Arcutis Biotherapeutics Inc. Q1 2023 Earnings Call

Okay.

Good day, and thank you for standing by and welcome to the <unk> Biotherapeutics Q1, 2023 earnings Conference call.

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After the speaker's presentation, there will be a question and answer session.

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I would now like to end the conference over to your Speaker today, Eric Mcintyre head of Investor Relations. Please go ahead Eric.

Thank you Mark.

Afternoon, everyone and thank you for joining <unk> first quarter 2023 earnings call.

Slides for today are available on the investors section of our website on the call we have Frank <unk>.

Evident and CEO , Ken Loch Chief Commercial Officer, Patrick Burnett, Chief Medical Officer, and Scott Burrows, Chief Financial Officer.

During this call I would remind everyone that we will be making forward looking statements. These statements are subject to certain risks and uncertainties and our actual results may differ materially. We encourage you to review the information disclosed in our latest SEC filings.

And with that I'll hand, the call over to Frank to kick us off.

Alright, Thanks, Derrick so I am on slide five of the deck for those of you following along on the deck.

And that provide a high level overview.

The first quarter of the year, we made strong progress in laying the foundation for sustained long term growth that are curious I'll start with <unk>, our innovative product for plaque psoriasis.

Believe this product is very well positioned for long term success with a real potential to eventually replace topical steroids and physician and patient feedback has been exceedingly positive and launch continues to build momentum, we're seeing encouraging script growth as physicians gain positive real world experience with the reef, we've roughly doubled our tiara.

<unk> quarter over quarter in Q1, and we see continued growth in April I think it's worth noting that whereas the last five branded topical launches have seen gross stall somewhere between three and six months into the launch we have now continued steady growth through nine months of our launch.

We also continue to make progress on gaining broad high quality access for patients to <unk>. We now have coverage at two of the three large pbms as well as a number of other large downstream health plans within just six months of our launch and we're making good progress with the remaining large pbms PVM excuse me.

We have now over 110 million commercial lives, which is about two thirds of the commercial market and I think it's important to note that over 90% of those patients have access to <unk> without a prior authorization, which meets our goals for high quality access was eerie.

We believe we should be able to get to over 80% commercial coverage before the end of 2023 and likely even sooner than that.

I will note that while obtaining coverage as a necessary precondition for patients to gain access it is not alone sufficient and we are augmenting our field deployed forces to increase our pull through of that coverage in the covered prescriptions that can talk a little bit more about that a little bit later.

At the same time, we've made continued progress on regulatory milestones to expand to additional indications and geographies with topical form of Alaska.

We received confirmation of our <unk> date for the foam and separate dermatitis in mid December which is setting us up for our first launch of the <unk>. We believe this product is massively differentiated and there's a very high level of physician excitement around this product and a very.

Hi sense of customer urgency for this product given the unmet needs in this area. We also recently received the approval of <unk>.

<unk> claim in Canada for plaque psoriasis and the launch in Canada is going to be in the next couple of weeks, obviously, it's a smaller market. The U S. But we still think it's a very attractive opportunity and this represents the first regulatory approval for <unk> outside of the United States, which is another key milestone for our <unk>.

We also had the presentation of late breaker data from the <unk>, one and we've taken the two trials in atopic dermatitis at the American Academy of Dermatology meeting in March we continue to get very positive physician feedback on the clinical profile of <unk>.

Especially the early onset, including the impact on itch in as little as 24 hours, which was presented at AAD as well as the differentiated safety and Tolerability profile, which is particularly important in atopic dermatitis.

And we expect to file for approval in ages, six and above in atopic dermatitis late in the third quarter early fourth quarter of this year.

We also just recently completed enrollment in the <unk> study and ages two to five.

And we expect to see top line data from that study in Q3, I would note that that will be a supplemental NDA. So that data is not a critical path for the aforementioned filing late Q3, early Q4 and six and above.

So that we can capitalize on this incredible opportunity we are adjusting our capital allocation priorities and we're making some specific adjustments to drive success in our commercialization efforts and Scott will provide some more details on that shortly.

Turning to slide six.

I think topical form last really represents you hear this word a lot, but a pipeline in a product with potentially for unique products in one and multiple inflection points coming up ahead with potentially new launches every two or three quarters for the next several years.

So with <unk> today, we're competing in a market of around $2 million topically treated psoriasis patient in dermatology offices in the U S.

The total Tam Tam effectively doubles in size with the expected approval of <unk> to more than 4 million patients in the dermatology office in the U S. And then the Tam will nearly double again to almost 7 million patients in dermatology offices with subsequent launch in A&D.

And then there is nearly as large an opportunity outside of the dermatology office with about 6 million additional patients being topically treated outside of dermatology offices, mostly in primary care in pediatrics.

We do plan on a capital efficient partnership to allow us to access this broader opportunity outside the dermatology offices, rather than building our own sales team. When you factor in all of these different opportunities. That's a sixfold increase over our current psoriasis market that were targeting at the moment, what's the read and I think that really speaks to the long.

Term potential of topical form last and <unk> in the space.

We think that the topic of a formalized product profile ideally aligned with what physicians and patient need and are looking for and as I mentioned for the catalyst path really sets a separate nicely for a potential new launch every two to three quarters with <unk> at the beginning of 2020 for atopic dermatitis later in 2024, and then scalp and body.

So it's really too early in 2025 and with those inductor remarks, I'm going to turn things over to Ken.

Alright, Thanks Frank.

Following along I'm now on slide eight.

Moving to commercial performance our launch momentum continues to grow with steady prescription growth built on the back of the exceptional feedback that we've been receiving on the product profile as Frank mentioned, we have nearly doubled the trs volume quarter over quarter and growth grown new prescription growth by nearly 80% with continued positive momentum into Q2 on both fronts.

We continue to hear exceptional feedback on the product profile was the re from physicians and patients alike and in particular, the rapid efficacy the effectiveness in treating the most difficult <unk> even on the palms and so in addition to the sensitive areas and physicians are seeing very little any tolerability issues associated with the product.

