U.S. Markets closed

Edited Transcript of DERM earnings conference call or presentation 26-Feb-19 9:30pm GMT

Q4 2018 Dermira Inc Earnings Call

Redwood City Mar 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Dermira Inc earnings conference call or presentation Tuesday, February 26, 2019 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andrew L. Guggenhime

Dermira, Inc. - CFO

* Ian Clements

Dermira, Inc. - VP of IR

* 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

================================================================================

Conference Call Participants

================================================================================

* Douglas Dylan Tsao

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

* Dylan Dupuis

SVB Leerink LLC, Research Division - Research Associate

* Louise Alesandra Chen

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

* Serge D. Belanger

Needham & Company, LLC, Research Division - Senior Analyst

* Stephen Anthony Ragard

Mizuho Securities USA LLC, Research Division - Research Associate of Americas Research

* William Patrick Maughan

Cowen and Company, LLC, Research Division - Equity Research Associate in Specialty Pharma

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, ladies and gentlemen, and welcome to Dermira's Fourth Quarter Financial Results Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Ian Clements. Sir, you may begin.

--------------------------------------------------------------------------------

Ian Clements, Dermira, Inc. - VP of IR [2]

--------------------------------------------------------------------------------

Thanks, very much. Good afternoon, everyone. I'd like to welcome you to Dermira's earnings conference call for the fourth quarter of 2018 and the full year to discuss those financial results. I'm joined today by our Chairman and CEO, Tom Wiggans; our Chief Commercial Officer, Lori Lyons-Williams; our Chief Development Officer, Luis Peña; and our Chief Financial Officer, Andrew Guggenhime.

Earlier this afternoon, Dermira issued a news release announcing the company's results for the fourth quarter of 2018. Copies of news releases and SEC filings can be found in the IR section of our website.

Before we begin, I'd 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 expectations 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-K for the year ended December 31, 2018, and any subsequent reports filed with the SEC.

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Ian. Good afternoon, everyone, and thank you for joining us. It's my pleasure to have the opportunity to review some of the key highlights of the QBREXZA launch and lebrikizumab or lebri program, before turning the call over to Lori and Luis to talk about each of these in more detail.

Regarding the launch of QBREXZA, we are off to a great start as we develop and build a market for first and only FDA-approved topical prescription treatment for people with primary axillary hyperhidrosis. We are measuring our success across a number of metrics including both quantitative and qualitative measures. Prescription data continued to show solid growth. The feedback from patients and dermatologists is very strong, and awareness of both hyperhidrosis and QBREXZA is being positively impacted by our field sales force interactions, peer-to-peer selling programs, disease state awareness efforts and scientific publications and exchange. Dermatologists are anxious to learn more about QBREXZA, and we have been receiving patient testimonials since launch that highlight the significant and life-changing benefit QBREXZA has brought to them. One of the most rewarding things about being in this business is changing people's lives for the better, and we are hearing a lot of that these days.

On the development front, we're awaiting the results from the Phase IIb study evaluating the safety and efficacy of lebri in patients suffering from moderate-to-severe atopic dermatitis or AD. As the last patient visit has now occurred, we're updating our guidance to inform you that we now anticipate top line Phase IIb data during the second half of March. As Luis will elaborate on, we continue to believe that lebri may offer a compelling combination of efficacy, safety, tolerability, convenience and ease of use for people living with moderate-to-severe AD and the health care practitioners who care for them. And further, has the potential to be a best-in-class or even best-in-disease therapy in a market that represents one of the largest opportunities in medical dermatology.

Market forecast predict that the market for biologics in AD could be as large as $16 billion by 2026. These forecasts reflect not only the high prevalence and burden of moderate-to-severe AD but also the introduction of new therapies to improve -- further improve the treatment of this condition. The development landscape has certainly become more competitive as companies seek to develop new products by exploring a number of different pathways and product candidates that modulate those pathways. As we have witnessed over the past decade in the psoriasis market, understanding of new pathways and corresponding development of new product candidates have resulted in a large market containing multiple blockbuster products and the standard-of-care therapeutic benefit to patients and therapeutic choices for dermatologists has increased dramatically.

While many uncertainties remain, regarding the ultimate therapeutic profile of these new product candidates for AD, we continue to believe that these efforts to develop new therapies will result in significant market opportunities and significant improvement in therapeutic benefits to patients. Specifically, when we look at the opportunity to improve the standard of care for patients with moderate-to-severe AD, we see several opportunities, including efficacy which is obviously important. But also safety, which in contrast to other mechanisms of action, has been a hallmark of IL-13 inhibition to date. Tolerability, such as rates of side effects like conjunctivitis or injection-site reactions. Convenience, such as frequency of administration. And ease of use, such as the extent to which a product may require monitoring -- lab monitoring or dose adjustment.

It is in the context of this developing market opportunity and potential to deliver improved therapeutic benefit that we will be evaluating our lebri Phase II results and making a decision on further development. Therefore, as we await these results, we are finalizing our models in order to make an objective, sound, go/no-go decision based on the data and the resultant commercial opportunity. We believe the evidence accumulated to date suggests targeting IL-13 with lebri presents an opportunity to deliver a compelling combination of these attributes in AD patients, and their health care practitioners. We look forward to sharing our Phase IIb results in the near future.

