Q4 2024 Arcutis Biotherapeutics Inc Earnings Call

February 25, 2025

Good day, and welcome to Arcutis Biotherapeutics' 2024 4th Quarter and Full Year Financial Results Conference Call.

At this time, all participants are in a listen-only mode.

After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising you your hand is raised.

Speaker Change: Please be advised that today's conference is being recorded. I will now hand the call over to Latha Vairavan, Vice President of Finance and Corporate Controller. Please go ahead.

Latha Vairavan: Thank you. Good afternoon everyone and thank you for joining us today to review our fourth quarter and full year 2024 financial results and business update. Slides for today's call are available on the investor section of the Arcutis website.

Frank Watanabe: On the call today are Frank Watanabe, President and CEO, Patrick Burnett, Chief Medical Officer, Todd Edwards, Chief Commercial Officer, and David Topper, Chief Financial Officer.

Frank Watanabe: I would like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and certainties.

Frank Watanabe: and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand the call over to Frank.

Frank Watanabe: Thank you, Latha, and thank you to everyone for joining us today. Before we get started, I want to highlight three key themes that we're going to focus on throughout the call today. First of all, we had very strong execution throughout 2024.

Frank Watanabe: Second, we believe we are nicely set up to continue growing Zareve in 2025 and beyond. And third, the key to our success going forward is going to be driving the shift away from topical steroids.

Frank Watanabe: So with that, let me turn to slide five of the deck. Closing out a very strong fourth quarter and full year for 2024, we are optimistic about the strong foundation we have established for the entire Zuri portfolio and for continued growth of our franchise this coming year and beyond.

Frank Watanabe: I want to take this moment to thank the entire Arcutis team for their hard work and exceptional execution in 2024.

Frank Watanabe: This past year, we launched Zerifoam for seborrheic dermatitis and Zerifoam 0.15% cream for atopic dermatitis and also broadened patient access across indications.

Frank Watanabe: In 2025, we'll further expand Zareve's approved indications, continue to expand our prescriber base beyond dermatology, further penetrate the government payer segment, and focus on taking market share from topical steroids.

Frank Watanabe: We're especially excited about our May 22nd PDUFA date for an expected indication in scalp and body psoriasis, which will provide another opportunity for doctors to prescribe Ziridifoam to meet a substantial unmet medical need.

Frank Watanabe: We continued our strong sequential revenue growth. For the quarter, we had revenues of $71 million, with $69 million of that coming from the Zaree franchise. This includes a non-recurring adjustment of $4 million that David will address in detail later.

Frank Watanabe: On an annual basis, we had total revenues of $197 million with three product sales of $167 million, 471% growth year-over-year, and we are just scratching the surface of this very large and attractive market.

Frank Watanabe: We expect substantial continued momentum in 2025 and Todd will provide further detail on how we view revenue and script growth trends evolving throughout 2025.

Todd: Blending growth finettes have reached steady state in the 50s, although we expect to see some quarterly fluctuations related to patient deductibles, particularly in the first quarter, as is typical for nearly every product.

Todd: Regardless, we expect gross tenets to remain in the 50s and Todd will provide some additional color on what we expect for gross tenets as the brand matures.

Todd: Looking towards 2025, we believe we are well-positioned to achieve further strong revenue growth.

Todd: Our psoriasis and sebderm indications continue to grow. We're still very much in new launch mode for atopic dermatitis. And we expect to add further indications and label expansions in the coming year, providing us with significant growth opportunities ahead.

Todd: Turning to slide six, I want to emphasize the sizable growth opportunity we have in our target markets. We've shared this slide with you before, but we've now updated this slide to include the opportunity in AD patients ages 2 to 5 based on our supplemental NDA with an anticipated PDUFA sometime in Q4 of 2025.

Todd: Dermatologists treat well over 8 million patients across our approved indications and we've already secured broad access to the roughly four and a half million commercially insured patients treated by derms.

Todd: We're now making great progress in gaining Medicare and Medicaid coverage, which is expanding the re-usage into the almost 4 million dermatologist-treated patients with government insurance.

Todd: Furthermore, our co-op commercial partnership permits us to simultaneously pursue the more than 8.5 million patients being treated outside of the dermatology office for these indications.

Todd: This includes primary care physicians and pediatricians for whom Zareeb represents an ideal, easy-to-use topical anti-inflammatory agent.

Todd: Within each of these large segments outlined on the slide, the vast majority of patients are currently treated with topical steroids, but clinicians are starting to shift away from these products, although we're only in the very early stages of this transition in medical practice.

Todd: And Patrick's going to talk more about the shift away from steroids in just a few minutes.

Patrick: Moving to slide seven, we are confident in our ability to sustain our growth because of four significant tailwinds that are going to propel the reef forward in the years to come. Let's dig into those tailwinds a little bit further.

Patrick: First, we continue to educate physicians on our three approved indications while continuing to expand the Zerif product label.

Patrick: As mentioned, we have an expected approval in scalp and body psoriasis in May, as well as anticipated expanded indications for pediatric patients in both atopic dermatitis and eventually psoriasis.

Patrick: These expanded pediatric indications are especially important for our commercial partner, COA, and reinforce Dhariv as a first-line topical agent to a broad prescriber base that now encompasses primary care physicians and pediatricians.

Patrick: Second, with our commercial coverage established, we are now engaging with government payers across both Medicare and Medicaid, which encompass approximately 3.7 million incremental patients in dermatology offices, and many more in primary care and pediatrics.

Patrick: We have been rapidly gaining wins in Medicaid, with Zareve already available for 1 in 2 Medicaid patients, and Todd will provide some more color on that front.

Todd: Third, our partners at COA are now promoting Zareve to high potential primary care doctors and pediatricians, and we expect them to gain growing traction as 2025 progresses. We look forward to meaningful contribution from this co-promote beginning this year and growing from there.

Todd: And finally, with our broad product offerings, comprehensive patient access, and differentiated product profile for both doctors and patients, Arcutis is now well positioned to take meaningful market share from the 16 million topical steroid prescriptions written by dermatologists for our approved indication each year.

Todd: There has been growing momentum in that direction and Todd and Patrick will delve into this further.

Todd: Taken together, this immense market size, coupled with the excellent efficacy and safety of Zareef and its ease of use and access, make us highly optimistic regarding our future prospects and committed to grow Zareef to its peak sales potential.

Todd: With that, let me turn it over to Todd to provide some further commentary around our launch progress, reimbursement, and the outlook for 2025.

Todd: Thank you, Frank. We're extremely enthusiastic about the growth from the expansion of our product portfolio, the strong response from HCPs and patients, and the immense opportunities that lie ahead.

This quarter, we achieved $69.4 million.

Todd: $65.4 million before the non-recurring adjustment in net product revenue for Zareed, reflecting 46% growth over the third quarter.

Todd: without our non-recurring adjustment for product return reserves and 166.5 million in net product revenue for the full year.

Todd: growth of 471% over last year. The strong performance continued the robust quarter-over-quarter growth trend that we have seen throughout the year.

Todd: This robust revenue growth was driven primarily by prescription growth across the portfolio of Zuri products, along with a slight gross-to-net percentage improvement, with the blended gross-to-net remaining in the low 50s for Q4.

Todd: Looking forward to 2025. In the first quarter, we expect the typical gross net impact driven by deductible resets and insurance plan changes for the new year.

Todd: As we know well, this phenomenon negatively impacts sales of many products across the pharmaceutical space. But as is typical, we expect Gross-to-Net to quickly trim back to steady state in subsequent quarters.

Todd: Turning to volume, we anticipate sustained growth and are encouraged by the trend so far this year.

Todd: It is common to see a decline in prescription volume growth for products in January following the end-of-year demand pull forward, and we are seeing such a decline for many of the other branded topical nonsteroidals.

Todd: While the typical Q1 gross-to-net fluctuation will affect total net product revenue, we are encouraged we've been able to sustain and even expand the number of scripts written to date in 2025 compared to Q4-24.

Todd: Speaking of Q4 prescription volume, on slide 10, you can see that Zaree prescription volume has reached another record high at 16,000 weekly scripts.

Todd: Quarter-over-quarter prescription growth was 44% over Q3, and prescriptions grew 334% on a year-over-year basis.

Todd: You can clearly see the inflections and growth during 2024 due to the launches of Zirifoam and Cevderm and 0.15% cream for atopic dermatitis.

Todd: However, in Q4, I want to emphasize that we deliver growth across our entire product portfolio. Every indication has grown and we expect this key trend to persist as we continue to take share from the enormous topical steroid market.

Todd: I will delve into the drivers of this phenomenal growth next.

Todd: On slide 11, I want to discuss the factors that led to the exceptional growth we achieved in Q4, and that we expect to drive continued growth and success in 2025.

Todd: The first of these is our atopic dermatitis launch, which is still generating an inflection in prescriptions as you saw on the prior slide.

Todd: Quite simply, physicians are recognizing that our once-daily, non-steroidal, anti-inflammatory can be used safely and effectively anywhere on the body affected by atopic dermatitis.

Todd: for any duration and are appreciating the ease of reimbursement and prescription fulfillment established by our team.

Todd: The second growth factor is our Salesforce expansion that occurred in late June, which has significantly enhanced our share voice across Durham clinicians.

Todd: With the multiple indications and formulations, we have created a unique portfolio versatility effect, which allows dermatologists multiple approaches to treating complex skin conditions using one or more Zuri products.

Todd: This is the third growth driver and creates an amplification effect upon each of the individual strengths of the cream, as well as the foam formulation.

Todd: By this, I mean that doctors now have a spectrum of options with respect to which Xurie's strength and formulation is tailored to each specific indication. This optionality and flexibility drive an overall increase in the use of the entire Xurie portfolio.

which is rapidly becoming the go-to solution for dermatologists.

Todd: We expect this to be a sustainable advantage into 2025 and beyond, and should be further amplified by the addition of a new foam indication for body and scalp psoriasis in the second half of 2025, and a subsequent pediatric label expansion.

Thank you.

Todd: Lastly, I want to highlight the strong execution of our entire commercial organization, which has been steadily picking up commercial and government coverage, delivering effective and targeted messages, and beginning our drive to convert over a meaningful percentage of the topical steroid market.

Todd: Slide 12 is an important slide where I want to make two key points.

Todd: One is that our commercial coverage is quite good, and overall portfolio growth to net, as we said last quarter, has reached steady state. We expect the portfolio growth to net to be in the 50s throughout 2025.

Todd: First, to the left, you can see we have a strong position with prescriptions covered by insurance.

