What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-22 compared with 2021-02-16 · 315 added, 270 removed, 543 unchanged (52% of the section changed)

2 unchanged sentences

We believe we have built the industry's leading platform for dermatologic product development.

Our strategy is to focus on validated biological targets, and to use our platform and deep dermatology expertise to develop differentiated products that have the potential to address the major shortcomings of existing therapies in our targeted indications.

We believe this strategy uniquely positions us to rapidly progress towards our goal of bridging the treatment innovation gap in dermatology, while maximizing our probability of technical success and financial resources.

Our lead product candidate, topical roflumilast cream, has successfully completed pivotal Phase 3 clinical trials in plaque psoriasis, demonstrating symptomatic improvement and favorable tolerability in this population.

We are currently preparing a New Drug Application (NDA), with a submission to the U.S.

Food and Drug Administration (FDA) expected in the second half of 2021.

Roflumilast is a highly potent and selective phosphodiesterase type 4, or PDE4, inhibitor, an established biological target in dermatology, with multiple PDE4 inhibitors approved by the FDA for dermatological conditions.

Our strategy is to focus on validated biological targets, and to use our drug development platform and deep dermatology expertise to develop differentiated products that have the potential to address the major shortcomings of existing therapies in our targeted indications.

We believe this strategy uniquely positions us to rapidly advance our goal of bridging the treatment innovation gap in dermatology, while maximizing our probability of technical success.

Our lead product candidate, roflumilast cream, has successfully completed pivotal Phase 3 clinical trials in plaque psoriasis, demonstrating symptomatic improvement and favorable tolerability in this population.

We have submitted a New Drug Application (NDA) to the U.S.

Food and Drug Administration (FDA), and the FDA has set a Prescription Drug User Fee Act (PDUFA) action date of July 29, 2022.

We are developing roflumilast cream for the treatment of plaque psoriasis, including psoriasis in intertriginous regions such as the groin, axillae, and inframammary areas, as well as atopic dermatitis.

We have also successfully completed a long-term safety study of roflumilast cream in plaque psoriasis patients, showing continued symptomatic improvement and favorable tolerability over a treatment period of 52 to 64 weeks.

In atopic dermatitis, we have completed a Phase 2 proof of concept study of roflumilast cream and recently initiated Phase 3 clinical trials with topline data expected in the second half of 2022.

We are also developing a topical foam formulation of roflumilast, and have successfully completed Phase 2 clinical trials in both seborrheic dermatitis and scalp psoriasis.

In seborrheic dermatitis, we had a successful End of Phase 2 meeting with the FDA and plan to initiate a single pivotal Phase 3 clinical trial in the second or third quarter of 2021, with topline data expected in the second or third quarter of 2022.

Pending discussions with regulators, we expect to initiate our Phase 3 program in scalp psoriasis in the second half of 2021, with topline data anticipated in the second half of 2022.

Beyond this, we are developing ARQ-252, a potent and highly selective topical Janus kinase type 1, or JAK1, inhibitor.

We have completed enrollment in a Phase 2b clinical study for the treatment of chronic hand eczema and expect topline data in mid-2021.

We expect to initiate a Phase 2 proof of concept study of ARQ-252 for the treatment of vitiligo in the first quarter of 2021.

Additionally, we have formulation and preclinical efforts underway for ARQ-255, an alternative deep-penetrating topical formulation of ARQ-252 designed to reach deeper into the skin in order to potentially treat alopecia areata.

We have also successfully completed a long-term safety study of roflumilast cream in plaque psoriasis subjects, showing continued symptomatic improvement and favorable tolerability over a treatment period of 52 to 64 weeks.

In atopic dermatitis, we have initiated three pivotal Phase 3 clinical studies:

INTEGUMENT-1 and -2 are enrolling subjects six years of age or older and INTEGUMENT-PED is enrolling subjects between the ages of two and five years.

We expect to provide topline data from each of INTEGUMENT-1 and -2 by the end of 2022.

We intend to submit a supplemental New Drug Application (sNDA) for topical roflumilast cream for the treatment of atopic dermatitis patients aged six years or older in 2023 based on the results of INTEGUMENT-1 and -2.

Due to the inherent challenges of enrolling young children in clinical trials, together with impacts on enrollment from COVID-19, we now expect to provide topline data from INTEGUMENT-PED in 2023.

We intend to submit a subsequent sNDA for the younger age cohort based on INTEGUMENT-PED following the potential initial atopic dermatitis approval in patients aged six years or older.

We are also developing a topical foam formulation of roflumilast, and have successfully completed Phase 2 clinical trials in both seborrheic dermatitis and scalp and body psoriasis.

In seborrheic dermatitis, we initiated a single pivotal Phase 3 clinical trial, with topline data anticipated in mid-year 2022.

We also initiated a single pivotal Phase 3 clinical trial in scalp and body psoriasis, with topline data anticipated in the second half of 2022.

If these pivotal Phase 3 trials for roflumilast foam are positive, we expect the data to be a sufficient basis for an NDA submission to the FDA for each indication.

Beyond topical roflumilast, we are developing ARQ-252, a potent and highly selective topical Janus kinase type 1, or JAK1, inhibitor.

In May 2021, we announced that the Phase 2 study of ARQ-252 in chronic hand eczema did not meet its primary endpoint, with further analyses of the study pointing to inadequate local drug delivery to the skin.

Given these analyses, we also elected to terminate the Phase 2a clinical trial evaluating ARQ-252 as a potential treatment in vitiligo, as we began reformulation efforts to develop an enhanced formulation of ARQ-252 that delivers more active drug to targets in the skin.

Additionally, we have formulation and nonclinical efforts continuing for ARQ-255, an alternative deep-penetrating topical formulation of ARQ-252 designed to reach deeper into the skin and hair follicle in order to potentially treat alopecia areata.

The ARQ-255 formulation is separate and distinct from ARQ-252, and thus there are no implications to ARQ-255 from ARQ-252.

Index to Financial Statements

Dermatological diseases such as psoriasis, atopic dermatitis, seborrheic dermatitis, hand eczema, alopecia areata, and vitiligo affect hundreds of millions of people worldwide each year, impacting their quality of life, and physical, functional, and emotional well-being.

6 unchanged sentences

In psoriasis, vitamin D analogs are also used, but have lower response rates than TCS and are frequently irritating.

In atopic dermatitis, topical calcineurin inhibitors, or TCIs, and Eucrisa, a topical non-steroidal PDE4 inhibitor, are used, but have lower response rates than TCS and are associated with application site burning.

In atopic dermatitis, topical calcineurin inhibitors, or TCIs, and crisaborole (Eucrisa), a topical non-steroidal PDE4 inhibitor, are used, but have lower response rates than TCS and are associated with application site burning.

TCIs also have a boxed warning for cancer risk.

Topical ruxolitinib (Opzelura) was approved for the treatment of atopic dermatitis in September 2021, but carries an extensive boxed warning for numerous severe side effects, and is limited to short-term, intermittent use after failure of other treatments.

In seborrheic dermatitis, in addition to TCS, topical antifungals are commonly used, but have limited efficacy.

Biologic and systemic therapies are also available for some diseases, but are indicated for a small percentage of the affected population.

Biologic and systemic therapies are also available for some diseases, but are typically indicated for a small percentage of the affected population.

Biologics for psoriasis and atopic dermatitis have shown impressive response rates but are only indicated for the minority of patients with moderate-to-severe forms of disease, are expensive, and often face reimbursement and access restrictions.

Use of oral systemic therapies such as methotrexate and apremilast (Otezla) are also limited to more severe psoriasis patients and have significant side effect risks.

Index to Financial Statements

Treatment with oral systemic therapies such as methotrexate and apremilast (Otezla) has also been limited given modest symptomatic improvement and the frequency of adverse events.

Additionally, many patients on biologic and systemic therapies still require adjunctive topical therapy to treat residual symptoms.

6 unchanged sentences

patients suffering from chronic hand eczema, vitiligo, and alopecia areata, as well as millions of patients treated by physicians other than dermatologists for their psoriasis, atopic dermatitis, and seborrheic dermatitis.

Index to Financial Statements

The following charts summarize our product pipeline and our upcoming anticipated milestones:

2 unchanged sentences

Key elements of our strategy include:

• Rapidly develop and commercialize our lead product candidate, topical roflumilast cream, for the treatment of patients with plaque psoriasis and atopic dermatitis.

Based on the clinical data generated to date, we believe roflumilast cream has the potential to be the best-in-class non-steroidal topical treatment, with symptomatic improvement similar to high potency steroids while potentially delivering a low risk of side effects and a favorable tolerability profile that enables chronic administration, including for pediatric patients.

• Rapidly develop and commercialize our lead product candidate, roflumilast cream, for the treatment of patients with plaque psoriasis and atopic dermatitis.

Based on the clinical data generated to date, we believe roflumilast cream has the potential to be the best-in-class non-steroidal topical treatment, with symptomatic improvement in psoriasis patients similar to the combination of a high potency steroid and calcipotriene while potentially delivering a low risk of side effects and a favorable tolerability profile that enables chronic administration, including for pediatric patients.

In plaque psoriasis, we have successfully completed pivotal Phase 3 clinical trials, as well as a long-term safety study.

We are currently preparing an NDA, with a submission to the FDA expected in the second half of 2021.

In atopic dermatitis, we have completed a Phase 2 proof of concept study and recently initiated Phase 3 clinical trials with topline data expected in the second half of 2022.

• Expand our addressable market with topical roflumilast foam.

We are developing a foam formulation of roflumilast for the treatment of scalp psoriasis and seborrheic dermatitis, diseases impacting hair-bearing areas of the body where a cream is not suitable.

We have submitted an NDA to the FDA, and the FDA has set a PDUFA action date of July 29, 2022.

In atopic dermatitis, we have initiated three pivotal Phase 3 clinical studies:

INTEGUMENT-1 and -2 are enrolling subjects six years of age or older, and INTEGUMENT-PED is enrolling subjects between the ages of two and five years.

