Aytu BioPharma, Inc. (AYTU) Q2 2018 Earnings Report, Transcript and Summary

Good afternoon, everyone, and thank you for joining us for the Aytu BioScience Fiscal 2018 Second Quarter Business Update Call for the Quarter Ended December 31, 2017. With me this afternoon are Aytu's Chief Executive Officer, Josh Disbrow; Chief Operating Officer, Jarrett Disbrow; and Chief Financial Officer, Dave Green. Aytu BioScience issued a press release earlier this afternoon with details of the company's operational and financial results. A copy of the press release is available on the news page of the company's website at aytubio.com. I'd like to remind everyone that today's call is being recorded. A replay of today's call will be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, an archived webcast replay will be available on the company's investor page, under Corporate Presentations and Media, at aytubio.com, following the conclusion of this conference call. Finally, I'd like to call your attention to the customary safe harbor disclosure regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations, and future potential operating results at Aytu BioScience. Although management believes these statements are reasonable, based on estimates, assumptions and projections as of today, February 8, 2018, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephone or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors including, but not limited to, the factors set forth in the company's filings with the SEC. Aytu undertakes no obligation to update or revise any of these forward-looking statements. I'd now like to turn the call over to Aytu's CEO, Josh Disbrow.

Good afternoon, and thanks for joining us for today's quarterly update call. As Rocco just said, I'm joined this afternoon by our COO, Jarrett Disbrow; and Dave Green, Aytu's recently appointed Chief Financial Officer. Aytu's second fiscal quarter ending December 31, 2017, was an important time for the company, during which we demonstrated continued traction in the marketplace with Natesto, the company's FDA-approved treatment for hypogonadism, while also significantly improving the company's capital markets presence by up-listing to NASDAQ. Additionally, in Q2, we continued to grow our business outside the U.S. for our MiOXSYS male infertility device, having now sold that platform into 36 countries around the world. Finally and very importantly this quarter, we recruited and appointed Dave Green as our new CFO, and we're pleased to have attracted such a high-caliber individual with strong credentials in finance, accounting, strategic transactions, valuation and operations across his 25-year career as an investment banker, adviser and as a public company CFO. I'll ask Dave to introduce himself formally when he covers the key financials for this quarter. First, though, some operational highlights on the company's performance on what was another solid quarter for the company. This quarter, we achieved all-time high prescription rates for Natesto and have more physicians prescribing than in any quarter since the product's launch. For the quarter, we generated 2,501 total prescriptions, which represents 23% growth over the previous quarter and 317% over the same quarter last year. Also, in the second quarter we had 1,178 prescribers writing Natesto, which is up 19% from the previous quarter and up 174% from the same quarter last year. Additionally, pull-through from our field force drove wholesale demand to its highest level to date. For the 3-month period ending December 31, we sold 7,163 Natesto units through our wholesale channel partners, which is a 16% increase over the 6,180 units wholesalers pull-through last quarter and up nearly 400% from the same period last year. Importantly, also, we have now consistently exceeded 200 prescriptions per week from December and for the month of January, which continues to be up into the right. For context, we were in the 155 to 175 range for TRx per week in the September time frame, so we've grown significantly since our last update call. We also saw continued increases in placements for our MiOXSYS male infertility system and good enthusiasm in the market from some of the most notable infertility and andrology centers in the world. We, of course, have also continued to identify potential assets that could be additive to our commercial portfolio, and several meaningful discussions have been proven -- that have proven fruitful. That said, we're only looking at products we believe are unique opportunities that we could acquire or license on good terms and be efficiently grown through our commercial infrastructure, including our U.S. sales force and our ex U.S. distribution network. We remain focused on our core assets, and the growth trajectory speaks to continuing to invest in and focus on the products that are driving value for Aytu today and into the foreseeable future. Having covered some key highlights to start the call, let me now hand things over to Dave Green for a review of the company's financials. Before you do that, though, Dave, please summarize your background for our shareholders and the other listeners.

