Q2 2025 Arcutis Biotherapeutics Inc Earnings Call

Good day, and thank you for standing by. Welcome to the rudest bio Therapeutics 2025 second quarter 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 this session. You will need to press star 1, 1 on your telephone. You will then hear an automated message advising you. Your hand is raised to withdraw your question. Please press star 1 1 again.

Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first Speaker. Brian schaaf Head of investor relations. Please go ahead.

Thank you, Michelle, good afternoon, everyone and thank you for joining us today to review our second quarter 2025 Financial results in business update. Slides for today's call are available on the investor section of the arctis. Website on the call today are Frank Watson a president and CEO Patrick Bernett chief medical officer, Todd Edwards, Chief commercial

Officer Masa virra van Chief Financial Officer. 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, 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.

Thanks Brian. And thank you to everyone for joining us today. I'm pleased to report that in the second quarter. We continue to see strong sales and demand growth with our Z franchise demonstrating continued, adoption by Healthcare Providers and patients in consistent execution. By our commercial team. During today's call, we will review in detail the results for the quarter. But we'll also spend time talking in more depth, about our plans, to sustain our growth into the future, including the next wave of growth for Zur. How we intend to leverage our best-in-class development and commercialization capabilities to address the unmet Urgent needs of patients, living with immune mediated dermatologic diseases and our Capital allocation, framework to enable this next phase, before I dive in, I want to thank the exceptional team at our cudis. That is dedicated to an instrumental. In advancing, our efforts to serve the needs of people, living with serious skin diseases,

So on slide 5 honing in on the second quarter, we saw another quarter of strong Revenue growth as patients and clinicians continue to adopt zarie for the treatment of a range of der inflammatory dermatosis.

4 and a quarter. We reported net product revenues of 81.5 million, representing 28% quarter and quarter growth and 164% growth compared to the same quarter 2024.

This substantial sequential growth reflects, the continuously increasing demand, for Zur with TRX volume increasing for all products.

Biases of the scalp and body are fifth. FDA approval for Zarif in the last 3 years.

We believe this new indication for our phone will provide an important and much-needed, new treatment option for the over half of facts Rises patients, who have scalp involvement

In the quarter, we continue to make progress against a core objective: the progressive conversion of topical steroid prescriptions to Z. We see growing evidence that dermatology clinicians are appreciating the risks associated with extended periods of use and are increasing their use of alternative, non-steroidal topical agents.

We also saw strengthening in our business fundamentals in the second quarter as we continue to grow as a refills while remaining disciplined with our expense base. We are increasing our operating Leverage.

Lotta will go into more detail on our operating results and improving cash growing profile.

As we progress towards reaching cash flow break-even in 2026, we are rapidly approaching a point where we will have additional resources to invest in future growth. Today, we will begin to lay out our plans, including the next wave of Zur expansion, additional pipeline opportunities, and our disciplined capital allocation strategy that underpins it all.

Okay, turning now to slide 6. Uh we have been intently focused on clinical Regulatory and Commercial execution, for Z over the last several years as evidenced by our results.

And so as I introduce our framework for near medium and long-term growth today, I will start by saying that we will continue to see substantial opportunities for sales and profit expansion from our current zero V indications and those in late stage development.

Well, non-throw topicals are making inroads in the treatment of immune-mediated inflammatory skin diseases. There is still a tremendous amount of potential conversion to be had.

as patients and prescribers continue to understand how Zur can serve, as the foundational long-term therapy for psoriasis, atopic dermatitis, and February dermatitis. Topical steroids will increasingly be reserved for acute treatment.

To dimensional size of this opportunity. Last year, over 69% of all topical prescriptions in our approved indications were written for steroids.

So the progressive conversion from steroids will be a sustainable growth driver for zero for many years to come.

Our expected label expansion for Pediatric, Atomic dermatitis and development efforts for infant add, which Patrick will further detail shortly will be another component of this continued growth.

other commercial opportunities such as further assess improvements and the development of the PCP and pediatric channel that we previously detailed will also support our continued momentum with re

these cumulative near-term opportunities will Powers reveal growth throughout 2025 2026 and Beyond.

Beyond our current zero portfolio, we see a next wave of growth being driven by effective and efficient life cycle management for this re-franchise.

This is been enabled by the various formulations and concentrations available for zero, which has an Essence, create a Swiss army knife for inflammatory skin conditions.

Patrick will expand on our approach to REB lifecycle management. But I want to highlight that a core principle is the data-driven and disciplined matching of investment to clinical promise and opportunity size.

Longer term, our current development pipeline shows promise in addressing areas of high unmet needs for these patients.

We will also continue to evaluate external sources of innovation based on our conviction, that our core competencies gives us the ability to leverage the research in early development efforts of other companies. And to drive those Innovations through later stages of development regulatory approval, and to commercialization,

We are at an exciting point at our cuties, approaching profitability that will underwrite both the next stage of expansion for the Zarie franchise and subsequent waves of innovation.

And while we are eager to apply our expertise in Dermatological development and commercialization I will again underscore that we will continue to be thoughtful and disciplined in our deployment of capital.

We will continue to be stringent in our internal Capital allocation by being data driven in our pipeline management decisions.

As you will hear from Patrick shortly, in that vein, we've made the difficult decision to halt the development of our Q. 2555, following the readout from our Phase 1B file.

Finally, in the context of these promising opportunities for Capital deployment, I will reaffirm that we are committed committed to generating positive free cash flow. We remain on track to achieve this Milestone with our current business in 2026.

It is Our intention that future clinical development, spend to advance. Our existing pipeline will be funded by cash flows from our zero franchise.

Of some external Innovation might require ink middle capital.

