Arcutis Biotherapeutics, Inc.

Good day and welcome to articles by therapeutics twenty twenty four first quarter financial results conference call at this time. Our participants on a listen only mode after the speaker's presentation, there'll be a question and answer session to ask a question during the session. You'll need to press star one one on your telephone. You then hear an automated message advising your hand is raised to draw your question. Please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Lata Berivan, Vice President, Finance and Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2024 financial results and business update. Slides for today's call are available on the Investors section of the Arcutus website. 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. I'd 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, Lata, and thank you all for joining us today. You all know the other executives on the call, but I'm really excited today to welcome David Topper, our new Chief Financial Officer. While David is new to his executive position here at Arcutus, he's been an advisor to us for more than four years. I expect many of you are already familiar with David and his exceptional experience and track record in the financial and biopharma worlds, and we could not be more pleased that he's decided to join us at this exciting time at Arcutus. As David joins us, I would also like to express my and the entire organization's thanks and gratitude to John Smither for his incredible service to Arcutis over the past five years. He served as our first CFO, guiding us through a successful initial public offering and has brought an incredible depth and breadth of both financial acumen and dermatology experience from his 25-plus year career in the pharmaceutical industry. His contribution to the success of Arcutis at a critical time cannot be overstated. and we wish him well in his future endeavors and family time. So with that, let me turn to slide five of the deck. We sustained our strong performance since our last earnings call, and I remain delighted with the Arcutus team and our execution during this quarter. And I'm thrilled about the momentum we are building towards a successful 2024. Once again, we saw strong growth during the quarter in our expanding Zareve portfolio as healthcare providers and their patients see how Zareve Cream and now Zareve Foam address real needs in the treatment of psoriasis and seborrheic dermatitis, respectively. Solid growth in prescriptions for both the cream and the foam, coupled with additional gross to net improvements during the quarter, drove strong revenue growth in the first quarter, both versus Q4 and year over year, with net revenues of $21.6 million, 70% of which was for the cream and 30% for the foam, which is still very early in the stages of launch. We've now generated more than 255,000 prescriptions for the cream and the foam combined from over 12,500 unique prescribers to date as our product delivers positive clinical experiences for HCPs and their patients. Our progress in improving GTN this past quarter resulting in a blended GTN in the low 60s across both products for the first quarter is particularly noteworthy given the typical copay resets every product experiences in Q1 each year in addition to the fact that we launched a new product during the quarter. Todd will provide some more color about how we achieved this remarkable accomplishment in just a few minutes. We also continue to successfully execute against our clinical and regulatory milestones, about which Patrick will go into more detail. Most important is the upcoming FDA PDUFA target date of July 7th for our SNDA for atopic dermatitis. We also continue to progress our pipeline programs in particular ARQ234 for AD and ARQ255 for alopecia areata. In February, we completed a secondary offering that raised 172 million gross proceeds, which, along with net product revenues and our existing balance sheet, puts us in a very strong financial position to sustain our investments in the ongoing launches in plaque psoriasis and seb derm, as well as the potential atopic dermatitis launch later this year while advancing our pipeline. Also in February, we entered into a licensing agreement with Sato Pharmaceutical Company, which grants Sato an exclusive license for topical reform lasts for Japan. Our QDIS received upfront payments of $28 million in the quarter, $25 million from Japan, with potential additional Japan milestones up to $40 million, as well as low double-digit to mid-teen double-digit percentage royalties. We also received $3 million from Huadong for our China partnership. Moving on to slide six, as we've mentioned on prior calls, a major reason why we're so excited for this year is that we are in the midst of a very significant expansion in the opportunity for topical reflumilast, which we expect will translate into substantial acceleration of our revenue trajectory. From the initial approval for psoriasis, the total addressable market for Xareeb could grow tenfold from the end of 2023 to over 15 million patients in the United States. I would add that we are feeling increasingly bullish about our ability to begin gaining Medicare and Medicaid coverage this year, and we are making steady progress on a partnership in primary care. As our results this quarter reaffirm, we have the right commercial team in place for success, and we have an excellent plan to execute against these opportunities. With that, let me turn it over to Todd to provide some further commentary around Zareef Cream and foam launches in psoriasis and seb derm.

Thank you, Frank. I'm extremely enthusiastic about the expansion of our commercial portfolio, HCP, and patient response to both Xerive products and the immense opportunities that lie ahead. Moving to slide eight, the Xerive Psoriasis TRX performance is continuing to show strength, and these results demonstrate that we could push the trajectory in psoriasis. These efforts also lay a solid foundation for the brand and the building of a portfolio. Annual insurance changes and deductible recess typically create a dip in prescription trends in the first week of the year. As you can see, the TRX trend has rebounded from that. Further, it is notable that many patients push refills at the end of the year in anticipation of insurance disruption. So to see the growth in Q1 of 8% over Q4, 120% growth compared to first quarter 2023, highlights an encouraging trend line for Zareef Dreams. I'm now on slide nine. We continue to hear of a growing preference for Zareve relative to other non-steroidal competitors. The value proposition of Zareve Cream resonates with prescribers that aim to resolve plaques that can affect many different parts of the body. Hard to treat areas like elbows and knees, but also the sensitive areas like the face, groin, and underarms. The elements of efficacy, speed of response, the tolerability profile, and the preservation of the skin barrier are becoming well-recognized by dermatologists as differentiating factors. Moving to slide 10. As a reminder, Xareeb Foam was approved for Cevderm patients in mid-December 2023, with a commercial launch in late January 2024. The Xareeb Cevderm launch is off to a phenomenal start, with over 46,000 TRXs in less than three months. In the beginning, we anticipated a large bolus of patients either waiting the foam who quickly received a prescription after approval. As we have pointed out before, SebDerm has been a space with a large unmet need without any innovation in the past 20 years. We anticipate the growth trajectory of the phone will likely moderate in the future. But with continued growth, we expect this growth trend to be well aligned to the large SebDerm market with over 4.4 million prescription treated patients in the U.S. Derm office. and no other competitive treatment options. On the right side of this slide, you can see the products that patients starting on foam are switched from. As expected, 80% are from topical steroids and antifungals, and there is a small portion of patients being switched from Zareeb cream to foam. Moving on to slide 11. As we have shared previously, the dermatology prescriber base for PSO and Cebderm are well aligned. Zareef Cream has already been used by most prescribers we target. And so far, 40% of Zareef Cream riders have also written the foam after only three months. This highlights the potential for growth as we continue to convert existing cream riders to also writing foam. And for foam, further opens new interest in Zareef Cream for targets who have not previously prescribed the cream. Now on slide 12. Clinician feedback about xerifoam has been extremely positive. These quotes from actual community dermatologists are typical of the comments we continue to hear about the unmet need for patients whose only option for decades have been steroids and antifungals. Likewise, the happiness of the patient when they experience relief in a more efficient and convenient manner. And for the dermatology practices, a smooth coverage experience that enables ongoing usage. Moving to slide 13. We were able to obtain coverage for Xaree foam from all three large PVMs very quickly. We are now working to secure the downstream plans. We expect foam coverage to quickly catch up to that scene with the cream. We look at the percent of prescriptions being covered by insurers. We see an encouraging trend in Xaree cream with roughly three out of four Rx's are now covered by insurance. And for foam, slightly more than half of scripts are already covered by insurance. This is very positive considering we are so early in the launch. I would add that we expect the contribution to revenue growth coming from further gross to net improvements will likely moderate in coming quarters as we inch closer to our expected steady state gross to net in the 50s. Going forward, most revenue growth will likely come from description demand growth in psoriasis, sebderm, and if approved, atopic dermatitis. As Frank mentioned earlier, we were quite pleased that we were able to improve our gross to net in Q1, unlike what is typically seen due to copay resets and insurance change. As a part of our continued effort to optimize product access, we have implemented a program at our contracted pharmacy partners to support our commercially insured patients for whom our product is not covered by their insurance. With the new program, we are now directly providing these pharmacies with a unit for each not covered unit of pharmacy dispenses. This unburdens the high expense of not covered units, resulting in improvement in our gross to net and enables and ensures that patients have seamless access to our products. Now on slide 14. With the strong foam launch and approaching the anticipated approval in mild to moderate atopic dermatitis, we are creating a portfolio of Xareve options for dermatologists that will sustain the brand growth. The benefits of the Xareve portfolio products that will address three different dermatology diseases where the current standard of care is topical steroids is unprecedented and creates simplicity for the dermatology prescriber in patient management. The common clinical attributes of Xareve across all indications will make prescribing simpler, And when paired with the common market access, copay card, and an efficient and predictable fulfillment pathway, further simplifies dermatology practice operations as well. We are well on our way to becoming the preferred topical brand in dermatology. Turning it over to you, Patrick.

