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Edited Transcript of DERM earnings conference call or presentation 5-Nov-19 9:30pm GMT

Q3 2019 Dermira Inc Earnings Call

Redwood City Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Dermira Inc earnings conference call or presentation Tuesday, November 5, 2019 at 9:30:00pm 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

* Michael Holden Kratky

SVB Leerink LLC, Research Division - Associate

* Seamus Christopher Fernandez

Guggenheim Securities, LLC, Research Division - Senior Analyst of Global Pharmaceuticals

* Sudan Naveen Loganathan

Cantor Fitzgerald & Co., Research Division - Analyst

* Tian Sun

Needham & Company, LLC, Research Division - Research Analyst

* Umer Raffat

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

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Presentation

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Operator [1]

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Good afternoon. My name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to the Dermira Third Quarter 2019 Conference Call. (Operator Instructions) Thank you.

I will now turn the call over to Andrew Guggenhime, Chief Financial Officer of Dermira. Please go ahead.

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

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Great. Thank you, Julianne, 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 September 30, 2019. I'm 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 September 30, 2019, and any subsequent reports filed with the SEC.

With that said, I'd 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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Thank you, Andrew. Good afternoon, everyone, and thanks for joining us today. The third quarter at Dermira was marked by notable progress on key commercial, clinical and regulatory initiatives, as we have continued our efforts to build a dynamic medical dermatology company.

Beginning with QBREXZA, we achieved $10.2 million in net sales, up 27% over the second quarter. As we hit the 1-year anniversary of our launch, we have achieved the key objectives we established at the outset. First, we secured broad quality coverage for patients, while at the same time established an impressive gross-to-net margin. Second, we drove strong trial and adoption among prescribers who continue to report that QBREXZA has had a profound impact on the lives of their patients. And third, we activated axillary hyperhidrosis sufferers to seek treatment with QBREXZA and saw a significant expansion of the market.

While the fundamentals of our launch have been strong and growth rates for QBREXZA continued in the third quarter, we did observe trends which were softer than expected in September. We believe we understand the causes of these recent trends and have implemented measures to address them so that we can continue to drive growth, which Lori with cover in her remarks. We continue to believe there is significant growth opportunities for QBREXZA, albeit at a reduced spend level, which I will address further in a few minutes.

Turning now to lebrikizumab. Our confidence in lebri has only grown in the months since we first reported positive results from our Phase IIb dose-ranging study earlier this year. We've now initiated the Phase III program enrolling our first patient in early October and we expect to deliver top-line results in the first half of 2021.

As expected, interest in the AD space continues to grow. During the last several weeks, we saw and heard continued excitement from patients, health care professionals and industry regarding the opportunity for innovation in AD in view of the high unmet need during the medical and patient-focused meetings we've attended. We also witnessed continued enthusiasm for anti-IL-4/13 therapy as the potential new standard of care for moderate to severe patients, delivering a broad efficacy spanning the signs and symptoms in a way that is safe and easy to use. Obviously, this is a profile that has already driven excitement among dermatologists and incredibly robust adoption for this class.

Against the backdrop of this high bar for new therapies, we saw an enthusiastic reception to our presentation of detailed results from our Phase IIb studies that validate the opportunity for lebri to deliver the broad efficacy and safety that has been established for the IL-4/13 class, together with further improvement in efficacy, tolerability and potential flexibility in dosing. Against the same backdrop, we saw competitors continue to struggle to deliver the combination of safety, efficacy and ease of use we believe will be required to support broad adoption in this market. These challenges continue to serve as a reminder that the IL-4/13 class will not be easily displaced as the standard of care and if we confirm our Phase IIb results in Phase III, it is likely the opportunity for lebri will be durable and significant.

Before I turn the call over to Lori, I want to spend a moment updating you on our plans to manage the business going forward. As we pass the 1-year anniversary of QBREXZA's launch and head into 2020, we have a number of attractive investment opportunities, including 2 programs of significant value in QBREXZA and lebri. In the context of our business, and what we expect will continue to be an evolving financial environment, we have been assessing our operating expenses to ensure we prudently allocate our resources in a way that maximizes value for our shareholders. And we have been evaluating a range of options that we believe will help us achieve our objectives going forward.

With regard to QBREXZA, we are assessing what we've learned over the past year as well as the strong foundation we have established to inform our activities. We intend to continue to support QBREXZA growth while significantly reducing our overall commercial spend, particularly for direct-to-consumer activities. Lori will go into this in more detail.

With regard to lebri development, we will focus on executing the Phase III program in an efficient and timely manner. And finally, we will continue to explore partnering options that may enhance the commercial opportunities for our products while providing non-diluted funding and strengthening our balance sheet. We believe our commitment to and focused relationships with the medical dermatology community, our product portfolio focused on addressing unmet and underserved dermatologic conditions and our talented group of employees have positioned the company for near- and longer-term success. It is my belief that this combination will enable us to drive continued and sustained growth for QBREXZA and deliver on the promise of lebri, which in turn will ultimately present us with the best opportunity to deliver value to our patients, health care professionals and shareholders.

