Arcutis Biotherapeutics Inc (ARQT) 2024 Q3 法說會逐字稿

Good day and welcome to the Arcutis Biotherapeutics 2024 third-quarter financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session to participate. You will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. Please be advised that today's conference is being recorded. Now pass the call to Latha Vairavan Vice President, Finance and Investor Relations. Please go ahead.

Thank you, Carmen. Good afternoon, everyone and thank you for joining us today to review our third-quarter 2024 financial results and business update slides for today's call are available on the investor section of the Arcutis website. On the call Today., we have Frank Watanabe, President and CEO, Patrick Burnett, Chief Medical Officer, Todd Edwards, Chief Commercial Officer and David Topper, Chief Financial Officer. I would like to remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties and our actual results may differ.

We encourage you to review all the company's filings with the securities and exchange commission, including descriptions of our business and risk factors with that. Let me hand the call over to Frank.

Thank you, Latha and thank you to everyone for joining us today with that. Let me turn to slide 5 of the deck.

I am pleased to report that we maintained our robust growth trajectory in the third-quarter, and I am constantly impressed by the entire Qs team and its exceptional execution.

Our expanding ZORYVE portfolio now encompasses psoriasis, seborrheic dermatitis, and atopic dermatitis, providing physicians and their patients, multiple forms of ZORYVE cream and ZORYVE foam to address their needs.

ZORYVE is the first and only topical anti-inflammatory agent with indications for all three of these very highly prevalent conditions and physicians are becoming increasingly familiar with our product portfolio.

ZORYVE portfolio sales grew 452% year-over-year and 45% quarter-over-quarter reaching $44.8 million which is remarkably strong, particularly following the impressive growth we have had in previous quarters. Furthermore, our third-quarter revenue run rate is an encouraging sign for an excellent finish to 2024 and provides us with strong momentum going into 2025. Continuing to demonstrate the significant opportunity for ZORYVE from a volume demand perspective. TRX for the Reef portfolio grew 25% quarter of a quarter. New prescription growth was also impressive, increasing 23% quarter-over-quarter.

Also on this call, you will hear Todd discuss the ongoing growth to net improvements progress we are attaining, and I am delighted that we are now in the low 50% range. A meaningful improvement from the high 50s last quarter, our atopic dermatitis launch has been steadily gaining since the late July launch. And we're excited about the long-term potential of this additional indication and its expected contribution to the overall brand.

Looking forward to the remainder of the year and into 2025, we believe we are well positioned to maintain strong revenue growth. Historically, many topicals have struggled to grow revenues or to sustain that growth long term. But we are confident that ZORYVE is different, and I would like to share with you all the reasons for our confidence in the long-term growth potential of ZORYVE.

On slide 6, we have already achieved impressive revenue growth with the ZORYVE family products, driving both prescription growth and significant growth to net improvements. But we are just beginning and I would point to four significant factors that are going to allow us to sustain the growth of re and redefine what can be achieved with the topical product.

We are building out the ZORYVE product label with the expected approval of scalp and body psoriasis in the middle of 2025. As well as expanded indications for pediatric patients in atopic dermatitis and psoriasis.

These new and expanded indications will further physicians' ability to rely on ZORYVE as their go to first line topical agent. Having successfully penetrated commercial payers, we are now working to make ZORYVE accessible to government pay patients across both Medicare and Medicaid. Opening access to as many as 3.3 million incremental patients in the dermatology offices. And Todd will update you on our progress as far on this front.

Securing access to the large government insured population has been a priority for us from the start and our progress here is clear validation of our pricing strategy.

Our partners Kowa are now promoting ZORYVE to high potential primary care doctors and pediatricians. And the early feedback is very positive.

The new and expanded indications and broader insurance coverage across commercial Medicare and Medicaid will amplify the impact of their promotional effort.

We expect meaningful contribution from this co-promote beginning in 2025 and growing from there.

Finally, there are approximately 16 million steroid prescriptions written by dermatologists for our approved indications each year and we are just scratching the surface of penetrating this large segment.

The first 3 elements I discussed will be foundational in shifting topical use away from steroids. As we emphasize the safety of using ZORYVE for any duration and anywhere in the body coupled with its strong efficacy.