Okay, on slide 7, I want to take just a minute to expand on why we believe that pursuing further label expansion for Zur is a smart investment and a judicious use of our capital.

First is 1 of the most successful drug franchises of all time. The story of humor is incredible. Success is well known, but the details of how that sex was achieve success was achieved in particular. The steady indication expansion for the franchise provides a sense of the power of a well-executed life cycle Management program,

My first launched in 2022 with initial indication in rheumatoid arthritis, which produced the majority of the brands early revenues. But as we can see in the chart, on the left hand side of the slide, it was not only the growth of that indication that powered humorous success, but also the consistent addition of new indications and label expansions

And by the time tumor reached its peak sales in 2022. Abby had added 11 indicators for this drug and fully 68% of sales were derived from indications Beyond rheumatoid arthritis,

A more recent and developing example of effective life cycle management can be found in Santa Fe, and Regeneron's Dupixent. It launched in 2017 with an initial indication of adult atopic dermatitis. Since 2018, 10 additional indications for the brand have been approved. While atopic dermatitis remains the most significant revenue driver, accounting for about 74% of the total.

sales as of 2024, approximately 3.7 billion dollars in sales was generated by these subsequently added indications such as asthma and nasal polyps,

The progressive expansion of our labor force is not a new store. Either since launching, an adult plaques rises in 2022, we've expanded to cover 3 diseases and 1 4 label expansions in the second quarter, the sales contribution from these new indications and label expansions exceeded 2/3 of our total sales.

And it is our strong belief that continued pursuit of new new patient. Populations who may benefit from zero will sustain the Brand's growth.

And with that, let me turn it. Turn it over to Todd to provide some more color on the quarter cut.

Thank you Frank, I'm on slide 9. The second quarter. We achieved 81.5 million in net product revenue for zarie, reflecting 164% growth year-over-year and sequential growth of 28% compared to the first quarter.

Importantly growth during this period was driven by increased demand across all strengths and indications.

Highlighting the repos robust performance of the franchise. And the continued adoption of zarie across this approved indications.

The meaningful Revenue expansion in the quarter was a result of strong volume growth supported by stable growth to net rates for disease, driven by the high percentage of prescriptions being reimbursed.

And additional Factor driving product Revenue growth in the quarter was a recovery of inventory levels in our distribution channels.

Back to normal levels, following a draw down in the first quarter.

Looking ahead to the remainder of 2025, we anticipate steady sales growth driven by new indication, launches increased contribution from the PCP and pediatric Channel through our partnership with COA and continue chair, gains in a sizable topical Market primarily coming from steroid conversion,

That said, Zahra is not exempt from the seasonality. That typically affects prescription topical products. As a result, we anticipate a moderation in our sequential growth rate in the third quarter.

Before returning to robust growth, in the fourth quarter, all provide additional detail on this shortly.

And show on a slide 10 is a rep prescription of volume, and reached a record, high of 16,000 weekly scripts on a rolling 4 week, average basis.

There's nearly 200,000 total prescriptions in the quarter, reflect a year-over-year volume increase of 117%.

And a quarter over quarter increase of 13%.

This strong performance is enabled by the substantial breadth of adoption across prescribers.

With over 18,000 healthcare providers having written prescriptions in the second quarter and 26,000 since launch.

This quarterly figure represents a 7% increase. The number of total prescriptions quarter over quarter and nearly 70% increase year-over-year.

We continue to see an erosion of topical steroid share within the topical Market.

In Q2 2025 branded, non-steroidal volume grew by 40% versus prior Year. All topical steroid volume was effectively flat.

Of that is appropriate with topical steroids.

we are in early stages of launching zero foam, 0.3% for patients with scalp and body psoriasis following if the approval in May

we expect this launch along with the anticipated approval of the wreck cream. 0.05% for patients age due to 5 years old in October to drive further. Volume growth in the second half of this year.

While we continue to expect strong overall growth, we even preserve 2025.

Including in the third quarter, the pace of growth in Q3 will reflect the typical seasonality of the topical Market.

This is influenced by non-medical factors such as summer vacations and medical factors, including reduced flaring for inflammatory skin conditions during the summer months.

As a result, we anticipate some moderation of growth in Q3 before returning to a more robust trajectory in Q4.

Let's now turn our recent to our recent approval for zarie on slide 11.

In may, we received FDA approval, for zero foam 0.3% the treatment of psoriasis for scalp and body.

As Frank mentioned more than half of psoriasis, patients have scalp involvement.

Historically, these patients had managed their condition with a combination of topical, steroids and other treatments depending on plaque location resulting in a frustrating poly, Pharmacy approach.

The ability to use a single product, once daily across all affected areas, offers a meaningful reduction in treatment burden.

3 foam, 0.3% delivers reliable plaque clearance and Rapid itch relief in a formulation specifically designed for hair. Bearing areas, and appropriate, for use near the eyes and other sensitive areas.

We are confident. This label expansion will drive incremental demand for surgery, particularly as the foam displaces other treatment options for scalp psoriasis.

since the goal formulation for sebderm and psoriasis are on the same SKU across both indications,

it would take additional time to accumulate, sufficient longitudinal data to accurately parse out contributions by disease.

However, we have seen an acceleration in foam growth, with a 9% increase in volume in the 6 weeks since launch compared to the prior 6 weeks.

As previously noted, our analysis indicates the technicians who prescribes a reef across multiple indications. Tend to generate significantly higher prescription volumes overall.

And they recognized the meaningful disease, management benefits as a redeliver for patients.

With the introduction. As a refund. For this new indication. We expect this effect to compound further.

Moving the slide 12, a long-standing objective of our Kutis has been to drive reimburse. Prescriptions, not just any prescriptions as they directly impact Topline Revenue.

