Good day, and thank you for standing by. Welcome to Arcutis Biotherapeutics Q1 2023 Earnings 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. [Operator Instructions] Please note that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Eric McIntyre, Head of Investor Relations. Please go ahead, Eric.

Thank you, Marc. Good afternoon, everyone, and thank you for joining Arcutis' First Quarter 2023 Earnings Call. Slides for today are available on the Investors section of our website. On today's call, we have Frank Watanabe, President and CEO; Ken Lock, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Scott Burrows, Chief Financial Officer. During this call, I'd remind everyone that we will be making forward-looking statements. These statements are subject to certain risks and uncertainties and our actual results may differ materially. We encourage you to review the information disclosed in our latest SEC filings. With that, I'll hand the call over to Frank to kick us off.

All right. Thanks, Eric. So I am on Slide 5 of the deck, for those of you who are following along in the deck, and provide a high-level overview. During the first quarter of the year, we made strong progress in laying the foundation for sustained long-term growth at Arcutis. I'll start with ZORYVE, our innovative product for plaque psoriasis. We believe this product is very well positioned for long-term success with the real potential to eventually replace topical steroid. And physician and patient feedback has been exceedingly positive, and the launch continues to build momentum. We're seeing encouraging script growth as physicians gain positive real-world experience with ZORYVE. We roughly doubled our TRxs quarter-over-quarter in Q1, and we see continued growth in April. I think it's worth noting that we're at the last five branded topical launches have seen growth stall somewhere between three and six months into the launch. We have now continued steady growth through nine months of our launch. We also continue to make progress on gaining broad high-quality access for patients to ZORYVE. We now have coverage at two of the three large PBMs as well as a number of other large downstream health plans within just six months of our launch, and we're making good progress with the remaining large PBMs -- PBM, excuse me. We have now over 110 million commercial lives, which is about 2/3 of the commercial market. And I think it's important to note that over 90% of those patients have access to ZORYVE without a prior authorization, which meets our goals for high-quality access for ZORYVE. We believe we should be able to get to over 80% commercial coverage before the end of 2023 and likely even sooner than that. I will note that while obtaining coverage is a…

All right. Thanks, Frank. If you're following along, I'm now on Slide 8. So moving to commercial performance, our launch momentum continues to grow with steady prescription growth built on the back of the exceptional feedback that we've been receiving on the product profile. As Frank mentioned, we've nearly doubled the TRx volume quarter-over-quarter and grown new prescription growth by nearly 80% with continued positive momentum into Q2 on both fronts. We continue to hear exceptional feedback on the product profile of ZORYVE from physicians and patients alike. And in particular, the rapid efficacy, the effectiveness in treating the most difficult plaques, even on the palms and soles, in addition to the sensitive areas, and physicians are seeing very little, if any, tolerability issues associated with the product. On Slide 9, we take a deeper dive into what's driving our continued growth through the lens of market research. Dermatologists' preference for ZORYVE has grown substantially as positive patient feedback and clinical experience builds. On the left is a look at longitudinally, physician preference on ZORYVE growing over time. We believe the consistency of the profile for ZORYVE is truly shining through. As expected in the early days of launch, prescribers were trialing both new products with the majority expressing no clear preference. As clinical experience has built, more and more of these same physicians are shifting preference to ZORYVE, and in the most recent wave demonstrating a doubling of preference since we began measuring this in November of 2022. Unsurprisingly and consistent with what we hear in conversations with customers every day, ZORYVE's tolerability and safety profile lead the way in terms of the reasons for product preference. This has followed very closely and importantly by our absolute efficacy and speed of onset. It's critically important to continue to have…

