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Edited Transcript of AERI earnings conference call or presentation 6-May-20 9:00pm GMT

Q1 2020 Aerie Pharmaceuticals Inc Earnings Call

Bedminster, Jun 3, 2020 (Thomson StreetEvents) -- Edited Transcript of Aerie Pharmaceuticals Inc earnings conference call or presentation Wednesday, May 6, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ami Bavishi

Aerie Pharmaceuticals, Inc. - Director of IR

* Richard James Rubino

Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer

* Thomas A. Mitro

Aerie Pharmaceuticals, Inc. - President & COO

* Vicente J. Anido

Aerie Pharmaceuticals, Inc. - CEO & Chairman

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Conference Call Participants

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* Annabel Eva Samimy

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Daniel Christopher Clark

Mizuho Securities USA LLC, Research Division - Research Associate

* Elliot Henry Wilbur

Raymond James & Associates, Inc., Research Division - Senior Research Analyst

* Esther P. Rajavelu

Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst

* Gregory Daniel Fraser

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* Jason Matthew Gerberry

BofA Merrill Lynch, Research Division - MD in US Equity Research

* Kenneth Charles Cacciatore

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Louise Alesandra Chen

Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD

* Serge D. Belanger

Needham & Company, LLC, Research Division - Senior Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the Aerie Pharmaceuticals First Quarter 2020 Earnings Conference Call. (Operator Instructions) Today's conference call is being recorded.

It is now my pleasure to turn the floor over to Aerie's Director of Investor Relations, Ami Bavishi. Please go ahead, Ami.

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Ami Bavishi, Aerie Pharmaceuticals, Inc. - Director of IR [2]

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Thank you, Chris. Good afternoon, and thank you for joining us. With us 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, 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 observations regarding our future financial and operating performance, potential impacts of the COVID-19 pandemic and our observations regarding ongoing operating expenses and net revenue per bottle. These statements will include observations associated with our commercialization of Rhopressa and Rocklatan in the United States. They will also include plans and expectations regarding the success, timing and cost of our clinical trials. Additionally, we will discuss progress regarding maintaining, requesting or obtaining approvals from regulatory agencies of our products and product candidates, including our strategies and plans with respect to international expansion. Finally, we will address our manufacturing activities and capabilities, 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 be careful of the risks and uncertainties described in today's press release as well as the risk factors included in our filings with the SEC. We assume no obligation to revise or update forward-looking statements, whether as a result of new information, future events or otherwise. Please note that we expect to file our 10-Q 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 the Investor Relations section of our website.

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

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [3]

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Thanks, Ami, and good afternoon, everybody. Thanks for joining us today, and I hope you and your families are staying safe.

And the world certainly is quite different than it was when we did our yearly earnings call back in February. So today, we'll start -- we'll look back at the first quarter of 2020, which is largely unaffected by the COVID-19 pandemic; and then obviously focus on what we are seeing in the current environment. In short, our first quarter performance was ahead of our internal expectations in terms of volumes and slightly below our expectations in terms of net revenue per bottle. Net revenues for Q1 of 2020 totaled just over $20 million.

Unlike the first quarter of 2019 where we experienced a 4% sequential decline in wholesale unit shipment volumes versus the fourth quarter of 2018, this year, in the first quarter of 2020, we generated a sequential increase of over 13% versus Q4. The first quarter performance started 2020 off very, very strongly. In spite of that, we decided to withdraw our previous full year 2020 guidance when the COVID-19 impact brought script volumes down as we exited the first quarter of the year. Uncertainty in the marketplace and with the governmental response to the pandemic, it's certainly made predicting the rest of the year an uncertain exercise, especially now as we look at various states opening up, other ones declining to open up or doing so slowly. So it's certainly -- it's a tough year to provide any guidance at all.

Once we pass the seasonal January and February volume softness that most pharma companies experience usually caused by increases in deductibles and out-of-pocket expenses, et cetera, we did see healthy volume increases as we entered March. You might recall that we gave guidance that we expected volumes to pick up meaningfully in Q2 of this year in part as a result of our getting the message out, the eye care professionals using the positive data from our MOST trial for Rhopressa. And we appear to be building momentum towards the largest quarter uptick as you saw prescription activity for both Rhopressa and -- which basically reversed (inaudible) where it was flat or declining, and also, we saw increases in Rocklatan.

As far as net revenue per bottle is concerned, we did expect our net revenue per bottle to remain at over $90 on the heels of 2019 experience with the coverage cap exposure where, remember, in full year 2019 net revenue coming in -- per bottle coming in at $103. As our managed care coverage and unit volumes grew through Q1, there was a larger shift in mix to Medicare Part D, Medicaid and other government payers than we had anticipated. You've seen other companies talk about an increased Part D. There's been a decrease in commercial, not the coverage, but certainly utilization because the unemployment has been increasing; more governance systems programs have been kicking in, which obviously, for us, like Medicaid, et cetera, are much lower prices. And certainly, on the commercial side, we certainly do see full usage of our co-pay cards.

You might recall our discussions last year, we discussed a lag between contracting with health insurance providers and onboarding of the various formularies within those programs. We stated that the formulary coverage would come over time. A new portion of Medicare Part D formulary coverage, in fact, was implemented effective January 1, and with that, the rebated volumes increased considerably. At this point, the contracted lives and the formulary coverage percentages are one and the same, which for us is excellent news. As we closed the books for the quarter and analyzed the payer mix, we saw a demonstrable and greater-than-expected increase in Medicare Part D mix, in part from this new underlying formulary covers that -- again, that started January 1 by providing lower co-pays for patients, which allows for higher prescriptions volume, that by definition, correspondingly higher rebate levels as a result. With that, our net revenue per bottle came in at $88. As you know, the government accounts are rebated more steeply than the commercial accounts, plus Medicare Part D has a coverage funding requirement on top of that, all of that resulting in lower net revenues per bottle relative to what we experienced on the commercial side of the business.

Of course, glaucoma is a disease of the aging and ultimately seeing volume growth on the Medicare Part D side, in particular, should bode well for future volumes. For reference, the difference between the $88 net revenues that we experienced in Q1 versus that $90 benchmark that we had out there before amounted to less than $0.5 million in net revenues for Q1. We have been noticing also an increases in 90-day supply over time as those plans, along with the associated elderly populations, appear to be favoring extended supply. It is possible that with the current COVID-19 situation, more and more patients are taking advantage of the 90-day mail-order plans, where they have the convenience of getting their eye drops without needing to leave their homes. If this trend continues, that may prove beneficial to us in the long run, recognizing that our ratio of bottles to script is currently below that of the broader glaucoma market. Therefore, we may actually see some greater upside there.

