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…

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…

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…

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…

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.