Conference Transcript - ARQT 2026-04-14

Serge Belanger, Analyst — Needham

Hi, good morning. My name is Serge Belanger. I'm one of the health care analysts at Needham. I want to welcome everybody to Needham's 25th annual health care conference. And for our next fireside chat session this morning, we have our Cutis Biotherapeutics with us. And from the company, we have the CEO, Frank Watanabe, the company's CFO, Latav Beraivin, and Head of Investor Relations, Brian Sholkoff. So thanks for joining us this morning. Maybe I'll kick it over to Frank or Leita or Brian to give us an overview of the company, and then we'll move on to some Q&A.

Frank Watanabe, CEO

Sure, yeah. So for those of you who aren't familiar, Arcutis Biotherapeutics is a 10-year-old dermatology biotech. We focus on the treatment of inflammatory skin conditions. We currently have four approved products on the market, all marketed under the name Zorive. We've got a cream that's approved for the treatment of plaque psoriasis. We have two different creams that are approved for the treatment of atopic dermatitis or eczema. And then we have a foam that is approved for the treatment of both psoriasis and seborrheic dermatitis. um we also have another pipeline asset it's a novel biologic for atopic dermatitis that we just started phase one trials on uh and we continue to look at potential new uses for zarive as well beyond their currently approved indications and we can go in a little more detail with that a little bit later um i think importantly we uh we started generating positive cash flows in the fourth quarter and we expect to continue to generate positive cash flow going forward even with the continued investments that we're making both in our existing business to grow that business as well as the pipeline both new indications for Zareev as well as as I mentioned our novel biologic.

Serge Belanger, Analyst — Needham

Great let's start with Zareev commercialization I think it's been very successful. We've been covering the company since I think the start of the commercialization of Zoriv and obviously the valuation of Arcutis was very different at that point. I think there was a lot of concerns about a branded topical Derm product. But like I said, I think it's been very successful. So what do you think has been the secret sauce to changing the narrative around branded topical derm products?

Frank Watanabe, CEO

You know, I think that the challenge really in the topical space has not been the lack of patience or the lack of unmet needs. It's been the lack of innovation, right? When we were approved in plaque psoriasis and right about the same time there was another product approved in plaque psoriasis, there hadn't been a novel topical approved in decades in plaque psoriasis. The same thing was true in seborrheic dermatitis. It had been several decades before a new product had come along. In the atopic dermatitis space, there had been, you know, one a number of years ago that really didn't meet the needs of clinicians and patients. And then there is another competitor in that space that launched shortly before us. So you now have, you know, three advanced topical therapies on the market, which really address unmet needs in the treatment of these inflammatory skin conditions. I think, you know, we believe that Zareev is the best of those three. And I would say our 50% market share reflects the fact that patients and clinicians agree with us that Zareev is the best option. But these are really dramatically different, you know, heretofore, doctors were forced to either use topical steroids, which were effective, but are only safe for short-term use. And these are all chronic conditions. So, you know, that doesn't match up well together. or the non-steroidals weren't terribly effective and were associated with a lot of side effects like burning and stinging. And so, you know, doctors and patients were constantly having to juggle this complicated tradeoff between what was effective and what was safe. With the advanced topical therapies and with Zarev in particular, you know, they now have a topical that is as effective, pretty much as effective as a topical steroid, but is also safe for chronic use. It's safe for use anywhere in the body. In the case of Zarev, it's safe for any amount of use, any body surface area. And so they don't have to make this trade-off anymore between efficacy and safety and tolerability. And that's really changing the paradigm for how you manage inflammatory skin conditions. I think it's also probably important for investors to realize that, you know, although we've made immense progress in the treatment of psoriasis and atopic dermatitis with biologics. We have, I think, 13 biologics now for psoriasis and four for atopic dermatitis. A very small percentage of patients are actually on those therapies, you know, somewhere in the range of 10% of psoriasis patients. Another 15% are on oral therapies like Otesla or Sotik2 or now and in the atopic dermatitis space, there's more penetration of biologics, but less penetration of orals, right? So, you know, 90% or more of the patients who have these diseases and who are getting treated are on a topical, whether they're on a biologic or not, they're also on a topical. So this is an immense market. You know, there were 25 million prescriptions written last year for topical therapies for one of these three inflammatory skin conditions. And, And we're very, very early in the process of converting the steroid, the topical steroid market over to advanced topical therapies like Zareeve.

