Hello, and thank you for standing by. Welcome to Arcutis Biotherapeutics Q2 2024 Earnings 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 be advised that today's conference is being recorded. I would now like to turn the call over to Latha Vairavan, Vice President, Finance and Investor Relations. You may begin.

Thank you, Folanda. Good afternoon, everyone, and thank you for joining us today to review our second quarter 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 are 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. These statements are subject to certain risks and uncertainties and our actual results may differ. We encourage you to review all of 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.

Thanks, Latha, and thanks to everyone for joining us today. Very excited to be able to provide you with an update on the most recent quarter of our performance. So let me start off on Slide 5 of the deck. We have continued really strong performance since our last earnings call and I continue to be delighted and very proud of the Arcutis team in our execution in the quarter and thrilled about the momentum that we're building towards the second half of the year. Once again, we saw strong growth during the quarter in our expanding ZORYVE portfolio as healthcare providers and the patients see how ZORYVE cream and ZORYVE foam address real needs in the treatment of psoriasis and seborrheic dermatitis, respectively. Solid growth in prescriptions for both the cream and the foam, coupled with additional gross-to-net improvements during the quarter, drove strong revenue growth in the second quarter both year-over-year and compared to Q1 2024, with net revenues of $30.9 million, 56% of which was cream and 44% was the foam. We've now generated more than 351,000 prescriptions for the cream and the foam combined from over 14,000 unique prescribers to date as our product delivers positive clinical experience for healthcare professionals and their patients. We improved gross to net again this quarter, resulting in a blended GTN in the high 50s across both products for the second quarter, down from the low 60s last quarter. So looking forward for the remainder of the year, we believe we are well positioned for sustained revenue growth with continued momentum on the psoriasis and seb derm launches and atopic dermatitis will be additive in the second half following the launch of that indication late in July. We're also very excited about the recently signed deal with Kowa Pharmaceuticals to expand our promotion into the primary care and pediatric space, although we wouldn't expect to see meaningful revenue contribution from those efforts until 2025. And we are delighted that we were able to favorably renegotiate the terms of our debt agreement with SLR and David will provide more details on those terms later in the call. With that, let me turn it over to Todd to provide some further commentary around ZORYVE cream and foam launches in psoriasis, seb derm and atopic dermatitis. Todd?

Thank you, Frank. I'm extremely enthusiastic about the expansion of our commercial portfolio, HCP and patient response to both ZORYVE products and the immense opportunities that lie ahead. We achieved $30.9 million in net product revenues for ZORYVE the second quarter of 2024, reflecting 43% growth over Q1. This was driven by healthy prescription growth, substantial gross-to-net percentage of improvement down into the high 50s, and the team's success in pulling through cover prescriptions as well as improving coverage for the foam. For the remainder of 2024, we expect continued prescription growth and some gross-to-net improvement, primarily for ZORYVE foam as gross-to-net discounts for ZORYVE cream, 0.3% have already reached our expected steady state in the 50% range. Moving to Slide 8. The ZORYVE portfolio performance is showing promising growth and strength, reaching for the first time close to 10,000 scripts in a week. This new high shows the momentum we can continue to create for the ZORYVE portfolio. The portfolio had quarter-over-quarter volume growth of 42% over Q1. We expect continued build as we include atopic dermatitis beginning this quarter and we'll add a fourth indication in 2025 if approved by the FDA. Onto Slide 9. The ZORYVE psoriasis TRx performance has continued to show strength and these results demonstrate that we can sustain our growth in psoriasis. We see the steady trend line with 8% growth over Q1 '24, ZORYVE foam experienced volume growth of 102% versus Q1 '24. As we stated before, while the trajectory has moderated from the initial launch uptake, it is still phenomenal growth and a key factor in our portfolio's performance. Onto Slide 10, we have coverage for ZORYVE 0.3% cream and foam from all three large PBMs and continue to progress with formulary access and downstream plans. When we examine the percent…

