ANIK
#Okay, I will address the CINGAL trial and those issues and <UNK> will come back to the margins.
And I'm fighting a bit of a cold, so hopefully I don't have a blip in the question like I did in the prepared remarks.
We finally were able to have the meeting with the FDA, and as you well know, that took quite a bit of time.
I think we had a meaningful discussion, and I think we made a lot of progress.
A lot of people participated in the meeting from the FDA as well as from Anika with clinicians and all kinds of folks adding input.
With regard to the trial that we need to do now, we are still discussing, and they are evaluating a proposal that we made about how that trial should be constructed, and basically what the endpoint should be.
And we expect to hear back from them fairly soon, within a couple of weeks, as to their position on some of our proposals.
And then we go from there to continue to negotiate whether it's through a submitted IND and use that as a vehicle to negotiate, or ---+ which would allow us to give a lot more information that, one, they don't currently have, or some other vehicle.
Now, to the trial size, the first trial was somewhere on the order of 350 patients, and it had three arms ---+ MONOVISC, CINGAL and saline.
This trial will at the very least have CINGAL and the steroid and may or may not include MONOVISC.
And we see no reason that we would ever run saline again.
So, if we make the assumption that we're going to have approximately the same number of patients, then the cost issue the first time I think was around $5 million or $6 million.
So, we would assume a similar level.
We would also assume that we would go back to virtually all of the sites that performed well in the first trial to help us speed up enrollment.
So, I don't know if you have additional questions to the information I just gave you and you want some more clarification (multiple speakers)
That's what we will put in front of the FDA.
As you well know, there's no requirement to run the trials for approval in the United States in the United States.
We also have some people in Canada that have had really good success with the product, are interested in participating in the trial as well, so we may have some Canadian sites as well.
And it's possible, maybe we will have some US sites, and that would be good to build up KOLs.
However, we're talking about trying to expedite this whole trial process such that we gain approval in the shortest possible time.
And the quality of the data that we received out of the European sites the first time vis-a-vis dropouts and other types of things was just absolutely excellent, so there's no reason to suspect that this trial will be any different.
<UNK>, regarding the product gross margin question, so we are quite pleased with the Q3 results at 81%.
The main reason, the primary reason, for the favorability this quarter is the increase in production volume, a large increase in the production volume in the quarter, compared to prior year, as well as earlier quarters in the year that allowed us to lower the per-unit cost because the fixed costs and labor costs can be spread over more units.
I don't think that this quarter's margin is indicative of all future quarter results due to a number of factors, including production volume variability and revenue mix.
So, for the year, we are still maintaining the product gross margin percentage to be in the mid to high 70%-ish range.
So that is the summary related to your second question.
You mean contribution to revenue.
Contribution ---+ you're correct.
This is the first quarter with some real meaningful CINGAL revenue because the product was launched in Canada and Europe, I think, in late Q2.
So, with regards to revenue for the year-to-date, obviously there were no activity in Q1 and then a little bit in Q2.
Revenue is about $0.5 million to $1 million range.
So considering the size of the European market, the limited number of countries that had initial launches, and looking at the lower pricing in Europe, I think this is pretty good results for a little over three months of activity.
I would add something to that, and there's a couple of facts that I'll put on the table that make us quite encouraged about these results.
One, unsolicited pretty much, we are getting just tremendous feedback from the physicians.
Their comments go around, boy, we are very impressed with how fast the effects of CINGAL take over, and two, we are equally or even more impressed with how the patients respond and how they get back to normal activity so quickly.
So, this is really differentiated from any other product out there, in their minds at least.
We happen to believe that, too, but this is the feedback we are getting.
The second thing I would throw on the table is that, if you remember back when we launch MONOVISC in the United States, recognizing of course that Canada and Europe and other countries are slightly different than the United States, but the first whole year, we got up to about 1% market share or so, I believe.
And it was in the second year where we shot up from 1% to 5% or greater.
So, these things take time when you introduce them to the market.
So having only been out there for one quarter and getting this kind of enthusiasm around the product, we are pretty excited.
That's correct.
The reasoning for adding the steroid in there was to get the short-term results, and the reason for having the MONOVISC or the HA portion is to have those sustained long-term performance results.
So yes.
Could you ---+ I think I know what you mean.
Could you ask that question in a different way.
Okay.
Well, there is a large number of studies done with the steroid, as you might imagine.
And there have even been some pilot studies done with HA and the steroid.
So we are looking at all of that data, and it's fairly clear that the steroid effect is at best a three-month period.
So, what we are trying to understand in the short-term and try to take a look at maybe a little more closely is how does the steroid increase the very short-term effect in the first couple of weeks, and we are trying to tease out ---+ we will try to tease that out with the new study.
