Good day. Welcome to the VYNE Therapeutics Third Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Wood, LifeSci Advisors. Please go ahead, sir.
Thank you. Good morning, everyone, and thank you for joining us this morning. Before we begin the formal remarks, let me remind you that some of the information in the press release that was issued by the company this morning, and on this conference call, contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Words that express and reflect optimism, satisfaction with current progress, prospects or projections, as well as words such as "believe," "intend," "expect," "plan," "anticipate," and similar variations identify forward-looking statements, but their absence does not mean that a statement is not forward-looking. Such forward-looking statements are not a guarantee of performance, and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the company's filings with the SEC.
These forward-looking statements speak only as of the date of today's press release and conference call. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this call. In addition, the financial portion of the call will include certain non-GAAP financial information. The company has provided a reconciliation for such numbers in the earnings release. Participating in this morning's call are Dave Domzalski, Chief Executive Officer of VYNE Therapeutics, Andrew Saik, Chief Financial Officer, and Matt Wiley, Chief Commercial Officer. At this time, I'd like to turn the call over to Dave Domzalski. Dave, please go ahead.
Thank you, Michael. Good morning to everyone. This is our first quarterly call since we announced our rebranding to VYNE Therapeutics in September, with the corresponding update of our ticker symbol to VYNE. Having achieved FDA approval for our two commercial products, AMZEEQ and ZILXI, we thought that this was a good opportunity to take a look at our corporate branding and make sure this was aligned with our vision and a positive image we wanted to project to our customers and various stakeholders. The symbolic meaning behind our new name reflects our core values: strength, growth, endurance, and resilience, and is a testament also to the value of our proprietary technology. We are excited to have launched ZILXI on October 1st, which is our 1.5% minocycline topical foam for the treatment of inflammatory lesions of rosacea in adults.
We received FDA approval for ZILXI in May. This is in fact the first minocycline product in any form to be approved for use in rosacea. Our immediate priorities for ZILXI are to leverage physician experience with AMZEEQ, as well as our MST technology in order to drive rapid trial and experience with ZILXI and to gain broad payer acceptance and reimbursement. We already made progress right out of the gate on the payer front with the signing of a contract with Express Scripts just after launch. Matt Wiley will expand on this. The rosacea market remains an area of significant unmet medical need. We believe that ZILXI should receive broad market acceptance. Within just a few weeks of launch, we are already seeing excitement from healthcare providers relating to the availability of ZILXI as a new treatment option for patients. Turning now to AMZEEQ.
The overall branded acne market continues to recover and prescription counts for AMZEEQ continue to grow. I'm pleased to report that both weekly and monthly prescriptions have now eclipsed pre-COVID levels for the first time since the shutdown in March, and that we are gaining market share. We continue to see both interest and enthusiasm among healthcare providers as trial and utilization of AMZEEQ continues to increase. On October 1st, we hosted a physician symposium for investors featuring three dermatologists, which highlighted the way in which these doctors are currently using AMZEEQ and how they plan to use ZILXI in their practices. They shared that they were pleased with the performance of AMZEEQ in their patients and expect continued broad utilization of AMZEEQ in acne. We were also delighted to hear that these doctors believe that ZILXI could become their first-line therapy for rosacea.
If you missed the event, a replay can be found on our website at vynetherapeutics.com under the investor section. Simply go to the events and presentation section, click on the investor event physician symposium dated October 1st, 2020. Fill out the registration form and you can view the replay. Regarding FCD105, which is our investigational combination minocycline and adapalene foam for moderate to severe acne, we will have our end of phase II meeting with the FDA this quarter and intend to share our phase II data along with our plans for our phase III development program. Recall that in June, we announced positive results in the 447-patient phase II trial, showing potentially best-in-class improvements of both IGA treatment success score and inflammatory lesion counts. Finally, in September, we announced the appointment of Patrick LePore to our board of directors.
Pat has an extensive record of creating shareholder value both organically and through strategic M&A as a board member and a former CEO of several life science companies. We're thrilled to have Pat on our board. His experience will be enormously helpful as we continue to execute on the launch of our commercial products and grow our business. With that, let me now turn the call over to Matt Wiley, our Chief Commercial Officer, who will provide an update on our commercial activities.
Thank you, Dave. We are pleased with the commercial execution for both AMZEEQ and the recent launch of ZILXI into the rosacea market. Although the pandemic has had impact on both the acne market and physician access for our sales team, I'm encouraged by the resilience and fortitude of our team to continue to sell through these obstacles.