Thank you, Todd. Starting off on Slide 17. I'm extremely proud of the team's performance in delivering on the promise of topical roflumilast, dermatology community in the clinic and continuing to hit all of our timelines with regards to regulatory milestones. Echoing what you heard from Todd, I see that HCP excitement around ZORYVE cream for atopic dermatitis continues to grow as we release more data. Building on the foundation of their clinical experience with ZORYVE in psoriasis and seb derm, dermatology, clinicians find ZORYVE's product profile to be well-suited for what they and their atopic dermatitis patients are looking for. We've already started looking to expand the indications also for ZORYVE foam, having recently filed another sNDA with the FDA in scalp and body psoriasis in July. If approved, this will represent our fourth indication for ZORYVE, and I'm going to give just a brief peek at why we're so excited to bring this indication to patients. Writing out this table, we looked at the submission of our sNDA for the treatment of mild-to-moderate AD in two year olds to five year olds, which is planned for Q1 2025. And finally, we're also looking forward to our expected IND filing for ARQ-234, our biologic CD200 receptor agonist for atopic dermatitis in 2025. On Slide 18, we see our next new therapeutic focus is leveraging the properties of ZORYVE foam to help patients with scalp and body psoriasis. We know that approximately 40% of psoriasis patients also suffer from scalp involvement, and our foam has demonstrated reliable clearance of plaques as well as rapid and robust impact on itch. One of the major challenges for managing psoriasis patients with scalp disease is the complexity of the regimen. Often they end up with several prescriptions for their scalp and at least…

Thanks, Patrick. I'm on the Slide 21 showing financial results both year-over-year and quarter-over-quarter. As you've heard, our net product revenues for the quarter were $30.9 million, which is up 547% from Q2 of '23 and 43% from Q1 of this year. For the second quarter, our R&D expenses, which include our clinical research, medical affairs activities supporting ZORYVE and manufacturing costs for pipeline candidates were $19.3 million, which is down from Q2 of 2023 due to continued decreases in the development costs of topical roflumilast programs and also down sequentially from Q1 of this year due to lower spend in our early-stage programs. You recall that we had some one-time spend in Q1 of 2024 related to 234. SG&A expenses were $58.2 million for the second quarter versus $46 million in the same period last year, as we invested in both our current and future launches, including our field force. Our SG&A, expenses were slightly higher quarter-over-quarter, primarily due to incremental stock comp expense incurred in connection with the retirement of a former executive. We believe we are investing appropriately in our product launches to support the ZORYVE growth trajectory while constantly looking for ways to achieve savings and efficiencies. On Page 22 -- Slide 22, you can see we had cash and marketable securities of $363 million on our balance sheet as of June 30, which translates to a cash burn in the quarter of $45 million. Our current capital, together with our product revenues, enable us to continue operating the business for the foreseeable future, including our continued investment in commercial launches. I'd like to add, as we've said repeatedly, we do not envision a need to come back to the equity market to support our existing businesses. I'm now on Slide 23. This slide summarizes the key features of the recently signed amendment to our debt agreement with SLR. The management team, together with our board, took advantage of the opportunity to renegotiate our debt to provide Arcutis with considerably improved financial flexibility. The revised deal, which becomes effective at the start of October of this year, provides a number of very important improvements, including an extended maturity to 8/1/29, a decrease in the interest rate of 150 basis points, the flexibility to repay up to $100 million in the fourth quarter this year, together with the ability to redraw that money anytime through the first half of 2026, thereby saving us considerable interest expense. We've also deferred our 6.95% exit fee on the redrawn $100 million to the August 2029 maturity date and remove restrictions on asset purchases. With that, I'll hand it back to Frank for some closing comments and then we'll open for Q&A.

Thanks, David. Our goal here is to make a positive and meaningful impact on the lives of people afflicted with chronic dermatologic diseases. And with ZORYVE now launched in two indications, and the atopic dermatitis launch now underway, we are proud to be helping millions of medical dermatology patients while allowing us at the same time to create additional shareholder value. We're confident that our strong performance in Q2 '24 portends for a strong and sustained growth for the rest of 2024 and beyond. And with that, we'll wrap it up and open up to Q&A.

