Redhill Biopharma Ltd (RDHL) 2020 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you all for standing by. Welcome to RedHill Biopharma's Second Quarter 2020 Financial Results Conference Call. (Operator Instructions) Please be advised that today's call is being recorded Thursday, the 13th of August 2020.

And without any further delay, I would like to introduce the RedHill's executive who'll be with you on this call: CEO, Mr. Dror Ben-Asher; Mr. Micha Ben-Chorin, Chief Financial Officer; Mr. Rick Scruggs, Chief Commercial Officer; Mr. Gilead Raday, Chief Operating Officer; Mr. Guy Goldberg, Chief Business Officer; and Mr. Adi Frish, Senior Vice President, Business Development and Licensing.

Before we begin, we will read from RedHill's safe harbor statement. Please go ahead.

This conference call may contain projections or other forward-looking statements regarding future events or the future performance of RedHill, including statements with respect to RedHill's expectations regarding the closing of the strategic agreements with Cosmo Pharmaceuticals, the business promotion and other efforts related to RedHill's commercialization activities and the initiation, timing, progress and results of RedHill's research, manufacturing, preclinical studies, clinical trials, marketing applications and approvals, if any, and the clinical trials of opaganib in the U.S., Europe and elsewhere for the treatment of COVID-19. These statements are predictions and RedHill cannot guarantee that they will, in fact, occur. RedHill does not assume any obligation to update that information. Actual events, performance, timing, results or commercialization activities may differ materially from what RedHill projects today. Additional information concerning factors that could cause actual events, performance, timing, results or commercialization activities to materially differ from those contained in the forward-looking statements can be found in the company's annual report on Form 20-F filed with the SEC on March 4, 2020, and in its other filings with the Securities and Exchange Commission.

Transferring to Dror Ben-Asher, RedHill's CEO.

Thank you, [Moran]. Good day, everyone, and thank you for joining us. I remind everybody that for the first time, we are using slides today. We'll be using it later on. And therefore, try and make sure you click on the right link in order to follow the slides in a few minutes.

Our clear corporate focus remains on achieving rapid, sustainable and profitable revenue growth with operational breakeven plans for some time -- at some point next year, 2021. In that respect, the second quarter of 2020 has been a strong one for us, and we have generated record sales.

We are also making rapid progress on the R&D front, currently running 2 parallel global Phase II/III and U.S. Phase II studies with opaganib, sometimes called YELIVA, for COVID-19. Initial results and potential global emergency use authorization application with opaganib for COVID-19 planned as early as the fourth quarter of this year. In addition, FDA clearance to enter a pivotal Phase III study with RHB-204 for first-line NTM infections has been granted last week.

Protecting our employees, patients, colleagues and communities has been our primary focus throughout the COVID-19 pandemic period to date. And we continue to monitor developments. We maintain full employment of our dedicated sales representatives and employees. RedHill entered the challenging COVID-19 period in a resilient position, and it is emerging even stronger. This is no coincidence, as we are now reaping the benefits of building a resilient, agile, experienced, organized and highly motivated team and having diligently and gradually built a robust and durable U.S. commercial and R&D organization in recent years. We aim to become a leading specialty pharma leader in the U.S., utilizing both our organic growth capabilities, driven by RedHill's very own late clinical stage pipeline, as was the case with Talicia; as well as nonorganic growth competencies, driven by continued rollout of synergistic commercial product acquisitions, such as acquisitions of Movantik from AstraZeneca and Aemcolo from Cosmo.

With 100 sales representatives in the field and 3 well-protected and much-needed FDA-approved products in our commercial bag; an advanced and robust pipeline of drug candidates addressing large markets, including infectious disease, the importance of which public awareness is increasing by the day; continued strict financial discipline and sound cash position to further -- to be further strengthened by the important expansion of the strategic partnership with Cosmo for multiple products announced earlier today, we are confident and uniquely positioned for fast revenue growth in the coming quarters and years. I remind again the audience to press on the link, in order to see our slides later on as we present them.

I will now turn to our CFO, Micha, to discuss our second quarter results. Followed by the presentation of business highlights by Guy Goldberg, our Chief Business Officer; as well as the Q&A session during the remaining time. Over to you, Micha.

