Good day, and welcome to the Menlo Therapeutics Second Quarter 2020 Earnings Call and Quarter Update. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael Wood of LifeSci Advisors. Please go ahead.

Thank you. Good morning. And thank you for joining us today. Before we begin with follow-up remarks, I'll remind you that some of the information in the press release issued by the Company this morning and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words that express and reflect optimism, satisfaction with current progress, prospects or projections such as words, including, believe, intend, expect, plan, anticipate and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Such forward-looking statements are not a guarantee of performance. And the Company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in Menlo Therapeutics filings with the SEC. These forward-looking statements speak only as of today's press release and the conference call, and the Company undertakes no obligation to publicly update any forward-looking statements or supply new information. In addition, the financial portion of this call will include certain non-GAAP financial information related to the Company's operating expenses. The Company has provided a reconciliation for such numbers in its earnings release. Participating on today's call are, David Domzalski, Chief Executive Officer of Menlo; Andrew Saik, Chief Financial Officer; and Matt Wiley, Chief Commercial Officer. At this time, I'd like to turn the call over to Dave Domzalski. Dave, please go ahead.

Thanks, Michael, and good morning to everyone. This is an exciting time for Menlo, as we establish the company as a commercial business in the dermatology space. As you know, we launched AMZEEQ at the beginning of the year. And although we have experienced some disruption as a result of the pandemic, our field force remains engaged. Based on the most recent prescription trends and other metrics that we follow for AMZEEQ, we believe we are well-positioned to grow the brand as the market continues to recover. The FDA approved our second product, ZILXI, during the second quarter, which means we are in a fortunate position of having two products approved in a period of less than nine months. Additionally, we strengthened our balance sheet with our most recent successful equity offering. Now beginning with the positive news on ZILXI, formerly known as FMX103, we now have FDA approval to market this product for the treatment of inflammatory lesions of rosacea in adults. This is the first minocycline product of any kind to be approved by the FDA for use in rosacea. We believe that ZILXI offers a unique proposition in rosacea and should receive broad market acceptance upon our launch with continued growth in prescription trends. ZILXI was approved on the strength of two well-designed Phase III trials that were conducted in more than 1,500 patients. Our market research indicates that patients place a high value on the excellent efficacy and safety demonstrated at 12 and 52 weeks in these studies. We believe that the favorable tolerability of ZILXI will be a driver of usage, considering that patients find many products currently prescribed for rosacea to be irritating. Furthermore, we believe that patients are generally unsatisfied with currently available treatments as evidenced by the high discontinuation rates with existing…

Thank you, Dave. I'll begin with AMZEEQ in the acne market. The market is still recovering from the COVID-19 shutdowns with new brand and prescription volumes in acne down over 30% during the second quarter. By the end of the quarter, this had improved modestly with a 17% delta to first quarter norms. While most of our target offices are open for patients consultations in some capacity, representative access remains impaired. Internal market intelligence indicates that roughly half of all of our target offices have restrictions to pharmaceutical sales representatives, making it challenging to fully recover face-to-face call activity. Despite this, our reps were able to reach the majority of our targeted customers during the quarter, and live face-to-face meetings climbed to roughly 3/4 of their total call activity by the end of June. Sample velocity, another surrogate of live call activity was limited by complete office shutdowns across the country in April and May, but has been recovering steadily in most recent data weeks. Prescription volume for AMZEEQ in the second quarter came in at 22,169 total prescriptions, representing 7.3% growth versus the first quarter. In recent weeks, however, we have seen very strong recovery in total prescriptions, rising approximately 85% from the lows in March. Our unique prescribers continue to grow, expanding our reach and trial of AMZEEQ. The number of unique prescribers exceeded 4,200 during the second quarter, while productivity of our key target increased more than 12 prescriptions per target. Through Q2, we executed over 60 virtual and live speaker programs, educating more than 600 healthcare providers on the features and benefits of AMZEEQ. Our market access progress has brought our coverage to 63% of commercial lives with one major PBM negotiation in progress. We are focusing on completing these negotiations by the fourth quarter, which…

