Good day and thank you for standing by. Welcome to the Arcutis Biotherapeutics 2025 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Brian Sholkoff, Head of Investor Relations. Please go ahead.

Thank you, Michelle. Good afternoon, everyone, and thank you for joining us today to review our second quarter 2025 financial results and business update.

Slides for today's call are available on the Investors section of the Arcudis website. On the call today are Frank Watanabe, President and CEO, Patrick Burnett, Chief Medical Officer, Todd Edwards, Chief Commercial Officer, and Martha Vyravan, Chief Financial Officer. I would like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all of the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors.

With that, let me hand the call over to Frank. Thanks, Brian, and thank you to everyone for joining us today. I'm pleased to report that in the second quarter, we continue to see strong sales and demand growth with our Zaree franchise, demonstrating continued adoption by healthcare providers and patients and consistent execution by our commercial team. During today's call, we will review in detail the results for the quarter, but we'll also spend time talking in more depth about our plans to sustain our growth into the future, including the next wave of growth for Zareev, how we intend to leverage our best-in-class development and commercialization capabilities to address the unmet urgent needs of patients living with immune-mediated dermatologic diseases and our capital allocation framework to enable this next growth phase. Before I dive in, I want to thank the exceptional team at Arcudis that is dedicated to and instrumental in advancing our efforts to serve the needs of people living with serious skin diseases. So on slide five, honing in on the second quarter, we saw another quarter of strong revenue growth as patients and clinicians continue to adopt Zarev for the treatment of a range of inflammatory dermatoses. For the quarter, we reported net product revenues of 81.5 million, representing 28% quarter-on-quarter growth and 164% growth compared to the same quarter 2024. This substantial sequential growth reflects the continuously increasing demand for Zarif with TRX volume increasing for all products. In May, we received approval from the FDA for the use of Zarif foam 0.3% for the treatment of plaque psoriasis of the scalp and body, our fifth FDA approval for Zarif in the last three years. We believe this new indication for our phone will provide an important and much-needed new treatment option for the over half of plaque psoriasis patients who have scalp involvement. In the quarter, we continue to make progress against a core objective, that is the progressive conversion of topical steroid prescriptions to Zerif. We see growing evidence that dermatology clinicians are appreciating the risks associated with extended steroid use and as such are increasing their use of alternative, non-steroidal topical agents. We also saw strengthening in our business fundamentals in the second quarter. As we continue to grow Zareef sales while remaining disciplined with our expense base, we are increasing our operating leverage. Lata will go into more detail on our operating results and improving cash burn profile. As we progress towards reaching cash flow break-even in 2026, We are rapidly approaching a point where we will have additional resources to invest in future growth. And today, we will begin to lay out our plans, including the next wave of Zareev expansion, additional pipeline opportunities, and our disciplined capital allocation strategy that underpins it all. Okay, turning now to slide six. We have been intently focused on clinical, regulatory, and commercial execution for Zareev over the last several years as evidenced by our results. And so as I introduce our framework for near, medium, and long-term growth today, I will start by saying that we will continue to see substantial opportunities for sales and profit expansion from our current Zarev indications and those in late-stage development. While non-steroidal topicals are making inroads in the treatment of immune-mediated inflammatory skin diseases, there is still a tremendous amount of potential conversion to be had. As patients and prescribers continue to understand how Zarev can serve as the foundational long-term therapy for psoriasis, atopic dermatitis, and seborrheic dermatitis, topical steroids will increasingly be reserved for acute treatment. To dimensionalize the size of this opportunity, last year, over 69% of all topical prescriptions in our approved indications were written for steroids. So the progressive conversion from steroids will be a sustainable growth driver for Zerif for many years to come. Our expected label expansion for pediatric atomic dermatitis and development efforts for infant AD, which Patrick will further detail shortly, will be another component of this continued growth. Other commercial opportunities, such as further access improvements and the development of the PCP and pediatric channel that we previously detailed, will also support our continued momentum with Zareve. These cumulative near-term opportunities will power Zareev growth throughout 2025, 2026, and beyond. Beyond our current Zareev portfolio, we see a next wave of growth being driven by effective and efficient lifecycle management for the Zareev franchise. This has been enabled by the various formulations and concentrations available for Zareev, which has, in essence, created a Swiss army knife for inflammatory skin conditions. Patrick will expand on our approach to Zareeb Life Cycle Management, but I will highlight that a core principle is to be data-driven and disciplined, matching investment to clinical promise and opportunity size. Longer term, our current development pipeline shows promise in addressing areas of high and met needs for these patients. We will also continue to evaluate external sources of innovation based on our conviction that our core competencies give us the ability to leverage the research and early development and efforts of other companies and to drive those innovations through later stages of development, regulatory approval, and to commercialization. We are at an exciting point at our QDIS, approaching profitability that will underwrite both the next stage of expansion for the Zaree franchise and subsequent waves of innovation. And while we are eager to apply our expertise in dermatological development and commercialization, I will again underscore that we will continue to be thoughtful and disciplined in our deployment of capital. We will continue to be stringent in our internal capital allocation by being data-driven in our pipeline management decisions. As you will hear from Patrick shortly, in that vein, we've made the difficult decision to halt the development of ARQ-255 following the readout from our Phase 1B trial. Finally, in the context of these promising opportunities for capital deployment, I will reaffirm that we are committed to generating providing positive free cash flow. We remain on track to achieve this milestone with our current business in 2026. It is our intention that future clinical development spend to advance our existing pipeline will be funded by cash flows from our Zareeve franchise, although we do acknowledge that a potential acquisition of some external innovation might require incremental capital. On slide 7, I want to take just a minute to expand on why we believe that pursuing further label expansion for Zarif as a smart investment and a judicious use of our capital. First, as one of the most successful drug franchises of all time, the story of Humira's incredible success is well known. But the details of how that success was achieved, in particular the steady indication expansion for the franchise, provides a sense of the power of a well-executed life cycle management program. Humira first launched in 2022 with initial indication in rheumatoid arthritis, which produced the majority of the brand's early revenues. But as we can see in the chart on the left-hand side of the slide, it was not only the growth of that indication that powered Humira's success, but also the consistent addition of new indications and label expansions. And by the time Humira reached its peak sales in 2022, AbbVie had added 11 indications for this drug, and fully 68% of sales were derived from indications beyond rheumatoid arthritis. A more recent and developing example of effective life cycle management can be found in Sanofi and Regeneron's Dupixin. Dupixin launched in 2017 with an initial indication of adult atopic dermatitis. Since 2018, 10 additional indications for the brand have been approved. While atopic dermatitis remains the most significant revenue driver, accounting for about 74% of sales as of 2024, approximately $3.7 billion in sales was generated by these subsequently added indications such as asthma and nasal polyps. The progressive expansion of our label for Zareev is not a new story either. Since launching an adult plaque psoriasis in 2022, we've expanded to cover three diseases and won four label expansions. In the second quarter, the sales contribution from these new indications and label expansions exceeded two-thirds of our total sales, and it is our strong belief that continued pursuit of new patient populations who may benefit from Zareve will sustain the brand's growth. And with that, let me turn it over to Todd to provide some more color on the quarter.

