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Edited Transcript of DERM earnings conference call or presentation 7-Aug-19 8:30pm GMT

Q2 2019 Dermira Inc Earnings Call

Redwood City Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Dermira Inc earnings conference call or presentation Wednesday, August 7, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew L. Guggenhime

Dermira, Inc. - CFO

* Lori Lyons-Williams

Dermira, Inc. - Chief Commercial Officer

* Luis C. Peña

Dermira, Inc. - Co-Founder & Chief Development Officer

* Thomas G. Wiggans

Dermira, Inc. - Co-Founder, CEO & Chairman of the Board

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Conference Call Participants

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* Douglas Dylan Tsao

H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst

* Etzer Darout

Guggenheim Securities, LLC, Research Division - Senior Analyst

* Liav Abraham

Citigroup Inc, Research Division - Director

* Louise Alesandra Chen

Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD

* Michael Holden Kratky

SVB Leerink LLC, Research Division - Associate

* Serge D. Belanger

Needham & Company, LLC, Research Division - Senior Analyst

* Stacy Ku

Cowen and Company, LLC, Research Division - Equity Research Associate

* Umer Raffat

Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Analyst of Equity Research

* Vikram Arun

Raymond James & Associates, Inc., Research Division - Research Associate

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Presentation

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Operator [1]

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Good afternoon. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the Dermira Second Quarter 2019 Conference Call. (Operator Instructions) Thank you. I would now like to turn the call over to Andrew Guggenhime, Chief Financial Officer of Dermira.

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Andrew L. Guggenhime, Dermira, Inc. - CFO [2]

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Great. Thank you, operator, and good afternoon, everyone. I'd like to welcome you to Dermira's earnings conference call to discuss the financial results for the quarter ended June 30, 2019. I am joined today by our Chairman and CEO, Tom Wiggans; our Chief Commercial Officer, Lori Lyons-Williams; and our Chief Development Officer, Luis Peña.

Earlier this afternoon, Dermira issued a news release announcing the company's results for the quarter. Copies of news releases and SEC filings can be found in the Investors section of our website.

Before we begin, I would like to remind you that during the course of this conference call, we'll be making certain forward-looking statements about Dermira based on management's current expectations, including statements regarding Dermira's business plans, development programs, strategies, prospects, market opportunities and financial forecasts and guidance. These statements are subject to numerous risks and uncertainties, and actual results could vary materially from the results anticipated by these statements. Investors should read the risk factors set forth in Dermira's Form 10-Q for the quarter ended June 30, 2019, and any subsequent reports filed with the SEC.

With that said, I'd now like to turn the call over to Tom Wiggans. Tom?

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [3]

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Thanks, Andrew. Good afternoon, everyone, and thanks for joining us.

We've continued to set ambitious goals for ourselves over the past several quarters, and I'm happy to report that we've successfully delivered on them in the second quarter, with significant wins on the commercial, development and strategic fronts.

For QBREXZA, as we've said from the beginning, our initial launch efforts were focused on creating a positive patient and physician experience with QBREXZA, by ensuring broad, seamless and affordable access by facilitating strong commercial coverage and offering a patient-centric co-pay savings card program. It was our belief that each of these would serve to establish a solid foundation for expansive physician adoption, and our direct-to-consumer or DTC efforts would, in turn, drive both awareness of and demand for QBREXZA.

During our first quarter call, we indicated that following changes to the co-pay savings program, we would see an immediate and significant improvement in the gross to net or GTN discount and that we also expected overall growth in prescriptions in Q2 despite a temporary decline immediately following the program changes, growth that many companies are unable to deliver when making this type of change. I am pleased to say that we delivered on these expectations. In Q2, we saw a dramatic improvement in the GTN discount to 39%, down from 76% in Q1, and an increase in the number of QBREXZA prescriptions by approximately 20%. Our ability to deliver resulted in net product sales for QBREXZA of $8.1 million in the second quarter, more than triple the $2.5 million we reported in the first quarter.

Lori will share more key highlights from the second quarter. But I do want to take a moment to congratulate her and the team in facilitating a successful transition for the co-pay savings card.

It's important to note that we successfully accomplished this while ensuring that patients and their physician continued to have a positive experience with QBREXZA. Having established a strong foundation, we believe we are now well positioned to leverage our patient activation efforts to continue driving substantial revenue growth in the future.

Now turning to lebrikizumab. The market continues to evolve as we expected, with the anti IL-13 signaling establishing the standard of care and adoption of biologics occurring much more rapidly and broadly than occurred in psoriasis. However, there still remains a significant need for new and improved therapies for atopic dermatitis. Against this backdrop, we are enthusiastic about the opportunity for lebri to deliver a highly competitive best-in-disease profile relative to both dupilumab and other AD products currently in development. We believe our Phase IIb data support this profile, and we have now designed a Phase III program to deliver it. In the context of the competitive landscape, we believe our position with lebri is strong and look forward to the opportunity to compete in this large and growing market. Lori and Luis will outline our thinking in greater detail.