Thank you, Matt. In my review of the second quarter financials, I will talk about revenues and cost during the quarter, as well as our cash position. There are also some material non-cash items on the income statement this quarter, mainly relating to the merger and I will spend a little time going over some of these in detail. Revenues totaled $11.7 million for the second quarter of 2020. There were no revenues for the comparable period in 2019. The revenue number was comprised of $1.5 million from the product sales of AMZEEQ, which was launched in January 2020, $10 million, which is the upfront cash payment under the license agreement we signed with Cutia, and $0.2 million in royalty revenue. Our net loss for the second quarter of 2020 was $167.4 million, as compared to $19 million for the comparable period in 2019. We incurred one-time non-cash expenses during the quarter of $148.3 million. Of these expenses, $54.3 million were non-cash transaction expenses associated with the impairment of goodwill and IP R&D related to the Menlo merger. $84.7 million were related to the contingent stock rights, or CSRs, which converted in Q2 due to the negative data read-out of serlopitant. These two items can be seen on the face of our income statement to the financial statements. The remaining $9.3 million was due to a one-time revaluation of legacy Foamix options due to the CSR conversion in April. The CSR conversion in Q2 would apply to legacy Foamix shareholders also applied to the legacy Foamix employee options. When the CSR converted as a result of the serlopitant Phase III outcome, the legacy Foamix options became subject to a conversion ratio of 1.8006, the same conversion ratio with the legacy Foamix shareholders, which materially increased the value of the options.…

Thanks, Andrew and Matt for your detailed updates. Menlo has gone through an incredible transformation over the past year, as we have evolved from a clinical-stage organization to a fully integrated company with strong commercial capabilities. We completed a merger and subsequent restructure of all operations to the United States, launched our first product, received FDA approval for our second product, signed our first ex U.S. out-license agreement for our own brands, advanced our pipeline and improved the company's balance sheet with our recent equity financing. I am grateful to each of my fellow colleagues and proud of their tireless work, especially during these unprecedented times. Most importantly, for our shareholders, we remain laser-focused on the launch of AMZEEQ and preparing for the launch of ZILXI. We believe both of these products have the potential for broad utilization. As we transition to a commercial-stage company, our objective has been to maximize operational leverage to accelerate revenue and earnings. We will do that with the launches of AMZEEQ and ZILXI by focusing on four key tenets: precise targeting of our customers and leveraging the overlap of our called-on universe of healthcare providers; continuing to accelerate broad experience of AMZEEQ and our MST technology, which should allow for rapid uptake of ZILXI; gain broad acceptance from payers and broad reimbursement; and lastly, leverage our infrastructure and internal shared services, leading to reduced operational expenses. I am very excited about the prospects of our business as we continue our work to build long-term value for our shareholders. And with that, that concludes our prepared remarks. We are happy to open the call for questions. So I will turn the call back over to our operator.

[Operator Instructions] We can take our first question now from Louise Chen of Cantor Fitzgerald. Please go ahead.

Hi. Good morning everyone. This is Carvey in for Louise. Just a few questions here. What percentage of acne and rosacea patients are coming out of derm and primary care offices today? Are you able to cover the majority of patients focusing on derm offices? Secondly, due to COVID-19, many doctors are switching to telemedicine. If the trend persists for the rest of 2020, how will it impact AMZEEQ prescription number and the launch of ZILXI? And lastly, we see there is a huge overlap between acne and rosacea. How are you planning on modifying or expanding your commercial sales force as we anticipate the launch of ZILXI? Thank you.

Thanks, Carvey. Matt, why don't you take all of those, okay?