Thank you. [Operator Instructions] Please stand by while we compile the Q&A roster. Our first question comes from the line of Vikram Purohit with Morgan Stanley. Your line is open.

Hi. Good afternoon. Thanks for taking our questions. We had two, first on ZORYVE, both for psoriasis and also for seb derm. We were just curious if you could comment on your latest findings on refill rates and your, I guess, most recent estimates for how many tubes or cans per year you think patients are going to be working through. And then secondly, I just wanted to get your sense on where you think steady-state gross -- gross to net, excuse me, could be for the foam product once that settles out over the coming quarters? Thanks.

Yeah. Hi, Vikram. Yeah, Todd, you want to take those two?

Yeah, absolutely. Thank you, Frank. So in reference to PSO and seb derm and the latest, the refill rates we see on psoriasis, our refill rates are roughly around 38% of our total volume. And with seb derm, we see something similar, although we do see some signals that there will likely be a higher refill rate on seb derm eventually than that of psoriasis. So we're very encouraged with the refill rate percentages for both products. And then in reference to utilization of those products, we're assessing that. And at this time, our estimates are that for a patient -- average patient utilization per year for seb derma will likely be around two cans per year. And for psoriasis, it's going to be like around two to three tubes per year for psoriasis. And in reference to the steady-state gross-to-net for foam, we've seen an encouraging ramp relative to improvements in our gross-to-net for foams, especially with the line extensions of the three PBMs. And that we anticipate that we're in a very good position to be able to be in that steady-state high 50s well into the end of this quarter, beginning the fourth quarter of this year.

Understood. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Tyler Van Buren with TD Cowen. Your line is open.

Hey, guys. Congratulations on another solid quarter and all the progress. I have two for you. So the first one is just the prescriptions for the cream have made a nice week-over-week jump over the past two weeks. So I'm curious to understand if this is pull through from the early atopic derm launch already, and if you believe this could be a new trend line moving forward? And then the second question is, considering the latest performance for the foam, do you believe that the foam and the cream will split overall ZORYVE sales pretty evenly in the long term or that one of the products will be substantially larger than the other?

Sure. Todd, I hate to keep doing this to you, but…

No, I'm happy to do it. These are great questions. So thank you, Frank. In reference to the ZORYVE cream, we are pleased with the most recent week-over-week performance for that product. And I think that there's a couple of things here that are creating definitely some positive tailwinds for us. And that is that with the launch of ZORYVE foam and creating a portfolio of products, this has really resonated with the providers as far as ZORYVE cream across these two patient populations of psoriasis and seb derm, creating a halo effect on both products to include the ZORYVE cream. Not only that, but we have expanded our field sales organization that we expanded it by roughly 40 representatives that was fully executed on July 1st of this year. So I think that additional share of voice is starting to have a positive impact relative to our ZORYVE cream and psoriasis brand performance. And then in reference to foam, once again, we're very encouraged by the performance of the foam, especially in the last weeks, we're seeing very positive week-over-week prescription growth. And relative to the split on the business between psoriasis and foam, I would anticipate that we will have a higher weekly TRx prescriptions, eventually in foam than we want psoriasis, because the market is so much larger relative to seb derm and foam. There's no branded competition within that market. There's been no innovation in many years. And so it creates a great opportunity relative to the value proposition that we offer to these patients. And we continue to hear very, very encouraging and positive feedback, not only from the dermatology community, but from patients. So I think that that's what we can expect going forward.

Thank you. Please stand by for our next question. Our next question comes from the line of Seamus Fernandez with Guggenheim. Your line is open.

Well, thanks very much and congrats on the quarter and all the progress. A couple questions on the progression in AD and how we should think about it. One question that I have is, just as Kowa comes on to expand the promotion of ZORYVE, can you help us understand some of the key impact points and how we should be thinking about the prospect of acceleration there and then separately, just hoping to understand how you're thinking about the opportunity in the pediatric AD setting? Obviously, that's another sNDA file would bring the availability of ZORYVE to a very important younger patient population. I'm interested to know how you're thinking about the promotion in that setting and the importance of it as well?

Yeah, Seamus, your second question. You're asking about the two year olds to five year olds?

