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Aerie Pharmaceuticals Inc (NASDAQ:AERI)
Q4 2019 Earnings Call
Feb 20, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. And welcome to the Aerie Pharmaceuticals Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Today's conference call will be recorded.

It is now my pleasure to turn the floor over to Aerie's Director of Investor Relations, Ami Bavishi. Please go ahead, Ami.

Ami Bavishi -- Director of Investor Relations

Thank you, Maria. Good afternoon and thank you for joining us. With me today are Vince Anido, Aerie's Chairman and Chief Executive Officer; Tom Mitro, Aerie's President and Chief Operating Officer; Rich Rubino, Aerie's Chief Financial Officer; and John LaRocca, Aerie's General Counsel.

Today's call is also being webcast live on our website investors.aeriepharma.com and it will be available for replay as indicated in our press release.

Now, for forward-looking statements and non-GAAP financial measures. On this call, we will make certain forward-looking statements, including statements, forecasts and guidance regarding our future financial and operating performance, including our 2020 net revenue guidance and guidance for 2020 net cash used in operations and our expectations regarding operating expenses and net revenue per bottle. These statements will include observations associated with our commercialization of Rhopressa and Rocklatan in the United States.

They will also include expectations regarding success, timing and cost of our clinical trials.

Additionally, we will discuss progress regarding maintaining, requesting or obtaining approvals from regulatory agencies of our products and product candidates, including our strategies and capabilities with respect to international expansion.

Finally, we will address our manufacturing activities and capabilities, our financial liquidity and other statements related to future events. These statements are based on the beliefs and expectations of management as of today.

Our actual results may differ materially from our expectations. Investors should read carefully the risks and uncertainties described in today's press release as well as the risk factors included in our filings with the SEC. We assume no obligation to revise or update forward-looking statements whether as a result of new information, future events or otherwise. Please note that we expect to file our10-K within the next two business days.

In addition, during this call we will be discussing certain adjusted or non-GAAP financial measures. For additional disclosures relating to these non-GAAP financial measures, including a reconciliation to the most directly comparable GAAP measures, please see today's press release, which is posted on the Investor Relations section of our website.

With that, I will turn the call over to Vince.

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Right. Thanks, Ami, and good afternoon, everybody. Thanks for joining the call. We're going to have a -- the focus of today's call will be to provide an update on how we ended up 2019. We'll also give you some additional color on significant progress we've made across all facets of our business, and lastly, point to our expectations for 2020.

So let me start with the headlines, as you saw in our earnings release, our net revenue for full year 2019 amounted to just shy of $70 million or about $103 per bottle on a franchise basis. Our net revenue performance exceeded the high-end of our guidance of $61 million to $66 million, as a result of a few factors that, ultimately, bode very well for the future performance as well.

Our net cash used in operating activities amounted to $150 million, reflecting management of expenses in line with our expectations and its performance yielded a strong year-ending cash, cash equivalents and investment balance, so just shy of $310 million, giving us meaningful liquidity as we entered yet another growth year.

At this point, I know there is very significant interest in our 2020 guidance, and it's such we're guiding to net revenue for 2020 in the range of $100 million to $110 million. Our full year of 2020 guidance for net cash used in operations of $110 million to $120 million reflects continued revenue growth while maintaining consistent levels of expenses from 2019 to 2020 as we have advised you in the past.

The big question I'm sure you're focused on relates to how we managed to exceed the net revenue guidance we gave you in early November by so much. As we remember, we also had given you an earlier guidance of $70 million to $80 million, and obviously, our performance ended up reaching the bottom end of that range.

I'll tell you right now that there was no channel effect as our wholesale inventories have remained fairly consistent from Q3 end to Q4 end, meaning that our days on hand were within days of each other. We did experience stronger volumes than expected in the last two months of the year, recognizing, as we have said all along, that the end of the year is more unpredictable than the balance of the year.

We also saw lower-than-expected co-pay coupon card utilization for patients covered by commercial plans. The second time we've seen that, so it's two quarters in a row than where we've had lower than expected co-pay card utilization.

With commercial formulary coverage of 80% or better for our franchise, we continue to see patients use the coupons much less, since our co-pays are already at affordable levels. The largest single driver of higher net revenues was the impact of Medicare Part D coverage gap. As you know, the Medicare Part D benefit is on an annual cycle. From the patients' perspective, it starts with a deductible, enters initial coverage phase that is government funded, then enters a coverage gap that is 70% funded by pharma, and then ultimately, a catastrophic coverage phase that is government funded.

We received our fourth quarter invoice from CMS, for our portion on the coverage a few weeks ago. And it was much lower than we had expected. It is important to note that we and other pharmaceutical companies have little or no information as to when patients are entering or exiting the coverage gap.

It is determined by CMS based on all the drugs the patient is taking. We learned about the level of effect when we get the actual invoice. 2019 being our first year of having all four quarters of invoice, carrying us through the full continuum of care, we now have a better insight on how the coverage gap exposure will materialize in the future, assuming there is no further changes in the law.

Our current net revenue guidance range reflects our best estimates for what the coverage gap exposure will be for 2020. Complicating this somewhat is the size of the coverage gap is increasing in 2020 from 2019. The initial coverage phase will now start about $200 higher. And so and then the end of the coverage gap is increasing by almost $1,600, widening the exposure for pharma to fund at that 70% level. Said another way, the donut hole used to start at $3,820 and now it's moving up to $4,020, and catastrophic kicks in now at $9,719 versus, in the past, $8,140. Other elements included in our guidance include volume growth, increased penetration of coveraged accounts, potential minor increases in coverage throughout 2020.

Increased penetration puts downward pressure on that pricing, but on the heels of the net price per bottle of $103 for full year 2019. We do believe that it's safe to assume that the net revenue per bottle will not drop below $90 in 2020.