With that, I'll turn the call over to Lori.

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

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Thanks, Tom. The third quarter represented an interesting paradox for QBREXZA. We continued to see promising performance across key fundamentals of our launch and most importantly reported significant growth in both prescriptions and net sales quarter-over-quarter. However, we also saw a decline in prescription volume isolated to the month of September, which was uncharacteristic of our performance to date. I'd like to take some time to review recent growth trends for QBREXZA in the hyperhidrosis market, how we're addressing the September softness in demand which we expect to be temporary and how we're considering future resourcing for the brand, given everything we've learned in the first year of launch.

Overall, we reported 14% prescription growth quarter-over-quarter and 27% in net sales growth for Q3. One year in the launch, we continue to successfully execute our strategy and as a result, saw very consistent growth across key metrics including payer coverage, physician adoption, patient activation and net sales. Additionally, we've navigated through the transition of our co-pay card, resulting in a more favorable gross-to-net discount than is customary for topical dermatology products; all while continuing to grow demand for QBREXZA.

Our growth in prescription volume has been consistent launch to date and continued in the first 2 months of Q3 with prescription growth of 5% month-over-month in July and 10% month-over-month in August. However, in September, our volume declined by 15% month-over-month. In fact, April and September were the only 2 months launch-to-date where prescription volume had not grown. The April decline was expected and forecasted based on our changes in co-pay card program. As we successfully navigated that transition, growth resumed as expected in May. In contrast, the September decline was not forecasted and as such we have analyzed the business to better understand the factors that likely contributed to the decline observed at the end of the quarter.

We believe the factors that may be contributing to the decline are number one, Drysol restocking; and number two, potential changes in utilization management from some commercial payers. As you may recall, prior to launch we shared our view that given Drysol's low resell rate, its utilization was likely to be limited. However, we did expect some payers to require a step-through Drysol prior to authorizing QBREXZA.

During Q3, after a temporary product shortage, Drysol became available again and we saw a surge in Drysol prescriptions. We believe our success in growing the hyperhidrosis market via our DTC campaign, coupled with the availability of Drysol after the temporary stock-out may have resulted in the increase in Drysol prescriptions observed in Q3. We believe the surge in Drysol prescriptions could lead to an increase in QBREXZA prescriptions in due course. However, to ensure we capitalize on the new patients we believe our campaign is driving into the market, we recently launched a program that targets Drysol prescriptions at the pharmacy. We believe this type of targeted approach could be successful in converting patients.

Regarding utilization management, in September we began to hear anecdotal feedback from dermatologists that some commercial payers may be becoming more stringent in how they manage QBREXZA. For much of the past year, most patients were able to access QBREXZA with a simple attestation that they had tried topical aluminum chloride. Based on insights from the field, we believe that some payers may be more aggressively requiring documentation of prior trial and failure. We're working now to validate our hypothesis and if confirmed will approach the payers to ensure our contracts are being adjudicated as designed.

Additionally, we have a broad program designed to improve our fulfillment rate, defined as a percent of QBREXZA claims that are ultimately converted into prescriptions. We've seen steady growth in this conversion through August and expect continued progress for the remainder of the year.

In my experience and as observed in Symphony data, many dermatology products experience a temporary flattening around the 1-year mark of launch. The causes are not always the same, of course. But by working to understand the underlying dynamics of the QBREXZA market, we expect the brand to start growing again, as we've seen in historical dermatology launches. With the same discipline we've demonstrated in building physician support, activating patients, establishing coverage and maintaining a healthy gross-to-net discount; we will similarly focus our effort on a return to prescription growth.

With respect to those key fundamentals of the launch across payer, physician and patient metrics; first, we continued to make significant progress on the payer front, finalizing an agreement with CVS that will provide QBREXZA access without prior authorization for some patients. We believe this presents a great opportunity for improved pull-through in the months to come. We continue to have broad payer coverage at approximately 85% of commercial lives, and more patients now have access without prior authorization.

Secondly, physician adoption of QBREXZA has been a key priority for the company and I'm pleased that we continue to exceed our expectations. Through the third quarter of this year, more than 15,000 prescriptions have prescribed QBREXZA. As noted last quarter, we continue to focus our physician outreach activities on prescriber productivity. Finally, we've had a significant success in building the hyperhidrosis market, which is up 53% in dermatology since the launch of our unbranded campaign and thanks to our branded campaign for QBREXZA, approximately 80% of new prescriptions are coming from new patients to the market.

Given our success in building the market and with the benefit of the insights we've gained over the past year, we now plan to transition to a digitally focused consumer campaign, which will enable us to substantially reduce our investment in direct-to-consumer activity for QBREXZA. Now that we've built broad awareness with the multimedia campaign, driving more than 6 million unique visitors to our site, we intend to target those consumers digitally, allowing us to continue growing QBREXZA demand.

