Operator
Hello, and thank you for standing by. Welcome to our QDIS Biotherapeutics Q2 2024 earnings 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 the question during this session, you will 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 turn the call over to Latha Varavan, Vice President, Finance and Investor Relations. You may begin.
Latha Varavan
Thank you, Tawanda. Good afternoon, everyone, and thank you for joining us today to review our second quarter 2024 financial results and business update. Slides for today's call are available on the investor 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 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.
Frank
Thanks, Lata, and thanks to everyone for joining us today. Very excited to be able to provide you with an update on the most recent quarter of our performance. So let me start off on slide five of the deck. You know, we have continued really strong performance since our last earnings call, and I continue to be delighted and very proud of the Arcutis team in our execution in the quarter and thrilled about the momentum that we're building towards the second half of the year. 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 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 growth to net improvements during the quarter, drove strong revenue growth in the second quarter, both year over year and compared to Q1 2024, with net revenues of $30.9 million, 56% of which was cream and 44% was the foam. We've now generated more than 351,000 prescriptions for the cream and the foam combined, from over 14,000 unique prescribers to date, as our product delivers positive clinical experience for healthcare professionals and their patients. We improved gross to net again this quarter, resulting in a blended GTN in the high 50s across both products for the second quarter, down from the low 60s last quarter. So looking forward for the remainder of the year, we believe we are well positioned for sustained revenue growth with continued momentum on the psoriasis and seb derm launches, and atopic dermatitis will be additive in the second half following the launch of that indication late in July. We're also very excited about the recently signed deal with Coa Pharmaceuticals to expand our promotion into the primary care and pediatric space, although we wouldn't expect to see a meaningful revenue contribution from those efforts until 2025. And we are delighted that we were able to favorably renegotiate the terms of our debt agreement with SLR, and David will provide more details on those terms later in the call. With that, let me turn it over to Todd to provide some further commentary around Zarev cream and foam launches and psoriasis sebderm and atopic dermatitis. Todd?
Todd
Thank you, Frank. I'm extremely enthusiastic about the expansion of our commercial portfolio, HCP, and patient response to both severe products and the immense opportunities that lie ahead. We achieved $30.9 million in net product revenues for Zareef in the second quarter of 2024, reflecting 43% growth over Q1. This was driven by healthy prescription growth, substantial Glenda gross-to-net percentage improvement down to the high 50s. And the team's success in pulling through covered prescriptions as well as improving coverage for the foam. For the remainder of 2024, we expect continued prescription growth and some gross-to-net improvement, primarily for Zareve foam, as gross-to-net discounts for Zareve cream, 0.3%, have already reached our expected steady state in the 50% range. Moving to slide eight. The Zuri portfolio performance is showing promising growth and strength, reaching for the first time close to 10,000 scripts in a week. This new high shows the momentum we can continue to create for the Zuri portfolio. The portfolio had quarter-over-quarter volume growth of 42% over Q1. We expect continued build as we include atopic dermatitis beginning this quarter, and we'll add a fourth indication in 2025 if approved by the FDA. On to slide nine. The Xerive Psoriasis TRX performances continue to show strength, and these results demonstrate that we can sustain our growth in psoriasis. We see the steady trend line with 8% growth over Q1-24. Xerive Foam experienced volume growth of 102% versus Q1-24. As we stated before, while the trajectory has moderated from the initial launch uptake, it is still phenomenal growth and a key factor in our portfolio's performance. On to slide 10. We have coverage for Xareeb 0.3 percent cream and foam from all three large PBMs and continue to progress with formulary access and downstream plans. When we examine the percent of prescriptions being covered by insurers, we see an encouraging trend in Xareeb 0.3 percent cream with roughly four out of five prescriptions covered. And for Zerifone, three out of four prescriptions are covered. This is very positive for the portfolio lending to the gross to