Serge Belanger, Analyst — Needham

Has there been a change in approach from payers? Because I know that was a concern for topical products as payers were often pushing back. Maybe it was because it wasn't efficacious or maybe the number of biologics has kind of changed the approach also for topical products.

Frank Watanabe, CEO

Yeah, no, I think that at least in the case of Zareev, we found that we have been very successful in getting access to the product. Somewhere around 85% of commercial patients have access to Zareeve, and nearly all of that is through a single step edit. We have over half of Medicaid lives also have access to Zareeve through a single step or better. And there's some cases in Medicaid where there's no step edit. And we've started picking up Medicare coverage as well. We announced in January that we had now obtained coverage for about a third of all Medicare recipients for Zareeve as well. You know, it varies depending on the product. But, you know, we had strategically priced Zareev at the very outset in a way to optimize the coverage for the product. And that's really paid off for us in our ability to gain coverage. And I think really importantly for investors to get paid for prescriptions, right? You know, investors, I think, look at prescriptions. But what you really care about is paid prescriptions. you know not only do you not make money on an uncovered script you actually lose money on an uncovered script so we're very focused on that very happy about the fact that over 80 percent of all prescriptions for Zareeb are paid and that's what's allowed us to get our gross net down in the 50s and keep it down in the 50s which is about as good as anyone does anymore in the branded market you know across all therapeutic areas okay let's talk about potential well growth expectations for 2026, and you had a really strong 4Q that you reported, I think it's a couple months ago now.

Serge Belanger, Analyst — Needham

I think that led to a bump in your, the first bump in your 2026 guidance. So maybe let's start by reviewing performance in 2025 and how that sets you up for what we should expect for 2026.

Frank Watanabe, CEO

Yeah, sure. Alasta, do you want to talk a little bit about 2526?

Latha Vairavan, CFO

Yeah, absolutely. So, So, and as you know, Serge, we just put out our earnings at $127.5 million of product revenues for Q4, and that was almost 85% year-over-year growth on our net sales. And we reported, we gave guidance at the end of October for the first time for 2026, and that was, as you know, probably early in the game. Usually companies wait to do that, but coupled with our investor day and as we set up our strategy to grow and expand or even build our pipeline, it felt like the right time to give the preview into 26. And then with the exceptional performance that we had in Q4, we increased that guidance to $480 to $495 million for product revenue in 2026 based on a few things. one, the trajectory that we saw in Q4, plus the investments that we're making. As we've said, we're going to be cash flow positive. And we started that in Q4 of 2025. And really, it's intentional and deliberate to take that cash flow and leverage and invest it back in ROI, creative and positive investments for the business. And the first of a few that we announced early in January was to expand our sales force. We've announced promotional tactics that we're working on, one with Golf or Max Homa, and that we are going to set up our, start a structured PCP sales force and grow that over time, not to the extent that we stand up a full PCP sales force, but enough to target those clinicians prescribing Zareeb. So taking those investments into account also allowed us to take up our guide at the Q4 earnings call.

Serge Belanger, Analyst — Needham

Got it. And before we move on to individual growth drivers for this year, maybe let's just talk about the expected seasonality or cadence quarter by quarter for 2026. Should we expect a step down in one queue? And I guess we've heard a lot of talks this week about winter storm impact. I mean, does that make this one queue worse than other years?

