Aerie Pharmaceuticals, Inc. (NASDAQ:AERI) Q1 2019 Earnings Conference Call May 7, 2019 5:00 PM ET
Ami Bavishi - Director, IR
Vicente Anido - CEO and Chairman
Richard Rubino - CFO
Thomas Mitro - President and COO
Conference Call Participants
Annabel Samimy - Stifel
Serge Belanger - Needham
Difei Yang - Mizuho Securities
Esther Rajavelu - Oppenheimer
Oren Livnat - H.C. Wainwright
Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Aerie Pharmaceuticals First Quarter 2019 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 Director of Investor Relations, Ami Bavishi. Please go ahead, Ami.
Thank you, Cindy. Good afternoon and thank you for joining us. With me today are Vince Anido, Aerie's Chairman and Chief Executive Officer; Tom Mitro, Aerie's President and Chief Operating Officer; Rich Rubino, Aerie's Chief Financial Officer; and John LaRocca, Aerie's General Counsel. Today's call is also being webcast live on our website firstname.lastname@example.org and it will be available for replay as indicated in our press release.
Now for forward-looking statements and non-GAAP financial measures. On this call we will make certain forward-looking statements including statements, forecast and guidance regarding our future financial and operating performance including our 2019 net revenue and net cash burn guidance. These statements will include observations associated with our commercial launch of Rhopressa in the United States, and expectations regarding the potential launch of Rocklatan. They will also include expectations regarding the success, timing and cost of our clinical trials.
Additionally, we will discuss progress regarding maintaining, requesting or obtaining approvals from the FDA or other regulatory agencies of our product and product candidate, including our efforts on international expansion.
Lastly, we will address manufacturing activities and the potential of our pre-clinical product candidates and research findings, our financial liquidity and 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'll 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.
With that, I will turn the call over to Vince.
Thanks, Ami and good afternoon everybody, appreciate you joining us today. We made an incredible progress over the last year or so as we have entered this year with Rhopressa and then obviously getting not only the approval for Rocklatan, but actually getting into the marketplace in a short period of time. Certainly for this call the big news is widely anticipated Rocklatan large officially kicked off May 1st of this year.
As you know Rocklatan is the only crypto’s combination product in the U.S. with the reduction of intraocular pressure that includes not only obviously Rhopressa but prostaglandin and it’s only one that it’s really once a day and it’s really the only one that’s showing statistical superiority in IOP reduction compared to latanoprost in the United States Phase III trial.
Having just returned from ARVO Conference in Vancouver now ARVO is the Association for Research in Vision and Ophthalmology as well as ASCRS Conference in San Diego, ASCRS is the American Society of Cataract and Refractive Surgery I can tell you the level of interest in Rhopressa and certainly Rocklatan had never been higher among eye care professionals.
We interacted with course of physicians at these meetings and I believe with the level of excitement and anticipation is greater than I’ve observed in all of my years in the ophthalmology space. I do believe that Rocklatan has the potential to be a game changer in the treatment paradigm for glaucoma and ocular hypertension and it’s currently available for distribution it’s certainly available for patients that we have about 60% commercial lives already covered in Tier 3, which is relatively consistent with the way we started off with Rhopressa just a year ago.
Samples have made their way to physicians and as some of you know we’ve already started picking up prescriptions. We’re hopeful that the coverage for both commercial and Medicare Part D will come in at an accelerated rate relative to what we saw with Rhopressa over the last 12 months.
As we’ve previously indicated the Rocklatan price is set slightly above that of Rhopressa in order to maximize payer acceptance, of course the clinical efficacy and safety profile and once a day aspect of Rocklatan will also be very important factors in gaining broad payer coverage. We’ve had a number of calls already with some of the payers and had some clinical reviews in the like. And so, again, we feel right now very-very bullish about our prospects there.
Even though we just launched Rocklatan we’re already receiving very positive feedback from several ophthalmologist on how Rocklatan is reducing pressures to low normal levels, and were previously -- our lower normal levels are previously been achievable for their patients. These levels are consistent with what we saw in the Phase III trials where Rocklatan brought about two thirds of patients in the trial from baseline to about 16 millimeters or below compared to only about a third of the patients that were in the latanoprost arm in the trial.
As part of the kick off specifically in this week we’re conducting what we’re calling the Rocklatan National Broadcast program, we have a video that we put together with leading glaucoma specialist and that video is going to go out this week we have 62 sites around the country and over 1,000 doctors that will actually get to participate in this program over the next couple of days the meetings or the programs will start tomorrow and go through Thursday.
And so we’re very excited about been able to reach that big of an audience this quickly with the information -- clinical information about Rocklatan. And also in that trial we will see quite a bit of information about Rhopressa as well because as a reminder in the Phase III trials for Rocklatan, the Rhopressa arm is better in what we saw on its own Phase III trials.
