Arcutis Biotherapeutics Inc Aktie

All right. Good afternoon, everyone. Welcome to the session of the Morgan Stanley Global Healthcare Conference. I'm Judah Frommer, one of the SMID biotech analysts here. We're very excited to have the team from Arcutis joining us. Let me just get through a quick disclosure before we get started. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. With questions, please contact your Morgan Stanley sales representative.

Right. So with that out of the way, Frank, I thought we could start with a brief history of Arcutis. The company is celebrating its 10-year anniversary. So maybe just a couple of minutes on how the team, the pipeline and the commercial effort came together?

Yes. So we just celebrated our 10th anniversary in June, and I have my 10th anniversary in like 6 weeks. I think it's coming out pretty fast. So the company was actually founded by Frazier Healthcare. They saw an opportunity in the dermatology space where there wasn't a lot of innovation happening at that point in time, and they thought that there was a good opportunity. So they created the company. They hired our founder, David Osborne and said, invent a dermatology product. And so David went down in his basement. He literally has a laboratory in his basement and invented what became ZORYVE. And the minute he came up with ZORYVE, they thought, okay, well, we've got a company now. And so they hired a dermatologist and myself and the 3 of us went from there.

And over the last 10 years, we've gone from 3 people, and I think we had $150,000 in the bank at the beginning to we're about 450 now and about a $3 billion market cap depending on the day of the week. So it's been an amazing journey. All of it really built on ZORYVE, but we're at a really exciting point now where ZORYVE is generating enough money. We've become a cash flow positive, usually profitable, self-sustaining biotechnology company, and that's giving us the resources now to invest not only in our in-line ZORYVE business, but into expanding the use of ZORYVE and also in building and advancing a pipeline.

Okay. Excellent. That's a great background. So maybe just starting a bit higher level on ZORYVE. How would you describe the product's differentiation maybe across the cream and the foam in terms of both risk-benefit profile, quality of life measures versus maybe topical steroids and then other non-steroidal topical as well?

So I think the difference from nonsteroidal is probably the most important, and Patrick is a dermatologist, he's going to keep me honest. But for inflammatory skin diseases like psoriasis, seborrheic dermatitis and atopic dermatitis, steroids have been the foundational therapy for -- literally for decades, for 70 years, right? It's what dermatologists go to first. And steroids are effective therapies in treating these diseases. The problem is there's this mismatch that steroids are safe for short-term use, and these are all chronic conditions. And so dermatologists had invented these complicated regimens of multiple different therapies, different steroids, different formulations, some non-steroidal all combined together in these complicated regimens to try and manage these chronic diseases with a drug that's really only safe acutely, right? And making trade-offs between safety and tolerability on the one hand and efficacy on the other.

With ZORYVE, we really served -- we solve that problem. We have a product that's essentially comparable to a steroid in terms of its efficacy, but it can be used anywhere in the body, which steroids can't. It can be used for however long the patient wants, which steroids can't, and it can be used any amount that they want, which steroids can't. And so that's really -- I think it's revolutionizing the treatment of these inflammatory skin conditions, making it easier for the doctor and for the patients, quite frankly, to manage these diseases and ultimately then producing better outcomes.

Okay. Great. And then just thinking about recent performance for the franchise, Second quarter ZORYVE franchise sales about $130 million, up 23% sequentially. Before we get into kind of back half performance and thinking about that, what's been driving recent trends? The foam sales really stand out in our conversations?

Well, I mean, the foam is a really unique asset, right? ZORYVE itself is a very unique asset. You asked about the other nonsteroidals. We have a very effective drug with no safety concerns and very, very clean tolerability, and we have good access for the product, right? So that combination is very unique. But then you layer on top of that the foam. There are no other nonsteroidals in a foam formulation or frankly, a formulation that is suitable for hair-bearing areas of the body like the scalp, the face, the groin. And we have a foam that is -- it's a very nice foam. People like it, patients like it. You can put it in your hair, you leave it in, you don't have to wash it out. It doesn't disrupt hair style or hair color or anything like that. So that's been a real standout star for us.

It's over half of all of our sales is the foam. It also has indications for both seborrheic dermatitis and plaque psoriasis as well. But all of our SKUs are continuing to grow. Atopic dermatitis is actually the newest indication, and we're seeing the highest growth, frankly, in AD, partially because it's new, but also that is a disease that continues to have a pretty high unmet need. And I think the growth is because the product performs really well for customers. I think we have really got our commercialization engine dialed-in, and it's very effective. And again, as I mentioned earlier, we have the resources now where we can invest into new initiatives that allow us to sustain that growth rate or hopefully even accelerate that growth rate going forward. And all of that's happening in a context where, as I mentioned earlier, how foundational steroids were in dermatology, where dermatologists now are questioning the way that they've used steroids in the past and thinking about how they can change the practice of medicine and really reduce the reliance on steroids and steward their steroid usage better.

Okay. Maybe just talk for a minute about kind of market share dynamics and kind of growing that nonsteroidal pie and take share within that versus the...

So broadly on the overall market, we've seen a very nice growth in the branded nonsteroidal market. So we define it ourselves, Topical tapinarof, topical ruxolitinib and topical crisaborole. That was about 2% of the topical market when we launched. We're approaching about 10% now of that market. So a very nice robust growth trend and one that we think will continue on for quite some time. I think this market could easily convert to the 20% -- or 30%, 40% branded nonsteroidals ultimately.

ZORYVE was the last of the branded nonsteroidals in that group to launch. And so we started with a very small market share. We're now approaching almost 50% of that market. And again, I think because the product performed so well. So we're really the engine driving the conversion from topical steroids to branded nonsteroidal.

Okay. Great. And maybe just one more kind of high level on broader trends within the space. The more we talk to practitioners, it seems like there is maybe further penetration of nurse practitioners and PAs in terms of prescriptions and maybe just derms and primary care previously?

Well, I mean, I think there's probably symptomatic of two things. One is NPs and PAs are really a very important part of dermatology, right? Over half of medical dermatology is treated by an NP or a PA now. Dermatologists have many other things to do besides [ gen ] derm. And so they tend to shuttle a lot of those patients out of the NPs and the PAs and then do things like procedures themselves. And so that's why NPs and PAs are important contributors.

But I think as Patrick's commented before, I think the NPs and the PAs are probably even more receptive to the ZORYVE message as well, right, because of, again, the safety. And some of them are younger, too. And so maybe they're not quite so entrenched in their clinical practices as some of the dermatologists are.

Okay. Makes sense. And on the heels of the second quarter performance, you raised the full year guide to $525 million to $540 million. As we think about the back half of the year and then into 2027, where do you stand on where the franchise could go from here?

Yes. I think actually maybe, Latha, do you want to take that one?

Yes. So yes, we did increase our guidance in the Q2 call, $525 million to $540 million based on our strong performance in Q2 and the investments we're making in the initiative to drive growth for the rest of the year. We talked about a lot of those things in the call. We can elaborate at them here, which is our sales force expansion, our step into primary care, our marketing initiatives, our DTC initiatives and the work that we're doing on the market access side. So with kind of two of the variables done with the quarter and what's left to go, we expect absolute net sales growth in Q3 over Q2, not the same level of growth in a percentage because of the seasonality, which we've talked about with the disease, and I'm sure Patrick can elaborate on that.

And Q4 is always our strongest quarter as we end the year and the winter months land themselves for patients to use our products. Stepping into that and all the investments we're making, like I said, we're taking the leverage and being deliberate and being cash flow positive, but investing it in our business. So we expect to inflect that trend, which is that we will increase our growth in '27. When you think of '26 versus '25, we expect to inflect the growth trend in '27 versus '26.

Okay. Great. And maybe it's worth spending a second on that seasonality. I'm always amazed at how surprised the investors are from quarter-to-quarter, topical derm conditions, presumably more severe in the winter, but maybe just worth spending a second on?

Yes. I mean, look, I think I've been in this business for decades and pretty much every product experiences kind of seasonality, right? Q1 is the softest quarter. There's a nice rebound in Q2. A lot of that Q1 softness is driven by patients pulling demand forward in the prior year for their deductibles reset and then their deductibles reset, and we have more co-pay assistance we have to provide. So that impacts Q1. Q2 rebounds.

Q3 gets soft because doctors go on vacation, patients go on vacation, there's just fewer doctor visits. And then Q4 rebounds because they're coming back from vacation, but then also they're pulling demand forward from the next year's Q1, right? So you see this very typical sawtooth. And then in the inflammatory dermatology space, inflammatory dermatosis space, Q3 is exacerbated because these diseases tend to improve in the summertime. Patients are outdoors, more sunlight, higher humidity. And so all three of these conditions will improve on their own spontaneously. And so the patients aren't going to the doctors [indiscernible]. And so all of the topical we see this pronounced sawtooth pattern quarter-to-quarter generally every year.

We didn't see it last year because we happen to be launching in the third quarter a new indication and that masks that normal seasonality. But this year should probably be somewhat typical. I think the fact that we're growing in absolute terms, Q3 over Q2 speaks to the strength of the underlying growth trend in spite of the seasonality.

