Arcutis Biotherapeutics Inc Aktie

All right. Good afternoon. Let's kick off the next session. I am pleased to be hosting Arcutis Biotherapeutics for the next session. And with me is Frank and Latha, CEO and CFO of the company. We have a lot to go through today. Very exciting quarter from what we saw last time and then looking forward to a lot going on this year.

So before we kick it off with the questions, I'm going to turn it to you guys for opening remarks.

Sure. Yes. I mean, look, I think that everything is going very well from our perspective on -- at Arcutis. ZORYVE continues to grow very strongly. We had another very strong quarter last quarter. We think we're still in the very early stages of growth of this product. And we reiterated we think that the product ultimately will generate probably $2.5 billion to $3 billion in peak sales, which is not a stretch given the size of this market and the product profile that we have.

We've also achieved cash flow positive, and that has put us in a position where we can continue to invest in the growth of ZORYVE for its currently approved indications, but also to start to reinvest back into research and development, both looking at new indications for ZORYVE and we have a couple that we're studying already that I think you wanted to talk about today, but also we have a biologic that we've now advanced in the clinic, and we've got the resources to advance that program as well.

So we're a fairly unusual setup in that we're a self-sustaining biotechnology company that's not burning cash, right? And I think that we had laid out a strategy late last year to the investment community. I think the team has done an outstanding job of executing against that strategy and delivering.

Right. Fantastic. So why don't we talk about a little bit about the catalyst for the next 12 months. There are some indications in development for that. Maybe just walk us through some of the key catalysts in your perspective for the...

Sure. Yes. So I think the first nearest catalyst actually is we're expecting approval from the FDA for ZORYVE for the treatment of psoriasis in 2- to 5-year-olds at the end of this month. June 29 is the PDUFA date. We've also filed with the FDA for the approval of the treatment of atopic dermatitis in 3- to 24-months-olds. We have not received a PDUFA yet for -- a PDUFA date yet from the FDA, but would expect this probably early next year for that approval.

We also are running a Phase II trial right now for ZORYVE in the treatment of vitiligo, and we've said that we expect to read results out from that study at the end of this year. And then we're running 2 Phase II trials for the use of ZORYVE to treat HS, and we expect to read out those studies in the early part of next year. So in the next 9 months, we've got a number of, I think, important catalysts coming up.

Fantastic. So last quarter, sales were up 65% year-over-year, but were down 17% quarter-over-quarter. And you guys mentioned that it was impacted by those typical seasonal effects and also severe weather. So while the quarter -- this quarter is not affected by weather, but there's a lot of macro uncertainties like inflation, gas price. How is the current inflationary environment affecting patients getting access to medication? And will we see an effect to sales this quarter and going forward?

Yes. So I mean I think every business has to deal with the macro forces going on in the country right now. I think it's not the most benign business environment. But I think specifically to Arcutis, we don't expect it to be a particularly acute effect.

If you think about a commercial patient, we buy patients' co-pay down to 0 if your insurance company covers ZORYVE; $35, if your insurance company doesn't cover ZORYVE. That isn't affected by inflation, right? So for commercial patients, ZORYVE itself isn't really a major impediment for them. For Medicaid patients, they're paying $10, $15 maybe per prescription. And so again, we don't see that being a major impact.

And then in the case of Medicare, that's not a major source of business for us. We're starting to pick up Medicare. So we think over time, that's probably going to grow. And in the case of Medicare, we've got this strange system where patients have this total annual co-pay deductibles that they have to work their way through. But that's again, fixed. So I don't think inflation per se is going to impact us nearly as much as maybe some other products.

I see. Okay. Got it. So given that the weather -- I think you guys mentioned the severe weather affected patients' access to medication last quarter. Does it mean that the GTN for second quarter will be worse unusually because a lot of patients who were not having access last quarter are now coming in this quarter, but they haven't really met their deductibles because of the access.

It's an interesting hypothesis. So let's break this down in 2 ways. With regard to the first quarter, and this was not unique to ZORYVE, right? But there are many, many products that saw the impact of the extreme weather. And I think one of the ways you can really validate that it was the weather is that it was very regional as well, right? The West Coast was not affected, volume was not affected. The East Coast and especially the Southeast was very affected. And then we saw a rebound in March and then on into Q2 in demand.

So that occurred for a lot of products. It's probably a little bit exacerbated in dermatology because there are very long waiting lists to see a dermatologist. And so for example, our Chief Medical Officer is practicing still, and they shut down for a week. It's 6 months before they could get those weeks' worth of patients rescheduled for that demand to come back in the system. Other therapeutic areas aren't as backed up as dermatology, right? So I think that, that may be exacerbated the volume impact of the weather in dermatology compared to other specialties.

In terms of the gross-to-net, I understand your question. What I would say is what we saw in the first quarter was that we were actually spending less on the co-pay card than we normally do. So that would tend to mitigate against that carrying on into Q2. I think we're actually in a better position now in gross-to-nets than we were last year than we expected. Latha, do you have any...

No, I was going to add something similar. So yes, I think also some of that effect, you would have seen it prolong in March and we didn't, we saw the demand pick up. So I don't think there's anything that signals that there's an undue co-pay burn in Q2, and we've seen strong volume growth in the last quarter-to-date of -- Q2 to date versus last Q1. So that's also another signal that we don't think there's any impact from what you're describing. It's possible, but it wasn't as severe that we think that there is that impact to co-pay.

We think we'll carry this GTN favorability through the year.

I see. Okay. Got it. That's encouraging to hear. Can you guys remind us sort of these in-house efforts that are ongoing in terms of supporting the primary care and the pediatric. What are you doing that Kowa wasn't doing or doing well? And then what's the timing of that launch for that sales team again? And then what's that initial scope and the size of that effort?

Sure. So let me start by talking about Kowa. I don't think that people should think of it as Kowa was not doing it well. I think the challenge for Kowa was they had an existing sales force. It was about 200 reps and they had a product and they lost exclusivity on that product. So they had this existing sales force. I needed a sales force, so we struck this deal with them. Their sales force was probably just too big, right? And so it was not an economically viable business for them long term. And that was really why we agreed to separate.

We are taking a very different approach. We're starting off very small. We've communicated that we're starting out with 20 sales reps. We're putting them in major metropolitan areas and really focusing them on high-volume primary care docs and pediatricians. We will probably grow that footprint over time. I don't know how big it's going to be. It's really going to depend on the success that we've had. But what we're doing with that 20 is really piloting the primary care and pediatric market and seeing what's the best way to market in that segment as opposed to dermatology. And then we'll start to scale it once we figure all of that out.

I see. And so what is that difference then in terms of promotion to the PCPs and the pediatrics compared to -- is there any notable difference that how you guys engage with them?

Not how we engage with them, but I think the -- first and foremost, dermatologists, the most common diseases dermatologists see are acne, psoriasis, AD and seb derm, right? Probably see 60 -- 50, 60 patients a day. Maybe half of those patients have one of the diseases that we treat, right? So there's a big opportunity there.

And it's a big part of their practice. You got a primary care doctor, a pediatrician, they're treating everything from asthma to herpes zoster. There's a very small volume of their patients that have psoriasis, AD or seb derm. So it's not front and center for them, and they're trying to keep track of all these other diseases, right? I used to work in primary care. The biggest challenge in primary care, frankly, is getting the primary care doctor's attention. And we expect it to be a longer selling cycle. Access can be a little more challenging. The calls tend to be a little shorter, and this is not their primary business treating skin diseases, right, versus dermatologists.

I think the other difference is that dermatologists are very used to, in fact, I would say, are committed to working with specialty pharmacies. The primary care docs aren't nearly as familiar with that. We think that's going to be an important part of our success in primary care is getting them to use the specialty pharmacies where they get the white glove treatment to make sure that the patients are actually getting their prescriptions and the insurance is processing it correctly.

I see. Okay. Got it. Can you give us an update on the Medicare business? I know you guys are -- you guys have that access that you guys mentioned where you -- about 1/3 of Medicare patients now.

Yes, that's right. We picked up 2 of the big plans. We've got about 1/3 of Medicare lives now which have access to ZORYVE. And unlike the commercial plans and Medicaid, Medicare has this annual deductible. It's $2,100 now. Patients have to burn through their $2,100, and then everything is free after that. So the first part of the year is a little more challenging especially for a new drug. But I think we'll see a pickup in Medicare as the year progresses.

I think we're also hoping that we get additional Medicare coverage in 2027, picking up some of the other plans. The Medicare formulas typically only change once a year in January. But we do anticipate that over time, Medicare will be an important driver of growth for ZORYVE.

Right. And then you guys are covered by a non-preferred access position. Is there a possibility to move to preferred? And how would that change? If you get from non-preferred to preferred, how would that move the needle?

The change between non-preferred and preferred really only affects the patient's co-pay. I think it's highly unlikely that they would put us in a preferred position. Being a branded on the formulary, period, is a big deal. There are no other branded topicals on the Medicare formularies. So we were very happy to get non-preferred quite frankly. And I think for us to rebate our way down to being preferred, we probably have to get down close to a generic price, and that's just not going to be economically feasible.

I see. Okay. Okay. That makes sense. And when should we hear another update on these Medicare patients regarding the other 2/3 of coverage?

As I said, typically, they changed the formularies in January. They have to get reviewed by CMS. So there's a whole process around it for Medicare that doesn't exist for the other plans. So I would hope that we would be able to in January -- on the Q4 call in February, we'd be able to announce some additional wins.

I see. Okay. So in the fourth quarter last year, you guys highlighted the label expansion for ZORYVE as part of that 3 pillars of growth and vitiligo and HS were identified as sort of the top 2 indications to begin that process based on, I think, 40-plus case studies. Otezla, which is also a PDE4 inhibitor, has shown mixed results in these 2 indications and has not advanced to Phase III development. Why do you have conviction that ZORYVE could work given that a similar drug with a...

Well, a similar target, very different drug. Yes. So roflumilast, the active ingredient in ZORYVE is 100 to 300x more potent as a PDE4 inhibitor than apremilast is. And to give -- quantify that people typically take 60 milligrams a day of apremilast. When you take roflumilast orally for COPD, you take 1/2 of 1 milligram. So 120th as much drug as you take apremilast, right? That speaks the potency.

In addition to that, we're delivering roflumilast topically with ZORYVE. We get very, very high localized concentrations of ZORYVE the skin where you apply it, 50 to 100x more in the skin than you're seeing in the rest of the body. And so we get a very profound local effect on PDE4 inhibition that you just can't achieve with apremilast orally or roflumilast orally for that matter, right? Because you would have intolerable side effects like headache, diarrhea, vomiting, right? I think that's really the difference. But the data is going to be the data. We'll see what we see.

We're certainly very encouraged by the case reports we've seen in HS and vitiligo. I think we've also seen there is good evidence that PDE4 plays a role directly in the melanocyte, which would tend to point towards efficacy in vitiligo as well. And then in the case of HS, I think people really don't appreciate the impact of itch and pain in HS as a disease and the high score that everyone looks at doesn't actually look at itch or pain, but it's very common in those patients. And again, PDE4 works in the neurons. And so we're probably having a direct effect on the itch and the pain as well. And we saw that in the case reports that we were clearing itch and pain.

Interesting. And why do you guys choose the 0.3% foam. Why not go a little higher, higher concentration or test multiple doses...

At 0.3%, it gets really hard to formulate roflumilast topically, right? So we're kind of up -- that's the maximum. Going with a lower strength, we didn't see a need. The really -- the only reason why we have a lower strength for atopic dermatitis is that tends to be very high body surface area. A lot of the patients are kids, and there is a skin barrier defect. And so drug gets in more easily in atopic dermatitis skin than other -- normal skin or psoriatic skin. You don't have any of those issues in HS or vitiligo. The skin is normal. It's small body surface areas, and it's not predominantly kids. So there really wasn't any reason to use the lower strengths. And we know that 0.3% is very, very well tolerated and safe.

I see. Okay. What's that -- what do these trials looking like in terms of the size? When should we see the data? Maybe like what are the endpoints that you guys are looking at?

Sure. So they're all around 20 -- 10, 20 patients. They are small proof-of-concept studies. We don't have to look at safety, tolerability, we already know the answer on that one. And we've said that we expect to read out the vitiligo trial by the end of this year and that we should read out the HS trials early part of next year. And then in vitiligo we're just looking at improvement in pigmentation. And in the HS trials, we're looking at abscesses and nodules.

I see. Okay. So how do you define success for these 2 indications? Like what do you have to see for you to say that we're going to advance...

A clear sign of efficacy. There's no particular threshold we're looking for, particular high-score or VASI score or something like that.

So without sort of like a control arm, I mean, this disease like HS is known for like this wax and wane period where...

Right. But not in very short periods of time. So -- and these are fairly short trials. And in the case reports, the efficacy was very rapid. So I think that mitigates against some of the natural waxing and waning you see with the disease. It's not like atopic dermatitis where you wake up in the morning, you're clear in the afternoon, you've got an abscess or nodule, or same with vitiligo, lesions don't just suddenly appear or disappear.

I see. And how long are these trials running for?

Let's see, the vitiligo trial we're running out to 26 weeks. I believe HS is 16?

16 weeks.

26 weeks for vitiligo and then 16 for HS. I see. Okay. Okay. Got it. Okay. Let's move on to the other -- you have another asset in development, the ARQ-234. So this is a CD200, is a checkpoint inhibitor?

It's a checkpoint agonist, the opposite of a checkpoint inhibitor.

Right, right. Okay. So can you tell us what drives the interest of pursuing this as a target for AD?

Sure. I think many of these diseases -- inflammatory skin diseases are driven by overactive immune systems, right? And that certainly is the case in atopic dermatitis. Historically, we have approached managing these diseases by blocking signaling pathways, various cytokines, IL-4, IL-13; in the case of atopic dermatitis, IL-31; psoriasis, we're going after 17, 23, TNF alpha.

The checkpoint agonists are different in that you're actually -- you're actively affecting the immune cells themselves, right? By agonizing these immune checkpoints, you're taking an activated immune cell and you're putting it back in its inactivated state, which will consequently probably downstream also affect all the inflammatory cytokines, but you're upstream of that process. I think people can think of it as the opposite of KEYTRUDA or Opdivo, right? If you inhibit the checkpoint -- immune checkpoints, that tends to rev up the immune system. If you agonize the checkpoints, it down-regulates, right? So it's a different pathway.

We are excited about this because there's been some very compelling biologic proof of concept with another molecule against this target. We think there's clear unmet needs for new therapies in atopic dermatitis and potentially other therapeutic indications as well. And the asset that we acquired when we bought Ducentis, we felt was the best-in-class for this particular target.

I see. And what is that rationale? I mean, after looking Lilly have something similar, a CD200 agonist as well.

An antibody. Yes, an agonizing antibody. Yes. I think Gilead has an antibody.

And they discontinued it.

Yes.

So any read-through from that? Any concern read-through? And how do you think 234 compare to...

Yes, I don't really think that there -- based on what we know today, we don't really see any read-through other than we don't think they had a safety issue with their trials, right? We probably would have heard about it from the FDA if there was a particular safety signal of interest. I've been in big pharma a good bit of my career, they deprioritize programs all the time. I don't particularly put a lot of weight into the fact that they deprioritized it. They published the results from the study. I think the study results look very good.

I see. Okay. And how is that Phase I -- you got a Phase I study going for AD. How is that enrolling? And when should we expect to see data?

So we're in the middle of the SAD portion of the trial, right? Each cohort enrolls very quickly, but it's very small, and then you got to wait and then you start the next cohort. It's very traditional SAD, and then we'll move on to the MAD portion as well. I'm actually hoping this takes a long time because that means I'm going all the way through a bunch of dose cohorts and get to a very high dose. We don't have a time line at this point because it will all depend on what the maximum tolerated dose is.

I see. Okay. Now let's move on to the franchise indication for ZORYVE. So now ZORYVE spans across plaque psoriasis, atopic dermatitis, seborrheic dermatitis across multiple formulations. So there's obviously safety concerns with corticosteroids. We know that people talk about it all the time. It's very well perceived that these have safety issues. And ZORYVE is clean, easier to use and you don't have the safety baggage. Do you see there's a realistic chance to remove some of these step-edits that you have to go through corticosteroid in the future? I mean, how do you get there?

So first of all, I don't think that the -- on the commercial side of the business, we're pretty much a single step across the board through a topical steroid. In Medicaid, about half of patients, it's a single step through a topical steroid. So that's the majority of patients, single step. That is not a big barrier because all these patients have already been on topical steroids. So they've already met a step -- right? I don't lose a lot of sleep over that.

I think we may see some improvements in that formulary position. For example, California Medicaid, there is no step for ZORYVE. It's first-line therapy. There are some small commercial plans that have moved to no step for ZORYVE. I think as insurance companies realize that ZORYVE could prevent or delay patients moving on to expensive systemic therapies, they may start to prefer ZORYVE more and make it easier to get ZORYVE. But again, I really don't think that the step-edit is a major obstacle.

A year, 1.5 years ago, when we would talk to dermatologists, we get pushed back like I know steroids have issues, but I know how to manage it. It's fine. We don't get that anymore, right? I think there's a growing sentiment in the dermatology community that it's time to move away from topical steroids. There's always going to be a role for topical steroids. But that's an acute treatment, and these are chronic diseases, and that's a mismatch, right?

And I would point to, in particular, earlier this year, the American Academy of Dermatology came out with new pediatric AD guidelines, and they stated right in the guidelines that dermatologists should prefer nonsteroidals over steroids because of long-term safety issues. So now even the AAD has come out with a firm stance saying nonsteroidals are the way to go. I think it's just a matter of slow change in physician habits. And we're seeing that every month, every quarter, we're seeing a growing share of the business going to the nonsteroidals. And with 50% market share, we're the main beneficiary of that.

Sure, absolutely. And then so when you look at the current use pattern for patients who are new to treatment and they get on corticosteroid, do you see there's a shortening of the time that people get on the corticosteroid before they switch to ZORYVE? Is there a change in that?

90%, 95% of patients are not new onset. So they've already been on something. So they're coming in the office for a steroid refill or some follow-up visit, and they've already been on a steroid. And most insurance companies also, it's -- you have to have been on a steroid in the last 180 or 130 or 365 days. It's not like you have to start the steroid and then wait 4 weeks and then move on, right?

So it's rare that a patient is coming in completely treatment naive and the doctor saying, oh, I want to use -- but if that's what they need to do. It depends on the steroid. But for example, if the patients plaque psoriasis and they need clobetasol or halobetasol, those drugs are really only safe for about 4 weeks and then you need to stop the treatment for safety reasons. And so then the patient can go to ZORYVE.

I see. And a lot of time, when I look at these conditions because there's that whole wax and wane component to it, where the condition would just go away for some time, it will come back -- flare up and come back again. So in that -- in those period where the disease sort of like calms down and then it flares up again, do they -- for patients, do they jump back to another steroid and then before they can get on ZORYVE, like how does that work?

Or do they -- because they're already on ZORYVE and then let's say they stop, the condition feels -- they feel better, then -- and then they get a flare-up, can they go straight to ZORYVE or do they go back to the steroid first before ZORYVE?

So first, let's talk about the waxing and waning. Psoriasis is not a terribly waxing and waning disease. It does tend to get better in the summertime, especially and then it will predictably get worse again in the fall and the winter. Seb derm is also fairly chronic in nature. AD is much more changeable. You can be fine in the morning and by lunchtime, you can be in a flare, right? So regardless, across those diseases, if the patient's disease clears because it's spring or summer or the patient has been using the drug and they get better and they get clear, they typically will stop treating at that point.

When the disease returns, they probably have ZORYVE in the cabinet already. They don't go to the doctor, if they just start using the ZORYVE again, right? And there's no issues with stopping and starting with ZORYVE.

In atopic dermatitis, specifically, because it can flare so quickly, there is a move in dermatology towards preventative treatment, treating continuously to prevent the next flare. And in our long-term studies with ZORYVE in atopic dermatitis, we showed that, that was a very effective strategy.

Patients who got to clear went to twice weekly dosing instead of daily dosing. And in adults, they went -- they were able to go 10 months without a flare. And in children, they went 8 months without a flare. And that's quite a long time with just twice weekly dosing. If they did flare again, they could switch right back to once daily dosing without any problem. And that treatment paradigm of proactive management is something that atopic dermatitis experts are really encouraging their colleagues to move towards.

But to answer your question 2, if you've had a ZORYVE script, and you need to refill it 6 months later, you don't have to go through a steroid -- you can go and just refill and continue on.

I see. okay. Okay. That makes a lot of sense. So seb derm, this is one indication that a lot of investors are very excited about. It's always been undertreated and underdiagnosed or treated intermittently. How has ZORYVE sort of changed that pattern of use in this population and the recognition of the treatment?

Yes. So first of all, and I remember talking with investors before the approval and saying, you guys are missing it. This is really, really big. This is a big indication. People were like, "You don't know what you're talking about." I think I was proved right, right?

It's a very prevalent condition. It's at least as common as seb derm. There are some estimates that as many -- sorry, excuse me, as many as 1 in 5 Americans has seb derm, which would be a gigantic market, right? Historically, the challenges have been that the existing treatments were not terribly effective, right, or they weren't safe for long-term use or a combination of the two. And so when a dermatologist is having to treat seborrheic dermatitis, it took a lot of time, and it wasn't terribly satisfying. I remember prior to our launch, it was towards the end of COVID, and we were talking with some dermatologists and they said, I haven't seen some of these patients for 2 years, and they come in and they say, "What do you have new for seb derm?" And the answer is nothing, right? Because it had been 20 years since anyone came out with a new drug.

What really, I think, changed with ZORYVE is several things. One is profound efficacy, right? We had an 80% response rate at 8 weeks with ZORYVE. 50% of patients were completely clear, no sign of any disease at 8 weeks. We had a very rapid onset of itch, which is one of the key symptoms of seb derm. At 48 hours, we separated on itch. It's a once-a-day formulation that's easy to use in your hair. You don't have to wash it out. You don't have to take a shower, which you do with the shampoo treatments. And it's safe to use chronically, right? There's never been a drug like that.

So it makes it really easy for the doctor to treat their seb derm patients. It's like a 30-second conversation. Hey, here's your ZORYVE script, use it once a day. I'll see you in 6 months versus this complicated regimen. And it works for patients and it's safe. And so I think that that's shifted dermatologists' willingness to treat seborrheic dermatitis, right? Because now it's easy for them to treat these patients and the patients are happy.

I see. Is that a population -- I mean, when I look at that, right, the foam makes a lot of sense for these patients. There's -- I don't think there's a foam like corticosteroid foam.

There are corticosteroid foams in existence, Olux -- oh, gosh, I'm trying to think of some of the other brands out there. They're very, very expensive. They're very difficult to get. So you don't see much use at all of the steroid foams. Ironically, they're more expensive than ZORYVE even though they're generic, right? But also you have all the safety issues of steroids.

Sure, sure, right. So I mean that's one setting where ZORYVE just rise to the top, right? I mean...

That's right. I think it's rapidly becoming a standard of care in seb derm. It's also -- ZORYVE foam is really unique in the scalp psoriasis space, right? Just like seb derm, there really aren't any options to treat scalp psoriasis. And scalp psoriasis is a form of psoriasis that it's, a, very prevalent; and b, it doesn't respond well to biologic therapies. So we think that's a really important continued growth opportunity for us in ZORYVE as well.

I see. That makes a lot of sense. So when you look across all these different settings, what do you think are the largest growth driver across different indications...

The largest growth driver is conversion from topical steroids, right? Sitting here today, there are 25 million prescriptions written a year for 1 of these 3 indications. 16 million of those were topical steroids last year and 1 million were branded nonsteroidals. So as that market converts over, the opportunity for us to grow fivefold is really not that much of a stretch.

Yes. I see. Okay. And then for atopic dermatitis, you guys have a couple of new approvals in that area and now you have -- from adults to children to infants. How quickly are these indications added to the formularies? Or in general, when you guys have these approvals, how quickly do they get added?

Our contracts with the insurance companies generally are for the ZORYVE portfolio. And so it's relatively quick. It takes -- it can take a couple of months for us to get a new indication, particularly if it's a new SKU. If it's an existing SKU, it can be a little bit faster, but it does take the insurance company some time. The SKU has to show up in the compendium. You've got to get -- they've got to update their computer systems. I would say probably 2 months is probably a reasonable time frame. Maybe it's a little bit shorter in some cases.

I see. Okay. And also when you get these approvals, especially in that infant age group, how quickly -- I think we talked about the payers, but how quickly when you look at how the patients are treated from a derm or pediatric, the pediatric side, you're still ramping up the effort there. How quickly do they -- when these approvals kick in, that the sales or revenues are reflecting the...

I think -- sure. The 3- to 24-month AD, I think we're going to see a very rapid adoption. If you think about it today, the only things approved to treat kids under the age of 2 with AD are Eucrisa or 6 of the topical steroids, right? And everyone knows Eucrisa stings and burns. And topical steroids are particularly worrisome in a young kid.

So to have a safe, effective once-a-day cream approved in that population, the pediatric dermatologists are foaming at the mouth to get their hands on this product. And we got the 2- to 5-year-old approval, their response was, when do you get 3 to 24. I was like, what about the 2- to 5-year-olds? Don't I get any credit for that? There's a huge amount of pent-up demand. I mean anyone who's a parent can just think about what that would mean if they had a safe, nonsteroidal to treat their little baby with atopic derm.

I see. So even though you haven't really ramped up in that pediatric sort of sales effort yet, a lot of these patients have already been seeing the pediatric derm...

By pediatric derm or just a general derm. There aren't many pediatric derms, so a lot of little kids are being seen by regular gen derms -- general derms.

I see. So basically, there's no barrier to...

Not in the dermatology space. No.

Even though you haven't really ramped up that pediatric space.

Right. I think the pediatrics is an additional additive opportunity but there's a big opportunity for 3- to 24-months in dermatology.

I see. Okay. Fantastic. No, this has been a very interesting discussion, very helpful for us to help to -- to help investors think through the ZORYVE story to continue growing in the future. So we're out of time. So before we close the session, I will turn it to you for any final remarks.

Latha? She hasn't said anything, so I'm going to let her close it out.

No, I think our closing remarks are: everything is going per plan that we said that we're going to execute on since last year when we had our Investor Day. We've put out guidance. We updated the guidance, and we feel strongly about our business and the growth trajectory. We are self-sustaining investing in that growth, and we keep coming back to update the investor community on those investments. So we're excited for the outlook of ZORYVE and a lot of label expansions and pipeline that we just talked about. That's my conclusion.

Fantastic. Thanks again.

Thanks a lot.

Thanks, everyone.

Good day, and thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Schoelkopf, Head of Investor Relations. Please go ahead.

Thank you, Marvin. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2026 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Lasse Vairavan, Chief Financial Officer.

I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand 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. I want to start today's call with an overview of the latest developments at Arcutis and the progress we're making against our grow, expand, build strategy. I'll then turn things over to Todd for a commercial update, then Patrick for an R&D update; and finally, Latha for a review of the quarter's financial results as well as how we're thinking about investing in 2026 to drive ZORYVE inflection.

So I'm starting on Slide 5. Hopefully, by now, you're all familiar with the grow, expand, build framework that we have adopted to define our strategy to sustain near- and long-term growth for both ZORYVE and the company overall. In a nutshell, our plan is to continue to grow our core ZORYVE business in our currently approved indications to expand ZORYVE into additional indications and to build our innovative pipeline beyond ZORYVE. So starting with the grow pillar for driving momentum in our core approved indications, we're very excited to have submitted a supplemental NDA for ZORYVE cream, 0.05% in atopic dermatitis patients aged 3 to 24 months in April. This is a segment of patients who are significantly impacted by AD and who are in dire need of safe and effective treatment options beyond the very small number of currently approved therapies. Patrick will comment on the opportunity more, but we see this as a very significant new opportunity for ZORYVE, and there's a lot of excitement amongst dermatology clinicians about our data and the possible approval. We also completed enrollment in a MUSE trial for ZORYVE foam, 0.3% in children with scalp and body psoriasis ages 2 to 11 years of age, and that should serve as the basis for submission for -- to extend the label to this age group, aligning it with the 0.3 cream.

On the commercial front, we've successfully completed -- we've essentially completed, excuse me, the expansion of our dermatology sales force to enable deeper reach into the dermatology landscape. And I'm happy to report that our expanded derm sales force is in the field as of this week, but of course, we probably won't begin to see an impact on sales for a few months. We also began the build-out of our dedicated PCP and pediatric sales team, starting with the recent hiring of our Head of Primary Care franchise. This team will embark on a targeted effort to engage with those primary care and pediatric clinicians who are already using a fair bit of topical therapies in their practice. We also continue to make important progress against our expand pillar as we work to bring the unique benefits of ZORYVE to people impacted by chronic inflammatory skin conditions beyond our currently approved indications who are also in need of targeted innovative treatment solutions with a focus on diseases where we've already seen compelling potential of ZORYVE based on case reports and case series. And specifically, we're nearing full enrollment of our Phase II proof-of-concept trial in vitiligo, and we continue to enroll patients in our Phase II POC trial in hidradenitis suppurativa or HS. We're also evaluating additional Phase II proof-of-concept trials in indications beyond vitiligo and HS, and we'll obviously update you guys on our further decisions. And finally, we reached an important milestone in our pipeline building activities with the initiation of a Phase Ia, Phase Ib trial for ARQ-234. The investments we're making and the efforts we're taking to advance our initiatives across these 3 pillars are laying groundwork for further ZORYVE sales inflection and operating leverage expansion in 2027 and far beyond as well as positioning us to sustain growth for the long term and most importantly, expanding our impact on individuals living with chronic inflammatory dermatosis.

Despite now having a successful commercial franchise in ZORYVE, we continue to be at our core, a biotechnology company championing meaningful innovation within medical dermatology. These investments in innovation and growth reflect that intent. And with that, I'll hand the call over to Todd to give you a Q1 commercial update.

Great. Thank you, Frank, and good afternoon, everyone. Turning to Slide 7. We continue to see strong sales performance in the first quarter with net product revenues of $105.4 million, up 65% versus the first quarter of 2025. This healthy quarterly performance was achieved despite the customary first quarter seasonality impacting branded therapies driven by patient deductible resets, elevated co-pay utilization, annual insurance transitions and pull forward of refills into Q4. This typical pattern was further amplified this year by the impact of severe weather events we had across the country during the quarter. On an aggregate basis and in line with expectations, this resulted in a more significant sequential decline in product revenues from quarter 4 to quarter 1 compared to 2025, where seasonality was mitigated due to the initial launch of ZORYVE in atopic dermatitis. Importantly, we are through the impact of this typical seasonality and anticipate a return to robust quarter-on-quarter demand growth going forward.

Our gross to net remained stable in the 50s. And as communicated on our last call, we anticipate it will remain in the same range for the remainder of 2026. Our first quarter gross to net rate improved compared to quarter 1 2025 due to our evolving payer contracting that benefited product revenues for the period. Looking ahead to the second quarter, we expect quarter-over-quarter net sales growth driven primarily by increasing patient demand as well as continued gross to net improvements as we progress from our current rate to the low 50s as the year progresses.

Turning to Slide 8. After a typical December to January pullback in demand, weekly prescriptions on a rolling 4-week average based on IQVIA EXPONent data have returned to a healthy growth trend and reached approximately 21,000 prescriptions per week across all indications and formulations for ZORYVE. As is clear from this chart, ZORYVE continues to generate sustained Rx growth. For the remainder of 2026, we anticipate sustained demand growth will be the primary driver of ZORYVE's revenue expansion. The most important driver of this sustainable momentum will remain the conversion of topical corticosteroids to advanced targeted topical therapies as health care providers and patients' perceptions of the risk of chronic use of topical steroids evolves. In a few minutes, Patrick will comment on developments we are seeing on that front.

Investments we have made to expand our dermatology sales force will also contribute to demand growth in the second half of the year, and our efforts in primary care and pediatric settings will start to have an impact later in 2026 and 2027. Next, I'll provide some additional detail on demand across topical therapeutics and dermatology in the first quarter.

I'm on Slide 9. As demonstrated in the chart on Slide 9, prescription volumes were down across the board for topicals in the first quarter of 2026 compared to the fourth quarter of 2025. Of note, the impact was not only seen with branded products, but also with topical corticosteroids, antifungals, vitamin D analogs and topical calcleurin inhibitors. Products in these categories are primarily generic, making them less sensitive to the typical seasonality experienced by branded products in the first quarter. And yet this year, they still saw marked sequential declines quarter-on-quarter. We believe that this dynamic speaks to the fact that the severe weather events in the first quarter impacted dermatology prescription volume in general, a headwind that compounded typical seasonality and affected the entire topical segment.

Of note, the prescription decline for ZORYVE in the quarter at 6% was meaningfully lower than the other branded non-steroidal topicals, which collectively were down 15% for the quarter. This relative outperformance is further evidence of the growing preference for ZORYVE by dermatology health care providers and patients. ZORYVE's relative strength in the period also drove further share expansion with ZORYVE's share of total branded non-steroidal topical prescriptions increasing to 48% in the first quarter, a 3 percentage point increase from the end of 2025.

Moving to Slide 10. We are excited about the key investments we are making in 2026 to drive ZORYVE's continued momentum and set the foundation for its growth inflection in 2027 and beyond. We have completed our previously announced dermatology sales force expansion. As Frank noted earlier on the call, we're pleased to report that these new sales force members are out in the field as of this week. As is typical, these sales representatives require a couple of months to gain familiarity with their call points. So we anticipate seeing the impact on demand from these added boots on the ground beginning in the third quarter. We are also underway in the build of our primary care and pediatric team. We are thrilled to announce today that we have hired the head of this new franchise, Katie Swoss. Katie brings incredible breadth and depth of experience with dermatology therapeutic commercialization, having held various strategic and operational leadership positions, and she has already begun building out the rest of her team.

As we described previously, we are adopting a high targeted approach with this sales team focused on high-volume, early adopter PCPs and pediatricians concentrated in major metropolitan areas, positioning this investment to be accretive from the outset. From there, we will evaluate additions to the sales team as we further refine our strategy and gain in-depth understanding of the space. We look forward to completing the initial build-out process next quarter with the launch into the field in Q3, initial impact to demand beginning in the fourth quarter.

Rounding out focused commercial investments, our Free to Be Me direct-to-consumer patient awareness campaign featuring Tori Spelling, her daughter, Stella McDermott and professional golfer, Max Hona has driven strong meaningful patient engagement. Their shared collective experiences are helping to drive awareness for ZORYVE across all indications and are resonating with a broad range of patient demographics. We look forward to the continued progress of this important direct-to-consumer effort to ensure we are capturing and reflecting the patient voice and patient experiences as they live and manage their chronic inflammatory skin conditions and the impact ZORYVE has on their lives. With that, I'll now turn the call over to Patrick.

Thank you, Todd. Good afternoon, everyone. In the first quarter, we continue to make significant progress in our efforts to support young children and infants suffering from plaque psoriasis and atopic dermatitis. Starting first with atopic dermatitis, children under the age of 2 are the most vulnerable patients in a population that desperately needs alternative therapeutic options to the handful of currently available treatments. As a dermatologist, I can tell you firsthand how challenging it is to sufficiently address these diseases in this age group given the very limited set of approved therapies and how eager the parents and caregivers are for effective, safe and well-tolerated treatments to bring comfort to their kids. Safe, well-tolerated treatments are especially important in this age group when the immune system and the skin barrier are still developing. We take their plea very seriously, and we believe the clinical profile and formulation of ZORYVE are well suited to the needs of this young patient population.

On our March call, we highlighted the positive top line data from the INTEGUMENT infant Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis. Expanding on what we shared in March, we were honored to have our abstract selected for a prestigious late-breaker session and presented by Dr. Lawrence Eichenfield at the American Academy of Dermatology Annual Meeting at the end of March, select portions of which we have here on Slide 12.

Over 1/3 of study participants who completed 4 weeks of treatment achieved a validated investigator global assessment for atopic dermatitis that's a VIGA-AD success. that's defined as a score of 0, which is clear, or 1, which is almost clear with at least a 2-grade improvement. Close to half of infants achieved a VIGA-AD score of clear or almost clear, that's a 0 or 1 at week 4 and 24% already at week 2. Now for those infants with at least mild scalp involvement at baseline, more than 2/3 achieved VIGA scalp success at week 4. And as previously highlighted, 58.3% of infants achieved at least a 75% reduction in their eczema area and severity index that's an EASI-75 at week 4 and 3/4 of infants already at week 2.

Now to the right, we see a representative patient. This is a 23-month old boy who had previously been treated with topical corticosteroids with an IGA of 3 or moderate severity at baseline, and he's showing significant improvement at week 4 with an IGA of 1 or almost clear. I think these photos really represent the meaningful impact that our 0.05% cream delivered to patients in this study and why we're so excited to already have these data submitted to the FDA. Collectively, the findings from the INTEGUMENT infant study add important clinical evidence on the promise of investigational ZORYVE cream 0.05% in infants 3 to 24 months with rapid and robust efficacy across multiple clinical endpoints, coupled with excellent tolerability and a clean safety profile.

Now moving on to Slide 13. I want to highlight one particularly notable result that we shared from INTEGUMENT infant at the AAD, namely the rapid impact that ZORYVE had on itch for these patients as reported by their caregiver. Itch is one of the most disruptive symptoms of atopic dermatitis in patients of all ages and the rapidity with which a therapy can alleviate itch is an important aspect of a drug's therapeutic profile. We've known since early clinical development that ZORYVE has a rapid impact on itch. The chart on the left-hand side of Slide 13 shows itch improvement over time in our registrational INTEGUMENT-1 and 2 trials in atopic dermatitis as measured by WI-NRS or worst itch numeric rating scale. As you can see, we saw itch reduction as early as 24 hours after first application, and that was the first time point measured in these trials. However, through our clinical trial experience and feedback from clinicians in the field, we appreciated that the speed with which ZORYVE impacts itch is exceptional. And with that in mind, in it taking an infant, we chose to measure impact on itch using the dynamic pruritus score, or DPS, with measurements as early as 10 minutes after application. The results from that analysis are demonstrated in the chart on the right-hand side of this slide.

Nearly 50% of patients experienced a 25% improvement in itch as measured by their caregivers within just 10 minutes of application of ZORYVE and 2/3 of patients experienced relief within 4 hours. These results not only reinforce our conviction that ZORYVE will be an important therapeutic option for infant patients, but this demonstrated speed of onset has also prompted us to further study the impact of ZORYVE on itch. To that end, we recently initiated a study INTEGUMENT-Ich, to assess descriptive classification of pruritus over time with ZORYVE 0.15% cream in patients with atopic dermatitis. This 40-patient trial will begin enrolling shortly. We believe that the further validation of ZORYVE's rapid impact on itch that this trial is intended to demonstrate, particularly within the first 24 hours after initiating therapy is an important step in better understanding and articulating ZORYVE's profile in atopic dermatitis. INTEGUMENT itch is an example of our strategy to generate additional clinical data for our current indications to further bolster the data set behind ZORYVE. -- an important component of our growth strategy pillar. I look forward to sharing subsequent updates on other clinical activities we're pursuing along the same vein.

Next, I'll provide an update on our label expansion efforts to support pediatric patient populations. As Frank mentioned in the opening, we submitted a supplemental NDA to the FDA in April for ZORYVE cream 0.05% to expand the indication to infants 3 to 24 months. We're thrilled to have taken this critical step to potentially bring a new safe, well-tolerated and effective therapeutic option to this patient population. It's notable that we were able to submit our application in just 3 months after having read out the top line results from our INTEGUMENT infant trial. This reflects the speed with which our team at Arcutis is moving on behalf of patients and our response to the high level of urgency shared by those HCPs who care for these youngest AD patients.

Turning next to our pediatric expansion efforts for plaque psoriasis. We recently completed enrollment of a MUSE trial or maximum MUSE trial for ZORYVE foam 0.3% for children ages 2 to 11 years old with scalp and body psoriasis. The trial is intended to serve as the basis of an sNDA submission to extend the indication to this age group and to align the psoriasis indication of the 0.3% cream and foam. If approved, ZORYVE foam could offer a truly unique therapeutic option for caregivers helping their young children manage this disease that has historically been difficult to treat when presenting in hair-bearing areas. In addition, as previously announced, our supplemental NDA for ZORYVE cream 0.3% for psoriasis patients down to the age of 2 years is under review by the FDA and the PDUFA action date of June 29 is quickly approaching.

I'll note that the rationale for extending our label to the infant population for atopic dermatitis does not apply to plaque psoriasis or seborrheic dermatitis. Onset of diseases in these patient populations is common in atopic dermatitis, while it's not in the other 2 diseases. Our current label in seborrheic dermatitis positions us to effectively serve the addressable patient population and potentially securing a label expansion to the pediatric age range in plaque psoriasis will similarly equip us to serve the addressable patient population.