Frank Watanabe, CEO

Well, I think in terms of volume, right at this point in the game, everyone can see the volume. And, you know, I think this was this was slightly atypical, maybe on the quarter. Right. You know, certainly the impact of the winter storm was was pretty profound, I think, for really all brands. You know, you saw it across the board. And I think that was particularly because the storm hit, you know, the southeast that just isn't used to snow. And, you know, it's challenging in dermatology because, you know, Serge, as you know, dermatologists are booked six months out, right? So if they miss a week of work, it's probably going to be six months before that patient gets in to see the doctor. And that, you know, definitely has been a drag, I think, for all brands across dermatology. You know, we always expect to see a dip from Q4 to Q1. Patients pull prescriptions into the fourth quarter, especially December, because they know their co-pays are going to reset. december one uh january one excuse me i admit i do that myself right so you see a demand pull forward in the q4 and and that means a drop in demand typically in q1 versus q4 you also have the the top line impact of copay resets which means that all of the companies are paying more on their their patient copay cards in in january and february and that you know impacts also the revenue picture that we see. But, you know, I think we have been pleased in looking at the demand that while there, you know, there was a slight letoff in demand in Q1 for Zareev, it was much, much less than what we see for really almost every other topical in the marketplace, including not only the branded, but even some of the generic topicals. And, you know, we'll report our top-line revenue number in the not-too-distant future, but there will be some impact on gross to nets. We do expect our gross to net to stay in the 50s in Q1, and we would expect, like last year, that that will rapidly trend down towards the lower end of the 50s as the year progresses. We exited last year with a really, really strong gross to net, and we expect to get back to a similar place this year.

Serge Belanger, Analyst — Needham

Okay.

Frank Watanabe, CEO

And that gross to net is now stable because the period coverage is has reached kind of a steady state on both the commercial and medicare side um well medicare uh you know we're continuing to work on right i mentioned before we only have about a third of medicare lives now so we're working on getting those other two-thirds you know the medicare part d plans normally only change their formularies in january so you know it'll we've got a while to go yet we'll be working on them for that january they sometimes will pull forward coverage but i wouldn't expect it, right? I think we should be expecting to pick up additional coverage starting January 1 of next year. Commercial is very stable. And Medicaid, we continue to pick up individual states as well. So we would expect to expand Medicaid coverage. We are not seeing the kind of pressure on rebates that some of our competitors have reported. And, you know, I think that that's partially reflective, again, of the difference in the pricing of the different products that I mentioned earlier, you know, Zareev is the lowest priced of all the branded topicals. That wasn't necessarily by choice. We just put the price where we thought the price ought to be. And I think that some of our competitors chose a price that was probably too high. And so they're apparently getting squeezed by the payers quite a bit.

Serge Belanger, Analyst — Needham

Okay. And you've talked about a slight sales force expansion. Separate from your efforts on the primary care physicians and pediatric. So maybe just remind us where the Salesforce currently stands in terms of number of sales reps, where you're going and what that allows you to do in terms of extra targeting.

Frank Watanabe, CEO

Sure. So we exited last year with 130 sales reps in dermatology, which is a good size dermatology Salesforce. But we recognize that we had optimized our call frequency on the highest potential dermatologists. We hadn't quite optimized our frequency on the mid tier of dermatologists. And we saw that there was an opportunity to generate some additional revenue from that group of doctors. You know, we're talking like deciles five to seven. And so we announced at the end of the year that we would be exploring, I guess it was in February, that we would be expanding the sales force by 30 reps going up to 160, and that will allow us to now optimize our reach and frequency in the mid-tier of doctors as well. And as Lata mentioned, we do expect that that's going to help us to sustain growth as we go into 2026. And then as you mentioned, we also announced in February that we were, actually I think that was in January, that we were taking over our promotion in primary care. You know, we had signed a deal a couple of years ago when we were less financially sound to work with a partner in primary care. We're now at a place where we can do that ourselves. And so we agreed with the partner to part ways, and we're now building a primary care organization. And we'll be sharing more details with Wall Street as that progresses as well.

Serge Belanger, Analyst — Needham

Okay. And on that primary care pediatrician effort, I mean, how much headway had COA been able to do in the last year or so? Were they actually generating some sales that were contributing to the top line?

Frank Watanabe, CEO

Yes. We had told you all that we would start to break it out when it became material. So they were generating some sales that really wasn't material, right, on $375 million in sales. But there was certainly a contribution. We think there's immense potential there. We've always known that it was going to be a longer selling cycle. In primary care, the doctors are much more distracted. They're harder to see. um you know they're treating everything from from asthma to herpes zoster right um uh and and so you know ad and subderm and psoriasis are probably not the top priorities for them all the time um but you know half of patients are sitting outside of dermatology so there's an immense opportunity for us in the primary care and pediatric settings especially as we continue to expand our label in pediatrics right we expect to get approval for psoriasis and two to five year olds in June. We're already approved down to age two in eczema. We announced at the AAD last month our three to 24 month data, and we also announced in eczema, and we announced that we'll be filing with the FDA this quarter for the approval down to age of three months. So, you know, especially with the pediatricians, I think, you know, Zareeva is a very, very well positioned product to be a meaningful part of their armamentarium.