Changing gears briefly before I turn it over to Tom Mitro for further commercial insights, I'd like to touch on other important initiatives that we have in our company. Our sustained release retina programs continue. And as we now expect top-line data from our Phase 2 clinical trial for AR-1105 by the end of 2020. Remember, this is our dexamethasone insert for a number of retinal conditions.

In addition, we'll be completing our enrollment of the first in human clinical study for AR-13503 later this year.

Also, we continue to expect to commence in the second half of 2020 the Phase 2b trial, which will be powered as a Phase 3 trial for our dry-eye product candidate that we obtained through our acquisition of Avizorex at the end of last year.

In early January of this year, we filed a new corporate slide deck that shows the Phase 2a results for the Avizorex dry-eye product candidate. The Phase 2a data showed meaningful improvement in both signs and systems in a very small number of patients. And if you review the data, you'll see why we're so excited about the prospects for this product going forward.

An important point here is by the end of 2021 just roughly two years from now, we expect to have adequate clinical data from our dry-eye and retina programs so that we can decide how to proceed with our product candidates with the best chances for their clinical, and ultimately, commercial success.

Certainly, as we continue to grow the top-line with Rhopressa and Rocklatan in the US, when you add these pipeline products plus our globalization efforts that we have especially in Europe and in Japan. You can see why we accept itself for very exciting future.

Outside of the US, we wait our Rocklatan, our Roclanda Mercury 3 data for Europe.

Top-line data for Mercury 3 is expected in the second half of this year of 2020. We also hope to hear that Roclanda is approved by the European Authority by the end of this calendar year. We will continue to evaluate the commercial prospects of our Roclanda products in Europe based on only on the Mercury data, but also the commercial opportunities not only throughout the region but in specific countries as well.

For Japan, we are preparing to commence our Phase 3 trial programs for Rhopressa that are going to be conducted in Japan. As we continue to explore the partnership options we have talked about in the past.

On the manufacturing side, we, of course got terrific news earlier this year that we received FDA approval to produce Rocklatan in our Athlone, Ireland facility, and then we're providing product in the US as we enter summer. We are not very helpful to get the same approval for Rhopressa later this year out of that facility.

But I'd like to do now, let's turn it over to Tom to cover his perspectives on our physician in glaucoma landscape, as we continue to build our franchise for the years ahead. Tom?

Thomas A. Mitro -- President and Chief Operating Officer

Thank you, Vince and good afternoon, everyone. We are expressing very good momentum on the commercial front. The physician and patient experiences have continued to be quite positive, as we are getting greater experience on a physician by physician basis, we are fine tuning our physician targeting practices to generate the highest script yields.

Currently 97% of our decile nine and 10 physicians have prescribed in Aerie product. That's very good news and it shows the interest in our products is widespread. Now, as a reminder, each decile prescribed 10% of the glaucoma products in the market. So these decile nine and 10 doctors prescribed 20% of the glaucoma market prescriptions. Overall, two-thirds or 67% of our target physicians have prescribed in Aerie product, again, showing widespread interest and excellent penetration of our target audience.

From a productivity standpoint, our average prescriber prescribed seven bottles per month, but if you take a look at the decile nine and 10 prescribers that number jumps to 28 bottles a month, which is impressive and shows that they have moved from trial to adoption of our products. The key to further raising the physician productivity is the new data that we just begin using in the field.

The first is the very positive data from our recently completed Phase 4 study, which we named MOST, which we studied Rhopressa, and then we shared with you on our third quarter call. You recall them in this trial, Rhopressa drug patient IOP by an incremental four plus millimeters of Mercury. Regardless of whether Rhopressa was added to a PGA that's the second therapy used or it was added as a third or fourth product in the regimen.

We also saw very impressive results when Rhopressa was used as the first line therapy. So this data were differentiate Rhopressa is a very effective IOP lowering agent and we'll be very important to our Rhopressa commercialization going -- efforts going forward. We will also have solidified Rhopressa is a gateway to Rocklatan, it's just become more experienced with Rhopressa, it will naturally lead them to additional convenience and efficacy offered by Rocklatan.

The second dataset is the expanded managed care access for Rhopressa. Rhopressa is not covered for approximately 77% of Part D lives when the LIS or low income subsidy lives are included. Rocklatan Part D coverage is approximately 54%, which as you know is very good for product launch like nine months ago. On the commercial side, Rhopressa is covered for approximately 84% of lives, while Rocklatan is covered for 82% of lives.

Then the slide high level of coverage will make an easier for number one physicians to prescribe our products remaining less necessity for them to perform prior authorization.

And number two for patients to actually obtain the Aerie glaucoma prescriptions, as they routinely find very reasonable cohorts. We've also made excellent progress with product recognition and usage, we now have nearly 13,500 physicians who prescribed that Aerie glaucoma product, up almost 90% from last December. And our advocate prescribers, just to written at least nine prescriptions in the last 13 weeks has grown from over 4,000 to nearly 8,000 in the same time period.

We currently have 4,000 weekly prescribers, and an additional 3,500 who write monthly. Our critical goal, we are currently focused on is to convert these monthly prescribers to weekly prescribers by using the combination of the most data and improved managed care access. And we believe will begin to see further uptick in volume, as we communicate this data and we enter the April or May timeframe.

We've already gain very impressive traction and I believe there is much more to come, as we continue to build our franchise. As we said before, we expect that as physicians gain experience with our efficacies and tolerable products, they're potentially to prescribe for new patients will continue to increase.

Now just a quick report on how we perform Switzerland of the broader market. In addition to the growth in the prescriber in advocate base I just mentioned. We also achieve the following from the end of 2018 to the end of 2019 along with August we're launching Rocklatan. And this compares to reflect our franchise level performance according to equivalent that. Total prescriptions for our products grew by 115% versus a glaucoma market growth of just 3%. Sales now, which you recall as units of our product sold from wholesalers and pharmacies grew by 112% matching the growth on prescriptions.

