Thank you for standing by. This is the conference operator. Welcome to the Foamix Pharmaceuticals second quarter 2019 earnings conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. Now I would like to turn the conference over to Michael Wood, Life Sciences advisor, LifeSci Advisors. Please go ahead, sir.
Thank you, and good morning, everyone. Yesterday, Foamix issued a press release with earning results and a corporate update for the quarter ended June 30th, 2019. The press release is available on the investor relations page of the company's website at foamix.com. The call is being recorded and webcast. A replay will be available on the company's website for the next two weeks. Before we begin the formal remarks, let me remind you that some of the information in the news release 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 or satisfaction with current progress, prospects for projection, as well as words such as believe, intend, expect, plan, anticipate, and similar variations identify forward-looking statements, but their absence does not mean that a statement in itself 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 Foamix's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of today's date of today's press release and conference call, and the company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this call. Participating today are David Domzalski, Chief Executive Officer of Foamix, Ilan Hadar, Chief Financial Officer, and Matt Wiley, Chief Commercial Officer. They're also on the line, and they'll be available to answer questions. With that, I'll turn the call over to Dave. Please go ahead.
Thank you, Michael, and thanks to everyone for joining our call this morning. During the second quarter, Foamix continued to execute successfully across all of our strategic objectives with respect to our clinical development programs and commercial plans. We just announced the filing earlier this week of our second NDA for FMX103 in rosacea. We have a very important milestone coming up in the second half of the year with the PDUFA date of October 20th for FMX101 in acne. We're also making progress in building our commercial brand as well as our sales and marketing infrastructure. Also, very importantly, we completed a successful financing, securing funds of up to $64 million in a combination of debt and equity, which strengthens our position considerably as we prepare to potentially launch two products and transition to a fully integrated pharmaceutical company.
Starting with the most recent news, we announced on Monday that we have submitted an NDA to the U.S. FDA seeking approval for FMX103 for the treatment of moderate to severe papulopustular rosacea in patients 18 years of age and older. The FMX103 filing is supported by strong phase III data. The data package includes the results from two phase III trials, trial FX2016-11 and -12, both of which achieved their co-primary endpoints, demonstrating statistically significant improvements in inflammatory lesion count and investigated global assessment treatment success in patients treated with FMX103. We also announced positive results from our long-term open-label safety study, FX2016-13, in February of this year, demonstrating that treatment with FMX103 appears to be well tolerated with an acceptable overall safety profile for up to one year of treatment. Rosacea is a common chronic relapsing inflammatory skin condition which can seriously affect quality of life.
We estimate that there are approximately 16 million rosacea patients in the United States alone, a large percentage of whom suffer multiple comorbidities and experience sensitivity to current treatment options. FMX103 is the second NDA to be filed for one of our products in the last eight months. We filed an NDA for FMX101 seeking approval for the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients nine years of age and older in December of last year. The FDA has set October 20th of this year as the PDUFA action date for FMX101. FMX101 is also supported by a strong clinical package, and it includes the results from our third phase III study, FX2017-22. The results of this study, which enrolled just under 1,500 patients, were published in June this year in the prestigious Journal of the American Academy of Dermatology.
The American Academy of Dermatology is the largest and most influential dermatology group in the United States. JAAD, as the periodical is known, was the ideal platform to share the results from our study with the broader clinical dermatology community. A copy of the article can be found on the journal's website at jaad.org. Our commercial efforts for FMX101 launch readiness continued to make strong progress. Final launch tactics for healthcare providers and consumers have been finalized, and execution of those tactics is on or ahead of schedule. We also completed our sales force alignment and deployment mapping and have begun to recruit and interview for our regional management team. The sales force will cover approximately 6,000 healthcare providers that encompass two-thirds of all diagnosed acne patients and roughly three-quarters of the acne prescription volume.