We expect to provide topline data from each of INTEGUMENT-1 and -2 by the end of 2022.

We intend to submit an sNDA for topical roflumilast cream for the treatment of atopic dermatitis patients aged six years or older in 2023 based on the results of INTEGUMENT-1 and -2.

We expect to provide topline data from INTEGUMENT-PED in 2023 and submit a subsequent sNDA for the younger age cohort following the potential initial atopic dermatitis approval in patients aged six years or older.

• Expand our addressable market with roflumilast foam.

We are developing a foam formulation of roflumilast for the treatment of scalp and body psoriasis and seborrheic dermatitis, diseases impacting hair-bearing areas of the body where a cream is not suitable.

We have successfully completed Phase 2 clinical trials with roflumilast foam in both seborrheic dermatitis and scalp psoriasis, demonstrating promising efficacy and tolerability in both diseases.

Pending discussions with regulators, we expect to initiate our Phase 3 program in scalp psoriasis in the second half of 2021, with topline data anticipated in the second half of 2022.

• Further expand our product portfolio through the development of ARQ-252/ARQ-255.

We are developing ARQ-252, a JAK1 inhibitor with a high relative selectivity to JAK1 over Janus kinase type 2, or JAK2, inhibitor for the treatment of chronic hand eczema and vitiligo, and potentially alopecia areata.

Given its high relative selectivity to JAK1 over JAK2, we believe ARQ-252 has the potential to treat inflammatory diseases without causing the hematopoietic adverse effects associated with JAK2 inhibition, giving it the potential to be best-in-class.

We have completed enrollment in a Phase 2b clinical study for the treatment of chronic hand eczema and expect topline data in mid-2021.

We expect to initiate a Phase 2 proof of concept study of ARQ-252 for the treatment of vitiligo in the first quarter of 2021.

Additionally, we have formulation and preclinical efforts underway for ARQ-255, an alternative topical formulation of ARQ-252 designed to reach deeper into the skin in order to potentially treat alopecia areata.

In seborrheic dermatitis, we initiated a single pivotal Phase 3 clinical trial, with topline data anticipated in mid-year 2022.

We also initiated a single pivotal Phase 3 clinical trial in scalp and body psoriasis, with topline data anticipated in the second half of 2022.

If these pivotal Phase 3 trials for roflumilast foam are positive, we expect the data to be sufficient basis for an NDA submission to the FDA for each indication.

• Establish an integrated development and commercial organization .

2 unchanged sentences

To further enhance the value of our product candidates, we may selectively seek partners to commercialize our products outside of the dermatology specialist segment, and to develop and commercialize our products outside of the U.S.

• Further expand our product portfolio through the development of ARQ-252/ARQ-255.

We are developing ARQ-252 and ARQ-255, both of which contain a JAK1 inhibitor with a high relative selectivity to JAK1 over Janus kinase type 2, or JAK2, inhibitor for the treatment of chronic hand eczema and vitiligo, and potentially alopecia areata.

Given its high relative selectivity to JAK1 over JAK2, we believe ARQ-252 and ARQ-255 have the potential to treat inflammatory diseases without causing the hematopoietic adverse effects associated with JAK2 inhibition, giving it the potential to be best-in-class.

Our formulation and nonclinical efforts for ARQ-255, an alternative deep-penetrating topical formulation of ARQ-252 designed to reach deeper into the skin in order to potentially treat alopecia areata, are continuing.

The ARQ-255 formulation is separate and distinct from ARQ-252, and thus there are no implications to ARQ-255 from ARQ-252.

• Leverage our product development platform to continue innovating and developing novel new treatments for dermatological diseases.

Our expertise in dermatological clinical development and commercialization allows us to identify areas of high unmet needs, and our product development platform may allow us to develop novel new treatments that address those needs, as it has already with roflumilast cream, roflumilast foam, and ARQ-252/ARQ-255.

Index to Financial Statements

• Evaluate strategic opportunities to in - license best-in-class dermatology assets consistent with our core strategy.

1 unchanged sentence

We will continue to explore opportunities to in-license assets and develop them to address unmet medical needs in dermatology.

Index to Financial Statements

We believe one of our core strengths is that we have built the industry's leading platform for dermatology product development.

2 unchanged sentences

• Our innovative topical formulation of roflumilast (patented)

• The pharmacokinetic characteristics relating to improving delivery and extending half-life of both the cream and foam formulations of topical roflumilast (patented)

• A novel topical cream without skin-drying surfactants (patent pending)

• The first topical treatment for seborrheic dermatitis with dual anti-fungal and anti-inflammatory action (patent pending)

• Our novel “4D” deep-penetrating formulation allowing topical delivery deep in the dermis where other topicals can’t reach (patent pending)

Our Market Opportunity

We believe there are significant market opportunities to capture in each of our addressable markets.

The table below details the U.S.

patient populations for diseases with treatments under development with topical roflumilast cream.

US Patient Populations (Millions)

Psoriasis Atopic Dermatitis Seborrheic Dermatitis

Prevalence 8.6 19.2 10.0

Rx treated 3.5 6.3 2.7

Topically treated 2.5 5.4 2.7

Rx treatment in Derm Setting 2.8 1.2 1.8

Rx treated (Topically) in Derm Setting 2.0 1.0 1.8

There are additional large opportunities in diseases that we could potentially treat with ARQ-252 and ARQ-255.

prevalence for chronic hand eczema, vitiligo, and alopecia areata are approximately 8.3 million, 1.3 million, and 6.2 million patients, respectively.

Topical Roflumilast Cream (ARQ-151)

Our lead product candidate, topical roflumilast cream, has the potential to offer symptomatic improvement similar to the combination of a high potency steroid and calcipotriene, a favorable tolerability profile, the ability to be used chronically, and little to none of the application site reactions associated with many existing topical treatments.

• Our novel “4D” deep-penetrating formulation allowing topical delivery deeper in the dermis (patent pending).

Roflumilast Cream (ARQ-151)

Our lead product candidate, roflumilast cream, has the potential to offer symptomatic improvement in psoriasis patients similar to the combination of a high potency steroid and calcipotriene, a favorable tolerability profile, the ability to be used chronically, and little to none of the application site reactions associated with many existing topical treatments.

Roflumilast cream is designed for simple once-a-day application for chronic use, does not burn or sting on application, and can be used on any part of the body, including sensitive or difficult-to-treat areas, such as the face and intertriginous regions.

It quickly and easily rubs into the skin without leaving a greasy residue, does not stain clothing or bedding, or have an unpleasant smell.

Roflumilast is a highly potent and selective PDE4 inhibitor that was approved by the FDA for systemic treatment to reduce the risk of exacerbations of COPD in 2011.

Roflumilast has demonstrated a potency advantage of approximately 25x to in excess of 300x compared to the active ingredients in the two other FDA-approved PDE4 inhibitors, crisaborole (Eucrisa) and Otezla.

Roflumilast is a highly potent and selective PDE4 inhibitor that was approved by the FDA for systemic treatment to reduce the risk of exacerbations of chronic obstructive pulmonary disease (COPD) in 2011.

Roflumilast has demonstrated a potency advantage of approximately 25x to in excess of 300x compared to the active ingredients in the two other FDA-approved PDE4 inhibitors, Eucrisa and Otezla.

We are currently developing roflumilast cream for plaque psoriasis, including intertriginous psoriasis, as well as atopic dermatitis.

We have successfully completed pivotal Phase 3 clinical trials, as well as a long-term safety study, in plaque psoriasis, and are currently preparing an NDA, with a submission to the FDA expected in the second half of 2021.

In atopic dermatitis, we have completed a Phase 2 proof of concept study and recently initiated Phase 3 clinical trials.

We have successfully completed pivotal Phase 3 clinical trials, as well as a long-term safety study, in plaque psoriasis.

We have submitted an NDA to the FDA, and the FDA has set a PDUFA action date of July 29, 2022.

In atopic dermatitis, we completed our Phase 2 proof of concept study and initiated our Phase 3 clinical program.

The atopic dermatitis Phase 3 program includes 4 studies:

1 unchanged sentence

a study with approximately 650 subjects ages 2-5 (INTEGUMENT-PED);

and an open label extension study with approximately 400 subjects (INTEGUMENT-OLE).

We anticipate topline data from INTEGUMENT-1 and -2 in the second half of 2022.

Index to Financial Statements

and an open label extension study with up to 1,500 subjects (INTEGUMENT-OLE).

We expect to provide topline data from each of INTEGUMENT-1 and -2 by the end of 2022.

We intend to submit an sNDA for topical roflumilast cream for the treatment of atopic dermatitis patients aged six years or older in 2023 based on the results of INTEGUMENT-1 and -2.

In July 2018, we executed a licensing agreement with AstraZeneca AB (AstraZeneca) for exclusive worldwide rights to roflumilast as a topical product in humans solely for dermatological indications.

We have built our own intellectual property portfolio around topical uses of roflumilast, with issued and pending formulation, pharmacokinetic, and method-of-use patents in the United States and other jurisdictions from six distinct patent families, which should provide us with exclusivity for our product at least into 2037.

We have built our own intellectual property portfolio around topical uses of roflumilast, with issued and pending formulation, pharmacokinetic, and method-of-use patents in the United States and other jurisdictions from several distinct patent families, which should provide us with exclusivity for our product at least into 2037.

Index to Financial Statements

Plaque Psoriasis

Psoriasis Background

Psoriasis is an immune disease that occurs in about two percent of adults in western countries, representing approximately 8.6 million patients in the United States.

Psoriasis is an immune disease that occurs in about 3% of the U.S.

population, representing approximately 8.6 million patients.

About 90% of cases are plaque psoriasis, which is characterized by “plaques”, or raised, red areas of skin covered with a silver or white layer of dead skin cells referred to as “scale” (see figures below).

