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.

At the outset of today's call, Frank highlighted our focus across the grow, expand, and build pillars of our corporate strategy. I'd like to provide some additional context for the clinical components of each pillar. But before I detail our various clinical initiatives, I want to emphasize the breadth of our ongoing activities to further bolster the profile of Zareve. On this chart, I'm showing the range of clinical programs we are pursuing to broaden our patient population, expand into new disease areas where we have early signs of efficacy, and better define the unique aspects of Zareve's therapeutic profile. The breadth of approved and potential uses of Zareve, supported by its pleiotropic mechanism of action, and its safety and tolerability profile underpin our belief that Xarev is uniquely well-positioned to supplant topical corticosteroids in the management of inflammatory dermatoses. Moving now to key clinical updates for the quarter. As Frank highlighted earlier, in late June, the FDA approved our supplemental NDA to expand the indication for Xarev cream 0.3% for the topical treatment of plaque psoriasis, including intertriginous areas, to children down to the age of two. As a practicing dermatologist, I can personally attest that treating young children with plaque psoriasis presents unique challenges. Specifically, while safety and tolerability is always a concern, that concern is amplified in young children who may face decades of treatment and who are particularly susceptible to both local and systemic steroid exposure risks, like HPA suppression. In our trials, in children as low as two years of age with plaque psoriasis, Zariv 0.3% demonstrated safety, tolerability, and efficacy comparable to that already demonstrated in adults and adolescents. Xarev is now the first once-daily steroid-free treatment for plaque psoriasis approved down to two. It provides healthcare providers, parents, and other caregivers with an advanced targeted topical therapy that can be used anywhere on the body for any duration of time addressing a significant treatment gap for this very young and especially vulnerable patient population. In addition, in July, we announced that the FDA accepted our supplemental NDA for Zareve 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. As we mentioned on our first quarter call, we were able to submit this application just three months after having read out the top line results from our integument infant trial. This remarkable feat reflects the speed with which our team at Orcutis is moving on behalf of patients and our response to the high level of urgency shared by those HCPs who care for these youngest atopic dermatitis patients. This urgency to advance new and more effective therapies is driven by specific challenges in treating this infant patient population. The skin of young children is not fully developed, which can lead to increased systemic absorption of topical treatments like steroids. And these youngest patients also often present with more extensive disease than adolescents and adults. During the quarter, we also initiated two new trials, one in adults to better elucidate Zarif's impact on pruritus or itch. The trial is called Integument Itch, and it's based on the compelling data from the Integument Infant trial showing reductions in itch within 10 minutes of first application, and another to evaluate the impact of Xarev on nail psoriasis, a notoriously difficult-to-treat presentation of plaque psoriasis, often even failing systemic therapy, where we have seen some really exciting signals of Xarev efficacy in case reports. Now, turning to potential new indications for Xarev, we've now completed enrollment in our Phase II proof-of-concept trial in vitiligo, and we continue to enroll the Hydradenitis Superativa, or AHS, phase two proof of concept trials. We remain on track to provide a readout for the vitiligo trial and a decision on whether to advance the program in quarter four of this year. And we remain on track for a similar readout for our AHS program in quarter one of 2027. Now recall that in our AHS program, we have trials evaluating Zariv's safety and efficacy in AHS as well as a study looking at gene expression following Xareve treatment in HS patients. As we advance these Phase II vitiligo and HS studies, we also continue to evaluate other diseases for similar proof-of-concept studies, and we anticipate starting one or more additional proof-of-concept studies in the latter half of the year. During quarter two, we also initiated a trial evaluating the impact of Xareve cream 0.3% on cutaneous Thank you for joining us. of the broad potential applications of Xereve across inflammatory skin conditions. Turning lastly to ARQ234, our novel biologic targeting CD200R and the build pillar of our strategy. As Frank touched on earlier today, by targeting CD200R, which plays a central role in both innate and adaptive immunity, we believe ARQ234 has the potential to address the significant unbeneath for a systemic therapy for patients with moderate to severe atopic dermatitis. And given the unique mechanism of action, could be a compelling first-line therapy option as well as a treatment option for those who are refractory to IL-413 therapies. We've completed enrollment in the last cohort of healthy volunteers in the single ascending dose or SAD portion of the phase one trial for ARQ234. We've now begun enrolling atopic dermatitis patients into the final SAD cohorts, and we'll begin to enroll AD or atopic dermatitis patients in the multiple ascending dose or MAD portion of the trial. Following the MAD portion, we will complete a small proof of concept portion in atopic dermatitis patients as well. As I explained on our first quarter call, we'll not share results from this trial until it's completed, but we'll continue to update you as we progress through these different portions of the study. We also continue to evaluate external sources for innovation to further build out our innovative pipeline. And as Frank mentioned earlier, we're encouraged by the increased deal flow in the dermatology and I&I space. So turning now to slide 13. We introduced this slide at our R&D day last fall. It lays out the multiple characteristics therapy would need to not only compete with topical steroids in chronic inflammatory skin disease settings, but also to displace them. Zareev is arguably comparable to topical corticosteroids in efficacy and rapidity of onset, but as depicted here, it then exceeds the steroid benchmark in mechanism of action breath, safety and tolerability, and duration and location of use, with the degree of differentiation becoming increasingly pronounced across each dimension. Zareev's unique profile, coupled with increasing HCP appreciation of risk, associated with sustained topical corticosteroid use, as we've reviewed in depth previously, sets the foundation not only for substantial growth in our three inline indications, but also for potential expansion into a number of new indications. And I wanted to review this perspective on Zuri's profile today as important context for the broad set of clinical activities that we're pursuing. The breadth and ambition of our clinical pursuits are unmatched in the branded non-steroidal topical segment and are enabled by Zareev's unique therapeutic profile. And they further demonstrate why Zareev is uniquely positioned to displace topical corticosteroids at a moment when there is a growing degree of concern over the deleterious side effects of extended or inappropriate use of these aging drugs. And I'll now hand it over to Latha to review the financial results for this quarter.