Further on coverage, we have some very good news. Effective May 1, we gained formulary coverage for both Rhopressa and Rocklatan from one of the largest Medicare Part D players in the nation. We've been working on that for -- since the launch of Rhopressa, so it was great to finally get it. At the time of year-end 2020 call, this was not expected, as our position was that there was not a -- that we wouldn't accept rebate offers, they were too steep. And we instead pursued a prior authorization strategy. And at the end of the day, as you can imagine, that strategy worked because we ultimately ended up getting a much better deal than we had expected. Our Medicare Part D coverage is now over 90% for Rhopressa, up from 75%. And Rocklatan is now 55%, up from 38%. Plus, there's 15% for Rocklatan. There's an extra 15% of low-income subsidy on top of the 55%, bringing Rocklatan up to 70% Medicare Part D patients with affordable co-pays.

Commercial coverage remains very, very strong with 90% coverage for Rhopressa and almost 90% coverage for Rocklatan as well. In a normal environment, these increases in coverage would obviously carry quite a bit of weight in driving future volumes. That's still to be the case, although it is difficult to determine the timing and magnitude in this environment, especially, as I mentioned earlier, as the states open up independent of each other, some, again, much faster than others are opening up, and Tom will talk a little bit more about that when he talks about the commercial side.

One thing is for sure in my mind over the long run, while this increased Medicare Part D coverage will weigh somewhat on our net revenues per bottle going forward, the potential volume benefit should be more meaningful. That clearly is the offset that we're looking for, greater volumes as part of getting greater coverage.

Changing gears briefly before I turn it over to Tom for further commercial insight, I'd like to touch on our other important initiatives. We continue to expect to commence in the second half of this year the Phase IIb trial for our dry eye product candidate that we obtained through our late 2019 acquisition of Avizorex. We are currently conducting toxicology work, looking at various concentrations. Although it may be hard to predict, we are hopeful that with over 30 million dry eye sufferers in the United States, and as you know, only about 2 million of them are treated, and many states open up later in the year, we could see very, very rapid enrollment in these clinical programs once we get it off the ground.

For Japan, we had a virtual meeting with PMDA about a month or so ago. The meeting went very, very well and added clarity to recommended Phase III approach for the programs. But the good news being that it's very much in line with what we expected to see. We are preparing for commencement of Phase III trial in Rhopressa in Japan in the second half of this year. And we -- also at the same time, we have continued to explore partnership opportunities.

Our sustained release retina programs continue, and we do expect top line data for our Phase II clinical trial for AR-1105, which is our dexamethasone insert, by the end of 2020, in addition to completing our enrollment of the first in-human clinical study for AR-13503, which is a Rho kinase inhibitor, and that will be later this year. We are seeing the retina doc offices are generally staying open in part because the injection regimens that they had many of their patients on is a requirement, and they can't do without those. And with that, our trials remain on track.

As I pointed out on our last call, by the end of 2021, we do expect to have adequate clinical data from our dry eye product and our retina programs decide how best to proceed with our multiple product candidates with the best chances of not only for clinical but ultimately commercial success.

For Europe, we awaited our Roclanda Mercury 3 data from Europe. We're getting very close to enrolling our last patient. The top line data for Mercury 3 is expected potentially by the end of 2020. So again, we haven't seen a major slowdown as we are finishing up that program. We hope to hear that Roclanda is approved by the European authorities sometime either later this year in 2020 or early 2021. We will continue to evaluate the commercial prospects for our glaucoma products in Europe based on the Mercury 3 data and the commercial opportunity in the region.

Finally, on COVID-19. Our #1 priority remains the health and safety of not only our employees, but our health care professionals and the patients. Majority of our employees are working from home, and we have ample technology to support those efforts safely and securely. Where it is not feasible to have work done remotely, we have implemented flexible schedules and since instituted personal safety and hygiene regimens in accordance with local regulations. As an example, our Athlone plant, which was approved in January for the production of Rocklatan for commercial distribution in the U.S., is currently staffed by around 50 employees out of the 80 that normally would be working on that site. And they're being very productive. We've been able to complete our first commercial batch of Rocklatan, so we're hoping that we'll be able to get Rocklatan manufactured in our own facility out of the marketplace here in the U.S. over the next few months. In addition to that, the team has been preparing for the prior approval supplement of Rhopressa. So by year-end, we hope to get that approved, and so we'll be able to manufacture both Rhopressa and Rocklatan out of that facility. And last but not least, just recently, in fact, in the last week, that team in Ireland actually produced the first batch of our clinical material that we'll be using in Japan for the Phase III trial there.

From an inventory point of view, we have had no supply chain issues to date. We do believe we have over 3 years of starting material and API inventory and over 6-month of finished goods, and production is ongoing. And now with our Irish plant coming live, we now have 3 finished product manufacturing sources that we can choose from.

What I'd like to do now is to turn the call over to Tom to cover his perspectives on our position in the glaucoma landscape and what we're seeing as a result of the current environment from that perspective. So Tom?

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [4]

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Well, thank you, Vince. I began our last earnings call talking about the very positive momentum we were experiencing on the commercial front. The good news is, is that the momentum certainly continued through the majority of the first quarter up until the late March when the impact of COVID-19 began to hit. In fact, in first quarter 2020, prescriptions for our franchise were up 92% over the first quarter of 2019. That compares quite favorably to the overall glaucoma market, which grew just 3%. The physician and patient experiences were and actually continue to be quite positive. And we were actively engaged with eye care practitioners to further inform them regarding the positive MOST Phase IV data that we've discussed with you previously and are continually increasing managed care coverage.

Now currently, our products enjoy excellent awareness with the prescribers. Almost all, in fact, 98%, of our decile, that's 9 in 10 physicians, which as a reminder, who are the highest frequency prescribers for glaucoma products, have prescribed an Aerie product, as have well over 70% of our entire targeted physician universe. Our strategy to use the MOST Phase IV data to generate an increase in Rhopressa volumes with clearly having an impact, and now with greater Medicare Part D coverage for Rhopressa and especially Rocklatan, we anticipate the physician conversations around lower patient co-pays and far less need for offices to submit prior authorizations will certainly be very well received.

Now for today, I'd like to focus on 3 things: our current volume trends, the results of a recent survey we conducted and our plans for getting out of the gate quickly when eye care professionals start to reopen their offices.

