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Aerie Pharmaceuticals Inc (NASDAQ:AERI)
Q2 2020 Earnings Call
Aug 7, 2020, 11:00 a.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 Second Quarter 2020 Earnings Conference Call. [Operator Instructions] [Operator Instructions]

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, Sidney. Good afternoon. Thank you for joining us. 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; David Hollander, Aerie's Chief Research and Development 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 observations regarding our future financial and operating performance, impacts of the COVID-19 pandemic and our observations regarding ongoing 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 plans and expectations regarding the 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 plans 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 our 10-Q tomorrow. In addition, during this call, we'll 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

Thanks, Ami, and good afternoon, everybody, and thanks for joining us today, and I certainly hope you and your families are staying safe in this environment. If I take you back to our first quarter earnings call, at that time, we were showing excellent momentum through that quarter. And I'm happy to say that our volumes held up in the second quarter, in fact, slightly above the first quarter numbers at 232,000 units. And that's obviously a combination of Rhopressa and Rocklatan.

Our June year-to-date revenues are up about 44% over prior year, and our volumes have certainly helped a significant increase in payer coverage since the end of the first quarter, particularly with Medicare Part D, we now have solid coverage for both of our products that are on the market here in the U.S. Based on a survey recently completed, in fact, just about three weeks ago, 45% of the eye care professionals' offices are running as business as usual, with about 30% of the offices have reduced hours. At this point, offices are seeing, on average, about 75% of the prior patient loads, again, prior to COVID.

So importantly, while we can't predict which stage will open up and close, we do see a trend where eye care professionals are finding ways to see more and more of their patients while taking for cautions. This is good news for us as well as for patients and doctors, of course. Our net revenue per bottle for the second quarter was just shy of $80 at $78. The big lift is Medicare Part D coverage, along with continued penetration of earlier coverage gains that drove the decline in that price.

When we set expectations earlier in the year, you may remember, we did not expect the significant Medicare Part D gains during the year, including a large payer win that occurred in May. Very importantly, having coverage for so many Medicare Part D lives, that gives us access to the largest segment of the glaucoma population, along with the opportunity, as you've seen, to continue recent gains in the number of prescriptions that are now for 90-day supplies.

While it's difficult to predict specific net revenues per bottle, our expectations are, over the next few quarters, that we now have a majority of coverage across the board. Our net revenue per bottle is effected to be more stable going forward. In the short term, there is certainly potential for continued penetration in Medicare Part D coverage as we've gained, and therefore, an associated increase in Medicare Part D as part of our mix. We do have opportunities to offset any impact and increase in net revenue per bottle over time.

Changing gears briefly before I turn it over to Tom Mitro for further commercial insights, I'd like to touch base on some of the other initiatives that we have, including our R&D and global expansions. And we continue to initiate in the fourth quarter of 2020 the Phase IIb trial for our dry eye product candidate that we obtained through our late 2019 acquisition of Avizorex. We met with the FDA in June of this year. We are planning to test two different concentration of the product candidate that we're calling AR 15512 in a highly powered 90-day Phase IIb trial with about 360 patients, which could potentially turn out to be one of the two pivotal trials that we need.

This product candidate is a trip of made agonist, as you may remember, and it shows great promise for both signs and symptoms. I remember, this is the cold sensing receptor in the eye. And so it's just like when you go out on a cold windy day in your hometown and you as soon as you the wind hits you and your eyes tear off, well, that's the receptor we're activating. For this upcoming trial, which we're calling COMET 1, we expect the primary endpoints to be ocular discomfort, which, of course, is a symptom, and tear production, which is the sign.

As you know, the FDA requires both as the primary endpoints. We are expecting that with 30 million dry eye sufferers in the United States, we could see rapid enrollment in the program. We are targeting a top line readout for the third quarter of 2021. For Japan, as we mentioned in our last earnings call, we had a virtual meeting with a PMDA, the reversion of the FDA back in April. We have excellent clarity on our path forward there and expect to commence our phase our first Phase III trial in Japan in the fourth quarter of this year. We do expect to have three Phase III trials, two of which only need to be relatively inexpensive phased 28-day trials and one will be a 12-month safety trial.

I know many of you are interested if we ever reseal a partnership deal to run the clinical trials and more importantly, to commercialize our products in Japan. There's only so much that I could say at this point. But based on current levels of interest and a promising market opportunity for our glaucoma franchise in Japan, I do believe that we will achieve the goal to partner in Japan and certainly believe that this is the best path forward for us and certainly for our glaucoma franchise there.

Now for some very exciting news that you saw in our July 27 press release, our dexamethasone insert, AR 1105 Phase II study top line data indicated six months of sustained efficacy in a disease called retinal vein occlusion for this dexamethasone implant. We believe this further validates the potential of our sustained release technology-based on the flexible print manufacturing technology, along with the use of biodegradable polymer. For now, we are focused on using this technology for our own retina programs, of off which combined market in the U.S. and Europe is about $10 billion.

But it could evolve further to other diseases of the eye, including for neuro enhancement. While we do have Dr. David Hollander with us today, who's our Head of R&D, we are limited in what details we can provide you regarding the data on AR 1105 because it was going to be presented at an upcoming ophthalmology conference. We are still making progress with our AR 13503, which remember, that's a Rho kinase protein kinase inhibitor for the treatment of wet AMD and DME. And we do expect top line readout for the first in human clinical study for that product in the second half of 2021.

As there have been our plan for some time by the end of 2021, we do expect to have adequate clinical data for our dry eye program as well as our retina programs to decide how further to proceed with our product candidates with the best chances of further clinical and ultimately commercial success. We do not expect to conduct any further studies, for example, on 1105 until after we have a chance to review data from all the other programs. Now for Europe, we do expect our top line Roclanda mercury three data. Remember Rockland is Rocklatan in Europe.