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

Up to this point, we have been primarily focused on the roughly $4.5 million commercially insured patients with our target indications treated in the Dermatology Office. And we are expanding our penetration of the psoriasis seborrheic dermatitis and atopic dermatitis, patient segments and continue to take share from other topical agents. As Todd will discuss, in a bit more detail in just a minute. We are very proud that ZORYVE is now the number one branded topical anti-inflammatory agent for new prescriptions. And we anticipate taking the number one spot for total prescriptions very shortly.

Our dramatic growth and market share in the branded topical space is a testament to physician preference for ZORYVE. Driven by our rapid, robust, robust and reliable efficacy. Our strong safety and tolerability profile, the patient friendly once a day formulation in our broad and ever-increasing insurance coverage and as we gain Medicare and Medicaid coverage, we will be able to expand ZORYVE usage to the more than 3 million dermatologist treated psoriasis atopic dermatitis and seborrheic dermatitis patients with government insurance.

In addition, our new co promotional partner Kowa is allowing us to simultaneously expand into the more than 7 million commercial and commercially and government insured patients treated for their psoriasis, seborrheic dermatitis or atopic dermatitis. Outside of the dermatology office, a very large percentage of all of these patient segments are currently treated with topical steroids and momentum is growing in the shift away from topical steroids, although this is really only just begun.

ZORYVE is the perfect replacement for topical steroids, offering physicians and patients robust efficacy, the ability to be used anywhere tolerability that allows chronic use, unlike steroids and broad insurance coverage. Todd will further expand on this in just a few minutes. This immense market size and the continued expansion of the market segments where we are competing are what make us so optimistic about the Blockbuster potential of ZORYVE.

I did want to take just a moment to also touch on an important governance announcement we made this morning. Our board of directors has appointed Keith Leonard as the chair of our board effective this Monday.

I am delighted to have Keith taking over the leadership of our board. We have worked together closely for many years across several companies, and he has been on our board for the past 3 years. He possesses an incredible level of board and operational experience and commercial acumen which will be invaluable to us as we continue to drive our growth of the franchise. So congratulations to Keith.

I also want to sincerely thank Patrick Haron, our previous chair for everything he has done for our Qs, And for me personally. Patrick has been with us from the very beginning and has been our chair since 2018, guiding us through our IPO our commercial launch and so many other significant milestones.

Equally important. He has been and I am sure he will continue to be a fantastic mentor and coach to me. And I could not be happier that Patrick has agreed to stay on the board as one of our independent directors.

With that, let me turn it over to Todd to provide some further commentary around ZORYVE cream and foam launches and psoriasis seborrheic and atopic dermatitis.

Thank you, Frank. We are extremely enthusiastic about the growth and expansion of our product portfolio. Strong response from ACPS and patients with immense opportunities that lie ahead. This quarter we achieved $44.8 million in net product revenue for ZORYVE for the third-quarter of 2024 reflecting 45% growth of the second-quarter.

Continuing the strong quarter-over-quarter growth trend that we have had throughout the year, we have now delivered more than 40% quarter-over-quarter growth in revenue every quarter. Since quarter one of 2023 this robust revenue growth was driven by both prescription growth across the portfolio of Missouri products and gross and net percentage improvements down to the low 50s.

Prescription growth was driven by strong uptake of the foam formulation and progression of the launch of the 0.15% cream for atopic dermatitis and the ripple effect of growth into the 0.3% cream for psoriasis.

We look forward to a strong finish to 2024, which is expected to set us up for a steady start in 2025.

This will position us well going into the softness typically seen in the first quarter of the year, driven by patients and during deductible resets, switches to new health insurance and consequently prescription refills pulled forward into December. So in quarter one, this leads to both gross and net and volume dampening.

Moving to slide 10, the prescription volume has reached yet another all time high at 11,000 scripts over a rolling four weeks quarter, over quarter, prescription growth was 25% over quarter two and 280% over last year.

In this graph inflections and growth. The launches of ZORYVE for Sep Derm and 0.15% cream for atopic dermatitis is clearly visible regarding our recent Amati launch in the quarter. We are very pleased with the performance of this launch and continue to see strong momentum as we have said before. We expected the ad launch to outperform the psoriasis launch. And that is what we are seeing. Around three months into the launch, that new TRx weekly prescriptions are substantially higher than psoriasis every week since launch, and feedback from both providers and physicians has been very positive. On to slide 11, I want to point out our gross to net evolution that has linked the strong coverage position from all 3 largest PBMs (Pharmacy Benefit Managers) and progress with formulary access and downstream plans. As well as our ongoing pursuit of coverage from government payers.