In summary, our progress to date on the launch continues to demonstrate the importance of QBREXZA for the large and underserved population of patients living with primary axillary hyperhidrosis. We're laser-focused on continuing to drive demand for QBREXZA and have identified activities designed to do so, including an increased focused on Drysol conversion and ensuring payer and physician pull-through.

Going forward, we intend to leverage what we've learned during the first year of launch to target our investment to the most promising and efficient opportunities, allowing us to significantly reduce our commercial expenses, particularly in the area of DTC promotion. As Tom indicated, given the external environment and the insights we have gleaned at this 1-year mark of launch, we believe this strategy will best position us to drive sustained growth for the brand and value for our stakeholders moving forward.

Before I turn it over to Luis, I wanted to reflect on some recent commentary in the financial market focused on select physician feedback. Some surprising conclusions were drawn from those discussions. It bears addressing, since these data completely contradict what we've learned from our clinical trials, independent market research, post-approval experience, what we hear from our field [time of] prescribers and also what analysts and investors, many of whom are on the call today, have reported back to us after speaking with physicians directly.

To summarize, what we hear consistently is number one, physicians observed QBREXZA working well. Consistent with our clinical data where 3/4 of patients reported a reduction in sweating, market research shows that 8 out of 10 users are very or extremely satisfied with the efficacy of QBREXZA. Number two, patients and physicians report that QBREXZA worked quickly. Patients report benefit within the first few days, which is validated by research, we've proven it at major medical meetings where patients reported benefit as early as day 2. Number three, physicians report that it's not Botox patients they're targeting with QBREXZA, but the much larger group of patients who are not using Botox. Only 12 months into launch, QBREXZA Symphony data compared to publically stated Botox hyperhidrosis sales figures, suggests that we have likely reached a similar number of unique patients in year one that are treated with Botox in year 15. Having worked directly on Botox for hyperhidrosis, if anyone appreciates the nuances of this market, I do.

Our strategy is to target a much larger patient population and we've succeeded in doing so with more than 50,000 unique patients just 12 months into launch. While we certainly have identified areas that require our focus as expected in any launch, it's safe to say that the clinical performance of QBREXZA is not an area of concern. While there may be people who have this perspective, it is not in any way representative of what we've reported in our clinical data, what we've learned in robust market research, nor what we hear very consistently from our frequent and recent interactions with prescribers.

And with that, I'll now turn the call over to Luis. Luis?

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

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Thank you, Lori. Before I provide an update on the progress we've made on the lebri program, I wanted to provide a quick update on the QBREXZA study we announced in February in palmar hyperhidrosis or excessive sweating of the hands. We initiated an exploratory 2-week study earlier this year with the goal of assessing the safety, tolerability and effectiveness of QBREXZA in palmar hyperhidrosis. In the study, we observed that application of QBREXZA to the palms with or without occlusion or covering of the hands, was safe and well-tolerated.

In addition, while we observed improvements in palmar sweating from baseline, a consistent and significant treatment effect was not observed. Given that we continue to hear from patients that there is a need for palmar hyperhidrosis treatment and for physicians who are enthusiastic to treat them, we intend to continue efforts in this area by supporting investigator-initiated studies to further evaluate QBREXZA's potential in palmar hyperhidrosis. Pending the outcome of these studies, we will determine the appropriate next steps.

Now turning to lebri. Last month, we presented detailed Phase IIb results during the Fall Clinical Dermatology Conference. At the conference, we hosted a webcast during with Dr. April Armstrong, an investigator in the lebri Phase IIb study, reviewed the detailed safety and efficacy results. These data demonstrated that consistent with our objectives for a best-in-class IL-13 inhibitor, lebri delivered rapid, robust, broad efficacy across endpoints, spanning the range of 80 signs and symptoms, including skin lesions and itch when administered once every 2 or 4 weeks.

Additional outcomes included low rates of conjunctivitis that were similar to those in patients receiving placebo and a safety profile consistent with that established for the IL-4/13 class. Of note, particularly compelling were the effects on itch, which we know is often the chief complaint of AD patients and can have a significant impact on sleep, productivity and quality of life for both patients and caregivers.

In our Phase IIb study, improvements in itch were observed as early as day 2, and a response rate of 70% was observed at week 16. As Tom mentioned, these results which we look to duplicate in Phase III, would support a best-in-disease profile well-suited for first-line use. Based on the positive Phase IIb results, last month we also announced initiation of our Phase III program in adult and adolescent patients ages 12 and older with moderate to severe atopic dermatitis.

The program is currently enrolling 2 identical monotherapy studies. Top-line results from the 16-week induction periods of these studies are expected in the first half of 2021. The Phase III program will also include a study of lebri in combination with topical corticosteroids, which we plan to initiate in the first quarter of next year.