All right. Thanks, Josh, and thank you to everyone who's joined us today. We appreciate your interest and investment in Aytu. By way of background, I've been focused in life sciences my entire professional career. I started out in clinical research in biotech labs after finishing an undergraduate degree in chemistry. Then after a chanced introduction to the business school of the University of Rochester, where I was busy characterizing in-film receptor activity, I changed directions and enrolled in the MBA program to pursue finance. From Rochester, I went on to advise a broad range of life science and tech companies at Duff & Phelps, and E&Y Capital Advisers that were engaged in M&A, financings and other strategic transactions. Then, after 13 years as a banker, I joined a public medtech company in Salt Lake City as CFO, which we quickly built into the leader of our space and then sold to C.R. Bard. Since then, I served as CFO of both public and private medical device and pharma companies, typically, earlier-stage enterprises with substantial growth opportunities, much like Aytu. For this chapter, I'm extremely pleased to team up with Josh and Jarrett and the rest of the team to build Aytu into a leading urology company. We have a fantastic group, punctuated by a highly capable commercial infrastructure and sales rep coverage across the U.S. As I looked at Aytu, I came to realize that there are really few earlier-stage life science companies with the commercial experience, capabilities and leadership that Josh and Jarrett have assembled here at Aytu. And with this commercial capability and the right product portfolio, we can create substantial enterprise value. I'm truly excited about this team and the company's bright prospects. Now turning to the quarterly financials. For the second quarter ended December 31, we booked $1.05 million of net revenue, which is 32% greater than Q2 last year and consistent with the revenue recognized last quarter. Now let me provide some more context on Q2 revenue. While essentially flat with last quarter, as Josh mentioned earlier, Q2 revenue was based on significantly higher Natesto pull-through volume. This dynamic, with growing unit volume, which is obviously positive but muted revenue growth, is a result of growing prescription sales to first-time Natesto patients. Many of our first-time patients received coupons and trial vouchers, which reduced the cost to patients of trying Natesto, that negatively impacts our recognizable revenue. As a result, these initial sales to new patients generate lower average revenue for Natesto prescription. The use of discount coupons and vouchers, which is common industry practice, is the most efficient tactic to convert physicians and patients from insurance competitors to Natesto. We view the cost of discounting at this early stage of the Natesto life cycle as a necessary startup cost, a cost which is expected to have less and less significance as we continue to build our base of prescribing physicians and patient customers. Now to advise you on how we continue to actively manage this element of our business, Josh will take you through our programs to accelerate growth and reduce the level of discounting we expect as we grow the business. Along with booking our second straight million dollar revenue quarter, we also reduced our burn. We've decreased cash use in operations to $3.1 million this quarter from $4.2 million last quarter. Our operating expenses held steady, roughly in line with Q1, as we significantly narrowed our loss to $3.7 million for the quarter. We ended the quarter with $4 million of cash on the balance sheet. I also want to mention that December marked the company's highest sales month on record, which was led by Natesto. With this performance, I reiterate Josh's sentiment, and I am pleased with the advancements made by Natesto and MiOXSYS and with the progress made by our commercial team. Altogether, I'm pleased with the performance metrics in financials that we've reported. Going forward, we expect to grow product sales, drive down our burn and maintain expense levels at or near current levels. And through the introduction and refinement of several key supporting initiatives that Josh will outline for you, we believe that, for the second half of 2018, we will deliver stronger yet top line growth led by Natesto. Let me now hand it back to Josh for some additional perspectives.