We surpassed five established brand products in both new and total prescription market share including Vyzulta, Zioptan, Simbrinza, Cosopt PF and Azopt. We move to our products to the 6th higher selling brand glaucoma products in terms of dollars. Our full response from last December, and now only behind Lumigan, Combigan, Travatan Z, Combrican B and Azopt. We move vary to 6th in company sales for glaucoma products behind Allergan, Novartis, Pfizer, Shire and A-core [Phonetic].

And we grew our TRX a [Phonetic] total prescription market share to 1.5% and we hope for much more to come. To put that 1.5% share into perspective for you, the leading product LUMIGAN has a share of just 6.6% and number two Combigan has a share of 5.2% so really not that far behind.

And, of course, as mentioned before, we made significant strides in formulary coverage across our franchise. Importantly, we are refining our commercial approach and amount of that we believe, we have a meaningful script that bolstered by cooperating the excellent more status for Rhopressa and the approved managed care access, and we continually broadly positive patients and healthcare professional responses to our products.

As it relates to our commercialization efforts, we have foreseen been exclusively focused on building our glaucoma eye drop franchise and that's different than most of our competitors. Allergan, for example, it's strategically focused on their bimatoprost insert and Novartis is certainly focused on their dry eye product, especially some surveyed Travatan Z recently went generic.

Simply put we don't see any one company putting as much energy into glaucoma eye drops as we are and I believe they'll pay off in the long run. And really have seen in the share of voice data to most active promoters of products in the glaucoma space are Allergan and Aerie, and we continue to ensure that our franchise is in front of the minds of the physician community.

And now I'd like to turn it over to Rich to wrap up with the financials. Rich?

Richard J. Rubino -- Chief Financial Officer

Thanks, Tom. Our combined Rhopressa and Rocklatan revenues in fourth quarter of 2019 totaled $24.7 million or $120 per bottle, bringing our full year 2019 total revenues to $69.9 million to stronger than expected fourth quarter results reflect Vince's opening remarks on the Medicare Part D coverage gap. Franchise net revenues reflect volumes of nearly 206,000 bottles for fourth quarter 2019, and over 680,000 bottles for full year 2019.

Our gross margin for the quarter ended December 30, 2019 was 93.2%. Our normalized gross margin was approximately 92.4% when considering inventory costs that were expensed prior to FDA approval of our products. Our fourth quarter 2019 GAAP net loss was $55.1 million or $1.21 per share, when excluding the $11.2 million of stock-based compensation expense. Our total adjusted net loss was $43.9 million or $0.96 per share.

Adjusted total operating expenses for the fourth quarter of 2019 was $61.7 million with adjusted selling, general and administrative expenses of $28.3 million, adjusted pre-approval commercial manufacturing expenses of $5.5 million and adjusted research and development expenses of $28.0 million.

For additional information regarding our fourth quarter results and prior period comparisons, please refer to today's press release, and our Form 10-K, which we expect to file within the next two business days.

Regarding cash burn, our measures have evolved over time, but from now on, we will be using net cash used in operating activities as reported in our statement of cash flows. For full year 2019, our net cash used in operating activities was $150.4 million. And we have $309.2 million in cash, cash equivalents and investments remaining on our balance sheet as of December 31, 2019.

Shares outstanding at quarter end, totaled 46.5 million shares. And now, I would like to turn the call over to the operator for questions. Maria?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Annabel Samimy from Stifel. Your line is open.

Annabel Samimy -- Stifel -- Analyst

Hi. Congratulations on a good quarter. I guess, there is a silver-lining to Medicare not going for on Rocklatan yet. So maybe we can talk about how these things, the price trajectory is going to play out in 2020. Where you think the cadence is going to be going from in average of $103 to what you said was probably an average of not below $90 or $90? And what is the average price that your guidance is based on?

And then secondly, just trying to understand a little bit of the trends between Rhopressa and Rocklatan, we're not really seeing the cannibalization of Rhopressa with the growth of Rocklatan. Is this because you're reaching new doctors or are preferences between Rhopressa and Rocklatan is pretty entrenched. So in other words, are you kind of seeing some level of market bifurcation with some loyalists in the market? Thanks.

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Okay. Hey, Annabel. Yeah, from an average price point of view as Rich said, we expect that we're going to go from about $103 to $90 or so on average. And we think that you'll see sort of an attrition over time, because we're getting more and more patients coming through. With the program that Tom laid out, where we're going to focus mainly on Rhopressa, where we have quite a bit of Medicare Part D coverage, those contracts have rebates that are little higher than what we see on the Rocklatan side and we have more contracts.

And so, if I can just paraphrase what Tom was describing as, if you think about a single doctor, what we think will happen is the most data we'll get that doctor to add Rhopressa to something, either on one drug, two drugs, three drugs, etc. because of the four millimeter drop, the experience that we've seen in that clinical trial. Then as that patient or as that doctor gets more experience with those patients, then they'll start looking at those patients, especially those they're just on one other agent, say prostaglandin plus Rhopressa. And then, start moving those patients over to Rocklatan because of this one bottle, one drop a day kind of convenience.

And so, we do think that over time building more Rhopressa volume is going to start bringing that price, continue to have that price drop from the $103 down to the $90.

We'll still hold price on Rocklatan that will -- for a while, it will still be higher, because we don't have to chase the big rebates that we would have to do in order to get Rocklatan and all the remaining formularies. And sort of happy with where we are and if we get to more, great. But if we don't, that's OK too. So I think it's going to be that tension.

But I think the most important thing is the program Tom described about the doctor. So let me have him just deal with that in just a second.

Thomas A. Mitro -- President and Chief Operating Officer

Sure. The thing that I'd also say too about the cannibalization is it, perhaps to totally go back a little bit is, because Rhopressa has so much better coverage than Rocklatan does right now. That's been said, we're not fighting to give away our product to get in on formulary. So we're still doing PAs for that product in the time we'll get that on there. So really what we're doing out in the field, Annabelle, is you heard about the data we're using.

