Good day, ladies and gentlemen, and welcome to the Aclaris Therapeutics Fourth Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Kamil Ali-Jackson, Chief Legal Officer. Ma'am, you may begin..

Thank you. I'm Kamil Ali-Jackson, Chief Legal Officer for Aclaris. Please note that earlier today, Aclaris issued it's press release announcing fourth quarter and full year 2018 results. For those of you who have not yet seen it, you will find the release posted in the Investors section of our website at www.aclaristx.com.

Joining me today for the call are Dr. Neal Walker, President and Chief Executive Officer; Dr. Stuart Shanler, our Chief Scientific Officer; Frank Ruffo, our Chief Financial Officer; David Gordon, our Chief Medical Officer; and Jeff Wayne, our Interim Head of Commercial Officer.

Before we begin our prepared remarks, I would like to remind you that various statements we make during this call about the company's future results of operations and financial position, business strategy and plans and objectives for Aclaris' future operations are considered forward-looking statements within the meaning of the federal securities laws.

Our forward-looking statements are based upon current expectations and involve risks, changes in circumstances, assumptions and uncertainties that could cause actual results to differ materially from those reflected in such statements.

These risks are described in the Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations Section of Aclaris' Form 10-K for the year ended December 31, 2018, and other filings Aclaris' makes with the SEC from time to time.

These documents are available under the SEC filing section of the Investors page of Aclaris' website at www.aclaristx.com.

All the information we provide on this conference call is provided as of today, and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise. Please be advised that today's call is being recorded and webcast.

A link to the webcast and slide deck is posted in the investors section of our website. I'll now turn the call over to Dr. Neal Walker, President and CEO of Aclaris.

Neal?.

Thank you, Kamil. Good morning, everyone, and thank you for joining us. I'll start with a brief update on our business highlights and then touch on a few of our clinical development programs. Then I'll hand it off to Stuart Shanler, our Chief Scientific Officer; who will review our clinical development plans and timelines.

Jeff Wayne, our Interim Head of Commercial will then address our commercial business, after which Frank Ruffo, our CFO; will review our financial results. Following our prepared remarks, we will open up the line to take your questions. Dr. David Gordon, our Chief Medical Officer, will also be available during the Q&A portion of the call.

We are really excited to enter 2019, a year in which we are relaunching RHOFADE and also reporting out a number of important data catalyst across our clinical pipeline.

Starting with commercial; in October we acquired worldwide rights to RHOFADE cream, we closed the deal at the end of last November, and in December, our sales team began promoting RHOFADE. I'll start with a few updates on this transaction.

First, the transition and integration from Allergan to Aclaris has proceeded smoothly, and they have been a good partner. Second, we recently changed leadership on the commercial side of the business with the appointment of Jeff Wayne as our new Interim Head of Commercial.

Jeff brings over 30 years of pharmaceutical experience with a majority spend in dermatology. During his career, he has held positions of increasing responsibility in sales, marketing and general management with Galderma, Intendis, Promius, Onset and LEO Pharma.

He launched METROGEL in both, the United States and Canada and was responsible for the marketing of FINACEA in the United States as well. These are two medications prescribed for the treatment of rosacea.

In addition, in his role as Vice President of Business Development, he managed the RHOFADE transaction from the beginning, providing a seamless transition of leadership for us. Third, as a result of the RHOFADE acquisition, we have realigned our field force with an emphasis on targeting existing and potential RHOFADE prescribers.

And finally, after a successful national sales meeting and AAD meeting in February, we are pleased to announce our sales force is now focused on officially relaunching RHOFADE in the primary detail position.

Thus far in the first quarter of 2019 we are encouraged by the early prescription trends as the 4-week IQVIA data for the period ending March 8 indicates that we experienced an 8.4% increase in TRXs or total prescriptions as compared to the prior 4-weeks.

NRXs or new prescriptions for the 8-weeks ending March 8 are 16% higher than the NRXs for the 8-weeks immediately before we began promoting RHOFADE. Moving to the fourth quarter results.

