RedHill Biopharma Ltd. Q2 FY2020 Earnings Call

Good day, ladies and gentlemen, and thank you all for standing by. Welcome to RedHill Biopharma's Second Quarter 2020 Financial Results Conference Call. Please be advised that today's call is being recorded on Thursday, August 13th, 2020. And without any further delay, I would like to introduce the RedHill executives who will be with you on this call: CEO, Mr. Dror Ben-Asher; Mr. Micha Ben Chorin, Chief Financial Officer; Mr. Rick Scruggs, Chief Commercial Officer; Mr. Gilead Raday, Chief Operating Officer; Mr. Guy Goldberg, Chief Business Officer; and Mr. Adi Frish, Senior Vice President, Business Development and Licensing. Before we begin, we will read from RedHill's Safe Harbor statement.

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

Thank you, Maurice. Good day, everyone, and thank you for joining us. I remind everybody that for the first time, we are using slides today, and we will be using them later on. Therefore, we will try to make sure you click on the right link in order to follow the slide in a few minutes. Our clear corporate focus remains on achieving rapid, sustainable, and profitable revenue growth with operational breakeven plans at some point in 2021. In that respect, the second quarter of 2020 has been a strong one for us, and we have generated record sales. We are also making rapid progress on the R&D front, currently running two parallel global Phase 2/3 and US Phase 2 studies with opaganib, sometimes called Yeliva, for COVID-19. Initial results and potential global emergency use authorization application with opaganib for COVID-19 are planned as early as the fourth quarter of this year. In addition, FDA clearance to enter a pivotal Phase 3 study with RHB-204 for first-line NTM infections has been granted last week. Protecting our employees, patients, colleagues, and communities has been our primary focus throughout the COVID-19 pandemic period to date, and we continue to monitor developments. We maintain full employment of our dedicated sales representatives and employees. RedHill entered the challenging COVID-19 period in a resilient position, and it is emerging even stronger. This is no coincidence as we are now reaping the benefits of building a resilient, agile, experienced, organized, and highly motivated team and having diligently and gradually built a robust and durable US commercial and R&D organization in recent years. We aim to become a leading specialty pharma leader in the US, utilizing both our organic growth capabilities driven by RedHill's very own late clinical-stage pipeline as was the case with Talicia, as well as non-organic growth competencies driven by the continued rollout of synergistic commercial product acquisitions, such as the acquisitions of Movantik from AstraZeneca and Aemcolo from Cosmo. With 100 sales representatives in the field and three well-protected and much-needed FDA-approved products in our commercial bag and an advanced and robust pipeline of drug candidates addressing large markets, including infectious diseases, the importance of which public awareness is increasing by the day. Continued strict financial discipline and sound cash position to be further strengthened by the important expansion or the strategic partnership with Cosmo for multiple products announced earlier today. We are confident and uniquely positioned for fast revenue growth in the coming quarters and years. I remind the audience again to press on the link in order to see our slides later on as we present them. I will now turn to our CFO, Micha, to discuss our second quarter results, followed by the presentation of business highlights by Guy Goldberg, our Chief Business Officer, as well as the Q&A session during the remaining time. Go ahead, Micha.

Thank you, Dror. Good day, everyone. I will provide a short overview of our financial results for this Q2. The second quarter of 2020 has been transformative for RedHill. In our first full quarter promoting Movantik and Talicia, we generated record net revenues of approximately $21 million despite the challenges of the COVID-19 environment. With a cash balance of approximately $56 million as of yesterday and an additional $12 million upfront payment expected from the agreement with Cosmo Pharmaceuticals, we are well positioned to continue our strong growth trend while maintaining financial discipline. We recorded net revenues of approximately $21 million and gross profit of $6.7 million, primarily attributable to Movantik, which is far higher than any previous quarter for RedHill. Research and development expenses were relatively small at $3.2 million compared to $2.8 million in the first quarter of 2020. The increase was primarily attributable to the initiation of the studies with opaganib for COVID-19. We saw a reduction in operating loss, which was $12.5 million compared to $17 million in the first quarter of 2020. The decrease was primarily attributable to the gross profit from the sales of Movantik, partially offset by an increase in operating expenses. Overall net cash burn in the quarter, excluding the Movantik acquisition from AstraZeneca, was $9 million, which was lower than the net cash burn of approximately $12.8 million recorded during the first quarter of 2020. Our cash position as of June 30th was approximately $53 million. As of yesterday, our cash position was approximately $56 million. We continue to maintain cost discipline during this transformative revenue record quarter. Importantly, we are committed to maintaining cost discipline as we continue to expand our commercialization activities for our GI products. While the current pandemic situation is not over yet and some unknowns remain, we are still on track to achieve operational breakeven in 2021. I will now turn the discussion to Guy, and we'll be happy to take questions later on. Thank you.

