement in principle that was reached with the DOJ.
Looking at our total adjusted EBITDA, we reported a loss of $26 million in the third quarter compared to a loss of $18.4 million in the third quarter of 2017. In the third quarter of 2018, our reported net loss per share was $0.41, while our adjusted net loss per share was $0.37.
Turning to the balance sheet, we remained debt free with the $113 million in cash, cash equivalents and short and long-term investments. This represents the decline of $10.5 million sequentially from Q2. Roughly $2 million of this cash flow was attributable to capital investments need to enhance our state-of-the-art manufacturing facility in Round Rock, Texas, and the balance from routine operations. Q3's cash flow was favorably affected by the timing of operational payments, which is expected to normalize in Q4.
In closing, a couple of comments that we will be expect to see in Q4. In terms of net revenue, we expect to remain relatively flat to Q3 as the anticipated decline in the TIRF market will be partially offset by expected improvements in our gross to net assuming sales returns continue to improve, as well as the potential for channel partners to increase inventory levels before the end of the year.
And with that, I'll turn the call back over to Saeed.
Thank you, Andy. I would like to continue by revisiting our pipeline, which remains a major organizational focus. As shown on Slide 7, we have two R&D platforms Cannabinoids and Sprays. The cannabinoids platform includes CBD oral solution with three indications under clinical evaluation and dronabinol inhalation, which is at relatively early stage of development, having just completed the initial PK study in September. Regarding the CBD study in CAE, we continue recruiting patients and look forward to sharing top line results in the near future.
On spray, I would like to focus on the top two, the naloxone and epinephrine, both for intranasal delivery. These product candidates deliver life-saving drug the potential to improve clinical outcomes and public health.
Let’s start with naloxone. As you likely saw, we issued a press release last week about the result of the PK study comparing our product candidates with intramuscular and intervenes formulation. This study showed a distinctive profile for our formulations compared to the current standards. The context of the development for these investigational drugs [indiscernible]. According to the CDC, there were more than 70,000 opioid overdoses in the U.S in 2017, and 40% of those were due to synthetic opioids. This is an increase from 2015. And the synthetic opioids accounted for just 18% of opioid over doses nationwide.
An expert hosted NIH Director blog in May 2017, some of the issue with emergency treatment options this way. Although naloxone effectively reverses opioid over dose, its relatively short half life compared to dose of synthetic opioids frequently required multiple doses to reverse respiratory arrest. The usual doses giving up naloxone may not be powerful or long-lasting enough to reverse over doses from highly potent synthetic opioids. The result of our PK study demonstrates that the mean unconjugated naloxone concentration after administration of our two formulations have two notable features. First, you will reach appreciably higher levels than those observed after the administration of inter muscular dose at all-time points beginning at two minutes. And second, they maintained high levels above the Cmax of 0.4 milligram intramuscular for two hours. Regarding potency, unconjugated naloxone exposure generated from our two nasal formulation were from 9.6 to 27-fold higher compared to naloxone 0.4 milligram inter muscular.
Looking ahead, we have to complete nonclinical juvenile toxicity studies before filing the NDA. The FDA notified us in July 2018 of this requirement, and then in September, the agency clarified that the result of these nonclinical studies should be included in the NDA. With this study already underway, we now expect to be in a position to submit the NDA for naloxone nasal spray at the end of Q1 2019.
Now let's turn to epinephrine. At the end of August, we received Fast Track designation for this product candidate, which represents an alternative method of epinephrine delivery for the treatment of anaphylaxis. By [indiscernible] anaphylaxis is a systemic and life-threatening allergic reaction that can be fatal an estimated 1.6% to 5.1% of individuals living in United States have experienced it. That is more than 16 million people. And the prevalence maybe increasing and the prevalence of food allergies has increased in the recent in decade. At present, epinephrine is available only as an injectable and there are some difficulties associated with the use of auto injector incorrect of administration, incorrect order of administration and needle-stick injury are common concerns. There are also continuing issues with the supply of auto-injectors due largely to manufacturing. We are developing a stable nasal spray formulation or epinephrine to offer a needle-free, noninvasive solution for the emergency treatment of anaphylaxis. A proof of concept study demonstrated that with our drug device combination epinephrine is readily observed through the nasal [indiscernible].
