Earnings Call: Q2 2020

Aug 6, 2020

day, and 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, LifeSci Advisors. Please go ahead. Thank you. Good morning, and thank you for joining us today. Before we begin the formal 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 contain 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 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 Menloin 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 and Fritz Saig, 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, and good morning to everyone. This is an exciting time for Menlo as we established the company as a commercial business in the dermatology space. As you know, we launched Amzik at the beginning of the year. And although we have experienced some disruption as a result of the pandemic, our field force continues to recover. The FDA approved our second product, ZILXI during the Q2, which means we are in the fortunate position of having 2 products approved in a period of less than 9 months. Additionally, we strengthened our balance sheet with our most recent successful equity offering. Now beginning with the positive news on ZILXVI, 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 1st minocycline product of any kind to be approved by the FDA for use in rosacea. We believe that ZILSI offers a unique proposition in rosacea and should receive broad market acceptance upon our launch with continued growth in prescription trends. ZILSI was approved on the strength of 2 well designed Phase 3 trials that were conducted in more than 1500 patients. Our market research indicates that patients place a high value on the excellent efficacy and safety demonstrated at 12 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 discontinuation rates with existing products. Our goal is to launch Silksy in the Q4 of this year and Matt Wiley will provide more details in few moments. On June 2, we announced positive results from a Phase 2 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. StudyFX2016-forty enrolled 4 47 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 in either of the monotherapy arms, 3% minocycline foam or 0.3 percent 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 a registration study suggests that FCD105 has the potential to be a best in class treatment for patients with acne. We plan to hold an end of Phase 2 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 3 development program. Regarding our balance sheet, we raised $54,000,000 in an equity offering on June 5. 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 $100,000,000 Lastly, in light of the current market uncertainties due to COVID, we recently amended our credit agreement with Perceptiv and OrbiMed. Most relevant is the existing revenue covenants within the credit agreement have been extended by 6 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 Amzveek in the acne market. The market is still recovering from the COVID-nineteen shutdowns with new branded prescription volumes in acne down over 30% during the Q2. By the end of the quarter, this had improved modestly with a 17% delta to 1st 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 3 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 May, but it's been recovering steadily in most recent data weeks. Prescription volume for Amzik in the 2nd quarter came in at 22,169 total prescriptions, representing 7.3% growth versus the Q1. 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 Amzik. The number of unique prescribers exceeded 4,200 during the Q2. 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 Amzik. Our market access progress has brought our coverage to 63% of commercial lives with 1 major PBM negotiation in progress. We are focusing on completing these negotiations by the Q4, which would bring our commercial coverage to an optimal position of over 80% of commercial lives. Turning now to ZILTZI, which was approved by the FDA on May 28. 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 ZILTI 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 ZILTI 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 ZILC have been encouraging. We continue to coordinate clinical reviews with P and T committees and 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 Q2 financials, I will talk about revenues, cost 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 $11,700,000 for the Q2 2020. There were no revenues for the comparable period in 2019. The revenue number was comprised of $1,500,000 from the product sales of Amzeq, which was launched in January 2020 $10,000,000 which is the upfront cash payment under the license agreement we assigned with Cutia and $200,000 in royalty revenue. Our net loss for the Q2 2020 was 100 $7,400,000 as compared to $19,000,000 for the comparable period in 2019. We incurred one time non cash expenses during the quarter of $148,300,000 Of these expenses, dollars 54,300,000 were non cash transaction expenses associated with the impairment of goodwill and IPER and D related to the Menlo merger. 84 point $7,000,000 were related to the contingent stock rights or CSRs, which converted in Q2 due to the negative data read on sirolimab. These two items can be seen on the face of our income statement to the financial statements. The remaining $9,300,000 was due to a one time valuation 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 filmic's employee options. When the CSR converted as a result of the solopidant Phase 3 outcome, the legacy filmic options became subject to a conversion ratio of 1.8006, the same conversion ratio as the legacy filmic shareholders, which materially increased the value of the options. The expense related to the vested options as of June 30 was taken to the P and L immediately, which was the $9,300,000 I just referenced and an additional estimated $6,600,000 related to unvest options will flow through the P and L over the next 5 years. This number will vary based on any potential employee departures. Normal or recurring employee stock charges during the quarters were 1,500,000 dollars Looking at the P and L, I would like to give the shareholders visibility into expenses excluding onetime noncash 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 $200,000 and were not impacted