Thank you, Micha. As Dror mentioned, we are for the first time giving a presentation on our earnings call. This is because this is an important moment in our company's history as we generated record revenues, and we want to provide a lot of transparency and visibility around what we are seeing in these early stages of our commercialization activities. We also receive a lot of questions around how everything has been affected by the pandemic. We want to show you that not only is RedHill growing rapidly, but also why we are so optimistic and enthusiastic about the coming years and quarters. For the new folks on the call who are not familiar with RedHill, we are a rapidly growing US specialty company, Nasdaq-listed with ticker RDHL. We are fully integrated with three FDA-approved GI products that we are commercializing ourselves. This includes Movantik, which is indicated for opioid-induced constipation; Talicia, which is indicated for H. pylori eradication; and Aemcolo, which is indicated for travelers' diarrhea. We also have a robust R&D pipeline with several important late-stage products and a strong track record of success, including opaganib, a novel COVID-19 drug candidate currently in both the US Phase 2 and global Phase 2/3 studies. The second quarter was one of the most important and transformative quarters in our company's history as we generated record net revenues. Q2 net revenues, as mentioned, were approximately $21 million, and we are looking forward to strong revenue growth driven by Talicia ramp-up and Movantik sales. In addition to the milestones with these revenues, we had other important achievements. These include our acquisition of Movantik from AstraZeneca and regaining exclusive US responsibility from Daiichi Sankyo. The renegotiated terms with Daiichi are particularly important as we believe they will significantly improve our gross margins for Movantik. Additionally, ongoing parallel global Phase 2/3 and US Phase 2 COVID-19 studies with opaganib are progressing well, and preliminary data for the potential emergency use applications are expected as early as Q4 2020. RHB-204 has been cleared by the FDA for a pivotal Phase 3 study as a first-line stand-alone orally administered treatment for pulmonary nontuberculous mycobacteria, or NTM disease, and as many of you saw from the PR announced this morning, we have our exciting new deal with Cosmo. We are expanding our relationship with Cosmo Pharmaceuticals; they have been a fantastic partner. We have a great strategic collaboration and working relationship with them, and we look forward to achieving great things with them in the future. So, this slide discusses the impact of COVID-19 on RedHill. In summary, there have been no disruptions to clinical studies, only one quarter delay for our NTM study, and this was largely because we had to make sure patients could reliably and safely get to the investigators' clinics and that we can monitor the study effectively. We had no disruptions to the supply chain; we get that question a lot from investors. Our field promotion efforts were shut down from March through May, like everyone else's. So we shifted during this period to remote promotion and continued intensive marketing activities. We have been returning steadily to the field since early June. Two critical components of that return for us are: first, the doctors' offices have opened up and are welcoming patients back; and second, H. pylori diagnostic activities are returning, enabling positive identification of patients, which facilitates treatment. We’ll provide you more data on this in the coming commercial slides. This is our pipeline chart. The top part shows our commercial products, and the bottom part displays our R&D products. Since we will provide detailed updates on our commercial products, Movantik and Talicia, and on the R&D side, COVID-19 and NTM, I will briefly mention several other important programs that are not being discussed today. So investors new to the story can appreciate our diverse activities. First, regarding Aemcolo, which is indicated for travelers' diarrhea. This is an important part of our portfolio, and we are taking many initiatives with this product right now to set it up for success when travel resumes. On the R&D side, RHB-104 for Crohn's disease; we had a successful Phase 3 study and now are working on a diagnostic for MAP infection before we begin our next Phase 3 study. RHB-102 had positive results in Phase 3 for gastroenteritis and positive results in Phase 2 for IBS-D, and we recently had a press release announcing the publication of data from that Phase 2 study in the American Journal of Gastroenterology. RHB-106, our bowel prep product, which we plan to move into a Phase 2 study. Lastly, in oncology, we have two Phase 2 studies ongoing with opaganib and also upamostat. For those of you who have been with us for a while, this slide puts us in perspective in terms of where we came from and where we're going. We have grown from an R&D company to a fully integrated company with a small-scale commercial operation to now being an important US specialty GI company and one of the leaders in GI infectious diseases specifically. We have built a world-class commercial team headquarters in Raleigh, North Carolina and a field sales team with 100 sales representatives. With our continued rapid and consistent growth both organically and non-organically, as you see with Talicia, Movantik, and Aemcolo, we hope in the coming years to be a leader in specialty pharma in the United States. I will now turn it over to Adi Frish to discuss the deal with Cosmo that we just announced today.