As demonstrated in the table on Slide 14, these latest developments in expanding our indications to additional pediatric and infant populations build on a consistent focus we've maintained over the years to broaden the availability of ZORYVE. We're driven by the need of these younger children for effective, safe and well-tolerated therapeutic alternatives to topical corticosteroids. We also anticipate that when health care providers see how effectively ZORYVE alleviates inflammatory skin disease in their most fragile and vulnerable patients, they'll be more inclined and appreciate the potential benefit from ZORYVE for their adult and adolescent patients with the same diseases.

Now turning to Slide 15 and the pipeline. This is the build pillar of our strategy. We've now initiated the Phase I trial of ARQ-234, our novel biologic targeting CD200R in healthy volunteers and adults with moderate to severe atopic dermatitis. There's a clear and distinct need for a systemic therapy for patients with atopic dermatitis who have relapsed on or who are refractory to IL-4, IL-13 drugs. Many in the drug industry and many clinicians had until recently hoped that agents targeting OX40 would meet that need. However, after a series of disappointing clinical data sets and growing safety concerns for these programs targeting OX40 already leading to program discontinuations, that hope has dissipated, leaving a white space for novel new treatment pathways. It's our belief that the CD200 axis targeted by ARQ-234 could bring an important new tool for providers and an important new option for patients. The CD200 axis plays a central role in both innate and adaptive immunity with CD200 signaling reducing immune activation for T cells, type 2 innate lymphoid or ILC2 cells and myeloid cells and decreasing secretion of pro-inflammatory cytokines.

Given the impact of this access, there's a solid basis for optimism about the role of CD200R agonist programs may play in treating inflammatory diseases. The Phase I trial for ARQ-234 is comprised of a single ascending dose or SAD component in healthy volunteers, which is currently ongoing and a multiple ascending dose or MAD component followed by a proof-of-concept cohort, both in patients with moderate to severe atopic dermatitis. While we will not share the results from the trial until completed, we will keep you apprised of our progress through these different components.

Now moving on to Slide 16. As you can see, we've already delivered on several meaningful clinical milestones in 2026 and look forward to continuing clinical progress throughout the year. Of note, we continue to enroll our Phase II proof-of-concept trials in vitiligo and hidradenitis suppurativa or HS. We're nearing full enrollment for our vitiligo trial and remain on track to provide a readout of trial results and an update on our clinical development plan in Q4 of this year. And a similar readout for our HS program in Q1 of 2027 also remains on track. And Todd alluded earlier to the continued shift from topical steroids to advanced targeted topical therapies like ZORYVE. As we've mentioned on prior calls, we're seeing a steadily growing consensus within the dermatology specialty around the clinical needs for that shift, and we saw further evidence of this since the start of the year.

On Slide 17, I highlight just a few of the recent discussions on this topic. I would call your attention in particular to one of the conclusions of the recently published expert consensus statement on advanced nonsteroidal topical therapies for atopic dermatitis, which came out in March in the Journal of Drugs in Dermatology. As you can see, some of the most distinguished experts in the field agree that advanced nonsteroidal topicals should be preferred over topical corticosteroids for long-term management of atopic dermatitis due to their cleaner safety profiles. This is typical of what we continue to hear from the leaders in dermatology, and this growing consensus will propel the conversion to the newer agents, of which ZORYVE is the leading treatment.

With that, I'll turn the call over to Latha to further detail our Q1 financial results.

Thank you, Patrick. I'm on Slide 19. We generated net product revenues in the quarter of $105.4 million, which is up 65% from Q1 of 2025. This year-over-year increase was driven primarily by increased patient demand. We also had lower gross to net in the first quarter of 2026 versus a year earlier, contributing to higher net product revenues.

As Todd mentioned earlier, this improvement in gross to net was primarily driven by the evolution of our payer contracting. And while our gross to net rate is lower to begin the year, we still anticipate our gross to net to be in the 50s throughout 2026, ending in the low 50s. Cost of sales in the first quarter were $9.8 million compared to $8.8 million in the first quarter of 2025, primarily due to increasing ZORYVE sales volume. For the first quarter of 2026, our R&D expenses were $30.6 million versus $17.5 million for the corresponding period in 2025. This year-over-year increase was primarily due to the $10 million milestone obligation to Ducentis shareholders triggered by the dosing of the first subject in the ARQ-234 Phase I trial, which occurred in the quarter. SG&A expenses were $74.1 million for the first quarter of 2026 compared to $64 million in the same period last year, up 16% as we continue to invest in our commercialization efforts for ZORYVE.

We anticipate a modest increase to the SG&A expense in the back half of the year, driven by headcount-related costs for the dermatology sales force expansion and the build-out of our primary care and pediatric sales team. we are maintaining our revenue guidance in the range of $480 million to $495 million for the full year 2026.

Moving to Slide 20. You can see that we had cash and marketable securities of $224.3 million on our balance sheet as of March 31, 2026. Importantly, we maintained positive cash flow in the quarter with $2.2 million of net cash provided by operating activities. We will continue to be disciplined in our investments in the business to maintain positive cash flow throughout the rest of the year. We have total debt of $101.5 million and have the right to withdraw another $50 million in whole or in part at our discretion through the middle of '26.

I am now on Slide 21. With the continued broad adoption of ZORYVE and sustainable sales momentum that the franchise has demonstrated, we have reached the rare milestone amongst biotechnology companies of achieving positive cash flow at Arcutis. We first achieved sustainable positive cash flow in the fourth quarter of last year and have communicated that through diligent expense management, we anticipate maintaining positive cash flows on a quarterly basis throughout 2026. This -- the core ZORYVE business is strong and the shift from topical steroids to branded nonsteroidal topicals will continue to offer immense growth opportunity for many years to come. Concurrently, we are reinvesting capital generated from our ZORYVE franchise back into our business in order to inflect growth in 2027 and beyond.

ZORYVE's growth is driven by both of these factors. You've heard about several of these initiatives today, including our sales force expansions in both derm and primary care, DTC efforts, clinical investments to support current and potential additional indications for ZORYVE and progress on our innovative pipeline. There are additional initiatives for which we are making disciplined investments that we look forward to detailing throughout the year. These investments lay the foundation for both near- and long-term growth for Arcutis. They will help to further catalyze the continued growth of ZORYVE and inflect its trajectory. ZORYVE is a profitable franchise. And if we were not pursuing these impactful accretive investments, we would commence operating leverage expansion in 2026. As we look ahead to 2027, we expect a moderation in the need for increased investment in our current business compared to this year. Coupled with the anticipated continued sales growth of ZORYVE, we expect that we will see meaningful increase in our operating leverage and cash flow generation in 2027 and beyond.

With that, I will now turn the call back to Frank for closing remarks.

Thanks, Latha, and thanks again to all of you for joining us today and for your continued interest in Arcutis. I'm immensely grateful to our team and very proud of their hard work, their dedication to building shareholder value and their commitment to the patients we are serving. And with that, I'll open up the call to Q&A.

[Operator Instructions] Our first question comes from the line of Andrew Tsai of Jefferies.

So it sounds like gross to net performed better than compared to last year, Q1 of last year. Can you guys maybe qualitatively describe what drove that better percentage? Was it something within your control? And what kind of positive impact could that have for the rest of the year? I know you kind of guided gross to net for the rest of the year. Is it fair to assume blended gross to net for this year could be better than the blended gross to net for 2025?

Sure. Yes. Todd, do you want to take that one?

Yes. I think I'll take that call, Andrew. Thank you for the question. So yes, as mentioned, we did have price improvement in the first quarter of this year relative to Q1 2025. This year-on-year improvement was primarily driven by improvements in formulary status with more preferred versus nonpreferred position with some of our commercial plans. What this means is that for a patient, for a preferred status, it's a lower co-pay versus nonpreferred position. So with the preferred status and lower co-pay for the patients, that leads to lower co-pay expenses and lower co-pay buy-down for Arcutis give us the pricing upside. Now while our rate is lower than the prior year, we continue to anticipate that we'll be stable in the 50s without a doubt throughout the year. And as mentioned, we'll be working down from the higher 50s at the beginning of the year, transitioning to the lower 50s at the end of the year as patients continue to buy down the deductibles and we have lower co-pay expenses.

Now as we look forward, I think it's a bit too early to anticipate how all these factors will carry forward to future years. But I remain very confident that we'll continue to have a very strong gross to net, and we'll maintain our gross to net within the 50s going forward. Thank you for the question.

Our next question comes from the line of Tyler Van Buren of TD Cowen.

Just to help quantify the quarter-over-quarter impact in the Q1 seasonality, as we compare to Q4, can you help us understand how much of that was the gross to net impact versus volume impacts from weather or Q4 pull forward? And the second part or follow-up is, I understand that you're saying that Q2 sales will be above the first quarter, but do you believe it's likely that Q2 sales could significantly exceed the sales that were posted in Q4?

Tyler, yes, Todd, do you want to take that one, too?

Yes, absolutely. Thank you, Tyler. So in reference to the quarter-on-quarter impact of seasonality and the differential between gross to net and demand, as we've highlighted, there was an upside on gross to net due to the which that has changed from nonpreferred to preferred with the -- as mentioned, the demand saying relative to the 6% on that. And if you think about it, with the seasonality, which is typical because of the pull forward of the refills into Q4, we got employers that are often change in insurance from employees that's effective January 1 of the year. That transitions impacts relative to ZORYVE and then, of course, the higher deductible reset that impacts it.

And then as noted, this was compounded relative to the weather impact. And I will just mention that this whole weather impact and demand impact was not just limited to the topical products. When you look at the systemics, they were also impacted as well. For example, Otezla was down 11%, Rinvoq 3% Dupixent 2%. This is on volume due to this seasonality with this and being amplified by the impact of the weather.

Relative to Q2 sales and how we think about them going forward, I will mention that Q2 quarter-to-date through April 24, ZORYVE has 13% growth versus Q1 within the same time period. So we're off to a very strong start within Q2 here, and I have high confidence that we'll continue to build on this demand trend and have robust growth quarter-over-quarter as we go forward.

Our next question comes from the line of Seamus Fernandez of Guggenheim Securities.

This is Colleen on for Seamus. When thinking about this year's sales guidance, what are the assumptions driving the lower end of the guide? By our math and just based on the current prescription trajectory, we're starting to struggle to land within the upper end of the guide and consensus looks to already be above. So just trying to understand the pushes and pulls to maintain the current guide.

Colleen, Look, I would say that we just updated the guidance in February. so not that long ago, we don't intend to update our guidance at least for the moment every quarter. So we'll continue to evaluate the trend as the year progresses. And if we feel that it's appropriate to update the guidance, we will. But we felt that at this point, early in the year, particularly with a slightly anomalous Q1, we felt that it was prudent just to hold fast. Latha, Todd, I don't know if there's anything else you want to add to that.

Nothing else, Frank.

Calling out, I would say that the -- we issued the guide after the end of the year. And as Frank said, we don't see the need so early in Q1 to take it up. So as the year progresses, then as the guide rate changes, then you'll be able to align more to where the demand trajectory is headed. But for now, I think you can lean into the upper end and stay there.

Our next question comes from the line of Judah Frommer of Morgan Stanley.

We appreciate kind of the updated trends on total scripts and the share being taken there. Anything you're noticing in NRx new scripts and any trends that are indicative of where TRx could move going forward?

You're talking absolute volume share?

Yes.

I would say... Share of new scripts, how that's trending, if anything has changed, has that formulary position maybe impacted what new scripts are doing? Okay. Sure. Todd, do you want to take that one?

Yes, I'll take that one. When we look at the Q1 for ZORYVE and you look at the new-to-brand Rx for the branded nonsteroidal topicals, you look at that basket for Q1, ZORYVE drove 48% of the new-to-brand Rxs for the branded non-steroidal topicals. And we're very encouraged by this. I mean, I'll just reference this as comparison. If you look at like Opzelura, it was 28%. I think what's more is that you look at for ZORYVE and the NBRx decline quarter-over-quarter, we were basically flat. I think -- which is another strong signal. The other is when you look at our refills, Look at our total volume prescription, of that, our refills are about 45%, which is once again very encouraging for us, not only on the NBRx, but also on the refills that are contributing to our TRx and our overall growth. If I look within Q2 and I look at approximately the last 3 to 4 weeks, we've had very impressive NRx growth with ZORYVE, which once again is a great leading indicator of what's to come as far as TRx growth as we roll forward into the quarter.

Our next question comes from the line of Uy Ear of Mizhuo.

I have 2, if I may. The first question is, could you maybe just help us understand or quantify the opportunity from the infant atopic dermatitis conditions. I think, Frank, you mentioned it was a significant opportunity. And how -- and maybe just help us understand how you'll capture that opportunity? Is it primarily through the derm sales force that you currently have or from building out the primary care pediatric sales force? That's the first question.

Go ahead. Did you have another one

Yes, I do. The second question is maybe, Lata, the SG&A was lower than what I think we or the consensus expected something like by $4 million. Now that you have the full sales force expansion, do you expect an uptick in the second quarter? Because I thought, if I heard correctly, I don't know what the starting point is, but you indicated that you were expecting a modest SG&A uptake in the back half of the year. So maybe just help us understand the cadence of spending for the year.

Okay. Thanks. So Patrick, maybe why don't we start, if you wouldn't mind sharing maybe a dermatologist perspective on the 3- to 24-month opportunity and the unmet need. And then, Todd, maybe you can address how we're going to get at that commercially. And then Latha, if you could address his question around OpEx.

Sounds good, Frank. Yes. So I think this 3 to 24 months group, and I'll let someone else kind of comment on the kind of absolute size of that group. But I think they are uniquely reflecting a patient population that has -- we're talking about essentially crisaborol approved there and then maybe 5 or 6 topical corticosteroids. So I think this really is a group that as we've been out kind of talking to pediatric dermatologists, and these patients are not just managed by pediatric dermatologists. The they're managed by a lot of dermatologists, dermatology, PAs and NPs as well, that this is one where people really do struggle to be able to get these patients under control. Obviously, it's not a group that you want to jump to a systemic right away. They tend to have a higher body surface area. Their disease tends to evolve kind of quickly over time into a pretty high percent of involved skin. And kind of as we alluded to in the call, there's a really high sensitivity to exposure to corticosteroids right out of the gate. I mean these are very, very young patients and the developmental milestones are at the top of mind for caregivers. So really kind of finding something that fits into that mindset, I think the ZORYVE profile fits beautifully into that. And I think we kind of alluded to the fact that this is a way to really win the hearts and minds of prescribers because if you could solve this problem for them, I think it really helps with the overall lift for the brand and what it means for the field. So I think that's the derm perspective. And as far as the overall size of the opportunity, I think I'll turn it over to you, Todd, to talk about that.

Yes. Thank you, Patrick. And I'll just reemphasize, as Patrick mentioned, this patient population is tremendously underserved. If you think about it, it's really just EcrIA, which burns in the one application is available and then topical steroids, which, of course, brings great concerns to a caregiver, you say relative to steroid exposure. How we're going to drive this opportunity as we go forward once we get the approval will be across both the dermatology sales force as well as the PCP and pediatric sales force. Dermatology sales force because we do have pediatric dermatologists as well as other dermatologists to see this population and that we're conveying there's a real value proposition for this population. And then, of course, with our primary care and pediatric team, they'll be calling on pediatricians to make certain they create that awareness for the patient. And then in -- in addition to that, saying, we'll be doing a lot of direct-to-consumer campaign. And when I say consumer, it's a caregiver. We'll be making certain that we're reaching out and we're driving brand awareness of ZORYVE for this population to that caregiver to make certain that we know that it's available. And then in reference to the approximate side, it's about $2 million to $2.5 million as far as the patients, the opportunity that sits here within this age group in atopic dermatitis.

And Latha, can you address Uwe's question about the OpEx?

Yes. I would say SG&A for Q1 was slightly below consensus, but not we don't see a dramatic decline. So nothing to concern yourself there. The field force should have started in Q2. You'll see a portion of that hitting Q2 actual. So some normalization of that. The expansion for the primary care field force that will happen in the second half is what the comment modest increase references. And some of the initiatives that Todd talked about, you'll see some of that expense also play out for the course of the year. So that's our feedback on SG&A being higher year-over-year.

Our next question comes from the line of Serge Belanger of Needham.

The first one, just regarding coverage for ZORYVE. Do you expect to make any headways on what is remaining for Medicaid and Medicare coverage? Or is that more of a 2027 event? Just curious maybe if you can pull it forward to 2026. And then with the sales force expansion, you're going to be going to lower deciles prescribers. Just curious how they differ from the higher decile. Obviously, volumes are lower, but do they tend to prescribe less topical products than the higher decile ones?

Yes. Todd, sorry to worry you out, but could -- you want to take those 2?

Yes. No, I'm happy to. Great question. So thank you. First one in reference to the coverage question and making headway relative to Medicaid and Medicare. We will continue to make headway in Medicaid. We can do that within 2026 as we continue to contract with these individual states relative to the fee-for-service Medicaid. We're currently in negotiations and conversations with some of those states where we don't have ZORYVE on formulary. Relative to Medicare, it's a longer process. We have to contract with each independent Part D plan. And typically, they do those formulary updates at the first of the year. So it is -- I'm saying likely going to be January 1, 2027, but there is opportunity with the Part D plans to be able to pull that forward into 2026. And so as previously communicated, ZORYVE has access in approximately 1/3 of the Part D plans. And it's our ambition to continue to accelerate that as we go forward, and we'll make every effort to pull that forward into 2026.

And then the other is in reference to the sales force expansion, yes, you are correct. The ambition here is to be able to have a higher frequency, a higher level of engagement with the med decile providers by not diluting that frequency on the higher decile providers. And what mainly differentiates between high decile and medium decile is the opportunity to prescribe, meaning that they have a higher -- the higher deciles have a higher patient base, higher patient load. They typically do tend to be more rapid adopters of branded products. But with this median decile providers, there's ample opportunity for us here to continue to expand ZORYVE and believe that, that frequency will lead to higher adoption of ZORYVE.

Our next question comes from the line of Richard Law of Goldman Sachs.

This is Tan on for Rich. The first one on the primary and pediatric care setting. Curious if you could speak more to what you're doing differently than CALA in those settings. What areas were they not doing well that you think you can improve on? And then I have a follow-up.

Yes. No, it's a great question. Thank you. I'm sorry, Frank. I just jumped in. Thank you. So what we're doing differently is we are -- I mean, what -- I wouldn't reference it as what we're doing differently as it is what we're going to do to make certain that we set this primary care team up for success and that we can drive utilization of ZORYVE within these specialties is that, as mentioned, as we build this team at launch, we're going to be highly focused. We're looking and we've been able to build out the target list to make sure that we're going to be engaging the highest opportunistic primary care and pediatricians. And what I mean by highest opportunistic is this will be the PCPMPs that have the highest patient loads within the 3 indications in which ZORYVE is approved, not only that, but that these providers have demonstrated their willingness to adopt branded products. And these will sit within the major metropolitan areas. Also, we'll make certain that within each of these representative territories that we'll have a defined number of targets where we can make certain that, that representative can have the right frequency on each target to be able to drive trial and adoption of ZORYVE. Once again, setting this up for success. And then as we deliver success, we'll continue to scale from that point going forward.

Okay. Got it. And the second one on the foam in vitiligo and HS. What efficacy benchmarks would you say would be sufficient to give you confidence in continuing development in those 2 indications?

Sure. Todd, you got to pass. Patrick, do you want to take that one?

Thanks. Yes. So as we're looking at vitiligo and HS, keeping in mind that these are smaller open-label trials -- what we're really trying to understand is what does the ZORYVE profile look like relative to current standard of care treatments. And so for vitiligo, we're really kind of looking at the responsiveness timing relative to Opzelura. We know that one of the big challenges for patients with vitiligo is how quickly that they're seeing a response in the skin because that can really drive compliance. So once you get the patient onto the treatment, if they're not seeing the response that they want to, sometimes they'll fall off of their treatment. And I think that's where the mechanism of ZORYVE with PDE4 kind of working both on the inflammatory component, but also we've seen some evidence, as we outlined earlier, some impact potentially on the actual kind of melanocyte protection and pigment production is our hypothesis. So for why it is that we might see an earlier response rate. So we're kind of looking at what that profile is.

Now when we look at HS or hidradenitis suppurativa, one of the things that we really want to be able to see is where are we moving these patients in the earlier stage of disease and how would that treatment, given that there isn't a really effective topical that's out there being used right now for patients with HS, where does that fit within the treatment paradigm that has emerged, where many of those patients are pretty quickly being moved to systemics even if they might have disease that might be able to be managed by an effective topical. So there, I think we see a little bit more blue sky for that. And what we're going to try and outline as we get into Q4 for vitiligo is a pretty clear understanding of both what we are seeing from the response profile, but also where we see the commercial opportunity and how we would see that profile fitting into the landscape.

Yes. And maybe I could just add one additional thought to Patrick's comments. And I think specifically in the HS case, and we saw this again with the APOLLO data today, the systemic therapies are not particularly effective in this disease. So even patients on systemic therapy are often going to need adjunctive treatment. And ZORYVE is really unique in the topical space that it can be safely used in combination with systemic therapies. And the disease is often occurring in intertriginous areas, the growing arm pits where doctors are much more reluctant about using topical steroids as well. So I think both early-stage disease, but also adjunctive to systemic therapy as we're seeing in psoriasis and atopic dermatitis. I think ZORYVE has a uniquely compelling profile for that use case as well.

I'm showing no further questions at this time. I'll now turn it back to Frank for closing remarks.

Okay. Well, I will just thank everyone again for making time. I know it's a busy time of the year for you guys. So I appreciate you calling in and look forward to talking to you all in another quarter. Thanks. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Ladies and gentlemen, thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] 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 fourth quarter and full year 2025 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis' website.

Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Latha Vairavan, Chief Financial Officer.

I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all of 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 thanks, everyone, for joining us today. I want to start out today's call by reviewing some key highlights and achievements from 2025, a year that was characterized by tremendous growth and progress for Arcutis as we pursue our mission of serving individuals living with chronic inflammatory skin conditions. We'll then transition to Todd for a commercial update and then Patrick for an R&D update and Latha for a review of our financial results.

So in 2025, we made significant strides to solidify Arcutis' position as one of the industry's foremost leaders in delivering meaningful innovation in medical dermatology. Throughout the year, we saw robust net product sales revenue growth, steady prescription growth and a strong market share growth across all of our approved indications and formulations of ZORYVE, or topical roflumilast. We are incredibly humbled by the increasing number of healthcare practitioners and patients who are placing their trust in ZORYVE as an innovative, safe and effective treatment option for chronic inflammatory skin conditions, an important and welcome alternative to topical steroids. In 2025, we saw explosive revenue growth for ZORYVE, strengthening its position as the #1 branded nonsteroidal topical treatment across all of our approved indications, psoriasis, seborrheic dermatitis and atopic dermatitis.

There hasn't previously been a drug for chronic inflammatory conditions with a profile or the reach of ZORYVE, an advanced topical -- targeted topical that can be used safely and effectively for any duration, anywhere in the body, across multiple indications and age groups. This unique profile of ZORYVE -- and at a moment in time when there's increasing calls by both providers and patients for innovative safe alternatives to topical steroids, has really fueled ZORYVE's robust commercial growth and success.

So in 2025, net product revenues grew to $372 million, representing a 123% year-on-year increase versus 2024. This revenue growth was driven by year-on-year doubling in total prescription volume and has been further -- and has further cemented our leadership position in the branded nonsteroidal topical segment, where we now hold roughly 45% and a growing share of prescription volume across our approved indications.

ZORYVE's commercial growth in 2025 was bolstered by FDA approvals of ZORYVE foam 0.3% for patients with psoriasis of the scalp and body, 12 years of age and older as well as the approval of ZORYVE cream 0.05% for the treatment of atopic dermatitis in children ages, 2 to 5 years of age. These approvals, which mark our fifth and sixth ZORYVE approvals, respectively, demonstrate our commitment to ensuring that we can bring the benefits of ZORYVE to as broad a group of patients with psoriasis, seb derm and AD as possible.

The approval of ZORYVE foam's expanded indication offered an important new option for individuals who struggle with psoriasis of the scalp and other sensitive areas. These patients now have a formulation that can be used anywhere in their body, affording them a new level of convenience to manage their chronic skin condition. And we're particularly proud of the approval of ZORYVE cream 0.05% in young children with AD, given the frequent early onset of this disease and the meaningful number of patients in this age group. For far too long, there has been a significant unmet need, and we are proud now to be in a position to address it with ZORYVE.

In 2025, we also submitted a supplemental NDA for ZORYVE cream 0.3% for psoriasis in children ages 2 to 5 with a target action date of June 29 of this year. And if approved, this will mark another critical step in serving the unmet needs of this pediatric demographic and their parents and caregivers.

On the clinical development front, in 2025, we completed enrollment in the Phase II INTEGUMENT-INFANT trial, evaluating ZORYVE cream 0.05% in infants ages 3 to 24 months with atopic dermatitis. And earlier this month, we were delighted to report positive top line results from that study, which Patrick will review later on the call. And we're now preparing to submit this data to the FDA for a further label expansion. This is another important milestone as we work diligently to ensure that we can serve this youngest and most vulnerable population who have nearly no FDA-approved treatment options.

In 2025, we also initiated Phase II proof-of-concept studies with ZORYVE foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, marking an important step as we explore potential new indications that would enable us to expand the benefits of ZORYVE to additional individuals in need of effective treatment options and further maximize the pipeline in a molecule opportunity that ZORYVE represents.

Finally, last year, we submitted an IND application for ARQ-234, our novel biologic with best-in-class potential to address a large unmet need in atopic dermatitis as we look to expand our pipeline and extend our mission to deliver meaningful innovation to patients with chronic inflammatory skin conditions.

In short, we have had a tremendous year of progress, and we are confident that these accomplishments have set the stage for a successful 2026 and well beyond. None of this, of course, would be possible without the incredible talent, hard work and persistence of the Arcutis team. So I'd like to take a moment to acknowledge and thank each and every one of our team members for their deep and continued dedication to our company's mission and above all, to the patients that we serve.

Moving to Slide 6. To frame the rest of today's discussion, I'd like to recap the 3-pillar corporate strategy that we introduced a few months ago to describe how we will sustain both near- and long-term growth for Arcutis. We have already made progress across all 3 of these pillars. On the growth front, I just mentioned the compelling data from the INTEGUMENT-INFANT trial and our plans to pursue a label expansion based on that data. And as you'll hear more from Todd in just a minute, we've recently announced an expansion of our dermatology specialty sales force to drive further ZORYVE growth as well as our decision to take over promotion of ZORYVE to primary care physicians and pediatricians.

In terms of the expand pillar, as Patrick will expound on shortly, we continue to progress our Phase II POCs in HS and vitiligo and look forward to sharing data from these trials later this year or early next, and we are evaluating additional POC studies for other diseases. Finally, we look forward to enrolling the first patients in the Phase I study of ARQ-234 shortly and eventually sharing data from that study with the investment community.

These concrete steps in realizing our strategy are evidence of our dedicated and disciplined strategic approach to ensuring Arcutis is well positioned for both the near- and long-term success.

Before turning the call over to Todd and Latha to review our fourth quarter results in more detail, I want to give an update on some key points about the revenue guidance that we gave during our Investor Day in November of last year. First, we are raising our 2026 full year net product revenue guidance range from originally the $455 million to $470 million to now $480 million to $495 million to reflect both the strong momentum for ZORYVE as demonstrated by our fourth quarter results and also the investments that we continue to make in the franchise that the team will detail further today. We will evaluate our revenue guidance throughout the year and may update that when appropriate.

Second, not only did we achieve positive cash flow in Q4 as promised, but we are reaffirming that we will maintain positive cash flow on a quarterly basis throughout 2026 even as we continue to increase our investment in ZORYVE's growth in our pipeline.

And with that, I'll hand the call over to Todd for a Q4 commercial update.

Thank you, Frank, and good afternoon, everyone. Turning to Slide 8. As Frank noted, the strong momentum of ZORYVE's growth continued in the final quarter of 2025, where we generated sustained revenue growth driven by the increased adoption of ZORYVE across our approved indications. In the fourth quarter, net product revenues were $127.5 million. This reflects 84% year-over-year growth and 29% sequential growth from the third quarter of 2025. This sequential revenue growth was primarily fueled by sustained increases in prescription volume of 19%. This reflects the increasing confidence clinicians and patients have in ZORYVE as a trusted treatment across a broad spectrum of inflammatory diseases. And while still in the early days of launch, we are encouraged by the initial uptake of ZORYVE cream 0.05%, the treatment of atopic dermatitis in children aged 2 to 5 years old following the approval in the fourth quarter of 2025.

There was also a very small contribution from a channel inventory build during the period, accounting for approximately 2%, or $2.5 million of revenue in the fourth quarter, which we anticipate will unwind in Q1. We also saw stronger-than-anticipated price improvement in the fourth quarter, driven by a continued reduction of co-pay card utilization as more patients met their deductibles and out-of-pocket maximums, contributing to the remainder of our quarter-over-quarter growth.

Our gross to net remains stable in the 50s, and we anticipate it will remain in the same range in 2026. Unlike some of our competitors in the branded topical space, we did not see any gross to net erosion last year, and we do not anticipate any significant gross to net erosion as we progress through 2026.

We do anticipate a typical reduction in net product revenues in the first quarter of 2026 as compared to the fourth quarter of 2025. The sequential decrease in sales will primarily be driven by typical seasonality resulting from patient deductible resets leading to higher co-pay usage. This will lead to an increase in our gross to net rate to the high 50s in the first quarter, which will then gradually improve throughout the year and end with the lowest gross to net in the fourth quarter as we experienced in 2025.

Additionally, we did see demand across a couple of weeks in January, was impacted by winter storm burn, as expected from a storm of this magnitude. These factors in aggregate will lead to a more pronounced step down in quarter-on-quarter total product revenue Q4 versus Q1 than we experienced in 2025 when we saw increased quarter-on-quarter demand driven by our launch in AD that offset the typical seasonal headwinds. This is only a Q1 dynamic. As you heard from Frank earlier, our conviction in ZORYVE's continued growth and momentum in 2026 is strong and increasing, giving us the confidence to raise our guidance range at this early point in the year.

As you can see from Slide 9, weekly prescriptions on a rolling 4-week average were approximately 22,000 scripts, another record high for the ZORYVE franchise. Over the next year, we anticipate robust and sustained demand from the primary driver of ZORYVE's revenue expansion. The factor that will contribute to the sustained volume growth in 2026 is the recent market access improvements that we have made with multiple national PBMs and health plans.

On the commercial side, several plans improved ZORYVE's access by expanding coverage and improving utilization management criteria to a single step to a topical steroid. Furthermore, we were successful in obtaining coverage with several Medicare Part D plans effective January 1, with roughly 1/3 of all Medicare Part D recipients now having access to ZORYVE to their insurance plan. This makes ZORYVE the only branded nonsteroidal topical included on these Medicare formularies and helps us open the door to access for patients served by Medicare. This has been a key objective for Arcutis from day 1, and these formulary wins are clear validation of our differentiated pricing and access strategy.

Because Medicare formularies favor generic therapeutics such as topical corticosteroids, ZORYVE has been assigned to the non-preferred drug tier, which is associated with higher co-pays or co-insurance costs and preferred tier drugs. While we're delighted to expand access to ZORYVE because of this achievement, we anticipate that the impact of demand may be tempered due to ZORYVE's non-preferred position.

Turning to Slide 10. Our sustained momentum in Q4 and throughout 2025 highlights ZORYVE's exceptional utility. The growing confidence in our brand among both clinicians and patients and the broader shift in the treatment of inflammatory skin diseases away from topical corticosteroids. The 3 charts on this slide demonstrate important factors shaping the treatment paradigm for inflammatory skin diseases. The chart on the left illustrates that the branded nonsteroidal topical segment continues to grow meaningfully, gaining share from topical corticosteroids where usage remains flat or declining. Within the branded nonsteroidal category, ZORYVE is driving the majority of that growth.

The pie chart in the center highlights the share shift driven by faster growth in advanced targeted topicals versus topical steroids. As a result, branded nonsteroidal topicals now account for 7% of total topical prescriptions against a sizable 2025 base of 24 million prescriptions. This represents meaningful progress. As volume continues to shift from topical corticosteroids to branded nonsteroidal topicals, growth should accelerate. Each 1 point share shift from topical corticosteroids translates to approximately 15% volume growth for the branded nonsteroidal topical segment.

And finally, the chart on the right-hand side of the slide makes clear that ZORYVE is positioned to overwhelmingly benefit from this trend of topical corticosteroid displacement as we hold a strong and expanding share of branded nonsteroidal volume at 45%. At our Investor Day last October, we shared our peak sales guidance and reaffirmed our conviction that ZORYVE could become a multibillion-dollar brand. This confidence is rooted in the ongoing shift of a meaningful portion of the topical steroid market toward advanced targeted topical therapies like ZORYVE. For every 1 point of share we capture in the corticosteroid-dominated topical market, we estimate approximately $150 million in incremental revenue.

Evidence that this shift is underway is strong and growing as we enter 2026. Demand from both providers and patients for safer nonsteroidal options to manage chronic inflammatory skin diseases continues to build. At the major dermatology conferences held in the first quarter of this year, a consistent theme from the podium was the need to move beyond topical steroids and adopt advanced targeted topicals. We remain well positioned to provide a safe and effective alternative for those seeking one.

Now moving to Slide 11. I'd like to spend some time providing further detail on our recently announced dermatology sales force expansion and the benefits we anticipate gaining from it. In January, we announced that we would expand our dermatology sales force by approximately 20% to roughly 160 sales personnel. The primary intent of this expansion is to increase our call frequency with mid-decile prescribers without impacting or diluting the level of engagement we have with our most productive top decile dermatology clinicians. Said another way, the intent of the investment is to optimize the frequency of our sales force touch points in dermatology as we already have sufficient breadth of coverage in this provider setting.

To further illustrate our strategy, with this expansion, we have detailed prescribing behaviors across different provider categories. High-decile prescribers are relatively few in number, but as you can see, have the highest volume of potential ZORYVE patients. And it is important to note that we evaluate activity based on total topical prescription writing, including topical corticosteroids, not ZORYVE writing or nonsteroidal topical writing. These healthcare providers have an outsized impact on prescriptions, they write a year, and have been our primary focus to date. With our sales force expansion in mid-2024 on approval in atopic dermatitis, we had already optimized our coverage of these highest value clinicians, briefly engaging them on the potential benefits ZORYVE can offer their patients.

The mid-decile prescriber group is more numerous and frequently see patients in ZORYVE's target indications, albeit not the same very high volume as the high-decile group. To date, we have also been engaging at least these clinicians, but to focus our efforts on the highest potential prescribers, the frequency of the sales team's interaction within them has been lower than optimal and less than high prescribers. With the expansion of our sales force, we will be able to increase our call frequency among mid-decile prescribers to an optimal level, driving increased awareness and adoption of ZORYVE within this group.

And to round out the picture, there's a final category of low-decile prescribers who far more -- who are far more numerous than the other groups based on their low prescription writing, are lower priority for our sales efforts. We are already in the process of hiring these additional reps to strengthen our sales force and are enthusiastic about the level of talent we are bringing to the team and the impact they will have once in the field. We anticipate beginning to see the impact of this investment in the second half of the year and expect it to be accretive in the first year as the team ramps up.

Turning to Slide 12. Expanding Arcutis' commercial presence into primary care physician and pediatricians is a key component of our growth pillar. As announced in January, we have begun building a targeted sales force focused exclusively on these clinicians. In earlier stages of ZORYVE's commercialization, while executing our new product launches and building our operational leverage, the partnership model provided an effective approach to this segment of the market that reduced our financial exposure. We now have the opportunity to combine what we have learned through the initial partnership with our core commercial capabilities to create a targeted accretive opportunity that can scale with time as we further expand our operating leverage.

Importantly, this initial deployment is focused not on whether to pursue the opportunity, but on how best to execute it. We are taking a disciplined stepwise approach, starting with a limited pilot to refine our go-to-market strategy. Then we'll scale thoughtfully while maintaining a highly targeted focus on the highest value PCPs and pediatricians. The initial sales team that we are putting in place for this will be compromised with approximately 30 sales reps and supporting personnel. This effort is distinct from and additive to our dermatology sales force expansion, which remains exclusively focused on driving growth within dermatology practices.

As we expand in primary care and pediatrics, we do so with 4 distinct competitive advantages that position us to execute effectively and drive meaningful impact. First, a highly targeted approach focused on high-volume early adopter PCPs and pediatricians, positioning this investment to be accretive from the outset. Second, proven reimbursement support capabilities, including our patient access infrastructure to help ensure written prescriptions translate into reimbursed prescriptions. And third, the ability to leverage the core commercial model that has driven our success in dermatology. And fourth, strong dermatologist advocacy, which provides important specialist validation for PCPs and pediatricians.

ZORYVE's differentiated profile as a safe, nonsteroid topical suitable for use anywhere on the body and for any duration offers primary care clinicians a level of confidence not typically associated with topical steroids. As the shift away from topical steroids expands beyond dermatology, we are well positioned to benefit. While we began with a focused pilot with early adopters, we believe ZORYVE's profile has the potential to resonate broadly over time across both primary care and pediatricians.

I am now on Slide 13. Yesterday, we are excited to announce that Max Homa has joined our Free to Be Me awareness campaign, sharing his experience in managing seborrheic dermatitis with ZORYVE foam. Max joins Tori Spelling, who, along with her daughter, Stella, have shared their experience with atopic dermatitis and seborrheic dermatitis and advocating for individuals with inflammatory skin diseases to initiate conversations with their healthcare providers about ZORYVE, a safe, effective long-term treatment for these chronic diseases.

The range of impact that Tori and Stella have had in driving awareness around treatment options for atopic dermatitis and seb derm have been wide and impactful with coverage in over 60 traditional news outlets and thousands of broadcast and radio TV airings to achieve close to 5 billion media impressions and social media reaching millions on Instagram and TikTok. We look forward to Max further contributing to these efforts. And based on the media and social media coverage in the last 24 hours, it's off to a great start, with over 25 original articles achieving over 400 million impressions.

And with that, I'll turn it over to Patrick.

Thank you, Todd. I'm now on Slide 15. Ensuring that we can deliver ZORYVE to as broad a number of individuals with psoriasis, seborrheic dermatitis and atopic dermatitis as possible, thereby benefiting from the unique profile of this drug, remains a top priority for us. Our ongoing efforts to support young children with plaque psoriasis and infants suffering from atopic dermatitis are central to this goal.

I'd like to start off today by highlighting the positive top line results from the INTEGUMENT-INFANT Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis, which we announced earlier this month. 58% of participants achieved a 75% improvement in Eczema Area and Severity Index, also known as an EASI-75, with ZORYVE cream 0.05% at week 4. And notably, 1/3 of patients reached EASI-75 already after only 2 weeks of treatment, demonstrating a very rapid and robust result and one that has already garnered highly positive feedback from clinicians.

Turning to safety. We saw no treatment-emergent serious adverse events and only 1 patient discontinuing the study due to an adverse event, reinforcing the consistency of the safety and tolerability profile of ZORYVE cream 0.05% already seen in the 4-week pivotal INTEGUMENT-PED clinical trial in children ages 2 to 5 years.

Finally, and still on Slide 15, we have photographs of a 10-month-old Latino child from the study who achieved an EASI-75 at week 4. We can see clearly he has significant atopic dermatitis at baseline on the arms and the legs as well as a facial involvement, which is really characteristic of infants with atopic dermatitis. As a practicing dermatologist, seeing this type of rapid and meaningful clearance in patients at this young age who have historically been difficult to treat given very limited available therapeutic options is really encouraging. Of note, enrollment in the trial for this age range was very brisk and exceeded typical enrollment patterns and our expectations, confirming that there is significant interest in nonsteroidal treatment options for these most vulnerable patients.

These results of the INTEGUMENT-INFANT trial are extremely promising as infant atopic dermatitis patients urgently need innovative alternatives to topical steroids, with vanishing few FDA-approved treatment options for this segment. And unlike other inflammatory skin conditions, atopic dermatitis often presents at an early age. Nearly 10 million children in the U.S. are impacted by atopic dermatitis with roughly 60% developing symptoms in their first year of life. And within just the study age range here, infants 3 to 24 months old, there are nearly 1 million prescription topically treated patients in need of better therapeutic options.

AD presents unique challenges in these younger age groups, not only because the skin is more sensitive, but also because the condition often covers a greater percentage of their total body surface area compared to adolescents and adults. This raises the risk of greater systemic absorption. Therefore, parents of these young infants are particularly sensitive to potential negative side effects of topical steroids. These concerns range from the impact of chronic steroid use on the child's growth and bone development to more immediate concerns like application to the child's face where contact with the eyes and mouth can be difficult to control.