The second piece of important news actually relates to Rhopressa. We have increased our Medicare Part D for Rhopressa effective May 1st from about 40% to 75% of covered lives. The commercial coverage remains strong about 90% and about just over 55% of that is in Tier 2.
The majority of coverage for Rhopressa now in Tier 2 across the board we believe our Rhopressa volumes will begin ramping up as now it becomes much easier for physicians to prescribe with without needing to deal with the prior authorization process, which many of you know can be laborious and certainly is not a whole lot of fun for the medical practices.
We also believe there are number of eye care professionals who’ve held back of prescribing Rhopressa until they knew that we had majority covered. So here we are, I think achieving the majority of Tier 2 coverage within the first year of launch is a major milestone for any company and we feel very strongly that that’s where we wanted to be because it brings the copays down to the $20 to $40 range for a prescription where we believe the majority of the patients will pick up those scripts.
As you saw in our earnings release, we have reiterated our 2019 net revenue guidance today at $110 million to $120 million for Rhopressa and Rocklatan. And as we said before, we're not going to break those out from a guidance point of view. Our Rhopressa net revenue in the first quarter came in at that right around $11 million, average net revenue per bottle was about $100, reflecting a higher proportion of Medicare Part D volumes.
As we have said our net revenue per bottle is lower for Medicare Part D than commercial because we rebate more steeply and we have the donut hole funding that we have to take care of. On a commercial side, also as you know, we can use copay cards to offset the cost of the patients. We can't do that on Medicare.
And looking forward, we made an official only occasionally we may fall below $100 per bottle as we move more and more into Medicare Part D and it becomes a bigger portion of our quarters. But again, we expect that we'll bounce right around that line for the foreseeable future.
Now looking at the Rhopressa volumes, once again, the wholesale inventories were consistent at the beginning and at the end of the first quarter and about two weeks. Again, aren’t an industry norm. Our Q1, shipments to wholesalers were essentially flat from the fourth quarter 2018 to the first quarter of 2019.
The high level our first quarter volumes were moderated by the customary first quarter deductable effect, heavily sampling on the part of our competitors as they build greater sense on Rocklatan. And none of that really surprised us when I was attending ASCRS we had a lot of our district managers there and some of them were actually showing me photographs that they'd received from their reps about the number of samples of competitive products that were in many of the practices and certainly it's something that we have seen over the last number of years where competitors start to negatively impact the launch of a new competitor.
And moving beyond the first quarter, we recently have been experiencing strong Rhopressa shipments to wholesalers, as well as sales out from wholesalers to pharmacies. I'm a strong believer that that metric is far better measure of our success than the activity data that we're currently seeing.
And we have been achieving record levels of some of those units out from wholesalers to ship -- from wholesalers to recent sales. We've seen some increases in sales out throughout the month of April and into May. To give you a more detailed perspective, if you look at our last corporate deck, we reported sales at the pharmacies for the last week of March at roughly about 9,500, 9,600 bottles. And for the first week of May, that number have jumped about a 1,000 bottles. So quite a bit higher than what we saw before.
And we do look at that data on a daily basis, we get yesterday's data, in terms of shipping from wholesale to retail we got that this morning. And certainly was one of the highest levels we've ever seen indicating that trend that was established here a few weeks ago in terms of Rhopressa shipment will continue. The next several weeks and months will be an exciting time for us with expected continued growth of Rhopressa with the increased coverage and what we believe will be significant pent up demand for Rocklatan. Our sales team of about 100 territory managers is fully trained and excited to be discussing both Rhopressa as well as Rocklatan with the eye care professionals.
Now as of now, more than 9,100 doctors or nearly two thirds of our targeted population have written prescription for Rhopressa and over 90% of the top prescribers in the deciles 9 and 10 have written Rhopressa scripts. And to give you another metric 80% of the prescribers who write 50% of glaucoma prescription in the U.S. have prescribed Rhopressa to at least one patient, a clear testaments abroad usage we are seeing.
From a retail outlet perspective, we now have about 21,000 retail outlets across U.S. that have filled Rhopressa prescription and obviously now buying from the wholesalers that represents nearly a third of the retail outlets in the country. And that is up from just about 25% that we reported on our year-end call in early March. So again, as the more and more coverage that we get or the more and more outlets that continue to buy our products the closer and closer the estimates that we get from IQVIA will become to our real net sales.
We have seen many doctors increasing their confidence in Rhopressa. And we fully expect this to continue as we now have market access for the majority of commercial and Medicare Part D lies currently they continue to expand their use of Rhopressa into various patient treatment scenarios.
I think the most common is the use of Rhopressa on what we call on top of max medical therapy many times at three to four medications and they just add Rhopressa sort of as the last hope, but in many, many cases incremental drop in pressures. And as they get more and more comfortable with using Rhopressa then they start moving it up in line and eventually to start using it right after a prostaglandin isn’t enough to control these patients.
