Aerie Pharmaceuticals, Inc. (NASDAQ:AERI) Q2 2022 Earnings Conference Call August 4, 2022 5:00 PM ET

Company Participants

Hans Vitzthum – Investor Relations

Raj Kannan – Chief Executive Officer

Peter Lang – Chief Financial Officer

Gary Sternberg – Chief Medical Officer

Michelle Senchyna – Head-Clinical Development and Operations

Casey Kopczynski – Co-Founder, Head-Research and External Innovation

Conference Call Participants

Serge Belanger – Needham

Annabel Samimy – Stifel

Stacy Ku – Cowen

Greg Fraser – Truist


Good afternoon. Thank you for standing by, and welcome to the Aerie Pharmaceuticals Second Quarter 2022 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 will be recorded. It is now my pleasure to turn the floor over to Hans Vitzthum of LifeSci Partners, Aerie's Investor Relations firm. Please go ahead.

Hans Vitzthum

Thank you, operator. Good afternoon and thank you for joining us. With us today are Raj Kannan, Chief Executive Officer; Peter Lang, Chief Financial Officer; and Gary Sternberg, Chief Medical Officer. Today’s call is also being webcast live on our website,, and it will be available for replay, as indicated in our press release.

Now 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, including our observations regarding ongoing operating expenses.

These statements will include observations associated with our commercialization of Rocklatan and Rhopressa in the United States and our collaborations in Europe, Japan and other regions of the world. They will also include plans and expectations regarding the success, timing and cost of our clinical trials, including the status and expected enrollment in such trials.

Additionally, we will discuss progress regarding maintaining, requesting or obtaining approvals from regulatory agencies of our products and product candidates, along with the associated business strategies regarding these products and product candidates. Finally, we will address our financial liquidity and other statements related to future events, including our financial outlook for 2022 and beyond.

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 carefully read 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 the result of new information, future events or otherwise. Please note that we will file our Form 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 comparable GAAP measures, please see today’s press release, which is posted on the Investor Relations section of our website.

With that, I will now turn the call over to Raj Kannan, CEO of Aerie Pharmaceuticals.

Raj Kannan

Thank you, and good afternoon, everyone. I'm pleased to share with you why I'm so proud of Aerie's performance this quarter. During the call, I will speak about the excellent progress across our three strategic pillars of growth and explain why we remain confident about Aerie's continued growth through the rest of 2022 and beyond. I will start by providing you with a high-level update on our strong second quarter commercial performance, our outlook for 2022 and an overview of our excellent progress to date.

Then I'll ask Gary to provide you with an update on our pipeline especially the exciting prospects with AR-15512 in the dry eye space. And finally, Peter will review the second quarter 2022 financials with you before I close with a few remarks. We made significant progress across several key areas that are expected to drive sustainable growth for 2022 and beyond. We continue to execute well on our three strategic pillars in building Aerie version 2.0. We delivered strong year-over-year revenue growth in line with our expectations for our first-in-class glaucoma franchise comprised of our novel products Rocklatan and Rhopressa.

We received early positive feedback from target prescribers on our refreshed branding strategy for Rocklatan and Rhopressa. We initiated two of the Phase 3 registrational efficacy studies for our lead product candidate, AR-15512 for dry eye disease, and we continue to identify operational efficiencies and reduce net cash burn. We believe these achievements taken together have set area for success.

During my first investor call back in February of this year, I outlined what we see as the three strategic pillars for Aerie's long-term success: number one, driving sustainable growth of the commercial business; number; two, making smart choices with our capital and advancing our pipeline; and number three, reducing our annual cash burn rate to maintain a solid financial position.

Let me first address strategic pillars numbers two and three before I provide you with more detail on how we plan to drive sustainable growth in our commercial business. On strategic pillar number two, we've taken a deliberate and thoughtful approach to investing in our pipeline. We prioritized three programs based on our assessment of the likelihood of Google and commercial success, the potential value to drive value inflection in the near to midterm and the speed to market.

First, the Phase 3 registrational program for our lead product candidate, AR-15512, has strong momentum. As you will hear today, we're increasingly excited about the prospects for AR-15512. And with the recent start of enrollment in the COMET-2 and COMET-3 efficacy studies, followed by the COMET-4 safety study, scheduled to enroll the first subject in the fourth quarter of 2022.

We believe that if approved, AR-15512 could have a very competitive and compelling profile in the dry eye market. Assuming clinical success, we plan to file an NDA in 2024. I want to note that Aerie is planning to host a key opinion leader discussion of AR-15512 in the fall. We look forward to talking more about this event as it gets closer.

Our second late-stage program, AR-1105, which is targeting diabetic macular edema, or DME, is Phase 3 ready today. We believe it could replace currently available steroid treatments for DME with a once every six-month dosing interval. We continue to evaluate efficient options for Phase 3 development of AR-1105, and partnering discussions are underway.

Our third program, AR-14034, has the potential to be a best-in-class product candidate for wet age-related macular degeneration or wet AMD. It is on track for an IND submission in the fourth quarter with the potential of a 12-month dosing interval based on the combination of Aerie's PRINT delivery platform and one of the most potent and well-characterized tyrosine kinase inhibitors, axitinib.

