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Good day and thank you for standing by. Welcome to the Arcutis Biotherapeutics Second Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Eric McIntyre, Head of Investor Relations. Please go ahead.

Thank you, Cory. Good afternoon, everyone and thank you for joining our Arcutis second quarter earnings call. Slides for today are available on the Investors section of our website. On the call today, we have Frank Watanabe, President and CEO; Ayisha Jeter, our Interim Chief Commercial Officer; Patrick Burnett, Chief Medical Officer and Scott Burrows, Chief Financial Officer. I'd remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and actual results may differ materially. We encourage you to review the information disclosed in our latest SEC filings. With that intro, I'll hand the call over to Frank.

Thanks, Eric. And I'm going to make some brief introductory comments and then I'll turn it over to the experts here. So I'm on slide 5 of the slide deck. I'm really proud that our team is effectively executing on our strategy to build the leading innovation-driven dermatology company. The

Thanks, Frank. Moving to commercial performance on slide eight. We are proud of the growing momentum across all aspects of our launch. Everything starts with

Thank you, Ayisha. From my end, I just wanted to provide a quick update on our near-term clinical and regulatory milestones. And these are on Slide 13. These all remain on track, building significant sustained long-term growth potential as Frank mentioned earlier. So starting off with atopic derm. We have the INTEGUMENT-PED readout on track for later this quarter. And as a reminder, this study is in the two - to five-year-old AD population. We also look forward to submitting the sNDA in late Q3 early Q4, for atopic dermatitis for ages six and above based on the INTEGUMENT- 1and 2 positive readouts. Turning to seborrheic dermatitis, we have our PDUFA set for December 16 and HCP excitement is already incredibly high. And right now, we're doing a lot of disease state awareness with the medical team in the field. Briefly on psoriasis. We look forward to the potential approval for a label expansion for

Thanks, Patrick. Turning to Page 15, of the slide deck. Total revenues were $5.2 million in the second quarter. Net product revenues were $4.8 million driven by nearly 40% quarter-over-quarter demand growth as well as improved gross to net. Recall, we communicated in our last earnings call that we expected most of our second quarter growth would be driven by demand, but we are pleased to see gross-to-net improvements meaningfully contributing to revenue growth as well in Q2. Based on the expanded insurance coverage that Ayisha highlighted, as well as our efforts to ensure prescriptions are appropriately processed as covered prescriptions, we expect further gross to net improvement in Q3 and continued improvement in Q4. In the second quarter, we also recognized $400,000 in other revenues, which was the value of an equity stake received from a previous collaboration partner. Turning to the rest of the P&L. Research and development expenses were $25 million in the second quarter. The decrease year-over-year is primarily due to lower clinical development costs, as we wind down our topical roflumilast programs. In addition to lower roflumilast development cost, the comparison versus the first quarter also benefited from the $3 million seborrheic dermatitis FDA filing fee in the first quarter, some onetime favorable clinical study true-ups and our broader efforts to reduce spend in our early-stage R&D programs. For Q3, we would expect R&D to tick back up closer to $30 million as we do not expect the same onetime favorability from study true-ups. We expect a further step down in R&D expenses in 2024. SG&A expenses were $46 million for the quarter, reflecting our continued investment in the

Thanks, Scott. So just in closing, first of all, I would like to thank all the members of the Arcutis team. As you can imagine, folks are working incredibly hard to deliver these results, and I am constantly impressed by the dedication of our team. I also want to thank everyone of you for taking the time out of your day to call in on our quarterly earnings call. And with that, we will wrap-up and open things up to questions-and-answers.

Thank you. We will now conduct a question-and-answer session. [Operator Instructions] Our first question comes from Tyler Van Buren of TD Cowen. Your line is open.