Todd: We are at a steady state and an optimal point for psoriasis and seb derm at 80%.

Todd: And we are continuing to improve cover prescriptions for atopic dermatitis currently at 65 percent.

Todd: I'm delighted to report that since our last update, we have secured Medicaid coverage in two additional states, Ohio and Illinois.

Todd: We have now secured Medicaid coverage in states that represent approximately 1 in 2 Medicaid beneficiaries, and we expect to add further states through 2025.

Todd: Importantly, the quality of Medicaid coverage is very strong. We are also making progress in our negotiations with Medicare Part D programs.

Todd: Now, moving to Gross-to-Net. In the chart on the right, we highlight the progressive improvements in our blended Gross-to-Net over time.

Todd: Our Valenta grows to net across all three indications in Q4 was similar to Q3 in the low 50s.

Todd: Our gross net has reached a steady state and will be in the 50s throughout 2025.

Todd: As Frank stated earlier, we do expect some variability in the first quarter due to a reset of patient deductibles and changes in insurance plans.

Todd: which both occur early during each year across all covered drugs.

Todd: As we have reiterated, we expect that Q1 growth to net will be at the higher end of the 50s range but will quickly return to steady state and remain in the 50s throughout the year.

Todd: I am extremely excited to share some market research data with you on slide 13.

Todd: We recently conducted research to assess unaided awareness of Zareeb as well as the most effective Zareeb messages that doctors are hearing and remembering.

Todd: We were extremely pleased both with the overall brand awareness of Zareeb, as well as with the magnitude of improvement we have achieved over time. In psoriasis, unaided awareness grew from 55% in the second quarter to 63% in the fourth quarter.

Todd: Our foam formulation used in the subderm is even more widely recognized, and unaided awareness grew from 75% in Q2 to 88% in Q4. This means that just about every dermatologist is aware of Xerif foam and can rapidly recall it when prescribing to an appropriate patient.

Todd: For the Atopic Dermatitis 0.15% Zuri Cream Formulation, which launched in mid-2024, unaided awareness grew from 2% in Q2 to 44% in Q4. This is an impressive gain since we are still early in the launch.

Todd: Tolerability and ease of use are really the standout messages for Zareeb. Doctors remember that we are the only topical non-steroidal agent approved across three inflammatory skin indications.

Todd: Additionally, the most motivating message for dermatologists focuses on CERI's ease of use, which we view as a clear differentiator for our product.

Todd: Earlier this month, we were delighted to announce a partnership with Odell Beckman Jr., or OBJ, an iconic professional football player who was affected by seborrheic dermatitis and who is a current Zerifoam user.

Todd: In the past 20 years, patients with sebderm had no innovation available to them. As a result, many retreated from care, resigning themselves to their condition.

They were frustrated that nothing was available to help them.

Todd: They lived with the embarrassing, itchy, flakey redness on their scalp, face, and body and had to endure repeated shampoos and steroids causing more frustration.

Todd: We believe that increasing patient awareness of Sebderm and destigmatizing the disease will prompt a return to treatment for many of these patients.

Speaker Change: This important next step in the Zareeb foam promotion strategy aligns well with the high level of unaided awareness for Zareeb and positive clinical experience for the dermatologist as well as the strong coverage physician.

OBJ will be key in the coming year to

Speaker Change: OBJ's personal story of struggling with sev derm, his symptoms, and all the treatments he tried will resonate with these patients.

Speaker Change: And as a xerifoam patient himself, he will share the meaningful difference using xerifoam has made on his life.

Speaker Change: We are ecstatic at the early reception from this new partnership. Not only does OBJ have a massive social media following of more than 17 million followers,

But in the first week alone...

Speaker Change: Interviews with him in mass media outlets like People, Prevention, Cosmopolitan, and Forbes have generated well over 1.5 billion media impressions.

Speaker Change: I would be remiss if I didn't also point out that at this time we do not anticipate launching broadcast TV DTC advertisements as part of the OBJ partnership.

Speaker Change: Rather, we will rely on his celebrity reach, social media presence, digital advertising, and publicity to generate public awareness.

Speaker Change: Thus, while there is some incremental SG&A spending associated with this partnership, we are talking low double-digit millions, not tens or hundreds of millions in incremental spend.

Speaker Change: On slide 15, I want to reiterate the majority of prescriptions across all three indications are for topical steroids.

Speaker Change: Roughly 16 million were for topical steroids, when in contrast, 1.4 million prescriptions were for branded topical non-steroidals, and around a half million were for Cereve.

Speaker Change: highlighting the immense growth opportunity as clinicians transition away from steroids to newer topical agents, which we will expect them to do as Patrick will discuss shortly.

Speaker Change: Our greatest opportunity is stairway conversions to Zareeb, for when the entire brand a topical marketplace

Speaker Change: As we are already the leading veranatopical in NRXs, we believe that by focusing our energy on steroid conversion, we can impact more patients and continue to grow Zareve.

Speaker Change: Slide 16 highlights the strength of the ZARIV differentiated offering, which encompasses three formulations of ZARIV and the expected fourth indication of scalp and body psoriasis with a PDUFA upcoming in May 2025.

Speaker Change: Ceres differentiation is rapid relief on any part of the body for any duration, high tolerability, and quick onset of itch relief.

Speaker Change: Additionally, it is a simple-to-use, once-daily treatment and is easily accessible to patients with the same predictable reimbursement process and copay card across our entire portfolio. With that, I would now like to turn it over to Patrick to provide a brief R&D update. Patrick?

and David Topper. Thank you.

Speaker Change: after a strong series of accomplishments in 2024. First, we have an upcoming FDA PDUFA action date for xerifoam and scalp and body psoriasis down to the age of 12 on May 22nd, 2025. All aspects of this submission remain on track.

Speaker Change: Second, we have an anticipated approval in Q4 2025 for Zeriv Cream 0.05%.

Speaker Change: It's a dose specifically developed for the treatment of mild to moderate AD in 2- to 5-year-olds. We expect to initiate an additional trial of Zarif cream at the 0.05% dose in mild to moderate AD patients ages 3 to 24 months during 2025.

Speaker Change: Moreover, we continue to generate the necessary additional data that should ultimately support expanding the psoriasis indication down to the age of two.

Speaker Change: In our early stage pipeline, we look forward to the Phase 1b readout for ARQ255, our topical jack in Alopecia areata, in the first half of 2025.

Speaker Change: We expect to file the INP for ARQ 234, our biologic CD 200

Speaker Change: receptor agonist for atopic dermatitis later in 2025. However, we do acknowledge that Lilly has de-prioritized their CD200R program and will continue to elevate evaluate our own asset as we progress this program.

Speaker Change: Now on slide 19 we can see the dermatology community is coalescing around increased awareness of the challenges of managing patients with chronic inflammatory skin diseases like psoriasis, A.D. and seborrheic dermatitis with topical steroids.

Speaker Change: These include local tolerability issues, safety concerns, and limitations on duration of dosing for more potent steroids.

Speaker Change: This view is being expressed more and more frequently, both in published literature and at important medical conferences attended by dermatologists, as evidence against steroid over-utilization mounts.

Speaker Change: For example, the Journal of Clinical and Aesthetic Dermatology, NPPA Journal, recently ran a lengthy article reviewing the concerns of managing inflammatory skin diseases with topical steroids and recommending clinicians move toward greater use of non-steroidal agents like Zareve.

Speaker Change: We're also now in the busiest season for DER meetings, with several major meetings just wrapping up and the AAD a week away, so I want to share some of what we're hearing.

Speaker Change: Indicative of this evolution in thinking are statements such as those two that we've included at the bottom of slide 19.

Speaker Change: reflecting the stance from the podium at Maui Durham about topical steroids quote going away as a mainstay of AD as well as the response from a Durham provider after a recent presentation on steroid overuse and its impact on her practice and her communication with patients.

Speaker Change: I've been in dermatology for over 20 years, and this is not a conversation that I've heard before.

Speaker Change: It is reminiscent of what took place when biologics came onto the scene and old-school immunosuppressants were set aside in the long-term management of psoriasis and AD.

Speaker Change: Importantly, the profile of Zareeb is perfectly positioned to step into the space that's opening.

Speaker Change: In our clinical trials, we study patients who previously used topical steroids.

Speaker Change: And we're able to demonstrate that Zarev is well-positioned both as first-line treatment as well as for those patients who've already tried and failed topical steroids.

And we did this across all of our development programs.

Speaker Change: But taking AV as an example, and looking at the right side of slide 19.

Speaker Change: In our entanglement study, we showed that Zareb Cream 0.15% has excellent clinical improvement for atopic dermatitis patients, even in those who have previously failed topical steroids.

Speaker Change: We believe that data like this, combined with the changing consensus on steroid use, should drive a prolonged shift away from steroids that will benefit patients and our brand. With that, I'll pass it over to David.

David: Thanks Patrick. I'm on slide 21 showing financial results both year-over-year and quarter-over-quarter for the fourth quarter.

David: We generated net product revenues in the quarter of approximately 69.4 million, which is up 413% from Q4 of 2023 and 55% from Q3 of this year.

David: For all the reasons outlined by Frank and Todd, we believe we are still very much in the early stages of our growth with significant upside remaining.

David: In January, ahead of the JPM Conference, we pre-announced unaudited product sales of approximately $63 million.

David: While we outpaced that estimate a bit in terms of actual sales in Q4, the amount by which we beat it was principally due to a reduction in reserves we were holding for product returns of $4.1 million. Excluding this non-recurring adjustment, we had net product revenues of $65.3 million for the fourth quarter.

That non-recurring amount should be excluded for forward-looking calculations.

David: For the fourth quarter, our R&D expenses were $14.5 million, which is down 39% from $23.8 million in the fourth quarter.

of 2023 due to

decreases in the development cost of topical refinolazeprograms.

David: and down approximately 26% compared to the third quarter of 24 this year.

David: The reduction in R&D expenses was also due, in part, to a one-time Q4 credit of $3 million we received related to a close-out of our refumalist studies.

David: SG&A expenses were $57.6 million for the fourth quarter of 2024 versus $48.7 million in the same period last year, up 18% as we invested in our commercial organization and our current and future launches. SG&A expenses were essentially flat as compared to last quarter.

David: Our continued strong revenue growth supports our belief that we are investing appropriately in the tremendous growth potential of our Zerui portfolio and we continue to believe that we will reach cash break-even in 2026.

David: On slide 22, for the full year 24, we generated net product revenues of $166.5 million, which is up 471% year over year.

Total revenues in 2024 were $196.5 million, up 230% year-over-year.