Before closing, I'd like to discuss our perspective on the competitive landscape in AD product development. As we know, moderate to severe AD is a prevalent debilitating condition with limited treatment options, and thus represents a significant unmet need that has attracted the attention and enthusiasm of many industry participants as well as the FDA. As we've said, we believe the arrival of dupilumab in establishing the IL-4/13 class as a new standard of care by delivering broad efficacy in a way that is safe and tolerable, setting the stage for lebri as the potential best-in-class IL-13 inhibitor to further advance the benefits already established with dupilumab.

While we certainly expect that a market as large and diverse as this will support multiple additional therapies and mechanisms, we also believe it will be likely exceedingly difficult to deliver the combination of broad efficacy, safety and ease of use, and thus widespread utility available via IL-13 inhibition. Outside the IL-4/13 class, there have been limitations observed with other targets, either with safety issues, limited efficacy and/or tolerability. In this context, while we certainly look forward to learning the results of the numerous other programs currently in development, as Tom mentioned, we believe the opportunity for lebri will be durable and significant.

I will close by saying that we are incredibly pleased with the progress we have made and we have confidence in lebrikizumab and our opportunity to advance the standard of care for patients with moderate to severe atopic dermatitis, improving their treatment in the areas most meaningful to them. We believe that lebri has the potential to be a best-in-disease therapy, delivering the trusted safety of the IL-4/13 class together with improvements in efficacy, tolerability and flexibility in dosing in one of the largest, fastest-growing and most significant markets in dermatology.

I will now turn the call over to Andrew. Andrew?

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

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Great. Thanks, Luis. I'll be addressing in my remarks today the P&L highlights, the balance sheet and cash runway, and then our thoughts as to guidance as we close out 2019. First with respect to the P&L highlights, for the third quarter of 2019 revenue totaled $11.5 million, comprised of $10.2 million in QBREXZA product sales and $1.3 million in collaboration and license revenue. The $10.2 million in QBREXZA product sales represented a 27% increase over the $8.1 million recognized in the second quarter of this year.

This increase was driven by 17% growth in gross sales and an approximately 5 percentage point improvement in the GTN discount to approximately 34%. The primary reason for the quarter-to-quarter improvements in the GTN discount was due to the elimination of the grandfathering provision of the $70 co-pay program effective July 1. The collaboration and license revenue for the third quarter of 2019 of $1.3 million is entirely related to our partnership with Almirall. As we outlined on our August call, each quarter we will recognize a portion of the transaction price that was allocated to the R&D services we are obligated to provide to Almirall over the course of the lebri Phase III program in a manner analogous to the percentage of completion method.

Total costs and operating expenses for Q3 2019 were $66.7 million, effectively flat compared to the $66.0 million in the same period of the prior year. Year-over-year increases in R&D expenses of $2.1 million and cost of sales of $1.7 million were partially offset by a decrease in SG&A expenses of $3.2 million. With respect to SG&A expenses, as we indicated on our prior call, we expected the second quarter of 2019 to be the high watermark and indeed we saw a substantial decrease in SG&A expenses of $17 million from the second quarter to this most recent third quarter.

Turning now to the balance sheet and cash runway, we ended the third quarter with $360.2 million in cash and investments. During the third quarter, we received $50 million from Almirall in connection with our option exercise and net proceeds of approximately $39 million related to the draw of the second tranche under our structured financing facility. The cash and investments balance excludes the $30 million in total milestone payments we stand to receive from Almirall and $20 million due to Roche in connection with the initiation of the lebri Phase III program. With respect to our cash runway, we remain in a 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.

Finally, as we close out 2019, a few key points regarding financial guidance. For QBREXZA, we maintain our full year 2019 net product sales guidance in the low $30 million range. For the GTN discount, based on the further improvement we saw in the third quarter and our outlook for the year, we now expect to be in the high 30s for the fourth quarter of this year. The expected increase over the third quarter is due primarily to the full quarter impact of the CVS agreement Lori mentioned in her remarks that became effective during the third quarter. As we look beyond 2019, we maintain our guidance of approximately 40% based on the impact of additional agreements we expect to enter into with payers and PBMs. As we have previously mentioned, the actual number each quarter likely will fluctuate within a narrow range, depending on a few factors.

For the Almirall-related collaboration and license revenue, we maintain our prior guidance of approximately $2 million in the fourth quarter. With respect to operating expenses which as a reminder excludes cost of sales, we are updating our prior guidance for total R&D and SG&A expenses, and now expect total full year 2019 R&D and SG&A expenses between $275 million and $285 million, lower by $20 million to $30 million than our previous range of $295 million to $315 million. This updated guidance includes approximately $30 million in estimated stock-based compensation. In addition, we will recognize a $20 million acquired in-process research and development expense in the fourth quarter of 2019 related to the milestone payment due to Roche in connection with the initiation of the lebri Phase III trials in October.

We'll now open up the call for Q&A, after which Tom will make some closing remarks. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Louise Chen from Cantor Fitzgerald.