Serge Belanger, Analyst — Needham

So should we think where the initial effort will be towards pediatrician, given that there's such a significant exposure, given that you have approval of all these pediatric indications?

Frank Watanabe, CEO

No, certainly it'll be an important part of that effort. But, you know, primary care is also important, especially when you consider, you know, seb derm is an extremely common condition. And a lot of those patients don't ever make it to a dermatologist. So, you know, I think there, we will find a lot of sebderm patients in the primary care setting as well. And, you know, there are adults with eczema too. Psoriasis patients for the most part, make it to a dermatologist. So there are fewer of them floating around in primary care and pediatrics, but sebderm and AD are both very, very large opportunities in, in primary care and pediatrics.

Serge Belanger, Analyst — Needham

Okay. So I forget how many SKUs you have now. We have four.

Frank Watanabe, CEO

Yeah. So we have The cream for psoriasis, the foam for psoriasis and seb derm, and then we have two different eczema presentations for little kids and adolescents and adults.

Serge Belanger, Analyst — Needham

Yeah, and with this next approval, you'll be up to seven or eight?

Frank Watanabe, CEO

It'll be eight. Well, psoriasis will be our seventh approval, but it's the same SKU. And then the three to 24-month-olds would be our eighth approval. Again, it's not a new SKU. It's the low-strength cream.

Serge Belanger, Analyst — Needham

Okay. Okay.

Frank Watanabe, CEO

But yeah, eight intervals in less than four years.

Serge Belanger, Analyst — Needham

That's quite the track record. I'm only asking to get an idea of like, when we think about growth, you know, which are the indications that we should continue seeing growth from or same thing with the SKUs?

Frank Watanabe, CEO

Well, you know, if you look at across the SKUs in the fourth quarter, you know, all of the SKUs were growing at a very healthy rate. You know, the 0.05 is the newest SKU. So it's growing at the fastest rate, but off of a very small base. But even the 0.3, which is our original presentation, the 0.3 cream is growing at a very healthy rate. And we're very gratified to see that it's growing across the entire portfolio. You know, as I mentioned earlier, we're in the very early stages of a massive conversion, right? You know, of those 25 million prescriptions written last year, 70% of those prescriptions were for a topical steroid, right? One, uh, 7% of those were for a, uh, uh, an advanced topical therapy. So, um, you know, we're, we're like in the top of the first inning in this conversion from topical steroids over to the advanced topical therapies. And, you know, with Zareev having a 50% share of the advanced topical therapy market, you know, we're, we're very well positioned to benefit from that shift. And, and that shift continues to, you know, gain momentum. We were at the AAD, the American Academy of Dermatology, about four weeks ago, I guess it was now, and there were a multitude of talks about steroid stewardship and the need to really start moving away from the over-reliance on topical steroids in dermatology.

Serge Belanger, Analyst — Needham

Okay. How has the growth been recently in the seborrheic dermatitis? I remember when it first launched, that kind of really kicked off the growth for the Zori franchise. Is that still kind of the headliner indication going forward?

Frank Watanabe, CEO

You know, it's a little more complicated in that, you know, that product, that SKU, the foam, has two indications. And so, you know, we can't break out always what is, well, we can't at the moment break out what's sebdermal, what's psoriasis. uh you know we will eventually get some of that data from iqv and be able to estimate what the split is but right now it's it's a guess at best um what what the split is between the two you know certainly before the scalp psoriasis or the psoriasis approval the foam continued to grow at a very nice clip and lotto what it's about 55 percent of our total volume is the foam so you know it continues to be yeah a really big driver of growth for the brand um you know the foam is truly unique. There are no other foam non-steroidals, branded or non-branded. And there are very, very few steroid foams anymore either that there had been in the past, but they're very difficult to get now. They're very expensive. And it's an optimal treatment for treating disease on the scalp.

Serge Belanger, Analyst — Needham

And there are a lot of patients who are choosing to treat on the body with the foam as well in terms of the competitive competitive landscape um do you see other branded topicals as competitors and you know vitama has been out there now for for a few years it changed hands sounds like it's going to change hands again yeah um there was a new pd4 product that got approved i think a couple months ago um is that a potential competitor just not really okay you know i mean that's a twice a day ointment with, I think, data that is debatable.