Thank you, Dave. So as Dave just indicated, sales were again over that $1 million mark, with Natesto accounting for proportionally more sales than in recent quarters, and burn has come down this quarter to a manageable level that we do indeed expect to continue to decrease. However, and despite the significant prescription growth we are seeing with Natesto, we know we can drive revenues higher. We can do this by continuing to increase prescriptions, but with lower patient and pharmacy discounting and higher refill rates. We're confident that via an increased investment through a highly strategic approach, Natesto will be positioned for more growth than we've seen in the past. I'll remind you all that we're still in the very early innings here and the business is being built from the bottom up, and the results continue to be encouraging. The hard part for Natesto, I remind you, has been done. It has already been FDA-approved, which, by the way, has proven to be very difficult for prospective competitors. We've also successfully now laid the foundation of early prescribers and initial patient starts. Now is the time to invest in further growth and make Natesto into a leading branded product in the TRT category that we believe can capture meaningful market share and become a standard of care in low T treatment. Before going into our strategic growth plans for Natesto, let me speak to a relevant market event that we believe sets the stage for Natesto being in a protected market position, potentially for years to come and potentially more than we have previously estimated. I described this in a shareholder letter that I sent a few weeks ago, so for those of you who didn't receive that, I'll revisit what I said. On January 10 of this year, Lipocine announced that an advisory committee of the U.S. Food Drug & Administration voted 6 in favor and 13 against the benefit to risk profile of TLANDO, Lipocine's oral testosterone product candidate for testosterone placement therapy in men with hypogonadism. Additionally, the day before, on January 9, the FDA held a separate advisory committee meeting to review privately held Clarus Therapeutics' oral testosterone candidate, JATENZO. The committee also voted against approving Clarus' candidate, primarily, over safety concerns. Thus, with these negative votes, it is highly unlikely that either product will be approved by the FDA at this time, and a prospect of an FDA approval at any time in the future remains in doubt. We believe that the recommendations to not approve TLANDO and JATENZO could yield important commercial benefits for Natesto and further bolsters Natesto's unique market position as the only FDA-approved TRT without a black box warning, explicitly warning users against the risks of transference. As I mentioned, one of the safety issues cited as a reason for the negative outcome sentiment on this oral testosterone therapies is related to these products' cardiovascular risk profiles as presented in their NDAs. Also, and more generally, an increase in hematocrit level is broadly cited as a safety concern in the TRT category and has been noted to be an issue of potential focus for future TRT product candidates with the FDA. Importantly, and in direct contrast to the agents in the TRT category, in its FDA approval study, Natesto specifically demonstrated no significant increase in hematocrit levels and may therefore offer an improved safety profile over the established products in the category. So with 2 prospective competitors now highly unlikely to gain market clearance in the U.S., we believe the opportunity for Natesto becoming an increasingly accepted treatment in the $2 billion category is more pronounced. Our market position may be more secure than ever, given these developments, as these outcome votes may very well keep these products off the market. Of course, though, we'll continue to evaluate potential competitive threats as they arise. Independent of these notable market events, though, we view Q2 as a successful quarter for the company at this early stage. Despite that, we seek some significant opportunities to inflect our sales trajectory for Natesto and to now begin reflecting more meaningful net sales results in the coming quarters. This quarter, while we did grow significantly in terms of prescriptions, we didn't experience as much sales growth as we would have expected, as we've been discounting Natesto prescriptions for patients to a very high degree. This is common with any branded prescription product, particularly given the payer environment in 2018. But given this, we now need to drive sales and move the products growth to net sales reduction more in line with other branded therapeutics in the TRT category, which are more in the 50% range. As a company, we seek 3 key drivers of Natesto growth in the near term to enable revenue growth that is much more reflective of our prescription growth rates. A primary source of growth will come from a new patient reimbursement support program we are just rolling out that we call the Natesto Support Program. And through this, we expect to realize more new patient prescription pills by virtue of gaining a higher proportion of patient's prescriptions covered on the front-end, while getting a higher refill rate and higher revenues for those patients in the months following their initial fill. In the second quarter, we began planning the Natesto Support Program, which, in short, is a white glove patient reimbursement access program, through which we expect to increase the prescription first fill rate at pharmacies, increase the number of refills and improve what is currently a low realized or net selling price for Natesto. In short, the Natesto Support Program will allow physician offices that want to prescribe Natesto for their patients to opt into a managed support program that enables our designated service provider to assist patients and physician offices with patient benefit reviews, prior authorizations, step-edits and the pharmacy-related fulfillment issues that often arise in a prescription fill process. So if a physician's office opts into and elects to participate in the Natesto Support Program, we can essentially begin to service that office's one-stop shop for testosterone therapy, in guiding patients to their initial prescription fill, offering that patient prior authorization support, sending that patient refill reminders and ultimately providing a high level of engagement to the patient. None of that stuff has been occurring up until this point, we just rolled this program out last week. So this, in turn, we expect will lead to more prescriptions, more physicians writing more broadly and getting more realized dollars for each new and each refill prescription that gets generated. Already in only the first full week of implementation, we've seen multiple cases of patients now getting insurance coverage for Natesto that had previously been denied. Also, multiple offices have reached back out to patients who had previously received a Natesto prescription but its refill wasn't covered by their insurance carrier. Those offices are now beginning to enroll those patients in the Natesto Support Program. More to follow, but the early signs are showing that, when reimbursement can be effectively managed, clinicians are much more inclined to prescribe Natesto for their patients and the refills we expect will follow. A second key source of growth will come from increasing the body of clinical evidence supporting Natesto. We recently started the study with the University of Miami and Dr. Ranjith Ramasamy, the Director of Male Reproductive Medicine and Surgery. The study seeks to demonstrate whether or not Natesto treatment results in the production of more normal sperm levels than is typically observed when men take testosterone. Administration of existing testosterone replacement therapies commonly leads to diminished luteinizing hormone and follicle stimulating hormone, which serves as important hormonal regulators and assisting sperm production. Thus, testosterone supplementation often leads to diminished or nonexistent sperm, and that's a significant issue for hypogonadal men who are of childbearing age. So given the recently presented data on Natesto demonstrating minimal impact on FSH and LH, this study will seek to confirm if, in fact, Natesto can help men maintain normal or near normal semen parameters. Aytu is serving as a sponsor of this clinical study, and we look forward to sharing the results once the study has been completed. If through this study Natesto-treated patients maintain sperm production and normal semen quality, it will be a significant finding as this would be the first such study to demonstrate a limited or lack of effect on semen parameters in men undergoing testosterone replacement treatment. More to follow on this in the coming quarters. Finally, as part of our strategy, we expect to more aggressively pursue third-party payers to cover Natesto more broadly. Currently, approximately half of U.S. plans cover Natesto prescriptions to one degree or another, but that leaves half of our potential patients either without Natesto coverage or with coverage that requires patients and physician offices to jump through insurance groups. Thus, we've recently hired a consultancy comprised of managed care professionals that we retain in order to begin going after the most prominent payers in the country. We've had some early indications of interest from both national payers and regional plans, and we believe that in 2018 and 2019, we can generate multiple meaningful contracts with payers to alleviate some of the step-edits and blocks we're currently encountering. Working with payers doesn't derive immediate results, but we think we can get some important wins to position us well for late 2018 and starting in 2019. And with some payer wins, we believe we can further increase our net selling price, our refill rates, and ultimately, revenues. This coverage will work hand-in-hand with launching the Natesto Support Program that we've just rolled out a week ago. So we're enthusiastic about the momentum in the field, and we believe these implemented strategic changes will go a very long way to further inflect prescriptions to gain more market share and ultimately drive to a higher net sales number that each script will generate. So with that, we conclude our prepared remarks for the quarter. At this point, we'll open up the -- the call for questions. So Rocco, we'll take some time now to prepare the lines for questions.