by one time non cash charges. The reported R and D number was $13,100,000 excluding onetime stock compensation charges of $2,600,000 R and D was 10,500,000 dollars Reported SG and A expenses were $26,500,000 Excluding onetime stock compensation charges of approximately $6,600,000 SG and A was $19,800,000 Total operating expenses excluding onetime non cash charge stock compensation charges of $9,300,000 were $30,500,000 for the quarter. This $30,500,000 in operating expenses is closer to our expected run rate going forward, but does reflect some wind down expenses from our Phase II105 trial and close out expenses from the Phase III sirlopodin trial. Our cash position at June 30 was $100,400,000 Our share count post the conversion to CSRs is approximately 136,000,000 shares. With the issuance of additional shares related to our recent equity raise, our current share count is approximately 168,000,000 shares. Regarding our restructuring, last quarter we announced that due to the COVID-nineteen impact and resulting disruption of BMDIC launch and with the Phase III results of cirlopidin, we reevaluated our cost structure and initiated a cost savings initiative that we believe is 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 Amzik and the successful launch of Zolte 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 and A or R and D. We would expect the majority of the savings will be reflected in our Q3 financial statements and the 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-nineteen. We believe, however, that the that with the cost savings initiative put in place, our current sales expectations for Amveek and Bilksi and with the cash received from the QTL license plus the $54,000,000 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 30, 2020. As part of the amendment to the credit agreement, the minimum revenue covenants were pushed out 6 months. One small additional revenue target of $6,000,000 was added for December 31, 2020. But beyond that, our existing revenue covenants now begin on March 31, 2021 instead of September 30 this year. There are no additional changes, costs or considerations to the credit agreement. For full details on the financial results, including the results from the 6 month period ending June 30, 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 has 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 U. S. 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 Amzik and preparing for the launch of ZILTI. 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 Amzik and Zixi by focusing on 4 key tenants: precise targeting of our customers and leveraging the overlap of our called on universe of healthcare providers continuing to accelerate broad experience of Amzik and our MST technology, which should allow for rapid uptake of ZILTI Gain broad acceptance from payers and broad reimbursement. And 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. And with that, that concludes our prepared remarks. We're happy to open the call for questions. So I will turn the call back over to our operator. Thank you. We can take our first question now from Louise Chen of Cantor Fitzgerald. Please go ahead. Hi, good morning, everyone. This is Carly in for Louise. Just a few questions here. What percentage 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-nineteen, many doctors are switching to telemedicine. If the trend persists for the rest of 2020, how will it impact MC prescription number and the launch of CELSI? And 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 Celsi? Thank you. That's Kavi, Matt. Why don't you take all of those, okay? Thanks, Dave. Thanks for the questions. So 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 models predicated on using claims data to identify where the patients are. So 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. So the majority is dermatology. I would say probably better than 90% is what I have at my fingertips here. Regarding the telemedicine question, so telemedicine is obviously something that got a lot of attention during COVID-nineteen. And 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. And what that showed was the patient volume, the average patient volume for a dermatologist over a course of a week prior to COVID-nineteen was around 140 or so patients that dropped to 28 patients during late March April. And so 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 dermatologists in this particular research study indicated that it wasn't as effective as an in person consult. So the expected use on a go forward is roughly 11%, again based on this study. And 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. And so 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. And so 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 Amzik. We're going to have those 500 or so that are going to be unique for ZILTI and then we're going to have overlapping targets within the balance of our target universe. Great. Thank you so much. And we can now take our next question from Jason Gerberry of Bank of America. Please go ahead. Hi. This is Badi Urman on for Jason. Thanks for taking our questions. I'm wondering in terms of volume, can you talk about the current volume trends of AmSeq in June July compared to April May? And how do you see patient flow in script volume evolving over the remaining of the year? Got it, Matt. So as it relates to the trends in volume of prescriptions, so the last data we have for the week of 724, we had over 2,004 100 prescriptions. So what we're seeing in our recovery is more what we expected to see. It's more of a check mark recovery. So we had the big dip back in late March early April. And that's been rebounding over time as the market yield. I mean, remember that the NRx volumes dropped over 30% from where it was in March on a weekly basis to that beginning of April timeframe. And so the market hasn't completely healed. Even this last data week, there are about 65,000 or so new prescriptions when 72,000 to 75,000 was the norm back in February March. So 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 there's just it seems as if there is a patient slow or a throughput issue that is slowly healing across the country. Okay. That's helpful. And another question, can