Frank Watanabe, CEO

And it's owned by a company that has no presence in the dermatology space. As far as we can tell, they don't even have a sales force. You know, I think in the branded topical space, and you can see this in the market share, this is really down to a race between us and the folks over at Insight who, you know, frankly, have a very good drug, right? Opsilura is a very good drug. It does have some limitations versus Zareev, but, you know, I think they continue to do very well. And, you know, doctors need choices, right? Zareev isn't going to be the right drug for every patient. But again, you know, when there are 10 times as many patients on topical steroids as there are on all of the branded non-sterols combined, that's where we're focused. And I think that's where our colleagues that Insider focused on is driving this conversion from topical steroids and not beating each other black and blue.

Serge Belanger, Analyst — Needham

Going back to the pediatric indications, if you can highlight just what segment of the overall market opportunity lies with these new approvals that you're expecting.

Frank Watanabe, CEO

Sure. I'll go across three indications, then really drill down into atopic dermatitis. psoriasis is not all that common in kids. It typically is a disease that presents in adolescence or in teenage years. It can occur later in life as well. So I don't think that the psoriasis pediatric indication will be in and of itself a big driver. I think the bigger benefit there is just the safety halo and the confidence that when you do see a pediatric patient, you can use a reef, right? Seborrheic dermatitis, um, does occur, uh, starting at puberty. Um, you know, it's really driven by, um, the oil on our skin. And as all of us know, you know, when you turn and when you hit puberty, you start making a lot of it and why it's why the acne blows up and seb derm also starts to present then. Um, and so there is some opportunity for us in adolescence in seborrheic dermatitis, but it gets more common as you get older. And so that, that population skews to the older end. Eczema, atopic dermatitis, is a totally different picture, right? The peak onset of atopic dermatitis is between the ages of one and five, and about half of all atopic dermatitis sufferers are under the age of 18. So the pediatric market is massive for atopic dermatitis. And so, and, you know, specifically in that three to 24 month segment that we're, you to file soon on, and we just announced data. There are only about a million patients in that segment, but there's almost nothing approved for them, for those little kids. There's, I think, two steroids that are FDA approved for three to 24 month olds, and then Eucrisa. And nobody uses Eucrisa, right? It's so intolerable that it has almost no market share. So we think that's a very large opportunity for us, more out of market share than out of sheer size of the market. And as a really important development for patients and clinicians, the level of excitement, you know, coming out of that presentation at AAD was palpable. The pediatric dermatologists can't wait to get their hands on this drug. To have something that works this well and is this safe and well tolerated for these very little kids is really important. And I would also mention, we showed data at AAD, you know, you have to ask parents about itch because you can't ask the baby. But 40% of parents reported that their children's itch had improved within 10 minutes of the first application. Let's sink in for a minute. You put this, your kid has this terrible disease, they're itching all over, they're bleeding all over their cribs. You put Zareev on and almost half of the patients had improved in 10 minutes. That's a remarkable result and one that left a lot of doctors just blown away.

Serge Belanger, Analyst — Needham

Are you going to need to have your sales effort on PCPs and pediatricians in place to be able to capture that opportunity or the current sales force can tap into it already?

Frank Watanabe, CEO

Well, so, you know, again, a lot of the kids are seen in dermatology offices, about half the AD population is treated in dermatology, including kids. There's a small group of pediatric dermatologists, about 400 in the U.S. We're very heavily engaged with that group, you know, because we've had other pediatric indications already, including eczema down to the age of two. And a lot of kids just see general Derms as well, who are already seeing Zareev. So we'll be able to get after the pediatric opportunity, the infant opportunity in three to 24-month-olds with our existing sales force in dermatology. And then we'll be able to expand into pediatrics as we build out our primary care and pediatric team as well.

Serge Belanger, Analyst — Needham

Okay. And how active has the company been in terms of, I guess, digital marketing or even just advertising? I'm sure you can't do it with a pediatrician.