Todd? Thank you, Frank. I'm on slide nine. In the second quarter, we achieved $81.5 million in net product revenue for Zareev, reflecting 164 percent growth year-over-year and sequential growth of 28 percent compared to the first quarter. Importantly, growth during this period was driven by increased demand across all strengths and indications, highlighting the robust performance of the franchise and the continued adoption of Zareev across its approved indications. The meaningful revenue expansion in the quarter was a result of strong volume growth, supported by stable growth to net rates or disease driven by the high percentage of prescriptions being reimbursed an additional factor driving product revenue growth in the quarter was the recovery of inventory levels in our distribution channels back to normal levels following a drawdown in the first quarter looking ahead to the remainder of 2025 we anticipate steady sales growth driven by new indication launches increased contribution from the pcp and pediatric channel through our partnership with COA and continued share gains in a sizable topical market primarily coming from steroid conversion. That said, Zareve is not exempt from the seasonality that typically affects prescription topical products. As a result, we anticipate a moderation in our sequential growth rate in the third quarter before returning to robust growth in the fourth quarter. I'll provide additional detail on this shortly. As shown on slide 10, Zareve's prescription volume reached a record high of 16,000 weekly scripts on a rolling four-week average basis. The nearly 200,000 total prescriptions in the quarter reflect a year-over-year volume increase of 117 percent and a quarter-over-quarter increase of 13 percent. This strong performance is enabled by the substantial breadth of adoption across prescribers, with over 18,000 healthcare providers have written prescriptions in the second quarter and 26,000 since launch. This quarterly figure represents a 7% increase in the number of total prescriptions quarter over quarter and nearly 70% increase year over year. We continue to see an erosion of topical steroid share within the topical market. In Q2 2025, branded non-steroidal volume grew by 40% versus prior year, while topical steroid volume was effectively flat. Zareve is playing a key role in driving the shift as prescribers continue to appreciate its potential for sustained treatment of chronic inflammatory skin conditions compared to the intermittent use that is appropriate with topical steroids. We're in the early stages of launching Zareve Foam 0.3% for patients with scalp and body psoriasis following IPP approval in May. We expect this launch, along with the anticipated approval of Zareve cream 0.05% for patients aged 2 to 5 years old in October to drive further volume growth in the second half of this year. While we continue to expect strong overall growth for Zareve in 2025, including in the third quarter, the pace of growth in Q3 will reflect the typical seasonality of the topical market. This is influenced by non-medical factors, such as summer vacations, and medical factors, including reduced flaring to inflammatory skin conditions during the summer months. As a result, we anticipate some moderation of growth in Q3 before returning to a more robust trajectory in Q4. Let's now turn to our recent approval for Zareeve on slide 11. In May, we received FDA approval for Zareeve foam 0.3% for the treatment of plaque psoriasis for scalp and body. As Frank mentioned, more than half of plaque psoriasis patients have scalp involvement. Historically, these patients have managed their condition with a combination of topical steroids and other treatments, depending on plaque location, resulting in a frustrating polypharmacy approach. The ability to use a single product once daily across all affected areas offers a meaningful reduction in treatment burden. Zaree Foam 0.3% delivers reliable plaque clearance and rapid itch relief in a formulation specifically designed for hair-bearing areas and appropriate for use near the eyes and other sensitive areas. We are confident this label expansion will drive income of demand for Zaree, particularly as the foam displaces other treatment options for scalp psoriasis. Since the foam formulation for sebderm and psoriasis are on the same skew across both indications, it would take additional time to accumulate sufficient longitudinal data to accurately parse out contributions by disease. However, we have seen an acceleration in foam growth with a 9% increase in volume in the six weeks since launch compared to the prior six weeks. As previously noted, our analysis indicates that clinicians who prescribe Zarev across multiple indications tend to generate significantly higher prescription volumes overall, as they recognize the meaningful disease management benefits Zarev delivers for patients. With the introduction of Zarev foam for this new indication, we expect this effect to compound further. Moving to slide 12, a long-standing objective at Arcutis has been to drive reimbursed prescriptions. not just any prescriptions, as they directly impact top-line revenue. We continue to benefit from strong insurance coverage for Zareve across approved indications, with approximately 80% of all prescriptions being reimbursed. This favorable coverage landscape supported the revenue growth achieved during the quarter, with gross to net rates remaining stable. We also made meaningful progress with Medicaid, with well over half of all Medicaid recipients now having access to Zareed, and the majority of covered lives only require a single step to a steroid. This advancement contributed to strong quarter-over-quarter unit growth from the Medicaid channel. We remain actively engaged in negotiations with Medicare Part D plans and are committed to expand access for these patients even as payers continue to navigate financial disruptions due to the implementation of the Inflation Reduction Act. The IRA introduced changes to the Part D benefit structure, including a shift in cost-sharing responsibilities between CMS, Part D plans, and manufacturers. These changes are creating both operational and financial complexities for Part D plans, as they work to update their systems, adjust risk models, and align on formulary strategies. This environment has led to a more protracted process to cover decisions for all new pharmaceuticals. Moving to slide 13, expanded utilization of Zareev in the primary care and pediatric setting remains a key component of our growth strategy, and we continue to make progress through our partnership with COVA. From the outset, we recognize that the primary care selling cycle requires more frequent and sustained engagement to build familiarity. Many providers in this setting have limited exposure to topical non-steroidal treatments and tend to default to prescribing steroids. COA's field team continues to execute targeted, high-frequency outreach to drive initial trial and ultimately adoption of Zareep among these providers and their patients. This process will further be supported by recent enhancements made to streamline the prescribing and fulfilling experience of these providers. In the second quarter, we implemented a dedicated national pharmacy with improved capabilities for this channel. This pharmacy will play a pivotal role in appropriately helping offices navigate the fulfillment process that is often less familiar to primary care providers compared to dermatologists who are more accustomed to prescribing branded topicals. The key advantage of this new dedicated pharmacy is its ability to integrate directly with EHR systems, enabling seamless incorporation of the prescribing into existing workflows. Given the diversity and volume of patients at primary care setting, tools that reduce administrative burden and streamline access are instrumental in deriding broader adoption. I'm now on slide 14. The future of Zareev is incredibly bright. With multiple formulations and concentrations, we are equipping health care providers with the flexibility to meet patients where they are in their treatment journey. by providing a treatment option suitable for long-term use and the ability to better support the management of chronic inflammatory skin conditions. This versatility combined with Survee's well-established efficacy and safety profile continues to reinforce its position as the most prescribed branch optical across three major inflammatory skin conditions. With that, I'll now turn the call to Patrick for an update on R&D.