Sure. Thanks, Dave. Thanks for the question. So, the question about the percentage of acne and rosacea patients within dermatology, that percentage is pretty high. I think one of the things that we had expressed in previous calls is how we derive our targeting models predicated on using claims data to identify where the patients are, so it's agnostic of the specialty, in many cases, the primary specialty may be listed as something other than dermatology. Those cases are relatively small, but you may have some pediatricians, you may have some that are designated as an internal medicine doctor when, in fact, they may be double-boarded. So, the majority is dermatology, I would say, probably better than 90% is what I have at my fingertips here. Regarding the telemedicine question, so, telemedicine is obviously something that got a lot of attention during COVID-19 and there have been several studies that have looked at the uptake of telemedicine across different specialties. There was a syndicated report that focused in on dermatology that was published back in May. And what that showed was the patient volume, the average patient volume for a dermatologist over a course of a week prior to COVID-19 was around 140 or so patients. That dropped to 28 patients during late March and April. And so, the increase in telemedicine utilization went up over 50%, but it was on a much smaller base. When asked about the effectiveness of using telemedicine, greater than 50% of dermatologists in this particular research study indicated that it wasn't as effective as an in-person consult and so the expected use on a go-forward is roughly 11%, again, based on this study. And it's certainly going to be a part of dermatology diagnosis and treatment on a go-forward. I will remind you though, that both the diagnosis and the treatments are captured in the claims data that we utilize for targeting. And so, as a consequence of that, we are capturing these physicians regardless of where they make the diagnosis, regardless of where they are consulting a patient and applying a therapeutic and so we'll still be able to intervene with those targets regardless of the platform that they use. We do intend to and are currently advertising on these platforms, and that is a way that we can intervene at the point of consult. Regarding the target overlap, we have really good target overlap between acne and rosacea. We have roughly 87% of the targeted physicians that are currently in our call universe. We expand our targets by roughly 500 or so physicians. That's why we don't have to expand our footprint. All of those 500 physicians that we are expanding are within the current territory alignment. We are going to have some targets that are unique for AMZEEQ. We are going to have those 500 or so that are going to be unique for ZILXI, and we're going to have overlapping targets within the balance of our target universe.

Great. Thanks so much.

Thanks, Matt.

And we can now take our next question from Jason Gerberry of Bank of America. Please go ahead.

This is Sadia Rahman on for Jason. Thanks for taking our questions. I am wondering, in terms of volume, can you talk about the current volume trends of AMZEEQ in June and July, compared to April and May? And how do you see patient flow and script volumes evolving over the remaining of the year?

Go ahead, Matt.

So, as it relates to the trends in volume of prescriptions, so the last data we have for the week of 7/24, we had over 2,400 prescriptions. So what we are seeing in our recovery is what we expected to see it's more of a checkmark recovery. So we had the big dip back in late March and early April. And that's been rebounding over time as the markets healed. I mean, remember that the NRx volumes dropped over 30% from where it was in March on a weekly basis to that beginning of April timeframe and so the market hasn't completely healed. Even this last data week, there are about 65,000 or so new prescriptions when 72,000 to 75,000 was the norm back in February and March. So, the market is healing. It hasn't healed completely. We do expect it to come back. These patients haven't gone away, by the way. They still need to have their acne either diagnosed or therapeutics prescribed, but there is just – it seems as if there is a patient flow or a throughput issue that is slowly healing across the country.

Okay. That's helpful. And another question. Can you talk about your process of payer contracting on AMZEEQ since the last earnings update?

Sure. So, there is one major payer that we had been working with back in the first half of the year that suspended its contracts with manufacturers in favor of a contracting change, an entity change and so, that has delayed the process with that particular PBM. Those conversations have been going really well. And we expect to hopefully have that resolved and have our access squared away by the fourth quarter, in the fourth quarter. So, other than Optum and UnitedHealth that brought our total covered lives up to 63%. We are happy about having those contracts in place. And we are optimistic about the prospects for the remaining PBM that's outstanding.

Great.

Yes. And I would just add that the work that's been done on the payer fronts, we intend, it's always been our intent to leverage that as we are preparing for the upcoming launch for ZILXI. And so, the team is already in discussions with various payers for ZILXI, which we intend to launch in the fourth quarter. As we've talked about in the past, a lot of the work that we've been conducting for AMZEEQ over the last six to nine months, we certainly believe that, that could be helpful for us as we are discussing with the same payers about bringing ZILXI under contract.

Okay, great. Thanks so much.

And we can now take our next question from Georgi Yordanov of Cowen and Company. Please go ahead.

Hey guys. Thank you so much for taking the question and congratulations on the progress. So, I guess, first for AMZEEQ, if you could talk about the current regional dynamics in terms of dermatological offices opening up or closing? Are you seeing currently the majority of your prescriptions coming from any specific regions? And do you think there will be any changes for the remainder of the year as things progress regarding the pandemic? And on that note, what is the early feedback that you are getting from your sales force in terms of patient and physician satisfaction with the product? And how it competes within your established brands? Are you seeing any first-line use of AMZEEQ or kind of like more front use in the treatment paradigm?

