Rigel Pharmaceuticals, Inc. (RIGL) Q4 2018 Earnings Report, Transcript and Summary

Raul Rodriguez - Chief Executive Officer Eldon Mayer - Chief Commercial Officer Anne-Marie Duliege - Chief Medical Officer Dean Schorno - Chief Financial Officer Dolly Vance - Executive Vice President, Corporate Affairs and General Counsel

Good afternoon, and welcome to Rigel Pharmaceuticals' Financial Conference Call for the Fourth Quarter and Year End 2018. All participants are in a listen-only mode. We will be facilitating a question-and-answer session at the end of today's conference. [Operator Instructions] I would like to remind you that this call is being recorded for replay purposes from Rigel's website. [Operator Instructions]. And now, I like to turn the conference over to our first speaker, Dolly Vance, who is Rigel's Executive Vice President, Corporate Affairs and General Counsel.

Welcome to our financial results and business update conference call. The financial press release for the fourth quarter and full year of 2018 was issued a short while ago and can be viewed along with the accompanying slides for this presentation in the News & Events section of our Investor Relations page on our website www.rigel.com. As a reminder, during today's call we may make forward-looking statements regarding our financial outlook and our plans and timings for regulatory and product development. These statements are subject to risks and uncertainties that may cause actual results to differ from those forecasted. A description of these risks can be found in our most recent annual report on Form 10-K on file with the SEC. Any forward-looking statements are made only as of today's date, and we undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances. At this time, I would like to turn the call over to our CEO, Raul Rodriguez.

Thank you, Dolly, and thank you for joining us on our fourth quarter and full year 2018 financial call. Also joining me on the call today are Eldon Mayer, our Chief Commercial Officer; Anne-Marie Duliege, our Chief Medical Officer; and Dean Schorno, our Chief Financial Officer. Reviewing today's agenda on slide six, we will provide you with updates on a number of key Rigel objectives, including the launch of TAVALISSE with which we have been very pleased, the progress that is being made by our clinical and regulatory team, and Dean will give an overview of the financials. I will then make some concluding remarks and then open the call to your questions. On slide eight, I can say that 2018 was Rigel’s most successful year ever. We accomplished very significant milestones and took Rigel to a much more advanced stage as a company. Our first product TAVALISSE was approved by the U.S. FDA for the treatment of adult chronic immune thrombocytopenia or ITP. This was a tremendous accomplishment and one that we've been striving towards for many years. This enabled us to provide TAVALISSE to ITP patients across the U.S. It was the first novel class of drug SYK inhibitors to be approved. TAVALISSE was also the first new treatment for chronic ITP to be approved in nearly a decade. We then built a new, but very experienced commercial organization which in turn introduced TAVALISSE to treating healthcare providers and generated nearly $14 million in net product sales in just seven months on the market. While the U.S. market for chronic ITP is the largest, there is substantial opportunity outside the U.S. as well. So in parallel with our U.S. efforts we put in place major collaborations for commercializing fostamatinib in the largest ex-U.S. market. In addition, we filed a marketing authorization application in Europe or MAA advancing our plan to bring fostamatinib to patients outside the U.S. as well. In furthering the fostamatinib opportunity, we presented very good results from our Phase 2 study of fostamatinib in autoimmune hemolytic anemia or AIHA, a highly synergistic indication with ITP. We also initiated a Phase 1 study for our IRAK 1/4 inhibitor program, which has potential in a wide range of indications. And finally we ended the year with a very strong cash position with over $128 million in cash. This was then supplemented by an additional $30 million from our Grifols collaboration which we concluded in January. I’d say that’s an excellent year. On slide nine now, all of this has positioned us very well for 2019 and beyond. On slide nine you see our key objectives for the year and I'll tell you – we’ll tell you a little bit more on this call on each of these. Most importantly, we will continue to grow sales of TAVALISSE in the U.S. focusing on new patients, continuity of therapy for existing patients and assuring access to TAVALISSE for appropriate patients. In collaboration with our two current ex-U.S. partners, Kissei and Grifols, we will work to make fostamatinib available in the EU and in Japan, Asia and then in other geographies. We will advance fostamatinib into a Phase 3 study for the treatment of autoimmune hemolytic anemia, and then we will broaden our pipeline with new indications, new molecules and we have much more planned. On slide 10. I’d like to tell you a little bit about how we plan to make fostamatinib available across the globe. Just to remind you, we estimate that the global market for chronic ITP treatments exceed $1.8 billion with $1 billion in the U.S. and about $800 million outside of the U.S. Europe is the second largest market after the U.S. and Japan, Asia is the third largest. Last week year and continuing into this year we worked diligently to identify select partners that we think have the expertise and the experience in this area, and importantly have demonstrated an excitement and a strong desire to bring fostamatinib to patients in their market. We think we accomplished this with our partner’s Kissei in Japan, Asia and Grifols in Europe and Turkey. In this light, Grifols is an example. It has substantial expertise of blood disorders and is one of the largest providers of IVIG, which is used to treat ITP in the rescue situation and therefore is very complimentary to fostamatinib, a chronic drug. They have the expertise in this area already and have a very experienced commercial team with relationships with treating physicians. Grifols also has a PAN European capability with infrastructure across all the major countries in Europe. We think like with Kissei, Grifols is an excellent partner for this opportunity. Because of this, we signed the collaboration early in the review process and this gives Grifols the time to prepare for the commercial launch in Europe and positions us well for market entry potentially in 2020. I will now turn the call over to Eldon for a commercial update. Eldon.