And that data will come out that Phase III data will come out sometime in this quarter. It will be interesting to see how our product performs compared to Ganfort, which is, you may remember, a combination of timolol along with the prostaglandin in Europe, and it's the highest priced product there. And certainly, the outcome will help guide our thinking as to the commercialization strategy in Europe. I can tell you that the potential commercialization partners are certainly watching for that data as well.

On the regulatory front, we do hope to hear that Roclanda is approved by the European authorities, either later this year or early 2021. As you know, recently, the administration came out with a number of guidelines are certainly intense regarding pharmaceutical pricing in the United States. One of those, as you know, is perhaps using the basket pricing concept that is prevalent in Europe as a way of setting prices here in the United States. Certainly, that idea, if it moves forward, if you get to any legs at all, is going to dramatically impact our ability or our decision-making process regarding commercializing our products in Europe, but certainly our prescription products in Europe.

So it's certainly going to be something that we keep a close eye out on as we not only unenthusiastic data, but think about the commercialization effort and the timing. My last point regarding Europe is our Athlone facility has been now operating with the relevant COVID precautions in place. We've had no COVID-related supply issues from our plant or any of our outside suppliers. Our Athlone facility recently became operational. So it's expected, we do have some idle capacity. And we expect to transfer more volumes to our manufacturing plant, including production of initial clinical supplies for our trials in Japan.

I'd like to do now is turn it over to Tom Mitro to cover the U.S. commercial update on our franchise. Tom?

Thomas A. Mitro -- President and Chief Operating Officer

Well, thank you, Vince. I'd like to start with some very interesting stats to give you a sense of how well we've been despite the unusual circumstances surrounding COVID-19. Looking at IQVIA data. Our total prescriptions for our franchise in the second quarter of 2020 were 1% higher than the first quarter, while the overall U.S. glaucoma volumes were actually down 6%. Of course, that points to market share gains for Aerie products. March of 2020 was a very strong month for us, in fact, the highest in our history in terms of scripts and units; followed, of course, by slower April and May due to the pandemic.

But in June, we had a recovery nicely, including 97% of the franchise prescription volumes we experienced in March and 99% of the franchise prescription units. Due to the shutdown of offices and resulting decline of patient visits, new prescriptions suffered more than total prescriptions. New prescriptions for our franchise were down 14% in the second quarter compared to the first quarter, which equaled a decline in the glaucoma market. However, we saw a nice rebound in new prescriptions for our franchise in June as offices began to reopen. Our franchise new prescriptions grew by 20% over May, while new prescriptions for the glaucoma market grew at 15%.

The fact that many offices have opened is particularly exciting for us as we have some excellent new managed care wins to communicate and pull-through programs to be to implements. While these wins mostly occurred in May, the impact of the pandemic on offices and patient flow certainly depressed the impact, we believe, our enhanced managed care access will ultimately have once practitioners return to a level of normalcy in their work. Now speaking of managed care, we now have excellent managed care access. Rhopressa has 90% coverage in commercial and 89% coverage in Medicare Part D, plus another 4% in low-income subsidy lives.

Rocklatan has 89% coverage in commercial and 55% in Med D., plus the 15% in low-income subsidy lives. That's substantial coverage, which goes a long way to minimize the coverage issues expressed by healthcare practitioners in the past. I believe this will open up many eye care professionals practices to more prescribing of both Rhopressa and Rocklatan. Now at this point, over 15,000 eye care professionals have written prescriptions for our products we have gained in terms of both reach and awareness. There are now 8,300 doctors running consistently on a monthly basis, about 800 doctors higher than the beginning of the year.

Our strategy to drive monthly prescribers to weekly prescribers resulted in our weekly prescribers increasing from about 3,500 at the beginning of this year to 4,300, an increase of well over 20% despite COVID. Now overall, our average prescriber averages seven prescriptions per month and decile nine and 10 physicians, the highest prescribers of glaucoma medications, averaged 28 prescriptions per month. Our sales force continues to be productive in a combination of virtual and in-person settings, and we're getting samples to the doctors' offices routinely. Our ER sales team is now calling on the 10,000 highest prescribers of glaucoma products.

On top of that, we just added in July, a contract sales force to call the next 1,500 highest prescribers. Also in May, we added a telemarketing team to call the next 3,000 highest prescribers. Now none of these initiatives is terribly expensive, but we think they are efficient ways to gain access with as many practitioners as possible. So in summary, and before I turn the call over to Rich, we're regaining our momentum. Our glaucoma products are clearly capturing the imaginations of many eye care practitioners. With our excellent managed care coverage levels, our call strategy to move to weekly prescribers, our outreach initiatives and doctors' offices seeing more patients, I do believe we are poised for future growth. Rich?

Richard J. Rubino -- Chief Financial Officer

Thanks, Tom. As Vince discussed, our glaucoma franchise revenues in the second quarter 2020 totaled $18 million. Our normalized gross margin for the three months ended June 30, 2020, was nearly 92%. However, on top of that, we took a $800,000 inventory obsolescence reserve and also absorbed about $5 million in Athlone plant overhead associated with start-up commercial production. Prior to the approval of the Athlone plant, the commercial distribution of Rocklatan in the U.S., which took place at the end of January 2020, these expenses would have been charged to pre-commercial manufacturing expenses within operating expenses.

Note that pre-commercial manufacturing expenses were essentially 0 in the second quarter of 2020. So it is more of a geography story of where the costs are classified in our income statement. And of course, as Vince mentioned earlier, there are plans to increase the throughput of the Athlone plant. And with that, the idle capacity will decline. Our second quarter 2020 GAAP net loss was $48.2 million or $1.05 per share. When excluding the $10.2 million of stock-based compensation expense, our total adjusted net loss was $38 million or $0.83 per share.