Thanks, Ken. I want to touch on our atopic dermatitis and seborrheic dermatitis programs briefly before updating on upcoming milestones. As investors are aware, AD is a key opportunity for topical roflumilast, and physician feedback on our AD data has been very positive. And what continues to jump out is the speed of onset in our trials, which gives a clear early indication that the drug is working, and of course, the ever important safety, tolerability data that are a key aspect of the product profile. Consistent with this is our itch response across all indications. Itch is particularly a critical element for patients with AD. Atopic dermatitis is often referred to as the itch that rashes, and is the most important signal for AD patients to know that a drug is working early and an important indicator of clinical response. So looking at Slide 14, as Frank mentioned, we presented these exciting daily itch data at a podium presentation at the recent American Academy of Dermatology meeting. This is a great commentary on the early onset of action for roflumilast. We show a statistically significant improvement in itch just 24 hours after the first application of drug and then again at all time points thereafter across both of our pivotal Phase III trials. This profile aligns well with the unmet need in the market. And this kind of early response of symptoms is exactly what patients and HCPs want to experience when initiating treatment in atopic dermatitis. Switching to our foam program, now on Slide 15, and our first indication to seborrheic dermatitis. The recent FDA acceptance of our application is yet another major milestone for the Company, and we're looking forward to the December PDUFA for an anticipated approval. Excitement is intensifying in the physician community based on…

Thanks, Patrick. Turning to Page 18 of the slide deck. Net product revenues were $3 million in the first quarter, in line with our prior guidance. Strong unit demand growth, which doubled sequentially, was offset by the anticipated higher gross-to-net in Q1. As Ken discussed earlier, Q1 gross-to-net was higher quarter-over-quarter due to the typical first quarter insurance deductible resets and the dynamics in getting our prescriptions covered by insurance. We expect gross-to-net will improve through the balance of 2023 based on our ability to continue to expand our high-quality commercial coverage and our continuing efforts to translate that coverage into covered prescriptions. For Q2 specifically, we expect that sequential net sales growth will be driven primarily by the continued demand growth we are seeing with improving gross-to-nets only modestly contributing quarter-over-quarter. For the balance of 2023, we expect revenue growth to be driven by both demand growth and further gross-to-net improvement. Turning to the rest of the P&L. Research and development expenses were $35 million in the quarter and included a one-time $3 million NDA filing fee for seborrheic dermatitis. The decrease year-over-year is primarily due to lower clinical development costs for our topical roflumilast programs. SG&A expenses were $43 million for the quarter as we continue to invest in the ZORYVE launch and the upcoming launches in seborrheic dermatitis and atopic dermatitis. Net loss per share was $1.31 for the quarter. Turning to our final slide on Page 19, we provide some key balance sheet and cash flow items. We remain well capitalized with cash of $333 million as of March 31. We are excited about the progress we're making in these early innings of the ZORYVE launch and in our ability to drive increased shareholder value. We also recognize the criticality of continuing to invest in the growth of the launch in psoriasis as well as prepare for the follow-on launches in seborrheic dermatitis and atopic dermatitis. In response, we are taking proactive steps to reduce R&D spend, specifically investment in our early stage pipeline, as well as spend in other areas of the Company to ensure we have the resources to invest in the launch. For the remainder of 2023, we would expect R&D quarterly OpEx to be modestly down sequentially, with more significant declines in 2024 as the remainder of our roflumilast clinical program approaches completion. We are reducing planned expense growth in G&A areas as well, but still expect overall SG&A expense to grow modestly as we continue to fuel the ZORYVE launch and prepare for our next two product launches in 2024. In addition to these prioritization efforts, we have made meaningful progress in our ex-U.S. out-licensing efforts with the potential to further strengthen our balance sheet with non-dilutive capital. This concludes the financial update. I'll now turn the call back to Frank to wrap up our remarks.

Okay. Well, thanks, everyone, for joining us for the call today. I know for our East Coast colleagues, it's late in the day. So we appreciate you making the time. And with that, we will open things up to Q&A.

[Operator Instructions] Our first question will come from Vikram Purohit of Morgan Stanley.

We had two, both on the ZORYVE launch. One on reimbursement and one on, I guess, patient use dynamics. So on reimbursement, you mentioned that it's taking a little bit longer than you'd expect it to get gross-to-net down to levels where you were hoping to get them. Could you just unpack for us, I guess what's taken longer than you would have expected? And specifically, what do you think you could -- what are the levers you can pull on in the next six to nine months to help to compress that gross-to-net down? And then secondly, you mentioned roughly 60% of patients are switching from topical corticosteroids to ZORYVE. Are you seeing that as a direct one-to-one switch or a direct replacement? Or are patients who were previously using topical corticosteroids also using ZORYVE in conjunction with TCS and just mixing and matching therapies across their body? And we ask that question to help get a sense of duration. So if you could comment on kind of duration, what you're seeing in terms of annual annualized tubes of use, that'd be great.