you talk about your process of payer contracting on Amzik since the last earnings update? Sure. So there is 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 by the Q4 in the Q4. So other than Optum and UnitedHealth that brought our total covered lives up to 63 percent. We're happy about having those contracts in place. And we're optimistic about the prospects for the remaining TBM that's outstanding. Yes. And I would just add that the work that's been done on the payer front, we intend it's always been our intent to leverage that as we're preparing for the upcoming launch for ZILSI. And so the team's already in discussions with various payers for ZILSI, which we intend to launch in the Q4. And as we've talked about in the past, a lot of the work that we've been conducting for Amzik over the last 6 to 9 months, we certainly believe that that could be helpful for us as we're discussing with the same payers about bringing Zolksy on a contract. Great. Thanks so much. We can now take our next question from Georgi Yarnoff of Cowen and Company. Please go ahead. Hey, guys. Thank you so much for taking my question and congratulations on the progress. So I guess first for Amzik, 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? And do you think there will be any changes for the remainder of the year as things progress regarding the pandemic? And 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? And how it competes with the more established brands? Are you seeing any first line use of ENZYK or kind of like more front use in the treatment paradigm? Sure. So, 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. And what we found in the survey is roughly 90% of dermatology offices across the country are open and seeing patients. Now that doesn't speak to the throughput of the patients. I don't know if that's changed due to dynamics in the office. But 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 based on creative ways of getting to them either virtually or alive when others may not have been able to. And that's a testament to the quality of the sales team that we have. So 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 across the country. We have some markets that accelerate faster than others. So 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 9 to 10 week point before COVID-nineteen shutdowns when patients would have been naturally coming back into the office for consultation. And so it's unfortunate that we didn't get a lot of that feedback in April May. But 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 Amzik 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. And that's exactly what we're seeing in switching and add to behavior is that the type of switching behavior is pretty broad. And that does mean that we're creating our own lane in the acne space. So, 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. Yes. This is add a few additional comments to piggyback off of what Matt had shared. So as we've talked in the past, we saw with the initial launch of Amzik, the initial lift and uptake of the brand was very strong. And then obviously, we're faced with the pandemic and we saw the significant contraction in the market that Matt talked about on today's call. And 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 had that we were an entire market shutdown where the entire nation was closed for several weeks. And then 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, Mid Atlantic lagging behind. And then as we all know, some of these markets in California, Arizona, Texas, Florida, Georgia, etcetera, got hit with significant spikes in the coronavirus. We saw some contraction for a while in those marketplaces, while the Northeast and Mid Atlantic and North Central areas were starting to then reopen. So 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 sales force that's at full capacity, meaning that they have full access to the offices, patients are back at the levels that were pre COVID. We're already at total prescription levels that are just about at where they were pre COVID, and we're seeing nice increases on a week by week basis. And if that continues based on the work that the team's done, once they are at full capacity, office are fully open, we're very bullish about the opportunity to continue to drive prescriptions for Amzik as we move forward. Thank you. This is very impressive and very helpful. And just very briefly on the upcoming launch of ZILXY. Obviously, the 2 products are priced with parity. But do you anticipate any difference in the managed care dynamics, the investment dynamics that we've seen with Amzik? And would you consider the 200 to 400 range to also be applicable to Zoxy as well in the longer term? So, yes, so great questions. And yes, we did price a parity because we wanted to that some of the feedback that we got in market research with the payers was that they did hear some movement between acne and rosacea and different concentrations of products. So 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 Amzik brand. So they are looking at its own product. They are doing their full clinical review process and business review process. But our approach is the same with the payers on Bilksi as it's been with Amzik. Although the market dynamics are different, we believe that working with payers in a similar fashion that we did on Amzik is the prudent thing to do. And it's all based on feedback that we got in market research. And then your final question about the net to plan price expectations, dollars 200 to $400 is applicable here as well. On ZILTI, that's what they expect and that's what they'd hold us in research. So that assumption that we had on Amzik still stands for ZILTI. 