Given the size of the patient population and the acute need for safe and tolerable therapeutic interventions, we've been methodically pursuing label expansion for ZORYVE to younger ages of children with atopic dermatitis. Notable about the INTEGUMENT-INFANT data is that we're moving closer to having a marketed product that can be used to treat individuals with chronic inflammatory skin conditions, like atopic dermatitis, across the lifetime continuum from infant to adult. This means that there will be a nonsteroidal treatment option that spares patients from the youngest stage onwards from exposure to steroids while effectively treating their skin conditions.

Moving on to Slide 16. We're already engaging pediatricians on our currently approved indication for 2- to 5-year-old atopic dermatitis patients and the INTEGUMENT-INFANT data, combined with our pending PDUFA date for 2- to 5-year-olds in psoriasis, if approved, all support further outreach to pediatricians by our internal sales force. With the treatment alternative to steroids that is now demonstrated to be safe and effective, once approved for infants and as pediatricians gain familiarity with prescribing ZORYVE to, for example, a 12-month-old infant with atopic dermatitis, they'll be more likely and more inclined to then prescribe it for an older child or an adolescent as well.

As Todd noted, we've been encouraged by our initial launch of ZORYVE cream 0.05% for the treatment of children ages 2 to 5 years old with atopic dermatitis, a population of about 1.8 million patients. We're excited to continue our introduction of this important new therapeutic option to clinicians and most importantly, to pediatric patients and their caregivers. We plan to report the full results of the INTEGUMENT-INFANT trial at a future medical conference. And based on these data, we plan to submit an sNDA for ZORYVE cream 0.05% in infants in the second quarter of this year.

In addition to atopic dermatitis, we're also pursuing a label expansion to treat pediatric plaque psoriasis patients. While this patient population is smaller than that of pediatric AD patients, there's still an acute need for better therapeutic interventions that we are working to address. In quarter 3 of last year, we announced that we submitted a supplemental NDA for ZORYVE cream 0.3% to expand its indication to the treatment of plaque psoriasis in ages 2 to 5. We've been assigned a PDUFA date of June 29 and look forward to the FDA's decision. If approved, ZORYVE cream would be the first and only topical PDE4 inhibitor indicated for plaque psoriasis in children as young as 2, offering patients and caregivers an important alternative to topical steroids and vitamin D analogs.

As we potentially gain label expansions for these younger patient populations across atopic dermatitis and plaque psoriasis, having an internal sales force dedicated to primary care and importantly, pediatric clinicians will be of great value in our efforts to educate healthcare providers on ZORYVE as an alternative therapeutic option to topical corticosteroids. Beyond our clinical development efforts to make ZORYVE available to more pediatric patients, we also continue to evaluate incremental data generation opportunities to further bolster our currently approved indications. At our Investor Day, we highlighted a case report that demonstrated the effectiveness of ZORYVE in treating nail psoriasis. This is a good example of where incremental data generation could further strengthen our current indications, and we look forward to providing further updates throughout the year.

Turning to Slide 17. Pursuing a new patient populations that may benefit from ZORYVE has been a principal focus for our clinical development strategy from the outset. This is evidenced by the 5 approvals we've secured since our initial plaque psoriasis approval in 2022. These have expanded our indications to include seborrheic dermatitis and atopic dermatitis and lowered the approved ages for psoriasis and AD patients. We have good reason to believe that there are additional skin diseases that may respond to, and more patients who may benefit from ZORYVE, represented by the expand pillar of our strategy that Frank highlighted at the outset of today's call. This belief is supported by our understanding of ZORYVE's broadly applicable anti-inflammatory and antipruritic properties as well as its potential impact on protecting melanocytes and by the direct and ongoing feedback we've received from healthcare providers in the field on their real-world ZORYVE experiences.

To that end, we continue to make progress with our Phase II proof-of-concept studies with ZORYVE foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, with subjects continuing to enroll. Vitiligo and HS both represent chronic inflammatory skin conditions with significant unmet patient needs. These are just 2 examples of multiple indications in which ZORYVE has demonstrated encouraging early evidence as promising treatment. Based on that evidence, we initiated the ongoing proof-of-concept studies in vitiligo and HS. We continue to evaluate additional diseases where ZORYVE might be a good therapeutic option. And as we decide to initiate additional POC studies, we will inform the investment community of those developments. We anticipate reporting a decision whether to advance vitiligo, including the Phase II proof-of-concept data, in the fourth quarter of 2026 and an advancement decision in HS, including the HS Phase II data in the first quarter of 2027.

On Slide 18, as a reminder, there are 3 cases that typify the sort of case reports and case series that we receive and that are informing our ZORYVE expansion efforts. The 2 patients on the left are both children with recalcitrant facial vitiligo. The girl on the upper left has previously failed multiple topical therapies, including both topical steroids and topical JAK inhibitors, and you can see meaningful repigmentation after only 7 months of ZORYVE treatment. The boy on the lower left also previously failed topical steroid treatment and shows good response after only 5 months of ZORYVE treatment.

On the right-hand side of the slide, you see a 31-year-old woman with Hurley Stage 1 HS who exhibited complete clearance of her HS, including pain and itch, in only 4 weeks of treatment with ZORYVE, in conjunction with 2 non-inflammatory medications. In the lower right, you also see details from 2 other mild HS patients who had similarly impressive results following ZORYVE treatment. It's clear to see what's driving the enthusiasm that we are hearing from clinicians who are independently exploring these novel applications of ZORYVE.

Now on Slide 19. As I've touched upon today and as represented on the slide, we're looking forward to multiple near-term clinical catalysts in the coming year. Importantly, among these clinical activities is the advancement of ARQ-234, our novel biologic targeting CD200R with best-in-class potential to address a large unmet need in atopic dermatitis and potentially additional inflammatory skin diseases. With excitement around other emerging AD mechanisms, such as OX40, recently coming under more scrutiny, we look forward to moving ARQ-234 into the clinic to validate what has the potential to be a meaningful therapeutic advancement for AD patients with more severe disease. This program has come to our third pillar, build, encompassing our efforts to expand our clinical pipeline beyond ZORYVE. We expect to begin dosing patients in the Phase I trial for ARQ-234 very soon.

And with that, I'll turn it over -- turn the call over to Latha for the financial update.

Thank you, Patrick. I'm now on Slide 21, showing financial results both year-over-year and quarter-over-quarter for the fourth quarter. We generated net product revenues in the fourth quarter of $127.5 million, which is up 84% from the fourth quarter of 2024 and 29% from the third quarter of 2025. We generated $2 million of other revenue in the fourth quarter from a Huadong milestone payment.

Cost of sales in the fourth quarter were $11.7 million compared to $6.9 million in the fourth quarter of 2024, primarily driven by increased ZORYVE sales volume. For the fourth quarter, our R&D expenses were $20.5 million, which is a $6 million increase from $14.5 million in the fourth quarter of 2024, when a clinical trial credit of $3.3 million lowered our R&D expenses for that period. Looking ahead to 2026, we expect an increase in our R&D expenses as we continue to advance ZORYVE life cycle management clinical development activities and initiate the Phase I trial of ARQ-234.

SG&A expenses were $79 million for the fourth quarter of 2025 versus $57.6 million in the same period last year, a 37% increase attributable to investments in our continued commercialization efforts for ZORYVE. In 2026, we expect to see an increase in SG&A expense as we continue to make incremental investments in ZORYVE commercialization efforts, including the expansion of our dermatology sales force and the initial build of our internal primary care and pediatric sales team as detailed by Todd earlier.

Net income for the quarter was $17.4 million compared to a net loss of $10.8 million for the same period last year and net income of $7.4 million for the third quarter of 2025. While we continue to expect positive cash flow on a quarterly basis throughout 2026, we may fluctuate between an operating income and operating loss position quarter-to-quarter driven by noncash expenses such as stock compensation and milestone payments. As anticipated and reported in our Q3 financial update, the continued momentum of ZORYVE net sales growth, combined with our expense discipline, allowed us cash flow positive position in the fourth quarter of 2025, which was earlier than expected and an important milestone and achievement for our company.

Our cash and marketable securities balance as of December 31, 2025, was $221.3 million, with a positive cash flow from operations of $26.2 million for the period. We have total debt of $108 million and have the option to withdraw another $100 million in whole or in part at our discretion through the middle of 2026, providing us with operational flexibility. The success of the ZORYVE franchise and the economies of scale we are generating will permit us to invest in the business for sustained growth over the years ahead.

Now turning to our full year 2025 results. I'm on Slide 22. For the full year 2025, net product revenues were $372.1 million, an increase of 123%, or $205.5 million versus 2024. This meaningful year-over-year increase in product revenues was primarily driven by increasing demand across the ZORYVE products. Other revenue in 2025 was $4 million compared to $30 million in 2024, when we received a $25 million upfront payment in connection with the Sato Japan license agreement.

Cost of sales for 2025 were $36.7 million compared to $19.1 million the prior year, driven by increased ZORYVE unit volume. R&D expenses remained consistent year-over-year with $77.1 million expense in 2025, compared to $76.4 million in 2024, as increased development costs for roflumilast in pediatric atopic dermatitis were largely offset by a decrease in preclinical development costs. SG&A costs increased 20% in 2025 to $274.6 million. This year-over-year increase was primarily driven by our continued and increasing investments in sales and marketing activities related to our commercialization efforts for ZORYVE.

Our net loss in 2025 was $16.1 million compared to $140 million net loss in 2024. This reduction in our net loss of $123.9 million was driven by an increase in net product sales that substantially outpaced the increase in our expense base. While expenses continue to grow due to strategic ROI positive and accretive investments, the considerably faster growth of our top line revenue is an indicator of the growing operating leverage we expect to benefit from going forward as ZORYVE continues its growth trajectory.

Now moving to Slide 23. As we touched upon earlier, across this business, we have multiple near-term value-driving catalysts. Adding to Patrick's summary of expected clinical and regulatory developments, we anticipate continued commercial progress in 2026. This year, we anticipate full year net product sales to be in the range of $480 million to $495 million. This represents an increase of $25 million on the top and bottom end of our guidance range announced as part of our Investor Day in October of last year.

Our confidence in increasing our sales guidance for the year is informed both by the sustained momentum in our ZORYVE business as demonstrated in the Q4 results discussed today as well as the investments we are making in the franchise, such as the dermatology sales force expansion Todd reviewed earlier. I will note that the effect of this particular investment will take some time to materialize and will be evident in the back half of the year, but will likely have no meaningful impact in quarters 1 and 2.

We are confident that we will be able to fund the investments we've described today to grow, build and expand our business with the capital produced from our core ZORYVE business while maintaining positive cash flow. We will continue to be protective of shareholder capital and attentive to managing our capital allocation to ensure that this dynamic plays out. We are fortunate to have a portfolio of high ROI investment opportunities paired with a cash flow generating franchise like ZORYVE.

I will now hand the call back to Frank for some closing remarks.

Okay. Thanks, Latha, and thanks to all of you for joining us today. Based on our expansive progress and achievements in 2025 and our multiple anticipated value-driving catalysts across the business in 2026, we are more energized than ever about the future of ZORYVE, of our company overall, our ability to grow shareholder value and most importantly, of our ability to amplify the impact we can have on individuals impacted by chronic inflammatory skin diseases.

We look forward to providing you with more updates throughout the year, and we thank you for your continued interest in the unfolding Arcutis story.

And with that, we'll open things up to Q&A.

[Operator Instructions] And the first question will come from Seamus Fernandez with Guggenheim.

Congrats on the great results. Frank, I really wanted to just kind of tackle the update that we got from one of the potential competitors in the market. I think Incyte was commenting on some challenges or need to lower OPZELURA pricing in order to improve access. It sounds like access isn't really a problem for ZORYVE. So just wanted to get your thoughts and commentary around the dynamics that are occurring in the market today within both the AD marketplace, but also your broader efforts to continue to take share against topical steroids.

Seamus, thanks. Great question again. Not a surprise after this morning. It's a little funny to be talking in different parts of the hotel. I think maybe for a different perspective, I'll ask Todd to comment on that since you heard my answer earlier today.

Yes, I'm happy to answer that. Seamus, thank you for the question. So first, we do not anticipate any material erosion of our gross to net resulting from actions to increase our access in 2026. As previously mentioned, we were able to achieve significant improved access in 2025. If you look at our commercial access, more than 80% of patients insured by commercial insurance have access to ZORYVE, and it's high-quality access, meaning that it's a single-step edit through a steroid. As mentioned earlier, too, we have exceptional Medicaid access, with more than half of the patient population in Medicaid having access to ZORYVE with a single-step edit or less. And then just announced, was our Medicare Part D wins, effective January 1.

And so we've had optimal access, and we don't anticipate having to give any additional rebates in 2026 that would adversely impact our gross to net to be able to maintain that. And then I just want to also remind that our pricing strategy has been designed to facilitate this kind of reimbursement that allows for meaningful patient access. Our strategic pricing has made a difference, and now we can see that within access across both commercial insurance and government insurance.

Yes. So maybe I'll just chime in and take a little bit of a victory lap here. As I mentioned earlier, I think when we launched, there were a lot of investors who were questioning our access strategy and why we were taking such a different approach than other players in the branded topical space. And I would make a strong case that the last 3 years has proven out the wisdom of the strategy that we adopted. As Todd has just summarized, we've really achieved outstanding access across commercial Medicare and Medicaid now. And that's come with a very reasonable and stable gross to net, in the 50s, and we expect it to remain there.

And so I think, really, the marketplace has proven that we took the right strategy from the outset, and it's paying off not only for our investors, but also for patients.

Great. And if I could just ask one quick follow-up question. It's actually more related to some of the decisions and -- federal court decisions around rebate dynamics and also some labor law dynamics that are calling into question, I think, some rebate structure. But we've also heard that it's going to be really challenging to kind of change the dynamics of the current marketplace as it relates to the presence that the GPOs have. So as you guys look at some of the dynamics in the marketplace, do you see potential positive changes from an access perspective emerging from some of these recent updates and changes?

Yes. So Seamus, that's also a really interesting question. I think that there's a lot of discussion going on right now in Washington about our current reimbursement environment. We saw in the budget bill that was passed last month, I think the first steps in some meaningful reforms to the current payer system, but those were pretty limited steps. There continues to be a lot of discussion in Congress as well as in the administration about changes to the PBM environment -- or to the reimbursement environment, excuse me, more broadly. And I think it's really too early to say what Washington is going to do on that front.

We remain confident that regardless of how the situation evolves, Arcutis is well positioned to continue to both make ZORYVE widely available to patients and to be able to generate a reasonable return for our investors. But I, for one, think it's much too early to say how this is all going to shake out in terms of a meaningful reform to the insurance system in the U.S.

And our next question is going to come from Tyler Van Buren with TD Cowen.

This is [ Ekeno O'Connor ] on for Tyler. Congrats guys on the quarter. We noticed that in your presentation, you guys didn't break out sales for each one of the SKUs. I wonder if you can comment on that and any growth trends that you expect for the different SKUs going into 2026?

Yes, sure. Todd, do you want to take that one?

Yes, I will. Yes, we had -- as mentioned before, we had growth across the portfolio and had meaningful growth within each of the SKUs. If you look at the growth across those SKUs, we see an increased demand more so with the ZORYVE foam, given that we have the 2 indications, seborrheic dermatitis, but also the scalp and body psoriasis, but nonetheless, very positive growth across the products. And we do anticipate to continue to have growth across the portfolio as we enter into 2026 and throughout 2026.

Across these products, they're all highly differentiated, relative to the vehicle itself, but also relative to the patient being that you can -- it's once a day dosing, you can put it anywhere for any duration on the body and is exceptional relative to long-term disease control with these inflammatory skin conditions. So we look forward to continued growth across the portfolio as we continue to roll through 2026.

Yes. I might just add, I do think for investors, looking at the Rx split data since we have different SKUs is a pretty accurate depiction of the split, right? The gross to nets are effectively the same across the SKUs. There's a little bit of a lag when we first launch a product like 0.05%, but that very quickly catches up to the other SKUs. So you can look at the SKU split and get a pretty good sense of what's happening.

The one exception is the foam where we have 2 different indications. And frankly, we don't even have enough data at this point to tease out what's seb derm versus what scalp psoriasis. I think as time goes on, we might get a better sense of an estimate of that, and we'll share that with the investment community. But we're never going to have complete transparency since it is the same SKU.

[ Ekeno ], I'll just add that we have the breakout of net sales in our reported financial statements, and we're happy to send you those details, but the net sales are broken out by SKU, as Frank just said, in the financial statements, and you can look at those.

And the next question is going to come from Judah Frommer with MS.

Congrats on the progress. Just curious to get a little more color on the confidence to raise the full year guide. Obviously, a strong Q4, but heading into what sounds like a seasonality affected Q1. So maybe if you could just break out between formulary access, confidence in the additions to the sales force and anything else that underscored changes to the inputs in your model?

Yes. So Todd, not to wear out my welcome, but I think I'll probably turn that one over to you, too.

Yes, yes. So we -- I want to kind of frame this. One, we -- first is the exceptional momentum that we have in Q4. That to be coupled with the investment that we're making in the franchise, one, the dermatology field sales force expansion, which we will see that impact in the second half of the year. In addition to that, the investment in primary care pediatricians and the launch into that space, once again, have an impact in the second half of the year. But in reference to formulary access, as mentioned, we continue to have exceptional formulary access. We didn't -- the previous year, we will carry that forward into 2026 as we go forward.

So in reference to the Q1 dynamic, I mean, this is typical seasonality that you see with any pharmaceutical product to include nonsteroidal branded topicals. As mentioned, it's partly because of the deductible reset that happens at the beginning of the year. And also patients are changing insurance plans effective the first of the year, which results into higher increased co-pay usage and therefore, higher gross to net rate within the first quarter, which, we mentioned, will be in the high 50s. But from the first quarter, that gross to net rate will continue to trend down, as we saw in 2025, to the lowest rate in Q4.

We raised the guidance. We're very confident in our performance. It's going to happen in 2026, and we expect to have sequential quarter-over-quarter growth as we roll through out of Q1 to Q4 aligned with the restated guidance, once again, taking note that the investments in the dermatology expansion and PCP expansion will have an impact in the second half of the year.

And the next question is going to come from Uy Ear with Mizuho.

Congrats on the good quarter. Maybe a couple of questions, if I may. First question is, I think in the fourth quarter, you indicated that quarter-over-quarter growth was 29% and about 19% of that came from Rx and 2% contributed to inventory. So that sort of implies that about 8% came from price. Just wondering how -- do you expect this sort of benefit to continue through the year and particularly next -- in the fourth quarter of next year as well? That's the first question.

And the second question is, you indicated that you have about 1/3 of Part D. Maybe just help us understand what is it -- like, why you're able to get this 1/3 and when would you be able to get the remaining? And what was it about this particular 1/3 that made -- that facilitate, I guess, access?

Todd?

Yes, no problem. Yes. Relative to the fourth quarter dynamics, you are accurate relative to the 29% with 19% of that being attributed to volume, the 2%, which was the -- an inventory build that we had, once again, 2%, or $2.5 million that we expect to unwind in Q1. And then the other was the price upside, which was a result of patients moving quicker through their deductibles, which lowered our co-pay card expenses. We will see the seasonality in Q1 that we mentioned. But then also, as mentioned, the gross to net will continue to improve through the quarters through Q4 as patients start to achieve their out-of-pocket maximum, which reduces our co-pay card expenditures and that typically starts at the highest in Q1 and then levels down quarter-by-quarter to a lower expense to us, which lowers our gross to net in Q4.

Relative to the Medicare Part D and the 1/3, how and why were we able to achieve this? It's 2 reasons. One is our strategic pricing. We price ZORYVE so that we could have access across both government and commercial payers and PBMs. And the other is that ZORYVE is highly differentiated. One is the portfolio that we have, which no other branded topical company can offer, a portfolio of products across the disease indications that we can.

Other is the significant volume uptake that we've had within our commercial business, is duly noted by the Part D plans, realizing that there's a demand from Medicare Part D beneficiaries to have access to this type of product, which has resulted in us picking up that 1/3 of the Part Ds. Relative to the remainder of Medicare Part D, we will continue to work with the remaining plans and PBMs, but don't anticipate picking that up until likely the first part of 2027, but work diligently to try to pull that forward if possible.

I do think it's worth dwelling on just how big a deal this is to gain Medicare access, Part D access, right? It's very rare for patients to be able to get branded products on the Part D formularies. And I think Todd mentioned in the call, we're the only branded topical on formulary. These are your grandmothers, your mothers. These are people who deserve access to medical innovation as much as anyone else, if not more so. And we're really proud of our success so far in gaining Medicare coverage and are looking forward to getting the remaining Part D formularies on board.

I would also just remind investors that Part D, unlike Medicaid, looks a little bit more like commercial markets where there's multiple commercial plans managing the Part D plans. And so you have to gain formulary access to each individual Part D provider, which is why it's lumpy the way commercial coverage is.

And the next question is going to come from Andrew Tsai with Jefferies.

Brian on here for Andrew. Just on HS and vitiligo, can you just remind us on the primary endpoints for both of those as well as the outcomes that you'd like to see to take them both to Phase III?

Sure. Patrick, do you want to take that one?

Yes. I think what we're looking to focus on as we move into the fourth quarter for vitiligo, for a decision and presenting those data, and then the first quarter for HS is to really be able to get an understanding of what does this kind of the kinetic response of patients look like, because I think here, timing of the response is really important in both of these diseases. They've been challenging with regard to how long it's taken for patients to get to a response that is meaningful to them. So we're really going to be focused on that.

And then as well, for us, it's -- it will be important for us to understand kind of what is that fraction of the patients that are being treated, given that these are open-label studies, who are showing a meaningful clinical improvement over that time point, so that we would be able to kind of make an educated guess as to what the expectation for a pivotal trial would look like as we revert then to kind of the characteristic endpoints that you would expect for a pivotal in vitiligo and HS. But I think that the profile that we've seen of excellent tolerability once-a-day treatment and rapid response, which is kind of characterized our efficacy patterns -- and safety patterns across all 3 indications, is what we'd be hoping to replicate here.

And the next question will come from Serge Belanger with Needham.

Congrats on a strong end to 2025. First question regarding the pediatric opportunity. I think you've been on the market now with a 0.05% cream product for nearly 4 months. So can you provide more color on the level of awareness and the willingness to prescribe the product in this market segment?

And then secondly, you now have an expanding sales force on 2 fronts and a growing cash balance with positive cash flows. So does that change your appetite to add a commercial asset to the bag of the sales force?

Maybe I'll take the first one -- or second question, and then I'll turn the first question over to Todd to give him a little bit of a break. I would say that a commercial stage asset is probably not our highest priority right now. And I think the major reason for that is just the wealth of new opportunities that we have around ZORYVE, right? We've had 6 approvals in the last roughly 3 years. We expect at least one more approval this year, possibly 2, depending on the speed with which the FDA reviews the 3 to 24 months. But we still have a lot of work to do to optimize ZORYVE promotion. And what I don't want to do is put products in the bag that end up distracting us from what is the highest margin commercial opportunity we have, which is driving ZORYVE growth. So I think really, that's probably not a very high priority for us.

Where I think the real opportunity for us to create shareholder value is, quite frankly, is in more development stage assets, especially probably mid-stage development. Patrick and his team and Bethany and her team, I think, have demonstrated that they are an exceptionally strong development organization. And we have, what, 6 FDA approvals under our belt, 4 Health Canada approvals under our belt. For a small company, that's a pretty amazing track record, all of them on time, no CRLs. And so taking a strong asset and putting it in our development team's hands, I think, is the best opportunity for us to create value beyond continuing to drive the growth of ZORYVE and continuing to advance ARQ-234.

And then, Todd, do you want to just comment on what we're seeing on the pediatrics?

Yes. Relative to the 0.05% atopic dermatitis for 2 to 5 years old, there is a strong willingness to prescribe this product, and we're seeing robust uptake of the product since the launch. This is a great product relative to that patient population. offering, once again, once a day, a very soothing, moisturizing vehicle. It's highly effective. That can be put anywhere on the body for any duration. This is a product that drives long-term disease control and is a great option for replacing steroids.

Caregivers and pediatricians and dermatologists prefer not to use steroids in this patient population at this age. And that's where ZORYVE offers a significant value proposition, both to the caregiver patient and to the provider. So we're very encouraged with the uptake and continue to get very positive feedback, not only from providers but from patients.

And the next question is going to come from Rich Law with GS.

Congrats on the progress. A couple of questions here. How much of that new 2026 guidance factors in the potential sales improvement in that primary care and pediatric setting now that you're moving those efforts in-house and then -- and you're also kicking off these pilot programs? So I mean, just based on that minimal contribution from Kowa, I think that's why you guys terminated that contract. Is there an opportunity for 2026 sales to go even higher just based on what you guided if you're able to make improvement in that PCP and pediatrics segment?

I think it's probably a little early to speculate on the magnitude of the primary care contribution. That's something that we'll continue to guide. As Todd mentioned in this call, we're taking a very methodical and stepwise approach to primary care. We're going to start with a very small team focused on the highest value customers so that we can really fine-tune our go-to-market strategy and figure out what's the right way to access this very large but very diffused opportunity in primary care and pediatrics, and then we'll scale that as we figure that out.

So the rate that we scale that and also the rate that it starts to inflect the top line, I think, is probably premature for us to speculate on.

Okay. Got it. And then just a follow-up on the Medicare patients. What's the OOP expense for these patients as that non-preferred branded category?

Yes, I can go ahead and get that one, Frank. So you're talking relative to the out-of-pocket expense for the Medicare beneficiaries, what's the maximum limit on the cap? If that's the question, it would be in 2026, the cap is now $2,100. So a patient needs to pay the co-pay or coinsurance that's aligned with the product up to the maximum out-of-pocket expense at $2,100, and then the products are covered thereafter by the Part D plan.

Yes. I would just add to Todd's point, just a reminder, that $2,100 is total out-of-pocket for all drugs, right? So for an elderly patient who's maybe on multiple medications, their total out-of-pocket expense for the year is capped at $2,100. And patients can also opt in for smoothing, which means that they pay -- their maximum out-of-pocket in any month is 1/12 of $2,100. So it's very manageable.

For ZORYVE prescription, it really depends on the patient's plan, what the actual dollar amount is going to be. It varies depending on both the insurance company, but also on what plan the patient has bought.

And the next question is going to come from Douglas Tsao with H.C. Wainwright.

Frank, maybe just a follow-up on the Kowa and the primary care opportunity. I guess, obviously, as you put it, it's a very large opportunity as well as diverse. Was it simply a function that you didn't think that they were taking the right approach and that you sort of saw a different way forward? Or was it just simply just capturing all the economics for yourself?

I wouldn't say it was either. When we signed this deal with Kowa, I guess it's been about 1.5 years ago, we weren't in a financial position where we could build our own primary care team. We're in a very different place today. And Kowa is a perfectly fine company. But when something really matters to you, it's often best to do it yourself, right?

So given that we're in the financial position to do this ourselves, we felt that the best way to maximize shareholder returns was for us to drive primary care and pediatric promotion ourselves. I will say, as you pointed out, we do keep all the economics on that, but there are some expenses associated with it, too. But we feel very confident that we're going to be able to do this in a way that will be accretive very quickly to our shareholders.

And Frank, if I can, as a follow-up, I mean, is it also just given the momentum that you've seen with ZORYVE that it just bolsters your confidence that this is sort of dual role from the company?

Yes, absolutely. And I think I would add to that, that some of the early experience with Kowa added to our conviction around this. There's a very high level of excitement, I would say, in primary care and pediatrics around ZORYVE for doctors who they had called on. They started running speaker programs at the end of 2025. And for those of you who haven't been in the business, speaker programs are very difficult to run these days. The response, the attendance of those programs, frankly, astounded us and I think really speaks to the very high level of interest in the primary care and pediatric communities. And I think that's only going to build as we continue to expand our pediatric indications to 2 to 5 in psoriasis and eventually 3 to 24 months in atopic dermatitis as well. So that added to our conviction that this is a real opportunity.

The other thing I think that's really important is, to remind everyone, we talked about this on the investor call that there's something like 300,000 primary care providers in the United States, right? That's a colossal number for any company, but certainly for a smaller company like us. But -- and we talked about this in the investor call, about 5% of those providers are writing about 1/3 of all topical scripts. So there's actually a very, very high-value concentrated pocket of primary care and pediatricians. And really, where we're going to focus our efforts is on that very concentrated high productivity segment of the market.

We may pick up some volume in the other portions of the market, too, but we're not looking to build a massive primary care sales force that's calling on tens of thousands or hundreds of thousands of primary care providers. That just doesn't make sense for us. So we're really going to focus on the tip of the spear where there are very, very high-volume primary care doctors for topical therapies.

I am showing no further questions in the queue at this time. I will now turn the call back over to Frank for closing remarks.

Okay. Well, I will keep it short. As always, thank you for the great questions. Thank you for making the time to call in and listen to our discussion today, and we look forward to talking to you all in another 90 days to update you on the first quarter.

Thanks a lot. Bye-bye.

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

Good day, and thank you for standing by. Welcome to the Arcutis Biotherapeutics 2025 Third Quarter Financial Results and Investor Day presentation. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, [ Brian Scholkoff], Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today to review our third quarter 2025 financial results and business update. And for our extended Investor Day presentation, slides for today's call are available on the Investors section of the Arcutis website.

Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Latha Vairavan, Chief Financial Officer. We will also be joined later in the call by Douglas DiRuggiero, a certified physician assistant and doctor of medical science, who has specialized in dermatology for the past 25 years and is the founding President of the Georgia Dermatology Physician Assistant Society.

I would like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank for a brief introduction of today's call.

Thanks, [ Brian], and thanks to all of you for joining us today and freeing up some additional time in your calendars for what we believe will be a compelling review of the strong foundation of our business today and a more in-depth look at our strategy to sustain our growth in the future.

We'll start today's call by reviewing our commercial and financial results for the third quarter. As you'll hear from Todd and Latha in a moment, we achieved yet another strong quarter with robust net product revenue growth and continued steady growth of prescriptions across all approved formulations and indications for ZORYVE.

We'll then move on to the Investor Day presentation, where we'll do a deep dive into why we are excited by and confident in the future of Arcutis and our unique potential to address key unmet needs for patients impacted by immune-mediated dermatological diseases. Today's discussion on our corporate strategy is timely and pertinent as we approach cash flow positivity, enabling us to self-fund investments in our business that will sustain the continued growth of Arcutis.

Our excitement is grounded first in the outstanding growth opportunities for ZORYVE, a revolutionary topical agent that is already reshaping the treatment of chronic inflammatory skin diseases and impact we foresee only amplifying in the years ahead. As you'll hear today, we have multiple opportunities to grow and further expand our ZORYVE business, and we have the capabilities and resources to exploit those opportunities.

We'll also go into more detail today about our exciting pipeline building efforts, starting with ARQ-234, a novel biologic with best-in-class potential to address a large unmet need in atopic dermatitis. Complementing the ZORYVE franchise, ARQ-234 and future pipeline opportunities will enable us to extend our mission to champion meaningful innovation for patients impacted by immune-mediated skin conditions and strengthen Arcutis' position as one of the industry's most consequential medical dermatology powerhouses.

I'd also like to take a moment to thank the Arcutis team for their efforts and commitment to bringing better outcomes to patients living with serious skin diseases. Their unwavering dedication underlays our achievements to date and will be the foundation for the ambitious plans we discussed today.

So thank you all again for taking the time to join us today. And now I'll turn the call over to Todd for our Q3 commercial update.

Thank you, Frank, and good morning, everyone. Turning to Slide 6. As Frank noted, we continued to deliver strong revenue growth, driven by the increase in adoption of the ZORYVE portfolio by both patients and clinicians across all improved indications.

In the third quarter, we generated net product revenues of $99.2 million, reflecting 22% sequential growth and a 122% increase compared to the same quarter of 2024. The substantial revenue expansion was fueled by growing demand for ZORYVE supported by rising prescription volume across all products in our portfolio.

This accessible launch is a reform for the treatment of plaque psoriasis, the scalp and body contributed meaningfully to the expansion in demand and helped to offset typical third quarter seasonality headwinds. Improved gross to net rates during the period also contributed to sequential sales growth driven by reduced utilization of patient co-pay programs as patients progress through their annual deductibles earlier in the year than anticipated.

As a result, we expect the quarter-on-quarter gross to net improvement will be more limited in the fourth quarter, consistent with historical trends with only modest additional benefit expected from co-pay program usage.

On Slide 7. Consistent with previous quarters, our Q3 growth was driven by sustained demand growth across all strengths and indications. Total prescriptions for ZORYVE increased by 13% compared to Q2 and by 92% versus Q3 2024.

Weekly prescriptions on a rolling 4-week average basis reached a new record high with over 17,000 scripts. Following the FDA approval as the [ reform ] is 0.3% of the treatment of plaque psoriasis, the scalp and body in May and a subsequent launch in June, we experienced particularly strong performance from the foam product, with product revenue increasing by more than 25% versus the prior quarter.

The inflection in total ZORYVE volume following the launch as illustrated in the graph, demonstrates the significant impact of this new indication launch. Importantly, we also continued to see steady and growing volume for ZORYVE cream 0.3% during the period, reflecting sustained demand across both formulations in plaque psoriasis.

Overall, our sustained momentum in Q3 highlights ZORYVE's exceptional utility, the growing confidence in our brand among both clinicians and patients and more importantly, the broader treatment shift driven by steroid conversion. In today's presentation, we will further discuss the dynamics behind the shift away from topical clinical steroids. And I look forward to sharing the additional actions we are taking to catalyze and accelerate this transition in the near term.

Looking ahead to the fourth quarter, we anticipate continued strong net sales growth driven by increased patient demand, even as we expect only nominal improvements in our gross to net rate compared to the third quarter. This growing demand will be further supported by the launch of ZORYVE cream 0.05% for atopic dermatitis, age 2 to 5 years old. With that, I'll turn the call over to Latha to review Q3 financial results.

Thank you, Todd. I'm now on Slide 8. As Todd just reviewed, we generated net product revenues in the third quarter of approximately $99.2 million which is up 122% from Q3 of 2024 and 22% from Q2 of this year. Cost of sales in the third quarter were $8.7 million compared to $5.5 million in Q3 2024, primarily driven by increased ZORYVE rev sales volume.

For the third quarter, our R&D expenses were $19.6 million versus $19.5 million for the corresponding period in 2024. Our R&D spend was consistent with prior year as clinical expenditures shifted from ARQ-255 to pediatric [ reforma last ] studies.

Moving forward, we expect an increase in our R&D spend in 2026 as we continue to advance ZORYVE life cycle management, clinical development activities and initiate our Phase I trial of ARQ-234.

SG&A expenses were $62.4 million for the third quarter of 2025 versus $58.8 million in the same period last year, a 6% increase attributable to investments in our continued commercialization efforts of ZORYVE, but SG&A expenses were down approximately 10% as compared to the second quarter of 2025 primarily due to a decrease in promotional and marketing spend resulting from timing of expenditures between quarters.

Net income for the quarter was $7.4 million compared to a net loss of $41.5 million for the same period last year and a loss of $15.9 million for the second quarter of 2025. The net profit generation in the quarter was driven by the $17.7 million of sequential increase in net sales concurrent with a $5.4 million reduction in operating expense.

While we do not expect our net income to remain positive in the near term, the improving operational leverage that we demonstrated in the quarter with growing net sales contribution from ZORYVE outpacing increases to our core expense base speaks to the profit generation capacity of the ZORYVE franchise.

We previously communicated that we anticipated achieving cash flow breakeven in 2026. However, the continued momentum of ZORYVE net sales growth, combined with our expense discipline has facilitated the acceleration of this important milestone, and we now expect to achieve cash flow breakeven in the fourth quarter of 2025.

Now turning to Slide 9. Our cash and marketable securities balance as of September 30, 2025, was $191 million, with cash burn from operations of $1.8 million for the period. We have total debt of $108.5 million and have the option to withdraw another $100 million in whole or in part at our discussion through the middle of 2026 providing us with the flexibility to invest in the continued expansion of our business.

The success of the ZORYVE franchise and the economies of scale we are generating will permit us to invest in the business for the sustained growth over the years ahead. I will elaborate on this when discussing our capital allocation strategy later in today's presentation. With that, I'll turn the call back over to Frank to kick off the Investor Day portion of today's call.

Thanks, Latha. We founded Arcutis in 2016 to address what we saw as a significant innovation gap in the immunodermatology drug development space. We recognize that the vast majority of dermatology patients were being treated by older therapies that offered inadequate efficacy, did not target specific disease mediators and/or carried substantial safety and tolerability issues.

So we set out to identify, develop and commercialize best-in-class molecules that would address unmet needs in dermatology by directly targeting immunological mediators of inflammatory diseases. We have been extremely focused, deliberate and successful against this goal, steadily executing on the promise of ARQ-151 and ARQ-154, now known as ZORYVE Cream and ZORYVE Foam as a true pipeline in a molecule opportunity.

As we approach the significant milestone of achieving cash flow breakeven, we've been thoughtfully planning Arcutis' next phase where we will apply the same focus and dedication to ensuring long-term growth, success and most importantly, continued impact for patients.

As outlined on Slide 11, Three pillars provide the strategic framework for sustaining our company's near- and long-term growth. First, we will continue to grow our core ZORYVE business as we establish ZORYVE as the foundational therapy for adults and children who need ongoing therapeutic solutions for managing psoriasis, [ cebroid ] dermatitis and atopic dermatitis.

A significant component of the grow pillar is our sustained efforts to meet the increasing calls for safer, more targeted topical alternatives to topical steroids. A topic we will be spending a good deal of time today talking about. This pillar also includes our efforts to expand into primary care and pediatrics and in-line growth opportunities, such as our recent launches in scalp and body psoriasis and pediatric atopic dermatitis and incremental data generation opportunities to bolster ZORYVE's position for our currently approved indications.

Second, we plan to expand the ZORYVE franchise through strategic life cycle management. Specifically, we are evaluating new potential indications that represent significant unmet needs and where patients would benefit from ZORYVE's unique profile. Our new indication exploration, a core tenet of our clinical development strategy will be guided by a large body of case reports from clinicians who have used ZORYVE in various other inflammatory dermatosis and have seen encouraging signs of efficacy.

And finally, we will build our pipeline advance by advancing other innovative medicines for patients, leveraging the best-in-class clinical development and commercialization capabilities we have developed at Arcutis. Our focus initially will be on ARQ-234 and in parallel on potentially sourcing promising external innovation.

As you'll see on Slide 12, we've designed today's agenda to align with these 3 strategic pillars I just reviewed. We'll cover sustainable growth drivers for ZORYVE's current indications. As part of the presentation, Patrick will host a Q&A with the imminent dermatology physician assistant, Douglas DiRuggiero to gain a clinician's perspective on the changing treatment landscape. We'll follow this with an overview of our expansion efforts, including our exploration of potential new indications for ZORYVE with initial efforts in vitiligo and [indiscernible]. And finally, on the ZORYVE re front, we'll provide some insights into peak sales potential.

We'll then move forward to a discussion of our pipeline building strategy, which will include a review of ARQ-234 and its opportunity to address a significant unmet need in atopic dermatitis and an overview of our framework for evaluating business development opportunities. Lastly, we'll wrap up with a review of our capital allocation and balance sheet strategy before opening up the call to Q&A. With that, let's dive right into the agenda.

Turning to Slide 13. It's been just over 3 years since we received our first FDA approval for ZORYVE. Since that time, and as we've demonstrated yet again today with our Q3 financial results, we've achieved meaningful and sustained growth in our 3 current indications through a steady drumbeat of new formulations expanded adoption within those syndications and strong execution, leading to consistent prescription growth quarter-on-quarter.

But beyond these individual milestones, it's important to consider ZORYVE from a 30,000-foot view. And what we see from that perspective is that there has never been a product as uniquely suited to the treatment of immune-mediated inflammatory skin diseases as ZORYVE. As we outlined on this slide, ZORYVE's unique profile, which is truly exceptional amongst topical agents can be categorized into 3 key buckets.

First is ZORYVE's [ pleotropic ] mechanism of action, combined with its variety of formulations. Patrick will go into more detail on the MOA later in the presentation. But at a high level, [ PDE4 ] has demonstrated the potential to impact multiple inflammatory cytokines, decreased neuronal itch signaling and increased melanocyte activity.

Second is ZORYVE's rapid and robust efficacy, spanning multiple dimensions in multiple dermatosis. As you might imagine, the first and second bucket gives ZORYVE remarkable potential utility across a wide breadth of inflammatory skin conditions, not only psoriasis, atopic dermatitis and [ set ] derm but potentially well beyond our 3 initial indications.

And third and critically is ZORYVE's safety and tolerability profile, which enables its use anywhere in the body and for any duration. Safety with chronic use is a key differentiator versus topical steroids and an essential characteristic for the treatment of conditions that often require therapeutic solutions, not just for a month or 2, but for years and often a lifetime.

