Arcutis Biotherapeutics, Inc. Q1 FY2026 Earnings Call

Good day, and thank you for standing by. Welcome to the Arcutis Biotherapeutics, Inc. First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Brian Schoelkopf, Head of Investor Relations. Please go ahead.

Thank you, Marvin. Good afternoon, everyone, and thank you for joining us today to review our first quarter 2026 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis website. Joining me on the call today are Frank Watanabe, President and CEO of Arcutis; Todd Edwards, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Latha Vairavan, Chief Financial Officer. I'd like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. We encourage you to review all the company's filings with the Securities and Exchange Commission, including descriptions of our business and risk factors. With that, let me hand it over to Frank to begin today's call.

Thanks, Brian, and good afternoon, everyone. As always, we appreciate you making the time to join us. I want to start today's call with an overview of the latest developments at Arcutis and the progress we're making against our grow, expand, build strategy. I'll then turn things over to Todd for a commercial update, then Patrick for an R&D update; and finally, Latha for a review of the quarter's financial results as well as how we're thinking about investing in 2026 to drive ZORYVE inflection. So I'm starting on Slide 5. Hopefully, by now, you're all familiar with the grow, expand, build framework that we have adopted to define our strategy to sustain near- and long-term growth for both ZORYVE and the company overall. In a nutshell, our plan is to continue to grow our core ZORYVE business in our currently approved indications, to expand ZORYVE into additional indications and to build our innovative pipeline beyond ZORYVE. So starting with the grow pillar for driving momentum in our core approved indications, we're very excited to have submitted a supplemental NDA for ZORYVE cream, 0.05% in atopic dermatitis patients aged 3 to 24 months in April. This is a segment of patients who are significantly impacted by atopic dermatitis and who are in dire need of safe and effective treatment options beyond the very small number of currently approved therapies. Patrick will comment on the opportunity more, but we see this as a very significant new opportunity for ZORYVE, and there's a lot of excitement among dermatology clinicians about our data and the possible approval. We also completed enrollment in a MUSE trial for ZORYVE foam, 0.3% in children with scalp and body psoriasis ages 2 to 11 years of age, and that should serve as the basis for submission to extend the label to this age group, aligning it with the 0.3% cream. On the commercial front, we've essentially completed the expansion of our dermatology sales force to enable deeper reach into the dermatology landscape. I'm happy to report that our expanded dermatology sales force is in the field as of this week, but of course we probably won't begin to see an impact on sales for a few months. We also began the build-out of our dedicated primary care and pediatric sales team, starting with the recent hiring of our Head of Primary Care franchise. This team will embark on a targeted effort to engage with those primary care and pediatric clinicians who are already using a fair bit of topical therapies in their practice. We also continue to make important progress against our expand pillar as we work to bring the unique benefits of ZORYVE to people impacted by chronic inflammatory skin conditions beyond our currently approved indications who are also in need of targeted innovative treatment solutions, with a focus on diseases where we've already seen compelling potential of ZORYVE based on case reports and case series. Specifically, we're nearing full enrollment of our Phase II proof-of-concept trial in vitiligo, and we continue to enroll patients in our Phase II proof-of-concept trial in hidradenitis suppurativa or HS. We're also evaluating additional Phase II proof-of-concept trials in indications beyond vitiligo and HS, and we'll update you on our further decisions. And finally, we reached an important milestone in our pipeline building activities with the initiation of a Phase Ia/Phase Ib trial for ARQ-234. The investments we're making and the efforts we're taking to advance our initiatives across these three pillars are laying groundwork for further ZORYVE sales inflection and operating leverage expansion in 2027 and far beyond, as well as positioning us to sustain growth for the long term and, most importantly, expanding our impact on individuals living with chronic inflammatory dermatoses. Despite now having a successful commercial franchise in ZORYVE, we continue to be at our core a biotechnology company championing meaningful innovation within medical dermatology. These investments in innovation and growth reflect that intent. With that, I'll hand the call over to Todd to give you a Q1 commercial update.