We have consistently demonstrated our ability to drive covered prescriptions with roughly 4 out of 5, 0.3% green prescriptions are being covered. For ZORYVE form, we saw further improvements reaching 3 out of 4 prescriptions covered in less than 3 quarters of the launch.

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

Our gross-to-net is essentially at a steady state while we expect some variability quarter-to-quarter, we expect that it will remain in the 50s as mentioned earlier, we expect a season regression in gross to net during the first quarter of 2025.

At Arcutis, we are laser focused on driving not only prescription demand but paid prescriptions as we work towards building a profitable business. We are delighted with what we have already achieved in commercial insurance coverage and very excited about progressing our government insurance coverage as well. And I am delighted to report that since our last update, we have secured Medicaid coverage in California, Arizona, Michigan and Indiana. Adding to our previously announced wins in Florida, Texas and New York, we have now secured Medicaid coverage in states that represent roughly four in 10 Americans.

We expect to add additional states soon and the quality of the Medicaid coverage is very strong.

We are also making progress in our negotiations with Medicare coverage programs. These government pay wins are the ultimate validation of a differentiated approach to pricing that will help fuel our growth in the future.

Slide 12 highlights new prescription share of market in the branded topical space. A leading indicator for future brand growth.

The ZORYVE family of products is now leading all the other branded topical agents on a rolling 4-week new Rx share as Frank alluded. We are very close to seizing the number one for total prescriptions as well in the near future.

While this is exciting progress for the portfolio, the most significant growth opportunity is in transitioning patients away from topical steroids. On slide 13, we show that the overwhelming majority of prescriptions are topical steroids across all 3 indications within the feus target universe. Of the 22 million topical steroids prescriptions written by dermatology clinicians. In our 3 current indications in the last four quarters, roughly 16 million are topical steroids. While in contrast, just over a million prescriptions are for branded topical nonsteroidals. Highlighting the immense growth opportunity as clinicians transition away from steroids into newer topical agents. Driving this transition from topical steroids to the ZORYVE portfolio will be the cornerstone of our growth in the future.

Moving to slide 14 with the recent FDA approval in atopic dermatitis and availability of three different products. We are building a broad portfolio as there is solutions for clinicians in a multitude that prove indications that sustain future brand growth.

The benefits of a ZORYVE portfolio products that will address 3 different very common dermatology diseases. With the current standard of care, topical steroids are unprecedented and creates treatment simplicity for the prescriber and patient management.

The common clinical attributes of ZORYVE across indications such as its robust, robust, reliable efficacy, rapid belief of itch a once-a-day formulation that can be used anywhere on the body in a simple and consistent prescription fulfillment pathway will drive physician preference for ZORYVE for both dermatologists and primary care prescribers alike.

We are methodically building our franchise and well on our way to becoming the preferred topical brand in dermatology. Now let me turn it over to Patrick.

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

So keeping with AD, we are looking forward to the submission of our SNDA for the treatment of mild to moderate AD and 2 to 5 year olds, which is planned for quarter one of 2025. And we continue to generate additional data that should ultimately support expanding the psoriasis indication down to the age of 2. For foam, we have a PDUFA date approaching in May for scalp and body psoriasis. If approved, this will represent our fourth indication for ZORYVE. And in a moment, I want to share some of our patient responses and data. So you can see why we are so excited to bring this indication to patients. Finally, we are progressing our pipeline coming up in 2025. We expect to file the IND for ARQ-234 our biologic CD 200 receptor agonist for atopic dermatitis. And we have a phase one B readout in the first half of 2025 for AR Q-255, which is our topical Jack in Alopecia areata. And coming back to ZORYVE foam on slide 17, and our next new therapeutic focus, which is leveraging the properties of ZORYVE foam to help patients with scalp and body psoriasis. Almost half the plaque psoriasis patients suffer from scalp involvement, but this number does not capture the impact of scalp disease on quality of life and the challenges of treating it with products that are not fit for purpose to provide more insight into how scalp psoriasis impacts patients. I am going to briefly review some of the itch data from rector our pivotal phase three trial of ZORYVE foam and scalp and body plaque psoriasis. We enroll patients with at least moderate severity of the scalp and mild moderate or severe disease of the body.