Sure. So, a lot to unpack here. First of all, we did an internal survey of our sales personnel and our managers just to try to assess how many physician offices are open for business generally. And what we found in the survey is roughly 90% of dermatology offices across the country are open and seeing patients. Now that doesn't speak to the throughput of the patients. I don't know if that's changed due to dynamics in the office. But at least patients are coming back and the offices are generally across the country seeing patients. As I noted in the prepared remarks, roughly half of the offices have some restrictions on sales force activity and so obviously, that does impact us a bit as well. Although our sales team does an outstanding job in getting to our targets, they've done creative ways of getting to them either virtually or live when others may not have been able to and that's a testament to the quality of the sales team that we have. So, I'll say that there is no regional specific hot points to note today. As things have healed over the last couple of weeks, we see pretty uniform uptake as we had prior to COVID across the country. We have some markets that accelerate faster than others. So, in Florida, for instance, in Texas, Arizona, California, Georgia, these are places that have had significant volumes, but they had significant volumes prior to the pandemic impact and we continue to see those heal and progress nicely. Regarding patient feedback, everything that we've heard from just field intel and from physician feedback has been positive. We were just getting to that 9 to 10-week point before COVID-19 shutdowns when patients would have been naturally coming back into the office for consultation. And so it's unfortunate that we didn't get a lot of that feedback in April and May. But what we have heard has been positive and we expect that we'll continue to hear those stories over time and more to report as we get through the balance of this quarter. Regarding first and second-line, roughly 50% of the AMZEEQ utilization comes from patients who are new to branded therapy altogether and another half comes from those that are switched or added to something else. Consistent with what we saw in our demand study that we ran in 2018, we anticipated and we mentioned back in 2019 that this should be disruptive to the market, because the displacement of products was going to be broad and that's exactly what we're seeing in switching and added to behavior is that the type of switching behavior is pretty broad. And that does mean that we are creating our own lane in the acne space. So, I am encouraged by that. It's great when you see that the reality of your launch is matching up to the market research that you did prior to it. Hope that helps.

Yes, this is Dave, I'll just add to it.

Yes. That’s great. I am sorry.

I'll just add a few additional comments to piggyback off of what Matt had shared. So, as we've talked in the past, we saw, with the initial launch of AMZEEQ. The initial lift and uptake of the brand was very strong. And then obviously, we are faced with the pandemic and we saw the significant contraction in the market that Matt's talked about on today's call. And we have not yet been at full capacity, if you will, at that point, pre-COVID levels yet. However, despite that, the growth trends have been really, really impressive, especially over the course of the last weeks. We had – we were in an entire market shutdown where the entire nation was closed for several week and then we had some of the markets that Matt outlined, especially in the Southeast and South Central that were leading the reopening, if you will with markets in, say, the North Central part of the United States, Northeast, Mid-Atlantic lagging behind. And then, as we all know, some of these markets in California, Arizona, Texas, Florida, Georgia, et cetera, got hit with significant spikes in the coronavirus. We saw some contraction for a while in those marketplaces, while the Northeast, the Mid-Atlantic, North Central areas were starting to then reopen. So, as Matt outlined, we are now at a point where we are not quite back all the way to pre-COVID levels, but we're seeing a nice reopening in the space. We are very encouraged. When we take a look at the current prescription trends, we are very encouraged about what can be once the market is fully healed and we've got the sales force that's at full capacity, meeting that, so they have full access to the offices as patients are back at the levels they were pre-COVID. We are already at total prescription levels that are just about where they were pre-COVID. And we are seeing nice increases on a week-by-week basis. And if that continues, based on the work that the team has done, once they are at full capacity, offices are fully open, we are very bullish about the opportunity to continue to drive prescriptions for AMZEEQ as we move forward.

Thank you. This is very impressive and very helpful. And just very briefly on the upcoming launch of ZILXI, obviously, your two products are priced at parity. But do you anticipate any difference in the managed care dynamics, investor dynamics that we've seen with AMZEEQ? And would you consider the $200 to $400 range to also be applicable to ZILXI as well in the longer-term in terms of net price?