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Sudan Naveen Loganathan, Cantor Fitzgerald & Co., Research Division - Analyst [2]

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This is Sudan Loganathan in for Louise. I have a few questions here. So do you expect that the additional data from the palmar hyperhidrosis indication will significantly growth the market for QBREXZA in the near term, prior to adding to label if approved, going forward? And then what are the other near-term or long-term catalysts for QBREXZA that we'll expect to contribute to the growth of the hyperhidrosis market? And then secondly on lebri, with the complete days set for the Phase II program, how are the partnership opportunities in the O-U. S. market shaping up now that you can take a mature data set to prove the value of lebri? And then what are any reservations that people are having on lebri or the IL-13 mechanism of action in regards to treating AD? And then lastly, can you talk more specifically on the itch in atopic dermatitis and how big is this unmet need and how does your drug compare on the itch versus approved products in this development?

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

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Well, let's start with Lori on the first one and we'll try to go from there.

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

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Thanks, Sudan, for the questions, much appreciated. So I think the way we think about the palmar opportunity is that any growth assumed for a palmar indication would not be a near-term event. So as Luis mentioned in his prepared remarks, we have just some initial findings from that very small study and we do expect to continue to support development of that via some investigator-initiated work. But all of those things I think would only have an impact in the market as a longer-term event, not as a near-term event if we were to get an approval. And then on the near-term catalyst, I mean I think we just really are in a position where we can capitalize on the strong foundation we've set over the first year of launch. So we now have more than 15,000 prescribers who we can go to and work to make more productive in terms of how many QBREXZA prescriptions they're writing. We can focus on the pull-through of our really broad coverage of 85% of all commercial lives, and really some specific wins that we've gotten more recently like the CVS win that I mentioned in my prepared remarks. It really allows us to focus our pull-through efforts where we have really strong access. And then finally I think just a targeted effort with the 6 million consumers who we've activated to really grow this market. And we're really starting to see that impact with more than 50% year-over-year market growth in the dermatology space specifically. And so it's our opportunity I think to continue to capitalize on those things as the near-term catalyst for QBREXZA growth. And with that, I'll maybe turn it over to Luis for some of the lebri questions.

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

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Yes. So first of all, I think the question about what reservations have we heard, actually I would say none. It's more on the enthusiasm side. And I think what is driving that and specifically investigators wanting to participate in Phase III. So I think what is driving that is that it's hard to find a molecule with the broad profile that this one does. So not only did we see really good efficacy across the skin manifestations of atopic dermatitis, but specifically also we saw itch and its positive effect on sleep loss with good outcomes. And then that came along with the long safety profile that we've seen with this molecule now treating over 4,000 patients, and a great tolerability profile which included low conjunctivitis rates. Specifically, as you mentioned itch, we've done studies now that have proven that elevated levels of IL-13 can hyper-sensitize sensory neurons and that inhibition of IL-13 levels specifically can bring those sensory neurons back down to a normal activation state. And we actually think that this carried over into the positive clinical manifestation that we saw in the lebri Phase II program and we'd expect that to carry on into Phase III and beyond. And then finally, I will turn it over in terms of discussing the partnership opportunities.

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [6]

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Thanks, Luis. While we don't comment specifically on specific discussions, we do continue to evaluate a number of partnering options, whether it's regionally or broader than that. And we will keep you updated as those discussions progress.

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Operator [7]

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Your next question comes from Seamus Fernandez with Guggenheim.

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Seamus Christopher Fernandez, Guggenheim Securities, LLC, Research Division - Senior Analyst of Global Pharmaceuticals [8]

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So just my first question specifically is on the off-label use in palmar hyperhidrosis. So when will you guys present the palmar data at a medical meeting? Just wondering if there's off-label use in palmar hyperhidrosis or palmar plantar currently or if the majority of if in fact all of the doses are used for axillary hyperhidrosis. The second question is frankly, guys, I think it would be a little bit more helpful to investors to understand the direction of the absolute spend as we head into 2020. I don't think we're necessarily asking about guidance, but I think the hope was is that there would be a little bit more runway heading into the data for lebrikizumab, given the disclosure today with regard to the updated guidance. So if you could just give us a little bit more color or clarity on the direction of spending that would be extremely helpful.

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [9]

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This is Luis. Always good to hear your voice. So we haven't quite given any guidance yet in terms of when we would discuss data. Because we're continuously ongoing with evaluation. After we do, then we'll give guidance on that. In terms of dose, between the axil and the hands, really the mechanism is the same, which is you are inhibiting the action of acetylcholine on the sweat glands in the hands versus the axilla. The skin in the palms is slightly thicker and so we're evaluating a time course of delivery in the hands versus the axilla. And likely that will be successful without having to change the dose.

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Andrew L. Guggenhime, Dermira, Inc. - CFO [10]

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In terms of I guess as to the question about maybe first in terms of the off-label, if we're hearing instances of usage off-label, I'll let one of my colleagues address that.

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [11]

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Yes. I'm happy to take that part. So Seamus, we do anecdotally hear from some physicians that they're trialing the product off-label. Of course, our efforts are focused completely on promotion for axillary hyperhidrosis. When those reports come up or when questions arise, we refer those over to our medical affairs colleagues and I think anecdotally they are starting to report some of the ways in which they're using the product and seeing some results and I think we expect as we get the IIT potential protocols in for those to be reflected in what we receive. So as we continue to get more information on that through our medical affairs colleagues, obviously we'll be happy to provide an update at a later point.

