OptiNose Inc (OPTN) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the OptiNose Second Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Jonathan Neely, Vice President Investor Relations. Sir, you may begin.

Good morning, and thank you for joining us today as we review OptiNose's second quarter 2018 performance and our plans for 2018. I'm joined today by our CEO, Peter Miller; our President and Chief Operating Officer, Ramy Mahmoud; our CFO, Keith Goldan; and our Chief Commercial Officer, Tom Gibbs. The slides that will be presented on this call can be viewed on our website, optinose.com, in the investors section.

Before we start, I would like to remind you that our discussions during this conference call will include forward-looking statements. All statements that are not historical facts are hereby identified as forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those indicated by such statements. Additional information regarding these factors is discussed under the Cautionary Note on Forward-Looking Statements section of the earnings release that we issued this morning as well as under the Risk Factors section of OptiNose's annual report on Form 10-K and Form 10-Q that are filed with the SEC and available at their website, sec.gov, and on our website at optinose.com. You are cautioned not to place undue reliance on forward-looking statements.

The forward-looking statements during this conference call speak only as of the original date of this call or any earlier date indicated in such statement, and we undertake no obligation to update or revise any of these statements. We'll now make prepared remarks, and then we will move to a question-and-answer session.

With that, I will now turn the call over to Peter Miller. Peter?

Thank you, Jonathan, and good morning, everybody. The first full quarter of the launch of XHANCE has been an exciting period for our company. We now have the benefit of a full quarter of real-world market data, and based on what we have observed and learned, we feel as strong as ever that XHANCE is an importantly differentiated product in a large market with high unmet need and that we have a great opportunity to build a very successful company. The most important factor driving this confidence is the feedback we have from a large group of real-world patients who have used the product. The strong message we received from our patient survey is that patients are not only getting better, but they also prefer XHANCE versus their prior treatments.

On the physician side, we now have over 2,600 physicians who have prescribed XHANCE, and our sense, based on both anecdotes and fresh market research among hundreds of physicians familiar with XHANCE, is that our target physician population has strong interest in using XHANCE. We know that we are still early in the launch and that a great deal of continued work is necessary in order to get our target audience to truly embrace the product and make it a part of their practice habit, but we are confident that we are on the path towards achieving that goal. We knew that market access would provide challenges, and we remain focused on efforts to create a coverage environment that provides reasonably low-hassle ways for physicians to prescribe, while setting us up to achieve our long-term profitability goals.

Starting on Slide 3. I'd like to begin by highlighting some of our recent key accomplishments. First, we believe our Xperience program, a program which ran through the end of June and filled all prescriptions through a specialty pharmacy, was very successful in facilitating early physician trial and adoption of XHANCE. Through July 27, more than 12,000 prescriptions were filled for patients. I'll go into more detail on the results later in the presentation and share our view that it is important to make sure we continue to create the right environment to make it easy for physicians to write XHANCE.

As we know from our clinical trials and from patient feedback in the market, once patients try the product, the majority feel better and prefer XHANCE. In a symptomatic disease, we believe this can fuel long-term growth. We also continue to make progress on the market access front, signing contracts with 2 of the largest PBMs in the United States, driving our total covered lives to 76% with the majority of those lives in a formulary status that is reasonably low-hassle for prescribing physicians.

Additionally, we made progress towards our goal of adding a follow-on indication for XHANCE that would significantly expand our market opportunity. Earlier this year, we submitted key elements of a trial designed for our chronic sinusitis program to FDA as part of a planned discussion. I'm pleased to report the meeting was held and then, based on this interaction, we continue to plan to initiate the clinical program before the end of the year.

In June, we announced that the results of the Phase III Navigate II trial and the XHANCE-12 trial were published in peer-reviewed journals. The Journal of Allergy and Clinical Immunology and the International Forum of Allergy and Rhinology respectively. We believe the data described in these manuscripts provide important information for physicians, and that communication of this data, along with the real-world experience physicians gain from treating their own patients, will continue to increase physician appreciation for the potential benefits of XHANCE. And finally, I'd like to take the opportunity to thank the investors that supported our recent $60 million public offering.

Turning to Slide 4. Looking back, we executed key strategies in the first half of 2018 to support the early launch of XHANCE by driving awareness and trial. We believe these initiatives were successful in accomplishing these objectives. As we previously reported, we fielded a Clinical Nurse Educator program during post-approval but prelaunch period. This program was focused on creating company and product awareness, introducing the novel mechanism of action of the product and creating some pent-up demand for trial of the product. In second quarter 2018, when product became available for sale, we transitioned away from the Clinical Nurse Educator program and fielded a sales team of approximately 80 representatives in select territories. Their objective included continuing to increase awareness, and beginning to drive early trial and product adoption with strong messaging that extended beyond the novel mechanism of action to the core reason to believe for the efficacy of the product, a differentiated pattern of drug deposition. We're very encouraged by fresh market research on our progress with these core messages, which I'll discuss in a few slides.

