John Gay: Yes.
Kemp Dolliver: Okay, great. Just shifting to Rhofade and the activity there, I think the one question in my mind with regard to how that’s impacting you is I’m assuming–looking at the competitors’ data, it looks like they’re doing the typical thing at a launch – a lot of sampling, very depressed net to gross, and despite the fact you do have rebate agreements in place, you are somehow having to respond. The discussion around coupons in the pharmacy and the like, don’t seem to, you know, may be the adequate, the full explanation to that, but I’m just trying to understand in that context of this initial period of virtually free product out there, if in the final analysis, that just responding to that is what you’re dealing with.
John Donofrio: Yes, this is John Donofrio, I’ll take that. I think you hit a few points in just the gross to net dynamic of payor rebates have increased, not only for new market entrants but also for products on the market, like Rhofade. We continue to still have strong coverage across all the major players that have been with Rhofade for a while, but we have seen increased rebate percentages. I think where the challenge and opportunity is, is still what’s going on at the pharmacy. We’ve seen less scripts being adjudicated through that coverage through numerous reasons, and I think we’ve identified that, we’re working with the payors and the pharmacies to ensure that those scripts that are coming through are not getting rejected and they’re following the business rules and the contractual obligations have been set up.
I think that’s a primary driver of some of the correction you’ve seen, but we continue to see good coverage. As far as our competitors go, really no one competes in the redness market per se. The new products are all still going against anti-inflammatory, and yes, they’ve come out with heavy sampling and heavy discounts. We did mention in my commentary too, Rhofade at this point in its life cycle still has very, very favorable copay card rules, and we’re looking to assess that and ensure that we meet the optimal, that we still have patient affordability, which is still important, but that we can bring optimal value back to Novan, so that’s being assessed as well. As you know, there’s a lot of analogs out there, what that means, and I think we’re very comfortable with some of those opportunities going forward, especially with Rhofade, with the solid writer base that we do have.
Kemp Dolliver: Yes, thank you, and the increased rebate levels, that’s something that’s carrying through in 2023 as part of your annual discussion with the plans? Is that correct?
John Donofrio: Yes, we’re baked for 2023, so we’re already having conversations for 2024. But our contracts go through 2023, so yes, the experience we had in 2022, no changes for 2023 for the rebate percentage.
Kemp Dolliver: Great, thank you.
John Donofrio: You’re welcome, thank you.
Operator: Thank you. The next question comes from John Vandermosten with Zacks.
John Vandermosten: Good morning Paula and John. Regarding gross margin, we saw a lot of volatility in 2022, for a number of reasons that you mentioned. How should we think about it for this year, product gross margin for 2023? Will it be as volatile? Then if we look at kind of the full year percentage there, what way directionally should we think about that going, product gross margin?
John Gay: Thanks John. Sorry – there was a little bit of a breakup, but I think you were asking about the gross margin on a product basis and the volatility we’ve seen, and then what it looks like going forward. Yes, I think–you know, again if you think about it, like I said in the prepared remarks, that margin is impacted by a couple of different things. The true product COGS, if you will, our COGS number–like I said, with royalties and milestones, etc., if you think about true product COGS, that’s going to be a pretty consistent margin, if you will, as it relates to product COGS as a percentage of our gross margin of NPR, net product revenue, so that’s roughly 88% or so, so we would expect that to continue as it relates to the product portion of COGS on a go-forward basis, and where we’ll see some variability will be, again, in the royalties and potential milestones.