Thanks Raul. I'm pleased to provide you with an update today in the launch and progress of TAVALISSE. Slide 12, just seven months in the market the launch continues to go very well and the execution of our strategies have led to very favorable performance as demonstrated with multiple key performance indicators. Total bottles shipped from our 3PL to special distributors in those seven months of 2018 were 1,794 and quarterly bottles shipped grew from 649 in Q3 to 903 in Q4. This demand resulted in gross sales of almost $17 million in 2018 with approximately $8.5 million of that Q4, and the response to TAVALISSE continues to be positive from physicians, payers and patients. Physician awareness, familiarity, and usage continues to grow. We continue to see strong reimbursement with a prior authorization approval rate of approximately 90% and the patient refill rate or persistence rate is approximately 45% at four months. Now on slide 13. The recent ITP claims analysis we conducted in September of 2018 revealed that the ITP market is showing modest yet steady growth. This indicates the addressable market for TAVALISSE is now approximately 18,700, which is slightly larger than our prior estimates. Our strategies continue to focus on penetrating the market, encouraging usage of TAVALISSE across all lines of therapy, including early lines where the largest and less heavily treated portions of patients exist. Slide 14. As you may recall from our market analysis prior to lunch, we believe the chronic adult ITP market offers good opportunity for TAVALISSE use across all lines of post steroid [ph] therapy. This is based on a number of factors, including the fact that ITP is a heterogeneous disease with no standard treatment paradigm in the post steroid setting, which leads to great variability in how clinicians select therapies for their patients. This can be seen in the slide showing use of various therapies before TAVALISSE launch, no single treatment dominated any line of therapy. All therapies were used across all lines. And because there is so much heterogeneity and no finite treatment paradigm and that TAVALISSE delivers a therapy with an entirely different mechanism of action, this product is an optimal position to be custom fit into each physician’s particular treatment approach relative to each patient’s needs. In short, TAVALISSE can have a roll across many lines which optimizes the market opportunity. On to slide 15. Here, again prior to TAVALISSE launch we have some examples of treatment patterns for patients that received four lines of therapy following steroids. It should be noted of course that there are many more treatment approaches beyond what is listed here, but importantly this flight demonstrates some of the variability in treatment sequences that physicians use to treat chronic adult ITP. Slide 16. Now after our launch into the market, our thesis about TAVALISSE use in the ITP market is being realized. Based on our claims analysis four month post launch, we see physicians prescribing TAVALISSE in many different treatment patterns. This slide shows just some examples of this where TAVALISSE has been integrated into various treatment sequences. Just to point out two examples here, on the far left of the slide you can see how TAVALISSE is now being used after Rituximab and on the far right you can see TAVALISSE being used after two of the TiVo agents. Slide 17. Now I’d like to provide some real world examples of three actual cases we received from hematologist, oncologist in both the community and academic settings, of how one other patient’s have responded to TAVALISSE after receiving one or even multiple prior treatment. On the left you see the case summary of a highly refractory patient that had gone through multiple lines of therapy. This 68 year old man presented in the ER