net improvements we have shown. I would also reiterate that the contribution to revenue growth coming from further gross to net improvements will likely moderate in coming quarters as we advance closer to our expected steady state blended gross to net. Going forward, most revenue growth will likely come from prescription demand growth in psoriasis, seb derm, and new demand in atopic dermatitis, as well as from expansion of our prescriber universe. I'm now on slide 11. Cereve 0.3% cream is foundational to the brand, with a value proposition that is meaningful and impactful to patients. Prescribers have an option that can resolve plaques that 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 combination of efficacy, rapid response, and a tolerability profile are becoming well recognized by dermatologists as differentiating factors. And the quotes here from real patients and prescribers confirm this brings value. Moving to slide 12. In Cevderm, Xaree brings transformational value. The clinician and patient feedback about Xaree foam from the real-world usage gives us the insight that these patients have been yearning for solutions such as this. The happiness of patients when they experience relief in a more efficient and convenient manner reinforces how the foam is addressing the unmet need for patients whose only option for decades have been steroids and antifungals. Now on slide 13, while there have been treatment advances, significant opportunity remains in the atopic dermatitis market today. Sixty-eight percent of patients are still being treated with topical corticosteroids. Non-steroid topicals only represent 19 percent of the total market opportunity. These are agents that have been on the market for several years now, and uptake is likely limited due to safety concerns. While this market has also seen an increase in biologic and oral JAK treatments, these treatments still only account for 13% of the total market since the benefit-risk profile combined with the high cost typically positions their use as later lines of therapy and for hard-to-treat or severe patients. The incremental value that Zuri brings within this more established AD market is highly differentiated. With no box warnings, No limitations on body surface area treated or location of treatment. And it can be used for any duration, which is very important for a chronic disease. Zareeb is also well tolerated and does not contain any penetration enhancers, sensitizers, or common skin irritants. And very importantly for patients, Zareeb is the first topical AD treatment that only requires once-a-day application. This unique combination of benefits positions Zerree well for use early and chronically in the treatment algorithm. On slide 14, with the performance in PSO and SebDerm and the recent AD approval, we are creating a portfolio of Zerree solutions for dermatologists that will sustain the brand growth. The benefits of a Xareve portfolio of products that will address three different dermatology diseases where the current standard of care is topical steroids is unprecedented and creates simplicity for dermatology prescriber and patient management. The common clinical attributes of Xareve across indications will make the prescribing simpler and repaired with common market access, copay card, and an efficient and predictable fulfillment pathway further simplifies the dermatology practice operations as well. We are well on our way to becoming the preferred topical brand in dermatology. Now on slide 15, we are extremely pleased to have entered a co-promotion collaboration with COA that allows us to bring Zareed to primary care and pediatric physicians. We have been working on identifying a primary care partner for some time, and we are thrilled that COA checks all our boxes. with respect to covering a broad PCP target universe, having a proven track record of successful co-promotions, and possessing the bandwidth to prioritize Zareve promotion. We are working with COA to identify the PCP and pediatric targets who have the highest potential to write Zareve. The COA sales force will have a dedicated focus on our product for at least the first two years. And there are significant commercial synergies in this co-promote with our existing dermatology focus strategy. COWA will use the same branding and promotional messaging and materials and product reimbursement training. And COWA's PCP and pediatric targets will have the same access to samples as our dermatology offices. They will also be able to access dermatology experts for peer-to-peer programs to advance the understanding of Zareeb in the primary care setting. The patients in the PCP and pediatric offices will benefit from our existing copay card and favorable market access coverage. Our collaboration plan is built on transparency, teamwork, and shared accountability to ensure a successful partnership. I'll turn it over to you, Patrick.