Correct.

Yeah. Sure. Okay. Todd, maybe if you could take the question about Kowa and then Patrick, maybe you could kick us off on the question around AD, just from a clinical standpoint.

You want to start, Patrick?

Yeah. Sure. I'll take that question. Thanks, Seamus, for the question. I appreciate it. So we were thinking about pediatric AD, that two year olds to five year olds represents about 10% of the AD patients that are in dermatologist office. But I think what's really important is to keep in mind that the pediatric AD community is already very much involved in our launch, given that we have six year olds to 11 year olds with the 0.15% approval that we just had in July, as well as adolescents. And both of those are kind of core patients for this pediatric AD treating community. So I think that we're already really heavily engaged with them. And then as we bring the age range down into the two year olds to five year olds, we'll just be able to kind of build upon that. And if you think back to the data that we had for two year olds to five year olds, it's very, very consistent with what we have for ages six and above. So it'll seem like a very natural extension, I think, as we add on that additional age to the indication.

And then, Seamus, if the sound is clear, your first question was in reference to the progression of AD and our expanded promotion and kind of what are some of the key impact points?

That's right, yeah.

Yeah, absolutely. So, first and foremost, we're very pleased with the start of the atopic dermatitis launch. We're receiving very positive feedback from the dermatology community and I think some of the key impact points that we're looking at is, I think first and foremost is for the EHR, electronic health records to have them all brought online to where ZORYVE cream, 0.15% or AD is loaded up into the EHRs. We've been actively working on that and expect that to happen over the next couple of weeks. The other is we've mentioned access that two of the PBMs now have treated atopic dermatitis as a line extension. I think another key driver accelerator will be when that third PBM comes online, which you anticipate that to come online very likely next month. The other is that we have the EHR, we have the access, we have the promotion, we got to make certain that we're driving coverage scripts. So we are working hand in hand with the pharmacies within our contracted pharmacy network just to make certain that we can drive coverage scripts with those pharmacies. We're also working with the dermatology offices relative to the PA process, and I think we have a significant strategic advantage here and, as we mentioned before, that these offices or the pharmacies, it's the same coverage across the three different products, same copay card, same contracted pharmacy network. So we see a lot of synergies that are being built here across the offices and pharmacies to drive those cover scripts. So I think we couple those together, we'll be well on our way to a very successful launch.

Maybe I'll just add, specifically with regard to Kowa, we expect them to start promoting in the field probably towards the end of this quarter. But as I mentioned in my comments, we don't expect to see an inflection in ZORYVE growth from the primary care and pediatric piece probably this year. I would expect that to be more of a contributor in '25. Very much like when we first launched with plaque psoriasis and dermatology, the primary care and the pediatric doctors don't know ZORYVE yet. And so there's going to be some education that has to go into that. But Kowa has relationships with many of these doctors, they've got a proven track record in the primary care space. So we feel very good about it. But I do think there's going to be a bit of a lag in terms of when we see the impact. I would expect to see more in '25 from the primary care deal. And then just with regard to the pediatric piece, I would also just point out that we do anticipate also in the future studying ZORYVE in three to 24 month olds. That's something probably that will come post approval in the two year old to five year old. But again, I think it's an important opportunity, both in the dermatology setting, but also especially in the pediatric setting. As you know, there are many AD patients, but below the age of two.

Great. And then maybe just one question. Is there a point where David and Frank, you are -- and Todd are all carefully looking at the value contribution of a broader, sort of DTC campaign. Where do you think that starts to become most impactful? Is that kind of end of 2025, 2026? There have been good returns on DTC advertising, but just wondering how you're thinking about the spend?

So I think we have a direct-to-consumer program ongoing all the time, and we expanded that with seb derm, and we will expand it further with atopic dermatitis. I think specifically with regard to broadcast TV. That's something that we are constantly evaluating. I don't know if or when we will really ramp up broadcast TV. It's very expensive, right, because you're competing against the likes of Coke and Ford, as well as the big biologic companies for buying that advertising space and the economics for direct-to-consumer TV for $70,000 a year product is very different than the economics for a product that is probably something like $2,000 a year. So I wouldn't say at this point we've made a commitment to going into broadcast TV. It's something that we'll continue to evaluate, but we would only launch that if we felt that there was a really compelling business case that drove shareholder value.

