Arcutis at Needham Conference: Strategic Growth in Dermatology

On Tuesday, 08 April 2025, Arcutis Biotherapeutics (NASDAQ: ARQT) presented at the 24th Annual Needham Virtual Healthcare Conference. The company outlined its strategic focus on expanding its dermatology portfolio with new products and partnerships, while addressing potential challenges such as patent litigation and market competition. Arcutis remains optimistic about achieving revenue targets and cash flow breakeven by 2026.

Key Takeaways

• Arcutis expects to achieve cash flow breakeven by 2026, with revenue projections of $305 million in 2025.
• The company is expanding insurance coverage and converting patients from topical steroids to nonsteroidals.
• Upcoming PDUFA dates for new indications could drive growth in psoriasis and eczema treatments.
• Arcutis is advancing its pipeline with new studies and partnerships, particularly with Koa for primary care outreach.
• U.S.-based manufacturing minimizes potential impact from pharmaceutical tariffs.

Financial Results

• Revenue Expectations: Arcutis is aligned with the consensus revenue estimate of $305 million for 2025.
• Profitability: The company anticipates reaching cash flow breakeven by 2026.
• Debt Management: Arcutis has renegotiated its debt to allow flexible repayment and redrawing options until mid-2026.
• Gross to Net: The company maintains a steady gross to net ratio in the low fifties percentage range.

Operational Updates

• Product Launches: Recent launches include a foam for seborrheic dermatitis and a cream for eczema, contributing to growth.
• Insurance Coverage: Significant progress in expanding Medicaid coverage, with 50% of Medicaid lives now having access to Zoryv.
• Sales Force: Arcutis has a robust dermatology sales force, complemented by Koa's 220-rep primary care team.
• Manufacturing: U.S.-based manufacturing reduces exposure to potential tariffs.

Future Outlook

• Growth Drivers: Key drivers include new indications for scalp and body psoriasis and atopic dermatitis in younger patients.
• Pipeline Development: Upcoming phase 1 study results for ARQ-255 and IND opening for a new biologic.
• Strategic Priorities: Focus on shifting market preference from topical steroids to nonsteroidals like Zoryv.

Q&A Highlights

• FDA Changes: Arcutis expects on-time FDA decisions for upcoming product approvals.
• Patent Litigation: The company has agreements in place to stay patent litigation, preserving its patent protection.
• Koa Partnership: The partnership with Koa is seen as pivotal due to their established sales force and focus on Zoryv.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call.

Full transcript - 24th Annual Needham Virtual Healthcare Conference:

Serge Belanger, Healthcare Analyst, Needham: Hi. Good morning. Welcome to Needham's, twenty fourth annual, health care conference. I'm Serge Belanger, one of the health care analysts at Needham. And, we're happy to have, Arcudis Biotherapeutics for our next fireside chat session.

So from Arcudis, we have the the company's CEO, Frank Watanabe, as well as the company's, CFO, David Topper. Just wanna highlight that we do have the ability to take questions from the audience. For those listening in on the on the portal, you can submit questions on that portal. We'll take them as they come in. So I'll hand it over to to Frank and David if they wanna give us a a quick overview of the company, and then we'll, we'll jump in some some q and a.

Sure.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Thanks, Serge. So Arcutis is a commercial stage biotherapeutics company focused in the medical dermatology space. For those of you who aren't following story, we currently have three FDA approved products. We've got a cream that's approved for the treatment of plaque psoriasis. It's been on the market for about two and a half years.

We have a foam for seborrheic dermatitis that was approved just a little over a year ago, and then we have a cream for eczema or atopic dermatitis that was approved last summer. As you mentioned, we have a well, before we're talking, we have a couple of of key regulatory, decisions coming up. We have a PDUFA for our foam in scalp and body psoriasis, that's scheduled for an action date of May 22. And then we have another approval for eczema in a younger population with a PDUFA date in mid October. We, have our own specialty sales force, sell to dermatology clinicians.

We also have a partner who sells in primary care and pediatrics for us. That's a deal we did last year. And, you know, product is performing very, very well, growing nicely. It's the leading, branded topical nonsteroidal anti inflammatory agent, in The United States. And and we have communicated that we're in a very strong position capital wise and don't anticipate the need, at least, for our existing business to to raise capital in the future.

And David, I'm sure, can comment more later about our financial position.

Serge Belanger, Healthcare Analyst, Needham: Great. Thanks for the overview. So wanted to to start with some, I guess, some recent developments. Some of them have been probably de topic du jour tariffs. I know pharmaceutical products have so far been exempted, but I think the the wide consensus is that it's temporary.

