Arcutis Biotherapeutics, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to our QDIS Biotherapeutics, Inc. second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. And to ask a question during this session, you would need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. And to withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Brian Schoelkopf, head of investor relations. Please go ahead.

Thank you, Michelle. Good afternoon, everyone. And thank you for joining us today to review our second quarter 2026 financial results and business update. Slides for today's call are available on the investor section of the Arcudis website. Joining me on the call today are Frank Watanabe, President and CEO of Arcudis, Patrick Burnett, Chief Medical Officer, and Latha Vairavan, 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 the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank to begin today's call.

Thanks, Brian, and good afternoon, everyone. As always, we appreciate you guys making the time to join us on our quarterly update call. I'm going to start this afternoon with a review of our very productive second quarter as we continue to deliver meaningful innovation for patients with chronic inflammatory skin diseases, and continue to execute against our grow, expand, build corporate strategy. Todd isn't able to join us today, so I'll walk you through a commercial update, followed by Patrick for an R&D update, and finally, Latha will review the quarter's financial results before we open it up to questions. So I'm on slide five in the deck, and just as a reminder, our three-pillar strategy to sustain near and long-term growth includes, first, Growing our core Xareve business in our approved indications. Second, expanding into additional indications where Xareve's unique profile as a targeted and potent PDE4 inhibitor has significant potential to address persistent therapeutic gaps. And third, leveraging our deep clinical expertise and infrastructure to build our pipeline beyond Xareve. I'm happy to report that once again, we made substantial progress across all three pillars during the second quarter. Let's start with our grow pillar. Our in-line Zareef business continues to strengthen and grow as we expand the reach and relevance of this medicine to the tens of millions of individuals with chronic inflammatory skin conditions in the U.S. who need and deserve new innovative therapeutic options to manage their plaque psoriasis, seborrheic dermatitis, and atopic dermatitis. As Zareef continues to grow, we're now in a position to reinvest the significant capital generated back into the business, creating a virtuous cycle of innovation that extends are transformative impact to more patients, both with Zareve and current and potential future pipeline assets. As we'll discuss today, our investment in innovation encompasses a broad range of value-creating initiatives across the business that we're advancing in parallel from multiple clinical projects to impactful patient access initiatives. So touching on some of the highlights, at the end of June, we received FDA approval for Zareve Crane 0.3%, for the treatment of plaque psoriasis in children as young as age two. This marks the seventh FDA approval for Xareeb in four years, a remarkable accomplishment for a small company like Arcutis. And importantly, this milestone enables us to address a significant treatment gap, introducing the first once daily steroid-free treatment for plaque psoriasis approved down to age two. In July, the FDA also accepted our supplemental NDA for Xareeb cream 0.05% for the treatment of mild to moderate atopic dermatitis in infants down to three months with a PDUFA date set for February 23, 2027. Now, I was just recently at the Society of Pediatric Dermatology, and frankly, I was awestruck by the level of anticipation and excitement in the pediatric dermatology community about this potential approval, which would address an urgent unmet need for a once-daily nonsteroidal in these youngest of 80 sufferers. Both of these regulatory milestones demonstrate our commitment to delivering meaningful innovation to both adults and children across all age groups, including the youngest children impacted by these chronic inflammatory skin diseases and their caregivers. And as you'll hear more today, our commitment to meaningful innovation for patients goes beyond bringing new therapies to market. We recognize that managing a chronic inflammatory skin disease like psoriasis, atopic dermatitis, or seborrheic dermatitis can be extremely challenging and burdensome for the individuals and their families. And with that in mind, we are turning our expertise to ways that we can innovate to enhance the patient experience and facilitate seamless access to treatment in order to help ease the burden on the patient and caregiver as well as the healthcare provider. Today, we'll detail some of our initiatives around patient access that specifically reduce barriers to care and streamline the patient journey. Our new virtual health platform and our strategic partnership with a leading AI-enabled patient access support tool are the first steps to emerge from our broader patient access initiative, Innovation Workstream. We're really excited about these initiatives, which I'll explain in greater detail shortly. Both are great examples of our commitment to delivering meaningful innovation to patients. Turning to expand our second strategic pillar, we continue to make important progress in this quarter in evaluating the potential of Zareve and additional chronic inflammatory skin conditions. Specifically, we have now fully enrolled the Phase 2 proof-of-concept trial of Xarev in the treatment of vitiligo, and we continue to enroll the Phase 2 proof-of-concept trials of Xarev as a treatment for hydratinitis supertiva. On previous calls, we've shared the extensive and growing list of conditions where clinicians have published case reports or case series showing promising signals of Xarev efficacy, suggesting that Xarev's unique profile as a targeted and potent PD-4 inhibitor could offer additional patients an innovative non-steroidal therapeutic option. We continue to evaluate these other potential indications and anticipate initiating one or more additional proof-of-concept trials this year. And finally, turning to the third pillar, build. We continue to make progress advancing our innovative pipeline. Enrollment is ongoing in phase 1A, phase 1B trial of