Thank you, Todd. I'm now on slide 16. I'm extremely proud of the team's performance in delivering on the promise of topical rafumilast to the dermatology community in the clinic and hitting all of our timelines with regard to regulatory milestones. ACP excitement around Zareve cream for atopic dermatitis continues to grow as we release more data and based on their own clinical experience with Zareve in psoriasis and sebderm. They find Zareve's product profile to be well-suited to what they and their atopic dermatitis patients are looking for. Our PDUFA from mild to moderate AD down to the age of six is coming up quickly on July 7th. Moving on to the approval of foam for sebderm, Here again, we're looking at some great feedback from dermatology providers. Unprecedented efficacy with a once-a-day foam in a market as big as psoriasis with no innovation in decades and no branded competition. Todd, Frank, and I were recently out meeting with community dermatologists, and the feedback on Zaria Foam for their subderm patients was very strong. We're also already looking to expand the indications for xerifoam, expecting to file another SNDA with the FDA in scalp and body psoriasis in the third quarter of 2024. Looking now on slide 17 at some of the integument P data that we presented at the AAD meeting in March. As a reminder, this trial was conducted in mild to moderate AD patients ages two to five years old. Here we're showing a side-by-side comparison of EZ75, So that's the proportion of subjects whose AD improved by 75% compared to baseline. And WI NRS success, that's worst-ditch numeric rating scale, which is an improvement of at least four points on the worst-ditch numeric rating scale. In both of these endpoints, we can see a rapid response already at week one, with 19% of patients reaching easy 75, and that number doubling by week four when we're coming in just under 40% of patients with a 75% improvement. On the right side, we have WINRS with a similar pattern of response for the itch. That's the major symptom reported in AD patients and a significant driver of impact on quality of life. With WINRS response, we jump out to 15% responders at week one, over a quarter responding at week two, and then continue to increase through week four at 35%. Turning to slide 18, I want to highlight the consistency of our data across different age groups. with our integument P data in two to five year olds on the left and the pool data from ages six and above in integument one and integument two on the right. And all of these studies in just four weeks, we are getting about 40% of subjects to an easy 75 and just shy of 35% of patients demonstrating a clinically meaningful improvement in itch, very consistent across a different age group and showing that both the signs and symptoms of AD improved quickly. These data paired with our integument OLE data we presented previously, round out the profile of Zareev where patients respond quickly and then continue to improve over time with long-term treatment when we extend treatment out to 52 weeks in our Antigamen OLE trial. On slide 19 now, I want to touch briefly on some new data in seborrheic dermatitis coming out of a collaborative research project with Emma Gutman and Benji Unger at Mount Sinai in New York. The team at Mount Sinai was able to use a non-invasive tape stripping technique to do gene expression profiling of patients with seb derm to provide us with the first real look at the pathophysiology of this disease. This study firmly establishes seb derm as a unique disease, distinct from psoriasis and atopic dermatitis, which is driven primarily by TH1 and TH17, TH22 inflammation. Although it has a skin barrier defect, the specific alterations are clearly distinct from atopic dermatitis. And indeed, seb derm does not show any of the TH2 dysregulation, that's the hallmark of atopic dermatitis. I'm really proud of the Archie's contribution to this effort, and I think it highlights the scientific benefits to the field when a new therapeutic option is developed for an indication. This is similar to how the IL-17 and IL-23 dependency of psoriasis was defined by new therapeutics, and similarly for IL-4 and 13 in atopic dermatitis. I think these new data also paint a very clear picture of why Zareev as a highly potent PD-4 inhibitor formulated in a skin-friendly formulation is so well suited for the treatment of seb derm. We know that many of the pathways identified here are modulated by PD-4. With that, I'll pass it over to David.

Thanks, Patrick. I first want to say how thrilled I am to be at Arcutis and working with this team. It's certainly an exciting quarter to be joining the company. I'm on slide 21. As you've heard by now, we achieved $21.6 million in net product revenues for Zareve for the first quarter of 2024, and reflecting a 59% growth over Q4. This was driven by substantial growth to net percentage improvement down to the low 60s, the team's success in pulling through covered prescriptions, and our processing of non-covered scripts through our preferred pharmacies. We also saw healthy prescription growth in the quarter. For the remainder of 2024, we expect continued prescription growth and some further growth to net improvement for both cream and foam. On slide 22, You can see the strong financial performance in the first quarter. Again, net revenues for the first quarter of 21.6 million, up 675% from Q1 of 23 and 59% from the previous quarter. R&D expenses for the first quarter were 23.8 million, which is down significantly from Q1 2023 due to continued decreases in the development cost of topical roughly the last, but flat as Q4 2023, due to slightly elevated one-time costs for our QDIS 234 as we continue to advance it to IND. Recall that R&D includes our research, operations, and medical affairs expenses. SG&A expenses were $54.8 million for the first quarter, higher both sequentially and versus the same period last year as we continue to invest in both our current and future launches. I'd like to emphasize that the team has made concerted efforts to make appropriate adjustments to our operating expense profile and to be good stewards of the capital that our investors have entrusted us with. As we transition from a pre-commercial company to a commercial stage business with additional assets and development, we are endeavoring to ensure that we invest appropriately in both our current and future launches to avoid any risk of disrupting the trajectory our products are demonstrating. On our final slide, 23, on the balance sheet, we had total cash and marketable securities of $404 million at the end of the quarter. As I mentioned on the previous slide, we believe our current capital, together with product revenues, enable us to continue operating the business and invest sufficient capital in commercial launches. As Frank mentioned, in addition to the equity raise in February, we executed an outlicensed deal in Japan, which brought in additional non-dilutive capital of $25 million. The combined money raised enabled us to successfully address the capital requirement covenant with our lender. We also received a $3 million milestone payment from our Chinese partner, Wadong, based on their progress in China. With that, I'll hand it back to Frank for some closing remarks, and then we'll open it up for Q&A.

Thanks, David. Our intent and vision are to make a positive and meaningful impact on the lives of people afflicted with chronic dermatologic diseases. With Zareve now launched in two indications and potentially adding the topic dermatitis launch later this year, we are proud to be helping millions of medical dermatology patients, allowing us to create additional shareholder value. We are confident that Q1 2024 lays the foundation for our sustained growth for the rest of 2024 and beyond. And with that, we'll open it up for Q&A.