Hey, guys, good afternoon. It's great to see the improvement in coverage that occurred over the last quarter. And you mentioned, the percent of cover and prescriptions are at an all-time high. So the first question is, what percent -- what was the percent of covered prescriptions during Q2 and July separately relative to Q1? And -- and then for a second question, which is kind of related, but just for additional detail on the quarter. Can you talk about the cadence of improvement of gross to net during Q2? I presume May and June were better than April as the second PBM came online on May 1. But as we think about the trajectory heading into Q3 was the gross to net during June significantly improved relative to May?

So, Tyler thanks for your questions. Maybe I'll take the first one and then I'll Ayisha to go into little more detail on your second question. In terms of percentage covered prescriptions that's a level of detail that we probably aren't comfortable really getting into but I will say that we are seeing a steady trend upwards every quarter in a percentage covered. And that includes as I mentioned earlier since the end of Q2 we've seen further improvement. Ayisha, do you want to maybe talk about what we saw within the quarter in terms of the cadence of improvement?

Sure. So first off, what I would note is that as it relates to -- there was a couple of different components. One was the deductible resets. We did start to see an improvement there as patients actually got through their deductible Secondly as it relates to PBM number two coming on board once that implementation was in place we saw improvement and then further thereafter then we started to see some improvements with the pull-through related to the reimbursement field team.

I think Cory we can go to the next question.

Go ahead Cory.

Cory, go ahead.

Yeah. Our next question comes from Vikram Purohit of Morgan Stanley.

Hi, good afternoon. Thanks for taking our questions. We had two both on

Yeah. So maybe I'll take the second one and then I'll ask Ayisha to talk about mix of patients. Although I will say our granularity in that data isn't perfect. But I think we've continued to say that we remain confident in our ability to get to a steady state gross to net in somewhere in the 40% to 60% range. And we still believe that today particularly with the improvement that we're seeing in Q2 and in Q3. I think it's probably going to take us a little bit longer to get there than what we had initially anticipated. But certainly, we think that's well within our reach. The exact timing I think is really difficult to predict. We're in I think a somewhat unusual circumstance that we're launching multiple products in the same window of time before we get to steady state with the expected seb derm launch in early 2024 and then AD in mid-2024 and then scalp in early 2024 sometime in 2025. And every time you launch a new product that has impact on your gross to net trends. So I think it's difficult at this point for us to say exactly when we will get to a steady state. I said before, it certainly won't be in 2023, but I also don't think it's going to be 2028. But at this point, I think it's too early to call and we'll update you guys as we get more clarity going forward on that. Ayisha, can you maybe talk about the mix of patients that we're seeing.

Absolutely. So Vikram as it relates to the patients. So first off, it's similar to what we've discussed in the past. First, it's the patients that have tried a steroid and/or other topicals. And then also it's been a mix of patients that have tried a single steroid for the most part.

Great. Can I just add just as a reminder. In any given year, 95% of psoriasis patients are continuing patients. There's not a huge amount of new patients coming into the system every year. And so most patients have been on something previously for the plaque psoriasis.

Sure. Understood. Thank you.

Thank you. Our next question comes from Seamus Fernandez of Guggenheim Securities. Your line is open.

Great. Thanks for the question. So just two quick questions. Can you guys help us understand the number of accounts that you are currently in and marketing to at this point in time? Just trying to get a better sense of that. Some of the survey work that we've done has shown actually pretty strong penetration among physicians and users of both

Sure. Seamus, when you say accounts, you're talking about physician accounts, right?

Correct. Yeah, yeah. Exactly.

Yeah. So I think Ayisha mentioned on the call that right now, about 7,000 unique physicians have prescribed

Absolutely Frank. So as it relates to the resourcing the team is well-resourced from the sales force as well as a marketing perspective. Right now we're hyper-focused on doing the disease state awareness education to providers and ensuring that it is more focused on not just providers but more importantly to patients. So definitely feel very confident in the resources that we currently have right now to help us to accelerate our approvals -- excuse me -- not approvals, our launch for Seborrheic Dermatitis.

Great. Thanks for the questions.