We've applied the same level of data analysis to our potential rosacea market to identify provisional healthcare provider targets. Based on the initial findings, we believe that there will be at least greater than a 50% overlap between our targeted areas of coverage for both acne and rosacea. As we prepare to onboard our sales organization, we are pleased with the advancement we have made with our sales training plan. The acne training curriculum content development is on schedule, and we expect to have our representatives trained and field-ready by mid-December, followed by a live launch meeting scheduled for the first full week in January. Our market access approach is also taking shape. We conducted a mock pharmacy and therapeutic committee meeting in July, which reaffirmed the market research that was first presented earlier this year.
The net-to-plan expectation remains in the range of $200-$400. Favorable formulary positioning is indeed feasible. We continue to believe that with responsible pricing, payer contracting, and managing patient out-of-pocket exposure, we can secure broad access to those patients who will need FMX101. Turning to our earlier stage pipeline. The most advanced product is FCD105, which is our combination foam product of minocycline and adapalene for the treatment of acne vulgaris. Adapalene is one of the most widely used retinoids for comedonal acne and is an active ingredient in the leading acne brands. The scientific concept here is to combine the bacteriostatic and anti-inflammatory properties of minocycline with the retinoid, which acts to regulate the differentiation of follicular epithelial cells. We believe combining these two mechanisms could present another significant advancement in topical therapy for acne patients.
Plans are now at an advanced stage to initiate a phase II study in the U.S. The clinical investigator training meeting has been recently completed. Clinical trial supplies are being prepared for distribution to investigator sites, and we hope to have an announcement shortly regarding the enrollment of the first patient in the study. This will be a randomized study expected to enroll approximately 400 patients across 36 sites in the U.S., with top-line data anticipated mid-next year. Our cash and cash equivalents as of the end of the second quarter of this year were $70 million. We announced on July 30th that we have secured up to an additional $64 million in capital from two of our investors, Perceptive Advisors and OrbiMed.
The financing consists of term loans of up to $50 million under a credit agreement in which we received $15 million immediately at the closing of the transaction. We may receive an additional $20 million upon the achievement of certain regulatory milestones and a further $15 million upon the achievement of certain revenue milestones. Additionally, we secured $14 million in gross proceeds from Perceptive Advisors through a direct registered offering of ordinary shares. We obviously were very pleased to complete this financing. This is an important time for Foamix. With two products now under review at the FDA and the potential for two commercial launches next year, assuming FDA approval is received. It is important that we have the appropriate funding in place. The transaction we announced last week with Perceptive and OrbiMed means that we are able to make the necessary investments to support these launches.
Proceeds from the transactions are also being used to fund our NDA for FMX103, as well as for working capital and general corporate purposes. At this point now, I'd like to turn the call over to Ilan Hadar for a review of the financial results. Ilan?
Thank you, Dave, and good morning, everyone. We reported no revenues for the quarter ended June 30th, 2019, compared to $1 million in the quarter ended June 30th, 2018. We have an agreement with LEO Pharma whereby they market Finacea foam, which was developed using our technology, and Foamix is entitled to royalties on sales made by LEO. LEO's API contract manufacturer of Finacea has not met the required specifications for the finished product, which has resulted in the inability of LEO to manufacture the Finacea product for sale. This, in turn, means that we have not received any royalty payments. LEO has informed us that they are working diligently to address the issue in order to be able to produce supply of the finished product to meet the demand for Finacea in the market.
It should be noted that we have not viewed the royalty payments from the Finacea foam product as being material to our business or our balance sheet. Additionally, I want to stress that the supply chain issue of Finacea is not related to the manufacturing, production, or supply of any of our products, including FMX101 and FMX103. Research and development expenses for the quarter ended June 30, 2019, were $12.6 million, compared to $16.8 million for the quarter ended June 30, 2018. The decrease resulted primarily from a decrease of clinical trial expenses due to the completion of FMX101 and FMX103 clinical trials, offset by an increase in payroll and payroll-related expenses and an increase in consulting expenses.
