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Good day and welcome to Arcutis Biotherapeutics 2024 Fourth Quarter and Full Year Financial Results 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 is being recorded. I will now hand the call over to Latha Vairavan, Vice President of Finance and Corporate Controller. Please go ahead.

Thank you. Good afternoon, everyone and thank you for joining us today to review our fourth quarter and full year 2024 financial results and business updates. Slides for today's call are available on the Investor section of the Arcutis website. On the call today are Frank Watanabe, President and CEO; Patrick Burnett, Chief Medical Officer; Todd Edwards, Chief Commercial Officer; and David Topper, Chief Financial Officer. I would like to 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.

Thank you Latha and thank you to everyone for joining us today. Before we get started, I want to highlight 3 key themes that we're going to focus on throughout the call today. First of all, we had very strong execution throughout 2024. Second, we believe we are nicely set up to continue growing

Thank you, Frank. We're extremely enthusiastic about the growth and the expansion of our product portfolio, the strong response from HCPs and patients and the immense opportunities that lie ahead. This quarter, we achieved $69.4 million, $65.4 million before the nonrecurring adjustment in net product revenue for

After a strong series of accomplishments in 2024. First, we have an upcoming FDA PDUFA action date for

Thanks, Patrick. I'm on slide 21, showing financial results both year-over-year and quarter-over-quarter for the fourth quarter. We generated net product revenues in the quarter of approximately $69.4 million which is up 413% from Q4 of 2023 and 55% from Q3 of this year. For all the reasons outlined by Frank and Todd, we believe we are still very much in the early stages of our growth with significant upside remaining. In January, ahead of the JPM conference, we preannounced unaudited product sales of approximately $63 million. While we outpaced that estimate a bit in terms of actual sales in Q4, the amount by which we beat it was principally due to a reduction in reserves we were holding for product returns of $4.1 million. Excluding this nonrecurring adjustment, we had net product revenues of $65.3 million for the fourth quarter. That nonrecurring amount should be excluded for forward-looking calculations. For the fourth quarter, our R&D expenses were $14.5 million which is down 39% from $23.8 million in the fourth quarter of 2023 due to decreases in the development cost of topical roflumilast programs and down approximately 26% compared to the third quarter of 2024 this year. The reduction in R&D expenses was also due in part to a one-time Q4 credit of $3 million we received related to a closeout of our roflumilast studies. SG&A expenses were $57.6 million for the fourth quarter of 2024 versus $48.7 million in the same period last year, up 18% as we invested in our commercial organization and our current and future launches. SG&A expenses were essentially flat as compared to last quarter. Our continued strong revenue growth supports our belief that we are investing appropriately in the tremendous growth potential of our

Thanks, David. So in closing, let me reiterate our 3 key messages. Our business is strong as we wrap up a stellar 2024. We look forward to continued growth of the

[Operator Instructions] Our first question coming from the line of Vikram Purohit with Morgan Stanley.

So we had 2, just one on the quarterly release. So you clarified a big chunk of the delta between the preannouncement and the actual 4Q results of roughly $69 million but for the residual roughly $2 million, was that related to inventory or another factor? If you could clarify that, that would be helpful. And then secondly, had a question for you on IP. There's been some investor interest and questions in the upcoming claim construction hearing in your ongoing IP lawsuits. So just wanted to ask if you could speak to your kind of confidence in protecting the IP for the

Okay. Sure, Vikram. Thanks for your question. So David, maybe can you go in a little more detail around the delta between what we had preannounced for Q4 and this final Q4 print and what was driving that?

Sure. Couple of things I'd say. First of all, as mentioned, we did make an adjustment for the reserves we had accumulated for product returns. That total adjustment was essentially a bit over $5 million but a $1 million and change of that was due to the fourth quarter of 2024 itself. So we can't refer to that as an adjustment. So that's a part of it. The other part I would chalk up to us being conservative when we preannounce revenue, simple as that.

And then Vikram, with regard to your second question, I think it's a completely understandable question, it's one we get a lot. What I can say at this point is you made reference to the upcoming Markman hearing, that's scheduled to occur in April 2025. You can review what's publicly available on the court docket but we can't comment beyond that specifically vis-à-vis the Markman hearing. What I will say is, is that, as we have said before, we are very confident in the strength of our IP portfolio and our ability to maintain exclusivity of

Our next question coming from the line of Tyler Van Buren with TD Cowen.