The other thing we're doing is shortening our call. Look, I don't want to go into a lot of details on this for competitive reasons. But what it's going to allow us to do is increase the frequency on the people that we are targeting, because we think the data, we have is very powerful. So what we want to do is shorten the time from them hearing data, understanding the data to prescribe it.

And the way to do it is to increase frequency by our sales-force. And that's in essence what we'll be implementing have just begun implementing, in fact.

Annabel Samimy -- Stifel -- Analyst

Okay, great. Thanks.

Operator

And your next question comes from the line of Ken Cacciatore from Cowen and Company. Your line is open.

Ken Cacciatore -- Cowen and Company -- Analyst

Guys, congratulations on all the progress. Just wanted to drill down a little bit more on managed care and trying to understand a little bit of the messaging. So sounds like you were talking about, maybe even more of an inflection in April and in May. And I don't know if that was specific to Rocklatan or both products. But can you just talk about pacing through the balance of the year of more Part D coverage for Rocklatan? When do you think it will be equal or normalized versus Rhopressa or do we think that it could be a little bit more elongated and we're just going to focus on Rhopressa for the time being?

And then, second question, on retention rates, just feedback from your sales reps in the fields about retention and what they're seeing in terms of patient refills and hyperemia, any kind of anecdotal feedback you can give us? Thank you.

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Hey, Ken, thanks. So I'm going to take care of the first question relative to the managed care coverage. And so, what you heard relative to the April/May timeframe had nothing to do with managed care, had lot to do with the new commercial plan that Tom put in place with the sales force, using the most data. And that we're going to be focused on those monthly prescribers and trying to get them down, the weekly prescribers.

And because of the -- what we're asking the sales force to do, which is basically call on each one of those guys twice a month, but -- and it typically takes anywhere from four to six calls in order to see a change in prescribing habit for guiding you toward that April/May timeframe.

And we think we will have called on all of those monthly writers four to six times, to see whether we see that inflection point on Rhopressa. As we see more and more prescription start building up for Rhopressa, that sets up, those individual doctors to eventually become more Rocklatan writers. And it's going to be -- so that's why we're going to see somewhat of an attrition on Rhopressa.

Our overall franchise price is more and more Rhopressas used, because of the better managed care coverage there. And then, as they flip more of those patients over to Rocklatan, then we see the upward pressure in pricing at that point. So I think that sort of explains what we're expecting to see from a managed care point of view.

Let me turn it over to Tom for some of the anecdotals that you're looking for.

Thomas A. Mitro -- President and Chief Operating Officer

Yes, I think the thing we're seeing, Ken, is a lot of what we're hearing is the same thing that we saw in our MOST trial, which was a real-world experience trial. Just reminding of what we saw from the AE [Phonetic] perspective on that. We ask patients how well did you tolerate the drug? 90% of the patients either said they tolerated it well, mostly well or very well. So that's different than you probably saw in our Phase 3 trial, because physicians are hyper-vigilant about reporting AE. It's not -- I'm not saying that's wrong at all.

But any little data there, a little branchy in the right would have been treated as hyperemia. So those numbers are commonly overstated from what you see in the real-world setting. What we do see is people dropping off.

The other comment I'll make is we've been able to tell physicians that they may want to try using Rhopressa earlier on in the addition instead of being the third or fourth product added in a regimen, making the second product right in back of the -- right after the prostaglandin. And what they find commonly is they say to us, boy, I tell you, see less hyperemia. Well, it doesn't make sense to them, why all of sudden going off. And they say, and I get, why, because I'm only using two products instead of three or four or five products with all bombarding the eye.

So I think we're not -- I don't think the retention rate is an issue at all for us. In fact, it's really turning into a benefit.

Ken Cacciatore -- Cowen and Company -- Analyst

Great. Thank you.

Operator

And your next question comes from the line of Serge Belanger from Needham. Your line is open.

Serge Belanger -- Needham -- Analyst

Hi, good afternoon. Thanks for taking my questions. Just wanted to revisit the 4Q, 2019 numbers first. Vince, can you maybe confirm that we saw growth in both Rocklatan and Rhopressa during the fourth quarter? And then, just on the unit volume, I think we saw just short of 5% growth in bottle volume. How does that reconcile with the growth that we saw in the IQVIA bottle volume that we are tracking?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

I'm going to have Rich talk about that.

Richard J. Rubino -- Chief Financial Officer

Yeah, so with regard, Serge, to the quarterly dynamics, the IQVIA bottle data, since you see that all the time, if you take that data and multiply times the factor that we've been talking about for a long while, which is 1.25 [Phonetic], if you take the IQVIA bottles times 1.25, that will be very close to the sales-out. That continues.

The wholesale volume growth that is shipments to our wholesalers will be a little more choppy, as we said that gets a little less predictable when you get to the fourth quarter. But the sales out activity and the dynamics from third quarter to fourth quarter for a sales-out are very comparable to the IQVIA bottle dynamic for the third quarter to the fourth quarter.

Serge Belanger -- Needham -- Analyst

Okay. And then, on Rhopressa and Rocklatan, you saw growth on both products relative fourth quarter?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Well, by definition if the sales-out are tracking to the IQVIA data and the IQVIA data did show growth and so too did the sales-out data, yes.

Serge Belanger -- Needham -- Analyst

Okay. And then for 2020, can you just give us a little more color on what we should expect for seasonality and just quarterly progression?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

See, I think with -- again, we don't call out the quarters, so we're not going to get into that. I think that you can expect that we're going to been seen, because now we have the two products on the market and had them out there for enough quarters to get a feel for it. We're going to see exactly what you see for almost every other major pharmaceutical company.

You're going to see the fourth quarter coming in pretty light, because January and February are always light as folks go through their deductibles and stuff like that, and then it starts picking up in the March time. And then so the only change that we may see is, we have an incredible March, but again, most companies don't typically count on that, you'll see the pickups in Q2 and Q3.