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 Zoxy, what are the gating factors to launching this product? Perhaps you can provide a bit more color there. And 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 Amzik? Hey, Patrick. It's Dave. So I'll just offer initial thoughts to that. Our plan is to launch Zolpi in the Q4 and 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 on it. Thanks, Dave, and thanks, Patrick. Yes, so 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 that's the market that we're going to be trying to capture and launch. And what we've observed over time is that the market is completely field. If we look at February prescriptions in the branded market, we're back above those volumes now, last out a week. So the market has healed nicely. I do think that there are a couple of things, a couple of interesting dynamics in rosacea to consider here too. One, we know a factor that exacerbates the symptoms of rosacea stress and there's a lot of that going around due to COVID-nineteen. But 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. And so as we go into Q4, we're actually launching to 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. So we're excited about launching in the Q4 and we believe the market is ready for this launch. And I'm sorry, Patrick, your second question again. Just related to some of the payer conversations you've had and kind of how rapidly you imagine those being able to come online, perhaps relative to the conversations that you had with MZK and kind of the payer onboarding process there? Sure. I mean, so these things obviously take their own course. And so certain things like the PBM contracting delay that we saw with Amzik, those things can happen. Typically, we see contracts in place in 6 to 9 months post launch within that timeframe. And so we're optimistic that that will be the same with ZILTZI. But anything can happen in those timelines. And so we are planning for the best with our payer approach and we're hopeful that we have good coverage wrapped up in quick succession. Yes. One thing to think about 2 passes, we've got we had the product approved several weeks ago and we're launching the Q4 and that gives us a bit more runway before we actually distribute the product here in the United States. And so 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, and look to get under contract as quickly as possible with the attendance actually go into the launch, hopefully with some of these large payers already under contract. So we're working feverishly to do that. As Matt outlined, in some regards, you're beholden to the P and T review timelines of the payers, but 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 3 of the larger payers. And as Matt said, we're quite optimistic as we head into the launch of ZILTI in the Q4. And we'll keep you posted. Got it. Thanks for that. And I guess kind of on aggregate, it sounds like prescription numbers are moving in the right direction. And 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 kind of the frequency of visits that germs are allowing at this point or any other factors that are kind of limiting their ability to really be effective during the pandemic? Well, sure. Yes, the as mentioned, the offices have changed the dynamic by which representatives are welcomed into an office. And 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 early March, not quite where it was. And most of those interactions are face to face, not virtual. Better than 85% of all of our calls are face to face now versus either telephonically or via some other virtual platform. And so 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. And we've seen the sample velocity increasing week over week. In fact, last week, we distributed more samples to offices than we have in any given week since launch. And that's indicative of a couple of 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 AmZinc now than there have been since the pandemic shutdowns. And so all of these things together show that the market is dealing in a very positive direction and I'm encouraged by these metrics I'm seeing. That's helpful. And I guess one more for me just on FCD105. I 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 kind of how you guys see this product fitting within the broader treatment paradigm? Sure, sure. We were obviously very pleased with the Phase 2 results that we saw for FCD-one 105. We're always cautious about discussing comparisons versus other products that are out there because we've opted not conducted any head to head studies. But we just take a look at literature and obviously this is a Phase 2 study. And we had over 400 patients in and across 4 arms. So it was a robust Phase 2 study for us. But when we take a look at the IGA results, which were north of 35% of the patients were clear, almost clear at the end of 12 weeks, as we've outlined that, that has if it's replicated, that has the potential to be best in class over other currently approved products here in the United States. So we're and the same thing when we take a look at the reduction inflammatory lesion counts, they are right at the peak of any other products that are currently approved for distribution in the U. S. So we're quite encouraged by those results. We're going to continue down our path to conduct the end of Phase 2 meeting before the end of this year with the intent to initiate a Phase 3 study sometime in 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 that it speaks for itself in terms of what we anticipate could be the uptake for the brand. I mean, we're obviously very encouraged by what we see with Amzik. And if FCD105 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. And if we see the type of safety profile that we saw in Phase 2, the type of efficacy profile that we saw in Phase 2, that's replicated in the pivotal studies and the products 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. Got it. Thanks, Patrick. We can now take our next question from Oren Livnat with H. C. Wainwright. Please go ahead. Hi. Thanks for taking the questions. Since we're 2 quarters into launch, albeit obviously not normal quarters, are you prepared to speak to, I guess, gross to net you're seeing on Amzik and maybe what proportion of volume that we're seeing in these 3rd party data services are paid versus free drugs via one mechanism or another? Because 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? And also you mentioned sampling. I'm just curious 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. Yes. Thanks, Lauren. 