And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question comes from Serge Bellinger from Needham. Your line is now open.

Good afternoon, and congrats on the progress and a solid quarter. First one, I guess, for Todd, regarding the expansion in Medicaid and Medicare coverage, can just give us an update on where you expect to be by the end of the year or starting 2025. And then secondly, Frank, you previously talked about the relatively low risk of the label approval for AD in July. Then maybe just talk about the label you're expecting, if it will include some of the itch data and be broad enough to cover the mild, moderate, and severe disease Thanks.

Sure. Todd, do you want to take that? And then maybe Patrick, actually, you're probably the best position to answer the question around the label.

Yeah, fantastic, Frank. And first, I'll touch off on Medicaid. So we continue to make good progress with Medicaid. And I'll give you an example. It's very recent. Just recently, we picked up coverage at Florida State Medicaid. And not only did we pick up the coverage there, But relative to the step edits that have been in place for Zareeb cream and Zareeb foam, a single step edit for Zareeb cream through a steroid, and for Zareeb foam, a single step edit through either or a steroid or antifungals. And so we see this as a very positive movement as we continue to garner access in Medicaid. And we continue to be able to do that as we roll through the back half of 2024. Relative specifically to Medicare Part D, we continue to have positive discussions with the Part D PBMs and expect that we will pick up some of those Part D plans in the back half of 2024. And in addition to that, likely some other coverage in Part D that would likely be effective January 1st of 2025. So we are making good progress on both fronts of Medicaid and Medicare.

Yeah, and I can take the question about the label. You know, obviously we're in the middle of a review by the FDA for our atopic dermatitis data for ages five and, or sorry, ages six and above. But what I can say is that this is an expansion of our existing cream label, obviously at a different concentration, but it will be added to that cream label. So, you know, our expectation with regard to what will be included is kind of, you know, similar to what our clinical trials were conducted in. And I think that if you look at the psoriasis 0.3% cream label, that'll give you a pretty good idea of where we expect to land in atopic dermatitis. And notably, you asked about the itch. The itch data were included in that cream data. I think there's an understanding, you know, within the last couple years of the importance of being able to communicate these kind of symptom data like itch. And so they've been included in our earlier label and in some others as well. So I think that's a good direction for the FDA to be taking with topicals. So, yeah, we're looking forward to, you know, getting the PDUFA coming up here in July and, you know, being able to speak with you at that point about what exactly our label will include.

Thank you. And thank you. And one moment for our next question. And our next question comes from Seamus Fernandez from Guggenheim Securities. Your line is now open.

Oh, great. Thanks for the questions and congrats on the quarterly results. I wanted to ask a couple of questions here. So first, Todd, you know, great execution with the foam. and, you know, moving forward from the gross to net and having that really be seamless. When we think about the atopic dermatitis opportunity, can you help us understand how you expect that market to evolve, just given the growing comfort that physicians already have with Opsalura and where you see, you know, Zareev Cream really standing out in the AD space specifically? The second question is, you know, Frank, I think we've talked about where the gross to net may be able to go sort of towards the end of this year and then hopefully maybe a steady state gross to net at some point. Just hoping you could remind us where you see those numbers headed to over time as the growth of the asset improves. And, you know, maybe you can also help us understand in context where you see pricing headed in that regard. Obviously, other folks can go very aggressive on price, but price hikes, you've taken a different strategy as it relates to sort of remaining comfortably within the subspecialty tier. So just interested to know how to think about price increases and then gross to net over time. Thanks.

Sure. Todd, do you want to take the first question around ADD?

Yeah, I'll take the first question on AD. I firmly believe that we have a significant opportunity in atopic dermatitis. First, relative to access, I do anticipate that like the Zareve foam, the PBMs and payers will treat Zareve cream in atopic dermatitis as a line extension, which will enable us to garner quick access and quick improvements in our gross to net for atopic dermatitis. Furthermore, when you look across the Zareeb portfolio, the feedback we receive from Zareeb Cream and Zareeb Foam is relative to its uniquely formulated vehicle, which likewise will translate into atopic dermatitis as well as a tolerability of the asset. Furthermore, you know, if our label is similar to that of Zareeb Cream and Psoriasis and Zareeb Foam, after approval, you know, it's likely we'll have no limitations of use on location, body surface area, duration, or concomitant use with immunosuppressants, which will be a strategic advantage for us within the market. In addition to that, being a once a day topical will once likewise resonate with patients. And then I will say one big strategic lever that we'll have with the addition and approval of atopic dermatitis is this portfolio approach that we're having. Because you think three products that are distinctly formulated across three significant dermatology conditions that dermatologists are treating every day throughout the day. And by having three formulations, the simplicity of prescribing and ability to swiftly explain the treatment to their patients. And then on the back end, a very predictable fulfillment process across those three products. I think will really give us an advantage in the market. So I think it's a great opportunity for us and I look forward to that PDUFA date and the eventual launch in atopic dermatitis.

Thanks, Todd. Yeah, so Seamus, thanks for your question around gross to net as well. So let me break this down a little bit. In terms of gross to net evolution, we continue to feel very good that we are going to get to a steady state in the 50s. And I think the fact that we were able to get down to the low 60s during Q1 in spite of the annual resets and in spite of the fact that we launched a new drug, you know, and it really speaks to our ability to get gross to net down. And I think it also speaks to the value of our overall pricing strategy. We would expect that we'll get to steady state on the psoriasis cream by, you know, probably by the end of this year. And, you know, we're getting very close already, right? The foam is probably going to be a little bit lagging behind that just because it's a new product and we have to get downstream insurance coverage. But as Todd mentioned already, we're already over 50% covered prescriptions for the foam. And so we think that foam will catch up with the 0.3 cream very quickly. And then we'll have to go through the same sort of evolution when we launch atopic dermatitis. But again, I think what we've been able to achieve with the foam getting to over 50% coverage very quickly and not having really a meaningful negative impact on gross net with the foam launch, I think you would expect to see something very similar with atopic dermatitis. Again, payers view these as line extensions that are covered by the existing contracts, and so that really facilitates and speeds up, frankly, our ability to get coverage. You know, in terms of where price is headed, you know, we did price differentially than other branded topicals when we launched And that really got back primarily to a question of Medicare and Medicaid access. And, you know, we're delighted with the recent Florida win that Todd just mentioned. I think that that's, you know, another proof point that our pricing and access strategy is working. And we expect to have more proof throughout the year as we garner access through Medicaid and, you know, fully Medicare, as Todd mentioned, by the end of the year. In terms of our ability to price hike, you know, frankly, You know, the contracts these days with all the PBMs limits any company's ability to price hike. You know, there are price protection clauses in there, and we don't think that we are disadvantaged versus the other companies in that respect. The only thing that we do need to be mindful of is the Medicare, Medicaid specialty threshold, which all the other branded topicals are well above, and we are actively trying to keep below. And we have headroom there. So I would anticipate that in the future, there may be some price increases. We do have that ability. But I don't think that we're really impaired in our ability to take price increases in line with inflation any more than any other company is, as long as we stay under that CMS threshold.

Great.

And then maybe just as one follow up, as you think about the rapid uptake that we saw with regard to Febderm, how should we be thinking about atopic dermatitis? It seems like with product on market, there won't necessarily be that same level of pent-up demand, but perhaps this feels a little bit more like the sort of psoriasis uptake curve. Although, again, when a lot of free drug was given away on the psoriasis curves, those were also accelerated to some degree, although that's not the path that that our Qs took. So just trying to get a better sense of how to think about the trajectory of the uptake curve for cream as atopic derm comes on.

