Good day, welcome to the Menlo Therapeutics second quarter 2020 earnings call and corporate update. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael Wood at LifeSci Advisors. Please go ahead.
Thank you. Good morning, and thank you for joining us today. Before we begin the forward remarks, I'll remind you that some of the information in the press release 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, whereas it express and reflect optimism, satisfaction with current progress, prospects or projections such as words including believe, intend, expect, plan, anticipate, and similar variations identify forward-looking statements, but their absence does not mean that the 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 Menlo Therapeutics' filings with the SEC.
These forward-looking statements speak only as of today's press release and the conference call, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information. In addition, the financial portion of this call will include certain non-GAAP financial information related to the company's operating expenses. The company has provided a reconciliation for such numbers in its earnings release. Participating on today's call are David Domzalski, Chief Executive Officer of Menlo, 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.
Thanks, Michael. Good morning to everyone. This is an exciting time for VYNE Therapeutics as we establish the company as a commercial business in the dermatology space. As you know, we launched AMZEEQ at the beginning of the year. Although we have experienced some disruption as a result of the pandemic, our field force remains engaged. Based on the most recent prescription trends and other metrics that we follow for AMZEEQ, we believe we are well-positioned to grow the brand as the market continues to recover. The FDA approved our second product, ZILXI, during the second quarter, which means we are in the fortunate position of having two products approved in a period of less than nine months. Additionally, we strengthened our balance sheet with our most recent successful equity offering.
Beginning with the positive news on ZILXI, formerly known as FMX103, we now have FDA approval to market this product for the treatment of inflammatory lesions of rosacea in adults. This is the first minocycline product of any kind to be approved by the FDA for use in rosacea. We believe that ZILXI offers a unique proposition in rosacea and should receive broad market acceptance upon our launch with continued growth in prescription trends. ZILXI was approved on the strength of 2 well-designed phase III trials that were conducted in more than 1,500 patients. Our market research indicates that patients place a high value on the excellent efficacy and safety demonstrated at 12 and 52 weeks in these studies. We believe that the favorable tolerability of ZILXI will be a driver of usage, considering that patients find many products currently prescribed for rosacea to be irritating.
Furthermore, we believe that patients are generally unsatisfied with currently available treatments, as evidenced by the high discontinuation rates with existing products. Our goal is to launch ZILXI in the fourth quarter of this year, and Matt Wiley will provide more details in a few moments. On June 2nd, we announced positive results from a phase II trial evaluating the preliminary safety and efficacy of FCD105, which is our combination minocycline and adapalene foam product for the treatment of moderate to severe acne. Study FX2016-40 enrolled 447 patients and showed statistically significant improvements for 105 versus vehicle in both IGA score and in inflammatory lesion count reduction.
Although the trial was not originally powered to demonstrate a statistical difference between FCD105 and either of the monotherapy arms, 3% minocycline foam or 0.3% adapalene foam treatments, the majority of comparisons did indeed show a statistically significant improvement in favor of FCD105 at week 12. We're very excited about these results, which, if reproduced in a registration study, suggest that FCD105 has the potential to be a best-in-class treatment for patients with acne. We plan to hold an end-of-phase II meeting with the FDA before the end of this year, in which we intend to share these trial data along with our plans for a phase III development program. Regarding our balance sheet, we raised $54 million in an equity offering on June 5th. There was broad institutional support, and we are grateful to the investors who participated.
As a result of this offering, our cash balance at the end of the quarter was just over $100 million. Lastly, in light of the current market uncertainties due to COVID-19, we recently amended our credit agreement with Perceptive and OrbiMed. Most relevant is the existing revenue covenants within the credit agreement have been extended by six months. After completing our equity raise, we thought it was prudent and responsible to our shareholders to modify our credit agreement as we wanted to remove any concern or potential overhang. 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. Matt?
Thank you, Dave. I'll begin with AMZEEQ in the acne market. The market is still recovering from the COVID-19 shutdowns, with new brand and prescription volumes in acne down over 30% during the second quarter. By the end of the quarter, this had improved modestly with a 17% delta to first-quarter norms.
While most of our target offices are open for patient consultations in some capacity, representative access remains impaired. Internal market intelligence indicates that roughly half of all of our target offices have restrictions to pharmaceutical sales representatives, making it challenging to fully recover face-to-face call activity. Despite this, our reps were able to reach the majority of our targeted customers during the quarter, and live face-to-face meetings climbed to roughly three-quarters of their total call activity by the end of June. Sample velocity, another surrogate of live call activity, was limited by complete office shutdowns across the country in April and May, but has been recovering steadily in most recent data weeks. Prescription volume for AMZEEQ in the second quarter came in at 22,169 total prescriptions, representing 7.3% growth versus the first quarter.