[Operator Instructions] Today's first question comes from Monish Bahl of MHB Capital.

Just a couple quick questions. Maybe I have 4 -- 4, 5 questions really quickly. One is, can you tell me what your gross to net is today? I know your goal is to get to 50%, but can you give me some short-term objectives over the next several quarters, for example? And two, with regard to the Natesto Support Program, I know that's only been launched, I think you said 1 or 2 weeks ago, can you give me an idea of where this has been implemented to show that it works with regard to a new product launch? And then, third, with regard to the competitive landscape, can you quantify or give me some sort of indication of the success you're seeing with regard to the lack of competition because of the 2 competitors getting FDA rejection? That will be great for right now.

Thank you, Monish. Appreciate you dialing in, and thanks for your questions. So we can share, generally, on where we are with respect to gross to net. So as a company, we've published this, obviously, in our Qs and Ks, we've got over a 50% gross to net across our product portfolio. Now we don't enjoy that gross to net with Natesto, it is less than the industry standard or the market standard in testosterone replacement of around 50%. While we haven't specifically said what that is, it's a reasonable step below that, and we do think it's going to take a few quarters to start creeping back up to really what is more a nominal level of closer to 50%. Axiron sort of in its twilight was in the 50% range. That product, of course, has been discontinued from the U.S. market. So we realistically expect that the discounting that will be required, the rebating, the couponing and ultimately the all-in cost to essentially sell the product will be hovering in the 50% range. Again, we haven't disclosed specifically what it is, we're below that. We think this program, the Natesto Support Program, will go a very long way in helping support that. Because what's happening right now is men are going to the pharmacy and we're giving them essentially free goods, initially. We're giving them a voucher to start and get their first prescription or first month free. And that's great, and everyone feels good. But ultimately, that voucher, if they have -- if that physician office has not implemented the prior authorization, which is a requirement across the board in this category, those men are coming back to get their refill and they're experiencing essentially a cash, an out-of-pocket price for our prescription product. That's often a walkaway point. So the Natesto Support Program will essentially, on the front-end, enroll the patient in the program. And I'll get to your second part of your question, which is give us a sense for how successful this has been for other companies and other brands. So on the front end, the physician office will fill out a form, they will enroll the patient in the support program, they will put essentially all the patient's demographics in there, inclusive of the patient's insurance card, inclusive of the patient's test scores with respect to their serum, testosterone level, their LH, their FSH. That will then be faxed to a case manager that will, with white glove service essentially reach out to that patient, and ultimately, enable him to get pre-authorized, understand what his benefit is, if he has a benefit, get a sense for his co-pay and get him pre-authorized, not just for that first prescription, but for ultimately a prescription that could be good for -- refill that could be good for up to 12 months, in many cases. Right now we're not getting that. We're getting one prescription and, typically, we're getting, on average, about 0.7 refills for every prescription we generate. That's relatively low. It's not as low as it might sound because the category is about 2 to 2.2 prescription refills per - or total prescriptions to new RXs. It's a very long way of saying we think we can make a substantial revenue by simply getting patients prior authorized from the front-end and essentially getting their refills. Beyond that, the patient's case manager will reach out on a monthly basis, remind of refills, work with the pharmacy to ensure the product is stocked and make sure that they understand how many barrels they need to have dispensed, work with the patient's physician staff to make sure that everything goes smoothly. So this is obviously something that requires investment, that obviously is something that will take some time to implement. But for those brands that have come before in these specialized type areas where reimbursement is reasonably challenging, it has been successful. I can't and it wouldn't be prudent to give you appropriate numbers, but in categories very similar to this, for example, in the migraine category, there are products that have distinct advantages over their generic competitors. But the generic competitors are entrenched and they're essentially -- they essentially command the payer market. They have preferred status because there's a rebate in place or they're generic. In cases where these type of services are used, we -- they see significant, in some cases 20% or 30%, increases in prescription rates, but a multiplier effect with refills and in some cases a multiplier effect across the board and top line sales growth. That takes some time, but we believe this is something that can take Natesto from the hundreds of prescriptions on a weekly basis to multiples of that. I won't guide you specifically, but we believe that our modeling suggests that by just increasing the refill rate by a modest percentage, we can exceed our internal goals. So that's how we think that can help us. And your last question, I think, Monish, was around the competitive landscape. We're obviously very well aware of the fact that 2 potential prospective competitors in TLANDO and JATENZO were rejected by their respective advisory committee meetings. We believe, and frankly experts in this field believe, that these are likely not to get approved anytime soon, perhaps not ever. And while I can't say what we believe this opens up in terms of our gettable market, I think there is very realistically -- there's been some significant dollars attributed to the value of these companies. If you look at Lipocine, their market cap was essentially shaped by essentially 3/5. If you look at Antares, which is a product we didn't talk about, they had a product in injectable that was received a complete response letter in November, they lost approximately $200 million in market cap. I don't want to suggest that we can make up for that type of volume in the immediate term, but I think it speaks to investor sentiment and just the market sentiment that these are -- this is a large market than they potentially would have served a large need. We believe we very effectively fill the need that they would have otherwise filled. In fact, we do that and then some because of the clinical data that really makes the nasal administration stand out. So long answers to your question, but we're confident that based on this program, we're going to significantly inflect sales. We think, obviously, we've got a long way of growing revenues and driving our cash burn down. Further to that, we think this enables the long-term stickiness to all our patients, which currently right now are less than sticky, so we think this will go a long way to really sustaining patients for a good long period of time.