On strategic pillar number three, maintaining a strong financial position, one of my ongoing priorities is to continue to drive greater operating efficiencies to preserve cash and optimize capital allocation decisions. We've made substantial progress in expense rationalization while continuing to grow revenue and advance our pipeline. We ended the quarter with cash, cash equivalents and investments of $184.4 million.

Net cash used in operating activities was $13.2 million, and total change in cash, cash equivalents and investments or total net cash used in this quarter was $14.9 million. We continue to proactively analyze our capital structure to optimize our cost of capital and provide the financial flexibility to execute on our strategic plan.

Looking ahead, we expect net cash used for the rest of 2022 to be less than $20 million per quarter on average. Our goal is to continue to drive growth in our glaucoma franchise, improve our operating efficiencies and turn cash flow breakeven during 2024.

Now I would like to provide you with an overview of strategic pillar number one, and tell you why we remain confident in the continued and sustainable future growth of our commercial franchise. I'm pleased to report that in the second quarter of 2022, Rocklatan and Rhopressa revenues grew by 23% over the second quarter of 2021 driven mainly by strong growth in total prescriptions of 15.6%, which is well above the glaucoma market growth of 2.7% during the same period.

In addition, as of June 2022, we continue to gain share, and our franchise market share has increased to 2.3%. These results are in line with our expectations and continued to bode well for the franchise growth in 2022 and beyond. We expect continued strong growth in the future primarily driven by two key factors. Number one, you'll recall that we introduced a refreshed brand strategy for our commercial glaucoma franchise in February 2022 with a focus on the lower is better theme.

Our market research indicates that our strategy is positively resonating with target prescribers. For Rocklatan, our goal is to move the drug earlier in the adoption continuum. Our lead details is now Rocklatan, where we highlight the highly effective lowering of intraocular pressure, or IOP, and that early adoption of Rocklatan may offer the lowest risk of vision loss to patients with glaucoma. Our key message to prescribers is, why not start with the most powerful efficacy right from the start. Start with Rocklatan.

Turning to Rhopressa. The drug continues to be well positioned because of its novel mechanism of action and its powerful and consistent lowering of IOP especially in patients who are inappropriate for prostaglandin analogs. In addition, physicians who are reticent to prescribe combination products see Rhopressa as one of the most effective add-ons at almost any stage of the treatment paradigm. Given the encouraging feedback our customer-facing team has received from target prescribers of Rocklatan and Rhopressa, we believe that the differentiated efficacy and favorable safety profiles of these products provides physicians with a clear and compelling reason to prescribe them.

Overall, we feel confident that this revised brand strategy rollout could be the cornerstone to our commercial growth going forward. Number two, our broad formulary coverage, especially in the Medicare book of business, paves the way for increased pull-through opportunities to drive greater adoption for our brands. With a targeted approach on the largest Part D and commercial payer opportunities, our shares for both Rocklatan and Rhopressa continue to grow month-over-month driving overall brand share and increased confidence with the providers.

In summary, we're pleased with our second quarter commercial glaucoma franchise growth. The updated brand strategy with greater clarity on positioning and refreshed messaging and increased pull-through opportunities on our broad formulary coverage could position Aerie to achieve our revenue growth targets and importantly, could potentially fund our journey to a bright future.

I also want to highlight our significant efforts to manage the business efficiently with a focus on controlling costs at all levels. We implemented a reinvigorated capital stewardship philosophy across the company. The second quarter financial results reflect these continued efforts.

Before I move on, I want to recognize the performance, dedication and the commitment of the entire Aerie team on a strong quarter and setting the company up for success. Let me now turn the call over to Gary, our Chief Medical Officer, to continue building on the reasons for our confidence and excitement about the future for Aerie. Gary?

Gary Sternberg

Thanks, Raj. I'm going to review the registrational Phase 3 program for AR-15512 and then briefly provide updates on the other product candidates in our pipeline, including our medical affairs program and ongoing global studies. Starting with AR-15512, or 512, is being developed as a differentiated novel first-in-class product candidate for the treatment of the signs and symptoms of dry eye disease, or DED. While there are a number of prescription and over-the-counter or OTC products on the market for DED, we believe there remains a significant unmet need for new therapies that can provide rapid onset of efficacy, convenient dosing and, importantly, for therapies that can demonstrate consistent improvements across a range of sign, symptom and quality of life endpoints.

As you know, 512 is a TRPM8 agonist which acts as a cold thermoreceptor modulator to stimulate the cold sensing receptors found on the nerve endings that innervate the cornea and eyelids. By stimulating these receptors, 512 leads to natural tear production and a cooling sensation across the surface of the eye that may result in a reduction in dry eye symptoms. I am pleased to report that the Phase 3 COMET registrational program is well underway and is growing momentum.

The COMET-2 and COMET-3 registrational studies are both currently enrolling subjects, followed by the COMET-4 safety study in the fourth quarter of this year. The strong momentum in the Phase 3 COMET program is driven by our effective collaboration with COMET clinical investigators and the clinical data from the COMET-1 study. You may recall that the previously reported results of the COMET-1 study showed statistically significant dose-dependent improvements on multiple validated sign, symptom and quality of life endpoints across multiple time points that informed our selection of the proper dose, primary and secondary endpoints and inclusion/exclusion criteria for the Phase 3 program.