We continue to benefit from strong insurance coverage for Reserve across approved indications, with approximately 80% of all prescriptions reimbursed. This favorable coverage landscape supported the revenue growth achieved during the quarter, with gross-to-net rates remaining stable.

We also made meaningful progress with Medicaid with well over half of all Medicaid recipients. Now, having access to a read and the majority of covered lives. Only require a single step through a steroid.

This advancement contributed to strong quarter of a quarter unit growth from the Medicaid Channel.

We remain actively engaged negotiations with Medicare Part D plans and are committed to expand access for these patients. Even as payers continue to navigate Financial disruptions due to the implementation of the inflation reduction Act.

the IRA, introduces to the part D benefit structure, including a shift in cost sharing responsibilities between CMS Part D, plans and manufacturers,

These changes are creating both operational and financial complexities are partly plans as they work to update their systems, adjust risk models and aligned on formulary strategies. This environment has led to a more protracted process to create a decisions for all new Pharmaceuticals,

Moving to slide 13.

Expanded utilization of Zur in the primary care and pediatric, setting remains a key component of our growth strategy and we continue to make progress through our partnership with Ka.

From the outset, we recognize that the primary care selling cycle requires more frequent and sustained engagement to build familiarity.

Many providers in this setting have limited exposure to possible, NFL treatments, and tend to default to its steroids.

Option is to read among these providers and their patients.

This process will further be supported by recent enhancements, made to streamline and prescribing and fulfillment experience of these providers.

In the second quarter, we implemented a dedicated National Pharmacy with improved capabilities for this channel.

This pharmacy will play a pivotal role in applying offices. Navigate the fulfillment process that is often less familiar to primary care providers compared to dermatologists.

Who are more accustomed to prescribing paranoid topicals.

The key advantage of this new. Dedicated Pharmacy is its ability to indicate integrate directly with the EHR systems, then a seamless, incorporation observing prescribing and to existing workflows

Given the diversity and volume of patients that Primary Care setting tools, that reduce administrative burden and streamline access are instrumental in driving broader adoption.

I'm now on, slide 14.

The future of Missouri is incredibly bright with multiple formulations and concentrations. We are equipping Health Care Providers with the flexibility to meet patients, where they are in their treatment journey. I providing a treatment option suitable for long-term, use and the ability to better support the management of chronic inflammatory skin conditions.

This versatility combined with service well established efficacy and safety profile continues to reinforce its position as the most prescribed brand topical across 3 major inflammatory scan conditions with that. I'll now turn the call over to Patrick for an update on R&D. Thank you, Todd. I'm on slide 16.

In the quarter as you come to expect from us, we need significant progress against our clinical and Regulatory objectives. As we received FDA approval, for zero foam, 0.3% for scalp and body psoriasis,

Initiated our Phase 2 trial for zarif cream. 0.05% and infants with atopic dermatitis and submitted our IND application for arq 234 in a topic dermatitis today, I'll spend time. Describing our efforts in developing Czar for Pediatric, Ave patients, outlining our approach to Zur life, cycle management and give an update on arq. 2555,

First, I want to acknowledge the important Milestone that our IND submission for arq 234 represents. We continue to believe that cd200 receptor modulation has a potential to be a powerful mechanism for the control of atopic dermatitis and other inflammatory conditions.

We further believe that as a fusion protein with high selectivity for cv200 arq, 234 has a potential to be a class leading program. We look forward to sharing more detail on this program at a later date.

Turn now to slide 17. I'm like other inflammatory skin conditions, atopic dermatitis often presents at early ages for patients, nearly 10 million children in the US are impacted by atopic dermatitis with roughly 60%, developing symptoms in their first year of Life. 80% unique challenges in these younger age groups, not only because the skin is more sensitive, but also because the condition, often covers a greater percentage of their total body surface area compared to adolescence and adults.

Parents of these, pediatric patients are highly sensitive potential. Negative side effects of topical steroids, these concerns range from the impact of chronic steroid use on the child's growth and Bone development to more immediate complications, like application to the child's face or contact with the eyes. And mouth can be difficult to control.

Given the size of the patient population and the need for a safer and more tolerable, therapeutic intervention. We've been enthusiastically pursuing label expansion for Zur to younger ages of 8,000. Dermatitis patients, we received a great fit for the Zur clinical profile in February. We submitted our fnda produce a re cream 0.05% for the treatment of children. Aged 2 to 5 years old with a topic dermatitis top.

Ation of roughly 1.8 million patients, the submission for the supported by data from the integument ped phase 3 trial which demonstrated efficacy and a safe and tolerable profile. In this age group highlighted by 39% of children, treated with Zur of achieving a 75% Improvement in Easy score, also called an easy 75. And this was done at Just 4 weeks.

In June, we presented new results from the integument Ole long-term open-label study that demonstrated children ages 2 to 5 who achieved disease clearance and switched to a proactive twice-weekly application of Zur cream 0.5% were, on average, able to maintain disease control for 238 days, or nearly 8 months, without the need to return to daily dosing.

Without disease flares with less frequent dosing. May be a particularly compelling benefit for patients in this age range and their caregivers. It speaks to the differentiated profile of the Reed, as a foundational treatment for chronic inflammatory skin conditions.

We look forward to our Target producer date for this application in October of this year.

We're also actively pursuing development as a reprogram. 0.05% in patients ages, 3 to 24, months and enrolled. The first patient in this integument, infant trial. For this population in June, we're seeing brisk enrollment in the trials, which confirms our belief that amongst these young vulnerable at topic dermatitis patients. There's an acute desire for alternative treatments to current therapy therapies. Most of which are topical, cortical steroids pursuing these potential, expansions in the younger, add patient, populations delivers on a core principle for our Kutis to deliver Innovation to solve everyday challenges with a significantly impact the lives of patients and their families.