This unique profile is set against the backdrop of an emerging sea change in dermatology where the prolonged use of corticosteroids, historically the standard of care across many inflammatory dermatosis and is facing increased scrutiny and where there's a call to action by a growing number of dermatology clinicians and patients for long-term targeted nonsteroidal treatment strategies.

For immune-mediated inflammatory skin conditions, ZORYVE is the right drug with the right profile at the right moment. And because of this convergence of factors and the opportunity for ZORYVE [indiscernible] growth is vast. I'll now turn the call over to Todd to review ZORYVE's opportunity through market landscape lens.

Thanks, Frank. Slide 15 provides a clear illustration of the sizable and realistic market opportunity for ZORYVE. In the U.S., across our currently approved indications of psoriasis, sender and atopic dermatitis, the diagnosed population totals approximately 30 million patients.

Of these patients, about 19 million people are already receiving topical treatment, primarily topical corticosteroids prescribed by clinicians in every specialty. Within this group, roughly 8 million are being treated in a dermatology specialty setting. The area where acute has concentrated its commercialization efforts to date.

As a result, the serviceable obtainable market of patients who are already under dermatology care and are already receiving a topical prescription for their psoriasis, AD or seb derm is both substantial and highly addressable. The key question then is what share of this market will ZORYVE recapture?

Given ZORYVE's differentiated clinical profile, the strong foundation established during the early phases of commercialization, broad reimbursement coverage, the shifting treatment landscape and the strategic actions we are taking to drive both prescribing breadth and depth, we believe increasing the ZORYVE share to 15% to 20% of topical steroid prescriptions or potentially more is both realistic and achievable. As we'll outline further today, there are compelling reasons to believe ZORYVE is positioned for significant and sustained growth in the years ahead.

Now turning to Slide 16. The foundation of our conviction is rooted in what we are already seeing playing out in the market. On the left side of the slide, you can see that over the last 6 quarters, the branded [ non-sola ] has been carving out a meaningful foothold in the topical market.

During this period, the [ non-serotopical ] volume, shown by the middle grade has increased over 60%, while topical steroids represented by the yellow line, has essentially remained flat. Within the non-sorted class, ZORYVE is clearly the growth driver, with volumes increasing nearly 200% for the same period as shown by the top most line.

Corticosteroids still account for the vast majority of topic descriptions today, which is not surprising, given they have been the topical standard of care for chronic inflammatory skin conditions for over 70 years. However, the treatment landscape is shifting in both the U.S. and globally, there is a growing demand for innovation in the topic of [ second], innovation that can -- that can deliver improved outcomes and safety.

As a result, we are beginning to see erosion to the topical steroid share within the topical market. Importantly, this version is in its early stages, and there remains a substantial base of topical steroid prescriptions available for conversion. The chart in the center shows nearly 70% of the 24 million annual prescriptions for psoriasis, AD and seb derm written by dermatology specialists are still for topical steroids.

This acquaints to roughly 17 million topical steroid prescriptions each year, a substantial base that will continue to fuel ZORYVE's growth for the years to come. And that does not yet account for the PCP MP opportunity. ZORYVE's outsized growth compared to the broader nonstretopical classes already translated into a meaningful increase in market share.

As shown on the right-hand side, nearly half of all brand topical prescriptions are now written for ZORYVE. With this leading position, ZORYVE is exceptionally well positioned to capture the ongoing shift away from steroids. Next, Patrick will do a deeper dive on the state of the conversion of topic steroids and the factors driving the shift in practice. Patrick?

Thank you, Todd, and good morning, everyone. We want to spend some time expanding on the momentum behind steroid conversion. First, because it signals a crucial paradigm shift in the treatment of immune-mediated inflammatory skin diseases. And second, because it provides a key data point to support our obtainable market thesis that Todd outlined.

So what exactly is driving this conversion? And why does it matter? The first successful use of corticosteroids for chronic inflammatory skin diseases was reported in 1952. In more than 70 years, we've seen remarkable scientific and medical innovations across many therapeutic areas and treatment modalities.

But topical steroids have remained a mainstay in the management of conditions like atopic dermatitis and psoriasis. The introduction of biologics has represented a major advancement in the treatment of immune-mediated inflammatory skin conditions. However, even as the introduction of these novel therapeutics has benefited the subset of patients with more severe diseases.

Topicals overwhelmingly remain the first-line therapy for the vast majority of patients. And even patients on biologics often continue to rely on adjunctive topical treatments in order to manage residual disease and breakthrough flares. There's an increasing recognition among health care providers, professional societies and patients that the long-term use of topical steroids can be associated with serious adverse effects that can both be local and systemic and this is at the stage for intensifying calls to limit long-term topical corticosteroid use and embrace innovation in the topical modality.

So that you can understand, what is galvanized this loud global call of concern about the use of topical corticosteroids, I want to help frame the problem at hand. And to accomplish this, we've adopted a slide from a recent review article written by Douglas DiRuggiero who I was speaking to later in this program.

On the left-hand side of Slide 17, we see the list of common local adverse effects of chronic steroid treatment. Most of these were well documented all the way back into the 60s and include skin barrier damage, atrophic changes like stria or stretch marks, cataract formation and delayed wound healing. Importantly, adverse effects related to topical corticosteroids are not limited to local effects.

What you see on the right hand of the slide is the list of systemic effects, which are broad and deep, including disruptions in reproductive endocrinology growth suppression, osteoporosis and bone fracture, diabetes and ophthalmic effects, including cataracts and glaucoma.

The clear association of cumulative topical steroid exposure and increased risk of bone fracture and diabetes have only been fully appreciated more recently as topical multiple publications emerge that validate the growing concern that long-term adverse effects of topical steroid use are not that different from the well-known adverse effects that have made systemic steroids a treatment of last resort for most inflammatory diseases.

While the risk of these effects increases with steroid potency and duration of use, there have been cases reported with low potency agents or short periods of use. Additionally, infants and children may be most at risk because their skin disease typically involve a higher body surface area than adults and their immature skin barrier can result in greater permeability.

And lastly, patient populations at even higher risk include those who use topical corticosteroids on the face or genital areas, as [ center ] skin is not only more prone to local adverse effects, but is associated with greater skin permeability and drug absorption, especially in those with atopic dermatitis, separate dermatitis, given the skin barrier dysfunction inherent in these diseases.

Clinicians are often increasingly realizing that many patients are not only exposed to topical steroids, but also may be using other steroid treatments like inhaled, intranasal and even oral steroids and this total cumulative steroid exposure dramatically increases the risk of adverse steroid effects.

Given all this, you can also understand why we are so passionate about addressing these mounting concerns and leveraging scientific innovation to bring more targeted therapeutic solutions to patients that is both effective and safe.

As you can see on Slide 18, in August of this year, 2 of the primary professional dermatology societies in the U.S. The Society of Dermatology Physician Assistance, the SDPA, and the Society of Dermatology Nurse Practitioners, the SDNP, issue statements recognizing the emerging evidence of these potential adverse effects and the importance of incorporating advanced topical targeted therapies that reduce the reliance on chronic topical steroid use.

These statements are the latest in a growing list of high-profile calls for the limited use of topical steroids due to the adverse effects, including calls from regulatory agencies in Canada, United Kingdom and India, other professional societies, such as the International [ Eczema Council], British Dermatological Nursing Group British Association of Dermatologists and the American Academy of Family Physicians, patient advocacy groups like National Eczema Society and National Eczema Association as well as several recently published physician expert consensus panel recommendations.

As you can see, this represents not merely an isolated regional appeal, but a global groundswell. In the U.S., the recent acknowledgment by the SDPA and the SDNP is particularly important given the key role physician assistance and nurse practitioners play in treatment decisions for patients with chronic inflammatory skin conditions.

Next, we'd like to share a conversation I recently had with Douglas DiRuggiero on the evolving topical treatment landscape for immune-mediated dermatosis. Douglas DiRuggiero is a certified physician assistant and a doctor of Medical Science, who specialized in dermatology for the past 25 years.

Douglas practices with the skin cancer and cosmetic dermatology center, nationally recognized provider of advanced adult and pediatric dermatology care in Northwest Georgia and Southeast Tennessee. Douglas is also the Founding President of the Georgia Dermatology of Physicians Assistance Society and recently was named a national Honoree by the National Psoriasis Foundation, the first time a physician assistant ever received this award. He's written and spoken extensively on the topic of potential adverse effects from prolonged use of topical corticosteroids.

I think it might be good to frame the conversation with Douglas by highlighting the role that physician assistance and nurse practitioners play in the dermatology field. NPs and PAs are providing an increasing amount of direct dermatology care, including prescription writing, this expanding role is in part being driven by heightened demand for dermatological care as dermatologists provide care in medical dermatology as well as surgical procedures and cosmetic services. These NP and PA providers are failing critical gaps and ensuring patients with skin conditions have access to the vital and high-quality care they need.

Well, Douglas, I want to thank you for joining me here and being willing to come on and share some of your insights over the almost 30 years of practice that you've had. And especially, I want to talk to you coming out of your paper that you published on the impact of topical corticosteroids systemically. I found that to be a really excellent review, learned a lot from it. I thought it would be great to have you come on and share your perspective that led to that.

And I think a good place to start is just kind of what is your personal experience been with the use of topical corticosteroids over the time that you've been in practice, you've seen a lot change and our understanding of therapeutics change. So what's your -- been your personal experience and also a little bit about how that may have evolved over that time?

Well, first off, an honor to be here. Thank you for inviting me. when I stepped into dermatology 26 years ago and have been there ever since. I was very easily [ would ] into topical corticosteroids as being the medication that is for all things. And it's had an impact, I would say, on the trajectory of dermatology, probably more than any other product in our specialty.

And so it's -- and it's been around for a long time, 1952 when it was first compounded into something that we could use on the skin, and it's been used ever since. And so my experience when I got into this in 1999, it was a topical corticosteroids were a mainstay of therapy, first line, second line, third line, maintenance therapy, all of the above. But we didn't have the targeted therapeutics we have now to address some of these systemic diseases with systemic therapy.

So we were using a lot of topical steroids and topical tar and [ Anthera ] lot of compounded things in phototherapy and a lot of the old traditional systemic medications. So the playing field has changed tremendously, not just with targeted systemic therapeutics, but now with vehicles, with delivery systems to the skin and with active ingredients that are finally giving us the efficacy of steroids without the side effects that we have always known about have largely not largely, but I'd say, to a certain extent, maybe turn a blind eye to and we simply can't do any longer.

There's just too much data out there, both to the public knowledge and to the prescribers knowledge that we have to face the facts that steroids carry a lot of dangerous. And we can't transfer that danger or at least I can't transfer that danger any longer on to my patients without really having a lot of information to give them. So it's a shared decision-making process.

Yes. That was one of the things I really took away from your paper. I think that historically, there's been a lot of conversation around local side effects. And I think a lot of people felt somewhat comfortable, especially when there wasn't another option with that. But I think one of the things that you really highlight well in the paper are some of the new areas of data that have come out kind of highlighting these systemic effects. Is there kind of like one aspect of that in particular that impacted you the most? I know in the paper, you talked about diabetes, you talk about bone fracture and osteoporosis. Any particular area that was impactful for you?

Well, I'll tell you 2 stories that drove that, and I'll answer that question indirectly through this. I had a patient who is a 13-year-old boy, who came in for eczema, atopic dermatitis and I put them on triamcinolone, which is a very commonly prescribed mid-potency prescription steroid and he was a type 1 diabetic. He had been since he was about 6. So he had a pump and he had a monitor, and he was able to watch his sugars closely.

And the mother came in, this is about 3 years ago and told me that we can put [ triamcinolone ] on his 2 forearms, and we can watch his blood sugar go up 40 points in 40 minutes. And I was just like shocked by that, that they could see that rapid of a rise in his glucose levels with the application of a topical steroid cream, on about 5% to 7% of his body service here, not like this whole body. I began doing some research on this and say, what are really the systemic side effects to this. We are focused in dermatology, and we do a good job of counting our patients against the cutaneous side effects.

If you use it too long, and in the wrong areas and unfolds, it could extend the skin, what we call [indiscernible], you could have [ strand ] stretch marks, you would get steroid-induced acne or folliculitis, you get unwanted hair or hypertrycosis. It could create dyschromia, discoloration. I asked all of these very experienced derm providers. If a mom wants steroids and she's demanding to have them, what reasons will you give her or to an adult patient, what reason would you give them on why they should not have more steroids topically. And they all listed all of those things.

No one listed anything systemic because we [ fastly ] associate all the systemic side effects with giving them systemic steroids. And we do not and have not been trained and do not recognize the whole body of information is out that shows that these medicines are highly absorbed, and they act like a systemic drug like you're taking it orally or injecting it.

And so yes, we have a lot of data out there that shows that it will raise blood sugar, diabetes, it can create something called [ cushanoid ] syndrome or adrenal insufficiency. But the surprising one for me is the data out there on developing a vascular necrosis of the hip. 20 and 30-year olds that have only been on topicals, no other systemic case reports, having had hip replacements.

I highlighted a couple of those in the recent lecture I gave. [ Osteopritic ] fractures, I did -- talked about a case report an 11-year-old we've been using mid- to high potency corticosteroid creams only, no systemics, just topicals for 3 years and had a [ wrist ] fracture and a full body osteoporosis like an 80-year-old and this kid's 11 and had [ osteopretic ] fracture.

And so we are seeing now that increase in ocular pressure in the eye. We used to think that if you just use steroids around the eye, you increased your chance of that now. We know you can use steroids anywhere on the body and increase your risk of glaucoma and increased ocular pressure.

So we can't turn a blind eye any longer to the internal systemic impact of using an external topical steroid because it is acting like we're giving it internally, and we've got to face those facts. And it should change the way we prescribe and it should change the way we educate our patients about these things.

What are you hearing from your peers on this idea of the role of topical corticosteroids and how that may be changing over recent times?

It's really a lot of shock to be honest with you, when they see the data because it's not something that's being talked about in the clinic that these trials and these case reports and these meta-analysis and the system analysis of are not really being championed and put forth. And quite frankly, we're being forced by insurance companies in a lot of areas to use topical corticosteroids first line before we can go and use the medicines that we feel like are safer and work just as well.

And so some of it is for step through therapies and some of it is just simply lack of knowledge. So the reaction I get is using one of like, I just cannot believe. And when I present this information, I really present it in a very self-reflective way because I have been one of the top [ riders ] of topical corticosteroids in my state for many years.

So I mean I'm looking in the mirror and saying, how much have I contributed to these things without knowing it but I can't willingly continue to contribute to it. And so I think that's what a lot of people have. I've got a lot of incredible comments, e-mails, people have called me to tell me about the impact that this data has had on them and how it's changing the way that they are [indiscernible] patients, how they're beginning to keep track of the grams of steroids that they're giving out how they're asking about other forms of steroids that the patients are getting.

These are just not things that we've been used to slowing down and monitoring what we were calling this corticosteroid stewardship in order to catch up to some of our colleagues that are overseas or in Canada where they're beginning to heavily monitor these products and give patient warnings when they're dispensed from the pharmacy. Other countries are beginning to see this and have already begun to be proactive with educating and monitoring these things in the U.S. really needs to take a role in this, in my opinion. And I feel like a lot of us in dermatology have the ability and now have some momentum to make this happen.

And you made reference to these advanced targeted topical therapies like ZORYVE. How do that they've kind of played into this evolution and this change over the course of your practice, given that topical corticosteroids are still the majority of the prescriptions that are written for patients with some of these chronic inflammatory skin diseases like atopic dermatitis, psoriasis and [indiscernible]?

In the second quarter of 2025. So I don't have the third quarter numbers, but in the second quarter, so fairly recently, how many prescriptions do you think were field of topical corticosteroids by dermatology practices? So just derm providers, not family care, not any other specialty. Most -- the highest number I have people guess is 500,000 in a quarter. Most we're guessing 200,000 to 300,000 written by the 20-or-so thousand derm providers that are out there.

And when I tell them it's 2.9 million not over the span of a year, but in 1 quarter, 2.9 million prescriptions of topical corticosteroids filled, not even written filled by patients that are receiving the prescriptions from derm providers. I mean you talk about jaws dropping when they realize how much of this we are contributing to this.

And so I mean, even if I can change 1% of that, I mean, at 1%, 29,000, if even if you can less than 29,000, that's a huge, I think, impact over 1 quarter time. So I think the numbers are really alarming to us in dermatology when we are faced with them and we realize how much we are contributing to this to this problem. And so now we have such fantastic alternatives like ZORYVE.

I mean we have had nonsteroidal topical [indiscernible] inhibitors, TCIs, I mean the first 1 was approved in 2000. And so then the next one was improved in 2001. And so we had these 2 topical cases. The problem was is that the tolerability is hard particularly [ tacrolimus ] is things and burns and not as much with [ pericularmas], but they don't work very well.

It's just their efficacy was very lackluster and then we had a PDE4 inhibitor first generation, I would call it an old generation that came out in around 2014, '16 and again, tolerability, low efficacy. And so patients want to get clear, and we want to see them get clear. So it was hard to put peculate but now have something that is like ZORYVE, a medication that's in my hands right now that I can say this works as well as a mid to high potency steroid in my experience and the studies can back this up, and this is once a day, and you can use it anywhere.

That's the beauty of a product like ZORYVE is that there's no limitations from how long a patient can use it. There's no limitations on where they can use it. We have been -- I have been contributing to such a complex regimen of care where you can use this low potency stereo interface and you're going, this mid-potency steroid here. This one is for your scalp because it's a solution. This is a ointment if it's really thick. This one is a [ remit ] -- and these patients have these draw pools of cranes in all of these written out plans on red lights and green lights and when to use it and not to use it.

And you should see the relief on their face say, "This is one cream that you can use anywhere, at any time, it's only once a day and it's got great clearance, and it's going to create itch data and great clearance of disease, whether that's atopic dermatitis or psoriasis."

So in that setting, what do you see as the biggest barrier then for some of these advanced targeted topical therapies? What do you see is kind of that barrier, you've talked about some of the differences in the profile between them and steroids. And we -- I talked about that earlier as well. But is it really a profile issue? Or are there other things that are playing into this kind of transition that you're talking about?

Well, I've mentioned this earlier, and that's step-through therapies. Our largest barrier are insurance plans forcing us to write things that we don't want to write first or to try them or to make it very difficult to get these things approved. So really, the issue when a rep comes in, it's not where you give us a trial or you try medicine. They really need to be saying for almost every medication now is, will you fight for us. Just to try it is 1 thing. The try it just means they're going to get denied, and then you move on back to your generic prescribing habit. But he's going to have to rise up a little bit and fight for a product that you know is safer and works well.

That's how these insurance companies are going to be convinced that the demand is there. I think it's easy to convince patients of the safety. I think it's easy to give them samples or to get them started on something and they see it works. So I think the 2 main categories is always safety.

Safety is always in the driver seat and anything in efficacy or its effectiveness is ride and shotgun. So those are the 2 things in the front seat, you want to be safe and you want it to work. And then in the back seat of any car, is it convenient? Can you get it filled, does -- will the patient be compliant and when you got something once a day, compliance is high.

You've got something that doesn't burn or [indiscernible] compliance is high. You've got something that works. Compliance is high. What's not compliant is often an insurance company trusting us to be doing the name we think is best for our patient. And I think that's one of the larger blocks.

Improvements are being made I will say the words out, I have a lot more patients coming in because of TikTok. I know we kind of throw TikTok and Google, Dr. Google under the bus a lot, but there are some ways where it's been very beneficial. And in terms of informing patients about corticosteroid withdrawal and all the dangers of it, I have a lot of patients who come in and they are -- they sit there and they asked me, what is what you're writing me a steroid stairway because I don't want my child on a steroid. They're now preemptively saying, "I don't want to be on a topical steroid."

And so I've seen a shift in the last 2 years, in particular, when more and more patients despite their insurance, despite their economic status. They themselves are beginning to say, "I don't want to be on this. And I'm in [ World Georgia]. [indiscernible] not like there's a high [ fluting ] area, where you'd expect that to happen."

I'm in a very rural area, and I still have patients on a weekly basis who are questioning me, is this more [indiscernible] steroid because I don't want to be on that. Pediatricians already tried. I don't want my chart on it. I don't want to be on it. I had a guy came in the other day when they talk of dermatitis, he's 40 years old, had it since he was -- birth.

He says, if you're going to write me a prescription for [indiscernible], this would be the last time you've ever seen me. It was his first visit with me. I was like, well, okay. Well, I don't plan to do that, but it's nice to know to convince you and says, "My wife makes you come in every 2 years to see if there's anything new that's out. Tell me what I've got, list my options."

And so -- so we're seeing a shift. It may not be as fast as we want it to be, but it's happening. It's happening.

Next, on Slide 20, I want to come back to an analysis that we shared in 2023 on historical analogs, where newer classes of medicines disrupted established treatment paradigms, unset unseating entrenched generic standards of care. These are 4 different diseases that had firmly established generic standards of care that were disrupted by safer, more effective or more convenient innovative treatments, across the market for anticoagulation, depression, GERD and schizophrenia.

It required between 5 and 10 years before the newer innovative therapies were able to capture 50% of the serviceable obtainable market. It's just been over 3 years since we received our initial indication in psoriasis just under 2 years for seb derm in only 15 months since our launch in AD. We're just getting started and look forward to the continuing evolution of the treatment paradigm for these diseases. Imagine the growth potential if the topical anti-inflammatory market only converted half as much as these other markets.

Now on Slide 21, we highlight key aspects of the topical steroid profile that have driven their wide adoption in dermatology so that we can understand the profile that a nonsteroidal alternative needs to achieve in order to successfully compete. It really comes down to 2 key characteristics.

First, like topical corticosteroids, the drug needs to be effective in resolving both inflammation and itch and it needs to do so quickly. Second, topical steroids work on many of the most common skin diseases like atopic dermatitis, psoriasis and cebra dermatitis, as well as many of the more rare conditions, where there may not currently be any FDA-approved treatment.

So like topical corticosteroids, the drug also needs to work broadly across indications. This is distinct from the expectation for a systemic treatment where a more targeted therapy is desired. Now consider what characteristics a drug would need to move beyond competing with topical steroids, but rather displacing them as a superior therapy for chronic inflammatory dermatosis.

Patients with these chronic conditions desperately need topical drugs that can be used safely over an extended period of time to avoid flare ups, while mitigating the risks and adverse effects associated with prolonged topical corticosteroid use. In addition, the treatment needs to be safe and convenient to use in multiple areas of the body, including topical including difficult-to-treat areas like the scalp and sensitive areas like the face and growing, all of which can be affected by inflammatory dermatosis.

I'll walk through ZORYVE's MOA in detail a bit later in my presentation. Like steroids, ZORYVE has a broad impact on multiple biological processes implicated in immune-mediated inflammatory skin conditions. This distinguishes ZORYVE from biologics that target very specific pathways and other branded topicals that work on a narrower set of mechanisms.

And in fact, as Frank mentioned earlier, ZORYVE as a potent inhibitor of [ PDI], has even broader effects than steroids, directly impacting neuronal itch signaling and melanocyte function in addition to reducing inflammation. We've amassed a substantial body of clinical data supporting our 6 FDA approvals that demonstrate the safety and efficacy profile of ZORYVE with prolonged use across multiple disease states and essentially every area of the body.

As you can see, ZORYVE checks all the boxes for the ideal profile, not only to compete with, but also to potentially replace topical steroids, helping explain why ZORYVE continues to rapidly gain share from topical corticosteroids. I'll now turn it over to Todd to discuss our ongoing commercial efforts in the primary care physician and pediatric specialties.

Thank you, Patrick. I'm now on Slide 22, expanding the breadth of prescribers beyond dermatology will be a key driver of ZORYVE's continued growth. Our initial focus was on dermatology practices, which provided a time and resource efficient rollout, given that the relatively small base of dermatology prescribers account for roughly half of all topical scripts for inflammatory dermatosis.

While we continue to make strong inroads among dermatology practitioners, we have also ramped up efforts to expand the reutilization in primary care and pediatric settings, where over 13 million topical prescriptions are written a year for our current indications. These initiatives are being advanced through our partnership with [indiscernible].

In the primary care and pediatric setting, many providers have had limited exposure to topical nonrate treatments, intended default to prescribing steroids. [indiscernible] team is deploying a targeted high-frequency approach to drive initial trial and ultimately, adoption of ZORYVE among these providers and their patients.

As our thyroid conversion movement continues to gain momentum and visibility, we expect it will increasingly influence prescribing habits in these settings. While the overall universe of providers in primary care and pediatrics is vast, our joint commercial strategy with [indiscernible] is both strategic and highly focused.

As shown in the pie charts on the right side of this slide, of the more than 0.5 million total PCP and pediatricians in the U.S. The top 30,000 prescribers were about 5%, right, 4 million prescriptions or nearly 1/3 of all prescriptions in these segments. These high-volume prescribers are the focus of our efforts and give us confidence that we will be able to officially drive growth with this strategy.

Our activation in primary care and pediatrics is still in the early days. And we are determined to drive ZORYVE's penetration in these settings to ensure this large pool of patients is provided with alternative treatment option to topical steroids. I will now turn the call back over to Patrick, who will discuss in more depth the opportunities to continue growing ZORYVE and psoriasis setter and AD through targeted clinical activities. Patrick?

Great. Thank you, Todd. We'll now turn to the growth opportunities for ZORYVE presented by further extension of our current indications, ensuring that we can deliver ZORYVE to as broad a number of patients with psoriasis, [ cebra ] dermatitis and atopic dermatitis as possible who would benefit from the unique profile of this drug remains a key priority. Our planned and ongoing label expansion efforts to support pediatric patients with plaque psoriasis and pediatric and infant patients suffering with atopic dermatitis are central to advancing this goal as we've outlined here on Slide 23.

Pediatric and infant atopic dermatitis patients urgently need innovative alternatives to topical corticosteroids. Unlike other inflammatory skin conditions, atopic dermatitis often presents at early ages for patients. Nearly 10 million children in the U.S. are impacted by atopic dermatitis with roughly 60% developing symptoms in their first year of life.

Atopic dermatitis presents unique challenges in these younger age groups not only because the skin is more sensitive, but also because the condition often covers a greater percentage of their total body surface area compared to adolescent in adults.

Parents of these pediatric patients are particularly sensitive to potential negative effects from topical steroids. These concerns range from the impact of chronic steroid use on the child's growth and bone development to more immediate complications like application to the child space or contact with the eyes and mouth and can be difficult to control.

Given the size of the patient population and the acute need and desire for safer and more tolerable therapeutic interventions, we've been methodically pursuing label expansions for ZORYVE to younger ages of atopic dermatitis patients. Earlier this month, we received approval of our supplemental NDA for ZORYVE Cream 0.05% for the treatment of children aged 2 to 5 years old with atopic dermatitis, a population of about 1.8 million patients.

Commercial launch efforts are underway, and we're excited to be bringing this important new -- this new therapeutic option to clinicians and most importantly, to pediatric patients and their caregivers. We're simultaneously pursuing development of ZORYVE Cream 0.05% in atopic dermatitis for even younger AD patients, ages 3 months to 24 months.

Enrollment in our integument infant trial for this age range has been brisk and exceeded typical enrollment patterns and our expectations, confirming that there is significant interest in nonsteroidal treatment options. In addition to atopic dermatitis, we're also pursuing a label expansion to treat pediatric plaque psoriasis patients. While this patient population is smaller than that of pediatric atopic dermatitis there is still an acute need for better therapeutic options that we're always trying to meet.

On September 2, we announced that we are submitting a supplemental NDA for ZORYVE cream 0.3% to expand its indication to the treatment of plaque psoriasis in children ages 2 to 5. If approved, the ZORYVE cream would be the first and only topical PDE4 inhibitor indicated for plaque psoriasis in children as young as 2, offering patients and caregivers, an important alternative to topical steroids and vitamin D analogs.

ZORYVE Cream is uniquely formulated to be effective, safe and well tolerated for all areas of the body, including sensitive areas such as intratrigenous skin, where plaque psoriasis often presents in children. There are very limited FDA-approved treatment options for plaque psoriasis for children under 6. We're very proud of this clinical data package and that we have compiled to support this sNDA, and we look forward to the FDA's decision.

Next, on Slide 24, I'll discuss incremental data generation opportunities that our clinical team is pursuing to further bolster ZORYVE's position within our currently approved indications. The utility of these efforts is to produce a clinical data that can be referenced with health care providers that further support the robust and diverse effects of ZORYVE in plaque psoriasis, atopic dermatitis and separate dermatitis.

The intent of these efforts is to enhance the label of current indications by establishing ZORYVE among health care providers as a foundational choice amongst various options in controlling these dermatoses. Examples of note in this effort include polymer plantar psoriasis, nail psoriasis, and cicatricial or scarring alopecia, when it occurs alongside a seborrheic dermatitis. Like nail psoriasis, [ palmoplantar ] psoriasis is a manifestation of plaque soriasis in a particular body area and both conditions are part of our indicated patient treatment population for ZORYVE.

[ Palmar-plantar ] and nail psoriasis present unique clinical challenges and have historically been less responsive to standard of care topical therapies and even available systemic therapies. However, we've received indications from the field, both through formal case reports and informal dialogue with HCPs that ZORYVE is impactful in addressing these challenging locations.

Our intention is to validate this impact through a generation of data that could be made available to the HCPs we engage with. We believe that demonstrating efficacy in these difficult-to-treat patients will incline practitioners to default towards the use of ZORYVE in their preferred topical therapy for their psoriasis patients.

Now currently, scarring alopecia, a group of related conditions, leading to the irreversible hair loss have no FDA-approved treatment. Clinicians tell us that many patients with scarring alopecia also present with seborrheic dermatitis, and there's a belief that these 2 conditions may be linked. This comorbidity is particularly well documented in publications that demonstrate that over half of patients with central centrifical sycatritial alopecia, also known as [ CCCA ] 1 form of scarring alopecia, also have seborrheic dermatitis and researchers have proposed that aggressive management of their receptor may reduce the disease incidence, reduce its severity and a psychological burden in patients with CCCA.

Again, if the clinical data that we produce validates a unique efficacy profile for patients with seborrheic dermatitis and scarring alopecia we believe that it will drive preferential usage of ZORYVE versus other sebderm treatments. This incremental data generation opportunity requires small data sets, a minimal investment while driving depth of prescriptions in these underserved subpopulations. As such, they're highly resource efficient. This effort will help further guide clinical treatment decisions.

Now turning to Slide 25. We you can see select images from case reports that we've received in both palmoplantar psoriasis and nail psoriasis. While the meaningful effect of ZORYVE represented in these pictures needs to be validated through our own clinical evaluation, it's easy to see why we're receiving such excited feedback from the field on the potential for these subsets of patients. So I'll turn it back over to Todd to contextualize the impact that the components of our strategy we have reviewed so far to grow and expand ZORYVE will have on our market opportunity.

Thank you, Patrick. Turning to Slide 26. This morning, we've highlighted the key drivers that sustained ZORYVE's growth in our current indications, continued conversion from steroids expansion into the PCP and pediatric specialties label expansion and generation of intraretinal data for patient subpopulations.

These levers of growth will expand our market opportunity in 2 distinct ways. First, our tenable market will increase to 17 million patients as we continue to broaden our focus beyond the dermatology setting, doubling the patient population across specialties where we have a commercial presence.

Second, we expect to drive continued expansion in ZORYVE's share of total topical prescriptions. To frame the opportunity just within the subset of health care providers, we target across dermatology primary care and pediatrics. Every 1 percentage point of share gain in topical steroid prescriptions equates to approximately $150 million in annual net sales.

As we build share from our current position to the 15% to 20% range that we believe is achievable, ZORYVE will establish itself as a blockbuster franchise across these 3 indications alone. Now Patrick will discuss our plans to expand ZORYVE into new markets.

Thank you, Todd. Transitioning now from growing our core ZORYVE business in our currently approved indications to expanding the ZORYVE franchise by exploring potential new indications for ZORYVE. Pursuing new patient populations that may benefit from ZORYVE has been a principal focus for our clinical development strategy from the outset.

This is evidenced by the 5 expansions we have secured across plaque psoriasis, seborrheic dermatitis and atopic dermatitis following our initial plaque psoriasis approval in 2022. We believe that there are additional skin diseases that may respond to and more patients who may benefit from ZORYVE.

This belief is not only supported by our understanding of ZORYVE's broadly applicable anti-inflammatory and antipruritic properties as well as its potential impact on stimulating melanocytes, but also by the direct and ongoing feedback we've received from health care providers in the field on their real-world ZORYVE experiences.

So that you can understand how and why ZORYVE has potential across such a breadth of skin diseases, I want to take a moment to reorient you to ZORYVE's MOA, its mechanism of action. Notably, it's pleotropic nature.

ZORYVE inhibits phosphodiesterase 4 or PDE4. It's an enzyme that plays a key role in inflammation. PDE4 regulates inflammation by increasing levels of cyclic adenosine monophosphate or cyclic AMP an intracellular messenger in immune cells. The increase in cyclic AMP in turn impacts multiple biological processes implicated in immune-mediated inflammatory skin conditions.

Specifically, it reduces the expression of multiple key pro-inflammatory cytokines, including interferon gamma, type 1 interferon alpha, TNF alpha, IL-4, IL-6, IL-17 and IL-23, which spans signaling through the TH1, TH2 and TH17 immune-mediated responses. PDE4 also plays a key role in sensory neuron activation. So inhibiting PDE4 likely direct likely directly mediates the itch sensation.

PDE4 inhibition also normalizes keratinocyte activation and differentiation, which can lead to mitigation of the epidermal barrier dysfunction that occurs in many inflammatory dermatosis. And finally, it increases melanocyte proliferation, melanocyte gene and protein expression and protects melanocytes from apoptosis.

The breadth of mechanisms and pathways that ZORYVE impacts stands in stark contrast to the very limited and specific pathways targeted with biologics for inflammatory dermatosis. These targeted therapies generally impact one or a handful of cytokines involved in the inflammatory cascade. This narrow focus limits the ability of these therapeutics to be applied widely across dermatosis in the same way that ZORYVE.

For example, inhibiting IL-23 is wonderful to treat psoriasis, but it has no impact on atopic dermatitis or many other inflammatory dermatoses, ZORYVE's unique pleiotropic MOA may also be an important differentiator between it and other topical anti-inflammatory treatments.

Critically, ZORYVE affects this broad set of inflammatory pathways in inflammatory dermatosis without causing systemic immune suppression and thus avoids the deleterious effects that often a company knocking down the immune system broadly with systemic therapeutics. It also avoids many of the deleterious side effects of topical steroid usage, including local skin adverse effects as well as systemic adverse effects such as HPA access suppression, glycemic rate dysregulation, osteoporosis and osteoporotic fractures and ophthalmological AEs.

ZORYVE's comprehensive MOA, coupled with a very favorable safety and tolerability profile enables us uniquely to have broad application across an exceptionally wide range of indications and patient populations. To date, this spanned plaque psoriasis, AD and seborrheic dermatitis. It may also enable us to treat diseases where topical corticosteroids have no impact or not used, such as hidradenitis separative and [ Haley Haley ] disease or where their efficacy is low and use is limited due to topical adverse events, as is the case in vitiligo and cutaneous lupus.

Now I'd like to talk about how ZORYVE [ pleatropic ] MOA translates broadly in the clinical setting. As part of our obligations as a manufacturer of ZORYVE, our medical team monitors this clinical feedback. To date, as shown on Slide 29, we've identified more than 40 published case reports from clinicians who've used ZORYVE in a multitude of other inflammatory dermatosis that have seen encouraging signs of efficacy.

These clinicians have experienced a safe, tolerable, versatile and effective profile of ZORYVE in their psoriasis, AD and seb derm patients that have independently chosen to investigate novel applications of the therapy. The efforts of these clinicians serve as valuable initial signals that our life cycle management process then builds upon. This pursuit of potential new indications is aligned with our original understanding of ZORYVE's pipeline in a molecule opportunity, our approach to assessing these potential opportunities is stepwise and resource efficient as outlined by the simple graphic on the right-hand side of this slide.

As indications of interest come to light, we'll conduct exploratory Phase II proof-of-concept studies where appropriate to evaluate the degree of response and understand potential safety and efficacy. Based on the results of these initial studies, our analysis of the unmet need and the addressable patient populations for a given disease as well as discussions with regulatory agencies will then decide if proceeding with a registrational trial is prudent use of capital given the anticipated return on investment.

Importantly, the investment we plan to make in pursuit of these additional potential indications involves very efficient deployment of capital. For the FDA to approve ZORYVE for these additional patient populations, we would immediately realize operating leverage on our existing sales force, supply chain and operational foundation already in place to serve patients for our core ZORYVE business.

As we reviewed on our Q2 call, we selected 2 initial exploratory indications, vitiligo and [ hydranitis ] super tivo or HS, and our underway with proof-of-concept Phase IIa studies, and we anticipate initiating several other Phase II studies in 2026.

On Slide 30, you can see select images from compelling case reports, we've received in patients with just some of the skin diseases that were listed on the previous slide, lupus, [ Haley Haley ] disease and neurodermatitis of the scalp.

Now I'd like to turn to the unmet needs and potential opportunity in vitiligo and hydrants [ Superteva]. The first 2 potential indications we're exploring based on case reports from the field, starting with vitiligo on Slide 31.

The immune-mediated inflammatory condition, this immune mediated inflammation condition is characterized by the loss of pigment or melanin and patches of the skin, resulting in white or light colored areas. In vitiligo, the body's immune system mistakenly attacks and destroys melanocytes, which are cells responsible for pigment production and skin pigmentation.

There are several vitiligo types based on patterning distribution of depigmented patches and nonsegmental or generalized is the most common. There's no cure for vitiligo. Topical corticosteroids have been standard of care but have limited efficacy and the prolonged use side effects can be a challenge. Opzelura received approval by the FDA in 2022 for the treatment of nonsegmental vitiligo and nearly half of Opzelura's current usage is for this indication. You'll recall that as part of the multi-pathway MLA, PV4 inhibition with roflumilast, the active ingredient in ZORYVE that only regulates inflammation, the underlying cause of vitiligo, but also increases melanocyte proliferation, melanocyte gene and protein expression and protects melanocytes from hepatosis.

In line with the MOA, we've been highly encouraged by multiple case reports from clinicians who pursued vitiligo as a novel application of ZORYVE and showed success treating vitiligo with ZORYVE 0.3% cream once a day. In the ongoing Phase II proof-of-concept study, we plan to enroll 20 patients in determining whether to advance the program to a Phase III trial, we'll consider the clinical profile we see in the Phase II trial, along with data observed in the field. A rigorous evaluation of the commercial opportunity we would expect based on clinical results and how that compares to results from our other life cycle management trials.

For vitiligo, in particular, a clinical result that we may find compelling could be Opzelura-like efficacy with more rapid onset of symptom relief and a more convenient dosing regimen. While we, of course, need input from regulatory agencies in determining what an appropriate Phase III trial design might look like, we anticipate the size and cost of registrational program would be similar to those that we've conducted with ZORYVE approved indications.

However, the duration of treatment on how quickly the disease respond to treatment could impact development cost. We believe that there are aspects of ZORYVE's profile that would make it a compelling therapeutic option relative to the current available treatments such as a once-daily dosing and the fact that ZORYVE is not contraindicated with therapeutic biologics or immunosuppressants.

Now let's take a look at ZORYVE's potential opportunity in [ hydriditis superativa], or HS, on Slide 32. HS is a chronic recurrent and inflammatory skin condition that causes painful nodules, abscesses and tunnels. Currently, diagnosis and treatment rates remain low as treatment options are limited. HS involves disregulation of several key immune pathways addressed by ZORYVE's MOA, including TNF alpha, IL-6, IL-17 and 23 and interferon gamma.

Topical and oral antibiotics are common first-line therapies for mild HS, but provide insufficient relief with a high proportion of patients not improving or relapsing. Beyond antibiotics, options are limited to systemic therapeutics, including corticosteroids, expensive biologics or difficult surgical procedure-based therapies.

It's also worth noting that there are extensive off-label experiences with a [indiscernible], an oral PDE4 inhibitor in the treatment of HS. In short, this is a painful, very difficult to manage chronic disease with many patients not served by the currently available therapeutic approaches. It's our belief that an effective nonantibiotic topical anti-inflammatory would be an important therapeutic option in the treatment paradigm of these underserved patients, particularly at the milder end of the severity spectrum.

In the ongoing Phase II proof-of-concept study, we plan to enroll 20 patients, evaluate the efficacy, tolerability and rate of relief onset provided by ZORYVE how we approach the decision on whether to advance the program to a Phase III trial will be equivalent to the approach in vitiligo. We'll evaluate the strength of clinical data and implicit commercial opportunity and hold that against other opportunities we have across our life cycle management program.