ARQ234, our novel biologic targeting CD200R as a potential treatment for moderate to severe atopic dermatitis. By targeting CD200R, which plays a central role in both innate and adaptive immunity, we believe ARQ234 could not only be an important first-line systemic therapy, but also has the potential to address the clear and distinct need for a treatment for patients with atopic dermatitis who have relapsed on or who are refractory to IL-413 drugs. In addition, as we've discussed previously, External innovation will likely play a central role in expanding our pipeline. We're seeing a marked increase in deal flow recently in both dermatology and adjacent inflammation areas, and our team remains actively engaged in evaluating a range of external assets as we look to build our pipeline. As Latha will describe, we had another very strong quarter financially, and this level of performance and the cash flow that it generates enables us to continue to invest in innovation Staying true to our biotech roots and mission. For the remainder of this year, you should expect consistent execution against our stated strategy, opportunistic reinvestment in the business, and a steadfast commitment to creating long-term value for both patients and shareholders. Based on the strength of our Zareve business to date, and in light of the incremental investments we are making to sustain demand for Zareve, we are delighted to raise our full year 2026 sales guidance from the previous range of $480 million to $495 million to a range of $525 million to $540 million. You will recall that we made no changes to our revenue guidance during our Q1 earnings call, and we don't anticipate revising it every quarter, so this guidance really reflects the momentum that the business has seen through the first half of the year. So now let me delve a little bit more into some of the details on commercial results for the quarter. I'm now on slide seven. We continue to see robust sales performance and demand driven growth in the second quarter with net product revenues of 129.9 million, representing a 59% increase from the second quarter of 2025 and a 23% increase over Q1. Our consistently strong quarterly revenue underscores the momentum and enduring strength of the Zareef franchise. As expected, our gross net rate improved incrementally from the prior quarter and continued to remain stable in the 50s. And so looking ahead to the third quarter, we expect quarter-over-quarter net sales growth driven by sustained momentum in patient demand. Now let me turn to slide eight. Weekly prescriptions of Zareve on a rolling four-week average show sustained growth across the portfolio, and we reached new high watermark for quarterly demand with more than 280,000 prescriptions in the quarter crossed all indications and formulations for Zareve. As this chart highlights, Zareve continues to experience substantial prescription growth. We anticipate this growing demand will continue through the duration of this year and beyond and will be the primary driver of Zareve's revenue expansion. The most important driver of Zareve's growth will remain the conversion from topical steroids to advanced targeted topical therapies like Zareve as healthcare providers and patients' perceptions of the risk of chronic topical steroid use evolves. Let's turn now to slide nine. I want to expand on the patient access initiatives we introduced this quarter. As I highlighted in the opening, improving patient access is an important dimension of meaningful innovation as we aim to deliver to patients with chronic inflammatory skin diseases. Therapeutic innovation is meaningless if patients are unable to access new therapies So we see it as an imperative to also innovate in reducing barriers to treatment and care. Importantly, these new patient access initiatives are separate and distinct from, but complementary to, our payer access efforts. These innovations are focused on enabling seamless fulfillment and an efficient post-prescription process that helps patients access Zareve rapidly, reliably, and efficiently. We've applied this holistic, patient-first approach to innovation since bringing Zareef to market, but we're now broadening the scope of our patient access activities with the launch of our virtual health platform and investments in AI-enabled tools that support efficient prescription fulfillment. Two distinct initiatives, both with the aim of facilitating more seamless access to Zareef. So a little bit more about each of these initiatives, starting with the virtual health platform, which we announced in June. We recognize that over the last several years, Patients have been rapidly changing how they obtain health care, starting with the COVID pandemic and accelerating with the emergence of multiple virtual health offerings like HIMSS or RHO. And many individuals today are seeking more convenient, flexible ways to receive care. Our virtual health platform recognizes this evolution and meets patients where they are by helping to address common barriers to dermatology care, such as long wait times for dermatology appointments, and the absence of specialized dermatology care in some geographies. The platform provides an additional pathway for individuals who might otherwise delay or forego specialized dermatology treatment. Importantly, the platform is designed to complement and not replace traditional in-office dermatology care. Our goal is to help more individuals access the therapies that they need while continuing to partner with healthcare providers across dermatology, primary care and pediatric settings. So with the model, board-certified independent dermatologists on the platform evaluate, diagnose, and determine appropriate treatment for each individual based on their clinical judgment. Our QDIS does not influence diagnoses, clinical decision-making, or prescribing decisions made through the platform. If prescribed, Xerib prescriptions are coordinated through a national pharmacy hub designed to support a seamless experience, including insurance support and at-home delivery. We're especially excited about this new platform because we believe Zareve has an ideal profile for the virtual health model. Dermatologists can prescribe Zareve confidently given its demonstrated efficacy, safety, and tolerability without worrying about a patient applying the drug to an area of the body that they shouldn't and with the knowledge that the patient can use Zareve for any duration. It treats the