In recent weeks, however, we have seen very strong recovery in total prescriptions, rising approximately 85% from the lows in March. Our unique prescribers continue to grow, expanding our reach and trial of AMZEEQ. The number of unique prescribers exceeded 4,200 during the second quarter, while productivity of our key targets increased more than 12 prescriptions per target. Through Q2, we executed over 60 virtual and live speaker programs, educating more than 600 healthcare providers on the features and benefits of AMZEEQ. Our market access progress has brought our coverage to 63% of commercial lives, with one major PBM negotiation in progress. We are focusing on completing these negotiations by the fourth quarter, which would bring our commercial coverage to an optimal position of over 80% of commercial lives. Turning now to ZILXI, which was approved by the FDA on May 28th. Preparation for the launch is progressing on schedule.
Our sales reps will commence with their home study beginning in mid-August in preparation for our virtual live launch meeting scheduled for mid-September. Given the high overlap between acne and rosacea prescribers, we will leverage our existing commercial infrastructure and will launch ZILXI without needing to hire additional sales representatives. We have completed market research on our core marketing assets for promotion, and the results tell us that the product has the potential for broad acceptance in the disease state. Specifically, our research tells us that the intent to prescribe after hearing the ZILXI marketing narratives yielded a score of 9.8 out of 10 in our target group, which demonstrates again how large an unmet need exists. Messages around efficacy, dermal tolerability, and long-term effect created significant impact. Conversations with payers on ZILXI have been encouraging.
We continue to coordinate clinical reviews with P&T committees. We expect to begin negotiating contracts this quarter and through the balance of the year. We look forward to providing further updates as our launch initiatives get underway. I will now turn the call over to Andrew, who will provide a financial update.
Thank you, Matt. In my review of the second quarter financials, I will talk about revenues, costs during the quarter, as well as our cash position. There are also some material non-cash items on the income statement this quarter, mainly relating to the merger, and I will spend a little time going over some of these in detail. Revenues totaled $11.7 million for the second quarter 2020. There were no revenues for the comparable period in 2019. The revenue number was comprised of $1.5 million from the product sales of AMZEEQ, which was launched in January 2020, $10 million, which is the upfront cash payment under the license agreement we assigned with Cutia, and $0.2 million in royalty revenue. Our net loss for the second quarter 2020 was $167.4 million as compared to $19 million for the comparable period in 2019.
We incurred one-time non-cash expenses during the quarter of $148.3 million. Of these expenses, $54.3 million were non-cash transaction expenses associated with the impairment of goodwill and IP R&D related to the Menlo merger. $84.7 million were related to the contingent stock rights, or CSRs, which converted in Q2 due to the negative data read on serlopitant. These two items can be seen on the face of our income statement to the financial statements. The remaining $9.3 million was due to a one-time revaluation of legacy Foamix options due to the CSR conversion in April. The CSR conversion in Q2 that applied to legacy Foamix shareholders also applied to the legacy Foamix employee options.
When the CSR converted as a result of the serlopitant phase III outcome, the legacy Foamix options became subject to a conversion ratio of 1.8006, the same conversion ratio as the legacy Foamix shareholders, which materially increased the value of the options. The expense related to the vested options as of June 30th was taken to the P&L immediately, which was the $9.3 million I just referenced, and an additional estimated $6.6 million related to unvested options will flow through the P&L over the next five years. This number will vary based on any potential employee departures. Normal or recurring employee stock charges during the quarter were $1.5 million. Looking at the P&L, I would like to give the shareholders visibility into expenses excluding one-time non-cash charges, as I have highlighted since these one-time non-cash expenses are not indicative of our operating results for the quarter.
Cost of goods sold were $20.2 million and were not impacted by one-time non-cash charges. The reported R&D number was $13.1 million, excluding one-time stock compensation charges of $2.6 million, R&D was $10.5 million. Reported SG&A expenses were $26.5 million, excluding one-time stock compensation charges of approximately $6.6 million, SG&A was $19.8 million. Total operating expenses, excluding one-time non-cash stock compensation charges of $9.3 million, were $30.5 million for the quarter. This $30.5 million in operating expenses is closer to our expected run rate going forward but does reflect some wind-down expenses from our phase II 105 trial and closeout expenses from the phase III serlopitant trial. Our cash position at June 30th was $100.4 million. Our share count post the conversion with CSRs is approximately 136 million shares. With the issuance of additional shares related to our recent equity raise, our current share count is approximately 168 million shares.
