Good morning, and welcome to the Kala Pharmaceuticals Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to Niranjan Kameswaran, Senior Vice President of Strategy for Kala Pharmaceuticals. Please proceed.

Thank you, operator, and thank you all for participating in today's call. Joining me from the company are: Mark Iwicki, Chairman, President and Chief Executive Officer; Todd Bazemore, Chief Operating Officer; Mary Reumuth, Chief Financial Officer; Kim Brazzell, Chief Medical Officer; and Hongming Chen, Chief Scientific Officer. Today's call is being webcast live. The webcast link can be found in the Investors and Media section of our website at www.kalarx.com. During this call, we will be referring to non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release issued today, which can also be found on our website. On this call, we will make certain comments about Kala's future expectations, plans and prospects that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements will include: statements regarding the potential market and commercial launch plans for EYSUVIS; observations associated with our commercialization of INVELTYS; the sufficiency of our cash resources; and anticipated revenue. These statements are based on the beliefs and expectations of management as of this conference call. Our actual results may differ materially from our expectations. The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after this conference call, except as required by law. Investors should carefully read the risks and uncertainties described in today's press release as well as the risk factors, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements included in the company's quarterly report on Form 10-Q and other filings we make with the SEC. The Form 10-Q will be filed with the SEC later today and will be available on our website. I will now turn the call over to Kala's CEO, Mark Iwicki.

Thank you, Niranjan, and good morning, everyone. We are entering the fourth quarter at a transformative time for Kala. Since our founding, we've worked hard to advance a pipeline of medicines to improve the treatment of eye conditions and to foster our vision of becoming a leader in eye care. We successfully introduced INVELTYS to the market 2 years ago and just last week, secured FDA approval for our second product, EYSUVIS for the short-term treatment of the signs and symptoms of dry eye disease. We believe we are well positioned for growth as we will soon be promoting 2 products, which share a common backbone, our amplified technology, and which will be prescribed by many of the same eye care professionals. We are also in a strong position financially and confident in our strategy to successfully launch EYSUVIS. We are excited to deliver on the promise of this new medicine from millions of people living with dry eye disease who would benefit from a short-term treatment option. Before turning the call over to Todd to discuss our commercial updates in greater depth, let me take a few minutes to review last week's approval and the opportunity before us. EYSUVIS was approved by the FDA for the short-term 2-week treatment of the signs and symptoms of dry eye disease. Efficacy and safety data generated from over 2,800 patients across 4 clinical trials show that EYSUVIS can provide rapid and effective relief of both the signs and symptoms of dry eye disease while also being very well tolerated. Dry eye disease affects over 38 million people in the United States, of which over 17 million have already been diagnosed and are under the care of an eye care professional. Our research suggests that approximately 80% of these people suffer from episodic…

Thank you, Mark. I'd like to begin today with EYSUVIS and the opportunity we have to bring a new treatment option to eye care professionals and patients who may benefit from a prescription short-term therapy to treat dry eye disease. We have been closely tracking the dry eye disease market and are pleased with its performance throughout the COVID-19 pandemic. As of October 23, the dry eye disease market is at nearly 99% of its pre-COVID levels based on Symphony prescription data. We believe that this indicates the strength of the market and the significant need to treat dry eye patients even during these challenging times. With EYSUVIS approved, we see an opportunity to disrupt the dry eye disease market. As Mark mentioned, dry eye disease affects approximately 38 million people in the U.S. alone, and more than 17 million of these individuals have been diagnosed and are currently under the care of an ophthalmologist or an optometrist. Based on our research, an estimated 75% have never tried a prescription therapy, and only approximately 10% of patients are currently on a prescription dry eye medication. Across multiple large quantitative market research studies, approximately 80% of dry eye patients report that they suffer from episodic flares, which translates to approximately 14 million of the patients already diagnosed with dry eye disease. Prior to last week's approval of EYSUVIS, there were no prescription treatment options FDA approved with a clinical profile targeted to treat these episodic symptoms of dry eye disease. Our research shows that the lack of a rapid-acting prescription therapy to treat episodic flares has made it challenging for eye care professionals to manage the mild to moderate dry eye disease patients. Since receiving approval last week, we have made significant progress in preparing for our launch. We have begun…

