Arcutis Biotherapeutics, Inc. (ARQT) Earnings Call Transcript & Summary

Good day, and welcome to the Arcutis Biotherapeutics ZORYVE Foam for Psoriasis Launch conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Amanda Sheldon. Please go ahead.

Thank you, Michelle. Good morning, everyone, and thank you for joining us today to discuss our plan for the recently approved ZORYVE roflumilast topical foam 0.3% launch in plaque psoriasis. Slides for today's call are available on the Investors section of the Arcutis website. On the call today are Frank Watanabe, President and CEO; Patrick Burnett, Chief Medical Officer; Todd Edwards, Chief Commercial Officer; and Dr. Tina Bhutani, a Board-certified dermatologist. I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand the call over to Frank.

Thanks, Amanda, and thanks to everyone for joining us today. We're delighted to be speaking with you once again. Seems like it's just yesterday, but yet another approval for ZORYVE to address a significant unmet need in dermatology, the treatment of psoriasis on both the scalp and the body. Before we get to our latest approval, on Slide 5, I'd just like to talk about the broader ZORYVE franchise. With this approval, ZORYVE is the first and only FDA-approved branded topical in both a foam and cream formulation for plaque psoriasis treatment literally from the top of the head to the tip of the toes. ZORYVE is already the #1 topical branded prescribed across 3 inflammatory disease conditions, atopic dermatitis and seborrhoeic dermatitis and plaque psoriasis. With an additional submission under review by the FDA for atopic dermatitis with ZORYVE 0.05 cream and studies underway to expand indications to even younger ages, this approval once again shows how Arcutis has consistently executed on our clinical development and regulatory programs. We are taking a focused and deliberate approach to drive the conversion of the enormous topical steroid segment to ZORYVE, and our long-term growth relies on positioning ZORYVE as the go-to topical treatment. Just a few weeks ago, we reported impressive growth results with a strong quarter of performance, volume growth across our product portfolio and steady progress in advancing our pipeline. And that growth has continued to end the first half of this quarter as well, and we expect to sustain our growth throughout 2025 and beyond. Taken together, we are well positioned to continue ZORYVE growth and our business is financially stable and approaching profitability in 2026. We have a solid foundation to become one of the leading companies in medical dermatology. We are also very excited and proud to announce that today, ZORYVE cream and Foam have been -- have received the NPF seal of recognition, the very first time that an FDA-approved product has received this distinction. The NPF only awards their seal to products created or intended to be non-irritating and safe for people living with psoriatic disease. So we are delighted that they chose to recognize the innovation that ZORYVE offers. And with that, I'd like to turn things over to Patrick.