On slide nine we take a deeper dive into what's driving our continued growth through the lens of market research dermatologist preference for <unk> has grown substantially as positive patient feedback and clinical experience builds on the left is a look at longitudinally physician preference on <unk> growing over time, we believe the consistency of the profile because they're either truly.

Shining through as expected in the early days of launch prescribers were trialing those new products with the majority expressing nuclear preference as clinical experiences built more and more of the same positions are shifting preference to <unk> and in the most recent wave demonstrating a doubling of preference since we began measuring this in November of 'twenty to <unk>.

Rising Lee and consistent with what we're hearing conversations with customers every day <unk> Tolerability and safety profile lead the way in terms of the reasons for product preference business, followed very closely and importantly by our absolute efficacy and speed of onset.

It is critically important to continue to have physicians gain confidence in topical Brooklyn last as we look to launch additional indications as their current experience and perceptions will significantly shaped the reception of our future launches on.

On the right hand side of the slide we take a closer look at the new prescription trend, which is reflective of critical brand choice in the moment and for <unk>. We continued to show positive trajectory. This can be thought of as a leading indicator and a platform for repeat business. We believe the momentum is just getting started as preference takes hold and prescribers celexa we've increasingly oct.

And for their next eligible patient versus other alternatives.

As Frank mentioned other recent branded topical launches have not seen the ability to sustain that launched growth trajectory through nine months. So we're very encouraged by what we're seeing here.

On slide 10, the next slide depicts here the source of business for us the read from launch to date and we're very encouraged as our volume grows that two thirds of our business continues to be sourced from topical steroids in steroid containing combinations with the balance coming from mix of older nonsteroidal products, such as vitamin D analogs and topical <unk> inhibitors.

As well as a very healthy portion of competitive branded products for plaque psoriasis.

We continue to position <unk> to convert a significant percentage of the topical steroid market that is really where the long term opportunity remains its arises outlet all of our subsequent indications.

Moving to the next slide on Slide 11, we have continued to unlock their requisite broad high quality access for <unk> that will drive for the unit demand revenue realization in gross to net improvement and as Frank mentioned now approximately nine months into launch we have two thirds of the commercial lives covered in the U S and well over 110 million lives importantly over 90.

Percent of these $110 million or so are actually covered without a formal prior authorization requirement, which is critical to facilitating the long term conversion from steroids by making it as easy to write that next step as easy to write <unk> as that next steroid.

Instead of that next year right.

So on the rate side, just a recap of our historically seen at access and coverage goals anchored by our responsible pricing strategy.

Firstly preservation of long term gross to net which I'll speak to more detail in a moment. The second is to optimize both our volume and our franchise value.

Specifically, gaining access to government payors and avoiding specialty appear in coinsurance thresholds with our future indications is important because there's a larger government pay demographic with those indications thirdly, obtaining high quality coverage with a minimum duration of step edits and prior authorizations and we've also now begun to see differential coverage emerge across <unk>.

<unk> Pbms and health plans compared to topical derm competitors, depending on the payer and plan. These branded competitors youre seeing higher out of pocket cost to patients as a result of hearing incomplete adoption across formularies.

As quintin and limits and requirements for formal prior authorizations, and lastly, faster formulary adoption, which we have seen play out thus far with the major payers now circling back to the gross to net aspect, while we've made extraordinary progress on securing formulary coverage, we need to now pushed down execution to the office and pharmacy level to ensure appropriate reimburse.

It has taken us longer than expected to convert that coverage to paid prescriptions in this must change.

We have seen some also seen some delays in terms of coverage implementation at the downstream plans and some pharmacy is still running are covered patients has uncovered in our co pay program. We believe we have diagnosed these underlying causes and we're taking a number of specific steps to improve this as we continue to launch and gain more payer coverage. For example, we've increased our field based footprint.

Focused on reimbursement support and pharmacy education to enhanced coverage pull through and further partner with dermatology offices on the specific criteria needed in order to drive covered prescriptions.

We are encouraged by the improvement in transplant and coverage to paid prescriptions in certain regions of the country, where we have already implemented these measures and the training of co pay cost reduction over the year as we more broadly address some of these key dynamics.

Now we've also felt the effects that most manufacturers typically see in the first quarter, which our insurance plan changes deductible resets and higher coinsurance populations year over year, which drive our co pay offset costs that.

We expect this to improve as we move throughout the year, but importantly, and above all we are securing the payer coverage necessary to build the foundation to meaningfully convert the topical steroid market with <unk>.

So like 12 in conclusion I want to revisit the three core pillars to commercial success that we've spoken about in the past that set the foundation for sustained growth.

Driving physician awareness and expanding our prescriber base. We've now seen over 6000 unique writers since launch and this has grown approximately 50% since the last read what we showed in Q1 commensurate with our volume growth and while our breath is growing nicely. There is still plenty of headroom for our targeted hep's experienced the benefits of <unk>.

With respect to the patients we are receiving testimonials daily on a positive experience with <unk> and refills are growing very nicely contributing now in excess of 20% to <unk>. Each week in April and are reflective of the confidence that our writers have to continue prescribing. We also as our coverage improves are continuing to evaluate the right time to supplement our current DTC.

By way of highly targeted means such as connected TV and lastly, we continue to build on our broad high quality access as discussed with cover secured a two to three major pbms and the quality of that coverage meeting our hurdle of minimizing step edits and prior authorizations. So at this point all of our indicators and measured launch metrics prescribers.

Sentiment in awareness and patient reception continued to point upwards, we continue to learn and adjust our tactical approach in order to maximize the number of patients that received the benefit of <unk> and with the foundational elements largely in place and we look forward to delivering on the long term comments observations I'd like to now pass it to Patrick for an R&D update Patrick.

Thanks, Ken I wanted to touch on our atopic dermatitis in February 8th dermatitis programs briefly before updating on upcoming milestones as investors are aware, 80% a key opportunity for topical from Alaska and physician feedback on our <unk> data has been very positive well continues to jump out is the speed of onset in our trials, which gives a clearer.

The indication that the drug is working and of course the ever important safety Tolerability data that are a key aspect of the product profile.

With this as our each response across all indications, it's just particularly a critical element for patients with atopic.