We recently released the results of a new Phase I study that was conducted to confirm the primary endpoint for the COMET Phase 3 registrational program. These data reinforce our confidence in the primary endpoint that we selected for the Phase 3 registrational program, the unanesthetized Schirmer's test. The study was designed to optimize the unanesthetized Schirmer's test as a measure of tear production in people with DED.

It was conducted in 40 participants at a single center in the U.S. I'm pleased to report that the study replicated the statistically significant results of the unanesthetized Schirmer's test from the COMET-1 study with respect to both the precedent of responders who produce at least 10 millimeters of increased sweating and by the change in tear production from baseline. The trial also confirmed that anesthesia interferes with the mechanism of action of AR-15512 in the Schirmer's test. You can the data from the study in our corporate slide deck, which is accessible from the company website and available on the company's header [ph] page. This result gave us additional confidence in the selection of the unanesthetized Schirmer's test as the primary endpoint for our Phase 3 efficacy studies and is why we remain confident in the likelihood of a positive trial outcome and a potential approval.

Wrapping up on the COMET Phase 3 program, the efficacy studies, COMET-2 and COMET-3 are identical. Each one will be a multicenter, vehicle control, double-masked randomized study to evaluate a single concentration of AR-15512 at 0.003% compared to the 512 vehicle if administered twice daily for 90 days. Each study is expected to enroll about 460 participants at approximately 20 sites in the United States. As I indicated, the primary measure of the efficacy studies will be assessed by the unanesthetized Schirmer's test at day 14, which was statistically significant in the Phase 2b COMET-1 study and the Phase I study we just discussed.

The key secondary outcome measure will be the symptom assessment in dry eye or SANDE symptom questionnaire score at day 28, which was also statistically significant in the COMET-1 study. In addition, numerous other sign, symptom and quality of life assessments will be performed throughout the 90-day study period. We expect to announce top line results from both efficacy studies in the second half of 2023.

Now I would like to change gears and mentioned two other exciting pipeline programs: AR-1105 for diabetic macular edema, or DME, and AR-14034 for wet age-related macular degeneration or wet AMD. Let's start with AR-1105. This is the first product candidate to use Aerie's PRINT delivery platform and the only bioerodible dexamethasone retinal implant to demonstrate six months of efficacy in treating macular edema. These differentiated features could enable reduced injection frequency and have the potential to position AR-1105 as a best-in-class product candidate when using steroids to treat macular edema. We continue to evaluate options for Phase 3 development of AR-1105, and partnering discussions are underway.

Second, AR-14034 is a pan-VEGF receptor inhibitor intended to block all VEGF receptor isoforms for the treatment of wet AMD. AR-14034 also uses Aerie's PRINT platform and is targeted to achieve an injection dosing frequency of up to once every 12 months, which would differentiate AR-14034 from other programs in this space. We are on track to file an IND for AR-14034 by the end of the year. As you know, there are multiple additional studies underway with our glaucoma products including the Phase IV multicenter open-label Rocklatan evaluation or MOST study with Rocklatan and a Phase 3 trial being conducted in Japan by Santen for Rhopressa. We expect results from both studies to be reported in 2023.

I would now like to turn the call over to Peter.

Peter Lang

Thanks, Gary. I will focus my comments on our financial results for the second quarter of this year and no comparisons to the second quarter of 2021. All of these numbers that I will review in this discussion will be approximate for easy sharing during our call. For additional information regarding our second quarter results and prior period comparisons, please refer to today's press release and our Form 10-Q, which we will file tomorrow.

Starting with our glaucoma franchise. Combined Rocklatan and Rhopressa net revenues in the second quarter of 2022 totaled $33.3 million, a 23% increase over the second quarter of 2021. Total cost of expenses include cost of goods sold of $3.7 million; selling, general and administrative expenses of $28.1 million; and research and development expenses of $19.6 million.

Our cost of goods sold, or COGS, decreased by $2.4 million compared to the prior year period. Gross margins improved to 89% from 77% in the prior year period mainly driven by higher utilization based on increased commercial production in the second quarter of 2022. We expect cost of goods to increase for the remainder of 2022 given that a significant portion of our 2022 commercial production was manufactured during this quarter due to timing of planned production runs. You will notice that some of this production was capitalized into inventory, lowering our current COGS.

Selling, general and administrative, or SG&A, expenses decreased by $6.4 million or 19% compared to the prior year period. This decrease is primarily due to lower stock-based compensation as well as lower sales and marketing expenses.

For the rest of 2022, we expect SG&A to be similar to the second quarter levels and below the comparable periods for 2021. Research and development, or R&D, expenses increased by $1.6 million or 9% compared to the prior year period and reflect continued investment in our clinical programs, including the initiation of two Phase 3 efficacy studies for AR-512. We expect an increase in R&D cost through the end of the year as enrollment in the COMET-2 and COMET-3 studies ramped up, and we initiated the COMET-4 safety study in the fourth quarter.