Frank Watanabe, CEO

Yeah, so we don't do the big, splashy direct-to-consumer TV like, you know, Avvi or Amgen or some of the other companies. It just doesn't financially make sense for a topical product at the price point that, you know, we are. We have a lot of direct-to-consumer activities, digital engagements, you know, Facebook, Instagram, Twitter, online search, those sorts of things. And then, you know, Latha mentioned that we just recently signed a partnership with Max Homa, the PGA golfer. He's a Zareev believer. He's a huge fan, and he's been doing a lot of talk about his experience with Zareev. We also started a partnership late last year, middle last year, I guess, with Tori Spelling and her daughter, both of whom have atopic dermatitis, and her daughter Stella also has seborrheic dermatitis. they're also both Zareev users and they've been out talking publicly about their experience with their disease and with Zareev. And Tori was on Drew Barrymore just a few weeks ago talking about Zareev and her experiences and the trauma that her daughter went through because of her eczema and her seborrheic dermatitis. So, you know, I think public awareness of Zareev as an option for their diseases is constantly growing.

Serge Belanger, Analyst — Needham

And we're able to do that without spending, you know, a couple hundred million dollars a year on television ads okay um let's talk about your your plans to expand the label beyond the eight approvals that you've gotten already um like you talked about two initial indications uh vitiligo and hydrodonitis superativa yep chess um i guess what gave you the confidence that sure yeah so i you know i think the primary driver for that was, you know, dermatologists use drugs off-label.

Frank Watanabe, CEO

That is just part of their practice, right? And when they got a hold of Zarev, they started using Zarev and all kinds of other things. You know, if it works in psoriasis, does it work here? Does it work there? We now have a bibliography, I think, of 45 different diseases that dermatologists have published reports on, Zarev working in. You know, and that can be individual cases. Sometimes it's case series. But, I mean, that's an extensive list, and there was actually an article that came out, I think, late last year on this concept of PDE4-responsive dermatoses, looking at all of the dermatoses that respond to PDE4 inhibition with our drug or the other FDA-approved PDE4 inhibitors. Vitiligo and NHS were particularly interesting to us, you know, given the strength of the case reports, the case series that came out. I think the Vitiligo series came out late last year, and the HS series came out at the beginning of this year. But they were really impressive results from very well-respected dermatologists, and they really caused us to stop and look and think, okay, is this another opportunity? Those are two diseases as well that I think investors probably appreciate. There's a very large opportunity and a high unmet need in both of those. And so we've launched phase two proof of concept trials. We've said that we'll read out the vitiligo trial before the end of this year and also make a decision about whether we're going to progress to phase three or not. And then we would report out, we actually have two ongoing trials in HS at the moment, and we'll report those out in the first quarter of next year. And again, we'll indicate whether we plan to move into phase three or not. I would expect that we'll probably start a couple more of these sort of proof of concept studies looking at other diseases. We haven't decided which ones yet. We have a long list to choose from. And so we want to be thoughtful about our capital expenditure. But we do think there's a very large opportunity here, right? It's a very safe, very well tolerated drug. It's very efficacious. So if we can pick up some additional indications, it's just another great opportunity for us to continue to grow the top line and create shareholder value.

Serge Belanger, Analyst — Needham

Okay. And in terms of thinking of phase three development for these indications, is that something our QDIS would likely take on themselves? I know you've reached the profitability threshold. I'm not sure what a phase three trial expense or investment would do to that, but I guess what are your plans at this point?

Frank Watanabe, CEO

Yeah. So we absolutely would do these ourselves, and I'm going to ask Lata to sort of provide some additional color around how we think about our management of our capital expenditures.

Latha Vairavan, CFO

Yeah, I think the key is the 26 is embedded on the growth of Zareeb and building the cash coffers, I'd like to say, and we're being very thoughtful of where we spend it for ROI positive and accretive investments, of which some of them Frank highlighted in the proof of concept studies. And by the time we make that go no-go decision at the end of the year, early 27, and the trajectory that we believe Zarev is on, we'll have enough leverage to invest those and go at them ourselves. And the intention is not to continue to stay at that edge of breakeven, but we'll see significant operating leverage in 27 to be able to invest in those and then think about how we continue to build our pipeline. And further beyond that, think about how we return that back to shareholders. We're not here to build the bank balance for the sake of it, but really to invest and inflect the growth and potential of Zareeb. We have reaffirmed our peak sales at the investor day, and we believe we're on that track to hit that peak sales by making those right investments for you to see that inflection in the demand.