The Xperience program was also in place during our first quarter of launch, and was intended to lower administrative and financial barriers for both physicians and patients and accelerate initial trial of XHANCE. We feel very good about the results of these programs, and believe they were important factors in driving a significant number of physicians to prescribe XHANCE earlier than they otherwise might have done. As planned, we closed the XHANCE Xperience program to new enrollments at the end of June. In addition to driving early adoption we learned a great deal from data captured during the experience program and quickly learned that some of the elements of the program should be included in how we support physicians and patients moving forward. I will describe these features later in the presentation.

Turning to Slide 5. As planned, the great majority of all prescriptions in the second quarter of 2018 went through the Xperience program. This not only provided us a unique opportunity to capture and analyze a wealth of market data. It also provided a special opportunity to ask a very large number of patients for feedback after their first month of XHANCE. At the end of the day, the success of this product largely depends on whether it is making the target patient population, most of whom are dissatisfied with the status quo, feel better and want to ask for and use the product.

The results from the 2,733 patients that have completed the survey are very encouraging. 89% of patients say they are satisfied with XHANCE, 80% reported improved symptoms after just a few weeks, 77% said they prefer XHANCE over their prior therapy, 92% were promoters saying they would recommend XHANCE to a friend and 95% state they could use this product without difficulty.

When we look further into the data and understand patient feedback in the context of the products they used previously, the information is also very encouraging. Not surprisingly, XHANCE has favorable results among patients who were previously on Flonase or Nasonex or their generic equivalents, which are the most commonly used intranasal steroid products. But interestingly, the results were also strong among prior users of budesonide rinses. We believe this is important because steroid nasal rinses, usually with budesonide, are favorably perceived by some specialty physicians who use them as an improvised approach to achieve better efficacy versus traditional inhaled nasal sprays via higher and deeper drug deposition.

While it's very encouraging to see the survey results of patients, there is nothing more gratifying than hearing directly from patients about how XHANCE is changing their life. We are now receiving a significant number of patient testimonials. Encouragingly, one of our highest prescribing physicians recently told us that he's beginning to have patients coming into his practice asking for XHANCE because people they know had told them how well the product was working for them. As more and more of these patients we are targeting are treated, we believe, based on both clinical data and patient surveys, that an [increasingly] number will be very satisfied with their treatment and will talk to their family and friends about XHANCE. Feedback like this could be a powerful catalyst to provide significant product adoption in the future.

Turning to Slide 6. In addition to great feedback from patients, we also need doctors to have positive experiences, and we have encouraging feedback from physicians as well. Over 2,600 physicians have already prescribed XHANCE, representing approximately 40% of our called-on universe. We believe the early surge in product trials during the second quarter of this year was in part a benefit of the pent-up demand created by our Nurse Educator program prior to launch, and the rapid uptick was also the result of strong physician interest.

While many of these physicians have prescribed the product in a limited number of patients, many of them are telling our sales team that the main reason they are not prescribing more broadly as of yet is that they want to get personal experience in their own practices with the product. The opportunity for physicians to gain personal experience by trial of the product accompanied by follow-up patient visits after the first few months of treatment will naturally grow as the launch progresses and as doctors have more time to hear from patients about how they are doing on the product.

In order to more fully assess progress with our target physician audience, we completed fresh market research in July after the first quarter of launch. The data suggests that our stepwise efforts are succeeding in moving physician perceptions from a high degree of product awareness through an understanding of how the product works to achieving the crucial perception that XHANCE produces a differentiated drug-deposition pattern. This progression is happening exactly as we planned. Therefore, we are now transitioning our communication emphasis to the key next task, achieving a perception of differentiating clinical outcomes, which we believe will require sustained promotional focus bolstered by growth clinical research data, physician experience using the product on their own patients and increasing awareness and discussion by peers in the specialist community. Against this objective, in late June, we achieved peer-reviewed publication of 2 of our key registration trials. Communication of these publications, which we believe positively differentiate the XHANCE efficacy profile, will enhance our promotional efforts as we shift to focus more heavily on product efficacy. Later in the presentation, I will describe some additional initiatives we will be fielding.

Turning to Slide 7. We are pleased that some physicians are already impressed enough with the treatment results they are motivated to share their experiences with prescribing XHANCE. On this slide, you can see before and after scans of a patient with nasal polyposis sent to us by a physician who treated the patient with XHANCE for 6 weeks. In these images, grey colored regions, where the nasal passages and surrounding tissue are located, indicate inflammation, nasal polyps and soft tissue filling the space. Dark areas indicate clear air filling the nasal or sinus spaces. Obviously, for these patients, the more dark areas the better. The difference between the scan on the left of the patient prior to treatment versus the scan on the right after the patient had been treated for 6 weeks is clear to see, but the impact on the patient was even more profound. This is a patient that was told for years that he needed surgery and after treatment with XHANCE, his EN told him he no longer needed surgery.