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Andrew L. Guggenhime, Dermira, Inc. - CFO [12]

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This is Andrew. I'll take the question in terms of kind of color and clarity. Clearly, we're not in a position today to provide specific guidance. We're working quickly to do that. We understand the importance of that. As we hit the 1-year mark of QBREXZA, really understanding how to best target and leverage our investments there, as you heard Lori say, we expect a significant reduction in our commercial spend with a particular focus on DTC. We are looking at all aspects of our business across the business to be as efficient and targeted with how we spend our money. That's our job. We are finalizing the remaining aspects of the lebri Phase III program. So we are working quickly to do that, but not in a position today to provide that specific guidance. But rest assured, I think we have the same objective as you, which is to extend the runway as much as possible through these efficiency and cost-effectiveness measures.

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Operator [13]

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Your next question comes from Douglas Tsao from H.C. Wainwright.

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Douglas Dylan Tsao, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [14]

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Just trying to understand as you think about what you've seen with QBREXZA, does it change your sort of long-term expectation in terms of the opportunity or what you're able to achieve? Or is it just going sort of take a different path and maybe a bit longer to get there than you initially expected?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [15]

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Yes, thanks for the question, Doug. This is Lori. I think really the market has not changed in our view. Obviously what portion of it we capture will depend on the strategy that we undertake. And so as we go through these next few weeks and months of preparation on that, we want to make sure that we provide any update in terms of how we see the opportunities specific for QBREXZA. It will obviously be tied to our approach in the marketplace. I think what we believe is that if we look at the 1-year mark of the launch and we say, what did we say we needed to accomplish to put ourselves on their right trajectory for a successful launch? You know across payers and physicians and patients, we've really hit the metrics that put us in place to achieve the long-term peak year sales opportunity and that comes from the 15,000 prescribers. That comes from the broad coverage. That comes from the patient activation to the tune of 6 million patients. And so we're in a position where we can leverage that momentum that we've gained, but certainly the peak year sales will be dependent upon what decisions we make about the next strategy we employ for this next phase of growth.

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [16]

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Yes, and I would just add to that, kind of reemphasizing what Lori said, and we really appreciate the question. The fundamental things that we set out to accomplish and the platform that we set out to build upon, I think the team has done a great job of that, as Lori just alluded to. One year into launch, we can look at the things that have been the most productive and less than the most productive in terms of our spend, hence the opportunity to reduce spending. But I think in terms of understanding the market, seeing where it could go and building a platform to get there, the team has done a good job on that.

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Douglas Dylan Tsao, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [17]

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Yes, I mean and Tom, just to add a quick follow-up, because it guess what I think would be helpful for us to just understand is to the extent that you sort of see this is as a change in the landscape versus sort of reacting to 1 month of sort of disappointing data from a script standpoint. Because to your point, you sort of accomplished so much and sort of accomplished everything that you kind of had wanted to, to set yourselves up for victory, so to speak.

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [18]

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No, we appreciate that. And we couldn't agree more. On the other hand, a year into the launch, you would expect us to and we have been assessing what is working best and what is not working best within the context of it is important for us to reduce overall spending. We get that. And we believe we can deliver on that. That is in no way intended to suggest that we don't have a commitment to this product and believe in it. We think we can continue to grow it with a significantly reduced spending level, based upon what we've learned over the last year, and as I said before, the platform that the team has constructed. So appreciate the question, appreciate the observation. Look, we still believe in the product. We have identified ways we can believe in it and grow it more efficiently.

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Operator [19]

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Your next question comes from Umer Raffat from Evercore.

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Umer Raffat, Evercore ISI Institutional Equities, Research Division - Senior MD & Senior Analyst of Equity Research [20]

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Luis, I want to go back to the placebo discontinuation of lebri Phase II. And I recall when we first noticed that placebo discontinuation rate was north of 50%, one of the issues we had discussed was the availability of dupi impacting placebo continuity in the trial, which made a lot of sense until I saw a recent Pfizer atopic dermatitis Phase III JADE MONO-1 where placebo only discontinued around 20%. So I'm trying to reconcile those two and I don't seem to have a clear explanation. And considering how critical this issue is to the broader company, I would love to get better clarity on what exactly happened and why is it so different? And do you expect (inaudible) Phase II to also have 50% plus placebo discontinuation rate?