Thank you, Todd. I'm on slide 16. In the quarter, as you come to expect from us, we made significant progress against our clinical and regulatory objectives as we received FDA approval for Zarev foam 0.3% for scalp and body poxeriasis, initiated our Phase II trial for Zarev cream 0.05% in infants with atopic dermatitis, and submitted our IND application for ARQ-234 in atopic dermatitis. Today, I'll spend time describing our efforts in developing Zareev for pediatric AD patients, outlining our approach to Zareev lifecycle management, and give an update on ARQ-255. First, I want to acknowledge the important milestone that our IND submission for ARQ-234 represents. We continue to believe that CD200 receptor modulation has the potential to be a powerful mechanism for the control of atopic dermatitis and other inflammatory conditions. We further believe that as a fusion protein with high selectivity for CD200, ARQ-234 has the potential to be a class-leading program. We look forward to sharing more detail on this program at later days. Turning now to slide 17, unlike other inflammatory skin conditions, atopic dermatitis often presents at early ages for patients. Nearly 10 million children in the U.S. are impacted by atopic dermatitis, with roughly 60% developing symptoms in their first year of life, 80% unique challenges in these younger age groups, not only because the skin is more sensitive, but also because the condition often covers a greater percentage of their total body surface area compared to adolescents and adults. Parents of these pediatric patients are highly sensitive to potential negative side effects of topical steroids. These concerns range from the impact of chronic steroid use on a child's growth and bone development to more immediate complications, 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 need for safer and more tolerable therapeutic intervention, we've been enthusiastically pursuing label expansion for Zarev to younger ages of atopic dermatitis patients, where we see a great fit for the Zarev clinical profile. In February, we submitted our SNDA for Zareev Cream 0.05% for the treatment of children aged 2 to 5 years old with atopic dermatitis, a population of roughly 1.8 million patients. The submission was supported by data from the IntegraMid PED Phase 3 trial, which demonstrated efficacy and a safe and tolerable profile in this age group, highlighted by 39% of children treated with Zareev, achieving a 75% improvement in EZ score, also called an EZ 75, and this was done in just four weeks. In June, we presented new results from the Integument OLE long-term open-label study that demonstrated children ages 2 to 5 who achieved disease clearance and switched to a proactive twice-weekly application of Zareev cream 0.5% were, on average, able to maintain disease control for 238 days, or nearly eight months, without the need to return to daily dosing. And we believe that the potential to control AD without disease flares, with less frequent dosing, may be a particularly compelling benefit for patients in this age range and their caregivers. It speaks to the differentiated profile of Zarev as a foundational treatment for chronic inflammatory skin conditions. We look forward to our target PDUFA date for this application in October of this year. We're also actively pursuing development of Zareeprem 0.05% in patients ages 3 to 24 months and enrolled the first patient in this integument infant trial for this population in June. We're seeing brisk enrollment in the trial, which confirms our belief that amongst these young, vulnerable atopic dermatitis patients, there's an acute desire for alternative treatments to current therapies, most of which are topical corticosteroids. Pursuing these potential expansions into younger AD patient populations delivers on a core principle for our QDIS to deliver innovation that solves everyday challenges that significantly impact the lives of patients and their families. Now, moving on to slide 18, as Rank remarked at the beginning of this call, pursuing new patient populations that may benefit from Zareev has been a core tenet of our clinical development strategy. This is evidenced by the four label expansions we've secured across plaque psoriasis, seborrheic dermatitis, and atopic dermatitis following our initial approval in 2022. We believe that there are additional skin diseases that may respond to and more patients who may benefit from Zarev. This belief is not only supported by our understanding of Zarev's broadly applicable anti-inflammatory and anti-poeritic properties, but also by our feedback we've received from healthcare providers in the field. As part of our obligation to sponsor, our medical team monitors this feedback. To date, we've identified more than 40 case reports from clinicians who have used Zarev in a multitude of other inflammatory dermatoses and seen signs of efficacy. These clinicians have experienced the safe, tolerable, versatile, and effective profile of Zarev in their psoriasis, AD, and sebderm patients and have chosen to investigate novel applications of the therapy. These case reports are listed on the left side of the slide and include many diseases which are not well managed by topical steroids and therefore present a challenge for dermatology providers. Our approach to assessing these potential opportunities is stepwise and resource efficient. As indications of interest come to light, we'll engage in the collaborative research conducting phase two proof of concept studies where appropriate to evaluate the degree of response and understand potential safety and efficacy. Based on the results of these initial studies, our analysis of the addressable patient population for a given disease and feedback received by regulatory agencies, we may then identify additional indications for which a registrational trial conducted by ACUTIS is a prudent investment. We're already pursuing this strategy with efforts underway to begin enrolling phase two studies in vitiligo and hydradenitis superativa. We anticipate initiating additional phase two proof-of-concept studies going forward. This evaluation of new indications and program planning will be comprehensive and evolve over time, and each project will be carefully assessed relative to potential return on investment. Our progress in this process is another topic that we plan to detail further at a future date. Now, moving on to slide 19, as Frank mentioned in his remarks and as you've heard throughout this call, our QDIS is fortunate to have multiple opportunities for clinical investment to pave the way for our future growth. As we evaluate our current and future portfolio of clinical programs, we will continue to be data-driven and apply a high bar for advancement. In line with this rigorous portfolio management approach, we've announced today our decision to halt further development of ARQ-255, following our review of the results from our Phase 1B We've always known that the ARQ-255 program was a high-risk endeavor. Multiple other topical JAK inhibitors had previously failed in alopecia areata. A preclinical study suggested that our novel 4D technology might be able to overcome the challenges of treating alopecia areata topically. The study demonstrated a trend for positive efficacy in both the clinical endpoint of salt change from baseline and salt improvement to 50% or greater, suggesting that in fact 4D is able to deliver drug to the site of inflammation. But unfortunately, the magnitude of improvement was not sufficiently large to justify a continuation of the program. Here we show the efficacy data alongside that from other independent clinical trials conducted with oral JAK inhibitors in alopecia areata. Although we were pleased to see the favorable trend that validates our topical formulation approach, after extensive consideration of the potential profile relative to alternatives, we decided that this level of efficacy we observed with ARQ-255 would not be a meaningful addition to the treatment options for patients with alopecia areata. We look forward to finding other opportunities outside of ARQ-255 to expand our pipeline and provide meaningful innovation in dermatology. I want to thank the investigators, our advisors, and the patients who participated in this program, as well as the excellent ARQ-255 team that conducted a very well-run study. And with that, I'll turn it over to Lata.