During the fourth quarter, total net revenue was $3.7 million which consisted of net sales of ESKATA of $750,000, net sales of RHOFADE of $1.1 million which was for December only, and contract research revenue of $1.3 million.

While fourth quarter and full year of ESKATA sales were below our expectations, we continue to believe in the long-term potential for the product. Now turning to our pipeline, a few items to note.

We have a very busy and exciting year ahead of us and we expect to report results from multiple studies regarding the efficacy and safety of our portfolio of clinical drug candidates for the treatment of common warts, alopecia areata, and our genetic alopecia, atopic dermatitis and vitiligo.

Before handing it off to Stu to review regular clinical reporting, I would like to provide a brief update on our eyebrow study that was conducted in Australia, as well as our review of our next clinical candidate, an MK2 inhibitor, known as ATI-450 which is the first compound that is coming out of our confluence acquisition in late 2017.

At this time I would ask you to turn to the Slide presentation that we provided. If we turn to Slide 3, this is just a pipeline overview of what we have coming down the pike in 2019; we have a common wart program in Phase III that will readout in the third quarter of this year.

We have two alopecia areata trials that will readout in the second and third quarter respectively this year. And then we have three open label studies, androgenetic alopecia, vitiligo and atopic dermatitis that will readout in the second quarter of this year.

Next in-line will be the MK2 inhibitor where we will be filing an IND in the second quarter this year and then moving into a series of sad math studies on root to proving out the concept in a cohort of RA patients in 2020. First, an update on the Australian eyebrow study; and I would ask that you turn to Slides 5 through 8.

As you may recall, we previously showed pictures and presented data in December of last year. 12 patients were initially recruited in the study and 5 have continued past 6-months on study drug. I'm pleased to provide an update from the ongoing extension phase of the study.

Hair regrowth continues in 3 of the 5 patients, and as you can clearly see from a the photos, there has been further improvement over the last three months. The first subject is a 33-year old male who has had alopecia areata since 2009. With a current episode of eyebrow loss being approximately 8 years in duration.

As of the end of February this subject has had a little over 8 months of exposure to study drug. In this close up, we can see nice regrowth in the frontal view, and also the ensuing side views in the subsequent slides. It is important to note that the brow-archess [ph] have been re-established and sustained.

Turning to 9 throughout 12; this subject is a 23 year old that has been on study drug for approximately 9 months. The 9 months photos for this subjects were also already presented in December, again, we see nice regrowth in the frontal view, and also in the side view, each of the subsequent slide.

Now turning to slides 13 through 16; this is a 45-year old female with alopecia areata since 1986. The current duration of areata loss is approximately 5 years prior to entering the study. She has had prior therapy in the past and has been on study drug for approximately 9 months.

Here is the frontal view showing nice hair regrowth and re-establishment of the brow arch. Again, looking at the side view close-up, we see valus [ph] and terminal hair regrowth and many white terminal hairs. This subject had demonstrated hair growth at 6-months but has since continued to improve with ongoing therapy and the extension study.

This is particularly impressive in our opinion given the long-standing [indiscernible] nature of her disease. We believe these results demonstrate what we have maintained since the beginning of our work in this area that the topical approach with this mechanism is viable.

Now why is this important? If you turn to Slide 17, as you may recall, we presented a few slides in December that I would like to briefly touch on again. This is a slide depicting the phenotypic spectrum of hair loss that we tend to see in clinical practice.

This is a relatively broad spectrum of hair loss within the overall category of alopecia areata. Severe disease involves complete loss of scalp hair and this is what the oral JAK inhibitor programs, including our own are targeting which you can see in the picture on the bottom of the slide.

However, there continues to be an unmet medical need in patients who have lower degrees of hair loss or sole scores [ph], and many of these patients don't even qualify for the ongoing oral JAK inhibitor trials. We simply can't forget about these patients, the disease patients who represent the majority of those suffering from alopecia areata.

It is this phenotypic spectrum, the drives that need to be thinking about post oral and topical treatment. Moving to Slide 18 and further to the point about the importance of topical therapy; this is the current treatment paradigm as listed on the National Alopecia Areata Foundation's website.

