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Good day and welcome to the Arcutis Biotherapeutics' 2023 Fourth Quarter and Full Year Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Derek Cole, Arcutis Investor Relations. Please go ahead.

Thank you, Andrew. Good morning everyone and thank you for joining us today to review 2023 financial results and business update. Slides for today are available on the Investors section of the Arcutis website. On the call today we have Frank Watanabe, President and CEO; Patrick Burnett, Chief Medical Officer; Todd Edwards, Chief Commercial Officer; and John Smither, 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 our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand the call over to Frank.

Thanks Derek. I'm now on Slide 5 of the deck. We've had a lot of really exciting progress since we last spoke for our Q3 earnings call, and I couldn't be more pleased with the Arcutis team and our execution in the quarter. We're more excited about the foundation these results laid out for progress in 2024. We continue to see growing momentum in the

Thank you, Frank, and I'm very enthusiastic about our growing commercial portfolio, recent progress, and a tremendous opportunity I see ahead. Moving to Slide 8. The

Thanks Todd. I'm extremely proud of the team's performance in delivering on the promise of topical roflumilast in the dermatology community and hitting all our timelines with regard to our regulatory milestones. On Slide 16, I'm going to cover these according to indication with psoriasis first. Here, we have approval down to the age of six after we have expanded the indication and the opportunity in pediatrics to reach the two to five-year-old's will be the subject of a future FDA review. Next, for SebDerm with our approval in December and the recent launch, physician excitement is palpable and the feedback at Medical Congresses has been very positive. The profile here is unprecedented efficacy with a once-a-day foam in a market as big as psoriasis with no innovation in decades and no branded competition. So, moving on to atopic dermatitis. As Frank mentioned, the FDA accepted our supplemental NDA for roflumilast scream as a potential treatment for atopic dermatitis for patients down to the age of six, and they assigned a PDUFA action date of July 7th of this year. And finally, we're also expecting to submit another sNDA with the FDA for

Operator, can you hear me? This is Frank.

Yes, I can hear you now.

While we're working on John, I'll take over for him for just a minute. So, if you're listening, so, I'm on Slide 20. So, we achieved $29.2 million in net product revenue for

Thank you. [Operator Instructions] And our first question comes--

Frank, I think we're back on.

Tyler Van Buren with TD Cowen. Your line is now open.

All right. I think that's me. Good morning guys. Thanks for taking the question. So, the SebDerm prescriptions for

Yeah, I think maybe, Todd, if you could take that, and then Patrick, see if you have any additional comments after Todd's comment from a commercial standpoint.

Yeah, thank you, Frank. And, yeah, as mentioned, we're very pleased with the uptake of

Patrick, any additional medical thoughts?

Yeah, go ahead. Yeah, I think just kind of adding the, you know, the perspective of how this might fit into practice for dermatologists. You know, seborrheic dermatitis patients can be a challenging patient type in the dermatology practice just because you've had them in your practice for, you know, 10, 15 years sometimes. You know, we know that there's a very long runway for patients before they actually get to a diagnosis. And oftentimes, they've tried everything that's out there. And in this space where we haven't really had any innovation for 10, 20 years, remember, this is the first new mechanism of action for a prescription topical in over two decades. Yeah, I think there really is a lot of interest in having a new therapy. And that translates into a level of frustration for the dermatologist that was kind of pent up prior to this. Because when a patient would come back in, they just had nothing to offer them that wasn't a topical antifungal or topical corticosteroid. So, you know, I think that this is simply a component of solving an unmet need where there are patients who are dissatisfied with the treatment and, you know, healthcare providers who haven't really had anything new to offer. And we've heard that in anticipation of the approval and launch you know, for the two or three years while we were, you know, running our phase three studies, looking for the FDA to approve the drug, that there was a high level of anticipation for this, for those reasons.

Thank you. And our next question comes from the line of Uy Ear with Mizuho.