Okay. Great. So maybe taking some of those -- through some of those internal drivers. Where do you stand on the dermatology sales force expansion? Are you seeing contribution here yet? Or will we need more time on that?

Yes. So the dermatology sales force, we expanded from 130 to 160 end of May, they hit the field. It typically takes about 3 months to see an effect from a sales force expansion. I would like to see the last couple of weeks were sort of the first green sprouts. We'll see in the coming weeks, but we do expect to see an impact from the expansion in the fourth quarter. And then we also launched the primary care and pediatric sales team in the third quarter. They hit the field at the end of August. So they've only been out in the field for a few weeks. And I think that the time to impact may be extended there because primary care [ desks ] are just a lot harder to get in [ and see ]. So we don't anticipate seeing an impact on -- from primary care and pediatrics probably until '27. But I think that sits with Latha's points about the inflection that we expect to see in '27.

And maybe just remind us why it made sense to bring that sales effort in-house for primary care and NPs and why the timing...

Sure. Yes. We had a partnership previously, and we signed that deal at a point in time where we financially didn't have the wherewithal to do it ourselves. The partner -- we and our partner subsequently decided to part ways mutually amicably, and we were at a point where we could do it ourselves. And so we have started that process.

We are doing it in a very measured, methodical way so that we can ensure that we're getting a good return on investment from it. So we started with 20 reps in primary care and pediatrics. I'm sure that will grow with time, but how big and how fast is really going to depend on the results that we can generate from that business. So that we make sure we're doing it in a way that's shareholder value-friendly.

Okay. Great. And I'm going to front run the mini survey we're going to ask you at the end here, but you're leaning into AI to enable prescription workflow and you've begun a DTC effort as well. So any early signs of success there? How meaningful can those be as they ramp?

Yes. So on the AI side, we actually partnered with an existing AI provider that provides workflow AI tools to doctors' offices. We're helping them train their AI model effectively, right? We have heard anecdotally from doctors that they've noticed an improvement in how the system handles our prescription. So that's very positive. And I think over time, hopefully, we'll see more concrete metrics, and we'll share those as appropriate.

On the the direct-to-consumer side, we have been doing direct-to-consumer for some time. We started a new partnership with Max Homa, the PGA golfer in first quarter, i think earlier this year. And then I think what was really important was we launched a TeleDerm capability last quarter, where if a patient reads an article or hears about ZORYVE, instead of waiting 6 months to see a dermatologist, they can actually see a dermatologist within 24 hours going through the TeleDerm platform.

Maybe just a second on the TeleDerm platform. I think some folks think that you're running that platform. Just maybe how it works...

Yes. So I think this is really important. For compliance reasons, right, this all has to be an arm's length relationship, right? So if you go to zoryvE.com, there's a tile that you can click and it will take you to the TeleDerm portal. That's an independent company. The patient pays that independent company for the doctor visit. We don't pay the doctor anything. Those doctors work for that platform. They don't work for us. And they don't have to write ZORYVE, right?

We're a good choice. And in many cases, they will choose ZORYVE, but they don't have to. And then if they write ZORYVE, then the patient comes back into our system for insurance and fulfillment for the ZORYVE. But the diagnosis and prescription are all completely independent of Arcutis, which is really important from a compliance standpoint that we set it up that way.

Okay. Great. And just higher level for the franchise. I think investors very much appreciate kind of the annual sales guidance you guys started giving, I think, end of last year. But in terms of peak ZORYVE sales you've talked about a $2.5 billion to $3 billion range. I guess there's momentum for the franchise clearly now. And as that continues to build, can you comment on kind of evolving confidence around those targets?

Yes. I think we reiterated it again on the last quarter, we continue to think that the $2.5 billion, $3 billion for our existing indications is a very achievable number. That translates into something like 15% to 20% of topical patients being on ZORYVE versus maybe 3.5% today. And if you think about the momentum we have and this shift in medical practice away from topical steroids, I don't think that that's an unreasonable level of conversion. That would imply probably something like 30% to 40% for the branded non-steroidal class as a whole.

And you compare that to similar markets, and that would actually be a low level of conversion compared to a lot of the other markets we see. So we feel very confident about that. And then as we continue to add on these additional indications, that obviously would tend to bring the peak sales guidance up as well.

Okay. Great. And I think both for kind of that peak sales guide, but also for the nearer term annual guide and into next year, we've talked about kind of robust reimbursement. But specifically on government pay, that's kind of evolving. Where do we stand? And where can we see progress coming out?

Yes. So on the commercial side, we have -- we're effectively done, very good coverage, well over 80% coverage on the commercial side and with very good access. We've made very good headway in Medicaid. We have about half of all Medicaid lives have access to ZORYVE through a single step or better. Like in California, there is no step for ZORYVE. And we are starting to make headway in Medicare as well. There's been a lot of disruption in the overall Part D program as many investors are aware, and that's led to a resistance to add new therapies to the Medicare formularies. We were really pleased that we picked up about 1/3 of all Medicare lives earlier this year.

We continue to negotiate to get additional plans to add ZORYVE. And we're the only branded non-steroidal on the Medicare formulary right now. So we feel good about that. We have work to do and it's taking time. I wouldn't expect to see any news before the beginning of the year on the Medicare front.

Okay. That's helpful. And then I want to touch on some of the potential indication expansion. So maybe starting with INFANT AD, you have a February 2027 PDUFA for infant atopic derm. So will ZORYVE expand the population here? Or are you competing for patients that already are on Eucrisa? How should we think about that as well...

Yes. Actually, maybe I'll throw that one over to Patrick as a practicing dermatologist.

Yes, one of the challenges in that 3- to 24-month space, it's a fairly large-sized population, even though it's a pretty narrow cut age-wise, just given the dynamics of when patients get their atopic dermatitis, which is oftentimes early in life, they actually represent about 10% of the patients under treatment. It's about 1 million patients that are being seen and managed for their atopic dermatitis.

What's challenging about them is that it's really steroids and then as you mentioned, Eucrisa. And in that group, especially when you can't communicate if you're -- whether you're having any stinging or burning, you're already -- we know that the patients are kind of miserable from itching. You can see them scratching. It's been challenging to manage them with local side effects. So I think from our perspective, steroids have been the major treatment because they know that they work. They don't have stinging and burning. The challenge there is that parents generally do not want to be putting a topical steroid onto a 3- to 6-month old. So it's been very difficult to really manage those patients. They oftentimes end up with high frequency in pediatric dermatology offices where they don't really have anything new to offer them. So what we've heard back over and over again is like this 3- to 24-month old because of the lack of nonsteroidal treatments that we can use has been very challenging to manage. So we're excited to be coming there with a profile that they know and is really well suited to this age group.

To put a point on your question, the bulk of the patients are using steroids. So we think the bulk of our business will come from steroids.

Okay. That makes sense. And then just vitiligo and HS, those are material potential indication expansion. So maybe we start with the size of the opportunity for each and unmet need for both vitiligo and HS that remains?

Sure. I'll take the easy part, and then I'll throw it back over to Patrick again. They're roughly -- each of them is about 1/3 the size of the psoriasis opportunity with, I think, the nuance that there's a lot less competition right now in both of them as well. So they're not gigantic markets, but they're good-sized markets, I think, with a high unmet need and not that much competition. So...

Yes. As far as unmet need, both of these indications are somewhat unusual in dermatology in that steroids are either not used like in the case of HS. There it's partially because of the location. It's in these areas where you have skin-on-skin contact, very high level of atrophy, and they just don't work particularly well. For vitiligo, steroids aren't used so much because oftentimes, it's on the face, the back of the hands. And again, you have -- it doesn't work well. So you have to use very high potency and a lot of potential atrophy there. So that leaves really a dearth of treatment options for these patients historically.

For HS, it really is some like off-label topical antibiotics, maybe some oral antibiotics. So having a new mechanism of action there and especially with ZORYVEs' profile, which is really well suited to be able to treat potentially those mild to moderate patients but then also with our label adjunctively as they might move on to systemic treatment where the efficacy rates aren't so high that there isn't a need to kind of use them oftentimes in combination, I think would be well received even as that landscape evolves.

And similarly, with vitiligo, right? Vitiligo, we have a single approved mechanism of action right now. I think there's a lot of room for additional entrants with a new mechanism of action. And here, the PDE4 inhibition that we're providing with ZORYVE has an impact potentially on both the melanocyte, where you're kind of sustaining the melanocyte to produce pigment, which can speed the recovery, which is what patients will see and we will show them an early benefit, but also the inflammatory component, which is where we're showing efficacy across other indications. I think it's, again, a good fit and with very few treatment options for those patients.

Okay. Great. And so maybe just starting with vitiligo. You'll have top line and a go/no-go decision, I think, in Q4 is timing. So you said you're looking for superiority in speed of onset or efficacy versus existing branded nonsteroidal. So are there any case reports or off-label use that may increase your confidence? Or are we just waiting for data to make the decision?