Yeah, sure. I think it's a great question too, Seamus. You know, I think that it would not be realistic to expect to see something, an uptake comparable to sebderm for atopic dermatitis. You know, as you mentioned, it's been 20 years since there's been any innovation in sebderm And as Todd mentioned, we think that there was a pretty good-sized pool of sort of ready patients just waiting for Xerifone to be approved, and that really drove that very rapid uptake that we saw right out of the gate. So I wouldn't expect that kind of growth with AD right out of the gate. On the other hand, I think compared to the psoriasis launch, I think that AD could outperform psoriasis for a number of reasons. One of them I think Todd alluded to, which is you know, when we launched Zareve in psoriasis, nobody really knew Zareve and they didn't really know Arcutis all that well. By the time we launch in atopic dermatitis, pretty much all of the dermatologists will have used the cream and a high percentage will have used the foam. So we're going to be launching with that positive tailwind of experience with the efficacy of Zareve, the safety and tolerability of Zareve, and also, as Todd mentioned, the ease of the process for getting patients fulfilled. So I think that will aid the uptake in atopic dermatitis. It's a much more competitive market, so I wouldn't expect to have a large warehouse of patients just waiting when we launch an atopic dermatitis. So, you know, I think the uptake is probably going to fall somewhere in between the last two launches.

Great. Thanks so much.

And thank you. And one moment for our next question. And our next question comes from Vikram Purohit from Morgan Stanley. Your line is now open.

Hi, good afternoon. Thanks for taking our questions. So we had two, one on Cebderm and then one on the potential AD launch. So for Cebderm, understanding that it's still pretty early in the launch trajectory, what is your current sense on duration and the annual number of cans of product a patient might work through over the course of a year? And then for AD... You previously mentioned entering a partnership to access the primary care setting. So I just wanted to see how those discussions are going, what you currently see as the timeline to establishing a partnership, and what you would see as the, I guess, the ideal economics in terms of collaboration here. Thank you.

Sure. So around duration and consumption, I think it's very early still to be able to assess that. You know, we are seeing some refills come through, you know, I don't actually have the latest numbers. Todd may have that, but we are seeing some. But, you know, it's not a significant driver of growth, just given how early we are in the launch. You know, atopic, excuse me, seborrheic dermatitis covers less body surface area than psoriasis or atopic dermatitis. So it may be that patients consume fewer cans throughout the year. I think what we've previously stated was that we thought that that was probably something like one to two cans a year for seb derm. We don't have anything at this point to revise that guidance. And so, you know, I would say that we would expect it to be something similar to that, you know, until we learn otherwise. And we'll update you guys if we do get information on that. In terms of the atopic dermatitis partnership, you know, what we have been saying all along is that we would like to have that done sometime around the launch. I don't think we need to have it done by the launch necessarily. because you really have to win with the dermatologist first. The PCPs will be looking to the derms for an example. And so I don't think it's critical necessarily to be in primary care right at the launch. But I think it's very likely that we'll have that deal done. We will have a deal done still this year. We're feeling very good about how the discussion's been going with potential partners. And then in terms of economics, it'll really come down to the negotiation with the potential partner You know, they will have obviously a considerable expense just given how large primary care sales forces are. But we've obviously invested a lot into the product. We do have a preference for some sort of a revenue sharing arrangement rather than a fee for service, because I think that that aligns the interests of the two partners, which is aligned with the interests of shareholders, right? As opposed to a fee for service where, you know, maybe you get what you pay for. But, you know, we'll... We'll have to negotiate that with whoever ends up being the final choice of a partner, and then we'll let investors know what the economics are around the deal. Understood. Thank you.

And thank you. And one moment for our next question. And our next question comes from Tyler Van Buren from TD Cowan. Your line is now open.

Hey, guys. Good afternoon. Regarding the primary care partnership, is that something that you would like to happen soon? And what would it look like? And how many additional patients do you believe you could reach via this strategy?

Sure. First of all, how's the presidential campaign going? So those of you who weren't at their conference, that was an inside joke. On the PCP partnership, as I just said to Vikram, I think we'd like to have this done Sometime around the launch, you know, which is probably going to be in the August timeframe, I feel very confident about our ability to get it done before the end of the year. So that's kind of, I would put it as bookend. And, you know, in terms of the opportunity size, you know, about 50% of atopic dermatitis and about 50% of seborrheic dermatitis patients are treated outside of dermatology. They're not all in primary care or pediatrics. But a very large percentage of those patients are sitting in a PCP or a pediatrician's office, both seb derm and AD. More pediatricians for AD, more PCP for seb derm, just because the ages of onset of the disease. So we're looking for a partner that has good coverage primarily of the PCP and the pediatric specialties. You know, if they had coverage in allergy, that would probably be also a benefit, although that's a very small community. But it's a pretty sizable additional opportunity by tapping into primary care and pediatrics just because that's where the patients are sitting.

And thank you. And one moment for our next question.

And our next question comes from Oya Ear from Missoula. Your line is now open.

Hey, guys. Congrats on the quarter. Yeah, my first question is, I think, you know, you said you're expecting Grosvenor to reach steady state towards the end of the year, but you're going to, I guess, have Medicaid or more Medicare, I guess, coming online towards the end of the year as well. Just are you kind of saying that you know, Medicare and Medicaid will not have an impact on gross to net in 2025? Or, like, how should we sort of think about the interplay with Medicare and Medicaid in terms of gross to net? And secondly, could you perhaps elaborate on your new program, your distribution programs, where I think you said that you... For every unit, the specialty pharmas get one unit for uncovered patients. I didn't quite understand it. Thanks.

Sure. Yeah. Good to hear from you. I'll answer your first one, and then Todd, I'll ask you to talk about the pharmacies. Yeah. So I did say that we think we will get to our steady state or around our steady state this year on the psoriasis book of business. And yes, that does factor in Medicare and Medicaid coverage. A couple things to keep in mind. One is Medicare and Medicaid is a less important contributor to the psoriasis business than it is seb derm and AD just because of the demographics of the patient population. It's quite a bit smaller. But secondly, as we've said previously, with our pricing and access strategy, we don't anticipate having to give outsized rebates for Medicare and Medicaid coverage. And I think when you look at it all in The Medicare and Medicaid book of business is probably going to be similarly profitable to the commercial book of business. So we don't expect that to have a really meaningful negative impact on our gross to net.

Todd, do you want to maybe talk about the pharmacies?

Yeah, fantastic. I will. And just to mention, relative to improving our gross to net, we took what I'll call a multi-pronged approach. And the program that I'll talk about here in just a minute was only one lever that we pulled to improve our gross to net. But specifically to that program, if you think about it, prior to implementing the current program, when a commercially insured non-covered Zari prescription was dispensed by the pharmacy, what happened is that prescription was processed, and then the cost of that unit was charged to our copay card. Then under the new current program, when a non-covered prescription is dispensed by a contracted pharmacy, then our QDIS directly provides the pharmacy with a unit for every unit they use from their inventory to fill that non-covered script versus charging it to the copay card, which unburdens the impact of copay card and non-covered scripts on our gross to net.

Okay, thanks.

And thank you. And I'm showing no further questions. I would now like to turn the call back to Frank for closing remarks.