Thank you, Dror. Good day, everyone. I will provide a short overview of our financial results for this Q2. Second quarter of 2020 has been transformative for RedHill. In our first full quarter, promoting Movantik and Talicia, we generated record net revenues of approximately $21 million despite the challenges of COVID-19 environment. With a cash balance of approximately $56 million as of yesterday and an additional $12 million upfront payment expected from the agreement with Cosmo Pharmaceuticals, we are well positioned to continue our strong growth trend, while maintaining financial discipline.

We recorded net revenues of approximately $21 million and gross profit of $6.7 million, primarily attributable to Movantik, which is far higher than any previous quarter of RedHill. Research and development expenses were relatively small with $3.2 million compared to $2.8 million in the first quarter of 2020. The increase was primarily attributable to the initiation of the studies with opaganib for COVID-19.

We saw a reduction in operating loss, which was $12.5 million compared to $17 million in the first quarter of 2020. The decrease was primarily attributable to the gross profit from the sales of Movantik, partially offset by an increase of operating expenses.

Overall net cash burn in the quarter, excluding the Movantik acquisition from AstraZeneca, was $9 million, which was lower than the net cash burn of approximately $12.8 million we recorded during the first quarter of 2020. Our cash position as of June 30 was approximately $53 million. As of yesterday, our cash position was approximately $56 million.

We continue to maintain cost discipline during this transformative revenue record quarter. Importantly, we continue to maintain -- we are committed to maintain cost discipline as we continue to expand our commercialization activities for our GI products. While the current pandemic situation is not over yet and some unknowns remain, we still are in line to achieve operational breakeven in 2021.

I will now turn the discussion to Guy, and we'll be happy to take questions later on. Thank you.

Thank you, Micha. As Dror mentioned, we are for the first time giving a presentation on our earnings call. This is because this is an important moment in our company's history as we generated record revenues, and we want to give a lot of transparency and visibility around what we are seeing in these early stages of our commercialization activities. And also, we get a lot of questions around how everything has been affected by the pandemic, and we want to be able to show you that not only is RedHill growing rapidly, but also why we are so optimistic and enthusiastic about the coming years and quarters.

For the new folks on the call who are not familiar with RedHill, we are a rapidly growing U.S. specialty company, NASDAQ listed, ticker RDHL. We are fully integrated with 3 FDA-approved GI products that we are commercializing ourselves. This includes Movantik, which is indicated for opioid-induced constipation; Talicia, which is indicated for H. pylori eradication; and Aemcolo, which is indicated for travelers' diarrhea. We also have a robust R&D pipeline with several important late-stage products and a strong track record of success, including opaganib, a novel COVID-19 drug candidate currently in both a U.S. Phase II and global Phase II/III study that Gilead will elaborate on a little bit later.

Second quarter was one of the most important and transformative quarters in our company's history as we generated record net revenues. Q2 net revenues, as mentioned, were approximately $20 million -- $21 million, and we're looking forward to strong revenue growth to be driven by Talicia ramp up and Movantik sales. We are well positioned to reach planned operational profitability next year.

In addition to the milestones with these revenues, we had other important achievements. These include our acquisition of Movantik from AstraZeneca and regaining exclusive U.S. responsibility from Daiichi Sankyo. The renegotiated terms with Daiichi are particularly important as we believe they will significantly improve our gross margins from Movantik. In addition, ongoing parallel global Phase II/III and U.S. Phase II COVID-19 studies with opaganib are going well and preliminary data for the potential emergency use applications are expected as early as Q4 2020.

RHB-204 has been cleared by FDA for a pivotal Phase III study as first-line, stand-alone, orally administered treatment for pulmonary nontuberculous mycobacteria, or NTM disease. And as many of you saw the PR announced this morning, we have our exciting new Cosmo deal. We are expanding our relationship with this great company. Cosmo has been a fantastic partner. We have a great strategic collaboration and working relationship with them, and we look forward to doing great things with them in the future. Adi will elaborate on this transaction shortly.