three most common inflammatory diseases, all of which that can be diagnosed visually using telehealth tools. Additionally, individuals suffering from these diseases are motivated to seek an effective therapy due to the burden of their symptoms. We're still in the early days of the rollout of our virtual health platform, but we are already seeing signals of the impact that it will have and are confident that this will have a meaningful benefit in expanding patient access to Zareve, particularly when it's coupled with other demand generation efforts we have like the Free to Be Me campaign. Now, in late July, we launched our second patient access innovation, partnering with one of the leading AI-enabled prescription workflow platforms to streamline the post-prescription process for Zareve and dermatology offices. The process for getting any prescribed therapy to an individual has grown increasingly complex and time-intensive over time. But through this partnership, we're helping to streamline patient access to Zareve after they've received a prescription. The company that we've partnered with is already widely adopted across dermatology offices as well as other therapeutic areas nationwide. And in practices where the tool is implemented, after providers initiate a prescription, the platform helps navigate and systematize that workflow that follows. In addition, it supports patients with real-time visibility into the process from the moment of prescription as well as other critical information and access resources. As part of the collaboration with Arcutis, the platform provides customized prompts and alerts to streamline the steps between a clinical decision and an individual starting Zareve, including prior authorization, financial assessment, and fulfillment routing embedded directly into healthcare provider workflows. We're skating to the puck. It's our belief that harnessing innovation and leveraging these types of technology-based solutions to help patients and healthcare providers with the fulfillment process for Zareev is where we need to be. These initiatives mark important additional steps in our mission to deliver meaningful innovation across every part of dermatology care. And on slide 10, these patient access initiatives are only the latest example of how we're reinvesting the cash flow generated by Zareev back into the franchise to drive sustained growth and inflection in sales in 2027 and beyond. Of course, all of our efforts to drive Zareve's growth would be meaningless without the solid foundation of Zareve's outstanding clinical profile. Zareve's rapid and robust efficacy across multiple inflammatory dermatoses paired with its exceptional safety and tolerability profile and its patient-friendly formulations make it a compelling choice for healthcare providers and patients looking to manage these chronic conditions, especially against the backdrop of the growing concern about prolonged use of topical steroids. Our commercial efforts focus on generating awareness of this differentiated therapeutic profile with both clinicians and patients, and then enabling efficient patient access to the product when it is identified as the appropriate therapeutic intervention. Building on that foundation are three broad categories of demand initiatives. The first is the investments we're making to strengthen our commercial infrastructure through targeted additions to our sales force. The Dermatology Salesforce expansion has been completed with our new dermatology specialty reps hitting the field as of early May. Since then, they've been gaining familiarity with their customers, and as previously discussed, we anticipate beginning to see the impact on growth from these reps beginning in the third quarter of this year. We have also now completed the build-out of the first phase of our primary care and pediatric organization, having recently completed the hiring of this targeted team. We anticipate this Salesforce will be in the field interacting with primary care providers and pediatricians by the end of this month and expect to begin seeing the impact of this new team by 2027. As a reminder, we are adopting a highly targeted approach with the sales team focusing on high volume early adopter PCPs and pediatricians who are concentrated in major metropolitan areas. This approach positions our investment in a PCP sales team to begin contributing value rapidly. and as we gain more in-depth understanding of this space and how best to partner with primary care and pediatric providers, we'll evaluate further expansions of the team. We believe that some of the same attributes of Xaree's profile that have led to its leadership in dermatology and will drive meaningful adoption through the virtual health platform will also drive its success in the primary care setting. Specifically, primary care and pediatricians can prescribe Xaree The second component of our commercial investment plan is our direct consumer efforts. We're driving meaningful patient engagement through our Free to Be Me patient awareness campaign featuring Tori Spelling, her daughter Stella McDermott, and professional golfer Max Homa. This campaign is helping to drive awareness of treatment options for patients with atopic dermatitis, seborrheic dermatitis, and plaque psoriasis, and the promise of Zarif across these indications. We're seeing these efforts resonate with a broad range of patient demographics, reflecting the broad swaths of the population impacted by these diseases. The effectiveness of this campaign is further bolstered by our virtual health platform, enabling us to provide a direct route to a dermatologist for individuals who discover Zarif through Free to Be Me. We look forward to continued progress of this important direct-to-consumer effort as we work to capture and reflect patients' lived experiences as they manage their chronic inflammatory skin conditions, including using Xareve in their treatment arrangements. The final component of our commercial investment strategy is facilitating seamless patient access to Xareve, as we've discussed today. The virtual health platform and AI-enabled prescription workflow efforts I described earlier are the initial efforts that we're making in this vein But there are additional exciting initiatives to come, and we look forward to sharing details with those at a future date. And with that, I'm going to take a breath and turn the call over to Patrick for an R&D update. Thanks, Frank. I'm on slide 12.