AMZEEQ prescription volume in the third quarter came in at 26,900 NRx and 32,700 TRx, representing 49% and 52% growth over Q2 respectively. Additionally, in our most recent weekly data ending the week of October 23rd, we equipped 3,500 TRx for the first time. We continue to expand our reach and trial of AMZEEQ with the number of unique prescribers exceeding 5,500 through Q3, representing a 31% increase over the previous quarter. Additionally, since launch, we've educated approximately 1,300 healthcare providers on the features and benefits of AMZEEQ through virtual and live speaker programs, with the ambition of educating over 2,000 healthcare practitioners total in 2020. With respect to market access, our coverage for AMZEEQ has increased to 67% of total commercial covered lives, with one major PBM negotiation in process.
Our goal is to complete negotiations before the end of the year, which would take our covered commercial lives to over 80%, which has been our target. Turning to ZILXI, the rosacea brand and prescription market appears to have largely recovered from COVID-19 impact. ZILXI was launched on October 1st with over 7,500 calls made to date. We've already reached 55% of our ZILXI target universe and educated over 500 healthcare providers through peer-to-peer programs in the month of October. Conversations with payers on ZILXI continue to be encouraging, with payers expressing strong interest in the brand and acknowledging a significant unmet need in the rosacea population. Express Scripts, one of the nation's leading PBMs, made the decision to cover ZILXI effective October 2nd, 2020, as national preferred flex and basic commercial formularies.
This is an important step towards broad payer coverage as it represents millions of additional covered lives in the U.S. that follow these formularies. With this successful contract execution, we now have just over 50% of commercial lives covered across the country. We expect additional PBM contracts to execute over the next few months. I will now turn the call over to Andrew, who will provide the financial update.
Thanks, Matt. In my review of the third quarter financials, I will talk about revenues, costs during the quarter and the nine-month period end of September 30th and our cash position and our market access program. Revenues totaled $3.3 million for the quarter. Our revenues consisted of $2.9 million of product sales, primarily associated with AMZEEQ, and $0.4 million of royalty revenue from Finacea Foam, our product out licensed to LEO Pharma. There were no revenues for the three months ended September 30th, 2019. Switching to market access, our strategy has been predicated on leveraging a synthetic access program that allows a patient without commercial insurance coverage to acquire AMZEEQ for $75 while we pursue broad payer coverage. This was done to ensure patient access during the launch phase of our product. We always anticipated eliminating this temporary and unprofitable program.
Given that we are in the final stages of contract negotiation with the one remaining large PBM, we expect that we will be able to end this program in the first half of 2021. With the anticipated attainment of having over 80% of commercial lives covered and the elimination of the $75 cash pay option, we feel comfortable tightening our expected net value per prescription range from $200-$400 per prescription to $200-$250 per prescription. We believe that this should be realized sometime in the first half of 2021. Our cash equivalents, and investments totaled $77 million as of September 30th, 2020. We believe that the $77 million and our projected cash flows from revenues provide cash runway through the end of 2021. Beginning this quarter, we are going to begin showing our earnings on both GAAP and non-GAAP adjusted basis.
We believe this will provide investors with better transparency into our earnings and make it easier for investors to compare our results to analyst estimates. We have provided a reconciliation for GAAP and non-GAAP adjusted numbers in our earnings release. Our third quarter 2020 GAAP net loss was $24.7 million or $0.15 per share. This compares to $23.2 million or $0.23 per share for the comparable period in 2019. When excluding $2.6 million of stock-based compensation expense, our third quarter 2020 adjusted net loss was $22.1 million or $0.13 per share. For the third quarter 2020, adjusted operating expenses were $24.1 million. When excluding cost of goods sold, adjusted operating expenses were $23.8 million for the quarter, including SG&A expenses of $17.5 million and adjusted R&D of $6.3 million.
This compares to $21.9 million of adjusted operating expenses for the third quarter 2019, which included adjusted SG&A expenses of $9.9 million and adjusted R&D expenses of $12.1 million. For both periods, adjustments consist entirely of non-stock compensation expense. Regarding the restructuring we underwent related to the combination of Foamix and Menlo, the restructuring is now complete and our Q3 cost structure should be more indicative of our expenses and costs going forward. We believe that operating costs of approximately $25 million per quarter are sustainable into the future but do not include incremental costs that would be required for the anticipated phase III trials for FCD105. Moving to the nine-month period ended September 30th, our 2020 GAAP net loss for the period was $232.4 million, or $1.99 a share.