Thanks, Frank. I'm pleased to talk to you today about our latest FDA approval of ZORYVE foam for use in plaque psoriasis at the scalp and body. I'm on Slide 7. Like the 0.3% cream is already approved for the treatment of psoriasis, ZORYVE foam provides an effective treatment to simplify psoriasis management for both patients and health care providers. What's most notable about the foam is that it can safely be used anywhere on the body, including the scalp and in hair-bearing areas like the face, for any duration of time. This is really a unique profile for managing psoriasis because in the past, different disease locations have required different formulations and different strength steroids or presented a challenge for [ nonsteroidal ] approaches because of local irritation. This is a single treatment providing rapid relief of itch and effective clearance of plaque with a once-a-day foam formulation that allows patients to treat areas with a topical that may have been previously left untreated. Here on Slide 8, you can see our approved product label for ZORYVE foam 0.3%. First, I'd like to point out that we have a very broad label for the treatment of plaque psoriasis, which encompasses all severities and all parts of the bodies for any duration of time. This means that psoriasis patients can use the foam as needed and without any restriction on use in combination with other agents, whether systemic or oral -- systemic or topical, improving management of their disease and ultimately their quality of life. We're approved for once-daily use in adults and adolescents 12 and older. Our label includes pooled data from both our ARRECTOR Phase III trial and our Phase II 204 trial, showcasing efficacy of 63% at only 8 weeks. And our exemplary itch data from the ARRECTOR Phase III trial, which I'll share with you shortly, also made it into the label, which permits us to refer to these data in a promotional setting. Slide 9 features our impressive efficacy data from the Phase III ARRECTOR trial as broken out in this graph. A very high percentage of patients demonstrated statistically significant improvements on both scalp itch -- Scalp Investigator Global Assessment, S-IGA scores and Body Investigator Global Assessment Score, B-IGA. The results are robust and consistent with previous ZORYVE trials. We were so convinced that ZORYVE efficacy on both the scalp and body that we prespecified the endpoints of S-IGA and B-IGA success as co-primary, creating a high [ hurdle ] for our product in the Phase III study. These data highlights that we now truly understand how ZORYVE performs across the two different areas of scalp and body, which is something that's highly relevant to doctors and patients and allows for more comprehensive decision-making information. I'd like to point out the percentage of individuals who made it to an IGA of clear with ZORYVE. As a dermatologist, it's compelling to see that 4 in 10 patients achieved total clearance of the scalp. That means no residual disease at almost 3 in 10 on the body in only 8 weeks. Further, and not shown on the slide, by week 8, half of this ZORYVE foam-treated patients reduced their psoriasis area and severity index by 75%. This is commonly referred to as a PASI-75. And 7 out of 10 patients achieved a 75% reduction in PSSI, which is the Psoriasis Scalp Severity Index. Now on Slide 10. Coming back to the symptom of itch, which I mentioned previously, itch is the most burdensome symptom for patients with psoriasis that is important to treat rapidly and durably for patients. Not only can itch be terribly uncomfortable, but the after scratching your scalp or body can cause embarrassment and anxiety and in psoriasis, can actually lead to worsening of the disease. We're lucky to have Dr. Bhutani with us today, who is uniquely positioned to address the impact of itch on patients, and I think you will find her insights valuable. Here, we highlight data from our ARRECTOR trial to highlight how well ZORYVE works to alleviate itch as measured by both the Scalp Itch Numeric Rating Scale, SI-NRS, and the Worst Itch Numeric Rating Scale, WI-NRS, which assesses overall itch. This is an analysis of patients achieving a score of 0, which is