With respect to the opportunity to bring lebri to patients outside the U.S., I'm particularly pleased about the recent agreement that we entered into with Almirall. Under this agreement, Almirall has acquired an option to exclusively license rights to develop and commercialize lebri in Europe. This transaction is an outstanding financial, operational and strategic fit for Dermira, and we are pleased to have the opportunity to enlist Almirall's expertise to help make lebri available in Europe, while we continue to focus on the significant U.S. market opportunity. By beginning to work with Almirall now, we are able to incorporate the European perspective into our development planning such that we can be well prepared to move forward quickly, pending supportive Phase IIb results. We look forward to the potential partnership and to working together with Almirall.

With that, I'll turn the call over to Lori to discuss the QBREXZA launch in more detail.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Tom. As Tom mentioned, we're closely monitoring a number of key performance indicators for the QBREXZA launch. As we consider these measurements a success, they fall into 3 general categories: activating people living with hyperhidrosis, obtaining broad quality payer coverage and physician adoption of QBREXZA. Based on the data we're tracking and we'll share with you today, you'll see that we've built momentum across each of these 3 categories, which we consider an early validation of our go-to-market strategy.

First, considering patient activation. We've been running a multimedia disease state awareness campaign since June of last year, designed to drive people with hyperhidrosis to our website, checkyoursweat.com. The numbers continue to grow with over 3.2 million unique visitors to the site in a few short months, up from 2 million at our last earnings call. And of those visitors 1.2 million have completed an online assessment to determine if they might have hyperhidrosis. Moreover, over 127,000 people have entered their contact information into our consumer relationship marketing database. Those are the people living with hyperhidrosis we're now engaging through e-mail to make them aware of QBREXZA as a treatment option.

Of course, driving patients to a website is no guarantee that they'll seek treatment. So we're monitoring several key metrics to assess our early performance in driving consumers to not only seek treatment but also obtain QBREXZA. First, we ask whether we're driving people to seek treatment. Looking at the total U.S. market size for topical hyperhidrosis therapies, we're encouraged to see year-over-year growth of approximately 16% for Q4. Moreover, the number of patients diagnosed with hyperhidrosis saw a year-over-year growth of 13% for Q3 and 8% for Q4. Given that a historically flat market has grown significantly in the 2 quarters our campaign has been active, we believe we're driving people to seek treatment from physicians.

Second, we ask whether we're activating new QBREXZA consumers to fill prescriptions. In measuring the percent of QBREXZA patients who are new to therapy start, meaning they have had no other prescription treatment in the previous 12-month period, we find that 70% of QBREXZA prescriptions were new to therapy starts. We see this as another data point to indicate that we're not merely taking share from Drysol, but we're activating new consumers who are filling QBREXZA prescriptions. Third, we ask how we're doing in terms of overall share of the hyperhidrosis market, and find that in just our third month on the market, QBREXZA obtained approximately 16% market share.

Next, as we consider payer coverage and patient access to QBREXZA, we continue to make tremendous progress which is contributing to our continued success. The payer team has done an outstanding job and I can now confirm that approximately 76% of all commercial lives have QBREXZA coverage. Additionally, of the covered lives, approximately 30% are covered at Tier 2. Every day, we hear from physicians who tell us that they're pleased with the access their patients have to QBREXZA. Frankly, they're surprised that the coverage has been so strong this early in launch.

In addition to the strong coverage, we have 2 patient co-pay assistance programs in place to ensure that patients have seamless access to QBREXZA. The first is a pay-no-more-than $35 program for those patients who are insured but have a co-pay in excess of $35. The second is a $70 program for those patients who do not yet have coverage. We always anticipated that we would sunset the $70 program as we approached high levels of insurance coverage. We originally anticipated it would be early 2020 before we would have broad enough coverage to allow us to sunset the $70 program. However, given the over-performance of the team, we're on track to have 80% of lives covered by the end of this quarter and therefore, plan to discontinue the $70 program as of April 1. Given the strong Tier 2 and Tier 3 coverage we've established, we're confident that the vast majority of patients will have access to QBREXZA.

Lastly, physician awareness of hyperhidrosis and adoption of QBREXZA is the third critical element to long-term success of our business. Awareness is growing through activities including field sales interactions, industry meetings and peer-to-peer speaker programs. Prior to launch, we identified a call universe of more than 12,000 health care providers and during fourth quarter, we reached over 80% of this target universe and completed more than 6,000 lunch in-services to educate prescribers and their staff about QBREXZA. Of course, the best measure of physician activation is prescription volume and we're pleased to see over 5,000 unique prescribers in Q4. Of these, over 3,000 have written more than 1 prescription.

Before diving into the prescription data, a brief commentary on the different data sources we're all watching. There are 2 primary data sources, Symphony Health Solutions and IQVIA. Both of these companies use sampling and projection methodologies to report prescription numbers. Foundation Care, our preferred dispensing partner is not a part of IQVIA's sample but is part of Symphony's. The numbers I refer to here are reflective of prescriptions as reported by Symphony.