The net loss for the second quarter of 2022 was $19.4 million or $0.41 per diluted share. The total stock-based compensation expense was $4 million, of which $0.1 million was included in cost of goods sold, $2.6 million in SG&A and $1.3 million in R&D.

After adding back stock compensation expense, our total operating expenses for the second quarter were $43.8 million. Excluding stock-based compensation expense, our total adjusted net loss was $15.4 million or $0.32 per diluted share.

Over the quarter, weighted average shares outstanding were 47.6 million. As of June 30, 2022, our shares outstanding were 48.7 million. For the second quarter of 2022, our net cash used in operating activities was $13.2 million. Total change in cash, cash equivalents and investments or total net cash used was $14.9 million.

As reported earlier in today's call, as of June 30, 2022, we had $184.4 million in cash, cash equivalents and investments. As noted by Raj, Aerie is focused on driving operational efficiencies and implementing actions to use our cash more efficiently. As part of this discussion on our cash balance, I want to mention that we are proactively exploring alternatives to address the outstanding convertible notes to optimize our cost of capital, especially given the macro environment and capital markets challenges facing many biopharma companies.

In closing, we believe we are well positioned financially to fund our current business plan. Our financial guidance for the remainder of 2022 and beyond, as outlined by Raj, is: Number one, for the glaucoma franchise, we are reiterating our guidance for 2022 net product revenues of between $130 million and $140 million; number two, for our net cash used, we are updating our guidance to be less than $20 million per quarter on average for the balance of the calendar year; number three, we expect to achieve cash flow breakeven during 2024. All of our guidance assumes no change in our current capital structure.

Now I would like to turn the call back to Raj for a few closing remarks before Q&A.

Raj Kannan

Thank you, Peter. To conclude, I believe Aerie's executing well across our three strategic growth pillars to build out Aerie version 2.0. Looking out to the rest of 2022 and beyond, we expect to deliver continued revenue growth in our glaucoma franchise driven by our refreshed branding strategy; continued enrollment in the COMET-2 and COMET-3 efficacy studies and initiate enrollment in the COMET-4 safety study for AR-15512 in the fourth quarter of this year; submit the IND filing for AR-14034; and continue to drive operational efficiencies to strengthen our balance sheet, reduce our net cash burn and become cash flow breakeven during 2024.

I remain confident in our ability to deliver on our plan and deliver meaningful value for our stakeholders. I look forward to updating you on our progress along the way, and thank you all for taking the time to join us today. Before I turn the call over to the operator for Q&A, note that Casey Kopczynski, our Co-Founder, Head of Research and External Innovation; and Michelle Senchyna, our Head of Clinical Development and Operations, will be joining us for the Q&A segment of today's call.

I will now turn the call over to the operator for Q&A. Operator?

Question-and-Answer Session


[Operator Instructions] Our first question comes from the line of Louise Chen with Cantor. Your line is now open.

Unidentified Analyst

Hi, good afternoon. This is Carvey on for Louise from Cantor. Thank you for taking my questions. There has been a lot of developmental traction on the Phase 3 COMET program. Can you remind us of the market opportunity for AR-15512 in dry eye? And we have a second question, which is do you expect any macro headwinds on net revenues for the rest of the year? Thank you so much.

Raj Kannan

Hi. This is Raj, and thanks for taking Louise's place. Both are good questions. Let me address the first question. First, how big is the dry eye market? As you know, today, the prescription market for dry eye is about $1.6 billion. And if you include the artificial eye drops that are used on an on and off basis, it's roughly about $3 billion. But also remember that the current products, the dominant products, RESTASIS and Xiidra are not effective in a majority of patients, so eight to nine patients drop out of therapy. So we believe this market is in a severe need for effective therapies that work across a number of patients, this market could be much larger than the $3 billion that we see today.

On the macro trends in terms of the revenue growth, the one thing that we focus on is obviously any change in the access to physicians as one. And number two, the constant back and forth that we have with payers in terms of how the overall industry is reacting to some of the legislation that is expected to come out of Congress. So I think beyond those two macro events, I think we remain still confident that we will achieve the guidance that we provided to the Street for 2022. I hope that answers your question.

Unidentified Analyst

Yes. That was super helpful. Thank you so much again. Congrats on the quarter.


Our next question comes from the Serge Belanger with Needham. Your line is now open.

Serge Belanger

H, good afternoon. A couple of questions for me. First, can you – Raj, can you talk about if there was any movement on the net price per Rx during the second quarter. And then secondly, maybe just give us an update on the refreshed brand strategy in terms of the feedback you've gotten and whether you're starting to see some usage changes between Rocklatan and Rhopressa. Thank you.

Raj Kannan

Hi Serge. This is Raj. Thanks for those questions. As I previously mentioned on the net price, I had stopped providing guidance on the net price. We had said at the very – at the very first call in February that we averaged about $90 per bottle for 2021. I did say that our goal is to continue to improve that net price per bottle but did not provide any guidance or a guarantee as this is a constant battle back and forth between us and the payers. I will say that if it goes below $90, I will come to The Street and be transparent that. But to answer your question, at a more high level, without specifically answering your question, I don't think we've gone below, and I'm pleased with where we are with the net price per bottle in terms of its improvement year-to-date.