Now moving on to slide 18 as Frank remarked at the beginning of this call pursuing new patient. Populations, that may benefit from zero has been a core tenant of our clinical development strategy. This is evidenced by the 4 label expansions we have secured across packs or Isis, Cedric dermatitis, and a topic number Titus following our initial approval in 2022.

We believe that there are additional skin diseases that may respond to and more patients who may benefit from disease. Just believe, it's not only supported by our understanding of zere's, broadly, applicable anti-inflammatory, and anti-arab feedback. We've received from healthcare providers in the field, as part of our obligation to sponsor, our medical team monitors, the feedback to date. We've identified more than 40 case, reports from clinicians, who've used the ree in the multitude of other inflammatory dermatoses and seen signs of efficacy. These clinches have experienced the safe tolerable versatile and effective profile. As a reason in their psoriasis, 80 and September patients and have chosen to investigate novel applications of the therapy. This case reports are listed on the left side of the slide and include many diseases, which are not well managed by topical steroids and therefore present a challenge for Dermatology providers.

Our approach to assessing these potential opportunities is stepwise and resource efficient. As indications of Interest, come to light, we'll engage in the collaborative. Research conducting Phase 2 proof of concept studies, where appropriate to evaluate the degree of response and understand potential safety and efficacy based on the results of these initial studies, our analysis of the addressable patient population for a given disease and feedback received by Regulatory Agencies. We may then identify additional indications for which a registrational trial conducted by our candidates is approved and investment.

We're already pursuing this strategy with efforts underway to begin enrolling. Phase 2 studies in Vigo hidradenitis suppurativa. We anticipate initiating additional Phase 2, proof of concept studies going forward,

This evaluation of you indications and program planning will be comprehensive and evolve over time and each project will be carefully. Assessed relative to potential return on investment our progress. In this process, is another topic that we plan to detail further at a future date.

And moving on to slide 19 as Frank mentioned in his remarks. And as you've heard throughout this call, our cutest is fortunate to have multiple opportunities for clinical investment to pave the way for our future growth. As we evaluate our current and future portfolio of clinical programs, we will continue to be data driven and apply High bar for advancement in line with this rigorous portfolio of management approach. We've announced today, our decision to Halt further development of arq. 2555 following our review of the results from our phase 1B trial

We've always known that the ARQ-2555 program was a high-risk endeavor. Multiple other topical Jak inhibitors had previously failed in alopecia areata. The preclinical studies suggested that our novel 4D technology might be able to overcome the challenges of treating alopecia areata topically.

The study demonstrated a trend for positive efficacy in both the clinical endpoint of assault change from baseline and salt improvement to 50% or greater, suggesting that, in fact, 4D is able to deliver drug to the site of inflammation. However, the magnitude of improvement was not sufficiently large to justify a continuation of the program.

I would not be a meaningful addition to the treatment options for patients without a patient areata.

We look forward to finding other opportunities outside of arq 255, to expand our Pipeline and provide meaningful Innovation. And dermatology, I want to thank the investigators, our advisors, and the patients who participated in this program, as well as the excellent. Our cutest team that conducted a very well-run study and with that, I'll turn it over to Lava.

Thank you, Patrick.

I want to start by reiterating the strength of this quarter. Our improved operating leverage allowed for strong topline growth to translate to a reduction in cash burn, and it re-emphasizes that our disciplined approach to capital allocation has us on our path to cash flow break-even in 2026. I'm on slide 21, showing financial results both year-over-year and quarter-over-quarter for the second quarter of 2025. As Todd has stated earlier, we generated net product revenues in the quarter of approximately $81.5 million, which is up 164% from Q2 of 2024 and 28% from Q1 of this year.

Cost of sales and the second quarter or 7.5 million compared to 3.5 million in 2024.

Primarily driven by increased reach, sales volume.

Cost of sales, decreased 15% sequentially versus the first quarter of 2025, despite increasing sales, volume due to an expense recognized in the first quarter for the catchup amortization of a 10 million sales Milestone, owed to Astro for reaching 250 million in cumulative, net sales.

For the second quarter of 2025, our R&D expenses were 19.5 million versus 19.3 for the corresponding period in 2024. Our R&D spend has remained consistent year on year as decreased development costs, for both the last and adult atopic dermatitis, and plaque psoriasis or partially offset by an increase in development costs for Pediatric atopic dermatitis.

Sgna expenses were 69.2 million for the second quarter of 25 versus 58.2 million in the same period last year.

Up 19%, as we invested in our commercial organization to support our current. And upcoming launches recall, we expanded our sales force into the second half of 2024,

SCN expenses were also up approximately 9% compared to the first quarter of 2025, primarily due to increased sales and marketing costs related to our launch and scalp and body psoriasis.

Net loss for the quarter decreased by $36.4 million compared to the same period last year and $9.2 million versus the first quarter of 2025.

While this rate of improvement in operating results will fluctuate across quarters in line with sales. It clearly demonstrates that we are making substantial progress towards reaching cash flow break, even in 2026 and that the foundation of our business is strong and getting stronger.

Now, I'm on slide, 22.

You can see that we had cash and marketable securities of $191.1 million on our balance sheet as of June 30, 2025, and we're slightly cash flow positive from operating activities this quarter.

This positive net cash flow from operating activities of 325,000 was due in part to our increased gross profit for envir top-line. Revenue growth, our highly encouraging signal of our progress towards cash flow, depositing but also in part due to timing changes in networking Capital that reduced cash used in operations, this is a good example of the type of factors that lead to the quarter to quarter fluctuations. I mentioned earlier and that we expect to see on occasion in the future.