So, you know, just curious, you know, what would be your exposure if we were to see some pharmaceutical, tariffs? Well, I, know, I think it it will depend on the details of what the tariff looks like.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Sure. But but, you know, we we anticipate that it would have really minimal impact on Arcutis. We do the majority of our manufacturing in The United States, and we have pharma like cost of goods sold. So we we're not anticipating a a major impact on us from, from any potential future tariffs.

Serge Belanger, Healthcare Analyst, Needham: Okay. And then the the other item related to, to our government, is is f the FDA. There's been some some key changes at the FDA over the last few weeks here. Like you mentioned, you do have a upcoming PDUFA. You know, just curious if there's been some changes at the division, the FDA that is reviewing this, this NDA.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. So at this point, we're not aware of, of the changes having had any impact on at least our division. You know, folks may be aware that, CBER and CEDAR have been largely shielded, from the reductions, partially because, you know, most of that those budgets are paid for out of PDUFA user fees. But I I think there are certainly the risks that going forward, we could see the departure, particularly of experienced, FDA leadership, given some of the turmoil at at the agency. As far as, impact on us, we have not seen any signs, that there's any slippage in our timelines.

Certainly, I think given how late we are in the review cycle for, Reflumelast foam for for scalp psoriasis, Xerifoam for scalp psoriasis, I I'm not anticipating that should have any impact. So we we expect an on time decision from them in May.

Serge Belanger, Healthcare Analyst, Needham: Okay. Good news. And then, maybe the most recent development pertaining to to Arcudis is the it was late last week. You entered into an agreement with, your generic filer. It stayed all of the, patent litigation.

So maybe just give us a description of that agreement and what it entails.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Sure. So, yes, the the other party in that litigation, who had filed an ANDA against Sariv, came to us, I guess it's it's almost two weeks ago, and requested that we stay that process. They appear to have run into some significant challenges along the way with their, with their effort, and, and did not want to continue the litigation at this point. And after some discussion, we agreed to that stay. You know, I think really importantly, under Hatch Waxman, as you're probably aware, Serge, the first to file, you know, has this, period of exclusivity.

And in return, the the originator has can file a lawsuit, and there's a thirty month stay for the FDA. They they can't approve the originator or the generic product during that thirty month stay. That clock has been ticking, and we burn off about thirteen months of that thirty months. As part of the agreement, the other party had to agree that we have preserved our remaining stay. So if the lawsuit should start back up again, we would be able to enjoy the remaining seventeen months of that stay to to litigate the case against them.

You know, I think the most important thing, though, is that we continue to believe that we have very, very strong, patent protection on Xeriv, across, you know, the formulation, the pharmacokinetics, and the usage of the product. You know, we had filed this lawsuit to enforce those patents. And should they or another company try and genericize the reef, we intend to fully enforce, our intellectual property rights, and and, you know, I I feel very confident that we will prevail if if we have to do that.

David Topper, CFO, Arcutis Biotherapeutics: Yeah. And Sure. I'll just add that there there were a number of people that asked us last week when they saw the announcement. They they assumed that this meant we were in settlement talks, so that is not correct. We are not, and we don't have any current intention to.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. Good good point, David. Yeah.

Serge Belanger, Healthcare Analyst, Needham: And I don't know if you can comment, but the the difficulty the the other party encountered, was it at the the litigation level or is more the regulatory level with FDA?

Frank Watanabe, CEO, Arcutis Biotherapeutics: I well, I, you know, I I can't really comment on the nature of their problem. You know, you have to talk to to them, but I Yeah. Must have been a fairly significant problem, I

Serge Belanger, Healthcare Analyst, Needham: would say.

David Topper, CFO, Arcutis Biotherapeutics: Well, I mean, just look at some of the, circumstantial evidence. Right? They filed their end originally in January of twenty four, PDUFA takes ten months. Yeah. Nothing happened.

So Okay. Something's going on.

Serge Belanger, Healthcare Analyst, Needham: Yeah. So could their ANDA remains under review here FDA as far as

Frank Watanabe, CEO, Arcutis Biotherapeutics: Again, you'd have to you'd have to talk with them. I we don't know the exact status. You know, I think importantly, though, under the agreement, and this was in the press release, any communications they have to be have with the FDA, they would have to share that with us so we have a good, bearing on what's happening going

David Topper, CFO, Arcutis Biotherapeutics: forward. Yeah.