Thank you, Guy. Hi, everybody. We were very glad to announce this morning that we have expanded our strategic partnership with Cosmo Pharmaceuticals and have entered into a binding term sheet for multiple products. The new arrangement with Cosmo covers three important products: first, RHB-204 for first-line NTM infections; secondly, Movantik for opioid-induced constipation, which we have recently acquired rights to from AstraZeneca; and thirdly, a new plan for next-generation H. pylori therapy. RedHill is set to receive $12 million in upfront payments and additional milestone payments of up to $9 million. Pursuant to the agreement, RedHill and Cosmo will co-develop a novel next-generation H. pylori treatment. Cosmo will be granted exclusive European rights to the new drug and will pay RedHill $7 million upfront, an additional $2 million upon European approval, and 30% royalties. Cosmo will finance the majority of the cost of the planned pivotal Phase 3 clinical study with RHB-204 for first-line NTM infections, providing $5 million upfront and $7 million in milestone payments. In return, Cosmo will be entitled to 15% royalties from RedHill. RedHill also selected Cosmo as its exclusive worldwide manufacturer for Movantik as part of the transition of the rights from AstraZeneca, along with the manufacturing of RHB-204 and the new next-generation H. pylori therapy. All in all, we are very happy to further strengthen our strategic relationships with Cosmo Pharmaceuticals as a leading well-known manufacturer, and we want to extend our gratitude and appreciation to the Cosmo team for their invaluable support and growing relationship. This transaction is anticipated to initially provide RedHill with $12 million in non-dilutive funding and will allow us to accelerate the development plans for a new next-generation H. pylori treatment and the planned Phase 3 study with RHB-204 for first-line NTM infections. I would like to hand it over to Gilead Raday, RedHill's Chief Operating Officer, to discuss two of our late clinical-stage programs.

Thank you, Adi. I will provide a brief update regarding a couple of our leading Phase 3 programs addressing COVID-19 and NTM infections. We are rapidly advancing opaganib, our novel drug candidate for treating COVID-19 patients, which shows promising antiviral and anti-inflammatory properties. Our rigorously designed global Phase 2/3 study has been initiated, and we plan to enroll up to 270 patients across approximately 40 sites in the coming months. In parallel, our ongoing US randomized, placebo-controlled Phase 2 study is approximately halfway through enrolling the planned 40 severe patients, and we expect to complete its enrollment later this month. Encouraging data from compassionate use of opaganib has shown substantial benefits to hospitalized severe COVID-19 patients with marked improvement in clinical and inflammatory markers compared to a matched case control group in the same hospital. Importantly, all the opaganib-treated patients were successfully weaned from oxygen supplementation and discharged from the hospital on room air without requiring mechanical ventilation. This is compared to a third of the matched case control group who progressed to undergo mechanical ventilation. If our ongoing rigorously designed studies confirm the promising signals from the compassionate use, this could potentially support an emergency use application for opaganib as early as Q4 of this year. After extensive preparations, we are advancing RHB-204 into a pivotal Phase 3 study in nontuberculous mycobacterial infections termed NTM. As announced earlier today, the NTM study is now supported by funding from our strategic partner, Cosmo Pharmaceuticals. NTM is a debilitating rare disease with no FDA-approved therapy for first-line treatment. RHB-204 is a simple all-in-one orally administered stand-alone therapy intended to be the first approved first-line therapy, if approved by the FDA. We have received FDA clearance for our pivotal Phase 3 study, which is planned to enroll 125 patients across approximately 50 sites in the US. With FDA granted QIDP designation, RHB-204 is eligible for fast track development, priority review, and potentially 12 years of market exclusivity with orphan drug designation, for which we have already applied. I will now turn it back to Guy Goldberg to update our commercial progress.