Okay, well, I'll be very brief as well. I really appreciate everyone calling in for the call today and the great questions we've had, and we look forward to talking to you all in about another quarter. Thanks a lot. Bye-bye.

this concludes today's conference call thank you for participating you may now disconnect you Thank you. Thank you. Thank you. Good day and welcome to RDQ's Biotherapeutics 2024 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the call over to Lata Berivan, Vice President, Finance and Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2024 financial results and business update. Slides for today's call are available on the Investors section of the Arcutus website. 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. I'd 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, Lata, and thank you all for joining us today. You all know the other executives on the call, but I'm really excited today to welcome David Topper, our new Chief Financial Officer. While David is new to his executive position here at Arcutus, he's been an advisor to us for more than four years. I expect many of you are already familiar with David and his exceptional experience and track record in the financial and biopharma worlds, and we could not be more pleased that he's decided to join us at this exciting time at Arcutus. As David joins us, I would also like to express my and the entire organization's thanks and gratitude to John Smither for his incredible service to Arcutis over the past five years. He served as our first CFO, guiding us through a successful initial public offering and has brought an incredible depth and breadth of both financial acumen and dermatology experience from his 25 plus year career in the pharmaceutical industry. His contribution to the success of Arcutis at a critical time cannot be overstated. and we wish him well in his future endeavors and family time. So with that, let me turn to slide five of the deck. We sustained our strong performance since our last earnings call, and I remain delighted with the Arcutus team and our execution during this quarter. And I'm thrilled about the momentum we are building towards a successful 2024. Once again, we saw strong growth during the quarter in our expanding Zareev portfolio as healthcare providers and their patients see how Zareev Cream and now Zareev Foam address real needs in the treatment of psoriasis and seborrheic dermatitis, respectively. Solid growth in prescriptions for both the cream and the foam, coupled with additional gross to net improvements during the quarter, drove strong revenue growth in the first quarter, both versus Q4 and year over year, with net revenues of $21.6 million, 70% of which was for the cream and 30% for the foam, which is still very early in the stages of launch. We've now generated more than 255,000 prescriptions for the cream and the foam combined from over 12,500 unique prescribers to date as our product delivers positive clinical experiences for HCPs and their patients. Our progress in improving GTN this past quarter resulting in a blended GTN in the low 60s across both products for the first quarter is particularly noteworthy given the typical copay resets every product experiences in Q1 each year in addition to the fact that we launched a new product during the quarter. Todd will provide some more color about how we achieved this remarkable accomplishment in just a few minutes. We also continue to successfully execute against our clinical and regulatory milestones, about which Patrick will go into more detail. Most important is the upcoming FDA PDUFA target date of July 7 for our SNDA for atopic dermatitis. We also continue to progress our pipeline programs in particular ARQ234 for AD and ARQ255 for alopecia areata. In February, we completed a secondary offering that raised 172 million gross proceeds, which, along with net product revenues and our existing balance sheet, puts us in a very strong financial position to sustain our investments in the ongoing launches in plaque psoriasis and seb derm, as well as the potential atopic dermatitis launch later this year while advancing our pipeline. Also in February, we entered into a licensing agreement with Sato Pharmaceutical Company, which grants Sato an exclusive license for topical reform lasts for Japan. Our QDIS received upfront payments of $28 million in the quarter, $25 million from Japan, with potential additional Japan milestones up to $40 million, as well as low double-digit to mid-teen double-digit percentage royalties. We also received $3 million from Huadong for our China partnership. Moving on to slide six, as we've mentioned on prior calls, a major reason why we're so excited for this year is that we are in the midst of a very significant expansion in the opportunity for topical reflumelast, which we expect will translate into substantial acceleration of our revenue trajectory. From the initial approval for psoriasis, the total addressable market for Xareeb could grow tenfold from the end of 2023 to over 15 million patients in the United States. I would add that we are feeling increasingly bullish about our ability to begin gaining Medicare and Medicaid coverage this year, and we are making steady progress on a partnership in primary care. As our results this quarter reaffirm, we have the right commercial team in place for success, and we have an excellent plan to execute against these opportunities. With that, let me turn it over to Todd to provide some further commentary around Zareef Cream and foam launches in psoriasis and seb derm.

Thank you, Frank. I'm extremely enthusiastic about the expansion of our commercial portfolio, HCP, and patient response to both Xere products and the advanced opportunities that lie ahead. Moving to slide eight, the Xere psoriasis TRH performance is continuing to show strength, and these results demonstrate that we can push the trajectory in psoriasis. These efforts also lay a solid foundation for the brand and the building of a portfolio. Annual insurance changes and deductible recess typically create a dip in prescription trends in the first week of the year. As you can see, the TRX trend has rebounded from that. Further, it is notable that many patients push refills at the end of the year in anticipation of insurance disruption. So to see the growth in Q1 of 8% over Q4, 120% growth compared to first quarter 2023, highlights an encouraging trend line for Zareef Dreams. I'm now on slide nine. We continue to hear of a growing preference for Zareve relative to other non-steroidal competitors. The value proposition of Zareve Cream resonates with prescribers that aim to resolve plaques that can affect many different parts of the body. Hard to treat areas like elbows and knees, but also the sensitive areas like the face, groin, and underarms. The elements of efficacy, speed of response, the tolerability profile, and the preservation of the skin barrier are becoming well-recognized by dermatologists as differentiating factors. Moving to slide 10. As a reminder, Xareeb foam was approved for Cevderm patients in mid-December 2023, with a commercial launch in late January 2024. The Xareeb Cevderm launch is off to a phenomenal start, with over 46,000 TRXs in less than three months. In the beginning, we anticipated a large bolus of patients either waiting the foam who quickly received a prescription after approval. As we have pointed out before, SebDerm has been a space with a large unmet need without any innovation in the past 20 years. We anticipate the growth trajectory of the phone will likely moderate in the future. But with continued growth, we expect this growth trend to be well aligned to the large SebDerm market with over 4.4 million prescription treated patients in the U.S. Derm office. and no other competitive treatment options. On the right side of this slide, you can see the products that patients starting on foam are switched from. As expected, 80% are from topical steroids and antifungals, and there is a small portion of patients being switched from Zareeb cream to foam. Moving on to slide 11. As we have shared previously, the dermatology prescriber base for PSO and Cebderm are well aligned. Zareeb cream has already been used by most prescribers we target. And so far, 40% of Zareeb cream riders have also written the foam after only three months. This highlights the potential for growth as we continue to convert existing cream riders to also writing foam. And for foam, further opens new interest in Zareeb cream for targets who have not previously prescribed the cream. Now on slide 12. Clinician feedback about Xerifoam has been extremely positive. These quotes from actual community dermatologists are typical of the comments we continue to hear about the unmet need for patients whose only option for decades have been steroids and antifungals. Likewise, the happiness of the patient when they experience relief in a more efficient and convenient manner. And for the dermatology practices, a smooth coverage experience that enables ongoing usage. Moving to slide 13, we were able to obtain coverage for Xaree foam from all three large PVMs very quickly. We are now working to secure the downstream plans. We expect foam coverage to quickly catch up to that scene with the cream. We look at the percent of prescriptions being covered by insurers. We see an encouraging trend in Xaree cream with roughly three out of four RXs are now covered by insurance. And for foam, slightly more than half of scripts are already covered by insurance. This is very positive considering we are so early in the launch. I would add that we expect the contribution to revenue growth coming from further gross to net improvements will likely moderate in coming quarters as we inch closer to our expected steady state gross to net in the 50s. Going forward, most revenue growth will likely come from description demand growth in psoriasis, sebderm, and if approved, atopic dermatitis. As Frank mentioned earlier, we were quite pleased that we were able to improve our gross to net in Q1, unlike what is typically seen due to copay resets and insurance change. As a part of our continued effort to optimize product access, we have implemented a program at our contracted pharmacy partners to support our commercially insured patients for whom our product is not covered by their insurance. With the new program, we are now directly providing these pharmacies with a unit for each not covered unit of pharmacy dispenses. This unburdens the high expense of not covered units, resulting in improvement in our gross to net and enables and ensures that patients have seamless access to our products. Now on slide 14. With the strong foam launch and approaching the anticipated approval in mild to moderate atopic dermatitis, we are creating a portfolio of Xareve options for dermatologists that will sustain the brand growth. The benefits of the Xareve portfolio products that will address three different dermatology diseases where the current standard of care is topical steroids is unprecedented and creates simplicity for the dermatology prescriber in patient management. The common clinical attributes of Xareve across all indications will make prescribing simpler, and when paired with a common market access, copay card, and an efficient and predictable fulfillment pathway, further simplifies dermatology practice operations as well. We are well on our way to becoming the preferred topical brand in dermatology. Turning it over to you, Patrick.