Thank you, Patrick, and good afternoon, everyone. I'm on slide 15. In the second quarter, we generated net product revenues of $129.9 million, representing a 59% increase from the second quarter of 2025. This year-over-year increase was driven primarily by increased patient demand, as well as improvements in gross to net sales deductions. As anticipated, our gross to net in Q2 remained stable in the 50s. Cost of sales in the second quarter were $10.9 million, compared to $7.5 million in the second quarter of 2025 due to increasing Zareve sales volume. For the second quarter of 2026, our R&D expenses were relatively flat at $20.4 million versus $19.5 million for the corresponding period in 2025 as increased investments in medical affairs initiatives and clinical expense related to ARQ 234 were largely offset by reduced clinical costs related to the Integument Infant Trial in atopic dermatitis patients aged 3 to 24 months. SG&E expenses were $82.1 million for the second quarter of 2026, compared to $69.2 million in the same period last year, up 19% driven primarily by personnel costs, including our dermatology sales force expansion. We produced net income of $15 million for the quarter, as compared with a net loss of $15.9 million for the same period in 2025, as strong top-line growth continued to outpace expenses. While we may continue to generate positive net income in some quarters, our focus as an innovative biotech remains on investing to continue to drive top-line growth and advance our pipeline. Moving to slide 16, We ended the quarter with cash and marketable securities of $238.9 million as we produced positive cash flow from operating activities of $12.6 million for the period. We expect to maintain positive cash flow throughout the rest of the year. And as we have stated previously, we intend to continue to invest the capital we generate back into our business to inflect growth in 2027 and beyond. We have total debt of $101.9 million. As Frank announced at the beginning of today's call, we are increasing our full year 2026 net revenue guidance to be between $525 million and $540 million. This updated range contemplates the contribution of the new commercial initiatives Frank detailed today, as well as the continued strength of our core Zuri business. With that, I will now turn the call back to Frank for some final updates.