Thank you, Patrick. I want to start by reiterating the strength of this quarter. Our improved operating leverage allowed the strong top-line growth to translate to a reduction in cash burn and re-emphasizes that our disciplined approach to capital allocation has us on a path to cash flow break-even in 2026. I'm on slide 21, showing financial results both year-over-year and quarter-over-quarter for the second quarter of 2025. As Todd has stated earlier, we generated net product revenues in the quarter of approximately $81.5 million, which is up 164% from Q2 of 2024 and 28% from Q1 of this year. Cost of sales in the second quarter were $7.5 million compared to $3.5 million in 2024, primarily driven by increased Zareev sales volume. Cost of sales decreased 15% sequentially versus the first quarter of 2025, despite increasing sales volume due to an expense recognized in the first quarter for the catch-up amortization of a $10 million sales milestone owed to AstraZeneca for reaching $250 million in cumulative net sales. For the second quarter of 2025, our R&D expenses were $19.5 million versus $19.3 million for the corresponding period in 2024. Our R&D spend has remained consistent year-on-year as decreased development costs for roflumolast and adult atopic dermatitis and plaque psoriasis were partially offset by an increase in development costs for pediatric atopic dermatitis. SG&A expenses were $69.2 million for the second quarter of 2025 versus $58.2 million in the same period last year, up 19% as we invested in our commercial organization to support our current and upcoming launches. Recall, we expanded our sales for the second half of 2024. SG&A expenses were also up approximately 9% as compared to the first quarter of 25, primarily due to increased sales and marketing costs related to our launch in scalp and body psoriasis. Net loss for the quarter decreased by 36.4 million compared to the same period last year and net 9.2 million versus the first quarter of 2025. While this rate of improvement in operating results will fluctuate across quarters in line with sales, it clearly demonstrates that we are making substantial progress towards reaching cash flow breakeven in 2026 and that the foundation of our business is strong and getting stronger. Now I'm on slide 22. You can see that we had cash and marketable securities of $191.1 million on our balance sheet as of June 30, 2025, and were slightly cash flow positive from operating activities this quarter. This positive net cash flow from operating activities of $325,000 was due in part to our increased gross profit driven by our top-line revenue growth, a highly encouraging signal of our progress towards cash flow positivity, but also in part due to timing changes in networking capital that reduced cash use and operations. This is a good example of the type of factors that lead to the quarter-to-quarter fluctuations I mentioned earlier and that we expect to see on occasion in the future. We expect our quarterly cash burn to continue trending down as our revenues grow and we approach stable, positive cash flow from operations sometime in 2026. We have total debt of $108 million and have the option to redraw another $100 million in whole or in part at our discretion through the middle of 2026, providing us with significantly enhanced flexibility. The success of Zareev's portfolio and the economies of scale we're generating will permit us to invest in the business for continued growth and long-term durability. With that, I'm going to hand it back to Frank for some closing remarks.