A topic dermatitis is often referred to as the itch that rashes and is the most important signal for 80 patients to know that the drug is working early and an important indicator of clinical response. So looking at slide 14, as Frank mentioned, we presented these exciting daily itch data at a podium presentation at the recent American Academy of Dermatology meeting this.

A great commentary on the early onset of action for <unk>, We show a statistically significant improvement in itch, just 24 hours. After the first application of drug and then again at all time points thereafter across both of our pivotal phase III trials. This profile aligns well with the unmet need in the market and this kind of early response of symptoms.

Exactly what patients and hcp's want to experience when initiating treatment in atopic dermatitis.

Switching to our phone program now on slide 15, and our first indication does that break dermatitis.

FDA acceptance of our application is yet another major milestone for the company and we're looking forward to the December <unk> for an anticipated approval excitement is intensifying in the physician community based on the strength of our topical for whom last data and because they are still little to offer. These patients currently keeping in mind that there are just as many patients with derm offices with February <unk>.

Titus as there are with psoriasis.

Our food last phone would be the first topical drug for February dermatitis in decades.

A reminder, on our phase III data here, we are again on slide 15, we're showing a very strong early response with over 40% of patients with Iga Iga success already at week, two which increases to 80% Iga success at week eight and that was our primary endpoint and this tracks.

Looking at the graph on the right track to 50% of patients going all the way to completely clear at eight weeks, we as well showed a significant impact on itch, which is a major symptom of February if dermatitis as well but.

But we haven't included those David here, although they have been presented.

These absolute efficacy levels unheard of for a topical just to note that these data are from our Registrational phase III study, but they replicate the impressive data from our phase two study that was just published in the journal of the American Medical Association.

Ken This is with the foam formulation and were hearing that this formulation really aligns well with patient needs in this space and provides a strong competitive differentiation.

I'll finish up my update on the R&D progress with a summary of our milestones on slide 16 taken together. These represent an opportunity for significant sustained long term growth with additional approvals and expanded geographies as well as label expansion highlighting just a few of these now.

Showing continued regulatory execution with our recent Canada psoriasis approval now just to contextualize the importance of this for patients in Canada. This is the first non steroidal approved there in over 25 years, Canada played a central role in our development of <unk> over a third of all clinical trial participants came from Cantor.

So lots of familiarity with the <unk> already there and excitement within the derm community for our QRS moving on to atopic dermatitis, we updated our NDA submission timeline for late Q3 early Q4. This year that will include ages six and above as Frank mentioned, we also announced last week the completion of enrollment of our <unk>.

<unk> <unk> trial, that's ages two to five years and our topline. There has mentioned is expected in Q3 of 2023 Q3 of this year, that's going to be an important dataset for a differentiated profile in atopic dermatitis. So thanks for the chance to update you on our R&D progress and I'll turn it over to Scott for the finance update.

Thanks, Patrick.

Turning to page 18 of the slide deck net product revenues were $3 million in the first quarter in line with our prior guidance.

Drawing unit demand growth, which doubled sequentially was offset by the anticipated higher gross to net in Q1.

Ken discussed earlier Q1 gross to net was higher quarter over quarter due to the typical first quarter insurance deductible resets and the dynamics in getting our prescriptions covered by insurance, we expect gross to net will improve through the balance of 2023 based on our ability to continue to expand our high quality commercial coverage and our continuing efforts to translate that.

Average into covered prescriptions.

For Q2, specifically, we expect a sequential net sales growth will be driven primarily by the continued demand growth. We are seeing with improving gross to net is only modestly contributing quarter over quarter for the balance of 2023, we expect revenue growth to be driven by both demand growth and further gross to net improvement.

Turning to the rest of the P&L research and development expenses were $35 million in the quarter and included a one time $3 million NDA filing fee for submarine dermatitis.

The decrease year over year is primarily due to lower clinical development costs for a topical route of food and wellness programs.

SG&A expenses were $43 million for the quarter as we continue to invest in those re launch and the upcoming launches in February of dermatitis atopic dermatitis.

Net loss per share was $1 31 for the quarter.

Turning to our final slide on page 19, we provide some key balance sheet and cash flow items, we remain well capitalized with cash of $333 million as of March 31.

We are excited about the progress we're making in these early innings of those or even launched and in our ability to drive increased shareholder value.

We also recognize the criticality of continuing to invest in the growth of the launch in psoriasis as well as prepare for the fall one launches in separate dermatitis and atopic dermatitis.

In response, we are taking proactive steps to reduce R&D spend specifically investment in our early stage pipeline as well as spend in other areas of the company to ensure we have the resources to invest in the launch.

For the remainder of 2023, we would expect R&D quarterly opex to be modestly down sequentially with more significant declines in 2024 as the remainder of our <unk> clinical program approaches completion.

We are reducing planned expense growth in G&A areas as well, but still expect overall SG&A expense to grow modestly as we continue to fuel those relaunch and prepare for our next two product launches in 2024.

In addition to these prioritization efforts, we have made meaningful progress in our ex U S licensing efforts with the potential to further strength to strengthen our balance sheet with non dilutive capital.

This concludes the financial update I will now turn the call back to Frank to wrap up our remarks.

Okay, well, thanks to everyone for joining us for the call today I know for our East coast.

Colleagues, it's late in the day. So we appreciate you, making the time and with that we will open things up to Q&A.

Thank you at this time, we will conduct the question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

To withdraw your question, Chris Doerr won one again.

We standby, while we create our question and answer roster.

Our first question will come from Vikram Bureau hit of Morgan Stanley . Please go ahead.

Hi, good afternoon, thanks for taking our questions.

We had two both on does the relaunch one on reimbursement on one on.

Guess patient use dynamics on reimbursement you mentioned that.

It's taking a little bit longer than you would expect it to get.

<unk> gross to net.

Down to levels, where you were hoping.

Hoping to get them could you just unpack for us I guess, what's taking longer than you would have expected and specifically what do you think you could.

What are the levers you can you can pull on in the next six to nine months.

Uh huh.

Compressed that gross to net down and then secondly.

