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Ladies and gentlemen, thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Brian Schoelkopf, Head of Investor Relations. Please go ahead.

Thank you, Michelle. Good afternoon, everyone, and thank you for joining us today to review our fourth quarter and full year 2025 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis' website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Latha Vairavan, Chief Financial Officer. I'd 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 it over to Frank to begin today's call.

Thanks, Brian, and thanks, everyone, for joining us today. I want to start out today's call by reviewing some key highlights and achievements from 2025, a year that was characterized by tremendous growth and progress for Arcutis as we pursue our mission of serving individuals living with chronic inflammatory skin conditions. We'll then transition to Todd for a commercial update and then Patrick for an R&D update and Latha for a review of our financial results. So in 2025, we made significant strides to solidify Arcutis' position as one of the industry's foremost leaders in delivering meaningful innovation in medical dermatology. Throughout the year, we saw robust net product sales revenue growth, steady prescription growth and a strong market share growth across all of our approved indications and formulations of

Thank you, Frank, and good afternoon, everyone. Turning to Slide 8. As Frank noted, the strong momentum of

Thank you, Todd. I'm now on Slide 15. Ensuring that we can deliver

Thank you, Patrick. I'm now 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 fourth quarter of $127.5 million, which is up 84% from the fourth quarter of 2024 and 29% from the third quarter of 2025. We generated $2 million of other revenue in the fourth quarter from a Huadong milestone payment. Cost of sales in the fourth quarter were $11.7 million compared to $6.9 million in the fourth quarter of 2024, primarily driven by increased

Okay. Thanks, Latha, and thanks to all of you for joining us today. Based on our expansive progress and achievements in 2025 and our multiple anticipated value-driving catalysts across the business in 2026, we are more energized than ever about the future of

[Operator Instructions] And the first question will come from Seamus Fernandez with Guggenheim.

Congrats on the great results. Frank, I really wanted to just kind of tackle the update that we got from one of the potential competitors in the market. I think Incyte was commenting on some challenges or need to lower OP

Seamus, thanks. Great question again. Not a surprise after this morning. It's a little funny to be talking in different parts of the hotel. I think maybe for a different perspective, I'll ask Todd to comment on that since you heard my answer earlier today.

Yes, I'm happy to answer that. Seamus, thank you for the question. So first, we do not anticipate any material erosion of our gross to net resulting from actions to increase our access in 2026. As previously mentioned, we were able to achieve significant improved access in 2025. If you look at our commercial access, more than 80% of patients insured by commercial insurance have access to

Yes. So maybe I'll just chime in and take a little bit of a victory lap here. As I mentioned earlier, I think when we launched, there were a lot of investors who were questioning our access strategy and why we were taking such a different approach than other players in the branded topical space. And I would make a strong case that the last 3 years has proven out the wisdom of the strategy that we adopted. As Todd has just summarized, we've really achieved outstanding access across commercial Medicare and Medicaid now. And that's come with a very reasonable and stable gross to net, in the 50s, and we expect it to remain there. And so I think, really, the marketplace has proven that we took the right strategy from the outset, and it's paying off not only for our investors, but also for patients.

Great. And if I could just ask one quick follow-up question. It's actually more related to some of the decisions and -- federal court decisions around rebate dynamics and also some labor law dynamics that are calling into question, I think, some rebate structure. But we've also heard that it's going to be really challenging to kind of change the dynamics of the current marketplace as it relates to the presence that the GPOs have. So as you guys look at some of the dynamics in the marketplace, do you see potential positive changes from an access perspective emerging from some of these recent updates and changes?

Yes. So Seamus, that's also a really interesting question. I think that there's a lot of discussion going on right now in Washington about our current reimbursement environment. We saw in the budget bill that was passed last month, I think the first steps in some meaningful reforms to the current payer system, but those were pretty limited steps. There continues to be a lot of discussion in Congress as well as in the administration about changes to the PBM environment -- or to the reimbursement environment, excuse me, more broadly. And I think it's really too early to say what Washington is going to do on that front. We remain confident that regardless of how the situation evolves, Arcutis is well positioned to continue to both make

And our next question is going to come from Tyler Van Buren with TD Cowen.

This is [ Ekeno O'Connor ] on for Tyler. Congrats guys on the quarter. We noticed that in your presentation, you guys didn't break out sales for each one of the SKUs. I wonder if you can comment on that and any growth trends that you expect for the different SKUs going into 2026?

Yes, sure. Todd, do you want to take that one?

Yes, I will. Yes, we had -- as mentioned before, we had growth across the portfolio and had meaningful growth within each of the SKUs. If you look at the growth across those SKUs, we see an increased demand more so with the

Yes. I might just add, I do think for investors, looking at the Rx split data since we have different SKUs is a pretty accurate depiction of the split, right? The gross to nets are effectively the same across the SKUs. There's a little bit of a lag when we first launch a product like 0.05%, but that very quickly catches up to the other SKUs. So you can look at the SKU split and get a pretty good sense of what's happening. The one exception is the foam where we have 2 different indications. And frankly, we don't even have enough data at this point to tease out what's seb derm versus what scalp psoriasis. I think as time goes on, we might get a better sense of an estimate of that, and we'll share that with the investment community. But we're never going to have complete transparency since it is the same SKU.