Great. Thank you, Frank, and good afternoon, everyone. Turning to Slide 7. We continue to see strong sales performance in the first quarter with net product revenues of $105.4 million, up 65% versus the first quarter of 2025. This healthy quarterly performance was achieved despite the customary first-quarter seasonality impacting branded therapies driven by patient deductible resets, elevated co-pay utilization, annual insurance transitions and pull forward of refills into Q4. This typical pattern was further amplified this year by the impact of severe weather events we had across the country during the quarter. On an aggregate basis and in line with expectations, this resulted in a more significant sequential decline in product revenues from quarter 4 to quarter 1 compared to 2025, where seasonality was mitigated due to the initial launch of ZORYVE in atopic dermatitis. Importantly, we are through the impact of this typical seasonality and anticipate a return to robust quarter-on-quarter demand growth going forward. Our gross-to-net remained stable in the 50s, and as communicated on our last call, we anticipate it will remain in the same range for the remainder of 2026. Our first-quarter gross-to-net rate improved compared to Q1 2025 due to our evolving payer contracting that benefited product revenues for the period. Looking ahead to the second quarter, we expect quarter-over-quarter net sales growth driven primarily by increasing patient demand as well as continued gross-to-net improvements as we progress from our current rate to the low 50s as the year progresses. Turning to Slide 8. After a typical December to January pullback in demand, weekly prescriptions on a rolling four-week average based on IQVIA EXPONent data have returned to a healthy growth trend and reached approximately 21,000 prescriptions per week across all indications and formulations for ZORYVE. As is clear from this chart, ZORYVE continues to generate sustained Rx growth. For the remainder of 2026, we anticipate sustained demand growth will be the primary driver of ZORYVE's revenue expansion. The most important driver of this sustainable momentum will remain the conversion of topical corticosteroids to advanced targeted topical therapies as health care providers' and patients' perceptions of the risk of chronic use of topical steroids evolves. In a few minutes, Patrick will comment on developments we are seeing on that front. Investments we have made to expand our dermatology sales force will also contribute to demand growth in the second half of the year, and our efforts in primary care and pediatric settings will start to have an impact later in 2026 and 2027. Next, I'll provide some additional detail on demand across topical therapeutics and dermatology in the first quarter. I'm on Slide 9. As demonstrated in the chart on Slide 9, prescription volumes were down across the board for topicals in the first quarter of 2026 compared to the fourth quarter of 2025. Of note, the impact was not only seen with branded products, but also with topical corticosteroids, antifungals, vitamin D analogs and topical calcineurin inhibitors. Products in these categories are primarily generic, making them less sensitive to the typical seasonality experienced by branded products in the first quarter. And yet this year, they still saw marked sequential declines quarter-on-quarter. We believe that this dynamic speaks to the fact that the severe weather events in the first quarter impacted dermatology prescription volume in general, a headwind that compounded typical seasonality and affected the entire topical segment. Of note, the prescription decline for ZORYVE in the quarter at 6% was meaningfully lower than the other branded non-steroidal topicals, which collectively were down 15% for the quarter. This relative outperformance is further evidence of the growing preference for ZORYVE by dermatology health care providers and patients. ZORYVE's relative strength in the period also drove further share expansion with ZORYVE's share of total branded non-steroidal topical prescriptions increasing to 48% in the first quarter, a three percentage point increase from the end of 2025. Moving to Slide 10. We are excited about the key investments we are making in 2026 to drive ZORYVE's continued momentum and set the foundation for its growth inflection in 2027 and beyond. We have completed our previously announced dermatology sales force expansion. As Frank noted earlier on the call, we're pleased to report that these new sales force members are out in the field as of this week. As is typical, these sales representatives require a couple of months to gain familiarity with their call points. So we anticipate seeing the impact on demand from these added boots on the ground beginning in the third quarter. We are also underway in the build of our primary care and pediatric team. We are thrilled to announce today that we have hired the head of this new franchise, Katie Swoss. Katie brings incredible breadth and depth of experience with dermatology therapeutic commercialization, having held various strategic and operational leadership positions, and she has already begun building out the rest of her team. As we described previously, we are adopting a highly targeted approach with this sales team focused on high-volume, early-adopter PCPs and pediatricians concentrated in major metropolitan areas, positioning this investment to be accretive from the outset. From there, we will evaluate additions to the sales team as we further refine our strategy and gain in-depth understanding of the space. We look forward to completing the initial build-out process next quarter with the launch into the field in Q3, initial impact to demand beginning in the fourth quarter. Rounding out focused commercial investments, our Free to Be Me direct-to-consumer patient awareness campaign featuring Tori Spelling, her daughter, Stella McDermott, and professional golfer Max Homa has driven strong meaningful patient engagement. Their shared collective experiences are helping to drive awareness for ZORYVE across all indications and are resonating with a broad range of patient demographics. We look forward to the continued progress of this important direct-to-consumer effort to ensure we are capturing and reflecting the patient voice and patient experiences as they live and manage their chronic inflammatory skin conditions and the impact ZORYVE has on their lives. With that, I'll now turn the call over to Patrick.