Yes. So - so great questions. And yes, we did price to parity, because we wanted to - that’s some of the feedback that we got in market research with the payers was that, they did hear some movement between acne and rosacea and different concentrations of products. So parity pricing was the logical thing to do. The payers are reviewing these as separate products. They are not looking at it as a line extension or a new indication for the existing AMZEEQ brand. So they are looking at it as its own product. They are doing their full clinical review process and business review process, but our approach is the same with the payers on ZILXI as it's been with AMZEEQ. Although the market dynamics are different, we believe that working with payers in a similar fashion that we did on AMZEEQ is the prudent thing to do and it's all based on feedback that we got in market research. And then to your final question about the net – the planned price expectations $200 to $400, is applicable here as well on ZILXI. That's what they expect and that's what they told us in research. So, that that assumption that we had on AMZEEQ still stands for ZILXI.

That’s great. Thank you so much.

Thank you.

And we will now take our next question from Patrick Dolezal of LifeSci Capital. Please go ahead.

Hi. Thanks for taking the questions. I guess, on ZILXI, what are the gating factors to launching this product? Perhaps you can provide a bit more color there. And as you mentioned, you've begun to have some payer conversations there as well. Is there any sense of how quickly you imagine some of these plans being able to come online for this product relative to AMZEEQ?

Hey, Patrick, it's Dave. So, I'll just offer initial thoughts to that. Our plan is to launch ZILXI in the fourth quarter. And certainly, the data and intel that Matt's commercial team has gathered, that suggests that we will indeed do that. I'll turn it over to Matt to provide some more color around it.

Thanks, Dave, and thanks, Patrick. Yes, so, one of the things that we look at daily, weekly is how the rosacea market is healing. Obviously, the NRx, the new prescription volume is most important, because that's the market that we are going to be trying to capture at launch and what we've observed over time is that the market is completely healed. If we look at February prescriptions in the branded market, we are back above those volumes now, last out a week. So the market has healed nicely. I do think that there are a couple of things, a couple interesting dynamics in rosacea to consider here too. One, we know a factor that exacerbates the symptoms of rosacea is stress and there is a lot of that going around due to COVID-19. But the other thing that has been more voluminous in the literature recently, is the requirement to wear masks across the country has exacerbated the symptoms for these patients even more so. And so, as we go into Q4, we are actually launching into, what I think is going to be a very strong market with a high unmet need and additional factors that are exacerbating the symptoms for these patients. So, we are excited about launching in the fourth quarter and we believe the market is ready for this launch. And I am sorry, Patrick, your second question again?

Just related to some of the payer conversations you've had and kind of how rapidly you imagine those being able to come online, perhaps relative to the conversations that you had with AMZEEQ and kind of the payer onboarding process there.

Sure. I mean – so, these things obviously take their own course. And so, certain things like the PBM contracting delay that we saw with AMZEEQ, those things can happen. Typically, we see contracts in place in six to nine months post-launch within that timeframe. And so, we are optimistic that that will be the same with ZILXI. But anything can happen in those time lines and so we are planning for the best with our payer approach and we are hopeful that we have good coverage wrapped up in quick succession.

Yes. One thing to think about too, Patrick, is we've got – we had the product approved several weeks ago and we are launching in the fourth quarter. And that gives us a bit more runway before we actually distribute the product here in the United States. And so, as we mentioned before, as we have relations and we just completed contracts with the various payers, with some of the larger PBMs, our intent is to try to maximize those opportunities, right, and look to get under contract as quickly as possible with the intent is actually go into the launch, hopefully with some of these large payers already under contract. So, we're working feverishly to do that. As Matt outlined, in some regards, you are beholden to the P&T review timelines of the payers, but we've got good sightlines in on this. We are encouraged by what we've seen so far. We are knee-deep in dialogue with all three of the larger payers. And as Matt said, we are quite optimistic as we head into the launch of ZILXI in the fourth quarter and we'll keep you posted.