20 unchanged sentences

Because high potency steroids and combinations containing high potency steroids provide robust symptomatic improvement for psoriasis patients, most physicians initiate treatment for nearly all patients with them.

However, due to the limitations on duration of treatment to between two and eight weeks, most physicians will switch the patient to a low- to mid-potency steroid or to a vitamin D analog to manage the patient’s psoriasis patients chronically.

These “step down” options provide less symptomatic improvement and are often irritating.

3 unchanged sentences

In the United States, less than 20% of moderate-to-severe psoriasis patients (equivalent to 6% of all psoriasis patients) are on biologic therapy.

The uptake of biologics has remained limited due to multiple factors, including the fact that they are indicated only for use in moderate-to-severe patients, their high cost and patient co-pays, reimbursement and access restrictions, perceived risk of side effects, and patient fear of injection.

The uptake of biologics has remained limited due to multiple factors, including the fact that they are indicated only for use in moderate-to-severe patients, their high cost and patient co-payments, reimbursement and access restrictions, perceived risk of side effects, and patient fear of injection.

Treatment with non-biologic systemic therapy, such as methotrexate or Otezla is also limited.

2 unchanged sentences

Otezla has a limited U.S.

market share due to limitations on its use to moderate-to-severe patients, modest symptomatic improvement, and frequent adverse events.

market share in part due to its high annual price relative to topical treatments, modest symptomatic improvement, and frequent adverse events.

Atopic Dermatitis

Atopic Dermatitis Background

Atopic dermatitis is the most common type of eczema, occurring in approximately 6% of the population, representing approximately 19.2 million patients in the United States.

Disease onset is most common by 5 years of age, and we estimate that approximately 60% of patients suffering from atopic dermatitis are pediatric patients.

Atopic dermatitis is the most common skin disease among children, affecting approximately 15% to 20% of children.

Atopic dermatitis is the most common type of eczema, affecting approximately 26 million people in the United States.

Atopic dermatitis is the most common skin disease among children, with prevalence steadily increasing from 8% to 12% in the last two decades.

Atopic dermatitis is characterized by a defect in the skin barrier, which allows allergens and other irritants to enter the skin, leading to an immune reaction and inflammation.

3 unchanged sentences

Atopic Dermatitis Lesions

Given that most of the patients are pediatric, safety and tolerability of atopic dermatitis treatments is paramount.

Given the high proportion of pediatric patients, safety and tolerability of atopic dermatitis treatments is paramount.

Atopic dermatitis imposes a substantial burden on the patient, parents, and family.

13 unchanged sentences

Despite initial interest among the physician community to adopt the product, its growth has been hampered by modest symptomatic improvement, frequent occurrences of application site burning and stinging, and disadvantaged reimbursement status compared to other atopic dermatitis treatments.

• Opzelura is a topical JAK inhibitor approved in September 2021 for the treatment of mild to moderate atopic dermatitis.

The label carries an extensive boxed warning for serious infections, all-cause mortality, malignancy, major adverse cardiovascular events and thrombosis, and the product is limited to short-term, non-continuous use after failure of other treatments.

Treatment with biologics like Dupixent remains highly restricted.

In the United States, less than 2% of all atopic dermatitis patients are on biologic therapy.

The uptake of biologics has remained limited due to multiple factors, including the fact that they are indicated only for use in moderate-to-severe patients, their high cost and patient co-payments, reimbursement and access restrictions, and patient fear of injection.

Index to Financial Statements

Topical Roflumilast Cream Clinical Development

Roflumilast Cream Clinical Development

Plaque Psoriasis

We have successfully completed the pivotal clinical studies of topical roflumilast cream in plaque psoriasis, and are currently preparing the NDA for submission with the FDA.

We intend to use the results from the pivotal Phase 3 clinical studies, DERMIS-1 and DERMIS-2, supported by the chronic treatment results from the ARQ-151-202 and DERMIS-OLE studies, to support recommendations for long-term use.

Safety data from DERMIS-1, DERMIS-2 and Study ARQ-151-202, supplemented with data from Studies ARQ-151-201, ARQ-154-204, DERMIS-OLE, and other studies, will form the basis for our Integrated Safety Summary that will be required by the FDA at the time of submission.

We have successfully completed the pivotal clinical studies of roflumilast cream in plaque psoriasis, and submitted an NDA to the FDA.

The FDA has set a PDUFA action date of July 29, 2022.

Our NDA submission is supported by the positive data from the pivotal Phase 3 clinical studies, DERMIS-1 and DERMIS-2, and our long-term Phase 2b open label study.

In all trials, roflumilast cream was generally well-tolerated with a favorable safety and tolerability profile.

Key Completed Trials

3 unchanged sentences

Results from the eight-week treatment period demonstrated statistically significant improvement compared to the matching vehicle on key efficacy endpoints.

On the studies’ primary efficacy endpoint of percentage of patients achieving Investigator Global Assessment (“IGA”) success, which was defined as a score of “clear” or “almost clear” plus a 2-grade improvement from baseline at week 8, 42.4% of patients treated with roflumilast cream achieved IGA Success, compared to 6.1% of patients treated with vehicle (p < 0.0001) in DERMIS-1, and 37.5% of patients treated with roflumilast cream achieved IGA Success, compared to 6.9% of patients treated with vehicle (p<0.0001) in DERMIS-2.

On the studies’ primary efficacy endpoint of percentage of subjects achieving Investigator Global Assessment (IGA) success, which was defined as a score of “clear” or “almost clear” plus a 2-grade improvement from baseline at week 8, 42.4% of subjects treated with roflumilast cream achieved IGA Success, compared to 6.1% of subjects treated with vehicle (p < 0.0001) in DERMIS-1, and 37.5% of subjects treated with roflumilast cream achieved IGA Success, compared to 6.9% of subjects treated with vehicle (p<0.0001) in DERMIS-2.

Roflumilast cream also demonstrated statistically significant improvements over vehicle on key secondary endpoints, including on Intertriginous IGA Success, Psoriasis Area Severity Index-75, reductions in itch as measured by the Worst Itch-Numerical Rating Scale, and patient perceptions of symptoms as measured by the Psoriasis Symptoms Diary (PSD).

Roflumilast cream was well-tolerated by the patient populations, with rates of treatment-emergent adverse events (“TEAEs”) low and similar to vehicle, with most TEAEs assessed as mild to moderate in severity.

Of the patients treated with roflumilast cream, five patients (1.7% of subjects) in DERMIS-1 and one patient (0.3% of subjects) in DERMIS-2 discontinued the study due to a TEAE.

Of the subjects treated with roflumilast cream, five subjects (1.7% of subjects) in DERMIS-1 and one subject (0.3% of subjects) in DERMIS-2 discontinued the study due to a TEAE.

There were no treatment-related serious adverse events.

8 unchanged sentences

Index to Financial Statements

In this open label study, roflumilast cream 0.3% applied once daily for up to 52 weeks demonstrated favorable safety and tolerability over the long-term treatment period, consistent with what was seen in the randomized Phase 2b study, with only 3.6% of patients experiencing a treatment-related adverse event during 52 weeks of treatment.

At week 52 of the long-term safety study, 44.8% of all subjects attained an Investigator Global Assessment (IGA) of clear or almost clear, with 34.8% of subjects in Cohort 1 and 39.5% of subjects in Cohort 2 achieving IGA Success, defined as a score of clear or almost clear plus a 2-grade improvement from baseline.

In this open label study, roflumilast cream 0.3% applied once daily for up to 52 weeks demonstrated favorable safety and tolerability over the long-term treatment period, consistent with what was seen in the randomized Phase 2b study, with only 3.6% of subjects experiencing a treatment-related adverse event during 52 weeks of treatment.

Additionally, a d urable treatment effect was maintained through 52 to 64 weeks.

At week 52 of the long-term safety study, 44.8% of all subjects attained an IGA Success of clear or almost clear, with 34.8% of subjects in Cohort 1 and 39.5% of subjects in Cohort 2 achieving IGA Success, defined as a score of clear or almost clear plus a 2-grade improvement from baseline.

Additionally, of the subjects in the 12-week randomized Phase 2b study who were treated with roflumilast cream 0.3%, and who attained an IGA of clear or almost clear at 12 weeks in the first study, then continued on treatment in the long-term safety study, 66.7% had an IGA of clear or almost clear at the end of 64 weeks of treatment or their last visit.

1 unchanged sentence

There were no treatment related serious adverse events reported.

ARQ-151-201 (Phase 2b Study)

ARQ-151-201 was a multi-center, multi-national, double-blind, vehicle-controlled Phase 2b study, in which 331 adults with plaque psoriasis covering between 2% and 20% BSA were randomized to receive 12 weeks of:

(1) roflumilast cream 0.3%, (2) roflumilast cream 0.15%, or (3) matching vehicle.

At the end of the 12-week treatment period, patients were eligible to roll over into our ARQ-151-202 open label extension study for an additional 52 weeks.

Completion rates for the study were 93.6% in the roflumilast cream 0.3% arm, 92.0% in the roflumilast cream 0.15% arm, and 78.9% in the vehicle arm.

On the study’s primary endpoint, roflumilast cream produced statistically significant reductions compared to vehicle (roflumilast cream 0.3%:

p<0.001, roflumilast cream 0.15%:

p = 0.004) in the signs of plaque psoriasis, as measured by an IGA score of “clear” or “almost clear”, after 6 weeks of once daily treatment, and was very well-tolerated with minimal adverse events in the study population.

On one of the study’s secondary endpoints, roflumilast cream 0.3% had an IGA Success (clear/almost clear + 2-grade improvement from baseline) rate of 32.2%, and roflumilast cream 0.15% had an IGA Success rate of 24.5% compared to a vehicle IGA Success rate of 9.8% (roflumilast cream 0.3%:

p<0.001, roflumilast cream 0.15%:

p = 0.005) after 8 weeks of once daily application.