All right. Thanks, Latha. So we're also announcing today that Todd Edwards will resign from his role as Chief Commercial Officer at Arcutis to pursue other opportunities for personal reasons effective later this month. I want to thank Todd for his leadership over these last three years. He's helped to build the commercial infrastructure that has enabled Zareve's success to this point. and that will continue to serve as the basis of Zuri's continued growth. I'm also delighted to announce that Rob Lasecki will be stepping in as the interim chief commercial officer while we conduct a national search for a permanent CCO. Rob is a highly experienced biopharma executive with a career spanning 30 years in the industry. Most recently, Rob was the CEO at Zurabio and prior to that, he was chief commercial officer at Remina Pharmaceuticals until its acquisition by Pfizer in 2022. and before that he was CCO at Daiichi Sankyo USA. Rob and I have known each other for decades from our time together working on Enbrel and he brings a wealth of experience in leading best-in-class commercial teams in the inflammation and immunology space and in driving rapid sales expansion to build blockbuster franchises. The expertise that Rob will contribute to our commercial operation and our Acutis is well-timed as we drive towards a period of continued and increasing sales and collection for Zareeb in the near term. Q2 was yet another quarter of exceptionally strong execution by the Arcutus team. I am incredibly proud of the team and the dedication they demonstrate every day to advancing our mission, delivering value for shareholders and remaining steadfastly committed to the patients we are serving today and aim to serve in the future. In early June, Arcutus celebrated its 10th anniversary. What started out as three guys and an idea has blossomed into a powerhouse biotechnology company with four FDA approved products and a pipeline of promising programs and assets. More importantly, over the past decade, we have helped nearly a million people manage their chronic inflammatory disease, and we are poised to help millions more in the future. As I look back on the past decade, I am humbled by and deeply appreciative of the contributions of our team members, the dermatology clinicians who partnered with us, the patients who agreed to participate in our trials, and the investors who believed in us enough to entrust their money to us. I sincerely thank you. And with that, I'll open up the call to Q&A.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. And to withdraw your question, please press star 11 again. The first question will come from Seamus Fernandez with Guggenheim. Your line is open.

Oh, great. Thanks for the questions. So just wanted to start off, you know, the guidance raised, definitely impressive. Frank, take your point to not expect updates to the guidance every quarter. But just in terms of the momentum into the back half of the year, you know, where are you seeing the Thank you so much for joining us. You see incremental opportunities from the access point that you're opening up via telehealth. It seems like the telehealth opportunity could be quite substantial, but I guess we're all probably wondering where the price points are likely to end up on that front. And then just as it relates to Todd's resignation, I think we saw in the 8K that he's pursuing another opportunity away from Arcutis. But, you know, it seems like the team is extremely well built at this point. The strategy has worked effectively, and you're transitioning to an interim leader who's got a great background. You know, what is it that you're most focused on during this transition in particular?

James, thanks for your questions. So let me start with the first one. You know, frankly, we continue to see growth across the portfolio. You know, as you mentioned, the foam is our leading product. It is a really unique, highly differentiated acid. It's the only non-steroidal in a foam. You know, it effectively is the only foam available for doctors. It's very hard to get the topical foams these days. And I think it's been something that doctors and patients have responded to extremely well. But we see growth across the board. As you mentioned, the 0.05, it continues to grow very nicely. I think that speaks to the unmet need for good non-steroidals in younger kids. And I think it also points to the promise of 0.05 in the 3 to 24-month-olds if we get the approval in February, as we expect. So we would expect a continued growth across the portfolio in in the second half of the year, primarily driven by demand growth. We may see some marginal incremental improvements in gross to net, but I wouldn't expect anything dramatic given the strength of our gross to nets already at this point in the year. And I think as the year progresses, we're going to start seeing the impact of a variety of the initiatives that we've been talking about today. The DERM expansion I think we'll see kick in the second half of the year. I think it's probably too early for primary care, but I think in 27 we'll see that. On the telehealth front, I think the majority of these patients are going to have access to Zareve through their insurance coverage. And we've set up with the platform to allow patients to go that route. So this is not like some of the other offerings out there today where the patient has to pony up the money themselves to pay for the product, like, for example, the GLP-1s. Here, the doctor, it would be just like if the patient was going in the doctor's office and the doctor is diagnosing the patient, choosing a therapy, and if they choose Zareve, and they don't have to choose Zareve, but it's a great choice for all three of these diseases. If they choose Zareve, then that immediately kicks them into a work stream where we get the PA done, we get, you know, the insurance paying for the Zareve, and then we ship it to the patient. And so the The cost to the patient for Zareeb is no different than if they went to the dermatologist's office. Let's see. And then lastly, with regard to the transition, yeah, you know, Todd has built a very, very strong commercial leadership team. You know, I think just in the last six months, we've added Katie Swolsch to run the primary care effort. She's doing an outstanding job. We brought in Chris Klock from AbbVie to lead the sales team. So we have a really strong commercial team. I'm not the least bit worried about them managing our commercial performance through the transition. And Rob will be starting before Todd's departure so that there's a seamless transition between the two of them. And I couldn't think of a better person to be coming in and helping us, not only with Zuri, frankly, but with the pipeline as well, given Rob's background. And very excited to get to work with him again.