We've already got data on that because we measured MONOVISC versus CINGAL, so we've got that piece.
So we'll put that together.
With regard to beating the steroid in the long-term, I don't think that there's too much worry about CINGAL beating the steroid at all.
So if we just had the CINGAL versus the steroid, the study could be quite small, depending of course on the endpoints.
But if we are looking at short-term effect and long-term effect, we won't need a lot of patients.
If we have to also include a MONOVISC arm, which I don't really see the value of, but we may have to do that anyway, that will bring the patient numbers up.
But we are looking at ---+ and we haven't reached full agreement on the size of any differences that we would have to measure, which of course then goes directly to the powering of the trial and the number of patients that you would need in each arm.
So, we are still working on that.
But it would be hard to imagine that we would end up in a situation where we would have to power the trial a certain way and result in having substantially more patients than we've already investigated.
One thing you have to ---+ okay.
Let me throw a little bit more information out for you.
First of all, the one thing that you have to remember is that we have two approved products put together.
That is MONOVISC and the steroid, which was commercially called Aristospan.
We also have a strong data package which shows that they do not interact the two mixtures.
Okay.
That is very different from what Carboline was trying to do, because that was a new drug entity.
Because they didn't have an approved HA, they were trying to introduce the steroid in a controlled delivery fashion.
It was a very complicated system.
Ours is much more simpleminded.
The steroid is introduced fundamentally at the bolus.
It's just like injecting steroid without the HA.
And we are looking only for short-term effects.
And the long-term pain relief is going to come from the HA, which is well-established because we have an approved product called MONOVISC.
So, it's a different situation than Carboline.
I mean we are well down the road.
There's not going to be any more pilot work required.
It's been on the market a couple of years.
It was introduced, launched in April of 2014.
I'll let <UNK> kind of answer most of this.
I'll put in a paid political announcement at the beginning.
It's a very good product and it works really well.
That's my paid political announcement.
And I'll have a little color after <UNK> finishes, but go ahead.
Thank you Chuck.
So to answer your question, <UNK>, yes, the increase in MONOVISC is due to volume increases and share increase.
We are seeing very good responses in the market, both in the markets both domestically and internationally, for MONOVISC contributing to the 33% in the quarter from a revenue growth standpoint.
And year-to-date, it's well above 50% from a revenue growth from this particular product.
So yes, go ahead.
Yes.
You want to do it.
Go ahead, I'll add the color.
In the United States, we, as we said, launched the product about a couple of years ago and the product, both from an efficacy and from a safety standpoint, had a number of features that are really superior to other competition products.
And together with Mitek's, our commercial partners, sales and marketing abilities, we were able ---+ because they are really the only ones in the marketplace that have a portfolio of multi-injection and single-injection.
So the combination really positions Mitek well, and the design and the efficacy of the product allow them to effectively gain share.
As I mentioned in the scripted section, we have, in recent periods, seen some price erosion on both ORTHOVISC in MONOVISC.
But the important thing here is, from a volume and from a revenue standpoint, we see a combined increase from the two products and the growth rate for ORTHOVISC and MONOVISC is at a higher growth rate than the market growth rate.
So we are taking share.
And that's the positive point for the domestic market.
Internationally, most of the ---+ or the main reason for the revenue growth is due to expansion into new territories as well as gaining shares in some existing territories.
And we are seeing MONOVISC being a more innovative product in the marketplace.
Where most of the countries are saturated with generic multi-injection products, we are a lot more competitive on the single-injection front.
So those are kind of the two different dynamics, domestic versus international.
So Chuck may have additional points to add.
Yes, I have a couple of points to add.
In the US, it is way, way too early to tell, but in our conversations with our partners, Mitek, they think that maybe there is a little bit of movement toward the single-injection product category.
Maybe.
And we can talk more about that in the fourth quarter and we will have some more data to see whether that's true or not.
So I would throw that out.
Internationally, in a lot of territories, countries, there are lots of multi-injection products, and some of them are essentially generics and priced very, very low.
So, where we can differentiate ourselves really is in the single-injection market.
And our partners have been pretty successful with doing that.
Also, there are some markets, not all but some, where there is no real viable competitor.
And some of those markets have the Synvisc I product there, but quite frankly, that in some of those markets, that product doesn't have a very good reputation.
So it's ---+ we've been somewhat successful at gaining some share against Synvisc I.
So I guess that's ---+ in summary, US is different from the international markets.
I think our most competitive products internationally will be MONOVISC and CINGAL.
Unfortunately, because of the pricing situation, ORTHOVISC, even though it probably works extremely well, is less competitive because of pricing.
The US a slightly different there because of the pricing in the US.
But anyway, we are ---+ the products of the future are clearly going to be MONOVISC and CINGAL, and we think we are on a pretty good track.