with a low platelet count of 10,000. He remained highly refractory through seven courses of treatment, during which his platelet count actually went down to zero. TAVALISSE was initiated and one month later his platelet count rose to 200,000 and his most recent platelet count was 296,000. This patient experienced some diarrhea while on TAVALISSE which was then treated by the physician. This patient continues on TAVALISSE and is doing well. In the middle of the slide you see a 17 year old treatment refractory in male patient with many comorbidities and a platelet count of 15,000. He experience to tangent response to other therapies and had an aversion to needles which led to discontinuation of these other therapies. After initiating TAVALISSE there were no treatment related side effects and platelet count rose to about 100,000. On the right side of the slide, we see another example of how other physicians are utilizing TAVALISSE in early lines of therapy, such as this 63 year old man who had an insufficient response to steroids. The patient continued to be symptomatic and in addition the physician required a higher platelet count for a surgical procedure. He was placed on TAVALISSE and the latest platelet count was 135,000. Slide 18. TAVALISSE awareness, familiarity and attributes are also resonating well with physicians. We conducted a quantitative survey in October of 2018, just four months after launch with 150 hematologist and oncologists and found an unprompted awareness level of 26%. This is a 20 point increase over the pre-launch awareness level 6% in January of 2018. Additionally, clinician familiarity with TAVALISSE had increased to 43% over the same period, and importantly physicians positively perceived TAVALISSE attributes relative to other therapy. They see it as easier to administer than injected or infused treatments. No significant difference in safety, tolerability and access and also no difference with their ability to respond. These are all significant findings, but still leave much room for much opportunity for the future, since these data were assessed after just four months on the market and we expect these positive trends and perceptions to grow and continue physician experience and engagement. And finally on slide 19, there is some of our plans for continuing momentum through 2019. Our forward looking objectives are three-fold: Number one, increase access and adoption with a larger number of physicians. Number two, support physicians and patients with using TAVALISSE. Number three, continue to move TAVALISSE into early lines of therapy where the larger portions of patients exists. Our key strategic comparisons include, communicate the TAVALISSE value proposition and increase patient identification, continue to generate and share evidence to reinforce the clinical utility and tolerability of TAVALISSE, educate the physician community about the role of SYK inhibition, support clinicians with patient management, including important office staff such as nurses and physician assistant. And finally, further enhance payer and patient support with access to TAVALISSE. We strengthened our team with five more sales reps and will be making some further additions to our customer facing team in the near future, which will allow us to further engage with clinicians, payers and patients. We will also build on patient awareness and education efforts through various channels now that the physician community has some familiarity with TAVALISSE. And finally, we expect additional support of publications on TAVALISSE clinical utility over the next year. So in conclusion, seven months in the lunch continues to go very well. We are pleased with the execution of our strategies and have confidence to see favorable performance moving forward. And with that, I will turn it over to Anne-Marie.