Roflumilast cream 0.3% also separated statistically from vehicle on all secondary endpoints, including reductions in Intertriginous IGA (I-IGA), Psoriasis Area Severity Index, reductions in itch as measured by the Worst Itch-Numerical Rating Scale (WI-NRS), and patient perceptions of symptoms as measured by the Psoriasis Symptoms Diary, and roflumilast cream 0.15% separated statistically from vehicle on all secondary endpoints except for I-IGA.

In this study, roflumilast cream was very well-tolerated in this population.

The incidence of TEAEs was low and similar between active treatment and vehicle, with nearly all TEAEs mild to moderate in severity.

Among subjects receiving roflumilast cream, there was only one discontinuation due to a TEAE (< 1% of subjects) and two Serious Adverse Events (neither related to drug).

Key Ongoing Trials

ARQ-151-306 (DERMIS-OLE) Study

A portion of subjects who completed 8 weeks of double-blind treatment in the DERMIS-1 and DERMIS-2 studies were eligible to roll over to the ongoing open label extension study, DERMIS-OLE.

In this study, up to 250 subjects will be enrolled and all subjects receive roflumilast cream 0.3% for 24 weeks.

The primary endpoints of this study are the occurrence of TEAEs and the occurrence of Serious Adverse Events (SAEs).

Index to Financial Statements

Atopic Dermatitis

Key Completed Trials

The most recent study completed with roflumilast cream in atopic dermatitis was a multi-center, double-blind, vehicle-controlled proof of concept Phase 2 study, in which 136 adolescents (ages 12 and above) and adults with mild to moderate atopic dermatitis involving between 1.5% and 35% BSA were randomized to receive once daily topical applications for 4 weeks of:

The most recent study completed with roflumilast cream in atopic dermatitis was a multi-center, double-blind, vehicle-controlled proof of concept Phase 2 study, in which 136 adolescents (ages 12 and above) and adults with mild to moderate atopic dermatitis involving between 1.5% and 35% BSA were randomized across three arms to receive once daily topical applications for 4 weeks of:

(1) roflumilast cream 0.15%, or (2) roflumilast cream 0.05%, or (3) vehicle.

The goals of this small proof of concept study were to establish whether roflumilast cream provides a signal of potential symptomatic improvement in atopic dermatitis patients, as well as to gain an understanding of its tolerability.

The goals of this small proof of concept study were to establish whether roflumilast cream provides a signal of potential symptomatic improvement in atopic dermatitis subjects, as well as to gain an understanding of its tolerability.

Completion rates for the study were 98% in the roflumilast cream 0.15% arm, 91% in the roflumilast cream 0.05% arm, and 93% in the vehicle arm.

On the study's primary endpoint, the absolute change from baseline in the Eczema Area and Severity Index (EASI) Total Score after 4 weeks of once daily treatment, neither dose reached statistical significance versus vehicle, although roflumilast cream 0.15% showed a trend towards significance, with a mean improvement of 6.4 in patients treated with roflumilast cream 0.15% compared to 4.8 in patients treated with vehicle (p = 0.097).

On the study's primary endpoint, the absolute change from baseline in the Eczema Area and Severity Index (EASI) Total Score after 4 weeks of once daily treatment, neither dose reached statistical significance versus vehicle, although roflumilast cream 0.15% showed a trend towards significance, with a mean improvement of 6.4 in subjects treated with roflumilast cream 0.15% compared to 4.8 in subjects treated with vehicle (p = 0.097).

On the secondary endpoint of mean percent change from baseline on EASI, roflumilast cream 0.15% demonstrated a statistically significant improvement versus vehicle (72.3% versus 55.8%, p = 0.049).

4 unchanged sentences

31.1%, p = 0.045).

On the Validated Investigator Global Assessment - Atopic Dermatitis (vIGA-AD), roflumilast cream 0.15% also demonstrated a statistically significant improvement versus vehicle in the percentage of patients achieving clear or almost clear (roflumilast cream 0.15%:

On the Validated Investigator Global Assessment - Atopic Dermatitis (vIGA-AD), roflumilast cream 0.15% also demonstrated a statistically significant improvement versus vehicle in the percentage of subjects achieving clear or almost clear (roflumilast cream 0.15%:

52.3% versus vehicle:

4 unchanged sentences

All TEAEs were mild to moderate in severity.

Among subjects receiving roflumilast cream, there was only one SAE, which was unrelated to treatment, and only one discontinuation due to a TEAE.

Among subjects receiving roflumilast cream, there was only one serious adverse event (SAE), which was unrelated to treatment, and only one discontinuation due to a TEAE.

We believe the consistent evidence of improvement in atopic dermatitis signs and symptoms demonstrated by both strengths of roflumilast cream across multiple endpoints, as well as the magnitude of improvement demonstrated on both doses in this small proof-of-concept study, demonstrate the ability of roflumilast cream to effectively treat atopic dermatitis.

1 unchanged sentence

While the study did not reach statistical significance on every endpoint, the consistency of evidence for improvement in atopic dermatitis, coupled with favorable tolerability data, provides us with the confidence to continue the development of roflumilast cream in atopic dermatitis.

Key Ongoing and Upcoming Trials

Index to Financial Statements

Key Ongoing Trials

The atopic dermatitis Phase 3 program includes four studies.

INTEGUMENT-1 and -2, which have been initiated, are multi-center, double-blind, vehicle-controlled Phase 3 studies, in approximately 650 subjects in each study, ages 6 and above with mild to moderate atopic dermatitis.

Subjects will be randomized to receive once daily topical applications for 4 weeks of roflumilast cream 0.15%, or vehicle.

INTEGUMENT-1 and -2 are multi-center, double-blind, vehicle-controlled Phase 3 studies, in approximately 650 subjects in each study, ages 6 and above with mild to moderate atopic dermatitis.

Subjects have been randomized to receive once daily topical applications for 4 weeks of roflumilast cream 0.15%, or vehicle.

The primary endpoint is the proportion of all randomized subjects who attain IGA Success, defined as a vIGA-AD score of ‘clear’ or ‘almost clear’ plus a 2-grade improvement from Baseline at week 4.

We anticipate topline data from INTEGUMENT-1 and -2 in the second half of 2022.

Sharing a similar overall design, INTEGUMENT-PED is a multi-center, double-blind, vehicle-controlled Phase 3 study in approximately 650 subjects ages 2-5 with mild to moderate atopic dermatitis.

Subjects will be randomized to receive once daily topical application for 4 weeks of roflumilast cream 0.05%, or vehicle and the primary endpoint will also be IGA Success at week 4.

INTEGUMENT-OLE is an open label extension study that will enroll approximately 400 subjects who have completed INTEGUMENT-1, -2, or -PED.

Subjects will be treated for up to 52 weeks and the primary endpoint are the occurrence of TEAEs and SAEs.

Index to Financial Statements

Topical Roflumilast Foam

We are also developing a topical foam formulation of roflumilast for the treatment of scalp psoriasis and seborrheic dermatitis.

Topical roflumilast foam contains the same highly potent and selective PDE4 inhibitor found in topical roflumilast cream, and is nearly identical to topical roflumilast cream, with all ingredients in the foam being the same as those in the cream, other than reduced oil content and the addition of a propellant in the can to create the foam.

Subjects have been randomized to receive once daily topical application for 4 weeks of roflumilast cream 0.05%, or vehicle and the primary endpoint is also the proportion of all randomized subjects who attain IGA Success at week 4.

INTEGUMENT-OLE is an open label extension study that is enrolling up to 1,500 subjects who have completed INTEGUMENT-1, -2, or -PED.

Subjects are to be treated for up to 52 weeks and the primary endpoints are the occurrence of TEAEs and SAEs.

We expect to provide topline data from each of INTEGUMENT-1 and -2 by the end of 2022, and from INTEGUMENT-PED in 2023.

Roflumilast Foam (ARQ-154)

We are also developing a foam formulation of topical roflumilast for the treatment of scalp psoriasis and seborrheic dermatitis.

Roflumilast foam contains the same highly potent and selective PDE4 inhibitor in roflumilast cream, and is nearly identical to roflumilast cream, with all ingredients in the foam being the same as those in the cream, other than reduced oil content and the addition of a propellant in the can to create the foam.

Roflumilast foam is a light foam, similar to hair mousse, that has been designed to deliver the drug to the scalp while not leaving a greasy residue or disturbing hair style.

3 unchanged sentences

Roflumilast foam is designed for simple once-a-day application and neither burns nor stings on application.

We have successfully completed Phase 2 studies of roflumilast foam in seborrheic dermatitis and scalp psoriasis, demonstrating promising efficacy and tolerability in both diseases.

We have successfully completed Phase 2 studies of roflumilast foam in seborrheic dermatitis and scalp and body psoriasis, demonstrating promising efficacy and tolerability in both diseases, and are currently conducting pivotal Phase 3 studies in both indications.

We believe that roflumilast foam may offer physicians and patients a highly differentiated clinical profile that is ideally suited to address unmet needs in the topical treatment of seborrheic dermatitis and scalp psoriasis.

1 unchanged sentence

Seborrheic Dermatitis Background

Seborrheic dermatitis is a common skin disease that is estimated to occur in approximately 2% of the population.

Seborrheic dermatitis is a common skin disease that is estimated to occur in more than 10 million people in the United States.

The disease causes red patches covered with large, greasy, flaking yellow-gray scales, and is frequently itchy.

5 unchanged sentences

Seborrheic Dermatitis

Index to Financial Statements

Current Seborrheic Dermatitis Treatment Landscape

5 unchanged sentences

Due to the risks associated with steroid use, particularly on the face, physicians try to limit duration or avoid steroid therapy.

Index to Financial Statements

• TCIs are also sometimes used off-label for the treatment of seborrheic dermatitis.

7 unchanged sentences

Finally, many physicians are reluctant to treat chronically with steroids and TCIs, the main anti-inflammatory agents used in treatment of seborrheic dermatitis.