Thank you, Todd. Good afternoon, everyone. In the first quarter, we continue to make significant progress in our efforts to support young children and infants suffering from plaque psoriasis and atopic dermatitis. Starting first with atopic dermatitis, children under the age of two are the most vulnerable patients in a population that desperately needs alternative therapeutic options to the handful of currently available treatments. As a dermatologist, I can tell you firsthand how challenging it is to sufficiently address these diseases in this age group given the very limited set of approved therapies and how eager the parents and caregivers are for effective, safe and well-tolerated treatments to bring comfort to their kids. Safe, well-tolerated treatments are especially important in this age group when the immune system and the skin barrier are still developing. We take their plea very seriously, and we believe the clinical profile and formulation of ZORYVE are well suited to the needs of this young patient population. On our March call, we highlighted the positive topline data from the INTEGUMENT infant Phase II trial of ZORYVE cream 0.05% in infants aged 3 to less than 24 months with mild to moderate atopic dermatitis. Expanding on what we shared in March, we were honored to have our abstract selected for a prestigious late-breaker session and presented by Dr. Lawrence Eichenfield at the American Academy of Dermatology Annual Meeting at the end of March, select portions of which we have here on Slide 12. Over one-third of study participants who completed four weeks of treatment achieved a validated Investigator Global Assessment for atopic dermatitis, a VIGA-AD success, which is defined as a score of 0, clear, or 1, almost clear, with at least a two-grade improvement. Close to half of infants achieved a VIGA-AD score of clear or almost clear, a 0 or 1, at week four and 24% already at week two. For those infants with at least mild scalp involvement at baseline, more than two-thirds achieved VIGA scalp success at week four. As previously highlighted, 58.3% of infants achieved at least a 75% reduction in their Eczema Area and Severity Index, an EASI-75, at week four and three-quarters of infants already at week two. To the right, we see a representative patient: a 23-month-old boy who had previously been treated with topical corticosteroids with an IGA of 3, moderate severity at baseline, showing significant improvement at week four with an IGA of 1, almost clear. I think these photos really represent the meaningful impact that our 0.05% cream delivered to patients in this study and why we're so excited to have these data submitted to the FDA. Collectively, the findings from the INTEGUMENT infant study add important clinical evidence on the promise of investigational ZORYVE cream 0.05% in infants 3 to 24 months with rapid and robust efficacy across multiple clinical endpoints, coupled with excellent tolerability and a clean safety profile. Now moving on to Slide 13. I want to highlight one particularly notable result that we shared from INTEGUMENT infant at the AAD, namely the rapid impact that ZORYVE had on itch for these patients as reported by their caregiver. Itch is one of the most disruptive symptoms of atopic dermatitis in patients of all ages and the rapidity with which a therapy can alleviate itch is an important aspect of a drug's therapeutic profile. We've known since early clinical development that ZORYVE has a rapid impact on itch. The chart on the left-hand side of Slide 13 shows itch improvement over time in our registrational INTEGUMENT-1 and -2 trials in atopic dermatitis as measured by WI-NRS, the Worst Itch Numeric Rating Scale. As you can see, we saw itch reduction as early as 24 hours after first application, which was the first time point measured in these trials. However, through our clinical trial experience and feedback from clinicians in the field, we appreciated that the speed with which ZORYVE impacts itch is exceptional. With that in mind, in the infant trial we chose to measure impact on itch using the Dynamic Pruritus Score, or DPS, with measurements as early as 10 minutes after application. The results from that analysis are demonstrated in the chart on the right-hand side of this slide. Nearly 50% of patients experienced a 25% improvement in itch as measured by their caregivers within just 10 minutes of application of ZORYVE and two-thirds of patients experienced relief within four hours. These results not only reinforce our conviction that ZORYVE will be an important therapeutic option for infant patients, but this demonstrated speed of onset has also prompted us to further study the impact of ZORYVE on itch. To that end, we recently initiated a study, INTEGUMENT-Ich, to assess descriptive classification of pruritus over time with ZORYVE 0.15% cream in patients with atopic dermatitis. This 40-patient trial will begin enrolling shortly. We believe that the further validation of ZORYVE's rapid impact on itch that this trial is intended to demonstrate, particularly within the first 24 hours after initiating therapy, is an important step in better understanding and articulating ZORYVE's profile in atopic dermatitis. INTEGUMENT-Ich is an example of our strategy to generate additional clinical data for our current indications to further bolster the data set behind ZORYVE—an important component of our growth strategy pillar. I look forward to sharing subsequent updates on other clinical activities we're pursuing along the same vein. Next, I'll provide an update on our label expansion efforts to support pediatric patient populations. As Frank mentioned in the opening, we submitted a supplemental NDA to the FDA in April for ZORYVE cream 0.05% to expand the indication to infants 3 to 24 months. We're thrilled to have taken this critical step to potentially bring a new safe, well-tolerated and effective therapeutic option