Got it. Thanks for that. And I guess, kind of on aggregate, it sounds like prescription numbers are moving in the right direction and I am just curious, on an individual-by- individual basis, as we think about sales reps launching a new product in this environment, is there a difference in kind of the frequency of visits that derms are allowing at this point or any other factors that are kind of limiting their ability to really be effective during the pandemic?

Well, sure. Yes. As mentioned, the offices have changed the dynamic by which representatives are welcomed into an office and so, things are scheduled more often than they are spontaneous. Certainly, the call volumes have been increasing over time. I would say, that our call volumes now are pretty close to where they were in February and early March, not quite where it was. And most of those interactions are face-to-face, not virtual. Better than 85% of all of our calls are face-to-face now, versus either telephonically or via some other virtual platform. And so that's encouraging. I think the other thing that's really encouraging to me, Patrick, is that, I do look at sample velocity as a surrogate to face-to-face call volume. And we've seen the sample velocity increasing week-over-week. In fact, last week, we distributed more samples to offices than we have in any given week since launch. And that's indicative of a couple of things, throughput for acne patients has to be increasing because their samples are moving out of the office. They are into the hands of patients. And there's more demand. There are more offices that are opening up. There are more weekly unique prescribers of AMZEEQ now than there have been since the pandemic shutdowns. And so all of these things together show that the market is healing in a very positive direction and I am encouraged by these metrics I am seeing.

That's helpful. And I guess one more for me just on FCD105. I would love to hear your thoughts on how the magnitude of effect on IGA score and inflammatory lesions compares relative to existing treatments out there and kind of how you guys see this product sitting within the broader treatment paradigm.

Sure, sure. Well, we’re obviously very pleased with the Phase II results that we saw for FCD105. We're always cautious about discussing comparisons versus other products that are out there, because we've obviously not conducted any head-to-head studies. But when you just take a look at literature and obviously, this is a Phase II study. We had over 400 patients in and across four arms. So, it was a robust Phase II study for us. But when we take a look at the IGA results, which were north of 35% of the patients were clear or almost clear at the end of 12 weeks, as we've outlined, that has – if it's replicated, that has the potential to be best-in-class over other currently approved products here in United States. So we are – and the same thing when we take a look at the reduction in inflammatory lesion counts. They are right at the peak of any other products that are currently approved for distribution in the U.S. So we are quite encouraged by those results. We are going to continue down our path to conducting end-of-Phase II meeting before the end of this year with the intent to initiate a Phase III study sometime in the first half or so of next year. We believe that, again, if approved, if it's a best-in-class type of efficacy that could be associated with the product, I think then it speaks for itself in terms of what we anticipate could be the uptake for the brand. I mean we are obviously very encouraged by what we see with AMZEEQ. And if FCD105 actually has even better efficacy results and remains to have a high level of tolerability, because it, obviously, is a product that has a retinoid associated with it. As we've discussed in the past, retinoids often lead to issues with irritation, cutaneous side-effects and if we see the type of safety profile that we saw in Phase II and the type of efficacy profile that we saw in Phase II, that's replicated in the pivotal studies and the product is approved, again, if it's got that type of best-in-class data, we believe it would obviously have rapid uptake.

Great. Thanks for taking the questions and congrats on the progress.

Got it.

Thanks, Patrick.

[Operator Instructions] We can now take our next question from Oren Livnat with H.C. Wainwright. Please go ahead.

Hi. Thanks for taking the questions. Since we're two quarters into launch, albeit, obviously, not normal quarters, are you prepared to speak to, I guess, gross-to-net you are seeing on AMZEEQ and maybe what proportion of volume that we are seeing in these third-party data services are paid versus free drugs? Will it be one mechanism or another, because, obviously, we're trying to model this going forward as we see this volume impressively ramp again, how do we get that from that to a revenue number and near-term and long-term? And also, you mentioned sampling and I am just curious, what kind of volumes are you seeing such that we can maybe assume that's a drag on prescription volume and that will eventually convert, hopefully to paid prescriptions? Thanks.