Thank you, Gilead. I would now like to talk about the rapid and significant commercial progress we have made in the last quarter. We're fortunate to have Rick Scruggs leading our commercial efforts. Rick also brought with him many of his colleagues from Salix, the number one GI-dedicated company in the US before it was purchased by Valeant, and we have several of that highly dedicated and experienced team leading our efforts here, along with many other seasoned pharma executives. Rick is on the call and can answer questions later about our commercial activities. In this part of the call, we are going to show metrics in detail not often shared by pharmaceutical companies in earnings calls. Some of these metrics will be shown just this quarter to help investors better understand our markets and recognize why we are optimistic right now in these early critical stages of our commercial activities. I'm sure everyone is familiar with the macro-environment that the pandemic has created. The commercial pharma world was put on lockdown just like everything else in the economy, meaning doctor's offices were shut, non-emergency lab work was frozen, and in-person pharma sales activities were largely put on hold. This is the environment we are operating in. Fortunately, this is starting to change. This chart shows on an industry-wide level the return of new-to-brand scripts. What we see is that the levels fell off considerably during March but have been returning steadily. This is an important metric since launches depend on new brand writing by doctors. Again, I want to reemphasize that this slide features industry-wide data. We used the time when things were shut down to rev the engines, in addition to remote detailing. We have undertaken multiple campaigns such as direct mail, email, online speaker programs, online advisory boards, and many others. RedHill has begun deploying its field sales force. We have progressed quickly from being in almost a complete virtual shutdown mode in March, April, and May to returning to the field. In June, we averaged about three calls a day, and now, as of July, we're averaging over five calls a day, and that number keeps growing. This is not yet full capacity. What this means is that in the last few weeks, we are seeing the impact of our sales force, and we are still not at full strength yet. Just to clarify, this slide shows the average number of calls per day done by a field sales representative in person. So, a very important part of our launch, and it’s good to see that number growing. We will now show some product-specific data about our main growth drivers, starting with Movantik and then talking about Talicia. This slide shows our successful transition of Movantik to our hands and our initial success with the product in the first few months. The Movantik script data before we acquired it is on the left, and the four quarters after we acquired it is on the right. The four-quarters average is provided to ensure an apples-to-apples comparison. We are particularly proud of this slide because it demonstrates that we were able to seamlessly take over Movantik from AstraZeneca, considering how challenging these transitions can be, especially under the conditions we encountered during the pandemic. Our team was ready, agile, and resilient, and it already shows. This slide showcases two phenomena. First, you'll see the PAMORA class of drugs for opioid-induced constipation, or OIC, which is what Movantik is a part of; it has held steady during this pandemic period. This indicates that a very real need faced by these patients is being addressed. It's debilitating, as some of our KOLs have told us, as OIC is not dose or time-dependent. This is a significant and reliable market addressing an important medical need. On the right, again, you see the Movantik numbers, reflecting the great effort made by our commercial team led by Rick, as well as David Wasserman, our Senior VP for Alliance and Project Management, in taking over this product as quickly and smoothly as possible. Rick and Dave worked together for many years at Salix and executed similar acquisitions and product transitions successfully several times. So we benefited from their deep experience and the cooperation of our counterparts at AstraZeneca. For a smaller company to accomplish this so effectively is quite remarkable. So, the previous slide broke out performance before and after the transition. This slide provides more granularity on the month-to-month script performance of Movantik and the larger ProNeura class. Again, Movantik—the launch of this ProNeura class of drugs targeting OIC. This chart shows both TRx and Rx, meaning total scripts and new scripts. Although it's still very early, we are encouraged to see already a slight uptick in script volume, and we are excited to see what the coming quarters will bring with our energized, focused, and larger sales force. Regarding this last point, the bottom chart is important; we've mentioned before that we actually have a larger sales footprint than AstraZeneca had at the time we took over the product. This compares Q1 and Q2, as we're targeting more physicians and this chart shows those numbers as of now. As we continue to grow our sales footprint, our plan is to reach more than 20,000 healthcare professionals with Movantik. Movantik has strong coverage and preferred status, as shown here. AstraZeneca did a great job, and we have inherited that effort. We are thrilled that, both with government and commercial coverage, our overall coverage and preferred status are in great shape to begin with, and we will continue working to improve coverage. This slide shows our additional efforts, alongside our sales activities, on creative and important initiatives to drive Movantik growth, including our commercial advisory board, which has deepened customer insights; our educational programs designed to promote engagement; our segmentation and targeting activities to ensure that we are reaching additional targets with increasing share of voice; and, finally, our multichannel marketing to boost both digital and non-personal activities. I will now discuss Talicia's launch performance. Talicia holds a special place for all of us here at RedHill as we developed the formulation internally, passing two successful Phase 3 studies and getting the drug fast-tracked and approved in just six months with the FDA. We launched the product in mid-March—right at the peak of the COVID pandemic in the United States. It has been on pharmacy shelves across the country since then. Like the rest of the industry, our sales force was pulled from the field and worked from home between March and May. We have gradually been launching this product into the field in the last two months as physician offices opened up and began welcoming patients back for in-person visits again. Now that things are returning to a new normal, our sales force has been in the field since early June, and we are already seeing prescriptions grow. Talicia is promotional-sensitive, and we are excited to see this trend continue with strong growth in the coming quarters and years, capitalizing on the enormous potential Talicia presents in addressing the carcinogenic bacteria responsible for the infections affecting 100 million Americans and over half of the world's population. We have endeavored to gain commercial and government coverage for Talicia, and we’ve had initial success in this area. We are off to a fantastic start, and we will continue to achieve wins. This slide shows the current commercial and government coverage on the right, as well as our growth in preferred coverage since launch on the left. This is a select list of our coverage wins, which importantly includes Express Scripts and Prime—two of the biggest PBMs in the United States in terms of covered lives. Lastly, these are some of the select marketing activities and marketing initiatives for Talicia that we are undertaking to supplement our sales efforts. We have a multitude of initiatives ongoing on several fronts. Just to point out, we are increasingly driving engagement and uptake in sales and non-personal interactions, executing educational programs, securing market access wins we've previously discussed, and driving growth through proper performance measurement and execution adjustments where needed. I will now turn it over to Micha to discuss the financial highlights for this quarter.