Although it's still early the prescription volumes are strong and growing. In October, November and December respectively, more than 3,500, 5,100 and 6,000 prescriptions were filled for a total of 14,786 prescriptions for the quarter. Looking to prescription data for the first few weeks of 2019, in January, a total of 7,107 prescriptions were filled. Certainly, this represents growth over December, but there were also a few weeks of relatively flat prescription volume, which we attribute to the resetting of deductibles on January 1. Most brands show a decline of volume early in the year due to the significant out-of-pocket expense required of patients. Despite these pressures, which also exist for QBREXZA, we're encouraged that we did not see volumes decline. In fact, in the most recent weeks of data, we think QBREXZA prescription is breaking through that somewhat flat period in the early weeks and growing once again.

In addition to the steady growth shown in Symphony data, we're pleased to report that in the most recent weekly data, we've seen QBREXZA market share reach over 19%. You'll recall that we closed December at about 16% market share, so we like to see the data show our continued growth with its each week of the launch. Given the success we've driven with the disease state awareness campaign, the acceptance dermatologists have demonstrated through their early adoptions and the incredible speed with which we've obtained broad quality access, our immediate next step will be to launch a branded QBREXZA-DTC campaign. We're happy with the results we've driven to date and believe the market conditions now support an aggressive move towards the branded QBREXZA campaign. We're pleased to announce today that the TV ad has been shot and we expect it to begin airing in late March.

We expect this campaign to further accelerate the growth of QBREXZA, solidifying our path to the $500 million to $600 million peak year sales opportunity we've previously outlined. Our early monitoring of key performance indicators gives us confidence that we're on the trajectory required to make that sizeable opportunity a reality.

Now I'll turn the call over to Luis to discuss the data we're generating for QBREXZA lifecycle management as well as an update on our lebri program, which will be reading out Phase IIb data soon. Luis?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Lori. Before discussing the lebri development program, I'd like to take a few minutes to talk about one of several lifecycle management opportunities that we are working on for QBREXZA beyond our existing indication in primary axillary hyperhidrosis. We recently announced the initiation of a proof-of-concept study in patients with palmar hyperhidrosis. Palmar hyperhidrosis affects around 6 million people in the United States and can be very debilitating and difficult to manage effectively. The suffering these patients go through was made abundantly clear when we heard the incredible compelling stories shared by people living with palmar hyperhidrosis at the patient-focused drug development meeting that was held in November 2017. This was done in concert with the FDA.

Along with work that we have performed in our skin biology model, this meeting helped inform our thinking and, ultimately, the design of the proof of concept study. The vehicle-controlled study is designed to evaluate several dosing regimens of QBREXZA to treat primary palmar hyperhidrosis. The study will enroll approximately 60 patients, ages 9 and older, at 8 sites in United States. Findings from this study are expected in the second half of 2019 and will not only evaluate appropriate dosing regimens but also help inform next steps for a potential, primary palmar hyperhidrosis development program.

Now turning to lebri. As Tom mentioned, we have made significant progress in the lebri program. As announced in mid-October, we completed enrollment of our Phase IIb dose ranging trial, and we are planning for top line data to be available in the second half of March. We are excited in anticipation of the readout from the trial. But before I tell you more, let me remind you of the properties of lebri that we believe are among the reasons lebri can represent a differentiated treatment option.

One, IL-13 is a validated target and an important mediator in atopic dermatitis. IL-13 expression is upregulated in AD patients and correlates with disease severity. IL-13 promotes type 2 inflammation and drives multiple aspects of AD pathophysiology such as impaired skin barrier function, increased sensitivity to itch, fibrosis and an elevated risk of infection. This is supported by an existing body of evidence in preclinical and clinical studies. Secondly, lebri is a proprietary, potent, humanized monoclonal antibody with a differentiated mechanism of action that binds specifically to soluble IL-13 with low picomolar affinity and blocks downstream IL-13 signaling. Third, in concert with its high affinity for IL-13, lebri's attractive pharmacokinetic profile gives it the potential to require less frequent dosing, which reduces the burden of therapy to patients. And lastly, lebri has demonstrated clinical proof-of-concept in AD patients and a potentially favorable safety profile supported by an extensive body of clinical and nonclinical data.

Building on the foundation of the positive Phase IIa proof of concept study and making some important modifications, including the introduction of drug levels 4 to 8x higher than previously investigated in AD, we expect our current Phase IIb study to deliver a dose that will optimize the clinical profile of lebri and pave the way to move quickly into Phase III. The Phase IIb study is a 16-week study in which we are assessing multiple efficacy endpoints, including percent change in Eczema Area and Severity Index or EASI, proportion of patients who achieve an EASI-50, 75 and 90, proportion of patients who achieve a response based on the Investigator's Global Assessments or IGA and reduction in pruritus. Additionally, we are also examining safety, tolerability, administration frequency and the durability of effect.

As we set expectations for the data readout, our base assumption is that lebri can deliver at least similar efficacy to dupilumab, the market leader, but with the ability to deliver once- versus twice-per-month dosing. This base case result, we believe, would result in a very competitive product profile. Importantly, however, there is also the potential for even greater and faster efficacy, greater and faster reduction in itch, a more durable effect, better tolerability and in the maintenance phase, the potential for even longer dosing intervals. As we prepare for the data, the clinical and commercial teams are testing target product profiles, via extensive market research to validate our assumptions on a differentiated profile for lebri. This rigorous and extensive clinical, commercial and financial modeling will allow us to make an appropriate decision when we unblind the story.