Yes, the current revenue is key, obviously. And I just have 2 more follow-ups, based on what you said today, that would be helpful. One is with regard to the -- from the P&L's perspective, is there going to be a significant ramp-up in expenses with this new program? And two, if I look at what you did in Q1 with regard to your sales, what percentage of those customers came back in Q2? Would that be fair to ask?

Yes, that would be fair, it's a little bit tough to look at it that way, Monish, but let me just give you a general sense. And first of all, will we expect to ramp up expenses, this will cost money, this program is not free, there is obviously an expense associated with it and I want to be straightforward with our investors to that effect. Will it be millions and millions and millions of dollars to start up? No, it will not be, but there will be an expense associated with it. But we look at this as a very, very prudent way to invest in growing the brand, which is still in its very early stage. So I'll leave it at that. But in terms of patients that come back, if you will, repeat users, if you will, we don't have -- we don't have -- unlike a medical device where you can very easily track one patient to the next, we obviously don't have patient names. What we do have are new prescriptions and then we get data on total prescriptions. Total prescriptions, obviously, encompass new prescriptions and on top of that any refill that come on top of that. What I will say is we are seeing refills, but we're seeing them at a lower-than-expected rate, primarily due to reimbursement, almost exclusively due to reimbursement. So where that for example, an AndroGel patient, on average, we're seeing a 2:1 ratio of TRxs to new Rxs across the category. We're seeing more like 1.6, maybe 1.7. That has grown from 1.3 or 1.4. But it's still almost a multiple behind. It's a significant percentage behind the market standard. So with that, we expect -- and that's almost entirely due to the fact that they come back -- they go in Q1, they come back Q2 and they get presented with a very high cash out-of-pocket payment and they walk away from the prescription and neither get switched back to AndroGel or just stop their T therapy. That's what we're going to stop. That's what we expect this program will stop. And with that, we begin to get the multiplier effect and an install base, if you will, of patients that starts to be reflective of some of these long-term go-forward patient, who may not just get one prescription and then a refill and walk away. He may get 3, 4, 5 or 6 or even more. And we do have patients currently with that much reimbursement in place that are getting refills consistently. It's not enough, we need to get more, this program will drive towards that.

[Operator Instructions] Today's next question comes from Joshua Horowitz of Palm Global.

Question for you. Obviously, I'm sure you won't be able to put specific numbers to it, but it looks like you've reduced OpEx from quarter-to-quarter. Any color you could give on the cadence of level of spend going forward? I know, obviously, there is some new programs that have high ROIs, but what should we expect?

Generally, we do expect to hold OpEx roughly where it is. And kind of the one element you should look for as you dig into the financials is there are quite a few noncash expenses that GAAP require that run through our operating expenses. So some of those can, on the face of the financials, look like the operating expenses are moving around quarter-to-quarter. But overall, the important ones that are, say, very much cash-driven, we do expect to keep roughly in check. There will be some uptick with, say, as we grow the business and, obviously, cost of goods sold will grow with revenue. And -- but as far as staffing goes and the team that we fielded at the time, that is roughly set for where we need to be to reach the growth milestones that we're shooting for. So we don't expect a lot of change.

Great. I guess, as a follow-up to that, would you say that your existing infrastructure is set up for a much larger business and there's no real additional projects from a capital allocation standpoint that you need to put resources to?

That's definitely true. And one of the beauties of this business is it's very-low capital. From a capital perspective, it's very low-level intensity. So we don't have much CapEx at all planned. And really, we do have capacity in the field and in our commercial infrastructure, which is really we've built that group and that capacity to do more than it's doing today. But until we find the right, say, complementary product to put in the bags, we are running with this, but we do have capacity.