I'm also excited that Almirall sees the same potential for lebri. We are pleased with their decision to exercise their option to license rights to develop and commercialize lebri in Europe. And we look forward to our partnership as we advance the program.

In conjunction with our preparation for our Phase III program, we had a successful and positive end of Phase II meeting with the FDA. We remain on track to enroll the first patient in the Phase III program by the end of this year, and we expect to report top line results in the first half of 2021.

I am incredibly proud of our team's execution this past quarter. We expect to continue this momentum as we head into the second half of the year and beyond.

With that, I'll turn it over to Lori.

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [4]

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Thanks, Tom.

There are 2 noteworthy QBREXZA headlines from a commercial perspective this quarter. First, we delivered 229% quarter-over-quarter net sales growth. And secondly, we continued to meet or exceed expectations on our key performance indicators.

As you'll recall, we evaluate our success across the following 3 categories: first, delivering quality access; secondly, driving physician adoption; and third, activating patients to seek treatment. In Q2, we continued to make progress on the access front, while also delivering on our commitment to lower our gross to net discount. As Tom mentioned, we set an ambitious goal to reduce gross to net and provided guidance of 45% to 55% during our Q1 call. Not only did we meet our goal, but we far surpassed it, reducing our gross to net discount to 39% in Q2, down substantially from 76% in Q1. This is no small feat when you consider other dermatology products, where DTN discount can be as high as 70%. Needless to say, we're pleased to see QBREXZA overperforming on this key driver in an area that can often compromise net sales.

Additionally, we are pleased to report quarter-over-quarter demand growth despite our changes to the co-pay card. We recognize that in some instances, when companies make this sort of adjustment, product demand never recovers. QBREXZA, however, did not sacrifice prescription growth as evidenced by the 20% growth for the quarter.

Moving to prescriber behavior.

Physician adoption of QBREXZA has substantially exceeded the internal estimate we set at launch. To date, there have been nearly 13,000 prescribers of QBREXZA, and we continue to see substantial growth every month. We believe this is an encouraging trend in the context of data from other successful launches. For example, when you consider the dupilumab launch, approximately 6,500 prescribers had written at least one prescription 10 months into that launch.

Given our success in driving uptake with a broad base of prescribers, in the back half of the year, our focus will be on productivity per prescriber, which provides a great opportunity for continued demand and net sales growth. Additionally, because we continued to increase new prescribers every month and see an opportunity to capitalize on refills for existing QBREXZA patients, we believe there are many ways to enhance our growth for the remainder of the year.

Lastly, I'm particularly excited about our patient activation activity. The key performance metrics we set for ourselves prior to launching our DTC campaign continue to outpace our assumptions. One trend in particular that we see as an indication that the campaigns are driving patients to take action is the 38% growth we've seen in the topical dermatology hyperhidrosis market year-over-year. This market has historically remained flat, yet now we see significantly more patients seeking treatment and filling prescriptions.

In addition, and importantly, in Q2, the data show a strong inflection in the number of QBREXZA claims sent to the payer, which were up more than 50% over the first quarter. Think about that for just a moment. That means we successfully reached patients with our advertising, they've booked an appointment with a dermatologist, they've received a QBREXZA prescription, and it was submitted to the payer on the patient's behalf. In short, that means we delivered exactly as planned on arguably the most difficult parts of the funnel to influence.

In the same period that we saw this 50% claims growth, we also saw a 20% increase in prescriptions. Improving our pull-through efforts to enhance this conversion ratio presents a great opportunity for growth. It's important to ensure that patients are aware of the savings card, physicians' process prior authorizations and pharmacies seek more information from the physician when necessary. It has the focus of our entire team and I expect they'll deliver on this effort just as they have on each component of the launch plan to date.

In summary, we believe the hyperhidrosis market is shaping up as expected. QBREXZA demand continues to rise. New physicians and patients are trying the therapy every day. And our gross to net is healthy, contributing to net sales growth of 229% quarter-over-quarter. With this in mind, we reiterate our guidance for QBREXZA peak sales of $500 million to $600 million.

Before I turn the call over to Luis, I want to offer my perspective on the AD landscape, which also continues to evolve as we've expected.

By inhibiting Il-13 signaling, dupilumab is rapidly establishing this class as the new standard of care. Given the benefits and ease of prescribing, adoption of biologic AD therapy has been much faster and broader than was seen at the beginning of the psoriasis market. Psoriasis biologics weren't as easy to write because they require intensive safety counseling and lab monitoring. Dupilumab reached $1 billion in annualized AD sales in the U.S. within 18 months. It took Humira and Enbrel 8 and 9 years, respectively, to reach that same threshold in psoriasis. Given this rapid uptake, analysts estimate a multibillion-dollar AD market in the years to come.