Regarding our restructuring, last quarter we announced that due to the COVID-19 impact and resulting disruption of AMZEEQ launch and with the phase III results of serlopitant, we reevaluated our cost structure and initiated a cost savings initiative that we believe was necessary to extend our cash runway. These cost savings initiatives did not impact the size of the field force, and we remain fully committed to the launch of AMZEEQ and the successful launch of ZILXI in Q4. The restructuring is now materially complete, but the benefits will not be fully realized until later in the year, and our costs in Q2 do not yet reflect the full impact of the cost savings in either SG&A or R&D. We would expect the majority of the savings will be reflected in our Q3 financial statements, and that Q4 will be representative of our cost structure moving forward.
I would note that making projections on cash runway is highly uncertain in the current market given the impact and potential future impact of COVID-19. We believe, however, that with the cost savings initiative put in place, our current sales expectations for AMZEEQ and ZILXI, and with the cash received from the Cutia license plus the $54 million public offering, that we have a cash runway through the end of 2021 without need for additional debt or equity financing. Additionally, as Dave outlined in his opening comments, we signed an amendment to our credit agreement that revised the minimum net revenue covenant in the agreement. The first minimum revenue covenant measurement date was September 30th, 2020. As part of the amendment to the credit agreement, the minimum revenue covenants were pushed out six months.
One small additional revenue target of $6 million was added for December 31st, 2020. Beyond that, our existing revenue covenants now begin on March 31st, 2021, instead of September 30th of this year. There are no additional changes, costs, or considerations to the credit agreement. For full details on the financial results, including the results for the six-month period ending June 30th, 2020, please refer to our Form 10-Q filed today with the SEC. I'll now turn it back over to Dave for closing comments.
Thanks, Andrew and Matt, for your detailed updates. Menlo's gone through an incredible transformation over the past year as we have evolved from a clinical stage organization to a fully integrated company with strong commercial capabilities. We completed a merger and subsequent restructure of all operations to the United States, launched our first product, received FDA approval for our second product, signed our first ex-US out-license agreement for our own brands, advanced our pipeline, and improved the company's balance sheet with our recent equity financing. I'm grateful to each of my fellow colleagues and proud of their tireless work, especially during these unprecedented times. Most importantly, for our shareholders, we remain laser-focused on the launch of AMZEEQ and preparing for the launch of ZILXI. We believe both of these products have the potential for broad utilization.
As we transition to a commercial stage company, our objective has been to maximize operational leverage to accelerate revenue and earnings. We will do that with the launches of AMZEEQ and ZILXI by focusing on four key tenets. Precise targeting of our customers and leveraging the overlap of our called-on universe of healthcare providers. Continuing to accelerate broad experience of AMZEEQ and our MST technology, which should allow for rapid uptake of ZILXI. Gain broad acceptance from payers and broad reimbursement. Lastly, leverage our infrastructure and internal shared services, leading to reduced operational expenses. I'm very excited about the prospects of our business as we continue our work to build long-term value for our shareholders. With that concludes our prepared remarks. We're happy to open the call for questions, I will turn the call back over to our operator.
Thank you. If you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We can take our first question now from Louise Chen of Cantor Fitzgerald. Please go ahead.
Hi. Good morning, everyone. This is Karby in for Louise. Just a few questions here. What % of acne and rosacea patients are coming out of derm and primary care offices today? Are you able to cover the majority of patients focusing on derm offices? Secondly, due to COVID-19, many doctors are switching to telemedicine. If the trend persists for the rest of 2020, how will it impact AMZEEQ prescription number and the launch of ZILXI? Lastly, we see there's a huge overlap between acne and rosacea. How are you planning on modifying or expanding your commercial sales force as we anticipate the launch of ZILXI? Thank you.
Thanks Karby. Matt, why don't you take all those, okay?
Sure. Thanks, Dave. Thanks for the questions. The question about the percentage of acne and rosacea patients within dermatology, that percentage is pretty high. I think one of the things that we had expressed in previous calls is how we derive our targeting model is predicated on using claims data to identify where the patients are. It's agnostic of specialty. In many cases, the primary specialty may be listed as something other than dermatology. Those cases are relatively small, but you may have some pediatricians, you may have some that are designated as an internal medicine doctor, when in fact, they may be double-boarded. The majority is dermatology. I would say probably better than 90% is what I have at my fingertips here.
Regarding the telemedicine question, telemedicine is obviously something that got a lot of attention during COVID-19. There have been several studies that have looked at the uptake of telemedicine across different specialties. There was a syndicated report focused in on dermatology that was published back in May. What that showed was the average patient volume for a dermatologist over a course of a week prior to COVID-19 was around 140 or so patients. That dropped to 28 patients during late March and April. The increase in telemedicine utilization went up over 50%, but it was on a much smaller base. When asked about the effectiveness of using telemedicine, greater than 50% of the dermatologists in this particular research study indicated that it wasn't as effective as an in-person consult. The expected use on a go-forward is roughly 11%, again, based on this study.