We believe topical roflumilast foam may present a unique dual mechanism of action to treat patients with seborrheic dermatitis.

We believe roflumilast foam may present a unique dual mechanism of action to treat patients with seborrheic dermatitis.

Based on clinical data to date across indications, topical roflumilast has demonstrated strong anti-inflammatory properties.

In addition, a recent preclinical study demonstrated that roflumilast foam may also possess anti-fungal effects, specifically against Malassezia , the fungus implicated in seborrheic dermatitis.

In addition, a recent nonclinical study demonstrated that roflumilast foam may also possess anti-fungal effects, specifically against Malassezia , the fungus implicated in seborrheic dermatitis.

Because the pathogenesis of seborrheic dermatitis potentially includes both a fungal overgrowth component and an inflammatory component, roflumilast foam’s putative dual mechanism of action may provide symptomatic improvement for patients not achieving suitable responses from currently available therapies.

2 unchanged sentences

Scalp Psoriasis Background

Scalp psoriasis is a manifestation of plaque psoriasis that occurs in nearly half of all psoriasis patients, characterized by plaques in the hair-bearing area of the scalp and sometimes extending to the forehead, back of the neck, or behind or inside the ears as depicted in the figure below.

These psoriatic plaques are identical to plaques on other body areas, however topical treatment of these plaques is complicated by the difficulty of delivering topical drugs under hair-bearing areas.

1 unchanged sentence

Scalp psoriasis can also be associated with hair loss, likely due to damage to the hair from excessive scratching, rubbing, or combing of the affected area.

Index to Financial Statements

Scalp Psoriasis

DermNet (left)

Index to Financial Statements

Current Scalp Psoriasis Treatment Landscape

4 unchanged sentences

While both biologics and systemic treatments will improve scalp psoriasis, they suffer from the same limitations on their use as in plaque psoriasis.

Topical Roflumilast Foam Clinical Development

Roflumilast Foam Clinical Development

We have successfully completed Phase 2 studies of roflumilast foam in seborrheic dermatitis and scalp psoriasis.

Pending discussions with regulators, we expect to initiate our Phase 3 program in scalp psoriasis in the second half of 2021, with topline data anticipated in the second half of 2022.

In seborrheic dermatitis, we initiated a single pivotal Phase 3 clinical trial, with topline data anticipated in mid-year 2022.

We also initiated a single pivotal Phase 3 clinical trial in scalp and body psoriasis, with topline data anticipated in the second half of 2022.

If these pivotal Phase 3 trials for roflumilast foam are positive, we expect the data to be sufficient basis for an NDA submission to the FDA for each indication.

Seborrheic Dermatitis

11 unchanged sentences

Only 2 out of 154 subjects (1.3%) treated with roflumilast foam discontinued the study due to an adverse event, compared to 1 out of 72 subjects (1.4%) treated with the vehicle.

Index to Financial Statements

Key Ongoing and Upcoming Trials

ARQ-154-304 (Phase 3 Study)

The " ST udy of R oflumilast foam A pplied T opically for the red U ction of seborrheic der M atitis" (STRATUM) is a Phase 3, parallel group, double blind, vehicle-controlled study of the safety and efficacy of roflumilast 0.3% foam administered once-daily in approximately 450 subjects ages nine and older with moderate to severe seborrheic dermatitis.

The primary endpoint of the study is the proportion of subjects achieving IGA Success, defined as an IGA score of “clear” or “almost clear” plus a 2-point improvement at eight weeks.

ARQ-154-214 (Long-Term Safety)

Study ARQ-154-214 is an ongoing multi-center, open label Phase 2 long-term safety study of roflumilast foam 0.3% applied once daily in patients with seborrheic dermatitis.

This study includes patients who were treated previously in the Phase 2 trial (ARQ-154-203), as well as patients naive to treatment with roflumilast foam.

Study ARQ-154-214 is an ongoing multi-center, open label Phase 2 long-term safety study of roflumilast foam 0.3% applied once daily in subjects with seborrheic dermatitis.

This study includes subjects who were treated previously in the Phase 2 trial (ARQ-154-203), as well as subjects naive to treatment with roflumilast foam.

Periodic clinic visits will include assessments for clinical safety, application site reactions, and disease improvement, or progression.

ARQ-154-304 (Phase 3 Study)

The Phase 3 program will consist of a single pivotal trial, which we anticipate initiating in the second or third quarter of 2021, with topline data expected in the second or third quarter of 2022.

Index to Financial Statements

Scalp Psoriasis

13 unchanged sentences

Only 5 out of 200 subjects (2.5%) in the roflumilast foam treated group discontinued the study due to an adverse event, compared to 2 out of 104 subjects (1.9%) treated with the vehicle.

Key Ongoing and Upcoming Trials

ARQ-154-309 (Phase 3 Study)

The “ A R andomized t R ial E mploying topi C al roflumilasT foam to treat scalp ps OR iasis” (ARRECTOR) study is a parallel group, double blind, vehicle-controlled pivotal Phase 3 study of the safety and efficacy of roflumilast 0.3% foam or a matching vehicle administered once-daily in approximately 420 subjects with scalp and body psoriasis ages 12 and older.

The co-primary endpoints of the study include the proportion of subjects achieving S-IGA success and the proportion of subjects achieving B-IGA success, with IGA success defined as an IGA score of ‘clear’ or ‘almost clear’ plus a 2-point improvement from baseline after eight weeks.

Index to Financial Statements

ARQ-252 is topical cream formulation of a potent and highly selective small molecule inhibitor of JAK1 that we are developing for chronic hand eczema and vitiligo.

In a preclinical study, ARQ-252 proved to be highly selective to JAK1 over JAK2, in contrast to ruxolitinib, the furthest advanced topical Janus kinase, or JAK, inhibitor in U.S.

In a nonclinical study, ARQ-252 proved to be highly selective to JAK1 over JAK2.

We believe that due to its high selectivity for JAK1 over JAK2, ARQ-252 has the potential to treat inflammatory diseases without causing the hematopoietic adverse effects associated with JAK2 inhibition.

As the only JAK1-selective topical in development, we believe that ARQ-252 could offer a best-in-class topical JAK inhibitor, with a more favorable safety and tolerability profile than other topical JAK inhibitors due to its selectivity to JAK1 over JAK2, robust symptomatic improvement due to its high potency against JAK1, and a convenient and patient-friendly cream formulation.

We have completed enrollment in a Phase 2b clinical study for the treatment of chronic hand eczema with ARQ-252, and expect topline data in mid-2021.

We expect to initiate a Phase 2 proof of concept study of ARQ-252 for the treatment of vitiligo in the first quarter of 2021.

In May 2021, we announced that the Phase 1/2b study of ARQ-252 in chronic hand eczema did not meet its primary endpoint, with further analyses of the study pointing to inadequate local drug delivery to the skin.

Importantly, there were no safety or tolerability issues seen in that study.

The ARQ-255 formulation is separate and distinct from ARQ-252, and thus there are no implications to ARQ-255 from ARQ-252.

In December 2019, we exercised our exclusive option under our Hengrui License Agreement to exclusively license the active pharmaceutical ingredient in ARQ-252 for all topical dermatological uses in the United States, Canada, Europe, and Japan.

5 unchanged sentences

We believe there is the potential for additional intellectual property protection of ARQ-252 through possible future formulation and other patents.

Index to Financial Statements

Chronic Hand Eczema

5 unchanged sentences

The impact of hand eczema on patients can be significant, leading to work absences or disability, social stigmatization, and psychosocial distress.

Index to Financial Statements

Current Hand Eczema Treatment Landscape

13 unchanged sentences

As such, there is great unmet need for therapies that are more effective and less limiting than currently available treatment modalities.

Index to Financial Statements

ARQ-252 Clinical Development

1 unchanged sentence

ARQ-252-205 Study (Phase 2b Study)

We have completed enrollment in the ARQ-252-205 Study.

This study is a multi-center, multi-national, double-blind, randomized, vehicle-controlled Phase 2b study, in which approximately 215 adults with chronic hand eczema were randomized to receive:

(1) 0.1% ARQ-252 cream applied once daily, or (2) 0.3% ARQ-252 cream applied once daily, or (3) 0.3% ARQ-252 cream applied twice daily, or (4) matching vehicle cream applied once or twice daily, all for 12 weeks.

The primary efficacy endpoint is IGA Success, defined as an IGA of “clear” or “almost clear” plus at least a 2-point improvement from baseline at week 12.

We expect to report topline data by mid-2021.

In May 2021, we announced that the Phase 1/2b study of ARQ-252 in chronic hand eczema did not meet its primary endpoint of IGA clear or almost clear at week 12, with further analyses of the study pointing to inadequate local drug delivery to the skin.

Importantly, there were no safety or tolerability issues seen in that study.

We are currently working on re-formulating ARQ-252 to develop an enhanced formulation that delivers more active drug to targets in the skin.

ARQ-252-213 Study (Phase 2a Study)

We expect to initiate enrollment in the ARQ-252-213 study in the first quarter of 2021.

This Phase 2a study is a parallel group, double blind, vehicle-controlled study of the safety and efficacy of ARQ-252 0.3% cream either with or without narrowband UVB (NB-UVB) phototherapy treatment in approximately 500 subjects with non-segmental facial vitiligo.

The primary endpoint of the study is the proportion of subjects achieving Facial Vitiligo Area Scoring Index-75 (F-VASI-75), which is ≥ 75% improvement from baseline in F-VASI at week 24.

Given the failure of the Phase 1/2b study of ARQ-252 in chronic hand eczema, and the data pointing towards inadequate drug delivery, we elected to terminate the Phase 2a clinical trial evaluating ARQ-252 as a potential treatment in vitiligo.

We are currently working on re-formulating ARQ-252 to develop an enhanced formulation that delivers more active drug to targets in the skin.

Index to Financial Statements

We are also developing ARQ-255, an alternative topical formulation of ARQ-252 designed to reach deeper into the skin in order to potentially treat alopecia areata.