We've included this example not only to illustrate the impact we are having on 1 patient but, more importantly, the point that physicians, especially ENTs, do not rely only on feedback from their patients to assess treatment results, they also use imaging and endoscopic examination to see results for themselves. And as you can see, we are now hearing from physicians that not only are the patients are telling them they are getting better but the physicians can see for themselves the impact it's having on reducing nasal polyps and associated inflammation.

Turning to Slide 8 on market access. Nationally, based upon third-party syndicated data and internal analysis, we believe that approximately 76% of commercial lives are currently in a plan that covers XHANCE. We have signed contracts with 2 of the largest national PBMs in the U.S., and we continue to engage in negotiations that could increase coverage in the covering months. We believe we are engaging in contracts that recognize the value of XHANCE and support healthy, long-term profitability. Our 76% coverage number includes all covered lives, inclusive of lives that may be covered with Tier 3 formulary status with unrestricted access or a single-step edit or lives where coverage requires some form of prior authorizations. While broad coverage is important, we believe it is also important to understand the relative administrative difficulty or hassle factor that different types of coverage creates for physicians and patients. As a reminder, our definition of limited hassle includes lives that are Tier 3 formulary status with unrestricted access, a single-step edit or a simple a prior authorization that may require, for example, only confirmation of prior intranasal steroid use.

For current XHANCE covered lives, the majority remain in plans where XHANCE is a comparatively limited hassle formulary position. Although we estimate that approximately 60% of all commercial insured lives have formulary access that involves limited hassle, we continue to target our efforts towards increasing this number towards 75% by year-end.

Turning to Slide 9. As context for the next few slides, I'd like to review some of our observations after the first full quarter of launch for XHANCE. As previously noted, we believe our Clinical Nurse Educator program was effective and may have produced an early bolus of patients. In addition to the strong start from our CNE program, the Xperience program successfully facilitated initial trial of the product while also providing us with a wealth of important data. Third, after the end of the Xperience program, we saw a dramatic increase in the demand for our 30-day samples during July. We believe this reflected a sustained high level of physician interest in initiating treatment with no cost to the patient, and that this large increase in sampling corresponded with reduced submission of prescriptions through specialty or retail pharmacies. Our belief, supported by customer feedback, suggests there is a more effective way to accomplish this objective, which I will describe in a moment. Next, while we have stated previously that the overall intranasal steroid market was seasonal, we also noted that we did not know if the market for XHANCE would prove to be seasonal, largely because we did not believe they were any comparable products focused on the same patient type to provide a precedent. And we have gathered data during the first months of launch, we believe there is evidence that the XHANCE market will turn out to have seasonality, and that we are very likely observing some seasonal market effects during the launch phase of the product. I will have more on this in a few slides.

Our market research in July and early August suggest that we are succeeding in moving our target physician audience from achieving a high degree of product awareness, through understanding of the new mechanism of action of our device, to the important perception that XHANCE produces a differentiated drug deposition pattern. This progress is encouraging to us because we believe it establishes a foundation on which our territory managers can build towards a physician appreciation for the efficacy of XHANCE as demonstrated in clinical trials.

With the significant clinical data available, we have strong confidence we will achieve this objective as our communication emphasis shifts in that direction. While we have achieved 76% market access, we have early post-launch market research from July 2018 suggesting that market access barriers perceived or real are important to physicians when considering writing a prescription for XHANCE. In our research, we found that current physicians' perceptions of XHANCE for access may be actually lower than the actual access we have already achieved. We have come to believe this is in part due to physicians in these specialties having prior negative market access experience with this category of product. In response, we are updating and simplifying our patient co-pay assistance program with the aim of aggressively addressing these perceptions in the near term. Concurrently, I want to note we will continue to work with payers to grow our market access, we'll expand our specialty pharmacy network and are actively evaluating additional strategies to increase patient fill rates at the pharmacy. Similar to some physicians expressing a desire to experience the efficacy and safety of XHANCE in their own patients before prescribing more broadly, we are finding that some physicians want to personally see that we are covering their own patient population rather than adopting the product solely on the basis of external data. Finally, I'm pleased by the choices we have made in building our information systems. We have accessed a significant data to read results, and that data feeds our strategy of staying nimble while making disciplined database decisions as we learn and adapt.