Thank you, Guy. We are well-positioned for reaching planned operational profitability in some point next year. Strong revenue growth with net revenues of approximately $21 million in Q2 and a reduced operating loss of $12.5 million due to our efficient commercial structure and cost discipline, supporting low cash burn. The cash position was approximately $53 million as of June 30, 2020, and approximately $56 million as of yesterday, before the additional expected $12 million upfront payment from Cosmo Pharmaceuticals in the coming weeks. We completed the acquisition of Movantik, followed by a transaction with Daiichi Sankyo, which enables improved gross margins and provides full commercial control over the product, while also adding Daiichi Sankyo as a shareholder of RedHill. Additionally, we have favorable terms for Healthcare Royalty financing mainly used for the acquisition of Movantik from AstraZeneca. I will now turn the discussion back to Dror Ben-Asher.

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

Thank you. Our first question comes from the line of David Hoang from SMBC. The line is now open. Please go ahead.

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

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

Sure, thanks for the question. Our focus is to increase Movantik business. We are over 75% of the PAMORA class, so we’re the dominant player in that class, but to grow the business, we are going to look to bring more patients from over-the-counter laxatives into this treatment group. We are focused on actually reaching over 18,000 prescribers out there with Movantik. So, we have increased our number of physicians we are making presentations to and driving the business. Was there another piece of your question I missed? I heard part of it, but part of that dropped off.