While dupilumab has substantially advanced the standard of care, as in any chronic immune-mediated disease there remains a significant need for new and improved therapies. To be successful in AD, we believe new therapies first need to clear the high bar set by dupilumab. This will require a strong safety profile and no lab monitoring requirement, which translates into ease of use, all while still maintaining a broad efficacy profile spanning the range of AD symptoms. Beyond that, the key opportunities for improvement are: first, improved efficacy across pruritus, skin lesions and quality of life; secondly, improved tolerability, particularly in terms of conjunctivitis, which is a clinical liability for dupilumab; and third, improved convenience, specifically, less frequent administration. We believe this dynamic allows for the adoption of new systemic AD therapies and one that favors lebri based on the profile we've demonstrated clinically. Furthermore, it represents a significant challenge for other new mechanisms with less established profiles. Importantly, lebri will have the opportunity to compete in a first-line anti IL-13 class that will be a multibillion-dollar market in and of itself by the time we launch. While there are a number of new candidates under evaluation, even if the efficacy is attractive, we believe there is a long way to go before any will be able to establish that they can truly deliver the combination of efficacy, safety and ease of use to generate significant first-line utilization. As an example, with respect to JAK inhibitors, while the allure of oral administration will likely be attractive for some patients, we continue to witness the challenges of establishing a profile suitable for widespread adoption in dermatology. We expect dermatologists to be more judicious with their use of JAKs, likely relegating them to second or third line use, given black box warnings of serious safety risks, burdensome lab monitoring requirement and the difficulty of optimizing efficacy in the context of the dose-limiting toxicity which has plagued the class to date. While we fully expect to see more positive efficacy readouts from this and other classes, the JAK experience cautions that clean, easy to use safety profiles are difficult to establish. And while we certainly believe JAKs and other new products could ultimately find utility in certain segments of the AD market, we believe the expected lebri product profile will result in shared first line positioning. In light of this, we're excited about the opportunity for lebri to deliver a highly competitive, in fact, best in disease profile relative to the existing and future therapies. We see lots of ways to win in this expanding market.

And with that, I'll turn it over to Luis to provide an update on our steps -- or next steps for the lebrikizumab Phase III program. Luis?

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [5]

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Thank you, Lori.

We are a few months post announcement of the lebri Phase IIc study results and our confidence in the robustness and quality of the data has only increased. The findings of the study, along with the substantial body of additional clinical and nonclinical data, support our belief that lebri has the potential to be a best-in-disease therapy in AD. As a reminder, our goal with lebri is to leverage its unique molecular profile, differentiated pharmacokinetic profile and targeted mechanism of action to deliver a therapy with the safety and ease of use of the anti IL-13 class and the added benefit of improvement in efficacy, safety and tolerability. Our Phase IIb data have validated this thesis by demonstrated: one, a clean safety profile consistent with our expectations based on all studies of lebri in more than 4,400 patients; 2, a robust and broad efficacy profile spanning the range of AD signs and symptoms, including itch and skin lesions that was particularly strong on key measures of most importance to patients and prescribers, such as pruritus NRF, EASI-90 and IGA; 3, an excellent tolerability profile, including a low rate of conjunctivitis that was similar to that observed in patients receiving placebo in many AD studies; and 4, strong efficacy with both once every 2 week and once every 4 week administration, presenting an opportunity for improved convenience.

As you know, following the positive results from the Phase IIb study, we committed to aggressively advance to Phase III. I am pleased to report that our end of Phase II meeting with the FDA was very successful. Notably, we reached an agreement with the agency on the final trial design that we believe will maximize the benefit that lebri may one day offer to AD patients. We can confirm that in our 2 pivotal monotherapy trials, we will evaluate lebri in both adults and adolescents with moderate to severe AD, a 16-week induction phase with a 250 milligram dose of lebri every 2 weeks following the loading dose. And following the 16-week induction phase, 2 different maintenance therapy regimens, one in which lebri is dosed every 2 weeks and another in which lebri is dosed every 4 weeks, out to 52 weeks. The favorable feedback we received from the FDA on our trial design confirms that AD remains an area of unmet need and that additional treatment options are needed for patients. We plan to share additional details on the design of the Phase III trials when we begin enrollment later this year, which would put us on track to report top line results in the first half of 2021.

With that, I will turn it over to Andrew to discuss our financials for the second quarter. Andrew?

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Andrew L. Guggenhime, Dermira, Inc. - CFO [6]

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Thanks, Luis.

For the second quarter of 2019, revenue totaled $66.6 million, comprised of $8.1 million in QBREXZA product sales and $58.6 million in collaboration and license revenue. The $8.1 million in QBREXZA product sales represented a 229% increase over -- or more than triple the $2.5 million in first quarter 2019 revenue. This increase was driven by 30% growth in gross sales and a 37 percentage point improvement in the GTN discount. As Tom and Lori noted, we were incredibly pleased with the progress in these areas.

The $58.6 million in collaboration and license revenue for the second quarter of 2019 is entirely related to the Almirall transaction. We allocated the deemed $110 million transaction price, consisting of a $30 million upfront option fee, a $50 million option exercise fee and the $30 million in Phase III initiation milestones, to the 2 key performance obligations under the agreement for which we received the $110 million; specifically the EU intellectual property we granted to Almirall and the R&D services we are obligated to provide to them.