We expect our quarterly cash burn to continue trending down as our revenues grow and we approach stable, positive cash flow from operations. Sometime in 2026, we have total debt of 108 million and of the option to re-draw. Another 100 million in whole or in part, at our discretion, through the middle of 2026, providing us with significantly enhanced flexibility.

The success of Czar portfolio and the economies of scale. We are generating will permit us to invest in the business for continued growth and long-term durability with that. I'm going to hand it back to Frank for some closing remarks.

Thanks L. Uh, as you've heard throughout today's call, we built a strong and sustainable foundation for our business.

In our prospects for continued near medium and long-term growth at our cutest are strong.

More to to sharing updates on our progress.

And to that end, we will be holding an R&D day in the fourth quarter of this year, to go into greater detail on several key aspects of our clinical development plans and corporate strategy.

And with that, we'll open up open up the call to Q&A.

Thank you as a reminder to ask a question. Please press star 1.

star 1 1, again, 1 moment while we compile our Q&A roster,

Our first question is going to come from the line of Sheamus Fernandez with Cooking Haim. Security, your line is open. Please go ahead.

Thanks so much for the question. Uh congrats on the great quarter and reaching at least for this quarter cash flow positivity. Um, you know, a couple questions here. Um, maybe just to start off as we think about the sort of progression of revenue, from second quarter, to third quarter. It sounds like we should think about this, uh, as you know, a little bit of a, a perhaps, even a, a slightly down quarter. Um, or should we think about it, more as a sort of flat progression or Mo moderating growth? Um, as we think about third quarter and then you know Frank, um, I I I think it's it's very obvious uh the opportunity to continue to really um, pursue the switch from topical, steroids more Broad

Broadly, especially considering the the range of areas where topical steroids are utilized, but wanted to just get a better sense of how far reaching you feel. Um, the, the opportunity is to move beyond the the 4 initial indications here. Um, obviously there's there's a number of indications that were listed on the slide, uh, on the R&D side. But you also mentioned, um, potential business development, um, you know, Pursuits, moving forward, beyond the existing pipeline. What do you feel would be kind of a good right fit for the company. Um, as you look Beyond this is it to be able to scale the um, the business with on Market assets or is it more to, you know, really release your R&D organization given the uh the the sort of clinical Excellence that's been demonstrated. Um uh you know so far

Yeah, so Shameless maybe I'll I'll answer your your second question first, and then I'll ask Todd to address, uh, the question around around Revenue. Um, you know, I I think that that

From a clinical standpoint. Uh, it's pretty clear that zarie has very broad. Applicability across a whole range of diseases, uh, I think potentially even some non-inflammatory conditions, um, but, uh, you know, they're not probably all worth us pursuing an indication for, um, you know, I I think we will look to generate data to inform the Dermatology Community where it's appropriate. And then we'll look at those opportunities. And and determine is the, is the market. Big enough is the magnitude of clinical Improvement versus existing therapies big enough, that it justifies pursuing an indication. Uh, and and so I, you know, we'll be very rigorous in selective in choosing those, uh, diseases where we think it's worth, um, you know, spending the money to do a full registration of program, but I I'm pretty confident that there are going to be other diseases, uh, that it makes sense for us to pursue an indication, particularly given, you know how?

Um, stringent insurance companies have become about the off-label reimbursement, uh, of drugs. You know, it's very different than it was, you know, 10 years ago even. Uh, so I I think, you know, there's a lot of upside opportunity for us. There are a lot of steroid prescriptions for diseases, other than our currently approved indications and and so, we'll just need to be very rigorous and methodical in choosing, which ones we just generate data on which ones we pursue an indication for um, you know, turning to the business development.

Um but leveraging the development expertise of this company, I think is a great opportunity. Um and you know, we continue to focus primarily on drugs where there is biological validation of the target. So we're not taking on too much biologic risk. Uh, where there's a large unmet need and where we find an asset that is is really differentiated from other assets. We're not, you know, going to be pursuing a bunch of me too assets. So hopefully that addresses your question and, you know, we well again, we'll talk about this a lot more at the R&D day and then, I'll, I'll turn it over to Todd, talk about Q3 and the rest of the year. Yeah, great. Thank you, Frank. And, uh, Shameless, we still anticipate this this sequential growth, uh, in the third quarter as we expect. Um, continued growth across all indications, uh, the rate of growth. Uh, and the third quarter will be slightly moderated due to the seasonality that we spoke about. But nonetheless, uh, we remain very optimistic about the growth, and I'll just frame it that we continue to want to see sustainable momentum within this franchise and will

in Q3 and Beyond.

Super, thanks so much.

Thank you. And 1 moment for our next question.

Our next question is going to come from the line of Tyler van with TD, cow and your line is open. Please go ahead.

Yeah, this is this is the kind of, on, for Tyler. Um, I had a question about the coal partnership and you guys also mentioned that

You set up a national dedicated Pharmacy I was wondering what the early utilization of that looked like and again could you elaborate on the contribution of the coop partnership today?

Yeah, this is Paul. Yeah, thank you for the question and um, you know, as discussed before we anticipated a sweller adoption as a reef in the primary care Market, uh, versus the Dermatology Market due to the the longer selling cycle. That's required also with primary care physicians. Not being asked familiar with, uh, non-steroidal topicals and we are seeing, uh, that slower adoption of zero within the primary care Market. However, uh, COA is taking the right actions to make certain that um, we have the right frequency on the right targets with the right messaging.

And also making certain that they continue to educate. Uh primary care physicians at other opportunities, like peer-to-peer programs, uh, speaker programs and uh, such relative to the the national Pharmacy. Uh, we're seeing very positive signals, uh, with the early launch of that National Pharmacy. And as mentioned, it's critical that we provide a, a dedicated Pharmacy that will appropriately enable and support the primary care. Physicians relative to fulfillment process with Zur. Uh, and once again, we're seeing positive signals with that and encouraged, uh, by

Because we are continuing to adapt and execute on the right targets for the right frequency, and what we expect from this National Pharmacy.