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

Thank you. As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. One moment while we compile our Q&A roster. Our first question is going to come from the line of Seamus Fernandez with Cuggenheim Securities. Your line is open. Please go ahead.

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

Yeah. So, Seamus, maybe I'll answer your second question first, and then I'll ask Todd to address the question around revenue. You know, I think that from a clinical standpoint, it's pretty clear that Zareev has very broad applicability across a whole range of diseases. I think potentially even some non-inflammatory conditions. But, you know, they're not probably all worth us pursuing an indication for. You know, I think we will look to generate data to inform the dermatology community where it's appropriate, and then we'll look at those opportunities and determine is the market big enough, is the magnitude of clinical improvement versus existing therapies big enough that it justifies pursuing an indication. And so, you know, we'll be very rigorous and selective in choosing those diseases where we think it's worth, you know, spending the money to do a full registrational program. But I'm pretty confident that there are going to be other diseases that it makes sense for us to pursue an indication, particularly given, you know, how stringent insurance companies have become about the off-label reimbursement of drugs. You know, it's very different than it was, you know, 10 years ago, even. So I think, you know, there's a lot of upside opportunity for us. There are a lot of steroid prescriptions for diseases other than our currently approved indications. And so we'll just need to be very rigorous and methodical in choosing which ones we just generate data on, which ones we pursue an indication for. You know, turning to the business development side, I would say that our primary focus is really on development stage assets. Patrick and his team and Bethany and her team on the TechUp side have, I think, proven that they are really outstanding, I would even say best in class in dermatology and their ability to complete clinical development, regulatory approval, and then Todd and his team have shown how they can effectively operate commercially as well. So we think that's probably the best area for us to focus on in terms of creating value for shareholders. We are not a spec pharma company. I'm not interested in going around just buying revenue and adding that to the pipeline. I don't think that's a good way for us to create shareholder value. But leveraging the development expertise of this company, I think, is a great opportunity. And, you know, we continue to focus primarily on drugs where there is biological validation of the target, so we're not taking on too much biologic risk, where there's a large unmet need and where we find an asset that is really differentiated from other assets, we're not, you know, going to be pursuing a bunch of me-too assets. So hopefully that addresses your question. And, you know, we will, again, we'll talk about this a lot more at the R&D Day, and then I'll turn it over to Todd to talk about Q3 and the rest of the year.

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

Super, thanks so much.

Thank you. And one moment for our next question. Our next question is going to come from the line of Tyler Van Buren with TD Cowan. and your line is open. Please go ahead.

Yeah, this is kind of on for Tyler. I had a question about the COA partnership, and you guys also mentioned that you set up a national dedicated pharmacy. I was wondering what the early utilization of that looked like, and again, could you elaborate on the contribution of the COA partnership today?

