Prepared remarks
Good afternoon, and welcome to ARS Pharma second-quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the company's prepared remarks, we will open the line for questions. Please be advised that today's conference is being recorded. I will now turn the call over to Monique Allaire, IR representative for the company. Please go ahead.
Good afternoon, and thank you for joining us. With me on the call today is Donn Casale, President and CEO of ARS Pharma. Kathy Scott, our Chief Financial Officer, will join us for the Q&A session. Earlier today, we issued a press release outlining ARS Pharma corporate priorities and commercial highlights and detailing its financial results for the second quarter of 2026. That press release can be found in the Investors and Media section of the company's website at ars-pharma.com. Before we begin, please note that today's remarks may contain forward-looking statements and actual results may differ materially. Please refer to our press release and SEC filings for further risk disclosures. With that, I'll turn the call over to Donn.
Thank you, Monique, and good afternoon, everyone. It's an absolute honor to host my first earnings call as CEO. This is a pivotal time for ARS Pharmaceuticals, and I look forward to sharing my strategic vision today, along with the corporate priorities that will drive our next chapter of growth. Over the past month, I've conducted a deep review with our commercial, clinical, and corporate teams and met with many of our investors and shareholders. Those conversations confirm both the significant market opportunity ahead and the need for a disciplined operational approach going forward. Today, I want to walk you through how I see the business, what's working, what's changing, and what to expect from ARS. What I'm outlining is more than a shift in our commercial strategy. It is a fundamental change in how we manage our business and allocate capital. Against that backdrop, I'm laying out three strategic priorities that will guide our next phase. First, targeted provider commercial execution. We are prioritizing our resources and focus where they make the greatest immediate impact on neffy market share, the healthcare provider. Second, financial discipline. We are implementing a rigorous strategic cost optimization framework, significantly reducing SG&A expense with a focus on building a profitable neffy franchise with a predictable path to cash-flow breakeven. Third, pipeline expansion, starting with chronic spontaneous urticaria, or CSU. We are extending our intranasal epinephrine platform into a second large market, where we see significant opportunity to bring the first FDA-approved treatment for CSU acute flares. CSU addresses a critical unmet need and offers a compelling market expansion opportunity. Let me expand on the first strategic priority in more detail. Targeted provider commercial execution. Neffy should be the standard of care in this multi-billion dollar market. Our primary objective is to increase market share, which we believe is the best indicator of commercial success for a product like neffy. Starting this quarter, we will report on both total market share and share within our field-targeted call universe so you can track our progress directly. To level set where we are today, second quarter U.S. net product revenue was $26.2 million, and total U.S. market share reached 5%, doubling from 2.5% in the same period last year. Importantly, within our field sales targeted universe, market share increased to 8%, up from 4% in the prior year quarter. Additionally, we saw over 16,000 unique neffy prescribers in the second quarter, representing more than a threefold increase from the same period last year. Neffy is an acute, life-saving rescue therapy. Unlike a traditional product that a patient takes to treat a condition, neffy is prescribed, filled, and carried long before an event ever occurs. In commercial terms, this is more like a prevention-based market versus a treatment market. That distinction is critical. In a treatment market, a patient is symptomatic and actively seeks immediate relief. In a prevention market, patients and providers default to the status quo unless there's a compelling reason or need to change. At launch, ARS invested heavily in broad direct consumer digital advertising. While that builds brand awareness, consumer advertising in a prevention-based market carries a high cost and does not always convert to utilization. Today, millions of patients remain inadequately protected, either because they were never offered a prescription or due to the fear or hesitation of carrying traditional needle-based injectors. That is the exact clinical gap neffy solves. Closing the gap relies less on broad consumer awareness and far more on changing long-established provider prescribing habits. Going forward, we have an opportunity to drive market share growth with a more efficient commercial strategy, but not at the expense of revenue. We are prioritizing our investments where they deliver the highest return. Our sales team is calling on high-volume locations to build provider conviction office by office. Our data highlights the impact of field engagement. Where our sales team is deployed, neffy has an 8% market share compared to approximately 1% in the non-targeted universe. Growth in this market is won through repeated high-quality clinical interactions, not through a single promotional campaign or market event. On the topic of reimbursement, we will continue to aggressively work towards expanding commercial and Medicaid coverage. Securing formulary position is the first step. Beyond that, providers must appreciate and acknowledge the clinical gap neffy fills before coverage translates into prescriptions. Building that provider conviction is our highest operational priority. Executing this strategy requires leadership that understands the nature of a prevention-based market and what it takes to change prescriber behavior. That's why I'm thrilled to welcome Meg Smith to ARS as our new Chief Commercial Officer. A dynamic commercial leader with over 25 years of executive experience, Meg brings a proven track record of combining disciplined investment with deep operational accountability. Having worked closely with Meg during my time at Dynavax, I saw firsthand her inspirational leadership and operational rigor. She brings the exact playbook needed for this market, and I'm confident she'll hit the ground