And then, as we've said before, the big wildcard every year is going to be the fourth quarter for two reasons: number one, we didn't expect to see the volumes come in, because of all the holidays and everything else, but they did. And then on top of that, we have the extra benefit of having the reverse of the accruals with the lower CMS field that we got. And so, as I said before, and I said multiple times starting with about September of last year. We're going to be pretty conservative as we call out these numbers. And so, from a pattern point of view, again, I think, you look that are somewhat soft or flat Q1 getting better in Q2, Q3, and then a big wildcard in Q4.

Serge Belanger -- Needham -- Analyst

Okay. And then just one more..

Thomas A. Mitro -- President and Chief Operating Officer

Sure. we have experience now, so if you just -- we have limited experience, but if you look at the fourth quarter of 2018, wholesaler shipments compared to the first quarter of 2019, it was down slightly might recall about 4%. That's totally normal.

Serge Belanger -- Needham -- Analyst

Okay. And then one more for you, Rich. Just on COGS, I think, last year, when you want Rocklatan there is still product that you had expense in R&D, just want to know, where that is and how should we think of that line as the Ireland plant comes on over the summer?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Yeah, so in my prepared remarks, I gave you the two gross margin numbers, the one we actually book and the adjusted one if we had not expensed the prior inventory, they're getting very close now. As we work through that previously expense inventory. Now what will happen with the Athlone plant operational is, while that overhead is going to be depreciated. And along with the ongoing operating expenses of the plant that will flow into cost of sales. So like any other plant start-up that will have the effective increasing unit costs. It's just a matter of time, as we build the plant up to capacity over the next several quarters that will normalize at the end of the day, the costs will go down. But as it relates to 2020, full year 2020, I do expect our gross margin to come down as a result of the Athlone plant coming up to capacity.

Serge Belanger -- Needham -- Analyst

Okay. Thank you.

Richard J. Rubino -- Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Esther Rajavelu from Oppenheimer. Your line is open.

Esther Rajavelu -- Oppenheimer -- Analyst

Hey, guys, thanks for taking my question. I'm going to step aside from the guidance in the quarter and just ask you a couple of questions in terms of -- for your pipeline. So you mentioned that potential Japanese partnership. What is the ideal time, I mean, you're getting ready to start the Phase 3. What's the ideal time from your perspective to find the partner? And then I have a follow-up.

Vicente Anido -- Chief Executive Officer and Chairman of the Board

So the interesting part for us is, we always talked about that we're going to do all the development ourselves all the way through, and then find the partner for commercialization. We will -- I guess, I shouldn't -- we shouldn't have been particularly surprise given the efficacy that we saw in the low-tension patients in Japan, when we completed the Phase 2 trials. There are all certain several of the Japanese companies begin new approaches about doing in partnership. What we have seen is, there has been a pretty significant difference in some of the potential deal structure numbers that we have seen now versus what we were talking to folks about way back, when we started in Japan.

And so, it's pretty clear the longer you hold on just an asset like this.

And you continue to have success in the clinic, the better deal gets that's not all that surprising. And so what we continue to do talk to all the companies there, and including the two to three major ones. And we'll continue to putting our best foot forward there. But at the same time, in parallel, that we're going to talk to PMDA, which is -- as you know with the Japanese FDA, and start to the -- start to programs in terms of the process by which will come up with our Phase 3 programs. And we'll just assume that we're going to continue those and somewhere along the line will reach a point of which the offer exceeds anything that we can never think up. So at that point that's the best time. But there is no really preset notion on our part about when is the best time to do a deal.

Esther Rajavelu -- Oppenheimer -- Analyst

Okay. And then, can you also give us a little more information on the AVX-012 mechanism for dry eye. And what went into your decision to invest in the product?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Sure. If you go back into November timeframe, you see a slide deck and it actually you have to do that, you can look at our corporate slide deck. And you'll actually see some information about the products. And so, but we did report out some interesting background information on the acquisition when we made it back last year. But basically this is an agonist to the TRPM8 receptor in the eyes, the cold sensing receptor in the eye. So when you guys, we have been in New Jersey office today, so when I came out of the hotel this morning, it was about 18 degree, and so, as soon as I did my eye started tearing up. But what happens is the cold sensing receptor the TRPM8 aid got excavated and produced more tears.

And that's the whole basis for this, so our pattern covers all molecules activate that receptor. And when you look at the Phase 2a data, which we saw in a very, very small number of patients is that we were able to achieve with only 26 patients in the arm, statistical significance on, what's called [Indecipherable] test, which is tear production that's what it measures. And then we've got really, really close on the symptom score, we didn't quite get to statistical significance with 26 patients, but we've got awfully close. And so, that's what made it very, very exciting.

But most importantly, note only this drug works, but it also works within the first four weeks, and so, when you compared to other products out there like Xiidra and Restasis to take multiple months form to work. We think that we have something as pretty unique, it is an eye drop, so that differentiates as well from other products that have been studied for dry eye today.

Esther Rajavelu -- Oppenheimer -- Analyst

Thank you.

Operator

Your next question comes from the line of Greg Fraser from SunTrust. Your line is open.

Greg Fraser -- SunTrust -- Analyst

Great. Thanks for taking the questions. On the plan to hold operating expenses stable, can you provide some more color on the mix between SG&A and R&D? And how should we think about that pre-approval manufacturing expense for 2020? And then a quick follow-up on bottle growth, and just wondering if you could speak to the trend so far in 2020. And whether bottle growth has been similarly proportional to the IQVIA data in terms of that 1.25 times factor?