We recognized 53% of the transaction price that was allocated to the IP license in the second quarter when the license was granted and we'll recognize the remaining 47% over the period in which the R&D services are performed, essentially the duration of the Phase III program, in a manner analogous to the percentage of completion method.

For the second quarter of 2018, the $39.1 million in collaboration and license revenue was primarily related to a milestone payment we received under a prior collaboration.

Total costs and operating expenses for Q2 2019 were $82.9 million compared to $60.3 million in the same period of the prior year, with the increase driven by a rise in SG&A expenses in connection with the launch of QBREXZA, and for this quarter specifically, the investment in our Life Unfolds DTC campaign which we launched in late March of this year. The SG&A expenses for the quarter were consistent with our expectations. Recall that we had guided to this being the peak SG&A quarter for the year, given the launch of the DTC campaign and the period in which we have the highest on-air presence.

Turning now to the balance sheet and cash runway.

We ended the second quarter with $327.2 million in cash and investments. This excludes the $80 million in payments from Almirall we have received or will receive and the approximately $40 million in proceeds we recently drew under our structured financing facility, which provides us additional financial strength and flexibility at an attractive cost of capital.

We are now in an even stronger position to fund our operations into the first half of 2021 and through the expected top line data readout from our lebri Phase III program.

As we look to the second half of the year, a few key points to make regarding our financial expectations. For QBREXZA, we are confident in the underlying fundamentals of the launch and their ability to generate significant demand and sales growth in the second half of the year. With this said, we expect prescription rates to move around on a week-to-week basis, given this is our first full year cycle and there are several commercial factors at play simultaneously.

For the full year 2019, we expect total net product sales in the low $30 million range, representing substantial growth in the second half over the first half sales of $10.5 million. As we move forward in 2019, we will update QBREXZA revenue guidance only if warranted by changing circumstances.

For the GTN discount, we reaffirm our prior guidance of approximately 40% in the second half of the year and moving forward. The actual number each quarter likely will fluctuate within a narrow range depending on a few factors. Because we achieved our longer-term guidance in Q2, we expect that future growth in net product sales will be more closely correlated with growth in prescriptions or gross sales.

We also reaffirm our gross margin guidance of 80% to 90%, and we were already within this range in Q2.

For the Almirall-related collaboration and license revenue, we expect to recognize approximately $2 million in each of the third and fourth quarters of this year.

And finally, we are confirming our previously issued operating expense guidance for the year. This guidance includes a significant decrease in SG&A expenses in the second half of the year compared to the Q2 level, based primarily on lower spend, as planned, related to our DTC efforts.

With that, I'll turn the call back over to Tom for some brief closing remarks. Tom?

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [7]

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Thank you, Andrew. Building on our success in Q2, our priorities for the second half of the year are very straightforward.

First, we will continue to drive demand for QBREXZA. We're working from a strong foundation, with nearly 13,000 unique prescribers, good payer coverage, a greatly improved gross to net discount, and data pointing to our ability to expand a once stagnant market by activating an increasing number of patients to seek treatment.

Second, we are excited to move lebri rapidly into Phase III, and we look forward to the opportunity to present the Phase IIb data at an upcoming medical meeting this fall.

These priorities are consistent with our strategy to build a company with best-in-class development and commercial capabilities that can execute on the lebri Phase III program, continue to deliver on the QBREXZA launch, and allow us to leverage our experience to execute a successful launch of lebri as well as other potential products in the future. We believe this strategy will deliver the greatest return and value.

We are committed to the dermatology space and we'll continue to be guided by our mission of developing better treatment solutions for the millions of people living with chronic skin conditions and the dermatology practices who care for them.

With that, I'd now like to open up the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Liav Abraham from Citi.

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Liav Abraham, Citigroup Inc, Research Division - Director [2]

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Maybe first question on QBREXZA. Can you just give a little bit of color on the rate of compliance that you're seeing with patients taking the drug, and on refill rate of scripts that you're seeing, if you have those data to hand?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [3]

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Liav, this is Lori. I can speak to that. So based on the data we've seen so far, refills are really consistent with the expectations we had previously. And as a reminder, our model assumes 3 refills per year after a patient has started QBREXZA. And so far, the data we have support holding that assumption. So what we hear qualitatively is that both patients and physicians really do seem to love the product. So we think that's probably helping the refill number. But so far, we're comfortable with where that assumption is at.

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Liav Abraham, Citigroup Inc, Research Division - Director [4]

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And then on the DTC program that you initiated earlier this year. Can you comment on the impact of that program if it's kicked in yet? And just quantitatively, what you're seeing in terms of interest from patients, physicians, and how quickly you think this will translate into volume increases.

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [5]

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Sure. So, so far we have, of course, seen a lot of activity being driven to the website, which is not uncommon when you launch these campaigns. So we track all of those metrics, as you might expect. But I think the things we're most excited about, Liav, are that we see real market growth. So again, looking at the total topical market for hyperhidrosis and dermatology, that's up 38% year-over-year since we started the campaign. And then we also have seen, in this quarter specifically, 50% increase over Q1 of the claims that are being sent to the payer. So I think as we get further into launch, we're seeing more and more evidence at kind of a even more granular level to say our campaign is doing exactly what we need it to do, which is to get these people to go in, make sure it's to a dermatologist, ask for a prescription. And so far, we see those things happening.

