Arcutis Biotherapeutics, Inc. (ARQT) Earnings

Management highlights

- **Corporate Strategy Execution (3 Pillars)** * Grow: Continue expanding the core commercial ZORYVE business in its currently approved indications. The franchise maintains strong momentum, driven by growing clinician and patient adoption of ZORYVE as a steroid-free alternative for chronic inflammatory skin conditions. * Expand: Evaluate ZORYVE for additional new indications to address unmet therapeutic need. Full enrollment is completed in the Phase 2 proof-of-concept vitiligo trial, enrollment is ongoing in the Phase 2 hidradenitis suppurativa (HS) trial, and 1+ additional proof-of-concept trials are expected to initiate in 2026. * Build: Advance the pipeline beyond ZORYVE. Enrollment is progressing in the Phase 1a/1b trial of ARQ-34, a novel CD200R-targeting biologic for moderate-to-severe atopic dermatitis, and management reports increased external deal flow in dermatology and adjacent inflammation areas that the team is actively evaluating. - **Regulatory Milestones Achieved** * The FDA approved ZORYVE cream 0.3% for plaque psoriasis in children as young as 2 years old, marking ZORYVE's 7th FDA approval in 4 years and the first once-daily steroid-free treatment for this patient population. * The FDA accepted the supplemental NDA for ZORYVE cream 0.05% for mild-to-moderate atopic dermatitis in infants as young as 3 months old, with a PDUFA date set for February 23, 2027. - **New Commercial Initiatives Launched** * Expansion of the dermatology sales force was completed in early May 2026, with impact on growth expected to begin in Q3 2026. Build-out of the first phase of the targeted primary care and pediatric sales team is complete, and the team will enter the field by the end of July 2026, with impact expected in 2027. * Launched a new virtual health platform to address access barriers caused by long wait times and geographic lack of dermatology access. The platform complements (does not replace) in-office care, connects patients to independent board-certified dermatologists, and coordinates insurance and at-home delivery for ZORYVE prescriptions if prescribed. * Partnered with a leading AI-enabled prescription workflow platform to streamline post-prescription processes including prior authorization, financial assessment, and fulfillment directly embedded in clinician workflows, reducing friction for patients and providers. * Continued direct-to-consumer patient awareness via the Free to Be Me campaign, which is synergistic with the new virtual health platform by directing engaged patients directly to dermatology visits through the platform. - **New Clinical Trials Initiated** * INTEGUMENT-itch: A trial evaluating ZORYVE's impact on pruritus (itch), initiated following compelling early data showing itch reduction within 10 minutes of first application. * Nail psoriasis trial: Evaluating ZORYVE for this hard-to-treat presentation of plaque psoriasis, based on promising efficacy signals from published case reports. * Trial of ZORYVE 0.3% for cutaneous adverse events in patients receiving PD-1/PD-L1 checkpoint inhibitor therapy, to evaluate if ZORYVE can allow patients to continue their life-saving cancer treatment.

Guidance

- Full-year 2026 net revenue guidance was raised from the prior range of $480 million to $495 million to a new range of $525 million to $540 million, reflecting stronger than expected momentum through the first half of 2026 and contributions from new commercial initiatives. - Gross-to-net is expected to remain in the 50% range for full-year 2026, and will gradually titrate down to the low 50% by the end of the year, with the pace of improvement moderating from what was seen in the first half of 2026. - Management expects continued quarter-over-quarter net sales growth in Q3 2026 vs Q2 2026, and Q4 2026 vs Q3 2026, with growth driven primarily by volume and demand rather than further large gross-to-net improvements. - A readout for the Phase 2 vitiligo trial and a go/no-go advancement decision is expected in Q4 2026, with a readout for the Phase 2 HS trial expected in Q1 2027. - Arcutis ended Q2 2026 with $238.9 million in cash and marketable securities, generated $12.6 million in positive operating cash flow in the quarter, and expects to maintain positive operating cash flow for the remainder of 2026.