You mentioned roughly 60% of patients are switching from topical corticosteroids <unk> are you seeing that as a direct one to one switch or a direct replacement or.

Patients who were previously using topical corticosteroids also using us or even conjunction with Tcs and just mixing and matching therapies across their body.

And we ask that question to help get a sense of.

Duration. So if you could comment on kind of duration, what youre seeing in terms of annual.

Annualized tubes of use that'd be great. Thanks.

Sure. So Ken maybe you can take that and then Patrick if you have any additional color from a clinical standpoint.

Yes, I'll start David background, how are you.

The some of the dynamics I talked about some of the underlying causes I'll just expound on so first of all there's a little bit of inertia, where prior to us having coverage at the best way to get the patient. The drug was just simply that process that is non covered so even as coverage comes on board we have to educate.

And be out there to help with the pharmacy networks to help process the prescriptions correctly.

I would say we've seen some lag in terms of the implementation of coverage. So as Frank mentioned earlier, we've been.

Getting the wins at the payer level, they are being announced but it takes some time to push those down into the plans themselves and ultimately sort of get the system up and running to acknowledge the fact that we're getting covered and thirdly, I'd say coverage and of itself does not necessarily mean reimburse script. So the fact that there is cut.

So, let's just take an example, pbms one there might be other criteria. We then are on the hook for meaning the prescription has to be processed correctly. The right information has to be included in that prescription I E. The diagnoses co tried and failed medications thats first and foremost. So there is some work to do that's why I mentioned earlier execution.

Now at the office level, and then secondly on the pharmacy side to make sure that those are being run correctly and sort of end to end the things that have to happen.

Ultimately happen and that's why we've taken some of those steps as I mentioned to increase both our education level as well as our field based footprint to focus on these aspects of reimbursement such that we really can enhance that rate of covered prescription. So that's what we're staring at in terms of.

The.

Kind of challenges that we're working through.

We haven't really given guidance on sort of how long, but what I'll say is that we are very encouraged to see that our internal copay costs are offsets.

To come down, which means that there is an increasing number of prescriptions being processed correctly and covered and so but I think what's obfuscating. This picture is the quarter, one dynamics that we talked about earlier, which we're.

In addition to the challenges of implementing one zone coverage.

<unk> see dynamics in which.

We mentioned the insurance changeover, the high deductibles and one of the interesting dynamics.

We're seeing a larger population that healthy patients that are opting for high deductible plans, which means that if you otherwise healthy patient deductibles would largely fall to the manufacturer of that.

Drug that you happen to be taking so we're seeing an increase year over year in the population of patients who are picking those kind of high deductible plans, but we largely expect that to resolve over time as the year goes on when we get out of that deductible loop.

So thats part of dynamics in the first I think your first question. Your second question had to do with the ratio I think of Tcs.

To us and so.

I think the what we're seeing is we're seeing a whole variety of sort of use cases, including people who are on multiples of steroids.

Kind of coming out, which is a reef and thus rationalizing their overall regimen and we also see people who are on a single steroids that are coming over and so and the third aspect you mentioned sort of in combination. We are also seeing that in this case too. So instead of I'd say, a mixed bag with respect to the use case and so I don't know that attracts.

Perfectly on a one to one basis, but I will reconfirm. The fact that we are very confident in our tube utilization guidance that we've been in the past and again the refills are really starting to kick in now as the volume increases we're seeing week over week, increasing percentages of refills. We also have seen patients who are receiving now up to their fifth refill. So.

It's good confidence building, but in general we need a little bit more time to sort out the exact ratios, but I feel reasonably I feel confident that.

The guidance that we provided before on tube users still still appropriate.

Okay.

Thanks for taking my question.

Just to add a little bit on the clinical context to that I think.

The real value of this product to patients with skin disease patients with psoriasis and the doctors after price will take care of them is the eventual ability to manage these conditions without the use of steroids.

Patients have grown up their whole life using topical corticosteroids in the doctors that we're working with them throughout their training throughout their whole practices have use these.

Think as experience to grow within the patient within the health care providers.

That comfort in being able to move patients over to being treated as mono therapy with <unk>. So that they don't have that exposure cumulatively two topical corticosteroids.

Now from publications is associated with.

Boundary mineralization that some of these other side effects that we associate with systemic exposure to steroids I think is a real benefit and.

As Ken mentioned, we're already starting to see like all of these different ways that doctors are using this as a tool.

To treat their patients, but I think over time, what we're going to start seeing is more and more of a shift towards treating patients with mono therapy because of the fact that this profile supports being able to treat the disease no matter, where it occurs on the patient and that will only be more true when the phone is approved for patients with <unk>.

<unk> psoriasis, because then you really won't be able to treat it from head to toe every single place these medical.

Okay understood. Thank you.

Thank you please standby for our next question.

Hi.

And our next question comes from seamless Fernandez with Guggenheim Securities. Please go ahead.

Oh, great. Thanks for the question so.

It sounds like the coverage implementation has been a bit challenging I'm, just trying to better understand.

What we're looking at in terms of scripts written versus scripts filled.

And if we're seeing abandonment of scripts at a higher level.

Or.

There is substantial couponing.

Such that we will see a stronger directional change as we move into the second and third quarters of this year, just trying to get a little bit of a sense of how the.

The coverage implementation is going to be coming on in subsequent quarters and then just my second question.

Can you talk a little bit about how the coverage implementation is likely to be applied to the potential approval.

Of the foam formulation.

Certainly the feedback that we're getting from physicians with active experience with <unk>.

As only.

Quite a bit greater in terms of the enthusiasm.

For the sub derm indication, but for the broader utility of the foam formulation. So just hoping to get a better understanding of.

How the current coverage.

But you've really battled for and fought for and price for.

Is likely to play through into the launch of the foam formulation next year. Thanks.

Alright, so seamus good to hear from me you guys are going to keep 10 busy today.

So Ken I'll, let you handle Davis' question sure absolutely.

Absolutely Seamus thanks for the question so.

We have not spoken previously to specifically to sort of still versus abandonment rates whatever.

I'll tell you though is the.

The co pay programs that we have in place.