Well, certainly, the case reports and there are a number of case reports for both diseases. That's what really led us to do the studies, give us confidence, but we do still need to see the data. These are relatively small open-label studies. So I don't think we're going to get a clear -- crystal clear picture of the efficacy profile from these studies. We're just looking for a signal that it actually works, right? And then we'll move into Phase III, which will allow us to fully characterize the efficacy of both the drugs. But Patrick, do you want to maybe comment on sort of what we are expecting to see from the two POC studies?

Yes. I mean I think from our perspective, we look at the case reports that have been published. We look at -- we listen to derms that are out there using the treatment of their own volition and kind of feeding that back to our medical affairs group. That's kind of formed our understanding of what we think the efficacy profile will be. What we're looking for here is really confirmation of that with a fixed denominator where we can say, okay, like this gives us an idea of -- and especially to your point, like you talked about like our efficacy relative to existing therapies.

Again, given that this is a very wide open space, we're not necessarily saying that we need to be superior to -- we need to be clinically meaningful for these patients in order to move this forward into Phase III. And then the onset of efficacy, as you mentioned, we think is something that we've heard from health care providers. We should be able to see that also in this study, and it fits with the mechanistic understanding that we have for vitiligo.

And I would just maybe also add, I think the fact that we're studying our foam in both indications is important because I'm a good example, you're a good example. If you're treating vitiligo on the face, the foam for a lot of men, especially is very attractive, right? And in the case of HS, it's almost always in the groin or in the arm pits and again, hair-bearing air. So having a foam can be a meaningful differentiator versus the competition, right?

Okay. That makes sense.

And then HS kind of similar approach to that data set and that go/no-go decision in terms of clinical meaningful.

Okay. Great. You did announce a PD-L1 cutaneous AE study. And I think you framed it to kind of generate publishable data to support access rather than necessarily supporting a registrational path that you'll pursue internally. But could running a full pivotal program be in a plan at some point, has that decision been made?

Yes, we certainly haven't ruled that possibility out. What we were trying to communicate there is that HS and vitiligo, those are indications that we are really kind of closely monitoring to be able to potentially advance them into Phase III as we were just talking about. We're running a lot of these trials in other indications also to kind of get an understanding of where we might be seeing some really robust efficacy, again, based on our communication with health care providers that are out there just trying to manage their patients and using this as a tool in their hand.

So I think we're going to [ see ] the data from that. But we do know that having even relatively small data sets in this population can be picked up and entered into guidelines just because there isn't an expectation oftentimes to have an approved kind of Phase III in the label study in order for access to be given because you're talking about being able to prolong the time that a patient is on a life-saving medication. So for us, it really is about -- this first step is just getting the information, not ruling out downstream, but it's not currently in the plans to be able to do that.

Okay. That's helpful. I want to make sure we touch on the other asset in your pipeline, ARQ-234. What led you to the CD200 receptor as a target?

Yes. If you look at the CD200 receptor pathway, I think the most convincing data early on and why people kind of gravitated toward atopic dermatitis and asthma as well is through the GWAS data that really shows that there's an association genetically for this pathway with those kind of atopic indications. And then as you start to study where it is that the CD200 receptor is being expressed on immune cells? Then it starts to kind of click with why that GWAS may be pointing you in that direction. So that's what originally kind of led people towards that.

And then Lilly published an earlier phase study where they showed efficacy with some kind of prolonged pharmacodynamic effect, which was really interesting and also fits with this mechanism, which is more kind of like tuning the immune system and kind of down-regulating overactive pathways as opposed to providing immune suppression, which then can have other adverse effects just from like eliminating portions of the immune system. So we thought that those data really made sense with the pathway. And so we're excited to be bringing this through as we announced recently that we're already into our multiple ascending dose and excited to just keep moving the program forward.

Okay. And maybe just remind us the timing around the Phase I data and what you'd be looking for to justify a Phase II in atopic derm?

So this study ends in a proof-of-concept trial after we move through our multiple ascending dose section. We're in atopic dermatitis patients right now as we move to the higher single ascending dose and all of our MAD cohorts are in atopic dermatitis patients, obviously, the proof-of-concept will be as well. So all of those will be generating data. We're not planning to disclose any of the data until the trial is completely closed, and we haven't set a date yet for that. As we kind of move further through, we intend to give updates on the progress through the trial. And then as we get closer to the end of the study, we'll announce when we plan to have data.

It's tough to call on the Phase I because we don't know how many cohorts we're going to have. Hopefully, it takes a long time to get through every dose cohort, but...

Okay. That's helpful. And maybe you mentioned the Lilly program. I think that was a CD200 receptor 1 agonist. I guess just any -- but I think the program was pulled from the pipeline. Any additional learnings from that one that are additional read-throughs?

Yes. It's the same pathway, but a different way of approaching the pathway. So there, it's a monoclonal antibody that was agonizing the receptor. What we have is a fusion protein with 2 ligands that have been modified to increase the affinity to the ligand -- to the receptor. So we feel like we have a better approach and the fact that we have potential for 2 binding sites within each molecule also, I think, may give us mechanistic advantage, including the fact that we have an extended half-life. So obviously, coming out of the Phase I trial, we'll be able to opine on what exactly that half-life maps out to. But I think there are reasons for us to believe that we can show success in atopic dermatitis.

Okay. Excellent. And you touched on it at the top, Frank, but you recently achieved that positive cash flow in line with your guidance with I think about close to $240 million in cash. And you've called business development kind of a nice to have rather than a must-have. So how should we be thinking about business development as a lever you could pull?

Yes. I think that's a very accurate characterization. Look, I think that Patrick and his team and our tech ops team have demonstrated a really outstanding development capabilities, right? We have 7 on-time FDA approvals in the last 4 years. We're coming up very quickly on our eighth. I think that's a really impressive track record.

I think our commercial organization now has also demonstrated an outstanding ability to commercialize these products. We have a bit of a gap in the mid-stage in the pipeline. I would love to put another asset in there. But given all of the opportunities we have in front of us with ZORYVE and with 234, I don't have to do something, which I think is a good position for management team, it's a good position for investors, right? People do stupid things when their backs are against the wall. And we don't feel the need to have to do something, right?

So that gives us the discipline to really evaluate opportunities. As I mentioned on the quarterly call, we're seeing a lot of deal flow all the time. Most of them don't meet our criteria, and that's why we haven't done any deals of late. But we'll continue to look and see if there's something that we feel can meaningfully create shareholder value.

Okay. Great. And maybe last one, just harping on that cash flow positivity, is -- and we get this question from time to time, is the guidance for cash flow positivity every quarter on an annual basis at this point?

Our intention is to maintain our spending so that it's cash flow positive every quarter. Could we trip 1 quarter? Possibly. But I mean, I think that's a trend that investors should expect in the absence of a significant business development transaction, right? That would obviously change the equation. But we have the resources for all of the commercial investments we talked about for the new indications for ZORYVE and for ARQ-234 advancement.

Okay. Excellent. All right. With that, I'm just going to tick through the mini survey that I mentioned earlier that we're asking all of the biotech management team here. No pressure. The first is on China's rise in biotech. How are you thinking about competitive position here? Does Chinese biotech innovation influence R&D business development in your mind in any way?

I think we certainly look at China as a source of innovation, and you have to also monitor China as a competitive threat. I'm the Vice Chairman of Bio, and so I'm up to my neck in the discussions. I think that the direction of travel is clear from Washington. There are going to be some policy changes. I don't know exactly what it's going to look like. But I think we're all going to have to continue to be nimble as Washington changes the rules of the game, but we also have to recognize that the Chinese are doing some very good science. And I think it's in the best interest of U.S. patients and U.S. shareholders to look at China for sources of innovation.

Okay. And we touched on one area within your business that's leveraging AI, but how is Arcutis leveraging AI broadly? How are you thinking about the potential for AI to have a disruptive impact on the industry?

So one of my favorite aphorisms is when all you have is a hammer, everything looks like a nail. I think that AI is a very large hammer and people are spending a lot of money banging bolts and screws and everything else they can find with AI hammer. We do leverage AI at the company. We haven't detailed our exact program, but we're very thoughtful about the use of AI, both when we use it and also protecting our data, and we only operate AI inside of a firewall. We don't use any public, so we don't have any leakage.

I think that ultimately, AI is going to have a very disruptive effect on our industry. I think particularly at the early stages of discovery, if you think about like the impact of AlphaFold, the money we used to spend on extra crystallography and you got to do it in seconds for free, that's amazing, right? I think it could unlock the real potential of computational chemistry. The farther back you get in the pipeline, I think the more discrete business cases become, but I think there are going to be opportunities throughout. But I think that early on is where it's going to be most disruptive in my opinion.

Okay. Great. And the last topic is regulatory. I guess kind of which area of regulatory is most impactful to the business? I think some of the topics we've heard are changes at FDA, MFN pricing, tariffs, anything on the regulatory front...

So I think MFN is something that is going to change our entire industry and our business model, right? And I don't anticipate that, that issue is going to go away. Tariffs, who knows, it changes, I think, on a daily basis. The FDA is very important. I think that the announcements that we saw a couple of weeks ago were very encouraging. I think both Karim and Mike Davis are both excellent choices for the director heads. It's nice to have stability and real professionals in there. And we've been fortunate where I don't think we've been affected by some of the turmoil at the FDA, but I know many of my colleagues have been. So I think the direction it seems to be going in the right direction of the FDA. Fingers crossed that things stabilize and it's critical for innovation in our industry.