no itch, or 1 out of 10, a very high bar that can really capture patients who have had the burden of itch removed from their lives. As you can see on the graph, ZORYVE foam is getting over half of the patients to a 0 or 1 by week 8 for both scalp and overall itch. Importantly, on Slide 11, we underscore how soon ZORYVE begins to work in patients with itch after starting treatment. It's quite notable that as you can see from the slide, the impact on itch is very rapid, with ZORYVE having demonstrated a statistically significant improvement over vehicle within 24 hours after the first application of the drug. This early response is a critical first experience that can give the patient confidence that they're responding and motivate patients to keep with the treatment. As time progresses, we see the robust, sustained improvement in itch in using ZORYVE. Rapid itch relief with ZORYVE has been shown across all of our indications, as I've said before, it is really the key symptom. So I'm quite excited to see how ZORYVE can begin to alleviate it as quickly as a day. On Slide 12, we highlight some impactful images on the benefits of the ZORYVE foam. In the top row, you can see a patient with scalp and neck plaque, who is initially rated as a score 4 or severe on the Scalp Investigator Global Assessment, or S-IGA scale. These lesions were then significantly improved and rated as an S-IGA of 3 or moderate after only 2 weeks of treatment and the patient was subsequently rated as an S-IGA score of 1 or almost clear by 8 weeks. You can see very clearly how quickly and completely the plaque cleared. Similar efficacy can seen in the bottom images of another patient with extensive body psoriasis with thick rightly erythematous lesions on the leg, who is likewise treated with ZORYVE foam and dramatically improved from baseline of moderate psoriasis to an IGA of 1, which is almost clear, again by 8 weeks. This remarkable degree of improvement highlights the strength of the ZORYVE foam on both the scalp and the body. And when combined with its ease of use and broad patient access makes ZORYVE highly compelling to health care providers. Now I want to come back to the baseline picture on the top left of this slide and just take a moment to talk about the practical considerations of treating a plaque like what we see here and just how critical formulation is to treatment success. This patient is a perfect example of the challenges of treating psoriasis in hair-bearing areas. If you try to use a cream or an ointment on that plaque, it's going to be greasy and it's going to mask the hair. Also, a shampoo wasn't an option because it requires daily showering, which cannot be done with tightly closed hair like this patient has. No drug works if a patient doesn't use it. So the fact that ZORYVE foam is a once a day, doesn't require showering and doesn't leave a residue or disrupt hair styles are all important benefits for both derm, health care providers and their patients. On Slide 13, I want to highlight the safety and tolerability profile of ZORYVE foam from our combined Phase II and Phase III psoriasis trials. As currently described in our label, not only was the incidence of treatment-emergent adverse events TEAEs, relatively low and similar between ZORYVE foam and vehicle, but we also have remarkably low discontinuation rates due to adverse events. These were approximately 2% across the trials. If we examine AEs reported in these trials, we see the most commonly reported adverse events were infrequent and likely unrelated to study treatment. Furthermore, there were virtually no local reactions, just stinging, swelling or itching making our foam remarkably safe. This safety profile is very similar to what we've demonstrated with our other formulations and in other diseases, and it continues to demonstrate the high level of safety and tolerability of ZORYVE regardless of the formulation or concentration. Now I had the privilege and opportunity recently to sit down with the ZORYVE patients, who suffers from psoriasis on or scalp and body, to discuss the burden of plaque psoriasis and the benefits of ZORYVE treatment. We're going to play a snippet from that conversation. [Presentation]