Yeah, this is Todd. Yeah, thank you for the question. And, you know, as discussed before, we anticipated a slower adoption of Zareev in the primary care market versus the dermatology market due to the longer selling cycle that's required. Also with primary care physicians not being as familiar with non-steroidal topicals. And we are seeing that slower adoption of Zareev within the primary care market. However, COA is taking the right actions to make certain that we have the right frequency on the right targets with the right messaging. And also making certain that they continue to educate primary care physicians at other opportunities like peer-to-peer programs, speaker programs, and such. Relative to the national pharmacy, we're seeing very positive signals with the early launch of that national pharmacy. And as mentioned, it's critical that we provide a dedicated pharmacy that will appropriately enable and support the primary care physicians relative to the fulfillment process with Zareev. And once again, we're seeing positive signals with that and are encouraged by COA's continuing to adapt and execute on the right targets, the right frequency, and what we expect from this national pharmacy. Thank you. And congrats again on the quarter.

Thank you. And one moment for our next question. Our next question will come from a line of We Air with Mazuho. Your line is open. Please go ahead.

Hey, guys. Thanks for taking our questions. Congrats on the quarter. So maybe just first question is, could you maybe just help us understand the growth to net dynamics in the quarter was better than what we expected, particularly, you know, for each of the individual products if it's possible or just the foam? Thanks. Hi, Owe.

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

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

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

I'll just say, you know, GrossNet's not changing very much anymore, and I wouldn't expect that it would. Okay. Okay.

And I guess, you know, in the press release, you guys commented on three patents that was allowed, I guess, in the quarter. Could you sort of elaborate on that?

We had, yes, we had three additional patents that were issued in the quarter from the U.S. Patent Office. None of those extended the LOE for the product. But I think, you know, they are further expand the strength of our IP portfolio. We now have 24 issued U.S. patents and many of those listed in the orange book. And I just think that it speaks to the further, the continued strength of our intellectual property portfolio around Zarif.

Okay. And sorry, last question. You mentioned two studies, two phase two studies that are ongoing. And I guess one of them is the atopic study in PD at three months to two years old. What's the other one?

So we talked about initiation of a three- to 24-month-old study in atopic dermatitis with Zareev. That's the 0.05%. That is a sponsored clinical trial that's part of a post-marketing commitment that we have in order to continue to set the age down that we are conducting as a sponsored registrational clinical trial. The other two phase two studies that we're talking about are collaborative research trials, which are being done to get an early understanding of the potential efficacy in two of these indications, which are not currently approved indications, but where we have seen some evidence of efficacy coming from case reports. And so, that'll give us a kind of, you know, quick and early understanding of what the efficacy might and safety might be in that disease state to help us to then make decisions on whether or not to pursue a registrational program for one of these indications.

And just to clarify, those phase two studies are in HS and vitiligo. I believe both of them are posted on clintrust.gov now.

Okay.

Thank you. And one moment for our next question. Our next question is going to come from the line of Andrew Tai with Jeffries. Your line is open. Please go ahead.

Hey, thanks. Good afternoon. Congrats on the execution. Thanks for taking my questions. Maybe a bigger question.

Can you give us your latest and greatest thinking on how you're thinking about the peak sales opportunity across your three current indications and how that's changed compared to your original um so hey andrew i we have not uh given uh peak sales guidance for quite some time um i think it was 2022 last time we did you know at that point we had said that we thought that each one of the indications i.e psoriasis ad and seb derm could be in the range of 700 million to 1.2 billion per indication uh you know i i think we have not dramatically changed that view of the opportunity You know, if you just sit down and do some quick back of the envelope calculation, you know, we're sitting at something like two and a half percent market share in the top total topical market. You know, if that grows to 10 percent, you know, you're well north of a billion dollars. And I think that 10 percent of the topical market is is very achievable and probably is a low bar given the clinical profile that we see. and particularly, you know, if we expand beyond the three initial indications, as Patrick just mentioned, what I will say is that, you know, we continue to evaluate this. And, you know, I think you can expect some further guidance from us in the future about what we think the peak sales potential is. But clearly, we are really just scratching the surface in the total commercial opportunity for Zaree.

Agreed. And then a follow-up to the last question on Vitiligo and HS. Is it possible that we get initial data from the IST studies in 2026, or is it sometime later? I just want to gauge your new flow.

Yeah, I mean, right now we're not putting out any expected timeline for those trials. As we get engaged into our collaborative research that we're pursuing for these Phase II trials, we'll have a more clear understanding of what that might be. So, we would expect to provide some guidance as we get further into them, but at the current time, we're not able to give a milestone or expected time.

Makes sense.

Thank you. And one moment for our next question. Our next question will come from the line of Judah Fromer with MS. Your line is open. Please go ahead.

Thanks for taking the questions and congrats on the quarter. Just a couple for us. I guess first, we're hoping you can maybe elaborate a little bit on the pediatric opportunity an atopic derm, kind of what, you know, penetration ramp could look like there relative to an adult given kind of potentially arguably greater unmet need or, you know, safety concerns there for those patients. And then separately, I think this week we saw a second joint status update on the Patagist litigation. Just curious if there was anything you could add there. Is is the case just stayed and we're waiting for an update or was there more to that? Thank you.

Yep. Patrick, you want to, may you take the first of those questions?