For the second quarter of 2020, adjusted cost of goods sold was $6.7 million and adjusted total operating expenses were $43.8 million, with adjusted selling, general and administrative expenses of $26.3 million, adjusted pre-approval commercial manufacturing expenses of $0.1 million and adjusted research and development expenses of $17.4 million. For the second quarter, our net cash used in operating activities was a relatively low $22.9 million, and we had $241.9 million in cash, cash equivalents and investments as of the end of the June quarter.

The net cash used in operating activities of $22.9 million was the lowest we have experienced in many quarters, reflecting accounts receivable collections and reduced spending for travel and meetings. For comparison purposes, the $22.9 million in net cash used in operations I just referenced for the second quarter of this year compares very favorably to the $41.8 million in the first quarter of 2020 and $36.5 million for the second quarter of 2019. Let me emphasize a point.

We used about $23 million in cash in the second quarter, and we ended this quarter with $242 million of cash. As you can see, by doing some simple math, we have a substantial cash runway. Finally, shares outstanding at quarter end totaled 46.5 million. For additional information regarding our second quarter results and prior period comparisons, refer to today's earnings release and our Form 10-Q, which will be filed tomorrow.

And now I would like to turn the call over to the operator for questions. Sidney?

Questions and Answers:

Operator

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

Annabel Samimy -- Stifel -- Analyst

Hi guys, thanks for taking my question. Good to hear you. I just wanted to talk about the net pricing for a minute. Earlier in the year, I guess, we understood that there wouldn't be additional Med D plans, but the fact that you got one is great. And it should, I guess, suggest that it was sufficiently attractive for you to accept the terms. And I guess the question I have is was it strictly a factor of price or would you have needed some comfort in some level of volumes that have brought to offset this contraction in net price?

And clearly, it was a little bit more attractive than we would have expected in the second quarter. And what are the strategies to improve that other than taking price? Are there any distribution agreements you can talk to? Is there sampling that you're going to pull back on? And is it the right runway to look at going forward?

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

Annabel, it's great to hear your voice. The primary driver for this whole thing was the fact that the work that Tom and his team have done out in the field, getting prior authorizations written for patients who were covered by this plan is what drove the plan to want to come talk to us, and it certainly changed their perspective on what a structure needed to be in order for them to put us on to their formularies. And so we weighted it out. And we got to the point where we found that there was a great balance between the physician and the formulary and the rebates that we had to provide.

As we mentioned before, it's a plan that represents somewhere in the neighborhood of about 15% to 20% of the Medicare Part D market. So it's a big deal. There are, I mean, obviously, impacts throughout the country, but there are certainly big chunks of geography where this plan is clearly the king. And so what we have seen, and I think this is related to COVID, and I mentioned that we just haven't seen as many patients coming back as quickly as we expected them to come back, so we didn't see the big run-up that we normally would see whenever we sign up a new plan.

If I take you all the way back to the days of Rhopressa, as soon as we signed the plan, it was, say, 10%, 15% of the Medicare Part D market. We'd see a pretty good size of inflection point in pull-through about a month or so later. Here, we didn't see it in the first month, although as I've had a chance to visit with Tom and the commercial team, we are seeing it now, but are looking to expand the pull-through in that plan. So it was a balancing act for us.

It was a huge plan, and we felt pretty comfortable and felt that given the feet that we have on the ground and the prospects of the plan and really the physician support that we have for our products, because they're the ones that wrote the prior authorization. So now we go back to them and say, "Hey, great news, the plan work. You don't have to write those PAs anymore." It's a big deal. So it's the balance of all of that and incented us to do it. On a going-forward basis, it's those same dynamics that we'll look at before we sign up any new plans.

And that's why we think that, again, the whole concept could be that we see some stabilization in that in the pricing. And we do have opportunities, obviously, to raise prices. We do have opportunities to and we're seeing some changes that we're making on the commercial side of coming off of preferred status to nonpreferred and not paying as many rebates since it's not impacting revenues as we or negatively as we thought. So we'll keep taking those kinds of risk out there as we see opportunities. So we hope that, that strategy works.

Annabel Samimy -- Stifel -- Analyst

Okay. And if I can have a follow-up question on a separate topic. On the I think I'm sorry, I forgot the number of the dry out program already. But it's many drivers just about five months.

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

--

Annabel Samimy -- Stifel -- Analyst

Okay. All right. I want to so many development programs, especially in Phase III, have had to conduct separate trials for signs and symptoms because, I guess, in some cases, they could see signs statistical significant signs, but in others, they had to look for statistical significance on the symptoms. So what gives you comfort that you can hit both? And do you expect to see the same problem with your type of mechanism?

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

So you have to kind of take it back to the kind of mechanism that we have. So again, the mechanism being the cold hitting the cold receptor and the IMB, the agonist, we activate that. On the eye, this is going to feel like a cooling sensation in the eye. So that's what we're so excited about improving the symptoms. And remember, dry eye sufferers' primary complaint is always symptoms. For them, the sign is more like a physiological sign that Dr. Chambers requires that we do.

But I'm going to have David just walk you through a little bit why we think that it makes sense given the data that we have and the mechanism as to why we think TRPM8 made agonist has a really good chance of doing well in the clinic. And I'll take you back a couple of calls where we talked about we're backing up the truck on this one with secondary endpoints. So just keep that in mind as well because even if we're able to get to sign of symptoms, we'll be able to really get a really close look at everything else this drug and do. So David?