Looking at the activity of volume trends, as I mentioned earlier, our volumes were increasing nicely through the first quarter, but began declining the week of March 27 as a result of the COVID-19 impact. The IQVIA data showed a continued decline, but at a slower pace until the week of April 24, where we saw our total prescriptions increase 1.6%, while the overall glaucoma market declined 1.1%. And interestingly, our new prescriptions increased 3.7%, while the overall glaucoma market new prescriptions declined 2.4%.

Now as you know, we also focus on sales out to pharmacies as a more accurate, real-time gauge of volumes. While our average weekly sales out in March were nearly 20,000 units, that same weekly average was approximately 16,800 for the month of April with last week's total being 16,400. But for reference and to keep current volumes in perspective, our average weekly sales out to pharmacies for the month of April 2020 still exceeded the average weekly sales out for the fourth quarter of 2019. Of course, it's impossible to predict future trends based on what we have seen over the past few weeks, and just like all of you on the call, we'll be watching these volumes very, very closely.

On my second topic, we conducted a survey from March 26 to April 10 involving 225 practitioners around the country. The purpose of the survey was twofold: to understand the physicians' reactions to, number one, the COVID-19 virus; and number two, the MOST Phase IV data. On the reaction of the COVID, 78% of offices were only seeing sick patients at that time. 2/3 of the offices surveyed had reduced their office staff, while over half had limited hours and only 1 in 6 offices had closed temporarily. That explains the decrease in new prescriptions the overall market has seen since the end of March. The reactions to the MOST Phase IV data were quite encouraging. 70% of eye care practitioners were aware of the MOST data. A large majority of doctors, close to 80%, reported that the drop in IOP reported in the MOST trial, which, as a reminder, was better than 4 millimeters of mercury, was consistent with what they were experiencing in their practices with Rhopressa, whether Rhopressa is the first, second or third product added to a prostaglandin. Importantly, better than 95% of eye care practitioners reported that the trial results for MOST give them good reason to prescribe Rhopressa and Rocklatan.

On my third topic regarding getting back out to the market. We've been very busy making plans to quickly reintroduce the MOST Phase IV and the managed care coverage data into the marketplace once the eye care practitioners reopen their practices. In the meantime, our reps have been organizing and conducting virtual office meetings with eye care practitioners and their staff. A number of our reps have received calls from practitioners inviting them to come into their offices to discuss the clinical data, managed care coverage and to provide samples. Commonly, because these offices aren't that busy, our reps enjoy a great deal of uninterrupted and unhurried time with the physicians and staff. These visits can go from 20 minutes to an hour, which is obviously a wonderful educational opportunity for our representatives. Our marketing team has also been quite busy. They've run virtual advisory boards that have trained our KOL speakers to run virtual speaker meetings. Our sales reps will return to the field as soon as the state in their respective territories indicates it's safe to do so, and we'll pay special attention to the 10 states that generate greater than 55% of total glaucoma market prescriptions. 5 of these 10 states, including Florida, Texas, Pennsylvania, Ohio, Georgia, have made statements that they currently plan to open their states prior to the end of May. Obviously, we won't stop our efforts there. And as soon as possible, meaning when the other states allow us, we'll redeploy across the entire nation just as we were prior to the COVID crisis. Now we believe there's pent-up demand out there as so many patients' office visits have been canceled. Additionally, because we have such compelling data to communicate, we're also evaluating additional ways to increase our share of voice with the physician audience.

So in summary, and before I turn the call over to Rich, we were clearly on track in the first quarter, but of course, things changed with COVID-19. However, we believe with the data that we have from the MOST Phase IV trial and the managed care coverage, recapturing our momentum will certainly be attainable. Rich?

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [5]

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Thanks, Tom. As Vince discussed, our combined Rhopressa and Rocklatan revenues in the first quarter 2020 totaled $20.3 million or $88 per bottle. Our normalized gross margin for the quarter ended March 31, 2020 was nearly 95%. However, on top of that, we took about $1 million of inventory obsolescence reserves and also needed to absorb over $3 million in Athlone plant overhead associated with start-up commercial production. Keep in mind that prior to the approval of the Athlone plant for Rocklatan commercial distribution in the U.S., these expenses would have been charged to precommercial manufacturing expenses within operating expenses. So essentially, it's a geographical change from operating expense, and now into cost of sales with the approval of the Athlone plant for the manufacturing of Rocklatan.

Our first quarter 2020 GAAP net loss was $49.1 million or $1.07 per share. When excluding the $10.5 million of stock-based compensation expense, our total adjusted net loss was $38.6 million or $0.84 per share. For the first quarter of 2020, adjusted cost of goods sold was $5.6 million, and adjusted total operating expenses were $48.2 million with adjusted selling, general and administrative expenses of $30 million, adjusted preapproval commercial manufacturing expenses of $1.8 million and adjusted research and development expenses of $16.3 million. So to my earlier point on cost of sales, you can see the preapproval commercial manufacturing expenses, in fact, it did come down meaningfully from the fourth quarter to the first quarter of this year.

For the first quarter of 2020, our net cash used in operating activities was $41.8 million, and we had nearly $265 million in cash, cash equivalents and investments as of March 31, 2020. Shares outstanding at quarter end totaled 46.5 million. For additional information regarding our first quarter results and prior period comparisons, please refer to today's earnings release and our Form 10-Q, which we expect to file tomorrow.

And now I'd like to turn the call over to the operator for questions. Chris? Chris, we'll take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Annabel Samimy with Stifel.

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Annabel Eva Samimy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [2]

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I hope you all are well. I just wanted to ask you about some of the different dynamics you're seeing between Rhopressa and Rocklatan. So it looks like Rocklatan still had a nice pickup despite your focus on Rhopressa with the MOST data. So clearly, you must be seeing the MOST data resonate in support -- that supports Rhopressa -- are you seeing MOST data resonate in support of Rhopressa? Or are physicians starting to understand it so well that many are opting for Rocklatan? And now with a couple of months under your belt, any thoughts around what's going right, what's going wrong with the strategy, if there's anything you have to shift and if there's any switching going on from Rhopressa to Rocklatan? A lot of loaded questions, but you get the gist.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [3]

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Hey, Annabel, I'm going to have Tom answer the specifics of the question that you asked, but let me just give you the perspective from a timing point of view, which is you may remember that in the February meeting or earnings call, I did talk about the fact that it was in early January that our sales force was trained, medical peers training speakers, et cetera, et cetera. So we were starting to get the message out. We did expect that with the focus of going to those prescribers who had at least 10 monthly prescriptions and trying to get all that focused on, that we would see an inflection point on Rhopressa as a result of the additional information that we were providing for MOST, but we wouldn't expect that until Q2. We did see an inflection point on Rhopressa pretty early. So that gave us good hope that the information that we were providing was going to be meaningful in impacting the Rhopressa prescriptions longer term. So obviously, some of that got derailed, but let me have Tom talk a little bit more about what he's seen in the market research that we did.

