Arcutis Biotherapeutics Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 11 speakers on the call.

Operator

Good day, and welcome to the Arcutis Biotherapeutics 20 24 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. Now I will pass the call to Leitha Vairavan, Vice President, Finance and Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Carmen. Good afternoon, everyone, and thank you for joining us today to review our Q3 2024 financial results and business update. Slides for today's call are available on the Investors section of the Arcutis website. On the call today, we have Frank Watanabe, President and CEO Patrick Burnett, Chief Medical Officer Todd Edwards, Chief Commercial Officer and David Topper, Chief Financial Officer. I would like to remind everyone that we will be making forward looking statements during this call.

Speaker 1

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 the call over to Frank.

Speaker 2

Thank you, Lasse, and thank you to everyone for joining us today. With that, let me turn to Slide 5 of the deck. I'm pleased to report that we maintained our robust growth trajectory in the 3rd quarter, and I'm constantly impressed by the entire Arcutis team and its exceptional execution. Our expanding ZERIEVE portfolio now encompasses psoriasis, seborrheic dermatitis and atopic dermatitis, providing physicians and their patients multiple forms of Zareeb cream and Zareeb Foam to address their needs. Zareeb is the 1st and only topical anti inflammatory agent with indications for all three of these very highly prevalent conditions and physicians are becoming increasingly familiar with our product portfolio.

Speaker 2

ZARIEV portfolio sales grew 4 52% year over year and 45% quarter over quarter reaching $44,800,000 which is remarkably strong, particularly following the impressive growth we've had in previous quarters. Furthermore, our Q3 revenue run rate is an encouraging sign for an excellent finish to 2024 and provides us with strong momentum going into 2025, continuing to demonstrate the significant opportunity for Zareef. From a volume demand perspective, TRxs for the Zareef portfolio grew 25% quarter over quarter. New prescription growth was also impressive increasing 23% quarter over quarter. Also on this call, you will hear Todd discuss the ongoing gross to net improvements progress we are attaining and I'm delighted that we are now in the low percent range, a meaningful improvement from the high-50s last quarter.

Speaker 2

Our atopic dermatitis launch has been steadily gaining since the late July launch and we're excited about the long term potential of this additional indication and its expected contribution to the overall brand. Looking forward to the remainder of the year and into 2025, we believe we are well positioned to maintain strong revenue growth. Historically, many topicals have struggled to grow revenues or to sustain that growth long term, but we are confident that Zareeb is different and I'd like to share with you all the reasons for our confidence in the long term growth potential of Zareeb. On Slide 6, we have already achieved impressive revenue growth with the Zareve family of products driving both prescription growth and significant gross to net improvements. But we are just beginning and I would point to 4 significant factors that are going to allow us to sustain the growth of Zareeb and to redefine what can be achieved with the topical product.

Speaker 2

We are building out the Zareeb product label with the expected approval of scalp and body psoriasis in the middle of 2025 as well as expanded indications for pediatric patients in atopic dermatitis and psoriasis. These new and expanded indications will further physicians ability to rely on Zareve as their go to first line topical agent. Having successfully penetrated commercial payers, we are now working to make Zareve accessible to government pay patients across both Medicare and Medicaid, opening access to as many as 3,300,000 incremental patients in the dermatology offices. And Todd will update you on our progress thus far on this front. Securing access to the large government insured population has been a priority for us from the start and our progress here is clear validation of our pricing strategy.

Speaker 2

Our partners Koa are now promoting Zareef to high potential primary care doctors and pediatricians and the early feedback is very positive. The new and expanded indications and broader insurance coverage across commercial Medicare and Medicaid will amplify the impact of their promotional effort. We expect meaningful contribution from this co promote beginning in 2025 and growing from there. Finally, there are approximately 16,000,000 topical steroid prescriptions written by dermatologists for our approved indications each year and we are just scratching the surface of penetrating this large segment. The first three elements I discussed will be foundational in shifting topical use away from steroids as we emphasize the safety of using Zareve for any duration and anywhere in the body coupled with its strong efficacy.

Speaker 2

We are also increasingly hearing from the dermatology community their recognition of the need to reduce their reliance on steroids. So that will be another tailwind behind Cerrit's growth. We are confident that we will drive this shift away from steroids over time. Turning to Slide 7, to spend just a few more minutes to help quantify the very large expansion in our target markets that I just mentioned. We keep highlighting the slide to provide a concrete sense of how significant this expansion is as well as how attainable it is.