At our end of Phase II meeting in September, the FDA clearly provided a path for clinical development of this product and specific guidance as to filing requirements. Subsequent to our discussion, which are highly productive, we decided on a dose finding PK studies followed by a pivotal PK study. Upon successful completion of this study, we expect to be in a position to submit the NDA for the first international epinephrine product in the fourth quarter of 2019 notwithstanding any additional studies requested by the agency.
Returning to the cannabinoids, Slide 8 shows the range of CBD studies under investigation with outside researchers. The prospect for these collaborations by a testament to our state-of-art manufacturing facility in Round Rock, Texas, where we produce 99.5% pure pharmaceutical grade CBD. They also underscore our commitment to advancing the medical science of cannabinoids.
Since our initial announcement in April, we have agreed to support three CBD clinical studies with the UC San Diego Center for Medicinal Cannabis Research, targeting severe autism, early psychosis and treatment for anxiety, anorexia nervosa. For research on CBC in charge with schizophrenia and early psychosis, we are hoping to partner with the National Institute of Mental Health, and for addiction with Nida, the National Institute of Drug Abuse. In addition, we hope to have the opportunity to partner with Department of Defense and VA on the study of CBD and PDSD. We are actively pursuing these government research collaboration and look forward to taking the next step in the respective path forward.
I would like to conclude with a recap of the clinical and regulatory milestones with selective highlights on Slide 9. Year-to-date we have made great progress in our prioritized R&D program. And as I just mentioned, we have expanded our collaborative partnership and look forward to expanding them in the future.
Looking ahead, we have several upcoming milestones to achieve. I'll highlight three of the more significant ones for the near term. At the 2018 Meeting of American Epilepsy Society in early December, we will be presenting new data from our long-term safety study of CBD in refractory pediatric epilepsy. Subsequently, we hope to report results from the Phase II study of CBD in charge with the absence epilepsy. And as I noted earlier, by the end of Q1, we expect to be filing the NDA for naloxone nasal spray as a potential treatment for opioid overdose.
This focus on advancing our R&D supports our aspiration to become a leader in the pharmaceutical cannabinoids and novel drug delivery system. As a result, we have the potential to file six NDAs over the next two years.
Before we take your questions, I would like to thank our employees for their commitment, especially in light of last week reduction in our commercial organization. Together we have built a strong foundation of compliance and then dedication to bring innovation to patients with significant unmet medical needs. I would also like to thank you all on this phone and the webcast for your interest in our company, which had great potential that we're working hard to realize.
That concludes our prepared remarks. And with that, operator, please open the line for questions.
[Operator Instructions] And our first question is coming from the line of Ken Trbovich with Janney. Your line is now open.
Saeed, I guess, I just wanted to follow-up maybe where you finished off with the conversation about CBD and the implications potentially of additional studies and childhood schizophrenia and opioid-use disorder. It sounded like you folks have identified potential government partners. Does that suggest that a portion of the costs for those studies could be actually covered through grants from those entities?
I think that’s definitely a possibility. We have been discussing a number of these initiatives with various entities including the government, and the answer is yes.
Okay. And then just following up on a conversation about naloxone, obviously, the data you guys showed last week look pretty impressive both formulations have advantages over the existing narcan nasal spray. Just wondering if you determine which of those two formulations you plan to file? Or is that dependent upon the outcome of the toxicity study?
I think I’m going to ask Steve to answer that question. I was very pleased that both formulations. But I will let Steve to answer that question.
And I think you’re right, Ken. We’re waiting until we get the results from the juvenile talk studies before we can make that decision.
Thank you. And our next question is coming from the line of Randall Stanicky with RBC Capital Markets. Your line is now open.
This is Ashley Ryu on for Randall. Saeed, I know the process has just begun. But can you speak a little bit logistics with how it will work. So while I recognize that you have an agreement in principal with the DOJ, are there any limitations for the strategic options be aware of given that it's not fully finalized yet as well as the outstanding state investigations? And is the process only with regards to the U.S. rights [indiscernible] or does it include any other geographies as well?