We did have an advisory board that met at ASCRS and we had a mix of mainly glaucoma guys along with cataract and general ophthalmologist and it was really interesting to see the shifts there. However the interest levels for the glaucoma guys are they are looking at Rocklatan as being the game changer. They are going to look there at almost every patient and think about using Rocklatan on those patients.
Whereas guys like the cataract guys know that many of their patients because of they are inducing the surgery can’t take a prostaglandin because it’s been shown to have some adverse effects after you created a -- so you had a surgical procedure and so they are looking at more and more of using Rhopressa to control intraocular pressure after some of their surgeries. And so again we see that the marketplace is clearly choosing one product over the other for very specific reasons that are specific to their individual practices.
We certainly have more than enough inventory to meet expected demand managing finished good inventory levels, right now we’ve got about six to eight month supply for both Rhopressa and Rocklatan. We also continue to derisk our supply sourcing our own Irish facility is exceeding our expectations in terms of getting ready to be able to commercialize for us to be able to ship product out of that facility, remember Rocklatan will be the first one we ship. We think it’ll be ready towards the end of this year or the beginning next year.
And now we also have a second contact manufacturer on board because again we expect the demand from both Rhopressa and Rocklatan will keep the two or three guys that we have out them busy.
And turning to our initiatives beyond the U.S. I’d like to start with some observations from the ARVO Conference that we just attended where we continue to see great deal of interest in Aerie among doctors from outside the U.S. We had the opportunity to bring together several doctors not only from the U.S., but also Europe, Asia and Canada that describes our company as well as our progress. So level of interest in us continues to be high and we certainly have expanded our presence in those markets.
I believe that ultimately we’ll be recognized internationally as a new innovative ophthalmology company. For us execution is a vital component of building a reputation overseas as you know the European Medicines Agency accepted our MMA or our marketing authorization application for Rhokiinsa, which is the name for Rhopressa in Europe. And they accepted that back in September of last year. We expect that in roughly 12 months so as we exit Q3 beginning of Q4 we’ll expect to see an approval for that product assuming success there.
And after the review for Rhokiinsa is complete and approved we do plan on filing the MMA or again the marketing authorization for Rocklatan, which is likely to take another 12 months to be reviewed. Our plans in Europe are unchanged we expect to commercialize Rocklatan first in Europe on our own. And as a reminder Rocklatan will be called Rocklanda [ph] in Europe. And so we’ll be using some of those names interchangeably.
Now also we do have Mercury 3 our ongoing Rocklanda Phase III trial in Europe, which should have enrolment completed by the end of this year and have top line of data sometime in 2020. And as we said before, Mercury 3 is expected to be beneficial for pricing purposes in the key European countries it’s not part of the approval submissions that we’re going to be doing.
To my earlier point on gaining company recognition outside the U.S. on April 1, we announced Gianluca Corbinelli as our Chief Commercial Officer in Europe he joins us with strong European commercialization background. Having held related positions of both Shire and Bayer, so you know both front and back of the eye pretty well. Within our board we will further build our presence in Europe and we have leadership expertize now to navigate through the payer environment in each of our target European countries in Europe as the need to arises.
Now regarding Japan enrolment in our Phase II trial that’s conducted over there is on track. We have roughly 25 sites that are conducting our trial and we look forward to reading out the results for the trial sometime towards the end of this calendar year. And as we announced and discussed previously we already have our Tokyo office established and led by the respectful leaders in Japan’s ophthalmology network principally in the clinical and regulatory professional relations arena.
Now moving on to our retinal program, as a reminder Casey and Theresa here were on our call last time and spoke quite a bit about that. It's one of the most exciting areas of research that we had at Aerie and we're actually developing a pathway to bring small molecules therapy to the back of the eye.
An important benefit of small molecule chemistry is that it allows us to address a wider range of therapeutic targets in protein therapeutics, which we think is critical in treating the or addressing the unmet needs for treating complex diseases, such as macular degeneration and diabetic retinopathy.
To enable the development of small molecule therapies for the back of the eye, we established our licensing agreement with a Dutch company DSM, which provided us with exclusive rights to their bio-erodible polyesteramide polymers for ophthalmology. And then as we said a couple years ago, we will combining that with our technology that we acquired from the assets of Envisia, which included the right to use PRINT manufacturing technology for ophthalmology.
Now these two critical business development activities provided us with a proprietary drug delivery platform that has potential to enable reproducible large scale manufacturing of bio-erodible sustained-release implants that are miniscule in size and therefore easily injected into the eye.
And as you know, as we mentioned before, we do have an implant manufacturing it’s actually taken place in our Durham, North Carolina headquarters. We commenced operations of cGMP validated print manufacturing facility there to produce these tiny injectable implant for clinical use. And we're actually supplying our dexamethasone inserts out of that facility.