Thank you and congrats again on the quarter.

Thank you. And 1 moment for our next question.

Our next question will come from the line of we year with M, meizuo your line is open. Please go ahead.

Hey guys, thanks for taking our questions. Um, congrats on the quarter. Uh, so maybe just first question is, could you maybe just help us understand the growth in that Dynamics and the quarter? It was, um, better than what we expected particularly, um, you know, for each of the individual products with possible, or just the phone, thanks.

Yeah, a couple.

Do you have additional questions? You want to finish them off?

No, no, that's fine. I'll I'll follow up. Um,

Okay, so in regards to gross tonight is Todd commented, we are gross and it's been stable for the quarter and in the 50s.

And beyond that. We haven't quite ever commented on the product. So I'm going to leave it at the 50s.

You know, gross. That's not changing very much anymore and I wouldn't expect that it would

Okay.

Um, and I guess, you know, in the press release, you guys commented on 3 patterns that you uh, that was allowed I guess in the quarter. Um, could you sort of elaborate on that?

Um, we had yes, we had 3 additional patents, that were issued in the quarter from the US patent office. Um, none of those extended, uh, the the, um, eloe for the product. Uh, but I think, you know, they are further. Um, further expand the strength of our IP portfolio. We now have 24 issued us patents, uh, and and many of those listed in the orange book, uh, and I just think that that it speaks to the further the continued strength of our intellectual property portfolio around the reef.

Okay.

Last question. Uh, you mentioned 2 studies 2 Phase 2 studies that are ongoing and I I guess 1 of them is the atopic uh study in pediatric 3 months to 2 years old, what's the other 1 or and

So, so we we uh, we talked about initiation of a 3, to 24 month, old study in a topic dermatitis with, uh, with Zari. That's the 0.05% that is a sponsored clinical trial. That's part of a post, uh, uh, postmarketing commitment that we have in order to continue to set the age down, um, that we are conducting as a sponsored registration of clinical trials. The other 2 Phase 2, studies that we're talking about are collaborative research trials which are being done to get an early understanding of the potential efficacy in 2 of these indications which are not currently approved indications but where we have seen some evidence of efficacy coming from case reports. And so that'll give us a kind of you know quick and early understanding of what the efficacy might and safety might be in that disease state to help us to then make decisions on uh, whether or not to pursue a registrational, uh, program for 1 of these indications. And, and, or just

Clarify, those Phase 2 studies are in HS and Vitiligo. I believe both of them are posted on contrast. Now,

Okay, thank you.

Thank you. And 1 moment for our next question.

Our next question is going to come from the line of Andrew tie with Jeffrey's. Your line is open. Please go ahead.

Hey, thanks. Uh, good afternoon, congrats on the execution. Thanks for taking my questions. Uh, maybe a bigger question. Um, can you give us your latest and greatest thinking on how you're thinking about the peak sales opportunity, uh, across your 3, current, indications. And how that's changed compared to your original thinking?

Um, so hey Andrew. I we have not uh, given uh, Peak sales guidance for quite some time. Um, I think it was 2022. Last time we did, you know, at that point we had said that we thought that each 1 of the indications IIs, a and subdermico Market, you know, if that growth to 10%, um, you know, you're well, north of a billion dollars and I think that 10%, uh, of

Of the topical Market is is very achievable and probably is a low bar, uh, given the the clinical profile that we see. And particularly you know, if we expand beyond the 3 initial indications as Patrick just mentioned, um what I will say is that you know we we continue to evaluate this. Um, and you know I think you can expect some further guidance from us in in the future about what we think the peak, uh, sales potential is. But clearly we are really just scratching the surface uh in in uh the the total commercial opportunity for for Zur.

I agreed. And then a follow up to the last question on Vitiligo and HS, um, is it possible that we get initial data from the IST studies in 2026, or is it sometime later? Um just wanted to gauge your new flow. Thank you.

Yeah. I mean right now we're not putting out any expected timeline for those trials as we get engaged into our collaborative, research that we're pursuing for these Phase 2 trials. Um, we'll have a more clear understanding of what that might be. So we would expect to provide some guidance as we get further into them, but as the current time, we're not able to give a a milestone or expected timeline for today.

Makes sense. Thank you.

Thank you. And 1 moment for our next question.

Our next question will come from the line of Judah frommer with Ms. Your line is open. Please go ahead.

Yes. Hi. Thanks for taking the questions and congrats on the quarter. Um, just a couple for us, I guess. First, um, we were hoping you could, maybe elaborate a little bit on the Pediatric opportunity in a topic, Derm kind of what, you know, penetration ramp could look like their relative to in adults, giving giving kind of, potentially arguably greater unmet need or, you know, uh, safety concerns there, for, for those patients. And then, um, separately I I think this week, we saw, uh, a second joint status update on. Uh, the Patek litigation just curious if, if there was anything um, you could add, there is is the case just stayed and, and we're waiting for an update or or was there more to that thank you.

Yep. Patrick, you want to maybe take the first, those questions? Yeah. Yeah. We're really excited about the the opportunity in 2 to 5 year olds, that's upcoming with the 0.05% when that's the approval that, uh, has a Paducah in October, you know, out of the 9.61%, the society for pediatric, dermatology meeting in Seattle and really got a very good understanding of just how important this age group is to them. I think, because many of these are kind of difficult to manage patients. As I mentioned, this is a disease that comes on early in life and, uh, and and there's a lot of avoidance of topical steroids from uh, parents. So what we're looking to be able to do is to present an option into these deeper ages, age, ranges, and 2 to 5 year. Olds is the first step for us. And as we mentioned, we're getting started with

3 to 24 months old trial, as well with the same concentration, and I think it's just a very good fit between the need and the expectation of parents to be able to manage their kids without topical steroids and the profile that we've been able to show so far. Um, so we're really excited about the upcoming approval. Yeah. And and, and Patrick. And I were both just at the Society of pediatric, dermatologists, 2 weeks ago. Do you want to maybe just get some color about the the tenor of the conversations at SPD?