Serge Belanger, Healthcare Analyst, Needham: Perfect. Alright. So let's talk about the about Zoriv. Twenty twenty four was pretty transformational for the company. We saw sales really seeing uptick.

I think the Sept derm launch was was a a big factor. So maybe, talk about your expectations for 2025 and what should be the drivers and maybe as part of that, what kind of, if there's any seasonality in the quarters that we should be looking for?

Frank Watanabe, CEO, Arcutis Biotherapeutics: Sure. So, yeah, 2024 was a a really transformational year. I know that word gets thrown around a lot, but, I would argue that that it really does apply to 2024 at Arcutis. You know, clearly, the foam was a major driver, of our growth. We had, you know, a vertiginous launch, I think, is probably the best way to describe it in the first quarter.

But in addition to that, you know, we saw a very strong growth of the underlying the original plaque psoriasis business throughout the year. And then with the launch of atopic dermatitis in in the summer, you know, that that product has also grown very nicely, through the back half of 2024, and we see that continuing trend going into 2025. You know, we're seeing good growth, across the board, all three SKUs as you all can see in the weekly data. And and, you know, I think for 2025, you know, certainly, there's the the launch in scalp and body psoriasis, which I think is an underappreciated opportunity. And that's almost almost half of psoriasis patients have involvement of their scalp.

And I think folks have seen with seborrheic dermatitis just how how differentiated that product is in the marketplace. The same thing is true in scalp psoriasis. Right? There really aren't, good alternatives, and there are no nonsteroidal alternatives to Xerifoam. So I think that'll be another important catalyst for growth.

And then the back half of the year, with the launch in atopic dermatitis in ages two to five, I think that will also be a contributor to growth. On top of the underlying business in those two launches, we have continued, growth in our insurance coverage, particularly in the government sector. Right? And we've been making a lot of very rapid progress on Medicaid, and, and we expect that to continue. And, and we continue to be very hopeful about getting Medicare coverage maybe starting this year as well.

Inflation the inflation reduction act and the changes in part part b have slowed the rate of change in part d, but we still think that we have a very compelling argument for the Part d plans. And then lastly, I think the other, factor that's gonna be important going forward is, you know, the conversion from topical steroids to nonsteroidals. You know, the topical steroid market is still 16 times bigger than the branded nonsteroidal market. And we are seeing, I think, gathering momentum in the dermatology community, amongst dermatology clinicians themselves talking about the need to move away from topical steroids. I I think there have been three or four articles just since January 1 in the in the medical press talking about the risks of topical steroids and need to to move over.

And as that pace accelerates, you know, Zareve is really positioned to be the primary beneficiary since we're the leading branded nonsteroidal in the market.

Serge Belanger, Healthcare Analyst, Needham: Okay. And and when we think about converting from topical steroids, that's basically the focus whether we're talking about psoriasis, atopic dermatitis, or or sept derm. Yep. Is that the right way to think about it? And and I guess, like, how how do you drive that?

Is that a physician driven decision, or you can also push the patients to demand for it?

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. So, so first of all, it is across all three indications. Topical steroids are the standard of care in each each of the three indications, and the majority of patients are on a topical steroid for each of those three diseases. So and in terms of where the impetus is gonna come from, it's probably gonna be a combination of both physicians and patients. There certainly is a great deal of steroid phobia, amongst the patient population, and we hear frequently from doctors that patients are hesitant to use topical steroids.

I think that's particularly true in, in the atopic dermatitis, community. But also, you know, in seborrheic dermatitis, it, you know, often occurs on the face, that's an area that people are very worried So there is the the push from the patient side. But I do think it's important that we're seeing dermatologists themselves saying to each other, guys, we really need to rethink, you know, what how we're using topical steroids. You know, you can see how they got where they were. Right?

You know, one of my favorite expressions is when all you have is a hammer, everything looks like a nail. Well, for seventy years, steroids were really the only thing that they had that were effective topical agents in treating these diseases. Right? There were other alternatives, but they really weren't very effective. They weren't very well tolerated, and so they kept going back to their topical steroids.

Now they have several very good choices, that are, you know, on par in terms of efficacy and far safer, you know, particularly in the case of Xeriv, safer for chronic use and and safe for use anywhere in the body. That's a a game changing value proposition in dermatology. And what we hear the dermatologist saying is, you know, steroids are are okay for these short periods of use, but we really need to get away from chronically managing our patients with steroids and thinking about Xeriv and the other nonsteroidals as the as the long term treatment plan for the majority of their patients.