And congratulations on the exceptional execution on commercial front heading into year end. So I think many people were surprised by the growth in weekly prescriptions that we saw with

Yes. So Tyler, just to clarify, are you asking specifically about the growth of the cream or the 0.3% cream or you're just asking generally about the growth that we're seeing across the board in prescriptions?

Generally about the growth, I'd be curious to hear about the cream and psoriasis, if you have any additional color there since there was really significant quarter-over-quarter growth for Q4 versus Q3 as opposed to Q3 versus Q2.

Sure, sure. Yes, Todd, can you maybe go in a little more detail about our view specifically with regard to Q4 and the growth at both the portfolio level and then maybe if you have any color around each of the individual SKUs?

Portfolio growth. As mentioned, portfolio growth is primarily driven by volume growth, the slight -- on net revenue, a slight increase with gross-to-net. But nonetheless, as mentioned, we did see growth across the entire product portfolio which we're very encouraged by. More specific to

And our next question coming from the line of Seamus Fernandez with Guggenheim.

So, just wanted to circle up on the momentum in the business. Can you just give us a little bit of color on fourth quarter, how the refills were sort of coming in? Was there clear proof from your perspective that there was an increase in the resell rate? And just wondering how the, sort of, the estimate of the tubes per year is actually coming in relative to your expectations on a go forward basis as we think about the growth in the overall market? And then the second question is just, very quickly. Consensus is kind of between $280 million, $285 million this year. Just wondering how you guys are thinking about the opportunity for sustained growth and the opportunities to see the scripts perhaps maintain this very strong linear trajectory that we saw through the balance of 2024?

Sure. Okay. If the -- Arcutis team, if you guys could pause just a second before you start answering your question, I think that the very front end of your question answers are getting clipped off. So, Todd, if you could, comment maybe on the momentum in Q4 and particularly around what we're seeing with refills, the indicators of the pull forward that we believe happened. And then also maybe comment on, our current thinking around, tube per year consumption. And then also, if you could maybe touch on the opportunity for sustained growth again. And then David, I think it would be helpful if you can give maybe some color around our current thinking around consensus for 2025.

Yes, Frank, I'll start. Relative to the twos per year, as we've communicated before, we expect

Hope I'm not being cut off. As for the estimates that are out there, we are very comfortable with the consensus out there for the full year of 2025, definitely comfortable. I think it's important to think a lot about how those revenues will be distributed across quarters for the year. You've heard Todd say a couple of times now that first quarter for the product like many, many other products can be affected by a slight change in gross-to-net as deductibles get reset and so forth. So while obviously, prescription growth is extremely robust, there can be an impact on revenue. I'm just thinking about how to distribute that $280 million to $285 million across the 4 quarters.

And our next question coming from the line of Serge Belanger with Needham.

Couple of questions. The first one, I guess, a follow-up to the guidance or the consensus number and how we should model 2025. On Slide 6, you highlighted about 4 million patients are covered by Medicare and Medicaid. Just curious how many of them had coverage at the start of the year and when do you expect they will have coverage throughout the year? And then, second question, more of a broader strategy question. David highlighted how well the company has capitalized and the near-term break-even point is on the horizon in 2026. So just curious, how much of a priority in the near to medium-term is profitability for the company given that you do have a pipeline and you've discussed BD in the past?

Sure. So Todd, if you could maybe address the -- and Serge, you're asking about, the amount of Medicare and Medicaid patients had coverage at the beginning of 2025 or the beginning of 2024?

2025.

Okay. Yes. So, Todd, if you could maybe, talk a little bit more about where we stand with regard to Medicare and Medicaid as of the beginning of this year and how that will translate into patient opportunity for 2025. And then, when you're done talking about that, I'll come back to the question around profitability and the pipeline.

Yes. Thank you Frank for the question. Specifically to Medicaid, we're very pleased with the Medicaid coverage that we've been able to secure up to the start of 2025 and that would be that 1 in 2 Medicaid beneficiaries now have access to

And then Serge, with regard to your question around profitability, this is obviously something that the leadership team thinks a lot about at Arcutis. I think getting the cash break-even is very important because it gives us a degree of operational flexibility as we think about running the business for the future. The first priority has to continue to be investing in the growth of

And our next question coming from the line of Ey Ear with Mizuho Group.

So I have 2 questions. The first one is, with the upcoming approval of the foam in psoriasis, just wondering what is the indication that you're expecting? Is it psoriasis in general? Or is it like psoriasis with scalp involvement? And how do you think that this -- what's the strategy for this indication or for this foam product? Do you think that they'll probably cannibalize more of the cream or do you expect more patients to convert to the foam? Just wondering what your thoughts are there. And secondly, what do you expect from the Phase Ib data for ARQ-255?