Speaker 2

Up to this point, we have been primarily focused on the roughly 4,500,000 commercially insured patients with our target indications treated in the dermatology office and we are expanding our penetration of the psoriasis, seborrheic dermatitis and atopic dermatitis patient segments and continue to take share from other topical agents. As Todd will discuss in a bit more detail in just a minute, we are very proud that Zareve is now the number one branded topical anti inflammatory agent for new prescriptions and we anticipate taking the number one spot for total prescriptions very shortly. Our dramatic growth in market share in the branded topical space is a testament to physician preference for Zareve driven by our rapid robust and reliable efficacy, our strong safety and tolerability profile, the patient friendly once a day formulation and our broad and ever increasing insurance coverage. And as we gain Medicare and Medicaid coverage, we will be able to expand Zareg usage to the more than 3,000,000 dermatologists treated psoriasis, atopic dermatitis and seborrheic dermatitis patients with government insurance. In addition, our new co promotional partner Koa is allowing us to simultaneously expand into the more than 7,000,000 commercial and commercially and government insured patients treated for their psoriasis, seborrheic dermatitis or atopic dermatitis outside of the dermatology office.

Speaker 2

A very large percentage of all of these patient segments are currently treated with topical steroids and momentum is growing in the shift away from topical steroids, although this is really only just begun. Zareba is the perfect replacement for topical steroids, offering physicians and patients robust efficacy, the ability to be used anywhere, tolerability that allows chronic use unlike steroids and broad insurance coverage. Todd will further expand on this in just a few minutes. This immense market size and the continued expansion of the market segments where we are competing are what make us so optimistic about the blockbuster potential of Zareef. I did want to take just a moment to also touch on an important governance announcement we made this morning.

Speaker 2

Our Board of Directors has appointed Keith Leonard as the Chair of our Board effective this Monday. I'm delighted to have Keith taking over the leadership of our Board. We've worked together closely for many years across several companies and he has been on our Board for the past 3 years. He possesses an incredible level of Board and operational experience and commercial acumen, which will be invaluable to us as we continue to drive our growth of the Zareef franchise. So congratulations to Keith.

Speaker 2

I also want to sincerely thank Patrick Herron, our previous Chair for everything he has done for Arcutis and for me personally. Patrick has been with us from the very beginning and has been our Chair since 2018, guiding us through our IPO, our commercial launch and so many other significant milestones. Equally important, he has been and I'm sure he will continue to be a fantastic mentor and coach to me. And I couldn't be happier that Patrick has agreed to stay on the Board as one of our independent directors. With that, let me turn it over to Todd to provide some further commentary around ZERIEV cream and foam launches in psoriasis seb derm and atopic dermatitis.

Speaker 3

Thank you, Frank. We're Thank you, Frank. We are extremely enthusiastic about the growth and expansion of our product portfolio, strong response from HCPs and patients with immense opportunities that lie ahead. This quarter we achieved $44,800,000 in net product revenue for Zareef for the Q3 of 2024, reflecting 45% growth for the 2nd quarter, continuing the strong quarter over quarter growth trend that we have had throughout the year. We have now delivered more than 40% quarter over quarter growth in revenue every quarter since Q1 of 2023.

Speaker 3

This robust revenue growth was driven by both prescription growth across the portfolio of ZERRY products and gross to net percentage improvements down to the low 50s. Rescription growth was driven by strong uptake of the foam formulation and progression of the launch of the 0.15 percent cream for atopic dermatitis and the ripple effect of growth into the 0.3% cream for psoriasis. We look forward to a strong finish to 2024, which is expected to set us up for a steady start in 2025. This will position us well going into the softness typically seen in the Q1 of the year, driven by patients enduring deductible resets, switches to new health insurance and consequently prescription refills pulled forward into December. So in Q1, this leads to both gross to net and volume dampening.

Speaker 3

Moving to Slide 10. The Zareeb prescription volume has reached yet another all time high at 11,000 scripts over a rolling 4 weeks. Quarter over quarter prescription growth was 25% over Q2 and 280% over last year. In this graph, inflections and growth, the launches of Zarefoam for sev derm and 0.15 percent cream for atopic dermatitis is clearly visible. Regarding our recent atopic dermatitis launch in the quarter, we are very pleased with performance of this launch and continue to see strong momentum.