We are developing two highly innovative preclinical sustained released implants focused on retinal diseases. And here again, our team has made excellent progress. Shortly we will have not just one, but two implant product candidates in the clinic. The first AR-1105 a dexamethasone steroid implant has been in the clinic since mid-March of this year.
The Phase II clinical trial that has been evaluated -- the products have been evaluated for the treatment of macular edema to be due to retinal vein occlusion or RVO. As background RVO is the second most common sight threatening vascular disorder of the retina after diabetic retinopathy. So an important marketplace and certainly one where steroids have proven to be very useful.
We believe that 1105 is particularly exciting as it has a potential for fewer side effects due to lower peak drug levels compared to the current leading products along with the improved administration through a smaller needle and very importantly, a longer duration of efficacy. Remember, we're targeting six months for all of our retinal inserts.
Also, AR-13503 our second retinal implant candidate had its IND accepted just a few weeks ago. And we expect our first in-human study for this exciting product candidate to commence later on in the second quarter of 2019 and expect first stage top line results in the second half of 2019.
The background AR-13503 is an area on Rho kinase and Protein kinase C inhibitor with a potential in treating diabetic macular edema wet age-related macular degeneration or wet AMD in related diseases of the retina. 503 has shown lesion size decreases in an in-vivo preclinical model wet AMD level is similar to that occurred market leading product Eylea. So we're very excited as you know that's VEGF inhibitors.
So we're excited from an efficacy point of view at least in the preclinical stage we were able to achieve that. Importantly when we use preclinical combination with that product, 503 produced meaningfully greater lesion size reduction than the VEGF product alone. So certainly it shows the combination or adjunctive therapy would be very well tolerated and certainly could be very efficacious in humans.
Lastly, our research initiative remained focused on many potential benefits of Rho kinase inhibitors that we've discussed before and included valuation of our Janus kinase inhibitors, as well as some interesting ideas in presbyopia. From BizDev perspective, we remain interested in the large ophthalmic diseases, which I currently classified as a dry eye is probably being one of our more interesting one. As I mentioned before, there's roughly about nine companies that are reporting data over about a six to nine month period. So again, a lot of things going on in our space and certainly a lot of things going on in our company.
With that, I'll turn it over to Rich to cover the financials. Rich?
Thanks, Vince. As a quick financial update, we recorded $10.9 million of net revenues in the first quarter, reflecting volumes of nearly 108,000 bottles. Our gross margin for the quarter ended March 31, 2019 was 96.5%. Our normalize gross margin was approximately 95.5% when considering inventory costs that were expensed prior to FDA approval of Rhopressa.
Our first quarter 2019 GAAP net loss was $48.0 million or $1.06 per share. When excluding the $12.6 million of stock-based compensation expense, our total adjusted net loss was $35.3 million or $0.78 per share. Adjusted total operating expenses for the first quarter of 2019 were $46.0 million with adjusted selling, general and administrative expenses of $27.2 million, adjusted pre-approval commercial manufacturing expenses of $3.6 million and adjusted research and development expenses of $15.2 million.
For additional information regarding our first quarter results and prior period comparisons, please refer to today's press release and our Form 10-Q, which will be filed tomorrow.
Net cash burn for the three months ended March 31, 2019 totaled approximately $54 million with $148.9 million in cash and cash equivalents as of March 31, 2019. Shares outstanding at quarter end totaled 45.9 million. Further on liquidity, we have said a number of times that we believe that we have adequate liquidity to take us to breakeven, which we expect to occur at the end of 2020.
We have also been quite clear that we have no expectations to raise additional equity capital in the near-term. We recently increased our undrawn credit facility capacity to Deerfield to $200 million as announced a few days ago, bringing our total liquidity to an Aerie record of $350 million. I believe this puts us in a very strong position as we focus our sales execution, geographic expansion and continue to support the growth of our pipeline.
As Vince mentioned, we’re reiterating that we expect full year 2019 net revenues in the range of $110 million to $120 million on a U.S. GAAP basis, representing combined net revenues for Rhopressa and Rocklatan. We're also reiterating our net cash burn guidance for full year 2019 in the range of $130 million to $140 million. This range includes the gross cash burn guidance of $210 million to $220 million, partially offset by estimated full year 2019 revenue related net cash inflows of $80 million, which includes accounts receivable collections and rebate payments.
And now, I would like to turn the call over to Sidney for questions.
[Operator Instructions] And our first question comes from Annabel Samimy with Stifel. Your line is now open.
Hi, all. Thanks for taking my question. I want to ask you an obvious one first, with $10.9 million first quarter which is a dip from the fourth quarter, I guess, what makes you confident about the $110 million to $120 million guidance? And outside of Medicare not coming in what do you think are the biggest dynamics that could reverse from first quarter? I mean, you mentioned a few things there were deductible, there was extra sampling of our competitors, what is something that’s going to remain sort of pressuring those sales and what may lift?
