All right. Good afternoon. We are going to kick off the next session. It is my pleasure to introduce Frank, CEO and President of Arcutis, and also Latha, the CFO. Frank and Latha, welcome. Thank you. It's my first time to host you. I think you've been here before. We have. So it's my first time to host you at the Goldman Sachs Conference. Before we kick off with the Q&A, I'll turn it to you guys for a brief introduction of the company and also any opening remarks about the status and where things are. Sure. Yeah. So Arcutis is an emerging growth, I guess, now company. We're not a startup anymore. We've been in business just over nine years. We just had our ninth anniversary a couple of weeks ago. We have now five approved indications, the FDA all variations on a very potent topical PDE4 inhibitor. So we're approved for plaque psoriasis, seborrheic dermatitis, and atopic dermatitis. Our most recent approval was just about three weeks ago. We had our foam approved for the treatment of scalp and body psoriasis. Product is very effective, non-steroidal. It's essentially comparable to a high-potency steroid in terms of efficacy. But unlike a steroid, it's safe to be used indefinitely for any amount and for any location on the body. It really solves the problem that dermatologists and patients have historically struggled with, which was that steroids were very effective but weren't safe for long-term use. The non-steroidals were not terribly effective and had some tolerability issues. Patients were constantly having to switch back and forth, trading off between efficacy and safety. We had our first launch in plaque psoriasis in August of 2022 and have had a series of approvals since then. Product is going very nicely. We printed almost $65 million in the first quarter, which was volume growth about 10%. Q2 quarter -to -date continues to grow very nicely. We expect to see continued growth. The drivers of growth for the company, or for the product, excuse me, really fall into four broad categories. The first one is continued expansion of the label, i.e., the scalp and body approval. A couple of weeks ago, we have another approval coming up in October. We just announced this morning that we've enrolled the first patient in a trial studying our drug for atopic dermatitis in patients aged 3- 24 m onths. Label expansion, s econdly is expanding coverage. We have very good commercial coverage right now for the drug. We're rapidly expanding into the Medicaid population. We reported at the Q1 earnings call that we had a little over half of the lives in Medicaid have access to ZORYVE with a single-step or better coverage. We expect that to continue to expand. We continue to believe that we will also be successful in gaining Medicare coverage, although frankly, that's been a little bit delayed because of the disruptions to the Part D program due to the Inflation Reduction Act. We signed a deal late last year with a partner to expand in the primary care and pediatrics. That's still very early days, but we think that will be an important contributor of growth going forward for the brand. Lastly, and probably most importantly, is the shift from topical steroids to the advanced non-steroidals. We see evidence that that momentum is really picking up, but we have a long way to go. Last year, dermatologists wrote about 16x as many topical steroids as they did branded non-steroidals. You can see there's a long way to go and a lot of growth opportunity ahead of us as that shift takes place. I think got it. Before we dive into the product, why don't we talk a little bit about just the market and how that has been evolved? Because this is still a relatively newer type of non-steroidal topicals in psoriasis, atopic dermatitis. How has sort of the perception from physicians on the non-steroidal topical as a class been evolving over time? Sure. How do you see that going forward? If you think back to prior to 2021, they did not really have a lot of good options for drugs other than topicals other than steroids, right? Beyond steroids, for psoriasis, you could use a vitamin D analog like calcipotriene, not very effective and not very well tolerated. In atopic dermatitis, you could use a topical calcineurin inhibitor, okay tolerability, some burning and stinging, not as effective as a steroid. They have boxed warnings for cancer, which scared a lot of patients off. Starting in 2017, you had Eucrisa, which was not very effective and it was not very well tolerated. It never did very well. It burned like heck when you put it on. That is why doctors continue to rely on topical steroids because they just did not have good alternatives. Starting in 2021, you saw the emergence of three new advanced topical therapies, beginning with Incyte's product. Then right about the same point in time, a year later, our product and the Organon product launched. These drugs are, in general, very effective, again, in the range of a topical steroid. In general, they're well tolerated. There are some tolerability issues with some of the other products. That has really driven this change in thinking in dermatology that we're seeing where dermatologists themselves are saying, We really need to rethink how we use topical steroids, right? These are short-term treatments for a chronic disease. We need to really think about introducing these advanced topical therapies into the treatment