Great. Congrats. I'll jump back in the queue.

Thank you. And the next question will come from Tyler Van Buren with TD Cohen. Your line is open.

Hey, guys. Thank you, and congrats on the solid quarterly performance. A couple. First, just would it be reasonable to expect a similar quarter-over-quarter sales growth for this re-franchise in Q3 over Q2 as compared to Q2 over Q1 that we just saw? And then on Bitoligo, given the upcoming data next quarter right around the corner, Can you talk more about enrollment and the demand you guys have seen at sites and the demand for a topical option and specifically what data you want to see to move forward with this program and invest more?

Sure. Latha, you want to take the first one and then maybe Patrick, can you take the vitiligo question?

Yeah, I'll take it. Sorry, I had to unmute myself. Hey, Tyler, thanks for the question. We expect continued quarter-over-quarter growth in our net sales. I wouldn't anchor you to any of this current quarterly run rate. I think you should anchor to the initiatives that we outlined and with the guide that we've given and what we expect to happen in the quarter. I think you'll be able to piece your way into what will happen in the second half of the year. I want to kind of give you the answer to the question on the growth rates, but we do expect quarter over quarter net sales growth, Q3 versus Q2, and of course naturally Q4 versus Q3. And as Frank alluded to, we'll sort of moderate the growth to net improvement so everything will be volume and demand based.

Yeah, and I can pick up the vitiligo study.

So, you know, as we mentioned, the vitiligo trial is fully enrolled. We were really happy with the enrollment pace for that. Now keeping in mind that that was in pediatric patients as well that are oftentimes more difficult to

Thank you so much for joining us.

We think that we have in some ways really a superior product profile. We're talking about once a day dosing, eligible for adjunctive use. We anticipate that there will be some systemics that are going to be moving into this space as well, especially for the more severe patients. So that would be something that we would think would be advantageous. And then also no black box and then pricing. So these are a lot of the same features that make us very competitive in AD and our other indications as well. So we really feel like even if we have equivalents on efficacy and rate of onset, We're going to be very competitive here based on those factors. But what we're really looking for is superiority on either of these two axes, especially on speed of onset. And one of the reasons to potentially believe that is the PD-4 mechanism of action being based both on anti-inflammatory as well as potentially working directly on melanocytes. and the fact that the mechanism of action, we've really seen some brisk responses based on being able to have such a potent PD-4 inhibitor. So the rate of effect is someplace that we're also optimistic, but we'll have to obviously see those results when we come in at the end of the year with the readout for that.

Thank you. And the next question is going to come from Judah Frommer with Morgan Stanley, your line's open.

Yeah, hi guys, congrats on the quarter and thanks for taking the questions. Maybe could you provide a little more color on some trends within share of the branded topical nonsteroyal class, maybe specifically on new-to-brand trends that you're seeing and then separately just curious on enrollment trends for the 234 trial, obviously Thank you.

So, you know, with regard to trends and share, you know, Zareef continues to be the leading brand and non-stroid on the market, hovering just shy of 50% market share. And so, you know, Zareef is the primary product driving the growth of the class. and those are, as we talked about before, patients who are coming over from topical steroids. I think we've really just scratched the surface, and if anything, given the discussions in dermatology, that trend's likely to accelerate going forward. On the new-to-brand data, off the top of my head, I don't wanna misspoke speak, so I don't have those numbers right at my fingertips, but clearly, is doing very well competitively versus the other brand of non-steroidals, and we expect that to continue. And then with regard to the enrollment trends, Patrick, again, could you maybe address that?

Yeah, absolutely. So just to remind, for 234, you know, we're exiting the healthy volunteer section of our single ascending dose, and we have a couple of cohorts that are of the single dose that are actually in atopic dermatitis. but otherwise healthy patients who also have atopic dermatitis and so we're moving into those AD cohorts and then we're also going to be initiating recruitment into the first multiple ascending dose and those are all in atopic dermatitis patients. So we don't have any experience yet from this trial in enrolling atopic dermatitis patients but I agree with your point that especially with the departure of OX40 from Thank you.

and the next question will come from Oyer with Mizuho. Your line is open.

Hey guys, yeah, thanks for taking our question. Maybe just help us understand about the change in growth and that a little bit. I just want to make sure I understood you guys correctly.

I'm sorry, could you say that one more time? I didn't catch your question.