Included in the net loss were $154 million of non-cash expenses, consisting of $85 million related to contingent value rights, which converted in Q2, $54 million related to Q2 impairment of goodwill and IPR&D related to the Menlo merger, and $15 million of stock-based compensation expense. When excluding these non-cash items, our adjusted operating expenses and adjusted net loss were $93 million and $78 million respectively. Our current share count is unchanged at approximately 168 million shares. For full details on our financial results, please refer to our Form 10-Q filed today with the SEC.
All right. Well, thanks, Matt and Andrew, for your detailed updates. That concludes our prepared remarks. Operator, we're happy to open the call up now for any questions.
Thank you. If you would like to ask a question, please press star followed by the digit one. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one, and we'll take our first question from Louise Chen with Cantor.
Hi, good morning. This is Carvey in for Louise. Just a few questions here. First of all, after completing the negotiation with the last remaining major PBM, what is your plan on further increasing your coverage level? Secondly, what are the possible scenarios coming out from the end of phase II meeting with the FDA for FCD105 in the fourth quarter? How much will each scenario impact your timeline and R&D costs? Lastly, are there any plans to progress the development of serlopitant after the reverse merger with Menlo? Thank you.
Thanks, Carvey. I'll provide some thoughts on your last two questions. First of all, regarding serlopitant. As we stated in the past, last few quarters, right now, we're not putting any direct investment behind serlopitant. Our focus is on the execution of AMZEEQ and ZILXI launches as well as progressing FCD105. That being said, we obviously have an asset. We believe there is value to it. We're certainly open and have had discussions in the past with potential partners. Nothing at all that's imminent to provide any updates on. Our focus, obviously, at this stage is on our commercial assets and, again, the advancement of FCD105. Regarding FCD105, as I shared, we'll have the phase II meeting this quarter.
We said that depending on the outcome or assuming a positive outcome, which we would assume such, that would put us on a track to initiate a phase III program sometime the first half or so of next year. There are a lot of variables that go into that. One is just what the environment's going to be in light of the current pandemic. We believe, as we've said in the past, that the data from the phase II studies for FCD105 were quite encouraging. We're very pleased with the outcome of those phase II results. We do believe that that could be replicated in a phase III program. It has the potential to be a best-in-class product for the treatment of moderate to severe acne. Normally, the guidance is quite clear on phase III programs for acne.
A standard program will require two double-blind vehicle control studies, plus an open label safety extension, then you have your requisite phase I dermal safety studies. As I've said in the past, there's quite a significant body of work around minocycline, obviously through AMZEEQ and ZILXI, and the dose in FCD105 is bracketed between the dose of AMZEEQ and the dose of the concentration of AMZEEQ and the concentration of ZILXI. It's a 3% dose of minocycline in FCD105. AMZEEQ, as you know, is a 4% dose of minocycline, and ZILXI is a 1.5% dose of minocycline. There's a significant body of data out there for minocycline, and the dose that's in the FCD105 product for adapalene is 0.3%, which is the dose for the marketed product, Epiduo and Epiduo Forte.
The team internally here has done a fantastic job of putting together a comprehensive package for the FDA. We'll have that meeting again later this quarter, and we'll see how it goes in terms for what the ultimate design of the phase II program should be. We're obviously going to put our best foot forward to have as an efficient design as possible. We'll just take it from there. We'll know later this quarter. We view it that if we do a full comprehensive program, two double-blind vehicle control studies plus the open label safety extension, that's roughly from the time first patient is initiated, it's roughly 20- 24 months timeline from beginning to end. Then obviously factor in roughly 10 months or so for an NDA review.
We can kind of sort out how long a program would go. The cost of those are, to say full program as I've outlined, is $30 million-$40 million spread out over a two-plus year time period. We'll see ultimately what a phase II program looks like after we've concluded our meeting with the FDA later this quarter. I think regarding coverage, I'll turn it over to Matt for AMZEEQ.
All right. Good morning, Carvey. The question's about what we do after we get the remaining PBM under contract, and really it comes down to pull through from that point forward. Certainly working with the custom plans underneath the major PBMs to make sure that they are aware of the formulary options that they have and that they can be applied. I think that one of the things that you've probably seen between the last time we reported and today is we had about 63% coverage back when we did the symposium in October. We now have 67%, and that's a nod to being able to pull through some of those custom plans from the Blues plans underneath the payers that we already have under contract. That's what we'll continue to do after we get the last PBM under contract as well.
Got it. Thank you so much.
Next, I'll move to David Amsellem with Piper Sandler. David, your line is open. David, your line is open. Please go ahead. Would you like to move on? He's not responding.