running, leading this next chapter of the neffy launch. In addition to strengthening our commercial leadership, we have completed the expansion of our field sales organization. Salesforce efforts will focus primarily on the highest-value prescribers, which represent 44% of the total market opportunity. I look forward to seeing what our now fully deployed, highly motivated, and focused sales team can do going forward. Looking ahead, we expect steady market share gains over successive quarters, not an overnight spike. We are focused on driving the next phase of growth with disciplined commercial execution, clear accountability, and prudent expense management. That brings me to our second strategic priority, financial discipline and greater OPEX control. Our total revenue in the second quarter was $33.7 million, reflecting a combination of net product, collaboration, and supply revenue. Total operating expenses were $95.1 million, which included $12.8 million in cost of goods sold. As discussed, our prior commercial strategy emphasized broad consumer awareness, which was costly, resulting in an SG&A spend of approximately $77.6 million for the second quarter. It is critical that we adjust our operating expenses to align with neffy adoption to build a durable, profitable business. To get there, we will plan and spend based on reasonable expectations and more efficient commercialization efforts. To give a clear baseline for our future runway, we've adjusted our aggregate SG&A and R&D expenses for the second half of 2026 to be in the range of $114 million to $126 million, which includes stock-based compensation of about $14 million to $16 million. As a result, total cash-based SG&A and R&D expenses for the second half of 2026 are expected to be in the range of $100 million to $110 million, driven by a more than 40% reduction in cash-based SG&A expenses from the first half of 2026. Importantly, we expect this spending trend to continue throughout 2027. We believe this operational rigor is what makes our outlook predictable. We ended the second quarter with $143.8 million in cash equivalents and short-term investments. With that capital, alongside our revised expense base, we see a path to cash flow breakeven by the end of 2027, which would position neffy to be a foundation for long-term optionality and future value unlock for our shareholders. Part of that value unlock will come from our third strategic priority, advancing our CSU program and maximizing the opportunities with our intranasal epinephrine platform. Beyond our foundational business with neffy, we believe we possess a compelling upside with our CSU program. Personally, I'm very excited about this opportunity. To start, we previously projected a data readout from our phase II-B trial by the end of this year. While enrollment in the interim patient population was recently completed, the design of this trial required a patient to experience and log three separate flare episodes, treating them with placebo and varying doses of intranasal epinephrine. Given the real-world time required for patients to complete all three episodes for valid data collection, the interim readout is now expected in Q1 2027. This modest change in timeline does not change the value of this program. CSU is a meaningful market with a major unmet public health need. There are currently no FDA-approved on-demand products to manage acute CSU flares, representing a clear expansion opportunity. Epinephrine's role in rapid systemic symptom relief is well established. The challenge in the past has never been the molecule. It's been the delivery mechanism and the dose. This is where our intranasal technology changes the dynamic, delivering rapid, non-invasive relief during acute flares. Because we can leverage our existing commercial infrastructure and overlapping targeted prescribers, this program could represent a high-margin growth driver built entirely on top of our neffy foundation. We look forward to updating you in the future on this exciting program. In closing, our strategic priorities for the next phase of ARS are established, and the baseline for how we operate will be defined by discipline, provider-targeted commercial strategy, and strong financial stewardship. We believe that doing this well yields a profitable company built on a durable, recurring neffy franchise with additional upside driven by our CSU program. That is the business we're out to build and why I'm excited about our future. I look forward to updating you on our progress in the quarters ahead. With that, we'll now open the line for your questions. Thank you.
Questions and answers
Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Josh Schimmer of Cantor Fitzgerald. Your line is open.
Great. Thanks for taking the questions and for articulating your views on the outlook for the franchise, Donn. A couple of quick questions. Maybe you can discuss both the gross-to-net in the quarter, how that's been evolving, as well as the product margins and the cost of goods that look like those ticked up this quarter, and what might have driven that and what you envision going forward. For the field-targeted accounts, maybe you can talk a little bit about what you think the company can do going forward to really get that 8% penetration up substantially higher. Thank you.
Hey, Josh. Thanks for your questions. I'll start with both gross-to-net and gross margin. I'll have Kathy add a bit more color to that. As it relates to gross-to-net, we anticipate ebbs and flows in gross-to-net depending on the mix of segments each quarter, but we're comfortable in the range of 50% or approaching 50%. Importantly, when we look ahead in some of the forward-looking guidance related to cash flow breakeven and net franchise profitability, we're satisfied and comfortable with the gross-to-net that we have currently. In regard to gross margin, we anticipate that to continue to get more favorable over time. Kathy, would you mind adding a little more color on gross margin?
Sure. Hi, Josh. Our gross margin was about 62% in Q2 and a little over 64% year-to-date. That was lower than we project going forward for a few reasons. One is the establishment of some reserves for short-dated product, some manufacturing inefficiencies as we continue to scale production, and costs for the ex-U.S. product launches. We do expect our gross margin to improve over time, particularly as we get into 2027 and streamline and grow our manufacturing.
Got it. Thank you.