I'll now turn the call over to Andrew to discuss our financial results for the quarter.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Great. Thanks, Luis, and good afternoon, everyone. I'll cover today some key aspects of our financial results for Q4 2018. In addition to the results summarized in our press release, you can find further information in our 10 10-K filed today. In the fourth quarter of 2018, revenue totaled $2.2 million, comprised solely of QBREXZA product sales. As a reminder, QBREXZA revenue is recognized upon delivery of product to wholesalers or our preferred dispensing partners, net of estimated rebates and other reserves.

Q4 2018 was the second quarter of QBREXZA revenue as we shipped product into the channel in Q3 2018 in advance of our October launch. With the $717,000 of QBREXZA revenue related to these shipments recognized in the third quarter, we recognized product sales of $3 million for full year 2018. For Q4 2018, total costs and operating expenses were $72.7 million compared to $55 million in the same period of the prior year. The decrease in R&D expenses, year-over-year, reflected an overall reduction in our clinical trial activities and was more than offset by an increase in SG&A expenses in connection with the QBREXZA launch.

During the fourth quarter, given our investment in ensuring seamless access to QBREXZA during our initial launch period, there continued to be a higher utilization of our co-pay assistance program, resulting in a gross-to-net discount of approximately 65% during the quarter, a slight improvement compared to the prior quarter. This had an impact on both QBREXZA product sales and our gross margin percentage. Utilization of these co-pay assistance programs currently comprise the single largest component of our gross-to-net discount. We expect the changes that Lori outlined earlier will result in a significant improvement in the gross-to-net discount in the second half of the year when we expect to achieve steady-state GTN levels of now approximately 40%.

Turning now to guidance, the balance sheet and cash burn. As we anticipate reporting top line data from our lebri Phase IIb study by the end of March, the outcome of which will influence expenses for the year, at this time, we are not providing operating expense guidance. We plan to provide OpEx guidance after releasing the top line data from the lebri study. It is worth noting that as we prepare for this data readout, we have been doing extensive planning for both a positive as well as negative result. We believe that in either scenario, we have the opportunity to fulfill our mission as an organization and to create significant shareholder value.

In the negative data scenario, our plan would be to reduce expenses, streamline our organizational structure and focusing on maximizing our hyperhidrosis franchise opportunity and continuing to pursue new programs in the underserved dermatology market. As for the balance sheet, in December 2018, we entered into a credit facility with funds managed by Athyrium Capital Management. This non-dilutive financing agreement provides up to $125 million of borrowing capacity available in 3 tranches. An initial tranche of $35 million was funded at closing, and an additional $90 million is available, at our option, subject to certain conditions.

With the addition of the funding from this first tranche and inclusive of the $30 million payment to Roche for completion of enrollment in the lebri study, we ended 2018 with total cash and investments of $316 million. We expect that this year-end 2018 cash position will be sufficient to meet our anticipated cash requirements excluding the cost to conduct a potential lebri Phase III program, until at least mid-2020. The additional potential benefits from the future tranches available under our credit facility as well as the Almirall agreement would provide further cash runway benefit.

With the addition of the credit facility and the Almirall agreement, we believe that we have enhanced our financial position and reduced the amount of dilutive equity capital we would require under either lebri data scenario. If the lebri data support our advancement of the program into Phase III, the Almirall transaction alone has the potential to reduce the net cost of the Phase III program through the top line data readout by up to approximately $110 million with additional benefits over the later course of the program. And in addition, in either lebri data readout scenario, we have access to up to the additional $90 million under the credit facility.

And with that, I'll turn the call back over to Tom for closing remarks. Tom?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Andrew. A few comments in closing before we open the call up to questions. Our mission at Dermira is to deliver important new therapies to the millions of patients living with chronic skin conditions. And the recent launch of QBREXZA represented an important step towards this mission. We're hopeful that the upcoming lebrikizumab readout will represent another significant advancement for Dermira and, ultimately, the patients we serve and the physicians who care for them. And we will continue to seek new opportunities to build our pipeline with products that have the potential to deliver new therapy to patients and create value for shareholders.

The Dermira team continues to focus on the key priorities and real value drivers across our clinical operations, commercial activities and business development. I'm confident that the groundwork we have laid in terms of commercial readiness and early launch of QBREXZA's execution on our Phase IIb lebrikizumab study and the entering into a European partnership with Almirall will pay dividends for us as we progress through 2019.

And with that business and financial update, I would like to open this call up to questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Louise Chen with Cantor.