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [4]

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Yes. Thanks for the question, Annabel. Here's what I'd say. First off, as we all know, the way to Rocklatan is through Rhopressa. And really, what we've always said is once practitioners get a -- some experience with Rhopressa to see how it actually works and how it performs, then we think that will naturally lead them to just a more convenient product just using Rocklatan once a day, and clearly, that's what's happened. I think what's happened -- 2 other things have happened, I think. One of which is the MOST data certainly built a lot of credibility around Rhopressa. It adds validity to what doctors were seeing in their offices, as I said in my prepared remarks. And that helps them gain confidence not just with Rhopressa, but also with Rocklatan. The one thing that holds Rocklatan back a little bit still is that coverage is not as good as it is with Rhopressa because Rhopressa, frankly, has outstanding coverage with both about 90% in both commercial and Part D, and physicians are sort of burned out from the prior authorization standpoint. So for those that don't want to do prior -- for those that do not want to do prior authorizations will stick with Rhopressa. Those who don't mind doing some will probably move right over to Rocklatan, and that's kind of what we're seeing now. And as you know, many offices out there prescribe both products. They find a way to use both products in their practices.

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Annabel Eva Samimy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [5]

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Okay. To be fair, just as a quick follow-up, they did write enough prior authorizations that you did have a Medicare plan pick you up for Rocklatan, correct? So I guess the strategy was to...

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [6]

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Oh, yes. Yes, Rocklatan also increased the coverage quite a bit because of the prior authorization.

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Annabel Eva Samimy, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [7]

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Okay. So you expect that momentum to continue now for both, given that Medicare is now pretty much majority -- you got majority coverage on Medicare, and then you don't have kind of access issues with Rocklatan now.

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [8]

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We have -- no, we don't have nearly the issues that we've had before. We still have some issues with Rocklatan. It's not as clear sailing as Rhopressa is. But like Vince said, we took the prior authorization strategy with Rhopressa. As a result, we not only got Rhopressa approved, but we also got Rhopressa approved on formulary and that quote a much better net price for us. So we will hold the line still with Rocklatan for a little longer because we think prior authorizations, again, will make the managed care entity come our way and give us a reasonable price for our product.

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Operator [9]

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And our next question comes from the line of Ken Cacciatore with Cowen and Company.

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Kenneth Charles Cacciatore, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [10]

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Really good performance during a difficult time. So my congratulations. Just a follow-up on a couple of the first questions you got. I think you just answered it, but just wondering if there's any concessions you had to give to get this additional Rocklatan coverage. And maybe a little bit of thoughts, and I know it's always difficult to predict when we might see this move forward a bit. I know we're getting there and almost all the way there, but just wondering if you have any updated thoughts. I know we were thinking maybe summer or fall to have more comprehensive, but you're moving it forward so fast, wondering if anything else is close.

And then on -- Rich, on the gross margin impact that you described. Just trying to understand, is that onetime in nature? Or is that -- should we expect that this is kind of the new gross margin run rate, understanding that the expenses came down out of the operating line. And to that point, on the operating line, is this a good run rate that we should be thinking as we go through the balance of the year?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [11]

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Ken, how are you? Glad to have you on the call. So we expect that we're going to be pretty cautious about sort of the balance of the 30% or so of Medicare Part D that we still need to close off on Rocklatan. We're almost there on Rhopressa completely, so that's pretty well covered. But we're going to be pretty cautious about giving up on the last 30% or so because certainly, the strategy that we implemented with prior authorizations did help us get a much better price overall. So we do want to continue that. And again, those last ones are hard to predict because it's really a balancing act between the pressure that the prior authorization has put on the system because remember, when those prior authorizations get approved, about 40% of them get picked up because the co-pays are reasonable. And for that grouping, the managed care plan is actually paying retail. So it does put an awful lot of pressure on them. But it's almost impossible to tell when we're going to be able to get those done, but again, we're in no hurry. We're happy with the strategy that we've laid out. So let me just turn it over then to Rich to answer your questions regarding the P&L.

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [12]

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Hey, Ken, nice to hear your voice. So we did take -- it was about $3.5 million of that Athlone idle capacity charged to cost of sales in the first quarter. Just to give you a reference point, last year, we had about $20 million on a full year basis in precommercial manufacturing expenses. As we entered 2020, at the end of January, the Athlone plant was approved to manufacture Rocklatan for U.S. consumption. So in the first quarter, we took about $3.5 million of that idle capacity to cost of sales, which otherwise, prior to approval, would have gone to operating expense.

With regard to going forward, I think it's safe to assume that we'll have $4 million to $5 million per quarter associated with Athlone idle capacity flowing to cost of sales. But on the other side of the ledger, we'll have a much lighter year as it relates to precommercial manufacturing expenses. We had just under $2 million in the first quarter. Probably expect maybe another $2 million for each of the subsequent quarters of this year. So net-net, it's mostly a geography discussion. It's what you would expect with the plant starting up. You always have basically underutilized capacity. As volumes pick up, that becomes negligible over time. Hope it helps.

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Kenneth Charles Cacciatore, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [13]

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It does.

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Operator [14]

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And our next question comes from the line of Serge Belanger with Needham & Company.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [15]

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Vince, you mentioned there was a significant increase in 90-day supply prescriptions towards the end of the first quarter. How big was that increase? And how much of an impact did it have on the first quarter sales? And are you seeing the same kind of volume of these 90-day supply in the second quarter?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [16]

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Yes. So it started -- hey, Serge, good to hear your voice. I'm going to have Rich give you all the details. But it did start towards the, I would just call it, the March time frame when we started seeing some of the impact of this. So we do think that some of this is attributed to the closing down of the states and people not being able to get out and things like that. And so -- and then we do expect that phenomena to continue. Remember, as Rich, I believe, said during his prepared remarks, our ratio is lower than other glaucoma products because we're newer in the market in terms of our ratio of 90-day. So hopefully, that will just keep moving up. But let me just have Rich talk to you about the details.