Sure. So Patrick, maybe if you could start out by addressing the 255 question and what we expect from our Phase I study. And then if you could also maybe comment on what we filed for and what we expect in terms of the indication for -- the expanded indication for

Absolutely. Thanks, Frank. Yes, so starting with 255, this is a Phase Ib study. We have -- we had 12 healthy volunteers, then we had 30 plus alopecia areata patients that were treated for 3 months. Our goal with this is really to understand the kind of PK exposure safety and tolerability first in this early-stage trial. And then also with the inclusion of alopecia areata patients, to get an understanding from both a biomarker and an early clinical response whether or not there's some indication that we were getting an engagement of the target which has been a challenge for topical treatment of alopecia areata. And so, we're really going to be focusing on those safety and tolerability data primarily. And keep in mind, this is a 3-month treatment and the pivotal time line for an alopecia areata trial is typically 6 months of therapy. So we would really just be seeing the first evidence of efficacy in that readout. Now, moving on to the scalp and body indication for psoriasis with the foam. In our pivotal trial, we had coprimary endpoints of body IgA as well as scalp IgA. And so we anticipate the indication to be inclusive of all psoriasis but then also specifically calling out scalp in a similar way roflumilast of what we saw with the cream indication where we had a broad indication for the treatment of psoriasis but then it specifically called out inclusive of those patients with intertriginous disease. So we would anticipate that kind of broad indication for the foam as well.

Yes. And then, I'll respond relative to the strategy for the

If I could maybe just add just a little bit more color because we continue to get this question. I think that it is wrong to think about the foam cannibalizing the cream. What I think might happen is that there will be a shift in the growth pattern in psoriasis from cream to foam. But I think it's very unlikely that the patient that's on the cream is actually going to switch then to the foam. So cannibalization is probably not the right way to think about this. And ultimately, what matters to us and what matters to shareholders is the growth of total

Our next question coming from the line of Kambiz Yazdi with Jefferies.

Just a couple for me. What proportion of 4Q sales are attributable to the Kowa PCP partnership? And the second question I have is, do you expect 1Q OpEx to remain roughly in line with 4Q excluding commissions to Kowa? Will commissions to Kowa be included in the SG&A line of 1Q OpEx?

Sure. I think probably David, you can address both of those. If you could address what from Kowa was in Q4 and then also our thoughts around Q1 OpEx with and without the Kowa commission.

Sure. As we've been saying for several months now, the Kowa sales force and their efforts really got started in September. And so at no time did we really expect a meaningful contribution from them in 2024. And in fact, while it was not certainly a non-zero number, it was not a significant amount. We do expect a meaningful contribution in 2025. The commission that we pay Kowa is will be in the SG&A line. So you will see an increase there. And what we've committed to is that when that contribution becomes meaningful, that we will give information -- as we report quarterly results, we will give information on volumes and commissions and so forth so that people understand the magnitude of that contribution.

And our next question coming from the line of Douglas Tsao with H.C. Wainwright.

Congrats on the progress in the quarter. Just one question for me. You spoke about sort of the feedback you're getting in terms of clinicians wanting to move away from steroids. Obviously, I presume payers will continue to sort of want that as a first line option. So I'm just curious from a reimbursement standpoint, how you potentially see that playing out? Do you think that physicians will just try steroids more briefly? Or do you think outright that

Sure. Yes, I think that's an important point probably to clarify. I think -- and Todd can comment on this too but I think it's likely that we will continue to see a single step edit through a generic steroid to get to

Yes, I think that's one of the parts of the conversation that I think is going on right now is about what is the role that steroids have in the management of these diseases? And a lot of the conversation is about the chronic treatment of these chronic diseases. And the fact that in the absence of having non-steroidals, steroids were trying to fill that gap even though they're not really well suited for chronic management of the diseases. So, I think this idea of having a steroid step through isn't really such a hurdle for patients for the reasons that Frank just said which is that oftentimes when patients come in, they may get a steroid before it's realized that they're really going to have a need for a long-term management of the condition. And that's the appropriate time anyway from a medical management perspective to shift them over to a non-steroidal product like

Thank you. And I see there are no further questions in the queue at this time. I will turn the call back over to Mr. Frank Watanabe for any closing remarks.

Okay. Well, I think we've covered everything. I just want to thank everyone again for making the time to call in for the earnings call. And we look forward to talking to you all again in the not-too-distant future when we have Q1 results. Thanks a lot.