Patrick
Thank you, Tom. Starting off on slide 17, I'm extremely proud of the team's performance in delivering on the promise of topical reflumilab to the dermatology community and the clinic. and continuing to hit all of our timelines with regards to regulatory milestones. Echoing what you heard from Todd, I see that HCP excitement around Zareve cream for atopic dermatitis continues to grow as we release more data. Building on the foundation of their clinical experience with Zareve and psoriasis and CebDurb, dermatology clinicians find Zareve's product profile to be well-suited for what they and their atopic dermatitis patients are looking for. we've already started looking to expand the indications also for Zarif foam, having recently filed another SNDA with the FDA in scalp and body psoriasis in July. If approved, this will represent our fourth indication for Zarif, and I'm going to give just a brief peek at why we're so excited to bring this indication to patients. Writing out this table, we looked at the submission of our SNDA for the treatment of mild to moderate AD in two to five-year-olds, which is planned for Q1 2025, And finally, we're also looking forward to our expected IND filing for ARQ234, our biologic CD200 receptor agonist for atopic dermatitis in 2025. On slide 18, we see our next new therapeutic focus is leveraging the properties of Zareve foam to help patients with scalp and body psoriasis. We know that approximately 40% of psoriasis patients also suffer from scalp involvement. And our foam has demonstrated reliable clearance of plaques as well as rapid and robust impact on itch. One of the major challenges for managing psoriasis patients with scalp disease is the complexity of the regimen. Often they end up with several prescriptions for their scalp and at least one or more for their body. And if these are steroids, then the potency is vastly different between the solution that might be used on the scalp versus the cream that would be used on the face. One of the consistent themes about the Zareve profile is that it simplifies treatment for a patient. And Zareef Foam for psoriasis is a perfect example of that. You'll see in a moment that we designed the pivotal trial to highlight this benefit through the use of co-primary endpoints for scalp and body IGA. Zareef Foam can be used once daily on any area of the body where psoriasis occurs, including hair-bearing areas such as the scalp, where creams, lotions, or ointments are suboptimal. So I'm on slide 19. I'm just going to quickly review the data from Erector, our pivotal phase three trial for Zareef Foam in scalp and body plaque psoriasis. We selected patients with at least moderate severity of the scalp and mild, moderate, or severe disease by body IGA, and that's investigator global assessment. We had 432 patients who were randomized two to one to receive reflumelaster vehicle foam over an eight-week dosing period. And as I mentioned, we measured two co-primary endpoints of scalp investigator global assessment, or scalp IGA, and body investigator global assessment, or body IGA success. at week eight. Now on the right side of the slide, we have a brief summary of our results from the erector trial. We achieved positive and statistically significant results on both of our co-primary endpoints of SIGA success and body IGA success. Over 66% of patients experienced highly statistically significant improvements in scalp symptoms and approximately 46% of patients also achieved highly statistically significant improvements in body psoriasis with clear separation from vehicle. As a clinician, I'm very pleased to see that the foam performs essentially identically to the cream in treating body psoriasis, giving dermatology clinicians the option of treating plaques anywhere on the body, including the scalp as reef foam, which should considerably simplify treatment regimens for these patients. The incidence of adverse events was low and generally similar between active treatment and vehicle. Overall, the most common adverse events included headache, diarrhea, and COVID-19. We previously announced these results in September of 2022 and are expecting a strong reception to this new indication based on the positive experience that healthcare providers have already had with foam and seborrheic dermatitis. With that, I'll pass it over to you, David.