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [17]

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That's right. So if you look at the glaucoma market in U.S., the ratio of bottles to scripts is roughly 1.5 to 1.53, as I recall. We've been ranging now recently in the 1.37 to 1.39 range, which is pretty meaningful, considering about a year ago, we were at about 1.27. That continues to pick up, and part of that is associated with the increase in the Medicare Part D mix in our book that Vince addressed in his prepared remarks. Historically, the Med D plans have been more 90-day oriented. And now that we've got the COVID-19 pandemic to deal with, I think more and more patients are going to be opting for the convenience of mail-order pharmacy so that they can avoid walking into the retail pharmacies. So I do think we have some runway. We'll watch it every -- obviously, every week. To see numbers in the 1.37 to 1.39 range already is fairly promising, and hopefully, there's more to come.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [18]

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Okay. And then you only had a couple of months' experience with the new marketing strategy until a pretty significant disruption. But can you talk about what's -- how it changed your sampling efforts? And any feedback you got from physicians and reps in terms of what the competitor response was in terms of their sampling efforts and counter detailing?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [19]

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Yes. I'll have Tom address that.

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [20]

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Sure, Serge. So what it really did was open up our sampling to more patients because physicians got more and more interested in the product as they looked at the data. And when they looked back at MOST data, they really saw 2 key parts to it. One was just the very large decrease in millimeters of mercury of IOP that I mentioned in my prepared remarks when they added this to a prostaglandin because that's not the type of drops they're used to seeing. So they -- it made them very interested in using it for more and more patients. The second part, of course, was the responder analysis that showed what percentage of patients got down to what levels of IOP. It was very impressive compared to their previous regimen that they were using. So what that did is it just encouraged us to use more and more samples because doctors wanted to give it to more and more patients. That is a good question about what the competitive response was. Frankly, unfortunately, the virus hit before the competition could actually figure out what we were talking about or what we were doing because we certainly caught them by surprise. So before they could -- frankly, before they could rally their troops and circle their wagons, we were out there making fantastic noise, but then all of a sudden, we had to lower the curtains for a little bit until we can get back out there in the field. So we'll see what the competitive response is now. We haven't heard anything from them in any of the webinars that they are doing or physicians haven't told us anything about what they are doing to combat our products. So we think we've still got clear sailing because I don't know how they were going to, frankly, combat it with their own products. So...

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Operator [21]

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And our next question comes from the line of Louise Chen with Cantor.

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Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [22]

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So I had a few. First one I had was how should we think about the second quarter sales and OpEx? How are you seeing things shaking out now? If you don't want to give numbers, maybe you could qualitatively to it.

And then the second thing here is on payer mix. How do you think about that? Will rising unemployment impact your sales in the second quarter and beyond? And then how much and what's the magnitude there?

And then just back on this gross margin question. Should we then consider the second quarter gross margin to be higher or lower than what we're seeing in the first quarter? Or maybe second quarter is not a great quarter to comp it to, but in general, is the gross margin higher or lower than that 70% that we saw this quarter?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [23]

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Louise, I'm going to just give you a little bit of perspective in terms of sort of the flow of the business, and then I'm going to have Rich talk specifically about what you're asking relative to the OpEx and the payer -- specific to payer mix and the GM again. But in terms of what's going on, just don't forget what we talked about. So we saw the initial impact of the COVID-19 on our business starting early March -- or, I'm sorry, the back end of March. We started seeing, and you guys saw it from a prescription point of view, all of a sudden, things were going really, really well. We were feeling pretty good about the program that the commercial team had put in place, and it was going great with both Rhopressa and Rocklatan in the marketplace. And then obviously, things started shutting down, and they shut down pretty quickly. And so we did see a little bit of an impact on there.

Now that also impacted, as you've seen, and we report on a regular basis, our shipments from wholesale to retail. That also is, as you know, the one that we really track to see how the business is progressing. And so all we could tell you is that we think that it appears that we, perhaps, have hit bottom as states have opened up. And more specifically, even if they haven't totally opened up, you see a lot of states moving forward with elective procedures. And a lot of the docs that we talk to, that's their bread and butter, these elective procedures. And so they're seeing more and more. And as more patients get comfortable going to see the doctors, you'll see more elective procedures, and we think that, that's going to bode well for the prescription activity. We certainly saw the prescription uptick last Friday. We've seen the corresponding uptick in units from wholesale to retail kicking up. We had an unusually strong first couple of days of this week, which is great because it's the first time we've seen some of those kind of numbers kick up. And so you'll see that hopefully reflected for the entire week when we republish the numbers.

But again, the key driver here has been the opening up of elective procedures. And so we think that, that's going to dictate what these quarters look like. It is hard to call them out because we don't know exactly how big of a deal it's going to be, but Tom gave you some information about really 8 states control about 55% of our business, and half of those are already opening up. And so we think that, that's going to bode well for us. And maybe it's just a 1-month impact, but it's too early to tell. Let me have Rich walk you through the other questions you had.

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [24]

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Yes. So looking at the immediate future, the second quarter, I do expect operating expenses will be lighter. We are down to very, very little travel, if any. And obviously, meeting expenses are close to 0 as well. So we would expect a lighter OpEx quarter.

Regarding payer mix going into the second quarter. I think the trend that we saw in the first quarter will continue, weighing more toward Medicare Part D. Remember, as we said earlier, effective May 1, we gained a really big chunk of Med D coverage. How much of that will we get this quarter? Hard to predict, but it will certainly, I think, give us more of an impact from Medicare Part D going into the second quarter.

From a gross margin perspective in the second quarter, well, to the extent you have more Medicare Part D, generally, your gross margin will go down because it tends to bring your revenue per bottle down.

Looking at the first quarter, moving into the second quarter, remember, the first quarter did have roughly a $1 million obsolescence reserve for inventory. Hard to predict if we'll have that again. Right now, we don't see that. We'll look at that at the end of the quarter. And as I mentioned to one of the earlier questions, I would expect more than the $3.5 million that we took for Athlone idle capacity in the first quarter, I expect that to be more in the $4 million to $5 million range.

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Operator [25]

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And our next question comes from the line of Jason Gerberry with Bank of America.

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Jason Matthew Gerberry, BofA Merrill Lynch, Research Division - MD in US Equity Research [26]

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So I just wanted to confirm, so it sounds like in the states that are reopening, I'm not sure if you're seeing this yet or if this is just the operating assumption, but is business as usual once these offices -- eye care professional offices reopen or if there's any type of lag factor at all in terms of these physicians getting caught up. And so just curious if you can first provide any perspective on that.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [27]

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Sure. On the information that we get, and some of it is anecdotal and some of it is -- some of the survey data that we've seen, and I think Tom mentioned it a little bit, just about every doctor out there has made changes to their practice. Some of them -- which is an interesting split, is some of them who had the financial wherewithal decided not to lay anybody off. Their idea was that the minute that they were going to be able to open their doors, they wanted the entire staff sitting there and be able to bring patients in and clear their backlog quickly and, at the same time, see if they can make market share gains within the geographies in which they can compete. Other ones, a large percent of the practices, actually laid folks off. So it's going to be a little while before they get those in. I could tell you anecdotals from a doctor here in the Fort Myers area, where I live, he was ready to go day 1, and he's taken it in the high gear right from the very, very first day. Now on the west side of Florida, we haven't had as big of an impact as they did on the east side of Florida. So a lot of the patients are moving in there pretty easily.