Research and development expenses for the quarter ended June 30th, 2019, also include materials in the amount of $1.2 million purchased for manufacturing of commercial and sample products. If we obtain regulatory approval for our product candidates, this type of cost will be capitalized as inventory. General and administrative expenses for the quarter ended June 30th, 2019 were $6.8 million, compared to $2.9 million for the quarter ended June 30th, 2018. The increase in selling, general, and administrative expenses resulted primarily from an increase in expenses mostly relating to pre-commercialization activities and market research. Our net loss for the second quarter ended June 30th, 2019 was $19 million, or $0.35 per diluted share, compared to net loss of $18.6 million or $0.46 per diluted share in the second quarter ended June 30th, 2018.
At June 30th, 2019, we had cash and cash equivalents of $70 million compared to cash and cash equivalents of $99.4 million at December 30th, 2018. As Dave mentioned, we completed financing on July 30th that secures up to $64 million in cash, with $29 million of this added to our balance sheet upon closing of the transaction. Based on our current plans, if all goes well, assuming we successfully meet all conditions, milestones, and revenue targets set out in the credit agreement, we believe our existing cash and investments will be sufficient to fund our operating expenses and capital requirements through 2020. These planned expenses include pre-commercialization and launch preparation for FMX101 and FMX103, assuming we receive regulatory approval, certain pipeline development activities, and other general corporate expenses.
For further details on our financials, including the results for the six-month period ending June 30th, 2019, please refer to the Form 10-Q and the financial statements filed with the SEC yesterday. I will now hand the call back to Dave for final remarks.
Thanks, Ilan. This again is a very exciting period for Foamix. We believe that the progress we are making on the clinical, regulatory, and commercial fronts will position the company to become a leader in dermatology. We're in the very fortunate situation of having two NDAs submitted to the FDA, and we are actively preparing for the exciting opportunities ahead for us. We look forward to sharing further achievements with you as we continue to execute our development and growth strategies and build value for our stakeholders. With that, now, we'll open the call up for questions. I'll turn it over to the operator. Thanks.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. We will assume and acknowledge your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question is from Louise Chen of Cantor Fitzgerald. Please go ahead.
Yes, thank you. This is Sudan Loganathan in for Louise. I got a few questions here. First, wanted to ask, in terms of the go-to-market strategy for FMX101, will there be a direct-to-consumer campaign or anything planned? Will that be announced after the PDUFA date? What other activity will happen prior to the PDUFA date? Secondly, in regards to the sales force, how many individuals are you targeting to hire to fill out the sales force? How do we account this in the SG&A and for the upcoming quarters as the hiring already completed or not? In terms of the launch for seasonality or effects to insurance reimbursement, is that what makes an early 2020 launch advantageous, or is there any other effects to launching in early 2020?
Will there be a free sample period or something that will initiate at the launch? In regards to the 16 million patients in the U.S. for papulopustular rosacea, how many are currently treated or are patients that are not responding to current treatment? Thanks.
Thanks, Sudan. These questions I think would be great for Matt to address. Matt, go ahead.
Sure. As it relates to directing a consumer campaign for FMX101, we have previously communicated that we believe that there's a strong digital strategy for this market. We're looking at Generation Z as our primary target audience, and their social media consumption habits and digital media consumption habits have been analyzed. That is how we intend to market directly to consumers, potentially, for FMX101. We don't anticipate any television type of DTC campaigns or anything of that nature. As it relates to the sales force sizing, we've identified that we will launch with six regions, and that's going to comprise 51 sales representatives. The rationale to launch in early 2020 is predicated on the fact that we want to de-risk the hiring of our sales representatives. We'll make our offers to sales representatives contingent on FDA approval.
We want to provide them the opportunity to disengage from their current employers, that's going to take a couple of weeks, and then we have to train them. We will do some soft launch activities in December. We intend to have our full launch meeting in early January and then deploy them for a full year in 2020.
As it relates to the rosacea market opportunity, 16 million is the prevalence. The number of actively treated patients under the care of a physician in the U.S. is around 650,000 annually. That number is pliable. We actually believe that that market does have some ability to move. There have been activities in the past that we've observed that has had an impact on the market, and we look at that as a potential opportunity down the line.