So this slide discusses the impact of COVID-19 on RedHill. In summary, there have been no disruptions to clinical studies. Only a 1 quarter delay for our NTM study. And this was largely because we had to make sure patients could reliably and safely get to the investigators' clinic and that we could monitor the study effectively. We had no disruptions to the supply chain. We get that question a lot from investors. Our field promotion efforts were shutdown in March through May, like everyone else's, so we shifted during this period to remote promotion and continued intensive marketing activities. We have been returning to -- steadily to the field since early June. 2 critical components of that return for us are, first, that doctors' offices have opened up and are opening up and patients are starting to come back. And second, H. pylori diagnostic activities are returning and enabling positive identification of patients which facilitates treatments, and we'll provide you more data on this in the coming commercial slides.

This is our pipeline chart. The top part shows our commercial products and the bottom part shows our R&D products. Since we will provide detailed updates on our commercial products, Movantik and Talicia, and on the R&D side, COVID and NTM, I will briefly mention several other important programs that are not being discussed today, so investors new to the story can appreciate our diverse activities.

First, in Aemcolo, this is indicated for travelers' diarrhea. This is an important part of our portfolio, and we're taking many initiatives with this product right now to set it up for success when travel resumes. On the R&D side, RHB-104 for Crohn's. We had a successful Phase III study, and now we are working on a diagnostic for MAP infection before we begin our next Phase III study. RHB-102, we had positive results for Phase III in gastroenteritis and positive results in Phase II in IBS-D. And we recently had a press release announcing the publication of data from that Phase II study in the American Journal of Gastroenterology. RHB-106, our bowel prep product, which we plan to move into a Phase II study. And finally, in oncology, we had a -- we have a Phase II study -- we have 2 Phase II studies ongoing with opaganib and also upamostat.

For those of you who have been with us for a while, this slide puts us in perspective in terms of where we came from and where we're going. We've grown from an R&D company to a fully integrated company with a small-scale commercial operation to now being an important U.S. specialty GI company and one of the leaders in GI infectious diseases specifically. We have built a world-class commercial team headquarters in Raleigh, North Carolina, and a field sales team with 100 sales reps. With our continued rapid and consistent growth, both organically and nonorganically, as you see with Talicia, Movantik and Aemcolo, we hope in the coming years to be a leader in the specialty pharma in the United States.

I will now turn it over to Adi Frish to discuss the Cosmo deal that we had just announced today.

Thank you, Guy. Hi, everybody. We were very glad to announce this morning that we have expanded our strategic partnership with Cosmo Pharmaceuticals and have entered into a binding term sheet for multiple products. The new arrangement with Cosmo covers 3 important products: first, RHB-204 for first-line NTM infections. Secondly, Movantik for opioid-induced constipation, which we have recently acquired rights to from AstraZeneca. And thirdly, a new planned next-generation H. pylori therapy.

RedHill is set to receive $12 million in upfront payments and up to additional $9 million in milestone payments. Pursuant to the agreement, RedHill and Cosmo will co-develop a new novel next-generation H. pylori treatment. Cosmo will be granted with the exclusive European rights to the new drug and will pay RedHill several million dollars upfront, an additional $2 million upon European approval, plus 30% royalties.

Cosmo will finance the bulk of the cost of the planned pivotal Phase III clinical study with RHB-204 for first-line NTM infections with a $5 million upfront and $7 million in milestone payments. In return, Cosmo will be entitled to 15% royalties from RedHill. RedHill also selected Cosmo to be its exclusive worldwide manufacturer of Movantik as part of the transition of the rights from AstraZeneca on top of the manufacturing of RHB-204 and the new next-generation H. pylori therapy.

All in all, we are very happy to further strengthen our strategic relationships with Cosmo Pharmaceuticals as a leading well-known manufacturer and we want to extend our gratitude and appreciation to the Cosmo team for the invaluable support and growing relationships. This transaction is anticipated to initially provide RedHill with $12 million non-dilutive funding and will allow us to accelerate the development plans with a new next-generation H. pylori treatment and the planned Phase III study with RHB-204 for first-line NTM infections.

And I would like to hand it over to Gilead Raday, RedHill's Chief Operating Officer, to discuss 2 of our late clinical stage programs.

Thank you, Adi. I will provide a brief update regarding a couple of our leading Phase III programs addressing COVID-19 and NTM infection.