Sure. So Ken, maybe you can take that, and then Patrick, if you have any additional color from a clinical standpoint.

Yes, I'll start. So the -- some of the dynamics I talked about, some of the underlying causes, I'll just expound on. So first of all, there's a little bit of inertia where prior to us having coverage, the best way to get the patient the drug was just simply to process that as non-covered. So even as coverage comes on board, we have to educate and be out there to help with the pharmacy networks to help process the prescriptions correctly. Secondly, I'd say we've seen some lag in terms of the implementation of coverage. So as Frank mentioned earlier, we've been getting the wins at the payer level, they're being announced. But it takes some time to push those down into the plans themselves and ultimately sort of get the system up and running to acknowledge the fact that we're getting covered. And thirdly, I'd say coverage in and of itself does not necessarily mean reimbursed scripts. So the fact that there is coverage, let's just take an example at PBM one, there might be other criteria we then are on the hook for, meaning the prescription has to be processed correctly. The right information has to be included in that prescription, i.e., the diagnosis code, tried and failed medications. That's first and foremost. So there's some work to do. That's why I mentioned earlier execution now at the office level. And then secondly, on the pharmacy side to make sure that those are being run correctly and sort of end to end, the things that have to happen -- sort of ultimately happen. And that's why we've taken some of those steps, as I mentioned, to increase both our education level as well as our field-based footprint to focus on these aspects of reimbursement such that we…

Just to add a little bit on the clinical context of that. I think the real value of this product to patients with skin disease, patients with psoriasis and the doctors and healthcare providers who take care of them is the eventual ability to manage these conditions without the use of a steroid. The patients have grown up their whole life using topical corticosteroids, and the doctors that we're working with have throughout their training throughout their whole practice have used these. So I think as experience grows within the patient, within the healthcare providers, that comfort in being able to move patients over to being treated as monotherapy with ZORYVE so that they don't have that exposure cumulatively to topical corticosteroids that we know from publications is associated with bone demineralization and some of these other side effects that we associate with systemic exposure to steroids, I think, is a real benefit. And as Ken mentioned, we're already starting to see like all of these different ways that doctors are using this as a tool to treat their patients. But I think over time, what we're going to start seeing is more and more of a shift towards treating patients with monotherapy because of the fact that this profile supports being able to treat the disease no matter where it occurs on the patient. And that will only be more true when the foam is approved for patients with scalp psoriasis, because then you really will be able to treat it from head to toe, every single place the disease manifests.

And our next question comes from Seamus Fernandez with Guggenheim Securities.

Great. Thanks for the question. So it sounds like the coverage implementation has been a bit challenging. I'm just trying to better understand what we're looking at in terms of scripts written versus scripts filled and if we're seeing abandonment of scripts at a higher level, or if there is substantial couponing such that we'll see a stronger directional change as we move into the second and third quarters of this year. Just trying to get a little bit of a sense of how the coverage implementation is going to be coming on in the subsequent quarters. And then just my second question. Can you talk a little bit about how the coverage implementation is likely to be applied to the potential approval of the foam formulation? Certainly in the feedback that we're getting from physicians with active experience with ZORYVE is only quite a bit greater in terms of the enthusiasm, not just for the seb derm indication, but for the broader utility of the foam formulation. So just hoping to get a better understanding of how the current coverage that you've really battled for and fought for and priced for is likely to play through into the launch of the foam formulation next year.

All right. So, Seamus, good to hear from you. You guys are going to keep Ken busy today. So Ken, I'll let you handle Seamus's question.