Turning to Slide 10. Now I'd like to share some data on the progress of our XHANCE launch to date. Prescription data through July 27. As planned, most of our volume to date come through our Xperience program, but we include retail data from IQVIA for a more complete picture. On the left-hand part of the slide, we've depicted the seasonality of the total intranasal steroid market of which, we believe, 1/3 is quoted for the treatment of chronic rhinosinusitis, including nasal polyps, and the balance is for the treatment of rhinitis, especially allergic rhinitis. As you can see on this chart, based on prior years, our data suggests that the market for traditional intranasal sprays exhibit a seasonal decline in the summer months. From May to July based on historical data, the average decline in prescriptions volumes was approximately 23%. Although the underlying disease that we are treating is chronic and causes symptoms year round, we are learning that variation in patient flow through the offices of relevant specialists' so-called foot traffic in and disease flare-ups may have an observable impact in the number of patients that present themselves and were therefore available for prescribing a new medication.

We continue to believe that patients can benefit from consistent treatment and that, as the product becomes more mature, with refills driving a large proportion of the business, this seasonality effect may be reduced. However, in the launch phase, when new patient starts are the majority of prescriptions, we believe it is clear that XHANCE prescribing is influenced by a seasonal effect.

On the right-hand side of the chart we illustrate XHANCE monthly TRxs combined with IQVIA data with TRxs dispensed through our specialty pharmacy. Note that we have previously reported the number of XHANCE units that have been dispensed, but at this point in the launch, we will return to the more traditional metric of prescriptions filled.

As a reminder, prescriptions through the XHANCE Xperience program, which constitute the great majority of prescriptions during this reporting period are not currently tracked in the national audit data from vendors including IQVIA and Symphony. You can see that, in total, we had over 9,500 TRxs dispensed from March through June. While we had a slowdown in the rate of growth in June, we experienced positive 8% growth in the face of an 18% market decline from May to June. On the following slide, I will show data illustrating a substantial increase in our 30-day sampling with XHANCE that started in the June timeframe, a factor that we believe also influence prescribing data.

Turning to Slide 11. On the left-hand part of this slide, we illustrate the number of samples that have been distributed weekly for May through July 28. You can see that in July, after the Xperience program ended, we saw a greatly increased rate of product sample distribution. In fact, in just 3 weeks in July, our sales teams distributed approximately 2,000 samples more on an incremental basis versus an average 3-week period in May and June. While we cannot assume that all samples distributed to a physician office are immediately utilized and replace a prescription, we believe these are correlated. We interpret this as a clear signal of continued physician interest in trial of XHANCE and in the option to trial the product with the first month of treatment at a $0 out-of-pocket cost.

Based on our observations and our positive experience with the XHANCE program, in the last week of July, we reduced the number of samples distributed and implemented a $0 co-pay for our first month's prescription for new patients. You can already see the sharp reduction in the number of samples distributed in the last data point. We believe this approach will sustain a lower barrier to early trial with the product for both patients and physicians while allowing better data capture and better revenue potential than traditional heavy sampling during the launch period.

Note that while we did not get the benefit of prescriptions with the significant increase in samples, we expect to see the benefit of this sampling reflected in both refills and new prescriptions in the future because of the high patient satisfaction and preference we are observing in our patients survey data. As a reminder, our current sample product contains the same number of sprays as the bottle acquired by prescription. We are actively developing for future use a 7-day sample.

Turning to Slide 12. Shown in this slide are weekly TRxs reported by IQVIA and our specialty pharmacy for the 4-week period ending July 27. We believe we had a reset in physician prescribing data in July as expected after termination of the Xperience program in which the first 2 prescriptions were available at no out-of-pocket cost to the patient. This did not necessarily reflect any change in underlying physician interest in the product. We believe these data were influenced by the move from the Xperience program, which captured reported prescribing to more traditional heavy sampling with an incremental 2,000, 30-day samples distributed to doctors during the month of July. Once that reset occurred, we continued to see growth in physician prescribing in the month of July, with an increase of over 17% across the July timeframe in a period when the market was showing a slight decline.

While we saw approximately a 14% decline in average weekly reported TRxs through July 27 compared to June, we believe that when the significant increase in the volume of 30-day samples is considered, along with the 11% market decline from June to July, that the actual physician interest in prescribing XHANCE remains strong, and the number of patients who were started on XHANCE via either a prescription or a sample has continued to grow nicely.

Given the evidence of continued strong physician interest, evidence for good patient outcomes and the influence of our recently implemented co-pay assistance program to lower perceived market access barriers by offering the first prescription with a $0 co-pay for all commercially ensured eligible patients, and given that the data suggests that the seasonality impact will turn positive in the next few months, we believe we will return to a positive reported TRx growth trend in the coming months.

Moving to Slide 13 and our current priorities. We continue to be very confident in the long-term potential of XHANCE and are focused on the areas we believe will fuel growth. As stated, we believe our market research shows that we have been successful in communicating how our device works and about the resulting deposition profile, which target-audience physicians now appreciate to be differentiated. We are now turning the focus of our messaging to reinforcing the beneficial treatment outcomes that XHANCE delivers and have some great new tools we will be utilizing.