It's certainly going to be a part of dermatology diagnosis and treatment on a go forward. I will remind you, though, that both the diagnosis and the treatment are captured in the claims data that we utilize for targeting. As a consequence of that, we're capturing these physicians, regardless of where they make the diagnosis, regardless of where they are consulting the patient and applying a therapeutic. We'll still be able to intervene with those targets, regardless of the platform that they use. We do intend to and are currently advertising on these platforms, and that is a way that we can intervene at the point of consult. Regarding the target overlap, we have really good target overlap between acne and rosacea. We have roughly 87% of the targeted physicians are currently in our call universe.
We expand our targets by roughly 500 or so physicians. That's why we don't have to expand our footprint. All of those 500 physicians that we're expanding are within the current territory alignment. We're going to have some targets that are unique for AMZEEQ. We're going to have those 500 or so that are going to be unique for ZILXI, and then we're going to have overlapping targets within the balance of our target universe.
Great. Thank you so much.
Thanks, Matt.
We can now take our next question from Jason Gerberry of Bank of America. Please go ahead.
Hi, this is Badi Rahman on for Jason. Thanks for taking our questions. I'm wondering, in terms of volume, can you talk about the current volume trends of AMZEEQ in June and July compared to April and May? How do you see patient flow and script volume evolving over the remaining of the year?
Go ahead, Matt.
As it relates to the trends in volume of prescriptions, the last data week we have for the week of 7/24, we had over 2,400 prescriptions. What we're seeing in our recovery is more what we expected to see. It's more of a check mark recovery. We had the big dip back in late March and early April, and that's been rebounding over time as the market healed. Remember that the NRX volumes dropped over 30% from where it was in March on a weekly basis to that beginning of April timeframe. The market hasn't completely healed. Even this last data week, there are about 65,000 or so new prescriptions when 72,000-75,000 was the norm back in February and March. The market is healing. It hasn't healed completely. We do expect it to come back.
These patients haven't gone away, by the way. They still need to have their acne either diagnosed or therapeutics prescribed, but it seems as if there is a patient flow or a throughput issue that is slowly healing across the country.
Okay, that's helpful. Another question? Can you talk about your process of payer contracting on AMZEEQ since the last earnings update?
Sure. There's one major payer that we had been working with back in the first half of the year that suspended its contracts with manufacturers in favor of a contracting change, an entity change, and so that has delayed the process with that particular PBM. Those conversations have been going really well, and we expect to hopefully have that resolved and have our access squared away in the fourth quarter. Other than Optum and UnitedHealth, that brought our total covered lives up to 63%. We're happy about having those contracts in place. We're optimistic about the prospects for the remaining PBM that's outstanding.
Yeah, I would just add that.
Great
The work that's been done on the payer front, it's always been our intent to leverage that as we're preparing for the upcoming launch for ZILXI. The team's already in discussions with various payers for ZILXI, which we intend to launch in the fourth quarter. As we've talked about in the past, a lot of the work that we've been conducting for AMZEEQ over the last six to nine months, we certainly believe that that could be helpful for us as we're discussing with the same payers about bringing ZILXI under contract.
Great. Great. Thanks so much.
We can now take our next question from Georgi Yordanov of Cowen and Company. Please go ahead.
Hey, guys. Thank you so much for taking my question. Congratulations on the progress. I guess first for AMZEEQ, if you could talk about the current regional dynamics in terms of dermatological offices opening up or closing. Are you seeing currently the majority of your prescriptions coming from any specific regions? Do you think there'll be any changes for the remainder of the year as things progress regarding the pandemic? On that note, what is the early feedback that you're getting from your sales force in terms of patient and physician satisfaction with the product? How it competes with the more established brands? Are you seeing any first-line use of AMZEEQ or more upfront use in the treatment paradigm?
Sure. A lot to unpack here. First of all, we did an internal survey of our sales personnel and our managers just to try to assess how many physician offices are open for business generally. What we found in the survey is roughly 90% of dermatology offices across the country are open and seeing patients. That doesn't speak to the throughput of the patients. I don't know if that's changed due to dynamics in the office. At least patients are coming back, and the offices are generally across the country seeing patients. As I noted in the prepared remarks, roughly half of the offices have some restrictions on sales force activity, and so obviously that does impact us a bit as well, although our sales team does an outstanding job in getting to our targets.
They found creative ways of getting to them, either virtually or live, when others may not have been able to, and that's a testament to the quality of the sales team that we have. I'll say that there's no regional specific hot points to note today. As things have healed over the last couple of weeks, we see pretty uniform uptake as we had prior to COVID-19 across the country. We have some markets that accelerate faster than others. In Florida, for instance, in Texas, Arizona, California, Georgia, these are places that have had significant volumes, but they had significant volumes prior to the pandemic impact, and we continue to see those heal and progress nicely. Regarding patient feedback, everything that we've heard from just field intel and from physician feedback has been positive.