Richard J. Rubino -- Chief Financial Officer

So the expenses for 2020, you're essentially going to be pretty close to flat with what we saw in 2019. Maybe if you look at the mix, maybe SG&A will go up a little and R&D will go down a little. Remember in the fourth quarter, we did the Avizorex deal, that was $10 million. And that was recorded as R&D expense. But at this point, you're not going to see that much fluctuation between SG&A or R&D. With regard to the pre-commercial manufacturing expenses overtime those will go down. I don't expect them to disappear in 2020, but they will go down for sure. It was -- it's come down, of course, from 2018 to 2019 by about $5 million on a full year basis, and it will continue to decline. Could you repeat your volume question, again, I am not sure I got the angle of it?

Greg Fraser -- SunTrust -- Analyst

Just -- you talked about bottle growth and the 1.25 times factor relative to IQVIA, but I'm curious about 2020, January and February to date and kind of trend even seeing and whether that 1.25 times, is it still relevant or still the same?

Richard J. Rubino -- Chief Financial Officer

No. Yeah, yeah, it's clearly not going to change dramatically, if you look at it a week at a time, it might bounce up and down. But when you look at the sizable chunk of time like a quarter, it's going to balance out to the same relationship.Okay. Thank you.Thank you.

Operator

Your next question comes from the line of Joe Catanzaro from Piper Sandler. Your line is open.

Joe Catanzaro -- Piper Sandler -- Analyst

Hey, guys, thanks for taking my questions here. I guess, the first one for me, I think, last year at this time, you said, you expected Rocklatan volumes to be 3 times of Rhopressa by year end 2020. Just curious how you guys are thinking about that now, and what we should expect at year end 2020. And then along those lines just going back, can you say what the split was in revenues between Rhopressa and Rocklatan in 4Q?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

So, hey, Joe, just as a reminder, what we talked about was that somewhere in 2020, we thought that Rocklatan and Rhopressa will be roughly the same. But that ultimately, we would see the 3 times in favor of Rocklatan over time, as we got similar coverage for managed care. We'll talk about 3 times difference next year. It was just simply we thought that Rocklatan would end up potentially catching Rhopressa. So we did an off a lot of that discussion prior to getting the MOST data. So with the MOST data, what we believe is going to happen based on the work that we've done with the doctors as we release that data to them and had discussions with them. And which is why we changed our commercial approach. Is that we're going to use that data to focus more on Rhopressa, because of the managed care coverage, so it's easier for the doctor to add something as opposed to replace.

So what we expect to see, as I mentioned earlier in that April-May timeframe is to see the Rhopressa number start growing again. And then over time, those Rhopressa patients many of them will get switched off to Rocklatan. And so which you may see is a little bit of a delay in Rocklatan catching up with Rhopressa now that we have this a chunk of data available, and ultimately though that leads to more Rocklatan scripts. Does that help?

Joe Catanzaro -- Piper Sandler -- Analyst

Yeah. That's helpful. And then, I guess, my follow-up with Mercury 3 data expected in second half of 2020. Can you just help us, I think about the timing of pricing discussions in the EU and the eventual timing of a potential Rocklatan launch?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Yeah. So just as a reminder, because I want to make sure everybody gets it. So the Mercury 3 data, which will get toward the end of this year, it's not for anything other than pricing. So we do expect that Roclanda is going to get, and Rocklatan is going to get approved in Europe before the end of the year. But I'm going to have Tom talk a little bit more about the pricing discussions that we may enter in as we get that data.

Thomas A. Mitro -- President and Chief Operating Officer

Sure. Joe, the way this works is that you get a product approved and then you launched the product. You normally have normally in most countries, have a year where you go out and install the product that the price that you, in fact, pick the company picks. At that period of time, you come back and it come back, and then you talk with the pricing authorities about the justification for why you pick that price. And if you pick the right price, there's nothing to do if you pick if they think you could justify a higher price and you might raise your price a little bit? Or if they think you can justify their price when you may all the government staff. In fact to the matter is, you do have a year, it's run with, and so we should have a pretty good feel for what we do once we get there Mercury 3 data.

Just as a reminder, we're not going to be launching throughout Europe, at first, what we'll start with is one country Germany, where we'll be able to show our proof of concept make sure that our product in fact does resonate with the physicians in their minds. And again, we'll be working with pricing authorities, and again that's what the purpose of Mercury 3, as Vince said a couple of times.

Joe Catanzaro -- Piper Sandler -- Analyst

Okay. Great. That's helpful. I just want to follow-up on my first question, if I may. Would you be able to say the split in revenues between Rhopressa and Rocklatan in 4Q?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

We don't report out the various products to close as you can get is take a look at the prescription activity from IQVIA, and you get a feel for that. And if you take a look at the shipments from wholesale to retail, we report you see the franchise number, and then like, so you can make a pretty good stab at it. We don't report on that thing.

Joe Catanzaro -- Piper Sandler -- Analyst

All right. Great. Thanks for taking my questions.

Operator

And your next question comes from the line of Louise Chen from Cantor Fitzgerald. Your line is open.

Jenn Kim -- Cantor Fitzgerald -- Analyst

Hi, thanks so much. This is Jenn Kim on for Louise. I have two questions. The first just to echo some of the prior questions regarding quarterly variability on that revenue per bottle, I think, you've previously given color and you said that you expect that at the bottom, at the back end of the second quarter of 2020, or the summer of 2020. Is that in general the same way that we should think about it like in the range of $90 to $103 per bottle that it should bottom out in the middle of the year and then start growing again, and then also in that bottoming out of $90 or above revenue per bottle? Is there how you think about 2021 and beyond?

And my second question is just on OpEx in 2020, there's a lot of activity in the pipeline in the second half with the TRPM8 and Rhopressa in Japan. Is it reasonable to expect a ramp up in the back half of the year?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

So let's talk about the R&D expenses first. And then, we'll get into the other question that you had. So from an R&D point of view in the second half of this year, the -- a lot of these programs are pretty small that we're running especially for the retina programs, we're talking about hand -- it's more than handfuls of patients, but there are certainly there are not any scale at all so the expenses associated with those are relatively minimal. So they're not like full blown retina trials by any means. And with Avizorex, all we're going to talk about the second half of this year, it's actually getting into the clinic as opposed to seeing a large number of patients, which may see more expenditures for next year as it relates to that.