Slide 11. We are rapidly advancing opaganib, our novel drug candidate for treating COVID-19 patients, which shows promising antiviral and anti-inflammatory properties. Our rigorously designed global Phase II/III study has been initiated, and we plan to enroll up to 270 patients across approximately 40 sites in the coming few months. In parallel, our ongoing U.S., randomized, placebo-controlled Phase II study is approximately halfway through enrollment of the planned 40 severe patients. And we expect to complete its enrollment later this month. Encouraging data from compassionate use of opaganib has shown substantial benefit to hospitalize severe COVID-19 patients with marked improvement in clinical and inflammatory markers as compared to a matched case-control group from the same hospital.

Importantly, all the opaganib-treated patients were successfully weaned from oxygen supplementation and discharged from the hospital on room air without requiring mechanical ventilation. This as compared to 1/3 of the matched case-control group who progressed to undergo mechanical ventilation. If our ongoing rigorously designed study confirm the promising signals from the compassionate use, this could potentially support emergency use application for opaganib as early as Q4 of this year.

Slide 12. After extensive preparations, we are advancing RHB-204 into a pivotal Phase III study in nontuberculous mycobacterial infection, termed NTM. As announced earlier today, the NTM study is now supported by funding from our strategic partner, Cosmo Pharmaceuticals. NTM is a debilitating rare disease with no FDA-approved therapy for first-line treatment. RHB-204 is a simple, all in one, orally administered, stand-alone therapy intended to be the first approved first-line therapy, if approved by FDA. We have received FDA clearance for our pivotal Phase III study which is planned to enroll 125 patients across approximately 50 sites in the U.S. With FDA-granted QIDP designation, RHB-204 is eligible for fast track development, priority review and potentially 12 years of market exclusivity with orphan drug designation, for which we have already applied.

I will now turn it back to Guy Goldberg to update our commercial progress.

Thank you, Gilead. I would now like to talk about the much anticipated and rapid commercial progress we have made in the last quarter. We're fortunate to have Rick Scruggs leading our commercial efforts. Rick also brought within many of his colleagues from Salix. Salix was the #1 GI dedicated company in the U.S. before it was purchased by Valeant, and we have several of that highly dedicated and experienced team leading our efforts here, along with many other seasoned pharma executives. Rick is on the call and can answer questions later about our commercial activities.

In this part of the call, we are going to show metrics in detail not often shown by pharmaceutical companies in earnings calls. Some of these metrics we'll be showing just this quarter in order to help investors better understand our markets and appreciate why we are opportunistic -- why we are optimistic right now in these early critical stages of our commercial activities.

I'm sure everyone is familiar with the macro environment that the pandemic has created. The commercial pharma world was put on lockdown, just like everything else in the economy, meaning doctors' offices were shut, nonemergency lab work was frozen and in-person pharma sales activities were largely put on hold. This is the environment we're operating in. Fortunately, this is starting to change. This chart shows on an industry-wide level -- again, this is industry-wide; it's not a RedHill specific slide, just want to point that out -- the return of new-to-brand scripts. What we see is that the levels fell off considerably during March, but have been returning steadily. This is an important metric since launches depend on new brand writing by doctors. And again, I reemphasize this slide is industry-wide data.

We used the time when things were shut down to rev the engines. In addition to remote detailing, we have undertaken multiple campaigns such as direct mail, e-mail, online speaker programs, online advisory boards and many others.

RedHill has begun deploying its field sales force. We have progressed pretty quickly from being in almost virtual shutdown mode in March, April and May to returning in the field. In June, we averaged about 3 calls a day and now -- and most recently, in July, we're averaging over 5 calls a day, and that number keeps growing. This is not yet full capacity. What this means is that in the last few weeks, we're getting the impact of the sales force, and we are still not even at full force yet. And just to clarify, what this slide shows is the average number of calls per day done by a field sales representative in person. So a very important part of our launch and very good to see that number growing.