Largely mitigate the concern.

Over abandoned meaning our fulfillment rates are reasonably high because we have programs to support either covered patients or non covered patients. So if.

If your insurance type for example, let's just say you were part of the original <unk> approval.

[noise] password the subsequent quarters I think that's that's what I'm looking forward to as well, which is as we come to the full steam on implementation of our two P. B M. And then pick up our third which we expect some time you know in the middle of the year. This was it should wrap up significantly in terms of both you know capitalizing on the coverage itself, but I'll.

So reaping the benefit of the education were putting in now in terms of educating the opposite educating the pharmacy is also what it takes to get to reef covered so I feel like that that trajectory will only get better in terms of sort of implementing coverage now after the second question regarding subsequent indications.

The good news is you know unlike when we're launching a product from some sort of ground zero you know in some of the P. B M contracts that were negotiating or have negotiated in the in several cases there are instances where this the next indication for example, <unk> on my tennis would be viewed as a line extension and therefore.

The coverage that the seemed for the current P. S O indication would be transposed to that so we would not be starting from zero. That's not true about every payer, but it's true about you know some of the the the negotiated contracts that we have already so.

Instead of that immediate you know kind of offset or drop if you will we won't take a huge.

Punishment, if you will by by launching other indications in fact, we think that that will facilitate the uptake in the launch trajectory because of that preexisting coverage on that makes indications. So that's going to translate over and sort of you know be again, a tailwind to that <unk> that next launch.

Perfect <unk> Super helpful. And then just sort of a final question you. Frank I think you said add some recent meetings that you just sort of a target <unk> exiting the year that you you were anticipating to achieve is somewhere between 40 and 60% just wanted to.

Get a sense of where.

<unk> sort of consistently on that trajectory and we should sort of think about the balance of the the remainder of the year kind of coming on in a linear fashion and.

Admittedly this quarter, obviously being the sort of low watermark in that regard or the <unk>.

[laughter].

Yeah sure thing so uhm, just just to clarify I I I I don't believe I've ever put a time frame and when I thought we would get to our steady state gross and that we do continue to believe that you know, we'll get to something around 50, a sort of rain. There 40 to 60 per cent range, which is about as good as anyone performs these days how quickly we.

Get there I think is still to be determined uhm. There's there's obviously the coverage decision at the Pbms and as Ken mentioned, there we've seen some implementation legs, but then also there's the follow on the downstream health plans, making formulary decisions. We announced for example, some decisions in April that were a reflection of the coverage that we got an express scripts.

November so there can be a fairly significant lag there. So at this point I you know I I won't say that we'll get there by the end of the year.

But certainly we expect to see continued progress is Scott mentioned quarter on quarter throughout the year and we do continue to believe that we will get to that that's sort of typically a sort of range on the <unk>.

Perfect. Okay. Thank you.

Thank you for your question. Please stand by for next question.

And our next question will come from or ear of Mizuno.

Ed.

Hey, guys. Thanks for taking my questions. I guess my first question is could you kind of just help us to understand a little bit more in terms of.

What you guys are doing to improve this processing issues like I'm guessing quite don't understand what's going on in the Doctor's office.

There.

Some difficult code that they need to generate or is it a software issues just.

A little more clarification and the second question I guess is.

Like what proportion.

Where do you live at the quantified uhm, what proportion of scripts that had these issues and what proportion could have just been.

Due to seasonal fluctuations.

Thanks.

Yeah. So can I think it's back over to you again.

Okay I'll just keep the Mike. So how are you. So let me let me start with kind of trying to explain a little bit about what's happening.

At a high level. So when you when you get a coverage decision and stuff I'm learning implementation.

There are criteria that have to be met in order to access that particular, instead of a microchip I guess access to access the coverage that we've been so their conditions that the the patient has to meet so is this very specific example.

If you know the the the.

<unk> company needs to know that number one the patient is confirm the plaques psoriasis patient so to Tina you mentioned the code for example, so the ICT are diagnosis code would have to be included in that prescription.

The second piece is any information associated with that utilization management of that pair and just to bring that down further uhm what therapies has that patient tried so those two bits of information have to be included in the prescription itself ultimately for the pay her to kind of access.

<unk> those conditions, yes, you've met the conditions that we've agreed upon and we're Gonna go ahead and pay you for that prescription so.

Those are aspects that happened in the office and you know there are many dynamics that can happen in the office, where one or more of those particular.

One or more of those particular conditions may or may not be met so that's what we're focused on our way in terms of making sure that every office understands that criteria. That's very common you would see that for most if not all branded products and.

And something that we are looking at in terms of how do we help continue to educate those that actually input those prescriptions to know whether you have to do to get sorry. That's that's a large part of our focus on our field footprint, including our sales reps are is spending time with the folks there to make sure they understand that on the front man. So it's not a software problem.

Or or anything like that as much as the consistent application and recording of those criteria in order for us to get that prescription processed the.

Other pieces of the puzzle is you know, making sure that the pharmacies understand that we do have coverage and that patients with that particular type of coverage should be processed as such so trying to you know make sure that the implement.

And use that route in terms of the covered offer and you know those two things instead of work in concert to to make sure that you you get a cupboard script.

So those are the things we're working on like I said, it's mostly education and not not a problem and not a technical problem that's going on in the offices.

Now we haven't spoken to the proportion of scripts that are having issues because that is you know sort of as a as a roundabout way of talking about you know sort of the covered not covered now we know that it is the minority of prescriptions currently.

Coming through is covered in Q1, and we're working obviously very hard to implement improve this and like I said it happens in several places at once on the front end and on the back end in terms of the prescription initiation as well as prescription processing at the at the pharmacy level. So those are the areas of focus and we continue to you know work.

Work and work with those two areas in terms of partnership education, and so that that's the focus of our field days team today.

Okay. Thank you.

Yep.

Thank you for your question please stand by or next question.

Our next question comes from Tyler Van Buren of <unk>. Please go ahead.

Hi, guys. Good afternoon, so as a follow up to a previous question I'm not the third and final major P. D M.

