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Good day and welcome to Arcutis Biotherapeutics' 2025 First Quarter 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. Please be advised that today's conference is being recorded. I would now like to hand the call over to Amanda Sheldon. Please go ahead.

Thank you, Heidi. Good afternoon everyone and thank you for joining us today to review our first quarter 2025 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 Latha Vairavan, 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, Amanda and thank you to everyone for joining us today. Before I delve into the quarterly details, I want to take a moment to thank David Topper, who will retire in a couple of weeks for his many important contributions to Arcutis, both as his -- in his time as our CFO and during his many years as a consultant to our company. We wish him all the best in this next stage of life. And I'm very pleased to welcome Latha Vairavan to our first earnings call as our CFO, a role she officially assumed this morning. Latha has been an integral part of our team for many years, and she is fully prepared to step up to this new role. I could not be more excited about her joining our senior leadership team. Turning to our results. If you take nothing else away from our call today, I want to highlight four key points. First, our team continues to execute exceptionally well, most notably our commercial and R&D teams as evidenced by yet another strong quarter of performance across our portfolio and our continued progress in advancing our pipeline. Second, with multiple upcoming catalysts and expanding markets, we are confident in our ability to sustain our growth throughout 2025 and beyond. Third, the most important of these market expansion opportunities is the conversion from the very large topical steroid market, and we are seeing tangible signs of growing momentum in that shift. And fourth, we are very pleased with our progress in Q1 in protecting our intellectual property. I am grateful to work with such a dedicated and stellar team who are building the leading topical franchise, one that is outperforming historical precedents in dermatology.

Thank you, Frank. In Q1, once again, we delivered strong sales results, leveraging the strength of our product portfolio and are pleased by the continued positive response to

Thank you, Todd. I'm on Slide 16. We're now approaching several key milestones in 2025. And first, we have the FDA PDUFA target action date for

Thank you, Patrick. Before I begin, I want to thank David Topper for his guidance and mentorship over the past year and especially during this transition. I am honored to step into the CFO seat during a very exciting period of Arcutis' commercial growth. I'm on Slide 20, showing financial results both year-over-year and quarter-over-quarter for the first quarter of 2025. We generated net product revenues in the quarter of approximately $63.8 million, which is up 196% from Q1 of 2024. Recall that Q4 2024 number included a non-recurring $4.1 million adjustment for reduction in reserves for product returns. Last quarter, we noted that this number should be excluded from forward-looking calculations. Without this non-recurring revenue, net product revenues only declined by 2% quarter-over-quarter, reflecting the healthy state of our launches. I will remind you that in Q1 2024, we executed an out-license deal in Japan with SATO, which brought in $25 million of non-dilutive capital, and we also received $3 million milestone payment from our Chinese partner, Huadong. This quarter, we received another milestone payment from Huadong of $2 million. Cost of sales in the first quarter were $8.8 million compared to $3.3 million in 2024, primarily due to catch-up amortization of the $10 million owed to Astra

Thanks Latha. I will finish up where I began. Arcutis continues to execute exceptionally well, driving growth of

Thank you. [Operator Instructions] We will take our first question. The first question comes from the line of Vikram Purohit from Morgan Stanley. Please go ahead, your line is open.

Hi, good afternoon. Thanks for taking our questions. We have two. So, first, thinking about the cadence of

Yes, hi Vikram, good to hear from you. Yes, Todd, can you maybe address the cadence quarter-over-quarter, and then, Patrick, if you could address the 255 readout?

Yes. As we experienced last year over the summer months, we do expect a modest seasonal impact to our performance. However, I think what's very important to point out here is that, as mentioned, we'll be launching foam for scalp and body psoriasis. Not only that, we continue to see a positive impact about this portfolio effect that I mentioned earlier, which continues to provide us an opportunity to convert, say, in the steroid market, which is a significant opportunity for us, which will continue to drive revenue growth in 2025. So, yes, we will see some seasonality, but we continue to be very positive relative to these other value drivers that we're providing in the market.

Okay. So, picking up on the question, Vikram, for ARQ-255. So, this is a Phase Ib trial that we conducted, and it's primarily focused on evaluating safety, tolerability and then pharmacodynamics. We also looked at the PK and had some biomarker work in addition to some kind of early responses that we were looking for clinical response for hair growth. So, this is a three-month trial. The primary endpoint for most pivotal trials is six months. So, what we're really focused on is just getting an early read on what might be able to be achieved with ARQ-255. So, we're really looking forward to reading out the data from this in the middle of 2025.