Yeah. Yeah. We're really excited about the opportunity in two to five year olds. It's upcoming with a 0.05% when that's the approval that has a PDUFA in October, you know, out of the 9.6 million patients, the pediatric patients with AD about 1.8 million of them are in this two to five-year-old age range that are being topically treated. And so, you know, we were just at the Society for Pediatric Dermatology meeting in Seattle and really got a very good understanding of just how important this age group is to them. I think because many of these are kind of difficult to manage patients. As I mentioned, this is a disease that comes on early in life and there's a lot of avoidance of topical steroids from parents, so what we're looking to be able to do is to present an option into these deeper age ranges, and two to five-year-olds is the first step for us, and as we mentioned, we're getting started with the three to 24-month-old trial as well with the same concentration. I think it's just a very good fit between the need and the expectation of parents to be able to manage their kids without topical steroids and the profile that we've been able to show so far, so we're really excited about the upcoming approval.

Yeah, and Patrick and I were both just at the Society of Pediatric Dermatologists two weeks ago. Do you want to maybe just give some color about the tenor of the conversations at SPD?

Yeah, I mean, their conversations were about a very large patient flow in their offices for this age range because of the challenges of topical corticosteroid use. And it's common for a patient be seen in a pediatrician's office, they might get one topical corticosteroid as their kind of start off. And then if that's not able to completely manage the disease, then they're looking to be referred oftentimes either to a pediatric dermatologist, if one is available. But dermatologists, it's very common for them, even if they are seen as adult dermatologists, to be seeing patients down into the age of two and sometimes even younger than that. So not all these patients are managed by pediatric derms. Pediatric derms definitely represent kind of the core for education within this age group, and they influence a lot pediatrician prescribing and pediatrician openness to being able to use a new therapy. So we think our contact points within both the pediatric dermatology community are really important, and that's what we were seeing when we were at the Society for Pediatric Dermatology, but also the adult, you know, adult dermatology healthcare providers are a really important point for managing these patients also.

And then just with regard to the Patagas case, you know, recall that there is a requirement in the litigation stay that the two parties jointly provide periodic updates to the court. You know, the first one of those updates has just recently been provided. Um, those, uh, those updates are confidential. Um, in fact, I, I, even I don't see them. Um, but, uh, but it was provided as, uh, provided for in the stay. And I think, you know, the, the one relevant data point that all of us should be aware of was, is that everyone agreed that the stay should and will remain in place.

Great. Thank you.

Thank you. And one moment, as we move on to our next question. Our next question comes from the line of Serge Billinger with Needham. Your line is open. Please go ahead.

Good afternoon, and congrats on a great quarter. First question, regarding the 2Q performance, I think mentioned that sales were up 28% quarter over quarter. I believe scripts were up 13%, so maybe just reconcile that difference with just a bump up in gross nets from Q1. And I guess the follow-up to that is, I think you mentioned you expect growth to next to be stable for the rest of the year. So should we expect script growth to be the main driver for sales over the remainder of 2025? Second question, Todd talked a little bit about the issues regarding Medicare Part D. Can you remind us what part of the TAM Medicare Part D represents for Zoriv? And when do you think you'll be in a position to kind of capture that opportunity and get coverage from those plants?

Ty, do you want to maybe address the bridge on sales?

Yeah, address the bridge on sales. The main driver of the product revenue growth over demand growth was a recover in distribution inventory levels back to normal, calling a drawdown in the first quarter. What I want to be clear about is that we did not see abnormal inventory stocking levels in the second quarter. This was simply recovery back to normal levels as a result of the drawdown in the first quarter. In reference to growth to net, as mentioned and as Lotta reinforced, we expect growth to net to be stable for the remainder of the year. So yes, that will – primary growth driver will be volume and demand. And we're very encouraged in what we see across the portfolio. We recently launched a Zaree foam 0.3% for scalp and body psoriasis. That will continue to be a growth driver. And then, as Patrick mentioned, with the pending approval in October for Zaree 0.05%, 2 to 5, we continue to be very optimistic and encouraged by future growth in our demand.

Yeah, and then, you know, just with regard to, Serge, your question around Part D, you know, across the three diseases, you know, keep in mind, let's say roughly about half of those patients across our three indications are government pay, either Medicare or Medicaid. And the relative split between Medicare and Medicaid really varies by disease. You know, atopic dermatitis is much more heavily Medicaid because of the age of the patients. Sebderm is much more heavily Medicare because of the age of the patients. And psoriasis is somewhere in between, although less psoriasis patients are government than with sebderm or AD. So, you know, I think in totality, again, it's about half our government. We're rapidly penetrating into Medicaid. Slightly less than half of that half is Medicare. Did that address your question around the Medicare piece?

Yeah, I guess the other part of that question was, you know, when do you think you'll be in a position to start capturing that coverage?

Yeah, that is hard to say, because unfortunately, it's completely outside of our control, right? You know, as Todd mentioned, you know, the dynamic that we're seeing is, and you all probably have seen this if you cover the insurance companies, you know, with the changes in the IRA that were adopted January 1 of this year, the insurance companies are losing a substantial amount of money on their Part D book of business, and a number of them had to issue earnings warnings, even as a result of that, you know, and that disruption then is leading them to be, I think, very conservative and to be looking at their businesses. You know, to the best of our knowledge, I don't think any new drugs have been added this year to the Medicare Part D formulas across all indications. So that tells you just sort of how perturbed they are. We don't know when things are going to settle out and they're going to start moving forward again. We continue to have, I think, constructive dialogues with the Medicare Part D plans, but when your boat is sinking, the last thing you're thinking about is picking up new passengers. I think that's a little bit how they feel right now. I expect it will stabilize. We think Medicare is still an important opportunity for us and will contribute to our growth in the future. It's very difficult at this point for us to call the ball on what the timing would be for that.