Sure. Absolutely. Seamus, thanks for the question. So we had not spoken previously to -- specifically to sort of fill versus abandonment rates. What I will tell you, though, is the copay programs that we have in place largely mitigate the concern over abandonment, meaning our fulfillment rates are reasonably high because we have programs to support either covered patients or non-covered patients. So if your insurance type, for example, let's just say you were part of the original first PBM approval. In that case, you'd be eligible to be reimbursed. Given the right criteria, that would become a covered script. I think in the case of the implementation delays, what we're seeing is that should come on now, we really -- that's largely resolved. And then going forward, we have one more PBM that's going to be coming on board. So those two things I see as sort of tailwinds to improving the rates of covered scripts. And so abandonment has not historically been a problem, so long as you have sort of a mechanism, in our case, a non-covered copay offer, to cover that. So I don't think that's the challenge. It's more about making sure that we capitalize on the coverage we are getting in a timely manner. And that means, again, as the coverage comes on board, we have an obligation to provide the right information about the patient at the office level and to get the prescription processed at the pharmacy level correctly in terms of getting that process as a covered patient. So those two things have to happen in concert ultimately for us to tap into the coverage that's actually negotiated for at the PBM level. As for the subsequent quarters, I think that's what I'm looking forward to as well, which is…

Perfect. Super helpful. And then just a final question. Frank, I think you said at some recent meetings that sort of the target gross-to-net exiting the year that you were anticipating to achieve somewhere between 40% and 60%. Just wanted to get a sense if we're sort of consistently on that trajectory. And we should sort of think about the balance of the remainder of the year kind of coming on in a linear fashion, admittedly this quarter obviously being the sort of low watermark in that regard -- or the high watermark. I don't know is high or low.

Yes. Sure, Seamus. So just to clarify, I don't believe I've ever put a time frame on when I thought we would get to our steady state gross-to-net. We do continue to believe that we'll get to something around the 50-ish sort of range, 40% to 60% range. which is about as good as anyone performs these days. How quickly we get there I think is still to be determined. There's obviously the coverage decision at the PBMs, and as Ken mentioned, we've seen some implementation lags. But then also there's the follow-on, given the downstream health plans making formulary decisions. We announced, for example, some decisions in April that were a reflection of the coverage that we got at Express Scripts in November. So there can be a fairly significant lag there. So at this point, I won't say that we'll get there by the end of the year. But certainly, we expect to see continued progress, as Scott mentioned, quarter-on-quarter throughout the year. And we do continue to believe that we will get to that sort of 50ish sort of range on the gross-to-nets.

And our next question will come from Uy Ear of Mizuho.

I guess my first question is, could you kind of just help us to understand a little bit more in terms of what you guys are doing to improve those processing issues? Like I guess I just quite don't understand what's going on in the doctor's office. Is there some difficult code that they need to generate, or is it a software issue? Just a little more clarification. And the second question, I guess, is like what proportion -- were you able to quantify what proportion of scripts that had these issues and what proportion could have just been due to seasonal fluctuations?

Yes. So Ken, I think it's back over to you again.

Okay. I'll just keep the mic. So let me start with kind of trying to explain a little bit about what's happening at a high level. So when you get a coverage decision and so formulary implementation, there are criteria that have to be met in order to access that particular sort of, I guess, access to access the coverage that we've --. So there are conditions that the patient has to meet. So as a very specific example, if the insurance company needs to know that number one, the patient is confirmed a plaque psoriasis patient -- so you mentioned the code, for example. So the ICD or diagnosis code would have to be included in that prescription. The second piece is any information associated with the utilization management of that payer, and just to bring that down further, what therapies has that patient tried. So those two bits of information have to be included in the prescription itself ultimately for the payer to kind of accept those conditions, yes, you've met the conditions that we've agreed upon, and we're going to go ahead and pay you for that prescription. So those are aspects that happen in the office. And there are many dynamics that can happen in the office where one or more of those particular conditions may or may not be met. So that's what we're focused on, Uy, in terms of making sure that every office understands that criteria. That's very common. You would see that for most, if not all, branded products. And something that we are looking at in terms of how do we help continue to educate those that actually input those prescriptions to know what you have to do to get ZORYVE. That's a large part of our focus in our field…

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

So as a follow-up to a previous question on the third and final major PBM that you said will come online by midyear. Can you offer any additional color around these ongoing interactions and if you think it's likely to include no prior authorization like the first two PBMs and if perhaps one or two step edits would be required.