Thank you, Todd. I'm now on slide 16. I'm extremely proud of the team's performance in delivering on the promise of topical reflumelast to the dermatology community and the clinic and hitting all of our timelines with regard to regulatory milestones. ACP excitement around Zareve cream for atopic dermatitis continues to grow as we release more data, and based on their own clinical experience with Zareve in psoriasis and sebderm, they find Zareve's product profile to be well-suited to what they and their atopic dermatitis patients are looking for. Our PDUFA from mild to moderate AD, down to the age of six, is coming up quickly on July 7th. Moving on to the approval of foam for sebderm, Here again, we're looking at some great feedback from dermatology providers. Unprecedented efficacy with a once-a-day foam in a market as big as psoriasis with no innovation in decades and no branded competition. Todd, Frank, and I were recently out meeting with community dermatologists, and the feedback on Zaria Foam for their seb derm patients was very strong. We're also already looking to expand the indications for xerifoam, expecting to file another SNDA with the FDA in scalp and body psoriasis in the third quarter of 2024. Looking now on slide 17 at some of the integument P data that we presented at the AAD meeting in March. As a reminder, this trial was conducted in mild to moderate AD patients ages two to five years old. Here we're showing a side-by-side comparison of EZ75, So that's the proportion of subjects whose AD improved by 75% compared to baseline. And WI NRS success, that's worst-ditch numeric rating scale, which is an improvement of at least four points on the worst-ditch numeric rating scale. In both of these endpoints, we can see a rapid response already at week one, with 19% of patients reaching easy 75, and that number doubling by week four when we're coming in just under 40% of patients with a 75% improvement. On the right side, we have WINRS with a similar pattern of response for the itch. That's the major symptom reported in AD patients and a significant driver of impact on quality of life. With WINRS response, we jump out to 15% responders at week one, over a quarter responding at week two, and then continue to increase through week four at 35%. Turning to slide 18, I want to highlight the consistency of our data across different age groups. with our integument P data in two to five year olds on the left and the pool data from ages six and above in integument one and integument two on the right. And all of these studies in just four weeks, we are getting about 40% of subjects to an easy 75 and just shy of 35% of patients demonstrating a clinically meaningful improvement in itch. Very consistent across the different age groups and showing that both the signs and symptoms of AD improve quickly. These data paired with our integument OLE data we presented previously round out the profile of Xareeb where patients respond quickly and then continue to improve over time with long-term treatment when we extend treatment out to 52 weeks in our Antigamen OLE trial. On slide 19 now, I want to touch briefly on some new data in seborrheic dermatitis coming out of a collaborative research project with Emma Gutman and Benji Unger at Mount Sinai in New York. The team at Mount Sinai was able to use a non-invasive tape stripping technique to do gene expression profiling of patients with seb derm to provide us with the first real look at the pathophysiology of this disease. This study firmly establishes seb derm as a unique disease, distinct from psoriasis and atopic dermatitis, which is driven primarily by Th1 and Th17, Th22 inflammation. Although it has a skin barrier defect, the specific alterations are clearly distinct from atopic dermatitis. And indeed, seb derm does not show any of the Th2 dysregulation, It's the hallmark of atopic dermatitis. I'm really proud of the Archie's contribution to this effort, and I think it highlights the scientific benefits to the field when a new therapeutic option is developed for an indication. This is similar to how the IL-17 and IL-23 dependency of psoriasis was defined by new therapeutics, and similarly for IL-4 and 13 in atopic dermatitis. I think these new data also paint a very clear picture of why Zareve as a highly potent PD-4 inhibitor formulated in a skin-friendly formulation is so well suited for the treatment of seb germ. We know that many of the pathways identified here are modulated by PD-4. With that, I'll pass it over to David.

Thanks, Patrick. I first wanted to say how thrilled I am to be at Arcutis and working with this team. It's certainly an exciting quarter to be joining the company. I'm on slide 21. As you've heard by now, we achieved $21.6 million in net product revenues for Zareeb for the first quarter of 2024, reflecting a 59% growth over Q4. This was driven by substantial growth to net percentage improvement down to the low 60s, the team's success in pulling through covered prescriptions, and our processing of non-covered scripts through our preferred pharmacies. We also saw healthy prescription growth in the quarter. For the remainder of 2024, we expect continued prescription growth and some further growth to net improvement for both cream and foam. On slide 22, You can see the strong financial performance in the first quarter. Again, net revenues for the first quarter of 21.6 million, up 675% from Q1 of 23 and 59% from the previous quarter. R&D expenses for the first quarter were 23.8 million, which is down significantly from Q1 2023 due to continued decreases in the development cost of topical roughly the last, but flat as Q4 2023, due to slightly elevated one-time costs for our QDIS 234 as we continue to advance it to IND. Recall that R&D includes our research, operations, and medical affairs expenses. SG&A expenses were $54.8 million for the first quarter, higher both sequentially and versus the same period last year as we continue to invest in both our current and future launches. I'd like to emphasize that the team has made concerted efforts to make appropriate adjustments to our operating expense profile and to be good stewards of the capital that our investors have entrusted us with. As we transition from a pre-commercial company to a commercial stage business with additional assets and development, we are endeavoring to ensure that we invest appropriately in both our current and future launches to avoid any risk of disrupting the trajectory our products are demonstrating. On our final slide 23 on the balance sheet, we had total cash and marketable securities of $404 million at the end of the quarter. As I mentioned on the previous slide, we believe our current capital together with product revenues enable us to continue operating the business and invest sufficient capital in commercial launches. As Frank mentioned, in addition to the equity raise in February, we executed an outlicensed deal in Japan, which brought in additional non-dilutive capital of $25 million. The combined money raised enabled us to successfully address the capital requirement covenant with our lender. We also received a $3 million milestone payment from our Chinese partner, Wadong, based on their progress in China. With that, I'll hand it back to Frank for some closing remarks, and then we'll open it up for Q&A.

Thanks, David. Our intent and vision are to make a positive and meaningful impact on the lives of people afflicted with chronic dermatologic diseases. With Zareve now launched in two indications and potentially adding the atopic dermatitis launch later this year, we are proud to be helping millions of medical dermatology patients, allowing us to create additional shareholder value. We are confident that Q1 2024 lays the foundation for our sustained growth for the rest of 2024 and beyond. And with that, we'll open it up for Q&A.

And thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question comes from Serge Bellinger from Needham. Your line is now open.