First as I previously noted, we plan to begin distribution during the third quarter of the NAVIGATE II and XHANCE-12 publications. Second, we noted the July finalization of a relevant new FDA guidance, in light of which, we plan to enhance our promotional materials to include additional important information from our pivotal trials such as our SNOT-22 data, which we believe is important to both ENTs and allergists. We believe communication of these data combined with physicians growing experience with the product in their own patients will greatly expand appreciation of the efficacy of XHANCE.

In addition, we are pleased to note that 3 of our scientific abstracts have been selected for podium presentations at the upcoming American Rhinological Society meeting in October. We expect these and other scientific communications during the second half of this year to continue to grow familiarity with an interest in the performance of XHANCE.

Regarding market access, during our early launch phase, we have come to believe that physicians do not come to XHANCE with a blank slate regarding belief in market access and instead have negative prior market access experience with the category of product that must be overcome. We are already acting to address physician perception of insurance barriers possibly as being higher than they really are. We are in the process of implementing a simple-to-communicate co-pay assistance program that includes not only a first prescription at a $0 co-pay for eligible new patients but also includes a low co-pay for refills. We believe this program, while impacting profitability in the short term, will allow our sales team to clearly communicate with physicians and their staff about comparatively low market-access hurdles, and during this launch period encourage more physicians to continue to gain experience with the product in their own patients.

In conjunction with this patient co-pay program, we will continue to work to increase total coverage to increase the proportion of covered lives with low hassle formulary positions to expand our specialty pharmacy network that helps to reduce the burden of prior authorizations and to actively work on strategies to optimize patient fill rates.

Note that while we anticipate, in the short term during the launch phase, our profitability will be negatively impacted by these measures, the levers we are using are generally ones that are possible to reduce or eliminate once we achieve broader product adoption and increase market access coverage.

Finally, and more on this in a few moments, we are excited to continue preparing the chronic sinusitis trial that we expect to start enrolling patients in fourth quarter of this year. Before that, I will turn the call over to our CFO, Keith Goldan, for comments regarding second quarter results and perspectives regarding third quarter and full year 2018.

Thank you, Peter, and thank you, everybody, for joining today. As we reported earlier, OptiNose recognized $1.3 million of revenue in the second quarter. As planned, the Xperience program was the primary source of demand for XHANCE in this most recent quarter. While there were modest levels of prescriptions and shipments into retail, our mix of business led to an average selling price or ASP in the second quarter that was significantly less than it was in the first quarter, recalling that in Q1, the majority of revenues recognized were related to shipments to wholesalers to fill their inventory in advance of the retail launch of XHANCE in April.

Turning to Slide 15. Earlier today, we updated our financial guidance for full year 2018 GAAP operating expenses including SG&A as well as R&D. We now expect those to fall in a range between $117 million and $121 million compared to the prior range of $119 million to $125 million. The midpoint guidance has improved by $3 million.

Looking ahead, while we are not providing formal revenue guidance, I would like to share some perspectives regarding third quarter and full year results for XHANCE. At the start of the third quarter, a substantial number of patients remained eligible for a second $0 co-pay prescription through the Xperience program. In addition, we expect our updated patient co-pay assistance program, which features the opportunity for an eligible patient to receive a first prescription at no out-of-pocket cost to them, to be applicable to most new demand for XHANCE in Q3 as well as Q4. Because of these factors, we expect ASP to continue to be reflective of launch period incentives that are designed to encourage trial and adoption.

As an important final note that I believe may help with longer term models, we have gathered a wealth of data from the Xperience program. One of the important things learned from the data is that even when cost is entirely removed from consideration, many patients who seek the refill take more than 1 month to use a unit of XHANCE. We have seen an average approaching 6 weeks of duration for 1 prescription and believe this is likely due in part to imperfect adherence with twice daily dosing.

I will now turn the call back over to Peter. Peter?

Thanks, Keith. Turning to Slide 16. As you may have heard us describe before, in addition to the launch of XHANCE, in the medium term, we believe significant additional value could be created by adding a supplemental indication for the treatment of chronic sinusitis or CS. Against this objective our development team is continuing to make progress. Because this is a drug indication which has never previously been achieved in the U.S., we've worked extensively with external experts to better understand key research issues as how best to define the study population and how best to measure endpoints. On our last call, we relayed that we submitted our proposed design elements and related questions to the FDA in support of a planned meeting. Our update today is that we have now completed an informative meeting with FDA, and that, following that meeting, we have continued to expect to enroll the first patients in our CS pivotal trial program in the fourth quarter of 2018. As a reminder, the trials for a CS indication are expected to require coprimary endpoints, including an objective measure of inflammation and a subjective of measure of symptom relief. We've already begun the process of selecting our CRO in the study locations.

Turn to Slide 17. In conclusion, we continue to be very optimistic about the potential for XHANCE in the market. We have no doubt we have a product that really does improve patients' lives and believe we are well on our way to driving physician adoption of the product in the market. We always knew that market access would pose some challenges, but here we have made important adjustments in the near term to lower potential barriers to physician prescribing, and have done so in a manner that does not harm the long-term health of the business. Thank you all.