Serge Belanger, Healthcare Analyst, Needham: K. And and is the path to achieving this, basically, you said, expanding access, make it making prescribing easy and and raising awareness of how easy it is, and that's how you get to to them to start changing their practices?

Frank Watanabe, CEO, Arcutis Biotherapeutics: I think the ease of use is certainly a factor. You know, I I think that, one of the things that that has made it difficult in the past to displace topic spirits is also just the force of habit. Right? You know, if you do something 30 times a day for your entire career, it's a pretty ingrained habit. We we believe, and we have some good evidence, that, you know, one of the the key dynamics supporting Zariv is getting doctors to write it regularly where Zariv becomes a habit.

You know, one thing I think that that I find very interesting is we we can see in the data if the doctor writes Zuriev for a single indication, they write, you know, a a given level, depends on the doctor. If they write for two indications, they don't write twice as much Zuriev. They write three times as much Zuriev. And if they write all three indications, they don't write three times as much as a REEV. They write 10 times as much as a REEV in total.

Right? So there's this, our chief commercial officer calls it a portfolio effect, right, where the more you use a REEV, the more you use a REEV. And and, you know, that's probably because it becomes part of habit. And as you said, you know, they rec doctors recognize that it's relatively easy to get as well, and and, you know, that can, have a a power in and of itself.

Serge Belanger, Healthcare Analyst, Needham: Yeah. And can you give us an update on where the Salesforce currently stands in terms of how many reps and, you know, when's the last time it was expanded and Yep. Yep. What is the scalability of it?

Frank Watanabe, CEO, Arcutis Biotherapeutics: We we expanded the Salesforce, contemporaneous with the atopic dermatitis launch last summer. It was slightly before, but, you know, effectively, it was contemporaneous with that. We're now a 40 sales reps in in dermatology. That gives us very good coverage. We cover 90% of the prescribing volume in dermatology, not 90% of the doctors.

Right? 90% prescribing volume. There are a lot of doctors that are very, very low volume that we don't, we don't call on, but we're covering 90% of that business. So we think it's a right sized sales force. You know, it it's very comparable to other dermatology sales forces, even some of the large, pharma companies that are selling biologics in the space.

So I don't see a need to expand it in dermatology. And then in addition to our 40 reps, just as a reminder, our partner Koa has another 220 reps in the primary care and pediatric space, starting, you know, promotion of Xeriv in in, that therapeutic setting as well.

Serge Belanger, Healthcare Analyst, Needham: Okay. So I had a couple questions on Koa. I don't think a lot of people know about Koa, and it's not that familiar of a of a company for for a lot of people. So maybe just talk about who they are and what their capabilities are and why they were chosen over Yep. Maybe somebody that would be more familiar to Yep.

Investors.

Frank Watanabe, CEO, Arcutis Biotherapeutics: So, I'll start out with with why they were chosen. So when we went out to look for primary care partner, we were looking for three key things. The first one is they needed to have a primary care Salesforce. Right? You know, that that we weren't looking to build a Salesforce.

We were looking at to rent a an existing Salesforce. The second, and this was really important, we needed a a company that had a high priority position that they were willing to put Zareve into. Right? So for example, you know, Lilly and Novo both have primary care Salesforce's. You know, I wouldn't have been first position or second position or third position or fourth position behind, you know, the likes of Mounjaro or or, or Zepbound.

Right? The so they have big prior care sales forces, but they don't have the capacity to to promote my product. And then third one is, ideally, we were looking for someone who had been in partnerships, collaborations like this before. You know, there there are certain idiosyncrasies, let's say, to co promotes, and we wanted someone who's had some experience doing co promotes. So, you know, we scanned the the landscape, and we settled on Coa as as meeting all three of those criteria.

You know, they had an existing primary care sales force. They were willing and able to put Zareep in the first position in that sales force, which is a big win, I think, for us. And they have had a track record of co promote deals in the past, that have been very successful. So, Koa America, which is the group that we're working with, is The US division of a big Japanese drug company called Koa Pharmaceuticals out of Japan. And, they built this organization to promote, Koa's statin, which was called Livolo.

It well, it is called Livolo. It is, it's now generic. It went generic, I think, about a year ago, a little over a year ago. But they were also promoting, a, a cardiovascular drug for AstraZeneca, and they were promoting another cardiovascular drug for, Amarin. So two promotion co promotion deals, that were very successful, and both of those have also now ended.

