Arcutis Biotherapeutics(ARQT) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, detailing financial position, performance, and cash flows Condensed Consolidated Balance Sheets | (In thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :-------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $72,740 | $71,335 | | Marketable securities | $118,083 | $156,620 | | Total current assets | $332,778 | $335,820 | | Total assets | $352,433 | $348,889 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $103,936 | $81,013 | | Long-term debt, net | $107,049 | $107,203 | | Total liabilities | $213,459 | $191,348 | | Total stockholders' equity | $138,974 | $157,541 | | Total liabilities and stockholders' equity | $352,433 | $348,889 | - Total assets increased slightly to $352.4 million as of June 30, 2025, from $348.9 million at December 31, 2024. Total liabilities increased to $213.5 million from $191.3 million, while total stockholders' equity decreased to $139.0 million from $157.5 million[13] Condensed Consolidated Statements of Operations and Comprehensive Loss | (In thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $81,504 | $30,858 | $147,350 | $80,427 | | Total operating expenses | $96,115 | $80,935 | $186,490 | $162,126 | | Loss from operations | $(14,611) | $(50,077) | $(39,140) | $(81,699) | | Net loss | $(15,886) | $(52,332) | $(40,946) | $(87,714) | | Net loss per share, basic and diluted | $(0.13) | $(0.42) | $(0.32) | $(0.75) | - Total revenues significantly increased for both the three-month and six-month periods ended June 30, 2025, primarily driven by product revenue growth. Net loss decreased substantially, from $(52.3) million to $(15.9) million for the three months, and from $(87.7) million to $(40.9) million for the six months, reflecting improved operational performance[15] Condensed Consolidated Statements of Changes in Stockholders' Equity | (In thousands) | Balance—December 31, 2024 | Issuance of common stock upon the exercise of stock options | Issuance of common stock upon the vesting of restricted stock units | Stock-based compensation expense | Unrealized loss on marketable securities | Foreign currency translation adjustment | Net loss | Balance—June 30, 2025 | | :------------- | :------------------------ | :---------------------------------------- | :----------------------------------------------- | :------------------------------ | :------------------------------------- | :------------------------------------ | :------- | :-------------------- | | Common Stock | $12 | $0 | $0 | $0 | $0 | $0 | $0 | $12 | | Additional Paid-In Capital | $1,279,479 | $395 | $0 | $9,915 | $0 | $0 | $0 | $1,301,886 | | Accumulated Other Comprehensive Income (Loss) | $(7) | $0 | $0 | $0 | $(137) | $4 | $0 | $(35) | | Accumulated Deficit | $(1,121,943) | $0 | $0 | $0 | $0 | $0 | $(25,060) | $(1,162,889) | | Total Stockholders' Equity | $157,541 | $395 | $0 | $9,915 | $(137) | $4 | $(25,060) | $138,974 | - Total stockholders' equity decreased from $157.5 million at December 31, 2024, to $139.0 million at June 30, 2025, primarily due to a net loss of $40.9 million, partially offset by stock-based compensation expense and proceeds from stock option exercises and employee stock purchase plan[16][18] Condensed Consolidated Statements of Cash Flows | (In thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(30,056) | $(76,722) | | Net cash provided by (used in) investing activities | $29,173 | $(90,834) | | Net cash provided by financing activities | $1,775 | $163,219 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $1,096 | $(4,436) | | Cash, cash equivalents, and restricted cash at end of period | $73,048 | $84,887 | - Net cash used in operating activities significantly decreased from $(76.7) million in 2024 to $(30.1) million in 2025. Investing activities shifted from a net use of $(90.8) million in 2024 to a net provision of $29.2 million in 2025, driven by marketable securities maturities. Financing activities provided less cash in 2025 ($1.8 million) compared to 2024 ($163.2 million) due to a large public stock offering in the prior year[21] Notes to Condensed Consolidated Financial Statements 1. Organization and Description of Business Arcutis is a commercial-stage biopharmaceutical company focused on dermatological diseases, with ZORYVE product approvals and capital raises - ZORYVE (roflumilast) cream 0.3% received FDA approval in July 2022 for plaque psoriasis (ages 12+, expanded to 6+ in Oct 2023) and Health Canada approval in April 2023[24] - ZORYVE (roflumilast) topical foam 0.3% received FDA approval in December 2023 for seborrheic dermatitis (ages 9+) and Health Canada approval in October 2024. It also received FDA approval for plaque psoriasis of the scalp and body (ages 12+) in May 2025[24] - ZORYVE (roflumilast) cream 0.15% received FDA approval in July 2024 for mild to moderate atopic dermatitis (ages 6+) and Health Canada approval in March 2025[24] - The company completed a public offering in February 2024, raising $161.7 million in net proceeds[27] - As of June 30, 2025, the company had an accumulated deficit of $1,162.9 million and cash, cash equivalents, restricted cash, and marketable securities of $191.1 million. Management believes existing capital resources are sufficient for at least 12 months[30][31] 2. Summary of Significant Accounting Policies Outlines significant accounting policies, including U.S. GAAP basis, consolidation, estimates, restricted cash, fair value, and new pronouncements - Financial statements are prepared in accordance with U.S. GAAP, reflecting all necessary recurring adjustments[32] - Restricted cash of $0.3 million (June 30, 2025) and $0.6 million (December 31, 2024) serves as collateral for a letter of credit related to office lease[35] - Fair value measurements are categorized into a three-tier hierarchy (Level 1, 2, 3) based on the observability of inputs[39] - The company is evaluating ASU 2024-03 (Disaggregation of Income Statement Expenses), effective for fiscal years beginning after December 15, 2026, for its potential impact[42] 3. Revenues Revenue recognized under ASC 606, primarily from ZORYVE product sales, showing substantial growth, while other revenue decreased | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | ZORYVE cream 0.3% | $27,675 | $17,258 | $51,062 | $32,284 | | ZORYVE foam | $39,212 | $13,600 | $69,452 | $20,143 | | ZORYVE cream 0.15% | $14,617 | $0 | $24,836 | $0 | | Total product revenue, net | $81,504 | $30,858 | $145,350 | $52,427 | | Other revenue | $0 | $0 | $2,000 | $28,000 | | Total revenues | $81,504 | $30,858 | $147,350 | $80,427 | - Total product revenue, net, increased by 164% to $81.5 million for the three months ended June 30, 2025, and by 177% to $145.4 million for the six months ended June 30, 2025, compared to the same periods in 2024[44] - Other revenue for the six months ended June 30, 2025, was $2.0 million, significantly lower than $28.0 million in the prior year, which included a $25.0 million upfront payment from the Sato Agreement[44] 4. Fair Value Measurements Details fair value measurements of financial instruments, primarily cash, cash equivalents, and marketable securities, categorized by hierarchy | (In thousands) | June 30, 2025 (Total) | December 31, 2024 (Total) | | :-------------------------- | :-------------------- | :------------------------ | | Assets: | | | | Money market funds | $72,740 | $71,335 | | Commercial Paper | $7,774 | $0 | | Certificates of deposit | $5,222 | $5,042 | | Corporate debt securities | $57,172 | $83,955 | | U.S. Treasury and agency securities | $47,915 | $67,623 | | Total assets | $190,823 | $227,955 | - The fair value of the embedded derivative instrument, a Level 3 measurement, was a liability of $0.4 million as of June 30, 2025, down from $0.6 million at December 31, 2024[54] - All marketable securities have a maturity of 18 months or less, and there were no significant unrealized loss positions as of June 30, 2025, and December 31, 2024[52] 5. Balance Sheet Components Provides detailed breakdown of key balance sheet components, including inventories, prepaid expenses, and accrued liabilities | (In thousands) | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Inventories: | | | | Raw materials | $6,724 | $4,300 | | Work in progress | $1,735 | $584 | | Finished goods | $7,865 | $9,642 | | Total inventories | $16,324 | $14,526 | | (In thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Accrued Liabilities: | | | | Accrued sales deductions | $63,560 | $38,430 | | Accrued compensation | $12,321 | $20,747 | | Clinical trial accruals | $74 | $0 | | Accrued expenses and other current liabilities | $11,899 | $7,616 | | Total accrued liabilities | $87,854 | $66,793 | - Prepaid expenses and other current assets decreased from $19.7 million to $18.6 million, with a notable decrease in prepaid clinical trial costs[58] 6. License Agreements Details key license agreements with Sato, Huadong, and AstraZeneca, involving upfront payments, milestones, and royalties - Sato Agreement (Feb 2024): Granted exclusive license for roflumilast formulations in Japan. Received $25.0 million upfront payment in 2024, with potential for up to $10.0 million in regulatory milestones and $30.0 million in sales milestones, plus low double-digit to mid-teen double-digit percentage royalties on net sales[60][62][64] - Huadong Agreement (Aug 2023): Granted exclusive license for topical roflumilast in Greater China and Southeast Asia. Received $27.0 million net upfront payment in Sep 2023 and $2.0 million in milestone payments for the six months ended June 30, 2025. Potential for up to $17.0 million in development/regulatory milestones and $40.3 million in sales milestones, plus low double-digit to high-teen double-digit tiered royalties[67][69][72] - AstraZeneca Agreement (July 2018): Grants worldwide exclusive license for topical roflumilast. The company paid $10.0 million in the first half of 2025 upon achieving $250.0 million in worldwide net sales, recorded as an intangible asset adjustment. Royalty expense was $4.4 million for the six months ended June 30, 2025, and amortization expense was $3.5 million[73][74][75] 7. Long-term debt Details the company's $100.0 million long-term debt with SLR Investment Corp., including prepayment, revised terms, and covenant compliance - Aggregate principal amount outstanding under the Loan Agreement was $100.0 million as of June 30, 2025[77] - A $100.0 million partial prepayment was made in October 2024, reducing the outstanding principal and incurring a $1.0 million prepayment penalty and a $6.95 million final fee[78] - The maturity date of the Loan Agreement is August 1, 2029, with an applicable per annum interest rate of 5.95% plus the greater of 2.50% or one-month SOFR (10.27% on June 30, 2025)[79][80] - Interest expense for the six months ended June 30, 2025, was $6.0 million, down from $15.0 million in the prior year, due to the lower principal balance and interest rates[88] - The company was in compliance with all covenants under the Loan Agreement as of June 30, 2025[83] 8. Stock-Based Compensation Details stock-based compensation activities, including an Option Exchange program, stock options, and RSU activity - In January 2024, an Option Exchange program resulted in the cancellation of 5,059,129 eligible options for 2,129,594 Replacement RSU Awards, leading to an incremental expense of $8.6 million recognized over 1-3 years[92][93] | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total stock-based compensation expense | $10,489 | $12,523 | $20,267 | $22,553 | - As of June 30, 2025, total unrecognized compensation cost was $32.3 million for unvested options (weighted-average period of 2.8 years) and $56.9 million for RSUs (weighted-average period of 3.0 years)[99] 9. Net Loss Per Share Outlines basic and diluted net loss per share calculation, excluding anti-dilutive potentially dilutive shares - Basic net loss per share is calculated by dividing net loss by weighted-average common shares outstanding, including pre-funded warrants[100] | Potentially Dilutive Shares (As of June 30,) | 2025 | 2024 | | :------------------------------------------ | :---------- | :---------- | | Stock options to purchase common stock | 6,922,441 | 5,872,080 | | RSUs subject to future vesting | 6,582,460 | 6,679,040 | | ESPP shares subject to future issuance | 22,479 | 29,722 | | Total | 13,527,380 | 12,580,842 | 10. Segment Reporting The company operates as a single reportable segment focused on dermatological diseases, with consolidated financial evaluation - The company has one reportable segment: development and commercialization of treatments for dermatological diseases[103] | (In thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Total revenues | $81,504 | $30,858 | $147,350 | $80,427 | | Operating loss | $(14,611) | $(50,077) | $(39,140) | $(81,699) | | Segment and consolidated net loss | $(15,886) | $(52,332) | $(40,946) | $(87,714) | Item 3. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion of financial condition and operations, highlighting business developments, revenue, expenses, and liquidity Overview Arcutis is a commercial-stage biopharmaceutical company focused on dermatological diseases, with ZORYVE approvals and pipeline development - Arcutis is a commercial-stage biopharmaceutical company focused on developing and commercializing treatments for dermatological diseases with high unmet medical needs[106] - ZORYVE cream 0.3% is approved for plaque psoriasis (ages 6+), ZORYVE foam 0.3% for seborrheic dermatitis (ages 9+) and plaque psoriasis of the scalp and body (ages 12+), and ZORYVE cream 0.15% for mild to moderate atopic dermatitis (ages 6+)[107] - A supplemental new drug application (sNDA) for ZORYVE cream 0.05% for children 2 to 5 years of age with atopic dermatitis was submitted in December 2024, with a PDUFA target action date in October 2025[108] - The company initiated a Phase 2 study (INTEGUMENT-INFANT) for ZORYVE cream 0.05% in infants (3 months to <2 years) with atopic dermatitis in June 2025[108] - ARQ-234, a fusion protein for atopic dermatitis, is in preclinical stage, with an IND application submitted to the FDA in July 2025[111] - Net losses were $40.9 million and $87.7 million for the six months ended June 30, 2025 and 2024, respectively. Accumulated deficit was $1,162.9 million as of June 30, 2025[112] Components of Our Results of Operations Details components of financial results, including product and other revenue, cost of sales, R&D, SG&A, other income, and interest expense - Product revenue, net, includes sales of ZORYVE cream 0.3%, ZORYVE foam, and ZORYVE cream 0.15%, net of rebates, chargebacks, discounts, and other adjustments[117] - Other revenue primarily stems from the Sato and Huadong licensing agreements[118] - Cost of sales includes manufacturing, distribution, third-party royalties (e.g., AstraZeneca), and amortization of intangible assets related to ZORYVE[119] - Research and development expenses are expensed as incurred, covering nonclinical studies, clinical trials, manufacturing development, regulatory filings, and medical affairs. Direct external costs are allocated by program (topical roflumilast, topical JAK inhibitor, CD200R, early stage)[121] - Selling, general and administrative expenses include salaries, benefits, stock-based compensation, travel, sales and marketing costs for ZORYVE, legal costs for patent protection, and professional services[125] Results of Operations Significant ZORYVE product revenue growth driven by demand and launches, increased operating expenses, decreased interest expense, and improved net loss Comparison of the Three Months Ended June 30, 2025 and 2024 | (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :------------- | :-------- | :-------- | :--------- | :--------- | | ZORYVE cream 0.3% | $27,675 | $17,258 | $10,417 | 60% | | ZORYVE foam | $39,212 | $13,600 | $25,612 | 188% | | ZORYVE cream 0.15% | $14,617 | $0 | $14,617 | * | | Total product revenue, net | $81,504 | $30,858 | $50,646 | 164% | - Cost of sales increased by $4.0 million, primarily due to greater ZORYVE cream and foam product sales[135] - Research and development expenses increased slightly by $0.2 million (1%) to $19.5 million[137] - Selling, general and administrative expenses increased by $11.0 million (19%) to $69.2 million, driven by commercialization efforts[138] - Interest expense decreased by $4.5 million due to a lower outstanding principal balance on long-term debt and lower interest rates[140] Comparison of the Six Months Ended June 30, 2025 and 2024 | (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :------------- | :--------- | :-------- | :--------- | :--------- | | ZORYVE cream 0.3% | $51,062 | $32,284 | $18,778 | 58% | | ZORYVE foam | $69,452 | $20,143 | $49,309 | 245% | | ZORYVE cream 0.15% | $24,836 | $0 | $24,836 | * | | Total product revenue, net | $145,350 | $52,427 | $92,923 | 177% | - Other revenue decreased from $28.0 million in 2024 to $2.0 million in 2025, primarily due to the $25.0 million upfront payment from the Sato Agreement in the prior year[145] - Cost of sales increased by $9.6 million, driven by higher product sales, increased amortization expense from AstraZeneca milestones, and greater royalties[146] - Research and development expenses decreased by $5.4 million (13%) to $37.0 million, mainly due to the completion of Phase 3 studies for roflumilast cream in atopic dermatitis and lower costs for early-stage programs[147] - Selling, general and administrative expenses increased by $20.2 million (18%) to $133.2 million, primarily due to higher compensation and sales and marketing expenses for ZORYVE commercialization[149] - Interest expense decreased by $9.0 million due to a lower outstanding principal balance on long-term debt and lower interest rates[151] Liquidity, Capital Resources, and Requirements Discusses capital sources, including equity, debt, and product sales, with $191.1 million in liquidity and sufficient capital for 12 months - As of June 30, 2025, the company had $191.1 million in cash, cash equivalents, restricted cash, and marketable securities, and an accumulated deficit of $1,162.9 million[153] - The company believes its existing capital resources will be sufficient to meet projected operating requirements for at least 12 months from the financial statements' issuance date[154] - Future funding may be required through equity/debt financings, licensing agreements, or other sources if current capital is insufficient[155] - The Loan Agreement with SLR Investment Corp. had $100.0 million outstanding as of June 30, 2025, following a $100.0 million partial prepayment in October 2024[158][159] | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Cash used in operating activities | $(30,056) | $(76,722) | | Cash provided by (used in) investing activities | $29,173 | $(90,834) | | Cash provided by financing activities | $1,775 | $163,219 | - Net cash used in operating activities decreased significantly to $30.1 million in 2025 from $76.7 million in 2024, primarily due to a lower net loss and changes in operating assets and liabilities[168][169] - Net cash provided by investing activities was $29.2 million in 2025, a shift from $90.8 million used in 2024, mainly due to proceeds from maturities of marketable securities[170][171] Item 4. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2025 - Disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[178] - Management concluded that internal control over financial reporting was effective as of June 30, 2025, based on the COSO framework[179] - No material changes in internal control over financial reporting were identified during the three months ended June 30, 2025[180] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in patent litigation against Padagis regarding ZORYVE® 0.3% cream and Teva regarding European patents - Arcutis filed a lawsuit against Padagis in March 2024 for infringement of eleven patents related to ZORYVE® 0.3% cream, following Padagis's ANDA submission for a generic version[184] - The patent litigation with Padagis was stayed in April 2025 at Padagis's request, extending the 30-month FDA approval stay beyond August 14, 2026[185] - Teva Pharmaceutical Industries Ltd. filed oppositions against two of Arcutis's European patents (EP 3634380 B1 and EP 3684334 B1) related to topical roflumilast compositions[186] Item 1A. Risk Factors Updates risk factors, emphasizing potential adverse effects of changes in tax laws and regulations on business and financial performance - Changes in tax laws or regulations, including new income, sales, use, or other tax laws, could materially and adversely affect the company's business operations and financial performance[189] - The 'One Big Beautiful Bill Act,' signed on July 4, 2025, includes estimated $1 trillion cuts to Medicaid spending, which could result in lower revenue for life science companies[189] - The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Pillar Two Model Rules) contemplates a global minimum tax rate of 15%, which could impact the company, although a material impact is not currently expected[190][191] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities and no issuer purchases of equity securities during the period - No unregistered sales of equity securities occurred[192] - No issuer purchases of equity securities occurred[193] Item 3. Defaults Upon Senior Securities Indicates no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred[194] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[195] Item 5. Other Information Discloses CEO and General Counsel entered Rule 10b5-1 trading plans in June 2025 for potential common stock sales - CEO Todd Franklin Watanabe entered into a Rule 10b5-1 trading plan on June 4, 2025, for potential sale of up to 135,000 shares between October 1, 2025, and September 30, 2026[196] - General Counsel Masaru Matsuda entered into a Rule 10b5-1 trading plan on June 6, 2025, for potential sale of up to 83,126 shares between September 4, 2025, and September 4, 2026[197] Item 6. Exhibits Lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents and certifications - Key exhibits include Restated Certificate of Incorporation, Restated Bylaws, Manufacturing Supply Agreements (with amendments), Severance & Change in Control Agreement, Amended and Restated Non-Employee Director Compensation Program, and certifications from principal executive and financial officers[199] - XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, and Label Linkbase Documents are included[199][200]