You said will come online by mid year can you offer any additional color around these ongoing interactions and if you think it's likely to include no. Prior authorization like the first two pbms and if perhaps one or two step at its would be required.

Yeah. So we can't comment on sort of the final kind of ruling if you will in terms of what that looks like you know upfront, you're obviously in negotiating and sharing with with the payers the value proposition of your product.

And you know, arguing for various levels of utilization management.

You know I would say you know we're hopeful about the timing, but certainly can't guarantee anything but what I will say is you know <unk>.

<unk> with the other pbms instead of the approach that we've taken it from the beginning is that our physician is what the responsible pricing should come enhanced terms or or more favorable utilization management. So the minimum nation of step at its and ultimately the lack of prior authorizations would be kind of what will you be shooting for that's R. Arko.

<unk> and we've seen that play out thus far so where where it would be very consistent with that approach in terms of thinking about the next P. B M.

Yeah, and I I.

I think maybe I would just.

Add a little bit of color you know I think if you look at our track record in terms of coverage what we've seen what we've demonstrated so far as we are able to obtain coverage faster better coverage in many cases than other recent bring a topical launches and so we're very pleased with how things.

Going in and we're saying when I would say about the third P. B M and just quickly.

It's probably turn that Tyler, but when did welcome the two of you to the coverage universe.

I think this is your first quarterly call. So welcome [laughter] yeah. Thank you. So much yes, I did not mention that it's Tara not Tyler, but very great to to speak with you guys today.

Thank you for your question.

We stand by while we bring up the next question.

Next question will be from Chris She Brittani of Goldman Sachs.

Alright. This is Stephen on for Chris Thanks for taking our questions. Two for me had a question on increasing the skilled force can you just speak to the magnitude of the increase in the number of reps and then when we should expect to see an impact from this expansion and then in terms of capital Alex.

Asian parties.

It was a shift to focus more on those already have launched the commercialization away from the pipeline just curious if we could see additional stuff like those taken in the near term and kind of what that next level of Reprivatization would look like thank you.

Sure. So maybe I'll take the the second part of that question then I'll turf. The first question over to Ken for the first part so.

So.

I think the short answer is no at the moment, Yeah, I think we have implemented the changes that we anticipate making.

We have a lot going on in our computers clearly we've got a very broad pipeline, but it's critical that we have the resources to to launch the <unk> successfully and to launch half German and.

And so we just felt that it was a prudent.

Shepherding of of shareholder money frankly to do some reprioritization you know this is not a wholesale culling of the pipeline or anything like that and we will be continuing to advance. Some of the programs are Q2 55 is in the clinic right. Now we are continuing to progress aircrew 234, which is you know the biological we've recently acquired.

But we have have chosen to pass some of the other earlier stage programs. For example, 256, which is the cream version 252, excuse me, which is the cream version of our Jack inhibitor. We've put that program on hold we may bring it back later and.

Put on hold some of the earlier stage programs the preclinical programs in the pipeline. So that we can really focus our resources in the highest impact areas. We also have just been looking at areas like Scott mentioned, G&A and headcount growth and making sure that any additions there are the most impactful the highest priority additions.

I I don't anticipate us, making further changes or adjustments in.

In the coming months at least on current plans.

Can you wanted maybe talk a little bit about the the changes in the Salesforce and when we might see an impacter.

Sure. So Steven how are you talking about the so I just wanted to clarify you know it's field based in that field for so what we've done is we've expanded upon our resources that are focused on field reimbursement.

This is a pretty common type of role within many companies and we're looking at it is not a huge lift we actually have somebody who's pulls on board already we're looking to get somewhere in the neighborhood of you know 10 12 folks.

To help supplement and they're not actually sales team members, they're very focused on partnering with our pharmacy and our channel. They do call on some key physicians, but mostly to again for an offer further education regarding the information necessary to get a prescription process correctly uhm. So it's not a.

Sales rep increased by any means we're still at the number we said before but largely.

Focused on fields reimburse pet the team should be in place almost you know we've actually been doing it on a rolling basis, but it should be in place reasonably soon and we've actually already seen benefits of the implementation in the various regions and locations in the country that we've we have folks.

Where they have been able to make an impact already so the impact is actually quite rapid once you put somebody in place and are able to you know better better partner and spend resources, but we don't want to do is spend our our field rep time talking about this aspect versus building conviction <unk> instead of this team is.

Really supplementing the the efforts of the field team as we go forward and it's not they're not sales rep. So it doesn't really expand I'd call, our our sales footprint proper.

Okay makes sense. Thank you very much for the color I appreciate it.

<unk>.

Thank you for the question re standby or next question.

Our next question comes from Louise Chen <unk>. Please go ahead.

Hi, Thanks for taking my questions. So I wanted to ask you what your go to market strategy is for <unk> German if you get a <unk> how do you expect uptake to be relative to what you soccer psoriasis.

And then my second question is when do you think we could hear about a partnership for peace and primary cash could it be this year and could it be a global partnership. Thank you.

Hi, Louise I was just thinking today I haven't talked to you and the agent. So nice to hear your voice, Sir So [laughter] again, I think maybe I'll I'll take your second question, then I'll throw it back over to Ken for the first question.

And extra thoughts as well you know in terms of the pipe timing of a primary care partnership you know I think it's always difficult to predict when a negotiation.

Negotiation could be concluded we haven't initiated anything yet you know I think what we said in the past and will continue to believe this is is that we need to have the primary care partnership in place at least around the atopic dermatitis at latest around the type of dermatitis launched just given the size of the atopic dermatitis up to any outside primary.

Dermatology. It's you know it's about 60 per cent of the market. It certainly could be a meaningful contributor to step dermott as well. So we may end up concluding an agreement prior to atopic dermatitis, but you know a lot of that is gonna depend on discussions with a potential partner as well.

And then can do you want to talk about the go to market and then at an uptake in Patrick you may have some thoughts do from a clinical perspective.

Sure. So you want to start maybe and then I'll I'll jump on that.

I'm sure Patrick you might start there.

Yeah, absolutely. So February dermatitis is a disease, where there hasn't been.

