Arcutis Biotherapeutics' Q3 2025 Earnings Call: Contradictions Emerge on Sales vs. Script Growth, Market Share, Seasonal Sales, and Sales Force Expansion

Date of Call: None provided

Financials Results

• Revenue: $99.2M, up 22% sequential and 122% versus Q3 2024

Guidance:

• 2026 full-year net product revenues expected to be $455M–$470M.
• Expect continued strong net sales growth in Q4 2025; only modest additional gross-to-net improvement vs Q3 2025.
• Cash flow breakeven now expected in Q4 2025; plan to self-fund ZORYVE expansion and ARQ-234 development.
• Anticipate increased R&D spend in 2026 to support lifecycle management and initiate ARQ-234 Phase 1.

Business Commentary:

* Revenue Growth and Market Share Expansion: - Arcutis Biotherapeutics reported net product revenues in Q3 of approximately $99.2 million, reflecting 22% sequential growth and 122% increase compared to the same period of 2024. - The growth was fueled by increasing prescription volume across all products and reduced utilization of patient copay programs as patients progressed through their annual deductibles.

• ZORYVE Prescription and Demand Growth:
• Arcutis' ZORYVE prescriptions increased by 13% compared to Q2 and 92% versus Q3 2024, with weekly prescriptions reaching over 17,000 scripts.

• This growth is attributed to the successful launch of ZORYVE Foam 0.3% for scalp and body psoriasis, as well as sustained demand across all approved indications.

• Topical Steroid Conversion and Market Dynamics:

• The non-steroidal topical volume increased by over 60% over the last six quarters, with ZORYVE's volume increasing nearly 200%.

• This trend is driven by the widespread demand for innovation in the topical segment, a growing demand for safer alternatives to topical corticosteroids, and the expanding shift away from steroid usage.

• Pipeline and Clinical Development Pipeline:

• Arcutis is pursuing new patient populations for ZORYVE through potential indications in vitiligo and hidradenitis suppurativa, with proof of concept studies underway.
• The company is exploring ARQ-234, a systemic treatment for atopic dermatitis, which is expected to address a significant unmet need with its unique mechanism of action.

Sentiment Analysis:

Overall Tone: Positive

• Company reported Q3 net product revenue of $99.2M (122% YOY, +22% sequential), generated net income of $7.4M vs a loss prior year, announced cash flow breakeven expected in Q4 2025 and provided 2026 sales guidance of $455M–$470M — signaling strong commercial momentum and constructive outlook.

Q&A:

• Question from Unidentified Analyst: What actions are you taking or do you plan to take to accelerate the transition from topical steroids to nonsteroidal topicals?
  Response: Focus on expanding field coverage and market access and increasing targeted marketing as ZORYVE generates cash; existing strong coverage and planned incremental marketing investments will accelerate steroid conversion.

• Question from Unidentified Analyst: What gives you confidence to grow from roughly 3% share to 15%–20% of topical steroid prescriptions and how long will that take?
  Response: Conversion is already underway (rapid nonsteroidal growth driven by ZORYVE); management expects a multi-year adoption similar to other therapeutic shifts (roughly 5–10 years), fueled by steroid stewardship, PCP/pediatric expansion, incremental data, and access improvements.

• Question from Unidentified Analyst: Eli Lilly discontinued its CD200R agonist — any learnings and how does ARQ-234 differentiate?
  Response: ARQ‑234 is a structurally distinct fusion protein with different binding site, higher affinity and engineered extended half‑life versus the prior monoclonal approach, which management views as the key differentiator supporting clinical advancement.

• Question from Unidentified Analyst: For vitiligo and hidradenitis suppurativa, how do you view competitive dynamics and can you describe trial size/control/duration?
  Response: Initial proof‑of‑concept Phase 2a studies are small (~20 patients) to assess efficacy/tolerability; registrational design, size and duration will be set based on PoC results, field data and regulatory feedback.

• Question from Unidentified Analyst: Can you bridge 13% sequential prescription growth to 22% sequential revenue growth in Q3?
  Response: Revenue outperformance was driven by improved gross‑to‑net as patients progressed through annual deductibles (reduced copay program utilization) in addition to the 13% volume increase.

• Question from Unidentified Analyst: What stage/modality/therapeutic categories are you targeting for external business development?
  Response: Opportunistic but dermatology‑focused, modality‑agnostic (topical, oral, biologic); prioritizes clinically validated, differentiated assets fitting unmet needs and where Arcutis's clinical/commercial capabilities create value.

• Question from Unidentified Analyst: Will ARQ‑234's target patient population in AD overlap with ZORYVE's AD population?
  Response: Some overlap exists (ZORYVE addresses mild‑to‑moderate/topical use; ARQ‑234 targets moderate‑to‑severe systemic biologic space), but the products are intended to be complementary and can be used together in practice.

• Question from Unidentified Analyst: Would you consider adding a biologic or partnering a commercial‑stage product to leverage your dermatology foothold?
  Response: Yes to biologics and novel targets; commercial‑stage acquisitions are lower priority—preference is for opportunities that leverage Arcutis's development engine and strategic fit rather than opportunistic commercial buys.

• Question from Unidentified Analyst: Are there size constraints for BD and how would you finance larger deals?
  Response: Flexible depending on opportunity — core focus funded by ZORYVE cashflow, with additional flexibility from the debt facility and other financing options chosen based on asset size and strategic fit.