Yes. Thanks, Oren, I'll offer some initial comments and turn it over to Andrew or Matt. At this stage, we are not, obviously, going to provide any comments on gross to net, because it's still, in our view, early. And obviously, we are dealing with a market that is unlike anything we've ever experienced before. I think Andrew outlined in his prepared comments, it's got its challenges to predict runways, cash runways, modeling, et cetera, but we certainly are very encouraged by the prescription trends we've seen, especially in the last several weeks. I think one of the things that's been beneficial is that as the market has healed, even though, obviously, we saw a rather significant decline in the months of - call it, end of March, end of April, started to come back out in May. We, as you know, we are quite active in negotiating contracts with payers and we are able to lock up a couple of additional payers during that time period. So as this comes back, as the market continues to come back and our prescription trends continue to grow, more and more of those prescriptions obviously, will be covered and we will not need to rely on the denial conversion programs that we had or that we have in place. And so, in short, in summary, we do know that the prescriptions are obviously continuing to grow. We are seeing a larger proportion of those, on a weekly basis are covered and we would anticipate that will continue certainly as we move through the balance of this year. I think as we come out and move towards Q3, Q4, we'll be in a position to provide more color on how our gross to net is looking, but we are certainly encouraged by what we're seeing out there. I'll push it off and ask Andrew or Matt if they have any additional color – comments on that, so. Matt? Andrew?

Yes, yes, I think you covered it, Dave. I mean, we very specifically sort of not given guidance on this yet. You can obviously surmise quite a lot from our financial statements in terms of our gross sales relative to our net sales. But I think, and Matt, you can give additional color to this. Given COVID and given the fact that we have the one PBM outstanding, it's taken a little bit longer than we had hoped to get to where we ultimately want to be. So, I don't think you're going to see the final gross to net settle out until early next year. But Matt, I'll let you add some color.

Yes. So, as we look at our co-pay offering, one of the things that is a good surrogate to follow is our covered versus non-covered or denial conversion prescriptions that go through those channels and we have been seeing that the covered prescriptions have been growing nicely over the quarter and continue to. And as these contracts went into effect, Optum in May, United in June, a lot of the denial conversion program that was covering those prescriptions, now they are going through the coverage benefit. We are also seeing prescriptions that are outside of the coupon, those that fall either under $35 or those that are paid for by the patients themselves and we are seeing those continue to grow. So, all in, we are seeing positive impacts from our covered versus denied patient volumes and we expect those to continue. And hopefully, as we get the rest of our market access squared away in Q4, we'll see that impact through the balance of the year continuing to heal. Regarding sampling, so, it's hard to give you true metrics on sampling and how the velocity that we are seeing in physician demand equates to the volume that's being dispensed to patients as they walk out the door. But we have seen double-digit increases in velocity in what we are delivering to physician offices over the last several weeks. And last week was an astonishing number, as I said, it's over – it's higher than anything that we've seen since launch. The previous week to that was pretty close to what we saw back in January and February where you are stocking positions for the very first time. So, these are good signals that our target prescribers are demanding samples and going through them at a more rapid clip today than they have over the last several weeks. As you can imagine, things were grossly impaired in our ability to get samples to physician offices because they were closed back in April and May. Those have been coming back steadily and the volumes that we are seeing going out to physicians has been really positive. Now, the question about how that impacts overall scripts? I mean, these samples are meant to last a week or so and so as those samples are utilized and exhausted, the prescription should follow.

Okay. And if I could just follow up on the gross-to-net, I am totally – I appreciate your sensitivity around that given you are still negotiating, I guess, with one major PBM. Can you at least comment that on a normalized basis, is that net $200 to $400 range, even if you may be at one extreme of it, is that range still realistic if we – a year from now, after all your PBMs are in place, and every – you have good coverage, you are not giving away a ton of free drug. Is it reasonable to assume your value per script would be above $200?

Andrew, do you want to take it?

Sure. Yes. Absolutely, I mean we haven't changed that guidance and we still think that that's appropriate for both of our drugs, for both ZILXI and AMZEEQ.

Alright. That’s really helpful. Sorry, I had to twist your arm. Appreciate it.

No problem.

We can now take our next question from Tim Chiang with Northland Securities. Please go ahead.

Hi. Thanks. I know you guys had commented on just the recent rise in prescription trends for AMZEEQ. Do you see that continuing, especially if we see the fall school year come back fully? How many of the target patients that have acne are school-age adolescents? And also, just a financial question, I think you mentioned you had, what, about over 160 million shares fully diluted now – 168 million. I mean is there any thought on doing a reverse split at some point?

