Arcutis Biotherapeutics, Inc. is a commercial-stage biopharmaceutical company focused on developing and commercializing treatments for dermatological diseases with high unmet medical needs. The company's strategy is to focus on validated biological targets and use its drug development platform and deep dermatology expertise to develop differentiated products that have the potential to address the major shortcomings of existing therapies in its targeted indications.

Business Overview

Arcutis is currently commercializing two products - ZORYVE® (roflumilast) cream 0.3% and ZORYVE® (roflumilast) topical foam 0.3%. ZORYVE cream was approved by the FDA in July 2022 for the treatment of plaque psoriasis, including intertriginous psoriasis, in individuals 12 years of age and older. The company subsequently received approval to expand the indication down to 6 years of age in October 2023. ZORYVE foam was approved by the FDA in December 2023 for the treatment of seborrheic dermatitis in individuals aged 9 years and older.

In addition to the approved products, Arcutis is developing ZORYVE cream for the treatment of atopic dermatitis. The company has successfully completed three pivotal Phase 3 clinical trials - INTEGUMENT-1, INTEGUMENT-2, and INTEGUMENT-PED. In September 2023, Arcutis submitted a supplemental new drug application (sNDA) for ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older, which was accepted by the FDA and assigned a PDUFA target action date of July 7, 2024.

Beyond ZORYVE, Arcutis is developing ARQ-255, a deep-penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 (JAK1) inhibitor, for the treatment of alopecia areata. The company also acquired Ducentis BioTherapeutics LTD in September 2022 and is developing its lead asset, ARQ-234, a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 Receptor (CD200R), for the treatment of atopic dermatitis.

Financials

Arcutis reported annual net revenue of $59.6 million in 2023, a significant increase from the prior year. This growth was driven by the launch of ZORYVE cream in the United States in August 2022 and the subsequent launch of ZORYVE foam in December 2023. The company reported an annual net loss of $262.1 million in 2023, primarily due to increased research and development expenses as well as selling, general, and administrative expenses related to the commercialization of its products.

In the first quarter of 2024, Arcutis reported net revenue of $49.6 million, a 1,682% increase compared to the same period in 2023. This strong performance was driven by continued growth in ZORYVE cream sales, as well as the successful launch of ZORYVE foam. The company reported a net loss of $35.4 million in the first quarter of 2024, a significant improvement from the $80.1 million net loss in the same period of 2023.

Arcutis' annual operating cash flow was -$247.1 million in 2023, and its annual free cash flow was -$247.5 million. In the first quarter of 2024, the company's operating cash flow was -$31.6 million, and its free cash flow was also -$31.6 million.

Liquidity

As of March 31, 2024, Arcutis had $404.5 million in cash, cash equivalents, restricted cash, and marketable securities, providing the company with a strong liquidity position to fund its ongoing operations and development activities. In February 2024, the company completed a public offering of its common stock, raising $161.7 million in net proceeds.

In addition to its cash position, Arcutis has access to a $200.0 million loan facility, which was fully drawn as of March 31, 2024. The company was in compliance with all covenants under the loan agreement as of the end of the first quarter.

Geographical Breakdown

Arcutis currently generates revenue primarily from the United States, where it has launched both ZORYVE cream and ZORYVE foam. In April 2023, the company also received Health Canada approval for ZORYVE cream and began commercializing the product in Canada in June 2023. The company is also exploring opportunities to expand the availability of its products to other international markets through partnerships and licensing agreements, as evidenced by the licensing deal with Sato Pharmaceutical in Japan and the collaboration with Huadong in Greater China and Southeast Asia.

Revenue Breakdown and Trends

Arcutis' net revenue in the first quarter of 2024 was $49.6 million, with $21.6 million coming from product sales and $28.0 million from other revenue, primarily related to the Sato and Huadong licensing agreements. Product revenue was comprised of $15.0 million from ZORYVE cream and $6.5 million from ZORYVE foam.

The strong growth in product revenue was driven by continued demand for ZORYVE cream, as well as the successful launch of ZORYVE foam in the United States in late January 2024. The company has also made progress in improving the gross-to-net (GTN) ratio for both products, which reached the low 60s in the first quarter of 2024, despite the typical co-pay resets and insurance changes that occur at the beginning of the year.

Outlook

Arcutis is confident in its ability to sustain the growth momentum for its ZORYVE portfolio throughout 2024 and beyond. The company expects continued prescription growth and further improvements in gross-to-net for both ZORYVE cream and ZORYVE foam. Additionally, the company is anticipating a potential approval for ZORYVE cream in the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older, with a PDUFA target action date of July 7, 2024.

The company is also making progress in expanding the availability of its products through partnerships and licensing agreements, as evidenced by the deals with Sato Pharmaceutical in Japan and Huadong in Greater China and Southeast Asia. These partnerships are expected to provide additional revenue streams and further strengthen Arcutis' global presence.

Risks and Challenges

Arcutis faces several risks and challenges in its operations, including the highly competitive nature of the dermatology market, the potential for regulatory delays or setbacks, and the need to continue investing in research and development to maintain its pipeline of innovative products. The company also faces the risk of potential reimbursement challenges and the need to effectively manage its commercial operations and supply chain.

Additionally, the company's reliance on third-party manufacturers and suppliers for the production and supply of its products introduces potential risks related to supply chain disruptions and quality control issues. Arcutis also faces the risk of potential intellectual property disputes and the need to protect its proprietary technology and products.

Conclusion

Arcutis Biotherapeutics is well-positioned to capitalize on the significant opportunities in the dermatology market with its differentiated portfolio of topical treatments. The successful launches of ZORYVE cream and ZORYVE foam, coupled with the potential approval of ZORYVE cream for atopic dermatitis, provide a strong foundation for the company's future growth. Arcutis' robust pipeline of product candidates, strategic partnerships, and strong financial position further strengthen its ability to address the unmet needs of patients suffering from chronic dermatological conditions. As the company continues to execute on its strategic priorities, it is poised to deliver long-term value for its shareholders.