Richard J. Rubino -- Chief Financial Officer

Yes. Thank you. We're very excited about our TRPM8 agonist for dry eye. Number one, as a cold thermal receptor, we're actually very optimistic about its ability to hit a symptom. In the Phase IIa study that Avizorex I conducted, it looked very good in terms of hitting a symptom within that first month, which is always a magic time. If you look at other products out there, that has really been the challenge of a lot of the other products hitting symptoms. We know a lot of the products out there really just indicated for increases in tear production.

And then if you go back to the basic mechanism of action with the TRPM8, it actually is also designed to stimulate basal tear production. So within its actual mechanism of action, we should be able to hit both symptom and sign. And in just that small 2a study, it actually showed some nice increases in tear production within that first month as well as symptoms. We've taken a close look at everything. And as Vince mentioned, we do have many, many secondary endpoints. But we've sufficiently powered the next study with 360 patients, and we're going to look over a three month period, and we're very optimistic that the MOA that this provides will give us the ability to hit both the symptom and a sign.

Operator

And our next question comes from the line of Ken Cacciatore from Cowen and Company. Please go ahead.

Ken Cacciatore -- Cowen and Company -- Analyst

Congrats on all the progress and the good work here. Just wondering, as you think about your highest prescribers, you were saying that it's about 28 prescriptions per month. And I would assume that they're having the same experience with their patients in terms of efficacy and tolerability. So can you just talk about why sometimes we have these higher prescribers? Is it the region that they're operating in, i.e., they have better managed care coverage? Is it there they're just treating more of the more specialized clinicians? How do we drive the utilization of the lower-tier up to what they're experiencing?

And then Rich, as we think about the P&L and the current spending, can you just talk about maybe when leverage starts to appear as we look forward into next year? Is this spending level about right? Is it going to tick up a bit, but once it ticks up, will it kind of normalize as we go into 2021 as we think about the P&L.?

And then lastly, just wondering as the obviously big completion of Allergan, AbbVie, if there's any assets that are floating around that might be of interest to you? Or as you think about business development in general, obviously, the pipeline is starting to round out. But wondering if you can grab any on-market or near-market products.

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

Okay we're going to try to get to all three of your questions. So I'm going to start off with Tom regarding the high prescribers, turn it over to Rich regarding the expense outlook, etc. And then I'm also going to have Rich talk a little bit about the assets that are available and within ophthalmology because remember, he's got both our Head of Strategy and our Head of Business Development working for him. So he's got a pretty good picture of what's out there. So Tom?

Thomas A. Mitro -- President and Chief Operating Officer

Sure. Ken, so we had answered your question about the high prescribers as numbers and all those things and how do we get the lower prescribers up to those numbers. Well first off, the reason the high prescribers get there, they just have more people coming into the door than our glaucoma patients. So when they want to trial a product, it's very common for them to trial a number of patients in a given week. And therefore, when they get the positive reinforcement back in the patients like they have for our products, their velocity just picks up.

It just eats on itself. Lower volume offices just don't have that frequency to see it. So it just takes them a while longer to get through the number of positive experiences they have to see before they really adopt the product. By the way, one of the reasons and one of the ways we get those lower prescribing or lower frequency prescribers to adopt it quicker and to write it for more and more of their practice is by using reference selling because a lot of our physicians will say, if you have anybody that wants to talk to me about these products and the success I've had with them, please connect them with me. And we'll do that in speaker meetings.

We'll do that just on one-on-one phone calls and those sorts of things. So that's really there's no other science there other than just to have higher numbers. Therefore, they get very positive reinforcement much, much quicker from a higher volume of patients and that they just quickly adopt it. So a winning product in their hands takes off like I think ours did, with getting to the 28, 29 prescription per month, and we'll get the rest of them up there as well, too.

Richard J. Rubino -- Chief Financial Officer

And regarding your last two questions, Ken, from an expense or a gross burn perspective, if you think about the various components, SG&A is largely intact. It's, of course, primarily along with the support functions, the commercial group, which will remain pretty much as they are now. So that should continue fairly consistently into next year. Regarding research and development expenses, there are puts and takes. It won't be terribly different next year either. Of course, you'll have the completion of Mercury three, for example, this year, and we won't be spending any more money on 1105 beyond what we spent this year, next year, as Vince mentioned.

So next year, from an R&D perspective, it's going to be mostly about spending on the dry eye program. But when you add it all up with all the puts and takes, the R&D is going to be fairly consistent year-to-year. With regard to asset availability, I'm certainly not going to talk about specific assets that we may be interested in. But I can tell you that we have, for lack of a more professional term, Cracker Jack BD group that know every single ophthalmology product out there, the rules of engagement for us have been innovative products and large markets. And I think you can see that by looking at what we've currently got in our pipeline. So that's how we continue to evaluate products. And as the large companies decide to divest, we certainly are aware of what those assets may be and always ready to engage.

Ken Cacciatore -- Cowen and Company -- Analyst

Thanks so much.

Richard J. Rubino -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Ygal Acarovac from Citi. Your line is open.

Carly -- Citi -- Analyst

This is Carly [Phonetic] on for Ygal. First, just thinking about how you've been able to leverage the data coming out of the MOST trial. We wanted to get your thoughts on any potential plans for additional Phase IV trials you would consider running that would further support the value proposition of Rhopressa and Rocklatan?

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

Carly, the most trial certainly was a welcome addition to what we're doing out in the field. And certainly, from a doctor perspective, they view that data to be consistent with what they finally see in their practices, once they start using Rhopressa and then eventually start using Rocklatan. There are many other users that have been reported for Rhopressa and Rocklatan and/or specifically Rhopressa because it's a new chemical entity.