So, part penetration ---+
By the way, you asked about seven questions.
In terms of current penetrations, the comment is going to be mostly for the first half of the year, because we are still waiting to receive additional reports from competition, including Hennessey, Genzyme Synvisc and Synvisc I.
So, as far as we can tell, based on our information and information available in the market, we are in ---+ we currently have about [57%] of the overall viscosupplementation market for MONOVISC.
And the US market is essentially 40%/60%, so 40% on the multi-injection side and 60% on the single-injection size, although recent data seem to suggest that the single-injection is growing faster, and thus the point that Chuck mentioned earlier.
And it's a trend that we pay attention to and monitoring closely.
So, with that said, you can tell that, on the single-injection space, there's a fair amount of room for us to grow.
And we do believe that, in the immediate term, MONOVISC gaining share will contribute to our topline revenue growth, and will be the main driver, and obviously it's supplemented by international MONOVISC growth as well as the CINGAL launch outside of the United States.
Yes, I would just make a comment about MONOVISC internationally, which you could also apply to CINGAL, but it's much earlier on, is that, in certain countries where we exist in Europe, be it Western or Eastern Europe, we are doing pretty well.
And the major growth ---+ growth will continue to be there, but the major growth probably won't come from there.
There are pretty significant markets in Europe which are very price-sensitive, France being one of them, where we don't even play.
Spain is another one where we are trying to up our performance there.
And so from Europe, it's a point of getting into more valued countries, and gaining sales that way.
Outside of Europe, we talk about Australia.
We talk about India.
We haven't mentioned China but we are working through the regulatory process there with our partner.
So probably the biggest growth, at least for MONOVISC, other than the United States, is going to come through expansion.
We just recently ---+ we've partnered with Mitek for Brazil, for instance, for both ORTHOVISC and MONOVISC.
We just got approval for MONOVISC, so we haven't really generated any sales yet, but we are on our way.
So that would be an upside for us in 2017.
So most of, in my opinion, the MONOVISC growth is going to come from expansion and getting into territories where it can be competitive but we are not there right now, and good-sized markets.
So, at a high level, I would say that this is working, and the reason is because of the increase in overall revenue from the ORTHOVISC and MONOVISC franchise in the United States.
(multiple speakers) and the growth in terms of share faster than market.
In terms of which accounts and the order of magnitude of the price concession, that is a level of information that we do not have access to.
We have qualitative information or color from the partner, but we don't have that level of specific ---+ the account by account price concession information.
But we can add a little more information there, I think.
Procedures are definitely growing, but we look at the market pretty much in terms of revenue.
So, procedures are growing, but the pricing is probably coming down a little bit.
As <UNK> said, we don't have account by account information.
We just have generalities and the total picture.
But from what we have, it looks like the pricing for MONOVISC may have come down a little bit, but over the last couple of quarters, on average, it seems like it's holding pretty steady and is still quite high.
So the reduction, I don't know, it was maybe less than 10%.
Yes, from a price standpoint.
So, as far as price reduction, I guess there's some, but maybe it's not quite so significant at this point.
The future is the future.
In aggregate, MONOVISC is the main growth driver.
I'll point to that one.
The volume year-over-year nine months in terms of end-user volume, not the volume that we sell to Mitek, the end user volume went up 80% because of the share taking and so forth.
If you look at the price for the same period, it's come down like 5% to 8%.
So, that's kind of the ---+ if you need quantitative information, that's the level that we are talking about.
The other thing I would say is that we don't want to leave you with the wrong impression.
While we don't have individual account versus individual pricing at our fingertips, this is a topic that we meet with Mitek fairly regularly, and this is a topic that we talk about all of the time.
So we are getting ---+ we're trying to be as on top of this as we can.
Mitek has done this a lot.
They are making the final decisions, but we are definitely getting more plugged into understanding the market through enhanced communications.
So, I didn't want to leave you with the impression that we were hands off of this whole process.
But it's always a concern in a competitive market that pricing will go down.
I think, to some degree, Mitek has used some price reduction selectively to gain more share and that seems to be working fairly well.
Yes, correct.
Sorry, I'm just flipping to Page 6, the advancing pipeline slide that you are referring to.
So CINGAL, I think Chuck adequately addressed that.
MONOVISC hits is from (technical difficulty) Mitek, so we do not expect incremental spend.
How fast can and will be, as we talked about earlier in terms of acceleration of patient enrollment and so forth, can be in the low double-digit million dollars from an incremental spend standpoint.
Tendinopathy is a project that we, as you recall, we received IDE approval earlier in the year, and we have a protocol which is ready.
From a business priority standpoint, as we recently came out with a positive discussion with the FDA, the CINGAL program obviously is underway.
And the Company prudently decided that it is best to make sure that we focus on the top-most important programs, namely CINGAL and HYALOFAST.