In terms of the update on the Rocklatan strategy, we are seeing an uptick in Rocklatan prescriptions from our weekly data points in both TRx and NRx. And I think, as I mentioned in my prepared remarks, it's largely due to our clear and compelling strategy to prescribe Rocklatan as first line. As you recall, efficacy is a key driver of brand choice and glaucoma, we felt positioning Rocklatan as the most efficacious agent in lowering IOP, that resonates really well with prescribers. And it's the same consistent feedback that we have from our field-based teams as well. Serge, I hope that answers your questions.

Serge Belanger

Yes, just one more. And I don't know if you covered this in your prepared remarks, but could you give any update on the ongoing MOST [ph] study and when we could see results from that? Thanks.

Raj Kannan

Update on MOST study. The MOST study is enrolling really well, and we expect to have our top line results from the MOST study in the middle of 2023.

Serge Belanger

Got it. Thank you.


Our next question comes from the line of Annabel Samimy with Stifel. Your line is now open.

Annabel Samimy

Hi, thanks for taking my question. So I had a couple. So the first one to talk about is the COMET studies. And I just want to go back to your pivotal strategy with the Schirmer's score as the primary and the SANDE score as a secondary. I know that there's been precedent said before with looking – hitting the Schirmer's score as a primary and having the SANDE as secondary and you're still getting an approval. But is there any kind of [indiscernible] that if you miss the secondary, the SANDE score, you would have to redo a trial? Or would you get a narrower label? Like what would you – so what are the scenarios we should think about with the primary and the secondary and whether you can hit both? And I know there's confidence that you can hit both because of COMET-1, but just trying to work out the scenarios here.

Raj Kannan

Yes. Hi, Annabel. Thanks for that question. As you know, we remain very confident in our Phase 3 pivotal trial. Like you said, based on our Phase 2b results not only in significant tear production that we saw in the unanesthetized Schirmer's score but also robust symptom relief, not in just one, but three different questions, right: SANDE, ocular discomfort and eye dryness. As you know, we also completed an interim step of conducting a Phase 1 like study between the Phase 2b and the start of the Phase 3 just to prove the hypothesis that anesthetizing the eye interferes with the mechanism of action of AR-15512. And we were able to again, replicate the robust magnitude of efficacy we saw with the unanesthetized Schirmer's test in Phase 2b. And to now specifically answer your question, we have aligned with the FDA in choosing the unanesthetized Schirmer's score as our primary endpoint for marketing approval.

So we derisked the study based on the high level of confidence that we had on that particular one. So if we missed the secondary end point, I think the FDA will look at the totality of the data. It's not a black and white. We have two replicates studies ongoing. So we need to look at the two studies, what the directional trends were and how the Phase 2b data plays into the FDA's regulatory review. So I think we have a high level of confidence that our product profile will result in a best-in-class agent in the dry eye space. But I'll also let Gary and/or Michelle weight in more if I've not answered that question fully. Gary, Michelle?

Michelle Senchyna

No, just to add to that, I think it's important, Raj, spot on, but I think there's really two pathways that are put in front of us by choosing the primary endpoint. So Annabel, the primary is, as you said, the unanesthetized Schirmer's test. If we were not to hit symptoms, I think was the heart of your question, the FDA has agreed to the label of an increase in tear production. But then to Raj's point, they would sure further look at the totality of the data and potentially consider adding symptoms depending on the trends across all the studies.

But at minimum, just hitting the primary does provide a path forward to an approval. Then obviously, you add significant improvements in SANDE, and then the full label has been agreed to.

Gary Sternberg

This was Gary. I'd just add that if you look at Tyrvaya, their labels are signs and symptoms yet they only have data on the Schirmer's testing. So again, just to reiterate what Michelle has said, if we just hit the primary endpoint would at least get a label for increased tear production, but potentially on the totality of the data is possible, you might be able to get signs and symptoms as well. However, our goal is to hit the signs and symptoms directly.

Annabel Samimy

Okay. Got it. Okay. Great. That's helpful. And then on the second question I have, the MOST study. You talked about enrollment is going well when you make through the data. But in terms of what impact that could have on Rocklatan uptake, is there any sense from the MOST study that is a similar study that was conducting with Rhopressa, how much that resonated with physicians and what – and how much it drove Rhopressa uptake during that time that you were willing to invest in the MOST study to, I guess, do the same, create the same dynamic? Is there any kind of number or a qualitative idea of how or a qualitative idea of how much these studies help in driving penetration? I know we're not going to see inflection in Rock or Rhop, but I just want to understand that there's something that continues to support it going forward.

Raj Kannan

So let me take a first stab, and I'll let Michelle add any commentary to the MOST study. I think, Annabel, these studies are done to continue to generate real-world data and put the product into the hands of physicians at the community level so that they can see what we're talking about in terms of how Rocklatan as first-line and Rhopressa add-on generally tends to align with the key messaging that we have. And I think that real-world generation of data is not only useful to prescribers, but it's also useful to payers when we generate these data, and it creates a certain level of enthusiasm for the field when we have new data that we present to prescribers.