--------------------------------------------------------------------------------

Louise Alesandra Chen, Cantor Fitzgerald & Co., Research Division - Senior Research Analyst & MD [2]

--------------------------------------------------------------------------------

I had a few here. So first question I had was the atopic dermatitis market, there are a lot of drugs in development. Just curious, how the IL-13 compares to the oral JAKs and some of the other ILs, further upstream that are in development. What are your thoughts there? Secondly, a lot of people ask us what the cost of your Phase III study for lebrikizumab would be if you decide to pursue that? And what would your cash run rate be if you decided to continue through the Phase III studies? And then lastly, is your Phase IIb study powered for a statistical significance, should we see something there, or is it just for trend?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Louise. I will take the first one, I'll have Andrew answer the second one and I'll have Luis answer the third one. With regard to the different mechanisms of action in the development of products for AD, first, I think we're all pleased to see that there is a lot of interest in this area. I think the number of programs, the number of pathways that are being pursued clearly indicate a high patient need and a high market potential. There are a lot of companies pursuing this. How the various pathways and how the various products are going to shake out at the end, remains to be seen, but we are committed to, and believe in, the specificity and the safety of the IL-13 innovation that lebrikizumab brings. So I hope I said that with plenty of conviction because we have plenty of conviction around this pathway. And certainly, the interest in this market speaks for itself. And we'll see where it all shakes out. Andrew?

--------------------------------------------------------------------------------

Andrew L. Guggenhime, Dermira, Inc. - CFO [4]

--------------------------------------------------------------------------------

Great. Louise, good afternoon. To your question about the cost of the Phase III study that, of course, at some level will depend on the data we see from the trial, but if you look at analogues whether in the AD space or in the comparable psoriasis space for biologics, you'd expect approximately $200 million in total Phase III costs. In terms of the financing of that, we would seek to raise capital to support such a program. But we believe that Phase IIb data that would warrant advancement into Phase III would represent a significant value inflection point for the company and gives us a chance to do that.

And I think moreover, as mentioned on the call, with the Athyrium credit facility we have in place that gives us access to an additional up to $90 million of the recent Almirall agreement we entered into, we'll be receiving $30 million shortly related to that. And should Almirall exercise its option, we would be entitled to and receive another $80 million between the option exercise fee and the initiation of the Phase III study that would further offset the potential financing needs of a lebri program. And look, we continue to evaluate other opportunities to seek and raise non-equity dilutive capital to support such program.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Louise, it's Luis. In terms of the powering of the trial itself, we are powered to achieve statistical significance over placebo but not versus different doses of lebrikizumab. However, as we have stated, Tom and I have stated, there are a number of endpoints that we'll be looking at. These have been generally sensitive to trends between different doses, our expectation is that we'll be able to clearly select 1 dose, and our plan is to move into a Phase III study with 1 dose versus placebo.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Your next question comes from the line of Umer Raffat with Evercore ISI.

--------------------------------------------------------------------------------

Unidentified Analyst [7]

--------------------------------------------------------------------------------

It's [Tara] on for Umer. Just a first quick question just on QBREXZA is, of that $2.2 million revenues registered and accounted for, how much of that is accounted for by inventory? And as for just the second question on QBREXZA, would be just of that trend of about 14,000 or so scripts that you mentioned in the fourth quarter, is that fairly tracked on a weekly basis from those 2 data sources that you quoted both in Bloomberg and Exea? And then I just have a one quick question on lebri after that.

--------------------------------------------------------------------------------

Andrew L. Guggenhime, Dermira, Inc. - CFO [8]

--------------------------------------------------------------------------------

Why don't -- this is Andrew. I'll take the first part of the question and turn it over to Lori in terms of the revenue that's accounted for by inventory. I would say that, as you well know in the third quarter, the entirety of the revenue was accounted for by inventory as we shipped product into the channel in advance of a launch of the product in Q4. In the fourth quarter itself, the revenue was driven by the underlying demand for the product. We held and expect to maintain inventory days on hand at roughly 2 to 3 weeks over the course of the launch. So the revenue you see in the fourth quarter is a demand driven number. In fact, because of the load in the third quarter, at some level, the demand is actually -- in terms of scripts is actually greater than the outs into the channel because of what we've dropped into the channel prior to the launch.

--------------------------------------------------------------------------------

Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [9]

--------------------------------------------------------------------------------

Yes, and this is Lori. Thanks for your question. I would say the way we see the 14,000 prescriptions in Q4 are that there is consistent growth week-over-week as you would expect in launch. So again, there was over 3,500 prescriptions in October, more than 5,100 in November and more than 6,000 in December. And then if you look forward into January, we saw more than 7,100 prescriptions. So I would say, generally speaking, with the exception of those couple of weeks of flat volume that I alluded to early in the year, which we see as a reflection of the resetting of deductibles, with the exception of those couple of weeks, we've continued to see week-over-week growth and we have even in the most recent couple of weeks.

--------------------------------------------------------------------------------

Unidentified Analyst [10]

--------------------------------------------------------------------------------

Great. And then just a quick question on the lebri program, I suppose. I suppose you mentioned a number of different factors and how it differentiates, I suppose, first and foremost, if I was looking at an efficacy, if we were to look for the bar for efficacy, and you mentioned that you felt you could differentiate versus DUPIXENT on that. Would you -- what bar would you place on, I suppose, a percentage change from baseline on the EASI score for instance? Would you think that you have to achieve in the Phase IIb to be at that similar level versus IIb?