Okay. Maybe one last one. Obviously, your sales force has executed well, growing sales here in the second quarter, and it sounds like COA still has little contributions so far. So with the additional approvals coming up later this year, is there a case to be made to continue expanding your own sales force to continue executing well and growing the piece within the derm offices?

So, you know, I don't think we see or see at this point any need to expand in dermatology. We have a very well-sized dermatology sales force and we have good coverage, good frequency on our dermatology targets. You know, what we will have to continue to evaluate these opportunities outside of dermatology and think about how we address those opportunities. You know, we felt that the COA partnership was a smart way, an economical way for us to access the primary care and pediatric opportunities. But at this point in the game, we don't have any plans for any further Salesforce expansions on our QTA Salesforce.

Got it. Thank you.

Thank you. And one moment for our next question. Our next question is going to come from the line of Douglas Tao with H.C. Your line is open. Please go ahead.

Good afternoon, and thanks for taking the questions, and congrats on the progress. I'm just curious, you know, when we look at, I think it's slide 11, and you obviously, you know, as writers or as doctors write more for more indications, you sort of get a real economy of scale or sort of, you know, sort of logarithmic effect in terms of the scripts that they're writing, how, you know, how long does it typically take for docs to write for multiple scripts? Are they sort of coming at it sort of incrementally? And are there things that you can do or have started to do to, you know, sort of increase the indications that an individual doc is writing for?

Yeah, thank you for the question. You know, Arquidus is in a very good position with Zareev. And what I mean by that is that with the recent launches that we've had with indications, the dermatology prescribers have already had experience with Zareev, whether it be with the 0.3% for psoriasis or the own formulation for severic dermatitis. This drives rapid uptake relative to the other indications or formulations that we've launched. And we do see that within the data that a good portion of our prescribing base has adopted the full formulary this creates efficiencies with their prescribing both with the patient but also on the fulfillment side given that's the same copay card same pharmacy same process um so that you know it's the differentiation or disease of excuse me as a reef as an asset meaning that um you know across the different formulations and products. You can write the product relative to any duration on time anywhere on the body. We have a proven efficacy, proven safety. So this type of differentiation really compels the providers to continue to adopt the new formulations and indications we put into the market.

And I'm just curious if I can follow up just to the extent that some doctors might only still be writing for one indication. Is it your sense that perhaps they don't have awareness of the breadth of the label, or is it perhaps unique to their practice where they just might see sort of have a concentration into one of the indications? Thank you.

Yeah. Within our dermatology target universe, the dermatologists that have only adopted one indication is truly the exception. And usually that's something that's unique to their practice or to their patient population. We continue to engage those dermatologists, educate them on the Zarev differentiation and opportunity, and expect that over time they will have adoption of the portfolio.

Okay, great. Thank you so much.

Thank you. And one moment for our next question. Our next question comes from the line of Richard Law with Goldman Sachs. Your line is open. Please go ahead.

Hey, guys. Congrats on the progress. A couple questions from us. So following up on the Medicare discussion, what drug classification would SORI fall into in your Medicare coverage discussions or negotiations? Is it classified along with topical steroid, or can you get your own separate class as a topical PDE4? And also, what is the progress in Medicaid over the last quarter?

With regard to Medicare, relative to the glass, the market basket, if you will, we would be within the dermatology topical basket as how Medicare would position Zareeve. In reference to Medicaid, we've had exceptional success in expanding our Medicaid access. You think about it, and as mentioned, more than half of Medicaid patients now have access to Zareve. And most often, that's only a single step to a steroid. And we continue to be steadfast, expanding that access, ensuring that Medicaid recipients continue to have an expanded access to Zareve.

Okay, I just kind of follow up on that. So basically, is there a way to get a separate class that's like a topical PTE4 or just the rock basket that you mentioned?

Yeah, it would be difficult to get just a PD4 class. They want to keep the topical products in the same market basket. And actually, that's advantageous for us, given Zuri's differentiation, not only from an asset, but how we strategically price the product within the market. So, you take that strategic pricing within the market, and you also take into consideration the average utilization of two per patient per year is two to three. were a great value proposition to the Part D plans as well as the beneficiaries.

I see. Great. And then just one more question. Any new thinking around the ex-US opportunity, especially in Europe, based on how Absolura is performing? Thank you.

I would say at this point, no change. I think that Absolura is really a distinct linked situation, especially because of the label they have in Europe and the lack of comparators for that indication in Europe. I think for Zareev and some of the other advanced topical therapies, the reimbursement landscape in Europe is particularly challenging. And you lay on top of that, you know, some of the potential domestic risks around MFN pricing. And, you know, we feel that the business case right now in Europe isn't compelling enough for us to pursue that.

Got it. Very helpful. Thank you.

Thank you. And I would now like to hand the conference back over to Frank Watanabe for closing remarks.

Okay. Well, as always, we appreciate all the great questions and appreciate you guys making the time to join us on the call today. I know it's a very, very busy time of year. So we look forward to talking to you all again in another quarter and hopefully putting up another great number next quarter. Thanks again.

This concludes today's conference call. Thank you for participating. You may now just connect. Everyone have a great day.