Thank you. One moment for our next question. Our next question comes from Uy Ear of Mizuho. Your line is open.

Hey, guys, thanks for taking my question. Just a quick one. Could you, sort of, I don't know if it's probably too early, but can you speak to the persistent rate? Like I think you mentioned, the number, what is it 3% refills or something. But are you seeing a lot more patient -- are patients also going off continuing to use the therapy or not? And I guess the second question financially, I think, Scott you mentioned that in 2024 you're going to see a downtick. Could you help us quantify that in terms of R&D spend? Thank you.

Yeah, okay. Yeah. So in terms of persistence, persistence on

Yeah. Yeah. Hi Uy. So on R&D spend for

Okay. Thank you.

Thank you. One moment for our next caller. Our next question comes from the line of Chris Shibutani at Goldman Sachs. Your line is open.

Hey team. This is Stephen on for Chris. Thanks for taking my question. Two from us, can you help us characterize the physicians who have not yet prescribed

Yes sir, Ayisha, can you maybe take those two?

Yeah. Absolutely. So I think as it relates to the prescribers that have yet -- those prescribers have yet to write

Perfect. Thank you very much.

Thank you. One moment for our next question. Our next question comes from Louise Chen of Cantor. Your line is now open.

Hi. Thank you for taking my question. So I wanted to ask you on seb derm what gives you confidence that you could build a greenfield opportunity here? Secondly, can you leverage any of the payer work you did for

Sure. So, I'll address the PCP piece, and then I'll ask Ayisha to talk a little bit about our thoughts around seb derm and then -- sorry, excuse me, I think around seb derm, I'm going to make sure Patrick is not asleep and I'm going to ask him to talk about that as a clinician. And then we'll ask Ayisha to talk about the coverage piece. Just with regard to PCP partnership, I think from a timing standpoint we have been saying consistently, we feel like that is something that we really want to have in place around the atopic dermatitis launch, which is probably the second half of next year. There could be a benefit to doing it earlier. Again, seb derm is often treated in the primary care setting as well. But we didn't feel like we had to rush to get the partnership ready for seb derm. It will contribute I think as we get momentum going. So yes, I would look to something second half of next year probably is the most likely time frame. And then in terms of the IDeA [ph] partner, in an IDeA World, it's a company with a very capable and large primary care sales force calling on both, primary care physicians internists and GPs as well as pediatricians who are seeing a lot of the atopic dermatitis patients. And if there is a little bit of allergists in the mix that would be great too but I think that that's less critical just because of the sheer -- relative size of the three opportunities. I think for us the most important thing is having someone who's very good at execution and someone who works well with our team. And then Patrick, can you maybe talk a little bit about the seb derm opportunity and how much building we really need to do versus just stepping into an existing market.

Yes, absolutely. I think one of the key things about seborrheic dermatitis patients is that they're already in dermatologists' office. And we heard this very early when we started talking to them. And it's been borne out by repeated ad boards and just more and more conversations. They have just as many seborrheic dermatitis patients in their office as they do psoriasis. And that's just people come in. Keep in mind that there hasn't been a new drug for seborrheic dermatitis for decades. And so now we're going to be bringing a non-steroidal treatment that is really kind of the first opportunity for them as HCPs to be able to offer something new to their patients. For the entirety of most of their practice, they've been using topical steroids and antifungals in some combination. And when a patient gets referred to them with seborrheic dermatitis they've oftentimes been treated with these already. And now they don't really have anything to offer them. So I think that's one of the reasons I mentioned that we have just very high HCP excitement over this launch is, because it really fits with patients that they're already seeing and now it's going to give them something new to be able to treat them. And I think that's one of the things that makes being a physician rewarding. And so, I think it fits really nicely with the current practice.

And then Ayisha, do you want to talk a little bit about coverage, and how psoriasis and seb derm might interact?