So we will now show some product-specific data about our main growth drivers. We will start with Movantik and then talk about Talicia. This slide shows our successful transition of Movantik to our hands and our initial success with the product in the first few months. Movantik script data before we acquired it, is what you see on the left-hand side. And the 4 quarters after we acquired it is what you see on the right-hand side. The 4 quarters are averaged out so that we are doing an apples-to-apples comparison, and just to be clear, we're talking about the right-hand part of this graph. We are particularly proud of this slide because it shows we were able to pretty seamlessly take over Movantik from AstraZeneca. Considering how challenging transitions can be and considering the conditions in which we did it in terms of the pandemic and a nationwide shutdown, we are very happy with how this has gone on. Our team was ready, agile and resilient, and it already shows.

So again, this slide shows 2 phenomenon. First, on the left, you see the PAMORA class of drugs for opioid-induced constipation, or OIC for shorthand, and that's what Movantik is a part of. And you see that it's held steady with the pandemic during this period. I think what we see here is that this indication is really all about a very real need faced by these patients. It's debilitating; as one of our KOLs told us, OIC is not dose or time dependent. This is an important and reliably steady market addressing an important medical need.

And then on the right, again, you see the Movantik numbers. And you show that -- you see the great effort made by our commercial team, led by Rick and also David Wasserman, our Senior VP for Alliance and Project Management, to take over the new product as quickly and as smoothly as possible. Rick and Dave worked together for many years at Salix and did exactly these types of acquisitions and product transitions several times. So we benefited from the steep experience as well as the helpful cooperation of our counterparts at AstraZeneca. For a small company to do this so effectively, I think, is pretty remarkable.

So the previous slide broke out performance before and after the transition. This slide provides more granularity on the monthly script performance of Movantik and the larger PAMORA class. Again, Movantik belongs to this PAMORA class of drugs targeting OIC or opioid-induced constipation. This slide shows both TRx and NRx, so total scripts and new scripts. While it is still very early, we are encouraged to see already a slight uptick in script volume. And we're excited about seeing what the coming quarters will bring with our energized, focused and larger sales force.

On that last point, the bottom chart is important because, as we have said before, we actually have a larger sales footprint than AstraZeneca had at the time we took over the product. This is comparing Q1 and Q2. We're targeting more physicians, and this chart shows those numbers as of now. As we continue to grow our sales footprint, we plan to reach more than 20,000 health care professionals with Movantik. Movantik has excellent coverage and preferred status, and this slide shows that. AstraZeneca did a great job and we inherit that effort. We are thrilled that both with government and commercial coverage, and also with overall coverage and preferred status, we are in great shape to begin with right off the bat, and we will continue working to improve coverage.

This slide shows our efforts in addition to our sales activities or for some creative and important initiatives to drive Movantik growth from the marketing side. And this includes our commercial advisory boards, which helped deepen customer insight; our educational program to promote engagement; segmentation and targeting activities, to make sure that additional targets that we're reaching increase our share of voice; and multichannel marketing, to make sure we increase digital and non-personal activities.

I will now discuss Talicia launch performance. Talicia has a soft spot for all of us here at RedHill as we developed the formulation internally and passed 2 successful Phase III studies and got the drug fast-tracked and approved in an expedited manner and on-time in 6 months with FDA. And now we are bringing the product to market. We launched the product in mid-March, right into the early heights of the COVID pandemic in the United States. So it has been on the pharmacy shelf around the country since then. Along with the rest of the industry, our sales force were pulled out of the field and worked from home between March and May. We were able to gradually launch this product in the field in the last 2 months. Once physician offices opened up and labs gradually began operating in many parts of the country and patients started coming back to in-person visits their offices -- to their doctors.

Now that things are gradually returning to a new normal, we have been out there with our sales force since early June and are already seeing scripts growing. Talicia is promotional sensitive, and we are excited to see this trend continue. And strong growth in the coming quarters and years to capitalize on the immense potential of Talicia, addressing carcinogenic bacteria that affects 100 million Americans and over half of the world's population.

We have put a lot of effort into gaining commercial and government coverage for Talicia and have had initial success with it. We're off to a great start, and we will continue to register wins. This slide shows current commercial and government coverage on the right and on the left, our growth in preferred coverage since launch. This is a select list of our coverage wins. This includes importantly, Express Scripts and Prime, 2 of the biggest PBMs in the United States in terms of covered lives.