--------------------------------------------------------------------------------

Andrew L. Guggenhime, Dermira, Inc. - CFO [11]

--------------------------------------------------------------------------------

Yes, I mean -- I think, we are looking here at the totality of the data. It's really difficult. And I think wouldn't be prudent based on the results we've seen from previous trial, to just focus on one endpoint alone. Percent change in EASI score tends to be fairly sensitive and one that the investigators rely upon quite a bit. And in fact that we've worked extensively with KOLs in designing this protocol and they really guided us towards that. However, I think what you need to do is really look at the totality of the data. Not only the percent change, we'll be looking at EASI-75, 90 scores, IGA, for example, as well as the safety data and based on that then make a decision in terms of how we compare to IIb plus other agents out there. And on top of that, we've been I think fairly diligent about doing the research in terms of the target product profile that we would think would be favorable in moving forward.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [13]

--------------------------------------------------------------------------------

A couple of questions on QBREXZA. I think Lori mentioned that coverage has now increased to 76% and is on track to hit 80% by the end of the quarter. 30% of that was Tier 2. Do you expect that 30% to grow much higher?

--------------------------------------------------------------------------------

Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [14]

--------------------------------------------------------------------------------

Serge, there's a chance that it could grow. We do have kind of contract negotiations happening right now, where there's a possibility that some of the additional coverage could come in at Tier 2. But I think it's too soon for us to say for sure that that may happen. So I think that ratio in general is one that you could expect to remain fairly consistent. And frankly, I would say, on balance, it's much higher in the Tier 2 coverage than we expected it to be prelaunch. I think as a testament to the team, they really did a great job negotiating, the fact that there's a lot of unmet need in this category really came through to the payers in the end of the day. And so if you would have asked me a year ago, I probably would not have predicted it would be 30%, but we're really pleased to see that it has been so far and we hope to maintain it somewhere in that range.

--------------------------------------------------------------------------------

Serge D. Belanger, Needham & Company, LLC, Research Division - Senior Analyst [15]

--------------------------------------------------------------------------------

Okay. And I think earlier this week or last week, you announced the initiation of a Phase II study in palmar hyperhidrosis. Can you just talk about the market opportunity for, I guess, the market segment and what you'll be looking for in that Phase II trial?

--------------------------------------------------------------------------------

Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [16]

--------------------------------------------------------------------------------

Sure. Maybe I'll start, Serge, and then pass it over to Luis about the trial itself. So I would say even before we launched, we saw palmar as kind of the next logical step to take in terms of the development pathway. Because it is outside of axillary hyperhidrosis, it's the next biggest opportunity. There is a fair amount of overlap on the lot of people who have axillary hyperhidrosis also have palmar hyperhidrosis. And so we see it as a decent-sized market opportunity.

I would say since we've launched that has been more than validated as I have spent a lot of time in the field. I would say, very routinely, people ask us the question if QBREXZA will or should work for palmar hyperhidrosis, it comes up quite frequently. So I think it was really the combination of those 2 things that drove us to say we really should collect some clinical data and ultimately, hopefully try to guide the market on the best ways in which to use the product if they chose to use it for palmar hyperhidrosis. So with that, maybe Luis can add a little bit about the trials design.

--------------------------------------------------------------------------------

Luis C. Peña, Dermira, Inc. - Co-Founder & Chief Development Officer [17]

--------------------------------------------------------------------------------

Sure. Serge, there are actually a lot of nuances in terms of applying a topical on your axilla versus your palms. There are several things which you might overlook but with our experience, we've been thinking about, one is you're going to be applying an anticholinergic on the hand, so at some point you're going to have to wash it off so that you don't contaminate the surfaces or other people around you. Secondly palmar skin is thicker than it is on the axilla. So we've done studies where we have looked at the effects of washing hands after administration and on delivery of the drug. We've also done studies where we've incubated the drug over different periods of time and so our study is designed to provide a dosing regimen that overcomes these challenges but gives us a convenient, effective and safe regimen that we can compare to what we saw on the axilla. And the reports so far really mirror what we saw on the clinic in the axillary hyperhidrosis patients, this has been very well tolerated and is working effectively. So we just want to ensure that because there are so many palmar hyperhidrosis patients out there that we provide the right guidance in terms of the right dosing regimen for them.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Your next question comes from the line of Douglas Tsao with H.C. Wainwright.

--------------------------------------------------------------------------------

Douglas Dylan Tsao, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [19]

--------------------------------------------------------------------------------

I know you've indicated that you expect to discontinue the $70 co-pay plan on April 1, just given where you are in coverage and that should drive an improvement in the gross to net. How quickly should we start to see that trend towards that 40%? Will it be fairly linear as we move through rest of the rest of the year or should we start to see a meaningful step up in 2Q? And just another question on the palmar hyperhidrosis opportunity. I'm just curious if you have data on how quickly the product is absorbed and so does that gives you sort of confidence when you look at, or think about, the outcome of this sort of Phase II study?