[ Ekeno ], I'll just add that we have the breakout of net sales in our reported financial statements, and we're happy to send you those details, but the net sales are broken out by SKU, as Frank just said, in the financial statements, and you can look at those.

And the next question is going to come from Judah Frommer with MS.

Congrats on the progress. Just curious to get a little more color on the confidence to raise the full year guide. Obviously, a strong Q4, but heading into what sounds like a seasonality affected Q1. So maybe if you could just break out between formulary access, confidence in the additions to the sales force and anything else that underscored changes to the inputs in your model?

Yes. So Todd, not to wear out my welcome, but I think I'll probably turn that one over to you, too.

Yes, yes. So we -- I want to kind of frame this. One, we -- first is the exceptional momentum that we have in Q4. That to be coupled with the investment that we're making in the franchise, one, the dermatology field sales force expansion, which we will see that impact in the second half of the year. In addition to that, the investment in primary care pediatricians and the launch into that space, once again, have an impact in the second half of the year. But in reference to formulary access, as mentioned, we continue to have exceptional formulary access. We didn't -- the previous year, we will carry that forward into 2026 as we go forward. So in reference to the Q1 dynamic, I mean, this is typical seasonality that you see with any pharmaceutical product to include nonsteroidal branded topicals. As mentioned, it's partly because of the deductible reset that happens at the beginning of the year. And also patients are changing insurance plans effective the first of the year, which results into higher increased co-pay usage and therefore, higher gross to net rate within the first quarter, which, we mentioned, will be in the high 50s. But from the first quarter, that gross to net rate will continue to trend down, as we saw in 2025, to the lowest rate in Q4. We raised the guidance. We're very confident in our performance. It's going to happen in 2026, and we expect to have sequential quarter-over-quarter growth as we roll through out of Q1 to Q4 aligned with the restated guidance, once again, taking note that the investments in the dermatology expansion and PCP expansion will have an impact in the second half of the year.

And the next question is going to come from Uy Ear with Mizuho.

Congrats on the good quarter. Maybe a couple of questions, if I may. First question is, I think in the fourth quarter, you indicated that quarter-over-quarter growth was 29% and about 19% of that came from Rx and 2% contributed to inventory. So that sort of implies that about 8% came from price. Just wondering how -- do you expect this sort of benefit to continue through the year and particularly next -- in the fourth quarter of next year as well? That's the first question. And the second question is, you indicated that you have about 1/3 of Part D. Maybe just help us understand what is it -- like, why you're able to get this 1/3 and when would you be able to get the remaining? And what was it about this particular 1/3 that made -- that facilitate, I guess, access?

Todd?

Yes, no problem. Yes. Relative to the fourth quarter dynamics, you are accurate relative to the 29% with 19% of that being attributed to volume, the 2%, which was the -- an inventory build that we had, once again, 2%, or $2.5 million that we expect to unwind in Q1. And then the other was the price upside, which was a result of patients moving quicker through their deductibles, which lowered our co-pay card expenses. We will see the seasonality in Q1 that we mentioned. But then also, as mentioned, the gross to net will continue to improve through the quarters through Q4 as patients start to achieve their out-of-pocket maximum, which reduces our co-pay card expenditures and that typically starts at the highest in Q1 and then levels down quarter-by-quarter to a lower expense to us, which lowers our gross to net in Q4. Relative to the Medicare Part D and the 1/3, how and why were we able to achieve this? It's 2 reasons. One is our strategic pricing. We price

I do think it's worth dwelling on just how big a deal this is to gain Medicare access, Part D access, right? It's very rare for patients to be able to get branded products on the Part D formularies. And I think Todd mentioned in the call, we're the only branded topical on formulary. These are your grandmothers, your mothers. These are people who deserve access to medical innovation as much as anyone else, if not more so. And we're really proud of our success so far in gaining Medicare coverage and are looking forward to getting the remaining Part D formularies on board. I would also just remind investors that Part D, unlike Medicaid, looks a little bit more like commercial markets where there's multiple commercial plans managing the Part D plans. And so you have to gain formulary access to each individual Part D provider, which is why it's lumpy the way commercial coverage is.

And the next question is going to come from Andrew Tsai with Jefferies.

Brian on here for Andrew. Just on HS and vitiligo, can you just remind us on the primary endpoints for both of those as well as the outcomes that you'd like to see to take them both to Phase III?

Sure. Patrick, do you want to take that one?