Got it. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Seamus Fernandez from Guggenheim Securities. Please go ahead, your line is open.

Great. Thanks for the questions. So, Todd, just wanted to get a sense for how the additional scalp psoriasis and body psoriasis opportunity can accelerate and expand the use of

Yes. Thank you for the question. So, we don't anticipate any meaningful cannibalization of

Yes. Let me just maybe expound just a little bit more on the first point because we get this question a lot. I think it's very unlikely that patients will get switched from the cream to the foam once the foam is approved. So, that's cannibalization. I think going forward, what we probably will see is an increased use of the foam in new starts for psoriasis patients, keeping in mind that, as Todd mentioned, about half the patients with psoriasis have scalp involvement. But I think what's really more important is that none of the other non-steroidal options have a formulation that's suitable for treatment of the scalp. And it's quite challenging to treat scalp psoriasis even with steroids, A, because of safety concerns around proximity to the face and especially the eyes, and B, because there aren't a lot of good steroid formulations that are suitable for the scalp either. So, if you're a clinician who's treating a large number of patients who have scalp involvement,

Thanks guys.

Thank you. We will take our next question. Your next question comes from the line of Uy Ear from Mizuho. Please go ahead, your line is open.

Thanks. Thanks guys for taking our question and Congrats on the solid quarter. So, maybe first question. Just help us understand the cadence of the gross to net as we go through the year. Understandably that the first half of the year, I think on the fourth quarter, you're expecting sort of maybe on the higher end of the 50s. Should we expect that to decline towards the middle and then towards the low end as we approach the end of the year? So, that's the first question. And the second question is, on one of your slides, I think it's Slide 12 where you showed a 4% growth in the topical branded product in first quarter of 2024 and then 6% in this quarter. Given that like Vtama and

Todd, do you want to talk about the gross to net trend?

Yes, I'll talk about the gross to net trend. As mentioned in the opening comments, we did see some impact on gross to net early in the first quarter due to the deductible resets. But since that time, have seen improvements and are in the steady state of the 50%. We anticipate to remain within the 50% gross to net, although we will see improvement through the year as those deductible resets continue to decrease as we roll through the second, third and fourth quarter of the year and are confident that we'll remain in the 50% range for gross to net.

And then with regard to your question about the trend in conversion, I think first of all, it's important to remember that Opzelura has been out for about four years.

Is it just the new -- the addition of the new product that's accelerating this trend, or is it also something else? I guess I just wanted to get a better sense of why all of a sudden, I guess, we see this significant acceleration when other non-topical's been on the market for quite a while as well?

Yes. Well, I think you have to look at the clinical profile of those non-steroidals. Remember back when the TCIs launched in 2020 -- sorry, in 2000, excuse me. Those two products rapidly ramped up to $600 million in annual sales in their fourth year on the market, and then they got the boxed warning, which has been and continues to be a major impediment to the use of TCIs, especially in children with atopic dermatitis. Those drugs also do have some local tolerability issues, and they're twice a day. And then you had Eucrisa come out in 2017, as I recall. Clearly, not an optimal non-steroidal that has never been very successful, particularly because of the local tolerability but also fairly limited efficacy and an ointment that's twice a day. So, that wasn't a great option either. So, it really wasn't until the emergence of Opzelura and then

Okay. Thank you.

Thank you. We will take our next question, and the question comes from the line of Tyler Van Buren from TD Cowen. Please go ahead, your line is open.

Great. Thanks for taking the questions. Can you guys please elaborate on the current split of patients,

Yes. Thanks Tyler. Good to hear from you, too. So, in terms of the split, the patients split about 50/50 across derm and non-derm settings. And the non-derm settings are primarily primary care and pediatrics. Today, our business is overwhelmingly dermatology. Remember, our primary care and pediatric efforts are fairly nascent, and it's going to take a little time. Todd will mention -- go into more detail about that in just a minute. I think it's hard to say where we ultimately land. I do think that primary care and pediatrics will over time become major contributors to growth for the franchise. But I don't know that we'll get to a 50/50 split because there are any number of other dynamics like payer mix that also could factor into it. But I do think it will be an important contributor to growth over the long term. Todd, do you want to talk a little bit about Kowa?