Yeah, I just wanted to see if you can help us understand The change in gross net a little bit as we go from this quarter to the Q3 and Q4. I guess in the first quarter you were saying to expect gross net to go to the low 50s towards the end of the year. Is that still the case or is it more steady now? And my second question is, Could you maybe elaborate a little more on the initiation of the PD-L1 study, side effect study? Like, when do you expect it to finish, and what's the, is it sort of a go-to, is there going to be a go-to decision to move into phase three, or is it a study where you can publish and use the data to help with adoption? Thanks. Okay.

All right. Thanks, Eric. Yeah, so Latha, you want to maybe take the gross-to-net question on our view on gross-to-net for the rest of the year, and then Patrick, can you talk a little bit more about the PDL ones today?

Okay, so we do expect the gross-to-net to be in the 50s throughout the year and titrate down to the low 50s, as we've said. We just think that the level of improvement will moderate. We started from a point that was lower than last year, even though it was in the higher 50s, and I'm sure your math will show you the improvement that we experienced in Q2. So there'll be some improvement in Q3 and Q4, not to the degree of last year, but it will come down to the low 50s. Okay.

Thanks, that was helpful.

Yeah, and then just to kind of give a little more context to this study, I think your question really is on point with trying to understand what we're looking for here. We really see this not as necessarily a full development program, but really more of a way to create some data that can be helpful in order to ensure that patients may have access to this because there will be some data that will be published that will be out there. and we'll give them another option. A lot of these patients are going directly into topical steroids as first line and then they may need to be on them for many years. So I think having additional data really for this patient population to keep them from having to abandon a therapy that is usually working for them, it's really just about publishing, getting access to it and not necessarily a full development program. And so the timing of the study is one that will obviously keep you posted as we get further into it, but it's just getting started now.

Okay.

Thank you.

Thank you. And the next question will come from Andrew Tsai with Jefferies. Your line is open.

Hey, good afternoon and congrats on the quarter. This is Matt Barkas on for Andrew Tsai at Jefferies. And I just wanted to follow up on the revised guidance. Can you fundamentally talk about some of the push-pulls behind the continued growth and acceleration? And then are you aware of any other investigator-sponsored or independent studies with Tareev that could be starting out over the next year? And then if so, can you just talk about the market opportunities there for each of those indications?

Thanks for the question, Matt. So with regard to the first question, I think that in the second half of the year, the primary driver of growth is going to be growth in prescriptions. As Latha just mentioned, we do expect to see some improvement in growth synapse in Q3 and Q4, but probably moderated compared to what we saw in Q1 and Q2 and not being the major driver of growth. And that demand growth is going to likely be a combination of the momentum that we already have generated, and then the impact of a number of the commercial demand drivers that we've rolled out, like the Salesforce expansion, the continued DTC efforts, the virtual health platform that we just announced. All of these things are really synergizing to help us continue to drive the prescription growth for Zareef. And then on your second question with regard to IITs, So we don't actually support a lot of investigator-initiated trials at our QDIS. The IIT process is pretty clunky, to be quite honest. And our preference is to do what are referred to as collaborative research studies where the company is able to work with the investigators. And a number of the studies that we mentioned, including the vitiligo trial, the HS trials, the nail psoriasis trial, and the PD-L1 trial that Patrick was just mentioning. Those are all collaborative research studies. As I mentioned earlier in my comments, we continue to explore other opportunities, other potential indications, and I think it's likely that we'll start at least one more of these proof of concept studies this year for another indication, maybe more. We have more options probably than we have resources, with 47 diseases having some efficacy data. And we're not going to pursue all of them either. But I do think you'll probably see one or more start this year. And we very well may start some additional studies next year as well. These are really cost and time efficient ways for us to get an evaluation of a potential indication and then enable us to make an informed decision about whether we want to actually pursue a large registrational study for that indication. Patrick, I don't know, any additional comments that you would want to add on that part?

No, I think that covers it, Frank. Thanks. I appreciate it. Thank you.

Thank you. And our next question will come from Serge Ballinger with Needham. Your line's open.

Hi. Good afternoon, and congrats on the nice quarter. First couple questions around the virtual health platform efforts. Are you trying to target a different set of patients than what you're currently able to access? And will you be able to drive patients to this platform via DTC efforts? And then secondly, I was going to ask, I believe I read that you were granted a couple new patents. I hope that was yours. from your press release and not another one I read in the last hour, but just curious how it enhances the Zori Pat portfolio and whether those new patents are legible for the Orange Book, let's think.