Good afternoon, and congrats on the progress and a solid quarter. First one, I guess, for Todd, regarding the expansion in Medicaid and Medicare coverage, you can just give us an update on where you expect to be by the end of the year or starting 2025. And then secondly, Frank, you previously talked about the relatively low risk of the label approval for AD in July. Then maybe just talk about the label you're expecting, if it will include some of the itch data and be broad enough to cover the mild, moderate, and severe disease. Thanks.

Sure. Todd, do you want to take that? And then maybe Patrick, actually, you're probably the best position to answer the question around the label.

Yeah, fantastic, Frank. And first, I'll touch off on Medicaid. So we continue to make good progress with Medicaid. And I'll give you an example. It's very recent. Just recently, we picked up coverage at Florida State Medicaid. And not only did we pick up the coverage there, But relative to the step edits that have been in place for Zareeb cream and Zareeb foam, a single step edit for Zareeb cream through a steroid and for Zareeb foam, a single step edit through either or a steroid or antifungals. And so we see this as a very positive movement as we continue to garner access in Medicaid. And we continue to be able to do that as we roll through the back half of 2024. Relative specifically to Medicare Part D, we continue to have positive discussions with the Part D PBMs and expect that we will pick up some of those Part D plans in the back half of 2024. And in addition to that, likely some other coverage in Part D that would likely be effective January 1st of 2025. So we are making good progress on both fronts of Medicaid and Medicare.

Yeah, and I can take the question about the label. You know, obviously we're in the middle of a review by the FDA for our atopic dermatitis data for ages five and, or sorry, ages six and above. But what I can say is that this is an expansion of our existing cream label, obviously at a different concentration, but it will be added to that cream label. So, you know, our expectation with regard to what will be included is kind of, you know, similar to what our clinical trials were conducted in. And I think that if you look at the psoriasis 0.3% cream label, that'll give you a pretty good idea of where we expect to land in atopic dermatitis. And notably, you asked about the itch. The itch data were included in that cream data. I think there's an understanding. you know, within the last couple years of the importance of being able to communicate these kind of symptom data like itch. And so they've been included in our earlier label and in some others as well. So I think that's a good direction for the FDA to be taking with topicals. So, yeah, we're looking forward to, you know, getting the PDUFA coming up here in July and, you know, being able to speak with you at that point about what exactly our label will include.

Thank you. And thank you. And one moment for our next question. And our next question comes from Seamus Fernandez from Guggenheim Securities. Your line is now open.

Oh, great. Thanks for the questions and congrats on the quarterly results. I wanted to ask a couple of questions here. So first, Todd, you know, great execution with the foam. and moving forward from the gross to net and having that really be seamless. When we think about the atopic dermatitis opportunity, can you help us understand how you expect that market to evolve just given the growing comfort that physicians already have with Opsalura and where you see Zareev Cream really standing out in the AD space specifically? The second question is, you know, Frank, I think we've talked about where the gross to net may be able to go sort of towards the end of this year and then hopefully maybe a steady state gross to net at some point. Just hoping you could remind us where you see those numbers headed to over time as the growth of the asset improves. And, you know, maybe you can also help us understand in context where you see pricing headed in that regard. Obviously, other folks can go very aggressive on price, but price hikes, you've taken a different strategy as it relates to sort of remaining comfortably within the subspecialty tier. So just interested to know how to think about price increases and then gross demand over time. Thanks.

Sure. Todd, do you want to take the first question around ADD?

Yeah, I'll take the first question on AD. I firmly believe that we have a significant opportunity in atopic dermatitis. First, relative to access, I do anticipate that like the Zareve foam, the PBMs and payers will treat Zareve cream in atopic dermatitis as a line extension, which will enable us to garner quick access and quick improvements in our growth to net for atopic dermatitis. Furthermore, when you look across the Zareeb portfolio, the feedback we receive from Zareeb Cream and Zareeb Foam is relative to its uniquely formulated vehicle, which likewise will translate into atopic dermatitis as well as a tolerability of the asset. Furthermore, if our label is similar to that of Zareeb Cream and Psoriasis and Zareeb Foam, after approval, you know, it's likely we'll have no limitations of use on location, body surface area, duration, or concomitant use with immunosuppressants, which will be a strategic advantage for us within the market. In addition to that, being a once a day topical will once likewise resonate with patients. And then I will say one big strategic lever that we'll have with the addition and approval of atopic dermatitis is this portfolio approach that we're having. Because you think three products that are distinctly formulated across three significant dermatology conditions that, you know, dermatologists are treating every day throughout the day. And by having three formulations, the simplicity of prescribing and ability to swiftly explain the treatment to their patients. And then on the back end, a very predictable fulfillment process across those three products. I think will really give us an advantage in the market. So I think it's a great opportunity for us and I look forward to that PDUFA date and the eventual launch in atopic dermatitis.

Thanks, Todd. Yeah, so Seamus, thanks for your question around gross to net as well. So let me break this down a little bit. In terms of gross to net evolution, we continue to feel very good that we are going to get to a steady state in the 50s. And I think the fact that we were able to get down to the low 60s During Q1, in spite of the annual resets and in spite of the fact that we launched a new drug, I think it really speaks to our ability to get gross to net down. And I think it also speaks to the value of our overall pricing strategy. We would expect that we'll get to steady state on the psoriasis cream probably by the end of this year. And we're getting very close already, right? The foam is probably going to be a little bit lagging behind that just because it's a new product and we have to get downstream insurance coverage. But as Todd mentioned already, we're already over 50% covered prescriptions for the foam. And so we think that foam will catch up with the 0.3 cream very quickly. And then we'll have to go through the same sort of evolution when we launch atopic dermatitis. But again, I think, you know, what we've been able to achieve with the foam getting to over 50% coverage very quickly and not having really a meaningful negative impact on gross net with the foam launch, I think you would expect to see something very similar with atopic dermatitis. Again, payers view these as line extensions that are covered by the existing contracts, and so that really facilitates and speeds up, frankly, our ability to get coverage. You know, in terms of where price is headed, you know, we did price differentially than other branded topicals when we launched And that really got back primarily to a question of Medicare and Medicaid access. And, you know, we're delighted with the recent Florida win that Todd just mentioned. I think that that's, you know, another proof point that our pricing and access strategy is working. And we expect to have more proof throughout the year as we garner access through Medicaid and, you know, fully Medicare, as Todd mentioned, by the end of the year. In terms of our ability to price hike, you know, frankly, um you know the contracts these days with all the pbms limits any company's ability to price hike um you know there are price protection clauses in there and we don't think that we are uh disadvantaged versus the other companies um in that respect the only thing that we do need to be mindful of is the medicare medicaid especially threshold which all the other branded topicals are well above and we are actively trying to keep below And we have headroom there. So I would anticipate that in the future, there may be some price increases. We do have that ability. But I don't think that we're really impaired in our ability to take price increases in line with inflation any more than any other company is, as long as we stay under that CMS threshold.

Great.

And then maybe just as one follow up, as you think about the rapid uptake that we saw with regard to Febderm, how should we be thinking about atopic dermatitis? It seems like with product on market, there won't necessarily be that same level of pent-up demand, but perhaps this feels a little bit more like the sort of psoriasis uptake curve. Although, again, when a lot of free drug was given away on the psoriasis curves, those were also accelerated to some degree, although that's not the path that that our Qs took. So just trying to get a better sense of how to think about the trajectory of the uptake curve for cream as atopic derm comes on.