Yes, absolutely. Relative to Kowa, Kowa does continue to make steady progress to what I'll call the dynamics of the PCP selling cycle. And we do expect them to have a positive impact to our revenue in 2025. But like all new sales forces or new product launches, especially within primary care, it takes a high level of engagement and frequency with that primary care physician to initiate a trial of the product. So, we're confident that Kowa will continue to progress and have that type of impact. But you think about within the primary care or ped market, there's been no promotion of non-steroidals. Kowa is the first to do it within these two market segments. And so it does take a little bit of extra time in that selling cycle to be able to educate not only the provider, but also to educate the staff relative to the process of fulfilling that prescription. But Kowa continues to engage there, create interest and we are seeing positive signals as we move forward.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of Kambiz Yazdi from Jefferies. Please go ahead, your line is open.

Hey thanks. Thanks so much for the question. A few on my end. What are the next steps after litigation stay? Or you do a joint status update at some point? And then separately, maybe on ARQ-255, what are the key learnings from ARQ-252 and oral baricitinib? And then as a third and last question, kind of what's the white space in alopecia areata for a new topical treatment? Thank you.

Sure. Let me address the IP question, and then Patrick, maybe you can talk about 255 in alopecia areata. So, with regard to the patent litigation, the stay is an indefinite stay. The reason that Padagis requested the stay is not something I could discuss. That's something that you would need to discuss with them. But I think that it is not unreasonable for one to conclude that they must have had some problem with their development or with the FDA. They filed in February of 2024 with the FDA, their ANDA. Under the GDUFA guidelines, which are the same as PDUFA, they should have received a conditional approval in November of 2024. To the best of our knowledge, they did not receive that. So, I can't -- I don't know what the issue is, but clearly they've had some issue. The quarterly updates that we are to provide jointly to the court really are just to update the court on the status of the dispute, let's say, between the two companies. They are also required to share with us their FDA correspondence so that we can see if that program is moving forward and when. And at such a time as we feel that it's necessary to move forward with litigation again, we have that option. We also will benefit from the remainder of our 30-month Hatch-Waxman stay should the litigation restart. But honestly, I don't know whether the litigation will ever progress, whether their program will ever progress. You really have to talk about that with Padagis. And then Patrick, do you want to address the questions around 255 in alopecia areata?

Yes, absolutely. So, I think most importantly, it's important to note that ARQ-255 is a completely unrelated formulation to ARQ-252. So we had the challenge of being able to get sufficient drug with 252 into the skin. With 255, this is not a solution. The drug's not dissolved. It's actually a suspension of the JAK inhibitor. And it's designed to be able to deliver the drug down the hair follicle and to overcome, I would say, what has been the biggest challenge for any topical approach for alopecia areata, which is just the depth of the hair follicle, which is where the relevant inflammation is which is where the target is for this treatment. And so we took a unique approach with that. Now, with regard to the oral, we know that the oral actually works in alopecia areata. It's a very potent JAK inhibitor. So, that's important. And the key issue is just to overcome getting the drug to where it needs to go. With regard to the second part of your question and the white space in alopecia areata, we know that the oral systemic administration of JAK inhibitors for patients with extensive alopecia areata can be a treatment option, and many patients have benefited from that. I think the white space is really in several different places for that patient journey. One of them would be patients leading up to where they get to their 50% scalp involvement that would make them a candidate for systemic treatment. And many patients, even when they get there, aren't very keen on being long term on the JAK inhibitor and being -- because many of these patients are younger and may not be wanting to go on to a systemic immune suppressant for a long period of time. And then the other one is once a patient may have had a good benefit from being on a JAK inhibitor, what's the long-term potential for managing that patient? You would at some point want to think about withdrawing that immune suppression and seeing if the disease is resolved kind of while the patient was on treatment. That would be another opportunity for being able to have a topical option. So, I think there are many different places where a topical would be appropriate for use even in an environment where we have systemic JAK inhibitors that work.

Thank you so much.

Thank you. We will take our next question. Your next question comes from the line of Serge Belanger from Needham. Please go ahead, your line is open.