We do have experiences in, say, Sacramento area where we know 1 practice that opened up, and they just aren't seeing that many patients yet. The patients are a little bit more hesitant. Obviously, California has more restrictions than Florida does. And so I think that's impacting it somewhat. The interesting offset to that is what Tom said, which is in some of these areas, the doctors are giving our reps, once they get in there, a huge amount of time because they're not as busy as they normally are. And so it is to our benefit at this point. And certainly, each of our reps are doing what they can, and we're providing all the necessary PPE so that they can go in there and fully comply with whatever the doctor's offices want to do. So it's too early to call it all out, but it's certainly we're seeing things open up, and when they're opening up, for the most part, they're moving pretty quickly.

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Jason Matthew Gerberry, BofA Merrill Lynch, Research Division - MD in US Equity Research [28]

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Got it. And then just as a follow-up, thinking about the Mercury 3 study and -- study outcome, as you presumably have some discussions with potential strategic partners there, can you just help frame how important it is to show superiority to Ganfort in order to capture pricing and ultimately capture value in EU markets?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [29]

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So we picked the Ganfort product in Europe mainly -- as a competitor, mainly because it's got the highest price for branded products in the combination category. And so if we do price -- if we're able to show superiority, we think that we can get a better price than they have. So that's a net positive for us. And if we just do noninferiority, then we'll get roughly the same price that they have. Just as a reminder, while -- we're always open to talking to partnership, we have partnership opportunities in all of the markets outside the U.S., we really don't think that's viable in Europe. We think that it's more likely, if everything goes well, that we'll probably do that on our own. And perhaps in some select markets, we may find local partners. But we don't see partnering as big of a portion of our thinking as say -- as we do in, say, Japan.

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Jason Matthew Gerberry, BofA Merrill Lynch, Research Division - MD in US Equity Research [30]

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Got it. And in the noninferiority scenario, I think Ganfort only has a few years left of exclusivity. If that goes off and you're noninferior, is there a risk that you have reference pricing issues against the then generic? Or can you maintain your price point once you've been out on the market and established for a couple of years?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [31]

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Right. So this will be -- because we're not a prostaglandin, we don't think that there will be that reference pricing there. They do have a lot of combination prostaglandins and timolol. So ours is the only Rho kinase inhibitor approved over there. So Rocklatan or Roclanda will be the first one combination of a Rho kinase inhibitor approved. So we just don't think that, that's a likely scenario.

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Operator [32]

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And our next question comes from the line of Esther Rajavelu with Oppenheimer.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [33]

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Congrats on the expanded coverage. So I just want to confirm that the prior auth is just for new patients and not for repeat scripts. Is that the right assumption?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [34]

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No. Remember, the prior authorizations, and I'll have Tom talk a little bit more about this. But the prior authorizations are written for typically 1 year. They're not just a one-shot deal. So once you get a prior authorization, that's good for a while. And so it does have a repeat kind of a business. We haven't been in it long enough to know once they run out of that 1 year, what happens if we haven't cut a deal yet. But clearly, once we do cut a deal, then they're eligible for the rebates at that point. So let me have Tom sort of fill in the blanks.

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [35]

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No. This is exactly right. Normally, a prior authorization gets us 10 refills. So -- and that's, by the way, all at retail prices. As Vince said, there's no rebate there at all. That's why it's such an effective strategy if, in fact, you can get physicians to rally around doing prior authorizations. And fortunately, we've been able to do that, and that's why we've got such good coverage so far. But to answer your question, it is repeat business. It's that initial plus the next -- plus 10 refills. So it's usually a year period of time.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [36]

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Understood. And then in thinking kind of about your pipeline, Vince, you've talked about sort of maybe rethinking the pipeline and reprioritizing and kind of holding off even if we have data to kind of compare several data points before you decide where to invest and what to partner out. So I just wanted to get an update on how your thinking may have changed over the course of the year and what we should be expecting from a pipeline investment standpoint going forward.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [37]

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Sure. Certainly, when we had Rhopressa and Rocklatan through the development process, the idea was as soon as we finished the study, we went ahead and -- many times, we actually ran them in parallel, but we went on to the very next study almost immediately. And so that's our MO up to this point. And so -- but now we have a number of different programs that are all very, very expensive as you go through development. As you know, the retina programs are far more expensive than anything we could have ever done in the glaucoma side. And then on top of that, we have Avizorex, which goes into a huge market of unmet needs for dry eye. So we do have the opportunity here to make some choices. If all of them work, I'd say that every program that we have works. Again, we just want to line them up, take a look at them, say, in the second half of next year and make an assessment as to which ones we want to move forward with our own. And perhaps, if they -- again, if they all work, we'll have to consider partnering some of those things off. We may not be able to get them all done on our own.

So again, it's a series of choices we'll have to make, but we're trying to do all of that and get all that information by the second half of next year. And to just be very specific. For example, 1105 is dexamethasone program. We do expect to read out at the end of this calendar year, right, in the second half of the year. Usually, we would go right into the next set of trials, but we're not going to. We're just going to go ahead and get that data. We'll go ahead and prepare as if we're going to move into Phase III trials there. And remember, for that particular program, the majority of that business is in Europe. And so we'll do all the work that we need to do to get started in Europe and kind of take a look at the trial designs and all that other kind of stuff. But we won't make any final decisions about that until we have all of the other data points -- or all of the other data from the programs on the table, and then we can make choices.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [38]

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Understood. Okay. And then my last question, maybe taking a step back and thinking more broadly, do you think telemedicine is something that the ophthalmologist community would be open to considering, especially for indications like dry eye and glaucoma?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [39]

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The -- I think with mixed results out in the marketplace, some of these things are awfully tough to diagnose over the phone or even doing videos. Certainly, there are some stabs being made out there and trying to get some of that. But we saw very, very few patients coming through the system because they couldn't get their hands on them. It's awfully hard to do intraocular pressure studies or actually measure intraocular pressure unless you get access to the patient. It's -- with dry eye, the signs and symptoms are so variable for each and every patient that, again, it's awfully hard to -- for -- to get a new patient truly diagnosed without running a number of different tests and seeing them live. So I think there's going to be stabs at it. There'll be continued stabs at it. I think the telemedicine companies that are impacting ophthalmology are doing everything that they possibly can to help the doctors. We do see some age disparities in terms of those that are willing to adopt versus not. But we think that it won't be wholesale moving towards telemedicine in this particular field.