Yeah, okay. So with regard to your first question, yes, I do think of it as a different set of patients, right? The bulk of the patients that we're picking up today, really almost all of them, right, are patients who have already been seen by a dermatologist and are coming in for a refill or an annual checkup or in many cases they're flaring because their existing therapy isn't working and the doctor is looking to do something different for those patients. But that's a patient that is already in the dermatology care system and has access to a dermatologist because they have an appointment. The advantage of the virtual health platform is Where I live, it's a six-month wait to see a dermatologist. Even if you're in an acute situation, I had shingles a number of years ago, and it was going to be a month before I could see a dermatologist. When you have an urgent acute problem, you want to see someone that day or the next day. That's just not practical in many places in the United States because of the mismatch between supply and demand of dermatology specialist care. There are also a lot of places in the country that just don't have dermatologists, right? For example, Patrick and I were in Roswell, New Mexico a couple of years ago. There isn't a dermatologist in 250 miles. So for those patients, they just don't have that option to see a dermatologist. So we think that the virtual health platform is really gonna compliment the patients who are already seeing a dermatologist by allowing patients who don't have access to a dermatologist either because of scheduling or geography to see a dermatologist that day. And yes, to your earlier question, absolutely we think direct-to-consumer is an important driver here. If you think about it, a patient sees an interview with Tori or Max Homa, they have the disease as well and they think, gee, I want to look into this more. They can go right to our website. There's a click right on the homepage. You click on it and it pulls you straight into the platform where the dermatologist sits and the patient is able to schedule a visit with the dermatologist right then and there. So we think this is an important expansion of the opportunity set for Zareve, particularly, again, given some of the idiosyncrasies of dermatology in the United States. And then on the new patents, Yeah, so there are two new patents that cover. One is the formulation, and the other one is method of use. I can't say definitively, but it's likely that they are Orange Book listable. We have a very, very strong patent position around all of the Zarih formulations. We have, I think, 18 patents listed in the Orange Book at the moment. So, you know, we continue to incrementally strengthen our IP portfolio. You know, these aren't dramatically differentiated. They don't change the loss of exclusivity timelines of 37 for the cream and 42 for the foam. But, you know, we're always looking to strengthen that already strong, very IP portfolio. And these two patents are just the product of that overall effort. Thank you.

Thank you. And the next question is going to come from Douglas Sal with HC Wainwright. Your line is open.

Hi, good afternoon. Thanks for taking the questions. Just following up on the telehealth initiative. I'm just curious, Frank, sort of what the conversion rate from an initial online intake to a prescription for Zorii, are patients still needing to sort of sometimes maybe do some kind of step at it or have they typically gone through that already? And have you seen evidence of patients sort of maybe going through sort of initial intake, maybe having, because of their plan, needing to try a TCS and then coming back to ultimately still get a SCRIPT, FOS, or a REEF?

Sure, yeah, thanks Dennis. Great question. You know, it's still very early days, right? So, you know, I think we will have to see over time what kinds of patients flow into the system. and what happens. But, you know, I think a couple of points. The first one, again, is when the doctor, when the dermatologist is evaluating the patient, the dermatologist can choose any therapy for that patient. It doesn't have to be Zareve, obviously, right? We think Zareve is a great choice, but it doesn't have to be. And if the patient has something other than one of our approved indications, they're obviously going to get something else as well. You know, many, many patients are on a topical steroid or have used a topical steroid before and I would expect that many of the patients that come into the telehealth platform will have been on a prior topical steroid and are looking for a non-steroidal alternative. Maybe they've heard, again, Max or Stella or Tori talk about their experiences and their frustrations. Maybe they're afraid of topical steroids based on what they've read about topical steroid risks and they want to look for something different. So I think that many of the patients coming in are likely to have to have already been on a topical steroid. And as I mentioned, we have the infrastructure in place to provide the insurance and fulfillment support for these telehealth patients that compares very favorably to what they would see if they went to a dermatologist's office. And so we're really looking at how we streamline this process, whether you're seeing a dermatologist in person or you're seeing them online. I think it's possible that some of the patients may end up needing to step through another product if they're a new-onset patient. But even in that scenario, with the issues related to topical steroids, those patients are likely to be coming back in the not-too-distant future to get Zareeb after they've met the step requirement.

Okay, great. That's really helpful.