Speaker 3

As we have said before, we expected the AV launch to outperform the psoriasis launch and that is what we are seeing. Around 3 months into the launch, the new Rx weekly prescriptions are substantially higher than psoriasis every week since launch and feedback from both providers and physicians has been very positive. Onto Slide 11, I want to point out our gross to net evolution that is linked to strong coverage position from all 3 large PBMs and progress with formular access and downstream plans as well as our ongoing pursuit of coverage from government payers. We have consistently demonstrated our ability to drive covered prescriptions with roughly 4 out of 5 ZERIEV 0.3% green prescriptions are being covered. For ZERIEV foam, we saw further improvements reaching 3 out of 4 prescriptions covered in less than 3 quarters from launch.

Speaker 3

And for atopic dermatitis, only a few months into the launch, 3 out of 5 prescriptions are covered, impressively rapid progress in our launch. In the chart on the right, the progressive improvements in our blended gross to net are visualized with substantial progress from last year when only the 0.3% cream was available with gross to net in the low 70s to high 60s. We achieved further improvement even as we launched sebderm progressing to low 60s and high 50s. And now, blended gross to net across all three indications has reached the low 50s, a trend typical not typical with the expansion of indications and contributing to the profitability of the overall franchise. Our gross to net is essentially at a steady state.

Speaker 3

While we expect some variability quarter to quarter, we expect that it will remain in the 50s. As mentioned earlier, we expect a season regression in gross to net during the Q1 of 2025. At Arcutis, we are laser focused on driving not only prescription demand, but paid prescriptions as we work towards building a profitable business. We are delighted with what we have already achieved in commercial insurance coverage and very excited about progressing our government insurance coverage as well. And I am delighted to report that since our last update, we have secured Medicaid coverage in California, Arizona, Michigan and Indiana adding to our previously announced wins in Florida, Texas and New York.

Speaker 3

We have now secured Medicaid coverage in states that represent roughly 4 in 10 Americans. We expect to add additional states soon. And the quality of the Medicaid coverage is very strong. We are also making progress in our negotiations with Medicare Part D programs. These government pay wins are the ultimate validation of Acuitas' differentiated approach to pricing that will help fuel our growth in the future.

Speaker 3

Slide 12 highlights new prescription share of market in the branded topical space, a leading indicator for future brand growth. The Zareve family of products is now leading all the other branded topical agents on a rolling 4 week New Rx share. As Frank alluded, we are very close to seizing the number one for total prescriptions as well in the near future. While this is exciting progress for the portfolio, the most significant growth opportunity is in transitioning patients away from topical steroids. On Slide 13, we show that the overwhelming majority of prescriptions are topical steroids across all three indications within the Acuitas target universe.

Speaker 3

Of the 22,000,000 topical prescriptions written by dermatology clinicians in our 3 current indications in the last four quarters, roughly 16,000,000 are topical steroids. While in contrast, just over a 1,000,000 prescriptions are for branded topical non steroidals, highlighting the immense growth opportunity as clinicians transition away from steroids into newer topical agents. Driving this transition from topical steroids to the ZERRI portfolio will be the cornerstone of our growth in the future. Moving to Slide 14. With the recent FDA approval in atopic dermatitis and the availability of 3 different products, we are building a broad portfolio of AZERRI solutions for clinicians in a multitude of approved indications that will sustain future brand growth.

Speaker 3

The benefits of AZERRI portfolio products that will address 3 different and very common dermatology diseases with the current standard of care's topical steroids is unprecedented and creates treatment simplicity for the prescriber and patient management. The common clinical attributes of Zareeb across indications such as its robust, reliable efficacy, rapid belief of itch and once a day formulation that can be used anywhere on the body and a simple and consistent prescription pathway will drive physician preference for ZAREID for both dermatologists and primary care prescribers alike. We are methodically building our franchise and well on a way to becoming the preferred topical brand in dermatology. Now let me turn it over to Patrick.

Speaker 4

Thank you, Todd. I'm on Slide 16. I'm extremely proud of the team's performance and delivering on the promise of topical fumilast to the dermatology community in the clinic and continuing to hit all of our timelines with regard to regulatory milestones. And we were just at the fall clinical dermatology conference and received a lot of great feedback about Zareeb Cream for atopic dermatitis. HCP excitement is growing as providers build their own clinical experience with Zareeb and AD and confirm that the product profile is a good fit with for what they and their atopic dermatitis patients are looking for.