Now I would like to open it up for Q&A.

(Operator Instructions) Our first question comes from David Amsellem with Piper Jaffray.

Helpful color on underlying demand, but did have a couple of questions here. So first, in terms of the XHANCE Xperience program, I believe you had said that you're going to continue the program through September. So I just wanted to clarify is that -- when you were talking about closed to new enrollments, do you mean enrollments of physicians or can patients and -- seeing certain physicians in the program continue to access -- new patients continue to access the program, that's number 1. Number 2 is can you talk about the underlying bottles per prescription? You said that there's prescriptions -- have significantly more than one bottle, maybe talk about the number of bottles -- the average number of bottles you're seeing per prescription and how you expect that to normalize or, I guess, a steady-state way of thinking about that over time?

David, thanks. I'll first clarify your first. We had talked previously about extending the Xperience program and you recall that we actually introduced, in July, a $30 -- so that the program was extended in September with the first prescription being $30, and then it was a limit that the patient could pay of $99 on the back end for refills. We've decided, David, and it obviously wasn't completely clear in the remarks, that we're basically going to a patient co-pay assistance program, and we've updated the program such that the first prescription is free, $0 and -- yes, that was key learning for us that -- and our patient willingness to pay research, there, candidly, isn't that big a difference between patient abandonment at $0 or $30, but there obviously is a real desire for physicians to be able to distribute at no cost. So we think this is a better way to do, in essence, sampling because we saw a ton of samples distributed. It's going to be good in the long term, but we just think this a more effective way to get patients trying and then actually get some revenue out of it, obviously, with our current position. And we are also David, and this will be announced online next week, we're meeting with our sales team next week and we are revising our back end refill -- the cost of the back end refill. And I'd like you to think of it not necessarily as a program but this is our co-pay assistance. This is the -- an update to that if you will. Keith mentioned, it's one of the reasons we feel really pretty good about this, and this was sort of implicit in our remarks, we've been really careful in our contracting strategy. Then on the rebate side, we believe, once you agree to a rebate level, that's -- you're basically stuck there. However, on the co-pay assistance side, Keith mentioned, as we believe these are levers you can sort of -- as we get significantly broader trial, we can revisit whether you need to continue to have a 0 first script or not. We can also revisit the back end of the amount that's on the back end for the refill. So if that answers that question. On the bottles per Rx, did that adequately address that David?

No, yes. So I'm just curious why are you seeing multiple bottles per Rx. How is that going to normalize? What's the right way to think about steady state?

Yes, I wanted to make sure I answer the first part of question correctly. But on the bottles per Rx, we started out at about 1.5. So during the Xperience program, we were about 1.5. We are trending down right now. You can do the calculations on the data we've provided. And it's honestly still too early, David, to know where we're going to land steady state. In the Xperience program, we had a lot of people prescribing at the higher dose. It's trending down, but where it ultimately lands, we're still trying to evaluate, honestly. It's somewhere -- this isn't going to help you, it's somewhere between 1 and 1.5.

Okay. No, that is helpful. And then I just wanted to sneak in a follow-up just on the sampling and the co-pay assistance. So back in July, I mean you talk about $30 co-pay being appropriate and one that -- where patients wouldn't necessarily walk away from. So what I'm trying to ascertain here is did something change in your market research between say early July, your last corporate presentation, where you talked about the program being extended to September, and now when where you're transitioning to greater co-pay subsidizations? I wanted to just get a sense of what changed.

Nothing's changed, honestly, David, in terms of the patient willingness to pay. And what led us to believe that we could go out with a $30 first -- cost to the patient of $30 is, on a patient abandonment, all of the work we did prelaunch and, candidly, all of the work that we've done during the launch suggested patient abandonment is not dramatically different between $0 and $30. What we learned -- candidly, we learned it pretty quickly. Within 3 weeks, 4 weeks, we made this adjustment. Physicians want the ability to start patients at no out-of-pocket cost to the patient. So it's not really patient driven because I really believe the -- all the data we have suggests the abandonment's going to be comparable between $0 and $30. But clearly, we had 2,000 incremental samples distributed in just a 3-week period. Doctors want to start patients at sort of a low barrier from their standpoint, to give -- they want to be able to give it to the patients at a $0 out-of-pocket cost to the patient. And candidly, that's what we may not have fully anticipated, David.

David, this is Tom. Let me just add 1 piece of information that Peter -- sorry, what Peter provided. One of the other elements that we received was from our physicians that they actually preferred being able to distribute the first prescription, if you will, through a $0 co-pay versus a sample. So what we are doing is looking at the economics from our standpoint, the visibility that we get through data for distributing this -- a sample, if you will, through a prescription and then also listening to what our customers prefer.