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Liav Abraham, Citigroup Inc, Research Division - Director [6]

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And then lastly, on lebrikizumab, I assume you're presenting data at the EAdV a little later this year. What incremental data can we expect when the data are presented at the medical conference?

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [7]

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Liav, this is Luis. We plan to present a more full data set on what we have now. So you will get better insights into not only the primary endpoints, but some of the secondary endpoints and key safety data.

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Operator [8]

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Our next question comes from the line of Umer Raffat from Evercore.

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Umer Raffat, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Analyst of Equity Research [9]

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I had one for Luis today and perhaps one for Andrew, if I may. Luis, my question is a multipart question, and it's really around how -- I feel like, among all the investor and analyst community, we've talked and debated extensively the IL-4 and IL-13 pathways, and we're all very familiar with each of the players involved. What we haven't had a much of a discussion on, especially with you guys, has been on the IL-33 pathway. And specifically, what are your expectations on the upcoming readouts for the IL-33, the atopic dermatitis? Do you think any one of them is differentiated versus others? I know there's Anaptys, there is Lilly, there's more. And also, do you think we should or shouldn't be reading across from some of the asthma data at least 2 different companies have put out recently? I would love to hear your thoughts on that. And I had a follow-up for Andrew if we have time.

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [10]

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So can you repeat the very last part of that question? On the differentiation?

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Umer Raffat, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Analyst of Equity Research [11]

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The last part was the recent asthma results, if we can or cannot read across from them for the IL 33.

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [12]

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Okay. Yes, good to hear from you. Yes, it's certainly a competitive landscape because there's such an unmet need for atopic dermatitis. We continue to be excited about our results and how they stack up against all the competition to date. It's tough to call on what's going to happen with IL-33s and others. One of the things that we know, unlike psoriasis, AD is a more heterogeneous disease. And so to prove clinically a good outcome is important, and we think that we have done that. And it poises us well, not only for further clinical development, but also for the market. So I think with new data, it's going to have to be important to see the clinical data before we comment further on it.

And in terms of IL 33, whether it carries over. Difficult to say. Asthma is another tough area. And patient selection in the asthma studies is so critical, and so it doesn't necessarily project that it's going to work or not in atopic dermatitis.

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Umer Raffat, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Analyst of Equity Research [13]

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Got it. And one for Andrew, perhaps a quick one. Andrew, I realize there is meaningful assets in dermatology potentially for sale. You guys are obviously limited by the cash on hand as well as the size of the company as well. But my question was, is there anything out of the box that's theoretically possible? We've seen companies issue even more equity at times than their own market cap [and stuff]. Is there anything possible that could open you guys up for dermatology assets which aren't necessarily things we are thinking about, given the size of the company right now?

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [14]

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Umer, it's Tom. Let me answer it and Andrew is welcome to add. I mean let me start off by saying we think the 2 assets we have are among the best that -- as we look around the landscape. So we think that is a relatively high bar to get over for other things. We continue to look at the landscape. We certainly would not -- we'd be interested in adding either to our commercial team's offerings at the right time as well as the portfolio. But I think the bottom line is, we've got 2 assets with an opportunity to create a lot of value with both of them, and we will continue to study the landscape. Andrew? Yes. Does that make sense, Umer?

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Operator [15]

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Our next question comes from the line of Louise Chen from Cantor.

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Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [16]

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So my first question I have for you is that -- is there any synergies between hyperhydrosis and atopic dermatitis as it pertains to your sales force? And then secondly, just back on Umer's question here. On the atopic dermatitis, obviously, easy market, lots of trials happening here. What's your confidence level that you'll have the best-in-class profile relative to the other products on the market? Any thoughts there will be helpful. And then lastly, just on the proof-of-concept for palmar hyperhidrosis. How is that progressing? Does that add on top of your peak sales number that you've given? Is there any overlap between patients currently already using it for palmar hyperhidrosis?

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [17]

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Yes. Louise, it's Tom. Let me start off by saying, absolutely, there is synergy between our commercial organization between the 2 products. I mean, and in addition to successfully launching QBREXZA, we want to successfully launch the company and develop a best-in-class commercial organization and the other ancillary groups that we need to be very competitive with this market. So the short answer is yes. And I'll turn it over to Lori to give a little more color on that.

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [18]

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Louise, this is Lori. Yes, I think we do see a number of potential synergies in the hyperhidrosis market and the AD market, mostly because the capabilities that we're building right now on the commercial front we believe are going to set us up well to come in and succeed in AD as well. I think if I take a massive step back and consider the data points we have over the last 9 to 10 months, we've created this team who we think are super talented, and so far, they continue to deliver on every single thing we ask them to do. So I think that the best asset you can ask for on the commercial front is a really good, solid executing team. And we think we've built that and could certainly leverage that in AD as well.