paradigm. I think the momentum behind that conversion is only growing. Just since the beginning of the year, we've seen a number of articles and presentations at medical meetings talking about the need to reduce topical steroids and move patients towards the advanced topical therapies. So you guys launched ZORYVE, I think, came back in 2022 in psoriasis. And then recently, you guys have a foam product and that launched in 2024. So maybe talk about the interplay between these two different formulations. Why do you need both? Yeah. If you think sequentially, right, we had the approval for the cream in plaque psoriasis in 2022, as you mentioned. We had the foam approved in early 2024 for seborrheic dermatitis, completely different inflammatory disease and a disease that there had not been a new therapy in decades, literally, for that disease. In July of last year, we had a different version of our cream approved for eczema. Most recently, the foam was also approved for the treatment of psoriasis, plaque psoriasis. The reason for the two different formulations in plaque psoriasis and the reason that we have the foam in seborrheic dermatitis is that if you think about, you have a good head of hair, right? You do not want to put creams or ointments in your hair, right? It is going to make them greasy. It is going to mess up your hairstyle. We developed the foam for treating hair-bearing areas of the body, like scalp psoriasis or seborrheic dermatitis, which always occur on the scalp. Now, you can use the foam to treat the body too, which really simplifies management for the patient. It was really the treatment of hair-bearing areas like the scalp that we developed the foam for. I see. Great. How's the, in terms of the launch performance compared to your initial expectation for both formulations? How has that been tracking? Yeah. So I would say the initial psoriasis launch got off a little bit to a slow start. It was our first drug. We were new to dermatology. The company was new to dermatology, but the people were not. And we had some kinks to work at in launch. That eventually, we got that sorted out and it has grown nicely. The foam launch, the initial foam launch in seb derm, wildly exceeded, I think, everyone's expectations, including ours, because of the degree of unmet need. Atopic dermatitis, I think, has gone pretty much in line with our expectations. The uptake has been very nice. We literally just launched the scalp indication yesterday. It is still too early to tell, but we expect that is going to go very well as well. There is a lot of excitement about the product. Doctors are very familiar with the drug at this point. They know their patients like the foam. We expect that to go very well. I see. Okay. What is the driver for growth going from here? Is it going to be continuing looking for new indications? Is the market growing in terms of how people are looking at this class of drugs? Also, maybe talk about the reimbursement, any changes there that you guys are expecting? Yeah. Maybe I'll start with your middle point. The overall topical market is not growing, but where we see the growth is in the branded non-steroidal market, which is mostly being driven by us, but also the other advanced topical therapies are driving some of that growth. That market grew about 50% last year, year -over -year. Nice growth trend. It's a low base, but a nice trajectory and a very, very large market that can convert to advanced topical therapies. We expect that to continue. We do expect to see growth from continued expansion of coverage, especially in the government sector. We've got very good commercial coverage already. We have several more line extensions or label expansions coming. We are now starting to think about what might be the next leg of the ZORYVE story. No firm plans at this point, but for example, dermatologists have now published data on about 40 different diseases that respond to ZORYVE, all things off-label. Some of those might be worth pursuing for an indication. I think we're still early in the stages of evaluating that. We have a very safe, very effective drug that seems to do a lot of things. If you think about Humira or Dupixent, the keys to both of those drugs was the steady expansion of their label. I think there's an opportunity for us to do a similar thing with ZORYVE. I see. Got it. You have a PDUFA date in October, right? That is to expand the use of the cream to atopic dermatitis patients who are younger, in the 2-5 year of age. How important is that segment? That seemed like a very small, I mean, what type of patient that is? It's a pretty large segment, actually. About half of all atopic dermatitis patients are under the age of 18. There is a lot in that 6-18 range. The peak onset of atopic dermatitis is actually between the ages of one and six. That is where most patients first develop atopic dermatitis. Having that ability to capture those patients at their first onset of the disease and keeping them for their lifetime is an important opportunity. There is a real unmet need in that space, right? Most of the drugs are not approved for that age segment. There is also a halo on the broader business, right, when you are approved in those younger kids. Even beyond that, as I mentioned earlier, we just started enrolling a 3- 24 month study as well, which again, both is inherently valuable in and of itself, but also