to this patient population. It's notable that we were able to submit our application in just three months after having read out the topline results from our INTEGUMENT infant trial. This reflects the speed with which our team at Arcutis is moving on behalf of patients and our response to the high level of urgency shared by those health care providers who care for these youngest atopic dermatitis patients. Turning next to our pediatric expansion efforts for plaque psoriasis. We recently completed enrollment of a MUSE trial for ZORYVE foam 0.3% for children ages 2 to 11 years old with scalp and body psoriasis. The trial is intended to serve as the basis of an sNDA submission to extend the indication to this age group and to align the psoriasis indication of the 0.3% cream and foam. If approved, ZORYVE foam could offer a truly unique therapeutic option for caregivers helping their young children manage this disease that has historically been difficult to treat when presenting in hair-bearing areas. In addition, as previously announced, our supplemental NDA for ZORYVE cream 0.3% for psoriasis patients down to the age of two years is under review by the FDA and the PDUFA action date of June 29 is quickly approaching. I'll note that the rationale for extending our label to the infant population for atopic dermatitis does not apply to plaque psoriasis or seborrheic dermatitis. Onset of disease in these patient populations is common in atopic dermatitis, while it's not in the other two diseases. Our current label in seborrheic dermatitis positions us to effectively serve the addressable patient population and potentially securing a label expansion to the pediatric age range in plaque psoriasis will similarly equip us to serve the addressable patient population. As demonstrated in the table on Slide 14, these latest developments in expanding our indications to additional pediatric and infant populations build on a consistent focus we've maintained over the years to broaden the availability of ZORYVE. We're driven by the need of these younger children for effective, safe and well-tolerated therapeutic alternatives to topical corticosteroids. We also anticipate that when health care providers see how effectively ZORYVE alleviates inflammatory skin disease in their most fragile and vulnerable patients, they'll be more inclined and appreciate the potential benefit from ZORYVE for their adult and adolescent patients with the same diseases. Now turning to Slide 15 and the pipeline. This is the build pillar of our strategy. We've now initiated the Phase I trial of ARQ-234, our novel biologic targeting CD200R in healthy volunteers and adults with moderate to severe atopic dermatitis. There's a clear and distinct need for a systemic therapy for patients with atopic dermatitis who have relapsed on or who are refractory to IL-4, IL-13 drugs. Many in the drug industry and many clinicians had until recently hoped that agents targeting OX40 would meet that need. However, after a series of disappointing clinical data sets and growing safety concerns for these programs targeting OX40 already leading to program discontinuations, that hope has dissipated, leaving a white space for novel new treatment pathways. It's our belief that the CD200 axis targeted by ARQ-234 could bring an important new tool for providers and an important new option for patients. The CD200 axis plays a central role in both innate and adaptive immunity with CD200 signaling reducing immune activation for T cells, type 2 innate lymphoid cells (ILC2) and myeloid cells and decreasing secretion of pro-inflammatory cytokines. Given the impact of this axis, there's a solid basis for optimism about the role CD200R agonist programs may play in treating inflammatory diseases. The Phase I trial for ARQ-234 is comprised of a single ascending dose, or SAD, component in healthy volunteers, which is currently ongoing, and a multiple ascending dose, or MAD, component followed by a proof-of-concept cohort, both in patients with moderate to severe atopic dermatitis. While we will not share the results from the trial until completed, we will keep you apprised of our progress through these different components. Now moving on to Slide 16. As you can see, we've already delivered on several meaningful clinical milestones in 2026 and look forward to continuing clinical progress throughout the year. Of note, we continue to enroll our Phase II proof-of-concept trials in vitiligo and hidradenitis suppurativa or HS. We're nearing full enrollment for our vitiligo trial and remain on track to provide a readout of trial results and an update on our clinical development plan in Q4 of this year. A similar readout for our HS program in Q1 of 2027 also remains on track. Todd alluded earlier to the continued shift from topical steroids to advanced targeted topical therapies like ZORYVE. As we've mentioned on prior calls, we're seeing a steadily growing consensus within the dermatology specialty around the clinical needs for that shift, and we saw further evidence of this since the start of the year. On Slide 17, I highlight just a few of the recent discussions on this topic. I would call your attention in particular to one of the conclusions of the recently published expert consensus statement on advanced nonsteroidal topical therapies for atopic dermatitis, which came out in March in the Journal of Drugs in Dermatology. As you can see, some of the most distinguished experts in the field agree that advanced nonsteroidal topicals should be preferred over topical corticosteroids for long-term management of atopic dermatitis due to their cleaner safety profiles. This is typical of what we continue to hear from the leaders in dermatology, and this growing consensus will propel the conversion to the newer agents, of which ZORYVE is the leading treatment. With that, I'll turn the call over to Latha to further detail our Q1 financial results.