And then second, obviously, you came out of a couple of medical conferences based on what are you hearing, what do you think the dynamic is going to be between Rocklatan and Rhopressa how these physicians expect to use the two products? And then finally on Rocklatan coverage, I understand you’re starting with 60% of Tier 3, how do you think your coverage is going to proceed with Medicare Part D specifically? Thanks.
Sure. So on the sales side we’re very confident because originally we expected that we would see the last 30% or 30 point bump in coverage, we thought that would commence sometime of Q1, the two target companies that -- or terms that we were dealing with sort of delayed those implementation decisions to now. So we think that they had certainly an impact on what the Q1 revenues are, but we think that we can pick take up relatively quickly.
As a reminder we were able to take get a pretty good size jump in prescriptions about a month or so after coverage started last time this happened, which is October so in November we saw about a 27% increase in prescription. So we certainly -- we were expecting that earlier and it's now occurring, but we think that with a pent up demand, we can pick that up.
We do see signs of that already occurring not just because we think we're going to get extra coverage, but as I mentioned during the call we have seen over the last three weeks or so, a fairly nice bump up in terms of the shipments from wholesalers to retail. And we think that that's a prime indicator for its continued success.
And the fact that the sales force has been able to overcome a lot of different things we've had probably 40,000 plus buyer authorizations written with Rhopressa and I think folks are beginning to see the light at the end of the tunnel here, which is the fact that we will be able to get Rhopressa reimbursed.
And so we do feel comfortable that the range is at $110 million to $120 million and all we’ve seen is a little bit of blip from one quarter to the next. Certainly, the excitement level for both Rhopressa and Rocklatan in the marketplace after these two meetings is relatively high and as I mentioned during the call we do see a fairly good separation between the kinds of doctors that are looking at jumping right on Rocklatan versus the ones that will probably stick to Rhopressa.
And so a lot of that will just shake out. Some of that will be -- we'll have a temporal elements, some guys will just start with Rhopressa. And then eventually just start moving into first line and then jump into Rocklatan.
Other guys frankly Annabel are just going to start off with the Rocklatan right out of the gate. And which had quite a few doctors that have called in for samples that our doctors who didn't write one Rhopressa prescription, and are jumping straight into Rocklatan. So we're seeing a little bit mix there, which is again, going back to our stands about not providing guidance by product instead doing so by total.
And so again, I think it's going to be very different, but it's going to be somewhat consistent with our product messaging for Rocklatan being the most efficacious and Rhopressa being the adjunctive that one if folks don't like latanoprost or primary prostaglandin, so we'll see some of that.
On the Rocklatan coverage, we do expect that, again, it’ll mirror our sort of base expectations, it'll mirror of what we saw with Rhopressa we’ll have about 12%, 14%, something like couple months after launch on Medicare Part D, that'll jump to about 40% in the September-October timeframe and then 75%, after one year.
I have to tell you they have all admitted this before, which is certainly given the excitement that we see about Rocklatan out in the marketplace, a lot of these doctors are willing to go overboard to try to get their managed care plans to put Rocklatan on formulary. Some of these doctors were willing to do so for Rhopressa. So we do think that there's a fair chance that we will be able to accelerate beyond that. I think I got your three questions.
Yes, you did. Thank you.
Thank you. Our following question comes from Serge Belanger with Needham. Your line is open.
Hi, good afternoon. A couple of questions for me. First, Vince, can you talk about any competitor activity ahead of the Rocklatan launch that in terms of counter detailing or any pushback from competitors?
Well, the biggest pushback that we've seen is purely the -- started this quite a while ago. They started dumping samples into the doctors hands and as a way of trying to sort of fill any demand out there not trying to induce the doctors or trying to get them excited about using some other product instead of ours. Some of the photographs we've seen, we're talking about cases of samples going in from a couple of these competitors. So that's not surprising.
I think the -- what they’ve tried to do is throw as much dirt as possible at Rhopressa, because they knew that once they got the Rocklatan with the efficacy that we've seen there, that's pretty clear from the clinical trials that they would not be able to take that one on. And so, we think that a lot of the doctors just kind of shrug their shoulders when they were trying to do that. But it’s certainly that kind of noise level did impact the Rhopressa continued growth. And as you saw, we had that along with a number of other factors sort of gave us pretty flat numbers for a couple of months.
We do think that over the last three or four weeks that our guys have been able to fight through that. I mean, it's obviously an onslaught, but our guys fought through that and that's why we think we've seen quite a nice jump roughly 10% in terms of the weekly shipments from wholesaler to retail. We think that's a great indication for us. It takes a while for that to show up in the IQVIA data. So -- but it's been mainly sampling and taken on Rhopressa there has been the competitive response.