I'll just maybe speak briefly to the palmar study. I'll let Luis answer the study question. But just my view on the peak year sales opportunity. As a reminder, for our $500 million to $600 million peak opportunity that we've guided to, we do not have a palmar indication built into that. We do, of course, make an assumption that there is some off-label use that is driven by the physicians and not by us, but our current assumption does not assume an indication for palmar. And Luis maybe could update on the trial.

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [19]

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Yes. So we do have a proof-of-concept palmar trial that's ongoing and we will give more information about that trial later this year.

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [20]

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Yes. So Louise, it's Tom again. Let me just wrap up because I think the last 2 questions were kind of along the same thing, same theme. We see our commercial organization as a strategic asset. It's very talented. I think that what they delivered on in the second quarter was fantastic. So as we look for other opportunities and certainly begin to think more about commercializing lebrikizumab, we think we have a terrific strategic asset in our commercial organization.

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Operator [21]

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Our next question comes from the line of Stacy Ku from Cowen and Company.

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Stacy Ku, Cowen and Company, LLC, Research Division - Equity Research Associate [22]

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First on QBREXZA, congratulations on the progress for managed care. Would you be willing to restate your gross to net guidance for the second half of the year, given that you've already hit your 40% target? And can you help us understand the QBREXZA script cadence for the rest of the year? And I have another one.

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [23]

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Okay. Sure. This is Lori, Stacy, so I'll take those first couple, and then if you want to add your last question after that, that's fine as well. On the gross to net side, we actually are confirming our approximately 40% growth to net discount that we talked about prior. And really the way we see it is that we've reached that goal earlier than we previously thought that we would and committed to. I think there's great performance by the team to get it down all the way to 39% in Q2. So we -- it could have some movement in the positive or negative direction, but it's going to stay, we believe, pretty tight in the range at approximately 40%, and that's what we would -- that's what we think for the second half of the year.

In terms of the prescription growth, obviously, the estimates that we provided today do indicate that we see substantial growth coming in the second half of the year. As Andrew spoke to earlier, we do believe that we'll continue to see some bouncing around of the scripts on a week-over-week basis, but in general, a nice trajectory up. And for us, the opportunities that we see to capitalize on for the back half of the year are we've got this broad base of prescribers, 13,000. We've got 85% of lives covered. We're experiencing substantial market and claims growth. And so the final pieces I think we'll be focusing on, will be increasing our productivity per prescriber and then also driving a higher conversion of those claims that have been submitted to the payer, making sure that we're pulling as many of those through as we can. So good, strong opportunities, I think, for growth the back half of the year. And we'd be happy to take your third question as well.

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Stacy Ku, Cowen and Company, LLC, Research Division - Equity Research Associate [24]

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So just moving on to lebri. Could you give us additional insight into the Phase II program? And can you comment on whether you believe the FDA will guide your use of rescue therapy?

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [25]

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Yes. So the Phase III program with -- are led by 2 monotherapy trials will be similar to the Phase II trials in most regards. There will be some key differences, however. One is, we're going to include adolescents, which we're very happy about, the utilization of a single dose for the induction period, and finally, treating patients over a maintenance period of about 52 weeks. We have been in discussions with the agency about more specifics of the trial design, and we're going to go ahead and talk about that more once we initiate the study.

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Operator [26]

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Our next question comes from the line of Seamus Fernandez from Guggenheim.

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Etzer Darout, Guggenheim Securities, LLC, Research Division - Senior Analyst [27]

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This is Etzer filling in for Seamus. So a couple of questions for me. The first on QBREXZA. You might have touched on this with the compliance question previously. But I just wanted to know sort of the dynamics for QBREXZA as it relates to new versus re-prescriptions and how that's been progressing since launch? And maybe with respect to lebrikizumab, if you think about sort of the inclusion for the Phase III, having both adolescent and adult patients. Just wondered, given the heterogeneousness nature of atopic dermatitis, does anything have to be done from a trial design standpoint to optimize results among both adults and adolescents?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [28]

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So maybe I'll take the first question and then pass it over to Luis. First, on the compliance piece, again, so Liav asked this question earlier, really, what we're seeing so far is in line with our expectations. And we're seeing -- depending on the week, we do see some fluctuation in these numbers. But depending on the week, we tend to see about 2/3 of new prescriptions and about 1/3 refills. So that number tends to grow over time. Of course, if you have more and more patients who are actually on QBREXZA, you have more and more opportunities to actually get a refill. And so we would expect that to be a source of growth as we get through not only the back half of this year, but frankly, into the out years as well. So no new updates that we would provide. So far, I think we see it exactly as we saw it prior to launch. And maybe Luis for the next question.

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [29]

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Yes, hi Seamus (sic) Etzer. In terms of inclusion of adolescents, we are not concerned about the potential for the outcome, from a couple of perspectives. One is given the great safety profile of lebri, we don't have to adjust the dose in adolescent patients. And so with adolescents greater than 40 kilograms, we're going to have a really good exposure of drug. And from our perspective, that is what's going to be important, along with, of course, the targeting IL-13 in terms of driving efficacy. So our expectation is that the efficacy in adolescents will be similar to those in adults.