So I can't connect the dots and exactly tell you what that inflection point will be in terms of the share gain, but I do know that the MOST study resonated really well with prescribers. And the fact that efficacy continues to be the key driver of choice in this particular marketplace. To say that we are two to four points better than latanoprost, which is primarily, again, chosen because of its efficacy, I think the continued data generation will only help us solidify Rocklatan as first line or first switch in the glaucoma marketplace. Michelle, from a medical affairs perspective, did I miss anything to Annabel's question?

Michelle Senchyna

I think that was very well articulated. We were very impressed with the uptake that we got with MOST with regards to just the resonance amongst our prescribers, as Raj mentioned, and that really was part of the fuel to get more off the ground. And I think now, especially as Raj introduced during his remarks, with the increased focus on really putting the potency of Rocklatan as – in the forefront, the study is going to certainly augment that message.

Annabel Samimy

Okay. Perfect. Thank you.


Our next question comes from the Stacy Ku with Cowen. Your line is now open.

Stacy Ku

Thanks so much for taking our questions and congratulations on the quarter. So we have a few and just a quick follow-up on kind of the Rocklatan Rhopressa franchise. As we think about your positioning for Rocklatan, specifically for Rhopressa, what are your expectations in terms of the future growth? Do you think about, first, the contributions for 2022, the remainder of the year but how do you think it's – how you think it might play out in the next few years? So that's our first question.

And then our second question is for 14034. Can you provide your early thoughts regarding the potential clinical stage – early stage clinical design? Looks like we're trying to study 12 months of duration. So maybe help compare and contrast the different development pathways taken so far for the other TKIs. For instance, there have been kind of different entry criteria, trial design, rescue criteria. So any of the understandably very early thoughts would be appreciated. Thank you.

Raj Kannan

Thank you, Stacy. So let me take the first question first in a second, and then I'll have my colleagues weigh in with the additional commentary where needed. So on the Rocklatan and Rhopressa franchise, I think, as you know, the better we are in terms of positioning Rocklatan as first line or a first switch, that sandbox is much bigger for – as an opportunity. And I think, as I said in my prepared remarks, we're already seeing encouraging trends in terms of the growth rate for Rocklatan versus Rhopressa.

So I think the better we skew the product mix towards Rocklatan, not only it's the right thing to say, medically speaking. But also from an economics perspective, it actually is better for the franchise overall because Rocklatan has a better list price and net price versus Rhopressa. So that's one. I think the second on the franchise perspective in terms of growth, there is crystal clarity on the positioning for both products, right? I think we didn't have that kind of clarity prior to this. And I think the feedback from the field-based team and the prescribers has been very encouraging. So Rhopressa, as you know, has a very unique MOA that is not replicated by any other brand in the glaucoma space.

And importantly, Rhopressa has with that unique MOA allows for consistent and powerful IOP lowering regardless of baseline therapy or regardless of the baseline pressure. And so we're positioning Rhopressa in particular, for patients who are not appropriate for PTA therapy, prostaglandin.

So here, this is quite a large market, it is up to about 20% from what we understand from our own research. And that allows us to position Rhopressa, especially in that marketplace, as to be adopted earlier and in physicians who tend to be reticent. And we have a history of about four years in the marketplace. We know which physicians are reticent in using combination therapies, and we positioned Rhopressa as the best add-on agent but drives the earlier adoption.

So as I said before, this is the strategy that we adopted, we took a bet on. And I think the early results are encouraging. And if this trend continues, I think the potential commercial opportunity could be much more attractive than what it was before. So that's essentially sort of my comments on the Rhopressa and Rocklatan question that you asked. In terms of the 14034, obviously, we're very excited about the potential prospects of 14034 as a best-in-class agent for wet AMD.

In terms of the dosing interval. Now we do plan to file an IND in the fourth quarter of this year. And maybe in the second quarter, late second quarter, we hope to get into the clinic. At this time, the details of the study design, we haven't finalized that internally, but we anticipate using an adaptive Phase I/II study design that will allow us to move quickly from dose escalation to something that you mentioned is a head-to-head quickly from dose escalation to something that you mentioned is a head-to-head comparison of 14034 long-term efficacy versus a chosen marketed anti-VEGF product. I'll let Casey or Gary weigh in more on 14034 if I've missed anything in particular.

Gary Sternberg

This is Gary. I'll just reiterate that our preclinical study supported 12-month duration of drug release, and we have correctly extrapolated animal data to human data in the past with our 1105 program. So we feel comfortable that our product is a 12-month duration. And I'll just pass it over to Casey if he wants to answer that.

Casey Kopczynski

I think that really is the summary point here is that the data looked very strong preclinically. And this looks to be the best opportunity to have a once-per-year injection for anti-VEGF relative to some of the other options that are in development.

Stacy Ku

Thank you very much.


Our next question comes from Jason Gerberry with Bank of America. Your line is now open.

Unidentified Analyst

This is Terry on the line for Jason. Thanks for taking our question. First question on the Phase 3 dry eye program. Can you speak to the attractiveness of the dry eye market now that [indiscernible] have entered the market as well as the fact that you have Xiidra enabled to grow despite having a well-resourced marketer? And also, can you speak to the extent to which the category is being more aggressively managed by payers? And then second, on the clinical side, what are some of the bogeys you need to hit in terms of efficacy to separate yourself from in the evolving dry eye category? Thanks.