Yeah, yeah, sure. I think it's a great question too, Seamus. You know, I think that it would not be realistic to expect to see something, an uptake comparable to seb derm for atopic dermatitis, you know, as you mentioned. And it's been 20 years since there's been any innovation in seb derm. And as Todd mentioned, we think that there was a pretty good-sized pool of sort of ready patients just waiting for Xerifome to be approved, and that really drove that very rapid uptake that we saw right out of the gate. So I wouldn't expect that kind of growth with AD right out of the gate. On the other hand, I think compared to the psoriasis launch, I think that AD could outperform psoriasis for a number of reasons. One of them I think Todd alluded to, which is you know, when we launched Zareve in psoriasis, nobody really knew Zareve and they didn't really know Arcutis all that well. By the time we launch in atopic dermatitis, pretty much all of the dermatologists will have used the cream and a high percentage will have used the foam. So we're going to be launching with that positive tailwind of experience with the efficacy of Zareve, the safety and tolerability of Zareve, and also, as Todd mentioned, the ease of the process for getting patients fulfilled. So I think that will aid the uptake in atopic dermatitis. It's a much more competitive market, so I wouldn't expect to have a large warehouse of patients just waiting when we launch an atopic dermatitis. So, you know, I think the uptake is probably going to fall somewhere in between the last two launches.

Great. Thanks so much.

And thank you. And one moment for our next question. And our next question comes from Vikram Purohit from Morgan Stanley. Your line is now open.

Hi, good afternoon. Thanks for taking our questions. So we had two, one on seb derm and then one on the potential AD launch. So for seb derm, understanding that it's still pretty early in the launch trajectory, what is your current sense on duration and the annual number of cans of product a customer, a patient rather, might work through over the course of a year? And then for AD, You previously mentioned entering a partnership to access the primary care setting. So I just wanted to see how those discussions are going, what you currently see as the timeline to establishing a partnership, and what you would see as the, I guess, the ideal economics in terms of collaboration here. Thank you.

Sure. So around duration and consumption, I think it's very early still to be able to assess that. We are seeing some refills come through. I don't actually have the latest numbers. Todd may have that, but we are seeing some. But, you know, it's not a significant driver of growth just given how early we are in the launch. You know, atopic, excuse me, seborrheic dermatitis covers less body surface area than psoriasis or atopic dermatitis. So it may be that patients consume fewer cans throughout the year. I think what we've previously stated was that we thought that that was probably something like one to two cans a year for seb derm. We don't have anything at this point to revise that guidance. And so, you know, I would say that we would expect it to be something similar to that, you know, until we learn otherwise. And we'll update you guys if we do get information on that. In terms of the atopic dermatitis partnership, you know, what we have been saying all along is that we would like to have that done sometime around the launch. I don't think we need to have it done by the launch necessarily. because you really have to win with the dermatologist first. The PCPs will be looking to the derms for an example. And so I don't think it's critical necessarily to be in primary care right at the launch. But I think it's very likely that we'll have that deal done. We will have a deal done still this year. We're feeling very good about how the discussion's been going with potential partners. And then in terms of economics, you know, it'll really come down to the negotiation with the potential partner. You know, they will have obviously a considerable expense just given how large primary care sales forces are, but we've obviously invested a lot into the product. We do have a preference for some sort of a revenue sharing arrangement rather than a fee-for-service because I think that that aligns the interests of the two partners, which is aligned with the interests of shareholders, right, as opposed to a fee-for-service where, you know, maybe you get what you pay for. But, you know, we'll... We'll have to negotiate that with whoever ends up being the final choice of a partner, and then we'll let investors know what the economics are around the deal. Understood. Thank you.

And thank you. And one moment for our next question. And our next question comes from Tyler Van Buren from TD Cowan. Your line is now open.

Hey, guys. Good afternoon. Regarding the primary care partnership, is that something that you would like to happen soon? And what would it look like? And how many additional patients do you believe you could reach via this strategy?

Sure. First of all, how's the presidential campaign going? So those of you who weren't at their conference, that was an inside joke. On the piece of the partnership, as I just said to Vikram, I think we'd like to have this done Sometime around the launch, you know, which is probably going to be in the August timeframe, I feel very confident about our ability to get it done before the end of the year. So that's kind of, I would put it as bookend. And, you know, in terms of the opportunity size, you know, about 50% of atopic dermatitis and about 50% of seborrheic dermatitis patients are treated outside of dermatology. They're not all in primary care or pediatrics. But a very large percentage of those patients are sitting in a PCP or a pediatrician's office, both seb derm and AD. More pediatricians for AD, more PCP for seb derm just because the ages of onset of the disease. So, you know, we're looking for a partner that has good coverage primarily of the PCP and the pediatric specialties. You know, if they had coverage in allergy, that would probably be also a benefit, although that's a very small community. But it's a pretty sizable additional opportunity by tapping into primary care and pediatrics just because that's where the patients are sitting.

And thank you. And one moment for our next question. And our next question comes from Oya Ear from Missoula.

Your line is now open.

Hey, guys. Congrats on the quarter. Yeah, my first question is, I think, you know, you said you're expecting Grosvenor to reach steady state towards the end of the year, but you're going to, I guess, have Medicaid or more Medicare, I guess, coming online towards the end of the year as well. Just are you kind of saying that you know, Medicare and Medicaid will not have an impact on gross to net in 2025? Or, like, how should we sort of think about the interplay with Medicare and Medicaid in terms of gross to net? And secondly, could you perhaps elaborate on your new program, your distribution programs, where I think you said that you... for every unit, the specialty pharmas get one unit for uncovered patients. I didn't quite understand it. Thanks.

Sure, yeah. Good to hear from you. I'll ask your first one, and then Todd, I'll ask you to talk about the pharmacies. Yeah, so I did say that we think we will get to our steady state or around our steady state gross to net this year on the psoriasis book of business. And yes, that does factor in Medicare and Medicaid coverage. A couple things to keep in mind. One is Medicare and Medicaid is a less important contributor to the psoriasis business than it is seb derm and AD just because of the demographics of the patient population. It's quite a bit smaller. But secondly, as we've said previously, with our pricing and access strategy, we don't anticipate having to give outsized rebates for Medicare and Medicaid coverage. And I think when you look at it all in you know, the Medicare and Medicaid book of business is probably going to be similarly profitable to the commercial book of business. So we don't see, we don't expect that to have a really meaningful negative impact on our gross to net.

Todd, do you want to maybe talk about the pharmacies?

Yeah, fantastic. I will. And just to mention, relative to improving our gross to net, we took a, what I'll call a multi-pronged approach And the program that I'll talk about here in just a minute was only one lever that we pulled to improve our gross to net. But specifically to that program, if you think about it, prior to implementing the current program, when a commercially insured non-covered Zari prescription was dispensed by the pharmacy, what happened is that prescription was processed, and then the cost of that unit was charged to our copay card. Then under the new current program, when a non-covered prescription is dispensed by a contracted pharmacy, then our QDIS directly provides the pharmacy with a unit for every unit they use from their inventory to fill that non-covered script versus charging it to the copay card, which unburdens the impact of copay card and non-covered scripts on our gross to net.

Okay, thanks.

And thank you. And I'm showing no further questions. I would now like to turn the call back to Frank for closing remarks.

Okay, well, I'll be very brief as well. I really appreciate everyone calling in for the call today and the great questions we've had, and we look forward to talking to you all in about another quarter. Thanks a lot. Bye-bye.

This concludes today's conference call. Thank you for participating. You may now disconnect.