Thank you, Eldon. I would like to review all of the exciting things we were doing was fostamatinib and how we are supporting the efforts of our commercial team with the TAVALISSE launch in the U.S., while also working to make fostamatinib available to patients globally and expose utility. I will begin on slide 21. In December of last we presented data from our ongoing extension study of TAVALISSE in chronic ITP at the American Society of Hematology in an oral presentation. I will highlight these in just a moment, but overall the receptivity to our data at the conference was very encouraging. It was a great opportunity to meet with physicians face-to-face and help educate them on our product and its noble mechanism of action. Along with presentations at major medical conferences, our support for the commercial team includes leveraging our database and relationship with key opinion leaders to draft manuscript for publication in preview tunnel. Most recently the manuscript offered by Dr. Jim Vessel from Cornel, analyzing the long term data for fostamatinib in chronic ITP was accepted for publication in the American Journal of Hematology. We're also in the midst of planning for real world data collection as part of our post marketing strategy. Collectively this information will function as a tool for our sales force to further educate and drive interest within the physicians’ community. As we have previously mentioned, in October of last year our marketing authorization application for fostamatinib in ITP was validated by the European medicine Agency, which began the EMA review process. The first milestone is the day 120 question which we have received and are in the process of responding to. While we cannot comment on specific questions, I can say that there were no surprise in any types of question that we received. Based on the timetable for this process, we expect to have a response from the EMA by the end of this year. Along with the expansion of fostamatinib globally, we are in the early stage of launching our Phase 3 program to immune hemolytic anemia. We are currently working with the CRO and recruiting sites to participate in this study and expect to enroll the first patient in the coming months. Importantly, there is still a significant effort, a lot of work being done by our research team on other indications in which the SIK inhibitor such as fostamatinib are worth exploring. As we progress in this research, we’ll be happy to provide an update. Now I will turn to slide 22, which was the oral presentation we give at ASH last December, on the open label extension to the Phase 3 trial program, which provided an overview on the long term data on 146 chronic ITP patients with exposure to fostamatinib. This is the extension from our fifth Phase 3 trial, which was the basis for the TAVALISSE NDA that was approved by the FDA last year. We’ve talked about efficacy and response rate previously, so today I wanted to highlight some of the additional data that we have collected. These data provide insight into how long fostamatinib patients respond to a therapy, the need for rescue therapy and the incidence of bleeding. On slide 23, we provided a 36 month chart to show the duration of response we have seen in patients in this study. Some patients have dropped from this study, but also because of the staggered start time there are patients who are still on treatment as of the data cutoff date, March 2018, but who have not yet been exposed to fostamatinib for 36 months. Therefore the latter months were not a complete representation of the status of the 146 patients in the study. But the main takeaways that we are seeing long term response and some patients are staying for on drug for atlease three years. The orange line provides the medium platelet count for patient who met the definition of overall response, which was achieving a platelet count of 50,000 in the first 12 weeks of treatment. And there were 44% of the patients treated with fostamatinib who met the definition of overall response. These patients demonstrated a quick response, which for some were sustained over time. What is also notable are the other patients who have stayed on treatment. These are patients who are not overly responders based on the Phase 3 platelet count criteria. However, we can make the assumption that they derived some form of benefit for staying on treatment, whether this is a modest platelet, increase in platelet count or some form of clinical benefit. On slide 24 we provide an overview of the exposure, adjusted incidence of rescue therapy for placebo patients versus fostamatinib patients. As you can see there is a reduction in the incidence of rescue therapy for fostamatinib responders when compared to placebo patients. Even the other patients, those who have not achieved an overall response demonstrated a lower need for rescue therapy. Similarly slide 25 shows the export adjusted incidence of hemorrhagic events and of severe adverse events of hemorrhagic event. We see that patients on fostamatinib have a reduction in the number and severity of bleeding events compared to placebo, both in the overall responder growth and also with all the patients on drug. Moving to slide 26, we have an overview of the adverse events over the long term use of the product. As you can see, the profile remains relatively unchanged from the randomized study, which is the middle column with 29 patient years of exposure, versus the randomized plus the extension study which is on the right side, as it collect information on 163 patients’ years of exposure. This would indicate that most events happen early on and that there is no accumulation issue with fostamatinib. On conclusion – in conclusion on slide 27, 44% of patients had an overall response to fostamatinib. Responder had increased platelet count, reduced use of rescue medication and reduced frequency of bleeding episodes. Some of the patients who were not overly responders continued treatment for an extended period of time. Fostamatinib was well tolerated for an extended period of time. No new safety signal and low cumulative toxicity was detected during the long term treatment with fostamatinib. Finally on slide 28, I would provide an update on the progress of autoimmune hemolytic anemia pivotal Phase 3 trail. Our top priority in 2019 is to begin enrollment for this upcoming trial. Efforts toward this objective are already taking place. We are working with a CRO and are in discussions with trial sites in the U.S., Europe, Canada and Australia. We anticipate that enrolment of our first patient will be in the first half of this year, so within the next four months. This will be an 80 person trail, 40 patients on drugs and 40 patients on placebo and will expect enrolment to take about a year. Once the final patient is in the trail, we anticipate that the data will readout with six to 12 months later. With that, I will turn the call over to Dean.