So, in terms of timing of tendinopathy, I do believe that, sometime in 2017, we will pick up the spending on that, and perhaps toward the second half instead of the first half.
And as far as the rate of spending, I think, at this particular point, I'm not in a great position to comment because a lot of it depends on the exact timing that we decide to submit this trial.
From a UMass program standpoint, we do believe that we will pick up some additional spending on this program.
Currently, we have a contract in place with UMass to fund this RA drug delivery program, this innovative early-stage program.
Work has been done and we are looking at some increased activity.
And keep in mind, beyond these listed programs on Page 6, we also have other development products and projects that we are working on but we have not discussed publicly because of a number of reasons, IT and other reasons.
So, those programs will be contributing into the increase in research and development expenses in the future, but most of the spending will likely be from CINGAL.
Yes, I would just add a little more qualitative color since <UNK> is the master of the quantitative.
But with regard to CINGAL, we have to move that quickly.
We want to move that quickly.
So where we can, we may outsource some of the activities that are necessary to put the IND together, to get the sites up and running as rapidly as we can, etc.
, etc.
So the rate of spending that is historical for us should go up.
And once we have real clarity on where we are headed there, which should be fairly soon, we can open the spigot on the expenses and move that.
And it's our goal to move that as fast as we can.
We are starting to ramp up HYALOFAST, and of course, if you have a trial underway and you don't have any patients included, you're not spending much money.
So we are hoping that we can rapidly increase that, and therefore spend more money on that trial.
Once we get those two under control, where we figure we are on a trajectory that we want and is acceptable, we're going to initiate the tendinopathy trial.
So, I see expenditures in 2017 actually going up a fair amount.
And I can't speak to your modeling, but I would think that it would be our goal to move those programs quickly, which then would mean that we would be spending much more money next year than we did this year.
Sure.
I would say that it's on the middle burner in that, internally, we've actually got some ---+ we've assigned responsibilities.
We've got some active activity going on there with a team of three or four people.
So, that is not to say that we will find anything, but I think we are more active now than we were a year ago for sure.
But again, our priorities are to ---+ for the Company are to of course run it properly as we have in the past years, but to bring CINGAL to the market and get HYALOFAST headed towards the market as rapidly as we can.
And if M&A gets in conflict with that, then it will be the M&A activity that gets slow down.
I'll let <UNK> address the reimbursement coming down issue, the first part of the question.
I'll talk about the proposals, the value-based things, going forward.
If you look at that, what we hear from Mitek is that most of those ---+ this Part B reimbursement and all that is stalled.
There's not a lot going on.
I guess some of that is ---+ there's some controversy always in Congress, and there's not a lot of real activity with the FDA.
So it looks like and they feel that nothing is really going to happen there next year or possibly not even the year after.
However, if you look at those proposals and you look at how that might affect our products in the pricing proposal schemes that they put out there, at least the change from 6% to 2.5% with an added fee, it's not really impactful.
It's pretty small at the pricing levels because the impact increases as the price goes up.
And so we are in the zone where, regardless of the way it gets reimbursed, it's not a big impact.
So anyway, that's qualitative.
But so far, from what we can tell from Mitek, who keeps their finger on this pulse very carefully, there's not a lot going on to move that progressively forward.
Now I'll turn it back over to <UNK> to see if she has any comments.
<UNK>, just so I'm clear on the question, when you said reimbursements, are you referring to the CMS reimbursement.
MONOVISC ---+ correct.
When MONOVISC was initially introduced or launched, it was close to $1,000 as a starting point.
And currently, we are at the $900 range that you mentioned.
So that is part of the kind of price erosions that we have been seeing, and which has been reflected in the revenue for MONOVISC for us in each of the quarters during the last couple of years.
And from a trend standpoint, as of right now, we do see that there is some pricing pressure.
So, we think that it will maintain or perhaps be slightly lower.
But the important part about the MONOVISC story is that the volume and the share growth is very positive and strong, and it's more than offsetting the price decline.
So, I think that is key to remember.
And secondarily, the MONOVISC pricing at $900 per unit is still at a very strong premium comparing to the other competition products, which are in the $600, $700 per unit.
And thinking about the fact that it's premium priced and still be able to command good share take I think puts MONOVISC in a very good spot.
Okay.
Back to my prepared remarks, and hopefully I don't stumble this time, but I want to thank you all for spending time on the call today.
I thought the questions were excellent, and provided, through the answers and the questions, provided a much clearer view of our business and where it's headed.
I'd say that we are pretty happy to deliver another quarter of growth.
We are certainly excited about the potential to bring new and innovative products to the market and accelerate our growth moving forward.
So, <UNK> and I both look forward to updating you again on our next earnings call, and have a great day.