And so they had the capacity and the flexibility to pivot their organization, focus on primary care and pediatrics, which is, you know, obviously slightly different than who you're gonna target for a cardiovascular drug, and they give us that first position detail.

Serge Belanger, Healthcare Analyst, Needham: Right.

David Topper, CFO, Arcutis Biotherapeutics: And sir sir, just so you know, COA is a private company. It's very large, but it's private, which is probably why a lot of people don't know much about it.

Serge Belanger, Healthcare Analyst, Needham: Yep. Correct. So I think you entered the deal last fall, early fall.

Frank Watanabe, CEO, Arcutis Biotherapeutics: I think we signed the deal during the summer. They started promoting late, very, very end of q three beginning q four.

Serge Belanger, Healthcare Analyst, Needham: Okay. So we should start seeing the impacts in 2025 as we Yeah. I I

Frank Watanabe, CEO, Arcutis Biotherapeutics: think we will start seeing some some growing contribution from them as the year progresses. And, you know, I think as it becomes a meaningful number, we certainly will let, let investors know what portion of it is is, coming from primary care and pediatrics. You know, like, like the psoriasis launch, right, Koa is is introducing, in some cases, themselves, you know, to to the physician, and then they're also introducing Xeriv. And and, you know, that just it's a longer selling cycle when you first introduce a drug versus, you know, seborrheic dermatitis or eczema or scalp psoriasis where we're building on all this positive experience of Xeriv and and, of Arcutis and knowledge already. Right?

It's much easier to launch second, third, fourth, indications or products after you've launched the first. So, you know, it's it's just taking them some time to get doctors up to speed on Zor even to get them start writing it. But, you know, we are seeing scripts coming through.

Serge Belanger, Healthcare Analyst, Needham: Okay. And I forget if you've disclosed this, but, the the economic arrangements between, Arcutis and Coa?

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. We we haven't, we haven't disclosed the the specific terms. We will be reporting, you know, the the, commission that we pay to them, as part of our s g and a. And, I I think, you know, as it becomes a meaningful number, we'll need to provide more color to Wall Street about how much of it is is the the COA commission.

Serge Belanger, Healthcare Analyst, Needham: Got it. Okay. I guess next is just how, you know, based on what you've seen so far, how how is the product being used? You mentioned earlier you're trying to convert the topical steroid scripts, but are you seeing, specific usage in more moderates or severe patients? And

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. I you know, I, so in in in psoriasis and subderm, right, we we have indications across the board. In atopic dermatitis, we're actually only indicated for mild to moderate because that's what we studied. But I think, certainly in psoriasis and atopic dermatitis, for severe patients, there are good systemic options, and most of those superior patients are gonna go on a systemic option. Right?

You know, the IL 17, IL 23, IL four, IL 13, antibodies. And then in many cases, the patients will use a topical adjunctively to their systemic therapy. So, you know, the the use cases we're seeing is either adjunct to systemics, mostly biologics, or monotherapy for the more mild to moderate patients. Seb derma is a little different because there isn't a biologic, and we're head and shoulders, pun intended, better than the alternatives. And so, you know, that that's being used first line monotherapy or, you know, sometimes with ketoconazole, you know, for really for every patient.

It it is I think it it will redefine the standard of care in in seborrheic dermatitis.

Serge Belanger, Healthcare Analyst, Needham: Okay. And is the, the usage of how many tubes and and things like that kind of starting to show up for each of the indication?

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. Yeah. And, you know, we're getting particularly for, psoriasis and for subderm, you know, we have enough data now where I think, we can say with some confidence that our estimates are are, correct. You know, patients are consuming somewhere around two tubes a year on average. And, you know, that's consistent with if you look at the script data, about half of our business for, psoriasis and a a real rapidly growing number, of our business for for Sept Derm as well is is refills.

Right? So that would be consistent with, the pattern you're seeing where, you know, patients are using about two tubes a year. So I think that speaks well to compliance as what we had anticipated, and, you know, it's meeting our expectations.

Serge Belanger, Healthcare Analyst, Needham: Got it. And I I think another large focus for 2024 is on expanding coverage of Zoriva, both possible commercial and the government coverage programs. Is, Chris, where we're at start you know, for 2021?

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. So, for psoriasis and seborrheic dermatitis, on the commercial front, you know, we're 80% commercial live coverage. That's that's very good coverage. You know, that last remaining 20% sometimes can get expensive, so I don't know how much more we'll chip away at that. We're very happy with where we are commercially.