For Japan, our discussions with the PMDA won't occur until later on in the first half of this year. It takes a while to get the meeting scheduled and things like that. And then, once we get that going then we can start scheduling the clinical trials. And so the number of clinical trials required in Japan can range anywhere from two to four depending on what we're trying to achieve, but a lot of that we can't comment on until after we have our discussions with the PMDA.

But I think relative to this year in the first half -- second half expenses in Japan are going to be pretty much controlled by just simply how long it takes to get things started over there, so again not a major inflection point from an expense point of view. So..

Richard J. Rubino -- Chief Financial Officer

On the net revenue, and where it's going to bottom out, I think, we shouldn't test ourselves with regard to what quarter it's going to bottom out, which quarter will pick up there's always going to be a certain amount of volatility from quarter-to-quarter, it's normal, we've seen it. So at the end of the day, I would just go with our guidance which is we don't expect to fall below 90, there are many variables going on whether it is increased penetration of covered accounts. News with regard to the coverage gap, which will be increasing in size as Vince said this year along with potential price increases, etc.

So I'd rather not point to any specific dip or rise in any individual quarter, just use $103 a bottle, we experienced full year 2019, and use that as your baseline for purposes of 2020. But we're not going to be pointing to low points and high points through the year.

Jenn Kim -- Cantor Fitzgerald -- Analyst

All right. Thanks so much.

Operator

Your next question comes from the line of Jason Gerberry from Bank of America. Your line is open.

Jason Gerberry -- Bank of America -- Analyst

Hi, good evening and thanks for taking my question. Most have been asked already, but just wanted to come back to, so the previous commentary about Rocklatan achieving sort of more of a normalized Part D coverage level by end of 2Q 2020. I'm trying to put that with the commentary today about only a minor increase expected in formulary access. So it's just being conservative, just wondering, if there's a change as it pertains to that and will you be providing a peak sales update when you do reset normalized formulary situation with respect to Rocklatan?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Yeah, I think that -- Jason, the biggest thing that has changed for us is the availability of this most data and the feedback that we get to doctors about the importance of that as it relates to Rhopressa, and so again going back to Tom's comments about what we're going to do from a commercial point of view in the US of using the most data focus on the monthly riders and getting them to add Rhopressa to whatever it is that they're currently using so that they can experience that four millimeter dropping -- incremental dropping pressure. We think that's going to drive more and more Rhopressa business starting in that April-May timeframe, as we've already guided.

We think to that ultimately means the following, we think that Rhopressa numbers start to growing, we still -- there's a continuum, because we still have a lot of doctors that have already moved from monthly riders to weekly riders, they have a bulk of patients coming through the system. And then they start looking at those patients and then they start realizing that I could really help the patient load here or the patient with his medication load by simply moving on from say two or three medications to only Rocklatan, which is just one drop a day.

And then again, we have the opportunity there to use prior authorizations, etc. and get better pricing with managed care what we have seen is by not being in such a rush, to sign up managed care contracts that we've been able to slow down the price attrition.

And so, we expect to continue that.

And so, again, all of this changed when we saw the most data and we're able to then get that into the field in the hands of some of the doctors that they follow us pretty well and get their feedback in terms of what their expectations were.

And so, that allowed us then to make further fine-tuning of our managed care strategy, so instead of getting to equilibrium on Medicare Part D with Rocklatan really, really quickly. We decided to hold line. And if you take a look, we have roughly about, not quite 40% Medicare Part D coverage on Rocklatan now versus up in the 70%s Rhopressa. But on top of that we have the low-income subsidy patients to add about another 18 points on top of the roughly 40.

So we really are not in that big of a rush to close off the last 40%, but as we've done in the past, if we decide to sign one of those contracts that, let's say, that adds Rhopressa or adds Rocklatan to a Rhopressa contract we'll let you know.

Jason Gerberry -- Bank of America -- Analyst

Thank you.

Operator

Your next question comes from the line of Difei Yang from Mizuho. Your line is open.

Difei Yang -- Mizuho -- Analyst

Hi. Good afternoon and thanks for taking my question. So, just a quick two, there are quick two questions. One is related to how should we think about Part D gap liability in 2020? And then, on the high level, would you help us to understand how exactly does the government calculates that invoice? And is it backward looking or is it forward-looking?

Thomas A. Mitro -- President and Chief Operating Officer

It's backward looking. So it's based on actual claims. So it's -- the detail is actually on a claim by claim basis. With regard to the Part D liability in 2020, as it relates to 2019, the big thing to look out for is what we mentioned earlier, which is the increase in the size of the coverage cap that is 70% funded by pharma.

So in terms of a single patient, the coverage cap which is funded by pharma is going from $4,300 to about $5,700. So the exposure on pharma is greater. And then, you also have to factor in, of course, the continued penetration of the Medicare Part D covered accounts. So at the end of the day, do I expect our coverage gap exposure to go up in 2020 compared 2019, the simple answer is yes.

And that's one of the reasons why you see us pointing to directionally going from the $103 per bottle and 2019 to the $90s as we get to 2020.

Difei Yang -- Mizuho -- Analyst

Okay. Great. Thanks. And then, a follow-up question just on the Medicare Part D coverage for Rocklatan. Just wanted to confirm that I hear correctly, it sounded like, you will have a different strategy for Rocklatan, the Part D coverage versus Rhopressa. Did I hear that correctly?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Yes, actually you did. Again, using the new data that we got on Rhopressa toward the end of last year, we determine that we don't need to be in as big of a hurry to sign Rocklatan Medicare Part D contracts as we were with Rhopressa.