--------------------------------------------------------------------------------

Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [20]

--------------------------------------------------------------------------------

Thanks, Doug. This is Lori. Maybe I'll will start with the gross to net and the changes we expect given the changes to the co-pay card programs. I -- we expect, in general, that by the end of this year, we should be generally in the range we had previously talked about at steady state, which is around 40% for the gross to net. I would expect that in Q2 when the program goes away, you'll see a fairly significant shift in gross to net and what we're reporting in that quarter. It won't get all the way to steady state in Q2 because we had allowed for a little bit of grandfathering for the people who are already on the $70 program. We do think that's the responsible thing to do for patients and for physicians. So what we end up reporting ultimately in Q2 will not be exactly where we land, but I do think we'll start to see some significant movement as early as Q2 and then improving through the rest of the year.

--------------------------------------------------------------------------------

Andrew L. Guggenhime, Dermira, Inc. - CFO [21]

--------------------------------------------------------------------------------

And then in terms of the penetration, generally with these topical formulations, the penetration happens quite rapidly. It's just that through palmar skin it's not as great as it would be through the axilla. That said, the way we have designed our dosing regimens currently is that we would expect to have a clinical set within 15 or 30 minutes. However, we have a flexible protocol such that if we have to adjust after we evaluate those 4 dosing regimens then we certainly will.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Your next question comes from the line of Bill Maughan with Cowen and Company.

--------------------------------------------------------------------------------

William Patrick Maughan, Cowen and Company, LLC, Research Division - Equity Research Associate in Specialty Pharma [23]

--------------------------------------------------------------------------------

So in the patients that have both palmar and axillary hyperhidrosis, is that an actual additional revenue opportunity or will patients just use the wipe for both axillae and then their palms? And have you run into any issues so far with compounders making the equivalent of QBREXZA? Has that issue been better or worse than anticipated? And if you have seen it, how have you been addressing it?

--------------------------------------------------------------------------------

Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [24]

--------------------------------------------------------------------------------

Thanks, Bill, I appreciate the question. The first part of your question is around palmar and axillary patients. So there is a fair amount of overlap as I talked about before. Roughly speaking, there are about 6 million people who have palmar hyperhidrosis and about 3 million of them also have axillary hyperhidrosis. So there is a fair amount of overlap. I think we do expect and frankly based on the questions we get from physicians right now, people probably will use the product off-label at least to some extent. Of course, we can't promote for that. And so we have to be very careful about the way in which we behave. I think that as Luis' team collects data in that area, it will be helpful for the medical affairs team to then at least be able to provide that information to physicians, so that they can make a good decision.

I do think that because there is that overlap and because of course there is a potential people can use the product off-label, we won't be able to fully realize the benefit of a palmar indication if we were to pursue that ultimately because some of those sales are likely to come either way, right? Either they are using the script they got for axillary or even they are just -- they have palmar hyperhidrosis and they're using it off-label. So as we get further into the development time line, we'll have to kind of make the decision based on what we see from the data and also what opportunity we see from the market.

As to your question on compounding, we do hear that come up from time to time, I would say it's probably more in pockets than anything else. I think frankly because our product has been well tested, it's been approved by the FDA, there is good, strong access to it and people don't have to pay a lot of out-of-pocket expense to get it, we're not seeing a huge issue with compounding and while it does happen occasionally, I don't think it's something that we see at this point having a huge detrimental impact on our market. I think if we didn't have good coverage or if we had any kind of issues in that regard then you might see more people go that direction, but so far we haven't seen it as a huge issue.

--------------------------------------------------------------------------------

Andrew L. Guggenhime, Dermira, Inc. - CFO [25]

--------------------------------------------------------------------------------

And I would add to what Lori said, in addition, the FDA has recently issued guidances for compounding under Section 503A. And that is to address issues -- actually pretty tough issues that have occurred previously with uncontrolled compounding pharmacies and our interpretation is this guidance -- and it reads very clearly, is that it is there, one, to ensure that CGMP is used for any pharmacy that's compounding. But two, that no pharmacy shall compound products that are already available by an existing manufacturer and so these guidelines are very clear. I think it's great that the FDA put these out there to increase the safety to individuals via compounding by pharmacies.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Your next question comes from the line of Pasha Sarraf with SBV Leerink (sic) [SVB Leerink].

--------------------------------------------------------------------------------

Dylan Dupuis, SVB Leerink LLC, Research Division - Research Associate [27]

--------------------------------------------------------------------------------

This is Dylan Dupuis sitting in for Pasha. Two questions. First one on QBREXZA, do you expect any kind of seasonality in terms of sales moving forward? And then related to your DTC campaign, is this going to be a national campaign or regional campaign? How much is it going to cost? What kind of lead time do you think you're going to need before you see the impact on sales?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks for the questions. This is Lori. The seasonality question is one that frankly comes up fairly frequently, but if we use just the Drysol data as an indicator, because frankly it's the only thing we can use at this point, you don't tend to see a lot of seasonality in the hyperhidrosis market. And that's because people are sweating year round, whether it's hot or cold outside.

I think for QBREXZA, specifically, frankly it's too soon for us to know because right now we're on such a growth trajectory that you wouldn't be able to pick up any seasonality at this point. But my intuition tells me based on the market that exists already that there probably won't be that much seasonality. You could see some, in the people who are maybe less severe sufferers and might not truly have hyperhidrosis but want to sweat less, you might see more of those patients come through in the summer. But again, that's kind of speculation at this point.