The addressable patient population is also compelling with a 3 million to 3.5 million patient prevalence. Unfortunately, the diagnosis rate amongst these patients is low at less than 15%, in part driven by a dearth of effective therapeutic interventions, which are available.

Industry projections predict substantial expansion of the diagnosis and treated HS population over the next decade based on the belief that much like psoriasis and atopic dermatitis before it, new therapeutic options should drive greater disease awareness, diagnosis and broader treatment.

Currently, development of novel therapeutics for HS is most concentrated in the more severe stages of disease and primarily consists of systemic treatments. We believe that ZORYVE, if it demonstrates activity in the clinic, could be an important topical therapy for mild to moderate disease and used in complement to systemic treatments currently approved and in development.

Now on Slide 33, you can see compelling examples of the impact of ZORYVE in patients with vitiligo and HS. On the left-hand side, there's visible repigmentation in 2 vitiligo patients over a period of 7 and 5 months. On the right-hand side, you can see meaningful clearance of [ hidradenitis super teva ] lesions over just a 30-day period with reduction of inflammation and also a normalization of pigment.

These select examples help demonstrate the encouraging signals that we're receiving from clinicians and why we are excited to further validate the effects of there for these conditions in a controlled clinical setting. I'll now turn it over to Todd.

Thank you, Patrick. I'm now on Slide 34. As we look to the future and potentially expand the ZORYVE portfolio, it is pertinent to reemphasize the competing effect of additional indications on prescriber behaviors that we have previously highlighted.

We have observed that clinicians who prescribe ZORYVE across multiple indications generates significantly higher prescription volume overall, as they recognize both the broad disease management benefits and exceptional tolerability profile ZORYVE provides their patients. We expect the potential introduction of additional label expansions and communications or further compound this trend, serving as a key driver of depth of prescription writing among HCPs is supporting sustained volume growth for ZORYVE in the years ahead.

Now to Slide 35. The important efforts being undertaken by the clinical team at Arcutis have the potential to expand the patient population that can benefit from ZORYVE. Should these clinical efforts prove successful and regulatory approval is secured. We will see increases to our total serviceable and [indiscernible] market that drive increased commercial opportunity for the franchise. I'll now hand it back to Frank. Thank you.

Before shifting gears and spending time on our vision for building our clinical pipeline, I want to take a minute to pull together all the foundational elements of the exceptional opportunity that we have with ZORYVE. We are pursuing a massive treated patient population with more than 17 million patients in the obtainable market. In ZORYVE we have a drug that shares all of the most important qualities that have led to TCS as being a backbone in dermatology for decades, primarily its magnitude of efficacy across multiple inflammatory dermatosis.

But what ZORYVE delivers that TCS don't is the characteristic of being safe and tolerable for prolonged use in these chronic diseases, the ability to be used in every area of the body and mechanistic dimensions with respect to neuronal signaling and melanocytes that aren't part of the TCS profile. And we're bringing this therapy to market at a time when there is a seismic shift occurring and how clinicians and patients think about the appropriate use of topical steroids to manage these diseases.

This confluence of factors gives us tremendous confidence in the meaningful and sustainable growth prospects of ZORYVE. Taken together, we see a future for ZORYVE where our share of the topical steroid market increases from the 3% roughly level where we're currently sitting to a share of 15% to 20% or greater. This growth of share will not happen overnight. As we discussed earlier, this type of therapeutic conversion takes time to effect. But the reasons discussed -- for the reasons discussed, we are confident that we are on a course to achieve this level of penetration.

What's more, as we approach this inflection point of generating positive cash flows from our core business, we will have additional resources to reinvest in ZORYVE to catalyze the share growth. Beyond the immediate opportunity offered by our currently approved indications, the peak potential for ZORYVE will also be driven by expanding our indicated patient population through life cycle management, as Patrick just walked us through.

With consideration of both of these dynamics, we see a peak market potential across the ZORYVE portfolio of somewhere between $2.6 billion and $3.5 billion. We'd like to now move to the final pillar of our corporate strategy, building for the future through a pipeline of innovative medicines. As I touched upon at the outset of today's presentation, our mission is to bring meaningful innovation to patients impacted by immune-mediated inflammatory skin diseases.

As we approach sustained profitability, we are well positioned to extend our focus to building and advancing an innovative pipeline to address additional unmet needs in line with our mission. These pipeline efforts include initiating the Phase I clinical study of ARQ-234 in atopic dermatitis and ongoing efforts to evaluate externally sourced assets. Patrick will come back now on to walk through us through both of these components of our innovative pipeline strategy.

Thanks, Frank. I'm now on Slide 39. As we highlighted in our last call, we achieved an important milestone with our IND submission in Q2 for ARQ-234 as a novel systemic treatment for moderate to severe atopic dermatitis. As we gear up to initiate our clinical study of ARQ-234. We want to spend some time today highlighting the untapped opportunity in the atopic dermatitis market and important potential role that this molecule may play in it.

ARQ-234 is an agonist of the CD200R immune checkpoint, which is a clinically validated target found on activated immune cells. The use of the immune checkpoint inhibition in oncology revolutionized the treatment of many cancers, harnessing the body's own immune system by inhibiting immune checkpoints such as PD-1, PD-L1 has transformed the paradigm for how oncologists approach and think about treating many cancers.

By acting upon the CD200R mechanism, we're looking to use immune checkpoints in reverse, agonizing versus inhibiting the immune checkpoint in order to reestablish homeostasis of the immune system and patients experiencing excessive immune activation that drives autoimmune diseases. This sort of checkpoint [ agonism ] represents a novel and potentially powerful approach to the control of atopic dermatitis and other autoimmune diseases.

While there's reason to believe that this mechanism could be impactful across multiple autoimmune and inflammatory diseases will first evaluate its impact in atopic dermatitis, where clinical validation is strongest. AD still offers a compelling opportunity for the development of new biologics for 2 primary reasons. First, compared to other inflammatory dermatosis like plaque psoriasis, penetration of biologics is in the early stages.

Roughly 25% of eligible patients receive systemic therapies for plaque psoriasis while only 10% of eligible patients receive systemic therapy in AD. There's reason to believe that as new biologics enter the category, the total biologic penetration of the market will expand in turn, as was observed in plaque psoriasis, where the market grew by nearly 300% from 2014 to 2024 to approximately $23 billion following the introduction of IL-23 and IL-17 targeting therapies.

Similar growth is anticipated in AD in the years ahead with projections reflecting a greater than 10% CAGR through the end of the decade, resulting in greater than 80% growth in U.S. sales for this indication. Second, and related, clinicians are eager to be equipped with biologic options beyond dupilumab and dupilumab is a leading biologic approved for AD currently. However, a significant unmet need remains.

But we have heard clearly in our conversations with clinicians is the desire for new mechanisms to address atopic dermatitis in patients who do not adequately respond to dupilumab, which works by blocking the inflammatory mediators IL-4 and IL-13. CD200R agonism represents a unique mechanism of action, complementary to and differentiated from other AD therapies targeting IL-4 IL-13 or OX40 and OX40 ligand. ARQ-234 has the potential to differentiate on multiple metrics, including efficacy, responder sets, durability of response, frequency of dosing and safety.

What's been demonstrated in clinical development efforts from other biopharmas targeting the CD200R access is that the durability of response off treatment after final dose is promising. This may be a unique benefit of restoring immune homeostasis more broadly with the checkpoint mechanism versus targeting specific cytokines or other components of the greater immune cascade.

The development landscape for CD200R is relatively nascent but I will still highlight a few aspects of our candidate that we believe give us the potential to differentiate our program from other CD200R programs being or previously having been pursued. ARQ-234 targets a different and we believe optimized binding site at the native location. It also has a higher affinity as a fusion protein versus a monoclonal antibody.

We also observed an extended half-life for the molecule driven by selective mutations engineered into the fusion protein. Given its unique profile, ARQ-234 has the potential to be a class-leading program and highly differentiated from other systemic therapies in the AD market, a market we believe will produce ample and compelling opportunity for new therapeutic entrants for years to come.

And considering a recent setback in development programs targeting other MOAs in AD such as [ OX40], time is right for us to move this program into clinical development. From a portfolio strategy perspective, we also believe there are compelling reasons to advance a program like ARQ-234 that has been -- that has best-in-class potential for more severe diseases to complement the strong position we've already established with ZORYVE.

I'd like to touch on our framework for evaluating potential external oil innovations. And from the outset, our stated strategy at Arcutis was to identify, develop and commercialize best-in-class molecules against validated targets, enabling us to develop differentiated products in less time at lower cost and at substantially lower risk than other approaches.

As you can see on Slide 20, the strategy remains unchanged and continues to guide our business development evaluation framework. In addition to clinically validated targets and differentiated product profiles we're seeking opportunities that are at a stage where the clinical and commercial expertise we've already amassed will create shareholder value. And perhaps most importantly, we're interested in opportunities that will deliver substantial innovation to address significant unmet medical needs in immune-mediated disease.

Finally, as Frank has stated previously, given the number of internal opportunities in front of us, we see business development as an attractive opportunity, but not as a strategic imperative. So we will remain disciplined in evaluating business development opportunities and in deciding whether to acquire additional assets. I'll now hand the call over to Latha to discuss our 2026 sales outlook and our capital allocation strategy.

Thank you, Patrick. I'm on Slide 42. As we detailed at the opening of today's call, Q3 2025 was yet another strong quarter for ZORYVE, tailwinds from our ongoing product launches and continued demand growth despite the typical seasonality led to substantial sequential growth. We are confident that this momentum will continue through the end of 2025 into 2026 and beyond.

As we began to exit the launch period across our ZORYVE indications, we anticipate more predictability in our rate of growth, allowing us to be more precise in anticipating the trajectory of sales for future periods. Considering this, today, we will provide sales guidance for the first time.

In 2026, we anticipate full year net product revenues to be in the range of $455 million to $470 million. We also anticipate continued strong net sales growth in the fourth quarter of 2025, driven by increased patient demand, even as we expect only nominal improvement in our gross to net rate compared to the third quarter.

Turning now to our capital allocation strategy. As we highlighted earlier today, we anticipate achieving the meaningful milestone of cash flow breakeven beginning in Q4 of this year. The expense base considered in these cash flow forecast contemplates our continued investment in growing and expanding ZORYVE as we detail today and the advancement of ARQ-234. We are confident that we will be able to fund these investments with the capital produced from our core ZORYVE business.

This will be enabled by a dynamic where the timing of continued improvement of cash flow generation from the ZORYVE franchise lines up with increasing resource requirements. We will continue to be protective of shareholder capital and be attentive to managing our capital allocation to ensure that this dynamic plays out. We are fortunate to have a portfolio of high ROI investment opportunities paired with a cash flow-generating franchise, like ZORYVE. I will now hand the call back to Frank for some closing remarks.

Thank you, Latha. We are at an exciting inflection point at Arcutis. We have built a solid foundation for our business with the successful launch of ZORYVE and look forward to sustained and substantial growth with the franchise.

Our initial success with ZORYVE will not only allow us to reinvest in that core business, but also to invest in expanding to potential new indications to ensure that sustained momentum and also allow us to continue to build and advance a pipeline of innovative therapies to bring new solutions to patients impacted by immune mediated skin diseases, the grounding mission and guiding force of our enterprise. And with that, we'll open up the call to Q&A.

Thank you, Frank. Unfortunately, Todd is under the weather today and will not be able to join us for the Q&A session, but I am joined by Frank, Latha and Patrick.

[Operator Instructions]. So we'll jump right in.

First question for the team here on the conversion of topical steroids. You spoke in the call to the evolution in treatment paradigm with topical corticosteroids starting to be displaced with nonsteroidal topicals. What actions are you taking or do you plan to take to accelerate this transition?

Yes. Brian, thanks. This is, I think, an extremely important question given the criticality of this process to the future for ZORYVE. And I think it's really important to emphasize that this trend towards topical stewardship and being more judicious in the use of topical steroids for really short duration treatment is a trend that's being -- that's emerging in dermatology and it's really being driven by the dermatology clinicians themselves. And as you heard from Patrick and Douglas on the call today, there's this growing body of evidence that demonstrates the serious adverse effects that come from prolonged topical corticosteroid use, both locally and systemically, the side effects and dermatology clinicians are learning about that as Doug shared, they're talking about it and they're adjusting their practice.

I was actually at the fall clinical conference this past weekend, and there was quite a bit of discussion from the podium about this Patrick mentioned the SDNP and the SDPA statement. So this is something that's happening organically and it's going to benefit the entire [ non steroid ] topical class as a whole. But specifically, it's going to help us given our very strong share of that nonsteroidal market.

In terms of what Arcutis specifically is going to be doing to accelerate that trend. I think really there are 3 levers you can think about. I think the first one is the sales force. The second is on market access and the third is around our marketing activities.

We're already in a very good place vis-a-vis the sales force and market access. We added about 40 reps last year around the atopic dermatitis launch. So we have a very strong field presence that covers the dermatology clinicians that are writing about 90% of all the topical prescriptions in dermatology.

And then from access -- from an access standpoint, I think folks know, we have very strong coverage across commercial beneficiaries as well as Medicaid beneficiaries and we're working on expanding the Medicaid even further, and we're also hoping to start obtaining Medicare coverage as well. So I think we're in a really good place from a coverage standpoint.

And then finally, with regard to marketing, again, I think we're in a very strong position. We've been very thoughtful as a company about our marketing investments. because we have to be careful about how we allocate capital, but also because we've been benefiting from this organic shift that I mentioned before that's happening from the grass roots in dermatology. So I think as ZORYVE, the franchise starts generating cash, as Latha mentioned, this is probably 1 of those areas where we'll be making some incremental investments in our marketing spend.

Great. Thank you. The next question here relates to the commentary on peak sales. The question is, as part of your peak sales guidance, you said you can reach 15% to 20% share of the topical corticosteroid market. What gives you confidence that you can grow from your current roughly 3% share position to that range? And any commentary on how long that process and that share gain will take?

Sure. So you're going to hear from me a lot since Todd is sick today. But I think the best indicator this transition is already happening and it's going to continue to -- is the rate with which we're already seeing the nonsteroidal topicals take share from topical corticosteroids.

As mentioned earlier in the call, the non-steroidal class is growing very rapidly albeit from a small base, but taking into account the fact that the nonsteroidal market has grown 50% roughly just in the last year alone, right? So there's a very, very strong growth trend and a lot of that's being driven by ZORYVE.

I think that it's important to remember that while we're seeing this very strong growth trend in steroid conversion and this conversation with a topical steroid stewardship, it is a very recent phenomenon. If you think about it, the [ led wall ] paper just came out in January of this year, the SDNP and SDPA statements just came out a few months ago. So these conversations are happening right now, and they really weren't happening nearly as much a year ago.

So I think we're really just at the very beginning of seeing the impact of this change in the thinking amongst dermatologists. In terms of specifically what's going to be the drivers for ZORYVE's market share going forward, again, I think the most important driver is the increased focus on stewardship of topical steroids that we just talked about and that's going to rely -- it's going to necessitate a much greater reliance on nonsteroidal topicals like ZORYVE.

And again, we stand to differentially benefit from that shift given our [indiscernible] share of the non steroidal class and our growing share of the non-steroidal classes we've discussed already. I think a second lever is our expansion into new treatment settings as we continue to gain awareness and adoption in primary care and pediatrics via our [ Cola ] partnership.

Third, I think the incremental data generation that Patrick highlighted today is going to be a driver of prescriber behavior for certain key populations like patients with nail psoriasis or palmoplantar psoriasis, which are in our current indication, but we don't have all that much data around that yet. So that will be an important incremental data set.

On the access front, we're in a great place with the reimbursement, but we have further opportunities to go in terms of expanding our Medicaid coverage and also picking up Medicare coverage. And then lastly, actions that we take that really highlight or drive patient awareness to reinforce the trends that we're already seeing where patients are coming in and asking their doctors for something that's not a steroid, right?

There's a great deal of public conversation around this topic. And I think that's going to be another important driver for [indiscernible] forward growth. From a timing perspective, again, if you look at the analogs that Patrick spoke about earlier, these paradigm shifts in treatment practice do take time to effect.

I think we're very encouraged by the rate of adoption that we're seeing already. And I think the demand growth that you saw this quarter is a good data point to show that that's happening. But the shift from these outdated topical steroids to the newer advanced topical therapies is going to take some time. If you look at the analogs somewhere between 5 and 10 years for that to happen, and we're still very early in that process with the topical steroids.

So I think it's hard to say, but it's not going to happen overnight, but I think we're very confident is going to happen for all the right clinical reasons, and we're already starting to see these trends play out.

Okay. Great. And we'll shift gears here to ARQ-234. We've had a few questions come in on this, several of them just making reference to any clinical evidence that already exists derisking the class or the target. But more specifically a question regarding ARQ-234. Eli Lilly discontinued its CD200R agonist after stopping the Phase II trial in atopic dermatitis for strategic reasons. Are there any learnings you've taken from that program that can be applied to 234 or any comments you can make on differentiation between the 2 programs?

Yes. So Patrick, do you want to take that one?

Yes. Thanks, Frank. Yes. No, we've watched the [ OLE ] program very, very closely. And I touched on this a little bit in the presentation. I think one of the key reasons why we are confidently moving forward with ARQ-234 really has to do with the structure. The Lilly molecule was a monoclonal antibody that bind outside of the native binding site, whereas we're a fusion protein that's engineered for an extended half-life and also has 2 high-affinity modified CD200 ligand.

So really a very different molecular approach. And we have preclinical evidence that suggests that we're getting a higher affinity. So we feel very good about that and as well as this kind of extended PK half-life that we think could have benefit with regard to our dosing frequency. Of course, that has to be proven out in this study that we're planning to get started at the beginning of 2026.

So we have watched that program very carefully. And again, a lot of times, it comes down to also execution of a study, and we've conducted many studies in atopic dermatitis. And I think we have an excellent clinical development and clinical operations team. And so I think that will also help us to get a very clear understanding.

The [ GWAS ] data and the kind of early like evidence that pushed Lilly into atopic dermatitis still remains. We think that, that's very compelling. And we think the ARQ-234 is the right molecule and atopic dermatitis is the right disease for us to serve further. So we're looking forward to getting that kickoff.

Okay. Great. The next question here is on the LCM activity. With vitiligo and HS, the question is, as you're investigating ZORYVE in vitiligo and HS, how do you think about competitive dynamic with other drugs that are already approved or in development for those indications? And then as a second part to this question, can you say more about trial design, example, size, whether or not it's controlled and duration of study?

Sure. Yes. Patrick, I think that's probably the best handled by you again.

Okay. Sounds good. Yes. So looking at our life cycle management and competitive dynamics with the HS and vitiligo. I think the best place for us to start is to look at these indications where we're already approved and already in a competitive situation with both topical corticosteroids and branded topicals. And here, what are the elements of our profile that have allowed us to be so successful. And it really comes down to efficacy, safety, tolerability once daily in ease of use, pretty much anywhere on the body as well as our commercial execution and our access.

So we have a lot of confidence in our clinical development and our commercial execution and our ability to leverage these capabilities for both of these new indications. Now thinking specifically about vitiligo, this is a disease where I believe that once daily dosing is going to be really important for patients. Vitiligo patients have to treat for a long period of time, months typically before they start to see benefit with pretty much any treatment. And so the ability to do that just once a day is going to -- it's typically offered improved compliance compared to daily dosing.

Now for the same reason, the rate of repigmentation is another key potential differentiator. So this is something we're going to be looking at really closely as we conduct this next study, and we'll have to see those results once they get into the clinic.

So turning to [ hidradenitis suprtiva]. Here, there's a lot of white space for a topical therapeutic that's targeting inflammation. Right now, treatments are primarily topical antibiotics and then patients kind of leap all the way to a systemic therapy. So being able to have an effective topical treatment that could be used in the earlier stage patients as monotherapy and for later-stage patients in as adjunctive treatment to complement their systemic therapy is a very, very strong profile.

And that's similar to what we've seen in atopic dermatitis and psoriasis. And in fact, [ hidradenitis Supertea ] systemic therapies leave a lot of room for some adjunctive therapy to really help patients to get to their target treatment. So we're very optimistic about how this profile fits with both of those indications.

Perfect. Okay. So moving on to next question here, and this is focused on the results for quarter 3, specifically on net sales. And the question is, can you bridge us from the 13% sequential total prescription demand growth to the 22% sequential revenue growth for the quarter?

Yes. Sure. It's a great question. I think that the primary thing that's driving the nonvolume component of the growth of our product revenue is really improvement in gross to net. I think what we saw in the quarter was, if you think about it, if a patient is still in their deductible for the year, we're buying them down to $0 or $35. And so Arcutis is having to pick up that additional cost from their deductible until they reach their annual deductibles.

What we saw in Q3 was that patients have progressed through their annual deductibles, probably at a rate higher than we had expected. And so we're seeing reduced usage of our co-pay program, and that directly translates into more revenue per prescription, happened earlier than we had anticipated. But I think that also probably means that there might not be as much improvement in Q4 on that component as we saw in Q3.

So I think we expect [ GTN ] to be very stable, probably between Q3 and Q4. And I think it's important to emphasize that all of the other things that can contribute to non-demand revenue growth really were not material in this period. So it's really just the demand growth and then the improvement in gross net, which is driving this outperformance.

Okay. Great. The next question here is on the topic of external innovation and business development. The question reads, Frank mentioned sourcing external innovation. Would you elaborate on the stage of development the type of assets from a modality perspective, and then therapeutic categories that you're interested in, specifically, are you looking for something more adjacent to ZORYVE or more distant from ZORYVE from a diversification perspective?

Yes, sure. So Patrick is leading all these efforts. So I think I'm going to ask Patrick to take that one.

Yes. I think if you look at our pipeline, we have ARQ-234 that's just going to be entering into the clinic and then not spending a lot of time talking about the life cycle management opportunities for ZORYVE. So ideally, we'd be looking for an asset which is kind of fitting in between those 2.

But I think we're really opportunistic with regard to most importantly, finding something that we are very confident about, and we're very excited about is fitting an unmet need. Again, we're prioritizing dermatology because we think that fits best with our expertise. But just given the breadth of knowledge across the team and experience outside of dermatology we're not limiting ourselves to dermatology. So we're really looking across inflammation at adjacencies there for assets that would fit very well into our development pipeline.

So I think what we're really -- as I mentioned in the discussion, what we're really looking for is the right asset, and we don't feel compelled to necessarily bring one in just because of where we are with our pipeline. Because we feel they are confident about moving 234 forward and all the opportunity that we have with the ZORYVE life cycle management.

Okay. Great. And then -- and staying maybe for a moment on 234, A question came in here. Will ARQ-234 target in AD patients overlap with the ZORYVE target population for that indication? Or how should we think about that?

Yes, Patrick, that's probably back to you again.

Yes. So our approved indication for atopic dermatitis, goes down to the age of and is in the mild to moderate space. So development in systemics and biologics, in particular, typically focuses on moderate to severe. So there is some overlap between the 2 of them. But I think most importantly, one of the advantages of the ZORYVE profile is that whether it's label, with its safety profile, it's not excluded from being used with systemic therapy.

And so that's one of the areas that we've heard from a lot of our customers that they found it to be helpful. And oftentimes, patients who are in that moderate to severe area will get pushed down into a more mild to moderate category where they would be, while on a biologic or systemic would be appropriate for use with ZORYVE.

So we don't see them necessarily as competitive just as we don't see ourselves competing with systemic treatments, but more as complementing each other in the kind of ability to be able to maintain a patient for this chronic disease for their lifetime without having them resort to topical corticosteroids.

Okay. Great. The next question here is back on the topic of BD, and I think we hit on this a little bit, but given your foothold in dermatology offices, would you consider adding a biologic against a novel dermatology target to develop or would you also consider partnering one already in the development for U.S. rights, just to better kind of titrate on what we're looking at there.

So that was a 2-part question, right? I think the question was would we consider a biologic in AD? And would we consider partnering commercial stage product?

Correct.

Yes. So look, on the first one, we absolutely would consider partnering a biologic in the space in and I think that's really the long and the short of what Patrick was just talking about. We're really agnostic to modality and our Arcutis treatment modality. So whether it's an oral and injectable or a topical, we can work on any of those. And so we're evaluating that full landscape in terms of our business development efforts.

In terms of partnering on something that's already commercial stage and in the marketplace, I wouldn't say never, but it's probably not the highest priority. We've built an exceptionally strong development organization at Arcutis across clinical and manufacturing. You think about 9 successful Phase IIIs, 6 FDA approvals and I think this team has proven time and again, its ability to execute development programs and create shareholder value.

And part of our thinking around business development is how we continue to leverage this really very strong development engine that we've built. In a commercial stage is more leveraging the commercial organization that we have, but the commercial organization we have is pretty busy with launching all these various indications for ZORYVE. So I would say that's probably a lower priority for us in terms of the business development and commercial stage products.

Okay. Great. And then another one here, staying on the BD topic, and this one is more about how we think about potential size constraints. So is there any limit in terms of size that we would consider? And then depending on the size, different considerations from financing strategy to support that?

Well, I would say with the stock performance today, we -- it's probably a little bit bigger. But Latha, you want to maybe take that one?

Absolutely. So I think -- our core focus is on the balance sheet is based on ZORYVE trajectory [ builds], we will, as I said, focus on our milestone of hitting cash flow breakeven in Q4 of this year. And from more focus on our grow and expand, as Frank outlined today, and funding those activities.

And then next, if you think about innovative BD, we have quite a bit of flexibility with our debt facility with SLR and also depending on the asset and the quantum and as Frank said, based on today's stock price, we'll think about the funding mechanisms that are optimal to our capital strategy and how to allocate them for BD.

Okay. Great. Next question here is going back to the topic of life cycle management for ZORYVE. And this is a 2-part question. First, across the different indications that we highlighted in the presentation earlier, how do we think about prioritizing those? Kind of what is the framework for choosing where we would go next? And then the second is -- how do you think the addition of new indications will potentially benefit your commercial efforts in psoriasis, sebderm in atopic dermatitis?

Yes. So maybe I'll take the second half of that question and then Patrick, I'll turn it over to you to talk about the first one. I think that as you think about really replacing topical steroids as the go-to topical therapy in dermatology. The more opportunities the doctor has to write our product, the better it starts becoming a habit.

It's the default treatment choice, right? And you see that in the data that we presented before in terms of what happens when a doctor goes from writing ZORYVE for 1 indication to 2 indications to 3 indications, right? It doesn't go up in steps that goes up exponentially. 1 to 2 is threefold. 2 to 3 -- 1 to 3 is a tenfold increase in their prescribing. And we would expect to see a similar kind of dynamic when they're using -- when they can use ZORYVE for almost every patient they have walking through their office door.

So I think that there will be a synergistic effect with our existing indications as doctors use ZORYVE even more and more. And one of the things that we've actually found, particularly in the access front, I would say, is the more doctors use ZORYVE, the more they use ZORYVE, right? Because they know how effective it is, how well tolerated it is, and most importantly, I think how easy it is to get for their patients there's a growing confidence with familiarity.

And I think expanding indications, we should see something very similar happen with that in addition to the growth from the new indication itself. And then Patrick, do you want to maybe address the prioritization question?

Yes, absolutely. So as we think about prioritizing and we're starting with HS and vitiligo. But those are not the extent of the indications that we're looking at, and we shared kind of this broad list. And I think that is one of the key components for replacing steroids as you can't replace steroids if they work across many, many indications with a treatment that only works across 1 or 2.

So I think that's a really critical part of our topical corticosteroid replacement. As we think about prioritizing those, it really comes down to what's the clinical profile that we're seeing? What's the efficacy and the safety that we're seeing and that will come from both -- are studies that we're conducting as well as from reports coming in from the field. And every day, we're hearing more and more about those, and that shapes our kind of understanding of what's the level of unmet need.

And what is the kind of profile and efficacy that we expect to be able to see. And then it's combining that with the commercial assessment so that we can really understand how that profile fits. And I touched on that just a little bit with the kind of the first question we had about life cycle management, about what do we want to see in vitiligo, what do we want to see in HS.

And that really gets at trying to fit in that commercial assessment to make sure that we're developing in an indication where we're going to have a market when we get to the other side. But we know for both HS and vitiligo that these are very favorable. We'll do the same kind of activity as we look towards new indications beyond those.

Very good. So turning now to the recent launch of ZORYVE Foam 0.3 and scalp and body involve plaque psoriasis. So the recent growth for the cream 0.3% was more muted compared to the foam. This is in quarter 3. Is this a result of plaque psoriasis switching to foam from cream? Or how do you see that dynamic playing out between the 2 products?

Yes. We've gotten this question on a number of occasions. And I think it's very unlikely that a patient who is stable on the cream is going to switch to the foam. I certainly have heard of patients who have received prescriptions for both products, and there's no reason why patients can't -- if you had a plaque on your elbow and a plaque on your scalp, maybe the doctor gives you both although you can use the foam on the body and it works just the same as the cream.

I think we continue to see growth in [ NRxs ] for the cream. So I don't think that we get this question about cannibalization. I don't think there's any cannibalization going on because the cream is still growing. What I do think we're probably seeing is that for new patients who haven't been on ZORYVE yet, more patients now, especially psoriasis patients are getting the foam and those in some cases are patients maybe who might have gotten the cream in the past.

I think it's also important to emphasize and I've said this before, but from a shareholder standpoint, it really doesn't matter which SKU they get as long as they're getting ZORYVE, right? The COGS is essentially the same across the products. The price is the same. The access is very similar.

So as long as total ZORYVE volume is growing, shareholders are benefiting from that growth. And I think having both the cream and the foam has options in psoriasis and now having 2 different presentations for atopic dermatitis tailor for those patients and having the phone for seb derm is we're just giving doctors more and more opportunities to use ZORYVE treat their patients with inflammatory skin diseases.

Okay. And then we probably have time for just one more question here, and this final question will be on the incremental data generation opportunities that Patrick was referring to in the presentation earlier. And the question is for the data generation opportunities in your current indications, the patient figures indicated on the slide, are those incremental new patients that will be covered and add to the market opportunity? Or how do we think about that?

Yes. Another great question. So in terms of incremental data generation, those are really patients that are already in our serviceable obtainable market. So for example, the nail psoriasis patient population, we talked about 3 million to 5 million psoriasis patients having nail crisis. That is part of the already targeted psoriasis market that we talked about.

But what we do expect is that will drive a differentially greater uptake in these subpopulations, particularly the really hard subpopulations, nail psoriasis is one of the hardest things to treat. Even with a biologic, it often doesn't clear palmoplantar psoriasis is another form of plaque psoriasis that is often very difficult to treat.

And so if we can generate very strong data on ZORYVE's efficacy in those very tough to treat patient population, you would expect to see even greater adoption of ZORYVE in those subsets of patients. And that's why we think that this incremental data generation is so important. And Patrick, I don't know if you have any other thoughts that you wanted to add to that?

No, I completely agree. If you see a patient come in with psoriasis and you always check their nails, every psoriasis patient gets their nails and elbows checked. And you've seen nail psoriasis and the first thing that you think about is that ZORYVE is going to benefit that and nobody else with a topical therapy, and you might not have to stick them on a systemic therapy. I think that is a huge advantage for us and really kind of changes someone's perception of the profile in an even more favorable way. So I totally agree with what you said, Frank.

Okay. Great. And that will take us to time for the Q&A session. We'd just like to thank you all again for making time in your busy schedule today to join us for this Investor Day.

Thank you.

Okay. All right. Welcome, everyone, to this session of the Morgan Stanley Global Healthcare Conference. I'm Judah Frommer. And before I welcome the team from Arcutis, I'll just read a quick disclosure statement. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So with that, we've got Frank, Latha, and Todd here. So for those newer to the story, maybe we can start with a minute or 2 of introduction to Arcutis and the commercial trajectory of ZORYVE thus far.

Sure. So Arcutis is a 9-year-old biotechnology company focused in the medical dermatology space. We created the company out of recognition that there weren't a lot of people in med derm doing innovative stuff and there was a lot of unmet need. So we saw a big opportunity founded the company. And our first product was -- or is a drug called ZORYVE. We had a cream that was approved for plaque psoriasis in 2023 -- 2022.

August 2022.

And then we've subsequently -- we had a foam approved then for seborrheic dermatitis in early '24. We had a different version of our cream approved for atopic dermatitis in middle of 2024. We just recently had the foam was also approved for scalp and body psoriasis, and then we're expecting another approval for another version of our cream for young kids with atopic dermatitis in October.

We've got another program in the pipeline, and we continue to look at expansion of ZORYVE as well. Product is really performing very nicely. It's very effective on par with a high-potency steroid, very well tolerated, very safe. So you can use it anywhere in the body for any duration, and we have very good coverage. And as a result, in the branded topical space now, we have well over 40% market share. We're the leading branded topical in the marketplace.

Great. So with that background, maybe staying high level, how can investors be thinking about prospects for ZORYVE cream versus the foam, ultimate commercial potential for each of those high-level addressable market?

Todd, do you want to take that?

Yes. For ZORYVE cream versus the foam, we expect that there will be continued growth across both formulations. With the ZORYVE foam and the recent launch for psoriasis patients, approximately 50% of them has scalp involvement. Prior to the launch of ZORYVE foam, there were minimal viable treatment options within the space, primarily just a steroid solution. So we brought significant innovation relative to the patients that needed a treatment for their scalp psoriasis. The other is offering both a foam and a cream -- ZORYVE cream 0.3%. We now get choice optionality to the provider of patients, which is a significant differentiator.

Okay. Great. And how would you characterize the launch of the foam in scalp psoriasis? Could you see eventually providing sales breakouts by indication as we move into the future?

Yes. We're very pleased with the launch. We've continued to -- we saw a robust uptake relative to the foam, and we would anticipate that it's that indication that we actually anticipate is because both the seborrheic dermatitis and scalp psoriasis are on the same SKU. So for us to be able to break out the volume within that SKU, it's going to take some time to be able to get enough longitudinal data to be able to give directionally what the uptake is by indication.

I'm sure as we get more clarity, we'll share that with the Street.

Okay. That makes sense. I think coming out of second quarter earnings, seasonality is a word that's come up a bunch in our conversation since you provided that third quarter sales guidance. So maybe you can just remind us of expectations for the overall franchise performance in Q3 versus Q4 this year and kind of dynamics that are played between the two of those?

Yes, sure. So seasonality, I think, is a fact of life really for any prescription product. Summertime, people go on vacation, doctors go on vacation. And then to compound that, the inflammatory dermatosis that we treat, seb derm, AD, and psoriasis, all tend to improve in the summertime when it's hotter, it's more humid and people are out in the sun. There's just a natural course of the disease. And so that amplifies the seasonality. We said at the end of Q2 -- so we had 28% top line growth in Q2, about 13% volume growth in the U.S. in Q2.

We said that we would see growth in Q3, but it would be moderated. Somehow people didn't hear that right and thought that we were saying we weren't going to have growth. I never said that. But I think what we've seen so far actually is that we've been able to sustain growth through Q3. I think we're sitting around 13%, 14% growth in units so far quarter-to-date, which given the seasonality that I mentioned, I think it's really robust growth, and I think it's probably a reflection of the continued progress with the AD launch as well as Todd mentioned the uplift that we saw in the foam with the scalp and body approval.

Got it. If only there were a transcript of what you said.

Yes, right. I have actually -- I may have said to a few investors go back and read what I said, read my lips. And then we would expect Q4 to be even stronger. There is a fairly predictable phenomenon of, again, patients refilling towards the end of the year before their deductible resets. I'm guilty of that too. But then also the reverse seasonality as it gets colder and dryer and people are inside more and the heat is running, these diseases tend to flare more. And so there's more opportunity to switch patients as well.

Okay. I don't know if this was in your Q3 explanation, but docs seem like they go on vacation also.

Every once in a while, they do go on vacation.

All right. Maybe we can spend 2 minutes on your COA partnership and general trend with primary care doc prescribing and how it could impact the back half of the year and beyond maybe just a little history on the partnership and how it's shaping up thus far.

Yes. We initiated a partnership with COA promotion within primary care and pediatrics given there's a significant opportunity there for ZORYVE. With the promotion, within primary care, it's a longer selling cycle. There's minimal time that the representative has and being able to educate a prescriber on ZORYVE. So it takes a high level of frequency, which drives that longer selling cycle. But nonetheless, we're seeing some encouraging signals, meaning that we're seeing the rate of adoption of ZORYVE is starting to recently increase here. And for those prescribers that do adopt, we see them continue to expand their utilization of ZORYVE.

One thing that was a lesson learned for COA was relative to the prescription fulfillment process and making certain that we create simplicity and efficiency in that process. And so recently, we have now a dedicated specialty pharmacy will process those prescriptions and help offload the burden of the PA process from the office. And we're starting to see uptake within that specialty pharmacy that's encouraging.

Can you help us with an idea of kind of where patients are seeing for the indications you are approved in kind of derm versus primary care versus peds? Is there a way to break that down?

Yes, we can break it down with the IQVIA data. We can break it down by specialty that greatly informs us relative to the utilization across derm, ped, and primary care.

And so as you think about it, psoriasis is predominantly seen in dermatology, right? Very little pediatrics and then there is some primary care. AD is a lot of non-derm, both pediatric and PCP. And then seb derm, there's a fair bit of non-derm, but that's predominantly in PCP because it tends to occur post puberty and the older you get, the higher the incidence, but across the three indications, it's about a 50-50 split derm, non-derm, and most of the non-derm is primary care and pediatric.

Okay. That makes sense. And even thinking kind of beyond, if we're just thinking about total scripts per prescriber, would you characterize the franchise is still kind of early phase focused on expanding prescriber breadth? Or how would you characterize kind of signs of maturation and deeper prescribing amongst existing prescribers?

We see maturation within the breadth. Like in Q2, we had 18,000 providers that prescribed ZORYVE. So our goal now is to really drive depth, and that's depth as far as adoption of the portfolio because we see in the data that the prescribers that do adopt the portfolio exponentially prescribe more of each unique product than if they're writing that product alone. So to drive the depth within the prescriber base that we have established today.

Especially in dermatology.

Absolutely in dermatology.

Primary care is probably still more.

Yes, just the opposite, it's breadth in primary care to impact the number of prescribers.

Got it. So if they've started with cream and maybe are adding foam on top of that in terms of scripts written, you're seeing kind of both of those pick up over time. You don't see them kind of gravitate towards one or the other for some reason.

No, we see it as you mentioned over time.

Yes. And I think Todd's talked about this on a number of the calls. I think one of the most important things is you think about it, if you go from writing 1 version of ZORYVE to writing 2 versions of ZORYVE, it doesn't double, it triples. And if you go from writing 2 versions of ZORYVE to 3 versions of ZORYVE, it doesn't double again. It goes up 3.5-fold, right? So there's this exponential growth as doctors adopt it more probably because they're just writing more ZORYVE and it's kind of front and center in their mind.

Yes. And I guess just in terms of doc feedback and kind of level of comfort with the product, I guess, how much does safety versus efficacy? Is it equal balance between the two?

I don't know exactly what the split is between the two, but this drug doesn't have an issue with either one, right, so which is nice. Todd and I were out in the field with our Chief Medical Officer 2 weeks ago, I think for the entire week visiting probably 100 customers, and the feedback is just outstanding, right? It's a very efficacious drug. What we hear is it's very efficacious. It's very predictable, right?

When they give a patient ZORYVE, patient is going to get better, there are very few nonresponders and they never get callbacks on side effects or safety issues. And I think the other thing is the doctors who are using it don't complain about access being a challenge either. So across the board, the feedback has been extremely positive. And that's very consistent. We spend a lot of time with customers, and we rarely hear any complaints at all.

Okay. Great. I guess just speaking of access, kind of the only place we get questions is Medicare Part D, which you guys have talked about. This is not specific to you guys or your products. But I guess, how would you elaborate on what's kind of in your control versus not in Part D coverage?

Todd, I'm sorry...

Medicare Part D?

Yes, Medicare Part D, okay, we continue to have dialogue and discussions with the Medicare Part D plans. As mentioned, there's been a kind of a -- it's been a protracted process due to the provisions within the IRA that did the cost shifting to the patient once they meet the maximum out-of-pocket cost. But as the Part D plans continue to do their modeling and to make decisions on their formularies, we're having deeper discussions, and we anticipate that it could be likely that we were able to gain access on a couple of the Part D plans come first of the year. It's still in negotiations, but we're getting close to being able to do that and to open that door up in the Medicare Part D segment.

Okay.

And if you look at Medicare, Medicaid versus commercial, it's about a 50-50 split.

So as -- I think the other aspect of the story that comes up with coverage is pricing, gross to net. How do we think about gross to net stability? I think you've talked about relative stability thus far. But as we think about expanding coverage into government payers, is there potential to move the needle on net pricing? Or should we expect that, that stays relative?