Thank you, Patrick. I'm on Slide 19. We generated net product revenues in the quarter of $105.4 million, which is up 65% from Q1 of 2025. This year-over-year increase was driven primarily by increased patient demand. We also had lower gross-to-net in the first quarter of 2026 versus a year earlier, contributing to higher net product revenues. As Todd mentioned earlier, this improvement in gross-to-net was primarily driven by the evolution of our payer contracting. While our gross-to-net rate is lower to begin the year, we still anticipate it to be in the 50s throughout 2026, ending in the low 50s. Cost of sales in the first quarter were $9.8 million compared to $8.8 million in the first quarter of 2025, primarily due to increasing ZORYVE sales volume. For the first quarter of 2026, our R&D expenses were $30.6 million versus $17.5 million for the corresponding period in 2025. This year-over-year increase was primarily due to the $10 million milestone obligation to Ducentis shareholders triggered by the dosing of the first subject in the ARQ-234 Phase I trial, which occurred in the quarter. SG&A expenses were $74.1 million for the first quarter of 2026 compared to $64.0 million in the same period last year, up 16% as we continue to invest in our commercialization efforts for ZORYVE. We anticipate a modest increase to SG&A expense in the back half of the year, driven by headcount-related costs for the dermatology sales force expansion and the build-out of our primary care and pediatric sales team. We are maintaining our revenue guidance in the range of $480 million to $495 million for the full year 2026. Moving to Slide 20. You can see that we had cash and marketable securities of $224.3 million on our balance sheet as of March 31, 2026. Importantly, we maintained positive cash flow in the quarter with $2.2 million of net cash provided by operating activities. We will continue to be disciplined in our investments in the business to maintain positive cash flow throughout the rest of the year. We have total debt of $101.5 million and have the right to withdraw another $50 million in whole or in part at our discretion through the middle of 2026. I am now on Slide 21. With the continued broad adoption of ZORYVE and sustainable sales momentum that the franchise has demonstrated, we have reached the rare milestone among biotechnology companies of achieving positive cash flow at Arcutis. We first achieved sustainable positive cash flow in the fourth quarter of last year and have communicated that through diligent expense management, we anticipate maintaining positive cash flows on a quarterly basis throughout 2026. The core ZORYVE business is strong and the shift from topical steroids to branded nonsteroidal topicals will continue to offer immense growth opportunity for many years to come. Concurrently, we are reinvesting capital generated from our ZORYVE franchise back into our business in order to inflect growth in 2027 and beyond. ZORYVE's growth is driven by both of these factors. You've heard about several of these initiatives today, including our sales force expansions in both dermatology and primary care, DTC efforts, clinical investments to support current and potential additional indications for ZORYVE and progress on our innovative pipeline. There are additional initiatives for which we are making disciplined investments that we look forward to detailing throughout the year. These investments lay the foundation for both near- and long-term growth for Arcutis. They will help to further catalyze the continued growth of ZORYVE and inflect its trajectory. ZORYVE is a profitable franchise. If we were not pursuing these impactful accretive investments, we would commence operating leverage expansion in 2026. As we look ahead to 2027, we expect a moderation in the need for increased investment in our current business compared to this year. Coupled with the anticipated continued sales growth of ZORYVE, we expect that we will see meaningful increase in our operating leverage and cash flow generation in 2027 and beyond. With that, I will now turn the call back to Frank for closing remarks.