4 unchanged sentences

We have undertaken a formulation effort we refer to as Deep Dermal Drug Delivery (“4D” technology), that leverages some of the unique physical properties of the active pharmaceutical ingredient in ARQ-255, and which we believe may allow us to topically deliver sufficient concentrations of the drug to potentially treat alopecia areata via topical administration.

Formulation and preclinical experiments are underway to develop a 4D version of ARQ-252, which we refer to as ARQ-255, and if those formulation efforts are successful, we plan to enter the clinic with ARQ-255 as a potential treatment for alopecia areata.

Formulation and nonclinical efforts are continuing for ARQ-255.

The biotechnology and pharmaceutical industry is highly competitive, and is characterized by rapid and significant changes, intense competition and a bias towards proprietary products.

5 unchanged sentences

Our success will be based in part on our ability to identify, develop and commercialize a portfolio of product candidates that have a lower risk of side effects and/or provide more symptomatic improvement than competing products.

Index to Financial Statements

For psoriasis, our primary competitors include injected biologic therapies such as Humira, marketed by AbbVie Inc.

and Eisai Co., Ltd., and Enbrel, marketed by Amgen Inc., Pfizer Inc., and Takeda Pharmaceutical Company Limited;

and Eisai Co., Ltd., and Enbrel, marketed by Amgen Inc.;

Pfizer Inc., and Takeda Pharmaceutical Company Limited;

non-injectable systemic therapies used to treat plaque psoriasis such as Otezla, marketed by Amgen Inc.;

topical therapies such as branded and generic versions of clobetasol, such as Clobex, marketed by Galderma Laboratories, LP, generic versions of calcipotriene and the combination of betamethasone dipropionate/calcipotriene;

topical therapies such as branded and generic versions of clobetasol, such as Clobex, marketed by Galderma Laboratories, LP;

generic versions of calcipotriene and the combination of betamethasone dipropionate/calcipotriene;

and other treatments including various lasers and ultraviolet light-based therapies.

In addition, there are several prescription product candidates under development that could potentially be used to treat psoriasis and compete with roflumilast cream, including tapinarof, under development by Dermavant Sciences, Inc., deucravacitinib, an oral Tyrosine kinase type 2 (Tyk2) inhibitor under development by BMS, Inc., and PF-06700841, a Tyk2/JAK1 inhibitor under development by Pfizer, Inc.

For atopic dermatitis, our primary competitors include topical therapies such as Eucrisa, marketed by Pfizer Inc., and generic and branded versions of low to mid-potency steroids such as hydrocortisone and betamethasone;

and the injected biologic therapy Dupixent, marketed by Regeneron Pharmaceuticals, Inc.

and deucravacitinib, an oral Tyrosine kinase type 2 (Tyk2) inhibitor under development by BMS, Inc.

For atopic dermatitis, our primary competitors include topical therapies such as Eucrisa, marketed by Pfizer Inc.;

Opzelura, marketed by Incyte Corporation;

which was approved in September 2021, and generic and branded versions of low to mid-potency steroids such as hydrocortisone and betamethasone.

In the moderate-to-severe setting, the injected biologic therapy Dupixent, marketed by Regeneron Pharmaceuticals, Inc;

is approved, as well as the recently approved injectable biologic therapy Adbry, marketed by LEO Pharma.

Non-injectable systemic therapies RINVOQ and CIBINQO were also recently approved in moderate-to-severe atopic dermatitis.

In addition, there are several prescription product candidates under development that could potentially be used to treat atopic dermatitis and compete with roflumilast cream, including but not limited to:

topical tapinarof and topical cerdulatinib, both under development by Dermavant Sciences, Inc., topical ruxolitinib, under development by Incyte Corporation, topical delgocitinib, under development by LEO Pharma A/S and Japan Tobacco, Inc.

(approved as Corectim in Japan), topical PF-06700841, a Tyk2/JAK1 inhibitor under development by Pfizer, Inc., topical difamilast ointment, under development by Medimetriks/Otsuka Pharma, oral PF-04965842, under development by Pfizer Inc., oral upatacitinib, under development by AbbVie, Inc.

and injectable lebrikizumab, under development by Eli Lilly and Company.

topical tapinarof and topical cerdulatinib, both under development by Dermavant Sciences, Inc., topical delgocitinib, under development by LEO Pharma A/S and Japan Tobacco, Inc.

(approved as Corectim in Japan), topical PF-06700841, topical difamilast ointment, under development by Medimetriks/Otsuka Pharma, oral PF-04965842, under development by Pfizer Inc., and injectable lebrikizumab, under development by Eli Lilly and Company.

Index to Financial Statements

For hand eczema, our primary competitors include topical therapies such as branded and generic versions of clobetasol, such as Clobex, and generic versions of betamethasone dipropionate.

4 unchanged sentences

In addition, there are several prescription product candidates under development that could potentially be used to treat vitiligo and compete with ARQ-252, including but not limited to:

topical cerdulatinib, under development by Dermavant Sciences, Inc., topical ruxolitinib, under development by Incyte Corporation, and both oral PF-06651600 and oral PF-06700841, under development by Pfizer Inc.

topical cerdulatinib, under development by Dermavant Sciences, Inc., Opzelura, under development by Incyte Corporation, and both oral PF-06651600 and oral PF-06700841, under development by Pfizer Inc.

For alopecia areata, our primary competitors include topical therapies such as branded and generic versions of high potency steroids, including Clobex, marketed by Galderma Laboratories, LP;

3 unchanged sentences

PF-6700841 and PF-06651600, under development by Pfizer, Inc., CTP-543, under development by Concert Pharmaceuticals, and baricitinib, under development by Eli Lilly and Company.

Index to Financial Statements

Commercial Operations

We intend to build our own commercial infrastructure in the United States and Canada to support the commercialization of our product candidates.

We intend to begin building this commercial infrastructure if and when we believe that a regulatory approval of our first product candidate appears reasonably likely.

We plan to build our own small specialty sales force targeted at dermatologists, with approximately 100 field-based staff needed to market to US dermatologists.

We have begun to build commercial infrastructure given that regulatory approval of our first product candidate appears reasonably likely.

We plan to build our own small specialty sales force to target dermatologists, with approximately 100 field-based staff.

We may seek partnerships that allow us to target pediatricians and primary care physicians if required to maximize the potential of our product candidates.

We also plan to build the required sales management, marketing, access and reimbursement, sales support, and distribution capabilities to optimize our commercial success.

We have begun hiring the required sales, marketing, access and reimbursement, sales support, and distribution capabilities to prepare for commercialization.

To develop the required commercial infrastructure, we will have to invest substantial financial and management resources, some of which will be committed prior to any confirmation that our product candidates will be approved, and we could invest resources and then later learn that a particular product candidate is not being approved.

9 unchanged sentences

The protection provided by a patent varies from country to country, and is dependent on the type of patent granted, the scope of the patent claims, and the legal remedies available in a given country.

As of February 16, 2021, we own or have an exclusive license to ten issued U.S.

patents and eight issued foreign patents, which include granted European patent rights that have been validated in various European Union (EU) member states, and five pending U.S.

patent applications, 15 pending foreign patent applications and two applications filed under the Patent Corporation Treaty.

Index to Financial Statements

As of February 22, 2022, we own or have an exclusive license to 13 issued U.S.

patents and 15 issued foreign patents, which include granted European patent rights that have been validated in various European Union (EU) member states, and 11 pending U.S.

patent applications, 43 pending foreign patent applications and two applications filed under the Patent Cooperation Treaty.

Of these patents and patent applications:

• Roflumilast cream & roflumilast foam :

As of February 16, 2021, we own five issued U.S.

patents, one issued Canadian patent, one issued Japanese patent, one issued Chinese patent, seven pending U.S.

patent applications and 39 pending foreign applications (two each in Hong Kong and Canada;

three each in Japan, Mexico, New Zealand, India, Australia, Europe, Israel, and Brazil, China, Korea and Eurasia;

and two under the Patent Cooperation Treaty), relating to roflumilast cream and roflumilast foam.

As of February 22, 2022, we own seven issued U.S.

patents, one issued Canadian patent, one issued Japanese patent, one issued Chinese patent, one issued Hong Kong patent, seven pending U.S.

patent applications, and 43 pending foreign applications (two in Canada;

three each in Hong Kong, Japan, Mexico, New Zealand, India, Australia, Europe, Israel, Brazil, China, Korea and Eurasia;

and five under the Patent Cooperation Treaty), relating to roflumilast cream and roflumilast foam.

The issued U.S.

1 unchanged sentence

Data exclusivity for oral roflumilast expired on January 23, 2021.

Our issued patents relating to roflumilast cream and roflumilast foam contain claims directed to, among other things, formulating roflumilast in combination with hexylene glycol, methods of making such formulations, and methods of treatment using such formulations, and a method for improving treatment adherence by improving delivery and extending the plasma half-life of a roflumilast composition.

These issued U.S.

1 unchanged sentence

Our pending patents relating to roflumilast cream and roflumilast foam contain claims directed to, among other things, other aspects of our roflumilast formulations, as well as unique pharmacokinetic aspects of topical roflumilast.

Index to Financial Statements

• ARQ-252 & ARQ-255 :

As of February 16, 2021, we have an exclusive license from Hengrui to five issued U.S.

patents, two issued Japanese patents, and three issued EU patents (validated in a number of EU member states, including Austria, Belgium, Bulgaria, Croatia, the Czech Republic, Estonia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Lithuania, Luxemburg, Monaco, Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovenia, Slovakia, Spain, Sweden, Switzerland, Turkey, and the United Kingdom), one pending U.S.