And so certainly, we do see doctors out there that are have been using the product to treat conditions of the cornea, specifically conditions like fuse dystrophy. There's been plenty of data reported from a Japanese physician, a Dr. Kinoshita, that reporting it for that Rho kinase inhibitors do have a role to play there. And so while we don't promote it, as you can imagine, we do see some cornea physicians that have expressed an interest there. So that is an area that of interest and certainly an area of further study for us going forward.

Carly -- Citi -- Analyst

Okay. Great. That's helpful. And then we just had a follow-up. So we're very first all of our channel checks that ophthalmologists are seeing Rhopressa and Rocklatan as the pure indications to some of the existing generic options, but we're also hearing prescribers are facing some challenges because you've been in cases where Rhopressa and Rocklatan are indicated as covered by a plan.

They're still facing some pushback from payers requiring multiple step edits and prior offs in order to reimburse, which is ultimately slowing their ability to prescribe these medications even though they want to. So we kind of just wanted to get a sense of how Aerie would be able to assist glaucoma practices in trying to streamline the reimbursement process in that context.

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

So I'm going to have Tom give you some more details. But one of the interesting things is and we've noticed that there's been a couple of physicians that have gone on and perhaps spoken at one conference or another and talked about issues in reimbursement. And obviously, we have access to all that data sort of behind the scenes have been able to track it. And what we're finding is that some of these doctors have not fully taken advantage of the fact that the products are covered.

And so what we're finding is that there is a gap between when we get product covered and we talk about an increase in our managed care market share. And when the doctors realize that, oh, yes, I could start writing it. And because they just haven't gotten into the habit of that. And so I'll have Tom talk to you a little bit about some of the things that we're doing to try to get that message more broadly broadcasted.

Thomas A. Mitro -- President and Chief Operating Officer

Yes. Firstly, we do a couple of things. One is we certainly talk to them about dates and when things become available and when they can do it because we do hear a lot of physicians now a lot. We hear less and less about like, God, but we hear physicians say things like, "Oh, I've tried to write it before. You just don't have very much coverage. Whether we show them what our coverage is now, what we're asking when did you really try writing it with any sort of frequency before. And commonly, it was months and months before, right?

So we've got to just bring them up to date, which we completely understand. That's number one. The other two is if you take a look at many plans, I just make up a fictitious plan called Blue Cross and Blue Shield, right, of setting. I don't care, whatever you want to be. We may be covered on Blue Cross Blue Shield. What that means is we may be covered for 96% of their patients, but they may have a generic plan that a patient shows a low cost plan, a generic plan that the patient chose, and we may not be covered in that small sliver of the plan.

So when we point that out to the doctor, we'll work with the office staff and say, why don't you do a little more fact-finding with that individual patient? The office staff takes over. Obviously, we can't do that, but the office staff takes over, calls the patient back. And commonly, he comes back to the doctor saying, they are right. They're part of Blue Cross Blue Shield generic plant. And then that usually clears up any confusion. But as they write it more, they find out that, by, gosh, we do have very good coverage for these things that removes the barriers that you were, in essence, addressing with that.

Carly -- Citi -- Analyst

Okay, great. Really appreciate all the color. Thanks for taking the questions.

Thomas A. Mitro -- President and Chief Operating Officer

Thank you.

Operator

Our next question comes from Louise Chen with Cantor Fitzgerald. Your line is open.

Jennifer Kim -- Cantor Fitzgerald -- Analyst

Hi. This is Jennifer Kim on for Louise. Congrats again on the quarter. I have two questions. The first one is, are you what are you seeing so far regarding the impact from, I guess, second waves or increases in COVID cases in certain states? And do you have any color on what the level of crossovers for those regions and maybe your highest prescribers? And do you have any plans to manage through those impacts?

My second question is, I think you sort of talked about this before. But since the second quarter gross margins were impacted by idle capacity costs, I'm just wondering how should we think about margins and where they can go in the second half? Do you expect it to return to that low 70s range we saw in first quarter? Or how should we think about that?

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

Okay. So I'm going to have Rich talk a little bit more about the margins, but I'll let me just take a stab at the COVID thing. So our business, not surprisingly, is relatively concentrated right around 10 or 12 states, and we get about 50% to 60% of our business there. We do track, and I personally actually take a look at COVID cases case reports every day and just to see sort of what's moving forward and things like that. And then I'm able to cross tab that with Tom and the commercial team to take a look and see how we're doing in the states. The great news for us, and I almost have to knock on wood because it's this week, we actually had every sales rep out in the field. And so it is beginning to take hold.

Clearly, there are some states where they open and then they shut. But the big thing that you notice is it's not they're not opening and shutting elective surgeries. A lot of those now are still open. That's what's driving probably 80-plus percent of the revenues at a doctor's office or ophthalmologist's office has today or is coming from elective surgeries. And so that's the major driver. So we're not seeing while there are clearly some places that are more restrictive than others, they like the surgery does not happen to be in anybody's crosshairs right now. And so we just haven't seen that approach or that hurt us at this point.

We do continue to see more and more patients coming through the system. And patient visits increasing and the number of doctors offices that are operating at normal continue to increase from the base of 45% that we currently have. And so but we do see for example, I think it's 3% or 4% of the doctors' offices that have yet to open. And so it makes you wonder, for some of them, it's just like businesses around the country, some of them may never open again. And so but we do see that impact. So net-net is we haven't seen much of an impact from the opening and closing because the elective surgeries haven't been impacted yet. So I'll have Rich talk to you a little bit more about the gross margin expectations.