Yes. I'm appreciative to Lori for taking her time to share her experience with us. And apologize for the technical difficulties. Next, it gives me great pleasure to introduce to you Dr. Tina Bhutani, Board-certified dermatologist, Fellow of the American Academy of Dermatology, a clinical researcher and CEO of Synergy Dermatology, a large multi-provider dermatology practice located in San Francisco. Previously, she was an Associate Professor of Dermatology at UCSF and co-directed the psoriasis and skin treatment center and headed the Dermatology Clinical Trials Unit at UCSF. She also sits on the National Psoriasis Foundation Scientific Advisory Board and lead psoriasis Expert Resource Group with the American Academy of Dermatology. Dr. Bhutani is a recognized expert in psoriasis, having researched, published and lectured many times on plaque psoriasis, particularly the mental health burden of the disease. Thank you, Dr. Bhutani, for being here today and providing an overview of plaque psoriasis and the burden it imposes on patients.

Thank you so much, Patrick. I'm very honored to be here to tell you a little bit more about plaque psoriasis and the impact that I can have on our patients. So starting with Slide 16, what we see here on the right are some photographs of what plaque psoriasis can look like. And prototypically it's -- it presents as these well demarcated thick, red, scaly plaques in areas like the elbows and knees. But what's important to remember is that psoriasis can really affect any part of the skin. And some areas that are highly impactful for our patients include areas like the scalp that Patrick mentioned earlier, but also more sensitive areas like the face, which is very visible for patients, the genitals that can have a huge impact on quality of life, relationship building and also other skin folds, like the armpit, under the breast, the stomach folds that can really impact how patients, for example, choose the clothing that they wear or present themselves to their communities. And what I want to point out is that I don't think we often think about psoriasis as a prototypically itchy disease. But when we ask patients, the #1 symptom they report is itch. And that's why it's really important that our treatments, like Patrick just mentioned with ZORYVE, really target that core symptom of itch, which really drives that quality-of-life burden for so many of our patients. Moving on to the next slide, as you can see, psoriasis is not only characterized by these symptoms like itch, pain, that impact our quality of life, but actually, we know that patients with psoriasis actually suffer more often with mental health disorders like depression and anxiety when we compared to the general population. As you can see, over 75% of patients state that at some point, living with psoriasis has caused them embarrassment, they feel anxious, they feel depressed living with their disease. And when we look at which sites of involvement have the greatest impact on their quality of life and lead to this mental health burden, what you see is that the scalp is high up there. Even though much of psoriasis on the scalp oftentimes can be covered by hair, that itch, that scales, the fact that it drips onto their clothing; they have to choose clothing that hides the scales of their psoriasis. This can be really, really impactful on quality of life even more than areas like the elbows and legs, where we might think it might be a little bit more visible. Moving on to the next slide, we see that when you have psoriasis in these either sensitive areas or difficult-to-treat areas, they really do provide unique challenges. So first, on the sensitive areas like the face, the skin folds, as I mentioned earlier, like under the breast or under the stomach and also in the genital area; these areas tend to have very thin, sensitive skin. Meaning that application of topical medications can be quite complicated. We can't really use things that are too irritating because of this sensitive skin. And we also can't use things like topical steroids for long periods of time because the skin is more prone to skin atrophy or skin thinning. And so this becomes really important when we're choosing treatments for these sensitive areas of psoriasis. And then in the difficult-to-treat areas like the scalp and the elbows and knees, what we know is that even the best topicals have a very difficult time often clearing these areas. We also have to take into account vehicle because areas, for example, like the hair-bearing scalp that Patrick mentioned, it's very difficult to use something like an ointment or a cream in this area without [ matting ] down the hair or without requiring the patient to shower daily or wash their hair daily. And so it's very important that we have an elegant vehicle in addition to a very powerful agent. Now just to keep things in perspective, in the past, when we didn't have agents like ZORYVE to treat psoriasis, oftentimes in clinic, I would spend time drawing on a map similar to what you would see here. I would write down one medication that they were going to use on their scalp, usually in a solution form so that it could pass through the hair and get on to the skin of the scalp. I would give them a different medication for their sensitive areas, usually a low-potency topical steroid. And then finally, I would have to give them a higher-potency topical to try to treat those thick plaques on the elbows and knees. And so what this meant is that each patient usually on -- at minimum, got 3 different prescriptions and then had to go home and figure out which ones to use and which areas on a daily basis. And I will tell you, inevitably, no matter how much time I spent educating my patients, they would come back in a couple of months and inevitably, they would be using the wrong treatment in the wrong place. And so oftentimes, I would have the conversation that they were using the super-potent topical steroid on the space or in the genital area, which -- where they should have been using a sensitive steroid. So this took up a lot of time, a lot of education and a lot of uncertainty both on the facts that the provider, I was a little afraid to send them out with all these medications into the world, knowing that they easily could use the wrong medication in the wrong place and also in the fact of the patient where they were always uncertain about which treatments they had to use where. And if they lost their map, they were really, really lost in the world. And so I think we are all excited as dermatologists for an option for our patients that as Frank mentioned, we can use one treatment all the way from head to toe. We can feel -- we can rest assured knowing that we can send our patients out into the world without anything bad happening to them. They won't be -- they won't have skin thinning, they won't have skin irritation. It's okay if they use the same treatment on their face or if they use it on their scalp or on their elbows and knees. And patients, like we just heard in Lori's case, they're also very excited to have a treatment. That's quick and easy to use. Thank you.

Thank you, Dr. Bhutani. I really appreciate that. I've often wondered when I've handed patients those little notes, how many of them actually ever actually make it out of the car, into the car, then into their homes. I'm going to hand it over now to Todd. Thanks.