Treatment decisions are often made on the basis of age of the patient and extent of disease, if you are younger, you typically receive various topical options as first line treatment as indicated on the left hand portion of the slide.

This is also the case when your extent of disease is less than 50% involvement on the scalp as you can see in the middle. As the extent of disease increases, you're more likely to employ systemic treatments along with topical options or possibly steroid injections.

It is interesting to note, that this type of treatment algorithm is typical of most dermatology disorders including acne and psoriasis. This flowchart is extremely useful in informing how we think about the future potential treatment paradigms with JAK inhibitors, both oral and topical.

So turning to Slide 19, this is how we think about orals and topicals. As you can see here, younger patients or those with less severe disease will be candidates for topical treatments and this represents the bulk of the prevalent alopecia areata population.

Those with more severe disease might use a course of topical treatment to decrease the time on oral therapy or potentially step down to topical treatment after a successful course of oral therapy.

As previously announced, patients from our blinded, oral and topical Phase II studies have the opportunity to continue in long-term open-label expansion studies.

This program was specifically designed to provide us with the unique dataset allowing us to evaluate induction with either an oral or topical formulation and potential maintenance of the fact with long-term topical therapy.

Since these two studies are blinded, we do not have data to share at this time but today we have shared additional data from the previously reported eyebrow study that continue to show the utility of topical therapy with a favorable risk benefit profile in this disease.

This is very important since AA is chronic and it's characterized by the need for longer continuous treatment regiments. This is in contrast for diseases such as atopic dermatitis which although chronic tend to be more episodic in nature.

As an example, efficacy in atopic dermatitis trials are typically assessed at 1-4 months where ongoing oral JAK inhibitor trials assess efficacy after 6-9 months of treatment on our oral with the recognition the longer term efficacy needs to be assessed beyond that time point.

These updates photographs shown in the tree [ph] with our topical JAK inhibitor can lead to hair growth, even in patients with severe and long lasting disease. Many alopecia areata patients will require a chronic therapy and patients can achieve good hair regrowth with a topical treatment route which could limit systemic adverse events.

The safety results thus far indicates ATI-502 has been generally well tolerated, and no treatment related serious adverse events have been reported to-date. I would like to finish with a brief mention about our MK2 inhibitor program.

Our investigation shown new drug application or IND for ATI-450 is on-track for submission to the FDA for rheumatoid arthritis in mid-2019. In FY19 [ph], we expect to begin a Phase I and Phase II trial in the second half of 2019; this is the first clinical candidate coming from our confluence drug discovery team acquired in 2017.

Turning to Slide 21, ATI-450 is an oral compound that targets the production and activity of TNF alpha, IL-1 alpha and beta, and IL-6; these are all cytokine targets of established biologics such as the well-known anti-TNF and anti-IL-1s and anti-IL-6s listed on this slide.

If successful, we believe ATI-450 would be a therapeutic with a broad array of both, dermatology and non-dermatology indications. Turning to Slide 22, some of you may be familiar with the p38 pathway. p38 controls a myriad of housekeeping functions, anti-inflammatory pathways and various other processes.

MK2 sitting downstream, once activated, specifically upregulates key pro-inflammatory signals such as TNF alpha, IL-1 beta and IL-6 that drive inflammation. Turning to Slide 23, ATI-450 works a little differently. It works downstream and does not block activation of anti-inflammatory pathways or affect other housekeeping functions of p38.

It is designed to specifically target the pro-inflammatory pathways. Slide 24, we have tested this hypothesis in a mouse LPS induced TNF alpha model. Here we know that the global p38 inhibitor CDD-111 exhibited tachyphylaxis, i.e.

loss inhibition overtime, which is similar to what was observed in clinical studies in both, inflammatory valve disease and RA studies historically with both global p38 inhibitors. In contrast, ATI-450 was observed to have a durable response, no tachyphylaxis, over the course of the study in this model.

Turning to Slide 25, we have also studied ATI-450 in a variety of pre-clinical models demonstrating joint protection and preservation of bone in a rare arthritis model, anti-inflammatory action and preservation of the crypt architecture in a mouse ulcerative colitis model, decrease of IL-1 beta in a caps [ph] model, and reduction in bone metastasis in a mouse model which was affecting the stronger microenvironment.