Great. Thank you.

Thank you. Please stand by for our next question. Our next question comes out of Uy Ear with Mizuho. Your line is open.

Hey, guys. Yeah, congrats on a solid quarter. Thanks for taking our questions. So I guess our first question is, maybe just help us to understand a little bit about the gross-to-net changes. I think you indicated from low 60s to high 50s. But if you just take the sales number and divide it by the total scripts, the net -- the implied price seems to be relatively flat. So that's sort of the first question. And the second question is, could you maybe just help us understand, like, the proportions of pediatric patients in the derm offices that you currently detail to versus those in the primary care and pediatric markets that you're expecting Kowa to go after? Yeah, and I guess maybe thirdly, you indicated that the amended term loans has now removed restriction on asset purchases. Just wondering, what do you have in mind in terms of PED? Thanks.

Okay. Great. That's a lot. So let me take the easiest one first. So, in terms of the proportion of PEDs or children, excuse me, in derms versus PCP and PEDs, I think that Patrick mentioned earlier, in dermatology offices, it's only about 10% of the AD patients they're seeing are children, the 90% being adolescents and adults. It's a very different picture in primary care where in the pediatric offices, all of the kids obviously are pediatric, and the majority of the pediatric AD population are sitting with pediatricians, which is why we think this PCP co-promote is so important. There are a lot of adults as well who are seen by PCPs and not by dermatologists. I think that's both a function of the difficulty of seeing a dermatologist. In many cities around the country, it's a six-month wait to see a dermatologist. But also, and Patrick can comment on this too, I think many PCPs feel very comfortable treating eczema as opposed to psoriasis. And then Todd, maybe you can talk a little bit more about the gross-to-net changes. I'm not 100% sure I'm clear about your comment about the implied price, but Todd can talk about the gross nets in a little more detail. And then after he's done, we'll get David to address the debt and business development.

Yeah. In reference to the gross-to-nets, what's been driving, first, what's been driving the improvement in gross-to-net, what's probably been driving that is the increased number of covered prescriptions that we've had in place. And that's -- there's kind of three factors that are driving that, first, is we have had some improvement in relative to our market access. This gives us the opportunity to increase the percent of product that's now being covered by the insurance companies. The other is that we've had, as mentioned earlier, a nice acceleration of gross-to-net improvement with ZORYVE foam with the three PBM line extensions that have happened there. A little bit of a higher volume in seb derm that's given a positive mix when you blend the two together to give us improvements also within our gross-to-net. In addition to that, some of the changes that we've made with our copay card to create efficiencies in covered prescriptions versus non-covered prescriptions and how those are accounted for has also lended to this improvement. So I'm not sure if that explains it. If there's further questions, I'm happy to answer.

No, that explains it. Thanks.

Yeah.

Yeah. On the prior questions, I was also wondering whether there's a large proportion of pediatrics or patients in the primary, in psoriasis as well in seb derm that have not -- that have gone untouched.

Yes. So, we've stated before about a third, roughly, of the primary -- of the psoriasis population is treated outside of dermatology. That's a little bit scarier disease, quite frankly, for non-dermatologists. So they tend to refer more, whereas eczema or atopic dermatitis and seborrheic dermatitis, many doctors are comfortable treating those patients in their own practice and so about half of the eczema population and roughly half of the seb derm population are outside of dermatology. And then, I think it's also important to note that, particularly seb derm and to some extent eczema, psoriasis, there are a fair number of patients who are also not being treated. They've even either given up or they don't realize they have a treatable condition. And I think that over time, we may see some growth in the marketplace, particularly in seborrheic dermatitis, going forward, patients who weren't on drug previously coming on to our drug.

And then, David, can you maybe talk a little bit about the debt revisions, specifically business development? Sort of thinking around business development?

I'm sorry, I thought you wanted us to address some of the math around gross-to-net, which I can do for a moment, if you like?