Great. Thank you, Patrick, Dr. Bhutani and Lori. There's stories like this that motivates Arcutis to serve patients every day. Now Let me give you more details on our approach to ZORYVE foam in plaque psoriasis and expand on its benefits for treating this large patient population. I'm on Slide 20. If we step back and look at plaque psoriasis at a high level, it is a long-term persistent condition often requiring a lifelong management and can affect all areas of the body, including the most difficult-to-treat areas that are covered in hair and delicate skin areas that are more sensitive to topical treatments. We know that approximately 1 in 2 patients with psoriasis have scalp involvement. There are actually very few scalp-only patients as up to 80% of patients with scalp psoriasis have lesions at other body areas as well. Approximately 1 in 2 patients also have facial involvement, which as Patrick and Dr. Bhutani pointed out, could make people extremely uncomfortable in both work and social situations. Finally, about 30% of patients have psoriasis lesions and the skin folds. By this, I mean areas like armpits or under the breast and in the genitals and groin. These various areas of skin can all be easily treated with once-daily ZORYVE. On Slide 21, psoriasis patients work extremely hard and spend a significant amount of time and money to manage their condition. These patients are used in an average of 6 products daily, such as shampoos, creams and ointments. ZORYVE foam represents an attractive new option for psoriasis patients, complementary to ZORYVE cream. That can be used once a day anywhere in the body, including hair-bearing areas and the scalp, dramatically simplifying the treatment of psoriasis. This combined safety, efficacy, tolerability and convenience as a once-daily monotherapy makes ZORYVE foam and cream the future topical standard of care in plaque psoriasis. On Slide 22, we outlined why this launch is likely to be our most seamless yet. We are essentially stepping into an existing footprint. Our team already has established relationships with the prescriber targets. And those prescribers already know the efficacy, tolerability and simplicity that ZORYVE offers. ZORYVE foam is available in a nationwide network of pharmacies listed in electronic medical record platforms and is already available to patients. For us, this new launch represents an incremental source of profitable prescriptions, as highlighted in our last earnings call, and a further amplification of our overall portfolio effect, which I will discuss shortly. On Slide 23, we pull it all together. As Frank mentioned, ZORYVE is the first and only FDA-approved [ brenite ] topical in a foam and cream option for plaque psoriasis treatment from head to toe. Our optimal foam and cream vehicles are used once daily, offering rapid resolution of lesions on the scalp and body as well as significantly reducing itch. As we have said before, 90% of patients are prescribed a topical, with 94% of them using a steroid. There is tremendous opportunity for ZORYVE and [ knowing ] for both cream and foam to grow, since the current topical treatment options are cumbersome to the patient and not ideal for long-term use. Coupled with favorable safety and tolerability even in the most sensitive areas of the skin that 9 million people in the U.S. are affected by plaque psoriasis, now have a suite of treatment options with ZORYVE. With this unique differentiation that no other company can offer, we believe ZORYVE will become the new topical standard of care for psoriasis patients of all severities. Slide 24, showcases how ZORYVE is uniquely positioned in a topical market with multiple formulations to treat the 3 major inflammatory skin conditions. ZORYVE is unique in its rapid, reliable relief, can be applied anywhere on the body, used for any duration and its exceptional tolerability. ZORYVE offers a simple once-daily regimen with predictable patient access through consistent reimbursement and copay support. I cannot stress enough the portfolio effect that I referenced often. The growing portfolio effect allows dermatologists to take a personalized multifaceted approach to making -- to managing complex skin conditions, making ZORYVE their go-to treatment solution across indications. On Slide 25, we are sharing once again data from a recent analysis we conducted on prescribing behavior among clinicians. We found that clinicians who prescribed ZORYVE across multiple indications, write significantly more prescriptions overall. But what is remarkable is the evidence of the portfolio effect that I mentioned previously. As these health care providers recognize the value ZORYVE brings to patients, they're able to expand issues across a broader portion of their practice. For example, clinicians treating only one indication average 3 prescriptions per provider each quarter, while those prescribing all three indications averaged 31 prescriptions per prescriber each quarter, a tenfold increase. We expect this amplification to increase further with the approval of our foam formulation for scalp and body psoriasis. And with that, we will open up the call for Q&A.

[Operator Instructions] Our first question comes from Vikram Purohit with Morgan Stanley. Vikram, you may be muted. Our next question comes from Tyler Van Buren with TD Cowen.

Thank you very much for the presentation this morning. Can you comment on the average number of canisters for ZORYVE for the average scalp and body psoriasis patient and compare that to subderm and how you believe the peak sales opportunity will ultimately compare? And then a second question maybe for Dr. Bhutani, if you're still on. Just what percentage of topical steroid use overall could you see being replaced by ZORYVE in this indication and potentially even more broadly as you think about across psoriasis, subderm and atopic dermatitis?