David
Thanks, Patrick. I'm on slide 21 showing financial results both year over year and quarter over quarter. As you've heard, our net product revenues for the quarter were $30.9 million, which is up 547% from Q2 of 23 and 43% from Q1 of this year. For the second quarter, our R&D expenses, which include our clinical research, medical affairs activities, supporting the REIT, and manufacturing costs for pipeline candidates, were $19.3 million, which is down from Q2 of 2023 due to continued decreases in the development costs of topical refugnum elast programs, and also down sequentially from Q1 of this year due to lower spend in our early stage programs. You'll recall that we had some one-time spend in Q1 of 2024 related to 234. SG&A expenses were $58.2 million for the second quarter versus $46 million in the same period last year, as we invested in both our current and future launches, including our Field Force. Our SG&A expenses were slightly higher quarter over quarter, primarily due to incremental stock comp expense incurred in connection with the retirement of a former executive. We believe we are investing appropriately in our product launches to support the Zareeb growth trajectory while constantly looking for ways to achieve savings and efficiencies. On slide 22, you can see we had cash and marketable securities of $363 million on our balance sheet as of June 30, which translates to a cash burn in the quarter of $45 million. Our current capital together with our product revenues enable us to continue operating the business for the foreseeable future, including our continued investment in commercial launches. I'd like to add, as we've said repeatedly, we do not envision a need to come back to the equity market to support our existing businesses. I'm now on slide 23. This slide summarizes the key features of the recently signed amendment to our debt agreement with SLR. The management team, together with our board, took advantage of the opportunity to renegotiate our debt to provide our QGIS with considerably improved financial flexibility. The revised deal, which becomes effective at the start of October of this year, provides a number of very important improvements, including an extended maturity to 8129, a decrease in the interest rate of 150 basis points, The flexibility to repay up to $100 million in the fourth quarter of this year, together with the ability to redraw that money anytime through the first half of 2026, thereby saving us considerable interest expense. We've also deferred our 6.95% exit fee on the redrawn $100 million to the August 2029 maturity date and removed restrictions on asset purchases. With that, I'll hand it back to Frank for some closing comments, and then we'll open for Q&A.
Frank
Thanks, David. You know, our goal here is to make a positive and meaningful impact on the lives of people afflicted with chronic dermatologic diseases. And with Zarev now launched in two indications and the atopic dermatitis launch now underway, we are proud to be helping millions of medical dermatology patients while allowing us at the same time to create additional shareholder value. We're confident that our strong performance in Q224 portends for a strong and sustained growth for the rest of 2024 and beyond. And with that, we'll wrap it up and open up to Q&A.
Operator
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Vikram Kurahit with Morgan Stanley. Your line is open.
spk09
Hi, good afternoon. Thanks for taking our questions. We had two. First on Zareve, both for psoriasis and also for sebderm. We were just curious if you could comment on your latest findings on refill rates and your, I guess, most recent estimates for how many tubes or cans per year you think patients are going to be working through. And then secondly, I just wanted to get your sense on where you think steady-state gross tonnette could be for the foam product once that settles out over the coming quarters? Thanks. Yeah.
Frank
Hi, Rick. Yeah. Todd, do you want to take those two?
Todd
Yeah, absolutely. Yeah. Thank you, Frank. So in reference to PSO and Cebderm and the latest, the refill rates, we see on psoriasis, our refill rates are roughly around 38% of our total volume. And with Cevderm, we see something similar, although we do see some signals that there will likely be a higher refill rate on Cevderm eventually than that of psoriasis. So we're very encouraged with the refill rate percentages for both products. And then in reference to utilization of those products, we're assessing that. And at this time, our estimates are that for a patient, average patient utilization per year For seb derma, it'll likely be around two cans per year. And for psoriasis, it's going to be likely around two to three tubes per year for psoriasis. And in reference to the steady-state crostinet for foam, we've seen an encouraging ramp relative to improvements in our crostinet for foam, especially with the line extensions of the three PBMs. and that we anticipate that we're in a very good position to be able to be in that steady state high 50s, you know, well into the end of this quarter, beginning of the fourth quarter of this year.
seb derma
Understood. Thank you.
spk13
Thank you.
Operator
Please stand by for our next question. Our next question comes from the line of Tyler Van Buren with TD Cohen. Your line is open.
spk01
Hey, guys. Congratulations on another solid quarter and all the progress. I have two for you. So the first one is just the prescriptions for the cream have made a nice week-over-week jump over the past two weeks. So I'm curious to understand if this is pull-through from the early atopic derm launch already and if you believe this could be a new trend line moving forward. And then the second question is, considering the latest performance, for the foam. Do you believe that the foam and the cream will split overall Zoriv sales pretty evenly in the long term, or that one of the products will be substantially larger than the other?