David: Based on the Zareve revenue run rate we saw in Q4, we ended the year at an annual run rate of approximately $250 million in product sales.

David: Frank and Todd have highlighted the tailwinds for the full year 2025 and beyond that should allow us to build on this impressive growth including new indications, expansion into government payers, broadening of our prescriber base and our efforts to take meaningful share from topical steroids.

David: For the full year 2024, our R&D expenses were $76.4 million, down 31% from 2023 due to decreases in development costs atop the Goldstein Labs program.

David: Recall that a large portion of the expenses included in the R&D line item are comprised of medical affairs activities, supportings of re-commercialization, which will not decline over time.

David: In 2025, we expect a similar level in R&D as in 2024, a year in which we will advance ARQ 234 and 255 with minimal spend for our topical refume alas programs and continued investment in our medical affairs activities.

David: SG&A expenses were $229.4 million for the full year 2024 versus $185.1 million in the same period last year, up 24% to support a significantly higher level of revenue growth.

David: On slide 23, you can see we had cash and marketable securities of $228.6 million on our balance sheet as of December 31, 2024, which translates to a cash burn from operations in the quarter of less than $1 million.

David: We had great revenue growth in Q4, and lower expenses due to the R&D credit I noted earlier, and some of our expenses rolling over into 2025. This, along with a few working capital items, led to our low cash burn.

David: Q4 was a bit of an anomaly, but moving forward we expect higher SG&A and modestly higher cash burn in the first quarter.

Speaker Change: And as Frank indicated previously, we expect our quarterly cash burn to continue trending down in the long run as our revenues grow and we reach

Cash flow breakeven sometime in 2026.

Speaker Change: In October, we repaid $100 million of our debt facility, which will significantly lower our interest expense in 2025.

Speaker Change: We had the option to redraw that $100 million in whole or in part at our discretion in the middle of 2026, providing us with significantly enhanced flexibility.

Speaker Change: We believe our current capital, together with the available $100 million in debt, our growing revenue stream, and improving economies of scale will allow the company to reach cash flow break-even in 2026, even as we continue to invest in the business for continued growth and long-term durability.

Speaker Change: To reiterate what we have said previously, we do not expect to return to the equity market to support our existing business.

Frank Watanabe: With that, I'll hand it back to Frank for some closing comments.

Thanks, David.

Frank Watanabe: So in closing, let me reiterate our three key messages. Our business is strong as we wrap up a stellar 2024. We look forward to continued growth of the Zuri portfolio in 2025 and beyond.

Frank Watanabe: and the key to that continued growth is the growing shift from topical steroids to non-steroidals in our large target market of 17 million patients.

Frank Watanabe: After our significant efforts last year, Zareev is now the number one branded topical product, but as you saw, this is just a drop in the bucket of the enormous topical steroid market.

Frank Watanabe: We're excited about the opportunity ahead of us, and in 2025, we will continue to tackle it comprehensively using multiple levers like our new indications and label expansions, our primary care partner, our consumer outreach with OBJ, and our continuously improving reimbursement coverage.

Frank Watanabe: Lastly, as David said, we have line of sight to break even in 2026, which will further improve the overall characteristics of our business and create optionality for even more growth. And with that, we'll conclude and open the call up to Q&A.

Speaker Change: Thank you. If you wish to ask a question at this time, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1 1 again. Please stand by while we compile the Q&A roster.

Speaker Change: Now first question, coming from the lineup, the Crown Pro Head with Morgan Stanley, your line is now open.

Speaker Change: Hi, good afternoon. Thank you for taking our questions. So we had two, just one on the quarterly release.

the pre-announcement and the actual full queue results.

Speaker Change: for roughly $69 million, but for the residual roughly $2 million.

Speaker Change: Was that related to inventory or another factor, if you could clarify that?

That would be helpful and then secondly

Speaker Change: I had a question for you on IP. There's been some investor interest in questions in the upcoming claim construction hearing in your ongoing IP lawsuits, so just wanted to ask if you could speak to your kind of confidence in protecting the IP for a desiree franchise going forward and how you feel about that process. Thank you.

Speaker Change: Okay, sure Vikram, thanks for your question. So David, maybe can you go in a little more detail around the delta between what we had pre-announced for Q4 and this final Q4 print and what was driving that?

Speaker Change: Sure. A couple things I'd say. First of all, as I mentioned, we did make an adjustment.

for the reserves we had accumulated for product returns.

Speaker Change: That total adjustment was essentially a bit over $5 million, but...

Speaker Change: A million in change of that was due to the fourth quarter of 2024 itself, so we can't refer to that as an adjustment, so that's a part of it. The other part I would chalk up to us being conservative when we pre-announce revenue. Simple as that.

Speaker Change: And then Vikram, with regard to your second question, you know, I think it's a completely understandable question. It's one we get a lot. You know, what I can say at this point is, you know, you made reference to the upcoming Markman hearing.

Speaker Change: that's scheduled to occur in April 2025. You can review what's publicly available on the court docket, but we can't comment beyond that, specifically vis-a-vis the Markman hearing.

Speaker Change: What I will say is is that, as we have said before, we are very confident in the strength of our IP portfolio and our ability to maintain exclusivity of Zareev, and we intend to vigorously defend our intellectual property rights as appropriate.

Fair enough. Thank you.

and Latha Vairavan.

Speaker Change: Thank you. Our next question coming from the line of Tyler Van Buren with CD Cohen. Your line is now open.

Speaker Change: Hey guys, thanks and congratulations on the exceptional execution of commercial front heading in the year end

Speaker Change: So, I think many people were surprised by the growth in weekly prescriptions that we saw with Zoriib cream heading into year-end and quarter-over-quarter in Q4 relative to what we saw in Q3 versus Q2.

Speaker Change: Can you elaborate on the impact? I mean, you talked about multiple drivers, but can you elaborate on the impact that the Salesforce expansion had, how much it was expanded by, and whether you'll continue to expand it as sales increase moving forward?

Speaker Change: So Tyler, just to clarify, are you asking specifically about the the growth of the cream or the 0.3 cream or you're just asking generally about the growth that we're seeing across the board in prescriptions?

Speaker Change: generally about the growth I'd be curious to hear about the cream and psoriasis if you have any additional color there since there was really significant quarter-over-quarter growth for q4 versus q3 as opposed to q3 versus q2 sure sure yeah Todd can you maybe

Speaker Change: go into a little more detail about our view specifically with regard to Q4 and the growth at both the portfolio level, and then maybe if you have any color around each of the individual SKUs.

Speaker Change: Portfolio growth is mentioned. Portfolio growth is primarily driven by volume growth. On net revenue, a slight increase with growth to net.

Speaker Change: But, nonetheless, as mentioned, we did see growth across the entire product portfolio, which we're very encouraged by. More specific to Zerif cream for psoriasis.

Speaker Change: We think about what I'll call the versatility effect that I mentioned earlier in my script. Providers are now...

Speaker Change: being able to get clinical experience with Zareve across three different products across

Speaker Change: one for seb derm, one for atypodermatitis and now psoriasis, and that's amplifying the increased utilization of these products across the portfolio to include increased utilization.

of Zurich Reinforced Rhinoceroses.

Speaker Change: So we're very encouraged by that. In reference to the Salesforce expansion that we had on June 1st, increasing the share of voice.

Speaker Change: Thank you. Our next question coming from the line of Seamus Fernandez with Guggenheim Mule and his Malvin.

Thanks for the question.

Speaker Change: So, just wanted to circle up on the momentum in the business, you know, it's

Speaker Change: Can you just give us a little bit of color on

Speaker Change: fourth quarter, how the refills were sort of coming in. Was there clear proof from your perspective that there was an increase in the resale rate? And just wondering how the, you know, sort of the estimate of the tubes per year is actually coming in relative to your expectations.

Speaker Change: on a go-forward basis as we think about the growth in the overall market. And then the second question is just very quickly, consensus is kind of between 280, 285 million this year. You know, just wondering how you guys are thinking about

Speaker Change: the, you know, opportunity for sustained growth and the opportunities to see the scripts, you know, perhaps, you know, maintain this very strong linear trajectory that we saw through the balance of 2024. Thanks.

Speaker Change: Sure, okay. If the Arcutis team, if you guys could pause just a second before you start answering your question. I think that the very front end of your questions, answers are getting clipped off.

Speaker Change: Todd, if you could comment maybe on the momentum in Q4 and particularly around what we're seeing with refills.

Speaker Change: we believe happened, and then also maybe comment on our current thinking around tube per year consumption.

Speaker Change: And then also, if you could maybe touch on the opportunity for sustained growth again, and then David, I think it'd be helpful if you can give maybe some color around our current thinking around consensus for 2025.

Speaker Change: Yeah, Frank, I'll start. Relative to the twos per year, as we've communicated before, we expect

Speaker Change: Serine cream, 0.3% for psoriasis on the average tubes per patient per year.

Speaker Change: to be around two tubes per year. And for xerifoam, for seb derm, likely around two to three, excuse me, cans per year. For atopic dermatitis, it's still early within the launch, but we expect on average two tubes per year for an atopic dermatitis patient.

Speaker Change: And then in reference to Q4 and refills, we're very encouraged by the refill rates with Zarib cream for psoriasis, which was around 40% of the total volume as refills.

Speaker Change: And then for xerifoam, for seb derm, it was around 38% refills and apoptic dermatitis still early in the launch.

Speaker Change: for the refills, but nonetheless, once we mature that product, it'll likely be similar to Zirid cream and psoriasis, around 40% within the

Frank Watanabe: within the refills. As Frank mentioned, we did see some pull forward in December from Q1 due to patients wanting to get their prescriptions refilled prior to their deductibles being reset, so we did see some pull forward into December, but nonetheless...

Frank Watanabe: We're very encouraged with the prescription trends and growth here in Q1, albeit that we still had that pull forward from January into December. We continue to see robust prescription growth.

Frank Watanabe: despite some of the typical disruption that we see in the first quarter with patients switching insurances have to be recertified for product like Zareeb and we fully expect to continue this momentum throughout 2025.

Thank you.

Speaker Change: Hope I'm not being cut off. As for the estimates that are out there, we are very comfortable with the consensus out there for the full year of 2020.

25.

Speaker Change: I think it's important to think a lot about how those revenues will be distributed across quarters for the year. You've heard Todd say a couple of times now that first quarter revenues will be distributed across quarters.

Speaker Change: for the product, like many, many other products, can be affected by a slight change in gross to net as deductibles get reset.