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 net set 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, etcetera. But 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 call it end of March and April start to come back out in May. We as you know, we're quite active in negotiating contracts with payers and we're able to lock up a couple additional payers during that time period. So 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. And so in short, in summary, we do know that the prescriptions are obviously continue 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, but 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 color comments on that. Matt, Andrew, that's good. Yes. I think you covered it, Dave. I mean, 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. But I think and Matt, you can give additional color to this. Given COVID and given the fact that we have the 1 PBM outstanding, it's taken a little bit longer than we had hoped to get to where we ultimately want to be. So I don't think you're going to see the final growth in that settle out until early next year. But Matt, I'll let you add some color. Yes. So as we look at our co pay 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. And we have been seeing that the covered prescriptions have been growing nicely over the quarter and continue to. And 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 through 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 and we're seeing those continue to grow. So all in, we're seeing positive impact from our covered versus denied patient volumes and we expect those to continue. And 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, so 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. But we've seen double digit increases in velocity in what we are delivering to physician offices over the last several weeks. And last week was an astonishing number as I said. It's over 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 February where you're stocking physicians for the very first time. So 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 May. Those have been coming back steadily and the volumes that we're seeing going out to physicians has been really positive. Now the question about how that impacts overall scripts. I mean these samples are to have meant to last a week or so. And so as those samples are utilized and exhausted, the prescription should follow. Okay. And if I could just follow-up on the gross to net. I'm totally I appreciate your sensitivity around that given you're still negotiating, I guess, with 1 major PBM. Can you at least comment that on a normalized basis, is that net $200 to $400 range, even if you may be at one extreme of it? Is that range still realistic if we a year from now after all your PBMs are in place and every 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. Yes, absolutely. I mean, we haven't changed that guidance. And we still think that that's appropriate for both of our drugs, for both ZILTI and MZEEK. All right. That's really helpful. Sorry, I had to twist your arm. Appreciate it. That's a good problem. No worries. We can now take our next question from Tim Chiang with Northland Securities. Please go ahead. Hi, thanks. I know you guys had commented on just the recent rise in prescription trends for Amzik. Do you see that continuing, especially if you see the fall school year come back fully? How many of the target patients that have acne are school age adolescents? And also just a financial question. I think you mentioned you had what about over 160,000,000 shares fully diluted now, dollars 168,000,000 I mean, is there any thought on doing a reverse split at some point? Hey, Tim. So 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. And 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 physician. So 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. I mean, so the acting market typically is your Gen Z population, age somewhere between 13, 24 years old. And 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. And 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 exacerbations of acne symptoms and those need to be treated as well. So 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? Yes, sure. Yes, it's a good question on the share count. Obviously, 168,000,000 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. So on Monday, we had the Menlo Annual Shareholder Meeting and announced that, that proposal was approved by shareholders. So we now do have the ability to enact a share split. The shareholders approved the split somewhere between 1 to 7 and 1 to 2. So 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. But just from what you guys had said earlier on the call, you've got sufficient funds until the end of next year. So 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. Yes, sure. Look, as we do our internal forecasting, move 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 2 quarters' worth of cash. So we think we're good through next year. The problem is that we're obviously counting on a functioning economy and dermatologists' offices being relatively open and nobody knows exactly what's going to happen. So I think it's only rational to put that clarification in there or that caveat. But look, we're seeing nice increases in script trends. We're very optimistic about Bilqsi. We think that there's terrific pent up demand. So assuming that things go well, we should be fine. Is that clear enough? Yes. Yes. And again, you kind of broke out what the continuing OpEx was, right? It was around $30,000,000 this quarter. So you expect that figure to sort of be about the same in 3Q and 4Q? So I would expect it to continue trending down. I think, don't expect a huge shift in Q3. But then 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. So that's something that we have to consider. There's going to be some expenses coming in this quarter, mainly looking at CMC, right, so getting the clinical material ready. But we wouldn't start seeing really material expenses on that until next year. So by then, we'll have good visibility into what our uptake is of our two products and we'll continue communicating that as we go. But yes, no, I would look to Q4 as being sort of 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 is a very active day for earnings across the board. So very great 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. So 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.