Yes. So what we've commented on is for -- we expect the gross net in 2025 to be in the 50s. And we -- that's for the whole portfolio, and we think that will sustain into the future as we have negotiated and added contracts, including Medicaid and commercial, and that 50s also contemplates Medicare. So the net price improvement comes from, I think, volume and staying in the 50s despite adding all the contracts that we just talked about. So that's where you see the pull-through. And at the same time, we've taken a very moderate WACC increase over the course of years, and we pull that through as well. So you'll see that come through over the course of time.

Okay. That makes sense. You guys have an October PDUFA for the cream, 0.5% in 2- to 5-year-olds. How should we think about that opportunity? And what would you highlight as next priority registrational indications? I think you talked about the sNDA for the 0.3% cream in kids, but what should we think about as coming next?

Yes. So as you said, we're expecting approval for AD 2 to 5 in October, just about 5 weeks away. I think that's important for a couple of reasons. The first one is there's a clear unmet need in those younger kids. I think there's a growing anti-steroid or steroid phobia in the general population, but that's particularly acute amongst parents and fear of using steroids in their kids. And so what we hear from clinicians is that parents are coming in all the time saying, "Hey, I don't want to put my kid in the steroid. What do you have aside of steroid?" There aren't a lot of options for those kids. So we think that's an important indication.

Secondly, I think it's an important halo on the overall ZORYVE AD brand that were approved down to age 2. We're already approved down to age 6, but that will be an important second step to help the overall franchise. After that, we have filed for psoriasis down to age 2 as well. We have not gotten an action date yet, but I would anticipate it's about 10 months from now, right, because we just filed the sNDA. And then we're currently running a study of ZORYVE 0.05 in 3- to 24-month old. Again, an area, I think, of especially high need for nonsteroidal. A lot of excitement about that study in the pediatric dermatology community. And we haven't finished enrolling yet, so we don't have time lines, but that study is enrolling very well, and we would expect that's something that won't be that far off.

Beyond the 3 to 24 months, we announced at our Q2 earnings call that we've started running some additional Phase II studies in new indications with ZORYVE, we've got trials ongoing right now in HS and vitiligo. I would anticipate we might start a couple more in 2026, looking at other indications. And then based on the results from those studies, I think it's likely that we will pursue further indications for ZORYVE beyond our current indications as well.

Okay. And just sizing the AD opportunity in 2 to 5 versus where you are currently?

Yes. So about half of all AD patients are under the age of 18 right? A good chunk of those patients are under the age of 6. Peak onset is in the ages of 1 to 5. But beyond the absolute numbers, I think, again, the proclivity to use a nonsteroidal is higher, the younger kid gets. So we might see outsized penetration in those younger kids as we go forward.

Okay. That makes sense. Just getting back to COA, is there any messaging that needs to change with an approval in younger kids? Or is the messaging likely the same effect?

Very much the same other than it's not approved.

Okay. Makes sense. And you mentioned HS, vitiligo, potentially other indications. I guess given the broad range of indications under consideration, can you give us kind of a peek under the hood in terms of internal criteria that determine whether a disease progresses to formal clinical development? Are these commercial or scientific [indiscernible]

It's a combination of the two, right? We talked on the Q2 call, I think dermatologists love to use drugs off-label, right? That's just what they do. Most of the drugs they use are for off-label use. And so they got hold ZORYVE, and they're like, wow, this is great. I'm going to try it here. I'm going to try it there. And we've got like 42 diseases now that's worked. We're not going to pursue all of them. Many of them are just too small, right? There are these rare worsening conditions where ZORYVE works and doctors will either get it through medical exception or they'll use samples.

But there are some very large indications. So certainly, opportunity size is important. A degree of unmet need is also very important. And then we want to see a very robust data from the Phase II study suggesting that we're better than current standard of care. The combination of those three would make something interesting enough that we might pursue it as an indication. I think the other facet would probably be clarity of regulatory pathway. Anytime you're adopting -- going after a new indication, it becomes more challenging with the FDA versus something like HS or vitiligo, where there's already established products and you know what the regulatory inputs are going to be.

Okay. That makes sense. And obviously, some of the indications are kind of newer to market. But can you give us a little bit of a history lesson on therapy duration by kind of product breakdown? Are there things being put in place to improve life cycle management? Just how is duration of therapy kind of trended thus far and what happening.

So all three of our currently approved indications are chronic diseases, unfortunately. I won't say lifelong, some children do outgrow AD. And seborrheic dermatitis sometimes has a later onset. So there are age differences across the disease. But generally speaking, these patients are going to be on these drugs chronically. And this is a drug that people seem to stay on very long. So I think it's early days still, but persistence seems to be very good on the drug. And then, Todd, do you want to maybe just talk about some of the things that we're doing to help with patient retention?

Yes. With patient retention, we're making sure that we have reach out to every unique patient relative to making sure that they get their refill of that prescription. The other is working with the dermatologist to make certain that they understand some of the clinical data that we have, especially in AD relative to long-term therapy and where they can move to twice weekly versus once a day to make the product more convenient for that patient to help that process.

I think we had said even prior to the launch that we expected patients to go through about 2 to 3 units a year, either a can or a tube. And the data that we're seeing shows that patients are exactly where we expect them to be around 2 to 3 years.

Okay. That's helpful. And you've guided toward cash flow breakeven by 2026. I think what are the most important significant -- the most significant levers or milestones we should be thinking about to get there? Is it just continued execution on the existing business? Yes, anything you can point us to in terms of kind of tracking the progress there?

Sure. So I think you nailed it, the key is the execution on the business. So revenue is the primary variable of getting to cash flow positive, and we stand by getting to cash flow positive in 2026. The thing that we've discussed with the Phase II life cycle management, our pipeline advancement of ARQ-234 and continuing to focus on ZORYVE is all contemplated in that statement of being cash flow positive.

So we are very judicious with the cash or I'm the gatekeeper of the bank. So we want to make sure that we are investing for the growth of ZORYVE. That's the primary driver of the balance sheet and advancing the pipeline like we talked about between life cycle management, ARQ-234, all fostering the revenue growth. So those are the key variables. So nothing milestone per se. It's just that we continue to execute and meet some of the things that Frank and Todd talked about.

I mean I think the only wildcard in that equation, right, would be a significant business development. And as we've said repeatedly, we're always active in the business development arena. I don't see business development as an imperative for our company given everything else that we have going on. It certainly would be nice to have an asset, but I don't need to do a deal. And so while we're always looking, we have a very high bar. And we're really only going to acquire an asset if we feel that it's a compelling asset and it's something that we can create shareholder value with.

Okay. That makes sense. Maybe just last one, a high-level strategy, right? There are some large pharmas you go up against in this space. I guess, what's the competitive advantage of being kind of a smaller, maybe more nimble player with more focus on your asset than maybe some others?

Yes. I would say we really actually don't compete with the large pharmas. The biggest company we compete with probably is Incyte, which is a middle-ish company. The biologics and the systemic therapies, we're actually complementary to not competing. Most of those patients are on a topical and ZORYVE is a great option for them, right? But I think -- so the competitive dynamic for us is really the other branded nonsteroidals and then most importantly, steroids, right? And the competitive advantage there, I think, first and foremost, is you can use ZORYVE anywhere for any duration. and you don't have to worry about any of these safety issues, right? That is not true for steroids.

They're very good short-term drugs. They're safe in the short term, but they can't be used chronically, and there's many parts of the body where they can't be used. So patients end up in these very complicated regimens. They're changing medications, using multiple medications. We're able to solve for all of that. And we don't have the safety concerns that the topical steroids have. We're also once a day, which none of the steroids are, which I think makes a big difference as well. And then it's in a very patient-friendly formulation, especially the foam, but the cream as well. And that's also a differentiator versus the steroids.

Okay. Great. Anything we missed that you guys would highlight about the story?

I think covered all the topics.

Yes.

All right. Then I will -- if there are any questions in the room, certainly raise your hand. We have some mics here. But I'm going to move into a mini survey that we're asking all of the biotech companies at the conference, no pressure. Don't feel intimidated.

Hopefully, this isn't about the NFL.

So biotech does seem to be more exposed to external and macro factors of late. So like I said, we're asking each of the management teams these three questions. First topic, maybe less relevant for you guys, but you'll tell me, China's rise in biotech innovation, is that affecting your competitive position in any way? Could it influence R&D internally or potentially business development?

Okay. It is not affecting us. We have used China as a source of innovation in the past, [indiscernible] our JAK inhibitor came from China. But we're not aware of any competitive threats from a competing product standpoint coming out of China. I think there's a bigger macro issue for the biotech sector, but not really something that affects Arcutis per se.

Okay. Helpful. Second theme is AI. How would you say Arcutis leverages AI kind of from any perspective within your business? And how are you thinking about AI's potential to disrupt the industry, both positively and negatively?

That's a good question. I get this question a lot. I'm probably a little bit of a contrarian on AI. I think that AI has the potential to dramatically revolutionize drug discovery, right, the early stages of drug discovery. We don't do drug discovery. I'll just say that upfront. I've been involved in drug discovery in the past, but we don't do that at Arcutis. We, I would say, are intrigued by AI, and we're always looking at potential use cases for AI. But so far, we haven't found a widespread application and nor do we see it as really disrupting the way that we practice.

Probably where we're bumping up against it more than anything is actually in the practice of medicine, right? Insurance companies are using AI. Now doc's offices are using AI, right? They're using it to streamline some of the work processes, and that has some secondary effects. But I would say at this point, we don't anticipate big impacts from AI on our business. So that may change. It feels a little bit to me like dot-com to be honest.

I hear you. And then lastly, maybe more impactful to your business here, just the regulatory side of things. You have frequent interactions with FDA kind of given the follow-on indications you guys are consistently going for. But changes at FDA, MFM pricing, tariffs, anything else on the regulatory side you highlighted?

So I'll start with FDA. I would say that our interactions with FDA from the outset have been very constructive. We have not seen at Arcutis any real changes in those interactions. I think CBER has been more effective than CDER. And I think things like the accelerated approval pathways have been more challenging, right? We don't have an impact from any of that. And I think the dermatology division has been good partners for us all along.

From a tariff standpoint, our primary manufacturing site is actually in the United States. So that cushions us a little bit. I think we still have to see what comes out of the 232 investigation. But I'm not anticipating that tariffs are going to be a major factor for us either. And then with regard to MFN, the only other market that we market ZORYVE is in Canada, and our Canadian price is pretty good. It certainly is not U.S. list price, but they're very different marketplaces. We'll have to evaluate how things go with MFN and what that actually looks like. We did not get a letter yet. We're a little too small for that. So I think it's still to be determined what MFN looks like, but I think it should be an inevitable risk for us as well.

Okay. Great. If there are no questions in the room, I think we'll call it a day.

Okay. Thanks a lot. Great talking to you.

Thank you.

Great. Well, thanks, everyone, for joining the fireside session today with the Arcutis team. My name is Jason Jun, Managing Director in Citi's biopharma banking team. Today, here, we're joined with Frank Watanabe, CEO; and Latha Vairavan, the CFO of Arcutis. So guys, thank you very much for joining today.

Why don't we -- great. So why don't we just really start it very quickly, if you wouldn't mind just providing a quick introduction of the company and also an overview of ZORYVE.

Sure. So Arcutis is a little over 9 years old. It is a dermatology-focused biotechnology company. Company was founded out of a recognition that there had been really an atrophying of the pipeline of novel dermatology assets. And so we created Arcutis to reinvigorate the innovation in the dermatology space. Our lead program at the time was a topical PDE4 inhibitor that has become ZORYVE. That is our currently marketed products. We have 3 different versions approved for 4 different diseases. We have a cream for plaque psoriasis as well as a foam for plaque psoriasis. The same foam is also approved for seborrheic dermatitis, and then we have a different cream for atopic dermatitis.

We have some additional indications coming up. We expect to get approval for an expansion of the label in atopic dermatitis in October, and we're currently running a study for yet a further expansion of that label. And then we are getting very close to filing for a label expansion for plaque psoriasis as well for additional patient population. Been on the market for about 3 years. Product has grown very nicely. It is -- if you think about the topical marketplace, it's about 2/3 topical steroids, which are 70-year-old drugs that are effective, but they have a lot of issues related to them. ZORYVE is probably the first product that's really well positioned to start to supplant topical steroids and -- with a drug that's equally effective, but much safer and that can be used for the long term. And so that's our major focus right now is the commercialization of ZORYVE and the continued expansion of ZORYVE.

We talked at our last earnings call about the fact that we're getting a lot of feedback from clinicians that the drug works in multiple additional diseases. So we're starting to explore potential future indications for ZORYVE as well, and we've launched a couple of Phase II studies, and we'll probably launch some additional Phase II studies to explore new indications. And then beyond ZORYVE, we do have a pipeline. Most notably, we have a biologic, a novel biologic for atopic dermatitis that we just opened up the IND for just about a month ago and are looking forward to taking that into the clinic and seeing how it performs as well.

And then we just recently announced the termination of one of our other programs that had been in Phase I, and it just didn't really meet our standard in terms of performance of the product. So we've chosen not to invest in that product anymore and to shift those resources into ZORYVE in the pipeline.

Great. Thanks, Frank. I guess, if you wouldn't mind just helping to frame the market opportunity for a topical like ZORYVE, right? How it sort of complements and is synergistic with other therapies on the market across your indications? And I think if there are [ some any ] specific indication nuances across psoriasis, AD, et cetera, that would be helpful to understand.

Sure. So again, I'll start off by talking about steroids. It's a very large market, right? We're talking about somewhere in the neighborhood of 45 million patients in the United States suffer from 1 of these 3 diseases that were indicated approved, psoriasis, seborrheic dermatitis and atopic dermatitis. A fairly large percentage of those patients are on topical medications, somewhere in the range of 10 million patient -- sorry, excuse me, 25 million patients, excuse me, across 3 indications are treated with topical steroids mostly. There are other nonsteroidal options. There have been historically like vitamin D in psoriasis, vitamin D analogs, the topical calcineurin inhibitors in atopic dermatitis and antifungal -- topical antifungal agents in seborrheic dermatitis.

All of those suffer from inadequate efficacy and many of them also have local tolerability issues. And so dermatologists have historically relied primarily on topical steroids. They're very effective drugs. And they constitute about 2/3 of the prescriptions in the inflammatory dermatosis space, which is those 3 diseases we talked about. The problem with steroids is that while they're effective, they're not really safe for long-term use, and they're not safe for certain parts of the body like the face, the groin, the armpits, areas like that.

And so historically, 2 things have happened. One, doctors have and patients had to make this trade-off between efficacy and safety. Do I use the drug that works or do I use the drug that's safe? That's a really bad choice for patients and doctors have to make, right? And secondly, and really as a result of that trade-off, doctors have created fairly complicated topical regimens where patients are taking 3, 4, 5, sometimes 6 different medications at various points in time, different places in their body, different durations of time. So it becomes really complicated for the patients. They often don't comply and then they start having side effects or they're not using their drug, they don't have efficacy.

So ZORYVE comes along, and it really is in the process of revolutionizing that paradigm because you have a drug that is -- we haven't done a head-to-head study yet, but if you compare data from different studies, it's roughly comparable to a high potency steroid, and clinicians tell us that as well. But you can use it forever. There's no limitation on the duration of use. There's no limitation on the amount you can use. You can use it everywhere, face, groin, elbows, knees.

And so that dramatically simplifies the management of this disease for doctors and patients and it eliminates this trade-off that they're having to make between efficacy and safety because you have a safe and effective drug. And that has really led to -- I was just out in the field last week, traveling around meeting with doctors, and they're really rethinking the role of topical steroids now that they have this new option in the management of their inflammatory dermatosis.

Now we're still very early in the stages of conversion from steroids over to ZORYVE and the other more -- the advanced topical therapies. But we're seeing very good momentum in that direction. We're confident that, that is going to continue. And I think it's interesting just the last week, 2 of the professional societies in dermatology actually issued statements saying that clinicians need to reevaluate their use of topical steroids because of the emergence of these new therapies. So I think that really is a really strong indication of the underlying trend moving from steroids to the advanced topical therapies. And given ZORYVE's position, we overwhelmingly benefit from that transition.

Yes. And then that's actually a nice segue to the next question, which is now just you've had about 3 years of commercial under your belt. And it seems to be that ZORYVE has built a pretty strong and somewhat of a sustainable position in the marketplace. What do you -- aside from some of the product differentiation that you mentioned, what do you think is really you can attribute to as to why ZORYVE has been so successful, right, whether it's commercial execution or other things? And also, at the same time, have there been any sort of important lessons learned from your commercial experience that you plan to leverage as you continue to expand into other indications and broader age groups?

A lot of questions there to unpack. So I think in terms of why we have been so successful, first and foremost, it's the product, right? It's very difficult to be commercially successful without a good product. This is a product that has very predictable performance. We've published data that over 90% of patients improve when they're treated with ZORYVE, which is a remarkable response rate if you think about it. The side effect and safety profile is extremely favorable. We have very, very low rates of side effects. And when they do occur, it's relatively minor things like headache and nausea and diarrhea, which generally does not cause patients to discontinue. Most of our clinical studies, we see 1%, 2% discontinuation rates due to adverse events, which is very favorable.

And early on, we made a strategic decision that as good as the product was, we wanted it to be widely adopted. And so we priced it in such a way that we could optimize our access to the product. And that's been another, I think, important aspect to our success. So today, we have about 80% of commercial lives have access to ZORYVE. The vast majority of that is with a single step edit. And we are rapidly penetrating into the Medicaid population. We've announced publicly that well over half of the lives who -- the lives in the U.S. with Medicaid have access to ZORYVE with a single step or better, and we expect that to expand.

And longer term, we expect to start getting some Medicare coverage as well. Medicare has been a little more challenging because of the changes that the Inflation Reduction Act introduced into the Part D program, but we're confident that, that will come as well. So that's been an important element to the success of the product. And then commercial execution is also, I think, very important.

The topical dermatology space is rather unique. I've worked in a lot of therapeutic areas, and there's really nothing quite like topical dermatology, including different than systemic dermatology treatments, which was an eye opener, I think, for a number of us. But we've got a very, very strong experienced team with a lot of topical dermatology expertise that I think has been a major contributor to the success of the product as well.

Super helpful. And then maybe just to touch on a couple of specific points about recent Q2 earnings and some of the commentary that you had. Obviously, sales were up 28% versus the first quarter. There was some commentary around expected seasonality heading into Q3. Can you just say a little bit more about your expectations for the next upcoming quarter as well as the rest of the year?

So I'm going to pass it over to my colleague, Latha.

Yes. So I want to kind of pick up where we left off in Q2 and then give some highlights on recent trends. So the comment made in the Q2 call was that the absolute net sales would definitely be higher in Q3 than Q2 that we would see growth in net sales. But because of seasonality due to, one, the summer vacation and what happens in the summer with dermatologists and patients taking vacation and the effects of the disease in the summertime, we expect that the volume growth would not be as high.

There would be growth, but not as high as previous quarters. But recent trends, and everyone can see our scripts every Friday, if you look at the last -- as of last week, quarter-over-quarter, we've had about 15% unit growth. So we're doing quite well from a volume perspective despite seasonality, which we do see the softness, and you've seen in the recent couple of weeks. So we feel very strong about where we're heading into Q3.

And I think we would expect Q4 to return to a very nice growth trajectory -- and even better, excuse me, growth trajectory on top of Q3. And I think at least that's in part due to the scalp psoriasis -- scalp and body psoriasis launch that was at the very end of Q2...

Yes, that we have launched at the end of Q2. And we expect, as we have in most Q4s that there is always a pickup based on the weather and everyone coming back to the doctor. And usually, we finish quite strong at the end of the year.

Yes. And maybe just on that point, obviously, you launched the ZORYVE foam for plaque psoriasis for the scalp and body in June, right? I think that's what you're referencing. Any early observation on how that's going, generally speaking?

Yes. In fact, again, as I was talking to customers last week and the feedback is overwhelmingly positive. I think that there was probably some use of ZORYVE in -- ZORYVE foam in scalp psoriasis already. There's -- psoriasis and seborrheic dermatitis have an overlap. There's actually an entity that the dermatologists refer to as sebopsoriasis. And so sometimes it's hard to distinguish between the 2. And so there may have been some usage of ZORYVE foam before then -- but there's definitely been a pickup.

I think it's pretty clear in the numbers that we're seeing pickup. It's still too early for us to be able to split out how much of the foam is seb derm and how much is plaque psoriasis, but I think over time, we'll be able to figure that out. But the growth trends, all the SKUs are growing, but the foam is growing particularly well. AD also continues to be a nice growth driver because it's very early still in its launch as well. But clinician feedback has really been excellent. And again, that's really a game-changing product for scalp and body psoriasis, right?

About the only other option these days for a patient with scalp psoriasis is clobetasol solution, which is a super high potency steroid, which is very effective, but can only be used for short periods of time. And it can't be used on the face or other sensitive areas of the body. So again, you're into this complicated regimen of multiple products, right? So I was -- in fact, I was talking to a doctor last week, and she was commenting about how much time it saves her when she's not having to write 4 different prescriptions.

She can just say, here's your ZORYVE, you're out the door, right? It's a 30-second conversation and she's catching up on her schedule. And it helps the patient a lot because they have one product, they just use it everywhere. They've never had a product like this. And so the reception amongst clinicians has been very, very good, particularly because the cream performs just as well as -- sorry, the foam performs just as well as the cream in treating psoriasis on the body and actually outperforms on the scalp. So they're not giving up anything by simplifying the patient's regimen.

Super helpful. I guess just switching gears a little bit to the next regulatory catalyst that you have coming up with the PDUFA date for ZORYVE cream for AD patients 2 to 5 years old. How should we thinking about that opportunity, broadly speaking, in terms of size and particularly where ZORYVE might fit in the whole sort of treatment paradigm? And I guess a related question is, how important is it for ZORYVE to be moving earlier in terms of age? And as you mentioned, Frank, earlier, that this is forever potentially, right? There's no limitation as to use. So how do you frame that AD opportunity with the PDUFA date coming up?

Yes. I think there are really 2 ways to think about that. The first one is from a patient standpoint, I think the concern about steroids in general is magnified many times over when you're talking about children, right? Parents are very reluctant to put their kids on steroids. They're concerned about retardation of growth, which is a real thing as well as all the other side effects that come along with topical steroids. And -- so we frequently hear from clinicians that parents are the ones who push back the most on steroids. So I think having ZORYVE approved in that 2 to 5 age group is very important from a patient standpoint.

We also are running a study right now to extend that indication eventually down to 3 months of age, where there are almost no products approved for the treatment of atopic dermatitis. And then for the broader franchise as well, the fact that your product is approved down to 3 months of age or 2 years of age, has a halo effect in terms of how doctors think about the safety of the product as well. So I think it benefits the overall franchise. And if you think about this focus of ours of converting the topical steroid market over to ZORYVE, the broader the indications are, the more indications we have, the stronger position we are to really start to supplant topical steroids as the mainstay, the foundational therapy in dermatology.

Sure. And then maybe just on that, in terms of the conversion of patients on steroids into ZORYVE, where do you think you are in terms of that whole process? And obviously, there is a large patient population on steroids today. What type of -- can you share a sense of volume that you've converted, patients that you've converted? And how much ultimately do you think you'll be able to capture of that base?

Yes. So I'll talk broadly about the advanced topical therapy market. There are several advanced topical therapies on the market now. That group of drugs generated about 1 million prescriptions last year in the United States compared to about 16 million topical steroid prescriptions, right? So there's still a massive amount of runway to convert. Now I don't think it's going to 100% convert, right? A 50% conversion would be great. And I think that's very achievable. That would make ZORYVE a really big product.

Even 20% conversion would be huge because this market is so large. We are definitely seeing a nice upward trend. I think we announced previously that last year, the advanced topical therapy market grew by about 50% in terms of prescriptions versus the prior 12 months. So I think that's a really nice growth trend to see. But we're very, very early days in that process.

Very helpful...

Sorry, just to finish off that thought, ZORYVE, as I mentioned earlier, has about 42%, 43% of that advanced topical market as well, right? So as that conversion happens, we end up getting the majority -- not the majority, but the plurality, right, of the benefit, the bulk of the benefit...

[indiscernible] the options out there. I guess just switching gears a little bit to life cycle management. Beyond the approved indications, obviously, you've, I think, outlined some plans to expand into HS and other things. Could you just share a little bit more about the clinical strategy around those and how you think about broader longer-term life cycle management?

Yes. So as I mentioned, I think, earlier, dermatologists have used ZORYVE extensively off-label, not that we promote that, but that's what dermatologists do. Most steroid use is also off-label by the way. And they have found a wide range of diseases that respond to ZORYVE -- inflammatory diseases, but also ZORYVE seems to have some effect on melanocytes, which I think is quite interesting. And we see that in resolution of post-inflammatory hypopigmentation and hyperpigmentation in atopic dermatitis and seborrheic dermatitis. But there's also been a case report series of ZORYVE in vitiligo, for example, right? And ZORYVE has a fairly rapid effect on itch as well.

We see itch response within 24 hours of the first application. So ZORYVE is having a bunch of different positive effects. And so doctors have tried all different kinds of things. Not all of those opportunities are worth us pursuing a registrational program for, right? So what we are in the process of doing is evaluating the data that dermatologists have generated, determining which of these markets might be worth pursuing.

And then as I mentioned earlier, running some small Phase II studies to really get a sense of the magnitude of the clinical effect and then potentially moving then into registrational program. We have started Phase II programs in HS and vitiligo. And I would anticipate that we probably will start several more Phase II POC studies. And then from there, we'll decide which one or ones we would pursue then for further indication.

And then on the topic of growth and expansion in the longer term, can you comment a little bit more about the 234 asset that you have in your pipeline? And also how you think about BD strategy overall?

Sure. So with 234, maybe I'll take the example of psoriasis market as a comparison, right? I started my dermatology stint on Enbrel, which was at the time, a revolutionary drug. And [ we talked ] about PASI 50s. Nowadays, with BIMZELX or Skyrizi, you're getting half your patients or more to PASI 100, right? There's been this remarkable upward trajectory in efficacy in psoriasis. We have not seen that in atopic dermatitis. The [ 413s ] are very good drugs, but they don't get very many people to EASI-100, right? And they don't even get that many people to EASI-75, right? 40%, 50% maybe get to EASI-75. So there's still a big unmet need in terms of efficacy.

There's also, I think, an unmet need in terms of dosing, particularly in the younger kids, people who are parents, you can imagine the challenge of giving your kid an injection every 2 weeks for the rest of their childhood, maybe the rest of their lives. Patients -- parents are bringing their kids in the doctor's office every 2 weeks to get their shot in some cases, right, because the parent doesn't want to do it. So the ability to extend dosing is potentially also very compelling. So we see a big unmet need in atopic dermatitis with systemic therapies. We acquired a company, I think it's 3 years ago, wasn't it, that we bought Ducentis?

Almost 4 years.

Almost 4 years. Yes, it's been a while. They had a very novel and we thought very promising new therapy for atopic dermatitis. It's a checkpoint agonist. So everyone is, I think, familiar with the checkpoint inhibitors in oncology. You inhibit the immune checkpoints, you rev up the immune system, it kills the cancer cells, right? You agonize those same checkpoints, and you reset activated immune cells, you put the immune system back in its sort of natural standby state without immune suppressing. And that's a very compelling approach. So the company we acquired had what was the second in that class.

The first one has now disappeared. So now we are the lead molecule in that class, which is serendipity for us. We think it's a very interesting target. We need to get in the clinic to see what the magnitude of efficacy is. But I think the most compelling thing that we saw was the potential for protracted periods of patients having a response without treatment, right? So you can treat for a period of time and stop, and the treatment maintains for months. And it's still to be determined how long that lasts. We think that can be a really compelling and differentiating feature of our product versus what's on the market and what's in the pipeline currently.

And do you want to just quickly touch on BD strategy? I know you highlighted external innovation as [indiscernible].

Yes. We are always looking for interesting new assets as a company. We had licensed a JAK inhibitor. That was the program that we just canceled just recently. We acquired Ducentis to acquire this 234 asset that we were just talking about. So we're constantly looking. I would say that the bar is pretty high for business development. Given that we have ZORYVE and ZORYVE life cycle management in 234, we're not in a position where we're forced to do business development. But having said that, we have a very strong development organization, and I think that with the right asset, we could create some meaningful shareholder value.

So we're always open. And given the overall biotech environment, I think deal flow has ramped up in the last probably 9 to 12 months. We're seeing a lot of assets that weren't available that are available now. That doesn't mean I'm going to buy a bunch of them. But it gives us the opportunity to kick the tires and decide, is there anything worth purchasing. The [Audio Gap] I think there's the capability to do it if the right asset happens to come along.

Very helpful. And then maybe, Latha, this is a question for you. I think you guided to cash flow breakeven in 2026. Is that still on track? And is that still the expectation? I guess the question related to that is how you think about broader capital allocation strategy once you reach that point?

Yes, absolutely. So yes, we're still guiding to being cash flow positive in 2026. And our capital allocation strategy, I'd say the balance sheet is very much based on ZORYVE and the foundation of ZORYVE, everything Frank just talked about. And we believe in the strong growth trajectory that leads to cash flow positive and will be the basically the fuel that we'll use to fund a lot of our LCM activities and the pipeline.

So all of that is encompassed in that cash flow positive statement that we've made. In terms of BD acquisition, we've been very clear that, that would require an innovative capital source depending on the quantum and the BD that we do acquire. But we think our current run rate and trajectory set up well with what ZORYVE has to offer the portfolio and the P&L.

Very helpful. I think we're sort of just about coming towards the end here. But perhaps as one of the last questions that we'll ask is, obviously, you've got -- we talked a lot about ZORYVE. We talked about pipeline, BD, financial strategy, et cetera. Frank, a question for you. If you were to take a step back and ultimately ask yourselves, what is the ultimate long-term goal and the strategy of the company, right?

And I guess the question related to that is, where do you see the company in, say, 3 to 5 years' time? And I think one of the questions -- I know there's a lot of questions there, so please bear with me. For commercial stage biotech companies, is this classic question around managing growth versus profitability? And how do you sort of think about that question as you think about longer term, 3 to 5 years down the line?

Yes. So we set this company up because there was a gap, right? There was some blue ocean in the dermatology space. I don't think that that's changed since we founded the company. If anything, it's probably gotten more acute. Some of the other companies that were in the space have fallen by the wayside. So we think there is still a very strong need for an innovation-based dermatology company like Arcutis. And I think we're very well positioned to fill that void, and we're in the process of filling that void as we speak. 3, 5 years from now, I think that we will only have strengthened that position.

I anticipate that we'll have more in the pipeline either through internal development or through business development. And we'll have continued to advance both ZORYVE and 234 5 years. 234 won't be out quite yet, probably these things take a while, but certainly will be -- have progressed very nicely. And I think that we'll probably have made very substantial headway in terms of this conversion of the topical steroid market. Remind me what the second half of that question was?

In terms of how you think about growth versus profitability?

Yes. I don't know that it's an either/or proposition. I think it's sort of a Goldilocks kind of thing, right? Particularly once we achieve cash breakeven, I think it's important for us to manage our spend so that we don't create a situation where we start running out of money again, right? Obviously, business development will have to factor in that could be a variable if we were to do significant business development. But short of that, we'll need to manage our resources and live within our means. By doing that, that will allow us to also grow. And I think -- we're not a bank.

So if we can't find a good place to invest our money, then we'll have to think about other ways of managing the capital that we're generating. I certainly never want to be wasteful of shareholder money. I'm a shareholder myself. So I think very carefully about that every day, where we're investing and whether we're going to get a good return for our investors or not. And so we'll continue to evaluate, is it best if we invest this? Or is it best if we do something else with the capital?

Terrific. I think those are all the questions that we have for today. So Frank and Latha, thanks very much for joining us today.

Thank you.

Good day, and thank you for standing by. Welcome to the Arcutis Biotherapeutics 2025 Second Quarter Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, 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 2025 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis website.

On the call today are Frank Watanabe, President and CEO; Patrick Burnett, Chief Medical Officer; Todd Edwards, Chief Commercial 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 of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand the call over to Frank.

Thanks, Brian, and thank you to everyone for joining us today. I'm pleased to report that in the second quarter, we continued to see strong sales and demand growth with our ZORYVE franchise, demonstrating continued adoption by health care providers and patients and consistent execution by our commercial team. During today's call, we will review in detail the results for the quarter, but we'll also spend time talking in more depth about our plans to sustain our growth into the future, including the next wave of growth for ZORYVE, how we intend to leverage our best-in-class development and commercialization capabilities to address the unmet urgent needs of patients living with immune-mediated dermatologic diseases and our capital allocation framework to enable this next growth phase.

Before I dive in, I want to thank the exceptional team at Arcutis that is dedicated to and instrumental in advancing our efforts to serve the needs of people living with serious skin diseases.

So on Slide 5, honing in on the second quarter, we saw another quarter of strong revenue growth as patients and clinicians continue to adopt ZORYVE for the treatment of a range of inflammatory dermatosis. For the quarter, we reported net product revenues of $81.5 million, representing 28% quarter-on-quarter growth and 164% growth compared to the same quarter 2024. This substantial sequential growth reflects the continuously increasing demand for ZORYVE with TRx volume increasing for all products.

In May, we received approval from the FDA for the use of ZORYVE foam 0.3% for the treatment of plaque psoriasis of the scalp and body, our fifth FDA approval for ZORYVE in the last 3 years. We believe this new indication for our foam will provide an important and much-needed new treatment option for the over half of plaque psoriasis patients who have scalp involvement.

In the quarter, we continue to make progress against a core objective that is the progressive conversion of topical steroid prescriptions to ZORYVE. We see growing evidence that dermatology clinicians are appreciating the risks associated with extended steroid use and as such, are increasing their use of alternative nonsteroid topical agents. We also saw strengthening in our business fundamentals in the second quarter. As we continue to grow ZORYVE sales while remaining disciplined with our expense base, we are increasing our operating leverage. Latha will go into more detail on our operating results and improving cash burn profile.

As we progress towards reaching cash flow breakeven in 2026, we are rapidly approaching a point where we will have additional resources to invest in future growth. And today, we will begin to lay out our plans, including the next wave of ZORYVE expansion, additional pipeline opportunities and our disciplined capital allocation strategy that underpins it all. Okay.

Turning now to Slide 6. We have been intently focused on clinical, regulatory and commercial execution for ZORYVE over the last several years as evidenced by our results. And so as I introduce our framework for near, medium and long-term growth today, I will start by saying that we will continue to see substantial opportunities for sales and profit expansion from our current ZORYVE indications and those in late-stage development.

While nonsteroidal topicals are making inroads in the treatment of immune-mediated inflammatory skin diseases, there is still a tremendous amount of potential conversion to be had. As patients and prescribers continue to understand how ZORYVE can serve as the foundational long-term therapy for psoriasis, atopic dermatitis and seborrheic dermatitis, topical steroids will increasingly be reserved for acute treatment.

To dimensionalize the size of this opportunity, last year, over 69% of all topical prescriptions in our approved indications were written for steroids. So the progressive conversion from steroids will be a sustainable growth driver for ZORYVE for many years to come. Our expected label expansion for pediatric atopic dermatitis and development efforts for infant AD, which Patrick will further detail shortly, will be another component of this continued growth. Other commercial opportunities such as further access improvements and the development of the PCP and pediatric channel that we previously detailed will also support our continued momentum with ZORYVE. These cumulative near-term opportunities will power ZORYVE growth throughout 2025, 2026 and beyond.

Beyond our current ZORYVE portfolio, we see a next wave of growth being driven by effective and efficient life cycle management for the ZORYVE franchise. This has been enabled by the various formulations and concentrations available for ZORYVE, which has, in essence, create a Swiss Army knife for inflammatory skin conditions. Patrick will expand on our approach to ZORYVE life cycle management, but I will highlight that a core principle is to be data-driven and disciplined, matching investment to clinical promise and opportunity size.

Longer term, our current development pipeline shows promise in addressing areas of high unmet needs for these patients. We will also continue to evaluate external sources of innovation based on our conviction that our core competencies gives us the ability to leverage the research and early development efforts of other companies and to drive those innovations through later stages of development, regulatory approval and commercialization. We are at an exciting point at Arcutis, approaching profitability that will underwrite both the next stage of expansion for the ZORYVE franchise and subsequent waves of innovation. And while we are eager to apply our expertise in dermatological development and commercialization, I will again underscore that we will continue to be thoughtful and disciplined in our deployment of capital.

We will continue to be stringent in our internal capital allocation by being data-driven in our pipeline management decisions. As you will hear from Patrick shortly in that vein, we have made the difficult decision to halt the development of ARQ-255 following the readout from our Phase Ib trial. Finally, in the context of these promising opportunities for capital deployment, I will reaffirm that we are committed to generating positive free cash flow. We remain on track to achieve this milestone with our current business in 2026. It is our intention that future clinical development spend to advance our existing pipeline will be funded by cash flows from our ZORYVE franchise, although we do acknowledge that a potential acquisition of some external innovation might require incremental capital.

Okay. On Slide 7, I want to take just a minute to expand on why we believe that pursuing further label expansion for ZORYVE is a smart investment and a judicious use of our capital. First, as one of the most successful drug franchises of all time, the story of HUMIRA's incredible success is well known. But the details of how that success was achieved, in particular, the steady indication expansion for the franchise provides a sense of the power of a well-executed life cycle management program.

HUMIRA first launched in 2022 with initial indication in rheumatoid arthritis, which produced the majority of the brand's early revenues. But as we can see in the chart on the left-hand side of the slide, it was not only the growth of that indication that powered HUMIRA's success, but also the consistent addition of new indications and label expansions. And by the time HUMIRA reached its peak sales in 2022, AbbVie had added 11 indications for this drug and fully 68% of sales were derived from indications beyond rheumatoid arthritis.

A more recent and developing example of effective life cycle management can be found in Sanofi and Regeneron's Dupixent. Dupixent launched in 2017 with an initial indication of adult atopic dermatitis. Since 2018, 10 additional indications for the brand have been approved. While atopic dermatitis remains the most significant revenue driver, accounting for about 74% of sales as of 2024, approximately $3.7 billion in sales was generated by these subsequently added indications such as asthma and nasal polyps.

The progressive expansion of our label for ZORYVE is not a new story either. Since launching in adult plaque psoriasis in 2022, we've expanded to cover 3 diseases and won 4 label expansions. In the second quarter, the sales contribution from these new indications and label expansion exceeded 2/3 of our total sales. And it is our strong belief that continued pursuit of new patient populations who may benefit from ZORYVE will sustain the brand's growth.

And with that, let me turn it over to Todd to provide some more color on the quarter. Todd?

Thank you, Frank. I'm on Slide 9. In the second quarter, we achieved $81.5 million in net product revenue for ZORYVE, reflecting 164% growth year-over-year and sequential growth of 28% compared to the first quarter. Importantly, growth during this period was driven by increased demand across all strengths and indications. highlighting the robust performance of the franchise and the continued adoption of ZORYVE across its approved indications.

The meaningful revenue expansion in the quarter was a result of strong volume growth supported by stable gross to net rates for ZYVE, driven by the high percentage of prescriptions being reimbursed. An additional factor driving product revenue growth in the quarter was the recovery of inventory levels in our distribution channels back to normal levels following a drawdown in the first quarter. Looking ahead to the remainder of 2025, we anticipate steady sales growth driven by new indication launches, increased contribution from the PCP and pediatric channel through our partnership with COA and continued share gains in a sizable topical market, primarily coming from steroid conversion. That said, ZORYVE is not exempt from the seasonality that typically affects prescription topical products. As a result, we anticipate a moderation in our sequential growth rate in the third quarter before returning to robust growth in the fourth quarter. I'll provide additional detail on this shortly.

As shown on Slide 10, ZORYVE prescription volume reached a record high of 16,000 weekly scripts on a rolling 4-week average basis. The nearly 200,000 total prescriptions in the quarter reflect a year-over-year volume increase of 117% and a quarter-over-quarter increase of 13%. This strong performance is enabled by the substantial breadth of adoption across prescribers with over 18,000 health care providers have written prescriptions in the second quarter and 26,000 since launch. This quarterly figure represents a 7% increase in the number of total prescriptions quarter-over-quarter and nearly 70% increase year-over-year.

We continue to see an erosion of topical steroid share within the topical market. In Q2 2025, branded nonsteroidal volume grew by 40% versus prior year, while topical steroid volume was effectively flat. ZORYVE is playing a key role in driving the shift as prescribers continue to appreciate its potential for sustained treatment of chronic inflammatory skin conditions compared to the intermittent use of that is appropriate with topical steroids.

We are in the early stages of launching ZORYVE foam 0.3% for patients with scalp and body psoriasis following FDA approval in May. We expect this launch, along with the anticipated approval of ZORYVE cream 0.05% for patients aged 2 to 5 years old in October to drive further volume growth in the second half of this year. While we continue to expect strong overall growth for ZORYVE in 2025, including in the third quarter, the pace of growth in Q3 will reflect the typical seasonality of the topical market. This is influenced by nonmedical factors such as summer vacations and medical factors, including reduced flaring of inflammatory skin conditions during the summer months. As a result, we anticipate some moderation of growth in Q3 before returning to a more robust trajectory in Q4.