By targeting MK2 these studies demonstrate it may be possible to maintain efficacy in these models while avoiding the historic issues with traditional p38 therapeutics.

We expect to file our IND in the middle of this year and them embark on sad-mad [ph] work in order to evaluate the efficacy in a small cohort of RA patients, and prove out the hypothesis that we have demonstrated preclinically. I will now turn it over to Dr. Stuart Shanler, our CSO, who will provide an update on our clinical activities and programs.

Stu?.

Thanks, Neal, and good evening, everyone. I'm pleased to start this section of the call by announcing that by the end of this month we expect to complete recruitment of all the patients for our ongoing clinical trials.

As such, this means we can be focused on successfully completing the treatment phases of these trials and on the important work needed to analyze and report the data from these studies. I'll take a few minutes now to talk about some the specifics.

Leading all for our awareness program, in September 2018 we initiated our Phase III clinical development program for A101 45% topical solutions for the treatment of common warts or verruca vulgaris. Our 2 pivotal Phase III trials, named THWART-1 and THWART-2, for the treatment of common warts are progressing as planned.

THWART-2 has completed enrollment and THWART-1 is expected to complete enrollment by the end of this month. We will enroll a total of approximately 1,000 patients across both studies and expect to report top line data in the second half of 2019.

Additionally, we have an ongoing open-label safety extension trial which will complete the clinical requirements for the NDA filing and we plan to submit an NDA in the first half of 2020. As a reminder, A-101 45% has the potential to be the first FDA approved prescription treatment for common warts.

Moving on to our JAK or Janus kinase inhibitor trials. As a reminder, we are developing both oral and topical formulations of our JAK 1/3 inhibitors for the treatment of alopecia areata.

Our program will investigate these medicines in the full clinical spectrum of disease inherited alopecia areata ranging from pathway disease to alopecia totalis and alopecia universalis.

The clinical JAK program is now fully recruited and we look forward to the study completions and for the analysis of these blinded Phase II topical and oral JAK inhibitor in alopecia areata studies. AA-201 topical is a Phase II trial of our ATI-502, our topical JAK 1/3 inhibitor for the treatment of AA and it is progressing as planned.

This randomized double-blinded parallel viable controlled trial is evaluating the safety, efficacy and dose response of two concentrations of ATI-502 on [indiscernible] and 129 patients with AA; the data are expected in the second quarter of 2019.

Moving to our oral program; AUATB-201 oral is an ongoing Phase II dose ranging trial of ATI-502, our oral JAK 1/3 inhibitor for the treatment of alopecia areata.

This randomized double-blinded parallel group placebo-controlled trial is evaluating the safety, efficacy and dose response of three doses of ATI-501 on regrowth of hair in 87 patients with alopecia areata. Data from this study are expected in the second half of 2019.

Our topical AGA, androgenetic alopecia study, AGA-201 topical is an ongoing Phase II open-label clinical trial of ATI-502 for the topical treatment of AGA, also known as male and female pattern hair loss. As a reminder, approximately 70% of men and 40% of women in the U.S. will experience this at some point in their lives.

Our AGA-201 topical trial is evaluating the safety and efficacy of ATI-502 on the regrowth of hair in 31 patients with AGA, and 6-months and 12-months data are expected in the second quarter and second half of 2019 respectively.

This study has enrolled 21 male and 10 female patients and we will be evaluating metrics including total hair count, hair width and investigative and subject assessments. Finally, we have two other ongoing open-label clinical trials and vitiligo and atopic dermatitis, i.e.

VITI-201 topical and AG-201 topical respectively which will also readout later this year. With that, I will now turn the call over to Jeff Wayne, our Interim Head of Commercial, who will provide an update on our commercial activities.

Jeff?.

Thank you, Stu, good morning, everyone.

As we remind, our RHOFADE is approved in the United States for the topical treatment of persistent facial erythema or redness, associated with rosacea in adults, and can be used in conjunction with many other medications which are approved to treat the other manifestations of rosacea such as papules and pustules.