Thank you, Anne-Marie. Starting on slide 30, here is some of the highlights from the quarter. For the fourth quarter of 2018, 903 bottles were shipped to our specialty distributors’ results in $8.5 million of gross product sales. 869 of those bottles were shipped to patients and clinics, while 34 of those bottles remain in our distribution channel at the end of the fourth quarter. For the full year of 2018, to begin with our launch on May 29, 1,794 bottles were shipped to our specialty distributors, resulting in $16.9 million of gross product sales. As of December 31 a total of 238 bottles remained in our distribution channels. For the fourth quarter of 2018, we reported net products sales from TAVALISSE of $7.3 million, which was recorded net of estimated discounts, chargebacks, rebates, returns, co-pay assistance and other allowances of $1.2 million of gross to net adjustment. For the full year of 2018 we reported net product sales form TAVALISSE of $13.9 million, which again was recorded net of estimated discounts, chargebacks, rebates, returns, co-pay assistance, other allowances of $3 million. Let me note that our growth to net adjustments for the fourth quarter was approximately 15% of gross product sales. For the full year 2018 our gross to net adjustment was approximately 18% of gross product sales. While we are continuing to gain experience with both private and public payers, and we may see some fluctuations during the first quarter of 2019, we currently expect our gross-to-net adjustment will remain around 18% during 2019. Before we move on from product sales, let me review our expectations for the first quarter of 2019. While we do not plan to provide guidance for 2019 full year, as we are still two quarters into our launch phase, we do anticipate a moderation of growth in the first quarter as patients work through their typical first quarter reimbursement issues such as the resetting a copays and the Medicare donut hole. As a result, we can see mid-single digit growth in net product sales in the first quarter of 2019 as compared to the fourth quarter of 2018. Once we work through these first quarter effects, we expect the sequential growth rate to be higher. Progressing on to the next slide. In addition to our net product sales, we reported contract revenues from collaborations of $30.6 million relating to the $33 million upfront payments from Kissei for both the fourth quarter and the full year of 2018. We expect the remaining deferred portion of approximately $2.4 million to be recognized over the next 18 months. Our cost of product sales was approximately $188,000 and $287,000 for the fourth quarter and full year of 2018 respectively. We are about 2.6% and 2.1% of net product sales for the fourth quarter and the full year of 2018 respectively. For the fourth quarter of 2018 we reported total costs and expenses of $35.3 million compared to $26.2 million in the fourth quarter of 2017. For the full year of 2018, we reported total cost and expenses of $117.2 million compared to $84.1 million for the full year of 2017. This increase was primarily due to the personnel costs for our commercial and medical affairs teams, as well as third party costs related to our commercial launch of TAVALISSE. Let me also note, we saw quarter-over-quarter increase in total costs and expenses, $6.1 million while comparing the third quarter of 2018 to the fourth quarter of 2018. This quarter-over-quarter increase was similar to the increase that we saw last year in the same periods and was primarily due to the timing of expenditures, related to various clinical and commercial activities, along with the year-end personnel related costs. Also as we saw last year, we expect total costs and expenses in the first quarter 2019 to be less than the fourth quarter of 2018 levels. For the fourth quarter of 2018 we reported a net income of $3.2 million or $0.02 per share compared to a net loss of $25.9 million or $0.18 per share in the fourth quarter of 2017. For the full year of 2018 we reported a net loss of $70.5 million or $0.44 per share compared to a net loss of $78 million or $0.62 per share in the fourth quarter 2017. Moving on to slide 32. We ended the fourth quarter of 2018 with cash and short term investments of approximately $128.5 million. During January of 2019 we entered into a collaboration and license agreement with Grifols, S.A. to commercialize fostamatinib in Europe. We received a $30 million upfront cash payment with the potential for $297.5 million in payments related to regulatory and commercial milestone, which importantly includes a $17.5 million minestrone payment along with $2.5 million credible advance royalty payments to be paid upon EMA approval of fostamatinib, which is anticipated before the end of 2019. Incrementally, we will receive stepped double digit royalty payments based on pure net sales which may reach 30% of net sales. Let me spend a minute to review the potential accounting for the $30 million up front cash payments from Grifols. If after the second anniversary of the agreement fostamatinib has not been approved by the EMA for the treatment of ITP in Europe, Grifols will have the option during a six month time frame to terminate the entire agreement which would terminate all of their rights in ITP, autoimmune hemolytic anemia and all other indications. In the limited circumstances, we will pay Grifols $25 million and regain all rights to fostamatinib in Europe and other Grifols territories. It is also relevant to note, we have certain ongoing commitments which will result in a deferral of approximately 10% of the $30 million upfront payment. Within this context we expect to recognize as contract revenue is approximately 90% of $5 million of the upfront payment during the first quarter of 2019 and would expect to recognize contract revenues of approximately 90% of the remaining $25 million of the upfront payment upon EMA approval. We’d expect to recognize the deferred portion of these payments in 2020 and beyond. Let me now turn to our cash position. Given our strong year in cast position of $128.5 million the $30 million upfront payment received from Grifols in January of 2019; the potential $20 million payment upon EMA approval and our expectation of continued growth in TAVALISSE sales expect our cash run rate will now extend into the second half of 2020 and provide for our continued commercial launch, along with the expansion of certain clinical programs. I’ll now turn the call back to Raul.