Yeah. I mean their their conversations were about a very large patient flow in their offices for, uh, for this age range because of the the challenges of topical cortical steroid use. And it's, you know, it's common for a patient to be seen in a pediatrician's office. They might get 1. Topical corticosteroid as a as their kind of start off, and then if that's not able to completely manage the disease, then they're looking to be referred often times either to a pediatric, dermatologist this way if 1 is available but, uh, dermatologists. It's very common for them. Even if they are seen as adult dermatologists to be seen patients down into the age of 2, and sometimes even younger than that. So, not all these patients are managed by pediatric terms, but pediatric, pediatric terms definitely represent kind of the core for Education within this age group and they influence a lot pediatrician. Uh, prescribing and pediatrician openness to being able to use a new therapy. So we think our contact points within both the pediatric dermatologist

Community are really important and that's what we were seeing when we were at the society for pediatric. Dermatology, but also the adult, uh, you know, adult Dermatology, uh, Healthcare Providers are really important point for managing these patients, also,

And then, you know, just with regard to the, the um, pagis case. Um, you know, recall that there is a requirement in the litigation state, that that, uh, the 2 parties, jointly provide periodic updates to the court. Um, you know, the first 1 of those updates has just recently been provided. Um, those uh, those updates are confidential. Um, and in fact, I I even I don't see them. Um, but uh, but it was provided as, uh, provided for in the stay. And I think, you know, the, the 1 data point that all of us should be aware of was is that everyone agreed that the stay should and will remain in place.

Great. Thank you.

Thank you and 1 moment as we move on to our next question.

Our next question comes from the line of search Billinger with Nem. Your line is open. Please go ahead.

Good afternoon and congrats on, uh, on a great quarter. Um, first question, uh, regarding the 2q performance, I think 190 sales were up 28% quarter of a quarter, I believe scripts were up 13%, so maybe just reconcile the difference. Was it just, uh, a bump up and, and grow some Nets from q1? And I guess the, the follow up to that is I think you mentioned, you expect growth to Nets to be stable for the rest of the year. So, should we expect, uh, script growth to be the main driver for sales over the remainder of

Of 2025.

Um, second question, I think Todd talked a little bit about the issues regarding Medicare Part D. Um, can you remind us

what part of the Tam Medicare Part D represents for for zorie and and when you think you'll be in a position to kind of capture that opportunity and get coverage from those plants, thanks.

Back to normal, calling a draw down in the first quarter.

Uh what I want to be clear about is that we did not see abnormal inventory stocking levels in the second quarter. This was simply recovery back to normal levels as a result of the draw down in the first quarter.

In reference to uh, gross net as um, as mentioned and as uh, lots of reinforced, we expect growth to net to be stable, uh, for the range of the year. So yes that will, uh, primary growth driver will be volume. And demand, we're very encouraging, what we see, uh, across the portfolio. We recently launched as a reef foam 0.3% for Scott and bodies to Ryan says that will continue to be a growth driver. And then as uh Patrick mentioned with the painting approval on October for zero, 0.05% to 5. Uh we continue to be very optimistic and encouraged uh by Future growth in our demand.

Yeah. And then, you know, with just with regard to serve your question around, uh, Part D. Um, you know, across the 3 diseases, uh, you know, keep in mind, let's say roughly about half of those patients, uh, across the, our 3 indicators, our government pay either Medicare or Medicaid. Uh, and, and the, the relative slip team Medicare Medicaid really varies by disease, um, you know, at topic dermatitis is much more heavily Medicaid because of the age of the patients, uh, sebderm is much more heavily Medicare because of the age of the patients. And for Isis is somewhere in between, although less.

Psoriasis patients are government uh then um then uh with sebderm or add. So you know I think in in totality again it's it's about half our government were rapidly penetrating into Medicaid. Um slightly less than half of that half is is Medicare.

Is that address your question around? Um, the Medicare piece.

Yeah, I guess the the other part of that question was, you know, when do you think you'll be in a position to start catching that coverage?

Yeah, that that is hard to say because unfortunately, it's completely outside of our control, right? Um, you know, as Todd mentioned, you know, the dynamic that we're seeing is, um, and and you all probably have seen this if you cover the insurance companies, you know, with the changes in the ira that were adopted January 1 of this year. Uh, the insurance companies are losing a substantial amount of money on their part D book of business, uh, and and a number of them have had to issue the earnings warnings even as a result of that, you know, and and that disruption then is leading them to be. Uh, I think very conservative and to be looking at their businesses, um, you know, to the best of our knowledge. I don't think any new drugs have been added this year to the Medicare Part D formula is across all indications. So that that tells you just sort of how perturbs they are. We don't know when things are going to settle out and and they're going to start moving forward. Again, you know, we continue to have, I think constructive dialogues with the Medicare Part D plans, but

You know when your your your boat is sinking, the last thing you're thinking about is picking up new passengers you know and I I think that's a little bit how they feel right now. You know I expect it will stabilize. We think Medicare is still an important opportunity for us. Um and we'll contribute to our growth in the future. I just it's very difficult at this point for us to call the ball on what the timing would would be for that.

Okay, um, maybe 1 last 1. Um, obviously you

Your sales force is executed. Well, grow and sales here in the second quarter and it sounds like KOA had.