Yes. And further to that, I'll piggyback on what Dave said is we obviously have an infrastructure it's our, obviously -- it's our most costly piece of the business is our sales force. We view that very much as an asset, as David said. They do have capacity to pick up additional assets. And I will say that, right now, they call on, on average, 100 to 150 physicians really actively. They got 200 plus in their target database, but they're really actively accessing 100 or so physicians. In the course of a given week or 2-week period, it's relatively straightforward to get to that number of people. So with the infrastructure we have in place and with what we expect to be really a beginnings of a multiplier effect with the introduction of this program, we can drive sales to a much higher level with the infrastructure we have, so we don't need a bolt-on.

Terrific. If I look at your business as, let's say, a subscription business, and there's a cost of customer acquisition and a monthly or a bimonthly subscription, how do you assess the cost of customer acquisition and the lifetime value of that customer as you roll out things like the support program?

That's a good question. We don't necessarily look at it that way, Josh, but there is -- there certainly is a fixed cost that we know. In pharmaceuticals, it's obviously there's not a capital equipment buy, so there is not a, hey, it's 6 months to get them to a purchase. What we do look at is sort of routine prescriptions over the course of, say, a 12-month period, and that is costly. Obviously, our sales force is expensive. It's $150,000 to $180,000 per FTE, depending on sort of the month and the quarter. That's going to be a cost whether they get one customer, 2 customers or 1,000 customers. So obviously, the objective is very simple: to get to as many high-prescribing targeted potential prescribers as we can, to get as many of those physicians routinely writing and to get as many of that physician's patients getting prescriptions refilled on a regular basis. Frankly, it's both of those things that we need to improve. We're still at an early stage, and so we're excited about the implementation of this program, whereby we can do both of those things. We can get more doctors writing more broadly, because right now, it's sporadic in some cases, it's consistent in others. We want to get it across the board where the majority of our prescribers are writing this on a routine basis, at least daily. And those prescriptions that are going out the door, we want to increase that from 1.7 to 3.5 or 4 or even higher prescriptions per year on average. And frankly, that starts to pop the top. And that's all within reach with what we have in structure today.

What are some pushbacks you're hearing out there from physicians on the product? Is it just lack of awareness or misinformation or no information or their tendency to stick to what they know? How do you educate and what are people pushing back and saying?

Yes, very good question. And it's 2 things that are consistently heard and it's nothing new and there's nothing inherently negative about Natesto, which is a good thing. We don't get pushed back in terms of, well, that's not a product that I would use, that's not something that I would value for my patient. We get, very simply, I've used what I've used for the last 20 years, and that's often an unspoken objection, but it's the most common. It's simple habit and it's simple routine. Physicians have written AndroGel or done injectables for the better part of the generation. In the case of injectables, they've done it for 2 generations, so these are very entrenched long-standing competitors. And injectables are dirt cheap and AndroGel is covered by 99.9% of the payers on this land -- in the country, rather. So -- and in fact you could probably extrapolate it to the planet because it's covered very, very well across the globe. Those are the 2 encumbrances we face, those aren't insurmountable, and frankly, it's good and it's encouraging. Those aren't reflective of anything inherently negative about our product. Our product is a good product, and it's well received. And when you lay it side-by-side with the competitive set, it is resoundingly accepted as a better profile. When you introduce reimbursement as a challenge, to say, well, roughly 50% of the time, it may get rejected, that changes the tune. That's why we're excited about this program and why it is going to require further investment to take it to the next level, but we're comfortable because the case studies in similar circumstances, in similar markets with similar sort of inertia or lethargy have shown that when you can remove reimbursement as a barrier or at least manage it effectively, we can get on equal footing and we can get to, in a physician's mind, a preferred status because now they can get back to prescribing the better product, better for their patients, because we're helping with some of the headaches associated with prior authorizations. So I don't know if that answered the question, but there is nothing inherently negative about the product that pushes back, it's just they've done what they've done and they don't like to get pushback from payers, and so we're working to solve that, obviously, in earnest now.

I have to imagine there are organization -- there are third-party organizations that help smaller drug companies manage that process. You are going to try and do this in-house? Have you looked at outsourcing this function?

This is a function that we'll outsource at least initially and, potentially, for the long term, very simply because this is a group that's done it before. They do this with specialty brands all over the country. They have a very, very good track record. And so sometimes you buy, sometimes you build, we're going to buy this service because we know they can do it well. Over time, as we learn, perhaps it's something we can internalize. Right now it makes sense for us to invest with this third-party provider because we know that they can do it and teach us a lot along the way.

And the way they're paid is mostly success-based?

It is -- primarily, there's a success element in that they get paid on the refill piece. There is an upfront cost that is ultimately, until we get a sense for which plans are going be more amenable to this type of calling and sort of hand-holding. So we will pay irrespective of success at that point, but we'll begin to predict success very, very well and know which plans does it make sense to pursue appeals and pursue prior authorization and step edits, which ones frankly will it not make sense because 99 times out of 100 they're saying don't waste your time, we won't cover this product. In that case, by the way, we'll simply put the patients to what we call the cash option, whereby the patient will pay no more than $150 per prescription, which is in this day and age frankly, it's not that expensive for a branded pharmaceutical. So we'll always have an escape hatch. Generally speaking, when you get covered, the patient will pay $25 per prescription and they'll get that every time, every month, every refill. In the event that it's not covered, again, we slip them to this cash option, they pay no more than $150.