As of February 22, 2022, we have an exclusive license from Hengrui to six issued U.S.

patents, five issued Japanese patents, and five issued EU patents (validated in a number of EU member states, including for certain applications, Austria, Belgium, Bulgaria, Croatia, the Czech Republic, Estonia, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Lithuania, Luxemburg, Monaco, Norway, Poland, Portugal, Romania, San Marino, Serbia, Slovenia, Slovakia, Spain, Sweden, Switzerland, Turkey, and the United Kingdom), one pending U.S.

patent application, three pending Japanese patent applications, and two pending EU patent applications relating to SHR0302.

1 unchanged sentence

The issued patents and pending applications, if issued, relating to SHR0302 will not begin to expire until 2033.

We anticipate filing patent applications directed towards formulations, methods and other aspects of our technology relating to ARQ-252 and ARQ-255 which we may develop in the future.

We have filed three pending U.S.

patent applications and three patent applications under the Patent Cooperation Treaty relating to, among other things, SHR0302 formulations and methods of treatment.

We anticipate filing additional patent applications directed towards formulations, methods and other aspects of our technology relating to ARQ-252 and ARQ-255 which we may develop in the future.

Obtaining patent protection is not the only method that we employ to protect our propriety rights.

5 unchanged sentences

We also require any third-party that may receive our confidential information or materials to enter into confidentiality agreements prior to receipt of that information or material.

Index to Financial Statements

Exclusive License and Option Agreements

3 unchanged sentences

Pursuant to the agreement, AstraZeneca provided us with certain quantities of roflumilast at a negotiated price for development purposes.

We paid AstraZeneca an upfront non-refundable cash payment of $1.0 million and issued 484,388 shares of our Series B Preferred stock, valued at $3.0 million on the date of the AstraZeneca License Agreement.

We paid AstraZeneca an upfront non-refundable cash payment of $1.0 million and issued 484,388 shares of our Series B convertible preferred stock, valued at $3.0 million on the date of the AstraZeneca License Agreement.

We subsequently paid AstraZeneca the first milestone cash payment of $2.0 million upon the completion of a Phase 2b study of roflumilast cream in plaque psoriasis in August 2019 for the achievement of positive Phase 2 data for an AZ-Licensed Product.

We have agreed to make additional cash payments to AstraZeneca of up to an aggregate of $12.5 million upon the achievement of specific regulatory approval milestones with respect to the AZ-Licensed Products and payments up to an additional aggregate amount of $15.0 million upon the achievement of certain aggregate worldwide net sales milestones.

We have agreed to make additional cash payments to AstraZeneca of up to an aggregate of $12.5 million upon the achievement of specific regulatory approval milestones with respect to the AZ-Licensed Products, which includes $7.5 million upon FDA approval of our first product, and payments up to an additional aggregate amount of $15.0 million upon the achievement of certain aggregate worldwide net sales milestones.

With respect to any AZ-Licensed Products we commercialize under the AstraZeneca License Agreement, we will pay AstraZeneca a low to high single-digit percentage royalty rate on our, our affiliates’, and our sublicensees’ net sales of such AZ-Licensed Products, until, as determined on a AZ-Licensed Product-by-AZ-Licensed Product and country-by-country basis, the later of the date of the expiration of the last-to-expire AstraZeneca-licensed patent right containing a valid claim in such country and ten years from the first commercial sale of such AZ-Licensed Product in such country.

27 unchanged sentences

Government authorities in the United States, at the federal, state, and local level, and in other countries and jurisdictions extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products.

We, along with any third-party contractors, will be required to navigate the various nonclinical, clinical, and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval of our products and product candidates.

The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

FDA Approval Process

In the United States, pharmaceutical products are subject to extensive regulation by the FDA, and other governmental authorities.

The Federal Food, Drug, and Cosmetic Act and its implementing regulations, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, quality control, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products.

Failure to comply with applicable U.S.

requirements may subject a company to a variety of administrative or judicial sanctions, such as clinical hold, FDA refusal to approve pending NDAs, or NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.

Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drug (IND), which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought.

Drug Development Process

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (FDCA) and its implementing regulations.

The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local, and foreign statutes and regulations require the expenditure of substantial time and financial resources.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

• completion of nonclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s Good Laboratory Practice (GLP) requirements and other applicable regulations;

• submission to the FDA of an Investigational New Drug application (IND) which must become effective before human clinical trials may begin;

• approval by an independent Institutional Review Board (IRB) or ethics committee at each clinical site before each trial may be initiated;

• performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (GCP) to establish the safety and efficacy of the proposed drug for its intended use;

• preparation of and submission to the FDA of an NDA after completion of all pivotal trials;

• a determination by the FDA within 60 days of its receipt of an NDA to file the application for review;

• satisfactory completion of an FDA advisory committee review, if applicable;

• satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice (cGMP) requirements to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity, and of selected clinical investigation sites to assess compliance with GCPs;

• FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States.

Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves nonclinical laboratory and animal tests, the submission to the FDA of an IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought.

Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity, and novelty of the product or disease.

Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product.

The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices.

Index to Financial Statements

Nonclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal studies to assess the characteristics and potential safety and activity of the product.

The conduct of the nonclinical tests must comply with federal regulations and requirements, including GLP requirements, when applicable.

The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing, and control, and a proposed clinical trial protocol.

Long-term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

Long-term nonclinical tests, such as animal studies evaluating reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold.

1 unchanged sentence

As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator.

Clinical trials must be conducted:

(i) in compliance with federal regulations;

(ii) in compliance with good clinical practice, or GCP, requirements, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors;

as well as (iii) under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated.

Clinical trials involve the administration of the investigational drug product to healthy volunteers or patients under the supervision of a qualified investigator.

Clinical trials must be conducted in accordance with GCP requirements, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors.

Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated.

Each protocol involving testing on U.S.

patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

Index to Financial Statements

The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients.

The study protocol and informed consent information for patients in clinical trials must also be submitted to an independent institutional review board, or IRB, for approval.

An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions.

A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments.

While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.

Furthermore, an independent IRB for each site proposing to conduct each clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site and must monitor the study until completed.

Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy.

Depending on its charter, this group may determine whether a trial may move forward at designated check points based on access to certain data from the trial.

The FDA or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk.

Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

There are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap or be combined:

In Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness.

Phase 2 usually involves trials in a limited patient population to evaluate the efficacy of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks.

If a compound demonstrates evidence of efficacy and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk profile of the drug and to provide adequate information for the labeling of the drug.

In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug.

A single Phase 3 trial with other confirmatory evidence may be sufficient in rare instances, such as where the study is a large multi-center trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.

The manufacturer of an investigational drug in a Phase 2 or 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access.

Assuming successful completion of the required clinical testing, an NDA is prepared and submitted to the FDA.

The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition.

These studies are designed to test the safety, dosage tolerance, absorption, metabolism, and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule, and to identify possible adverse side effects and safety risks.

Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger Phase 3 clinical trials.

The product candidate is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites.

These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

Index to Financial Statements

In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to gain more information about the product.

These so-called Phase 4 studies, may be conducted after initial marketing approval, and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication.

In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.

Concurrent with clinical trials, developers usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements.

The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality, and purity of the final drug.

In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

FDA Review and Approval Process

Assuming successful completion of the required clinical studies in accordance with all applicable regulatory requirements, an NDA is prepared and submitted to the FDA.

FDA approval of the NDA is required before marketing of the product may begin in the United States.

The NDA must include the results of all preclinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls.

The NDA must include the results of all nonclinical, clinical, and other testing, and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls.

Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by independent investigators.

The cost of preparing and submitting an NDA is substantial.

The submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and/or sponsor of an approved NDA is also subject to an annual program fee.

These fees are typically increased annually.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review.

Waivers of application user fees may be obtained in certain limited circumstances.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for review, or “filed” by FDA, based on the FDA’s threshold determination that it is sufficiently complete to permit substantive review.

The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission and may request additional information.

1 unchanged sentence

Once the submission is accepted for filing, the FDA begins an in-depth review.

Under the Prescription Drug User Fee Act, guidelines that are currently in effect, the FDA has a goal of ten months from the date of receipt of a standard NDA for a product that is not a new molecular entity, or NME, and six months from the date of receipt for an NDA for a non-NME subject to priority review, to review and act on the submission.

In the case of an NME, the six and ten month review periods are measured from the date on which the FDA “files” the NDA rather than the date on which the NDA is received by the FDA.

The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.

Under the PDUFA guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete a standard review of an NDA for a drug that is a new molecular entity (NME), and of ten months from the date of NDA receipt to complete a standard review of an NDA for a drug that is not an NME.

These review periods may be reduced from ten months to six months for an application designated for priority review.

The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee—typically a panel that includes clinicians and other experts—for review, evaluation, and a recommendation as to whether the application should be approved.

2 unchanged sentences

Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured.

The FDA will not approve the product unless compliance with current good manufacturing practice, or cGMP, requirements is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

Index to Financial Statements

After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter, which states that the application will not be approved in present form.

A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application.

The FDA will not approve the product unless it determines the facility is compliant with cGMP requirements and adequate to assure consistent production of the product within required specifications.

After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter (CRL).

An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.

A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling.

In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA in condition for approval, including requests for additional information or clarification.

If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will typically issue an approval letter.

The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications, and approved product labeling may contain certain contraindications, warnings, or precautions.

As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks.

REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU.

If regulatory approval of a product is granted, such approval will be granted for particular indications and may include limitations on the indicated uses for which such product may be marketed.

For example, as a condition of approving an NDA, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the

Index to Financial Statements

benefits of the drug outweigh the potential risks.

A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicine by managing its safe use, and can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU.

ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries.

The requirement for a REMS can materially affect the potential market and profitability of the drug.

Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy, including Phase 4 clinical trials to further assess a drug’s safety after approval.

Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Certain changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented.

An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

Disclosure of Clinical Trial Information

Sponsors of certain clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information.

Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration.

Sponsors are also obligated to discuss the results of these clinical trials after completion.

Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial.

Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.

The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications.

The FDA may also require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and the labeling and prescribing information for the product may be changed based on the results of these post-marketing studies.