Serge Belanger, Analyst — Needham

Yeah, makes sense. So data from the initial HS and Vitiligo trials are still on track for late 26 or early 27?

Frank Watanabe, CEO

Yeah. Late 26 for vitiligo and early 27 for HS.

Serge Belanger, Analyst — Needham

Okay. I think we only have a few minutes left. May we cover the other AD program that just got into the clinic? Sure. Yeah.

Frank Watanabe, CEO

So ARQ-234 is a novel fusion protein that binds to and agonizes one of the immune checkpoints in the body called CD200R. And, you know, there was another company that was pursuing this target and showed some very, I think, compelling data in atopic dermatitis by agonizing the target. And, you know, investors can think of this as sort of the opposite of a PD-1 inhibitor, right? You know, Keytruda is a checkpoint inhibitor, an immune checkpoint inhibitor. This is an immune checkpoint agonist. So you're not inhibiting it, you're turning it on, right? Because the immune checkpoints regulate the immune system, and when you agonize the checkpoints, you can put the immune system from an activated state back down into its sort of nascent surveillance state, so to speak, you know. And we think this is potentially a very compelling and highly differentiated way of treating atopic dermatitis. you know, the world doesn't need 15 IL-413s, right? We need different ways of treating atopic dermatitis that maybe treat patients that don't respond well to 413, or maybe, you know, we're able to achieve a different dosing paradigm, which is one of the things that we're very interested in about CD200. The data would suggest that you can treat patients for a period and then stop, and they persist in a remission for a long period of time. So we think this could be a really novel and and unusual asset and i think with all of the the um headwinds that the ox 40s are facing um you know i'm not sure that those are ever going to see the light of day so you know cd 200 would be the the next target sort of coming along after 413 then okay um so we'd enter the clinic yeah we started phase one um earlier this year uh you know how long that the traditional sad mad So we don't know how long that's going to last because it depends on how many doses we're able to study. Right. You want phase ones to last longer because it means you can push the dose higher. And then we will run a small proof of concept as part of this study as well. And we'll keep you in the street updated as as the timeline sort of, you know, become more clear to us.

Serge Belanger, Analyst — Needham

And at this point, is this IV administered or sub-Q?

Frank Watanabe, CEO

No, it's sub-Q.

Serge Belanger, Analyst — Needham

Okay. Makes sense. And then, I mean, I got to ask about business development. I think I know the answer given what Latha said about the investment into label expansion, but I guess your overall thoughts on the appetite.

Frank Watanabe, CEO

I think, you know, we have the luxury that business development is a nice to have, not a must have, right? Would I love to have some more assets in the pipeline? Absolutely. But I don't have to do anything, which, you know, puts me in the enviable position of not having to make a dumb decision, right? People who get desperate in business development can burn a lot of shareholder money really fast. We're always looking for new assets. We have a great development organization. And I think as time goes on, we're going to have the resources to build out the pipeline. But, you know, we're being very, very thoughtful and very methodical as we evaluate opportunities. You know, I think in the 10 years that we've existed, we've looked at probably 300 assets and we've bought two. Um, so it's a very high bar. Um, but that doesn't mean that we're not always looking for a diamond somewhere in the rough at like, like ARQ 234 was. Uh, and if we find something, you know, we'll absolutely go for it.

Serge Belanger, Analyst — Needham

All right. Um, I'll let you guys wrap up. If there anything that you feel is, uh, misunderstood or underappreciated from investors or analysts about the story?

Frank Watanabe, CEO

I guess I would just reiterate, and we've said this before, but we have said that we continue to believe that Zareev is probably a $2.5 to $3.5 billion drug. And people kind of roll their eyes or they don't quite believe that. But you do the math, we'll do half a billion dollars this year with about a 3.5% market share. If we get to a 15% market share, we're attuned to and a half billion dollar drug. That is not a high lift, in my view, given how our drug compares to topical steroids and other non-steroidals out there in terms of efficacy and tolerability. So, you know, I think Wall Street continues to underestimate the true potential of this molecule.

Serge Belanger, Analyst — Needham

And, you know, I think that we will prove over time just how big this drug is going to be all right well thanks for uh thank you all for spending time with us this morning appreciate it and uh always a pleasure see how the reef continues growing thanks search all right thank you