Oh, sorry. I was muted. Can you hear me?
Yes.
Yes.
Yeah, we got you now, David.
Okay. Sorry about that. Just wanted to get some thoughts on where you think you're going to be pulling ZILXI patients from. Are these going to be patients who are on doxycycline or doxycycline patients who are naive to doxycycline, or patients who have been on other topicals? Just trying to get a sense of what you think the kind of patient mix will be. Maybe I'll ask the same question for AMZEEQ. If you can go through the patient mix where you think patients are coming from, and particularly the extent to which you're getting treatment-naive patients. Thanks.
Sure. Let me start with the [ZILXI ]. Yeah, you've got a pretty good beat on this one. We see from our demand study that primarily we'd be pulling from metronidazole and doxycycline and further down the list, obviously, we'd get to other displacement of products such as Soolantra and Finacea. Yeah, the two primary ones would be the metronidazole and doxies of the world. As it relates to AMZEEQ, we're seeing pretty broad disruption in the market, so we are taking from a bit of everything. It's tough to discern from our data whether we're being added to certain products or displacing certain products. It has been a pretty disruptive market entry as we expected it to be.
Yeah, David, I would add, too, in terms of where we anticipate the potential to pull business from for ZILXI, as Matt outlined, and you've outlined the oral antibiotic arena, and whether it's doxycycline or minocycline and then metronidazole, they're the two biggest therapies that are utilized in the treatment of rosacea. For metronidazole, there's over a million prescriptions written a year for the treatment of rosacea. We're certainly encouraged by the potential and what we've seen in the market research. Obviously, we're very early in the launch, so to see how things ultimately play out. We have seen consistently, both in the research from AMZEEQ and the research from ZILXI, that these products have the potential to be disruptive. We obviously have a bit more traction on AMZEEQ.
We're nine months into the launch and as Matt outlined, we're seeing a share gain pretty broadly and we're eager to see how it's going to shake out for ZILXI as we continue to launch that drug.
Okay, that's helpful. If I might just make a follow-up question. To the extent that 105 gets to market, what is your expectation regarding the extent to which you could expand your acne franchise footprint? Do you expect a large bit of conversion and some cannibalization? Just trying to get a sense of the extent of expansion or if this is really more of a conversion to the combination product, a paradigm. Thanks again.
Yeah, David. I look at this as a welcome addition to the market. Obviously, there are going to be certain patients who are going to need a combination product versus those that are going to do just fine with AMZEEQ monotherapy. Giving the market the choice for those products, I think is the right way to think about it. FCD105 certainly is going to be a great addition. We think it's going to be a game changer in the market. We do think that it's going to be equally disruptive as AMZEEQ was coming into the market. We have some market research work to do ahead of us to understand the impact on the market overall. We feel pretty optimistic about its chances given what we've seen with the market research for AMZEEQ and the disruption it's had in the current market.
Great. Thanks.
David, were you done with your questions?
Sorry, mute button. Yes, thanks.
Thank you. Next, we'll move on to Ken Cacciatore with Cowen and Company.
Hey, thanks, guys. Just a couple of questions. I got on a little bit late, but just wanted to hear if you gave an update on ZILXI managed care timing that we could maybe match AMZEEQ. I know you're still outstanding on CVS, but it sounds like this quarter, when I came on, you were saying it looks like that could be finally done. Just wondering if you could lay out for us, when do you think we'll have kind of matching coverage on ZILXI? Is net pricing still going to be roughly the same, the $200-$250 that you're capturing for ZILXI when all things shake out?
Lastly, don't get angry at me because I'm going to ask you guys to do a little bit of math, but according to my math, you would need to add a normalized pricing once coverage is on board, about 8,500 combined AMZEEQ and ZILXI prescriptions per week to get to break even. Just wondering, when do you think you guys will internally model that type of run rate? As I look at an Aczone and an Epiduo, inferior products to AMZEEQ, they're doing about 15,000-20,000 a week just individually. You have a combination franchise. As investors try to stare at the balance sheet and the confluence of negotiations with managed care and getting that net pricing on board and prescription growth, are my numbers basically right? I know I just threw a lot of numbers at you.
If we're on a good run rate, do you think the capital markets in terms of debt would be available to you, not necessarily just equity? A lot to chew down but wanted to see if you could help investors as they stare at the confluence of growth, managed care, and your balance sheet. Thank you.