452 patients were randomized 2 to 1 to receive ZORYVE or vehicle foam over an eight-week dosing period. And as I mentioned, we measured 2 co-primary end points of scalp investigator, Global Assessment or SIGA success and body investigator, Global Assessment or BIGA success at week eight. In addition, we assess itch using 210 point numeric rating scales. The SINRS or scalp itch numeric rating scale and the worst itch are WINRS which is the traditional assessment of itch that covers the entire body. I remember itch is the symptom that primarily drives the impact on quality of life and is identified by patients as the number one disease characteristic that determines the severity of their psoriasis. So on the left side of this, on the left side of this slide, we have scalp itch data from week eight showing that over 50% of patients achieved an SINRS score of 0 or 1. And similar results can be seen for WINRS on the left where 55% of patients achieved a 01 compared to just about 20% of vehicle treated patients. Now, this type of NRS 0 or 1 analysis is recommended by itch experts because it does not just capture a clinical improvement in itch that goes a step further into a range where itch is a symptom is completely controlled and the burden of the symptom is eliminated. On top of this impressive week eight data, I would also mentioned that ZORYVE showed statistically significant improvement in itch within 24 hours of the first application. A very important benefit for a patient suffering from the unrelenting itch of scalp psoriasis. Now shown here, but the incidence of adverse events was low and generally similar between active treatment and vehicle across both our phase 3 and phase 2 B studies. Overall, the most common adverse events included headache, diarrhea, nausea, and nasopharyngitis.

Moving on to slide 18, I want to share photos from 2 patients and the progress over the eight weeks of our phase three rector trial. Both patients had severe disease, coming into the study with scalp IGA of 4 on the 5 point IGA scale which goes from 0 to 4. You can appreciate the erythematous or red plaques in their scalp with the characteristic thick white scale that we commonly see in scalp psoriasis in these patients. It is primarily along the hairline where it is very visible. Another common finding in both patients, you can see rapid improvement in the scalp plaques. After 2 weeks, accompanied by reduction in itch by 50% or more in both patients. By week eight, both were considered a treatment success having achieved an IGA of one which means almost clear. Importantly, you can also see that based on their SINRS. These 2 patients came into the study with a scalp itch of 8 and 9 out of 10 respectively. In addition to the clinical improvement, these patients also experienced an itch score of 0 by week eight. That means complete resolution of their itch.

One of the major challenges for managing psoriasis patients with scalp disease is the complexity of traditional treatment regimens. Often, they end up with several prescriptions for their scalp and at least 1 or more for the body.

One of the consistent themes about ZORYVE reprofile is that it simplifies treatment for the patient and ZORYVE foam for psoriasis is a perfect example of that. In fact, we designed the pivotal trials to highlight this benefit through the coprimary endpoints for scalp and body AGA that I mentioned. As reform can be used once a day on any area of the body where psoriasis occurs, including hair bearing areas such as the scalp or creams, lotions or ointments or sub-optimal, making the foam an effective treatment for scalp and body psoriasis. And with that, I will pass it over to David.

Thanks Patrick. I'm on slide 20 showing financial results both year-over-year and quarter-over-quarter. As you have heard, we generated net product revenues in the quarter of approximately $45 million, which is up 452% from quarter three of 2023 and 45% from quarter two of this year.

This persistent strong growth reflects our continued success in gaining share of the very large addressable market for all 3 of our approved indications. And we certainly believe this growth is still in its infancy. For the third-quarter, our R&D expenses were $19.5 million, which is down 26% from 26.2 million in the third quarter of 2023 due to decreases in the development cost of topical roflumilast programs and relatively flat compared to the second quarter of this year.

Please keep in mind that a large portion of the expenses included in the R&D line item is comprised of medical affairs activities supporting ZORYVE commercialization and manufacturing costs for pipeline candidates.

SG&A expenses were $58.8 million for the third-quarter, 2024 versus $47.6 million in the same period last year as we invested in both our current and future launches including expansion of our field force in late quarter two.

That total was more or less flat to last quarter with G&A coming down by approximately $2 million as we found expense savings while commercial costs increased by a little under $3 million, which is to be expected as we experienced robust sales growth. We still believe that we are investing appropriately in the tremendous growth potential of ZORYVE portfolio. While constantly looking for ways to achieve savings and efficiencies. For the fourth quarter, excluding the commission to Kowa, we expect total expenses to remain roughly in line with quarter three. The Kowa commission will be included on the SG&A line and to the extent that our partners are able to drive sales growth in primary care and pediatrics. This will lead to a commensurate increase in SG&A. I would like to remind everyone that we only pay commissions to Kowa when they generate scripts and revenues. So those revenues are immediately accretive given. There are no meaningful fixed costs for acutus associated with this partnership.