Thanks, Latha, and thanks again to all of you for joining us today and for your continued interest in Arcutis. I'm immensely grateful to our team and very proud of their hard work, their dedication to building shareholder value and their commitment to the patients we are serving. With that, I'll open up the call to Q&A.

Our first question comes from the line of Andrew Tsai of Jefferies.

So it sounds like gross-to-net performed better compared to Q1 of last year. Can you qualitatively describe what drove that better percentage? Was it something within your control? And what kind of positive impact could that have for the rest of the year? I know you guided gross-to-net for the rest of the year. Is it fair to assume blended gross-to-net for this year could be better than the blended gross-to-net for 2025?

Sure. Yes. Todd, do you want to take that one?

Yes. I'll take that, Andrew. Thank you for the question. We did have price improvement in the first quarter of this year relative to Q1 2025. This year-on-year improvement was primarily driven by improvements in formulary status with more preferred versus nonpreferred positions with some of our commercial plans. What this means is that for a patient, preferred status results in a lower co-pay versus nonpreferred status. With preferred status and lower co-pays for patients, that leads to lower co-pay expenses and lower co-pay buy-down for Arcutis, which gives us pricing upside. While our rate is lower than the prior year, we continue to anticipate that we'll be stable in the 50s throughout the year. We'll be working down from the higher 50s at the beginning of the year, transitioning to the lower 50s at the end of the year as patients continue to buy down their deductibles and we have lower co-pay expenses. Looking forward, it's a bit early to anticipate how all these factors will carry forward to future years. But I remain very confident that we'll continue to have a strong gross-to-net, and we'll maintain our gross-to-net within the 50s going forward. Thank you for the question.

Our next question comes from the line of Tyler Van Buren of TD Cowen.

Just to help quantify the quarter-over-quarter impact in the Q1 seasonality, as we compare to Q4, can you help us understand how much of that was the gross-to-net impact versus volume impacts from weather or Q4 pull forward? And second, I understand that you're saying that Q2 sales will be above the first quarter, but do you believe it's likely that Q2 sales could significantly exceed the sales that were posted in Q4?

Tyler, yes. Todd, do you want to take that one, too?

Yes, absolutely. Thank you, Tyler. In reference to the quarter-on-quarter impact of seasonality and the differential between gross-to-net and demand, as we've highlighted, there was an upside on gross-to-net due to improved formulary position from nonpreferred to preferred. Regarding demand, the seasonality is typical because of the pull forward of refills into Q4, employer insurance changes effective January 1 and higher deductible resets, and this was compounded by the severe weather impact in Q1. This weather impact affected dermatology prescription volume in general and was not limited to topical products; systemics were also impacted—Otezla was down 11%, Rinvoq 3%, Dupixent 2% by volume in the period we observed. Relative to Q2 sales, quarter-to-date through April 24, ZORYVE has 13% growth versus Q1 within the same time period. So we're off to a very strong start in Q2 and I have high confidence that we'll continue to build on this demand trend and have robust quarter-over-quarter growth going forward.