Great. Thank you.
The next question is from Jason Gerberry of Bank of America. Please go ahead.
Oh, hey. This is Qi for Jason. Thanks for taking my question. Two from me. First, on R&D, do you think the current run rate is a pretty good proxy for the remainder of the year? Just wondering how we should balance the specifics given that you're winding down on registrational events for 101 and 103, but then you also have new studies to initiate. My second question is on 101. Have you had any additional dialogue with the agency, with the FDA on the inspectional observations that the agency made in April? Just curious, has the company responded to those observations, and did the FDA have any additional feedback since the last update? Thanks.
Sure. I'll address both of these. First of all, regarding the update on the progress of our NDA review. We feel quite good about how things have progressed. We've had ongoing fluid exchanges with the agency. We've responded to their requests, and we believe the responses that we've provided have been satisfactory. Again, things continue to progress as expected. We are through the mid-cycle review period. We're right in the middle of what would be considered the late cycle review. Assuming that continues without any issue, we would hope and anticipate that we would begin to move towards product labeling negotiation sometime next month as we get closer to the due action date of October 20th. Hopefully, Qi, that addresses your question on the exchanges with the FDA. Coming back to your question regarding the R&D spend rate. You're absolutely right.
We've pretty much obviously concluded the spend on 101 and 103 for the most part, in terms of R&D. We have one particular clinical program, which is FCD105, which I mentioned that we're preparing to initiate a phase II study. That's a relatively low-cost program, certainly considerably less than any phase III work that we've done with 101 and 103 in the past. That's spread out. Obviously, those costs will move through the end of this year through the first quarter or two next year. I think overall, when we look at our cash and our burn, obviously our R&D costs continue to decrease. As we move towards the back end of this year, spend will begin to ramp up for commercialization.
I think just to echo some of the comments that Matt had mentioned earlier, we've gated various expenses until approval, most notably, as Matt outlined, the onboarding of our sales force. This idea of hiring our sales colleagues on a contingent basis, we believe is a smart approach. Managing our cash this way allows us to fully deploy our medical communication, strategic marketing, and market access initiatives while having the operations and sales force teams ready for us to pull the trigger as soon as 101 is approved. We think this is a smart, prudent way to manage our cash. Hopefully that gives you a sense on how we're handling that, both from an R&D perspective as well as pre-commercialization activities.
Awesome. Thank you.
Got it.
The next question is from Ram Selvaraju of H.C. Wainwright. Please go ahead.
Thanks very much for taking my questions. Just a couple on the competitive landscape. You mentioned specifically with regard to the follow-on combination product, including adapalene, that this is a well-known retinoid-based agent. I was wondering if you could just comment on what the current most prevalent, most widely used combination products are that are currently in the market that utilize adapalene as a component. If you could maybe make some general comments regarding the formulation advantages using your technology platform that 101 and 103 would be able to avail themselves of as and when entering the market, specifically with respect to the characteristics of the foam relative to the formulations that are currently utilized. Lastly, I was wondering specific with regard to 103, if you could comment on what potential impact on the market outlook the introduction of a generic ivermectin product might have. Thank you.
Sure. I'll address the first question, Ram, which is the most widely used, most commonly used combination product with adapalene is the Epiduo franchise, which is the combination of adapalene plus benzoyl peroxide. There's Epiduo and Epiduo Forte. The adapalene product as a standalone non-combination product, the brand would be Differin. This is a franchise that has been widely used for several years. Really, the Epiduo franchise has, if you take a look at prescription and revenue numbers, has been historically the largest topical brand for the treatment of acne.
As I outlined earlier, we believe that the benefits of minocycline, which we believe are widely known, and we believe we've demonstrated that in our clinical trials, combine that with the mechanism of action from a retinoid such as adapalene, we believe combining those two products could provide significant benefit, and address even further unmet needs for patients that have acne. We're bullish about the potential of this product, assuming it gets through the clinic and ultimately is available for registration. I'll turn the next couple of questions over to Matt on the formulation advantages for our products, which we again are obviously quite proud of, and then the potential impact on a generic ivermectin into the marketplace. Matt.