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Operator [30]

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Our next question comes from the line of Serge Belanger from Needham & Company.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [31]

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Just a couple of questions for me. First, on QBREXZA for Lori. I think in your prepared remarks, you mentioned that formulary coverage had hit 80% or 85%. Can you just talk about whether -- what percentage is in Tier 2 coverage or in Tier 3, and whether you expect any movements between these tiers going forward?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [32]

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Yes. It is 85% now of all commercial lives with coverage for QBREXZA. And the split between Tier 2 and Tier 3 is still about the same. If you'll recall, it's about 30% of our lives are in Tier 2, which we see as an advantage, frankly, one that we didn't necessarily predict, but really good strong coverage in Tier 2 for some of the lives. And then the Tier 3 coverage, as a reminder, pretty good coverage, really all they generally need to do is process a PA that's very consistent with our label. So not a lot of hoops to jump through in that regard.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [33]

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Okay. And are you seeing any off-label usage of QBREXZA to other parts of the body beyond the axillary this point?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [34]

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We don't promote anything off label, but we do hear anecdotally that some physicians are starting to experiment, which is, of course, what physicians do in every specialty and dermas is that you see the same tendency in derm. Obviously, as Luis spoke to earlier, we have an ongoing trial to try to collect some data in palmar, that ultimately our medical affairs colleagues would be able to use to guide physicians, but we don't anticipate that the commercial team would be in a position to be talking about that anytime soon.

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Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [35]

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Okay. One last one for Andrew. I think in the past, you had ballparked the cost for the Phase III trial for lebri, around $200 million coming out of the end of Phase II meeting with the FDA. Is that still the ballpark figure? And has anything changed from your prior assumptions of the Phase III trial design?

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Andrew L. Guggenhime, Dermira, Inc. - CFO [36]

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This is Andrew. I think that maybe to the punch line, we still believe that ballpark is the appropriate ballpark. Obviously, on the heels of the meeting, we are now working as we've -- working as we finalize the design and finalize the associated costs. But generally, we came out of that meeting with confirming the assumptions into which we went into the meeting. So no change to the ballpark. As we move forward, and in connection with the announcement at the start of the trial, we'll share updates broadly, but that's still the right range.

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Operator [37]

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(Operator Instructions) And our next question comes from the line of Elliot Wilbur from Raymond James.

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Vikram Arun, Raymond James & Associates, Inc., Research Division - Research Associate [38]

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This is actually Vikram Arun on for Elliot. Just have 2 here. First one would be on revenue guidance. I see that it's in the low $30 millions, which means that we'd be looking at somewhere in the low 20s for the second half? And QBREXZA sales this quarter. Would that imply a pretty modest growth in Rxs then for the remainder of the year if we're looking at that right, compared to the beginning of the launch?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [39]

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This is Lori. We do see substantial growth in the second half over the first half when you look at it in terms of revenue. So you're right, it would be approximately low $20 millions in the second half over the $10.5 million that we've seen in the first half. And I think based on the trends that we're seeing so far and closely monitoring, we believe the DTC efforts are really driving patients to seek treatment. And I think the takeaway message from today is that we got all the fundamentals right. We've got coverage. We've got a lot of physicians who adopted the product. And we're really driving that activity into the derm office. And so the opportunity really is to capitalize that on the second half of the year, make sure that we're really driving productivity per prescriber, and also, that we are converting all those patients once they come in and making sure they get all the way through the PA process and are converted into actual prescriptions for QBREXZA. So I'd say we feel really good about where we're at given the first quarter -- 3 quarters of launch. And I think the team has very consistently delivered on what we expect. And we look forward to seeing that in the second half as well.

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Vikram Arun, Raymond James & Associates, Inc., Research Division - Research Associate [40]

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Okay. And then just one more. So I see that you drew down $40 million in the second tranche of the credit facility. Could you provide any color on the use of capital there? Was this just an opportunistic move? Any information you can provide?

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Andrew L. Guggenhime, Dermira, Inc. - CFO [41]

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Sure. Yes. No, I think it was exactly that. We stated the, either the Almirall exercise or the remaining funds under our debt facility would be sufficient to fund through the expected data readout for lebri. Obviously, Almirall's exercised its option, so that alone enabled us to hit our cash runway guidance of having data to fund through lebri. We really looked at the draw as just an opportunity to further bolster the balance sheet, provide us additional flexibility at what we think is an attractive cost of capital.

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Operator [42]

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And our next -- sorry, our next question comes from the line of Douglas Tsao from H.C. Wainwright.

