Arcutis Biotherapeutics, Inc.

Good day, and welcome to Arcudis Biotherapeutics 2025 First Quarter Financial Results Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to Amanda Sheldon. Please go ahead.

Thank you, Heidi. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2025 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 Latha Virovan, Chief Financial Officer. I'd 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 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.

Thank you, Amanda, and thank you to everyone for joining us today. Before I delve into the quarterly details, I want to take a moment to thank David Topper who will retire in a couple of weeks, for his many important contributions to Arcutis, both in his time as our CFO and during his many years as a consultant to our company. We wish him all the best in this next stage of life. And I'm very pleased to welcome Lata Verovan to our first earnings call as our CFO, a role she officially assumed this morning. Lata has been an integral part of our team for many years, and she is fully prepared to step up to this new role. I could not be more excited about her joining our senior leadership team. Turning to our results, if you take nothing else away from our call today, I want to highlight four key points. First, our team continues to execute exceptionally well, most notably our commercial and R&D teams, as evidenced by yet another strong quarter performance across our portfolio and our continued progress in advancing our pipeline. Second, with multiple upcoming catalysts and expanding markets, we are confident in our ability to sustain our growth throughout 2025 and beyond. Third, the most important of these market expansion opportunities is the conversion from the very large topical steroid market, and we are seeing tangible signs of growing momentum in that shift. And fourth, we are very pleased with our progress in Q1 in protecting our intellectual property. I am grateful to work with such a dedicated and stellar team who are building the leading topical franchise, one that is outperforming historical precedents in dermatology. Zoriv is endowed with a unique combination of attributes, including efficacy and safety, rapid onset, reliability, and the ease of use for both clinicians and patients that has allowed us to build a segment-leading franchise. Let's turn now to slide five of the deck. We had a robust start to 2025, and our first quarter performance was very much in line with our expectations. As our results indicate, commercial execution continues to be a key strength of our business and we expect sustained growth of the Zareed portfolio this year and beyond. In the first quarter, we reported revenues of 63.8 million, representing nearly a doubling of revenues year over year, excluding the non-recurring reduction in reserves for product returns of 4.1 million as reported in Q4 of 2024. As is typical for any retail pharmaceutical product, revenues were down compared to the fourth quarter due to the typical first quarter deductible resets and insurance changes. It's really quite remarkable that despite those typical headwinds, our sales were nearly flat, with only a 2% decline versus the prior quarter, which is very unusual compared to other branded top goals, or frankly, nearly every other product on the market, where substantial drops Q4 and Q1 are typical. Impressively, we delivered prescription demand growth of 10% compared to Q4, despite the typical pull forward of demand into Q4 as patients filled prescriptions early in anticipation of their copay resets. Blending growth to NETs have remained relatively steady as expected, with some minor anticipated quarterly fluctuations related to the reset of patient deductibles and plan changes. And as Q1 progressed, we saw our GTNs quickly trend back down towards steady state. The vast majority of patients with psoriasis, AD, and seb derm are currently treated with topical steroids, So there is an immense opportunity for future growth of Xareeb across our indications. And as Patrick and Todd will discuss more in just a few minutes, during Q1, we saw clear and growing momentum in that shift. We expect to further expand Xareeb's approved indications in 2025, beginning with the anticipated May 22nd approval of Xareeb foam for scalp and body psoriasis. We are also eagerly anticipating another approval for Xareeb cream, this time a 0.05% concentration, for atopic dermatitis in children ages two to five with an expected approval in October. Finally, we announced in April that at the request of Patagas, we had agreed to a joint stipulation to stay the ongoing patent litigation with them over their topical reform last ANDA. We agreed to this because it extends the 30-month stay we are entitled to under Hatch Waxman for as long as the Patagas requested stay in the case remains in place and it also allows us to delay or even avoid the cost of litigation and the distraction of litigation. Let me be clear, we are not and have not previously been in any settlement discussions with Patagas. We have not wavered in our confidence in the strength and breadth of our patent portfolio that reflects the innovations we have generated since our company's inception. We are confident in our legal position against Patagas. If and when the stay is lifted, we will continue to fight against Patagas's attempts to circumvent our legally issued patents on our psoriasis cream. Now turning to slide six, touching again on the immensity of our target market of 17 million patients. The size of this opportunity coupled with Zareve's unique and compelling value proposition provides us with strong conviction in our ability to continue to grow our product portfolio beyond what has historically been typical with other topical brands. Patrick, Todd, and I were out visiting clinicians all last week, and the feedback we heard from them on Zarif's performance is outstanding, only adding to our confidence in Zarif's future potential. As we've shared in the past, half of the treated patients and our targeted indications are treated in the DERM setting, and the other half are being treated outside of the dermatology office, primarily by primary care physicians and pediatricians. Our launches thus far, along with our upcoming launches if approved, continuously expanding coverage, and the COA commercial partnership enabled us to access the entire 17 million patient opportunity, another unique feature in the branded topical space. But as shown on the chart on the right, 94% of topical prescriptions written for our target patients are still for topical steroids, topical calcium neuron inhibitors, antifungals, and vitamin D analogs. Our long-term growth relies on shifting this use to Zareve as the go-to topical treatment. Encouragingly, we are seeing growing evidence that dermatology clinicians are starting to shift away from these products, and as the leading branded non-steroidal, Zareve is in the position to be the primary beneficiary of that shift. Todd and Patrick will delve deeper into the evidence we are seeing of this growing shift And Todd will go into further detail on how we view revenue and script growth trends evolving throughout 2025. Our QDIS as a company has had the good fortune to be presented with a rare opportunity, combining an immense market with a strong and well-recognized brand, which can create significant value for all of our stakeholders. Our team recognizes the uniqueness of our compelling position and remains highly focused on growing Zareef to its peak sales potential. With that, let me turn it over to Todd to provide some more color on where we are in our launch and how we will continue to execute on our vision.