The National Rosacea Society estimates that approximately 16 million Americans are affected by rosacea. And persistent facial redness is the most common sign or symptom of rosacea affecting 71% of rosacea patients according to a survey conducted by the same society.

Rosacea like many dermatological conditions such as acne can present with multiple symptoms. And like the acne patients, rosacea patients often require multiple medications to manage other symptoms. It's important to note that most of the pharmacological agents currently approved by the U.S.

Food & Drug Administration are approved for treatment of papules and pustules associated with rosacea, they have little or no effect on persistent facial redness.

As new rosacea treatment algorithms emerge, RHOFADE will be an essential component to treat the persistent facial erythema that is a significant and bothersome symptom in most rosacea sufferers.

The RHOFADE launch campaign was rolled out at our national sales meeting in the week of February 18, and RHOFADE is now the primary focus of our commercial efforts. After a comprehensive training program, the team left energized, prepared and armed with the tools needed to execute or RHOFADE strategy.

As part of the RHOFADE relaunch, we completed a sales force realignment resulting in 50 territories.

The RHOFADE healthcare practioner targeting methodology was used to utilize advanced analytics incorporating historical prescribing habits for persistent facial erythema products such as RHOFADE and ROVASO [ph], branded rosacea treatments and other related inputs.

The result was the target list of approximately 6,000 healthcare professionals which we believe represents the greatest potential for near and long-term growth. It should be made note that this is a 97% match with the call file that had been in place prior to the acquisition, and represents about 73% of the branded rosacea market.

Our sales force will call in our A targets with a frequency of at least one call every two weeks and at least once a month for our B targets. The RHOFADE ACP targeting methodology really was designed to drive three major priorities; one, was to increase prescribing by current RHOFADE prescribers.

Second, was to recapture lost share from healthcare providers who decreased their prescribing during 2018. And finally, capitalized on untapped potential with rosacea treating healthcare professionals who aren't yet prescribing medication to treat persistent facial erythema.

We are continuing the existing patient savings card program initiated by our game [ph] to ensure consistency and seamless coverage while we have more ways to maximize the program in the near future. And we believe that the current program is beneficial for patients, healthcare professionals and the players.

As far as patents are concerned, 80% of commercial lines are covered for RHOFADE with roughly 50% of total lines being covered with unrestricted access.

Currently 92% of RHOFADE cream prescriptions come from commercial coverage; while we believe that this represents strong coverage for RHOFADE cream, one of our key initiatives for 2019 will be to improve the total lines covered, as well as to improve unrestricted access.

Although we are in the early stages of the RHOFADE relaunch, we are very encouraged by the results to-date. The annual resetting of deductibles on January 1 caused most brands to show a decline of volume early in the year due to the resulting significant out-of-pocket expenses required of patients.

Despite this pressure, in the most recent weeks of the IQVIA data, we see RHOFADE prescriptions breaking through somewhat flat period in the early weeks and growing once again.

In fact, the 4-week IQVIA data for the period ending March 8 indicates that total RHOFADE prescriptions increase by 8.4% as compared to the prior 4-week period, and new prescriptions for the 8-weeks ending March 8 were 16% higher than the new prescriptions for the 8-weeks immediately before we began promoting RHOFADE.

Now moving to ESKATA; ESKATA sales remained below our expectations but we continue to believe in the potential of the product. Given the focus on RHOFADE, ESKATA has been moved to second position in the promotion schedule.

The sales team plans to focus on the Top 10 ESKATA accounts in terms of productivity in each territory with the objective of increasing utilization in these higher volume offices.

We also received recent European approvals for ESKATA or ESKARIO [ph] which will it be known as in some of the European countries and are in active discussions with potential commercial partners.

With that, I'll turn the call over to Frank Ruffo, our CFO, who will provide an overview of the financial results for the fourth quarter and full year 2018..

Thanks, Jeff. Good morning, everyone. As I walk through our fourth quarter and full year 2018 financial results, please reference the financial tables that can be found in today's press release. For further detail, please refer to MD&A section in our Form 10-K that will be filed this morning.