We were just getting to that nine-to-10 week point before COVID-19 shutdowns when patients would've been naturally coming back into the office for consultation. It's unfortunate that we didn't get a lot of that feedback in April and May. What we have heard has been positive, and we expect that we'll continue to hear those stories over time and more to report as we get through the balance of this quarter. Regarding first and second line, roughly 50% of the AMZEEQ utilization comes from patients who are new to branded therapy altogether, and another half comes from those that are switched or added to something else. Consistent with what we saw in our demand study that we ran in 2018, we anticipated, and we mentioned back in 2019 that this should be disruptive to the market because the displacement of products was going to be broad.
That's exactly what we're seeing in switching and add-to behavior, is that the type of switching behavior is pretty broad. That does mean that we're creating our own lane in the acne space. I'm encouraged by that. It's great when you see that the reality of your launch is matching up to the market research that you did prior to it. Hope that helps.
Yeah. This is Dave.
That's great. Oh, sorry.
I'll just add a few additional comments to piggyback off of what Matt had shared. As we've talked in the past, we saw with the initial launch of AMZEEQ, the initial lift and uptake of the brand was very strong. Then obviously we're faced with the pandemic, and we saw the significant contraction in the market, and Matt talked about on today's call. We have not yet been at full capacity, if you will, at that point, pre-COVID levels yet. However, despite that, the growth trends have been really impressive, especially over the course of the last weeks. We were in an entire market shutdown where the entire nation was closed for several weeks.
We had some of the markets that Matt outlined, especially in the Southeast and South Central, that were leading the reopening, if you will, with markets in, say, the North Central part of the United States, Northeast and Mid-Atlantic lagging behind. As we all know, some of these markets, in California, Arizona, Texas, Florida, Georgia, et cetera, got hit with significant spikes in the coronavirus. We saw some contraction for a while in those marketplaces while the Northeast, the Mid-Atlantic, and North Central areas were starting to reopen. As Matt's outlined, we're now at a point where we're not quite back all the way to pre-COVID levels, but we're seeing a nice reopening in the space. We're very encouraged when we take a look at the current prescription trends.
We're very encouraged about what can be once the market is fully healed and we've got the sales force that's at full capacity, meaning that they have full access to the offices. Patients are back at the levels they were pre-COVID. We're already at total prescription levels that are just about at where they were pre-COVID. We're seeing nice increases on a week-by-week basis. If that continues, based on the work that the team's done, once they are at full capacity, offices are fully open. We're very bullish about the opportunity to continue to drive prescriptions for AMZEEQ as we move forward.
Thank you. This is very impressive and very helpful. Just very briefly on the upcoming launch of ZILXI, obviously the two products are priced at parity, but do you anticipate any difference in the managed care dynamics, the investor dynamics that we've seen with AMZEEQ? Would you consider the $200-$400 range to also be applicable to ZILXI as well in the longer term? In terms of net profit.
Yeah. Great questions. Yeah, we did price at parity because we wanted to. That's some of the feedback that we got in market research with the payers was that they did fear some movement between acne and rosacea and the different concentrations of products. Parity pricing was the logical thing to do. The payers are reviewing these as separate products. They're not looking at it as a line extension or new indication for the existing AMZEEQ brand. They are looking at it as its own product. They are doing their full clinical review process and business review process. Our approach is the same with the payers on ZILXI as it's been with AMZEEQ. Although the market dynamics are different, we believe that working with payers in a similar fashion that we did on AMZEEQ is the prudent thing to do.
That's all based on feedback that we got in market research. Your final question about the net to plan price expectations, $200-$400 is applicable here as well. On ZILXI, that's what they expect, and that's what they told us in research. That assumption that we had on AMZEEQ still stands for ZILXI.
That's great. Thank you so much.
Thank you.
We will now take our next question from Patrick Dolezal of LifeSci Capital. Please go ahead.
Hi, thanks for taking the questions. I guess on ZILXI, what are the gating factors to launching this product? Perhaps you could provide a bit more color there. As you mentioned, you've begun to have some payer conversations there as well. Is there any sense of how quickly you imagine some of these plans being able to come online for this product relative to AMZEEQ?
Hey, Patrick.
Yes.
It's Dave. I'll just offer initial thoughts to that. Our plan is to launch ZILXI in the fourth quarter. Certainly, the data and intel that Matt's commercial team has gathered that suggests that we will indeed do that. I'll turn it over to Matt to provide some more color around it.
Thanks, Dave, and thanks, Patrick. Yeah. One of the things that we look at daily, weekly is how the rosacea market is healing. Obviously, the NRX, the new prescription volume is most important because that's the market that we're going to be trying to capture at launch. What we've observed over time is that the market is completely healed. If we look at February prescriptions in the branded market, we're back above those volumes now, last data week. The market has healed nicely. I do think that there are a couple things, a couple interesting dynamics in rosacea to consider here too.