Speaker Change: and so forth. So while obviously prescription growth is extremely robust, there can be an impact on revenue. I'll just think about how to distribute that $2.80 to $2.85 across the four quarters.

Thank you.

Speaker Change: And our next question coming from the lineup, Sergi Billinger with Needham, your line is now open.

Sergi Billinger: Hi, good afternoon. A couple questions. The first one, I guess a follow-up to the guidance or the consensus number and how we should model 2025. On slide 6, you highlighted about...

Speaker Change: Four million patients are covered by Medicare and Medicaid. Just curious how many of them had coverage at the start of the year and when you expect they will have coverage throughout the year?

Speaker Change: And then, second question, more of a broader strategy question. David highlighted how well the company's capitalized, and the near-term break-even point is on the horizon in 2026.

Speaker Change: So just curious, how much of a priority in the near to median term is profitability for the company given that you do have a pipeline and you've discussed BD in the past? Thanks.

Sure. So, Todd, if you could maybe address

Speaker Change: And Serge, you're asking about the amount of Medicare and Medicaid patients had coverage at the beginning of 2025 or the beginning of 2024.

Twenty-five.

Speaker Change: Okay, yeah, so Todd, if you could maybe talk a little bit more about where we stand with regard to Medicare and Medicaid as of the beginning of this year and how that will translate in the patient opportunity for 2025. And then when you're done talking with that, I'll come back to the question around profitability and the pipeline.

Todd: Yeah, thank you, Frank, for the question. And specifically to Medicaid, we're very pleased with the Medicaid coverage that we've been able to secure.

Todd: up to the start of 2025. And that would be that, you know, one in two Medicaid beneficiaries now have access to Zareef. And what I think is very important to highlight is not only the improved access we've had relative to Medicaid, but the quality of that access.

Todd: And what I mean by that, if you, as an example, if you look at the state of California with Medi-Cal.

Todd: There is no step edit for Zareeb, so it's a first-line therapy within the state of California.

Todd: If we look at the state of Florida, you have to step through Zareeb to be able to access Vitama within psoriasis. So high quality Medicaid coverage and one in two Medicaid beneficiaries have access to Zareeb.

Todd: Specifically to Medicare, to Medicare Part B, we can continue to have our discussions and negotiations with the Medicare Part B PBMs as they navigate the implementation of the IRA, the Inflation Reduction Act.

Todd: Implementation of the R.A. has operationally slowed those discussions down in that process with the PBM.

Todd: But, nonetheless, we're very optimistic that we'll be able to accelerate these discussions and continue to improve on our Part D access as we navigate through 2025.

Todd: And then Serge, you know, with regard to your question around profitability, you know, this is obviously something that the leadership team thinks a lot about.

at Arcutis.

Todd: You know, I think getting the cash break even is very important because it gives us

Todd: a degree of operational flexibility as we think about running the business for the future. The first priority has to continue to be investing in the growth of Zeriv. And as I think Todd mentioned during the call, we feel like we have the right level of investment. It's something that we constantly evaluate whether there are incremental opportunities or whether there are opportunities to save money.

Todd: in terms of Zareve investment. But we feel we're at the right point right now in terms of investing in Zareve growth.

We do have a number of pipeline programs as

as Patrick outlined, and you know those will hopefully progress.

Todd: But they're fairly early stage, so we don't expect, you know, really significant burn on those programs in the near term. But, you know, they eventually will impact our spend. And then, you know, with regard to business development...

I would say that we remain very opportunistic.

Todd: We're always looking at interesting opportunities and opportunities where we feel like we can grow shareholder value. But we don't believe that business development is something that we have to do, right? It's not an imperative given the strength of our existing franchise and our internal pipeline. So

Todd: It's sort of an odd question as a biotech company to think about profitability. We're really focused on driving revenue growth and driving shareholder value first.

Todd: And I think, you know, us paying dividends is probably not the right way to do that, at least not for the foreseeable future. So you know, we'll continue to be very judicious in our investments, whether that's

Todd: vis-a-vis Zareve, or the pipeline, or business development, but if we do see opportunities to use the capital that we have to grow shareholder value, then we'll certainly take advantage of those opportunities.

Thank you.

Speaker Change: Our next question coming from the line up, Irwin Mizuho Group, your line is now open.

Speaker Change: Hey guys, thanks for taking our questions. So I have two questions. The first one is, you know, with the upcoming approval of the foam in the psoriasis, just wondering, what is the indication that you're expecting? Is it psoriasis in general or is it like psoriasis with scalp involvement?

Speaker Change: and how do you think that this, you know, what's the strategy for

foam product.

Speaker Change: Do you think that they'll probably candleize more of the cream or do you expect more patients to convert to the foam? Just wondering what your thoughts are there. And secondly, what...

Speaker Change: What do you expect from the Phase 1b data for ARQ255?

Speaker Change: Sure. So, Patrick, maybe if you could start out by addressing the 255 question.

Speaker Change: and what we expect from our phase one study and then...

Speaker Change: If you could also maybe comment on what we what we filed for and what we expect in terms of the indication for the expanded indication for Zree foam and then Todd if you could go into the strategy for the foam launch in in scalp and and you know how we see that playing with with the 0.3 cream

and Latha Vairavan. Thank you. Thank you.

Absolutely, thank you.

Speaker Change: Yeah, so starting with 255, you know, this is a phase 1b study, you know, we have, we had 12 healthy volunteers, then we had, you know, 30 plus alopecia areata patients that were treated for three months.

Speaker Change: Our goal with this is really to understand the kind of PK exposure safety and tolerability first in this early stage trial, and then also with the inclusion of alopecia areata patients.

Speaker Change: to get an understanding from both a biomarker and an early clinical response whether or not there's some indication that, you know, we were in a engagement of the target, you know, which has been a challenge for capital treatment in alopecia areata.

Speaker Change: and so we're really going to be focusing on those safety and tolerability data primarily and keep in mind this is a three-month

Speaker Change: treatment, and the pivotal timeline for a LPG area trial is typically six months of therapy. So we would really just be seeing the first evidence of efficacy in that readout. Now moving on to the...

Speaker Change: scalp and body indication for psoriasis with the foam. In our pivotal trial we had co-primary endpoints

of BODI, IGA, as well as

Speaker Change: scalp IGA. And so we anticipate the indication to be inclusive, inclusive of all psoriasis, but then also specifically calling out scalp in a similar way, reminiscent of what we saw with the cream indication where we had a broad indication for the treatment of psoriasis, but then it's specifically called out inclusive of those patients with enterogenous disease. So we would anticipate that kind of broad indication for the foam as well.

Speaker Change: Yeah, and then I'll respond relative to the strategy for the xerifome for scalp and body psoriasis. We're incredibly excited about this upcoming approval.

Speaker Change: We want to be able to differentiate our offering to both dermatologists and patients. And what I mean by that is we want to be able to create and present optionality and choice.

Speaker Change: mean that we're going to provide a Zareve foam formulation for psoriasis and a Zareve cream to where the provider and the patient have the choice with what is best suited for that patient.

Speaker Change: to be determined by their dermatologist. And you have to remember relative to psoriasis, and this pertains to the xerifome, is that for psoriasis patients, approximately 50% of them have some type of scalp involvement.

Speaker Change: So we believe by offering that type of choice and optionality, we can drive significant conversions from the steroid market over to Zerif foam or to Zerif cream. And this will.

Speaker Change: accelerate the entire market as far as the uptake of these products and the conversion from steroids over to the two differentiated offerings that we'll have for providers and patients in psoriasis.

You know if I could maybe just

Speaker Change: add just a little bit more color because we continue to get this question. I think that it is wrong to think about the foam cannibalizing the cream.

Speaker Change: what I think might happen is is that there will be a shift in the growth pattern in psoriasis from cream to foam but you know I think it's very unlikely that a patient that's on the cream is actually going to switch then to the foam.

Speaker Change: So cannibalization is probably not the right way to think about this.

Speaker Change: And ultimately, what matters to us and what matters to shareholders is the growth of total Zeriv 0.3.

Speaker Change: in the psoriasis market. And we're quite confident that the addition of the foam and the addition of the scalp and body indication is going to accelerate the growth of Xerif 0.3 cream and foam in psoriasis and put us in a very, very strong position.

Okay, thank you.

Thank you.

Our next question coming from the line-up.

Can Miss Yadav, would Geoffrey Phelan is now open?

Speaker Change: Hey team, thanks for the questions, just a couple for me.

Speaker Change: What proportion of 4Q sales are attributable to the Cala PCP partnership?

Speaker Change: And the second question I have is, do you expect 1Q op-ex to remain roughly in line with 4Q, excluding Commissioned Takawa? Will Commissioned Takawa be included in the SG&A line?

Thank you.

and a few others.

Thank you.

Speaker Change: Sure, I think probably David, you can address both of those, if you could address what the contribution from COA was in Q4, and then also our thoughts around Q1 OPEX with and without the COA Commission.

Sure. As we've been saying for several months now,

Speaker Change: You know, the COA Salesforce and their efforts really got started in September.

Speaker Change: And so, at no time did we really expect a meaningful contribution from them in 2024. And in fact, while it was not certainly a non-zero number, it was not a significant amount. We do expect a meaningful contribution in 2025.

Speaker Change: The commission that we pay COA will be in the SG&A line.

Speaker Change: so you know so you will see an increase there and what we've committed to is that when that contribution becomes meaningful

Speaker Change: that we will give information as we report quarterly results. We will give information on volumes and commissions and.

Speaker Change: and so forth so that people understand the magnitude of that contribution.

Thank you. Thank you.

Thank you. Bye.

Thank you. Thank you.

Thank you.

Speaker Change: And our next question, coming from the lineup, Douglas Sumwit, HC Wentworth, Yolanda Snelpin.

Speaker Change: Hi, good afternoon. Thanks for taking the questions. And congrats on the progress in the quarter. Just

Speaker Change: One question for me, you spoke about sort of the feedback you're getting in terms of clinicians wanting to move away from

steroids.

Speaker Change: Obviously, I presume payers will continue to sort of want that as a first-line option. So I'm just curious, you know, from a reimbursement standpoint, how you potentially see that playing out.

Speaker Change: Do you think that physicians will just try steroids more briefly, or do you think outright that, you know, Zores can become first-line therapies? Thank you.

Speaker Change: Sure. Yeah, I think that's an important point probably to clarify. I think, and

Speaker Change: Todd can comment on this too, but I think it's likely that we will continue to see a single-step edit through

a generic steroid to get to Zareve.

Speaker Change: The numbers that we were talking about on the call represent people who are already on a steroid.