Atopic dermatitis, you know, it's a little bit early in the launch, but that's catching up very quickly. And I would anticipate we will get to a similar level of coverage as what we're seeing with psoriasis and and, subderm, in the very near future. On the government side, we've made really dramatic progress, I think, in in Medicaid. You know, we've reported, I think, as of the at lend of last quarter, you know, Florida, Texas, New York, and California, so the four big states. It's about a third of all Medicaid lives in in those four states.

We've also picked up Kentucky, Michigan, Ohio. We we've had a number of additional wins, and and we've continued to make progress in that front. And and when we report out, q one earnings, we'll provide a full update of where we are in terms of of Medicaid coverage. But, I think at the end of last quarter, we're sitting at about fifty percent of all Medicaid lives had access to Zarif. And, you know, generally, it's very, very high quality coverage.

So for example, in California, there's no step for California Medicaid to get Xareve. We're a first line treatment. In New York, there's no step for seborrheic dermatitis, and it's only a single step for, psoriasis and atopic dermatitis or throughout, you know, generic steroid. So we're really happy with the coverage we've been getting in Medicaid. Medicare, as I mentioned, you know, it it's been slower going than we had hoped.

And and, unfortunately, that has nothing to do with Xeriv or, something that we control. It really has to do with the changes that were, wrought on the Part d program through the inflation reduction act that started, January one of this year. There's just a lot of uncertainty with the, Part d plans of what their financial liabilities are going to be, And so they're being very hesitant to add any new products to their formularies. I think we're gonna get there. We're very well positioned with Medicare.

Remember, we had priced the product in such a way that we are not a specialty product, in Medicare, which we think is really important for, you know, getting good coverage, as well as getting cover any coverage. Right? So we continue to negotiate with those plans, and we hope to start making progress, you know, this year on on Medicare as well.

Serge Belanger, Healthcare Analyst, Needham: Okay. I think in the last couple quarters, you you've reported that gross to nets have kind of met their their steady state. So as more Medicare and maybe a little more Medicaid comes on board here, should we expect any changes or things are

Frank Watanabe, CEO, Arcutis Biotherapeutics: No. You know, we've said before that that at least in the case of Zariv, and I know this is quite unusual that, that our Medicare and Medicaid business, anticipate, will be similarly profitable to our commercial business. So Medicare and Medicaid should not have an impact on our gross to nets, a meaningful impact on our gross to nets. And, you know, as you said, you know, I think, we had said in q three of last year that we had about reached steady state. You know, there's still a little bit of improvement to be seen on atopic dermatitis as we get more insurance coverage.

But certainly, the psoriasis and the subderm businesses and the overall portfolio, is is effectively at steady state. You know, there'll be the typical sort of perturbations in the first quarter. You know, every retail product sees it as, you know, patients' deductibles reset, they change insurance plans, have to go through prior authorizations again and so forth. But we expect that to trend back down rapidly to to steady state and then to continue on through the rest of the year at at steady state. So, you know, we're really happy with where we are.

We've we've told the market publicly we're in the low fifties. That's about as good as anyone achieves anymore on a retail product, in The US. Right? You know, topical, oral, injectable, regardless. And, so we're we're very happy with where we've gotten.

And, you know, I think most importantly for for shareholders, you know, that means they're getting paid when we generate a script. Right?

Serge Belanger, Healthcare Analyst, Needham: Yeah. Okay. So in 2024, I think we can safely say that, the foam in Septurum was kind of the the headlining act in terms of sales growth. So as we think of 2025 and all the changes we've seen on expansion of formulary coverage, the COA collaboration, how do we think about, you know, the the three major indications and the the growth prospects for each?

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. I so I think that we're in very still and very early days with atopic dermatitis. I think atopic dermatitis will continue to be a big contributor to growth this year, particularly when you think about that that, expanded indication coming in October. But I also think that, scalp and body, as I mentioned before, is going to be a very important contributor to growth. And I think, you know, today, investors can look and see each SKU, each indication.

They know what's driving growth. Right? When we get the foam approval approved in scalp and body psoriasis, you know, in just, six weeks or so, or at least that's when we expect to happen. It's gonna be a little more complicated because you won't know whether a FoamScript is for subderm or for black psoriasis. Right?

And we won't know either. We'll we'll be able to estimate. We'll have to triangulate looking at some things, but you you won't be able to look from telling from the data what it is. But but I what I would expect to see is, a bump up in the growth of the foam with the approval of scalp. And we may see some slowing of the growth in the cream as patients go on to the foam for their psoriasis instead of going on to the cream.