Okay. And then in terms of your sales force, can you just give us an update on where you are in terms of the number of reps and has that changed at all since launching Rhopressa a year ago?
It really hasn't. Let me just have, Tom, talk to give you a little bit more detail in terms of sort of how the numbers of the reps and the makeup as well as the number of folks we have out of the field for managed care.
Sure. So Serge we have -- by the way, thanks for the question. We have 100 what we call territory managers out in the field that focus on about 14,000 top prescribers have broad come on medications. Obviously most of those are ophthalmologists and that really has not changed since launch. We have about seven people in managed care they call out both national players. They call on federal accounts like try care is a good example, state Medicaid. And then we have a couple of people in that seven that call on regional accounts not national accounts, but regional accounts. So we cover the vast majority of the payer marketplace by the regional accounts, federal accounts or national accounts.
Okay. One last one before we get back in queue. Vince, you've talked about your dry eye interest for a couple calls now. As you mentioned, there's quite a few players and or a few programs in various levels of development. Any interest in early stage or late stage program there?
So we'd like to get things like everybody else does have a proof of concept. Dry eye is got to be one of the toughest things we could ever do. And sort of we’ve get an industry littered with failures. And so we do think that there's a few of those that we -- that appear to have something unique and different. Remember, I also talked last time, there's two sort of almost not quite distinct, but sort of distinct segments within dry eye, which is this does where the patients just need more tears and other ones Meibomian gland disease. And so there are some interesting technologies that are approaching one or the other.
And so -- but again, we think that if we can get a proof of principle, something that seems exciting to us that seems, appears to work, that we can use our development expertise, formulation expertizes, et cetera, to move them through the pipeline pretty quickly.
And then, as you know, we did have a poster at ARVO, which is the first one that we've ever had, taking a non-Rho kinase inhibitor we had out of our library. As we made all these molecules we came up with a combination of Janus kinase, which has a very, very strong anti-flam activity which appears to do pretty well in dry eye models. And so we're excited about that, but it's pretty early on. So we'd like to see our licensing activities or our business development activities moves a little closer to the marketplace in that.
All right, thank you.
Thank you. And the following question comes from Bill Mon [ph] with Cowen & Co. Your line is now open.
Hi, good afternoon, and thanks for taking the question. I was hoping you could just comment on the rationale behind the timing of taking out the $100 million credit facility on top of currently undrawn $100 million credit facility? And then after that, as it regards to the Irish plant, what are the rate limiting steps to getting that up and running? And are there any material risks to the timeline? Thanks.
Great. Hey, Bill. I'm going to have Rich talk to you a little bit more about the timing of taking on the additional line, and then I'll deal with the Irish facility. Rich?
Yes, thanks Vince. Essentially, as I've said many times, if you are facing an opportunity to increase your financial flexibility, take advantage of it. And that's what we did. Essentially, we've got a record level of liquidity right now. I don't think anyone needs to worry about us having to raise equity capital between now and breakeven. And it basically gives us an insurance policy as we continue to build this company. From a commercialization perspective, international expansion perspective, it's important to have.
And I think it also gives us maximum flexibility with regard to pipeline enrichment programs, including business development. So we decided to take advantage of that opportunity. And, honestly, with regard to timing is it one week versus another that doesn't really mean anything, it was a strategic decision. Vince?
On the Irish facility, we have already made all of the three validation batches that we need to make in order to feel comfortable that the folks over there know how to make the products. And so they passed all their testing successfully. So that's great news for us. And in fact it happened quite a bit earlier than we expected. So right now, there's nothing else from that perspective that needs to occur, we do have an awful lot of cleanup to do in the like in the sense of getting ready. The two big things is we have to get ready for Irish inspection. So the authorities in Ireland will inspect the plant and sort of sign off there. And by the way, because of all the manufacturing that is done in Ireland, the EU considers Ireland to be one of the toughest places to get a sign off. So it's a tough hurdle, but I think the team is up for the challenge.
Shortly after that are the FDA will go into that facility. While it is possible that the FDA won't inspect our facility, they'll just sign off based on the Irish sign off it's highly unlikely. It's very seldom. In fact, I can't think of any examples where they've not gone in inspect a brand new facility that has never supplied the United States before.
So those are the two big steps Irish sign off as well as the FDA. And we expect all that will occur between now and the end of the calendar year.
Great, thank you very much.
Thank you. Our next question comes from Difei Yang with Mizuho. Your line is open.
Hi, good afternoon and thanks for taking my questions. So just a couple first one on Rocklatan, how do you think about the -- how should we think about the net price per bottle for 2019? And as well as how should we think about the stocking impact to the revenue?