Speaker 5

So keeping with AD, we're looking forward to

Speaker 4

the submission of our sNDA for the treatment of mild to moderate AD in 2 to 5 year olds, which is planned for Q1 of 2025. And we continue to generate additional data that should ultimately support expanding the psoriasis indication down to the age of 2. For Foam, we have a PDUFA date approaching in May for scalp and body psoriasis. If approved, this will represent our 4th indication for ZAREVE. And in a moment, I want to share some of our patient responses and data, so you can see why we're so excited to bring this indication to patients.

Speaker 4

Finally, we're progressing our pipeline. Coming up in 2025, we expect to file the IND for ARQ234, our biologic CD200 receptor agonist for atopic dermatitis and we have a Phase 1b readout in the first half of twenty twenty five for ARQ255, which is our topical JAK in alopecia areata. Now coming back to Zareve Foam on Slide 17 and our next new therapeutic focus, which is leveraging the properties of Zareve Foam to help patients with scalp and body psoriasis. Almost half the plaque psoriasis patients suffer from scalp involvement, but this number doesn't capture the impact of scalp disease on quality of life and the challenges of treating it with products that are not fit for purpose. To provide more insight into how scalp psoriasis impacts patients, I'm going to briefly review some of the itch data from Erector, our pivotal Phase 3 trial of ZERIEF foam in scalp and body plaque psoriasis.

Speaker 4

We enrolled patients with at least moderate severity of the scalp and mild, moderate or severe disease of the body. 4.52 patients were randomized 2:one to receive ZERIEV or vehicle foam over an 8 week dosing period. And as I mentioned, we measured 2 co primary endpoints of scalp investigator global assessment or SIGA success and body investigator global assessment or BIA success at week 8. In addition, we assessed itch using 2 10 point numeric rating scales. The SINRS or scalp itch numeric rating scale and the worst itch or WINRS, which is the traditional assessment of itch that covers the entire body.

Speaker 4

Remember, itch is a symptom that primarily drives the impact on quality of life and is identified by patients as the number one disease characteristic that determines the severity of their psoriasis. So on the left side of this slide, we have scalp itch data from week 8 showing that over 50% of patients achieved an SI NRS score of 0 or 1. And similar results can be seen for WINRS on the left where 55 percent of patients achieved a 0 or 1 compared to just about 20% of vehicle treated patients. Now this type of NRS 0 or 1 analysis is recommended by itch experts because it doesn't just capture a clinical improvement in itch, but goes a step further into a range where itch is a symptom is completely controlled and the burden of the symptom is eliminated. Top of this impressive week 8 data, I'd also mention that Zareeb showed statistically significant improvement in itch within 24 hours of the first application, a very important benefit for patients suffering from the unrelenting itch of scalp psoriasis.

Speaker 4

Not shown here, but the incidence of adverse events was low and generally similar between active treatment and vehicle across both our Phase 3 and Phase 2b studies. Overall, the most common adverse events included headache, diarrhea, nausea and nasopharyngitis. Moving on to Slide 18, I want to share photos from 2 patients and their progress over the 8 weeks of our Phase 3 Erector trial. Both patients had severe disease coming into the study with scalp IGA of 4 on the 5 point IGA scale which goes from 0 to 4. You can appreciate the erythematous or red plaques in their scalp with the characteristic thick white scale that we commonly see in scalp psoriasis.

Speaker 4

In these patients it's primarily along the hairline where it's very visible, another common finding. In both patients, you can see rapid improvement in the scalp plaques after 2 weeks, accompanied by reduction in itch by 50% or more in both patients. By week 8, both were considered a treatment success, having achieved an IGA of 1, which means almost clear. Importantly, you can also see that based on their SI and RS, these two patients came into the study with a scalp itch of 8 and 9 out of 10 respectively. In addition to the clinical improvement, these patients also experienced an itch score of 0 by week 8.

Speaker 4

That means complete resolution of their itch. One of the major challenges for managing psoriasis patients with scalp disease is the complexity of traditional treatment regimens. Often they end up with several prescriptions for their scalp and at least 1 or more for the body. One of the consistent themes about Zareep profile is that it simplifies treatment for the patient and Zareep Foam for psoriasis is a perfect example of that. In fact, we designed the pivotal trials to highlight this benefit through the co primary endpoints for scalp and body AGA that I mentioned.