Thanks Todd. During this discussion of our financial results, I will reference certain non-GAAP financial measures. These non-GAAP financial measures exclude stock-based compensation, depreciation and noncash interest expense. For a full reconciliation of our GAAP to non-GAAP financial measures, please refer to today's press release, which is available on our website. As of September 30, we reported total cash, cash equivalents and short-term investments of $159.1 million compared to $85.4 million as of December 31, 2019. This increase reflects proceeds from our underwritten public offering of common stock in March as well as proceeds from sales of common stock under our ATM program during the first part of this year, partially offset by cash used to fund our operations during the first 9 months of 2020. We anticipate that our existing cash, cash equivalents, short-term investments and anticipated revenue from INVELTYS will enable us to fund our operations into at least the third quarter of 2022. We also expect that revenue anticipated to be generated from the sales of EYSUVIS will provide additional cash runway. For the third quarter of 2020, we reported INVELTYS net revenue of $2.2 million compared to $1.5 million in the third quarter of 2019 or an increase of $0.7 million from the same period last year. Cost of product revenues for the third quarter of 2020 were $0.7 million, which is consistent with the same period in 2019. Non-GAAP cost of product revenues were $0.7 million for the third quarter of 2020 compared to $0.6 million for the same period in 2019. SG&A expenses for the third quarter of 2020 were $23.9 million compared to $15.3 million for the same period in 2019. The increase was primarily due to an increase in external sales and marketing costs related to preparation for the launch of EYSUVIS…

[Operator Instructions] Our first question will come from Liana Moussatos with Wedbush Securities.

This is Shveta for Liana. Congrats on all the progress. When can we anticipate updates on EYSUVIS commercial peer coverage rebate status?

Shveta, it's Mark. Thanks for the question. I'll let Todd answer that.

Yes. We'll provide updates on each of our quarterly calls next year with regards to the coverage update status or the coverage status for EYSUVIS. So each quarter, when we announce earnings, we'll allow you - we'll let you know what the coverage is with both commercial and Medicare plans.

And just one question on the financial results. There was a significant increase in SG&A for Q3. Should we anticipate a similar increase for Q4 given that you're increasing the sales force?

Mary?

Shveta, yes, there was a significant increase in SG&A in Q3. That's primarily due to the launch-related expenses for EYSUVIS. So we should see Q4 about consistent with Q3.

Our next question will come from Christopher Neyor with JPMorgan. Please go ahead.

A couple one in INVELTYS. Could you update us on where we stand on formulary and payer coverage? And then also how those changes may - how those formulary - how formulary access and coverage may change in 2021? And then a second question, as Kala expands its sales force for - ahead of the EYSUVIS launch, should we expect any positive impact on INVELTYS?

Chris, it's Todd. Thanks for your questions this morning. The payer status for INVELTYS is we're currently just a little bit above 80% unrestricted access with commercial payers and quite happy with that level of access within commercial. We are at 23% unrestricted access with Medicare. So we've got nearly 1/4 of the Medicare lives covered. Still some more work to do there. And we are in the process of resubmitting bids to Medicare plans for discussion and consideration throughout 2021. What was - I'm sorry, what was the second part of your question, Chris?

Yes. So the second part of the question is on the EYSUVIS sales force expansion. Are you expecting any kind of positive impact related to INVELTYS from just the greater coverage of the sales force and then also more exposure for INVELTYS as a product?

Yes. Really good question. Just as an update on the sales force expansion, it's going really well. We've already extended offers for the majority of physicians and the majority of the folks that we've extended offers to have accepted. So we're on track for the full expansion to be completed here, as we stated in November - we believe in November of this year. And we do believe that, that additional coverage will provide some additional exposure for INVELTYS, right? We're going to be calling on more than double the number of eye care professionals that we call on today. So there'll be a whole group of new eye care professionals that will be able to detail INVELTYS, too, for the first time.

Our next question will come from François Brisebois with Oppenheimer. Please go ahead. François Brisebois: Just a couple here. In terms of the label, how many refills in general do - would you expect physicians to make? There seems to be an absence of language of monitoring the IOP on every potential refill. So I'm just wondering, any color on that number per physician that you guys are seeing out there?

Todd, do you want to take that?

Sure. I'm happy to do so. And good question, François. So it's really going to depend on the eye care professionals. As you imagine, we spend a lot of time talking to eye care professionals to understand what they think, based on their patient population, the refills could be. I think Mark presented earlier that dry eye patients suffer a median of 5.5 dry eye flares per year. And certainly, the eye care professionals have told us they are completely comfortable with treating or having their patients treat each of their flares with EYSUVIS once it becomes commercially available. So the number of refills are going to likely depend on the individual patient and what their history of pattern of flares have been and how many of those flares, the eye care professional feels what the patient needs to treat. But there are no restrictions with regards to the eye care's - eye care professionals ability to write refill prescriptions for their patients. François Brisebois: And then on the side, and this is just a follow-up on the previous question. In terms of INVELTYS on the commercial coverage, which - well, not on the commercial, actually, on the Medicare side, with 23%. There's just so much of this population that cataract surgeries is probably older. I was just wondering what are the efforts and how can we feel comfortable that there'll be improvements in that 23% going forward? What are the efforts made there?

Yes. Good question. We continue to call on each of these Medicare plans. We feel like we've got some significant opportunity upcoming, particularly as some of the current branded products we're approaching loss of exclusivity and could be going generic, and that creates the possibility of freeing up some contracted physicians with some of these Medicare plans. So we think that's going to create a significant opportunity for INVELTYS going forward. François Brisebois: And if I could sneak in a last one. Were you surprised at all by the lack of language around - on the label around monitoring for usage over 10 days since it is a steroid? Just it seems like a testament to the side effect profile and then the rising IOP. If you can just comment on that, that would be great.