So on the Rocklatan pricing, again, we just don't see -- we try to price it roughly about the cost of a latanoprost generic prescription. So it's Rhopressa plus that. And so I think you'll see the same attrition and moving down towards in that price of just over $100, say $105, $110, maybe $115. And the attrition from our gross price down to that is all going to be driven by how quickly we get on Medicare Part D formulary.
And so the faster we get on those, the faster the attrition to the price will occur. And just like we did with Rhopressa, we will make sure that we give you the heads up so that you can see that price erosion occurring so that you can adjust your models accordingly. And so that you can also begin a good job of estimating what our net sales are going to be in any one given quarter.
Regarding the stocking, we use the same program that we did or in terms of the numbers and like that we did with Rhopressa. So we didn't try to overstock, we just try to put something out there that was somewhat reasonable so that we can work through it pretty quickly. And again, the uptake is purely going to be a function of how many of these doctors jump on Rocklatan versus switching over to -- are sticking with Rhopressa. And so, we don't think we put in enough to screw up too many -- too much of the revenues due to the stocking that we put in.
Okay, thank you. So then changing subject back to Rhopressa, you talked about on the longer term basis when all the cannibalization and when the market dynamics sort of stabilizes in three years, let's say. Who do you think are the ideal patient profiles for Rhopressa? And I think you have talked about non-responders to be PJS [ph]. Could you give us an idea with regards to how big this patient population is?
Sure. So if you take a look at the pie chart that we provide for you in our corporate deck, you'll see the percent of patients that are still on a branded prostaglandin something other than with latanoprost. So if you take a look at that, you will see roughly about 7 points apiece for Lumigan and Travatan. And so we think that there are a lot of doctors out there who don't like latanoprost they really believe Lumigan or Travatan are a better drug. And so, we think that one segment of the population will keep using Rhopressa and those doctors just simply don't like latanoprost. And so we think that that makes some sense.
There's roughly 10%, 15% of patients who don't respond well to prostaglandins at all. And so we think that that's a second segment that is likely to take some hope. One of the things that we found at ASCRS so there are an awful lot of cataract patients or a lot of cataract doctors there that cataract docs that treat glaucoma and then they do cataract surgery on glaucoma patients immediately take many of those patient off of prostaglandins.
And the reason for that is prostaglandins have been shown to cause distorted macular edema, which is a condition that cataract doc hate to induce. And so there immediately and certainly during our add board all the cataract guys who jumping up and down that there's very little chance that they are going to use Rocklatan that they are going to stick to Rhopressa. So we think as more and more of that takes hold that you will see further separation there. So those are some of the segments that where we see Rhopressa will continue to do pretty well.
Okay. Thank you, Vince.
Thank you. And our following question comes from Esther Rajavelu from Oppenheimer. Your line is now open.
Hey, thank you for taking my questions. Based on the first few days that Rocklatan has been on the market, have you received any early feedback on how quickly docs are willing to switch Rhopressa and latanoprost patient on to Rocklatan just that specific niche.
Yes, we have. As I mentioned I’m going to let Tom sort of give you further details because he spend a little bit more time at ASCRS than I did and had went to all of the regional meetings where we actually launched Rocklatan that the thing got highlighted for me is the number of doctors who had never written a Rhopressa prescription that jump directly to Rocklatan. And they were calling the DMs, wanting samples immediately and things like that and certainly so level of enthusiasm of jumping over a product that you haven’t tried to go right into a combination was pretty startling for us. But let me have just, Tom, talk a little bit more about what they're seeing.
Yes, I agree what you said but I think the real evidence to that too is that they look at this and say while of course it’s obvious to us but here you have two drugs in one bottle for the first time that you only have to take once a day. So their interest in consolidating all of that is huge. I mean they spent a lot of time in ophthalmology conferences talking about adherence and compliance and try to make things simple for the patient was it’s ideal for Rocklatan. I mean, what they been doing is just shaping this market for what we were ready to bring out.
So it is not a new story for them it’s just a story that finally has a punch line or an answer to it. So I think they are very willing to try to -- I mean that did saw at the conference this weekend -- last weekend, the number of physicians that came in saying just I have put X number of people on Rocklatan before I came to the conference already, which was starling to us by the way. So they are very enthusiastic about that and we're very happy to hear that as well too. So hopefully that gives you an answer but they really willing and eager to give this product a try.
Great, thank you. And then on the spend side could you talk about your thinking on splitting the spend between SG&A and R&D over the next year or so where should we expect to see more of a heavier outflow?
So on the selling expense line we’ve sort of reach where we need to reach, which is basically the full funding of the sales force we’ve got all the manage care guys we need, we have an awful lot of commercial programs the advertising and promotional programs in sampling and stuff like that. So you think that this would be sort of a bolus year for us from that perspective.