Speaker 4

XERIEF Foam can be used once a day on any area of the body where psoriasis occurs, including hair bearing areas such as the scalp with creams, lotions or ointments are suboptimal, making the foam an effective treatment for scalp and body psoriasis. And with that, I'll pass it over to David.

Speaker 6

Thanks, Patrick. I'm on Slide 20 showing financial results both year over year and quarter over quarter. As you've heard, we generated net product revenues in the quarter of approximately $45,000,000 which is up 4 52 percent from Q3 of 2023 and 45% from Q2 of this year. This persistent strong growth reflects our continued success in gaining share of the very large addressable market for all three of our approved indications and we certainly believe this growth is still in its infancy. For the Q3, our R and D expenses were $19,500,000 which is down 26% from $26,200,000 in the Q3 of 2023 due to decreases in development costs of topical rafumilabs programs and relatively flat compared to the Q2 of this year.

Speaker 6

Please keep in mind that a large portion of the expenses included in the R and D line item is comprised of medical affairs activities supporting the lead commercialization and manufacturing costs for pipeline candidates. SG and A expenses were $58,800,000 for the Q3 of 2024 versus $47,600,000 in the same period last year, as we invested in both our current and future launches, including expansion of our field force in late Q2. That total was more or less flat to last quarter with G and A coming down by approximately $2,000,000 as we found expense savings, while commercial costs increased by a little under $3,000,000 which is to be expected as we experienced robust sales growth. We still believe that we are investing appropriately in the tremendous growth potential of ZERIEF portfolio, while constantly looking for ways to achieve savings and efficiencies. For the Q4, excluding the commission to Koa, we expect total expenses to remain roughly in line with Q3.

Speaker 6

The Koa commission will be included on the SG and A line and to the extent that our partners are able to drive sales growth in primary care and pediatrics, this will lead to a commensurate increase in SG and A. I'd like to remind everyone that we only pay commissions to Koa when they generate scripts and revenues. So those revenues are immediately accretive given there are no meaningful fixed costs for Acuitas associated with this partnership. On Slide 21, you can see we had cash and marketable securities of $331,000,000 on our balance sheet as of September 30, which translate to a cash burn from operations in the quarter of 35,000,000 dollars Our cash burn for the quarter was meaningfully lower than Q2, dropping by more than 23% quarter over quarter, and we would expect our quarterly cash burn to continue trending downward as our revenues grow. We told you last quarter that we had renegotiated our debt agreement to improve the terms, including adding the ability to repay up to half of the $200,000,000 beginning in the Q4 of this year.

Speaker 6

While not reflected in the Q3 balance sheet, we did subsequently repay $100,000,000 of the debt facility, which will significantly lower our interest expense. I would remind you that we have the option to withdraw that $100,000,000 in whole or in part at our discussions through the middle of 2026, giving us great flexibility to manage our available cash resources. We believe our current capital together with available debt, our growing product revenues and improved economies of scale will enable us to reach our breakeven point in 2026 and operate the business for the foreseeable future, while appropriately investing in our commercial launches and pipeline. We therefore anticipate no need to return to the equity market to support our existing businesses as we said before. With that, I'll hand back to Frank for some closing comments and then we'll open for Q and A.

Speaker 2

Thanks, David. Our goal is to make a positive and meaningful impact on the lives of people afflicted with chronic dermatologic diseases. With Zareve now launched in 3 indications, we are proud to be helping millions of medical dermatology patients while building shareholder value. We are confident that our strong performance in Q3 2024 portends strong and sustained growth for the rest of 2024 and strong momentum going into 2025. And with that, we'll open it up to Q and A.

Operator

Thank you so much. It's from Vikram Purohit with Morgan Stanley. Please proceed.

Speaker 7

Hi, good evening. Thanks for hi, sorry about that. Good evening. Thanks for taking our questions. So we had 2, 1 on the primary care partnership with Koa and then 1 on the pipeline.

Speaker 7

So Frank, I think you mentioned that you expect to see a contribution there starting in 2025. Just curious what you would expect the cadence of that contribution to be and how you think it might trend throughout the course of next year? And then secondly, for the alopecia areata readout expected in the first half of next year, just curious to see how you guide us to interpret that data set and what you're looking to establish to keep moving that program forward? Thanks.

Speaker 2

Sure. Thanks, Vikram. Todd, do you want to maybe take the PCP question and then Patrick you can address

Speaker 3

255? Yes. In reference to the Koa promotion, first let me just say that as mentioned that Koa has been actively promoting since September in both the primary care and peach specialties and that has been very well received. They continue to engage with those specialties. As you got to remember that within primary care and within the peach market with the branded topical like Zareve, it's a little bit of a longer selling cycle.