Richard J. Rubino -- Chief Financial Officer

Thanks, Vince. So essentially, for the rest of this year, it's safe to assume that we'll have that $5 million or so of idle capacity for each of the next couple of quarters. But as Vince mentioned in his prepared remarks, we do have plans to increase throughput through the plant. So as we look further down the road into 2021, I would expect that to go down. The interesting thing about the idle capacity in the plant is, for example, if we're manufacturing clinical supply for a trial, it actually moves the cost out of cost of sales and puts it into research and development. So I want to prepare you to start thinking about that, but you will see that type of activity in the future.

Jennifer Kim -- Cantor Fitzgerald -- Analyst

Thanks so much.

Richard J. Rubino -- Chief Financial Officer

Thank you.

Operator

And our next question comes from Jason Gerberry with Bank of America. Your line is open.

Ash Elmar -- Bank of America -- Analyst

This is Ash Elmar on for Jason. Congrats on the progress so far. So my question was just really on pricing. How should we think about the price realized this quarter? And given that this new access came online on May 1, I would imagine that the net realized price was slightly lower in May and June versus what it was in the month of April. So how should we think about the go-forward price for the franchise from third quarter onwards? So can you please elaborate on that?

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

Sure. So whenever we do sign a contract like we did, and it happens to hit like May 1, you have to remember that the reason we signed that, as I mentioned earlier in my answer to Annabel's questions, is that because we had a lot of prior authorizations that were being written through that plan. And so there's two factors that are occurring. Those prescriptions that we were already getting through prior authorizations almost automatically flip over and now are rebatable. And so they immediately impact our plants.

While you're right, it didn't start until May, the impact is immediate. And so it's not like it phases in. And so then after that is simply the incremental prescriptions that we're able to drive through that plan that will dictate. But the price has already taken the hit. So we don't really expect much of a further hit as it relates to that plan in particular. And so we'll always have some puts and takes, and we see a little bit more shifting across the payer mix as unemployment rates continue to move one way or another and things like that. And so but when you add it all up, we think that we should see relatively stable pricing.

And hopefully, we don't see any major surprises, unless I come out and say, "Hey, look, we just signed a major new deal. It impacts another 10% of our Medicare Part D business, and therefore, you should expect further price attrition." So just know that, again, we keep an eye out on that. But unless we sign any major new deals, we think that we should see it's always going to go up or down a little bit, but we should see some relatively stable pricing now.

Ash Elmar -- Bank of America -- Analyst

Great, thank you. Okay, sir.

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

Thank you.

Operator

And our next question comes from Greg Fraser with Truist Securities. Your line is open. Good afternoon, folks. Thanks for taking the questions. First question is have you implemented or considered any changes to your co-pay program or thought about new programs that could help support and drive new brand share for your commercial patients?

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

So we put in I'll have Tom give you some of the details, but we did put in a co-pay card right at the very beginning of the Rhopressa launch and obviously, it continued with Rocklatan. We now have the same card that covers both. And so I'll let Tom talk a little bit more about some of the things that we're doing on the commercial side. I will give a little bit of cover here in the sense that, remember, the percent that we have on commercial pay has dropped off a little bit because of the unemployment rate going up. And so it is in a state of flux at this point. But Tom?

Thomas A. Mitro -- President and Chief Operating Officer

Yes, sure. We have a very active co-pay card program, and we target those to the physicians that actually use them. But frankly, the good news for us is that we're actually finding less usage of that as time goes on because our coverage has increased so much and the co-pay card will give them a little bit of a rebate or so to speak for the commercial patients for their co-pay. But again, because our coverage is so good, we're finding less and less use, which we like because that helps in our gross-to-net calculation. But overall, we're very active with the co-pay card plan for both of our products, and it's very quite easy to do.

Greg Fraser -- Truist Securities -- Analyst

Got it. That's helpful. On the contract sales force, can you provide some more details about that initiative in terms of, say, the number of reps that the docs are calling on the deciles, etc? Is there any additional color you can provide on that?

Thomas A. Mitro -- President and Chief Operating Officer

Sure. I'll be happy to carry on. So our contract sales force is going to call on roughly 1,500 practitioners around the country. They are the after our reps call on the top 10,000, the next 1,500 is the contract sales force, which makes face-to-face calls in each of their offices. I'm not going to really say for competitive reasons how many representatives that is. But they're fully staffed, and they'll cover those 1,500 as we've got going. So and again, they just started at about two weeks ago making calls out in the field.

So what they're doing is they are carrying the same messages that our representatives are that as the Aerie representatives are into these other offices, and they're seeing them at a plan to see them in a very high frequency. So we think at the end of the day, because they've been trained just like a representatives, you shouldn't see any difference between an Aerie representative and the contract sales force representative once they get some experience about and get going. So but again, they call the top 1,500 guys right after the 10,000 that we call on.

Greg Fraser -- Truist Securities -- Analyst

Sure. Okay. And then my last question on the dry eye program. Assuming the enrollment in that study progresses as planned, when do you think the study could read out?

Richard J. Rubino -- Chief Financial Officer

Good question. I think Vince mentioned it earlier in the prepared remarks, we're expecting top line in Q3 of next year.

Greg Fraser -- Truist Securities -- Analyst

Okay, thank you. Thank you.

Operator

And our next question comes from Serge Belanger with Needham & Co. Your line is open.

Serge Belanger -- Needham & Co -- Analyst

Hi, good afternoon. This is Serge. Apologies if you've already covered this. I was on another call. But just looking at the prescription and bottle volume trends. Since they hit their I guess, in the dry in March and April, the bulk of the growth has been driven by Rocklatan, while Rhopressa has remained mostly flat. Any color on those specific trends? And what are your expectations for them to continue in the second half?

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

Well, certainly, at the beginning of the year, Serge, the we were making great progress using the most data, and you started seeing the blips starting occurring much earlier than we expected on rebuilding Rhopressa. On any given week, we do see Rhopressa bouncing back up over Rocklatan. And so there, it's almost like in a state of flux, if you will. Clearly, as the reps have started getting back out there, they're now getting on a more consistent basis. And I said, this week, we actually have all of our sales reps out in the field for the first time.