Yes, I'm happy to take that. As you know, we studied the product across 4 trials and over 2,800 patients and very closely monitored intraocular pressure. So in general, we do have a similar label to other products and that physicians should monitor and check patient's IOP. But as you point out, there's no language to do that for the direct course of therapy, which is a 2-week course of therapy in the label. So we're pleased with that, and we think it's reflective of the great clinical trial database that we put into the FDA.

[Operator Instructions] Our next question comes from Yi Chen with H.C. Wainwright. Please go ahead.

My first question is, is there an improved [technical difficulty]

Yes, maybe we can move to the next one. And then when he comes back on, we'll take his question.

I'm showing no further questions. Yi Chen, your line is now open. If you would like to go ahead.

Can you hear me now?

Yes.

Sorry. My first question is, is there an improvement in the net average selling price of INVELTYS? And if not, do you expect to see an improvement in 2021?

Todd?

Yes. I'm sorry, Yi, I missed the first part of your question. You cut out on me a little bit.

Has there been any improvement in the net average selling price of INVELTYS?

Yes. Well, as you know, as we've stated in the past, we don't provide guidance on expectations for specifics on the gross to net or expectations on net ASP, but they will still hold consistent with what we always said Yi, which is, once we get greater Medicare coverage and become less dependent on the opt-out co-pay card, which is how we're currently making sure that Medicare patients - postocular surgery Medicare patients have access to INVELTYS, that, that will result in improvements in gross to net. So we have the card right now. It allows patients to be able to fill the INVELTYS prescriptions for a cash acquisition of $60. As you can imagine, that puts pressure on gross to net, but we feel it's important to do so that INVELTYS can be prescribed in the postocular surgical setting, particularly for the cataract patients. And as our Medicare coverage increases and improves over time, we will be less dependent on the cards. And as a result, the gross to net, we expect to improve. I think important also, Yi, when you're asking about that is to know that the market dynamic is very different for EYSUVIS because it's not an ocular surgery situation in which the patients are getting the products that are in the postsurgical protocol. And essentially, all patients get everything, which means you have to provide these co-pay cards for Medicare. The dry eye market is much more a traditional retail market where clinicians often make a prescribing decision for the individual patient taking into consideration their insurance coverage and where products are covered within formulary. So we do not need to offer a Medicare opt-out card for the launch of EYSUVIS like we did on INVELTYS. So do not expect that level of pressure on the gross to net for EYSUVIS that we experienced during the launch of INVELTYS. Does that make sense?

Yes, it does. So my second question is, is your sales team already reaching out to ophthalmologists and optometrists for EYSUVIS? And based on their feedback, do you think the doctors could prescribe EYSUVIS for those patients to treat flares that those patients who are currently on chronic therapies for DED?

Yes. So we've already begun engaging in disease state discussions. They're going very, very well. Our reps are out there talking about dry eye flares with eye care professionals and receiving really great feedback and getting eye care professionals to start thinking about all the patients within their practice for which a product like EYSUVIS would be well-suited. Soon after, we have the launch - virtual launch meeting in early December, we start shipping wholesalers in December, and we'll be in a position soon thereafter. They actually have EYSUVIS product-specific discussions with eye care professionals at that point. And like we said all along, we think there's an opportunity for broad usage of EYSUVIS across most dry eye patients. It's - certainly, treating flares we think will be maybe the largest percent of patients, but we've also received a lot of feedback about more severe dry eye patients that could end up going on EYSUVIS. We certainly heard a lot of talk about the presurgical patients, patients that are going in for cataract or refractive surgery that have dry eye disease, and there's a desire to treat the dry eye before surgery to clean up the corneal surface in a short-term treatment course with EYSUVIS is well-suited to those patients. So we think that there will be broad utilization across a number of patient types with dry eye disease.

And we do have a follow-up question from François Brisebois with Oppenheimer. Please go ahead. François Brisebois: A quick follow-up here. Just as you expect to begin shipping to wholesalers by the end of the year, can you just remind us of when and how you recognize revenues here?

Sure. I can take that. We recognize revenue when we ship to the wholesalers.

Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. Iwicki for any further remarks.

Thank you very much, operator, and thanks, everyone, for joining us this morning. We're really pleased with the growth we've seen in INVELTYS. And certainly, the prescription trends continue to increase, and we're getting close to being where we were pre-COVID in terms of those trends. So we're encouraged by the efforts of our commercial team and, of course, really excited about the approval of EYSUVIS. And we're very quickly moving to increase the size of our sales force and get all of our launch activities underway, and we will take the opportunity over the next couple of months to make sure that everybody is updated on our progress. Thank you again. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.