has a really valuable halo for the rest of the business if you're approved all the way down to age three months. I see. Have you guided in terms of how much that would contribute to future revenues? We haven't. We're not issuing guidance at this point. We don't necessarily break it out by cohort. I think that both 2-5 and 3- 24 month will be long-term, will be important contributors to the growth of the atopic dermatitis franchise within the broader ZORYVE franchise. I see. Got it. So have you guys done any market research study in terms of parents willing to put their infants on drug or on some sort of medication? Yeah. In fact, the way I would think about it is what the research shows is a real reluctance on the part of parents to put their kids on steroids, right? And a reluctance to put their kids on drugs that have boxed warnings. We have eight dermatology clinicians at the company. And every one of them has lived through the argument with mom about putting their kid on a topical calcineurin inhibitor, right? There isn't a dermatologist in this country that thinks TCIs cause cancer. But when mom sees that there's a boxed warning or they go to fill the script and the pharmacist says, "You know that drug causes cancer, right? This is my baby. I'm not going to put it on." It becomes a lot of friction. To have a really safe and effective non-steroidal is a great option, especially in the younger kids. I see. Okay. How do you think about the interplay between the foam and the cream? Is there more, I mean, do you see people who like to use a foam want to switch from the cream to the foam? Would that cannibalize some of the, or do you see more of a synergistic effect where you could expand the market totally or more or less move one patient from one product to another product? Today, a patient who's stable on the cream, we think it's unlikely that they're going to switch to the foam, right? If they're doing well on the cream. If they have scalp psoriasis, they might add the foam on. There's no reason why you can't use both. Going forward, if a patient comes in and they have scalp psoriasis, they're probably going to get the foam, right? That's the thing that makes the most sense. They might use the foam everywhere on their body that we're actually approved for scalp and body psoriasis with the foam. If the patient wants the foam and the cream, the doctor could do that as well. If they don't have scalp psoriasis, then it's really a choice of the patient and the doctor. Does the patient want the foam or the cream? Some men have more body hair, right? You and I are Asian. We do not have a lot of body hair. It is not such a big deal. Maybe some of our Greek or Italian friends, right, they might prefer the foam. The cost of goods, our profitability is the same across SKUs. We do not really care as long as overall ZORYVE is growing. I see. Got it. You guys have a co-commercialization partnership with Kowa. They're basically marketing ZORYVE to the primary care physicians. Can you remind us of how that partnership is going? Maybe just the structure and why you set up that partnership? Sure. I'll start with your last question, maybe and work backwards. The reason we did the partnership is because it's really, really expensive to have a primary care sales force. It's really hard to have a single product, right? For a small company like ours to hire 200+ sales reps for primary care, it becomes economically very challenging. I didn't, frankly, want to get in the business of going out and licensing in a bunch of other primary care drugs to subsidize the cost of the sales force. It made more sense to partner with a company that had an existing primary care sales force who could economically reach the primary care segment. I think it's important for investors to understand that about half of these patients that we're targeting across our three indications are outside of dermatology, right? There is a very, very large number of patients being managed, especially in pediatrics and primary care. The way that the deal is set up is that we book all sales at Arcutis, and then we pay a commission to the partner, which is a percentage of, I think that might be my phone. Apologies for that. A percentage of sales to them. They eat what they kill. If they do not sell anything, we do not pay them anything. We are not using our resources to promote primary care. Got it. And then maybe a little bit on treatment guidelines. Yeah. The AAD treatment guidelines are badly out of date. I want to say it's been, I think, seven years since they updated the topical treatment guidelines. They do not make reference to any of the new therapies. We have heard from the academy that they are in the midst of updating those guidelines now. In the interim, doctors are not following them, right? The dermatology community does not rely on the AAD treatment guidelines because they are so out of date. We have seen recently some publications from the thought leaders in dermatology saying, "Here's how you should use topical therapies," right? I think I made reference to that. Payers do rely on them. That is one of the excuses they use for not covering drugs, right? It is the treatment guidelines. I think that the treatment guidelines will catch up in the not too distant future based on what we're hearing from the academy. I see. Do you expect a boost in terms of the awareness or use