On slide 21, you can see we had cash and marketable securities of $331 million on our balance sheet as of September 30, which translated to a cash burn from operations in the quarter of $35 million.

Our cash burn for the quarter was meaningfully lower than quarter two dropping by more than 23% quarter-over-quarter. And we would expect our quarterly cash burn to continue trending downward as our revenues grow.

We told you last quarter that we had renegotiated our debt agreement to improve the terms including adding the ability to repay up to half of the $200 million beginning in the fourth quarter of this year. While not reflected in the third-quarter balance sheet, we did subsequently repay $100 million of the debt facility which will significantly lower our interest expense. I would remind you that we have the option to redraw that $100 million in whole or in part at our discussion through the middle of 2026 giving us great flexibility to manage our available cash resources.

We believe our current capital together with available debt, our growing product revenues and improved economies of scale will enable us to reach our breakeven point in 2026 and operate the business for the foreseeable future while appropriately investing in our commercial launches and pipeline, we therefore anticipate no need to return to the equity market to support our existing businesses as we have said before.

With that, I will hand back to Frank for some closing comments and then we will open for question-and-answer.

Thanks David. Our goal is to make a positive and meaningful impact on the lives of people afflicted with chronic dermatologic diseases with now launched in three indications. We are proud to be helping millions of medical dermatology patients. While building shareholder value. We are confident that our strong performance in quarter three, '24 portends strong and sustained growth for the rest of '24 and strong momentum going into 2025 and with that, we will open it up to question-and-answer.

Thank you so much. And as a reminder, if you do have a question, press star 11 to get in the queue and wait for your name to be announced one moment for our first question. It is from Vikram it with Morgan Stanley. Please proceed.

Hi, good evening. Thanks for taking our questions. So we had 2 on the primary care partnership with Kowa and then one on the pipeline. So Frank, I think you mentioned that you would expect to see a contribution there starting in 2025. Just curious what you would expect the cadence of that contribution to be and how you think it might trend throughout the course of next year. And then secondly, for the Alopecia areata readout expected in the first half of next year, just curious to see how you got us to interpret that data set and what you are looking to establish to keep moving that program forward. Thanks. Sure.

Thanks Vikram. Todd, do you want to maybe take the PCP question and then Patrick, you can address 255.

In reference to the Kowa Promotion. First, let me just say that he has mentioned that Kowa has been actively promoting system timber in both the primary care specialties and that has been very well received. They continue to engage, you know, with those specialties. But you got to remember that within primary care and within the peace market with the branded topical luxury, it is a little bit of a longer selling cycle, not only they are introducing a new brand, but a new nonsteroidal with some new processes and such. And albeit that there is a great reception of co in promoting the product and getting great feedback relative to the recognition of the differentiation of the asset of ZORYVE across all 3 indications. It will take some time to be able to ramp up that as we, as we mentioned earlier, we are expecting a meaningful contribution in 2025. But at this time, we are not providing guidance on what that contribution will look like next year.

And I can pick up on the 255. So that read out, you know, that is the phase one B study in Alopecia areata, and it is primarily a safety and biomarker study. Although we do have some clinical endpoints in that trial, the treatment duration is relatively short at just 3 months. So what we are really looking for is just some evidence that first of all, we are looking for evidence that the drug is safe and tolerable in topical applications of the scalp. But we expect that to be the case. And also on the efficacy side, we are looking for some evidence that we would be successful in a later clinical trial. That would be a longer duration of treatment.

Got it. Thank you.

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

Great. Thanks so much for the question. So, congrats on the quarter, obviously a very impressive result. Can you guys help us a couple of things? First, was there any stocking in the quarter that contributed? You know, to the impressive result, just based on our math and the low 50s number, we would have gotten a very modest stocking contribution, maybe, less than a couple million, but just wanted to know if there is any clarity on that. And then second, as we look forward to the sort of coverage dynamics in 2025 can you just help us understand? I believe the timing of coverage dynamics outside of Medicaid, but more along the lines of Medicare and treatment opportunity and several eight dermatitis. Can you help us understand how that will come on? And how the launch will progress in that in that potential patient population. The reason that I ask is because with the $2000 limit within part D that seems like a very robust opportunity for the company to you know, market towards. Thanks.