Okay. Great. With that, we're just about out of time. So thank you again for being here.

Great seeing you. Thanks a lot.

Ladies and gentlemen, thank you for standing by. Welcome to Arcutis Biotherapeutics, Inc. Second Quarter 2026 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 second 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; Patrick Burnett, Chief Medical Officer; and Latha Vairavan, Chief Financial Officer.

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

With that, let me hand it over to Frank to begin today's call.

Thanks, Brian, and good afternoon, everyone. As always, we appreciate you guys making the time to join us on our quarterly update call. I'm going to start this afternoon with a review of our very productive second quarter as we continue to deliver meaningful innovation for patients with chronic inflammatory skin diseases and continue to execute against our grow, expand, build corporate strategy. Todd isn't able to join us today. So I'll walk you through a commercial update, followed by Patrick for an R&D update. And finally, Latha will review the quarter's financial results before we open it up to questions.

So I'm on Slide 5 in the deck. And just as a reminder, our 3-pillar strategy to sustain near- and long-term growth includes: first, growing our core ZORYVE business in our approved indications; second, expanding into additional indications where ZORYVE's unique profile as a targeted and potent PDE4 inhibitor has significant potential to address persistent therapeutic gaps; and third, leveraging our deep clinical expertise and infrastructure to build our pipeline beyond ZORYVE. I'm happy to report that once again, we made substantial progress across all 3 pillars during the second quarter.

Let's start with our growth pillar. Our in-line ZORYVE business continues to strengthen and grow as we expand the reach and relevance of this medicine to the tens of millions of individuals with chronic inflammatory skin conditions in the U.S. who need and deserve new innovative therapeutic options to manage their plaque psoriasis, seborrheic dermatitis and atopic dermatitis.

As ZORYVE continues to grow, we're now in a position to reinvest the significant capital generated back into the business, creating a virtuous cycle of innovation that extends our transformative impact to more patients, both with ZORYVE and current and potential future pipeline assets. As we'll discuss today, our investment in innovation encompasses a broad range of value-creating initiatives across the business that we're advancing in parallel from multiple clinical projects to impactful patient access initiatives.

So touching on some of the highlights. At the end of June, we received FDA approval for ZORYVE cream 0.3% for the treatment of plaque psoriasis in children as young as age 2. This marks the seventh FDA approval for ZORYVE in 4 years, a remarkable accomplishment for a small company like Arcutis. And importantly, this milestone enables us to address a significant treatment gap, introducing the first once-daily steroid-free treatment for plaque psoriasis approved down to age 2.

In July, the FDA also accepted our supplemental NDA for ZORYVE cream 0.05% for the treatment of mild to moderate atopic dermatitis in infants down to 3 months with a PDUFA date set for February 23, 2027. And I was just recently at the Society of Pediatric Dermatology. And frankly, I was awestruck by the level of anticipation and excitement in the pediatric dermatology community about this potential approval, which would address an urgent unmet need for a once-daily nonsteroidal in these youngest of AD sufferers. Both of these regulatory milestones demonstrate our commitment to delivering meaningful innovation to both adults and children across all age groups, including the youngest children impacted by these chronic inflammatory skin diseases and their caregivers.

And as you'll hear more today, our commitment to meaningful innovation for patients goes beyond bringing new therapies to market. We recognize that managing a chronic inflammatory skin disease like psoriasis, atopic dermatitis or seborrheic dermatitis can be extremely challenging and burdensome for the individuals and their families. And with that in mind, we are turning our expertise to ways that we can innovate to enhance the patient experience and facilitate seamless access to treatment in order to help ease the burden on the patient and caregiver as well as the health care provider. Today, we'll detail some of our initiatives around patient access that specifically reduce barriers to care and streamline the patient journey.

Our new virtual health platform and our strategic partnership with a leading AI-enabled patient access support tool are the first steps to emerge from our broader patient access initiative, innovation work stream. We're really excited about these initiatives, which I'll explain in greater detail shortly. Both are great examples of our commitment to delivering meaningful innovation to patients.

Turning to expand, our second strategic pillar. We continue to make important progress in this quarter in evaluating the potential of ZORYVE in additional chronic inflammatory skin conditions. Specifically, we have now fully enrolled the Phase II proof-of-concept trial of ZORYVE in the treatment of vitiligo, and we continue to enroll the Phase II proof-of-concept trials of ZORYVE as a treatment for hidradenitis suppurativa.

On previous calls, we've shared the extensive and growing list of conditions where clinicians have published case reports of case series showing promising signals of ZORYVE efficacy, suggesting that ZORYVE's unique profile as a targeted and potent PDE4 inhibitor could offer additional patients and innovative nonsteroidal therapeutic option. We continue to evaluate these other potential indications and anticipate initiating one or more additional proof-of-concept trials this year.

And finally, turning to the third pillar, build. We continue to make progress advancing our innovative pipeline. Enrollment is ongoing in the Phase Ia, Phase Ib trial of ARQ-234, our novel biologic targeting CD200R as a potential treatment for moderate to severe atopic dermatitis. By targeting CD200R, which plays a central role in both innate and adaptive immunity, we believe ARQ-234 could not only be an important first-line systemic therapy, but also has the potential to address the clear and distinct need for a treatment for patients with atopic dermatitis who have relapsed on or who are refractory to IL-4/IL-13 drugs.

In addition, as we've discussed previously, external innovation will likely play a central role in expanding our pipeline. We're seeing a marked increase in deal flow recently in both dermatology and adjacent inflammation areas, and our team remains actively engaged in evaluating a range of external assets as we look to build our pipeline. As Latha will describe, we had another very strong quarter financially. And this level of performance and the cash flow that it generates enables us to continue to invest in innovation, staying true to our biotech roots and mission.

For the remainder of this year, you should expect consistent execution against our stated strategy, opportunistic reinvestment in the business and a steadfast commitment to creating long-term value for both patients and shareholders. Based on the strength of our ZORYVE business to date and in light of the incremental investments we are making to sustain demand for ZORYVE, we are delighted to raise our full year 2026 sales guidance from the previous range of $480 million to $495 million to a range of $525 million to $540 million.

You will recall that we made no changes to our revenue guidance during our Q1 earnings call, and we don't anticipate revising every quarter. So this guidance really reflects the momentum that we -- the business has seen through the first half of the year. So let me delve a little bit more into some of the details on commercial results for the quarter.

I'm now on Slide 7. We continue to see robust sales performance and demand-driven growth in the fourth -- in the second quarter with net product revenues of $129.9 million, representing a 59% increase from the second quarter of 2025 and a 23% increase over Q1. Our consistently strong quarterly revenue underscores the momentum and enduring strength of the ZORYVE franchise. As expected, our gross to net rate improved incrementally from the prior quarter and continue to remain stable in the 50s. And so looking ahead to the third quarter, we expect quarter-over-quarter net sales growth driven by sustained momentum in patient demand.

Now let me turn to Slide 8. Weekly prescriptions of ZORYVE on a rolling 4-week average shows sustained growth across the portfolio, and we reached a new high watermark for quarterly demand with more than 280,000 prescriptions in the quarter across all indications and formulations for ZORYVE. As this chart highlights, ZORYVE continues to experience substantial prescription growth. We anticipate this growing demand will continue through the duration of this year and beyond and will be the primary driver of ZORYVE's revenue expansion.

The most important driver of ZORYVE's growth will remain the conversion from topical steroids to advanced targeted topical therapies like ZORYVE as health care providers and patients' perceptions of the risk of chronic topical steroid use evolves.

Let's turn now to Slide 9. I want to expand on the patient access initiatives we introduced this quarter. As I highlighted in the opening, improving patient access to ZORYVE is an important dimension of meaningful innovation as we aim to deliver to patients with chronic inflammatory skin diseases. Therapeutic innovation is meaningless if patients are unable to access new therapies. So we see it as an imperative to also innovate in reducing barriers to treatment and care.

Importantly, these new patient access initiatives are separate and distinct from but complementary to our payer access efforts. These innovations are focused on enabling seamless fulfillment and an efficient post-prescription process that helps patients access ZORYVE rapidly, reliably and efficiently. We've applied this holistic patient-first approach to innovation since bringing ZORYVE to market, but we're now broadening the scope of our patient access activities with the launch of our virtual health platform and investments in AI-enabled tools that support efficient prescription fulfillment. 2 distinct initiatives, both with the aim of facilitating more seamless access to ZORYVE.

So a little bit more about each of these initiatives, starting with the virtual health platform, which we announced in June. We recognize that over the last several years, patients have been rapidly changing how they obtain health care, starting with the COVID pandemic and accelerating with the emergence of multiple virtual health offerings like Hims or Ro. And many individuals today are seeking more convenient, flexible ways to receive care.