As we said, David, and I didn't want to harp on it too much, but we feel really good about the physician interest in the product and the program. And it's really -- not only what we're hearing anecdotally but a lot of research that we've done among hundreds of physicians to sort of get their view of the product. And I said this earlier, the only thing that is potentially an issue now that we believe we have to address is the perception that we're not -- we don't have the access that we, frankly, have achieved. And that's part of what is driving our need to field a revised -- the co-pay assistance program.

Our next question comes from Gary Nachman with BMO Capital Markets.

First, Peter, what is the conversion been thus far from Xperience to patient support. It's only been 1.5 months, but what's the early read on patients that continued on? And then within Xperience, how many loyalists did you have, the way you describe it? And how are they writing for the product? What's the target for loyalists by the end of the year?

I'll take the first one Gary, we're not really disclosing our compliance rates, if you will. I will say they're better than what you see in typical prescription products. At this point, we're very encouraged by it. It's still early. So I want to be really careful that we read too much into that, but conversion sort of to a loyal patient, if you will, then I'll get to your questions on doctors in a minute, we feel good about, we feel -- in our models we frankly have -- we sort of talk about -- without knowing how it's going to perform, we looked at analog, what's done historically in terms of a symptomatic disease, what does compliance look at. But we're feeling very good about compliance rates on the back end. Relative to your question on docs, and I sort of said this in the script area, I mean we have -- our goal is to get doctors writing 10 or more prescriptions in a period, and that they -- we believe that's sort of more than just a dabble or a trialist, and right now we have on order of magnitude, what Tom, in terms of our loyalty...

(technical difficulty)

400.

Yes, so we have substantial number of doctors who are writing, I'm not sure it's at about 400 or more who are in -- it's really become part of the practice habit. The goal, obviously, is to get to double that number by the end of the year. We're confident we can achieve that.

Okay, and then just a couple of follow-ups. So how long will this new $0 co-pay for the first Rx continue in patient support? And what is the level of co-pay for the refill on the back end? And then Keith, what's the net price we should be thinking about now for the rest of the year? Are you in sort of the $200 zone with XHANCE?

I'll take the first 2, Gary. And on the $0 upfront, for now this is our program. This our co-pay assistance program. And in our financial analysis we think it's a better way to sample. So until we get the 7-day sample -- the challenge we have is because our product is a 30-day sample, we candidly sort of expected that doctors would give a sample and write a prescription and that didn't happen. And I think it's largely because it's a 30-day sample. They gave -- the docs gave the product to the patient and then they're sort of waiting for the patient to come back before they write again. So for now, our view is that the $0 for the first prescription is a better alternative to sampling. We've -- as you saw, by the way, we dramatically have sort of cut our sampling back. So this is all sort of part of our belief that this is a better way to sample. And I think once we have the 7-day sample available, which will be at some point next year, we may revisit whether we're going to continue the program, but for now it's our program. What was the second question...

Second was -- Peter -- this is Keith, Gary, second question was with respect to the ASP for the remainder of the year.

Actually, Gary, I'm sorry...

Right before that it was the -- I'm sorry, the refills on the back end. Yes, what type of co-pay support are you going to be giving for that.

Yes, and if it's okay, Gary, we're in this mindset of being nimble but being disciplined. So we actually fielded, again, research to really understand the physician perception, and we're going to be announcing that to our sales team next week, and it will be implemented. Literally next week, we'll be communicating it broadly to doctors. What I'll tell you, at this point in time, is it's less than $99. And it's -- if it's okay at this -- by next week you'll know what it is. It's going to be reasonably, substantially lower than $99 though.

And Gary, to your question about ASP, we're not giving exact guidance. I did comment in my remarks that we expect the ASP to continue to be reflective of launch period incentives designed specifically to encourage trial and adoption. We believe establishing a broad base right now is critical to the long-term success of the business. So I think we dropped the breadcrumbs, I think you can put together your own analysis of what ASP was for Q2. I made the remark that we expect it to be similar going forward, but it's not at the $200 per bottle mark yet.

Okay. But importantly, it should be in the same range for 3Q and 4Q?

We expect it to be. Yes, that is correct.

Our next question comes from Randall Stanicky with RBC Capital Markets.

Peter, just on the primary care side, I know you've talked about 2,000 reps in this area. Can you just talk about what type of traction you're seeing there? And maybe compare and contrast the scripts written per physician and how you're seeing that ramp? So that's number 1. Number 2, are you able to put a timeline around the Phase III? What broad -- I mean, you're starting ahead of year-end, which is consistent with what you said last quarter, but how should we think about overall timeline? So that's number 2. And then the last one for Keith, spend was closer to $24 million this quarter down from $30 million last year. You dropped overall full year spend expectations by $2 million to $4 million. How do we think about the second half progression? And I'm just trying to really get more at the -- what are we looking at for 4Q run rating as we move into 2019?