Still has little contributions so far. So, with the additional uh, approvals coming up later this year, is there a case to be made to continue expanding your own sales force to

Uh, continue executing will, and and growing the um piece within the Derm offices.

No, I I, you know, I I don't think we see or see at this point, any need to expand in. Dermatology, we we have a very well-sized, Dermatology sales force and we have good coverage, good frequency on our Dermatology targets. Um, you know, what, we will, uh, have to continue to evaluate as opportunities outside of Dermatology, and think about how we address those opportunities. You know, we felt that the coop partnership was a smart way, uh, an economical way for us, to access the primary care and pediatric opportunities. But but at this point in the game, we don't have uh, any plans for any further Salesforce expansions on the acute arkuda Salesforce.

Got it. Thank you.

Thank you. And 1 moment for our next question.

Our next question is going to come from the line of Douglas towel with HC Lane, right? Your line is open, please go ahead.

Writers or as doctors write more for more indications, you sort of get a real economy of scale or sort of, you know, sort of logarithmic effect. In terms of the scripts that they're writing, how, you know, how long is it typically take for, for, for docs to write for multiple scripts, or they sort of coming at it, sort of incrementally. And, and are there things that you can do, or have started to do to, you know, sort of increase that that the, the, the, the, the indications that an individual Doc is writing for?

Yeah, thank you for the question. Um, you know, I think this has been a very good position with desire. And what I mean by that is that with the with the recent, uh, launches that we've had with indications,

Dermatology prescribers have already had experience with zero, whether it be with the zero, the cream, uh, 0.3% for psoriasis or the uh home formulation for severe dermatitis. Uh, this drives, uh, wrap it up. Take relative to the the other uh, indications or formulations that we've launched.

And we do see that within the data that um, a good portion of our prescribing base has adopted the full formulary uh this creates efficiencies with their prescribing both with the patient, but also on the Fulfillment side given that it's the same uh copay card. Same Pharmacy, same process. Um, so that, you know, it's a differentiation or disease of of excuse me as a reef as an asset. Meaning that um you know,

Across the, uh, different formulations and products. Uh, you can write the, you understand product relative to any duration on, uh, time anywhere on the body. We've approved an efficacy proven safety. Um, so these type of uh, this type of differentiation really compels the providers to continue to adopt uh, the new formulations and indications we put into the market.

And I'm just curious. If I can a follow-up, just to the extent that some doctors, might only still be writing for 1 indicator. Is it your thing that they perhaps, they don't have awareness, of the breath of the label? Or is it perhaps unique to their practice, where they just might see, sort of, uh, sort of have a concentration in into 1 of the indications? Thank you. Yeah. Yeah. Within our Dermatology Target Universe, the dermatologist that have only adopted, uh, 1 indicators, truly the exception.

And usually that's something that is unique to their to their practice or to their patient population. Um, we continue to engage those dermatologists, educate them on the uh, zero differentiation and opportunity and expect that. Um, over time, they will have adoption of the portfolio.

Okay, great. Thank you so much.

Thank you. And 1 moment for our next question.

Our next question comes from the line of Richard law with Goldman Sachs, your line is open. Please go ahead.

Hey guys, congrats on the progress, uh, couple questions from us. Um, so following up on the Medicare discussion. Uh, what drug classification would sorry fall into in your Medicare coverage. Um, discussions on the negotiations, is it classified along with topical steroid? Or or can you get your own separate classes of topical uh pte for? And also, what is the progress in Medicaid? Over the last quarter?

In relative to.

With regard to, uh, Medicare relative to the to, the glass, The Market Basket, if you will, uh, we would be within the Dermatology topical basket, um, uh, as how Medicare would, uh, position Zur, uh, in reference to, uh, Medicaid. We've had, uh, exceptional success in expanding our Medicaid access. Um, you think about it, and as mentioned more than half of, uh, Medicaid patients now have access, uh, Dozer, and most often, that's only a single step through a steroid and we continue to be steadfast and expanding that access, uh, ensuring that, uh, Medicaid recipients continue to have an expanded access to the re,

Oh God, I just kind of follow up on that. So basically, uh, is there a way to get a separate class as like, a topical pte or or, or just up the broad basket that you mentioned?

yeah, it would be difficult to get just a a a pd4 Class A um, if they want to keep the topical products in the same Market Basket, um, and actually, that's advantageous for us given is a reason to differentiation not only from an asset but how we strategically price the product within the market

Uh, you take that strategic pricing within the market, and you also take into consideration the average utilization of tooth for patients per year is 2 to 3. Uh, we're a great value proposition to the Part D plans, as well as the beneficiaries.

Question. Um, any new thinking around the xus opportunity, especially in Europe, based on how um, absolutes performing

Thank you. Uh, I I would say um,

At this point, no change. Um, you know, I think that that upsoar is a, um, a really a distinct, uh, situation, uh, especially because of, uh, the label they have in Europe and the the lack of comparators, uh, for that indication in Europe. Um, I think for, for Zur and some of the other, uh, uh, Advanced topical therapies the reimbursement landscape in Europe is particularly challenging and you lay on top of that. You know, some of the potential, uh, domestic risks around mfn pricing. And, you know, we feel that the the business case right now in Europe isn't compelling enough for us to pursue that.

Got it. Very helpful. Thank you.

Thank you. And I would now like to hand the conference back over to Frank for closing remarks.

Okay. Well, I as always, we appreciate all the great questions, uh, and appreciate you guys making the time, uh, to join us on the call today. I know it's a very, very busy time of the year, so we, uh, we look forward to talking to you all again in another quarter and hopefully putting up another great number next quarter. Thanks again, this concludes today's conference call, thank you for participating. You may now, disconnect everyone have a great day.