Hey, guys. Yeah, thanks for taking my question. So, just on the launch, the septum launch, could you, you know, you speak of warehousing effect. Are you sort of suggesting primarily that these are kind of patients who, you know, have limited options? And I guess, are you seeing, what kind of patients are you seeing generally? Do they tend to be more on the severe side or the mild side? And could you sort of just maybe provide some of the demographics a little bit if you have such data? Yeah, so that's my first question. I'll follow up with a second question. Thanks.

You know, Uy, I think that the point we're trying to make is, you know, think about it. It's been over 20 years since there was a truly new drug for seborrheic dermatitis. And so, you know, there is a very large pool of patients, as Patrick or Todd mentioned, excuse me, who, you know, are have been eagerly awaiting

Okay. And maybe you're going to help us understand that a little bit. So, during the earlier call, the launch call, you indicated there were scripts that were waiting at the pharmacies. Are you still seeing significant number of scripts that have not been filled or shipped to consumers? Or at this point, these scripts, you know, they come in and they are, I guess, readily shipped. I'm just wondering if there's a large delta. And maybe along that line, could you kind of also help us understand in your

Todd, can you take those too?

Yeah, absolutely. As mentioned, prior to the commercial launch, there was a number of prescriptions that were sitting at the pharmacy, but those prescriptions have all been filled and distributed to the patients. So we don't see what I'll call a warehouse of prescriptions sitting currently at the pharmacy today. And relative to our

Okay. Thank you.

Thank you. And our next question comes from the line of Chris Shibutani with Goldman Sachs.

Hi. Thanks for taking our question. This is Steven on for Chris. One, on the SebDerm launch, curious if we should expect any inventory or channel stocking effects in the first quarter. And then, as far as the commercial team goes, do you believe the team is currently the right size for the psoriasis and SebDerm opportunities, and if we should anticipate any changes ahead of Atopic Derm?

Thank you. John, do you want to maybe take the channel question, and then Todd, could you address the team?

With respect to Q1, no, we're not anticipating any channel buildup with respect to Q1.

Yeah, and then a question relative to being right-sized, especially for the potential Atopic Dermatitis launch. In anticipation of that launch, we will expand our field sales organization. Today, roughly, we have around 100 field sales individuals within that team. And we'll likely expand that by approximately another 50 sales representatives to make certain that we can get the breadth and depth of prescribing across the two products that are approved today and potentially the Atopic Dermatitis products. So we will be expanding, and that will be initiated shortly.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Seamus Fernandez with Guggenheim Securities.

Hi, this is Colleen on for Seamus. Thanks for taking our question and congrats on the quarter. So, we're seeing around 6,000 scripts per week for

Yeah, I think I'll let John answer that one.

Thanks, Frank. Specifically, we're, you know, we're not giving revenue guidance. And the 6000 number, I believe you quoted is both cream and foam. As Todd had mentioned, we're seeing early signs of strong SebDerm. We're seeing improvement around psoriasis. You know, we're in the early part of the launch. So I think we're standing back and thoughtfully and looking at how that launch is going. We're quite enthusiastic about how the year will turn out, but we're not giving specific guidance on revenue. As it relates to gross to net, just as a reminder, We exited 2023 essentially in the mid-60s, and there is a reset that happens in Q1 as a result of folks, a deductible reset, and as folks also change their medical plans. So you'll see that probably tick up for psoriasis and SebDerm, but we're confident as the year progresses that gross to net will continue to improve toward the end of 2024, and I believe in our script we mentioned our target is in the 50s.

Great.

Thanks. Thank you. And our next question comes from the line of Serge Belanger with Needham.

Hi. Good morning. Thanks for taking our questions, and congrats on the progress. I guess a question for Todd related to growth to nets. If you reiterated your target to be in the mid-50s by the end of the year for I believe it was

Yeah, yeah, thank you. As mentioned just by John earlier that, you know, we're anticipating the second half of the year to achieve that, the 50s for the gross net. That is for the indication of psoriasis. It's too early to comment on for seborrheic dermatitis. I think the one signal that I mentioned earlier was relative to the coverage scripts approaching 50% now of the total volume. And then relative to Atopic Dermatitis, just as a reminder, these are three unique and distinct products, have separate NDCs, so therefore they'll have separate, unique. But relative to the potential launch in Atopic Dermatitis, the PVMs, similar to what happened with

Thank you. Our next question comes from the line of Vikram Purohit with Morgan Stanley.