We know a factor that exacerbates the symptoms of rosacea is stress, and there's a lot of that going around due to COVID-19. The other thing that has been more voluminous in the literature recently is the requirement to wear masks across the country has exacerbated the symptoms for these patients even more so. As we go into Q4, we're actually launching into what I think is going to be a very strong market with a high unmet need and additional factors that are exacerbating the symptoms for these patients. We're excited about launching in the fourth quarter, and we believe the market is ready for this launch. I'm sorry, Patrick, your second question again.
Just related to some of the payer conversations you've had and how rapidly you imagine those being able to come online, perhaps relative to the conversations that you had with AMZEEQ and the payer onboarding process there.
Sure. These things obviously take their own course. Certain things like the PBM contracting delay that we saw with AMZEEQ, those things can happen. Typically, we see contracts in place in six to nine months post-launch within that timeframe. We're optimistic that that'll be the same with ZILXI. Anything can happen in those timelines, we are planning for the best with our payer approach, and we're hopeful that we have good coverage wrapped up in quick succession.
Yeah, one thing to think about too, Patrick.
Got it.
We had the product approved several weeks ago. We're launching in the fourth quarter. That gives us a bit more runway before we actually distribute the product here in the United States. As we mentioned before, as we have relations and we just completed contracts with the various payers, especially some of the larger PBMs, our intent is to try to maximize those opportunities, right? Look to get under contract as quickly as possible with the intent to actually go into the launch, hopefully with some of these larger payers already under contract. We're working feverishly to do that. As Matt outlined, in some regards, you're beholden to the P&T review timelines of the payers. We've got good sight lines in on this. We're encouraged by what we've seen so far. We're knee-deep in dialogue with all three of the larger payers.
As Matt said, we're quite optimistic as we head into the launch of ZILXI in the fourth quarter, and we'll keep you posted.
Got it. Thanks for that. I guess on aggregate, it sounds like prescription numbers are moving in the right direction. I'm just curious on an individual-by-individual basis as we think about sales reps launching a new product in this environment. Is there a difference in the frequency of visits that derms are allowing at this point, or any other factors that are limiting their ability to really be effective during the pandemic?
Well, sure. Yeah. As mentioned, the offices have changed the dynamic by which representatives are welcomed into an office, so things are scheduled more often than they are spontaneous. Certainly, the call volumes have been increasing over time. I would say that our call volumes now are pretty close to where they were in February and early March. Not quite where it was. Most of those interactions are face-to-face and not virtual. Better than 85% of all of our calls are face-to-face now versus either telephonically or via some other virtual platform. That's encouraging. I think the other thing that's really encouraging to me, Patrick, is that I do look at sample velocity as a surrogate to face-to-face call volume. We've seen the sample velocity increasing week over week.
That's indicative of a couple things. Throughput for acne patients has to be increasing because our samples are moving out of the office. They're into the hands of patients, and there's more demand. There are more offices that are opening up. There are more weekly unique prescribers of AMZEEQ now than there have been since the pandemic shutdowns. All of these things together show that the market is healing in a very positive direction. I'm encouraged by these metrics I'm seeing.
That's helpful. I guess one more from me, just on FCD105. Would love to hear your thoughts on how the magnitude of effect on IGA score and inflammatory lesions compares relative to existing treatments out there and how you guys see this product fitting within the broader treatment paradigm.
Sure. We were obviously very pleased with the phase II results we saw for FCD-105. We're always cautious about discussing comparisons versus other products that are out there because we've obviously not conducted any head-to-head studies. When you just take a look at literature, and obviously, this is a phase II study. We had over 400 patients in it across four arms. It was a robust phase II study for us. When we take a look at the IGA results, which were north of 35% of the patients were clear or almost clear at the end of 12 weeks. As we've outlined, that has, if it's replicated, has the potential to be best in class over other currently approved products here in the United States. The same thing when we take a look at the reduction in inflammatory lesion counts.
They are right at the peak of any other products that are currently approved for distribution in the U.S. We're quite encouraged by those results. We're going to continue down our path, conduct the end of phase II meeting before the end of this year, with the intent to initiate a phase III study sometime the first half or so of next year. We believe that, again, if approved, if it's a best-in-class type of efficacy that could be associated with the product, I think then it speaks for itself in terms of what we anticipate could be the uptake for the brand. We're obviously very encouraged by what we see with AMZEEQ. If FCD-105 actually has even better efficacy results and remains to have a high level of tolerability, because it obviously is a product that has a retinoid associated with it.