Yes. Thanks, Rick. That addresses the first part. I think the second part I had was, historically, has there been an inpatient hospital component of Movantik, and if so, what -- I guess what percentage of total scripts in the business was that?

There is an inpatient part of the business, but it's not the majority. It is an area we are exploring to see if there’s something additional we can do there, but it is not our focus right now.

Okay, got it. Thanks. And then, I just had a question regarding Talicia. Obviously, we're in the early days of US commercialization here, so I am sure you want to see how that goes. But in terms of ex-US, specifically Japan where there is a higher incidence of stomach cancer and a willingness to treat asymptomatic patients, have you had any thoughts about potentially launching Talicia there, and any discussions with potential ex-US partners in that regard?

Thank you, David. I appreciate you raising this point for the benefit of the audience. Over half of the world's population is infected with H. pylori. This is a class one carcinogen, meaning it's definitely linked to malignancies, specifically gastric cancer. Approximately 900,000 people die every year from this. This is a very serious global public health concern. In China alone, we estimate around 700 million to maybe 750 million infected people, and in India, even more. In Japan, there are roughly 1.5 million treatments a year, and in the US, probably 2 million treatments to start with. So, it is a major public health concern outside the US. Indeed, we are in discussions with potential partners in several key territories. There is much at stake with such transactions because you have to ensure that the partner is the right fit, the pricing is appropriate, and the considerations for RedHill shareholders are favorable. Therefore, we are not rushing into an ex-US transaction. If and when we decide to finalize one, we have received proposals already, which we mostly declined. We will announce publicly when that happens. I hope that answers your question.

Thanks a lot. That's very helpful. Then, just one last question if I may. Obviously we're looking forward to getting some data for opaganib towards the end of the year. I’m just curious about your thoughts on the market opportunity in COVID, including if you're able to obtain emergency use authorization, and to what extent having Gilead’s pricing on remdesivir might influence your thinking around the potential economics for opaganib?

Yes, another very good question. I'm glad you asked. Yes, we have been preparing for ramp-up, pricing strategy, and capacity requirements. We have engaged in a lot of internal and external discussions about those matters since around March this year. We will be ready with a commercial and pricing strategy by the time that, assuming everything goes well with our study and we receive positive results. If we can confirm our findings and successfully file applications for emergency use not only in the US but globally, we will have our strategy in place, which we have been developing for several months now. I hope that answers your question.

That does. Thanks a lot for all the details.

Thank you once again. Our next question comes from the line of Scott Henry from Roth Capital. Please go ahead. Your line is now open, Scott.

Thank you, and good morning. Just a couple of questions. First, on the model, the gross margins were a lot lower in this quarter, but obviously that's going to change with the new deal. Could you give us an idea of what we should anticipate for Movantik's gross margins in a steady state?

Thank you for bringing it up. Scott, the agreement with Daiichi that we just executed is indeed significant for our gross margin, but to provide more details, I’ll refer to Micha, our CFO.

Hi, Scott. Thank you for your question. Currently, we are paying royalties to both Daiichi and NKTR, and we also have costs of goods sold associated with AstraZeneca, alongside some payments tied to the transition period to sell the product. Starting in the next quarter, as we've published, our new terms with Daiichi Sankyo will come into effect and will significantly reduce the cost of goods sold, as the royalties will decrease, and we will feel the impact beginning next quarter.

Okay. Now, in terms of magnitude, would you expect a halving of the cost of goods sold or can you give me an idea of the extent of that reduction?

We are moving to mid-teens royalty levels with Daiichi from the current levels, which means an over 20% reduction from our current payments.

Okay. Thank you for that information. And then, regarding the COVID-19 trial in the US, if it finishes enrolling in August, is there a possibility we could see data in September?