Speaker Change: and therefore have already met the step requirement, right? So this issue of stepping through a topical steroid really is only relevant for the very small percentage of patients who are newly diagnosed.

Speaker Change: or who have not been on any treatment for quite some period of time. Typically, the insurance companies will look at any treatment in the last 6 to 12 months, depending on the insurance company.

Speaker Change: are the 16 million prescriptions out there already for topical steroids, right? Those are all patients who have met the requirement for the step, and the step is irrelevant. And that's where we think, you know, the growth opportunity is going to come. And, you know, Patrick, maybe you can talk a little bit more as well about the,

Patrick: the paradigm of, you know, steroids in an acute treatment for a chronic disease and how Zarif fits into that that picture.

Patrick: Yeah, I think that that's one of the parts of the conversation that.

Patrick: I think it's going on right now, is about what is the role that steroids have in the management of these diseases? And a lot of the conversation is about the chronic treatment of these chronic diseases and the fact that in the absence of having non-steroidals,

Patrick: steroids were trying to fill that gap even though they're not really well suited for chronic management of the diseases

Patrick: So I don't really see that, you know, the utilization management criteria are too out of sync with clinical practice and how it's evolving right now.

Thank you.

Great, that's great help. Thank you.

Speaker Change: Thank you. And I see there are no further questions in the queue at this time. I will turn the call back over to Mr. Frank Watanabe for any closing remarks. Okay, well, I think we've covered everything. I just want to thank everyone again for making the time to call in for the earnings call, and we look forward to talking to you all again in the not-too-distant future when we have Q1 results. Thanks a lot.

Thank you.

Speaker Change: This concludes today's conference call. Thank you for your participation, and you may now disconnect.

[music]

Music

Three... Two... One...

Speaker Change: Good day, and welcome to Arcutis Biotherapeutics' 2024 4th Quarter and Full Year Financial Results Conference Call. At this time, all participants are on a listen-only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising you your hand is raised.

Speaker Change: Please be advised that today's conference is being recorded. I will now hand the call over to Latha Vairavan, Vice President of Finance and Corporate Controller. Please go ahead.

Speaker Change: On the call today are Frank Watanabe, President and CEO, Patrick Burnett, Chief Medical Officer, Todd Edwards, Chief Commercial Officer, and David Topper, Chief Financial Officer.

Speaker Change: I would like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties.

Speaker Change: and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand the call over to Frank.

Frank Watanabe: I want to take this moment to thank the entire Arcutis team for their hard work and exceptional execution in 2024.

Frank Watanabe: We are building a leading top goal brand, one that we believe will outperform historical predicates based on its remarkable efficacy and safety, rapid onset, unique formulation, and the ease of use for both clinicians and patients.

Frank Watanabe: This past year, we launched Zerifoam for seborrheic dermatitis and Zerifoam 0.15% cream for atopic dermatitis and also broadened patient access across indications.

Frank Watanabe: We continued our strong sequential revenue growth. For the quarter, we had revenues of $71 million, with 69 million of that coming from the Zaree franchise. This includes a non-recurring adjustment of $4 million that David will address in detail later.

Frank Watanabe: On an annual basis, we had total revenues of $197 million, with three product sales of $167 million, 471% growth year-over-year, and we are just scratching the surface of this very large and attractive market.

Frank Watanabe: We expect substantial continued momentum in 2025, and Todd will provide further detail on how we view revenue and script growth trends evolving throughout 2025.

Frank Watanabe: Blending growth finettes have reached steady state in the 50s, although we expect to see some quarterly fluctuations related to patient deductibles, particularly in the first quarter, as is typical for nearly every product.

Frank Watanabe: Regardless, we expect Gross Donuts to remain in the 50s and Todd will provide some additional color on what we expect for Gross Donuts as the brand matures.

Frank Watanabe: Looking towards 2025, we believe we are well positioned to achieve further strong revenue growth.

Frank Watanabe: Our psoriasis and seb derm indications continue to grow. We're still very much in new launch mode for atopic dermatitis. And we expect to add further indications and label expansions in the coming year, providing us with significant growth opportunities ahead.

Frank Watanabe: Turning to slide 6, I want to emphasize the sizable growth opportunity we have in our target markets. We've shared this slide with you before, but we've now updated this slide to include the opportunity in AD patients ages 2 to 5 based on our supplemental NDA with an anticipated PDUFA sometime in Q4 of 2025.

Frank Watanabe: Dermatologists treat well over 8 million patients across our approved indications and we've already secured broad access to the roughly four and a half million commercially insured patients treated by derms.

Frank Watanabe: We're now making great progress in gaining Medicare and Medicaid coverage, which is expanding Zareve usage into the almost 4 million dermatologist-treated patients with government insurance.

Frank Watanabe: Furthermore, our co-op commercial partnership permits us to simultaneously pursue the more than 8.5 million patients being treated outside of the dermatology office for these indications.

Frank Watanabe: This includes primary care physicians and pediatricians for whom Zareeb represents an ideal easy-to-use topical anti-inflammatory agent.

Frank Watanabe: Within each of these large segments outlined on the slide, the vast majority of patients are currently treated with topical steroids. But clinicians are starting to shift away from these products, although we're only in the very early stages of this transition in medical practice.

Frank Watanabe: And Patrick's going to talk more about the shift away from steroids in just a few minutes.

Frank Watanabe: Moving to slide seven, we are confident in our ability to sustain our growth because of four significant tailwinds that are going to propel the reef forward in the years to come. Let's dig into those tailwinds a little bit further.

Frank Watanabe: First, we continue to educate physicians on our three approved indications while continuing to expand the Zaref product label. As mentioned, we have an expected approval in scalp and body psoriasis in May, as well as anticipated expanded indications for pediatric patients in both atopic dermatitis and eventually psoriasis.

Frank Watanabe: These expanded pediatric indications are especially important for our commercial partner, COLA, and reinforce Dhariv as a first-line topical agent to a broad prescriber base that now encompasses primary care physicians and pediatricians.

Frank Watanabe: Second, with our commercial coverage established, we are now engaging with government payers across both Medicare and Medicaid, which encompass approximately 3.7 million incremental patients in dermatology offices and many more in primary care and pediatrics.

Frank Watanabe: We have been rapidly gaining wins in Medicaid, with Zareve already available for 1 in 2 Medicaid patients, and Todd will provide some more color on that front.

Frank Watanabe: Third, our partners at COA are now promoting Zareve to high potential primary care doctors and pediatricians, and we expect them to gain growing traction as 2025 progresses.

Frank Watanabe: We look forward to meaningful contribution from this co-promote beginning this year and growing from there.

Frank Watanabe: And finally, with our broad product offerings, comprehensive patient access, and differentiated product profile for both doctors and patients, Arcutis is now well positioned to take meaningful market share from the 16 million topical steroid prescriptions written by dermatologists for our approved indication each year.

Speaker Change: There has been growing momentum in that direction and Todd and Patrick will delve into this further.

Speaker Change: Taken together, this immense market size coupled with the excellent efficacy and safety of Zareef and its ease of use and access make us highly optimistic regarding our future prospects and committed to grow Zareef to its peak sales potential.

Speaker Change: With that, let me turn it over to Todd to provide some further commentary around our launch progress, reimbursement, and the outlook for 2025.

Todd Edwards: Thank you, Frank. We're extremely enthusiastic about the growth from the expansion of our product portfolio, the strong response from HCPs and patients, and the immense opportunities that lie ahead.

This quarter, we achieved 69.4 million.

Todd Edwards: $65.4 million before the non-recurring adjustment in net product revenue for Zareed, reflecting 46% growth over the third quarter.

Todd Edwards: Without our non-recurring adjustment for product return reserves and $166.5 million in net product revenue for the full year, a growth of 471% over last year, this strong performance continued the robust quarter-over-quarter growth trend that we have seen throughout the year.

Todd Edwards: This robust revenue growth was driven primarily by prescription growth across the portfolio of Zuri products, along with a slight gross-to-net percentage improvement, with the blended gross-to-net remaining in the low 50s for Q4.

Todd Edwards: Looking forward to 2025. In the first quarter, we expect the typical gross net impact driven by deductible resets and insurance plan changes for the new year.

Todd Edwards: As we know well, this phenomenon negatively impacts sales of many products across the pharmaceutical space. But as is typical, we expect gross to net to quickly trim back to steady state in subsequent quarters.

Todd Edwards: Turning to volume, we anticipate sustained growth and are encouraged by the trends so far this year.

Todd Edwards: It is common to see a decline in prescription volume growth for products in January following the end-of-year demand pull forward, and we are seeing such a decline for many of the other branded topical nonsteroidals.

Todd Edwards: While the typical Q1 gross-to-net fluctuation will affect total net product revenue, we are encouraged we've been able to sustain and even expand the number of scripts written to date in 2025 compared to Q4-24.

Todd Edwards: Speaking of Q4 prescription volume, on slide 10 you can see that Zaree prescription volume has reached another record high at 16,000 weekly scripts.

Todd Edwards: Quarter-over-quarter prescription growth was 44% over Q3, and prescriptions grew 334% on a year-over-year basis.

Todd Edwards: However, in Q4, I want to emphasize that we deliver growth across our entire product portfolio. Every indication has grown and we expect this key trend to persist as we continue to take share from the enormous topical steroid market.

Todd Edwards: I will delve into the drivers of this phenomenal growth next.

Todd Edwards: On slide 11, I want to discuss the factors that led to the exceptional growth we achieved in Q4, and that we expect to drive continued growth and success in 2025.

Todd Edwards: The first of these is our atopic dermatitis launch, which is still generating an inflection in prescriptions as you saw on the prior slide.

Todd Edwards: Quite simply, physicians are recognizing that our once-daily non-steroidal anti-inflammatory can be used safely and effectively anywhere on the body affected by atopic dermatitis.

Todd Edwards: for any duration and are appreciating the ease of reimbursement and prescription fulfillment established by our team.

Speaker Change: The second growth factor is our Salesforce expansion that occurred in late June, which has significantly enhanced our share voice across Durham clinicians.

Speaker Change: With the multiple indications and formulations, we have created a unique portfolio versatility effect, which allows dermatologists multiple approaches to treating complex skin conditions using one or more Zuri products.

Speaker Change: This is the third growth driver and creates an amplification effect upon each of the individual strengths of the cream.

as well as the foam formulation.

Speaker Change: By this, I mean that doctors now have a spectrum of options with respect to which Zuri's strength and formulation is tailored to each specific indication. This optionality and flexibility drive an overall increase in the use of the entire Zuri portfolio.

which is rapidly becoming the go-to solution for dermatologists.