Yes. So we can't comment on sort of the final kind of ruling, if you will, in terms of what that looks like. Upfront, you're obviously negotiating and sharing with the payers the value proposition of your products and arguing for various levels of utilization management. I would say we're hopeful about the timing, but certainly can't guarantee anything. But what I will say is congruent with the other PBMs and sort of the approach that we've taken from the beginning is that our position is with the responsible pricing should come enhanced terms or more favorable utilization management. So the minimization of step edits, and ultimately, the lack of prior authorizations, would be kind of what we'd be shooting for. That's our goal. And we've seen that play out thus far. So we're -- it would be very consistent with that approach in terms of thinking about the next PBM.

Yes. And I think maybe I would just add a little bit of color. I think if you look at our track record in terms of coverage, what we've seen -- what we've demonstrated so far is we're able to obtain coverage faster, better coverage in many cases than other recent branded topical launches. And so we're very pleased with how things are going, and we're sanguine, I would say, about the third PBM. And just quickly, I think it's probably [Tara], not Tyler. But I wanted to welcome the two of you to the coverage universe. I think this is your first quarterly call. So welcome aboard.

Yes, thank you so much. Yes, I did not mention that it's Tara, not Tyler. But very great to speak with you guys today.

Next question will be from Chris Shibutani of Goldman Sachs.

This is [Steven] on for Chris. Two for me. Had a question on increasing this field force. Can you just speak to the magnitude of the increase in the number of reps and then when we should expect to see an impact from this expansion? And then in terms of capital allocation priorities, as announced today that there's a shift to focus more on the ZORYVE launch and commercialization away from the pipeline. Just curious if we could see additional steps like this taken in the near term and kind of what that next level of reprioritization would look like.

Sure. So maybe I'll take the second part of that question, and then I'll turn the first question over to Ken for the first part. So we -- I think the short answer is no. At the moment, I think we have implemented the changes that we anticipate making. I think we have a lot going on at Arcutis, clearly, that we've got a very broad pipeline. But it's critical that we have the resources to launch ZORYVE successfully and to launch seb derm and AD. And so we just felt that it was a prudent shepherding of shareholder money, frankly, to do some reprioritization. This is not a wholesale culling of the pipeline or anything like that, and we will be continuing to advance some of the programs. ARQ-255 is in the clinic right now. We are continuing to progress ARQ-234, which is the biologic we've recently acquired. But we have chosen to pause some of the other earlier stage programs, for example, 256, which is the cream version -- 252, excuse me, which is the cream version of our JAK inhibitor, we've put that program on hold. We may bring it back later and have put on hold some of the earlier stage programs, the preclinical programs in the pipeline so that we can really focus our resources in the highest impact areas. We also have just been looking at areas like, as Scott mentioned, G&A and headcount growth and making sure that any additions there are the most impactful, the highest priority additions. But I don't anticipate us making further changes or adjustments in the coming months, at least on current plans. Ken, you want to maybe talk a little bit about the changes in the sales force and when we might see an impact there?

Sure. So Steven, how are you? Talking about the -- so I just want to clarify, it's field base, not field force. So what we've done is we've expanded upon our resources that are focused on field reimbursement. This is a pretty common type of role within many companies. And what we're looking at is not a huge lift. We actually have some of these folks on board already. We're looking to get somewhere in the neighborhood of 10 to 12 folks to help supplement. And they're not actually sales team members. They're very focused on partnering with our pharmacy and our channel. They do call on some key physicians, but mostly to, again, offer further education regarding the information necessary to get a prescription processed correctly. So it's not a sales rep increase by any means. We're still at the number we said before. But largely focused on field reimbursement. The team should be in place almost -- we've actually been doing it on a rolling basis, but should be in place reasonably soon. And we've actually already seen benefits of the implementation in the various regions and locations in the country that we have folks where they've been able to make an impact already. So the impact is actually quite rapid once you put somebody in place and are able to better partner and spend resources. What we don't want to do is spend our field rep time talking about this aspect versus building conviction in ZORYVE. And so this team is really supplementing the efforts of the field team as we go forward. And it's not -- they're not sales reps. So just it doesn't really expand I'd call our sales footprint proper.

Okay. Makes sense. I appreciate it.

You bet.

Our next question comes from Louise Chen of Cantor.

So wanted to ask you what your go-to-market strategy is for seb derm if you get approval. How do you expect uptake to be relative to what you saw for psoriasis? And then my second question is, when do you think we could hear about a partnership for ped and primary care? Could it be this year, and could it be a global partnership?