I can take this. Sure. Good morning, Ken, it's Matt. Regarding the PBM timing for ZILXI, first of all, we've engaged with all of the major and most of the smaller PBMs across the country. We feel very good about the conversations that we've had to date. There are certain PBMs, as you know, that require for their custom plans a new to market block for six months. We're in that window now, but we feel pretty optimistic that we can get these done in a timely fashion and get to similar coverage to AMZEEQ quicker than we were able to with AMZEEQ, given the one major PBM that had a contract change during the course of the year. We feel good about the timing, and we believe that this should be a little quicker than AMZEEQ has been.
Yeah, sure. David, with regard to your math, your math isn't far off. Obviously, we've given the guidance of about $200 per prescription. To your question, we would expect, Ken, sorry. We would expect ZILXI to be relatively similar to AMZEEQ. As you know, the WAC price on both products is the same. As we pursue coverage with the payers, we obviously have a precedent. We don't want them to be disparately priced because we don't want switching between the two. We want them each to be on indication. We're doing our best to keep them at price parity. I think your math is correct, and I think your pricing assumption for ZILXI is correct. As to the timing, as you know, we haven't given timing in our forecast. I'll allow you to project that out.
I agree with you. I think Matt and Dave would agree. We believe our products are superior. We simply need to get the traction in the market. We are doing that as quickly as we can.
Thanks so much.
Did I answer everything, Ken?
You did. Thanks, Dave. Yep, thanks, team.
Thanks, Ken.
Next, we'll hear from Patrick Dolezal with LifeSci Capital.
Hi, thanks for taking the questions. Just a COVID-related question to start with. As some cases are beginning to rise in certain areas of the country, I'm just curious if there's particular territories that have been adversely affected by tightening restrictions at this point, or is the recovery trend kind of continuing to predominate across the board? On a similar note, just in terms of general seasonality, what should we expect with the acne innovation market as we move into winter and particularly with the new year approaches? Thanks.
Sure. Thanks, Patrick. Regarding COVID, this is obviously the big unknown. As a follow-up to Ken's questions or responses, we've been consistent over the last couple of quarters. We're cautious about putting a line in the sand on when we'll hit certain marks for profitability and the like, just because of the uncertainty of the current environment. I think we're all obviously still living with this global macro arena where we've got spikes in cases in various geographic areas that we have to contend with.
Matt can provide a little more color. In large part, again, our field force is fully deployed, but it remains similar as I've shared in past earnings calls that it varies by geographic region, the access. More open areas where we're not seeing spikes in cases, representatives have pretty open access getting in there. There's obviously the appropriate regulations and rules from the offices and everybody's taking the appropriate precautions. There are certain areas around the country that are much more open than others. We continue to manage that. Where there's more restrictions on an office level, we pivot to more virtual initiatives. Again, despite all the headwinds, we're quite pleased with the efforts of our team.
I think that's reflected in the numbers that we presented at the top of this call both in prescription growth as well as our continued increase in number of unique prescribers. We're continuing to manage this like any other company out there. I think we've gotten pretty efficient and proficient at pivoting to more virtual environments as needed. I'll turn it over to Matt to provide some additional color.
Regarding the markets themselves, let me start with the rosacea market, which has predominantly healed since the COVID-19 impact. We have seen the number of diagnosed patients and NRx volumes rebound significantly similar to, if not ahead of where they were in early Q1. Regarding the acne space, if we look at the TRx volumes Q3 in 2020 versus Q3 in 2019, still down about 10%, but it has been coming back nicely. In fact, this last week we saw the NRx volume pop up over 70,000 for the first time since the COVID lockdown. That's an encouraging sign and something that I think points to better days ahead. Regarding seasonality, so with the acne patients, it's typically driven by when kids go back to school. We do see some spike volume typically in July and August over the course of the year.
With rosacea, it's a little different. There is a true seasonality component driven by the triggers that these patients have, specifically the change in seasons from cold weather to warmer weather. We see this in the diagnosed patient volume in March, April, and May. That should actually be a slightly higher period of time where rosacea patients are seeking treatment. We also see that in search volume. We see the same phenomenon, not just with when patients are getting diagnosed, but what they're searching for and triggers that they're searching for related to rosacea. There is a true seasonality component to that disease and something that is aligned with our strategic thinking.
All right. There are no further questions at this time. I would like to turn it back to management for any additional or closing remarks.
Yeah. Thanks, operator, and thank you to everybody for taking time out of their schedules to join us on this call. We look forward to continuing to provide an update on our progress, and we wish everyone to have a great rest of the week and stay safe and healthy out there. We'll speak soon. Thank you.
That will conclude today's call. Thank you for your participation.