Our virtual health platform recognizes this evolution and meets patients where they are by helping to address common barriers to dermatology care such as long wait times for dermatology appointments and the absence of specialized dermatology care in some geographies. The platform provides an additional pathway for individuals who might otherwise delay or forgo specialized dermatology treatment. Importantly, the platform is designed to complement and not replace traditional in-office dermatology care. Our goal is to help more individuals access the therapies that they need while continuing to partner with health care providers across dermatology, primary care and pediatric settings.

So with the model, a board-certified independent dermatologists on the platform evaluate, diagnose and determine appropriate treatment for each individual based on their clinical judgment. Arcutis does not influence diagnoses, clinical decision-making or prescribing decisions made through the platform. If prescribed, ZORYVE prescriptions are coordinated through a national pharmacy hub designed to support a seamless experience, including insurance support and at-home delivery. We're especially excited about this new platform because we believe ZORYVE has an ideal profile for the virtual health model.

Dermatologists can prescribe ZORYVE confidently given its demonstrated efficacy, safety and tolerability without worrying about a patient applying the drug to an area of the body that they shouldn't and with the knowledge that the patient can use ZORYVE for any duration. It treats the 3 most common inflammatory diseases, all of which that can be diagnosed visually using telehealth tools. And additionally, individuals suffering from these diseases are motivated to seek an effective therapy due to the burden of their symptoms. We're still in the early days of the rollout of our virtual health platform, but we are already seeing signals of the impact that it will have and are confident that this will have a meaningful benefit in expanding patient access to ZORYVE, particularly when it's coupled with other demand generation efforts we have like the Free to Be Me campaign.

Now, in late July, we launched our second patient access innovation, partnering with one of the leading AI-enabled prescription workflow platforms to streamline the post-prescription process for ZORYVE in dermatology offices. The process for getting any prescribed therapy to an individual has grown increasingly complex and time-intensive over time. But through this partnership, we're helping to streamline patient access to ZORYVE after they receive a prescription. The company that we partnered with is already widely adopted across dermatology offices as well as other therapeutic areas nationwide. And in practices where the tool is implemented, after providers initiate a prescription, the platform helps navigate and systematize that workflow that follows. In addition, it supports patients with real-time visibility into the process from the moment of prescription as well as other critical information and access resources.

As part of the collaboration with Arcutis, the platform provides customized prompts and alerts to streamline the steps between a clinical decision and an individual starting ZORYVE, including prior authorization, financial assessment and fulfillment routing embedded directly into health care provider workflows. We're skating to the puck. It's our belief that harnessing innovation and leveraging these types of technology-based solutions to help patients and health care providers with the fulfillment process for ZORYVE is where we need to be. These initiatives mark important additional steps in our mission to deliver meaningful innovation across every part of dermatology care.

And on Slide 10, these patient access initiatives are only the latest example of how we're reinvesting the cash flow generated by ZORYVE back into the franchise to drive sustained growth and inflection in sales in 2027 and beyond. Of course, all of our efforts to drive ZORYVE's growth would be meaningless without the solid foundation of ZORYVE's outstanding clinical profile. ZORYVE's rapid and robust efficacy across multiple inflammatory dermatosis paired with its exceptional safety and tolerability profile and its patient-friendly formulations make it a compelling choice for health care providers and patients looking to manage these chronic conditions, especially against the backdrop of the growing concern about prolonged use of topical steroids.

Our commercial efforts focus on generating awareness of this differentiated therapeutic profile with both clinicians and patients and then enabling efficient patient access to the product when it is identified as the appropriate therapeutic intervention. Building on that foundation are 3 broad categories of demand initiatives. The first is the investments we're making to strengthen our commercial infrastructure through targeted additions to our sales force. The dermatology sales force expansion has been completed with our new dermatology specialty reps hitting the field as of early May. Since then, they've been gaining familiarity with their customers. And as previously discussed, we anticipate beginning to see the impact on growth from these reps beginning in the third quarter of this year.

We have also now completed the build-out of the first phase of our primary care and pediatric organization, having recently completed the hiring of this targeted team. We anticipate that this sales force will be in the field interacting with primary care providers and pediatricians by the end of this month and expect to begin seeing the impact of this new team by 2027. As a reminder, we are adopting a highly targeted approach with the sales team, focusing on high-volume early adopter PCPs and pediatricians who are concentrated in major metropolitan areas. This approach positions our investment in the PCPs, Peds, sales team to begin contributing value rapidly. And as we gain more in-depth understanding of this space and how best to partner with primary care and pediatric providers, we'll evaluate further expansions of the team.

We believe that some of the same attributes of ZORYVE's profile that have led to its leadership in dermatology and will drive meaningful adoption through the virtual health platform will also drive its success in the primary care setting. Specifically, primary care and pediatricians can prescribe ZORYVE confidently based on its demonstrated efficacy, safety and tolerability and without worrying where or how long patients use it.

The second component of our commercial investment plan is our direct-to-consumer efforts. We're driving meaningful patient engagement through our Free to Be Me patient awareness campaign featuring Tori Spelling, her daughter, Stella McDermott and professional golfer Max Homa. This campaign is helping to drive awareness of treatment options for patients with atopic dermatitis, seborrheic dermatitis and plaque psoriasis and the promise of ZORYVE across these indications.

We're seeing these efforts resonate with a broad range of patient demographics, reflecting the broad swaths of the population impacted by these diseases. The effectiveness of this campaign is further bolstered by our virtual health platform, enabling us to provide a direct route to a dermatologist for individuals who discover ZORYVE through Free to Be Me. We look forward to continued progress of this important direct-to-consumer effort as we work to capture and reflect patients' lived experiences as they manage their chronic inflammatory skin conditions, including using ZORYVE their treatment arrangement.

The final component of our commercial investment strategy is facilitating seamless patient access to ZORYVE as we've discussed today. The virtual health platform and AI-enabled prescription workflow efforts I described earlier are the initial efforts that we're making in this vein, but there are additional exciting initiatives to come, and we look forward to sharing details with those at a future date.

And with that, I'm going to take a breath and turn the call over to Patrick for an R&D update.

Thanks, Frank. I'm on Slide 12. At the outset of today's call, Frank highlighted our focus across the grow, expand and build pillars of our corporate strategy. I'd like to provide some additional context for the clinical components of each pillar. But before I detail our various clinical initiatives, I want to emphasize the breadth of our ongoing activities to further bolster the profile of ZORYVE.

On this chart, I'm showing the range of clinical programs we are pursuing to broaden our patient population, expand into new disease areas where we have early signs of efficacy and better define the unique aspects of ZORYVE's therapeutic profile. The breadth of approved and potential uses of ZORYVE, supported by its pleiotropic mechanism of action and its safety and tolerability profile underpin our belief that ZORYVE is uniquely well positioned to supplant topical corticosteroids in the management of inflammatory dermatosis.

Moving now to key clinical updates for the quarter. As Frank highlighted earlier, in late June, the FDA approved our supplemental NDA to expand the indication for ZORYVE cream 0.3% for the topical treatment of plaque psoriasis, including intertriginous areas to children down to the age of 2. As a practicing dermatologist, I can personally test that treating young children with plaque psoriasis presents unique challenges. Specifically, while safety and tolerability is always a concern, that concern is amplified in young children who may face decades of treatment and who are particularly susceptible to both local and systemic steroid exposure risks like HPA suppression.

In our trials in children as low as 2 years of age with plaque psoriasis, ZORYVE 0.3% demonstrated safety, tolerability and efficacy comparable to that already demonstrated in adults and adolescents. ZORYVE is now the first once-daily steroid-free treatment for plaque psoriasis approved down to 2. It provides health care providers, parents and other caregivers with an advanced targeted topical therapy that can be used anywhere on the body for any duration of time, addressing a significant treatment gap for this very young and especially vulnerable patient population.

In addition, in July, we announced that the FDA accepted our supplemental NDA for ZORYVE cream 0.05% for the treatment of mild to moderate atopic dermatitis in infants down to 3 months with a PDUFA date set for February 23, 2027. As we mentioned on our first quarter call, we were able to submit this application just 3 months after having read out the top line results from our INTEGUMENT-INFANT trial. This remarkable feat reflects the speed with which our team at Arcutis is moving on behalf of patients and a response to the high level of urgency shared by those HCPs who care for these youngest atopic dermatitis patients. This urgency to advance new and more effective therapies is driven by specific challenges in treating this infant patient population.

The skin of young children is not fully developed, which can lead to increased systemic absorption of topical treatments like steroids. And these youngest patients also often present with more extensive disease than adolescents and adults. During the quarter, we also initiated 2 new trials, one in adults to better elucidate ZORYVE's impact on pruritus or itch. The trial is called INTEGUMENT-ITCH and is based on the compelling data from the INTEGUMENT-INFANT trial showing reductions in itch within 10 minutes of first application and another to evaluate the impact of ZORYVE on male psoriasis, a notoriously difficult-to-treat presentation of plaque psoriasis, often even failing systemic therapy, where we have seen some really exciting signals of ZORYVE efficacy in case reports.