They're getting back on message relative to the most data and Rhopressa first. So while we have seen some of the Rocklatan pickup, we do think that there's going to be some balancing act there as the messaging starts moving forward. And remembering, it's all based on the pulsing strategy, so it depends on where the doctor is from a prescribing point of view. So some of the guys may have simply been using Rocklatan already steadily.

So now all of a sudden, they just saw more and more use or moving more of their patients off of other things on to Rocklatan. But the big thing for us is moving those monthly writers that are doing it every once in a while over to weekly. And in order to do that, we think, Rhopressa will have to win the day at least for a while until they get more and more experience. And so we think it's something that will sort of straighten itself back out as the reps are out in the field.

Serge Belanger -- Needham & Co -- Analyst

Okay. On payer coverage, obviously, you made some pretty significant strides in the second quarter. Would you say you're currently at steady state in terms of commercial coverage? And when should we expect to see additional movements on the Medicare Part D side?

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

So we do think we're at relatively steady state at this point. We do still continue to talk to a number of different remaining plants, especially on the Rocklatan side, because we're pretty well covered. So it's really more of the Rocklatan coverage that we need. But again, it's going to be a bouncing act, just like we did on the last big plan that we signed. We do have a lot of prior authorizations during the downturn here. We haven't seen as many of those, mainly because the doctors just aren't seeing the number of new patients.

And so it's been somewhat slower go there, but we think it will start picking up as more patients come back. And so like we're just not simply we're just not in a hurry to give away big rebates, unless it sort of makes sense for us. So as things progress and if we find a particular plan where it hits the threshold and it's a great balance between the amount of business that they cover and where we want to be, then we'll tell you about it. But right now, we think we're at steady state.

Serge Belanger -- Needham & Co -- Analyst

Okay, thank you Ritchie.

Richard J. Rubino -- Chief Financial Officer

Thank you.

Operator

And our next question comes from Oren Livnat with H.C. Wainwright. Your line is open.

Oren Livnat -- H.C. Wainwright -- Analyst

Thanks. Can you hear me?

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

Yes, sure.

Oren Livnat -- H.C. Wainwright -- Analyst

Great. I have a couple. Just to touch on overall pricing. I understand the dynamics of why this has come down further and some of the puts and takes, but just big picture. Are these gross to net sort of all in that we're seeing now, which, by my math, look like 70-plus percent of WACC. Are they where are they in relation to where your original expectations might have been when you launched before you launched these products and while you were launching and you thought, let's see how this goes before we give it away. Did you ever think you'd be given away 70%? Is that competitive in the market? And a separate question.

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

Yes. On an all-in basis, certainly, 70% does make sense. And so and certainly, there are companies out there that are having to give a lot more than that way depending on the differentiation in their market. You have to remember that the what we're talking about here, the difference gross to net also includes things like the fees that we're paying to wholesalers, future double digits, and that is very, very different. If you're a large company, it's middle single digits.

And if you're a small company like ours, you jump into the low double digits. And so that's also embedded into that. Prompt pay discounts and stuff like that are all in there. So if we were paying 70% for actual Medicare Part D rebates, that would be a very different story than we expected to be doing. But with all everything in, it's not out of the question. And it is competitive.

Oren Livnat -- H.C. Wainwright -- Analyst

So I guess the implication there is I guess, what makes you a big company in this space? What sort of volume and what revenue run rate do you think it to be out where those margins may be actually improve materially?

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

It all depends on sort of the exclusivity that you may have. It also includes on the breadth of the product line, etc. I'm not sure that there's any one single factor like just simply revenues, it will do it. But certainly, if you think about the large pharma companies, they're multibillion in revenues, they certainly have more juice and are able to play a different game with those wholesale fees than we are.

Oren Livnat -- H.C. Wainwright -- Analyst

Okay. And if I could switch gears to Europe. I think people have asked this in the past, but I can't remember your answers. What do you feel you need to see in Mercury three on paper, I guess, to give yourself a competitive pricing dynamic that makes it even worth launching in Europe? Do you need to be superior or is not inferiority good to go? And I think in your prepared remarks, you mentioned that potential commercial partners are watching those Mercury three results closely. And I'm sure they are, but I think I also remember you multiple times saying, we've due diligence in this market, and we've determined it's best to go on our own. So has something changed with regards to partnering or not in Europe?

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

So the other thing that's changed for us is, first of all, let me just go through the sequence of your question. Regarding the Mercury three results, we can live certainly from a pricing point of view, if we're not inferior to Ganfort. It is the highest price combination product out there. So that puts us in a pretty good position. We do believe that we will be superior, so that would give us a better price and what they have. So certainly, that is a real good incentive for us. And so it setup in a pretty good position to we either commercialize ourselves or with a partner.

As we have progressed and with our thinking relative to Europe, we certainly have a lot of inbound interest from other companies. And so it's always the case of having to weigh us spending the money to go launch in Europe ourselves versus having somebody else do it. And it's purely a function of how much money would it take for me to do it in Europe relative to what we what David is coming through on the pipeline. And am I better off in trying to panic there. So it's a balancing act. And so certainly, as we think about some of the prospects, not only for the dry eye product, but for the retina product, of course, we have to think about, well, maybe on the glaucoma franchise in Europe, maybe we want to go ahead and partner like we're doing in Japan.