Raj Kannan

Hi, Terry. Thanks for those questions. So let me start by saying that the dry eye market is a very underserved and a large marketplace, number one. I think if you look at the unmet needs here for RESTASIS and Xiidra, roughly about one or two patients stay on therapy. So we do know a large number of patients drop off therapy on both these products because they're not effective across a wide spectrum of patients. Number two, the onset of efficacy for RESTASIS, for example, in tear production takes approximately about six months to manifest. And this is a highly symptomatic disease, and I doubt that patients would wait six months to stay on therapy.

Xiidra is roughly about three months. So there is a clear need for rapid onset of efficacy. And if you look at AR-15512 Phase 2b results, not only are we active right after day one after dosing, but we show clear statistical significance in tear production in – on day 14. So the rapid onset of efficacy is a clear unmet need, and I don't think RESTASIS and Xiidra are going to be able to compete with products that provide that. So that's one.

Two, if you look at the magnitude of efficacy and it's in our investor deck, we replicated in a small Phase 1 study with 40 patients our effect on tear production. And you can clearly see the delta is roughly in the 60s. Compared to take RESTASIS, the delta was at roughly about 10. This was the first product that was in the marketplace. So this has to be meaningful in terms of the magnitude of efficacy in terms of tear production that we believe is a totally new generation of products that are coming into the marketplace to meet sort of the unmet demand.

And third, I think in the Phase 2b results, we were quite pleased with how well the effect on [indiscernible] which is tear production the multiple symptoms that we measured and the correlation to improvement in quality of life measures and the improvement over time correlated so well and consistently pointed in one direction, right? So I think, again, when I say that this product has the potential to be a best-in-class, it really does address the three unmet needs that I just articulated in the dry eye space.

So I hope that answers your question in terms of why we continue to believe that RESTASIS and Xiidra are what we would call old-generation products. And hopefully, AR-15512 could position itself as a new generation, but importantly, as a best-in-class rating.

In terms of other products in clinical development, like you said, I think there's a reason why this market is so attractive. There's about 14 companies according to our own competitive intelligence that are either conducting Phase 2 or Phase 3 studies. And I believe five companies have Phase 3 studies that are actively recruiting that is from as we look at it. So again, when we look at our product profile compared to these products, the way our MOA is and the Phase 2b results, the robust results are, by the way, this is not a small Phase 2b, if you recall. This was 359 patients that gave us a lot of confidence in the statistical significance and in our ability to replicate these end points.

Terry, I hope that addresses your question as to why we continue to be bullish on our AR-15512 and why we specifically allocated capital – precious capital within our company to invest in 512 and partner 1105. I hope that answers your question.

Unidentified Analyst

Yes. That answers the question. I guess the other was on, I guess, the extent to which you view the category as being more aggressively managed by payers? And then any specific bogeys you see within the space on some of the efficacy or safety end points for Phase 3 development. Those would be other two questions that I had.

Raj Kannan

Yes. So let me take the sort of the pricing or the payer question. I think we are proactively given sort of experience with the Rhopressa and Rocklatan and the lessons that we've learned, right, in terms of bringing novel products to market. I think there's a large institution has knowledge within the company on how to do this right with the dry eye product when we go to market. Here, I think we have a time line in terms of generating meaningful data for payers and to work with payers proactively before we come to the market, right, as we go through the approval process.

So I don't – I can't give you the details right now of those studies that we're thinking about, but we do have quite a few ideas on the table that we plan to kick off as soon as we see the first top line results, and we know this is a go in terms of going to market, we will kick those off. And that will help in terms of partnering with payers and not making it into an adversarial situation where it's them versus us.

So that's the best I could give you a response today. And again, given our product profile and given sort of the patients who prefer this product, given the onset of efficacy and the magnitude of the fact that we expect to see, I think this will be an easier conversation with payers in terms of how we position 15512 versus how we did in the past with our glaucoma products.

I'll ask Michelle or Gary, again, to weigh in on anything that they see on the efficacy and safety side.

Michelle Senchyna

Yes. So I was going to just ask for a clarification on the term bogey because being a lifelong golfer, I want to make sure bogey's bad, not good – what exactly your question, are you seeing things that we should avoid or things that we really think are going to differentiate us?

Unidentified Analyst

Yes. I guess just thinking about the primary endpoint for the COMET-2 trial. Are there any benchmarks in terms of competing products where they're using a similar efficacy endpoint where you'd want to beat that? Or any other way that we can kind of look at, the ongoing readouts where we can set a benchmark for success or I guess, how you think about the readout in those terms?

Michelle Senchyna

Yes. Great question. So it's very hard always to compare across programs, right? There's different populations, just slight differences in methodology, et cetera. But with that said, I do think when you look at tear production, and there are a number of products on the market that will produce tears, and Raj really commented on a couple, I think, very important things, the time to actually see effect, is this happening immediately or near immediately or is it happening six months down the road, right?