In terms of the DTC campaign, it is a national campaign. It's a full multimedia campaign, which means we will be running television ads, we also have online media, we'll have search capabilities, we'll have social. And in terms of the cost, the investment that we're making, it's approximately $50 million this year. To put that in context, we spent about $35 million on the unbranded campaign last year. And we're spending, in total, about $50 million this year between unbranded and branded.

Really, that's a number that's somewhat cost efficient because of the target that we're targeting. They tend to be younger millennial females who we can access online via social channels and via online television, which allows us to more efficiently spend our dollars and reach them in a cost-efficient manner. So we are investing the dollars in a way that we think are -- is most responsible. And frankly, I would say based on the activity we saw from the last year's unbranded campaign, we're very confident that the dollars we're investing are actually paying off and hopefully that came through in the comments on the call.

And then finally on the lead time, as I said earlier, we plan to launch the campaign by the end of March. We do have the ad shot already, and we're working on editing it currently. You do tend to see a lag in these things, frankly, we don't know exactly how long the lag will be yet, in terms of how many times you need to see an ad before you ultimately pick up the phone to call a physician, and then how long will it take you to get in and see that physician. In my past life, that could be as much as 3 or 4 months before you really see the impact. We don't yet know how this market will develop, but it's not uncommon for at least some of the people to take a few months' time to actually come into the office. So hopefully that answers the question.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

And your next question comes from the line of Stephen Ragard with Mizuho.

--------------------------------------------------------------------------------

Stephen Anthony Ragard, Mizuho Securities USA LLC, Research Division - Research Associate of Americas Research [30]

--------------------------------------------------------------------------------

Just two from me. First, just wondering if you could speak qualitatively on the biggest barrier you've seen to prescription fulfillment from patients so far for QBREXZA. And then the second, how many prescribers do you have writing the drug? And then can you speak to how many you expect to add throughout this year?

--------------------------------------------------------------------------------

Lori Lyons-Williams, Dermira, Inc. - Chief Commercial Officer [31]

--------------------------------------------------------------------------------

Sure. Thanks for the questions, Stephen. The biggest barrier I would say on the patient side so far has probably been connected to the misuse of the $70 program. Because we have, to Serge's point earlier, 30% of our coverage in Tier 2 status, most of these people shouldn't even need the $35 or the $70 program. But if the program is used inappropriately, I might be a patient who should have a $20 out-of-pocket co-pay and instead I'm faced with a $70 out-of-pocket co-pay.

And what I would say generally speaking about the data we have from Q4 is that people do not walk away from a $30 or a $35 co-pay, that's the data we had coming into launch and it seems to be supported so far from what we see in market. But they do -- some people do walk away from $70. And so that's one of the reasons, since we have that great quality coverage established, we want to move over to the system where they can actually have access to the product through their low co-pay.

The number of prescribers is above 5,200. That was the Q4 number of prescribers, and again, more than 3,000 of them have written at least 2 prescriptions. We do, of course, expect both of those numbers to grow through 2019. To give you an idea of the number of people in the deployment, we have over 12,000 people who we're targeting and calling on actively. We've reached almost all of them at this point. So I would expect our prescriber number to continue to grow through the year, and hopefully we'll get most of those people who are in the deployment to ultimately, at least, write 1 script. But as you would expect with anything we'll have some people who are more productive than others, and we'll be spending the bulk of our time with the people who are most productive.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

And you have a follow-up question from the line of Umer Raffat with Evercore ISI.

--------------------------------------------------------------------------------

Unidentified Analyst [33]

--------------------------------------------------------------------------------

It's [Tara] again. Just a quick question just on that point of how many patients are coming back and getting a repeat prescription? Or how many patients are refilling their initial prescription for QBREXZA?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, so we do see refills starting to show up. I would say they have been growing consistently month-over-month because we wouldn't have expected to see any in the first month, but as we add more and more patients and we do see them starting to come in for refills. Right now, I would say it's too soon for us to totally say the exact percentage of people who are doing that because if you recall, we made our base case assumption that there would only be about 3 refills per year on average. And so that would say it's kind of just now that the first cohort of patients should be getting a refill if we're kind of staying on track for that number. So I'd say generally the data we see, the split we see between refills and new prescriptions seems to be about what we expected. But I would caveat that to say it'll really probably be mid to late this year before we really know if we're tracking towards that 3 refills per year or not. It just takes some time to get there, and most of these derm markets you tend to see 2 to 3 refills per year.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

And I am shown no further questions at this time. I would now like to turn the conference back to Mr. Ian Clements.

--------------------------------------------------------------------------------

Ian Clements, Dermira, Inc. - VP of IR [36]

--------------------------------------------------------------------------------

Thanks very much. Before closing, quick reminder that we will be at the American Academy of Dermatology meeting this week in Washington, D.C., additionally, we'll also be at the SVB Leerink Healthcare Conference this coming Thursday and then the Cowen Healthcare Conference on March 12. Thanks for joining us today and your continued interest in Dermira. If you have any further questions, you can call my direct line in the Investor Relations department, 650-422-7753. Thank you.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and you have a wonderful day. You may all disconnect at this time.