As we've discussed in the past, retinoids often lead to issues with irritation, cutaneous side effects. If we see the type of safety profile that we saw in phase II and the type of efficacy profile that we saw in phase II, that's replicated in the pivotal studies and the product's approved. Again, if it's got that type of best-in-class data, we believe it would obviously have rapid uptake.
Great. Thanks for taking the questions and congrats on the progress.
You got it. Thanks, Patrick.
As a reminder, you can press star one to ask a question. We can now take our next question from Oren Livnat of H.C. Wainwright Please go ahead.
Hi. Thanks for taking the questions. Since we're two quarters into launch, albeit obviously not normal quarters, are you prepared to speak to, I guess, gross to nets you're seeing on AMZEEQ and maybe what proportion of volume that we're seeing in these third-party data services are paid versus free drugs, be it one mechanism or another? Obviously we're trying to model this going forward as we see this volume impressively ramp again. How do we get that from that to a revenue number and near term and long term? Also, you mentioned sampling, and I'm just curious to know what kind of volumes are you seeing such that we can maybe assume that's a drag on prescription volume and that will eventually convert hopefully to paid prescriptions? Thanks.
Yeah. Thanks, Oren. I'll offer some initial comments and turn over to Andrew and Matt. At this stage, we're not obviously going to provide any comments on gross to nets because it's still in our view early, and obviously we're dealing with a market that is unlike anything we've ever experienced before. I think Andrew outlined in his prepared comments. It's got its challenges to predict runways, cash runways, modeling, et cetera. We certainly are very encouraged by the prescription trends we've seen, especially in the last several weeks. I think one of the things that's been beneficial is that as the market has healed, even though obviously we saw a rather significant decline in the months of end of March and April, start to come back out in May.
We, as you know, were quite active in negotiating contracts with payers, and were able to lock up a couple additional payers during that time period. As this comes back, as the market continues to come back and our prescription trends continue to grow, more and more of those prescriptions obviously will be covered, and we will not need to rely on the denial conversion programs that we had or that we have in place. In short, in summary, we do know that the prescriptions are obviously continuing to grow. We are seeing a larger proportion of those on a weekly basis are covered, and we would anticipate that will continue certainly as we move through the balance of this year.
I think as we come out and move towards Q3, Q4, we'll be in a position to provide more color on how our gross to net is looking. We are certainly encouraged by what we're seeing out there. I'll push it off and ask Andrew and Matt if they have any additional comments on that. Matt, Andrew, if that's good.
Yeah. I think you covered it, Dave. We very specifically sort of not given guidance on this yet. You can obviously surmise quite a lot from our financial statements in terms of our gross sales relative to our net sales. I think, and Matt, you can give additional color to this. Given COVID and given the fact that we have the one PBM outstanding, it's taken a little bit longer than we had hoped to get to where we ultimately want to be. I don't think you're going to see the final gross and net settle out until early next year. Matt, I'll let you add some color.
Yeah. As we look at our copay offering, one of the things that is a good surrogate to follow is our covered versus non-covered or denial conversion prescriptions that go through those channels. We have been seeing that the covered prescriptions have been growing nicely over the quarter and continue to. As these contracts went into effect, Optum in May, United in June, a lot of the denial conversion program that was covering those prescriptions, now they're going to the coverage benefit. We're also seeing prescriptions that are outside of the coupon, those that fall either under $35 or those that are paid for by the patients themselves, we're seeing those continue to grow. All in, we're seeing positive impacts from our covered versus denied patient volumes, we expect those to continue.
Hopefully as we get the rest of our market access squared away in Q4, we'll see that impact through the balance of the year continue to heal. Regarding sampling. It's hard to give you true metrics on sampling and how the velocity that we're seeing in physician demand equates to the volume that's being dispensed to patients as they walk out the door. We've seen double-digit increases in velocity in what we are delivering to physician offices over the last several weeks. Last week was an astonishing number. As I said, it's higher than anything that we've seen since launch. The previous week to that was pretty close to what we saw back in January and February, where you're stocking physicians for the very first time.
These are good signals that our target prescribers are demanding samples and going through them at a more rapid clip today than they have over the last several weeks. As you can imagine, things were grossly impaired in our ability to get samples to physician offices because they were closed back in April and May. Those have been coming back steadily. The volumes that we're seeing going out to physicians has been really positive. The question about how that impacts overall scripts, these samples are meant to last a week or so. As those samples are utilized and exhausted, the prescription should follow.
Okay. If I could just follow up on the gross nets. I appreciate your sensitivity around that, given you're still negotiating, I guess, with one major PBM. Can you at least comment that on a normalized basis, is that net $200-$400 range, even if you may be at one extreme of it, is that range still realistic if a year from now, after all your PBMs are in place and you have good coverage, you're not giving away a ton of free drug. Is it reasonable to assume your value per script would be above $200?