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [21]

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Yes, I mean I think for sure there's a difference between Phase II and Phase III. And I think there were 2 key components that were different. One is the investigators did not know the profile of lebrikizumab at the time. They were uncomfortable with it. And so given that there are other options, whether it's dupilumab or other Phase III studies, certainly they felt ethically that it would be appropriate to move those patients that they didn't see efficacy. And the Phase III study is much different because not only do you know the profile of the drug and as [Mark Ledwell] said when he was reviewing lebrikizumab, wow, this is really exciting. The physicians are going to be very enthusiastic about being in your Phase III program. In Phase III they know the profile. They know that it works. Also you have an escape arm which patients are guaranteed to have an active arm long term and that is very important for these patients who are really suffering, who have a high degree of itch. And so we believe that's going to have a significant impact in terms of helping their retention and also given the way we've set up the program and the protocol, we think it's going to be better than 20% frankly.

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Andrew L. Guggenhime, Dermira, Inc. - CFO [22]

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Yes, I might just add, Umer this is Andrew. I think if you look at the data from the JAK trials in Phase II and I'll point to abrocitinib specifically. You saw a 50% discontinuation rate in the placebo arm, which again I think is just a reflection as Luis pointed out, of structure of Phase II vis-a-vis Phase III.

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Operator [23]

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(Operator Instructions) Your next question comes from Serge Belanger from Needham & Company.

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Tian Sun, Needham & Company, LLC, Research Division - Research Analyst [24]

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This is Tian actually on for Serge. I just had a few for QBREXZA and lebri. So first on QBREXZA, could you give us a little bit more detail on the marketing approach that you're utilizing for QBREXZA to target against -- toward Drysol? And then in terms of seasonality, have you seen any impact in the third quarter and as we transition from 3Q to 4Q, did you see anything there? And then lastly, we've noticed that the IQVIA and the Symphony numbers are a little bit off when we do the weekly scripts. So do you have any idea as to perhaps why the IQVIA number is a little bit lower?

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Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [25]

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Sure, I'm happy to take those QBREXZA questions first, Tian, and then if you have some lebri ones, we can come to that as well. So your first question on our approach for targeting Drysol prescriptions, so again, we believe that phenomenon is likely temporary with the restocking that we are seeing currently in Q3. The approach we're taking is that when someone fills a Drysol prescription at the pharmacy, you can actually provide QBREXZA branded material there to show that there is a new option in the marketplace and given the super low adherence rate for Drysol, and the data suggests that in month 2, 80% of all people who started Drysol in month 1 are no longer taking the drug; we think that that presents us a great opportunity to say, hey, there's another option and here's a little bit of information about QBREXZA. So we have that program in place and just started that recently, and again believe that we'll have an opportunity to convert some of those patients over to QBREXZA prescriptions. In terms of seasonality, I'll answer that a couple of ways. I would say historically we have not seen seasonality in the hyperhidrosis market. So that's going back for many, many years.

While some people might think that you would see a surge in the summer months, you don't tend to see that in the prescription data. As it pertains to the recent quarters of activity, frankly I think it's a little bit hard to say, because the Drysol stock-out and now the restocking is confounding the data in ways where you wouldn't really know if there was seasonality. I think it's really much more likely due to both our market growth from our direct-to-consumer campaign as well as the in and out of Drysol that's kind of making the market view a little bit more complex. Over time, as we get more data under our belt for QBREXZA, we'll be able to say are we, like other products, not seeing a seasonality? But right now we're just seeing market growth, of course. And then finally on the IQVIA-Symphony data sources, you're right that those two data sources tend to be slightly different in what they report. Some observations that we've had is that Symphony tends to report higher than IQVIA. Some of that's likely due to their capture rate with some of the derm specialty pharmacies.

What I would note is that while they are a little bit disconnected in terms of their volume, they do tend to move in the same direction in most cases. And what we have said publically is that if you were to take an average of the Symphony and IQVIA data, generally speaking that would be aligned to our outs data, which is the volume that we're seeing pulled from the wholesalers into the retail and dermatology pharmacy. And so hopefully that answers that question as well.

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Tian Sun, Needham & Company, LLC, Research Division - Research Analyst [26]

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Yes, that was helpful. And then onto lebri, given that the lebri readout isn't until 1H '21, so should we expect some type of interim data to be released along the way?

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [27]

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This is Luis. No. We wouldn't do that. In Phase III you have to be very careful about that, because you want to preserve your power as it relates to your BLA and filing. So we will present on the 16-week data or we will disclose the 16-week data in the first half, and then continue on our trials into the 52 weeks and then be poised for BLA as soon as possible after that.

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Tian Sun, Needham & Company, LLC, Research Division - Research Analyst [28]

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and then the last one is for the milestones. So can you tell us what the, I guess, milestones are coming up for next for Almirall? I think there was about $40 million tied to the regulatory -- some regulatory events. And for the milestones for Roche, I think there was a $20 million due in the fourth quarter. Is there any additional portion that's due? And then further down the line, is there anything else in 2020 and 2021?

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Andrew L. Guggenhime, Dermira, Inc. - CFO [29]

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This is Andrew. I can cover it and happy to follow up with the disclosures we've made. But the nearest term milestones are as mentioned on the call, in connection with the initiation of the Phase III program. We are owed an aggregate of $30 million from Almirall, as we noted when we announced the initiation of the first monotherapy trial. We've now earned $7.5 million of that $30 million in total. The rest are attached to other Phase III trial starts. Similarly in connection with the initiation of the Phase III program, we owe Roche an outbound $20 million, as mentioned on the call. That was triggered with the same initiation of the program.