Speaker Change: We expect this to be a sustainable advantage into 2025 and beyond, and should be further amplified by the addition of a new foam indication for body and scalp psoriasis in the second half of 2025, and a subsequent pediatric label expansion.

Thank you.

Speaker Change: Lastly, I want to highlight the strong execution of our entire commercial organization, which has been steadily picking up commercial and government coverage, delivering effective and targeted messages, and beginning our drive to convert over a meaningful percentage of the topical steroid market.

Slide 12 is an important slide where I

Speaker Change: One is that our commercial coverage is quite good, and overall portfolio growth to net, as we said last quarter, has reached steady state. We expect the portfolio growth to net to be in the 50s throughout 2025.

Speaker Change: First, to the left, you can see we have a strong position with prescriptions covered by insurance.

Speaker Change: We are at a steady state and an optimal point for psoriasis and seb derm at 80%.

Speaker Change: And we are continuing to improve cover prescriptions for atopic dermatitis currently at 65 percent.

Speaker Change: I'm delighted to report that since our last update, we have secured Medicaid coverage in two additional states, Ohio and Illinois.

Speaker Change: We have now secured Medicaid coverage in states that represent approximately one in two Medicaid beneficiaries, and we expect to add further states through 2025.

Speaker Change: Importantly, the quality of Medicaid coverage is very strong. We are also making progress in our negotiations with Medicare Part D programs.

Speaker Change: Now, moving to Gross-to-Net. In the chart on the right, we highlight the progressive improvements in our blended Gross-to-Net over time.

Speaker Change: Our Valenta grows to net across all three indications in Q4 was similar to Q3 in the low 50s.

Speaker Change: Our gross net has reached a steady state and will be in the 50s throughout 2025.

Speaker Change: As Frank stated earlier, we do expect some variability in the first quarter due to a reset of patient deductibles and changes of insurance plans.

Speaker Change: which both occur early during each year across all covered drugs.

Speaker Change: As we have reiterated, we expect that Q1 growth to net will be at the higher end of the 50s range, but will quickly return to steady state and remain in the 50s throughout the year.

Speaker Change: I am extremely excited to share some market research data with you on slide 13.

Speaker Change: We recently conducted research to assess unaided awareness of Zareeb as well as the most affected Zareeb messages that doctors are hearing and remembering.

Speaker Change: We were extremely pleased both with the overall brand awareness of Zareeb, as well as with the magnitude of improvement we have achieved over time. In psoriasis, unaided awareness grew from 55% in the second quarter to 63% in the fourth quarter.

Speaker Change: Our phone formulation using the sed derm is even more widely recognized.

For the atypic dermatitis 0.50...

Speaker Change: 0.15% Zuri Kareem formulation which launched in mid-2024 unaided awareness grew from 2% in Q2 to 44% in Q4. This is an impressive gain since we are still early in the launch.

Speaker Change: Tolerability and ease of use are really the standout messages for Zareeb. Doctors remember that we are the only topical non-steroidal agent approved across three inflammatory skin indications.

Speaker Change: Additionally, the most motivating message for dermatologists focuses on CERI's ease of use, which we view as a clear differentiator for our product.

Speaker Change: Earlier this month, we were delighted to announce a partnership with Odell Beckman Jr., or OBJ, an iconic professional football player who was affected by seborrheic dermatitis and who is a current Zerifoam user.

Speaker Change: In the past 20 years, patients with sebderm had no innovation available to them. As a result, many retreated from care, resigning themselves to their condition.

Speaker Change: They were frustrated that nothing was available to help them. They lived with the embarrassing, itchy, flakey redness on their scalp, face, and body and had to endure repeated shampoos and steroids causing more frustration.

Speaker Change: We believe that increasing patient awareness of seb derm and destigmatizing the disease will prompt a return to treatment for many of these patients.

Speaker Change: This important next step in the Zareve foam promotion strategy aligns well with the high level of unaided awareness for Zareve and positive clinical experience for the dermatologist, as well as the strong coverage position.

OBJ will be key in the coming year to

Speaker Change: OBJ's personal story of struggling with seb derm, his symptoms, and all the treatments he tried will resonate with these patients.

Speaker Change: and as a xerifoam patient himself, he will share the meaningful difference using xerifoam has made on his life.

Speaker Change: We are ecstatic at the early reception from this new partnership. Not only does OBJ have a massive social media following of more than 17 million followers, but in the first week alone

Speaker Change: Interviews with him in mass media outlets like People, Prevention, Cosmopolitan, and Forbes have generated well over 1.5 billion media impressions.

I would be remiss if I didn't also point out

Speaker Change: that at this time, we do not anticipate launching broadcast TV DTC advertisements as part of the OBJ partnership.

Speaker Change: Rather, we will rely on his celebrity reach, social media presence, digital advertising, and publicity to generate public awareness.

Speaker Change: Thus, while there is some incremental SGNA spending associated with this partnership, we are talking low double-digit millions, not tens or hundreds of millions in incremental span.

Speaker Change: On slide 15, I want to reiterate the majority of prescriptions across all three Zarib indications are for topical steroids.

Speaker Change: Of the 24 million topical prescriptions written by dermatology clinicians and our three current indications during 2024, roughly 16 million were for topical steroids.

Speaker Change: When in contrast, 1.4 million prescriptions were for branded topical non-steroidals, and around a half million were for Cereve.

Speaker Change: highlighting the immense growth opportunity as clinicians transition away from steroids to newer topical agents, which we will expect them to do as Patrick will discuss shortly.

Speaker Change: Our greatest opportunity is stairway conversions to Zareeb, growing the entire brand of topical marketplace.

Speaker Change: As we are already the leading bradytopical in NRXs, we believe that by focusing our energy on steroid conversion, we can impact more patients and continue to grow Zareve.

Speaker Change: Ceres differentiation is rapid relief on any part of the body for any duration, high tolerability, and quick onset of itch relief.

Additionally, it is a simple-to-use, once-daily treatment.

Speaker Change: And it's easily accessible to patients with the same predictable reimbursement process and co-pay card across our entire portfolio. With that, I would now like to turn it over to Patrick to provide a brief R&D update. Patrick?

Patrick Burnett: after a strong series of accomplishments in 2024. First, we have an upcoming FDA PDUFA action date for xerifoam and scalp and body psoriasis down to the age of 12 on May 22nd, 2025. Now, all aspects of this submission remain on track.

Patrick Burnett: Second, we have an anticipated approval in Q4 2025 for Zeriv Cream 0.05%.

Patrick Burnett: It's a dose specifically developed for the treatment of mild to moderate AD in 2 to 5-year-olds. We expect to initiate an additional trial of Zarif cream at the 0.05% dose in mild to moderate AD patients ages 3 to 24 months during 2025.

Patrick Burnett: Moreover, we continue to generate the necessary additional data that should ultimately support expanding the psoriasis indication down to the age of 2. In our early stage pipeline, we look forward to the Phase 1b readout for ARQ255, our topical JAK, and alopecia areata in the first half of 2025.

Patrick Burnett: We expect to file the INP for ARQ 234, our biologic CD 200.

Patrick Burnett: receptor agonist for atopic dermatitis later in 2025. However, we do acknowledge that Lilly has deprioritized their CD200R program and will continue to elevate evaluate our own asset as we progress this program.

Patrick Burnett: Now on slide 19, we can see the dermatology community is coalescing around increased awareness of the challenges of managing patients with chronic inflammatory skin diseases like psoriasis, AD, and seborrheic dermatitis with topical steroids.

Patrick Burnett: These include local tolerability issues, safety concerns, and limitations on duration of dosing for more potent steroids.

Patrick Burnett: This view is being expressed more and more frequently, both in published literature and at important medical conferences attended by dermatologists, as evidence against steroid over-utilization mounts.

Patrick Burnett: For example, the Journal of Clinical and Aesthetic Dermatology, NPPA Journal, recently ran a lengthy article reviewing the concerns of managing inflammatory skin diseases with topical steroids and recommending clinicians move toward greater use of non-steroidal agents like serif.

and Latha Vairavan.

Speaker Change: We're also now in the busiest season for DUR meeting, with several major meetings just wrapping up and the AAD a week away, so I want to share some of what we're hearing.

Speaker Change: Indicative of this evolution in thinking are statements such as those two that we've included at the bottom of slide 19.

Speaker Change: I've been in dermatology for over 20 years, and this is not a conversation that I've heard before.

Speaker Change: It is reminiscent of what took place when biologics came onto the scene and old-school immunosuppressants were set aside in the long-term management of psoriasis and AD.

Speaker Change: Importantly, the profile of Zareeb is perfectly positioned to step into the space that's opening.

Speaker Change: In our clinical trials, we study patients who previously used topical steroids and were able to demonstrate that Zareve is well-positioned both as first-line treatment as well as for those patients who've already tried and failed topical steroids.

Speaker Change: And we did this across all of our development programs, so taking AED as an example and looking at the right side of slide 19.

Speaker Change: in our antagonist study, we showed that Zareb Cream 0.15% has excellent clinical improvement for atopic dermatitis patients, even in those who have previously failed topical steroids.

David Topper: We believe that data like this, combined with the changing consensus on steroid use, should drive a prolonged shift away from steroids that will benefit patients and our brand. With that, I'll pass it over to David.

David Topper: Thanks, Patrick. I'm on slide 21, showing financial results both year-over-year and quarter-over-quarter for the fourth quarter.

David Topper: We generated net product revenues in the quarter of approximately $69.4 million which is up 413% from Q4 of 2023 and 55% from Q3 of this year.

Frank Watanabe: For all the reasons outlined by Frank and Todd, we believe we are still very much in the early stages of our growth with significant upside remaining.

Frank Watanabe: In January, ahead of the JPM conference, we pre-announced unaudited product sales of approximately $63 million.

Frank Watanabe: While we outpaced that estimate a bit in terms of actual sales in Q4, the amount by which we beat it was principally due to a reduction in reserves we were holding for product returns of $4.1 million.

Frank Watanabe: Excluding this non-recurring adjustment, we had net product revenues of $65.3 million for the fourth quarter. That non-recurring amount should be excluded for forward-looking calculations.

Frank Watanabe: For the fourth quarter, our R&D expenses were $14.5 million, which is down 39% from $23.8 million in the fourth quarter of 2023 due to decreases in the development costs of topical refinilabs programs.

Frank Watanabe: and down approximately 26% compared to the third quarter of 24 this year.

Frank Watanabe: The reduction in R&D expenses was also due, in part, to a one-time Q4 credit of $3 million we received related to a closeout of our refumalist studies.