Got it. Okay. I've taken up a lot of your time. I guess, any just quick thoughts on U.S. commercialization of MiOXSYS and when we could see that?

Yes, thanks for that. We've talked about that. And obviously, MiOXSYS continues to be a product we're very excited about. I'll, as an aside, mention the fact that recently, ESHRE, the European Society of Reproductive -- Human Reproduction and Embryology, put out guidelines back in November, specifically for the first time calling out oxidative stress is something that should be tested in any couples, specifically in men, that are having recurrent pregnancy loss. And so that's a huge sort of watershed market event. So we expect that to be helpful as we get outside the U.S. In the U.S., realistically, we're a year to 18 months away from, I would say, a meaningful inflection point from the FDA. We're currently engaged in a pilot study with a group of very prolific researchers in neurology here in the U.S. We -- I don't want to go too far other than to say we've got some very interesting preliminary data. And we believe we have a path with the -- pathway with the FDA, that's distinct from what we're doing outside the U.S. So we think we're 1.5 years from probably having that product commercially ready. And that will be a very nice hand in glove because this study will specifically be a urology play. It will be a urological procedure that is done in the context of correcting men with infertility. It's an anatomical issue. So more to follow on that, but there is a path, we believe, to get this thing FDA-cleared and into the bag of our sales force.

And our next question comes today from [ Raymond Smeazy ], a private investor.

Yes, Josh, Ray Smeazy. How are you going to fund the new program, which you're talking about for reimbursement and stuff, when you only have $1 million -- approximately $1 million of revenue, operating expenses of $5 million, cash use of over $3 million and only $4 million cash left. Now I know you don't have many shares out, but what's your plan in the next quarter? You're going to have to raise money because, if you don't, people are going to start shorten this thing because they're going to know you got to go out and raise money.

Yes. Good question, Ray. I mean, obviously, you're asking an important question and one that's on the minds of...

Because I look at the old stock because I own the old. I mean it's valued at like $0.14 a share right now. So when you divide 20 into the [ 2 75 ]. So how are you going to -- even if your cash goes to [ 1 3, 1 4 ] revenue in the next quarter, you said there's going to be some new added expenses for this new program, even if it's only a couple, I'm not guessing, only a couple of hundred thousand dollars. So what is your plan to raise?

Yes, let me first take a step back, Ray, and I thank for your question again. It's one that is likely on the minds of several. And I'll remind people, we are, obviously, in the very early stages here. We, obviously, are in a circumstance where the company continues to be in growth mode and want to continue and need to be able to fuel that growth. We cannot preclude the fact that we could have access to capital markets in the relative near term. That having been said, we can, we believe, scale this very efficiently, because what we don't have today is something sort of akin to an install base, where patients are getting more routine repeat. And that is something that we believe will enable us to catch up and potentially supersede even our internal forecast. We don't have a firm number and certainly not guiding to where we think this new program will go. But what I'll say very simply is, yes, we're a young company, access to capital remains something obviously that we need to continue to have available to us. And ultimately, we believe that what we have in place will more than make up for any potential dilutive financing or any financing period that we do because the upside here is substantial. I'll remind people again, this is essentially a $2 [ million ] market. This is a product that is protected with patents -- public patents today that go through 2024. And frankly, the opportunity with pending patents to go beyond that, this can be a product that lives for many, many years. And when you look at this thing in the out years, there's a very, very substantial prospect for growth. And we continue to be enthusiastic by everything we're seeing. So I'm not answering your question other than to say, we can't preclude the chance that we'll raise capital, and that would be prudent for us to maintain our strength, to maintain, obviously, the momentum that we're gaining in the market every single day.

And our next question comes from Rich Beaven of Signia Capital.

Our question -- our first question was answered for the most part by the last caller. But curious AndroGel, can you give us a little bit of an update as to what's happening on their side of the business as it relates to growth and pricing and so forth? I mean, obviously, as you just mentioned, that's the big competitor out there and we just want to -- we're just curious as to how they're progressing and what the market landscape looks like from their perspective.