Thank you, Dean. A good year! Before we open the call to your questions, I'd like to summarize some of our key priorities for 2019. We will continue to build on our early success for TAVALISSE in the U.S. making TAVALISSE available to more patients. We will expand the availability globally of TAVALISSE and we hope to gain approval in Europe in ITP and potentially launch in 2020 with our partner Grifols in Europe. We will initiate enrollment of our global Phase 3 trial for autoimmune hemolytic anemia, and finally we will broaden our portfolio of opportunities with fostamatinib; indications are IRAK molecule and new molecules and partnerships. I think this will be our best year ever. So with that, let me turn the call over to your questions.

Thank you. [Operator Instructions] Our first question comes from Anupam Rama of JPMorgan. Your line is open.

Hey guys, thanks for taking the question and congrats on all the progress. On the call you guys talked a lot about TAVALISSE awareness metrics. I'm wondering if I could ask the question a little bit different, in terms of how the top decile account penetration is tracking relative to your expectations and then how you are thinking about penetration into some of the other tiered accounts of focus. Thanks so much.

Sure, and let me just characterize those awareness levels from a broad survey. However, yeah, I don't have the specific decile numbers in front of me, but I can tell you with you know a great degree of confidence that we've seen good adoption over all the deciles that there are, which was actually quite – we're very pleased to see that, because we know that as I’m sure you do that, a lot of the higher volume prescribers in the upper deciles can be you know more difficult to access and therefore more difficult to penetrate. So we have seen good adoption across all the deciles, which we think is very encouraging. I'd say that due to a number of factors, the value proposition as I said before which is resonating, the unmet need in the marketplace, doctors are – it’s been a long time as I'm sure you know that since there's been a new product. But I have to give you know the credit to the customer facing team. We had – you know we were able to get a very experienced sales force that has you know a lot of experience and therefore some good relationships and access with accounts. So I think that you know basic block and tackle with that would be the primary, not the only, but the primary thing. It's still very early of course, right. So these are figures based on seven months of launch, and it just takes time to get the levels of access, which with the bigger accounts you know can be of course limited to get the level of frequency required to change prescribing behavior and really communicate the benefits of the product. But with that you know access in the office can be difficult. We attend many regional conferences and more definitely we're going to be stepping up more and more, so we do access physicians there, because they go there to learn of course about new medical information and engage with their colleagues. Additionally, we're having a larger and larger presence at the larger conferences. So at ASH for example we sponsored two CME symposia that was very well attended and well received. But another area and I'll just mention and I'll turn it back, but is we've been – we had some great success with our peer-to-peer speaker bureau. We launched the bureau right after launch and we were able to conduct about 100 programs last year and so again, I think that bodes well for the future. We do plan on expanding our bureau and doing more programs. And the last thing I will mention is, I mentioned we did expand our sales force. So we think that will help as well, as well as incrementally we’ll be adding some additional members of the customer facing team, marketing, account management to further increase access. So I hope that answers your question.

Thanks so much for taking the question.

Thank you, Anupam.

Thank you. Our next question comes from the line of Kyung Yang with Jefferies. Your line is open.

Hey guys. This is Sooji [ph] filling in for Eun, thanks for taking my question. I have two questions if I may. The first one is if you guys have seen any off label uses of TAVALISSE in [inaudible] so far. And then second question is, can you guys provide some updates on TAVALISSE for IgA nephropathy. Is the partner at Kissei going to be doing additional trials in Asia to get approval in Asia? Thank you.

Yeah, this is Eldon, I’ll take the first one. We have not seen any off label use in hemolytic anemia as of yet. We do have good visibility into about 60% of our demand and you know we have not seen that. There is 40% of our demand in the so called IOD channel that we don’t have that level of visibility, but based on what we’ve seen, we haven’t seen that as of yet.

I could answer the second quarter on IgA nephropathy relative to our partners. As you know, we received the results from our Phase 2 study of IgA nephropathy and decided not to proceed ourselves in the U.S. for a variety of reasons, just the size of the trials required after interacting with the FDA. However our partner in Asia, Kissei is interested in this area and the opportunity there may be a bit larger given the higher substantially higher prevalence of IgA nephropathy in Asia, and they might proceed with that. They haven't made a decision as to that as yet, but the opportunity there is much more substantive than in the U.S. relatively speaking. Thank you for your question.

Thank you. Our next question comes from the line of Do Kim of BMO Capital Markets. Your line is open.

Hi, thanks for taking my questions. First question on your European partnership. When does Grifols take over responsibility of TAVALISSE in Europe? Are they involved in the EMEA interactions for the ITP filing or do they just start with the reimbursement negotiations after approval?

The latter. So when we put together the partnership with Grifols in Europe we really allocated the responsibility for the party best position to do that amount of work. In the case of filing the MAA and then moving it forward towards approval, we are really better position to do that given that we have just accomplished successful that with the U.S. FDA and we're best positioned to execute on that. And so we are responsible for the regulatory interactions, leading to an approval for ITP in Europe. They will be responsible then for all the pricing engagements in Europe and getting the price to rise most likely in 2020 in the various countries, as you know that requires some infrastructure and capabilities in the various countries of Europe. We will do what we're best at and they will definitely do what's best for them. Importantly, we were able to sign the deal early enough that they have almost a full year to prepare for the launch in Europe and that's a real advantage, because it allows them to think about the launch plan and how they are going to position the product in that territory. And when the approval does come in Europe, they will be well positioned to execute on it and have a faster uptake as a result.

Great, great, that's helpful. And a question about the addition in sales reps. Are you adding more sales people because there were gaps in the coverage? Do you anticipate expanding more in your sales force and do you think you can give some indication of what operating expenses will be for 2019?