Thanks, Dave. As it relates to the formulation advantage, first of all, minocycline has been around for 47 plus years and has not been available in a topical formulation. I think that the most obvious in our molecule stabilizing technology platform is to get this drug into a topical formulation, which will reduce the systemic exposure to the drug, which we know has some issues in the oral. Also based on the clinical profile, we understand that the cutaneous side effects can be relatively low considering that this is not an aqueous-based product. As it relates to ivermectin going generic on 103, we recently conducted a demand study that evaluated our target product profile in relation to all of the products on the market.
We do believe that we are disruptive in the rosacea space as we were in the acne space with FMX101, in so much that we are displacing products across the board. As a generic enters the market, obviously we think about our markets in the branded space, but also as we carve out additional market share in the generic space. The branded space still represents about 30% of the total RX volume and the majority of the revenue in rosacea. Those things are all part of the consideration as we enter the market. Because it is disruptive, we expect to take share from many different competitors in the market, including generic.
Yeah. Dave, let me pop up a few additional thoughts on the advantages of our molecule stabilizing technology for our topical foam formulations for FMX101 and FMX103. As Matt alludes to, if you think through the treatment options that are out there for both acne and rosacea, you have your oral therapies primarily, oral antibiotics, minocycline and doxycycline, which are associated with various systemic side effects, primarily GI upset, as well as more CNS vestibular type side effects, which would include dizziness, vertigo, and obviously there's photosensitivity, which you see in taking these products through an oral route of administration. We have not seen this in our studies, at least to date, in applying our products topically. That's obviously an issue that we believe our products can help address.
Conversely, when you take a look at some of the leading topical therapies that are out there in these categories, especially products that have retinoids and/or benzoyl peroxide in combination with them, you can get rather cumbersome and difficult to deal with topical side effects or dermal side effects of the skin. These include redness, dryness, itchiness, scaling of the facial area, the skin area in general. Ultimately, these can lead to challenges with compliance. Especially when you look at patients that often may be taking multiple therapies, they may take an oral antibiotic or some type of systemic therapy and a topical. Now you're dealing with the side effects associated with both. Again, with a product like ours, we believe that we provide the advantages of some of these systemic therapies and oral antibiotics such as minocycline has been widely used.
It's well recognized as being an effective means to treat acne and rosacea because of its anti-inflammatory qualities and its antibiotic qualities. Again, we have not seen, certainly because it's delivered topically, we have not seen these systemic side effects. Because our product does not have a retinoid in it does not have benzoyl peroxide, more importantly, it does not have the surfactants that are often associated with skin irritation. The dermal side effect profile that we've seen with our product has been quite positive. I'll take you back to some of the data that we've previously announced in our long-term studies for both 101 and 103. We measure, obviously, severity of dermal side effects, basically none, mild, moderate, severe.
What we've seen in both our long-term studies for 101 and 103 is that over 95% of the patients that have taken our products, that their dermal side effects have been registered as either none or mild. A very small number of patients have registered dermal side effects that were more significant than none at all or mild. We're obviously quite proud of those results. We believe it reflects that our products seem to be quite well-tolerated. I think when you add all this into the mix, we believe in terms of our value proposition that if our products are approved and introduced into the market, whether for acne and rosacea, you potentially get the benefits you would see from an oral therapy with the side effect profile that you would want from an ideal topical therapy, which many of the current topical therapies don't provide.
Hopefully that provides some additional color around that for you.
Yeah, no, that's very helpful. Just two other very quick ones. You mentioned-
Sure
this concept of reasonable pricing being able to facilitate appropriate and attractive formulary positioning. I was wondering if you could just talk a little bit more about the pricing paradigm that you think would enable favorable formulary positioning from the get-go. Also, if you could just comment on whether or not you folks envisage returning to active development of any doxycycline-containing product candidates in the future. Thank you.