Thanks. David, do you want to take the stocking question then Todd, I am going to throw it back to you on the question around coverage in 25.

I think Todd will take the stock in question and I will come.

I will take that. So we did not see any stocking relative to the actual gross to net. Let me just kind of put a little color around our gross to net and what was driving that? And, you know, first we are very pleased with the improvement gross to net in the quarter three. And it is probably driven by the team's efforts in converting a greater percentage of prescriptions over to the paid prescriptions. In addition to that, they were very successful in creating a very predictable and efficient productization and fulfillment process which enabled the DERM offices to drive those pay prescriptions. And then coupled with that, there was a decline in patient deductibles and co pay as we moved throughout the year. So you know, the growth to that improved quarter to quarter for all indications. And you know, PSO was in a steady state in the 50s, as we mentioned last quarter for form and seborrheic, it reached the 50s this quarter, which was earlier than anticipated. And we continue to see improvements in the atopic dermatitis gross to net and then kind of looking at atopic dermatitis. At 2025, and if I remember your question, relative to Medicare part D, we continue to have very positive discussions with the Medicare part D payers. Those are going well. The one thing that, which is unrelated to the discussions we are having with the PBMs is the Inflation Reduction Act, the reduced changes that are happening there. It is impacting the PBMs in several ways but more particularly relative to their operations. It is slowing their operations as they grapple with implementing the mandated changes that are happening the effective January first 2025. So our conversations are positive and going well, it delayed our ability to secure coverage here in 2024, but we do expect coverage in 2025, which will certainly enable not only the atopic dermatitis indication, but of course, psoriasis and Seb Derm. (inaudible)

Great. Thank you.

Our next question is from we here with Mizuho. Please proceed.

Hey guys, thanks for taking the questions and congratulations on the quarter. So maybe the first question on gross-to-net. With Kowa coming online, and you guys going into the primary care, just wondering how does that perhaps might change the gross-to-net going forward? You guys indicated that you are also expecting seborrheic dermatitis to kind of reach steady state by the end of the end of the fourth quarter. So just wondering what the impact to gross net would be with Kowa.

Yes. Thank you, Frank and good question. We do not anticipate co-promotion and primary care piece to impact our gross-to-net.

It is the same payer coverage, the same fulfillment prescription process as it is not in dermatology. So given that it is very consistent that we do not anticipate any adverse impact relative to gross and net coming out of Kowa's promotion in those two specialties.

Okay. So.

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

Yes. Exactly what it is a good question is that Kowa is leveraging our pharmacy network that we have established for dermatology. We got a number of derm specialty pharmacies that are working with those Derham specialty pharmacies since this is a prescription, they will receive that from Kowa whether it comes from pediatrics or primary care. So it would be very consistent in how those prescriptions are fulfilled in dermatology as they are when in primary care or peds.

Okay. And, sorry, second question is, we really expecting to, comp complete their CD 200 or, agonist in mid-2025. You yourself have one, ARQ-234, I guess, like what would you want to see from the Lily data? And based on what you see, how would you kind of perhaps re prioritize or change the way that you are thinking about moving this particular asset forward?

Sure Patrick. Absolutely. Thanks for the question. So, you know what we would like to see out of that Lily read out is just continued support for the efficacy that is already been demonstrated in atopic dermatitis with the CD 200 R agonist mechanism of action. I think any validation within that mechanism of action is very helpful for us. Obviously, you cannot read too much into the specific numbers because we actually think that we're going to be able to be differentiated nicely against that Lily compound. We feel really strongly about being able to generate some good differentiation data as we develop that further into our first clinical trials and then into the later ones as well. And you know, our plan is to as with all of our programs is to move them forward as quickly as we can. The more excitement that there is around CD 200, I think it is just better for us.

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

Sure, Todd.

Good question. And relative to the hurricanes, we saw some nominal impact directly within those affected areas.

But probably as you have noticed our volume though quarter-of-quarters obviously have been strong when a reform, we have 53% quarter over quarter growth, which we are very delighted with. So, although some impact from the from the hurricane, we were quickly able to recover from that and continue to see strong demand performance across all three of the indications.

Okay. Thank you.

Thank you.

Our next question is from the line of search Bellinger with Needham. Please proceed.

Hi, good afternoon. And congrats on the solid quarter. A couple questions from us. The first one, I guess for Todd, a follow up on a prior question regarding Medicare coverage.