Keith, I'll let you handle the last one, but relative to the -- where we're getting traction, Randall, we -- the split -- we have the 15% of the scripts are coming out of primary care right now. And the balance of that, the 85% is reasonably split between ENTs and allergists. And it's interesting, allergists -- we have -- among this loyalist category, we actually have another group we define of people who really have a made it part of their practice habit writing 10 to 15 scripts per week, and we have a number of docs that are doing that already. And that's actually reasonably split between ENTs and allergists on that front. So we continue to feel very good about penetration of all segments. Clearly, we're making some good progress on the primary care side so it was -- I think it's a good sign that as we work to get the indication that I think we could have real interest on the side of the -- on the primary care side. There's obviously a lot of chronic rhinosinusitis patients in primary care offices right now.

Relative to timelines, nothing's really changed, Randall, from what we've been talking about previously on the -- and Keith can talk to the spend in a minute, but we had a really good meeting with the FDA. We're feeling really good about the work we did in advance of that meeting. And right now, we're heads down, we're going to get the patients enrolled in the trial in the back half of the year. We're confident we're going to be able to hit those goals in terms of enrollment. And from there it's just going to be how long it's takes to run the trial, and, as I said, there's nothing really new relative to our meeting with FDA that would influence any change in data which we -- that we said previously, Keith, it's 2021-ish, if you will, and then we have to file. So the indication is obviously during 2022, 2023, in that timeframe.

And then, Randall, with respect to your question on kind of 2H and 3Q, 4Q run rate. We had total OpEx of $54 million in the first 6 months of the year. We've given guidance of $117 million to $121 million for the full year. So you can do the math, there's going to be -- we would expect an acceleration in OpEx really driven largely by with the -- by the initiation of the Phase III pivotal program for chronic sinusitis in the back half of the year.

But from a SG&A perspective, are we looking at a reasonable run rate as we move into 2019?

Yes.

Our next question comes from Bill Tanner with Cantor Fitzgerald.

I had a couple. First one, Peter, on the upcoming CS trial, and I apologize I got interrupted when you were going through it, I think, in the prepared remarks, but wondering about any details to share or when you might have details to share. And I guess, specifically, just interested on the inflammation, how that's being measured and any challenges for demonstrating something there versus symptomology? And then I had a second question please.

Yes, on the CS trial. So when you have -- with their coprimaries there, Bill, as I think you know, so there -- you have to prove symptom benefit, and it's a composite of symptoms. You also have to show benefit on an objective measure of reducing inflammation in the sinuses. You may recall that we have a small Phase II trial, not a lot of subjects, where we had very encouraging data on that front. It's never been proven before, nobody's been able to accomplish it, but we're feeling really good about it, Bill. It's obviously -- it's something nobody has done. We have a Phase II program. There's, candidly, more risk here in this trial, we've said that publicly, versus a nasal polyp indication. But we're feeling really very good. But a lot of it based on some of the evidence that we're seeing in scans that doctors are providing us. We're getting a lot of information on the current product and looking at the scans that some of the docs are sending us based on real-world use, we're feeling pretty good about it. And I'll just leave it there. But, yes, I want to really highlight there is certainly risk here on that objective measure because it's -- nobody's ever proven it before.

Got it. And then just back on the seasonality topic, and it's, I guess, an unfair question to ask because you're going through your first season. Is this something that the company is really just going to have to deal with? I guess, as we look at it over the years, as the patient base compounds, the impact of any single season is going to be less impactful. So something you'll just have to deal with or something that, longer term, you're not going to worry about it. And then I guess the part B to that would be -- I'm assuming a priority, there's no reason to think that the seasonality would impact the refill rate. It would seem like it's more the new patient starts.

That's exactly where I was going to go, Bill, is that I think that -- we've sort of looked at it from the patient perspective, that the patient use of products -- certainly the disease is not very seasonal. The patient suffers symptoms all year round, they do have flare episodes that occur that get exacerbated by all kinds of things, in some cases, things like allergens but, in other cases, things like pollution and other things. So patients suffer all year round. They use the product all year round. But for a new start to happen, you need a patient in a physician office. And we just know that because the season, the allergy and sinus seasons drive people into physician offices, that's what's necessary for us to get a new start. Now as the business matures, we think that the impact will be less and less because all of a sudden you're relying more on your refills to drive your business. But we're still very early Bill, it's -- is what I would say.

And I'm currently showing no further questions at this time. I'd like to turn the call back over to Peter Miller for closing remarks.

We appreciate the questions we received. I hope you can sense our enthusiasm, we still -- I continue to have enormous enthusiasm for the product based on not only anecdotes from doctors, anecdotes from patients but significant research that we've done to really understand how the product is performing in the market for both patients and docs. And we're just going to stay after it, continue to believe we can build a really traffic business here, and I appreciate your support. Thank you very much.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation, and have a wonderful day.