Josh, regarding the 8% market share and the increase from a year ago of 4%, we are excited. One area that will continue to support market share growth is that we have completed the expansion of our sales team. It is fully deployed, and we have an opportunity to leverage that moving forward into Q3. Ultimately, when we send in our field team, we can increase market share. That, coupled with evolving our messaging campaign, will help. We think there is an opportunity to continue to engage not only the physician, but also the nurses and medical assistants to get them to stop and think about the consequences of inaction. Our messaging campaign will continue to evolve. Ultimately, it is blocking and tackling execution provider by provider in these entrenched markets, which we believe will continue to drive market share and underpins our confidence around neffy profitability.
Thanks very much. Good luck.
Thank you, Josh.
Thank you. Our next question comes from Ryan Deschner of Raymond James. Your line is open.
Hi there. Thanks for the question. Two for me. The first, how are you thinking about the progression of payer access going forward, and how critical to your new strategy is getting on Caremark's formulary in the next cycle? Regarding DTC, can you give us a little more color on what specifically the new sort of strategy for DTC will look like going forward in terms of channels, media, and spend, and how this will be different from the previous strategy? Thanks.
Sure. Thanks, Ryan. First, with access, we will continue to engage and work towards reducing friction. Access is important and a key first step, but the second step—provider conviction and ensuring they have a reason to change—is critical. There is coverage currently: 90% commercial coverage, 57% without a prior authorization. We will continue to work on provider conviction because our strategy has shifted from activating the consumer to activating the provider, which allows us to be much more efficient. As it relates to DTC, when we launched, we had significant DTC including linear TV and closed-circuit TV. It drove a lot of awareness in the marketplace, and that awareness still exists today. Going forward, we are shifting toward more efficient consumer campaigns and media spend focused on channels such as social media and search, which we believe are much more efficient. We will use those same channels for providers as well to be more targeted given the provider universe. There is a significant shift away from broad-based DTC, which enables us to be more efficient on our SG&A.
Thank you.
Thank you very much.
Thank you, Ryan.
Our next question comes from Roanna Ruiz of Leerink Partners. Your line is open.
Hi, everyone. A couple of questions from me. First, could you talk about the path to cash-flow breakeven into 2027? Maybe elaborate on what assumptions are baked into that goal. Are you also considering things like the back-to-school potential tailwind for neffy next year?
Sure. Regarding the cash flow breakeven comment, we are comfortable with that statement. A big part of that is driven by being more efficient on our spend. As we shared, our SG&A was reduced by over 40% from the first semester to the second semester, and that trend continues throughout 2027. We have a much more efficient and effective spend on SG&A. That is a major underpinning of our confidence around breakeven. On revenue, considering gross-to-net and our other assumptions, we feel comfortable with continued revenue gains and market share gains quarter-over-quarter, year-over-year, which will also support our path to profitability and cash flow breakeven. On back-to-school, Q3 is the busiest quarter and offers more volume relative to other quarters. The strategy stays the same—engaging providers and driving awareness and conviction for change with those providers. We anticipate more prescriptions in Q3 relative to other quarters because of back-to-school.
Makes sense. A quick follow-up. You seem to be talking about meaningfully changing provider prescribing habits as your overarching strategy. Could you elaborate a bit more on what particular habits you want to break? Any sort of education or detailing that your new field force might focus on?
The habit we're trying to break is the entrenched behavior of relying on auto-injectors for decades. In prevention markets where providers do the same thing repeatedly, it takes time to change behavior. High-frequency interactions with the right message at the right time will break those habits. Our job is to get providers to stop and think about the problem in front of them. Once there is appreciation of the problem, the solution becomes obvious. The field team will tell the story and sell the value proposition of neffy and the problem it solves. That takes time, which is why we expect a methodical increase quarter-over-quarter in both revenue and share gains, provider by provider. We're excited that we have the full team in place. Execution and fundamentals will change this.
Makes sense. Thanks.
Thank you. Our next question comes from Lachlan Hanbury-Brown of William Blair. Your line is open.
Yeah. Hey, thanks for taking the questions. Donn, you've talked about focusing on prescriber engagement. The obvious outcome of that is scripts and revenue. I'm wondering if there are other metrics that you can look at in the interim. You just said that it takes time to change these behaviors and grow market share. Are there other metrics of prescriber engagement you can look at beyond just scripts that may help you evaluate how the current strategy is going?
We'll certainly look at scripts and market share as the best indicators, and that's an important metric. We're also going to look at activity and frequency of calls. It will take multiple calls with not only the physician but also nurses and medical assistants in the total office. We'll analyze the types of activities that drive different behaviors and outcomes from a script perspective. It comes down to frequency, the right message, and the right targets over time. We'll continue to monitor that. We have a blueprint and have seen significant changes in market share where we deploy the team. As I said in the prepared remarks, we have 8% share in the field-targeted universe versus 1% where we don't send our team. That gives us confidence to continue this strategy and focus on execution.
Got it. Thanks. Maybe the second one, I did see in the 10-Q that you entered into a license agreement in July for worldwide rights to certain IP. Anything you can say on that? Is that a potential pipeline expansion opportunity?
Yes, it's an opportunity for us to think about a line extension and gives us opportunities for our pipeline. It's too early to comment in detail right now, but it's an opportunity to consider line extensions for the franchise.
Got it. Thanks.
Thank you. This concludes our question-and-answer session and also today's conference call. Thank you for participating, and you may now disconnect.