Now turning to potential new indications for ZORYVE. We've now completed enrollment in our Phase II proof-of-concept trial in vitiligo. And we continue to enroll the hidradenitis suppurativa or HS, Phase II proof-of-concept trials. We remain on track to provide a readout for the vitiligo trial and a decision on whether to advance the program in quarter 4 of this year. And we remain on track for a similar readout for our HS program in quarter 1 of 2027.

Now recall that in our HS program, we have trials evaluating ZORYVE's safety and efficacy in HS as well as a study looking at gene expression following ZORYVE treatment in HS patients. As we advance these Phase II vitiligo and HS studies, we also continue to evaluate other diseases for similar proof-of-concept studies, and we anticipate starting one or more additional proof-of-concept studies in the latter half of the year.

During quarter 2, we also initiated a trial evaluating the impact of ZORYVE cream 0.3% on cutaneous adverse events in cancer patients receiving PD-1 or PD-L1 checkpoint inhibitor treatment. Such side effects occur in as many as half of patients receiving these life-saving treatments, and they often lead to interference with cancer therapy. If ZORYVE is able to effectively manage such treatment-related dermatosis as suggested by some case reports, it may help cancer patients to persist with their PD-1 or PD-L1 treatment regimen. This trial is another meaningful example of the broad potential applications of ZORYVE across inflammatory skin conditions.

Turning lastly to ARQ-234, our novel biologic targeting CD200R and the build pillar of our strategy. As Frank touched on earlier today, by targeting CD200R, which plays a central role in both innate and adaptive immunity, we believe ARQ-234 has the potential to address the significant unmet need for a systemic therapy for patients with moderate to severe atopic dermatitis and given the unique mechanism of action could be a compelling first-line therapy option as well as a treatment option for those who are refractory to IL-4/IL-13 therapies.

We've completed enrollment in the last cohort of healthy volunteers in the single ascending dose or SAD portion of the Phase I trial for ARQ-234. We've now begun enrolling atopic dermatitis patients into the final SAD cohorts, and we'll begin to enroll AD or atopic dermatitis patients in the multiple ascending dose or MAD portion of the trial. Following the MAD portion, we will complete a small proof-of-concept portion in atopic dermatitis patients as well.

As I explained on our first quarter call, we'll not share results from this trial until it's completed, but we'll continue to update you as we progress through these different portions of the study. We also continue to evaluate external sources for innovation to further build out our innovative pipeline. And as Frank mentioned earlier, we're encouraged by the increased deal flow in the dermatology and I&I space.

So turning now to Slide 13. We introduced this slide at our R&D Day last fall. It lays out the multiple characteristics therapy would need to not only compete with topical steroids in chronic inflammatory skin disease settings, but also to displace them. ZORYVE is arguably comparable to topical corticosteroids and efficacy and rapidity of onset. But as depicted here, it then exceeds the steroid benchmark in mechanism of action breadth, safety and tolerability and duration and location of use, with the degree of differentiation becoming increasingly pronounced across each dimension.

ZORYVE's unique profile, coupled with increasing HCP appreciation of risks associated with sustained topical corticosteroid use, as we reviewed in-depth previously, sets the foundation not only for substantial growth in our 3 in-line indications, but also for potential expansion into a number of new indications. And I wanted to review this perspective on ZORYVE's profile today as important context for the broad set of clinical activities that we are pursuing.

The breadth and ambition of our clinical pursuits are unmatched in the branded nonsteroidal topical segment and are enabled by ZORYVE's unique therapeutic profile and may further demonstrate why ZORYVE is uniquely positioned to displace topical corticosteroids at a moment when there is a growing degree of concern over the deleterious side effects of extended or inappropriate use of these aging drugs.

And I'll now hand it over to Latha to review the financial results for this quarter.

Thank you, Patrick, and good afternoon, everyone. I'm on Slide 15. In the second quarter, we generated net product revenues of $129.9 million, representing a 59% increase from the second quarter of 2025. This year-over-year increase was driven primarily by increased patient demand as well as improvements in gross to net sales deductions. As anticipated, our gross to net in Q2 remained stable in the 50s.

Cost of sales in the second quarter were $10.9 million compared to $7.5 million in the second quarter of 2025 due to increasing ZORYVE sales volume. For the second quarter of 2026, our R&D expenses were relatively flat at $20.4 million versus $19.5 million for the corresponding period in 2025 as increased investments in medical affairs initiatives and clinical expense related to ARQ-234 were largely offset by reduced clinical costs related to the INTEGUMENT-INFANT trial in atopic dermatitis patients aged 3 to 24 months.

SG&A expenses were $82.1 million for the second quarter of 2026 compared to $69.2 million in the same period last year, up 19%, driven primarily by personnel costs, including our dermatology sales force expansion. We produced net income of $15 million for the quarter as compared with a net loss of $15.9 million for the same period in 2025 as strong top line growth continued to outpace expenses. While we may continue to generate positive net income in some quarters, our focus as an innovative biotech remains on investing to continue to drive top line growth and advance our pipeline.

Moving to Slide 16. We ended the quarter with cash and marketable securities of $238.9 million as we produced positive cash flow from operating activities of $12.6 million for the period. We expect to maintain positive cash flow throughout the rest of the year. And as we have stated previously, we intend to continue to invest the capital we generate back into our business to inflect growth in 2027 and beyond. We have total debt of $101.9 million.

As Frank announced at the beginning of today's call, we are increasing our full year 2026 net revenue guidance to be between $525 million and $540 million. This updated range contemplates the contribution of the new commercial initiatives Frank detailed today as well as the continued strength of our core ZORYVE business.

With that, I will now turn the call back to Frank for some final updates.

All right. Thanks, Latha. So we're also announcing today that Todd Edwards will resign from his role as Chief Commercial Officer at Arcutis to pursue other opportunities for personal reasons effective later this month. I want to thank Todd for his leadership over these last 3 years. He's helped to build the commercial infrastructure that has enabled ZORYVE's success to this point, and that will continue to serve as the basis of ZORYVE's continued growth.

I'm also delighted to announce that Rob Lisicki will be stepping in as the Interim Chief Commercial Officer while we conduct a national search for a permanent CCO. Rob is a highly experienced biopharma executive with a career spanning 30 years in the industry. Most recently, Rob was the CEO at Zura Bio. And prior to that, he was Chief Commercial Officer at Arena Pharmaceuticals until its acquisition by Pfizer in 2022. And before that, he was CCO at Daiichi Sankyo USA.

Rob and I have known each other for decades from our time together working on Enbrel, and he brings a wealth of experience in leading best-in-class commercial teams in the inflammation and immunology space and in driving rapid sales expansion to build blockbuster franchises. The expertise that Rob will contribute to our commercial operation at Arcutis is well timed as we drive towards a period of continued and increasing sales inflection for ZORYVE in the near term.

Q2 was yet another quarter of exceptionally strong execution by the Arcutis team. I am incredibly proud of the team and the dedication they demonstrate every day to advancing our mission, delivering value for shareholders and remaining steadfastly committed to the patients we are serving today and aim to serve in the future. In early June, Arcutis celebrated its 10th anniversary. What started out as 3 guys in an idea has blossomed into a powerhouse biotechnology company with 4 FDA-approved products and a pipeline of promising programs and assets.

More importantly, over the past decade, we have helped nearly 1 million people manage their chronic inflammatory disease, and we are poised to help millions more in the future. As I look back on the past decade, I am humbled by and deeply appreciative of the contributions of our team members, the dermatology clinicians who partnered with us, the patients who agreed to participate in our trials and the investors who believe in us enough to entrust their money to us. I sincerely thank you.

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

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

So just wanted to start off, the guidance raise, definitely impressive. Frank, take your point to not expect updates to the guidance every quarter. But just in terms of the momentum into the back half of the year, where are you seeing the kind of key drivers of growth at this point? It really looks like the foam is just starting to truly stand out. But even the early sales of the 0.05% are coming on nicely.

So I just wanted to get a little bit of a better sense of how you're thinking about the back half of this year's growth trajectory and where you see incremental opportunities from the access point that you're opening up via telehealth. It seems like the telehealth opportunity could be quite substantial. But I guess we're all probably wondering where the price points are likely to end up on that front.

And then just as it relates to Todd's resignation, I think we saw in the 8-K that he's pursuing another opportunity away from Arcutis. But it seems like the team is extremely well built at this point. The strategy has worked effectively and you're transitioning to an interim leader who's got a great background. What is it that you're most focused on during this transition in particular?

Seamus, thanks for your questions. So let me start with the first one. Frankly, we continue to see growth across the portfolio. As you mentioned, the foam is our leading product. It is a really unique, highly differentiated asset. It's the only nonsteroidal in a foam. It effectively is the only foam available for doctors. It's very hard to get the topical foams these days. And I think it's been something that doctors and patients have responded to extremely well.

But we see growth across the board. As you mentioned, the 0.05%, continues to grow very nicely. I think that speaks to the unmet need for good nonsteroidals in younger kids. And I think it also points to the promise of 0.05% in the 3- to 24-month old if we get the approval in February as we expect. So we would expect a continued growth across the portfolio in the second half of the year, primarily driven by demand growth. We may see some marginal incremental improvements in gross to net, but I wouldn't expect anything dramatic given the strength of our gross to nets already at this point in the year.