Hi, good morning. Thank you for taking our questions. We had two, one on SebDerm and one on AD. So, for SebDerm, could you remind us how many cans of product you expect patients on the foam to work through annually? Understanding it's still pretty early in the launch. And are there any interesting observations you're picking up from the initial phase of this launch on, you know, which areas of the body patients are using the product in, how much they're using, and whether they're using it either as monotherapy or as a combination agent? And then on AD, I would just be curious what your latest thinking is on where

Sure. Yeah. Todd, you want to maybe take the first question?

Yeah. For the first question, relative to the anticipated number of units, so we're anticipating that per patient, on average per year, a patient would use one to two SebDerm units. And then relative to, it's a little bit early to be able to tell where patients are using this on the body. It will, you know, our labels very open relative to anywhere on the body or scalp. And then relative to monotherapy or not, once again, it's too early to tell specifically how dermatologists will likely be using this product. Although, I will mention that there has been a lot of feedback from dermatologists relative to the convenience of this product being a monotherapy. And I think that leads back to patients really yearning for something that's more convenient and not having to use, you know, six products on average per week. And so I think that, you know, this is one significant differentiator of the product to be able to use as a monotherapy, highly effective product anywhere on body and scalp.

Thank you. And our next question comes from the line of Sean Kim with Jones Trading.

Yeah. Hi. Congratulations, and thank you for taking my questions. I guess one question on Medicaid and Medicare expansion opportunity. So, just curious, what are some of the remaining gating steps to realize the expansion opportunity in the managed care? And my second question is about the patient awareness. You mentioned about 17% among patients aware of your branded products. Just curious to hear whether the demand for your products has been more on the doctors recommending their products to patients or vice versa, patients kind of requesting the products and your expectations going forward, whether that awareness will further increase. Thank you.

Sure. Todd, sorry, but I think those probably both are to you, too.

Yeah, no, thank you. And just a clarification of the first question, that was relative to the Medicaid expansion opportunity? Right. Medicaid and Medicare both. Medicaid and Medicare both. Fantastic. Yeah. Relative to Medicare, we are currently in negotiations with a couple of the Part D Medicare plans. And we're anticipating Medicare coverage at some of those Part D plans to be initiated in the second half of 2024. And relative to Medicaid, a very similar timeframe. We're also actively talking and working with some of the state Medicaid plans. And we anticipate that those plans will come online near the middle of the year to the second half of the year for the Medicaid plans. And then on the other relative to patient awareness, and also whether it's a physician or doctor driven, I think right now it's primarily, for the most part, doctor driven given just a new product to market. There has not been any new innovation within this space in two decades, and the enthusiasm by providers around this product. So I think there's a tremendous push by physicians to their patients to take this product. I think over time, that paradigm will shift to the patient as we continue to engage more directly with patients, create awareness to patients through a different mode of engagement opportunities.

Sean, maybe just to clarify for you and the other animals, you know, neither Medicare nor Medicaid are binary coverage decisions, right? So, you know, in Medicare, The majority of patients are covered by, you know, these Part D plans that are run by various PBMs or insurance companies. And so, you know, we'll get coverage with individual Medicare providers just as we have with commercial. It won't all come at once. We'll get a little bit here, a little bit there, a little bit the other place. And then in the case of Medicaid, you know, that's administered as a state program through block grants from the federal government. And so you have to negotiate with individual states for Medicaid coverage. And so, again, that will be, you know, kind of a piecemeal coverage process. In fact, even more fragmented since you're dealing with such a large number of states.

Okay. That's very helpful. Thank you for the clarification.