Speaker 3

Not only they introducing a new brand, but a new non steroidal with some new processes and such. And albeit that there's a great reception of COVID promoting the product and getting great feedback relative to the recognition of the differentiation of the asset of ZARIEV across all three indications. It will take some time to be able to ramp up that. As we mentioned earlier, we are expecting a meaningful contribution in 2025. But at this time, we're not providing guidance on what that contribution will look like next year.

Speaker 4

And I can pick up on the 255. So that readout, that's the Phase 1b study in alopecia areata and it's primarily a safety and biomarker study, although we do have some clinical endpoints in that trial. The treatment duration is relatively short at just 3 months. So what we're really looking for is just some evidence that first of all, we're looking for evidence that the drug is safe and tolerable in topical application to the scalp, but we expect that to be the case. And also on the efficacy side, we're looking for some evidence that we would be successful in a later clinical trial that would be a longer duration of treatment.

Speaker 7

Got it. Thank you.

Operator

Thank you so much. And one moment for our next question. And it's from the line of Seamus Fernandez of Guggenheim Securities. Please proceed.

Speaker 5

Great. Thanks so much for the question. So, congrats on the quarter. Obviously, a very impressive result. Can you guys help us a couple of things?

Speaker 5

First, was there any stocking in the quarter that contributed to the impressive result? Just based on our math and the low 50s number, we would have gotten a very, very, very modest stocking contribution, maybe less than a couple of million. But just wanted to know if there's any clarity on that. And then second, as we look forward to the sort of coverage dynamics in 2025, can you just help us understand, I believe, the timing of coverage dynamics outside of Medicaid, but more along the lines of Medicare and treatment opportunity in seborrheic dermatitis. Can you help us understand how that will come on and how the launch will progress in that potential patient population.

Speaker 5

The reason that I ask is because with the $2,000 limit within Part D, that seems like a very robust opportunity for the company to market towards? Thanks.

Speaker 2

Yes, sure. Thanks, David. Yes, David, do you want to take the stocking question? And then Todd, I'm going to throw it back to you on the question around coverage in 2025.

Speaker 6

I think Todd will take the stocking question and I'll come in.

Speaker 3

Yes, I'll take that. So we did not see any stocking relative to the actual gross to net. Let me just kind of put a little color around our gross to net and what was driving that. And first, we're very pleased with the improvement in gross to net in the Q3. And it's primarily driven by the team's efforts in converting a greater percentage of prescriptions over to the paid prescriptions.

Speaker 3

In addition to that, they were very successful in creating a very predictable and efficient prioritization and fulfillment process, which enabled the derma offices to drive those paid prescriptions. And then coupled with that, there was a decline in patient deductibles and co pay as we moved throughout the year. So the gross to net improved quarter over quarter for all indications. And PSO was in a steady state in the 50s as we mentioned last quarter. For Foam and seb derm, it reached the 50s this quarter, which was earlier than anticipated.

Speaker 3

And we continue to see improvements in the atopic dermatitis, gross to net. And then kind of looking at, atopic dermatitis, we're going to 2025. And I remember your question relative to Medicare Part D, we continue to have very positive discussions with the Medicare Part D payers. Those are going well. The one thing that which is unrelated to the discussions we're having with the PBMs is the Inflation Reduction Act, the introduced changes that are happening there.

Speaker 3

It's impacting the PBMs in several ways, but more particularly relative to their operations. It's slowing their operations as they grapple with implementing the mandated changes that are happening effective January 1, 2025. So albeit our conversations are positive and going well. This delayed our ability to secure coverage here in 2024, but we do expect coverage in 2025, which will certainly enable not only the atopic dermatitis indication, but of course psoriasis and sev derm.

Speaker 5

Great. Thank you.

Operator

Our next question is from Ui Ir with Mizuho. Please proceed.

Speaker 8

Hi guys. Yes, thanks for taking the questions and congratulations on the quarter. So maybe the first question on gross to net. With Koa coming online and you guys going into the primary care. Just wondering how does that perhaps might change the gross to net going forward?

Speaker 8

You guys indicated that you're also expecting seps derm to kind of reach steady state by the end of Q4. So, yes, just wondering what the impact to gross net would be with, Koa?