Frank Watanabe: SG&A expenses were $57.6 million for the fourth quarter of 2024 versus $48.7 million in the same period last year, up 18% as we invested in our commercial organization and our current and future launches. SG&A expenses were essentially flat as compared to last quarter.

Frank Watanabe: Our continued strong revenue growth supports our belief that we are investing appropriately in the tremendous growth potential of our Zerree portfolio and we continue to believe that we will reach cash break even in 2026.

Frank Watanabe: On slide 22, for the full year 24, we generated net product revenues of $166.5 million, which is up 471% year over year.

Total revenues in 2024 were $196.5 million, up 230% year-over-year.

Frank Watanabe: Based on the Zareve revenue run rate we saw in Q4, we ended the year at an annual run rate of approximately $259 million in product sales.

Frank Watanabe: Frank and Todd have highlighted the tailwinds for the full year 2025 and beyond that should allow us to build on this impressive growth including new indications, expansion into government payers, broadening of our prescriber base and our efforts to take meaningful share from topical steroids.

Frank Watanabe: For the full year 2024, our R&D expenses were $76.4 million, down 31% from 2023 due to decreases in the development costs atop the Goldstein Blast program.

Frank Watanabe: Recall that a large portion of the expenses included in the R&D line item are comprised of medical affairs activities supporting Zareed commercialization, which will not decline over time.

Frank Watanabe: In 2025, we expect a similar level in R&D as in 2024, a year in which we will advance ARQ 234 and 255 with minimal spend for our topical refume allowance programs and continued investment in our medical affairs activities.

Frank Watanabe: SG&A expenses were $229.4 million for the full year of 2024 versus $185.1 million in the same period last year, up 24% to support a significantly higher level of revenue growth.

Frank Watanabe: In 2025, we do expect an increase in SG&A expenses, considering our launch in scalp and body psoriasis, the annualized cost of the increased sales force, and sustained marketing efforts supporting all Zareef indications.

Frank Watanabe: On slide 23, you can see we had cash and marketable securities of $228.6 million on our balance sheet as of December 31, 2024, which translates to a cash burn from operations in the quarter of less than $1 million.

Frank Watanabe: We had great revenue growth in Q4, and lower expenses due to the R&D credit I noted earlier, and some of our expenses rolling over into 2025. This, along with a few working capital items, led to our low cash burn.

Speaker Change: Q4 was a bit of an anomaly, but moving forward we expect higher SG&A and modestly higher cash burn in the first quarter. And as Frank indicated previously, we expect our quarterly cash burn to continue trending down in the long run as our revenues grow and we reach cash flow break-even sometime in 2026.

Speaker Change: In October, we repaid $100 million of our debt facility, which will significantly lower our interest expense in 2025.

Speaker Change: We have the option to redraw that $100 million in whole or in part at our discretion in the middle of 2026, providing us with significantly enhanced flexibility.

Speaker Change: We believe our current capital, together with the available $100 million in debt, our growing Zariv revenue stream, and improving economies of scale, will allow the company to reach cash flow break-even in 2026, even as we continue to invest in the business for continued growth and long-term durability.

Speaker Change: To reiterate what we have said previously, we do not expect to return to the equity market to support our existing business.

Frank Watanabe: With that, I'll hand it back to Frank for some closing comments.

Thanks, David.

Frank Watanabe: So, in closing, let me reiterate our three key messages. Our business is strong as we wrap up a stellar 2024. We look forward to continued growth of the Zuri portfolio in 2025 and beyond. And the key to that continued growth is the growing shift from topical steroids to non-steroidals in our large target market of 17 million patients.

David Topper: Lastly, as David said, we have line of sight to break even in 2026, which will further improve the overall characteristics of our business and create optionality for even more growth. And with that, we'll conclude and open the call up to Q&A.

David Topper: Thank you. If you wish to ask a question at this time, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, simply press star one one again. Please stand by while we compile the Q&A roster.

Speaker Change: Now first question, coming from the lineup, the Crown Bro Head with Morgan Stanley, your line is now open.

Speaker Change: Hi, good afternoon. Thank you for taking our questions. So we had two, just one on the quarterly...

released.

Speaker Change: So, you clarified a big chunk of the delta between the pre-announcement and the actual 4Q results.

Speaker Change: for roughly $69 million, but for the residual roughly $2 million.

Speaker Change: Was that related to inventory or another factor, if you could clarify that?

That would be helpful and then secondly

Speaker Change: ongoing IP lawsuits so just wanted to ask if you could speak to your kind of confidence in protecting the IP for a franchise going forward and how you feel about that process. Thank you.

Frank Watanabe: Okay sure Vikram, thanks for for your question. So David maybe can you go in a little more detail around the Delta between what we had pre-announced for Q4 and this final Q4 print and what was driving that?

Frank Watanabe: Sure. A couple things I'd say. First of all, as I mentioned, we did make an adjustment for the reserves we had accumulated for product returns.

Speaker Change: That total adjustment was essentially a bit over 5 million, but a million and change of that was due to the fourth quarter of 2024 itself. So we can't refer to that as an adjustment. So that's a part of it. The other part I would chalk up to us being conservative when we pre-announce revenue, simple as that.

Speaker Change: What I will say is that, as we have said before, we are very confident in the strength of our IP portfolio and our ability to maintain exclusivity of Zareve, and we intend to vigorously defend our intellectual property rights as appropriate.

Fair enough, thank you.

Speaker Change: Thank you. Our next question coming from the line of Tyler Van Buren with CD Cohen. Your line is now open.

Speaker Change: Hey guys, thanks and congratulations on the exceptional execution and commercial front heading into year-end So I think many people were surprised by the growth in weekly prescriptions that we saw with Zoriib cream heading into year-end and quarter over quarter and Q4 relative to what we saw in Q3 versus Q2 so

Speaker Change: Portfolio growth is mentioned. Portfolio growth is primarily driven by volume growth, a slight net revenue, a slight increase with gross to net.

Speaker Change: But nonetheless, as mentioned, we did see a growth across the entire product portfolio, which we're very encouraged by. More specific to Zerif cream for psoriasis,

Speaker Change: When we think about what I'll call the versatility effect that I mentioned earlier within my script, where providers are now...

Speaker Change: being able to get clinical experience with Zareve across three different products across

Speaker Change: one for sebderm, one for atypodermatitis, and now psoriasis, and that's amplifying the increased utilization of these products across the portfolio to include increased utilization.

of Zurique Cream for psoriasis.

So we're very encouraged by that.

Speaker Change: in reference to the Salesforce expansion that we had on June 1st, increasing the share of voice.

Speaker Change: That was definitely a driver of the increased prescription growth that we saw in Q4, and we believe that we are currently right-sized for the dermatology market with the portfolio that we're managing today.

Speaker Change: Thank you. Our next question coming from the line of Seamus Fernandes with Guggenheim, Yolanis Malpin.

Thank you. Thank you.

Thanks for the question.

Speaker Change: So, just wanted to circle up on the momentum in the business, you know, it's

Speaker Change: Can you just give us a little bit of color on

Speaker Change: fourth quarter, how the refills were sort of coming in, was there clear proof from your perspective that there was an increase in the refill rate? Just wondering how the estimate of the tubes per year is actually coming in relative to your expectations.

Speaker Change: on a go-forward basis as we think about the growth in the overall market. And then the second question is just very quickly, consensus is kind of between 280-285 million this year. Just wondering how you guys are thinking about the opportunity for sustained growth and the opportunities to see the scripts perhaps maintain this very strong linear trajectory

that we saw through the balance of 2024. Thanks.

Speaker Change: Todd, if you could comment maybe on the momentum in Q4 and particularly around what we're seeing with refills.

you know, the indicators of the pull forward that

Speaker Change: we believe happen, and then also maybe comment on our current thinking around two per year consumption. And then also, if you could maybe touch on the opportunity for sustained growth again. And then David, I think it'd be helpful if you can give maybe some color around our current thinking around consensus for 2025.

Speaker Change: Frank, I'll start. Relative to the twos per year, as we've communicated before, we expect

Speaker Change: Serine cream, 0.3% for psoriasis on the average tubes per patient per year.

Speaker Change: to be around two tubes per year, and for xerifoam, for seb derm, likely around two to three cans per year. For atopic dermatitis, it's still early within the launch, but we expect on average two tubes per year for an atopic dermatitis patient.

Speaker Change: And then in reference to Q4 and refills, we're very encouraged by the refill rates with Zarib cream for psoriasis, which was around 40% of the total volume as refills.

Speaker Change: And then for xerifoam, for seb derm, it was around 38% refills and apopic dermatitis still early in the launch.

Speaker Change: for the for the refills, but nonetheless once we mature that product it will likely be similar to the recream and psoriasis around 40% within the

Speaker Change: within the refills. As Frank mentioned, we did see some pull forward in December from Q1 due to patients wanting to get their prescriptions refilled prior to their deductibles being reset, so we did see some pull forward into December. But nonetheless,

Speaker Change: We're very encouraged with the prescription trends and growth here in Q1, albeit that we still have that pull forward from January into December. We continue to see robust prescription growth.

Speaker Change: despite some of the typical disruption that we see in the first quarter with patients switching insurances have to be recertified for product like Zareve and we fully expect to continue this momentum throughout 2025.

Thank you.

Speaker Change: I hope I'm not being cut off. As for the estimates...

that are out there. We are very comfortable.

Speaker Change: with the consensus out there for the full year of 2025.

Speaker Change: Definitely comfortable. I think it's important to think a lot about

Todd Edwards: how those revenues will be distributed across quarters for the year. You've heard Todd say a couple times now that first quarter

Todd Edwards: for the product, like many, many other products, can be affected by a slight change in growth to net as deductibles get reset and so forth. So while obviously prescription growth is extremely robust, there can be an impact on revenue. I'll just think about how to distribute that 280 to 285 across the four quarters.

Thank you.

Speaker Change: And our next question coming from the lineup, Sergi Billinger with Needham, your line is now open.

Sergi Billinger: Hi, good afternoon. A couple questions. The first one, I guess a follow-up to the guidance or the consensus number and how we should model 2025. On slide six, you highlighted about

Sergi Billinger: Four million patients are covered by Medicare and Medicaid. Just curious how many of them had coverage at the start of the year and when you expect they will have coverage throughout the year?

Sergi Billinger: And then, second question, more of a broader strategy question. David highlighted how well the company's capitalized, and the near-term break-even point is on the horizon in 2026.