So Tyler, thanks. Good to hear from you. Maybe I'll have Patrick talk a little bit about sort of the extent of disease in these different subgroups of patients. And then, Todd, if you could address the overall market opportunity. And then I think Tina is still on the line too, so she should be able to answer your question too. So Patrick?

Yes. And I think our studies really kind of captured this difference in body surface area quite well. What we saw is that typically a patient who has seborrheic dermatitis coming into one of our trials, had about a 3% body surface area. And then we have twice that on average in many patients who had even more substantial, especially as you move into the scalp involvement of their body surface area with scalp and body psoriasis. So we would anticipate, just based on the amount of involvement of the disease, that there would be an increased number of canisters that would be used in psoriasis for the foam compared to those patients that we've already seen kind of with seborrheic dermatitis.

Yes. Thank you, Patrick. In reference to market opportunity, as mentioned earlier in my opening remarks, 50% of patients, psoriasis patients have scalp involvement. And of those patients, 80% of them have lesions on other part of the body. And given that with the foam and cream, we now offer optionality and choice for the provider and the patient, offering a suite of services for the topical psoriasis patient. If you think about that, we now offer any eligible psoriasis patient that's topical eligible an option with cream and foam. And given that, there's significant opportunity for growth across both products, given the portfolio that we offer now, the portfolio effect and the magnitude that, that will have on subscribing, especially for the psoriasis patient, given there's an option now for foam and cream to treat their psoriasis in totality being a topical eligible patient.

And then from my perspective, I think that there's a great opportunity here as dermatologists were extremely busy in clinic. We love it when we have the opportunity to speed up seeing our patients and being able to decrease the amount of education we have to give to our patients. And like I mentioned earlier, with this, we could really decrease the amount of time we spend educating the patients on the treatment and how to use them, knowing that they're going to have an effective and safe option when they go home and something that's really going to improve their quality of life. So I think we have the opportunity here to really decrease the number of topical steroid prescriptions that we're using.

Our next question comes from Uy Ear with Mizuho.

So first question is maybe just help us understand the coverage. Will the foam essentially just be an extension of the current coverage that you already have for plaque psoriasis? And secondly for Dr. Bhutani, maybe you can help us understand the -- how the foam for plaque psoriasis would fit in your practice. But currently, just help us understand the percentage of your patients on ZORYVE cream for psoriasis that would either convert or be, I guess -- yes, I guess maybe just trying to understand the potential for conversion versus new patients.

Yes. I'll answer the question relative to the coverage for ZORYVE foam. We do have a very favorable contracts with the PBMs and payers for ZORYVE foam [ dyshidrotic ] dermatitis. For the indication of psoriasis, that will be a line extension of those contracts. So it will require no additional contracting or negotiations. We're working with the PBMs and payers to initiate that line expansion and expect coverage very shortly.

So to answer the question about using the foam versus the cream. So the cream right now, as you can imagine, is predominantly being used for body psoriasis. It's hard to use a cream in an area like the scalp, a hair-bearing area particularly. And so I think, first of all, I think the foam is going to really expand the use of ZORYVE to those patients, the significant number of patients we mentioned who are living with scalp psoriasis. I think for some patients, they'll be able to use the foam in all of those areas, and we'll be able to simplify their regimen. But I think for other people, they still do like the moisturizing vehicle of the cream. So I think there's still an opportunity to use both of them in many different patients.

[Operator Instructions] Our next question comes from Douglas Tsao with H.C. Wainwright. [Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back over to Frank for any closing remarks.

Okay. Well, sorry, we've had some technical challenges here this morning. But certainly, we're available for follow-up questions if folks have something that they'd like to ask us. So we appreciate everyone making the time for yet another ZORYVE approval, the fifth now in 3 years of our commercial existence, and really excited to show you what we can do with this new product and new indications. Thanks a lot again. Talk to you all soon.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.