So yeah, I'll take the one on the sales force. Yeah, there was a little bit of a white space, those areas that were not covered before with the expansion, so there was some of that. I would say roughly 20% in the expansion, 25%, but more additionally it was to provide a more manageable size of the territory for some of the folks that we did have, that were covering a very dense area in terms of number of accounts and number of patients treated and number of prescribers. So this will enable those folks and the folks around them that were affected by this small expansion to spend less time driving and traveling and more time interacting with our customers and you know there is a fatigue factor as well with the larger territory. So it was a little bit of the covering territories, but mostly just for getting a more efficient territory increasing our region frequency with doing that.

And then with respect to operating expense in 2019, so we don't plan to give full year guidance, but I can give a little bit more clarity from what I said in our prepared comments. So we did see an uptick in operating expense from Q3 to Q4 of ‘18 of $6.1 million. Last year we saw a drop into Q1 of about $1.5 million. So we’d expect to see that drop again going into 2019. It could be a little bit larger than the $1.5 million, say $2 million. We then expect that to continue for a few quarters before we see a bit of an uptick in Q4. So hopefully that gives you some direction of from where we are at today to where we’ll be going into 2019.

Yes, that’s very helpful. Congrats on the progress. Thank you.

Thank you.

Our next question comes from the line of Joe Pantginis with H.C. Wainwright. Your line is open.

Hey guys, good afternoon, and nice to see the increased attraction of TAVALISSE. I wanted to preference my question, but the topic is the reorder rates and preference my question by saying obviously you are still in the early days of the launch and building experience for the drug, but especially with the commentary in the prepared remarks a lot of heterogeneity to the different lines and the types of patients its being used in. So with that introduction, sorry for the length, just curious for the reasons for lack of reorders at this point with regard to you know combinations of efficacy, side effects, you know what have you. Just curious about the kind of data you might have?

Sure, Joe this is probably Eldon as you can tell. Yeah, I mean we’re again – as I said I don't want to be repetitive, but it is very early still of course in the launch and you know we're tracking and when you say reorders, I assume you mean with prescribers and that's something that we're tracking very closely. There is a caveat I did want to provide that there are you know such as the with – and I mentioned this earlier, with the so called IOD portion of our business, so we can provide some directional updates here, but that's a segment of our business that we do not have full visibility in and that represents 40%. So we can say though that you know we've seen a growth in our prescriber base, but a lot of our prescribers started with one to two patients on therapy and we do expect that as they become more comfortable with the product this will increase over time. But it takes time for them to evaluate how a patient is responding, and so we think that will be a key driver of sales volume going forward. You know we actually are pleased that so far we have about 15% roughly of physicians that have multiple patients on drug in their subset that were you know even more productive. So we do expect that to grow. As physicians gain more experience, we think they'll be using it more across all lines moving it gradually into earlier lines where there are larger patient populations that have been less heavily treated. So I hope that addresses your question. I don’t know if that’s specifically what you are asking but...

No, it really does help a lot, and I was just curious like if they're like specifics where you are not seeing a particular reorder from a physician based on say an adverse events profile or just lack of efficacy as an example.

No, I don't – there are no signals there Joe that concern us, but as we stated before, I mean the product is being used across all lines, including earlier lines. But of course initially we are seeing the majority of our patients in later lines and we also know that with many rare disease products, there is a – can be a pent-up demand phenomenon right where you have a significant quantity of patients that had exhausted treatment options and are typically you know very, very refractory as an example of the one that I provided earlier and so there are, you know the number of physicians who did have a patient that was very refractory, did not respond and so this is an area where our sales force will go back in and talk about the benefits of the product and what are the right patient candidates. So some of that is very normal, with launches in this type of markets, so you know again, not anything concerning for us.

Got it. No, I appreciate the added details. Thanks a lot.

Thank you. Our next question comes from the land Allison Bratzel with Piper Jaffray. Your line is open.

Hi, thanks for taking the question. Kind of a follow- up actually on the last question. The label recommends a three-month trial before discontinuation of patient, don't have a sufficient response. So I guess now that you're, you know several months into launch, how does that look in practice. Are docs actually waiting three months before discontinuing or should we expect to see more churn as sort of the first wave of patients hits the three month mark?