And I think as the year progresses, we're going to start seeing the impact of a variety of the initiatives that we've been talking about today. The derm expansion, I think we'll see kick in, in the second half of the year. I think it's probably too early for primary care, but I think in '27, we'll see that.

On the telehealth front, I think the majority of these patients are going to have access to ZORYVE through their insurance coverage. And we've set up with the platform to allow patients to go that route. So this is not like some of the other offerings out there today where the patient has to pony up the money themselves to pay for the product like, for example, the GLP-1s. Here, the doctor -- it would be just like if the patient was going in the doctor's office and the doctor is diagnosing the patient, choosing a therapy. And if they choose ZORYVE and they don't have to choose ZORYVE, but it's a great choice for all 3 of these diseases. If they choose ZORYVE, then that immediately kicks them into a work stream where we get the PA done, we get the insurance paying for the ZORYVE and then we ship it to the patient. And so the cost to the patient for ZORYVE is no different than if they went to the dermatologist's office. Let's see.

And then lastly, with regard to the transition. Yes, Todd has built a very, very strong commercial leadership team. I think just in the last 6 months, we've added Katie Swolfs to run the primary care effort. She's doing an outstanding job. We brought in Chris Kloc from AbbVie to lead the sales team. So we have a really strong commercial team. I'm not the least bit worried about them managing our commercial performance through the transition. And Rob will be starting before Todd's departure so that there is a seamless transition between the 2 of them. And I couldn't think of a better person to be coming in and helping us, not only with ZORYVE, frankly, but with the pipeline as well given Rob's background and very excited to get to work with him again.

And the next question will come from Tyler Van Buren with TD Cowen.

Congrats on the solid quarterly performance. A couple. First, just, would it be reasonable to expect a similar quarter-over-quarter sales growth for the ZORYVE franchise in Q3 over Q2 as compared to Q2 over Q1 that we just saw?

And then on vitiligo, given the upcoming data next quarter right around the corner, can you talk more about enrollment and the demand you guys have seen at sites and the demand for a topical option? And specifically, what data you want to see to move forward with this program and invest more?

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

Yes, I'll take it. Sorry, I have to unmute myself. Tyler, thanks for the question. So we expect continued quarter-over-quarter growth in our net sales. I wouldn't anchor you to any of this current quarterly run rate. I think you should anchor to the initiatives that we outlined and with the guide that we've given and what we expect to happen in the quarter, I think you'll be able to piece your way into what will happen in the second half of the year.

I want to kind of give you the answer to the question on the growth rates, but we do expect quarter-over-quarter net sales growth Q3 versus Q2 and of course, naturally Q4 versus Q3. And as Frank alluded to, we'll sort of moderate the gross to net improvement. So everything will be volume and demand based.

Yes. And I can pick up the vitiligo study. So as we mentioned, the vitiligo trial is fully enrolled. We were really happy with the enrollment pace for that. Now keeping in mind that, that was in pediatric patients as well that are oftentimes more difficult to enroll. So I think that, that bodes well for kind of a future vitiligo program were that to materialize.

And your question about what we're looking for. So I think the Opzelura really has set a bar for a branded nonsteroidal in vitiligo. But we think that there's a lot of room for us to compete there, right? There's essentially one other drug in this category. We think that we have, in some ways, really a superior product profile. We're talking about once-a-day dosing eligible for adjunctive use. We anticipate that there will be some systemics that are going to be moving into this space as well, especially for the more severe patients. So that would be something that we would think would be advantageous.

And then also no black box and then pricing. So these are a lot of the same features that make us very competitive in the AD and our other indications as well. So we really feel like even if we have equivalents on efficacy and rate of onset that we're going to be very competitive here based on those factors. But what we're really looking for is superiority on either of these 2 axis, especially on speed of onset. And one of the reasons to potentially believe that is the PDE4 mechanism of action being based both on anti-inflammatory as well as potentially working directly on melanocytes.

And the fact that the mechanism of action, we've really seen some brisk responses based on being able to have such a potent PDE4 inhibitor. So the rate of effect is some place that we're also optimistic, but we'll have to obviously see those results when we come in at the end of the year with the readout for that.

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

Congrats on the quarter. Maybe could you provide a little more color on some trends within share of the branded topical nonsteroidal class? And maybe specifically on new-to-brand trends that you're seeing? And then separately, just curious on enrollment trends for the ARQ-234 trial. Obviously, a crowded space, but it seems like new mechanisms are in demand. So just curious how enrollment is tracking there.

Sure. Thanks, Judah. So with regard to trends in share, ZORYVE continues to be the leading branded nonsteroidal in the market, hovering just shy of 50% market share. And so ZORYVE is the primary product driving the growth of the class. And those are, as we talked about before, patients who are coming over from topical steroids, I think, we've really just scratched the surface. And if anything, given the discussions in dermatology, that trend is likely to accelerate going forward.

On the new-to-brand data off the top of my head, I don't want to miss speak. I don't have those numbers right at my fingertips. But clearly, ZORYVE is doing very well competitively versus the other branded nonsteroidals, and we expect that to continue.

And then with regard to the enrollment trends, Patrick, again, could you maybe address that?

Yes, absolutely. So just to remind, for ARQ-234 , we're exiting the healthy volunteer section of our single ascending dose, and we have a couple of cohorts that are -- of the single dose that are actually in atopic dermatitis, but otherwise healthy patients who also have atopic dermatitis. And so we're moving into those AD cohorts. And then we're also going to be initiating recruitment into the first multiple ascending dose, and those are all in atopic dermatitis patients.

So we don't have any experience yet from this trial in enrolling atopic dermatitis patients. But I agree with your point that especially with the departure of OX40 from the kind of pipeline and competitive landscape here for atopic dermatitis patients that a new mechanism of action is something that is going to be very beneficial for our recruitment. And I think that this mechanism, in particular, is one where there's going to be a lot of interest. So it is a competitive space. There is a lot that's going on, but I think that we're well positioned to be able to recruit these trials.

And the next question will come from Uy Ear with Mizuho.

Maybe just help us understand about the change in gross to net a little bit. I just want to make sure I understood you guys correctly.

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

Yes. I just wanted to see if you can help us understand the change in gross to net a little bit as we go from this quarter to the Q3 and Q4. I guess in the first quarter, you were saying to expect gross to net to go to the low 50s by -- towards the end of the year. Is that still the case? Or is it more steady now?

And my second question is, could you maybe elaborate a little more on the initiation of the PD-L1 study -- side effect study? Like when do you expect it to finish? And what's the -- is it sort of a go-to -- is there going to be a go-to decision that you move into Phase III? Or is it a study where you can publish and use the data to help with adoption?

Okay. All right. Thanks. So Latha, do you want to maybe take the gross to net question on our view on gross to net for the rest of the year? And then Patrick, can you talk a little bit more about the PD-L1 study?

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

Yes. And then just to kind of give a little more context to this study. I think your question really is on point with trying to understand what we're looking for here. So we really see this not as necessarily a full development program, but really more of a way to create some data that can be helpful in order to ensure that patients may have access to this because there will be some data that will be published that will be out there and we'll give them another option. A lot of these patients are going directly into topical steroids as first line, and then they may need to be on them for many years.

So I think having additional data really for this patient population to keep them from having to abandon the therapy that is usually working for them. It's really just about publishing, getting access to it and not necessarily a full development program. And so the timing of the study is one that we'll obviously keep you posted as we get further into it, but it's just getting started now.

And the next question will come from Andrew Tsai with Jefferies.

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

Thanks for the question, Matt. So with regard to the first question, I think that in the second half of the year, the primary driver of growth is going to be growth in prescriptions. As Latha just mentioned, we do expect to see some improvement in gross net in Q3 and Q4, but probably moderated compared to what we saw in Q1 and Q2 and not being the major driver of growth. And that demand growth is going to likely be a combination of the momentum that we already have generated and then the impact of a number of the commercial demand drivers that we've rolled out like the sales force expansion, the continued DTC efforts, the virtual health platform that we just announced. All of these things are really synergizing to help us continue to drive growth of -- the prescription growth for ZORYVE.

And then on your second question with regard to IITs. So we don't actually support a lot of investigator-initiated trials at Arcutis. The IIT process is pretty clunky, to be quite honest. And our preference is to do what I referred to as collaborative research studies where the company is able to work with the investigators. And a number of the studies that we mentioned, including the vitiligo trial, the HS trial, the nail psoriasis trial, the PD-L1 trial that Patrick has just mentioned, those are all collaborative research studies.

We -- as I mentioned earlier in my comments, we continue to explore other opportunities, other potential indications. And I think it's likely that we'll start at least one more of these proof-of-concept studies this year for another indication, maybe more. We have more options probably than we have resources with 47 diseases having some efficacy data, and we're not going to pursue all of them either. But I do think you'll probably see one or more start this year, and we very well may start some additional studies next year as well. These are really cost and time-efficient ways for us to get an evaluation of a potential indication and then enable us to make an informed decision about whether we want to actually pursue a large registrational study for that indication.