Speaker 2

Yes, Todd.

Speaker 3

Yes. Thank you, Frank, and good question. So we don't anticipate Kola's promotion in primary care piece to impact our gross to net. It's the same payer coverage, the same fulfillment prescription process as it is in dermatology. So given that it's very consistent that we don't anticipate any adverse impact relative to gross to net coming out of Coa's promotion in those two specialties.

Speaker 8

Okay. So you expect pretty much most of the prescriptions to go through your specialty pharmacies and not to retails. Is that the case where you have a trade in program versus sort of reimbursing at the retail centers of pharmacies?

Speaker 3

Yes. Exactly, the way it's a good question is that Koa is leveraging our pharmacy network that we have established for dermatology. We've got a number of network that we have established for dermatology. We got a number of derm specialty pharmacies that are working with those derm specialty pharmacies since this is a re prescription. They'll receive that from Koa, whether it comes from pediatrics or primary care.

Speaker 3

So it'd be very consistent to how those prescriptions were fulfilled in dermatology as they are when in primary care or peds.

Speaker 8

Okay. And second question is, with Lilly expecting to complete their CD200 or agonist in mid-twenty 25, you yourself have one ARQ234. I guess, like what would you want to see from the Lilly data? And based on what you see, how would you kind of perhaps reprioritize or change the way that you're thinking about moving this particular asset forward?

Speaker 2

Sure. Patrick?

Speaker 4

Yes, absolutely. Thanks for the question, Oey. So what we would like to see out of that Lilly readout is just continued support for the efficacy that's already been demonstrated in atopic dermatitis, with the CD200, our agonist mechanism of action. I think any validation within that mechanism of action is very helpful for us. Obviously, it's you can't read too much into the specific numbers because we actually think that we're going to be able to be differentiated nicely against that Lilly compound.

Speaker 4

So we feel really strongly about being able to generate some good differentiation data as we develop that more further into our first clinical trials and then into later ones as well. And we our plan is to as with all of our programs is to move them forward as quickly as we can. So the more excitement that there is around CD200R, I think it's just better for us.

Speaker 8

Okay. Sorry. If I can ask a third question. Maybe could you help us quantify the impact from hurricanes Helane and Milton, if possible? Thanks.

Speaker 3

Sure. Todd? Yes. Good question, Oi. And relative to the hurricanes, we saw some nominal impact directly within those affected areas.

Speaker 3

But probably as you've noticed, our volume though for quarter over quarter has obviously been strong. Windsor Refill and we have 53% quarter over quarter growth, which we're very delighted with. So although some impact from the hurricane, we were quickly able to recover from that and continue to see strong demand performance across all three of the indications.

Speaker 8

Okay. Thank you.

Operator

Thank you. Our next question is from the line of Serge Belanger with Needham. Please proceed.

Speaker 9

Hi, good afternoon and congrats on the solid quarter. A couple of questions from us. The first one, I guess for Todd, a follow-up on a prior question regarding Medicare coverage. Can you tell us what proportion of the Zoriv Medicare Part D TAM do you expect to have coverage for in 2025? Just trying to get an idea of, if this is a multiyear project to get full Medicare Part D coverage?

Speaker 7

Yes,

Speaker 3

I'll be happy to answer that. So relative to the Part D coverage in 2025, when we contract with the PBM managing the Part B benefit, When we contract with them, we'll contract for their portfolio, their book of business of the Part D benefit. So we'll be able to once we contract pick that up fairly instantly, which we anticipate to be able to secure Medicare Part D within 2025. Does that answer your question?

Speaker 9

Yes. I mean, I guess how much of the Medicare Part D TAM will that initial coverage for 2025 cover? Is it the entire Medicare Part D business for Zoriv or just a portion of it initially?

Speaker 3

It'll be initially a proportion of it initially. And it's difficult to be able to tell you exactly what specific percent that is of the total Part D volume. But we'll I anticipate picking up a majority of the Part D impact to their different books of business. And then as we roll on, we'll pick up the additional coverage. One thing you can think about is relative to the indications, you think about psoriasis, it's more commercial insurance oriented, about 70% of that is commercial.

Speaker 3

But when you cut across sebderm and atopic dermatitis, it's closer to a fifty-fifty split between the commercial business and the government business. So within that framework, we will start to pick up the benefits in 2025 and then have opportunities after that to pick up any coverage that we didn't initially pick up.