• Question from Unidentified Analyst: How do you prioritize lifecycle management indications and how will new indications help current psoriasis/AD/seb derm commercial efforts?
  Response: Prioritization combines clinical signal, unmet need and commercial assessment; new indications increase prescriber breadth/depth and produce synergistic increases in overall ZORYVE prescribing and market penetration.

• Question from Unidentified Analyst: Is the muted growth in Cream vs Foam due to switching—are you seeing cannibalization?
  Response: No meaningful cannibalization; foam is driving new‑patient adoption while cream continues to grow—total ZORYVE volume, not SKU mix, is the primary commercial metric.

• Question from Unidentified Analyst: For incremental data generation in current indications, are the patient figures incremental to the market?
  Response: These subpopulations are within the existing serviceable market; targeted data aims to deepen uptake in hard‑to‑treat subsets (e.g., nail, palmar‑plantar) rather than expand the defined total addressable patient pool.

Contradiction Point 1

Sales Growth vs. Script Growth Dynamics

It involves the relationship between sales growth and script growth, which directly impacts revenue and market penetration expectations.

Can you explain the link between the 13% sequential prescription demand growth and the 22% sequential revenue growth in Q3? - Brian Schoelkopf (Head of Investor Relations, Arcutis Biotherapeutics)

2025Q3: The difference is primarily due to an improvement in gross-to-net revenue as patients progress through their annual deductibles earlier than anticipated, leading to reduced usage of copay programs. This improvement in gross-to-net was the main driver of the substantial sequential sales growth. - Frank Watanabe(CEO)

What caused the gap between sales and script growth, and what should we expect for the rest of the year? - Serge D. Belanger (Needham & Company)

2025Q2: Sales growth was driven by inventory recovery, and future growth will be primarily driven by script volume as gross to net remains stable. - Todd Edwards(CRO)

Contradiction Point 2

Market Share and Revenue Growth Dynamics

It involves the company's expectations and growth drivers for revenue and market share, which are critical for investor expectations and strategic planning.

What supports your confidence in ZORYVE's 15%-20% market share growth in the topical steroid market, and how long will the transition take? - Brian Schoelkopf (Head of Investor Relations, Arcutis Biotherapeutics)

2025Q3: The confidence in achieving this growth is bolstered by the rapid increase in non-steroidal topical market share, driven by ZORYVE's significant impact on conversion from topical steroids. - Frank Watanabe(CEO)

What is the latest assessment of peak sales across the three current indications, and how has it changed compared to initial expectations? - Lin Tsai (Jefferies LLC)

2025Q2: We are not providing specific peak sales guidance but that market share growth beyond 2.5% is achievable. ZORYVE's differentiation and indications expansion potential suggest a significant market opportunity that is just beginning to be realized. - Frank Watanabe(CEO)

Contradiction Point 3

Market Share and Sales Growth Dynamics

It involves the company's expectations and growth drivers for revenue and market share, which are critical for investor expectations and strategic planning.

How did Q3 sequential revenue growth of 22% compare to the 13% sequential total prescription demand growth? - Brian Schoelkopf

2025Q3: The difference is primarily due to an improvement in gross-to-net revenue as patients progress through their annual deductibles earlier than anticipated, leading to reduced usage of copay programs. This improvement in gross-to-net was the main driver of the substantial sequential sales growth. - Frank Watanabe(CEO)

Can you explain the trend in gross to net margins over the year and what's driving the significant market share growth in branded over-the-counter products? - Uy Ear (Mizuho)

2025Q1: Gross to net is expected to remain within the 50% range, with improvement through the year. - Todd Edwards(CCO)

Contradiction Point 4

Seasonal Impact on ZORYVE Sales

It involves the company's expectations regarding seasonal impacts on ZORYVE sales, which affects revenue projections and forecasting.

How are dermatology societies highlighting risks of long-term steroid use affecting treatment landscape dynamics between non-steroidal topicals and corticosteroids? - Brian Schoelkopf

2025Q3: The statements from professional societies are part of a growing recognition of the potential adverse effects of topical corticosteroids, leading to calls for limiting their long-term use. This has led to an increased focus on more targeted topical alternatives like ZORYVE. - Frank Watanabe(CEO)

How do you expect ZORYVE to perform for the remainder of the year in light of seasonality or cyclicality? - Vikram Purohit (Morgan Stanley)

2025Q1: We expect a modest seasonal impact, but other value drivers, such as conversion from steroid markets and unique product offerings, will continue to drive growth. - Todd Edwards(CCO)

Contradiction Point 5

Impact of Sales Force Expansion

It highlights different interpretations of the impact and sustainability of sales force expansion on prescription growth, which affects revenue projections and market perception.

What lessons from Eli Lilly's terminated CD200R agonist program in atopic dermatitis could apply to ARQ-234, and how do the two programs differ? - Brian Schoelkopf (Head of Investor Relations, Arcutis Biotherapeutics)

2025Q3: The sales force expansion in June was a driver of increased prescription growth in Q4. - Frank Watanabe(CEO)

How will the sales force expansion affect prescription growth, and will it continue as sales increase? - Tyler Van Buren (TD Cowen)

2024Q4: The sales force expansion in June was a driver of increased prescription growth in Q4. - Todd Watanabe and L. Edwards(COO)