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

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

Thank you. We believe in thinking ahead. We just launched Talicia, which is a remarkable product, and we expect it to become the standard of care fairly quickly. Once patients resume their pre-COVID in-person visits to clinics and become eligible for testing, we anticipate Talicia will grow significantly in the upcoming quarters and years. However, we are also considering future opportunities to provide patients with a next-generation improved Talicia featuring several enhancements, which I cannot elaborate on, as that is part of the developmental program we're planning alongside Cosmo, who possesses strong formulation and manufacturing capabilities. Our intention is to have the next-generation Talicia ready on time as part of a natural product cycle.

Okay, understandable. Final question: you mentioned breakeven in 2021. Could you give us a sense of what the breakeven revenue level would need to be, perhaps on a quarterly basis, for you to reach breakeven? Obviously, it depends on the mix, but in general.

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

Okay, great. I’d like to sneak in one last question. G&A in the quarter of $6 million was a step-up from Q1. Should we view G&A as representative of what we should expect going forward?

It's representative, considering that we did see some reductions in our G&A level due to the PPP program of the US government.

Okay, great. Thank you for taking all the questions.

Thank you. Our next question comes from the line of Ed Woo from Ascendiant Capital. Please go ahead. Your line is now open.

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

Thank you, and good morning. Currently, every week, we're making about 3,500 calls with the same 100 representatives. Right now, we are around 2,600 in-person calls per week. This is an improvement from nearly nothing in April and May, obviously. Therefore, we are on the right path to getting there. Of course, much depends on various local and federal pandemic restrictions. Spikes happen from locale to locale on a state-by-state basis. With that said, I’ll refer to Rick to provide additional insights.

Yes, we pulled our sales force from the field on March 13 and kept them out through April and May. We started going back in June, but offices were not opening up as rapidly at that time. We have gained more access to physician offices, and they do want to see us. However, there are restrictions. Some offices are still closed, while others are open. But as Dror mentioned, our in-person visits with physicians have increased from three to five, and we anticipate this to continue growing. We are taking all necessary precautions with social distancing and mask-wearing and are being mindful of offices' protocols. We have been well-received back into the offices.

Great. And then, a different question: I know you previously discussed trying to reach 150 sales reps. Is that still a medium-term or a short-term goal?

At present, we are comfortable with the number of 100 representatives. We do not feel justified in adding another 50 sales representatives considering current uncertainties. However, over time we will certainly grow the number of our sales representatives to reduce territory sizes and increase call points.

You remember correctly that we targeted moving back to 140 sales people. Given the acquisition of Movantik and the onset of COVID, we realized access was going to be more challenging. So we reassessed and targeted the top prescribers for Movantik and Talicia. Consequently, we settled on 100. We feel this size is sufficient and appropriate to achieve our goals for this year. As Dror indicated, we will evaluate the need to expand our sales team further in 2021 in a post-COVID environment.

Great. Thank you for answering my questions, and good luck.

Thank you. Our next question comes from the line of Matt Kaplan from Ladenburg. Please go ahead, Matt.

Hi. Good morning, guys, and thanks for taking the question. Wanted to focus on your NTM program a little bit, as it’s potentially a significant opportunity for you. Can you describe your plans for the Phase 3 study and provide some details regarding the potential timeline for the trial?

Thank you, Matt, and good morning. We’re very excited about the FDA clearance to initiate the pivotal Phase 3 study. The study is designed to evaluate the safety and efficacy of RHB-204, assessing microbiological laboratory conversion and clinical outcomes as endpoints. We are in ongoing discussions with the FDA regarding the timing and implementation of the study endpoints.

Okay. When you launch the study, how long do you think it will take to enroll and complete?

The study plans to enroll 125 patients, randomizing RHB-204 versus placebo for first-line naive patients. We anticipate the enrollment could take up to a year, followed by a year of treatment post-conversion. We aim to deliver results within that timeframe.

Great. Thanks for the detailed information. I'm curious about the launch of Talicia during the COVID transition period—do you have plans to maintain the use of virtual marketing through the internet along with in-person calls?

Yes, thanks for the question. We have been employing webinars. We conducted our launches remotely and indeed, we're maintaining initiatives in our marketing department focused on this area. We'll continue to engage in marketing efforts via the internet and pursue other branding initiatives beyond just physical sales calls.

Thanks a lot for taking the questions, guys.

No further questions at this time. Please continue.

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