if the treatment guidelines are updated and sort of? No. At this point in the game, pretty much every dermatologist knows and has used ZORYVE. So I do not see the treatment guidelines having a major impact on prescribing. Where I do think they might have some impact is on the insurance companies. I see. Okay. Got it. In a favorable way. Right. Right. I think you mentioned before that there's 80% of the prescriptions are currently reimbursed. Where you can grow the coverage is in the Medicare and the Medicaid setting. That's where the main growth opportunity is for expanded government coverage. Yeah. In the commercial setting, we have about 80% of commercial lives have access to ZORYVE. And it's generally very high quality coverage as well. It's not very difficult to get the drug. That remaining 20%, it's probably not economically attractive to contract with that remaining 20%, right? It's the old 80/20 rule. There is a lot of opportunity as we expand Medicaid out to ideally all 50 states and also to expand into the Medicare population again, given that so many of these patients are on Medicare or Medicaid. It's almost half of the patient population. I see. What type of efforts are you guys putting in as a company to get that? Medicaid is well underway. We reported at the Q1 earnings call that we had over half of lives having access to ZORYVE through Medicaid and with a single step or better. I say better because, for example, in California, there is no step. We use ZORYVE first line for Medicaid. It was actually better than most of our commercial coverage. In New York, there is no step for the foam. You go straight to ZORYVE, right? It is very high quality coverage. We just need to pick off the individual states, the remaining states. Medicaid is managed at the state level, so you have to get all 50 states, right, to get your coverage. Medicare, we continue to work with the Part D plans. The Inflation Reduction Act dramatically changed Part D as of January 1 of this year. That has created a lot of churn in the Part D space, I would say. It has been difficult to get coverage for new drugs at the moment in Part D. I think that will settle out as time goes on and they sort of figure out how they can reconfigure their business. It has probably delayed us a little bit on our Medicare coverage. I see. What about outside the US? The opportunity outside the US, this is only in the US. Yeah. What options have you considered outside the US or what efforts have you tried to put in? We have our own operation in Canada. We have cream and the foam approved on the market in Canada. Canada is doing very well. It's contributing more than its relative population to our business. We outlicensed rights in Japan to a Japanese drug company in Sato. We outlicensed our rights to China and some other parts of Asia to one of the big Chinese drug companies, excuse me, Huadong. We've looked at Europe. Reimbursement for topicals in Europe is very challenging. I think with the threat of MFN pricing in the United States, I think the risk-benefit is probably not there right now for us. I don't anticipate probably Europe in the foreseeable future, just given particularly the MSN risk. I see. So like a cash business, that would not be feasible or not economical? No. Europeans do not like paying for drugs out of pocket. We have a European colleague who can attest to that. Fine. I think they pay for some obesity drugs. Obesity, you can get almost anyone to pay for, right? Okay, let's switch gears to some of the IP. There's an ongoing litigation. I think that litigation is now on pause. Maybe just give us a quick update on what's going on there, what's the chance of this litigation continuing back on track, and how you guys think about this overall. Sure. Maybe a little bit of background. There is a company called Padagis that makes generic topicals. They filed an ANDA in February of 2024. We immediately filed a lawsuit asserting our patents against them. We were starting the process of the litigation. When we filed that lawsuit, that triggered a 30-month stay under the Hatch-Waxman Act, which prevented the FDA from approving the drug during those 30 months so we could litigate. In February of this year, the other party, Padagis, came to us and asked us to stay that litigation because they had some major issue. I do not know the exact nature of the issue, but it was a big enough issue that they did not get conditional approval from the FDA at the time that they should have. It was pretty bad. In return for us agreeing to stay that litigation, they agreed that the 17 months that were remaining in the Hatch-Waxman stay, we retained. If at some point the litigation restarts, we have 17 months to litigate before they can launch, which is plenty of time for us to prosecute our patents. We remain very confident about our intellectual property position. I think we will be successful in maintaining exclusivity on the cream at least through 2037 when the first patents expire. For the foam, we have patent coverage through 2041. We intend to enforce our intellectual property rights vigorously against any potential ANDA filers. I see. Got it. Let's turn, we have a couple more minutes left. Let's turn to your pipeline. You guys have two assets there. One is 255, which is a topical JAK inhibitor. Maybe the rationale for topical JAK and then how do you see this differentiate and