And finally, these are some of the select marketing activities -- marketing initiatives for Talicia that we are undertaking to supplement our sales efforts. We have a lot more going on in all fronts. But just to point out, there's increasing activity, driving engagement and uptake through sales and non-personal interactions, educational programs, market access wins that we discussed before, and driving growth through the measurement of performance and adjusting execution where needed.

I will now turn it over to Micha for a discussion of the financial highlights from this quarter.

Thank you, Guy. We are well positioned for reaching planned operational profitability in some point next year. Strong revenue growth with net revenues of approximately $21 million in Q2 and reduced operating loss of $12.5 million due to efficient commercial structure and cost discipline, supporting also low cash burn. Cash position of approximately $53 million as of June 30, 2020, and approximately $56 million as of yesterday before additional expected $12 million upfront payment from Cosmo Pharmaceuticals in the coming weeks. Completed the acquisition of Movantik followed by transaction with Daiichi Sankyo to improve gross margin and provide full commercial control over the brand and add Daiichi Sankyo as a shareholder of RedHill. Also favorable terms of healthcare royalty financing, mostly used for the acquisition of Movantik from AstraZeneca.

I will now turn the discussion to Dror Ben-Asher.

Thank you, Micha. Thank you, Guy. Thanks, Adi, and Gilead. Gino, we will now take questions during the remaining time.

(Operator Instructions) Our first question comes from the line of David Hoang from SMBC.

Congrats on the quarter. Good to see Movantik and Talicia off to a good start in your hands. I had a few questions, first pertaining to Movantik. So with the number of reps you have out there, can you just give a little bit of color on how you think your strategy differs from what AstraZeneca was doing from the product, maybe beyond just kind of pure number of reps? And where you think you can drive additional incremental sales over the next few quarters? And in terms of the split of scripts between inpatient and outpatient, my understanding is that you're focusing mostly if not solely on outpatient? And do you think you can get the growth in Movantik scripts by promoting in that setting?

Thank you, David. I'll refer the question to Rick Scruggs, our Chief Commercial Officer out of Raleigh, North Carolina. Rick, please?

Sure. So thanks for the question. Our focus is to increase Movantik business. We are over 75% of the PAMORA class so we're the dominant player in that class. But to grow the business, we are going to look to bring more patients from over-the-counter laxatives because that market is huge, so bring more patients into that group. And we are focused on 18 -- we're actually focusing over 18,000 prescribers out there with Movantik. So we have increased -- well, that's our total call file. So we are increasing our number of positions we are making presentations to and driving the business. So is there some other piece of your question I missed? I heard part of it, part of it I dropped off of.

Oh, yes. That does address the first part. I think the second part I had was, is there -- historically, has there been an inpatient hospital component to Movantik? And if so, what -- I guess, what percentage of total scripts in the business was that?

So there is an inpatient part of the business, but it is not majority of the business. So it is an area we are looking at to see if there's something additional we could do there, but it is not the major -- it is not a focal part of the business right now.

Okay. Got it. And then I just had a question regarding Talicia. Obviously, we're in the early days of U.S. commercialization here. I'm sure you want to see how that goes. But in terms of ex-U.S., and in particular Japan, where we know there's a higher incidence of stomach cancer and willingness to treat asymptomatic patients. Have you had any thoughts about potentially launching Talicia there? And any discussions with potential ex-U.S. partners in that regard?

Thank you, David. I'm glad you brought it up. For the benefit of the audience, over half of the world's population is infected with H. pylori. This is a carcinogen class I, meaning it's definitely linked to malignancies. Specifically gastric cancer from which probably 900,000 people are dying every year. This is a very serious global public health concern. In China alone, we are probably looking at 700 million, maybe 750 million infected people. And in India, even more. In Japan alone, there's probably 1.5 million treatments a year. And in the U.S., probably 2 million treatment here to begin with. So it is a major public health concern outside the U.S., indeed.

We are in discussions with potential partners in some very important territories. There's a lot at stake with such transactions because you have to make sure the partner is the right one. You have to make sure that the pricing is the right one. You have to make sure that the consideration that RedHill's shareholders benefit from is appropriate and so on and so on. Therefore, we are not rushing into an ex-U.S. transaction. If and when we decide to strike one, and we did receive proposals already, to be clear, which we declined for the most part, we will announce publicly. I hope that answers your question.