So certainly, our cyclosporine products from a duration perspective, I think, is very important comparator. From a magnitude perspective, again, Raj commented on our robustness, I would say that Tyrvaya would be in that same sort of ballpark. You start looking at over 50% of patients responding. That's what the caregivers are looking for.

Our HCPs want to know that if they prescribe something more than 4% of the population are actually going to likely respond. So I think you're definitely looking at numbers, when 40% to 50%, of the population start responding. As we have set up our primary endpoint in Phase 3, that will be an important comparator. And then there's no question, from a symptom perspective, there is no gold standard or validated measure to say what is clinically significant when you're looking at all these different symptom scales. But again, there's a differentiation of vehicle as well as the speed to feeling better. This is a symptom-driven disease. And the faster you can demonstrate statistical significance or even separation from vehicle, I think that's going to be a very important hallmark to speak to utility of 512.

Unidentified Analyst

Got it. Thank you. That’s very helpful.


Our next question comes from the line of Yigal Nochomovitz with Citi. Your line is now open.

Unidentified Analyst

Hi, this is This is Carly on for Yigal. Thanks for taking our questions. We have two. The first is if you can talk about the latest feedback you're hearing on reimbursement, especially as you're trying to position Rocklatan as more of a first-line or second-line agent. I guess, are you hearing any issues getting Rocklatan covered when it's used ahead of some of the generic options? And then the second is if you can maybe just give an update on how partnership discussions are progressing for AR-1105 that would be great. Thank you.

Raj Kannan

Hi Carly. This is Raj. So let me answer the first question in terms of the positioning for Rocklatan as first line. So most patients, as you know, on Rhopressa and Rocklatan are not new to glaucoma and have been on other therapies. So we hope to satisfy much of the separated criteria or prior authorization that is in place to obtain the reimbursement and coverage. But importantly, Medicare, which represents the bulk of our business, which is 60% of business, almost half of these patients have no step edits and have the lowest branded co-pay. So that's important how we are very precise in terms of targeting those offices and these patients in terms of making sure that Rocklatan can continue to be first line.

And as you know, on the Medicare Part B side, we are roughly close to about 80% formulary coverage for Rocklatan. And on the commercial side, it's in the high 70s. [Ph] So we think we have optimal formulary coverage for Rocklatan to be able to continue on that strategy of positioning Rocklatan as first line.

In terms of the second question on partnering for 1105, as I said in my prepared remarks, obviously, this is a product that has a clear – more of a clear path to market from a likelihood of approval because of the mitigation of the biological risk of a compound in it. And it's the first proof of principle for our PRINT delivery platform in terms of showing a dosing interval of once every six months, but this half the steroid dose. So those discussions are actively ongoing right now. There are folks in the data room, but I will update the marketplace as soon as we feel that we've got the right partner that will put in the right developmental effort and maximize that potential of that product in the marketplace. I hope that answers your question, Carly.

Unidentified Analyst

Yes. That’s great. Thanks, Raj.


Our next question comes from the line of Greg Fraser with Truist. Your line is now open.

Greg Fraser

Good afternoon and thanks for taking the questions. As your refresh, messaging continues to gain traction and Rocklatan share growth accelerate. When do you think Rocklatan share could surpass that of Rhopressa? Could it be months away, quarters, maybe next year some time? I'm curious how you think about that?

Raj Kannan

Yes. So, Greg it’s a great question. Obviously, we're pleased with the preliminary weekly that we see where Rocklatan continues to grow much faster than expected actually in the first-line positioning. By the way, I may not have mentioned this, right? This is a record quarter for us in terms of the revenues. We've – $33.3 million represents the highest net revenue that we've ever recorded for a quarter, and that again boost our level of confidence in saying not only are we on a good trajectory for sustainably growing our commercial franchise.

But that being said, I think the product mix is roughly getting closer to the 55-45, and I think Rocklatan is growing at roughly 25% whereas Rhopressa is growing at about 10% or 11% quarter-over-quarter. So if we do the math sometime early next year, the product mix will be more in favor of Rocklatan. And as a result, the economics will be also being much more favorable for Aerie with Rocklatan being in the lead. I hope that answers your question, Greg.

Greg Fraser

Yes, very helpful. How much of the difference is there in the net price between the products?

Raj Kannan

So we haven't given that out publicly, but you can see the WACC, right? And you see the formulary coverage differences. So obviously, from a net perspective, Rocklatan is in a better net. So when you look at Rhopressa, just to give you some numbers that you could use for your modeling rate, for Rhopressa in the Medicare book of business, which is our largest, it's close to 93% formulary coverage, whereas for Rocklatan, it's 79% in the Medicare book of business, right.

So the net – not only does a WACC is different between Rocklatan and Rhopressa, but also the net is in favor from an economics perspective. Same thing with commercial, right? Rhopressa is in the mid-70s, so is Rocklatan. But importantly, the WACC price makes a big difference. So I think this is a onetime I feel that it's medically the right thing to do to position Rocklatan as first line because of its efficacy and because it has the highest ability to reduce vision loss in patients with glaucoma, but it also aligns very well from a business perspective because the economics favors Rocklatan more than Rhopressa.

Greg Fraser

Great. That’s very helpful. Thanks for taking the questions.

Raj Kannan

Thank you, Greg.


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