Segment performance

Arcutis Biotherapeutics has one core commercial product segment: the ZORYVE (roflumilast) franchise. In Q2 2026, ZORYVE generated net product revenues of $129.9 million, which represents a 59% year-over-year increase from Q2 2025 and a 23% sequential increase from Q1 2026. Total prescriptions for ZORYVE across all approved indications and formulations exceeded 280,000 in the quarter, reaching a new quarterly high. The gross-to-net adjustment rate remained stable in the 50% range, with incremental improvement from the prior quarter. Cost of sales for ZORYVE was $10.9 million in Q2 2026, up from $7.5 million in Q2 2025, primarily due to increased sales volume. The ZORYVE franchise holds just shy of 50% market share in the branded topical nonsteroidal anti-inflammatory skin disease segment, and is the primary driver of growth for the overall nonsteroidal category.

Risks & headwinds

- Forward-looking statements around the timing and success of clinical trial readouts, regulatory approvals, new commercial initiative impact, and future revenue growth are subject to inherent risks and uncertainties that could cause actual results to differ from expectations. These risks include potential unexpected clinical trial results, regulatory delays, slower than expected adoption of new commercial initiatives, and competitive pressures in the dermatology therapeutic space. - While the company generated net income and positive operating cash flow in Q2 2026, the company's core focus as an innovative biotech is reinvesting all available capital into growth and pipeline expansion, so positive net income may not be consistent across all quarters. - The upcoming commercial transition following the resignation of Chief Commercial Officer Todd Edwards carries inherent near-term execution risk, though management has stated the commercial team is already well-established and the incoming interim CCO has deep relevant experience to support a seamless transition.

Analyst Q&A

• Q: What are the key drivers of back-half 2026 growth, how does insurance/cost work for the virtual health platform, and what are management's priorities for the CCO transition?

  A: Management expects continued broad-based growth across the entire ZORYVE portfolio, led by the differentiated foam formulation, with demand growth as the primary driver. For the virtual platform, ZORYVE pricing and patient out-of-pocket costs are identical to in-office prescriptions, with insurance coverage handled the same way as traditional office-based care, unlike direct-to-consumer telehealth models. For the CCO transition, the existing commercial leadership team is already strong and experienced, and the incoming interim CCO will overlap with the outgoing CCO to enable a seamless transition, with deep relevant experience in inflammation immunology commercialization.

• Q: Can management confirm to expect continued quarter-over-quarter growth in Q3, and what data readout will trigger a go-forward decision for the vitiligo program?

  A: Management confirmed it expects continued quarter-over-quarter net sales growth in Q3 2026 versus Q2 2026, with all growth driven by volume and demand as gross-to-net improvements moderate. The vitiligo trial was fully enrolled ahead of schedule including harder-to-enroll pediatric patients, and management is looking for competitive efficacy and speed of onset versus the existing approved marketed product. Even with equivalent efficacy, ZORYVE's once-daily dosing, lack of a black box warning, and favorable pricing profile are expected to make it competitive, and superiority on speed of onset would be a strong outcome to support advancing the program.

• Q: How large is the patient opportunity for the new primary care and pediatric sales team, and how will infant atopic dermatitis approval expand the market?

  A: Established data shows half of all patients with psoriasis, atopic dermatitis, and seborrheic dermatitis are never seen by a dermatologist, and are treated by primary care providers or pediatricians. The initial sales team will target the small subset of high-volume early adopter providers that generate a disproportionate share of topical prescriptions, with expansion evaluated after initial traction. There are roughly 1 million infants in the 3-24 month age group with atopic dermatitis, with very few existing approved nonsteroidal treatment options. Steroid safety concerns are particularly acute for this population, so management expects strong uptake from pediatric dermatologists once approved, with medical affairs already engaging the community to address questions ahead of the potential 2027 launch.

• Q: Who is the virtual health platform targeting, how will patients be driven to the platform, and what do new patents add to ZORYVE's IP portfolio?

  A: The platform targets patients who cannot access in-person dermatology due to long wait times or geographic shortages of dermatologists, complementing the existing patient base that already accesses care through in-person offices. DTC marketing through the Free to Be Me campaign will directly refer interested patients to the platform for immediate dermatology visits. The two new patents cover ZORYVE formulation and method of use, are Orange Book listable, incrementally strengthen Arcutis' existing strong 28-patent IP portfolio, and do not change the existing loss of exclusivity timelines (2037 for cream, 2042 for foam).