Thank you. And the next question will come from Richard Law with Goldman Sachs. Your line is open.

Hi, everyone. This is Kalani Usman. I'm for Rich. Thanks for taking our questions. The first one on the commercial front, as you guys think about launching the PCP and the pediatric sales team for Zareve in the coming months, how many patients do you believe are not adequately referred to dermatologists from the PCP than pediatricians? So in other words, about how many patients do you think would be served by that new sales force?

Sure. Yeah, very good question. So we know that about half of all patients with psoriasis, AD, and seb derm are not seen by a dermatologist. That's very well established in the data. The majority of those patients are being seen by either a primary care doctor or a pediatrician. That's leaving aside patients who are not currently being actively treated. We don't really look at those patients because It's always difficult to mobilize patients who aren't in the system. But of patients currently receiving prescription therapy, about half of those patients are seen by non-dermatologists, the overwhelming majority being primary care and pediatricians. With this initial sales force, we're only calling on a fairly small chunk of the primary care and pediatric community. As I mentioned in my prepared remarks earlier, we are focusing on very high volume doctors who have a proclivity to adopt new therapies. And in some cases, doctors who've actually written Zareve already. And we think that's where we're gonna get the fastest initial traction. And then as we evaluate and fine tune our approach and get a sense of the return on investment from the primary care initiative, we'll evaluate how large this primary care sales force should be, how far into primary care and pediatrics we reach. and that may evolve over time just as it did with the dermatology sales team as well. But early on, we're going to be focusing on a small piece of a very large pie. One of the statistics that we shared on a prior quarterly call is that there's something like 500,000 primary care providers in the United States. This is a massive number. And we're not going after 500,000 providers, obviously. But it turns out that there are about 5% of those primary care doctors and pediatricians. So about 25,000 doctors, right? A third of all the topical scripts that come out of primary care and pediatrics. So there's a very, very rich vein of potential in the primary care and pediatric community of highly concentrated, higher volume doctors. And that's really where we're going to be focusing our efforts initially and as we expand.

Okay, really helpful. Thank you. and then one more on atopic dermatitis specifically. How will the potential approval of Zareve in the infants, the three to 24 months, expand that market opportunity? And what types of pre-launch activities, if any, are you guys pursuing to support a strong uptake in that setting?

Yeah, so we think it's going to be a very important catalyst. You know, there are about a million patients in that age group, the three to 24 months, that have atopic dermatitis. So it's a large market. and the only things approved right now for three to 24 month olds are six of the topical steroids are approved in that age group and Eucrisa is approved in that age group and that's it. So doctors are either having to treat patients, these infants off label or they're having to use one of those seven drugs that's approved. And I think that's really why we're seeing so much excitement from the, especially the pediatric dermatology community They don't have very many options. They don't have good options, especially non-steroidal. And, you know, they've all used Zareve already, and they know how good it is, and they're very excited to be able to use it in this very young population. And, you know, and Patrick can speak to this too, but the concerns around steroids, you know, there's concerns around steroids for every patient, but they're particularly acute in this 3- to 24-month population. No parent wants to put their kid on steroids, quite honestly, right? Patrick Burnett, Latha Vairavan,

and I think the best place to see this is in the pediatric dermatology community. And Frank, I know you were just at the Society for PDerm meeting and even going back last year when we were there, there was already tremendous awareness of this study going on even before we had the data and an interest in getting it to their patients because of these very few treatment options that Frank outlined. So now having the data out there, having it already been presented at the AAD, The activities that we have are really sitting within the medical affairs team and just kind of reacting to a lot of the questions and interest in what do our data show, how is this similar or different to what we have with the ages two and above, particularly in atopic dermatitis, and just really making sure that everybody is getting their questions answered as we kind of prepare and move towards that launch in the beginning of next year.

Make sense. Thank you.

Thank you. I show no further questions in the queue at this time. I will now turn the call back to Frank for closing remarks.

Okay. Before I close, this is real-time service here. Serge, I have an answer to your question and a correction. I must state we have 28 patents, not 18 patents on Zareef. Mas, our general counsel, corrected me. And he did confirm that both of these new patents are also Orange Book listable. So I wanted to clarify that. So yeah, listen, another great quarter. Really appreciate everyone taking your time to call in today. I know it's a very, very busy time of the year with everyone doing quarterly results, and we appreciate your time and attention and all the great questions. And we look forward to talking to everyone again at the Q3 call. Thanks. Bye-bye.

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