Frank
Sure. Todd, I hate to keep doing this to you, but...
Todd
No, I'm happy to do it. These are great questions. So thank you, Frank. In reference to the Tizari cream, we are pleased with the most recent week-over-week performance for that product. And I think that there's a couple of things here that are creating definitely some positive tailwinds for us. And that is that with the launches of ReFoam and creating a portfolio of products, This has really resonated with the providers as far as Zuri cream across these two patient populations of psoriasis and seb derm, creating a halo effect on both products to include the Zuri cream. Not only that, but, you know, we have expanded our field sales organization. We expanded it by roughly 40 representatives. That was fully executed on July 1st of this year. So I think that additional share of voice is starting to have a positive impact relative to our Zareeb Cream and Psoriasis brand performance. And in reference to foam, once again, we're very encouraged by the performance of the foam, especially in the last weeks. We're seeing very positive week-over-week prescription growth. And relative to the split on the business between psoriasis and foam, I would anticipate that we will have a higher weekly TRX prescriptions and eventually in foam that we want psoriasis. Because the market is so much larger relative to Sevderm and foam, there's no brand of competition within that market. There's been no innovation in many years. And so it creates a great opportunity relative to the value proposition that we offer to these patients. And we continue to hear very, very encouraging and positive feedback, not only from the dermatology community, but from patients.
seb derma
So, I think that that's what we can expect going forward.
spk13
Thank you.
Operator
Will you stand by for our next question? Our next question comes from the line of Seamus Fernandez with Guggenheim. Your line is open.
Seamus Fernandez
Well, thanks very much, and congrats on the quarter and all the progress. A couple questions on the progression and AB and how we should think about it. One question that I have is just as COWA comes on to expand the promotion of Zareev, can you help us understand some of the key impact points and how we should be thinking about the prospect of acceleration there? And then separately, just hoping to understand how you're thinking about the opportunity in the pediatric AD setting. Obviously, that's another SNDA file would bring the availability of Zareve to a very important younger patient population. Interested to know how you're thinking about the promotion
Frank
um in that uh in that setting and uh and the importance of it as well yeah Seamus your second question you're asking about the two to five year olds correct yeah yeah sure okay um uh Todd maybe if you could take the question about COA and then Patrick maybe you could kick us off on a question around AD just from a clinical standpoint you want to start Patrick
Patrick
Yeah, sure. I'll take that question. Thanks, Seamus, for the question. I appreciate it. So when we're thinking about pediatric AD, that two to five-year-old represents about 10% of the AD patients that are in dermatologist's office. But I think what's really important is to keep in mind that the pediatric AD community is already very much involved in our launch, given that we have six to 11-year-olds with the 0.15% approval that we just had in July, as well as adolescents. And both of those are kind of core patients for this pediatric AD treating community. So I think that we're already really heavily engaged with them. And then as we bring the age range down into the two to five-year-olds, we'll just be able to kind of build upon that And if you think back to the data that we had for two- to five-year-olds, it's very, very consistent with what we have for ages six and above. So it'll seem like a very natural extension, I think, as we add on that additional age to the indication.
Todd
And then, Shane, if this all was clear, your first question was in reference to the progression of AD and our expanded promotion and kind of what are some of the key impact points?
Seamus Fernandez
That's right, yeah.