I think, our decision to actually start this process to a large extent is a function of the strategic intent. I was very clear, when I joined Insys, that we want to move forward from opioids and to shift our focus towards our driving force. When you take a look at the R&D pipeline, CBD was the future as well as some of the more prioritized programs in the spray. Unfortunately, we didn’t have a lot of study at that time to kind of feel confident about making that transition by the away, and that's the reason that we have been working, from my perspective, is significant agility over the last 18 months to move this program as quickly as we can. And I think we are at the point right now that I feel that we have number of key milestones approaching with epinephrine, naloxone CAE, and we have been able to put that DOJ, getting agreement with DOJ in principal its obviously very, very important for us. And the timing is right now to make that transition fully and start focusing on what we believe is the driving force of the company for many years to come.
And just switching gears to CBD, can you reaffirm that the childhood absence epilepsy Phase II is still due to readout before year-end? And just provide an update around other involvement has been progressing in line with your expectations? And if you can speak a little bit about the expectations around the readout or what you are kind of looking for to progress development forward?
Yes. I think I'll start and then I'll turn it over to Steve. We are looking extremely hard to get the recruitment done by end of this year. We have already finished one cohort a while ago number of months ago with 20 milligram and we are working toward finishing the second cohort and fourth cohort, these as we know, are open label studies. And we have 15 patients right now, geared up for screening. We will see how many more we can get. We are working very hard. And at this point, if it's not at the end of this quarter; it would be shortly after that. But the recruitment is going very strongly. What we have to basically keep in mind with the respect to this study is the patients are there just getting the size up and running required the verification and that sometimes has taken more time than we anticipated. We are also getting very good receptivity regarding the Prader-Willi. And there is a lot of patients, particularly in the foundation that are ready to go, and we just have to get some additional sites coming on board. [Indiscernible] is going little bit slower than we had anticipated, but we have many international sites that are going to go up at the beginning of January, and believe that is going to help us with expediting the recruitment. So Steve, with respect to CAE.
In regards to CAE, Saeed did mention one of the rate-limiting steps. We had to get some sites with their Schedule I license and that it takes longer than we built into the budget. But now we have all sites up and running and all are enrolling patients. And we do -- if we are not at the end of the year, we are going to be very close to the beginning -- the first part of next year. So we are doing everything we can to make sure that it's by the end of this year.
And our next question is coming from the line of David Amsellem with Piper Jaffray. Your line is now open.
Just a couple. So, first, just wanted to clarify that naloxone -- the naloxone-only product is not part of the strategic process, and to the extent, that it isn't. Can you talk us through how you're thinking about the product commercially, other words, this is going to be a primarily a retail product. And what kind of infrastructure you may need to put behind it in order to drive the product. And then regarding childhood absence epilepsy for [indiscernible] to the extent that you have favorable Phase II data is that your expectation that you then need with the FDA and look to move it right into Phase 3? Or do you need to do additional dose finding work before you go into pivotal study? Thanks.
Sure. Thank you, David. I think with respect to naloxone, there are two things. One is that we already received some initial insight from other companies outside of this process. So we wanted to kind of see that through. But again, at the result of this process, again, if you could additional inquires, we obviously will evaluate. At the end of the day, our objective is to bring this product, we should believe is going to be savings getting this profile to market that quickly as possible. With respect to our commercialization strategy, as we know, this is very much to a larger extent, a contracting process because there is well established user based, already. They have already been approached after our press release by a number of entities within the manage care that are interested to learn more about, obviously, when we’re able to provide more information. We believe we will have a differentiated profile. And we’re basically scrolling both paths. If we believe these assets will do better in the hands of someone with much higher capabilities and ability to contract aggressively and invest the money to utilize its potential and make it available, we will do that, but we’re also planning in terms of promoting this product ourselves and that is the reason that we’re actually holding on today to the significant -- not significant but a decnt numbers of sales at event all the actions that we’ve taken. So I think the short answer here is to be -- is remains to be seen on what we get externally and where we go with the FDA.
And then on childhood absence epilepsy next steps?
I think from, I'll let Steve answer that. But from my prospective, we already fully funded to go Phase III. The results are positive.