Hi, Louise. I was just thinking today, I haven't talked to you in ages. So, nice to hear your voice. Again, I think maybe I'll take your second question, then I'll throw it back over to Ken for the first question and Patrick's thoughts as well. In terms of the timing of a primary care partnership, I think it's always difficult to predict when a negotiation could be concluded. We haven't initiated anything yet. I think what we've said in the past, and we continue to believe this, is that we need to have the primary care partnership in place at least around the atopic dermatitis, at latest around the atopic dermatitis launch, just given the size of the atopic dermatitis opportunity outside of dermatology. It's about 60% of the market. It's certainly to be a meaningful contributor to seb derm as well. So we may end up concluding an agreement prior to atopic dermatitis, but a lot of that's going to depend on discussions with a potential partner as well. And then, Ken, do you want to talk about the go-to-market and uptake? And Patrick, you may have some thoughts, too, from a clinical perspective.

Sure. So do you want Patrick to start maybe, and then I'll jump on that.

Sure. Patrick, do you want to start there?

Yes, absolutely. So seborrheic dermatitis is a disease where there hasn't been, as we mentioned, a new product launched in decades. And so I think we are really focused on the medical side on disease state education and kind of clarifying especially what the burden of disease is on patients. In some of the research that we've done, we've been able to show that patients that are on five or more treatments and often taking up 30 minutes of their day each day managing their seborrheic dermatitis. And those number of treatments are both over-the-counter as well as prescribed. So I think a lot of this information is something that because it hasn't been a part of the conversation, healthcare providers may not be aware of. So we have a lot of work that we're doing with regard to education. That being said, we know from the patient perspective that there is a very strong desire for new treatments. We can hear that clearly when we go out and talk to patients. And we also sense a lot of frustration on the healthcare provider side on the lack of kind of new modalities to be able to offer patients. So we are doing our diligence with regard to disease state education, but it's to a very receptive audience.

Yes. So I'll just add to that, Louise. So I mean, I would expect -- seb derm is a different animal in terms of -- compared to psoriasis. The degree of unmet need, the degree of anticipation and largely the familiarity that we'll be capitalizing on in terms of both our company as well as the experience with psoriasis. So we expect the conditions to be quite different as it relates to heading into that market. We largely see ourselves having not as much direct competition in the market not being as crowded, coupled with this very high level of anticipation to look a little bit different. I also mentioned earlier with respect to the access dynamics the fact that we will be launching into a situation in which we already have some early coverage, owing to the transposition of the current coverage onto the new indication or line extension. I would expect that to really be a boost in terms of not starting at ground zero in either access, familiarity or comfort level with the mechanism or the product. So we will be doing some of the similar tactics, however, in terms of thinking about sampling the product. Obviously, that is a core expectation in dermatology offices and getting people familiar. Whereas people are generally familiar with foam products, our foam product is quite different with respect to the quality of the vehicle. And so we'll be getting people kind of oriented with that, ultimately launching them with samples just like we would at any other product launch. But this one is going to be a little bit different. And so I wouldn't count on the dynamics being sort of exactly the same, given early days relative to psoriasis.

And our next question comes from Greg Fraser, Truist Securities.

Just following up on the field base expansion. Understand it's not reps. But should we expect a step up in SG&A spend in the coming quarters, or could SG&A spend decline? You mentioned pulling that on some G&A growth. And then just a follow-up on the challenges with the coverage implementation that you're seeing. Sorry to ask about this, but again -- because you're probably tired talking about it. But to what extent are the issues manifesting in the office versus the pharmacy? With the coverage that you have, prior auths are largely not required, but some of what you described, like the doc confirming the indication, sound a bit like prior auth steps. So I just want to understand better why NRS is not still due to these issues. Is it usually the pharmacy when the copay is not accurate for the coverage? Just any additional color would be helpful.

Yes, sure. Scott, do you want to maybe take the question on SG&A, and then I can take the question around GTN?

Sure. Thanks for the question, Greg. Yes, on SG&A, we would still expect it to go up modestly sequentially as we continue to invest in the launch. I think this supplemental field team is one driver. We're continuing to add tactics. And then in addition to psoriasis, we have to prepare for the seb derm and atopic dermatitis launches. So we've been consistently saying that even with the reprioritization and reducing expense growth in certain areas of SG&A, the overall commercial investment, we want to keep robust to make sure that we have the resources we need for the launch. So SG&A I think will still modestly grow sequentially in support of those launches.