For the quarter ended December 31, 2018, total net revenues were $3.7 million, which consisted of net ESKATA sales of $760,000, net RHOFADE sales of $1.1 million which represents only the sales made during the month of December, contract research revenues of $1.1 million, and other revenues of $500,000.

For the year ended December 31, 2018, total net revenues were $10.1 million, which consisted of net ESKATA sales of $2.8 million, net RHOFADE sales of $1.1 million, contract research revenues of $4.7 million, and other revenue of $1.5 million which to remind you is related to our agreement with Cipher to commercial ESKATA in Canada.

Cost of revenues were $3.5 million for the fourth quarter of 2018 and was comprised $1.2 million, and $1 million of costs related to ESKATA and RHOFADE respectively.

These costs included a one-time non-cash inventory write-off charge of $1 million related to ESKATA and $700,000 of non-cash amortization related to the RHOFADE acquisition, most of which will be a recurring monthly amortization charge for RHOFADE going forward. We also incurred $1.3 million of costs related to our CRO business.

Cost of revenues was $6.9 million for the full year of 2018 and was comprised of $1.5 million and $1 million of costs related to ESKATA and RHOFADE respectively, and $3 million of cost related to our CRO business.

During the quarter and year ended December 31, 2018, our total net revenue was $1 million and $1.7 million respectively which consisted entirely of CRO revenues with $800,000 and $1.2 million of cost of revenues. These revenues commenced with our acquisition of Confluence in August of 2017. Switching to our operating expenses.

For the full year of 2018, our total R&D expenses were $63 million, which was within our revised guidance of $62 million to $64 million. This included non-cash stock-based compensation of approximately $7 million.

For the fall of 2018, our SG&A expenses which combines our sales and marketing and general and administrative expense line items were $75.6 million which compared favorably to our revised guidance of $77 million to $79 million for the year. This included non-cash stock-based compensation expense of approximately $13 million.

Our net loss was $132.7 million for 2018 compared to $68.5 million for 2017. While our operating cash burn for 2018 was $100.8 million compared to $54.7 million for 2017. In 2018, we incurred $23.2 million in non-cash charges and benefited from $9.4 million in cash provided from changes in our working capital.

As of December 31, 2018, we had cash and investments of $168 million, and have 41.2 million shares of common outstanding. We anticipate that our current capital will be sufficient to fund our operations into the fourth quarter of 2020 without giving effect to any additional potential new business development transactions or financing activities.

Now turning to our financial outlook for the full year 2019, here are our initial operating expense estimates. We expect full year 2019 GAAP R&D expenses to be in the range of $61 million to $64 million including estimated stock-based compensation of $7 million.

These expenses will be driven by the completion of our Phase III wart trials, two Phase II dose arranging trials in AA, various open labeled JAK trials, and the advancement of our preclinical pipeline including an IND filing for ATI-450.

We expect our 2019 GAAP sales and marketing expenses to be in the range of $37 million to $40 million, including estimated stock-based compensation of $4 million. And we expect our 2019 GAAP G&A expenses to be in the range of $29 million to $31 million including estimated stock-based compensation of $10 million.

Assuming no material issuances of equity in 2019, we would expect our full year 2019 weighted average shares outstanding to be about 41.5 million shares. And with that, I'll turn the call back over to Neal for some closing remarks..

Thank you, Frank. Again, 2019 will be an exciting year for Aclaris. In fact, it will be our most catalyst-rich year since forming the company. We'll be extremely busy, we're relaunching RHOFADE, as well as reporting on data from a number of clinical studies with a particular emphasis on hair loss disorders.

We're also moving ATI-450, our first preclinical asset from the confluence acquisition into the clinic this year opening up a whole new area in inflammation and immunology for us. We look forward to providing updates on our pipeline throughout the second and third quarters this year. And with that, Shannon, if you could please pull for questions..

[Operator Instructions] Our first question comes from Louise Chen with Cantor Fitzgerald..

We have two questions here.