Serge Belanger, Healthcare Analyst, Needham: Okay. In terms of DTC advertising, clearly, it's a popular advertising avenue for for derm products for anybody who watches any kind of television. They'll be aware of that. Just curious what are your plans there? And I know you entered into a partnership with Odell Beckham Junior.

Has there been any impacts from that yet?

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. So so, you know, to be clear, we do do direct to consumer. Right? There was search engine optimization, various other types of direct to consumer. What we don't do is, direct to consumer TV.

Right? You know? And we all every time we switch it on, it's it it it actually is one of the the largest, segments of pharmaceutical marketing is dermatology for some reason. But it's all of the systemic therapies. Right?

You know?

Serge Belanger, Healthcare Analyst, Needham: Yep.

Frank Watanabe, CEO, Arcutis Biotherapeutics: SKYRIZI and Otezla and so forth. You know, the economics of a $70,000 a year drug and doing direct to consumer TV, it it makes sense. It really doesn't make a lot of sense economically for a product that might be $2,500 a year, right, to do direct to consumer TV just because of the cost. So that's why we look at other types of of, direct to consumer. You know, TV, you're competing with, you know, the car companies and the airlines and the food companies and everyone else, for for eyeballs.

And so, you know, it really drives up the price to a very high level, and not to mention the competition from from all the other injectable, products in dermatology. Right? So we anticipate we'll continue our direct to consumer efforts, but I don't anticipate us doing direct to consumer TV.

Serge Belanger, Healthcare Analyst, Needham: Yeah.

Frank Watanabe, CEO, Arcutis Biotherapeutics: With regard to to OBJ, yeah. So we, he he's actually a Zarif patient, and came to us and said that, you know, he wanted to, you know, raise awareness about seborrheic dermatitis. He has has been doing just that, along with his dermatologist who put him on Zarif and who introduced us to him, has also been doing a lot to raise awareness. You know, that that's much more of a grassroots sort of social media presence. You know, he has, I don't 17,000,000 followers or something crazy like that on on his various social media accounts.

And, really, that's what he's using to communicate with, with the the community, the people that follow him and talk about both his experience with seborrheic dermatitis as well as his experience with using Zuriv.

Serge Belanger, Healthcare Analyst, Needham: Okay. I'll I'll put David on the spot here, but just his thoughts on, guidance for Zuriv, maybe not in 2025, but, you know, any updated, thinking there?

David Topper, CFO, Arcutis Biotherapeutics: Well, first of all, while we haven't given explicit detailed guidance for 2025, what we have said, and we stand by it, is that we're very comfortable with the consensus estimates for revenue in 2025, which is right right around 305,000,000. So very you know, continue to be very comfortable with that with that number. I I'm the one who has been hesitant to give detailed guidance only because we keep having launches, and we keep having new things like the COA partnership and so forth that that make it complicated for me. And so I you know, I'm I'm waiting to see when things calm down a little bit if if if ever, but, we'll we'll continue to to to help people understand how comfortable we are at least with top line.

Serge Belanger, Healthcare Analyst, Needham: And and just talk about the pipeline a little bit. I think we're gonna see data on one of the pipeline assets later this year, maybe even in the first half.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. Yeah. So so we, you know, we've completed the phase one study, of ARQ February, you know, awaiting the the readout from that. And what we said is that we would communicate that, you know, probably the first half of this year. Just a reminder, it is a phase one study.

So we're primarily looking at safety and tolerability. We did include some biomarkers, to try and get a sense, you know, maybe get a hint that that the drug is working. But, you know, certainly isn't it isn't a powered study, and that isn't the primary objective. But, you know, we'll share with the Street what we learned coming out of that study. You know, I think it's a very exciting asset, interesting asset, but it's a very challenging, use case.

Right? This is something no one's been able to successfully do. So, hopefully, we'll be able to pull it off, but we'll have to see. That's why we run the experiment. And then in addition to to ARQ two fifty five, we also have reported that we expect to open up the IND for our biologic for atopic dermatitis during the year.

And and just as a reminder for for listeners, that's a fusion protein targeting c d 200 r, which is an immune checkpoint. So, you know, if you think about the checkpoint inhibitors in oncology, you inhibit the checkpoints, the immune system gets revved up and attacks the cancer. Well, if you agonize the immune checkpoints, you you downregulate the immune system. You what you effectively do is you normalize activated immune cells without immunosuppressing. So very promising.