It does. That's very helpful. And then just one last one, if I may. Obviously, we're looking forward to getting some data for opaganib towards the year-end. I'm just wondering if you've thought about sort of the market opportunity in COVID, if you're able to get the emergency use authorization. And to what extent does having Gilead's pricing on remdesivir out there influence your thinking around the potential economics for opaganib?

Yes, another very good question. I'm glad you asked. Yes, we've been preparing for ramp-up, for pricing strategy, for capacity requirements. We have been doing a lot of work as of probably March this year. We have engaged in a lot of discussions internally and externally, including with government, about those issues. We will be ready with a commercial and pricing strategy. By the time that all goes well, the studies that we are running currently with opaganib will lead positive results. If the results are positive, and assuming we are able to successfully file applications for emergency use, not only in the U.S. but globally, we will have the strategy in place that we have been working on for several months now. I hope that answers your question.

That does.

(Operator Instructions) Our next question comes from the line of Scott Henry from ROTH Capital.

Just a couple questions. First, on the model, the gross margins, a lot lower in this quarter, but obviously that's going to change with the new deal. Could you give us a sense of what we should think for Movantik gross margins kind of at a steady state?

Thank you for bringing it up, Scott. The Daiichi agreement that we just executed, indeed is pretty dramatic when it comes to gross margin. But to provide more color, I'll refer to Micha, our CFO.

Scott, thank you for the question. So currently, we are paying royalties to both Daiichi and Nektar, and we have a cost of goods sold paid to AstraZeneca, as well as some payment with respect to the efforts in the transition period to sell the product. From the next quarter, as we published, our new deal with Daiichi Sankyo will come into effect and will reduce very substantially the cost of goods sold because the royalties will go down. And we will see the impact already from the next quarter.

Okay. Now, in terms of magnitude, would you expect a halving of the cost of goods sold? Or just trying to get some sense of the magnitude of that reduction.

So we are going to move to mid-teens royalty level with Daiichi from the current level, which will reduce more than 20% from what we pay today.

Okay. And then a question on the COVID-19 trial in the U.S. If it finishes enrolling in August, is there a possibility we could see data in September?

It is possible. We need to complete enrollment. Right now, we are halfway through. We're adding sites and it is possible. We cannot commit to that because these things fluctuate. But the plan is to try to generate the initial results indeed this quarter.

Okay. Great. And then I guess, shifting to the pipeline. Talicia, obviously, just launching right now. And I'm hearing about a next-generation product. Could you talk about what the next-generation products could bring to the table that could be additive to what you already have with Talicia?

Thank you. We always think ahead. We just launched Talicia, which is a great product. It will do very, very well. We expect it to become the standard of care relatively quickly. And as soon as patients come back to pre-COVID level of inpatient, in-person visits to the clinics, as long as they become, again, eligible for testing, they show up at the lab, they show up at the clinics, they are tested, which is a prerequisite for a Talicia prescription, we see Talicia growing very nicely in the coming quarters and years. But we think ahead, and we are thinking hard what else can we do in order to provide patients with a next-generation improved Talicia with a number of parameters, which I will not go into. That is the essence of the agreement with Cosmo, which has a very strong, well-proven formulation capabilities, manufacturing capabilities, and the plan is to be ready with the next-generation Talicia on time as part of the natural cycle of such product. I cannot go into details, given that this is a development program.

Okay. Understandable. Final question. You mentioned breakeven in 2021. The question is, could you give us a sense of what the breakeven revenue level would be necessary, perhaps on a quarterly basis, for you to reach breakeven? Obviously, it depends on the mix, but in general.

Thank you, Scott, for the question. So the range that we think we can achieve the desired profitability breakeven point is in the neighborhood of $30 million, $40 million per quarter of net revenues.

Okay. Great. And maybe I'm just going to sneak 1 last question in. The G&A in the quarter, $6 million, it was a step-up from Q1. Is G&A representative of what we should think going forward?

It is representative, taking into account that we got some reduction in our G&A level due to the PPP program of the U.S. government.

(Operator Instructions) Next question comes from the line of Ed Woo from Ascendiant Capital.