Todd
Yeah, absolutely. So first and foremost, we're very pleased with the start of the atopic dermatitis launch. We're receiving very positive feedback from the dermatology community. And I think some of the key impact points that we're looking at is I think first and foremost is for the EHR, electronic health records, to have them all brought online to where Zareeb Kareem 0.15% or 80% is loaded up into the EHRs. We've been actively working on that. I expect that to happen over the next couple weeks. The other is we've mentioned access. The two of the PBMs now have treated atopic dermatitis to the line extension. I think another key driver accelerator will be when that third PBM comes online, which we anticipate that to come online very likely next month. The other is that we have the EHR, we have the access, we have the promotion. We've got to make certain that we're driving covered scripts. So, we are working hand-in-hand with the pharmacies within our contracted pharmacy network just to make certain that, you know, that we can drive coverage scripts with those pharmacies. We're also working with the dermatology offices relative to the PA process, and I think we have a significant strategic advantage here. And as we mentioned before, that these offices or the pharmacies, you know, it's the same coverage across the three different products, same copay card, same contracted pharmacy network. So we see a lot of synergies that are being built here across the offices and pharmacies to drive those cover scripts. So I think we couple those together, we'll be well on our way to a very successful launch.
Frank
Yeah, I'll just add, specifically with regard to COA, we expect them to start promoting you know, in the field probably towards the end of this quarter. But as I mentioned in my comments, we don't expect to see, you know, an inflection in Zareef growth from the primary care and pediatric piece probably this year. I would expect that to be more of a contributor in 25. You know, very much like when we first launched with plaque psoriasis and dermatology, the primary care and the pediatric doctors don't know Zareef yet. And so, you know, there's going to be some education that has to go into that But, you know, COA has relationships with many of these doctors. They've got a proven track record in the primary care space. So we feel very good about it. But I do think there's going to be a bit of a lag in terms of when we see the impact. You know, I would expect to see more in 25 from the primary care deal. And then just with regard to the pediatric piece, I would also just point out that, you know, we do anticipate also in the future studying Zareef in 3 to 24-month-olds. That's something probably that will come post-approval in the two to five-year-old. But again, I think it's an important opportunity, both in the dermatology setting, but also especially in the pediatric setting. As you know, there are many AD patients below the age of two.
Seamus Fernandez
Great. And then maybe just one question. Is there a point where, you know, David and Frank, you are, you know, and Todd are all carefully looking at the value contribution of a broader, you where do you think that starts to become most impactful? Is that kind of end of 2025, 2026? There have been good returns on DTC advertising, but just wondering how you're thinking about spend.
Frank
So I think we have a direct-to-consumer program ongoing all the time, and we've expanded that with Cevderm, and we will expand it further with atopic dermatitis, you know, I think specifically with regard to broadcast TV, um, you know, that's something that we, we are constantly evaluating. Uh, I don't know if or when we will, you know, really ramp up direct broadcast TV. It's, it's very expensive, right? Because you're competing against the likes of Coke and, and Ford, uh, as well as, um, you know, the big biologic companies for buying that advertising space and the economics for direct consumer TV for, uh, you know, $70,000 a year product is very different than the economics for a product that, you know, it's probably something like $2,000 a year. So I wouldn't say at this point we've made a commitment to going into broadcast TV. It's something that we'll continue to evaluate. But, you know, we would only launch that if we felt that there was a really compelling business case that drove shareholder value.
seb derma
Great. Thank you.
Operator
Thank you. Please stand by for our next question. Our next question comes from with Mazuho. Your line is open.
Mazuho
Hey, guys. Yeah, congrats on a solid quarter. Thanks for taking our questions. So I guess our first question is maybe just help us to understand a little bit about the gross net changes. I think you indicated from low 60s to high 50s. But if you just take the sales number and divide it by the total scripts, the implied price seems to be relatively flat. So that's sort of the first question. And the second question is, could you maybe just help us understand the proportions of pediatric patients in the Durham offices that you currently detail to versus those in the primary care and pediatric pediatric markets that you're expecting COA to go after. Yeah, and I guess maybe thirdly, you indicated that the amended term loans has now removed restriction on asset purchases. Just wondering, what do you have in mind in terms of BD? Thanks. Okay, great.