Our next question comes from the line of Seamus Fernandez of Guggenheim Securities.

This is Colleen on for Seamus. When thinking about this year's sales guidance, what are the assumptions driving the lower end of the guide? By our math and based on the current prescription trajectory, we're starting to struggle to land within the upper end of the guide and consensus looks to already be above. So just trying to understand the pushes and pulls to maintain the current guide.

Colleen, I would say that we just updated the guidance in February, so not that long ago. We don't intend to update our guidance every quarter unless necessary. We'll continue to evaluate the trend as the year progresses. If we feel that it's appropriate to update the guidance, we will, but we felt that at this point, early in the year, particularly with a slightly anomalous Q1, it was prudent to hold fast.

Nothing else, Frank.

Calling out that we issued the guide after the end of the year. As Frank said, we don't see the need so early in Q1 to take it up. As the year progresses and the guide rate changes, you'll be able to align more to where the demand trajectory is headed. For now, I think you can lean into the upper end and stay there.

Our next question comes from the line of Judah Frommer of Morgan Stanley.

We appreciate the updated trends on total scripts and the share being taken there. Anything you're noticing in NRx new scripts and any trends that are indicative of where TRx could move going forward?

You're talking absolute volume share?

Yes.

When we look at Q1 for ZORYVE and look at new-to-brand Rx for the branded non-steroidal topicals, ZORYVE drove 48% of the new-to-brand Rxs for that basket in Q1, which is very encouraging. For comparison, Opzelura was 28%. Also, ZORYVE's NBRx decline quarter-over-quarter was basically flat, which is another strong signal. Regarding refills, refills represent about 45% of our total volume prescriptions, which is encouraging for both NBRx and TRx growth. If I look within Q2, approximately in the last three to four weeks, we've had very impressive NRx growth with ZORYVE, which is a strong leading indicator of TRx growth as we move forward in the quarter.

Our next question comes from the line of Uy Ear of Mizuho.

I have two questions, if I may. First, could you help us understand or quantify the opportunity from the infant atopic dermatitis condition? Frank mentioned it was a significant opportunity. How will you capture that opportunity? Is it primarily through the dermatology sales force that you currently have or from building out the primary care and pediatric sales force? Second, Latha, SG&A was lower than what I think we or consensus expected by about $4 million. Now that you have the full sales force expansion, do you expect an uptick in Q2? I heard you indicate that you were expecting a modest SG&A uptake in the back half of the year. Maybe help us understand the cadence of spending for the year.

Go ahead. Did you have another one?

I can start from the clinical perspective. The 3- to 24-month group is a uniquely vulnerable population that has very limited approved options—essentially crisaborole and topical corticosteroids—so these patients are difficult to manage. They are often seen by dermatologists, dermatology PAs and NPs, and pediatricians as well. This population typically has higher body surface area involvement relative to age, their disease can evolve quickly, and caregivers are highly sensitive to steroid exposure given developmental concerns. The ZORYVE profile fits well for this population as a safe, well-tolerated option. Solving this problem for prescribers can help the overall brand and field adoption. In terms of the absolute size, I'll turn that to Todd to discuss commercially.

To add commercially, this patient population is tremendously underserved. If you think about it, the available options are very limited and caregivers have concerns about steroid exposure. How we'll drive this opportunity, once we get approval, will be across both the dermatology sales force and the primary care/pediatric sales force. Dermatology will reach pediatric dermatologists and other dermatology providers who see these patients. The primary care and pediatric team will call on pediatricians to create awareness for the patient population. We'll also use direct-to-consumer campaigns targeted to caregivers. As an approximate size, the addressable opportunity in this age group in atopic dermatitis is about $2 million to $2.5 million in annual patient-level opportunity as we estimate it today.