And that's -- it's really dependent on the results of the Phase 2.
Because as you know, David, we’re looking at 20 milligram, 30 milligram or 40 milligram in our open label study for Phase 2 proof of concept. So pending dose and obviously some of the data that we have from our previous studies and compassionate use, basically long-term safety study hoping to make the transition to the Phase 3.
And if I may take a follow-up just on the locks on, there is obviously significant non-retail market, there are first responders, there are institutional settings. So instead of thinking about commercialization to the extent that you do commercialize, I mean, you're looking and targeting all of these various customer bases? Or should think about it more narrowly in scope?
No, I think, we'll be providing. And then the audiences that you mentioned would be, obviously, a key stakeholder in this process, in the schools, emergency, obviously, at various hospitals, we’re talking about various schools, typically into the broad approach. But retail is going to be a big part of it through contracting, and obviously managed care itself. So if we decide and in particularly, we are waiting also to see what that advisory board in December will -- for FDA, will actually conclude. And if this product is going to be used for practically or be the scope is right with everybody that gets opioid limit, which I understand is 50 morphine equivalent, then we’re talking about the significant market here and we believe naloxone -- our naloxone formulation could be potentially being a lot of value to that market.
And our next question is coming from the line of David Steinberg with Jefferies. Your line is now open.
So my question relates around the strategic alternatives pathway you're pursuing, I know the timing is everything, but isn't selling an opioid -- by the apex of the opioid crisis pretty difficult thing to do. I mean, do you really think they're going to be buyers for an opioid product, particularly rapid active one? And secondly, if you can’t find a buyer you can’t find a buyer at the price you like. Will you still market it or would one consideration be just to see marketing of the product? Thanks.
The way I close this, I can answer this on from a number of prospective and I will let Andy for any additional color. At the end of the day, a breakthrough has obtained is a real condition. We have a lot of evidence that does in the U.S is significantly undertreated in comparison to any other regions in the world, Europe, Asia, South America have not added to ensure that we are significantly treating cancer pain. We also know the product is highly differentiated product. Yes, it is a very important drug. Yes, it is [indiscernible] and use. And all of these are extremely important to be considered by the company that markets that product. But at the end of the day, the FDA approved product that is targeted for very niche market, a market that is significantly underserved in our view. Now the profile of the product is highly differentiating. As I said in my prepared comments, 50%, one out of two, over one out of two of all the patients in the U.S that start treatment for breakthrough cancer pain are started on SUBSYS. Now that percentage of the business for us is only 15% to 20%, so that’s why you totally see significant impact as you’re losing along with the market some of the established patients on this product. But at the end of the day, I believe there is significant opportunity here for company who is committed to the oncology and cancer field. I also believe you may look at this from a different prospective and this is -- this is a product that could bring significant EBITDA to a suitable buyer that may need to see that reflective in the balance sheet. This is a highly concentrated market. You don’t really need significant investment to manage this product and educate the customers. As well as you might have the current infrastructure, it could be a very nice fit in your current infrastructure. With that in mind, we just started the process and we will see how things will turnout.
[Operator Instructions] And our next question comes from Ken Trbovich with Janney. Your line is now open.
Just in response to one of your earlier questions, I think, I heard Steve say that the first cohort for the CAE study had been completed. So I’m just curious is there any chance that we will see that as the subject of a poster or an abstract at AES in December?
I think, we’re hoping to finish all of them because it’s a small study. And we believe, I think, the we are executing, I'm hoping that we would be able to finish this study, and hopefully present the entire results. But, Steve do you want to answer?
Unfortunately the deadline for submitting to AES was in June. So we're little pass that. But we’re presenting the data from the long-term safety study, the 45 patients who completed 48 weeks of treatment with CBD, and from our first Phase I, Phase II study.
At this time, I’m showing no further questions. I would now like to turn the call back over to Saeed Motahari for closing remarks.
Well, I just want to thank everybody for joining us on this call. I appreciate your interest in the company, and we look forward to updating you in the future. But thanks again for your time and have a great evening.
Ladies and gentlemen, thank you for participation in today’s conference. This does conclude the program. And you may now disconnect. Everyone have a good day.