Okay, yeah, good question. So first of all let me just restate that we have a 45%, you know refill rate or persistence rate which we actually believe is very strong given what I just mentioned, that the majority of patients are more refractory. So we expect that again, given how early is in launch, as physicians gain more experience with the drug and learn how to use the drug better and so how are they dose modifying for example; how are they managing AE such as diarrhea and as we get better at supporting them with that, we think that – and then additionally as we move the product up line into earlier line of patients that you know we believe are more likely to stay on therapy, that we’ll see that improve. Having said all that as background, yeah when we launched the product there one of our key messages was a rapid response and that is seen, but there were some physicians who we believe and we heard anecdotally who did discontinue before giving them the full three months and maybe did not dose escalated. So this goes back to what I said before about physicians learning how best to use this drug and for us to support them. So this is an area of normal learning’s in early stages of launch. We have a great opportunity for us to go back with those physicians and support them and making sure they understand how best to use this drug and so we think that is an opportunity going forward. That wasn’t a significant portion of our patients and I don't have any numbers for you, but yeah, we did see a little bit of that but I don't think it's anything that is concerning. I think it's also actually an opportunity for us going forward and the patients to get the right treatment, of course.

No, we are very happy with that 45% at the fourth month. I think that’s a very good indicator of patients clearly having a benefit, because they wouldn't stay on that long if they didn't derive a benefit and clearly the AEs are – they encountered – if they were going to encounter any and that's obviously not a deterrent and obviously the reimbursement is not an issue. So we're very happy with that 45% and I think as doctors get more experience we expect that to creep up words, which is fantastic. Also as Eldon mentioned, as we get used in earlier lives of therapy more, we expect that response rates and others to help improve that as well. So we're looking forward to sharing that with you as we progress.

Thank you.

[Operator Instructions] Our next question comes from the line of Yigal Nochomovitz from Citi. Your line is open.

Hi, this is Samantha on for Yigal. Thanks for taking our question. Again, just to follow up on some of the earlier question. You mentioned that you have about 15% of prescribers that have multiple patients on drugs. I assume that's more than two patients. I was wondering if you could just provide a little bit of -- do you have any insight into the trend that throughout the whole launch or is that just a snapshot at that one survey that you did in October?

Yes, okay. That percentage is not from our survey. That is specifically from the demand trends that we have visibility to in the specialty pharmacy channel, so which is the 60%, represent 60% of our demand. And again, the remaining 40% in the IOD channel, we see bottles shipped to those accounts, but we don't know how many prescribers and how productive they are. So that’s just a caveat for that. But no, that’s an overall number for 2018. So again, these are of the many, many metrics that we are very closely monitoring and analyzing, that is one of them. So I think it's too early to comment on any trends there again. We think it's encouraging. I can say you know early in Q1 we are very encouraged with the trends we are seeing overall as well.

Thank you, that's helpful. And just switching gears a little bit, I'm curious for your thoughts on which of your partner programs you think is perhaps the most long term for potential value for Rigel and what are the catalysts that we will see over the next one to three years that will help the market begin to recognize that value?

That’s a very good question. I think all our children are very good children. All our partnerships I think are very good partnerships and we are very happy with all of them for different reasons. The two we put in place most recently with Kissei for Asia, Japan commercialization of fostamatinib and with Grifols for commercialization of fostamatinib in Europe and Turkey. I think those are partnerships that really allow the product to be used in the very large ex-U.S. market, and in the case of Grifols the opportunity is really proximate. We hope we can get approval for this product at the end of this calendar year 2019, and the product will be in patients in 2020 with Grifols. So the immediacy of that is really outstanding and as Dean mentioned, the royalty rates are important and attractive for that partnership. So they are excited about it as are we, our partners at Kissei are actually equally excited. They are working with the PMDA in discussing how best to advance towards an approval in Japan first and then the other Asian countries and they are very enthusiastic about that. Again, it’s close to the finish, not as close perhaps as Grifols there and that's fantastic because of that. Our earlier collaborations are making very good progress, broadly speaking from Aclaris and AstraZeneca now in the clinic. They are all at clinical stages, various clinical stages and different ones will progress at different rates, but we are very pleased with all of those at this point.

Thank you, thanks for talking the question.

Thank you. I'm showing for the question. I will now turn the call over to Raul for closing remarks.

Well, thank you. I'd like to thank you for listening in and your questions. Most importantly I’d like to thank you for your support as we move this product forward and have gotten it to an approval and now to patients. And the reason I’d say that, we hear from patients on a weekly and monthly basis and their doctors about the product and how its benefiting those patients, and I assure you that this is a product that is very valued by those patients whose lives are made better and they are ITP improved because of your support, and having allowed us to do this, so thank you for that. And I appreciate it, and will keep you abreast of our other advances throughout the year. Take care.

Ladies and gentlemen, thank you for participating in today's call. Everyone have a wonderful day! You may now disconnect.