Andrew, you want to take it?
Sure. Yeah, absolutely. We haven't changed that guidance. We still think that that's appropriate for both of our drugs, for both ZILXI and AMZEEQ.
All right. That's really helpful. Sorry, I had to twist your arm. Appreciate it.
No problem. No worries.
We can now take our next question from Tim Chiang with Northland Securities. Please go ahead.
Hey, thanks. I know you guys had commented on just the recent rise in prescription trends for AMZEEQ. Do you see that continuing, especially if we see the fall school year come back fully? How many of the target patients that have acne are school-age adolescents? Also just a financial question. I think you mentioned you have about over 160 million shares fully diluted now, 168 million. Is there any thought on doing a reverse split at some point?
Hey, Tim. I'll offer some initial thoughts. First of all, we would certainly intend, hope, and plan to see prescription trends continue to increase, assuming the markets are open and patients are coming back. As Matt's outlined, the enthusiasm for the brand certainly is there. As Matt's outlined, these patients have not gone away. They need and will be seeking treatment. We certainly know that as we come into the school year, that those are high volume times and as patients start coming back and seeing their physicians. We would certainly hope to continue to see those types of growth trends. Matt, perhaps you can offer some additional thoughts per Tim's question. Sure. The acne market typically is your Gen Z population, age somewhere between 13 to 24 years old. I think everyone in that demographic is going to be seeking treatment.
Whether they're going back to school, whether they're going back to work, whether they are interacting on Zoom calls, the acne problem still persists. In fact, one of the things that we've seen in search history is mask acne or maskne has increased in Google Search volume over time because the mask issue for acne patients is just as real as it is for rosacea patients. There's certainly an irritant that causes exacerbation of acne symptoms, and those need to be treated as well. We do feel good about the position that we're in, that we're coming out of this market deficit that we've seen over the last couple of months, and as the market is healing, we're able to not just penetrate into the growing market, but expand our penetration into the growing market.
Andrew, you want to take the finance question?
Yeah, sure. Yeah, it's a good question on the share count. Obviously, 168 million shares is a lot for a company our size. Probably the way I'll answer that is we had a requirement to go to our shareholders for approval to do a reverse split. We did that at our most recent shareholder meeting. On Monday, we had the Menlo annual shareholder meeting and announced that that proposal was approved by shareholders. We now do have the ability to enact a share split. The shareholders approved a split somewhere between one to seven and one to two. That's something that management, subject to the board's approval, can do at our discretion going forward.
Hey, Andrew, just one follow-up. I think in the press release, you guys kind of hinted that if COVID persists, you may need to go access additional capital. Just from what you guys had said earlier on the call, you've got sufficient funds until the end of next year. I just wanted to sort of reconcile the comments that you guys have highlighted on the call and just sort of what you stated on the press release. I just wanted to clarify that.
Yeah, sure. Look, as we do our internal forecasting with sensitivity analysis, we think we have cash through next year. I mean, let's be clear, right? We said last quarter that we had cash through June. We raised approximately two quarters' worth of cash. We think we're good through next year. The problem is we're obviously counting on a functioning economy and dermatologist offices being relatively open, and nobody knows exactly what's going to happen. I think it's only rational to put that clarification in there or that caveat. Look, we're seeing nice increases in script trends. We're very optimistic about ZILXI. We think that there's terrific pent-up demand. Assuming that things go well, we should be fine. Is that clear enough?
Yeah. Again, you kind of broke out what the continuing OpEx was, right? It was around $30 million this quarter.
Yeah
to sort of be about the same in 3Q and 4Q?
I would expect it to continue trending down. I think, don't expect a huge shift in Q3, by Q4, we should be at what I expect our run rate to be as a commercial organization. Obviously, it would go back up if we started our phase III trials on 105. That's something that we have to consider. There's going to be some expenses coming in this quarter, mainly looking at CMC, right? Getting the clinical material ready. We wouldn't start seeing really material expenses on that until next year. By then, we'll have had good visibility into what our uptake is of our two products, and we'll continue communicating that as we go. Yeah, no, I would look to Q4 as being sort of the, when we'll hit our steady state expense stream.
Okay, great. Thanks.
This concludes the question and answer session. I would now like to hand it back to management for any additional or closing remarks.
Okay, thanks, operator. Certainly appreciate everyone taking time out of their busy schedules. I know today's a very active day for earnings across the board. Very good dialogue, robust questions, and hopefully, we've had a chance to address them all to a satisfactory level. We look forward to keeping everyone updated on the progress of our business as we're very excited about not only what we're doing now, but certainly the future for Menlo going forward. Thanks very much. We look forward to speaking with everyone soon. Be well and stay safe. Thanks.
This concludes today's call. Thank you for your participation. You may now disconnect.