what's the overall goal for this program? Sure. Yeah. ARQ-255, as you said, is a topical JAK, but it's an unusual topical JAK, right? Oral JAKs work very well in AA, right? They're the only FDA-approved treatments for AA. There have been multiple topicals that have failed in the treatment of alopecia areata. That's because they were just applying a cream to the surface of the skin like ZORYVE, different MOA, but similar formulation. It's very difficult to get a topical to penetrate deep enough in the skin to get to where the inflammation is in AA, which is at the base of the hair follicle. The bloodstream tends to take the drug away before you get that deep. Our former Chief Technical Officer, who's retired now but still works with us, invented a technology that allows us to use the hair follicle to deliver a drug down to the base of the hair follicle. That's the basis of ARQ-255. It's not like any other topical that's ever been invented. In fact, the technology that we use for follicular delivery is patented. We still need to see if it works, right? That's the key. That's why you're running the experiments. You know if you get a JAK to where it's supposed to be, it's going to work in AA, right? The challenge with topicals has just been a drug delivery issue. 255 was designed to address that delivery issue in alopecia areata as opposed to psoriasis or sebderma or AD, which is very superficial and you can treat that fairly easily with a cream. I see. Got it. What is the development timeline, the catalyst for that? We have wrapped up the phase I study and we are just waiting for results from the phase I study. Depending on those results, the next phase would be to go into a traditional phase II dose-finding study. What's the timeline for seeing that data? We said around the middle of the year. It should be fairly soon when we see the data. I see. Got it. And then your other asset, the ARQ-234, maybe just a little bit about that. That's another interesting asset, a systemic novel immune checkpoint agonist for CD200. Maybe just walk through the rationale of that strategy. Yeah. I'm sure investors are familiar with checkpoint inhibitors in oncology. When you inhibit the immune checkpoints, it revs the immune system up, right? The immune system attacks your cancer cells. Checkpoint agonists do the opposite thing. If you agonize the immune checkpoints, the effect is to essentially reset the immune system. These autoimmune disorders are overactive immune systems, are caused by an overactive immune system. This is, I think, one of the newer routes of treating autoimmune disorders. There was another company that was developing an asset against the same target and published some very compelling data that the target works and that by treating this target, you could actually induce a state of remission where the patient would do very well for long periods off of drug as well. That was what really got us excited. We went and found a company in the UK that had an even better agonist for this checkpoint. We acquired that company, Ducentis, and we've been developing the drug since then. We expect to open up an IND for 234 later this year and look forward to putting that into the clinic as well and evaluating both the safety and tolerability and the efficacy of the pathway and the drug. Got it. Can you remind us about the cash balance and how much and also the one-way guidance, what that includes or not includes including these pipeline assets? I will ask my CFO to answer that. I thought I was just sitting here. I'm glad I got a question. At the end of March, we had about $200 million of cash. We have a debt facility where we have $100 million of debt on our balance sheet and the ability to draw another $100 million in whole or in part by mid of 2026. I think I didn't hear the full second part. Cash runway. Cash runway. We have basically said we are very comfortable with our current cash balance and the ability to draw the debt. We do not expect to go back to the equity markets under the status quo of our business with the ZORYVE trajectory. We have also alluded to that we will be cash flow break-even sometime in 2026. I see. Got it. That guidance includes the two pipeline kicking off. Yes, it does. The INDs. Yes, it does. Potential pivotal studies of that. Okay. Fantastic. In terms of looking here, what's the long-term aspiration for the company? You guys have a pipeline going. It was just before it was just the topicals and the creams. Now you're getting into more traditional type of therapy. Right. I have to say, after the last couple of years, I love having this question, right? I'm back to being a biotech company again. We founded this company nine years ago really out of recognition that there were not a lot of companies investing in innovative dermatology assets, right? That's improved somewhat over the last nine years, but we think there are still immense opportunities in dermatology for novel assets. I think we have shown that we have built one of the best teams in dermatology, both development-wise, but also now we've shown with commercialization as well that we have a very effective team. Our vision is to become one of the leading companies in dermatology. I think ZORYVE gives us a very strong foundation. You think about other opportunities. First, as you mentioned, we have ARQ-234 and ARQ-255. Secondly, we're at a point now where