Latha, can you address Uy’s question about the OpEx cadence?

SG&A for Q1 was slightly below consensus, but we don't see a dramatic decline. The field force expansion started in Q2, so you'll see a portion of that hitting Q2 actuals. The primary care field force expansion will happen in the second half of the year, which is what the comment about a modest increase references. Some initiatives that Todd discussed will also have expense play out over the course of the year. Overall, expect SG&A to be higher year-over-year, with some of the incremental spending weighted to the back half of the year as hiring and field ramp occur.

Our next question comes from the line of Serge Belanger of Needham.

First, regarding coverage for ZORYVE, do you expect to make headway on remaining Medicaid and Medicare coverage? Could any of that be pulled forward into 2026? Second, with the sales force expansion, you're going to lower decile prescribers. How do they differ from higher decile prescribers? Volumes are lower, but do they tend to prescribe fewer topical products than higher decile ones?

Todd, do you want to take those two?

Great question. On coverage: we will continue to make headway in Medicaid during 2026 by contracting with individual state fee-for-service Medicaid programs where ZORYVE is not yet on formulary; we're currently in negotiations with some of those states. For Medicare Part D, it's a longer process since each Part D plan manages its own formulary and typically updates at the start of the year. We have access in approximately one-third of Part D plans today, and our ambition is to continue accelerating Part D coverage; we will make efforts to pull that forward into 2026 where possible, though some updates may only take effect January 1, 2027. Regarding the sales force expansion to medium decile prescribers, our aim is higher frequency and deeper engagement with those prescribers without diluting coverage of higher decile providers. Higher decile providers have larger patient volumes and tend to be more rapid adopters of branded products, but medium decile providers represent meaningful additional opportunity and can significantly expand ZORYVE adoption as we increase frequency and engagement.

Our next question comes from the line of Richard Law of Goldman Sachs.

First, on the primary care and pediatric setting, could you speak more to what you're doing differently than CALA in those settings? What areas were they not doing well that you think you can improve on? Second, on the foam trials in vitiligo and HS, what efficacy benchmarks would be sufficient to give you confidence in continuing development in those two indications?

Thanks. Regarding primary care and pediatrics, it's not about replicating others' approaches; it's about setting this team up for success through a very targeted approach. We're building a target list focused on PCPs and pediatricians with the highest patient loads in our three approved indications who have shown willingness to adopt branded products. We're concentrating in major metropolitan areas and ensuring each representative has a defined number of high-opportunity targets to provide the right frequency and drive trial and adoption. The idea is to start focused, drive success, then scale. On your second question about efficacy benchmarks in vitiligo and HS, I'll defer to Patrick to elaborate on the clinical expectations.

For vitiligo, these are smaller open-label trials where we're trying to understand ZORYVE's profile relative to current standard-of-care treatments like topical JAK inhibitors. We're looking at responsiveness timing—how quickly patients see repigmentation—because speed of response can drive compliance. Our mechanism may impact inflammatory components and potentially melanocyte protection or pigment production, offering a hypothesis for an earlier response. For HS, we want to understand where ZORYVE could move patients in earlier-stage disease and how it could fit into a treatment paradigm where many patients quickly move to systemics. There's an opportunity for a safe, effective topical that could be used adjunctively with systemic therapies. For both programs, seeing meaningful clinical signal, earlier onset or meaningful adjunctive benefit in these open-label POC trials would justify continued development. We'll provide a clearer clinical and commercial plan for vitiligo in Q4 when we read out results.

In the HS case, systemic therapies are not particularly effective for many patients; even those on systemic therapy often need adjunctive treatment. ZORYVE is unique among topicals in that it can be safely used in combination with systemic therapies, and HS lesions often occur in intertriginous areas where doctors are reluctant to use topical steroids. So both early-stage disease and adjunctive use with systemics are compelling potential use cases for ZORYVE.

I'm showing no further questions at this time. I'll now turn it back to Frank for closing remarks.

Okay. Well, I will just thank everyone again for making time. I know it's a busy time of the year for you. I appreciate you calling in and look forward to talking to you all in another quarter. Thanks. Bye-bye.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.