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Douglas Dylan Tsao, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [43]

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Just -- Lori, I know you have spoken about the new-to-brand statistics for the QBREXZA launch. I'm just curious if you are still seeing that, that most of your patients are sort of new to therapy. And do you expect at some point, given the popularity of the therapy amongst physicians at least, to see some of that conversion from the Drysol market?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [44]

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Doug. Yes, on the first part of the question, we continue to see very high rates of new to brand. And it's been in the high 70s really since launch and we continue to see that trend. I think what we believe that speaks to, Doug, is the fact that the DTC campaign is working, right? We have all of these metrics that are pointed in that direction. And so what we see is that, as there's an expansion of the market, most of the patients who are coming onto QBREXZA are, in fact, new to therapy and have not tried something in the previous 12 months. Having said that, there's 25 or so percent who are coming from other therapies. For the most part, that is from Drysol. And so we already are seeing really QBREXZA kind of taking over and becoming the leader in the hyperhidrosis market. That's great news. I think we feel very good about that, 9 months into launch. But the big opportunity for us longer-term is continuing to grow that market, which, again, we have data to suggest we're doing.

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Douglas Dylan Tsao, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [45]

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And is there anything that you can do? And I understand your point about sort of trying to grow the market. But if we look at the number of scripts for, written for Drysol over a year, they're not a negligible number. And so is there any way to sort of pry loose some of that volume?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [46]

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Yes. I mean I think we actually are prying loose some of that volume. If you were to look at it, we actually have already seen QBREXZA surpass Drysol in terms of market share, just to be very clear. And so -- in the derm market. And so we do believe that where our effort is concentrated, which is in derm, people now see this as the first line therapy, right? And if people want to come in and get a treatment for hyperhidrosis, you can call a bunch of derms. And I feel pretty confident they're going to tell you they want to put them on QBREXZA. So we think that's a great win. And certainly, we see those scripts as ones that should be ours and then additional benefit as we continue to drive more people in.

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Douglas Dylan Tsao, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [47]

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And then in terms of -- the final question for me, just quickly, in terms of the 13,000 prescribers that you referenced, is there much more room for that number to go up? Or do you think that you're pretty much maxed out in terms of sort of high-quality targets?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [48]

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Well, I'll answer in 2 ways, Doug. I mean, first, I would say, I'm really pleasantly surprised by that number given my experience in dermatology, and we referenced some of it on the call today, but you don't tend to see that many prescribers. The base has not tended to become that broad, certainly not this quickly. So kudos to the sales team for really driving that trial and usage. Having said that, in the last month alone in July, we added almost 1,300 new prescribers. So do I think it will continue to go up? I actually think it will. Potentially, it could slow down over time. But the point is, we've got a good strong base. Now let's focus on how can we make them more productive and generate more sales as we get to the back half of the year.

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Douglas Dylan Tsao, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [49]

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And I guess, one final. What percentage of your sales are coming from dermatologists versus any other kind of provider of, say, primary care?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [50]

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So the vast majority is coming from derms and derm NPs and PAs. So we do kind of track those together because we are targeting all of them, and the 13,000 prescriber number includes the nurse practitioners and PAs who are in derm offices as well. It's around 80% to 85% depending on the time point you look at, are coming from people who we're targeting. So again, one of the key questions we had at launch was, can we get the patients to show up in the right office, not just to take action, but to get to the right office. And that's another data point that makes us confident that we've actually successfully done that, because we need them to be there where we have the highest likelihood to pull them through where they have samples and co-pay cards and all of those good tools that we've put in place.

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Operator [51]

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Our last question comes from the line of Pasha Sarraf from SVB Leerink.

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Michael Holden Kratky, SVB Leerink LLC, Research Division - Associate [52]

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This is Mike on for Pasha. So the first one is, with the second quarter QBREXZA sales numbers in hand, have you been able to make any determinations about any potential seasonality for the product? And then secondly, great to hear about the addition of adolescents to the lebrikizumab study. Obviously, atopic dermatitis is particularly common among the pediatric patients. So what plans, if any, are there for testing it there? And what would next steps forward look like in terms of potentially starting to see the wheels in motion there?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [53]

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Okay. Mike, I'll start. This is Lori. For the Q2 sales, and I would say, really, what we've seen so far, the first 3 quarters, we have not necessarily seen seasonality. Although, in truth, it'd be kind of hard to get that read since we're in launch mode, and obviously, we're growing so significantly quarter-over-quarter. If you look at the hyperhidrosis landscape in total, there tended not to be seasonality historically. But we need to get probably further into this launch and a point where the market is a little more stable again before we could really answer that question completely. In the clinical trials and also what we hear from physicians qualitatively, if you have hyperhidrosis, you have it year round. You don't just suffer with it in the summer. And so it wouldn't necessarily be our expectation to see seasonality, but probably, a little too soon to know for sure.

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [54]

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Yes. And then yes, we are excited about having adolescents in the pivotal trials. And again, I think this was an important nod from the agency about the safety profile of the molecule. So that's great. And certainly, we do plan to have a full-blown [P] program. We have plans in place in both the U.S. and Europe. And we'll have additional trials along with the pivotal trial to study how well that [be] work in those subjects.

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Operator [55]

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And there are no further questions at this time. This does conclude today's conference call. Thank you for participating. You may now disconnect.

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [56]

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Thanks, everybody. Thank you.

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [57]

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Thanks.