we've completed all of the registrational studies with ZORYVE and we're starting to think about, is there another leg to the ZORYVE story, right? I think I made reference earlier to about 40 different case reports or case series of ZORYVE treating different diseases than what we're already approved for. Some of them aren't worth pursuing, but some of them might be, right? We are evaluating that and trying to decide, do we start some registrational programs in other indications as well? Thirdly, we've always been active in business development. ARQ-234 was acquired. Our JAK inhibitor was acquired from outside. I think it's a very high bar. We're in the, I think, enviable position of not having to do business development, but we're also in the enviable position that if we find something that's really attractive, I think we have the team and can get the resources to in-license and add something to the pipeline. I think across those three dimensions, the focus really would be on rejuvenating our pipeline and continuing to grow ZORYVE that'll generate the resources to pay for all of this. I see. Got it. Where's the biggest pushback from investors in terms of the. I don't know that I would say pushback. The number one question we've been getting is the one that you just asked about, okay, what's next, right? What's the next leg of the story? I think that in the past, one of the pushbacks that we got was, well, topicals are just never that big, right? That historically, I think has been true. It's been 20 years since there was a really big topical in the market. If you just look at your own models, right, we're well on our way to disproving that hypothesis that topicals can't be big. I think particularly as we continue to execute and expand coverage and expand indications and this conversion happens, we are going to prove out that this is a billion-plus product. I see. I mean, would there be a point where patients are just no longer responding to topicals and need that more potent systemic therapy and they get off the cream and foam? Sure. Thus far, there's no evidence of tachyphylaxis with PDE4 inhibition. What I will say, though, is I think certainly in seborrheic dermatitis and, sorry, excuse me, in psoriasis and in atopic dermatitis, more severe patients are probably going to go on systemic therapies, right? There are excellent systemic therapies for both diseases. As good as those systemic therapies are, they're not curative. You take a drug like risankizumab or bimekizumab, you're getting half, maybe 60% of your patients completely clear, which is unreal. That's a phenomenal result. That means almost half the patients aren't clear, right? Dermatologists will typically prescribe a topical adjunctively to treat those residual symptoms. Even the patients that do get clear sometimes will flare in the future and they'll use a topical in that situation too. That's even more true in atopic dermatitis with IL-4/13s or maybe getting 40% of your patients, 75% clear. That's a lot of residual symptoms, right? Zarif is being used adjunctively there as well. Zarif is really an ideal adjunct treatment with systemic therapies. The patient can't hurt themselves. It doesn't matter where they use it, how much they use it, how long they use it. The doctor can confidently prescribe it and just say, use it when you need it and they don't have to worry about it, right? Which is not true of topical steroids. They have to monitor the patient's topical steroid use very closely. I see. Interesting. Yeah. Because when we look at Otezla, Otezla is a similar mechanism. And it works, and I think majority of patients after one year don't respond to Otezla. Yeah. Remember Otezla, or you may not know this, but Otezla is a much, much weaker PDE4 inhibitor than roflumilast is. And it's associated with pretty significant side effects as well. I see. If you look at our long-term studies, we do not see any decrease in efficacy. In fact, in the atopic dermatitis long-term study, which was recently published, what you actually saw was the longer patients were on it, the better they did, right? At four weeks, we had about a 42% EASI- 75. It is pretty good. It is on par with maybe Dupixent. At a year, it was two out of three patients had an EASI- 75. It is a 50% increase in efficacy over a year as patients stay on ZORYVE. One of the other things that we have seen in all of our long-term studies is that retention, adherence to the therapy is very good even during long-term treatment. Got it. So before I turn it to you for final remarks, why do you think this is the right time for investors to get excited about a stock? For starters, I think it's really undervalued. It's a bargain. We're trading at 5x our current year revenues, right? I mean, that's hard to find. We're at kind of a unique asset, right? We're a revenue-generating biotech rapidly coming up on cash break even. We don't need to raise capital again. We have lots of runway in terms of our IP, a lot of levers for growth. The stock is. You have a pipeline. We have a pipeline and the stock has, I think, immense upside. I think it's a great buying opportunity. I don't know that I have a whole lot more to say than that. Frank and Latha, thank you so much for being here. It was great to host you, at least for me, the first time at Goldman Sachs. It was a pleasure. Thanks for having us. Appreciate it, Richard. Thank you.