Hi, good afternoon. A couple for Frank and Todd. Going back to the 1Q performance, it looks like you were able to avoid the usual seasonality or not see the typical seasonality. Just curious if that was a function of strong growth that allowed you to avoid it, or there was something more specific in terms of a better reauthorization process that minimized the seasonality? And then secondly, I think on Slide 10, you highlighted that 80% of

Yes. Todd, do you want to take this?

Yes. Relative to Q1, let me just take a step back, specifically. First, let me address the revenue, as mentioned in the opening comments. We did see some impact on our gross to net early in the quarter. And of course, that was due to the patients change in insurance as well as the deductible resets that typically occur during that time. But nonetheless, we were able to swiftly improve on our gross to net in Q1 to where we made sure that we stayed within the steady state of the 50%, which is very encouraging and will -- could be a positive signal as we roll forward into the year. Relative to demand, as mentioned earlier, we had 10% quarter-over-quarter growth, Q1 versus Q4. I think there's a direct correlation relative to the momentum that we have built with this franchise. When you think about

You want to address the coverage rate?

Yes. Relative to the coverage rate, we mentioned that we're kind of in an optimal steady state relative to 80% covered or reimbursed prescriptions. We anticipate that we will stay -- relative to the improvement, we'll stay within that 80% range. We have very good coverage of

And let me just touch a little bit on the demand point, too. Again, I think some investors maybe aren't used to this dynamic. But Q4 is typically very strong as patients pull forward demand before the deductible resets. We certainly saw that if you look at Slide 9 in our deck, there is a very clear demand spike in Q4. And many brands experience actually a decline in demand then in Q1 because the patients aren't filling scripts in January that they filled in December. So, the fact that we were able to grow quarter-over-quarter in spite of that demand pull forward, I think it's really pretty notable. And if you look at many of the other branded topicals, they have been largely flat in the quarter compared to Q4, whereas we've been able to deliver yet another strong quarter of demand growth in Q1. And I think that bodes well for us going forward as well.

And if I could mention one other dynamic. If you think about what Frank mentioned relative to the pull forward of the refills into December, when you look at that demand increase that we had in Q1, those are NBRxs. That means they're new-to-brand Rxs. And so we're driving new growth of new prescriptions in January, which is going to lead to incremental refills, say in Q2, Q3, and Q4 this year. So, once again, a very positive signal relative to the health of the business.

Thank you.

Thank you. We will take our final question. Your final question comes from the line of Douglas Tsao from H.C. Wainwright. Please go ahead, your line is open.

Hi, good evening. Thanks for taking the questions. I'm just curious, as we look ahead to the approval for the foam into scalp and body psoriasis, I'm just curious because when we first saw the foam get approved to the market, we saw a very rapid adoption. We've obviously seen as you've added additional indications some incremental growth, but perhaps less dramatically. What is your expectation? And how should we think about the trajectory from the addition of that indication fairly soon?

Yes. So, Douglas, that's really an important question. The launch of the foam in seborrheic dermatitis was a very, very unique unicorn kind of situation, one that I have never experienced in three decades in the business, and I don't think Todd has either. That was a disease that where there had been no innovation in over two decades. A very large population, very high level of dissatisfaction with existing therapies. And I can tell you from -- I know for a fact that I spoke with a number of clinicians early last year who had literally hundreds of patients lined up waiting to go on the foam. So, the minute we got approved, there was a vertiginous uptake of the foam, the likes of which I have never seen before. And certainly, we actually honestly hadn't expected when we launched it, not that pace. I don't think that scalp is of that same degree of unmet need. There are options. You can use biologics, which some of them are very, very good. The scalp is one area that maybe doesn't respond as well, but it does respond. There are steroid options for use on the hair. So, you don't have this complete absence of good options, I think, in scalp, although

And if I can with just a follow-up. How much education and how much promotional sensitivity do you expect to see with the scalp and body indication with the foam?

Well, I mean, all of these diseases are highly promotionally sensitive. And I think that the scalp data, as Patrick showed you in the photographs and also the IGA success data, that the data is very, very compelling. So, it will be important for our reps to get out and educate clinicians on the effectiveness of

No, you covered it very well.

Okay, great. Thank you very much. That’s helpful.

Thank you. This concludes today's question-and-answer session. I'll now hand back for closing remarks.

Well, I'll just once again thank everyone for calling in. I know this is a very, very busy time of the year with quarterly earnings, so we appreciate you guys making the time and appreciate all the great questions and we look forward to talking to you all next quarter. Thanks.