Can you tell us what proportion of the ZORYVE Medicare part DT do you expect to have coverage for in 2025? Just trying to get an idea of if this is a multi-year project to get full Medicare part D coverage.

Yeah, I will be happy to answer that. Relative to the part D coverage in 2025. When we contract with the PBM managing the part D benefit, we will contract for their portfolio, their book of business of the part D benefit. We will be able once we contract pick that up fairly instantly, which we anticipate being able to secure Medicare Part D within 2025. Does that answer your question?

I mean, I guess how much of the Medicare part detail, will that initial coverage for 2025 cover?

Is it the entire Medicare Part D business for ZORYVE or just a portion of it? Initially.

It will be initially a, a proportion of it initially. And it is just difficult to be able to tell you exactly what specific percent that is of the total part volume.

But we'll, I anticipate picking up a majority of the part D impact to their different books of business. And then as we roll on, we will pick up the additional coverage. One thing you can think about is, you know, relative to the indications, you think about psoriasis, it is more commercial insurance oriented, about 70% of that is commercial. But when you cut across Sub Derm and atopic dermatitis, it is closer to a 5,050 split between the commercial business and government business. So within that framework, we will start to pick up the benefits in 2025 and then have opportunities after that to pick up any coverage that we did not initially pick up.

Maybe if I could just add, you know, I think it is important to keep in mind that Medicare part D actually looks a little bit like the commercial business, right? You have got multiple different insurance plans, managing different chunks of the part D population. And then within those plans, you have different books of business as well. And you know, when we contract, we might get one plan or one book of business with one plan and then, there is a delay with another. So it is a little bit lumpy and very much like commercial where over time you pick up, you know, you maybe you get a little bit at the beginning and then you progressively add as time goes on. You should expect to see something very similar in Medicare. It is not binary the way you know, and as one might think because the Medicare program has become so fragmented the way the part D benefit is managed.

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

Well, you know, I think it still remains to be seen how the transition of top up Pinner off from one company to other changes at the marketplace. You know, certainly the delay in the PDUFA action date for spinoff and AD is a very positive development for us just gives us more headway to continue to build our brand. Although, I think as Todd showed you guys on the slide, I do not really see that as our primary competition. I think first and foremost, steroids are our main competition. And then in the branded a space, obviously is an important competitor as well. But, you know, I think it is still too early to tell what the impact of the change in ownership of depend is going to have.

Okay, thank you.

Thank you one moment for our next question and it's from CBIS JD with Jeffrey. Please proceed.

Hey, thanks for the opportunity to ask some questions. The first one is what proportion of the 3 Q sales are attributable to the C deal?

And can you remind us how long how we prioritize the re and kind of what doctors will be focusing on and then I have some follow ups.

I think we heard your question correctly. The, the results from Kowa in the third quarter were essentially immaterial. You know, they got started kind of MIDs and so, we have not seen anything material yet.

And then tell me in terms of the other questions of, the agreement is a five-year agreement. And the deal is structured in such a way that ZORYVE has to be the one of the priority products in their portfolio throughout the five-year period.

Great and then maybe just a couple of follow ups for me more on the government payer side. What kind of the blend of commercial versus government payer contribution to your three-quarter revenue?

And then as the last question, can you remind us how your pricing strategy was informed? And has it enabled faster negotiation with pairs than say, other branded topicals? Thank you.

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

I think while we have not received Medicare coverage yet, you know, I think the very rapid progress we made in the commercial front and the very rapid progress we're making now on the Medicaid front, really prove that we took the right approach in setting this reef price so that we can maximize that access. And you know, as Todd said, we are very confident in our ability to secure very good Medicare coverage as well. You know, as 25 progresses and then Todd, can you maybe just comment on what we are seeing today currently in terms of contribution from Medicare and Medicaid?

Absolutely Frank. What we are seeing today was, I will say within quarter three as far as the net revenue, it was primarily driven by commercial, as we have mentioned in the quarter two earnings call, we did pick up some Medicaid mentioned Florida, Texas, New York. There is some uptake in volume there, but for quarter three was primarily the commercial business, the states that we picked up in Medicaid, the ones we have mentioned on this earnings call, those are all future opportunities for us, and we plan to be able to drive incremental growth and those are a great growth opportunity for us. And as mentioned, we plan to pick up more Medicaid States as we roll forward.

Okay, thank you so much.

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

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

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