Release Date: February 25, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Arcutis Biotherapeutics Inc (NASDAQ:ARQT) reported strong revenue growth with $71 million in Q4 2024, primarily driven by the Zari franchise.
• The company achieved a 471% year-over-year growth in product sales, indicating robust market demand.
• Arcutis Biotherapeutics Inc (NASDAQ:ARQT) has secured broad access to commercially insured patients and is making progress in gaining Medicare and Medicaid coverage.
• The company is expanding its product portfolio with anticipated approvals for new indications, including scalp and body psoriasis.
• Arcutis Biotherapeutics Inc (NASDAQ:ARQT) is well-capitalized with $228.6 million in cash and marketable securities, providing financial stability and flexibility.

Negative Points

• The company faces typical Q1 gross-to-net fluctuations due to deductible resets and insurance plan changes, which may impact revenue.
• There is a potential risk of cannibalization between the foam and cream formulations, although the company believes this is unlikely.
• Arcutis Biotherapeutics Inc (NASDAQ:ARQT) is still in the early stages of its growth, indicating that significant market penetration is yet to be achieved.
• The company is facing ongoing intellectual property lawsuits, which could pose risks to its product exclusivity.
• Despite strong revenue growth, the company does not expect to reach cash break-even until 2026, indicating ongoing financial challenges.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with ARQT.

Q: Can you clarify the delta between the pre-announcement and the actual Q4 results? Was the residual amount related to inventory or another factor? Also, could you speak to your confidence in protecting the IP for the Zarev franchise? A: The adjustment for product returns was over $5 million, with a portion due to Q4 2024 itself. We were conservative when pre-announcing revenue. Regarding IP, we are confident in our IP portfolio's strength and intend to vigorously defend our intellectual property rights.

Q: Can you elaborate on the impact of the Salesforce expansion and whether you'll continue to expand it as sales increase? A: The Salesforce expansion significantly enhanced our share of voice among dermatologists, contributing to increased prescription growth in Q4. We believe we are currently right-sized for the dermatology market with our existing portfolio.

Q: How did refills perform in Q4, and what is your estimate of tubes per year for Zarev products? Also, how do you view the consensus revenue estimates for 2025? A: We saw encouraging refill rates, with Zarev cream for psoriasis at around 40% and Zarev foam for Sebderm at 38%. We expect 2 tubes per year for psoriasis and 2-3 cans per year for Sebderm. We are comfortable with the consensus revenue estimates for 2025, but note that Q1 may see some impact from deductible resets.

Q: How many Medicare and Medicaid patients had coverage at the start of 2025, and what is the priority for profitability given your pipeline? A: As of 2025, 1 in 2 Medicaid beneficiaries have access to Zarev. We are optimistic about improving Medicare Part D access. Profitability is important for operational flexibility, but our priority remains investing in Zarev's growth and exploring pipeline opportunities.

Q: What is the strategy for the upcoming approval of Zarev foam for psoriasis, and do you expect it to cannibalize the cream? A: We aim to offer choice and optionality to dermatologists and patients with both foam and cream formulations. We expect the foam to complement the cream rather than cannibalize it, driving conversions from steroids and accelerating market uptake.

Q: What proportion of Q4 sales are attributable to the COA PCP partnership, and how will Q1 OpEx compare to Q4? A: The COA partnership began contributing in September 2024, but its impact was not significant in Q4. We expect meaningful contributions in 2025. Commissions to COA will be included in the SGNA line, and we will provide more details as their contribution grows.

Q: How do you see the role of steroids in treatment evolving, and what is the reimbursement outlook for Zarev as a first-line therapy? A: Steroids will likely remain a step-through requirement, but many patients already on steroids have met this requirement. The focus is on converting existing steroid prescriptions to Zarev. The clinical practice is shifting towards non-steroidal options for chronic management.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.