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Operator [40]

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And our next question comes from the line of Greg Fraser with SunTrust.

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Gregory Daniel Fraser, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [41]

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I'm not sure if I missed this, but what was the mix of Part D and government-paid prescriptions in the quarter versus commercial? And where do you think that $88 per bottle could go as the Part D volumes increase?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [42]

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So we have not, and don't plan on providing guidance on pricing and things like that until we start seeing sort of the impact of all of these plans that we -- or the -- specifically the 2 plans, the one in January -- that kicked in, in January and the one that kicked in, in May, and see how they materialize and the like. And so it's too early to tell what that is really going to look like as, again, some of these plans are very state specific. They may be impacting 4 or 5 states, not all of them. So we have to be careful about calling that out.

But relative to Q1, let me have Rich answer your question.

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [43]

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Yes. Hi, Greg. So historically, if you looked at the Part D component and the Medicaid component, it was usually rounding to about 50% of the overall share. That is now rounding up to nearly 60%. So it's been climbing. As Vince said, tough to predict going forward. As it relates to our own share, picking up a sizable chunk of coverage from Med D, as we discussed, effective May 1, that will make it more likely to continue to increase from that point.

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Gregory Daniel Fraser, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [44]

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Got it. That's helpful. Can you also comment on the geographic regions or states where the most recent Part D win is most relevant?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [45]

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Yes. We haven't broken it out that way only because we have to be careful. We can't divulge who -- which of the plans is. But clearly, I'll give you at least 1 example. The one that we just activated in May, one of their largest books of business is down here in Florida. And so our Florida District Manager who happens to be new, we were on the phone earlier this week, we were just catching up as our state opens up. And they're incredibly excited about the prospects because in portions of the state, this is the plan that they need -- that we needed to get in order to open that up for them -- for our reps and for the doctors and the patients. And so it's a huge deal in this particular state. But again, it's -- some of these plans -- I mean you could almost -- to be one of the largest, if not the largest Medicare Part D plan in the country, so you could almost map out the plus-65 population by state and figure out which states are going to be the most impacted by the plan.

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Gregory Daniel Fraser, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [46]

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Got it. And then my last question is on Allergan's bimatoprost implant. Now that this's been approved and we have a label, I'm just curious to hear your view on how that product will fit into the glaucoma treatment paradigm and whether you've heard any interesting feedback on the implant approach from the field?

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [47]

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So the label is -- so the good news is they got it approved, right? So it's a first implant that we've ever had approved for intracameral use, et cetera, et cetera. The downside of this thing, which is the -- which making it difficult for them and the reason why we really haven't heard anything at all about their plans for this product is because they have severe limitations in terms of how it's going to be used. You can't do more than 1 implant, period. So these implants last for only a few months. And so you have to take -- switch the patients off of whatever eye drops they are, then they're going to go on to this implant. And right now, the way the label reads, you can't give them a second implant. So you got to put them back on drops. And so I think that's a tough situation to be in, and we have not heard anything at all from any of the glaucoma guys that I talked to. I'll open -- I'll give Tom a chance to talk a little bit, too, about this thing because he may have heard other things about it. But it just doesn't -- they've gone underground with it. And part of that could be they're finishing up on all the stuff with the acquisition by AbbVie. But in the marketplace that label is really a tough one for them. Tom?

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [48]

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Yes. I think Vince is right. The label is really holding them back. But I can tell you, they have been doing some virtual ad boards with physicians, and from feedbacks that at least comes my way from the physicians are things like, they say -- they get -- they like fact that they can move away from eye drops. Of course, what they're thinking about is they're thinking about the patient that's using 3, 4, 5 eye drops in a day using 2 or 3 products. They're not thinking about once-a-day eye drops necessarily. But that's the positive side. The things that are holding them back are -- with -- including the label are things like this. It's nothing that they've ever done before. These are not retina people that are doing this that inject stuff all the time. These are glaucoma specialists that aren't used to injecting. They don't know the buy-and-build model, which is the model that Allergan is using to sell this. And so there's a real explanation there, and there's a concern about who owns inventory, well, the doctor owns inventory, those sorts of things that they have to work through, which will certainly take some time.

They also know that the anterior chamber is not self-sealing, and what that means is there's a concern about infection. And they know that the minute that they get an infection that's going to spread through the community like wildfire and just hurt them because you don't want to have a patient get an infection and perhaps have something very bad happen to their eye, when they could have used a very safe eye drop. So the question is what's the risk/reward there? And then the question is they need to show real-world safety and really show the benefit over eye drops and with the benefit-risk taken into consideration. So there is some infatuation about getting away from eye drops, but there's also some -- a lot of caution about how do I really do it and really how safe is this to do, especially when I'm limited to like what Vince was saying, 1 implant per patient for life. So it's kind of open air at this point.

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Operator [49]

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And our next question comes from the line of Difei Yang with Mizuho Securities.

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Daniel Christopher Clark, Mizuho Securities USA LLC, Research Division - Research Associate [50]

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This is Dan Clark on for Difei. Could you just remind us if commercial co-pay cards, are those eligible for 90-day scripts? And if they're not, kind of how net price may have been affected by the move to the longer-duration scripts in the quarter.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [51]

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Sure. I'm going to have Rich give you some of the details around the co-pay cards and utilization, et cetera. Just a reminder, co-pay cards are only good for commercial side of things. And over the last several quarters, we have talked about that many of the patients have been leaving some of those co-pay cards unused or maybe they're not using the last $5 or $10 that they could use. Well, that's going -- I mean they're using them all right now, and I don't blame them. It's a tough environment out there with the unemployment rate, et cetera. So we do see full utilization of the co-pay cards. Let me have Rich fill in the blanks.

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Richard James Rubino, Aerie Pharmaceuticals, Inc. - CFO, Secretary & Treasurer [52]

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Okay. There -- thanks, Vince. So yes, what Vince said is completely accurate. Usually, in the first quarter, you will see a slight uptick in the use of the co-pay coupon cards as patients work through their deductibles, et cetera.