Let's now turn to our recent approval for ZORYVE on Slide 11. In May, we received FDA approval for ZORYVE foam 0.3% for the treatment of plaque psoriasis for scalp and body. As Frank mentioned, more than half of plaque psoriasis patients have scalp involvement. Historically, these patients have managed their condition with a combination of topical steroids and other treatments, depending on plaque location, resulting in a frustrating polypharmacy approach. The ability to use a single product once daily across all affected areas offers a meaningful reduction in treatment burden. ZORYVE foam 0.3% delivers reliable plaque clearance and rapid itch relief in a formulation specifically designed for hair-bearing areas and appropriate for use near the eyes and other sensitive areas.

We are confident this label expansion will drive incremental demand for ZORYVE, particularly as the foam displaces other treatment options for scalp psoriasis. Since the foam formulation for Seb derm and psoriasis are on the same SKU across both indications, it will take additional time to accumulate sufficient longitudinal data to accurately parse out contributions by disease.

However, we have seen an acceleration in foam growth with a 9% increase in volume in the 6 weeks since launch compared to the prior 6 weeks. As previously noted, our analysis indicates that clinicians who prescribe ZORYVE across multiple indications tend to generate significantly higher prescription volumes overall as they recognize the meaningful disease management benefits ZORYVE delivers for patients. With the introduction of ZORYVE foam for this new indication, we expect this effect to compound further.

Moving to Slide 12. A long-standing objective at Arcutis has been to drive reimbursed prescriptions, not just any prescriptions as they directly impact top line revenue. We continue to benefit from strong insurance coverage for ZORYVE across approved indications with approximately 80% of all prescriptions being reimbursed. This favorable coverage landscape supported the revenue growth achieved during the quarter with gross to net rates remaining stable.

We also made meaningful progress with Medicaid with well over half of all Medicaid recipients now having access to ZORYVE and the majority of covered lives only require a single step through a steroid. This advancement contributed to strong quarter-over-quarter unit growth from the Medicaid channel. We remain actively engaged in negotiations with Medicare Part D plans and are committed to expand access for these patients even as payers continue to navigate financial disruptions due to the implementation of the Inflation Reduction Act. The IRA introduced changes to the Part D benefit structure, including a shift in cost sharing responsibilities between CMS, Part D plans and manufacturers.

These changes are creating both operational and financial complexities for Part D plans as they work to update their systems, adjust risk models and align on formulary strategies. This environment has led to a more protracted process to cover decisions for all new pharmaceuticals.

Moving to Slide 13. The expanded utilization of ZORYVE in the primary care and pediatric setting remains a key component of our growth strategy, and we continue to make progress through our partnership with Kowa. From the outset, we recognize that the primary care selling cycle requires more frequent and sustained engagement to build familiarity. Many providers in this setting have limited exposure to topical nonsteroid treatments and tend to default to prescribing steroids.

Kowa’s field team continues to execute targeted high-frequency outreach to drive initial trial and ultimately, adoption of ZORYVE among these providers and their patients. This process will further be supported by recent enhancements made to streamline the prescribing and fulfillment experience of these providers. In the second quarter, we implemented a dedicated national pharmacy with improved capabilities for this channel. This pharmacy will play a pivotal role in appropriately helping offices navigate the fulfillment process that is often less familiar to primary care providers compared to dermatologists who are more accustomed to prescribing branded topicals.

The key advantage of this new dedicated pharmacy is its ability to integrate directly with EHR systems, enabling seamless incorporation of ZORYVE prescribing into existing workflows. Given the diversity and volume of patients in primary care setting, tools that reduce administrative burden and streamline access are instrumental in driving broader adoption.

I'm now on Slide 14. The future of ZORYVE is incredibly bright. With multiple formulations and concentrations, we are equipping health care providers with the flexibility to meet patients where they are in their treatment journey by providing a treatment option suitable for long-term use and the ability to better support the management of chronic inflammatory skin conditions. This versatility, combined with ZORYVE's well-established efficacy and safety profile continues to reinforce its position as the most prescribed brand topical across 3 major inflammatory skin conditions. With that, I'll now turn the call over to Patrick for an update on R&D.

Thanks, Todd. I'm on Slide 16. In the quarter, as you come to expect from us, we made significant progress against our clinical and regulatory objectives as we received FDA approval for ZORYVE foam 0.3% for scalp and body plaque psoriasis, initiated our Phase II trial for ZORYVE cream 0.05% in infants with atopic dermatitis and submitted our IND application for ARQ-234 in atopic dermatitis. Today, I'll spend time describing our efforts in developing ZORYVE for pediatric AD patients, outlining our approach to ZORYVE life cycle management and give an update on ARQ-255.

First, I want to acknowledge the important milestone that our IND submission for ARQ-234 represents. We continue to believe that CD200 receptor modulation has the potential to be a powerful mechanism for the control of atopic dermatitis and other inflammatory conditions. We further believe that as a fusion protein with high selectivity for CD200, ARQ-234 has the potential to be a class-leading program. We look forward to sharing more detail on this program at a later date.

Turning now to Slide 17. Unlike other inflammatory skin conditions, atopic dermatitis often presents at early ages for patients. Nearly 10 million children in the U.S. are impacted by atopic dermatitis with roughly 60% developing symptoms in their first year of life. AD presents unique challenges in these younger age groups, not only because the skin is more sensitive, but also because the condition often covers a greater percentage of their total body surface area compared to adolescents and adults.

Parents of these pediatric patients are highly sensitive to potential negative side effects of topical steroids. These concerns range from the impact of chronic steroid use on the child's growth and bone development to more immediate complications like application to the child's face or contact with the eyes and mouth can be difficult to control.

Given the size of the patient population and the need for safer and more tolerable therapeutic intervention, we've been enthusiastically pursuing label expansion for ZORYVE to younger ages of atopic dermatitis patients where we see a great fit for the ZORYVE clinical profile. In February, we submitted our sNDA for ZORYVE cream 0.05% for the treatment of children aged 2 to 5 years old with atopic dermatitis, population of roughly 1.8 million patients. The submission was supported by data from the INTEGUMENT-PED Phase III trial, which demonstrated efficacy and a safe and tolerable profile in this age group, highlighted by 39% of children treated with ZORYVE achieving a 75% improvement in EASI score, also called an EASI-75, and this was done in just 4 weeks.

In June, we presented new results from the INTEGUMENT-OLE long-term open-label study that demonstrated children ages 2 to 5 who achieved disease clearance and switched to a proactive twice-weekly application of ZORYVE cream 0.5% were on average, able to maintain disease control for 238 days or nearly 8 months without the need to return to daily dosing. And we believe that the potential to control AD without disease flares with less frequent dosing may be a particularly compelling benefit for patients in this age range and their caregivers and speaks to the differentiated profile of ZORYVE as a foundational treatment for chronic inflammatory skin conditions.

We look forward to our target PDUFA date for this application in October of this year. We're also actively pursuing development of ZORYVE cream 0.05% in patients ages 3 to 24 months and enrolled the first patient in the INTEGUMENT infant trial for this population in June. We're seeing brisk enrollment in the trial, which confirms our belief that amongst these young, vulnerable atopic dermatitis patients, there is an acute desire for alternative treatments to current therapies, most of which are topical corticosteroids. Pursuing these potential expansions into younger AD patient populations delivers on a core principle for Arcutis to deliver innovation that solves everyday challenges that significantly impact the lives of patients and their families.

Now moving on to Slide 18. As Frank remarked at the beginning of this call, pursuing new patient populations that may benefit from ZORYVE has been a core tenet of our clinical development strategy. This is evidenced by the 4 label expansions we have secured across plaque psoriasis, seborrheic dermatitis and atopic dermatitis following our initial approval in 2022.

We believe that there are additional skin diseases that may respond to and more patients who may benefit from ZORYVE. This belief is not only supported by our understanding of ZORYVE's broadly applicable anti-inflammatory and antipruritic properties, but also by our feedback we've received from health care providers in the field. As part of our obligation to sponsor, our medical team monitors this feedback.

To date, we've identified more than 40 case reports from clinicians who have used ZORYVE in a multitude of other inflammatory dermatosis and see signs of efficacy. These clinicians have experienced the safe, tolerable, versatile and effective profile of ZORYVE in their psoriasis, AD and seb derm patients and have chosen to investigate novel applications of the therapy. These case reports are listed on the left side of the slide and include many diseases, which are not well managed by topical steroids and therefore, present a challenge for dermatology providers.

Our approach to assessing these potential opportunities is stepwise and resource efficient. As indications of interest come to light, we'll engage in a collaborative research, conducting Phase II proof-of-concept studies where appropriate to evaluate the degree of response and understand potential safety and efficacy. Based on the results of these initial studies, our analysis of the addressable patient population for a given disease and feedback received by regulatory agencies, we may then identify additional indications for which a registrational trial conducted by Arcutis is a prudent investment. We're already pursuing this strategy with efforts underway to begin enrolling Phase II studies in vitiligo and hidradenitis suppurativa, and we anticipate initiating additional Phase II proof-of-concept studies going forward. This evaluation of new indications and program planning will be comprehensive and evolve over time, and each project will be carefully assessed relative to potential return on investment. Our progress in this process is another topic that we plan to detail further at a future date.

Now moving on to Slide 19. As Frank mentioned in his remarks and as you've heard throughout this call, Arcutis is fortunate to have multiple opportunities for clinical investment to pave the way for our future growth. As we evaluate our current and future portfolio of clinical programs, we will continue to be data-driven and apply a high bar for advancement. In line with this rigorous portfolio management approach, we've announced today our decision to halt further development of ARQ-255 following our review of the results from our Phase Ib trial. We've always known that the ARQ-255 program was a high-risk endeavor.

Multiple other topical JAK inhibitors had previously failed in alopecia areata, but preclinical studies suggested that our novel 4D technology might be able to overcome the challenges of treating alopecia areata topically. The study demonstrated a trend for positive efficacy in both the clinical endpoint of salt change from baseline and salt improvement to 50% or greater, suggesting that, in fact, 4D is able to deliver drug to the site of inflammation. But unfortunately, the magnitude of improvement was not sufficiently large to justify a continuation of the program. Here, we show the efficacy data alongside that from other independent clinical trials conducted with oral JAK inhibitors in alopecia areata.

Although we were pleased to see the favorable trend that validates our topical formulation approach after extensive consideration of the potential profile relative to alternatives, we decided that this level of efficacy we observed with ARQ-255 would not be a meaningful addition to the treatment options for patients with alopecia areata. We look forward to finding other opportunities outside of ARQ-255 to expand our pipeline and provide meaningful innovation in dermatology. I want to thank the investigators, our advisers and the patients who participated in this program as well as the excellent Arcutis team that conducted a very well-run study. And with that, I'll turn it over to Latha.

Thank you, Patrick. I want to start by reiterating the strength of this quarter. Our improved operating leverage allowed the strong top line growth to translate to a reduction in cash burn and reemphasizes that our disciplined approach to capital allocation has us on a path to cash flow breakeven in 2026. I'm on Slide 21, showing financial results both year-over-year and quarter-over-quarter for the second quarter of 2025.

As Todd has stated earlier, we generated net product revenues in the quarter of approximately $81.5 million, which is up 164% from Q2 of 2024 and 28% from Q1 of this year. Cost of sales in the second quarter were $7.5 million compared to $3.5 million in 2024, primarily driven by increased ZORYVE sales volume.

Cost of sales decreased 15% sequentially versus the first quarter of 2025 despite increasing sales volume due to an expense recognized in the first quarter for the catch-up amortization of a $10 million sales milestone owed to AstraZeneca for reaching $250 million in cumulative net sales. For the second quarter of 2025, our R&D expenses were $19.5 million versus $19.3 million for the corresponding period in 2024. Our R&D spend has remained consistent year-on-year as decreased development costs for roflumilast in adult atopic dermatitis and plaque psoriasis were partially offset by an increase in development costs for pediatric atopic dermatitis.

SG&A expenses were $69.2 million for the second quarter of '25 versus $58.2 million in the same period last year. up 19% as we invested in our commercial organization to support our current and upcoming launches. Recall, we expanded our sales force in the second half of 2024. SG&A expenses were also up approximately 9% as compared to the first quarter of '25, primarily due to increased sales and marketing costs related to our launch in scalp and body psoriasis.

Net loss for the quarter decreased by $36.4 million compared to the same period last year and $9.2 million versus the first quarter of 2025. While this rate of improvement in operating results will fluctuate across quarters in line with sales, it clearly demonstrates that we are making substantial progress towards reaching cash flow breakeven in 2026 and that the foundation of our business is strong and getting stronger.

Now I'm on Slide 22. You can see that we had cash and marketable securities of $191.1 million on our balance sheet as of June 30, 2025, and we were slightly cash flow positive from operating activities this quarter. This positive net cash flow from operating activities of $325,000 was due in part to our increased gross profit driven by our top line revenue growth, a highly encouraging signal of our progress towards cash flow positivity, but also in part due to timing changes in net working capital that reduced cash used in operations. This is a good example of the type of factors that lead to the quarter-to-quarter fluctuations I mentioned earlier and that we expect to see on occasion in the future.

We expect our quarterly cash burn to continue trending down as our revenues grow and we approach stable positive cash flow from operations sometime in 2026. We have total debt of $108 million and have the option to withdraw another $100 million in whole or in part at our discretion through the middle of 2026, providing us with significantly enhanced flexibility. The success of ZORYVE portfolio and the economies of scale we are generating will permit us to invest in the business for continued growth and long-term durability.

With that, I'm going to hand it back to Frank for some closing remarks.

Thanks, Latha. As you've heard throughout today's call, we built a strong and sustainable foundation for our business and our prospects for continued near, medium and long-term growth at Arcutis are strong. As we continue to execute our multifaceted plans to sustain this growth, we look forward to sharing updates on our progress. And to that end, we will be holding an R&D Day in the fourth quarter of this year to go into greater detail on several key aspects of our clinical development plans and corporate strategy.

And with that, we'll open up the call to Q&A.

Our first question is going to come from the line of Seamus Fernandez with Guggenheim Securities.

Congrats on the great quarter and reaching at least for this quarter, cash flow positivity. A couple of questions here. maybe just to start off, as we think about the sort of progression of revenue from second quarter to third quarter, it sounds like we should think about this as a little bit of a perhaps even a slightly down quarter? Or should we think about it more as a sort of flat progression or moderating growth as we think about third quarter? And then, Frank, I think it's very obvious the opportunity to continue to really pursue the switch from topical steroids more broadly, especially considering the range of areas where topical steroids are utilized. But I wanted to just get a better sense of how far reaching you feel the opportunity is to move beyond the 4 initial indications here. Obviously, there's a number of indications that were listed on the slide on the R&D side. But you also mentioned potential business development pursuits moving forward beyond the existing pipeline. What do you feel would be kind of a good right fit for the company as you look beyond this? Is it to be able to scale the business with on-market assets? Or is it more to really release your R&D organization given the sort of clinical excellence that's been demonstrated so far?

Yes. So Seamus, maybe I'll answer your second question first, and then I'll ask Todd to address the question around revenue. I think that -- from a clinical standpoint, it's pretty clear that ZORYVE has very broad applicability across a whole range of diseases, I think potentially even some non-inflammatory conditions. But they're not probably all worth us pursuing an indication for. I think we will look to generate data to inform the dermatology community where it's appropriate. And then we'll look at those opportunities and determine is the market big enough? Is the magnitude of clinical improvement versus existing therapies big enough that it justifies pursuing an indication. And so we'll be very rigorous and selective in choosing those diseases where we think it's worth spending the money to do a full registrational program.

But I'm pretty confident that there are going to be other diseases that it makes sense for us to pursue an indication. particularly given how stringent insurance companies have become about the off-label reimbursement of drugs. It's very different than it was 10 years ago even. So I think there's a lot of upside opportunity for us. There are a lot of steroid prescriptions for diseases other than our currently approved indications. And so we'll just need to be very rigorous and methodical in choosing which ones we just generate data on which ones we pursue an indication for.

Turning to the business development side, I would say that our primary focus is really on development stage assets Patrick and his team and Bethany and her team on the tech up side have, I think, proven that they are really outstanding, I would even say, best-in-class in dermatology and their ability to complete clinical development, regulatory approval. And then Todd and his team have shown how they can effectively operate commercially as well. So we think that's probably the best area for us to focus on the -- in terms of creating value for shareholders. We are not a spec pharma company. I'm not interested in going around and just buying revenue and adding that to the pipeline. I don't think that's a good way for us to create shareholder value. But leveraging the development expertise of this company, I think, is a great opportunity.

And we continue to focus primarily on drugs where there is biological validation of the target. So we're not taking on too much biologic risk. where there's a large unmet need and where we find an asset that is really differentiated from other assets, we're not going to be pursuing a bunch of me-too assets. So hopefully, that addresses your question. And well, again, we'll talk about this a lot more at the R&D Day. And then I'll turn it over to Todd to talk about Q3 and the rest of the year.

Yes. Great. Thank you, Frank. And Seamus, we still anticipate sequential growth in the third quarter as we expect continued growth across all indications. The rate of growth in the third quarter will be slightly moderated due to the seasonality that we spoke about. But nonetheless, we remain very optimistic about the growth. I'll just frame it that we continue to want to see sustained momentum within this franchise and will in Q3 and beyond.

Our next question is going to come from the line of Tyler Van Buren with TD Cowen. This is Yena on for Tyler.

I had a question about the Kowa partnership. And you guys also mentioned that you set up a national dedicated pharmacy. I was wondering what the early utilization of that looked like. And again, could you elaborate on the contribution of the Kowa partnership to date?

Yes. This is Todd. Yes, thank you for the question. And as discussed before, we anticipated a slower adoption of ZORYVE in the primary care market versus the dermatology market due to the longer selling cycle that's required, also with primary care physicians not being as familiar with nonsteroidal topicals. And we are seeing that slower adoption of ZORYVE within the primary care market. However, Kowa is taking the right actions to make certain that we have the right frequency on the right targets with the right messaging and also making certain that they continue to educate primary care physicians and other opportunities like peer-to-peer programs, speaker programs and such.

Relative to the national pharmacy, we're seeing very positive signals with the early launch of that national pharmacy. And as mentioned, it's critical that we provide a dedicated pharmacy that will appropriately enable and support the primary care physicians relative to the fulfillment process with ZORYVE. And once again, we're seeing positive signals with that and are encouraged by Kowa is continuing to adapt and execute on the right targets with the right frequency and what we expect from this national pharmacy.

Our next question will come from the line of Uy with Mizuho.

Congrats on the quarter. So maybe just first question is, could you maybe just help us understand the gross to net dynamics in the quarter was better than what we expected, particularly for each of the individual products, if possible or just the foam?

Do you have additional questions? Do you want to finish them off?

No, no, that's fine. I'll follow up.

Okay. So in regards to gross to net, as Todd commented, we -- gross to net has been stable for the quarter and in the 50s. And beyond that, we haven't quite ever commented on the products. So I'm going to leave it at the 50s.

Gross to net is not changing very much anymore, and I wouldn't expect that it would.

Okay. And I guess in the press release, you guys commented on 3 patents that was allowed, I guess, in the quarter. Could you sort of elaborate on that?

We had -- yes, we had 3 additional patents that were issued in the quarter from the U.S. Patent Office. None of those extended the LOE for the product. But I think they are further expand the strength of our IP portfolio. We now have 24 issued U.S. patents and many of those listed in the Orange Book. And I just think that it speaks to the further -- the continued strength of our intellectual property portfolio around ZORYVE.

Okay. And sorry, last question. You mentioned 2 studies, 2 Phase II studies that are ongoing. And I guess one of them is the atopic study in pediatric 3 months to 2 years old. What's the other one?

So we talked about initiation of a 3- to 24-month study in atopic dermatitis with ZORYVE, that's the 0.05%. That is a sponsored clinical trial that's part of a post-marketing commitment that we have in order to continue to step the age down that we are conducting as a sponsored registrational clinical trial. The other 2 Phase II studies that we're talking about are collaborative research trials, which are being done to get an early understanding of the potential efficacy in 2 of these indications, which are not currently approved indications, but where we have seen some evidence of efficacy coming from case reports. And so that will give us a kind of quick and early understanding of what the efficacy might and safety might be in that disease state to help us to then make decisions on whether or not to pursue a registrational program for one of these indications.

And just to clarify, those Phase II studies are in HS and vitiligo, I believe both of them are posted on clintrials.gov now.

Our next question is going to come from the line of Andrew Tsai with Jefferies.

Congrats on the execution. Maybe a bigger question. Can you give us your latest and greatest thinking on how you're thinking about the peak sales opportunity across your 3 current indications and how that's changed compared to your original thinking?

So Andrew, we have not given peak sales guidance for quite some time. I think it was 2022 last time. At that point, we had said that we thought that each one of the indications, i.e., psoriasis, AD and seb derm could be in the range of $700 million to $1.2 billion per indication. I think we have not dramatically changed that view of the opportunity. If you just sit down and do some quick back of the envelope calculations, we're sitting at something like 2.5% market share in the total topical market. If that grows to 10%, you're well north of $1 billion. And I think that 10% of the topical market is very achievable and probably is a low bar given the clinical profile that we see and particularly if we expand beyond the 3 initial indications, as Patrick just mentioned. What I will say is that we continue to evaluate this. And I think you can expect some further guidance from us in the future about what we think the peak sales potential is. But clearly, we are really just scratching the surface in the total commercial opportunity for ZORYVE.

Agreed. And then a follow-up to the last question on vitiligo and HS. Is it possible that we get initial data from the IST studies in 2026? Or is it sometime later? Just wanted to gauge your news flow.

Yes. I mean, right now, we're not putting out any expected time line for those trials. As we get engaged into our collaborative research that we're pursuing for these Phase II trials, we'll have a more clear understanding of what that might be. So we would expect to provide some guidance as we get further into them. But at the current time, we're not able to give a milestone or expected time line.

Our next question will come from the line of Judah Frommer with Morgan Stanley.

On the quarter. Just a couple for us. I guess, first, we're hoping you can maybe elaborate a little bit on the pediatric opportunity in atopic derm, kind of what penetration ramp could look like there relative to in adults given kind of potentially arguably greater unmet need or safety concerns there for those patients? And then separately, I think this week, we saw a second joint status update on the Padagis litigation. Just curious if there was anything you could add there? Is the case just stayed and we're waiting for an update? Or was there more to that?

Yes. Patrick, do you want to maybe take the first of those questions?

Yes. We're really excited about the opportunity in 2- to 5-year-olds that's upcoming with the 0.05% when that's the approval that has a PDUFA in October. Out of the 9.6 million patients -- pediatric patients with AD, about 1.8 million of them are in this 2- to 5-year-old age range that are being topically treated. And so we were just at the Society for Pediatric Dermatology meeting in Seattle and really got a very good understanding of just how important this age group is to them. I think because many of these are kind of difficult to manage patients. As I mentioned, this is a disease that comes on early in life, and there's a lot of avoidance of topical steroids from parents. So what we're looking to be able to do is to present an option into these deeper age ranges. And 2- to 5-year-olds is the first step for us. And as we mentioned, we're getting started with the 3- to 24-month old trial as well with the same concentration. And I think it's just a very good fit between the need and the expectation of parents to be able to manage their kids without topical steroids and the profile that we've been able to show so far. So we're really excited about the upcoming approval.

Yes. And Patrick and I were both just at the Society of Pediatric Derm 2 weeks ago. Do you want to maybe just give some color about the tenor of the conversations at SPD?

Yes. I mean there are conversations were about a very large patient flow in their offices for this age range because of the challenges of topical corticosteroid use. And it's common for a patient to be seen in a pediatrician's office, they might get one topical corticosteroid as their kind of start off. And then if that's not able to completely manage the disease, then they're looking to be referred oftentimes either to a pediatric dermatologist if one is available. But dermatologists, it's very common for them, even if they are seen as adult dermatologists to be seeing patients down into the age of 2 and sometimes even younger than that.

So not all of these patients are managed by pediatric derms. But pediatric derms definitely represent kind of the core for education within this age group, and they influence a lot pediatrician prescribing and pediatrician openness to being able to use a new therapy. So we think our contact points within both the pediatric dermatology community are really important. And that's what we were seeing when we were at the Society for Pediatric Dermatology, but also the adult dermatology health care providers are a really important point for managing these patients also.

And then just with regard to the Padagis case, recall that there is a requirement in the litigation stay that the 2 parties jointly provide periodic updates to the court. The first one of those updates has just recently been provided. those updates are confidential. In fact, even I don't see them, but it was provided for in the stay. And I think the one relevant data point that all of us should be aware of was is that everyone agreed that the stay should and will remain in place.

Our next question comes from the line of Serge Belanger with Needham.

Congrats on a great quarter. First question, regarding the 2Q performance, I think you mentioned that sales were up 28% quarter-over-quarter. I believe scripts were up 13%. So maybe just reconcile the difference. Was it just a bump up in gross to nets from Q1? And I guess the follow-up to that is, I think you mentioned you expect gross to nets to be stable for the rest of the year. So should we expect script growth to be the main driver for sales over the remainder of 2025? Second question, I think Todd talked a little bit about the issues regarding Medicare Part D. Can you remind us what part of the TAM Medicare Part D represents for ZORYVE? And when do you think you'll be in a position to kind of capture that opportunity and get coverage from those plants?

Todd, do you want to maybe address the bridge on sales?

Yes, address the bridge on sales. The main driver of the product revenue growth over demand growth was a recovery in distribution inventory levels back to normal following a drawdown in the first quarter. What I want to be clear about is that we did not see abnormal inventory stocking levels in the second quarter. This was simply recovery back to normal levels as a result of the drawdown in the first quarter. In reference to gross to net, as mentioned and as Latha reinforced, we expect gross to net to be stable for the remainder of the year. So yes, that will -- the primary growth driver will be volume and demand. We're very encouraged in what we see across the portfolio. We recently launched ZORYVE foam 0.3% for scalp and body psoriasis that will continue to be a growth driver. And then as Patrick mentioned, with the pending approval in October for ZORYVE 0.05% 2 to 5, we continue to be very optimistic and encouraged by future growth in our demand.

Yes. And then just with regard to Serge, your question around Part D, across the 3 diseases, keep in mind, let's say, roughly about half of those patients across our 3 indications are government pay, either Medicare or Medicaid. And the relative split between Medicare and Medicaid really varies by disease. Atopic dermatitis is much more heavily Medicaid because of the age of the patients. Seb derm is much more heavily Medicare because of the age of the patients. And psoriasis is somewhere in between, although less psoriasis patients are government than with Seb derm or AD. So I think in totality, again, it's about half are government. We're rapidly penetrating into Medicaid, slightly less than half of that half is Medicare. Does that address your question around the Medicare piece?

Yes. I guess the other part of that question was, when do you think you'll be in a position to start capturing that coverage?

Yes. That is hard to say because, unfortunately, it's completely outside of our control, right? As Todd mentioned, the dynamic that we're seeing is -- and you all probably have seen this if you cover the insurance companies, with the changes in the IRA that were adopted January 1 of this year, the insurance companies are losing a substantial amount of money on their Part D book of business and a number of them have had to issue earnings warnings even as a result of that. And that disruption then is leading them to be, I think, very conservative and to be looking at their businesses. To the best of our knowledge, I don't think any new drugs have been added this year to the Medicare Part D formularies across all indications. So that tells you just sort of how perturbed they are. we don't know when things are going to settle out and they're going to start moving forward again. We continue to have, I think, constructive dialogues with the Medicare Part D plans. But when your boat is sinking, the last thing you're thinking about is picking up new passengers. And I think that's a little bit how they feel right now. I expect it will stabilize. We think Medicare is still an important opportunity for us and will contribute to our growth in the future. I just -- it's very difficult at this point for us to call the ball on what the timing would be for that.

Okay. Maybe one last one. Obviously, your sales force has executed well, growing sales here in the second quarter. And it sounds like Kowa had -- still has little contribution so far. So with the additional approvals coming up later this year, is there a case to be made to continue expanding your own sales force to continue executing well and growing the piece within the derm offices?

So I don't think we see or see at this point any need to expand in dermatology. We have a very well-sized dermatology sales force, and we have good coverage, good frequency on our dermatology targets. What we will have to continue to evaluate is opportunities outside of dermatology and think about how we address those opportunities. We felt that the Know partnership was a smart way, an economical way for us to access the primary care and pediatric opportunities. But at this point in the game, we don't have any plans for any further sales force expansions on the Arcutis sales force.

Our next question is going to come from the line of Douglas Tsao with H.C. Wainwright.

Congrats on the progress. I'm just curious, when we look at -- I think it's Slide 11, and you obviously -- as writers or as doctors write more for more indications, you sort of get a real economy of scale or sort of logarithmic effect in terms of the scripts that they're writing. How long does it typically take for docs to write for multiple scripts? Are they sort of coming at it sort of incrementally? And are there things that you can do or have started to do to sort of increase the indications that an individual doc is writing for?

Yes. Thank you for the question. Arcutis is in a very good position with ZORYVE. And what I mean by that is that with the recent launches that we've had with indications, the dermatology prescribers have already had experience with ZORYVE, whether it be with the cream 0.3% for psoriasis or the own formulation for seborrheic dermatitis. This drives rapid uptake relative to the other indications or formulations that we've launched. And we do see that within the data that a good portion of our prescribing base has adopted the full formulary. This creates efficiencies with their prescribing, both with the patient, but also on the fulfillment side, given that's the same co-pay card, same pharmacy, same process. So that it's a differentiation - excuse me, ZORYVE as an asset, meaning that across the different formulations and products, you can write the product relative to any duration time anywhere on the body. We have a proven efficacy, proven safety. So this type of differentiation really compels the providers to continue to adopt the new formulations and indications we put into the market.

And I'm just curious, if I can, a follow-up just to the extent that some doctors might only still be writing for one indication, is it your sense that perhaps they don't have awareness of the breadth of the label? Or is it perhaps unique to their practice where they just might see sort of have a concentration into one of the indications?

Yes. Within our dermatology target universe, the dermatologists that have only adopted one indication is truly the exception. And usually, that's something that's unique to their practice or to their patient population. We continue to engage with dermatologists, educate them on the ZORYVE differentiation and opportunity and expect that over time, they will have adoption of the portfolio.

Our next question comes from the line of Richard Law with Goldman Sachs.

Congrats on the progress. A couple of questions from us. So following up on the Medicare discussion, what drug classification would ZORYVE fall into in your Medicare coverage discussions or negotiations? Is it classified along with topical steroid? Or can you get your own separate classes of topical PDE for? And also, what is the progress in Medicaid over the last quarter?

Relative to with regard to Medicare relative to the class, the market basket, if you will, we would be within the dermatology topical basket as how Medicare would position ZORYVE. In reference to Medicaid, we've had exceptional success in expanding our Medicaid access. If you think about it, and as mentioned, more than half of Medicaid patients now have access to ZORYVE. And most often, that's only a single step through a steroid. And we continue to be steadfast in expanding that access, ensuring that Medicaid recipients continue to have an expanded access to ZORYVE.

Okay. Just kind of follow-up on that. So basically, is there a way to get a separate classes like a topical PDE4 or just the broad basket that you mentioned?

Yes. It would be difficult to get just a PD4 class. They want to keep the topical products in the same market basket. And actually, that's advantageous for us given ZORYVE's differentiation, not only from an asset, but how we strategically price the product within the market. So you take that strategic pricing within the market and you also take into consideration the average utilization of tubes per patient per year is 2 to 3. We're a great value proposition to the Part D plans as well as the beneficiaries.

I see. Great. And then just one more question. Any new thinking around the ex U.S. opportunity, especially in Europe based on how Opzelura is performing?

I would say at this point, no change. I think that Opzelura is really a distinct situation, especially because of the label they have in Europe and the lack of comparators for that indication in Europe. I think for ZORYVE and some of the other advanced topical therapies, the reimbursement landscape in Europe is particularly challenging. And you lay on top of that some of the potential domestic risks around MSN pricing, and we feel that the business case right now in Europe isn't compelling enough for us to pursue that.

Thank you. And I would now like to hand the conference back over to Frank Watanabe for closing remarks.

Okay. Well, as always, we appreciate all the great questions and appreciate you guys making the time to join us on the call today. I know it's a very, very busy time of the year. So we look forward to talking to you all again in another quarter and hopefully putting up another great number next quarter. Thanks again.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

All right. Good afternoon, and we're going to kick off the next session. It is my pleasure to introduce Frank, CEO and President of Arcutis; and also Latha, the CFO. Frank and Latha, welcome.

Thank you.

It's my first time to host you. I think you've been here before.

We have. Yes.

So it's my first time to host you at Goldman Sachs conference. So before we kick off with the Q&A, I'll turn over to you guys for a brief introduction of the company and also any opening remarks about the status and where things are.

Sure. Yes. So Arcutis is an emerging growth, I guess, now company. We're not a start-up anymore. We've been in business just over 9 years. We just had our ninth anniversary a couple of weeks ago. We have now 5 approved indications. The FDA -- all variations on a very potent topical PDE4 inhibitor. So we're approved for plaque psoriasis, seborrheic dermatitis and atopic dermatitis.

Our most recent approval was just about 3 weeks ago. We had our foam approved for the treatment of scalp and body psoriasis. The [ product ], very effective, nonsteroidal. It's essentially comparable to a high-potency steroid in terms of efficacy. But unlike a steroid, it's safe to be used indefinitely for any amount and for any location on the body. So it really solves the problem that dermatologists and patients have historically struggled with, which was that steroids were very effective but weren't safe for long-term use. The nonsteroidals weren't terribly effective and had some tolerability issues. So patients were constantly having to switch back and forth, trading off between efficacy and safety.

We had our first launch in plaque psoriasis in August of '22 and had a series of approvals since then. Product is going very nicely. We printed almost 65 million in the first quarter, which was volume growth about 10%. And Q2 quarter-to-date continues to grow very nicely, and we expect to see continued growth.

And really, the drivers of growth for the company really -- for the product, excuse me, really fall into 4 broad categories. The first one is continued expansion of the label, i.e., the scalp and body approval, a couple of weeks ago. We have another approval coming up in October. And we just announced this morning that we've enrolled the first patient in a trial studying our drug for atopic dermatitis in patients aged 3 to 24 months. So label expansion.

Secondly is expanding coverage. We have very good commercial coverage right now for the drug. We're rapidly expanding into the Medicaid population. We reported at the Q1 earnings call that we had a little over half of the lives in Medicaid have access to ZORYVE with a single step or better coverage. And we expect that to continue to expand. And then we continue to believe that we will also be successful in gaining Medicare coverage, although, frankly, that's been a little bit delayed because of the disruptions to the Part D program due to the Inflation Reduction Act.

And then we signed a deal late last year with a partner to expand into primary care and pediatrics. That's still very early days, but we think that will be an important contributor of growth going forward for the brand.

And then lastly and probably most importantly is the shift from topical steroids to the advanced nonsteroidals. We think -- we see evidence that that momentum is really picking up, and we have a long way to go. Last year, dermatologists wrote about 16x as many topical steroids as they did branded nonsteroidals. You can see there's a long way to go and a lot of growth opportunity ahead of us as that shift takes place.

I see. Got it. So before we dive into the product, why don't we talk a little bit about just the market and how that has been evolved because this is still a relatively newer type of nonsteroidal topicals in psoriasis, atopic dermatitis. And so how has sort of that -- the perception from physicians on the nonsteroidal topicals as a class been evolving over time?

Sure. So I...

And how do you see that going forward?

If you think back to prior to 2021, they didn't really have a lot of good options for drugs other than topicals other than steroids, right? Beyond steroids, for psoriasis, you could use a vitamin D analog like calcipotriene, not very effective and not very well tolerated.

In atopic dermatitis, you could use a topical calcineurin inhibitor, okay tolerability, some burning and stinging, not as effective as a steroid, and they have boxed warnings for cancer, which scared a lot of patients off. And then in -- starting in 2017, you had Eucrisa, which wasn't very effective, and it wasn't very well tolerated. It never did very well, and it burned like heck when you put it on. So that's why doctors continue to rely on topical steroids because they just didn't have good alternatives.

Starting in 2021, you saw the emergence of 3 new advanced topical therapies, beginning with Incyte's product. And then right about the same point in time a year later, our product and the Organon product launched. These drugs are, in general, very effective, again, in the range of a topical steroid. In general, they're well tolerated. There are some tolerability issues with some of the other products. But that has really driven this change in thinking in dermatology that we're seeing where dermatologists themselves are saying, we really need to rethink how we use topical steroids, right? These are short-term treatments for a chronic disease. We need to really think about introducing these advanced topical therapies into the treatment paradigm.

And I think the momentum behind that conversion is only growing. Just since the beginning of the year, we've seen a number of articles and presentations at medical meetings talking about the need to reduce topical steroids and move patients towards the advanced topical therapies.

So you guys launched ZORYVE as a cream back in 2022 in psoriasis. And then recently, you guys have a foam product and -- that launched in 2024. So maybe talk about like the interplay between these 2 different formulation.

Sure.

Why do you need both?

Yes. So if you think sequentially, right, that we had the approval for the cream in plaque psoriasis in '22, as you mentioned, we -- then we had the foam approved in early '24 for seborrheic dermatitis, completely different inflammatory disease and a disease that there hadn't been a new therapy in decades literally for that disease. And then in July of last year, we had a different version of our cream approved for eczema. And then most recently, the foam was also approved for the treatment of psoriasis, plaque psoriasis.

The reason for the 2 different formulations in plaque psoriasis and the reason that we have the foam in seborrheic dermatitis is that if you think about you have a good head of hair, right? You don't want to put creams or ointments in your hair, right? It's going to make them greasy. It's going to mess up your hairstyle.

So we developed the foam for treating hair-bearing areas of the body like scalp psoriasis or seborrheic dermatitis, which always occur on the scalp. Now you can use the foam to treat the body, too, which really simplifies management for the patient, but it was really the treatment of hair-bearing areas like the scalp that we developed the foam for.

I see. Great. And then how is the -- in terms of the launch performance compared to your initial expectation for both formulation, how has that been tracking?

Yes. So I would say the initial psoriasis launch got off a little bit to a slow start. It was our first drug. We were new to dermatology. The company was new to dermatology, but the people weren't. But -- and we had some kinks to work out in the launch, but that eventually -- we got that sorted out, and it has grown nicely.

The foam launch -- the initial foam launch in seb derm wildly exceeded, I think, everyone's expectations, including ours, because of the degree of unmet need. And then atopic dermatitis, I think, has gone pretty much in line with our expectations. The uptake has been very nice.

We literally just launched the scalp indication yesterday. So it's still too early to tell, but we expect that's going to go very well as well. There's a lot of excitement about the product. Doctors are very familiar with the drug at this point. They know their patients like the foam. So we expect that to go very well.

I see. Okay. Then what's the driver for growth going from here? Is it going to be continuing looking for new indications? Is there -- is the market growing in terms of how people are looking at this class of drugs? And also maybe talk about the reimbursement and any changes there that you guys are expecting.

Yes. So maybe I'll start with your middle point. The overall topical market is not growing, but where we see the growth is in the branded nonsteroidal market, which is mostly being driven by us, but also the other advanced topical therapies are driving some of that growth. That market grew about 50% last year year-over-year. So a nice growth trend. It's a low base, but a nice trajectory and a very, very large market that can convert to advanced topical therapies, and we expect that to continue. We do expect to see growth from continued expansion of coverage, especially in the government sector. We've got very good commercial coverage already.

And then we have several more line extensions or label expansions coming. And we are now starting to think about what might be the next leg of the ZORYVE story. No firm plans at this point. But, for example, dermatologists have now published data on about 40 different diseases that respond to ZORYVE, all things off-label. Some of those might be worth pursuing for an indication. I think we're still early in the stages of evaluating that, but we have a very safe, very effective drug that seems to do a lot of things. And so -- and if you think about Humira or Dupixent, the keys to both of those drugs was the steady expansion of their label. And I think there's an opportunity for us to do a similar thing with ZORYVE.

I see. Got it. And then you have a PDUFA date in October, right?

Yes.

And that's to expand the use of the cream to atopic dermatitis patients who's younger, on the 2- to 5-year of age. And how important is that segment? That -- it seemed like a very small -- I mean what [indiscernible]?

It actually -- it's a pretty large segment actually. About half of all atopic dermatitis patients are under the age of 18. So there's a lot in that 6 to 18 range. But the peak onset of atopic dermatitis is actually between the ages of 1 and 6. That's where most patients first develop atopic dermatitis. So having that ability to capture those patients at their first onset of the disease and keeping them for their lifetime is an important opportunity. And there's a real unmet need in that space, right, because most of the drugs are not approved for that age segment.