As we as we mentioned a new product launched in decades, and so I think we're really focused on the medical side on disease State education, and kind of clarifying, especially with the burden of disease is on on patience, you know and some of the research that we've done we've been able to show that patients are on <unk>.

Five or more treatments and often taking up 30 minutes of their day each day managing their separate dermatitis in those number of treatments are both over the counter as well as prescribed so I yeah, I think a lot of this information to something that because it hasn't been a part of the conversation and health care providers may not be aware of so we have a lot of work that we're doing with regard.

To education that being said, we know from the patient perspective that there is a very strong desire for new treatments, we hear that clearly when we go out and talk to patients and we also sent a lot of frustration on the health care provider side on the lack of kind of new modalities to be able to offer patients. So we are doing our diligence with regard.

Two does these state education, but it's too are very receptive audience.

Thank you yeah. So I'll I'll, just I'll just add to that Luis So I mean, I would expect you know.

<unk> is is a different animal in terms of compared to psoriasis you know the degree of unmet need the degree of anticipation and largely the familiarity that will be capitalizing on within in terms of both our company as well as the the experience with psoriasis. So.

We expect the conditions to be quite different as it relates to heading into that market.

Largely see ourselves, having you know not as much direct competition in the market not being as crowded.

Coupled with this very high level of anticipation to look a little bit different I also mentioned earlier with respect to the access dynamics. The fact that you know we will be launching into a situation in which we already have some early coverage uhm owing to the transposition of the current coverage onto the new indication or line extension Uhm <unk> I would expect that to be.

Really be a boost in terms of you know not starting at ground zero and either access familiarity or comfort level with the mechanism over the product. So we will be doing some of the similar tactics. However in terms of taking it out you know sampling the product. Obviously, you know that is a core expectation in dermatology offices.

And getting people familiar whereas you know people are generally familiar with phone products. Our phone product is quite different with respect to the quality of the vehicle and so we'll be getting people you know kind of oriented with that ultimately launching then with samples just like we would any other product launch, but you know this one is going to be a little bit different.

And so I wouldn't count on the dynamics beings that are exactly the same given early days you know relative to psoriasis.

Great. Thank you.

Thank you for your question, we stand by our next question.

And our next question comes from Greg Frasier Truest Securities. Please go ahead.

Good afternoon folks thanks for taking the question just.

Following up on the field based expansion understand that not reps, but should we expect a step up an estimate spend in the coming quarters or could SG&A. Then decline you mentioned bowling that nonsense G&A growth.

And then just to follow up on the challenges with the coverage implementation that you're seeing sorry to ask about this uhm, but again, because you're probably tired of talking benefits what extent of issues manifesting in the office versus the pharmacy with the coverage that you have quite roster largely not required but some of what you described like the dog confirming dedication sound a bit like <unk>.

Steps I, just Wanna understand better why does.

<unk>, usually the pharmacy with a co pay is not accurate for the coverage just any additional color it'd be helpful. Thank you so much.

Yeah sure Scott you wanted it maybe take the the question on SG&A and then I can take the customer and G. T N.

Sure. Thanks for the question Greg Yeah on SG&A, we would still expect it to go up <unk>.

<unk> sequentially as we continue to invest in the launch I think.

Supplemental field team is one driver, we're continuing to add tactics and and then in addition to psoriasis, we have to prepare for the sub Durham and atopic dermatitis launches. So we've been consistently saying that even with the re prioritization.

And reducing expense growth in certain areas of SG&A. The overall commercial and commercial investment we want to keep robust to make sure that we have the resources, we need for the launch. So so SG&A I think we'll still modestly grow sequentially in support of those launches.

Alright, <unk> can you Wanna ask <unk> yeah.

Yeah. So in terms of the kind of office versus pharmacy dynamics, you know I'll do my best to I think there'd be anecdotal at best because we have not been I'd say you know quantitatively measuring this but I'd, probably say, it's probably a split of about 60 40, Greg in terms of where I believe the challenges exist uhm.

Both of which are <unk> and addressable.

In terms of being able to tackle that they take different approaches right. So the the office space is about education, and consistency and train the right information as well.

To your point it sounds like it <unk> prior authorization instead of a more formal.

Process that says you have to stop in and fill out a little bit more information typically and this is you know you can probably look to other other by you know there's just that makes them et cetera. When do you have a true Panthers Asian process. This is a conservation of ICT 10, and and sort of your if you tried and failed. So what are the softer of that process, but it is required and all.

Two I'd say activate any coverage that you have so uhm, whereas you you will see products that have a quote unquote hard proposition that sort of you know you absolutely have to fill out additional information and justification for that drug for not seeing that with respect to the type of coverage we're getting.

So I think it's about that ratio about 60, 40, and then the the pharmacy side like I mentioned, you know largely the the realm of our reimbursement specialists who are.

Working with those pharmacies and continuing to educate them and let them know that first and foremost we are covered in some particular plans and that those patients should be run you know.

Via the covered route and to obtain the necessary information from the office. We can I don't have those qualifications at my fingertips, but that's what I would say kind of anecdotally on based on what I'm, saying.

That's helpful. Thank you.

Yep.

Thank you for your question. Please stand by for our next question.

And our next question will come from Sean Kim with Jones trading. Please go ahead.

Hi, Thank you for taking my questions. So I guess, it's just the one question or electric original portal.

I'm curious to hear what.

Marketing efforts evening you too.

Canada, recognizing that it is smaller market.

Whether you'll <unk> someone with a commercial force.

Or partner around stuff alright efforts.

And whether they're expected product sales and cannot be.

Positive the bottom line.

And I guess more broadly <unk> opportunities.

I'm just curious.

Do you have specific geographic areas get your first younger.

Focusing on prototyping.

Yeah, Shaun Thanks for the question. So I'll I'll take part of this and then I'll ask him to comment about Canada launch plan. So from a an X U S standpoint candidate is the only geography that we plan to do ourselves outside the United States.

And frankly, the U S and Canadian dermatology communities are so tightly interwoven that we felt that that was the right thing to do Canada also has been a major contributor to the clinical development program for reform last I think it was about one in three patients across all of our clinical studies came from Canada.