Sergi Billinger: So just curious, how much of a priority in the near to median term is profitability for the company given that you do have a pipeline and you've discussed BD in the past? Thanks.

Sure, so Todd, if you could maybe address

Sergi Billinger: and Serge, you're asking about the amount of Medicare and Medicaid patients had coverage at the beginning of 2025 or the beginning of 2024.

Twenty-five.

Speaker Change: Okay. Yeah. So Todd, if you could maybe talk a little bit more about where we stand with regard to Medicare and Medicaid as of the beginning of this year, and how that will translate in the patient opportunity for 2025. And then when you're done talking with that, I'll come back to the question around profitability and the pipeline.

Speaker Change: Yeah, thank you, Frank, for the question. And specifically to Medicaid, we're very pleased with the Medicaid coverage that we've been able to secure.

Speaker Change: up to the start of 2025. And that would be that, you know, one in two Medicaid beneficiaries now have access to Zareef.

Speaker Change: And what I think is very important to highlight is not only the improved access we've had relative to Medicaid, but the quality of that access. And what I mean by that, as an example, if you look at the state of California with Medi-Cal,

Speaker Change: There is no step edit for Zareeb, so it's a first-line therapy within the state of California.

Speaker Change: If we look at the state of Florida, you have to step through Zareeb to be able to access Batama within psoriasis. So high quality Medicaid coverage and one in two Medicaid beneficiaries have access to Zareeb.

Speaker Change: Specifically to Medicare, to Medicare Part B, we can continue to have our discussions and negotiations with the Medicare Part B PBMs as they navigate the implementation of the IRA, the Inflation Reduction Act.

Speaker Change: Implementation of the RA has operationally slowed those discussions down and that process with the PBM.

Speaker Change: But, nonetheless, we're very optimistic that we'll be able to accelerate these discussions and continue to improve on our Part B access as we navigate through 2025.

and Arcutis.

Speaker Change: I think getting the cash break even is very important because it gives us a degree of operational.

Speaker Change: flexibility as we think about running the business for the future. You know, the first priority has to continue to be investing in the growth of Zeriv and as I think Todd mentioned during the call, we feel like we have the right level of investment. It's something that we constantly evaluate whether there are incremental opportunities or whether there are opportunities to save money.

Speaker Change: in terms of Zareve investment. But we feel we're at the right point right now in terms of investing in Zareve growth.

We do have a number of pipeline programs as

as Patrick outlined, and you know those will hopefully progress.

Speaker Change: But they're fairly early stage, so we don't expect, you know, really significant burn on those programs in the near term. But, you know, they eventually will impact our spend. And then, you know, with regard to business development...

I would say that we remain very opportunistic.

Speaker Change: We're always looking at interesting opportunities and opportunities where we feel like we can grow shareholder value. But we don't believe that business development is something that we have to do, right? It's not an imperative given the strength of our existing franchise and our internal pipeline.

Speaker Change: It's sort of an odd question as a biotech company to think about profitability. We're really focused on driving revenue growth and driving shareholder value first.

Speaker Change: And I think, you know, us paying dividends is probably not the right way to do that, at least not for the foreseeable future. So you know, we'll continue to be very judicious in our investments, whether that's vis-a-vis Zareve or the pipeline or business development. But if we do see opportunities to use the capital that we have to grow shareholder value, then we'll certainly take advantage of those opportunities.

Thank you.

Speaker Change: Our next question coming from the line up, Irwin Missile Group, your line is now open.

Speaker Change: Hey guys, thanks for taking our questions. So I have two questions.

Speaker Change: The first one is, you know, with the upcoming approval of the foam in psoriasis, I'm just wondering what is the indication that you're expecting? Is it psoriasis in general or is it like psoriasis with scalp involvement?

Speaker Change: and how do you think that this, you know, what's the strategy for

this indication for this foam product.

Speaker Change: What do you expect from the Phase 1b data for ARQ255?

Speaker Change: Sure. So, Patrick, maybe if you could start out by addressing the 255 question.

Speaker Change: and what we expect from our phase one study and then if you could also maybe comment on what we what we filed for and what we expect in terms of the indication for the expanded indication for Zree foam and then Todd if you could go into the strategy for the foam launch in in scalp and and you know how we see that playing with with the 0.3 cream

Absolutely, thank you.

Speaker Change: Our goal with this is really to understand the kind of PK exposure safety and tolerability first in this early stage trial and then also with the inclusion of alopecia areata patients to get an understanding from both a biomarker and an early clinical response.

Speaker Change: whether or not there's some indication that you know we were in a engagement of the target you know which has been a challenge for topical treatment of alopecia areata.

Speaker Change: and so we're really going to be focusing on those safety and tolerability data primarily and keep in mind this is a three month

Speaker Change: treatment, and the pivotal timeline for a LPG area trial is typically six months of therapy. So we would really just be seeing the first evidence of efficacy in that readout.

Speaker Change: scalp and body indication for psoriasis with the foam. In our pivotal trial we had co-primary endpoints

of BODI, IGA, as well as

Speaker Change: Scalp IGA. And so we anticipate the indication to be inclusive of all psoriasis, but then also specifically calling out scalp in a similar way reminiscent of what we saw with the cream indication where we had a broad indication for the treatment of psoriasis, but then it's specifically called out inclusive of those patients with enterogenous disease. So we would anticipate that kind of broad indication for the foam as well.

Speaker Change: Yeah, and then I'll respond relative to the strategy for the xerifome for scalp and body psoriasis. We're incredibly excited about this upcoming approval.

Speaker Change: We want to be able to differentiate our offering to both dermatologists and patients, and what I mean by that is we want to be able to create and present optionality and choice.

Speaker Change: to be determined by their dermatologist. And you have to remember relative to psoriasis, and this pertains to the Zerifoam, is that for psoriasis patients, approximately 50% of them have some type of scalp involvement.

Speaker Change: So we believe by offering that type of choice and optionality we can drive significant conversions from the steroid market over to Zerif foam or to Zerif cream and this will

you know if I could maybe just

Speaker Change: add just a little bit more color because, you know, we continue to get this question. I think that it is wrong to think about the foam cannibalizing the cream.

Speaker Change: So cannibalization is probably not the right way to think about this.

Speaker Change: and ultimately what matters to us and what matters to shareholders is the growth of total Zeriv 0.3

Speaker Change: in the psoriasis market. And we're quite confident that the addition of the foam and the addition of the scalp and body indication is going to accelerate the growth of Xerith 0.3 cream and foam in psoriasis and put us in a very, very strong position.

Okay, thank you.

Thank you all. Thank you.

Thank you.

Our next question coming from the line-up.

Canvassiatis, Wood, Jeffery, Phelan is now open.

Speaker Change: Hey team. Thanks for the questions. Just a couple for me.

Speaker Change: What proportion of 4Q sales are attributable to the Cala PCP partnership?

Speaker Change: And the second question I have is, do you expect 1Q op-ex to remain roughly in line with 4Q, excluding Commissioned Takawa? Will Commissioned Takawa be included in the SG&A line of op-ex?

Thank you.

Speaker Change: Sure, I think probably David, you can address both of those, if you could address what contribution from COA was in Q4, and then also our thoughts around Q1 OPEX with and without the COA Commission.

Sure, as we've been saying for several months now.

Speaker Change: You know, the COA sales force and their efforts really got started in September.

Speaker Change: And so, at no time did we really expect a meaningful contribution from them in 2024. And in fact, while it was certainly a non-zero number, it was not a significant amount. We do expect a meaningful contribution in 2025.

Speaker Change: The commission that we pay COA will be in the SG&A line.

Speaker Change: so you know so you will see an increase there and what we've committed to is that when that contribution becomes meaningful

Speaker Change: that we will give information as we report quarterly results. We will give information on volumes and commissions and.

Speaker Change: and so forth so that people understand the magnitude of that contribution.

Thank you.

Speaker Change: And our next question, coming from the lineup, Douglas Sum with AC, when right the alarm is now open.

Speaker Change: Hi, good afternoon, thanks for taking the questions. And congrats on the progress in the quarter. Just one question for me, you spoke about sort of the feedback you're getting in terms of clinicians wanting to move away from steroids.

Speaker Change: Do you think that physicians will just try steroids more briefly, or do you think outright that, you know, Zores can become first-line therapies? Thank you.

Speaker Change: Sure, yeah, I think that's an important point probably to clarify. I think, and...

Speaker Change: Todd can comment on this too, but I think it's likely that we will continue to see a single-step edit through

Speaker Change: a generic steroid to get to Zareve. You know, the numbers that we were talking about on the call represent people who are already on a steroid.

Speaker Change: and therefore have already met the step requirement, right? So this issue of stepping through a topical steroid really is only relevant for the very small percentage of patients.

Speaker Change: who are newly diagnosed or who have not been on any treatment for quite some period of time. Typically, the insurance companies will look at any treatment in the last 6 to 12 months depending on the insurance company.

Speaker Change: So, what I think investors really need to focus on are the 16 million prescriptions out there already for topical steroids, right? Those are all patients who have met the requirement for the step and the step is irrelevant.

Speaker Change: and that's where we think, you know, the growth opportunity is going to come. And, you know, Patrick, maybe you can talk a little bit more as well about the...

Speaker Change: the paradigm of steroids in an acute treatment for a chronic disease and how Zarif fits into that picture.

Speaker Change: right now is about what is the role that steroids have in the management of these diseases. And a lot of the conversation is about the chronic treatment of these chronic diseases and the fact that in the absence of having non-steroidals,

Here right where

Speaker Change: trying to fill that gap, even though they're not really well-suited for chronic management of the diseases.

Speaker Change: So, I think, you know, this idea of having a steroid step through isn't really such a hurdle for patients for the reasons that Frank just said, which is that oftentimes when patients come in, they may get a steroid before it's realized that, you know, they're really going to have a need for a long-term management of the condition, and that's the appropriate time anyway from a medical management perspective to shift them over to a non-steroidal product like Zareve that will be able to kind of carry them the distance from there.

Speaker Change: So I don't really see that, you know, the utilization management criteria are too out of sync with clinical practice and how it's evolving right now.

Thank you.

Great, that's very helpful. Thank you.

Thank you.

Speaker Change: Thank you. And I see there are no further questions in the queue at this time. I will turn the call back over to Mr. Frank Watanabe for any closing remarks. Okay. Well, I think we've covered everything. I just want to thank everyone again for making the time to call in for the earnings call, and we look forward to talking to you all again in the not-too-distant future when we have Q1 results. Thanks a lot.

Thank you.

Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Q4 2024 Arcutis Biotherapeutics Inc Earnings Call

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