The first is, just comparing the 6-months data and the 12-months data for AGA and vitiligo; what should we expect to see at each time point? And especially at the 6-months data what would you consider a success volume to the 12-month data? And then my second question is, RHOFADE seems to be doing very well at $1.1 million, and I just wanted to get your ideas on what your current expectations are on the launch now? And if there is any quarterly bumpiness we should keep in mind going forward? Thanks..

So almost 6-months data and 12-month for AGA and vitiligo, we're -- as we said on the call for AGA in particular, we're looking at things like the investigators assessment, the subjects assessment, hair width, hair count data and importantly, the pictures.

So what we're looking to show at 6-months in particular with AGA is to show clinical pictorial evidence of hair regrowth which is what patients care about. I think it's important to note in the AGA study, we're looking at both, males and females, and that's because this is a non-hormonal treatment and so we decided to look at both sexes.

So we're looking forward to presenting that data in the second quarter this year. And the 12-month data is basically, take -- just verifying that the efficacy that you see at 6-months holds and in fact expands.

Typically with conditions like hair loss as we've seen with alopecia areata, and vitiligo, the first signal is that 6-months and then, what you like to see is just improvement in results as you get out to 12-months.

And in fact, if I just pull that back to the alopecia areata photos that we just updated, it's just indicative of what you're going to find.

In hair loss conditions, you want -- it's more of a maintenance response, you want to see continued improvement overtime and then once you get that full result, you want to see it maintained and to maintain it you have to stay on drug.

So I think that's why we like to look at both 6-months and 12-month endpoints, in particular, in conditions like this. On the RHOFADE side, I agree, it's doing very well, we're very excited about it and Frank can maybe talk a little bit about our expectations going forward..

Again, our trailing 12-months revenues for the quarter ended September 30, 2017 as evidenced through the Allergan promotion was about just over $17 million, I think we shared a number similar to that on the prior call. So that would give you a pretty good idea what the run rate was last year.

We had $1.1 million in revenues in December, of course, we expect that to increase and prescriptions are going very nicely at this time.

As far as lumpiness and volatility, we probably could expect a little bit on the gross to nets bouncing around the 3 years, we kind of transition through the Allergan TSA; but again, I don't think it's anything too significant, we can hopefully stay on that same run rate as we move along.

As far as seasonality, maybe I'll let Jeff comment a little bit on that or maybe some bumpiness related to that we could expect..

Yes, I think rosacea tends to flare during the colder months, so any ups and downs over the next couple of quarters would be more related to seasonality than anything else..

Thank you. Our next question comes from Adnan Butt with Guggenheim Securities..

This is Blair Cohen on for Adnan. Just a couple for me.

For the upcoming alopecia readouts, are you guys planning on releasing either baseline SALT scores or maybe change from baseline and SALT? And also, what do you expect the timing of the -- or actually to the cadence for the 2Q readouts? Do you think those will all come out at once or will those be released throughout the quarter?.

So let me start and I'll hand it off to David who can go through it in a little bit more detail.

So in terms of the cadence, what we would expect is that we will report data from our open-label studies with AGA, first, with vitiligo and AD, the 6-month data, and then we will roll into the topical patchy study, the double-blinded placebo-controlled study for alopecia areata, subsequent to that would be the oral program in alopecia areata.

And then finally, the wart Phase III data in the third quarter. And I'll hand off to David..

Yes, we are looking at the endpoints that you mentioned, the primary endpoint is the change in SALT score compared to the vehicle.

We'll also -- I think it will be important to look at factors like the ones you mentioned about the severity of disease at baseline; so you look at response rate based on duration of disease, the extent of disease such as the SALT, and one of the ways that we've designed this program is to help us design the optimal Phase III.

So we will be -- it will be very important to be able to look at who the responders are and who's best responding to a topical treatment..

And just on the gross to net for RHOFADE; what have you guys seen so far and how do you expect that to trend throughout 2019? Thank you..

So we talked a little bit about the $70 million quarterly run rate that Allergan experienced, their gross to net was bouncing around between $60 million and $70 million, and that varied quarter-to-quarter, a lot of factors go into their including returns in the co-pay cards and changes to the co-pay cards.