And so there's a very high level familiar either with with the topic of reform less beyond to Canada, and the United States, We would be looking for a partnership for any other geography, and we have said repeatedly in the past that you know our primary focus is on Japan, and China in Asia more broadly I think Scott mentioned.

And his comments prepared comments that we've made significant headway on a potential partnerships in Japan, and China, and and you know I think that that's something that could be something.

Could happen in the relatively near future.

You know beyond Japan, China, you know the only other really big market out there is Europe .

And the challenge I think in Europe is reimbursement for topical.

May be aware Pfizer actually withdrew you Chris it from the market last year for commercial reasons.

Most European countries, where to reimburse you at the rate of a topical generic steroid, which just is not a reasonable reimbursement rate.

So that creates some significant headwind in Europe , and then I think beyond that it would really depend on the appetite of <unk>.

Partner to take on other geographies, but that certainly is not one of our priorities right now trying to find partners.

Middle East Latin America places like that.

So can do you want it made me talk a little bit about the Canada launch preparations.

Sure. So it takes up a question. So you know just to Dimensionalized, Canada, Canada's about 110th of the population of the U S. So just thinking about an F. B as of opportunity standpoint, you know obviously smaller than the U S. What's interesting about Canada, though is that you know the concentration of prescribers in the case of dermatology specifically is quite Ah.

Compact and so it doesn't take much in terms of you know a lot of the print we're actually our investment is pretty modest with respect to Canadian commercialization and we've leveraged significant amounts of resources from the U S team in terms of you know.

Commercial commercial helped meaning of our operations are marketing.

Many of the functions regulatory everything's sort of borrowing from the U S and leveraging what we've already done and so this is what I would do is a very efficient sort of approach, where we will have a sales team on the ground, but we're talking about seven.

Seven folks, which is pretty modest in the entire country to do this and so we know again leveraging very highly <unk>. The things that have already been done whether we're talking about tactics or learnings or strategy and you know we also you know enjoy the fact that you know the unmet need and can have significant.

<unk> and that the anticipation there.

Is even greater than you would imagine so where where you know there are a lot of tailwinds going into this particular launched.

You know ask for the sales you know obviously, we all know that Canada pricing is substantially different than the U S. We'll talk more about that when we actually announced the launch terms, but we do feel that you know this.

This is going to be in that part of the proposition and launching into Canada and of course, we'd be having to follow on indications as well in terms of the entire portfolio.

Alright, thank you.

<unk>.

Mark maybe even just one more question because I know we're past the hour Mark sounds great. Please stand by for our last question.

And our last question will come from Rohit <unk> with Needham and company. Please go ahead.

Hi, This is real it on for Sir Thanks for taking our questions where do you expect to be in terms of pricing of the <unk> for some germ and then can you talk about how you plan to drive disease awareness. Thanks.

Yeah, Yeah like like I said can you under maybe take the first one and then Patrick you can address the disease awareness.

Yeah. So you know I think that the pricing of the phone will be largely in the neighborhood of the green.

We've doing that for a particular reason again earlier on when we're talking about our access strategy. It's important with these follow on indications, particularly <unk>.

That has a larger government pay component to make sure that we're not triggering inadvertently additional burden to the patient and what that means live in plain speak as if your price too high.

[noise] triggered the specialty tier, which ultimately results in you know copay or co insurance amount to the patient of you know anywhere from 30% to 40% of list price which is.

Probably too much for a Medicare patient so we're being very conscious of trying to stay below that threshold that threshold does change every few years from a government standpoint, but no staying in the neighborhood of our current pricing is probably the most prudent approach to enter the market.

And then we would look to see you know if they were movement within the definition of the tier.

Yeah, and just to talk about the disease awareness for Serb germ as mentioned this is a something that we're working on within our medical affairs team that's already out in the field. One thing that's important to keep in mind is that February dermatitis is a highly prevalent disease and even though many of the pay.

<unk> may not the under treatment right now due to the lack of kind of new treatment options in the last decades. There are still as many February dermatitis patients in Dermatologists office is there are psoriasis patients. So this is a disease, it's very familiar to the the doctors that were.

We're engaging with right now already for Reeve cream.

And so it's really just a matter of kind of incrementally increasing their awareness about some of these facts that I talked about earlier, notably there like disease burden on patients you know some of the things that we've learned from a more formalized analysis, etc that hasn't really been done previously because there hasn't been a kind of you know.

Corporate engagement in really looking at and systematically understanding what it is to have the disease, a separate dermatitis and how is it that specifically impacts patient. So I think it's a good opportunity for us to kind of share. This information with health care providers as we look forward to the approval at the end of this.

A year.

Thank you.

Okay. So uhm, we're little overtime, but I just want to take just a minute and wrap things up you know I think.

As I said at the beginning of my comments now if you look at the fundamental indicators of the business, we're very very encouraged that.

Demand is growing very strongly very very positive patient and physician feedback on the product profile and we have made great headway with with coverage on the product as well is outpacing all.

All of the other recent topical launches.

I know a lot of the questions have come up around the gross to that question and I think this is the first time, we'd probably gone into great detail around gross to mess with some of the dynamics that we're seeing I would point out a couple of things. The first one is.

Topical dermatology from a reimbursement standpoint is different than any other sector of the violence of the pharmaceutical market right. This is different from Orals and Injectables is buying bill is in many respects.

But.

The topics that we've discussed around our gross and net dynamics are not unique to our cutest. In fact, you see this really with every topping company, having very similar sorts of issues that they have to address and I think the most important thing is.

That we have I think a.

A good understanding of where where we have run into challenges with gross and that's when we have a solid plan on how we can implement and and improve our gross and net and we remain confident that we're gonna see quarter on quarter improvements throughout the year and as I mentioned before we continue to believe that we're gonna be able to achieve a very solid gross to net.

In the foreseeable future. So when it just to clarify that a little bit and I look forward to continuing to update you all of the progress we're making on gross and that's as well as one patient domain and subsequent calls and with that I think we're going to wrap up.

Thank you everybody for your participation today's conference. This concludes the program and you may now disconnect.

[noise] Goodbye.

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