So, I don't know, Uy, have we addressed your questions around gross-to-net?

I think, yeah, I think I was sort of wondering about the mix, so, and I think you guys have sort of explained it, but David, feel free to address the math.

Yes. The only thing I was going to add is the same thing we talked about multiple times at the end of last quarter, right? The way we've chosen to handle commercially insured but uncovered scripts makes it difficult for you to calculate the exact gross-to-net. You don't have all the inputs you need, but it is in the 50s.

Okay. Thanks.

And then, David, question about business development.

Yeah. I'm sorry, could you repeat the business development question?

You removed the restrictions on the asset restrictions -- asset purchase restriction on the amended term loan. Just wondering what you have in mind.

Well, the original agreement had a hard dollar cap on asset acquisitions. That's in this -- in our amendment that has been removed.

Yeah. And then I think really more broadly, I think we think of business development as a potential opportunity, but not a necessity, right? We've got three very strong products now approved. A fourth one, we just filed, we have some earlier stage programs in our pipeline, and we have a pretty high bar in terms of buying things, right? We don't need to go out and buy revenue because of the products that we have and the products we have in our pipeline. But we're always looking. And if something came along that we felt we could create additional shareholder value with, we certainly would think very seriously about that. I think we've built a wonderful development organization both in R&D and in technical operations. And so finding something that we think is a diamond in the rough like ARQ-234 is something we're always looking for, but we're not looking to do at this point in the game, some sort of a roll-up where we're just adding a bunch of revenue that doesn't really create shareholder value.

Okay. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Serge Belanger with Needham. Your line is open.

Hey, good afternoon. Thanks for taking my questions. First one on managed care coverage. I think over the last couple updates you've highlighted, you secured Medicaid coverage from some prominent states. Just curious where you stand on Medicare and I guess where you expect to be once we flip to 2025 and the copromote begins, and also related to that, I think in the past you've mentioned that you expected your Medicare/Medicaid book of business to be as profitable as the commercial book. Have those expectations changed now that you decide to secure that coverage? Thanks.

Yeah. Sure. Great question, Serge. Todd, you want to take those two?

Yeah, absolutely. First, in reference to Medicaid, as mentioned earlier, we've been able to secure coverage in Texas, Florida and New York. We are in negotiations with other states for Medicaid. And those negotiations are moving forward and we're having very positive conversations. And so I expect to pick up additional coverage with Medicaid states as we roll through 2024. In reference to Medicare, we continue to have positive dialogues with the PBMs that manage the Part D plans. And we expect, as you mentioned, we roll over 2025 and into the partnership relative to Medicare, we do expect to be able to have some Medicare access as we initiate and go into 2025. Those conversations with those Part D plans are going well and the coverage would very likely be initiated in 2025, although we are having conversations about the potential to pull some of that forward into 2024.

And then, Todd, can you also comment on what we expect gross-to-nets to look like in Medicare and Medicaid versus commercial?

Yeah, absolutely. So relative to gross-to-nets, we're in a very good position and that's a result of the strategic pricing, the WACC pricing for ZORYVE that falls below the specialty product threshold within Medicare, so we won't have to pay exorbitant rebates to the Part D plans to be able to secure that access. Once we secure that access, it should have a very nominal impact on our gross-to-net. Likewise, within Medicaid, we're in a very good position. And what we've had to negotiate there relative to discounts, we should have minimal-to-no impact on our growth relative to the Medicaid access that we're securing. So we strategically price the product that way. And it's starting to play out strategically for us both across Medicaid and Medicare very positively.

Great. And then maybe a follow-up on a prior question regarding the gross-to-net calculations for the quarter and regarding more specifically to a program where you count the commercially insured but non-covered scripts and how they don't impact the copay cards. I don't know if you can disclose how many, the volume of scripts going through that program and whether it's increasing or stable from quarter-to-quarter?