Sure. I'll talk about those. First of all, in terms of doxycycline, as you know, historically in the past, we've worked on a doxycycline foam-based product some time ago. We did some initial proof of concept studies with a doxycycline foam-based product. The short answer is yes. We've actually communicated in our R&D investor day earlier this year that we are working on development of a doxycycline-based topical product. We're working on it for a variety of potential indications. Obviously, nothing further to announce about moving into a clinical program. In short, that is a program of work going on, and we believe that can provide potential value to address unmet needs in certain conditions that we're exploring. The short answer is yes. Stay tuned for more information on that. The other question that you asked, one more time, please? About pricing, right? Pricing?
That is-
I believe that's what it was.
Pricing.
As Matt outlined on the pricing piece, our research continues to suggest that we want to have our product or the payers are looking for our product, to be somewhere in the $200-$400 range net to plan. We have not obviously determined what our final unit price will be. We'll continue to do research, and we'll announce that final price as we get just before launch. I think the key takeaway is when you look at some of the other therapies that are out there, especially the oral therapies, oral minocycline, oral doxycycline, these are products that are significantly more expensive. Upwards of $1,000 is the wholesale acquisition cost per month of therapy.
Our objective, when it's all said and done, is we want to make sure that our product is accessible to patients and to caregivers, and do whatever we can to minimize pushback or challenges at the pharmacy level. We believe our research continues to be positive, that getting broad access is indeed feasible. We'll continue to work on all the levers that we can pull to make sure that happens at launch.
Okay. Can you just clarify, though, in your sampling market research, this $300-$400 pricing range corresponds to what type of tier positioning?
This is Matt. The types of tier positioning that we've looked at between that 200-400 range that was in our research is anywhere between possibly tier 2, but most likely tier 3, and obviously the higher you go increases the types of controls that the plans will use. They will use either step edits or prior authorizations. We believe anything over $400 net to plan is going to yield much more restrictive access using tools like exclusion lists, et cetera. The idea is to, A, as Dave mentioned, price responsibly. One other dimension to pricing to consider is that we've said previously we want to price FMX101 and 103 at parity. The important consideration there is that the range of prices for competitive branded products in acne is very different than that in rosacea.
There are fewer branded players in rosacea today, and the ranges of those drugs are anywhere between a $340 WAC to about a $750 WAC. We're considering all of those things as we land on our final price for FMX101.
Okay, great. Thank you so much.
The next question is from Patrick Dolinar of LifeSci Capital. Please go ahead.
Good morning. I think that was in reference to LifeSci Capital. Hi, this is Valentina on for Patrick. Just wanted to ask, can you provide any additional color on the requirements for the second and third tranches of the new credit agreement, those which refer to the regulatory sales milestones, please?
Sure. Regarding the regulatory milestones in the credit agreement, we have the potential to get access to up to $20 million upon approval of FMX101, and completion of the supply agreement with our contract manufacturing organization, which we are finalizing literally as we speak. That is for the second tranche, and then the third tranche is based on revenue milestones. The actual sales number has not been disclosed. We have, however, disclosed in our 8-K the minimum revenue covenants throughout the term of the loan. We are highly confident in our ability to achieve both the minimum revenue covenants and the revenue milestone next year to have access to the third tranche of $15 million.
I think in the end, the way that this credit agreement is structured, it really underscores the collaborative and supportive approach to the credit agreement from both Perceptive and OrbiMed, which again, are our two largest shareholders. We believe that, again, these milestones are obviously very doable, and we're highly confident in both.
Great. Thank you.
Welcome.
This concludes the question and answer session. Gentlemen, I would like to turn the conference back to you for any closing remarks.
Okay. Thank you, operator. I want to thank everyone who's taking time out of their busy schedules. I know for everybody on this call, we're in the thick of earnings season, so thanks for making time for this call. Enjoy the rest of your week and weekend, and we look forward to providing you with further updates as our business progresses. Thank you very much.