With regard to 90-day supply, it depends on who the payer is. So there are retail pharmacies that offer 90-day supply, and most of them will accept the co-pay coupon card. The mail-order payers and a lot of pharmacies often will not accept the co-pay coupon card. But what they do instead to create a financial incentive to the patient to use mail-order is they will often charge 2 months of co-pay for 3 months of supply. So that's how the payers address the affordability question as it relates to the out-of-pocket. So it's just a different way of lowering the cost of the patient, but it doesn't go through the co-pay coupon card vehicle.

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Operator [53]

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And our last question comes from the line of Elliot Wilbur with Raymond James.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [54]

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Just a big-picture question for Tom and Vince, in just thinking about concept of virtual detailing. Before COVID-19, I think virtual detailing was probably 7% or 8% of all details. And now it's well over 50% and certainly seeing a lot of specialty companies and promotion-sensitive models, actually, the Rxs hold in relatively well in the current environment. So certainly, it seems like, at least in the short term, virtual detailing has done a pretty good job of being able to help companies sustain their current prescription base. I'm just wondering how you're thinking about that concept going forward, whether or not you think it -- this could be the beginning more of a structural change in terms of the classic spec pharma model, which has always been kind of heavy on bodies and heavy on expenses. And this is a way either to maybe lighten the expense load and the number of feet on the street in terms of promotion and still be able to keep the same Rx levels. Or if not, do you think it can basically give you much broader reach and broader frequency with relatively low cost? Just wondering how you sort of think about the concept of virtual detailing being a much bigger part of the spec pharma model longer term.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [55]

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Elliot, I'm going to have Tom give you his perspectives on it because he's a lot closer to it. And certainly, we've been thinking about sort of the next steps as we open up state by state. But again, let me just remind you of what we've been doing so that we can just set the stage for what Tom is going to talk about. Number one, we still have 100 sales representatives out there. We set those up originally around 14,000 prescribing eye care professionals. The majority of them are ophthalmologists and a few thousand optometrists. And so we felt that they're the ones that represented the bulk of the prescription writing in glaucoma. There's an awful lot of overlap between the ones that we call on in other therapeutic areas that are relevant because, again, a big practice -- in glaucoma, it's usually a big practice for cataracts and all sorts of other things. So it is 100 that we're dealing with.

And then towards the end of the year, beginning of this year, we've really decided to focus on within that audience, specifically those doctors that already had some experience with either Rhopressa or Rocklatan. That we had about 4,000 doctors that were writing pretty regularly. That's the bulk of -- sort of that's the core business for us at this point. We also had several thousand doctors who are writing at least monthly. And so we decided to decrease the size of the territories for now in terms of their call audience so that they could spend more time moving those monthly writers into weekly writers and get the weekly writers to increase their prescription activity within the glaucoma category to more either Rhopressa or Rocklatan. And so that was the stage that we set, and we were using the availability of the MOST data to execute on that plan, and it was working. At the same time, that left an awful lot of doctors that we weren't calling on. And so that's a stage that I wanted to set so that Tom can give you his perspectives in terms of additional plans that we have going forward.

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Thomas A. Mitro, Aerie Pharmaceuticals, Inc. - President & COO [56]

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Yes. I'll take this from a couple of areas. First off, back to your question about e-detailing and what position that will have in our promotional mix, how about that going forward. First, it will always have a place. But the primary place it will be is for doctors that are high prescribers that are in very difficult places to get, those that are in outreach places that are commonly 3 hours away from where the rep has most of their activities. So the rep actually drives 3 hours out, 3 hours back to make a call. There, we can supplement the types where we don't want to or can't get out there with virtual detailing. But from a day-to-day basis, I don't think it's going to have a big place in ophthalmology, primarily because the prescribing audience, that is the ophthalmologists, are highly personable physicians who like to have day-to-day contact and like to have touch with the company. I can tell you that I believe the vast majority of ophthalmologists out there believe that they are very important to Aerie and they are. But they also know that if they want to get a message to Vince or me or Casey or a clinical team, all they need to say to the reps is, can you tell -- could you have Tom or Vince or somebody give me a call, and we'll call them the next day, and they like that. They don't want to lose that the personal touch, which a company that. I think you do through time with virtual detailing when you're dealing more with your, frankly, more with the data and computer than you are with an actual person.

So I don't think that it will have a significant place going forward. I do think that it will have a small place, like I talked a lot about physicians that are difficult to get to or perhaps physicians that say I don't want to see you during office times. There's those cases when doctors say, "give me a call as I need to talk to you about it," that sort of thing, that will play it.

I do think also that that's probably different if you're calling -- thinking about primary care physician, that sort of thing where a representative has a slew of primary care physicians that are out there calling and they may not have the personal relationships that you have with ophthalmology. So those are my thoughts for you, Elliot.

Now the other thing Vince talked about is, can we -- what else are we looking for. We are looking at different ways of increasing the share of voice in this marketplace. We're going through -- glaucoma market is going through some interesting changes. We know that Alcon has walked away because TRAVATAN Z, their main product, has lost its patent exclusivity. So if you look at their details, they've gone way down. Allergan is still maintaining their details for a while with their fairly old products. And of course, B&L is hanging in there as well. So we look at it now to say this is the time that if we can get more share of voice in the marketplace, it could help our company tremendously. So we're looking at different ways of doing that, and we may be putting in a couple of different strategies fairly quickly here to test that to see if that -- it can work so that we can get to especially the doctors we're not getting to, with a high frequency. We can increase our frequency there with the data that we have around most managed care coverage to see if we can get some breakthroughs.

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Operator [57]

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And this does conclude today's question-and-answer session. I would now like to turn the call back to Vince Anido, Chairman and CEO, for further remarks.

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Vicente J. Anido, Aerie Pharmaceuticals, Inc. - CEO & Chairman [58]

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I want to thank all of you for joining the call. I know that in this environment, it's always kind of tough. And we wish that we can come to all the meetings that you guys are having so that we can see you as well as the investors live. At this point, I do want to thank, again, all of the employees that work at Aerie. They're doing a terrific job. And as you've heard from the call, it's just amazing that working remotely for the most part or part-time in some of the facilities that we have, all of our clinical trial programs continue to be on track. We've made all of our regulatory filings. Certainly, the finance group out in New Jersey did a great job in our quarter end closing and getting the SEC documents, legal department with all the contracting and the deal-making that we're trying to do. And as you heard from Tom, the commercial team is doing a great job trying to get us ready as the states are now opening up, and so we can get ourselves back on track. And so we're pleased with where we are right now. We are pleased that the states are opening up and that we can move this thing forward. And we're very excited about the future prospects for our business. So again, I want to thank everybody for joining the call, and be safe. Thank you.

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Operator [59]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.