Yes. Thank you, Rich, good to hear your voice, appreciate the call. We -- let met first take a step back. And if you look at the TRT category, broadly, if you look at last year's total prescriptions versus 2017, so moving annual total December of '16, there were 6.4 million prescriptions generated in the class. Moving annual total same time then the year after, so December of '17, there was 6.88 million, almost 6.9 million prescriptions, so substantial growth. And my math shows that's thereabout -- it's about 12% up from 2 years prior and about 6% up from 1 year prior, so the market continues to grow. AndroGel has actually maintained its share. If you look at December of '16 versus '17, only down about 100,000 prescriptions, 1.4 million to 1.3 million prescriptions generated in the year, so we continue to hold on. Prices slipped because there are some, obviously, some generics. And there is, obviously, a -- there's some growth in what I would call sort of a separate segment, the injectables, those have grown disproportionately more than the gel market. AndroGel is very well positioned, they have been -- they have made a strategy consciously to lock up the market through payers. They've opted to dial down their promotional spend from a professional standpoint, that is reps calling on doctors. And they've opted to put their resources into locking up payers to get preferential status. So they've rebated the product significantly to the major payers and the [ CBMs ] in order to attempt to block out future competitors. One thing we know from various things, inclusive of the fact that they're almost entirely footing the bill for the TRT consortium study that the FDA has mandated, we expect that they expect to be in the market long term, which is good for us because that tells us it's a long-term viable market that -- where growth is expected. So they're about flat. The market has grown from a prescription standpoint. There has been some migration to generics and injectables. And ultimately, they maintained the top spot. Our objective becomes, with physicians that are open to writing branded prescription TRTs, our target is AndroGel and our target is those physicians because, obviously, they don't mind, obviously, the prior authorizations. They'll, obviously, work through some of those things. And so we'll continue to target those physicians that are the highest AndroGel prescribers.

Great. Okay. And so if I'm putting all the pieces together here just from some of the commentary, I think when we had talked earlier about you proceeding to cash flow breakeven or cash flow positive position, it was going to be in the calendar latter part of 2018, mid to latter part. So that pushes from your -- from some of this commentary that pushes that back maybe a quarter or 2. Can you just touch on that?

Potentially, and I don't want to guide specifically because it does, obviously, become dependent upon sales trajectory and improvement on the gross to net. We still think we've got a relative near-term view to profitability. And what exactly that is by the quarter, we won't guide to. But what we'll say is we're significantly further along than we were this time last quarter. And we are significantly better positioned than really any other companies in the space, particularly when you consider our relative use. So if we take a look at the trajectory we were on, and we make some assumptions in terms of additional refills and an improved gross to net and realized revenue sort of per patient, again taking it out over the life of that patient's prescriptions, we think we can inflect that line significantly, but more to follow. We remain confident in the trajectory and, in fact, we fully expect to inflect our sales growth over the next quarter or so.

And our next question comes from Eric Anderson of Hartford Financial.

Josh, I was just interested in the demographics of the typical user for the hormone replacement therapy. Is it -- are you talking for a period of month? Is it sort of a product that someone would be on for the rest of their lives? What's the typical use here?

Yes. So firstly, the demographic. I mean, the average patient is sort of mid- to late-40s, realistically, so it's not just "old man's disease" as has I think commonly been presumed. And in terms of length of therapy, it's all over the board, it's an exceedingly wide standard deviation. But generally speaking, yes, it's a product that you would stay on for some extended period of time, certainly through your active years, potentially for the rest of your life. No different than blood pressure medicine or anything that you would take long term. This is something that is for health maintenance. It's -- while it is, to some degree, considered a lifestyle condition, it's very serious and one that results in all kinds of negative things. So men should be on it long term, which is why it works better about building the base of business to really reflect men that are going on it long term, that are going to stay on it long term and those are patients, frankly, right now that we're not capturing. And so...

But you'd hope to have refills then that go on for years, not just months?

AndroGel sees that, and AndroGel sees that routinely. A, it's been around for a long period of time. When it first started off, it was obviously in the hundreds of prescriptions and then thousands. And when it goes to the hundreds, to the thousands, tens of thousands, those tens of thousands are very often repeat prescriptions, not first-time buyers. These are people that have been on it for 6, 7, 10 years, and those refills just keep turning through. And in fact, if you were to ask a physician to identify his AndroGel patients, he has a hard time doing it because they've been on it for so long, he doesn't think of them as active patients. He's seeing them now for other things, like heart disease or he got him on a lipid-lowering agent, and he just refills, he just -- does a refill prescription on his AndroGel, which, of course, is commonplace. That's what we think we can build to long term. But this is -- we're playing long ball here, this is not a short -- this is not one for those who don't have a longer appetite. Again, this is one that ultimately, as it builds out, we think can build a substantial trajectory with respect to the patients that continue to flow through on the product.

[Operator Instructions] Seeing no further questions, I would like to turn the conference back over to Mr. Disbrow for closing remarks.

Thank you, Rocco, and thanks, everyone, for participating in today's call. Thanks for your questions. Thanks for your investment. We continue to be pleased with our progress. And of course, we've got a lot in front of us. And as we roll out these several key initiatives and take advantage of these market events in both the testosterone and, frankly, in the male infertility arenas, we'll continue to keep our shareholders informed as we make additional progress, and we thank you for your continuing support. So thanks again for your time. Thanks for your support, and have a good evening.

Thank you, sir. This concludes today's conference, and we thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.