You may remember, with Rhopressa we got out of the gate. And a month or two after we got there, we had about 15% Medicare Part D coverage, jumped up about 40% six months later and got up into the 60s and 70s about nine months after launch. We don't have to do that with Rocklatan. We don't have to give up those kind of rebates at this point, because, A, we have roughly 36% or just shy of 40% coverage already for Medicare Part D, we have the low-income subsidy folks that are on top of that, and because we have now Rhopressa already covered and we have this new data, we can sit tight and not have to give up as much in rebates on Rocklatan, so we're not in as big of a hurry to sign those contracts.

So if we get the opportunity and we find that signing the contract at much lower rebates than we originally were approached to do by the managed care organizations is the right thing to do, because it allows us to build higher volumes, and ultimately, higher revenues. And of course, we'll do it, but we're just not in that big of a hurry.

Difei Yang -- Mizuho -- Analyst

Yeah. Thank you, very helpful.

Operator

And your last question comes from the line of Elliot Wilbur from Raymond James. Your line is open.

Elliot Wilbur -- Raymond Jamesq -- Analyst

Thanks. Good evening. I know you guys wouldn't forget about me. Just want to go back and ask a question of Tom, regarding some of your earlier commentary around the Mercury 3 trial and the impact on Rocklatan in Europe. So that it's not a go/no-go outcome with respect to that trial, correct? I mean, it sounds like there's a range of possibilities just depending on how the data reads out.

I want to confirm that. And then maybe you could just help frame for us so what you would think or how you would sort of define a win in that trial. Obviously, it's a comparative versus Ganfort. So if you show non-inferiorities, does that basically mean you can Ganfort pricing across all the major EU markets. And that's good enough? Or there's a possibility it sounds like for premium pricing if you show superiority, just want to get maybe a little bit more granularity in terms of -- how you're think about the range of outcomes and their tie into price?

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Yeah, sure, yeah, you've got a lot of it right there. Just assume first off that we show non-inferiority against Ganfort. That's a win for us, because we show equal efficacy, but that we don't have the beta block or side effects that Ganfort has, because Ganfort has a beta blocker there. So we'd be seen as a safer alternative with equal efficacy.

So first off that will be a win. That would allow us to get at least, we believe at least equal pricing and perhaps a little bit of a premium. But in our plan, we have is if we show non-inferiority, we'll also test for superiority, which is the other word you mentioned. If we go to that, then we can get a much higher price, if we can show superiority.

But again, remember, the nice thing is just showing non-inferiority is without a doubt not a tie, it's a win for us. So that's where we look for, that's what we're hoping to get. So, so far, yeah, we really can't tell what's going on in the study, because as you well know, it's a blinded study, so we don't know the answers. But we're not hearing any catastrophes out there or real problems out there, where any one product is not performing very well.

So it sounds like things are going pretty well in the study. Hopefully, we'll be able to wrap it up in the not too distant future.

Elliot Wilbur -- Raymond Jamesq -- Analyst

Okay. And just one final question for Rich, thinking about revenue progression over the course of 2020, looks like late third quarter or maybe mid to -- mid-4th to year end you are going to be dangerously close to cash flow breakeven, just want to get your observations on that comment.

Thomas A. Mitro -- President and Chief Operating Officer

Well, obviously, I gave you the net cash used in operations, which the guidance is still over $100 million. So we're still going to be not quite there. But if you think about the progression of the units in the course of the year, I think you'll see what you're expecting, which is, as Vince mentioned early, the first quarter, will be a somewhat slower start as it is in every pharma company.

And as we go through the year, those volumes will pick up. And that's especially the case for us, because we're still in launch mode. All right, Elliot, I guess, it's all good. So with that..

Operator

And there are no further questions at this time, sir. I would turn the call back to Vince Anido, Chairman, CEO, for final remarks.

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Yeah, I want to thank everybody for joining the call this afternoon. Hopefully, what you got from the call is our focus on the commercialization of Rhopressa and Rocklatan in the US. First, and you heard from Tom about all the things that we're doing that will allow us to drive revenues and success in the market, as we implement the revised strategy that was best facilitated by the use of the most trial data.

And so, we're excited about the prospects for that. In addition to that, we do continue to believe very strongly in the pipeline. We'll continue building that.

The shortest-term program that we have in terms of going to market assume success in the clinic, is out of our dry-eye product, Avizorex, and will be entering before the end of this year the Phase 2b trial, that is powered as a Phase 3 trial.

And you can look at on our website for the latest slide deck and you can actually see the data that shows you why we're so excited about that. In addition to that, we continue to have great results and do an awful lot of work on the retina programs and while we'll have much earlier trial information available. We'll start with, later on this year, with the information on 1105 for retinal diseases, which is our steroid in that area and sometime toward the middle of next year with 503, which is the real kinase, protein kinase C inhibitor.

But let's not forget the focus that we also have on globalization efforts in both Europe and Japan, and those are progressing very nicely. So overall, while 2019 was certainly a tumultuous year for us, we think that we came out of it very strongly with revenues and we were able to achieve for the calendar year, entered that along with the pipeline and globalization efforts, puts us in great position to build the company going forward. So, again, thank you and have a good evening.

Ami Bavishi -- Director of Investor Relations

Goodbye.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Ami Bavishi -- Director of Investor Relations

Vicente Anido -- Chief Executive Officer and Chairman of the Board

Thomas A. Mitro -- President and Chief Operating Officer

Richard J. Rubino -- Chief Financial Officer

Annabel Samimy -- Stifel -- Analyst

Ken Cacciatore -- Cowen and Company -- Analyst

Serge Belanger -- Needham -- Analyst

Esther Rajavelu -- Oppenheimer -- Analyst

Greg Fraser -- SunTrust -- Analyst

Joe Catanzaro -- Piper Sandler -- Analyst

Jenn Kim -- Cantor Fitzgerald -- Analyst

Jason Gerberry -- Bank of America -- Analyst

Difei Yang -- Mizuho -- Analyst

Elliot Wilbur -- Raymond Jamesq -- Analyst

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