In terms of the ongoing in and outbound milestones, I can follow up with you, Tien, with the specifics of that. But I will say that overall the amount that we receive from Almirall are at or above the amounts we would owe Roche with respect to particular territories. In terms of the Almirall, we're entitled to up to an additional $40 million based on achieving certain regulatory milestones, and then $45 million in connection with the first commercial sale. And then there are up to $1.25 billion in sales-based thresholds and then royalties owed to us as well. You can follow with the specifics of that. But they start in the low double-digits range up to the low 20s. With respect to Roche in terms of outbound, there's an aggregate of $20 million and I will confirm that $20 million in connection with the submission of regulatory filings and territories excluding the United States. And then we have up to $160 million in connection with first commercial sales in various territories around the world, including the United States. And then we have downstream first sales milestones as well as royalties that thresholds that start in the high single digits on first commercial sales and top out at the high teens once sales exceed the top tier $3 billion in annual sales.

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Operator [30]

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Your next question comes from Pasha Sarraf from SVB Leerink.

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Michael Holden Kratky, SVB Leerink LLC, Research Division - Associate [31]

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This is Mike on for Pasha. So first with respect to the Drysol restocking, that seems to be something that presented an unexpected headwind earlier in the quarter. But it sounds like supply issues for them might not necessarily be a one-time thing. So do you think that could potentially start to be an issue again that could potentially boost QBREXZA sales?

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

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This is Lori. Thanks for the question, Mike. This is now the second time in our 1 year of launch for QBREXZA that we've seen some pretty significant stock-out issues for Drysol. So if history is an indicator, certainly it could become an issue again. And obviously both in terms of how we can capitalize on the conversion of those, but I think frankly how we can focus on growing the market and making sure that more people are actually activated to seek treatment. That's where the opportunity for us really lies. So for context, there's about 400,000 prescriptions annually for Drysol. And we see our opportunity for QBREXZA as being much more significant than that based on the profile of the product. QBREXZA tends to work well. It tends to be well-tolerated. It's not irritating like Drysol can be. And they get almost no refills because of that product profile. So there's an opportunity for us to capitalize, whether it's in activating the market or converting Drysol patients, or in retaining our patients once they start with QBREXZA. We have I think a lot of ways to win versus Drysol.

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Michael Holden Kratky, SVB Leerink LLC, Research Division - Associate [33]

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Got it. That makes a lot of sense and then just one other one on lebri. First of all, have you provided any color on the timing of the combination study? And then separately, it seems like itch has been increasingly more important for the dermatology community in terms of seeing introduction as an endpoint. So just curious if you have any plans in terms of highlighting that within the Phase III studies, given what we've seen in the Phase IIb studies for lebri.

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Andrew L. Guggenhime, Dermira, Inc. - CFO [34]

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This is Andrew. I'll take the first part of that question and turn it over to Luis for the second part. With respect to the combo study the TCS study, we expect to start that study in the first quarter of next year. That is not on the critical path. That study will be completed within the timelines of the monotherapy studies.

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Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [35]

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Yes. It's Luis. Yes, so we'll definitely continue to evaluate. It's in the Phase III program extensively. And so we will not only look at the percent of patients overall, but a responder analysis in terms of those patients that achieved at least a 4 point drop in the NRS scale, which is important. We'll also take a look at sleep loss and in various several PROs, the manifestation of this. And you're absolutely right. There was recently a patient focused drug development seminar run by the FDA, and the #1 complaint by those patients was itch, in terms of really impacting their quality of their life. So we're excited about the prospects of lebri with this, as I mentioned earlier with our work in (inaudible), but also the onset of activity. We observed as early as 2 days we had a significant impact on itch with lebri. We expect that to be the case in Phase III and really an important advance for these patients who are looking for as immediate relief as possible in itch.

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Operator [36]

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We have no further questions. I'd like to turn the call over to Mr. Tom Wiggans for closing remarks.

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Thomas G. Wiggans, Dermira, Inc. - Co-Founder, CEO & Chairman of the Board [37]

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Thank you very much, operator, and thanks to all of you who joined us this afternoon. In closing, let me simply say that we have a plan in place to ensure that we continue to drive sustained demand for QBREXZA in the weeks, months and years ahead. We will be working diligently to ensure that we enroll the lebri Phase III program rapidly and efficiently. And we will be diligent in our ongoing analysis of the business in ensuring that we utilize our resources in the most efficient way possible. In particular, as we have said throughout this call, reducing our operating expenses in conjunction with QBREXZA, primarily in the direct-to-consumer realm, while we continue to support the growth of the brand. And with that, I will thank you all for joining in. Have a great rest of your day.

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Operator [38]

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This concludes today's conference call. Thank you for your participation. You may now disconnect.