All right. Ken, you want to --

Yes. So in terms of the kind of office versus pharmacy dynamic, I'll do my best to -- I think it'll be anecdotal at best because we have not been, I'd say, quantitatively measuring this. But I'd probably say it's probably a split of about 60/40, Greg, in terms of where I believe the challenges exist, both of which are remediable and addressable in terms of being able to tackle, but they take different approaches, right? So the office space is about education and consistency of entering the right information. And while, to your point, it sounds like a PA, a prior authorization is sort of a more formal process that you have to stop and fill out a little bit more information typically. And this is -- you can probably look to other systemics and such for when you have a true prior authorization process. This is a confirmation of ICD-10 and sort of your tried and failed. So a little bit softer of that process. But it is required in order to, I'd say, activate any coverage that you have. So where you will see products that have a, “hard prior authorization”; that sort of you absolutely have to fill out additional information and justification for that drug, we're not seeing that with respect to the type of coverage we're getting. So I think it's about that ratio, about 60/40. And then the pharmacy side, like I mentioned, largely the realm of our reimbursement specialists who are working with those pharmacies and continuing to educate them and let them know that, first and foremost, we are covered in some particular plans, and that those patients should be run via the covered route and to obtain the necessary information from the office. We can -- I don't have those quantifications at my fingertips, but that's what I would say kind of anecdotally and based on what I'm seeing.

That's helpful.

And our next question will come from Sean Kim with Jones Trading.

So I guess just the one question related to the recent approval in Canada. I'm curious to hear what marketing efforts you need to do in Canada, recognizing that it is a smaller market. Whether you'll lead the efforts by redeploying some with the commercial force into Canada or partner out for efforts. And whether the expected product sales in Canada will be net positive on the bottom line. And I guess, more broadly for the ex-U.S. opportunities, just curious if you have specific geographic areas that you're focusing on for the time being.

Yes, Sean. Thanks for the question. So I'll take part of this, and then I'll ask Ken to comment about the Canada launch plan. So from an ex-U.S. standpoint, Canada is the only geography that we plan to do ourselves outside the United States. And frankly, the U.S. and Canadian dermatology communities are so tightly interwoven that we felt that that was the right thing to do. Canada also has been a major contributor to the clinical development program for roflumilast. I think about one in three patients across all of our clinical studies came from Canada. And so there's a very high level of familiarity there with the topical roflumilast. Beyond Canada and the United States, we would be looking for a partnership for any other geographies. And we have said repeatedly in the past that our primary focus is on Japan and China and Asia more broadly. I think Scott mentioned in his comments, prepared comments that we've made significant headway on potential partnerships in Japan and China. And I think that that's something that could be something that could happen in the relatively near future. Beyond Japan and China, the only other really big market out there is Europe. And the challenge I think in Europe is reimbursement for topicals. You may be aware, Pfizer actually withdrew EUCRISA from the market last year for commercial reasons. Most European countries want to reimburse you at the rate of a topical generic steroid, which just is not a reasonable reimbursement rate. And so that creates some significant headwinds in Europe. And then I think beyond that, it would really depend on the appetite of a partner to take on other geographies. But that certainly is not one of our priorities right now, trying to find partners in Middle East, Latin America, places like that. So Ken, do you want to maybe talk a little bit about the Canada launch preparations?

Sure. So thanks, Sean, for the question. So just to dimensionalize Canada. Canada is about 1/10th the population of the U.S. So just thinking about an epi opportunity standpoint, obviously smaller than the U.S. What's interesting about Canada, though, is that the concentration of prescribers in the case of dermatology specifically is quite compact. And so it doesn't take much in terms of a lot of footprint where actually our investment is pretty modest with respect to Canadian commercialization. And we've leveraged significant amounts of resources from the U.S. team in terms of commercial health, meaning our operations, our marketing. Many of the functions, regulatory, everything sort of borrowing from the U.S. and leveraging what we've already done. And so this is what I would view as a very efficient sort of approach where we will have a sales team on the ground, but we're talking about seven folks, which is pretty modest in the entire country, to do this. And so, again, leveraging very highly from the things that have already been done, whether we're talking about tactics or learnings or strategy. And we also enjoy the fact that the unmet need in Canada is significant and that the anticipation there is even greater than you would imagine. So we're -- there's a lot of tailwinds going into this particular launch. As for the sales, obviously, we all know that Canada pricing is substantially different than the U.S. We'll talk more about that when we actually announce the launch terms. But we do feel that this is going to be a net positive proposition in launching into Canada. And of course, we'd be having the follow-on indications as well in terms of the entire portfolio.