Hey Tim. So, I'll offer some initial thoughts first of all. We certainly intend, hope and plan to see prescription trends continue to increase assuming the markets are open and patients are coming back. As Matt has outlined, the enthusiasm for the brand certainly is there. As Matt has outlined, these patients have not gone away. They need and will be seeking treatment and we certainly know that, as we come into the school year that those are high-volume times and as patients start coming back and seeing their physicians. So, we would certainly hope to continue to see those types of growth trends. Matt, perhaps you can offer some additional thoughts per Tim's question.

Sure. I mean, so the acne market typically is your Gen Z population, aged somewhere between 13, 24 years old. And I think everyone in that demographic is going to be seeking treatment. Whether they are going back to school, whether they are going back to work, whether they are interacting on Zoom calls, the acne problem still persists. And in fact, one of the things that we've seen in search history is mask acne or maskne has increased in Google search volume over time, because the mask issue for acne patients is just as real as it is for rosacea patients. There is certainly an irritant that causes exacerbations of acne symptoms and those need to be treated as well. So, we do feel good about the position that we are in, that we are coming out of this market deficit that we've seen over the last couple of months. And, as the market is healing, we are able to not just penetrate into the growing market, but expand our penetration into the growing market.

Andy, do you want to take the finance question?

Yes, sure. Yes, it's a good question on the share count. Obviously, 168 million shares is a lot for a company our size. Probably, the way I'll answer that is, we had a requirement to go to our shareholders for approval to do a reverse split. We did that at our most recent shareholder meeting. So on Monday, we had the Menlo Annual Shareholder Meeting and announced that that proposal was approved by shareholders. So, we now do have the ability to enact a share split. The shareholders approved the split somewhere between 1 to 7 and 1 to 2. So that's something that management, subject to the Board's approval, can do at our discretion going forward.

Hey, Andrew, just one follow-up. I think in the press release, you guys kind of hinted that, if COVID persists, you may need to go access additional capital. But, just from what you guys had said earlier on the call, you have got sufficient funds until the end of next year. So, I just wanted to sort of reconcile the comments that you guys have highlighted on the call and just sort of what you've stated in the press release. I just wanted to clarify that.

Yes, sure. Look, as we do our internal forecasting with sensitivity analysis, we think we have cash through next year. I mean, let's be clear, right? We said last quarter that we had cash through June. We raised approximately two quarters worth of cash. So we think we are good through next year. The problem is that we are obviously counting on a functioning economy and dermatologist offices being relatively open and nobody knows exactly what's going to happen. So, I think it's only rational to put that clarification in there or that caveat. But look, we are seeing nice increases in script trends. We are very optimistic about ZILXI. We think that there is terrific pent-up demand. So, assuming that things go well, we should be fine. And is that clear enough?

Yes. Yes. And again, you kind of broke out what the continuing OpEx was, right, it was around $30 million this quarter? So do you expect that figure to sort of be about the same in 3Q and 4Q?

So, I would expect it to continue trending down. I think – don't expect a huge shift in Q3. But then by Q4, we should be at what I expect our runrate to be as a commercial organization. Obviously, it would go back up if we started our Phase III trials on 105. So that's something that we have to consider. There is going to be some expenses coming in this quarter mainly looking at CMC, right, sort of getting the clinical material ready. But we wouldn't start seeing really material expenses on that until next year. So, by then, we have had good visibility into what our uptake is of our two products and we'll continue communicating that as we go. But yes, I would look to Q4 as being sort of when we'll hit our steady-state expense stream.

Okay. Great. Thanks.

This concludes the question answer session. I would now like to hand back to management for any additional or closing remarks.

Okay. Thanks, operator. Certainly, appreciate everyone taking time out of their busy schedules. I know today is a very active day for earnings across the board. So, very great – very good dialogue, robust questions and hopefully, we've had a chance to address them all to a satisfactory level. We look forward to keeping everyone updated on the progress of our business as we are very excited about not only what we are doing now, but certainly the future for Menlo going forward. So, thanks very much. We look forward to speaking with everyone soon. Be well and stay safe. Thanks.

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