There's also a halo on the broader business, right, when you're approved in those younger kids. And then even beyond that, as I mentioned earlier, we just started enrolling a 3- to 24-month study as well, which, again, both is inherently valuable in and of itself, but also has a really valuable halo for the rest of the business if you're approved all the way down to age 3 -- 3 months.

I see. And have you guided in terms of what -- how much that would contribute to future revenues and...

We haven't -- we're not issuing guidance at this point, and we don't necessarily break it out by cohort. But I think that both 2 to 5 and 3- to 24-month will be -- long term will be important contributors to the growth of the atopic dermatitis franchise within the broader ZORYVE franchise.

I see. Got it. So -- and then have you guys done any market research study in terms of parents willing to put their infants on drug or on sort of medication?

Sure. Yes. Yes. In fact, the way I would think about it is -- what the research shows is a real reluctance on the part of parents to put their kids on steroids, right, and a reluctance to put their kids on drugs that have boxed warnings. We have 8 dermatology clinicians at the company, and every one of them has lived through the argument with mom about putting their kid on a topical calcineurin inhibitor, right?

There isn't a dermatologist in this country that thinks TCIs cause cancer. But when mom sees that there's a boxed warning or they go to fill the script and the pharmacist says, you know that drug causes cancer, right? This is my baby. I'm not going to put it on. It becomes a lot of friction. So to have a really safe and effective nonsteroidal is a great option, especially in the younger kids.

I see. Okay. And how do you think about the interplay between the foam and the cream? Is there more -- I mean do you see people who like to use a foam like want to switch from the cream to the foam? And would that cannibalize some of the -- or do you see more of a synergistic effect where you could expand the market totally or more or less move one patient from one product to another product?

So today, a patient who's stable on the cream, we think it's unlikely that they're going to be switch to the foam, right, if they're doing well on the cream. If they have scalp psoriasis, they might add the foam on, and there's no reason why you can't use both.

Going forward, if a patient comes in and they have scalp psoriasis, they're probably going to get the foam, right? That's the thing that makes the most sense. And they might use the foam everywhere in their body that were actually approved for scalp and body psoriasis with the foam. If the patient wants the foam and the cream, the doctor could do that as well. If they don't have scalp psoriasis, then it's really a choice of the patient, and the doctor [indiscernible] the patient with the foam or the cream.

Some men have more body hair, right? You and I are Asian. We don't have a lot of body hair. So it's not so much a big deal, but maybe some of our Greek or Italian friends, right, they might prefer the foam. So -- and the cost of goods, our profitability is the same across SKUs. So we don't really care as long as overall ZORYVE is growing.

I see it. Got it. And then -- so you guys have a co-commercialization partnership with Kowa. And they -- they're basically marketing ZORYVE to the primary care physicians. Can you remind us of like how is that partnership going, maybe just a structure, and why do you set up that partnership?

Sure. So I'll start with your last question maybe and work backwards. The reason we did the partnership is because it's really, really expensive to have a primary care sales force, and it's really hard to have a single product, right? For a small company like ours, to hire 200-plus sales reps for primary care, it becomes economically very challenging. And I didn't, frankly, want to get in the business of going out and licensing in a bunch of other primary care drugs to subsidize the cost of the sales force. So it made more sense to partner with a company that had an existing primary care sales force who could economically reach the primary care segment.

And I think it's important for investors to understand that about half of these patients that we're targeting across our 3 indications are outside of dermatology, right? So there's a very, very large number of patients being managed, especially in pediatrics and primary care.

The way that the deal is set up is that we book all sales at Arcutis, and then we pay a commission to the partner, which is a percentage of -- I think that might be my phone, apologies -- a percentage of sales to them. So they eat what they kill. If they don't sell anything, we don't pay them anything. And so we're not using our resources to promote primary care.

Got it. And then maybe a little bit on treatment guidelines.

Yes. So the AAD treatment guidelines are badly out of date. I want to say it's been, I think, 7 years since they updated the topical treatment guidelines. So they don't make reference to any of the new therapies. We have heard from the academy that they're in the midst of updating those guidelines now. In the interim, doctors aren't following them, right? The dermatology community does not rely on the AAD treatment guidelines because they are so out of date.

And we have seen some -- recently some publications from the thought leaders in dermatology saying, here's how you should use topical therapies, right? I think I made reference to that. Payers do rely on them. That's one of the excuses they use for not covering drugs, right, is the treatment guidelines. But I think that the treatment guidelines will catch up in the not-too-distant future based on what we're hearing from the academy.

I see. And do you expect a boost in terms of the awareness or use if the treatment guidelines are updated, and so...

No. At this point in the game, pretty much every dermatologist knows and has used ZORYVE. So I don't see the treatment guidelines having a major impact on prescribing. Where I do think they might have some impact is on the insurance companies.

I see. Okay. Got it.

In a favorable way.

Right, right. And I think you mentioned before that there's -- 80% of the prescriptions are currently reimbursed. So -- and then where you can grow the coverage is in the Medicare and the Medicaid setting?

That's where the main growth opportunity is for expanded government coverage, yes. So in the commercial setting, we have about 80% of commercial lives have access to ZORYVE, and it's generally very high-quality coverage as well. It's not very difficult to get the drug. That remaining 20%, it's probably not economically attractive to contract with that remaining 20%, right? It's the old 80-20 rule.

But there's a lot of opportunity as we expand. Medicaid out to ideally all 50 states and also to expand into the Medicare population, again, given that so many of these patients are on Medicare and Medicaid. It's almost half of the patient population.

I see. So what type of efforts are you guys putting in as a company to get that?

Well -- so Medicaid is well underway. We reported at the Q1 earnings call that we had over half of lives having access to ZORYVE through Medicaid and with a single step or better. And I say better because like, for example, in California, there is no step. You use ZORYVE first line for Medicaid, which is actually better than most of our commercial coverage. In New York, there's no step for the foam. You can go straight to ZORYVE, right? So it's very high-quality coverage.

And we just need to pick off the individual states, the remaining states. Medicaid is managed at the state level, so you have to get all 50 states, right, to get coverage.

Medicare, we continue to work with the Part D plans. The Inflation Reduction Act dramatically changed Part D as of January 1 of this year, and that's created a lot of churn in the Part D space, I would say. And it has been difficult to get coverage for new drugs at the moment in Part D. I think that will settle out as time goes on and they sort of figure out how they can reconfigure their business. But that's probably delayed us a little bit on our Medicare coverage.

I see. And what about outside the U.S., the opportunity outside the U.S.? This is only in the U.S. Like what options have you considered outside the U.S. or -- and what have you -- what efforts have you tried to put in?

So we have our own operation in Canada, and we have cream and foam approved on the market in Canada. Canada is doing very well. It's contributing more than its relative population to our business. We out-licensed rights in Japan to a Japanese drug company, Sato. And then we out-licensed our rights to China and some other parts of Asia to one of the big Japanese -- or Chinese drug companies, excuse me, Huadong.

We've looked at Europe. Reimbursement for topicals in Europe is very challenging. And I think with the threat of MFN pricing in the United States, I think the risk-benefit is probably not there right now for us. So I don't anticipate probably Europe in the foreseeable future just given particularly the MFN risk.

I see. So like a cash business that would not be feasible or not economic.

No. Europeans don't like paying for drugs out of pocket. We have a European colleague that can attest to that.

Right. I think they pay for some obesity drugs.

Obesity, you can get almost anyone to pay for it, right? So...

So there's -- okay, let's switch gears to some of the IP. There's an ongoing litigation, and I think that litigation is now on pause. Maybe just give us a quick update on like what's going on there, what's the chance of this litigation continuing back on track and what's -- how you guys think about this overall.

Sure. So maybe a little bit of background. So there's a company called Padagis that makes generic topicals, they filed an ANDA in February of '24. And we immediately filed a lawsuit asserting our patents against them. And we were starting the process of the litigation. When we filed that lawsuit, that triggered a 30-month stay under the Hatch-Waxman Act, which prevented the FDA from approving the drug during those 30 months so we could litigate.

In February of this year, the other party, Padagis, came to us and asked us to stay that litigation because they had some major issue. I don't know the exact nature of the issue, but it was a big-enough issue that they didn't get conditional approval from the FDA at the time that they should have. So it was -- it's pretty bad.

And in return for us agreeing to stay that litigation, they agreed that the 17 months that were remaining in Hatch-Waxman stay, we retained. So if at some point, the litigation restarts, we have 17 months to litigate before they can launch, which is plenty of time for us to prosecute our patents.

We remain very confident about our intellectual property position. I think we'll be successful in maintaining exclusivity on the cream at least through 2037 when the first patents expire. And for the foam, we have patent coverage through 2041. And we intend to enforce our intellectual property rates vigorously against any potential ANDA filers.

I see. Got it. And then let's turn -- we have a couple of more minutes left. Let's turn to your pipeline. You guys have 2 assets there. One is 255, which is a topical JAK inhibitor. Maybe do the rationale for topical JAK, and then how do you see this differentiate? And what's the overall goal for this program?

Sure. Yes. So ARQ-255, as you said, is a topical JAK, but it's an unusual topical JAK, right? So oral JAKs work very well in AA, right? They're the only FDA-approved treatments for AA. There have been multiple topicals that have failed in the treatment of alopecia areata. And that's because they were just applying a cream to the surface of the skin like ZORYVE, different MOA, but similar formulation. And it's very difficult to get a topical to penetrate deep enough in the skin to get to where the inflammation is in AA, which is at the base of the hair follicle. The bloodstream tends to take the drug away before you get that deep.

So our former Chief Technical Officer, who's retired now but still works with us, invented a technology that allows us to use the hair follicle to deliver the drug down to the base of the hair follicle, and that's the basis of ARQ-255. So it's not like any other topical that's ever been invented. And in fact, the technology that we use for follicular delivery is patented. We still need to see if it works, right? That's the key. That's why you're running the experiment.

But you know if you get a JAK to where it's supposed to be, it's going to work in AA, right? And the challenge with topicals has just been a drug delivery issue. So 255 was designed to address that delivery issue in alopecia areata as opposed to psoriasis or seb derm or AD, which is very superficial, and you can treat that fairly easily with a cream.

I see. Got it. And what's the development timeline, the catalyst for that?

Well -- so we wrapped up the Phase I study, and we're just waiting for results from the Phase I study. And depending on those results, then the next phase would be to go into a traditional Phase II dose-finding study.

And what's the timeline for seeing that data?

Well -- so we said around the middle of the year. So it should be fairly soon when we see the data.

I see. Got it. And then your other asset, the ARQ-234, maybe just a little bit about that. That's another interesting asset, is systemic novel immune checkpoint agonist for CD200. Maybe just walk through the rationale of that strategy.

Yes. So I'm sure investors are familiar with checkpoint inhibitors in oncology. When you inhibit the immune checkpoints, it revs the immune system up, right? And the immune system attacks your cancer cells. Checkpoint agonists do the opposite thing. If you agonize the immune checkpoints, the effect is to essentially reset the immune system, and these autoimmune disorders are overactive immune system or caused by an overactive immune system. And so this is, I think, one of the newer routes of treating autoimmune disorders.

There was another company that was developing an asset against the same target and published some very compelling data that the target works, and that by treating this target, you could actually induce a state of remission where the patient would do very well for long periods off of drug as well. And that was what really got us excited.

We went and found a company in the U.K. that had an even better agonist for this checkpoint, and we acquired that company, Ducentis, and we've been developing the drug since then. We expect to open up an IND for 234 later this year and look forward to putting that into the clinic as well and evaluating both the safety and tolerability and the efficacy of the pathway and the drug.

Got it. And then can you remind us about the cash balance and how much -- and also the run rate guidance, what that includes or not include, including these pipeline assets?

I will ask my CFO to answer that.

I thought I was just sitting here. I'm glad I got a question. So at the end of March, we had about $200 million of cash. We have a debt facility where we have $100 million of debt on our balance sheet and the ability to draw another $100 million by -- in whole or in part, by mid of 2026.

And I think -- I didn't hear the full second...

Cash runway.

Cash runway. So we basically said we're very comfortable with our current cash balance and the ability to draw the debt, and we don't expect to go back to the equity markets under the status quo of our business with the ZORYVE trajectory. We've also alluded to that we will be cash flow breakeven sometime in 2026.

I see. Got it. And that guidance includes the 2 pipeline kicking off...

Yes, it does. That's...

The IND, the...

Yes, it does.

Potential pivotal studies of that. Okay. Fantastic. And what's the -- in terms of looking here, what's the long-term aspiration for the company? You guys have a pipeline going before with just the topicals and the creams. And now you're getting into more traditional type of therapy.

Right. I'd say after the last couple of years, I love having this question, right? I'm back to being a biotech company. We founded this company 9 years ago really at a recognition that there were not a lot of companies investing in innovative dermatology assets, right? That's improved somewhat over the last 9 years, but we think there's still immense opportunities in dermatology for novel assets.

And I think we have shown that we have built one of the best teams in dermatology, both development-wise, but also now we've shown with commercialization as well that we have a very effective team. So our vision is to become one of the leading companies in dermatology. I think ZORYVE gives us a very strong foundation.

And then if you think about other opportunities, I think first, as you mentioned, we have ARQ-234 and ARQ-255. Secondly, we're at a point now where we've completed all of the registrational studies with ZORYVE, and we're starting to think about, is there another leg to the ZORYVE story, right? I think I made reference earlier to about 40 different case reports or case series of ZORYVE treating different diseases than what we're already approved for. Some of them aren't worth pursuing, but some of them might be, right? And so we're evaluating that and trying to decide, do we start some registrational programs in other indications as well?

And then thirdly, we've always been active in business development. 234 was acquired. Our JAK inhibitor was acquired from outside. I think it's a very high bar. We are in the, I think, enviable position of not having to do business development, but we're also in the enviable position that if we find something that's really attractive, I think we have the team and can get the resources to in-license and add something to the pipeline.

So I think across those 3 dimensions, the focus really will be on rejuvenating our pipeline and continuing to grow ZORYVE that'll generate the resources to pay for all of this.

I see. Got it. And where is the biggest pushback from investors? Is it in terms of...

I don't know that I would say pushback -- the #1 question we've been getting is the one that you just asked about, okay, what's next, right? What's the next leg of the story? I think that in the past, one of the pushbacks that we got was, well, topicals are just never that big, right? And that historically, I think, has been true. It's been 20 years since there was a really big topical in the market.

But if you just look at your own models, right, we're well on our way to disproving that hypothesis that topicals can't be big. And I think particularly as we continue to execute and expand coverage and expand indications, and this conversion happens, we are going to prove out that this is a $1 billion-plus product.

I see. And I mean would there be a point where patient are just no longer responding to topicals and need that more potent systemic therapy and they get off the cream control?

Sure. So thus far, there's no evidence of tachyphylaxis with PDE4 inhibition. What I will say, though, is I think certainly in seborrheic dermatitis -- sorry, excuse me, in psoriasis and in atopic dermatitis, more severe patients are probably going to go on systemic therapies, right? And there are excellent systemic therapies for both diseases. As good as those systemic therapies are, they're not curative.

And you take a drug like risankizumab or bimekizumab, you're getting half, maybe 60% of patients completely clear, which is unreal. That's a phenomenal result. That means almost half the patients aren't clear, right? And dermatologists will typically prescribe a topical adjunctively to treat those residual symptoms. And even the patients that do get clear sometimes will flare in the future, and they'll use a topical in that situation, too. That's even more true in atopic dermatitis when [ 4 13s ] are maybe getting 40% of your patients, 75% clear. That's a lot of residual symptoms, right? And so ZORYVE is being used adjunctively there as well.

ZORYVE is really an ideal adjunct treatment with systemic therapies. The patient can't hurt themselves. It doesn't matter where they use it, how much they use it, how long they use it. The doctor can confidently prescribe it and just say, use it when you need it, and they don't have to worry about it, right, which is not true of topical steroids. They have to monitor the patient's topical steroid use for [indiscernible].

I see. Interesting. Yes, because when we look at Otezla, Otezla is a similar mechanism, and it works -- and I think majority of patients after 1 year don't respond to Otezla.

Yes. So remember, Otezla -- or you might not know this, but Otezla is a much, much weaker PDE4 inhibitor than roflumilast is. And it's associated with pretty significant side effects as well. So if you look at our long-term studies, we don't see any decrease in efficacy.

And in fact, in the atopic dermatitis long-term study, which was recently published, what you actually saw was the longer patients were on it, the better they did, right? At 4 weeks, we had about a 42% EASI-75. It's pretty good. It's on par with maybe Dupixent. At a year, 2 out of 3 patients had an EASI-75. So that's a 50% increase in efficacy over a year as patients stay on ZORYVE.

And one of the other things that we've seen in all of our long-term studies is that retention adherence to the therapy is very good even for long -- during long-term treatment.

Got it. So before I turn it to you for final remarks, why do you think this is the right time for investors to get excited about the stock?

Well, for starters, I think it's really undervalued, the bargain. We're trading at 5x our current year revenues, right? I mean that's hard to find. We're kind of a unique asset, right? We're a revenue-generating biotech, rapidly coming up on cash breakeven. We don't need to raise capital again. We have lots of runway in terms of our IP, a lot of levers for growth. And the stock...

You have a pipeline.

We have a pipeline, and the stock has, I think, immense upside. So I think it's a great buying opportunity. And I don't know that I have a whole lot more to say than that.

Well, Frank and Latha, thank you so much for being here. It was great to host you, at least for me, the first time at Goldman Sachs.

It was a pleasure. Thanks for having us. Appreciate it, Rich.

Yes. Nice to meet you. Thank you.

Good day, and welcome to the Arcutis Biotherapeutics ZORYVE Foam for Psoriasis Launch conference call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the call over to Amanda Sheldon. Please go ahead.

Thank you, Michelle. Good morning, everyone, and thank you for joining us today to discuss our plan for the recently approved ZORYVE roflumilast topical foam 0.3% launch in plaque psoriasis. Slides for today's call are available on the Investors section of the Arcutis website.

On the call today are Frank Watanabe, President and CEO; Patrick Burnett, Chief Medical Officer; Todd Edwards, Chief Commercial Officer; and Dr. Tina Bhutani, a Board-certified dermatologist.

I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors.

With that, let me hand the call over to Frank.

Thanks, Amanda, and thanks to everyone for joining us today. We're delighted to be speaking with you once again. Seems like it's just yesterday, but yet another approval for ZORYVE to address a significant unmet need in dermatology, the treatment of psoriasis on both the scalp and the body.

Before we get to our latest approval, on Slide 5, I'd just like to talk about the broader ZORYVE franchise. With this approval, ZORYVE is the first and only FDA-approved branded topical in both a foam and cream formulation for plaque psoriasis treatment literally from the top of the head to the tip of the toes. ZORYVE is already the #1 topical branded prescribed across 3 inflammatory disease conditions, atopic dermatitis and seborrhoeic dermatitis and plaque psoriasis.

With an additional submission under review by the FDA for atopic dermatitis with ZORYVE 0.05 cream and studies underway to expand indications to even younger ages, this approval once again shows how Arcutis has consistently executed on our clinical development and regulatory programs.

We are taking a focused and deliberate approach to drive the conversion of the enormous topical steroid segment to ZORYVE, and our long-term growth relies on positioning ZORYVE as the go-to topical treatment.

Just a few weeks ago, we reported impressive growth results with a strong quarter of performance, volume growth across our product portfolio and steady progress in advancing our pipeline. And that growth has continued to end the first half of this quarter as well, and we expect to sustain our growth throughout 2025 and beyond.

Taken together, we are well positioned to continue ZORYVE growth and our business is financially stable and approaching profitability in 2026. We have a solid foundation to become one of the leading companies in medical dermatology.

We are also very excited and proud to announce that today, ZORYVE cream and Foam have been -- have received the NPF seal of recognition, the very first time that an FDA-approved product has received this distinction. The NPF only awards their seal to products created or intended to be non-irritating and safe for people living with psoriatic disease. So we are delighted that they chose to recognize the innovation that ZORYVE offers.

And with that, I'd like to turn things over to Patrick.

Thanks, Frank. I'm pleased to talk to you today about our latest FDA approval of ZORYVE foam for use in plaque psoriasis at the scalp and body.

I'm on Slide 7. Like the 0.3% cream is already approved for the treatment of psoriasis, ZORYVE foam provides an effective treatment to simplify psoriasis management for both patients and health care providers. What's most notable about the foam is that it can safely be used anywhere on the body, including the scalp and in hair-bearing areas like the face, for any duration of time.

This is really a unique profile for managing psoriasis because in the past, different disease locations have required different formulations and different strength steroids or presented a challenge for [ nonsteroidal ] approaches because of local irritation.

This is a single treatment providing rapid relief of itch and effective clearance of plaque with a once-a-day foam formulation that allows patients to treat areas with a topical that may have been previously left untreated.

Here on Slide 8, you can see our approved product label for ZORYVE foam 0.3%. First, I'd like to point out that we have a very broad label for the treatment of plaque psoriasis, which encompasses all severities and all parts of the bodies for any duration of time.

This means that psoriasis patients can use the foam as needed and without any restriction on use in combination with other agents, whether systemic or oral -- systemic or topical, improving management of their disease and ultimately their quality of life. We're approved for once-daily use in adults and adolescents 12 and older.

Our label includes pooled data from both our ARRECTOR Phase III trial and our Phase II 204 trial, showcasing efficacy of 63% at only 8 weeks. And our exemplary itch data from the ARRECTOR Phase III trial, which I'll share with you shortly, also made it into the label, which permits us to refer to these data in a promotional setting.

Slide 9 features our impressive efficacy data from the Phase III ARRECTOR trial as broken out in this graph. A very high percentage of patients demonstrated statistically significant improvements on both scalp itch -- Scalp Investigator Global Assessment, S-IGA scores and Body Investigator Global Assessment Score, B-IGA.

The results are robust and consistent with previous ZORYVE trials. We were so convinced that ZORYVE efficacy on both the scalp and body that we prespecified the endpoints of S-IGA and B-IGA success as co-primary, creating a high [ hurdle ] for our product in the Phase III study.

These data highlights that we now truly understand how ZORYVE performs across the two different areas of scalp and body, which is something that's highly relevant to doctors and patients and allows for more comprehensive decision-making information.

I'd like to point out the percentage of individuals who made it to an IGA of clear with ZORYVE. As a dermatologist, it's compelling to see that 4 in 10 patients achieved total clearance of the scalp. That means no residual disease at almost 3 in 10 on the body in only 8 weeks.

Further, and not shown on the slide, by week 8, half of this ZORYVE foam-treated patients reduced their psoriasis area and severity index by 75%. This is commonly referred to as a PASI-75. And 7 out of 10 patients achieved a 75% reduction in PSSI, which is the Psoriasis Scalp Severity Index.

Now on Slide 10. Coming back to the symptom of itch, which I mentioned previously, itch is the most burdensome symptom for patients with psoriasis that is important to treat rapidly and durably for patients.

Not only can itch be terribly uncomfortable, but the after scratching your scalp or body can cause embarrassment and anxiety and in psoriasis, can actually lead to worsening of the disease. We're lucky to have Dr. Bhutani with us today, who is uniquely positioned to address the impact of itch on patients, and I think you will find her insights valuable.

Here, we highlight data from our ARRECTOR trial to highlight how well ZORYVE works to alleviate itch as measured by both the Scalp Itch Numeric Rating Scale, SI-NRS, and the Worst Itch Numeric Rating Scale, WI-NRS, which assesses overall itch.

This is an analysis of patients achieving a score of 0, which is no itch, or 1 out of 10, a very high bar that can really capture patients who have had the burden of itch removed from their lives. As you can see on the graph, ZORYVE foam is getting over half of the patients to a 0 or 1 by week 8 for both scalp and overall itch.

Importantly, on Slide 11, we underscore how soon ZORYVE begins to work in patients with itch after starting treatment. It's quite notable that as you can see from the slide, the impact on itch is very rapid, with ZORYVE having demonstrated a statistically significant improvement over vehicle within 24 hours after the first application of the drug.

This early response is a critical first experience that can give the patient confidence that they're responding and motivate patients to keep with the treatment. As time progresses, we see the robust, sustained improvement in itch in using ZORYVE. Rapid itch relief with ZORYVE has been shown across all of our indications, as I've said before, it is really the key symptom. So I'm quite excited to see how ZORYVE can begin to alleviate it as quickly as a day.

On Slide 12, we highlight some impactful images on the benefits of the ZORYVE foam. In the top row, you can see a patient with scalp and neck plaque, who is initially rated as a score 4 or severe on the Scalp Investigator Global Assessment, or S-IGA scale.

These lesions were then significantly improved and rated as an S-IGA of 3 or moderate after only 2 weeks of treatment and the patient was subsequently rated as an S-IGA score of 1 or almost clear by 8 weeks. You can see very clearly how quickly and completely the plaque cleared.

Similar efficacy can seen in the bottom images of another patient with extensive body psoriasis with thick rightly erythematous lesions on the leg, who is likewise treated with ZORYVE foam and dramatically improved from baseline of moderate psoriasis to an IGA of 1, which is almost clear, again by 8 weeks.

This remarkable degree of improvement highlights the strength of the ZORYVE foam on both the scalp and the body. And when combined with its ease of use and broad patient access makes ZORYVE highly compelling to health care providers.

Now I want to come back to the baseline picture on the top left of this slide and just take a moment to talk about the practical considerations of treating a plaque like what we see here and just how critical formulation is to treatment success.

This patient is a perfect example of the challenges of treating psoriasis in hair-bearing areas. If you try to use a cream or an ointment on that plaque, it's going to be greasy and it's going to mask the hair. Also, a shampoo wasn't an option because it requires daily showering, which cannot be done with tightly closed hair like this patient has. No drug works if a patient doesn't use it.

So the fact that ZORYVE foam is a once a day, doesn't require showering and doesn't leave a residue or disrupt hair styles are all important benefits for both derm, health care providers and their patients.

On Slide 13, I want to highlight the safety and tolerability profile of ZORYVE foam from our combined Phase II and Phase III psoriasis trials.

As currently described in our label, not only was the incidence of treatment-emergent adverse events TEAEs, relatively low and similar between ZORYVE foam and vehicle, but we also have remarkably low discontinuation rates due to adverse events. These were approximately 2% across the trials.

If we examine AEs reported in these trials, we see the most commonly reported adverse events were infrequent and likely unrelated to study treatment. Furthermore, there were virtually no local reactions, just stinging, swelling or itching making our foam remarkably safe.

This safety profile is very similar to what we've demonstrated with our other formulations and in other diseases, and it continues to demonstrate the high level of safety and tolerability of ZORYVE regardless of the formulation or concentration.

Now I had the privilege and opportunity recently to sit down with the ZORYVE patients, who suffers from psoriasis on or scalp and body, to discuss the burden of plaque psoriasis and the benefits of ZORYVE treatment. We're going to play a snippet from that conversation.

[Presentation]

Yes. I'm appreciative to Lori for taking her time to share her experience with us. And apologize for the technical difficulties.

Next, it gives me great pleasure to introduce to you Dr. Tina Bhutani, Board-certified dermatologist, Fellow of the American Academy of Dermatology, a clinical researcher and CEO of Synergy Dermatology, a large multi-provider dermatology practice located in San Francisco.

Previously, she was an Associate Professor of Dermatology at UCSF and co-directed the psoriasis and skin treatment center and headed the Dermatology Clinical Trials Unit at UCSF. She also sits on the National Psoriasis Foundation Scientific Advisory Board and lead psoriasis Expert Resource Group with the American Academy of Dermatology.

Dr. Bhutani is a recognized expert in psoriasis, having researched, published and lectured many times on plaque psoriasis, particularly the mental health burden of the disease. Thank you, Dr. Bhutani, for being here today and providing an overview of plaque psoriasis and the burden it imposes on patients.

Thank you so much, Patrick. I'm very honored to be here to tell you a little bit more about plaque psoriasis and the impact that I can have on our patients.

So starting with Slide 16, what we see here on the right are some photographs of what plaque psoriasis can look like. And prototypically it's -- it presents as these well demarcated thick, red, scaly plaques in areas like the elbows and knees. But what's important to remember is that psoriasis can really affect any part of the skin.

And some areas that are highly impactful for our patients include areas like the scalp that Patrick mentioned earlier, but also more sensitive areas like the face, which is very visible for patients, the genitals that can have a huge impact on quality of life, relationship building and also other skin folds, like the armpit, under the breast, the stomach folds that can really impact how patients, for example, choose the clothing that they wear or present themselves to their communities.

And what I want to point out is that I don't think we often think about psoriasis as a prototypically itchy disease. But when we ask patients, the #1 symptom they report is itch. And that's why it's really important that our treatments, like Patrick just mentioned with ZORYVE, really target that core symptom of itch, which really drives that quality-of-life burden for so many of our patients.

Moving on to the next slide, as you can see, psoriasis is not only characterized by these symptoms like itch, pain, that impact our quality of life, but actually, we know that patients with psoriasis actually suffer more often with mental health disorders like depression and anxiety when we compared to the general population.

As you can see, over 75% of patients state that at some point, living with psoriasis has caused them embarrassment, they feel anxious, they feel depressed living with their disease. And when we look at which sites of involvement have the greatest impact on their quality of life and lead to this mental health burden, what you see is that the scalp is high up there.

Even though much of psoriasis on the scalp oftentimes can be covered by hair, that itch, that scales, the fact that it drips onto their clothing; they have to choose clothing that hides the scales of their psoriasis. This can be really, really impactful on quality of life even more than areas like the elbows and legs, where we might think it might be a little bit more visible.

Moving on to the next slide, we see that when you have psoriasis in these either sensitive areas or difficult-to-treat areas, they really do provide unique challenges. So first, on the sensitive areas like the face, the skin folds, as I mentioned earlier, like under the breast or under the stomach and also in the genital area; these areas tend to have very thin, sensitive skin.

Meaning that application of topical medications can be quite complicated. We can't really use things that are too irritating because of this sensitive skin. And we also can't use things like topical steroids for long periods of time because the skin is more prone to skin atrophy or skin thinning. And so this becomes really important when we're choosing treatments for these sensitive areas of psoriasis.

And then in the difficult-to-treat areas like the scalp and the elbows and knees, what we know is that even the best topicals have a very difficult time often clearing these areas.

We also have to take into account vehicle because areas, for example, like the hair-bearing scalp that Patrick mentioned, it's very difficult to use something like an ointment or a cream in this area without [ matting ] down the hair or without requiring the patient to shower daily or wash their hair daily. And so it's very important that we have an elegant vehicle in addition to a very powerful agent.

Now just to keep things in perspective, in the past, when we didn't have agents like ZORYVE to treat psoriasis, oftentimes in clinic, I would spend time drawing on a map similar to what you would see here. I would write down one medication that they were going to use on their scalp, usually in a solution form so that it could pass through the hair and get on to the skin of the scalp. I would give them a different medication for their sensitive areas, usually a low-potency topical steroid.

And then finally, I would have to give them a higher-potency topical to try to treat those thick plaques on the elbows and knees. And so what this meant is that each patient usually on -- at minimum, got 3 different prescriptions and then had to go home and figure out which ones to use and which areas on a daily basis.

And I will tell you, inevitably, no matter how much time I spent educating my patients, they would come back in a couple of months and inevitably, they would be using the wrong treatment in the wrong place. And so oftentimes, I would have the conversation that they were using the super-potent topical steroid on the space or in the genital area, which -- where they should have been using a sensitive steroid.

So this took up a lot of time, a lot of education and a lot of uncertainty both on the facts that the provider, I was a little afraid to send them out with all these medications into the world, knowing that they easily could use the wrong medication in the wrong place and also in the fact of the patient where they were always uncertain about which treatments they had to use where. And if they lost their map, they were really, really lost in the world.

And so I think we are all excited as dermatologists for an option for our patients that as Frank mentioned, we can use one treatment all the way from head to toe. We can feel -- we can rest assured knowing that we can send our patients out into the world without anything bad happening to them.

They won't be -- they won't have skin thinning, they won't have skin irritation. It's okay if they use the same treatment on their face or if they use it on their scalp or on their elbows and knees. And patients, like we just heard in Lori's case, they're also very excited to have a treatment. That's quick and easy to use.

Thank you.

Thank you, Dr. Bhutani. I really appreciate that. I've often wondered when I've handed patients those little notes, how many of them actually ever actually make it out of the car, into the car, then into their homes.

I'm going to hand it over now to Todd. Thanks.

Great. Thank you, Patrick, Dr. Bhutani and Lori. There's stories like this that motivates Arcutis to serve patients every day. Now Let me give you more details on our approach to ZORYVE foam in plaque psoriasis and expand on its benefits for treating this large patient population.

I'm on Slide 20. If we step back and look at plaque psoriasis at a high level, it is a long-term persistent condition often requiring a lifelong management and can affect all areas of the body, including the most difficult-to-treat areas that are covered in hair and delicate skin areas that are more sensitive to topical treatments.

We know that approximately 1 in 2 patients with psoriasis have scalp involvement. There are actually very few scalp-only patients as up to 80% of patients with scalp psoriasis have lesions at other body areas as well. Approximately 1 in 2 patients also have facial involvement, which as Patrick and Dr. Bhutani pointed out, could make people extremely uncomfortable in both work and social situations.

Finally, about 30% of patients have psoriasis lesions and the skin folds. By this, I mean areas like armpits or under the breast and in the genitals and groin. These various areas of skin can all be easily treated with once-daily ZORYVE.

On Slide 21, psoriasis patients work extremely hard and spend a significant amount of time and money to manage their condition. These patients are used in an average of 6 products daily, such as shampoos, creams and ointments.

ZORYVE foam represents an attractive new option for psoriasis patients, complementary to ZORYVE cream. That can be used once a day anywhere in the body, including hair-bearing areas and the scalp, dramatically simplifying the treatment of psoriasis. This combined safety, efficacy, tolerability and convenience as a once-daily monotherapy makes ZORYVE foam and cream the future topical standard of care in plaque psoriasis.

On Slide 22, we outlined why this launch is likely to be our most seamless yet. We are essentially stepping into an existing footprint. Our team already has established relationships with the prescriber targets. And those prescribers already know the efficacy, tolerability and simplicity that ZORYVE offers.

ZORYVE foam is available in a nationwide network of pharmacies listed in electronic medical record platforms and is already available to patients. For us, this new launch represents an incremental source of profitable prescriptions, as highlighted in our last earnings call, and a further amplification of our overall portfolio effect, which I will discuss shortly.

On Slide 23, we pull it all together. As Frank mentioned, ZORYVE is the first and only FDA-approved [ brenite ] topical in a foam and cream option for plaque psoriasis treatment from head to toe. Our optimal foam and cream vehicles are used once daily, offering rapid resolution of lesions on the scalp and body as well as significantly reducing itch.

As we have said before, 90% of patients are prescribed a topical, with 94% of them using a steroid. There is tremendous opportunity for ZORYVE and [ knowing ] for both cream and foam to grow, since the current topical treatment options are cumbersome to the patient and not ideal for long-term use.

Coupled with favorable safety and tolerability even in the most sensitive areas of the skin that 9 million people in the U.S. are affected by plaque psoriasis, now have a suite of treatment options with ZORYVE. With this unique differentiation that no other company can offer, we believe ZORYVE will become the new topical standard of care for psoriasis patients of all severities.

Slide 24, showcases how ZORYVE is uniquely positioned in a topical market with multiple formulations to treat the 3 major inflammatory skin conditions. ZORYVE is unique in its rapid, reliable relief, can be applied anywhere on the body, used for any duration and its exceptional tolerability. ZORYVE offers a simple once-daily regimen with predictable patient access through consistent reimbursement and copay support.

I cannot stress enough the portfolio effect that I referenced often. The growing portfolio effect allows dermatologists to take a personalized multifaceted approach to making -- to managing complex skin conditions, making ZORYVE their go-to treatment solution across indications.

On Slide 25, we are sharing once again data from a recent analysis we conducted on prescribing behavior among clinicians. We found that clinicians who prescribed ZORYVE across multiple indications, write significantly more prescriptions overall.

But what is remarkable is the evidence of the portfolio effect that I mentioned previously. As these health care providers recognize the value ZORYVE brings to patients, they're able to expand issues across a broader portion of their practice.

For example, clinicians treating only one indication average 3 prescriptions per provider each quarter, while those prescribing all three indications averaged 31 prescriptions per prescriber each quarter, a tenfold increase. We expect this amplification to increase further with the approval of our foam formulation for scalp and body psoriasis.

And with that, we will open up the call for Q&A.

[Operator Instructions] Our first question comes from Vikram Purohit with Morgan Stanley.

Vikram, you may be muted.

Our next question comes from Tyler Van Buren with TD Cowen.

Thank you very much for the presentation this morning. Can you comment on the average number of canisters for ZORYVE for the average scalp and body psoriasis patient and compare that to subderm and how you believe the peak sales opportunity will ultimately compare?

And then a second question maybe for Dr. Bhutani, if you're still on. Just what percentage of topical steroid use overall could you see being replaced by ZORYVE in this indication and potentially even more broadly as you think about across psoriasis, subderm and atopic dermatitis?

So Tyler, thanks. Good to hear from you. Maybe I'll have Patrick talk a little bit about sort of the extent of disease in these different subgroups of patients. And then, Todd, if you could address the overall market opportunity. And then I think Tina is still on the line too, so she should be able to answer your question too. So Patrick?

Yes. And I think our studies really kind of captured this difference in body surface area quite well. What we saw is that typically a patient who has seborrheic dermatitis coming into one of our trials, had about a 3% body surface area. And then we have twice that on average in many patients who had even more substantial, especially as you move into the scalp involvement of their body surface area with scalp and body psoriasis.

So we would anticipate, just based on the amount of involvement of the disease, that there would be an increased number of canisters that would be used in psoriasis for the foam compared to those patients that we've already seen kind of with seborrheic dermatitis.

Yes. Thank you, Patrick. In reference to market opportunity, as mentioned earlier in my opening remarks, 50% of patients, psoriasis patients have scalp involvement. And of those patients, 80% of them have lesions on other part of the body.

And given that with the foam and cream, we now offer optionality and choice for the provider and the patient, offering a suite of services for the topical psoriasis patient. If you think about that, we now offer any eligible psoriasis patient that's topical eligible an option with cream and foam.

And given that, there's significant opportunity for growth across both products, given the portfolio that we offer now, the portfolio effect and the magnitude that, that will have on subscribing, especially for the psoriasis patient, given there's an option now for foam and cream to treat their psoriasis in totality being a topical eligible patient.

And then from my perspective, I think that there's a great opportunity here as dermatologists were extremely busy in clinic. We love it when we have the opportunity to speed up seeing our patients and being able to decrease the amount of education we have to give to our patients.

And like I mentioned earlier, with this, we could really decrease the amount of time we spend educating the patients on the treatment and how to use them, knowing that they're going to have an effective and safe option when they go home and something that's really going to improve their quality of life.

So I think we have the opportunity here to really decrease the number of topical steroid prescriptions that we're using.

Our next question comes from Uy Ear with Mizuho.

So first question is maybe just help us understand the coverage. Will the foam essentially just be an extension of the current coverage that you already have for plaque psoriasis?

And secondly for Dr. Bhutani, maybe you can help us understand the -- how the foam for plaque psoriasis would fit in your practice. But currently, just help us understand the percentage of your patients on ZORYVE cream for psoriasis that would either convert or be, I guess -- yes, I guess maybe just trying to understand the potential for conversion versus new patients.

Yes. I'll answer the question relative to the coverage for ZORYVE foam.

We do have a very favorable contracts with the PBMs and payers for ZORYVE foam [ dyshidrotic ] dermatitis. For the indication of psoriasis, that will be a line extension of those contracts. So it will require no additional contracting or negotiations. We're working with the PBMs and payers to initiate that line expansion and expect coverage very shortly.

So to answer the question about using the foam versus the cream. So the cream right now, as you can imagine, is predominantly being used for body psoriasis. It's hard to use a cream in an area like the scalp, a hair-bearing area particularly. And so I think, first of all, I think the foam is going to really expand the use of ZORYVE to those patients, the significant number of patients we mentioned who are living with scalp psoriasis.

I think for some patients, they'll be able to use the foam in all of those areas, and we'll be able to simplify their regimen. But I think for other people, they still do like the moisturizing vehicle of the cream. So I think there's still an opportunity to use both of them in many different patients.

[Operator Instructions] Our next question comes from Douglas Tsao with H.C. Wainwright. [Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back over to Frank for any closing remarks.

Okay. Well, sorry, we've had some technical challenges here this morning. But certainly, we're available for follow-up questions if folks have something that they'd like to ask us. So we appreciate everyone making the time for yet another ZORYVE approval, the fifth now in 3 years of our commercial existence, and really excited to show you what we can do with this new product and new indications. Thanks a lot again. Talk to you all soon.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.