Yes, absolutely. So what we've done to date is we built the groundwork with certain key payer agreements with psoriasis that's actually going to help us to build the foundation for our access with seborrheic dermatitis. I know in the past that we have alluded to having agreements already in place. And so that is what's going to be able to provide us with the access -- the foundation that we need in order to secure the access for seborrheic dermatitis.

Thank you.

Thank you. One moment for our next call. Our next call comes from Sean Kim of JonesTrading. Your line is open.

Hi. Thank you for taking my questions. I guess just one follow-up question on the prescriber base. So of that 3,000 dermatologists that you mentioned earlier in the call, how many are considered high prescribers? And all of the 7,500 unique prescribers that you mentioned, how many are also considered high prescribers? And if you're seeing any improvements in terms of the number of prescriptions per prescriber. And one question on pipeline is just for alopecia areata. Just wondering what the timing of top line readout might be and if there are any efficacy endpoints for that program? Thank you.

Sure. So with regard to prescriber base, I think it's a relative term. There are probably around 20,000 clinicians working in dermatology that's MDs, Dos, as well as nurse practitioners and physicians' assistants. So the 13,000 that we're targeting already are the higher prescribing clinicians. And then within that there obviously are gradations as well. There's a relatively small group of the very highest physician prescribers or clinician prescribers, the so-called decile 8, decile 9, decile 10 doctors. That's a relatively small number. And then you've got middling doctors and then the lower end of the high prescribing volume right if you can think about it. And I think as Ayisha mentioned,. there's no correlation between likeliness to use the newer nonsteroidals and volume. You have some very large volume doctors who aren't using the new nonsteroidals. You have some very low volume doctors or relatively low volume doctors who are. And then fortunately you have high-volume doctors who are writing a lot of the newer nonsteroidals including

Nothing else Frank. I think you've covered it.

And then Patrick can you maybe talk a little bit about the Phase I study?

Yes, absolutely. So yes this is a Phase Ib trial. So it's not really designed to give us a clear read on efficacy. We're really looking at PK profile, safety tolerability data, as well as certain biomarkers that we would use to potentially inform our efficacy expectations within the next trial a Phase II trial. We've completed the healthy volunteer portion and we're enrolling alopecia areata patients right now as I mentioned. With regard to the timing of that study, I think as we get further into the enrollment and we have a clearer idea of exactly what that time line will be we'll come back to you with a little bit more information on that. But as of right now, given where we are in the study we're just not ready to give anything more about it.

Yes, thank you.

Thank you. Next question comes from Rohit Bhasin of Needham. Your line is open.

Hi, this is Rohit on for Serge. Can you just talk about where you currently stand in terms of managed care coverage and where you expect to be down the line? And then what are your expectations for the upcoming INTEGUMENT-PED trial? Should we expect different results than previous Phase III trials? Thanks.

Sure. Ayisha can you maybe address the managed care question then Patrick talked about INTEGUMENT-PED?

Sure. So, first off, as it relates to our managed care coverage as it relates to commercial as I noted earlier in our remarks, we have 80% of commercial coverage for our patients for plaque psoriasis for

Yes. And I can pick up on INTEGUMENT-PED. So just as a reminder that is a study in the two to five-year olds with atopic dermatitis and it's with a 0.05% dose the 0.05% and the 0.15% were both studies in the Phase II and the efficacy looked similar between those two doses in that trial. And our expectation for the readout of INTEGUMENT-PED is that we would see a very similar safety and efficacy profile to what we showed in INTEGUMENT one and two with ages six and above. In general, atopic dermatitis tends to have similar efficacy across the different age ranges when looking at earlier clinical development program.

Thank you.

Thank you. At this time, I would now like to turn the conference back to Frank Watanabe, CEO.

Okay. Well, first of all, thanks once again to everyone for calling in and thank you for as usual a group of really good questions. I think we're blessed with a wonderful group of analysts that are covering the company. And we look forward to talking to everyone again in about 90 days for the next quarterly call. Thanks a lot.