Yeah. I'd be happy to address that question. So relative to the program that we've mentioned as far as the volume going through that versus the, what I'll frame is the traditional program that we have, we do see a high level of the ZORYVE volume going through that new program, which is having a positive impact on our gross-to-net. And we anticipate that that will, it is a high volume, so it will increase but modestly because it is a pretty significant part of our volume that is now flowing through there. And we anticipate this as we ramp up in atopic dermatitis. We would expect the same thing.

Yeah. Serge, I might just emphasize again, what we're really focused on is covered prescriptions, right, because shareholders don't make money on a non-covered script. In fact, normally you lose money on a non-covered script. So we have taken to telling you guys what percentage of our scripts are covered. And Todd mentioned, I think, earlier in the conversation, about four in five of the cream scripts currently are being reimbursed by insurance, and about three in four of the foam scripts are being reimbursed by insurance. So those are fully paid scripts, right, and so you guys can do the math. And the gross-to-net that we're reporting is on the scripts that are covered because there is no gross-to-net on a non-covered script because you're not getting paid anything for them.

Yeah. And Frank, on that note, I will mention that if we look at branded topical products and we use, when you were able to accomplish four out of five scripts are covered that's a very high including scripts as far as covered when you look at brand topicals.

Yeah.

Thanks for the color.

Good point. Yep.

Thank you. Please stand by for our next question. Our next question comes from the line of Chris Shibutani with Goldman Sachs. Your line is open.

Great. Thank you very much, Frank and team, congratulations on the progress. Two questions, directionally, if I could, one, financial. As I think about operating expenses and the possibility that you could inflect towards positive EBITDA at some point over the next several quarters or years, what are the factors that now that you have the partnership in place, are guiding, how we should be thinking about your own SG&A levers that seems to be one of the toggles that could help drive towards that profitability here? And then secondly, to talk about the pipeline a little bit, 255, any insight into when we could learn about that? Because we get impatient. And what have you done for me lately? You do have a pipeline, your focus on dermatology, tremendous commercial success, but we're going to be increasingly curious in the months ahead and quarters ahead about what else you could be having in terms of portfolio and particularly in the pipeline? Thank you.

Yeah. Sure, Chris. So, David, you want to take the question around profitability, and then, Patrick, could you maybe address the pipeline?

Sure. Well, I'm not going to comment on timing to profitability or breakeven, but what I will say, obviously, if you break SG&A into S on the one hand, and G&A on the other hand, selling obviously, is always going to be pretty closely correlated with revenue. So the way you get to break even in this kind of business, obviously is through economies of scale on the G&A items, right? And we're certainly experiencing that already. We watch it very closely. We look at it in our own internal projections, and I think it's well on its way to the sort of levels that you'd want it to be at. Okay? Now, obviously, circumstances can change when you launch products like AD, for example, or launch a PCP program, you do incur some startup costs and things like that. But in general, if you strip out those one-time items, the G&A are moving in the direction that you'd like to see them in to achieve what you're referring to.

And Chris, the only amplifying comment I would add to that is, as primary care starts to kick in and drive top-line revenue, we aren't spending our money or shareholders money to drive that business, right? That's really coming from the partner side. And so that's something that will give us more leverage in terms of profitability. It's revenues without expenses really.

Yeah. That's reassuring on the partnership front, so and then on the pipeline 255, I think we're in Phase 1, when do we get a sense of some of the profile?

Patrick, you want to take that one?

Yeah, absolutely. So our kind of historical precedent has been that when we're conducting a clinical trial, when we get to where we've had the last patient enrolled, then we'll kind of make a statement about when we anticipate having the data. Up until that point, we just want to make sure that we're being precise with regard to any prognostication that we provide on timing. So as we move towards having last patient in, we'll make an announcement on the 255. Just today, we did include an update on the ARQ-234, which is the CD200 receptor agonist, kind of noting that we're planning to do an IND filing there in 2025. As we get closer to that, we will kind of continue to refine the date. So now we've kind of put that up on the map as well today.

Thank you. That's helpful.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back to Frank for closing remarks.

Okay. Well, appreciate everyone making time in their day to join us today and for the great questions and look forward to speaking to everyone in about 90 days for the next quarter. Thanks again for joining us. Take care. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Goodbye.