Speaker 2

Serge, maybe if I could just add, I think it's important to keep in mind that Medicare Part D actually looks a little bit like the commercial business, right? You've got multiple different insurance plans managing different chunks of the Part D population. And then within those plans, you have different books of business as well. And when we contract, we might get one plan or one book of business with one plan and then there's a delay with another. So it's a little bit lumpy and very much like commercial where over time you pick up maybe you get a little bit at the beginning and then you progressively add and add and add as time goes on.

Speaker 2

You should expect to see something very similar in Medicare. It's not binary the way as one might think because the Medicare program has become so fragmented the way that Part D benefit is managed.

Speaker 9

Okay, got it. And then from a competitor environment standpoint, just curious if you expect changes now that your direct competitor has changed hands and has had a bit of a delay for their AD approval?

Speaker 2

Well, I think it still remains to be seen how the transition of top books to Pinera from one company to another changes the marketplace. Certainly, the delay in the PDUFA action date for Spinraff and AD is a very positive development for us. It just gives us more headway to continue to build our brand. Although, I think as Todd showed you guys on the slide, I don't really see that as our primary competition. I think 1st and foremost, steroids are our main competition.

Speaker 2

And then in the branded AD space, obviously, Absolutera is an important competitor as well. But I think it's still too early to tell what the impact of the change in ownership of Tikhonov is going to have.

Speaker 9

Okay. Thank you.

Operator

Thank you. One moment for our next question. And it's from Kambiz Jassy with Jefferies. Please proceed.

Speaker 10

Hey, team. Thanks for the opportunity to ask some questions. I guess, first one is what proportion of the 3Q sales are attributable to the Cowen deal? And can you remind us how long Cowen prioritize the Reeves and kind of what doctors you'll be focusing on? And then I have some follow-up.

Speaker 6

Yes. So

Speaker 10

I think

Speaker 6

we heard your question correctly. The results from Koa in the Q3 were essentially immaterial. They got started kind of mid September. And so we haven't seen anything material yet.

Speaker 2

Yes. And then, Kempe, in terms of the other questions, the agreement is a 5 year agreement and the deal is structured in such a way that Zareeb has to be the one of the priority products in their portfolio throughout the 5 year period.

Speaker 10

Great. And then maybe just a couple of follow ups for me, more on the government payer side. What's kind of the blend of commercial versus government payer contribution to your 3Q revenue? And then as the last question, can you remind us how your pricing strategy was informed? And has it enabled faster negotiation with payers than say other branded topicals?

Speaker 10

Thank you.

Speaker 2

So maybe I'll take the pricing one and then Todd you can touch on contribution from Medicare and Medicaid. So our strategy from the outset was to try and optimize our access to the Medicare and Medicaid populations. It's a very significant percentage of our target populations, roughly about half of the patients with the diseases we're currently treating. And one of the keys it was in our mind was to try and avoid being placed in the specialty tier with Medicare. And so that was one of the key variables as we set the price for Zareef.

Speaker 2

And I think while we haven't received Medicare coverage yet, I think the very rapid progress we made in the commercial front and the very rapid progress we're making now on the Medicaid front really prove that we took the right approach in setting this reprice so that we can maximize that access. And as Todd said, we are very confident in our ability to secure very good Medicare coverage as well as 2025 progresses. And then Todd, can you maybe just comment on what we're seeing today currently in terms of contribution from Medicare and Medicaid?

Speaker 3

Yes, absolutely, Frank. So what we're seeing today was, I'll say within Q3 as far as the net revenues, it was primarily driven by commercial. As we mentioned in the Q2 earnings call, we did pick up some Medicaid, mentioned Florida, Texas, New York. So there is some uptake in volume there, but for Q3 it was primarily the commercial business. For the states that we picked up in Medicaid, the ones we mentioned on this earnings call, those are all future opportunities for us and we plan to be able to drive incremental growth and those are great growth opportunity for us.

Speaker 3

And as mentioned too, we plan to pick up more Medicaid states as we go forward.

Speaker 10

Great. Thank you so much.

Operator

Thank you. And as I see no further questions in queue, I will turn it back to management for final remarks.

Speaker 2

I'll just keep it short and sweet. Thanks to everyone for joining us and we look forward to talking to you all next quarter. Thank you.

Operator

And thank you all for participating in today's conference. You may now disconnect.

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Earnings Conference Call
Arcutis Biotherapeutics Q3 2024
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