And Patrick, are there any additional comments that you would want to add on that part?

No, I think that covers it, Frank.

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

Congrats on a nice quarter. First couple of questions around the virtual health platform. Are you trying to target a different set of patients than what you're currently able to access? And will you be able to drive patients to this platform via DTC efforts? And then secondly...

No, that's all right. Go ahead.

I was going to ask, I believe I read that you were granted a couple of new patents. I hope that was your -- from your press release and then another one I read in the last hour. But just curious how it enhances the ZORYVE patent portfolio and whether those new patents are eligible for the Orange Book, let's see.

Yes. Okay. So with regards to your first question, yes, I do think of it as a different set of patients, right? The bulk of the patients that we're picking up today, really almost all of them, are patients who have already been seen by a dermatologist and are coming in for a refill or an annual checkup or in many cases, they're flaring because of their existing therapy isn't working and the doctor is looking to do something different for those patients. But that's a patient that is already in the dermatology care system and has access to a dermatologist because they have an appointment, right?

The advantage of the virtual health platform is like where I live, it's a 6-month wait to see a dermatologist. And even if you're in an acute situation, I had shingles a number of years ago, and it was going to be a month before I see a dermatologist. When you have an urgent acute problem, you want to see someone like that day or the next day, right? And that's just not practical in many places in the United States because of the mismatch between supply and demand of dermatology specialist care.

There are also a lot of places in the country that just don't have dermatologists, right? For example, Patrick and I were in Roswell, New Mexico a couple of years ago. There isn't a dermatologist in 250 miles. So for those patients, they just don't have that option to see a dermatologist. So we think that the virtual health platform is really going to complement the patients who are already seeing a dermatologist by allowing patients who don't have access to a dermatologist either because of scheduling or geography to see a dermatologist that day.

And yes, to your earlier question, absolutely, we think direct-to-consumer is an important driver here. If you think about it, a patient sees an interview with Tori or Max Homa, they have the disease as well, and they think, "Gee, I want to look into this more." They can go right to our website. There's a click right on the home page, you click on it, and it pulls you straight into the platform where the dermatologists sit and the patient is able to schedule a visit with the dermatologist right then and there. So we think this is an important expansion of the opportunity set for ZORYVE, particularly again, given some of the idiosyncrasies of dermatology in the United States.

And then on the new patent, yes, so there are 2 new patents that cover -- one is the formulation and the other one is method of use. I can't say definitively, but it's likely that they are Orange Book listable. We have a very, very strong patent position around all of the ZORYVE formulations. We have, I think, 18 patents listed in the Orange Book at the moment. So we continue to incrementally strengthen our IP portfolio. These aren't dramatically differentiated. They don't change the loss of exclusivity time lines of 37 for the cream and 42 for the foam. But we're always looking to strengthen that already stronger IP portfolio, and these 2 patents are just the product of that overall effort.

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

Just following up on the telehealth initiative. I'm just curious, Frank, sort of what the conversion rate from an initial online intake to a prescription for ZORYVE. Are patients still needing to sort of sometimes maybe do some kind of step edit? Or have they typically gone through that already? And have you seen evidence of patients sort of maybe going through sort of initial intake, maybe having because of their plan needing to try a TCF and then coming back to ultimately still get a script for ZORYVE.

Sure. Yes. Thanks, Douglas. Great question. It's still very early days. right? So I think we will have to see over time what kinds of patients flow into the system and what happens. But I think a couple of points. The first one, again, is when the doctor -- when the dermatologist is evaluating a patient, the dermatologists can choose any therapy for that patient. It doesn't have to be ZORYVE, obviously, right? We think ZORYVE is a great choice, but it doesn't have to be.

And if the patient has something other than one of our approved indications, they're obviously going to get something else as well. Many, many patients are on a topical steroid or have used a topical steroid before. And I would expect that many of the patients that come into the telehealth platform will have been on a prior topical steroid and are looking for a nonsteroidal alternative. Maybe they've heard again, Max or Stella or Tori talk about their experiences and their frustrations. Maybe they're afraid of topical steroids based on what they've read about topical steroid risks and they want to look for something different.

So I think that many of the patients coming in are likely to have already been on a topical steroid. And as I mentioned, we have the infrastructure in place to provide the insurance and fulfillment support for these telehealth patients that compares very favorably to what they would see if they went to a dermatologist office. And so we're really looking at how we streamline this process, whether you're seeing a dermatologist in person or you're seeing them online. I think it's possible that some of the patients may end up needing to step through another product if they're a new onset patient. But even in that scenario, with the issues related to topical steroids, those patients are likely to be coming back in the not-too-distant future to get ZORYVE after they met the step requirement.

And the next question will come from Richard Law with Goldman Sachs.

This is Tolani Uthman on for Rich. The first one on the commercial front. As you guys think about launching the PCP and the pediatric sales teams for ZORYVE in the coming months, how many patients do you believe are not adequately referred to dermatologists from the PCP pediatricians? So in other words, about how many patients do you think would be served by that new sales force?

Sure. Yes, very good question. So we know that about half of all patients with psoriasis, AD and seb derm are not seen by a dermatologist, right? That's very well established in the data. The majority of those patients are sitting -- are being seen by either a primary care doctor or a pediatrician. That's leaving aside patients who are not currently being actively treated. We don't really look at those patients because it's always difficult to mobilize patients who aren't in the system. But of patients currently receiving prescription therapy, about half of those patients are seen by non-dermatologists, the overwhelming majority being primary care and pediatricians.

With this initial sales force, we're only calling on a fairly small chunk of the primary care and pediatric community. And as I mentioned in my prepared remarks earlier, we are focusing on very high-volume doctors who have a proclivity to adopt new therapies and in some cases, doctors who've actually written ZORYVE already. And we think that's where we're going to get the fastest initial traction. And then as we evaluate and fine-tune our approach and get a sense of the return on investment from the primary care initiative, we'll evaluate how large this primary care sales force should be, how far into primary care and pediatrics we reach. And that may evolve over time just as it did with the dermatology sales team as well. But early on, we're going to be focusing on a small piece of a very large pie.

One of the statistics that we shared on a prior quarterly call is that there's something like 500,000 primary care providers in the United States. This is a massive number. And we're not going after 500,000 providers, obviously. But it turns out that there are about 5% of those primary care doctors and pediatricians, so about 25,000 doctors, right, 1/3 of all of the topical scripts that come out of primary care and pediatrics. So there is a very, very rich vein of potential in the primary care and pediatric community of highly concentrated higher-volume doctors, and that's really where we're going to be focusing our efforts initially and as we expand.

Okay. Really helpful. And then one more on atopic derm specifically. How will the potential approval of ZORYVE in the infants with 3 to 24 months expand that market opportunity? And what types of prelaunch activities, if any, are you guys pursuing to support strong uptake in that setting?

Yes. So we think it's going to be a very important catalyst. There are about 1 million patients in that age group that 3- to 24-month that have atopic dermatitis. So it's a large market. And the only things approved right now for 3- to 24-month olds are the 6 of the topical steroids are approved in that age group and Eucrisa is approved in that age group. And that's it. So doctors are either having to treat patients, these infants off-label or they're having to use 1 of those 7 drugs that's approved. And I think that's really why we're seeing so much excitement from the -- especially the pediatric dermatology community because they don't have very many options. They don't have good options, especially nonsteroidal. And they've all used ZORYVE already and they know how good it is, and they're very excited to be able to use it in this very young population.

And Patrick can speak to this, too, but the concerns around steroids -- there's concerns around steroids for every patient, but they're particularly acute in this 3- to 24-month population. No parent wants to put their kid on steroids, quite honestly. And if we're able to offer a really effective and very safe and well-tolerated nonsteroidal option to treat those patients, we think we're going to see very, very meaningful uptake in that population. Patrick, anything that you would add to that?

Yes. I mean, I think you're absolutely right. And what that kind of steroid avoidance leads to is some real challenges in -- and I think the best place to see this is in the pediatric dermatology community. And Frank, I know you were just at the Society for PeDerm meeting. And even going back last year when we were there, there was already tremendous awareness of this study going on even before we had the data and an interest in getting it to their patients because of these very few treatment options that Frank outlined.

So now having the data out there, having it already been presented at the AAD, the activities that we have are really sitting within the medical affairs team and just kind of reacting to a lot of the questions and interest in what do our data show, how is this similar or different to what we have with ages 2 and above, particularly in atopic dermatitis and just really making sure that everybody is getting their questions answered as we kind of prepare and move towards that launch in the beginning of next year.

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

Okay. Before I close, this is real-time service here. Serge, I have an answer to your question and a correction. I must say we have 28 patents, not 18 patents on ZORYVE. Mas, our General Counsel, corrected me. And he did confirm that both of these new patents are also Orange Book listable. So I wanted to clarify that.

So yes, listen, another great quarter. Really appreciate everyone taking your time to call in today. I know it's a very, very busy time of the year with everyone doing quarterly results, and we appreciate your time and attention and all the great questions, and we look forward to talking to everyone again at the Q3 call. Thanks. Bye-bye.

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

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.