Congratulations on the quarter. My question is more or on the sales force ramp up. I know you mentioned that in June, they started to go back to the field. In July, they really started to step up. When do you think that they'll be fully back to speed?

Thank you, Ed. Pre-COVID, we had about 3,500 calls a week with the same 100 reps, give or take. Right now, as we speak, we are at around 2,600 per week calls, in person per week. This is up from nearly nothing in April and May, obviously. So we are well on our way to get there. Of course, a lot depends on various restrictions, local, federal, that have to do with the pandemic, as spikes happen locally or on a state-by-state basis. With that said, I'll refer to Rick to provide additional color.

Thanks for the question. So yes, we did pull our sales force out of the field March 13, kept them out through April and May. And returned beginning of June, but offices were not opening up as rapidly in June. We have been allowed more access to offices. They do want to see us, but there are restrictions. So some offices are still closed, some are open. But as Dror stated, our calls, in-person visits with physicians have increased from June to -- from 3 to 5, and we anticipate those to continue to increase. It's all -- and we also have to look at local government regulations as to what is going on as far as ability to cross state lines and things like that. But we are working in the COVID environment. Our guys are working, social distancing, wearing masks, being cognizant of offices' requirements, but we have been welcomed back into the offices.

Great. And then a different question is, I know in the past, you guys talked about trying to get to 150 sales rep. Is that still a medium-term or short-term goal?

Right now, we are comfortable with 100, and we do not see a justification with surrounding uncertainties to add another 50 sales representatives. However, over time, we will certainly grow the number of sales representatives and reduce the size of territories and increase the number of call points and so on and so on. I daresay not only to 150 but 200, depending on the number of products that we have and so on. That said, I'll refer to Rick to share his thoughts.

So yes. And you do remember correctly, as we did early on map to 140 salespeople, and that's what we're targeting. And as we moved into acquiring Movantik and then COVID happened, we realized that access was going to be more difficult. So we reanalyzed and targeted the top prescribers for Movantik and Talicia. And so therefore, we wound up with 100, 102 right now, and we're happy. That number is good. We feel like we can achieve our goals for this year. And as Dror stated, we'll look into 2021 as we move to a post COVID environment, to see if there is an opportunity or a need to bring on additional salespeople. Right now, we're very comfortable with our size of our sales force and also hitting our targets for the year.

The next question comes from the line of Matt Kaplan from Ladenburg.

I wanted to focus in on your NTM program a little bit. So potentially a significant opportunity for you. Can you describe your plans for Phase III and specifically give some detail in terms of potential time line for a trial that you're planning?

Thank you, Matt, and good morning. Yes, we're very excited about the FDA clearance to initiate the pivotal Phase III study. The design of the study is such that it will address safety and efficacy evaluation of RHB-204, evaluating endpoints of microbiological, laboratory analysis of sputum conversion and also clinical outcome. And we are in continued discussions with the FDA about exactly when and which time points and how to implement the endpoints in the study.

Okay. And when you launch the study, how long do you think it would take to enroll and complete?

So the study is planned to enroll 125 patients randomized to RHB-204 versus plus placebo in, of course, first line patients, naive patients. And we hope to enroll up to 50 sites in the U.S., up to a year of enrollment. And then the study is for a year of treatment post conversion. So we hope to have results along that time frame.

Great. And then, I guess, maybe a question for Rick. In terms of Talicia and the initial launch here, as you transition from kind of the COVID to post COVID time in terms of launching, do you anticipate continuing to have kind of the virtual aspect or in terms of marketing kind of using the Internet and that aspect of marketing in addition to kind of the in-person calls?

So thanks for the question. Yes, we are. We have been doing webinars. We've been doing lunches remotely. We've done all these things. We do have -- actually have a position in our marketing department that focuses on this area. And so then it'll be -- it will continue to be marketing efforts through the Internet, through additional branding efforts outside of actual the physical sales call. So that's both. And both of these are used with all of our products.

No further question at this time. Please continue.

Thank you, Gino. Thank you, everybody, for joining the call. Please reach out to us if you have any additional questions. We always remain available. Keep safe and wish you all a pleasant day.

Thank you. And that does conclude our conference today. Thank you all for participating. You may all disconnect. Have a good day, everyone, and stay safe. Thank you.