Marc, maybe just one more question because I know we're past the hour mark.

Sounds great. And our last question will come from Rohit Bhasin with Needham & Company.

This is Rohit on for Serge. Where do you expect to be in terms of pricing of the roflumilast foam for seb derm? And then can you talk about how you plan to drive disease awareness?

Yes. Ken, you want to maybe take the first one, and then Patrick, you can address the disease awareness?

Yes. So I think that the pricing of the foam will be largely in the neighborhood of the cream. We're doing that for a particular reason. Again, earlier on when we were talking about our access strategy, it's important with these follow-on indications, particularly seb derm that has a larger government pay component, to make sure that we're not triggering inadvertently additional burden to the patient. And what that means in plain speak is if you're priced too high, you trigger the specialty tier, which ultimately results in copay or coinsurance amounts to the patient of anywhere from 30% to 40% of list price, which is probably too much for a Medicare patient. So we're being very conscious of trying to stay below that threshold. That threshold does change every few years from a government standpoint. But staying in the neighborhood of our current pricing is probably the most prudent approach to enter the market, and then we would look to see if there were movement within the definition of the tier.

Yes. And just to talk about disease awareness for seb derm. As mentioned, this is something that we're working on within our medical affairs team that's already out in the field. One thing that's important to keep in mind is that seborrheic dermatitis is a highly prevalent disease. And even though many of the patients may not be under treatment right now due to the lack of kind of new treatment options in the last decade, there are still as many seborrheic dermatitis patients in dermatologist office as there are psoriasis patients. So this is a disease that's very familiar to the doctors that we're engaging with right now already for ZORYVE cream. And so it's really just a matter of kind of incrementally increasing their awareness about some of these facts that I had talked about earlier. Notably, the like disease burden on patients. Some of the things that we've learned from a more formalized analysis of seb derm that hasn't really been done previously because there hasn't been a kind of corporate engagement in really looking at and systematically understanding what it is to have the disease of seborrheic dermatitis and how it is that that specifically impacts patients. So I think it's a good opportunity for us to kind of share this information with healthcare providers as we look forward to the approval at the end of this year.

Okay. So we're a little over time, but I just want to take just a minute and wrap things up. I think, as I said at the beginning of my comments, if you look at the fundamental indicators of the business, we're very, very encouraged. Demand is growing very strongly. Very, very positive patient and physician feedback on the product profile. And we made great headway with coverage on the product as well, outpacing all of the other recent topical launches. I know a lot of the questions have come up around this gross-to-net question. I think it's the first time we've probably gone into great detail around gross-to-nets and some of the dynamics that we're seeing. I would point out a couple of things. The first one is topical dermatology from a reimbursement standpoint is different than any other sector of the pharmaceutical market, right? This is as different from orals and injectables as buy and bill is, in many respects. But the topics that we've discussed around our gross-to-net dynamics are not unique to Arcutis. In fact, you see this really with every topical company having very similar sorts of issues that they have to address. And I think the most important thing is that we have, I think, a good understanding of where we have run into challenges with gross-to-nets, and we have a solid plan on how we can implement and improve our gross-to-net. And we remain confident that we're going to see quarter-on-quarter improvements throughout the year. And as I mentioned before, we continue to believe that we're going to be able to achieve a very solid gross-to-net in the foreseeable future. So wanted just to clarify that a little bit and look forward to continuing to update you all on the progress we're making on gross-to-nets as well as on patient demand in subsequent calls. And with that, I think we're going to wrap up.

Thank you, everybody, for your participation in today's conference. This concludes the program, and you may now disconnect.