Arcutis Biotherapeutics, Inc. Q1 FY2025 earnings call

• Frank Watanabe thanked David Topper for his contributions and welcomed Latha Vairavan as CFO. - The team has executed exceptionally well, with strong performance across the portfolio and progress in the pipeline. - 2025 has multiple catalysts, with significant market expansion opportunities, especially the shift from the large topical steroid market. ZORYVE performs excellently, and clinicians have positive feedback. - There are expected approvals in 2025, such as the anticipated approval of ZORYVE foam for scalp and body psoriasis on May 22nd and ZORYVE cream 0.05% for 2 - 5-year-old atopic dermatitis in October. - Made progress in intellectual property protection, reaching a joint stipulation with Padagis to suspend litigation. - ZORYVE has strong prescription growth, good insurance coverage, and the Kowa commercial partnership is progressing steadily.

In the first quarter of 2025, Arcutis Biotherapeutics reported net product revenues of approximately $63.8 million, which is a 196% increase from Q1 of 2024. Excluding the non-recurring $4.1 million reduction in reserves for product returns in Q4 of 2024, net product revenues only decreased by 2% quarter-over-quarter. ZORYVE's prescription volume reached a new high, with 17,000 weekly scripts on a rolling four-week average basis. Revenues from ZORYVE's portfolio were driven by previous launches and expected approvals in 2025, and insurance coverage for ZORYVE stood at approximately 80% of total prescriptions.

• Management is confident in sustaining growth throughout 2025 and beyond, with multiple product approvals and market expansion opportunities driving growth. - Anticipates continued growth of the ZORYVE portfolio, with product launches in 2025 contributing to growth. - Expect to achieve cash breakeven in 2026.

• Patent litigation risk from Padagis' topical roflumilast ANDA. - Potential impact of tariffs on the business, but considered immaterial.

Q: Thinking about the cadence of ZORYVE performance throughout the rest of the year. Is there anything you'd point out on seasonality, cyclicality that we should keep in mind that could impact kind of quarter-over-quarter trends? And then secondly, for the alopecia areata readout expected in the middle of this year, what would you set in terms of expectations for what we can learn and what you hope to see for the product profile?

A: Todd Edwards mentioned modest seasonal impact but positive value drivers like the ZORYVE foam launch and portfolio effect. Patrick Burnett said ARQ-255 Phase Ib trial is to evaluate safety, tolerability, pharmacodynamics, etc., and get an early read on potential.

Q: Just wanted to get a sense for how the additional scalp psoriasis and body psoriasis opportunity can accelerate and expand the use of ZORYVE foam. Obviously, that's kind of a standout product within the portfolio at this point and continues to be so. Just trying to get a better understanding of how that can potentially expand utilization of the foam more broadly. And is it your view that it will cannibalize cream or expand the market and the overall penetration? Then the second question is actually just help us understand where we are in the lifecycle of ZORYVE as it relates to potential impacts of seasonality, whether or not we would see anything like that, given the mild to moderate treatment opportunity that you have in atopic dermatitis where sometimes in the summer months, we could see some seasonality. But it seems pretty early in the lifecycle of ZORYVE to see an impact there, but just wanted to get your thoughts.

A: Todd Edwards said no meaningful cannibalization, expect broader utilization of ZORYVE for psoriasis patients with optionality, and expect some seasonality impact in atopic dermatitis but strong demand growth overall due to portfolio effect.

Q: 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 ZORYVE cream 0.3% and other products, Opzelura and stuff like that have been in the market at least for the last four years, what is it that drove this significant market share?

A: Todd Edwards said gross to net will remain in the 50% range, with improvement through the year. Frank Watanabe said it's due to new advanced topical therapies with better clinical profiles compared to previous options like TCIs.

Q: Can you guys please elaborate on the current split of patients, ZORYVE patients being treated in the derm office versus primary care? And I know you mentioned the 50/50 of the addressable patient population, but is that ultimately where you expect the split of patients to end up? And the second question is, as we think about the Kowa efforts, just maybe you could elaborate on some of the barriers to PCPs prescribing that are different from derms and what tactics Kowa is employing to knock them down in order to contribute to revenues meaningfully this year?

A: Frank Watanabe said current business is overwhelmingly dermatology, primary care and pediatrics are nascent but will be important contributors. Todd Edwards said Kowa makes steady progress in PCP selling cycle, taking time to educate providers and staff due to lack of prior promotion of non-steroidals.

Q: 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?

A: Frank Watanabe said quarterly updates to court on patent litigation status, Padagis' FDA program status. Patrick Burnett said ARQ-255 is different from ARQ-252, designed to deliver drug to hair follicle, white space in alopecia areata includes patients before systemic treatment and long-term management.

Q: 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 ZORYVE franchise prescriptions are currently covered by insurance. Curious if we should expect some additional improvements on that number over time?

A: Todd Edwards said gross to net improved early in Q1, expected to stay in steady state. Frank Watanabe said Q1 growth despite demand pull forward is notable, new-to-brand prescriptions in January lead to future refills, insurance coverage expected to stay in 80% range.

Q: 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?

A: Frank Watanabe said wouldn't expect vertical trajectory like seb derm launch, scalp indication will be an important contributor to growth, promotional efforts needed to educate clinicians on scalp psoriasis data.