And then the R&D line is purely going to be driven by the success of some of the current programs that we have in the clinic. Where right now the Phase II program -- or the early phase programs that we have for retina really won't start kicking into high gear until sort of the back end of next year assuming they’re successful in the phases that they are in now. And so we're not going to see a huge impact of those next year, what you will see is towards the end of this year we will have be fully enrolled with Mercury 3. And then just complete that.
And then we’ll be scaling up a little bit on the clinical side for Japan as we finish up the Phase II trial and Japan this year and then in later years moving into Phase III. So I think we’re again reaching sort of the peak in the U.S. relative to commercial expenditures and then so R&D taken based on success of the programs.
For Europe, we don't really expect a dramatic impact on the commercial expenses until sometime towards the back end of next year, as we get closer and closer to not only having Rhopressa approval, and the like, but also the success we have with getting Rocklatan reviewed on a timely basis and getting it priced, because that would be one of the key indicators for us in terms of scaling up the sales forces in Europe. And it will be on a country-by-country basis.
One of the things that Gianluca was very open about was that we may not get a good price in some of these countries. And so we may not interim immediately until we can get a better price. And so while we talk about 75 sales reps for Europe, it's not like they necessarily all come in on the same day. So again, we won't see that until the back in the next year.
Okay, got it. Thank you. Very helpful.
Thank you. And our next question comes from Oren Livnat with H.C. Wainwright. Your line is open.
Thanks, guys. If you can just help me from a modeling perspective here, Q1 value per bottle you stated was $100. Can you help us reconcile the fact that Medicare Part D came later than you expected, yet the value products dropped right down to $100, probably earlier than some of us expected?
And also separately, if that is a $100 a bottle that implies the gross up or the difference between the IQVIA bottles and the shipments through wholesalers is about a 20% premium, so to speak. And I think that was 36% in the prior quarter. So is that already collapsing faster than you expected? And should we assume that that premium or that difference is going to be mostly gone as we move forward quite quickly?
I'll let all that Rich give you some of the details here. But just as a reminder, in Q4 of last year, we had a couple things happening. Number one, we got approval and jumped 30 points in October, which are seeing prescriptions in November. So we only saw a stuff period. So a lot of the prescription activity that we saw in Q1 was mainly driven by the extra 30 points that we picked up in Q4 in Medicare Part D coverage.
So that had a lot to do with it. We also -- as I mentioned during the opening remarks also had to deal with the donut hole component and the like which also to help drive the price down. But let me have Rich talk to you some more about the details.
Yes, that's absolutely right. So while our Medicare Part D coverage has been at 40% since October and didn't change to 75% until May 1st. We did see increasing penetration of that 40% that was covered over the past several months, which by definition brings us down to that $100 level. We've always said that the Medicare Part D net per bottle is lower because you have steeper rebates in those contracts. In addition as Vince mentioned, we have the donut hole, the donut hole funding actually increased from 50% to 70% this year. So you’re just seeing that effect.
Honestly, putting aside what your models or assumptions were, we're not surprised by the $100. It's -- what we've always said we would yield and when we bounce below that and above that on occasion. Well, that's likely, but I think over the long haul, the $100, I think is the right number for us.
Regarding the relationship between IQVIA bottles and sales out. That premium, if you will and calculation was about 30% to 35% in the fourth quarter. That is if you took your IQVIA bottles and multiply them times 1.35 for the fourth quarter. You get pretty close to our sales out. In the first quarter that ratio did shrink somewhat to about 1.25.
The reason why is what Vince referred to earlier which is as our retail pharmacy presence increased from about 25% of retail pharmacies that dispensed a Rhopressa script to about a third well by definition that narrows that gap. But there will always be a gap. Even when we're at the full retail pharmacy penetration, because IQVIA doesn't pick up certain government business, like VA, as an example, Department of Defense, retired government defense employees, they were in a closed system that's not captured by IQVIA.
All right, thanks. That's really helpful. I appreciate it. That's it for me.
Thank you. And I'm showing no further questions at this time. I will now turn the call over to Vicente Anido, Aerie's Chairman and CEO for any final remark.
Thank you. As I have said earlier, this is an exciting time for the company having two products in the marketplace inside of 12 months of each other. It certainly not something that you see small companies doing very often. And we're very excited about the prospects here. Again, coming out of a couple of meetings, we see an awful lot of interest in the products and certainly a lot of the doctors are going to pick and choose sort of which one that they go after and the like and move forward from there.
But, that's not the entire story in our company, we do have a pipeline that we're pursuing and certainly moving into the retina programs is a big deal. We have global expansion in Japan and Europe that's really also very important and the like. And so again, in a very, very short period of time, we've been able to transition the company into a full operating company. And we do think that, again, reiterating our revenue guidance of $110 million to $120 million and controlling the expenses is the right thing to do and that it will set the tone for and a stage for where we think the company will eventually end up. So, many thanks for spending your day with us. Bye-bye.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may now disconnect. Everyone have a great day.