But again, we haven't made that call yet. And it will be we do have to wait through the outcome of Mercury three. Far more importantly, today is the new news that all of us got here not too long ago relative to the administration's attempt to control pricing in the United States. And so there, if we're subject to Avenue just pricing in the U.S. or basket pricing in Europe of our own products, we have to think hard about that. Do we really how much do we really think we or a partner are going to generate in Europe? And is that going to be a sufficient interest to us, we'd be willing to take a hit on U.S. And so that is the biggest single driver at this point once you get past the, are we inferior or non-inferior or superior to Ganfort?

Oren Livnat -- H.C. Wainwright -- Analyst

Well, I'm sure you won't be low in that debate.

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

Well, you're absolutely right. Companies have an awful lot to lose as they make that if they make the wrong decision there.

Oren Livnat -- H.C. Wainwright -- Analyst

All right. Well, thanks for that. Thanks you answers yes, sir.

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

Thank you.

Operator

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

Clark -- Mizuho -- Analyst

Hi. This is Dan Clark [Phonetic] on for Difei. Just two from us. So in the retinal vein occlusion indication, AR 1105, do you expect to primarily compete against the other implant in the market? Or do you think you can gain share from the injection-based treatments? And then any color on script duration that you've seen since 1Q 2020 would be helpful.

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

I'm sorry. Ask your second question again?

Clark -- Mizuho -- Analyst

Is there really any change in script duration from 1Q 2020?

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

Oh, yes. Okay. You mean in terms of the more 90-day supplies, etc?

Clark -- Mizuho -- Analyst

Yes, yes, exactly.

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

Yes. Yes, we certainly have. So if you think let me answer that one first, and then I'll get back to your RVO question. So in the sense of the one of the things we do track are the 90-day scripts. And when we were talking in Q1, we were looking at something in the neighborhood of 1.36 or 1.37 bottles per script. And so right now, we're at 1.42. And so we have seen more and more of an increase in the number of prescriptions, which sort of makes sense because it's we got to spike because folks wanted to get more 90-day supply. They didn't want to go to the pharmacy.

They didn't know how long the shutdown was going to be in their respective areas and stuff like that. So it's not surprising that we see a little bit of movement there. And it really just accelerate the trend that we were on because we're headed in that direction anyway. We just saw a spike there. So we have seen that. Now on the RVO, there's out in the market today, so you've got to really divide it between Europe and the United States. And so in Europe, we see far more use of steroid inserts than we do in the United States.

In the United States for treatment of RVO, we see more use of VEGF inhibitors, etc. And so but what's interesting is in the U.S., where the products that are available are either products like one of them only last a couple of months, maybe, maybe three max. And then the other one last several years. And so there's that's it. And so what we have seen from day one is the majority of the products or majority of the physicians would rather see an injection for six months.

The advantage of having a print technology is we were able to formulate the insert to deliver exactly that, because we know dexamethasone works. So the question was, can we deliver it exactly for the six months? Because both in the U.S. as well as Europe, that's what the physicians wanted because it that certainly helps them from managing the patient flows through their practices, etc, and also helps them manage the cost to the patient of that. So the fact that we were able to do that is certainly very, very helpful.

So we do think that a product the last six months to do have a better chance of penetrating the U.S. market, where to date, that penetration has not been particularly extensive, not only because of the product characteristics that are currently available, but also because again, U.S. retinal doctors tend to use more VEGF inhibitors. In Europe, we think that it's clearly at least right now in a much bigger market because it's established and physicians in retina physicians in Europe, they tend to use steroids more often. So the fact that we have one that delivers the outcomes that you're looking for, but last actually six months, is a big deal. So we're going head-to-head into the market.

Clark -- Mizuho -- Analyst

Thank you. Yeah. Thank you.

Operator

And I'm not showing any further questions. I'd now like to turn the conference back to Mr. Vince Anido for any further remarks.

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

Okay. Thank you, Sidney. And for everybody, thank you for joining us this afternoon. I know that it's been quite a hectic time since the last time we spoke during our Q1 call. We do like our commercial position in the U.S., as we mentioned. And as more patients come back into the fold, we should see a nice increase in new prescriptions and get our business back to where we thought we were headed back in the February time frame before all of this happened.

As you've heard today, our pipeline continues to progress very, very well, and everything is geared toward having data across the board for all of our major programs in the second half of next year so we can make decisions starting in late 2021 that will impact how we view the business starting in '22 from a pipeline development point of view. Ex U.S. and Japan, certainly, we are looking as to partnering there as perhaps the way to go for our glaucoma franchise.

And also, you'll start seeing the start of our Phase III trials. We do expect to start the first one before the end of the calendar year. In the EU, I just went through it that we are expecting Mercury three before the end of the year. But the big thing right now is taking a cautious look about the impact of launching in Europe on anything that we could be doing here in the United States, specifically around some of the pricing discussions going on in Washington.

Last but not least, as Rich mentioned so eloquently, you could see on our P&L the impact of the expense control on our cash burn. And so while we do have R&D that we're going to be spending, etc and all the way through into next year, as revenues grow, you could see sort of where we're going to end up. And it makes us feel pretty good that again, we're making progress toward that end, even though it was a bit artificial for this last quarter because of the COVID lowering expenses due to travel, etc.

But again, we like the prospects for the P&L building and continued progress there. So overall, we thought it was a good quarter, given especially given the circumstances, but sort of look forward to coming out of this in a much stronger fashion. So again, thank you for being with us this afternoon or this evening, and have a great day and be safe.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. Good night.

Duration: 63 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

Carly -- Citi -- Analyst

Jennifer Kim -- Cantor Fitzgerald -- Analyst

Ash Elmar -- Bank of America -- Analyst

Greg Fraser -- Truist Securities -- Analyst

Serge Belanger -- Needham & Co -- Analyst

Oren Livnat -- H.C. Wainwright -- Analyst

Clark -- Mizuho -- Analyst

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