There's been some, I think, really compelling clinical data from another, drug targeting this target, which is what led us to to be interested in this and and acquire the asset. And so we're really excited about getting into the clinic. I think it could be a very, very differentiated asset in the, atopic dermatitis space, which is, you know, is a large and growing, market.

Serge Belanger, Healthcare Analyst, Needham: Okay. And at this point, is there an appetite to continue growing the pipeline via BD or you're satisfied with the current assets and

Frank Watanabe, CEO, Arcutis Biotherapeutics: I I would say there's always an appetite. You know, I would not say I was a starving man. You know, I think that business development is something, that we're always looking, at. You know, I would say, I've lost count on the tally, but I would guess that since we founded the company, we probably looked at 250 assets, something like that. We have a dedicated team that's always looking at assets.

We we actually see pretty much everything in dermatology. People will call us because we're one of the few, you know, development stage

Serge Belanger, Healthcare Analyst, Needham: Yeah.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Med derm companies. But we have a pretty high bar. And so, you know, so far out of the 250, we've acquired two. Right? Ivirimosidenib and and our c d 200, fusion protein.

But, you know, if an interesting asset comes along that we feel we could create shareholder value with, absolutely. You know, we've got, I think, the team in place who can be very effective, have shown, you know, outstanding, clinical development and product development skills. And and, you know, we would be very open to doing a deal that we felt that would be accretive for our shareholders in terms of shareholder value.

Serge Belanger, Healthcare Analyst, Needham: Got it. We have only have a few minutes left, so maybe we'll ask David to provide an overview of financials, kinda where the cash balance is. And I think you've recently started talking about a a pretty clear path to profitability.

David Topper, CFO, Arcutis Biotherapeutics: Yeah. We we're in the fortunate position and sort of unusual for the biotech sector in that we and we've said publicly that we we don't feel we need to come back to the capital markets. I know the bankers get upset when I say that, but but we don't. And the the our current outlook for the business in steady state scenario, we just don't think we need to come back, which is, you know, which is a good thing. We've said that we we we believe we're gonna break even cash flow breakeven in in in 2026.

And importantly, I know some a lot of people remember that we had $200,000,000 of debt on the balance sheet. We actually, renegotiated that last year and and improved a number of terms. But most importantly, in my opinion, we built in the ability to repay half of it and then redraw that half if we ever want to, we may not, anytime through the middle of twenty twenty six. So we sort of did not hurt our liquidity, but we saved half the interest, if you will, you know, for that period. So think we felt good about that that, that decision.

And and, you know, again, most people think, every time a biotech churns out good news, whether it's earnings or anything else, that you're gonna launch a deal the next day. Right? And and we've I think we've now finally convinced people that that's, that that's not the case. So

Serge Belanger, Healthcare Analyst, Needham: Okay. Yeah.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Dave David may have said read my lips, but, you know?

David Topper, CFO, Arcutis Biotherapeutics: Yeah. Yeah. I tried.

Serge Belanger, Healthcare Analyst, Needham: Maybe just to wrap up in the last few minutes here. You know, I think the the Arquita story has changed a lot in the last couple of years. First, the transition to commercial and then I think in, say, a commercial success now, with the topical product, which I think is is a rarity in in the derm field. So maybe if you can just if you think there's anything that remains underappreciated or or misunderstood about Zoriv or or Arcutis in general by investors.

Frank Watanabe, CEO, Arcutis Biotherapeutics: Yeah. I I I and I think if there's anything that that I would impress on them is is the sheer size of the opportunity. Right? You know, as I mentioned before, you know, the steroid market is 16 times bigger than, than the nonsteroidal branded nonsteroidal market. And there's no question that that is going to change dramatically.

Right? I I I don't know how much by how much, but a significant percentage of of those patients are gonna move from steroids to nonsteroidals. And, you know, if you do the math, it it it doesn't take a very large shift to make Xuriv into a very, very large product. You know, we we get this question all the time about, you know, well, how can you sustain your growth? Well, that's how we're gonna sustain the growth is that that 16 to one ratio becomes 10 to one or five to one.

You know, do the math. It it it really is is a very attractive opportunity. And, you know, Xeriv is such a good product and is so well positioned to take advantage of that transition as it occurs, that, you know, we have very, very, high levels of of excitement and confidence about the future.

Serge Belanger, Healthcare Analyst, Needham: Alright. Well, gentlemen, thank you for your time. Appreciate it. Great to see you. Always a pleasure.

David Topper, CFO, Arcutis Biotherapeutics: Thanks. Thanks, Serge.

Serge Belanger, Healthcare Analyst, Needham: Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.