Yes. I think what we're looking to focus on as we move into the fourth quarter for vitiligo, for a decision and presenting those data, and then the first quarter for HS is to really be able to get an understanding of what does this kind of the kinetic response of patients look like, because I think here, timing of the response is really important in both of these diseases. They've been challenging with regard to how long it's taken for patients to get to a response that is meaningful to them. So we're really going to be focused on that. And then as well, for us, it's -- it will be important for us to understand kind of what is that fraction of the patients that are being treated, given that these are open-label studies, who are showing a meaningful clinical improvement over that time point, so that we would be able to kind of make an educated guess as to what the expectation for a pivotal trial would look like as we revert then to kind of the characteristic endpoints that you would expect for a pivotal in vitiligo and HS. But I think that the profile that we've seen of excellent tolerability once-a-day treatment and rapid response, which is kind of characterized our efficacy patterns -- and safety patterns across all 3 indications, is what we'd be hoping to replicate here.

And the next question will come from Serge Belanger with Needham.

Congrats on a strong end to 2025. First question regarding the pediatric opportunity. I think you've been on the market now with a 0.05% cream product for nearly 4 months. So can you provide more color on the level of awareness and the willingness to prescribe the product in this market segment? And then secondly, you now have an expanding sales force on 2 fronts and a growing cash balance with positive cash flows. So does that change your appetite to add a commercial asset to the bag of the sales force?

Maybe I'll take the first one -- or second question, and then I'll turn the first question over to Todd to give him a little bit of a break. I would say that a commercial stage asset is probably not our highest priority right now. And I think the major reason for that is just the wealth of new opportunities that we have around

Yes. Relative to the 0.05% atopic dermatitis for 2 to 5 years old, there is a strong willingness to prescribe this product, and we're seeing robust uptake of the product since the launch. This is a great product relative to that patient population. offering, once again, once a day, a very soothing, moisturizing vehicle. It's highly effective. That can be put anywhere on the body for any duration. This is a product that drives long-term disease control and is a great option for replacing steroids. Caregivers and pediatricians and dermatologists prefer not to use steroids in this patient population at this age. And that's where

And the next question is going to come from Rich Law with GS.

Congrats on the progress. A couple of questions here. How much of that new 2026 guidance factors in the potential sales improvement in that primary care and pediatric setting now that you're moving those efforts in-house and then -- and you're also kicking off these pilot programs? So I mean, just based on that minimal contribution from Kowa, I think that's why you guys terminated that contract. Is there an opportunity for 2026 sales to go even higher just based on what you guided if you're able to make improvement in that PCP and pediatrics segment?

I think it's probably a little early to speculate on the magnitude of the primary care contribution. That's something that we'll continue to guide. As Todd mentioned in this call, we're taking a very methodical and stepwise approach to primary care. We're going to start with a very small team focused on the highest value customers so that we can really fine-tune our go-to-market strategy and figure out what's the right way to access this very large but very diffused opportunity in primary care and pediatrics, and then we'll scale that as we figure that out. So the rate that we scale that and also the rate that it starts to inflect the top line, I think, is probably premature for us to speculate on.

Okay. Got it. And then just a follow-up on the Medicare patients. What's the OOP expense for these patients as that non-preferred branded category?

Yes, I can go ahead and get that one, Frank. So you're talking relative to the out-of-pocket expense for the Medicare beneficiaries, what's the maximum limit on the cap? If that's the question, it would be in 2026, the cap is now $2,100. So a patient needs to pay the co-pay or coinsurance that's aligned with the product up to the maximum out-of-pocket expense at $2,100, and then the products are covered thereafter by the Part D plan.

Yes. I would just add to Todd's point, just a reminder, that $2,100 is total out-of-pocket for all drugs, right? So for an elderly patient who's maybe on multiple medications, their total out-of-pocket expense for the year is capped at $2,100. And patients can also opt in for smoothing, which means that they pay -- their maximum out-of-pocket in any month is 1/12 of $2,100. So it's very manageable. For

And the next question is going to come from Douglas Tsao with H.C. Wainwright.

Frank, maybe just a follow-up on the Kowa and the primary care opportunity. I guess, obviously, as you put it, it's a very large opportunity as well as diverse. Was it simply a function that you didn't think that they were taking the right approach and that you sort of saw a different way forward? Or was it just simply just capturing all the economics for yourself?

I wouldn't say it was either. When we signed this deal with Kowa, I guess it's been about 1.5 years ago, we weren't in a financial position where we could build our own primary care team. We're in a very different place today. And Kowa is a perfectly fine company. But when something really matters to you, it's often best to do it yourself, right? So given that we're in the financial position to do this ourselves, we felt that the best way to maximize shareholder returns was for us to drive primary care and pediatric promotion ourselves. I will say, as you pointed out, we do keep all the economics on that, but there are some expenses associated with it, too. But we feel very confident that we're going to be able to do this in a way that will be accretive very quickly to our shareholders.

And Frank, if I can, as a follow-up, I mean, is it also just given the momentum that you've seen with

Yes, absolutely. And I think I would add to that, that some of the early experience with Kowa added to our conviction around this. There's a very high level of excitement, I would say, in primary care and pediatrics around

I am showing no further questions in the queue at this time. I will now turn the call back over to Frank for closing remarks.

Okay. Well, I will keep it short. As always, thank you for the great questions. Thank you for making the time to call in and listen to our discussion today, and we look forward to talking to you all in another 90 days to update you on the first quarter. Thanks a lot. Bye-bye.