As we kind of move forward, we hope to operate within that, but just know that there are many levers there that we can pull; and the biggest part of really around gross to net are particularly the part of the program that's related to the co-pay assistance, that's the biggest chunk of gross to net, and that's the one that we'll have probably the most control over.

And so, you know, as you think about that, you have lots of different ways you can kind of exhaust [ph] that coupon program, and so one of the ways is just by increasing co-pays on the coupon program but there is always such risks that you need to always think very carefully about that and how that would impact our volume going forward.

So that's our challenge is to kind of have the right mix, control that gross to net as we move forward, and kind of have doctors being able to write RHOFADE and get those prescriptions filled. So that's the challenge and that's kind of what we'll undertake in the upcoming quarters..

[Operator Instructions] Our next question comes from Tim Lugo with William Blair. Your line is open..

What are your thoughts around using SALT scores less than or equal to 10 in future trials? [Technical Difficulty]..

Tim, we can't hear you. Can you repeat the question? You got a bad connection..

Yes, sorry about that. What are your thoughts around using SALT scores less than or equal to 10 in future trials? It seems like that might be a little unreasonable of a bar for the topical approach..

Yes, so we've talked very hard about this, you can see that, Lily and Pfizer have essentially gone forward with that as their endpoints, and I think where you're getting at is that their populations have SALT scores of more than 50% of baseline, so it seems to be a reasonable endpoint to use in that population, and I guess the question is, what happens if you go into the less severe population.

So our -- this goes back to maybe a little bit of the question I answered before; our study is going to allow us to answer that question based on the different populations that we are studying in Phase II, so we will know how good that endpoint is based on severity of patients coming into the study.

So it's an option, we'll know how our drug stacks up against that endpoint but we're also looking at various other ways to assess the efficacy of our drug. So I think this is one option and we'll make sure that we select the endpoint which best shows how the drug is working as we go into Phase III..

And it continues to look like the early you treat patients, the better the outcomes.

Are you going to have a good idea around how you compare versus others in developing therapies, given the baselines of your studies?.

Yes. So we are paying a lot of attention to that as well, and you know, Pfizer presented data at AAD showing that the cut-off in their data seemed to be around about 3.5 years. So if you have disease for more than 3.5 years, you seem to do -- there is less chance of responding to patients that had disease for less than 3.5 years.

So we will also look at that population in our Phase II and be able to look at where our cut-off is, we know that the median duration of disease in our Phase II is actually around about two years; so I think that gives us a population who we hope have a good chance for responding to drug..

Just to complete the thoughts there, that's why we mentioned a little about -- you can look at others in this space that are doing oral work, the studies are starting to migrate out to 9-months in some cases and Pfizer's primary is at 6-months in their oral study, but then looking at efficacy, again, at 44-weeks, so that's 11-months.

So I think if you just -- if you start putting all these things into context, the reality is you have to go out a little bit longer with these patients, hair growth is a little bit different animal than something like atopic dermatitis.

And some of the pictures we are showing, particularly that last picture today, that female has had really nice response, she's actually one of the most enthusiastic, finally having eyebrows back after 5 years, and she's had disease since 1986; so she would be considered a very recalcitrant patient.

So that's all reasons why we just think that the topical is vitally important in this disease..

And maybe one last one; can you talk about use of an induction dose for maybe further work or just your thoughts around an induction dosing?.

Yes. So, we've constructed the whole Phase II program to answer a number of questions including that one. So, in our oral JAK program, after 6-months, patients then have the option to go onto the topical and we'll look to see if we can maintain efficacy that would be seen with the oral as we switch patients to the topical.

And I think that's going to be a very important question to answer, but it will be unique in producing that kind of data.

I think the JAK inhibitors look like -- their effects have the challenge that clinicians and patients are going to have is, can you deliver that efficacy over the long-term and avoid some of the systemic adverse events? And I think that the topical really provides a very viable way to do that and that's why we're enthusiastic about this as a treatment paradigm..

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Neal Walker for closing remarks..

Thanks everybody for attending the call this morning. Really appreciate it, and we look forward to providing further updates as the year continues. Thank you..

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day..