Changes to the conditions established in an approved NDA, including changes in indications, labeling, or manufacturing processes or facilities, require a submission to the FDA in the form of an NDA supplement or as part of the NDA Annual Report.

FDA approval prior to implementation is required for most major changes, and the FDA’s timeline for review varies according to the type of change being made.

An NDA supplement for a new indication typically requires clinical data, and the FDA uses the same general procedures when reviewing such NDA efficacy supplements as it does in reviewing original NDAs.

Pediatric Information

Under the Pediatric Research Equity Act as amended and reauthorized, certain NDAs or supplements to NDAs must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective.

The FDA may grant full or partial waivers, or deferrals, for submission of data.

The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six month extension of any exclusivity—patent or nonpatent—for a drug if certain conditions are met.

Conditions for exclusivity include FDA’s determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe.

Applications under the BPCA are treated as priority review applications, with all of the benefits that designation confers.

The Pediatric Research Equity Act (PREA) as amended, requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration.

Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver.

The required clinical assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

The sponsor or FDA may request a deferral of required pediatric clinical trials for some or all of the pediatric subpopulations.

A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin.

The FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

In addition, the Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six month extension of any exclusivity—patent or nonpatent—for a drug, if a sponsor conducts clinical trials in children in response to a written request from the FDA.

The issuance of a written request does not require the sponsor to undertake the described clinical trials.

Expedited Development and Review Programs

The FDA offers a number of expedited development and review programs for qualifying product candidates.

For example, the Fast Track program is intended to expedite or facilitate the process for reviewing new product candidates that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition.

Fast Track designation applies to the combination of the product and the specific indication for which it is being studied.

The sponsor of a Fast Track product candidate has opportunities for more frequent interactions with the applicable FDA review team during development and, once an NDA is submitted, the product candidate may be eligible for priority review.

A Fast Track product candidate may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.

A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for Breakthrough Therapy designation to expedite its development and review.

A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.

The designation includes all of the Fast Track program features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers.

Index to Financial Statements

Any marketing application for a drug submitted to the FDA for approval, including a product candidate with a Fast Track designation and/or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review and accelerated approval.

A product candidate is eligible for priority review if it is designed to treat a serious or life-threatening disease or condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition.

For new-molecular-entity NDAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date.

Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments.

As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit.

Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required post-marketing studies in a timely manner or if such studies fail to verify the predicted clinical benefit.

In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.

Fast Track designation, Breakthrough Therapy designation, priority review, and accelerated approval do not change the standards for approval, but may expedite the development or approval process.

Even if a product candidate qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Orphan drug designation and exclusivity

Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the drug in the United States will be recovered from sales in the United States for that drug.

Orphan drug designation must be requested before submitting an NDA.

After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.

If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same drug for the same disease or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated.

Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.

Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.

In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if a second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA.

For instance, the FDA closely regulates the post-approval labeling, marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.

Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product.

There also are continuing, annual program fee requirements for any marketed products.

17 unchanged sentences

• injunctions or the imposition of civil or criminal penalties.

Any distribution of prescription drug products and pharmaceutical samples must comply with the U.S.

Prescription Drug Marketing Act, or PDMA.

In addition, the Drug Supply Chain Security Act, or DSCSA, has imposed new “track and trace” requirements on the distribution of prescription drug products by manufacturers, distributors, and other entities in the drug supply chain.

These requirements are being phased in over a ten year period.

The DSCSA requires product identifiers (i.e., serialization) on prescription drug products in order to establish an electronic interoperable prescription product system to identify and trace certain prescription drugs distributed in the United States.

The DSCSA replaced the prior drug “pedigree” requirements under the PDMA and preempts existing state drug pedigree laws and regulations.

The DSCSA also establishes new requirements for the licensing of wholesale distributors and third-party logistic providers.

These licensing requirements preempt states from imposing licensing requirements that are inconsistent with, less stringent than, directly related to, or otherwise encompassed by standards established by FDA pursuant to the DSCSA.

Until FDA promulgates regulations to address the DSCSA’s new national licensing standard, current state licensing requirements typically remain in effect.

The FDA closely regulates the marketing, labeling, advertising and promotion of drug products.

A company can make only those claims relating to safety and efficacy that are approved by the FDA and in accordance with the provisions of the approved label.

The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.

Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising, and potential civil and criminal penalties.

Physicians may prescribe, in their independent professional medical judgment, legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA.

Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances.

The FDA does not regulate the behavior of physicians in their choice of treatments.

The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.

However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA-approved labelling.

Index to Financial Statements

The Hatch-Waxman Act

6 unchanged sentences

An ANDA generally provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics, and intended use, among other things, to a previously approved product.

Index to Financial Statements

termed “abbreviated” because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and efficacy.

ANDAs are termed “abbreviated” because they are generally not required to include nonclinical (animal) and clinical (human) data to establish safety and efficacy.

Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing.

14 unchanged sentences

The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification.

The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the application until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the applicant.

The application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

The Hatch-Waxman Act establishes a period of regulatory exclusivity for certain approved drug products during which the FDA cannot approve (or in some cases accept for review) an ANDA or 505(b)(2) NDA that relies on the branded reference drug.

This prohibition is generally referred to as the 30-month stay.

In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owner(s) regularly take action to trigger the 30-month stay, recognizing that the related patent litigation may take many months or years to resolve.

Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug sponsor's decision to initiate patent litigation.

Index to Financial Statements

Hatch-Waxman Exclusivity

The Hatch-Waxman Act establishes a period of regulatory exclusivity for certain approved drug products during which the FDA cannot accept for review an ANDA or 505(b)(2) NDA that relies on the branded reference drug.

For example, the holder of an NDA, including a 505(b)(2) NDA, may obtain five years of exclusivity upon NDA approval of a drug containing a new chemical entity, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA.

4 unchanged sentences

Five year and three year exclusivity will not delay the submission or approval of a full 505(b)(1) NDA;

however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.

Index to Financial Statements

Patent Term Extension

After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension.

The allowable PTE is calculated as half of the drug’s testing phase (the time between IND application and NDA submission) and all of the review phase (the time between NDA submission and approval up to a maximum of five years).

The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence.

The total patent term after the extension may not exceed 14 years, and only one patent can be extended.

For patents that might expire during the application phase, the patent owner may request an interim patent extension.

An interim patent extension increases the patent term by one year and may be renewed up to four times.

For each interim patent extension granted, the post-approval patent extension is reduced by one year.

The director of the United States Patent and Trademark Office (USPTO) must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely.

Interim patent extensions are not available for a drug for which an NDA has not been submitted.

however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.

Other Healthcare Laws

12 unchanged sentences

The majority of states also have statutes or regulations similar to the federal Anti-Kickback Statute and False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Index to Financial Statements

Other federal statutes pertaining to healthcare fraud and abuse include the civil monetary penalties statute, which prohibits, among other things, the offer or payment of remuneration to a Medicaid or Medicare beneficiary that the offeror or payor knows or should know is likely to influence the beneficiary to order a receive a reimbursable item or service from a particular supplier, and the additional federal criminal statutes created by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) which prohibits, among other things, knowingly and willfully executing or attempting to execute a scheme to defraud any healthcare benefit program or obtain by means of false or fraudulent pretenses, representations or promises any money or property owned by or under the control of any healthcare benefit program in connection with the delivery of or payment for healthcare benefits, items or services.

Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to commit a violation.

Index to Financial Statements

In addition, HIPAA, as amended by the Health Information Technology for Clinical Health Act of 2009 (HITECH), and their respective implementing regulations, impose obligations on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, as well as their business associates that perform certain services involving the storage, use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable health information, and require notification to affected individuals and regulatory authorities of certain breaches of security of individually identifiable health information.

1 unchanged sentence

In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect.

Further, the Physician Payments Sunshine Act requires certain manufacturers of prescription drugs to collect and report information on certain payments or transfers of value to physicians (defined broadly to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants and certified nurse-midwives) and teaching hospitals, as well as investment interests held by physicians and their immediate family members.

The reported data is made available in searchable form on a public website on an annual basis.

Failure to submit required information may result in civil monetary penalties.

Effective January 1, 2022, reporting on transfers of value to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants and certified nurse-midwives will also be required.

In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners in these states.

10 unchanged sentences

Any action for an alleged or suspected violation can cause a drug company to incur significant legal expenses and divert management’s attention from the operation of the business, even if such action is successfully defended.

Index to Financial Statements

Coverage and Reimbursement

7 unchanged sentences

As a result, a drug company can obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of that product.

Index to Financial Statements

A drug company’s ability to commercialize any products successfully will also depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government authorities, private health insurers, and other organizations.

14 unchanged sentences

Therefore, coverage and reimbursement can differ significantly from payor to payor.

Index to Financial Statements

Healthcare Reform

5 unchanged sentences

pharmaceutical industry.

Index to Financial Statements

condition for the manufacturer’s outpatient drugs and therapeutic biologics to be covered under Medicare Part D, which has since been increased to 70%, (vi) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability, (vii) expanded the entities eligible for discounts under the Public Health program (viii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research, and (ix) established a Center for Medicare Innovation at Centers for Medicare and Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future.

The Tax Cuts and Jobs Act of 2017, or TCJA, was enacted by the prior presidential administration and congress, which includes a provision that repealed, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On December 14, 2018, a U.S.

District Court Judge in the Northern District of Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the TCJA, the remaining provisions of the ACA are invalid as well.

On December 18, 2019, the U.S.

Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well.

Supreme Court is currently reviewing this case but it is unclear how the Supreme Court will rule.

It is also unclear how other efforts, if any, to challenge, repeal or replace the ACA will impact the ACA or our business.

The ACA, among other things, (i) subjected therapeutic biologics to potential competition by lower-cost biosimilars by creating a licensure framework for follow-on biologic products, (ii) established a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled, implanted or injected, (iii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) established annual nondeductible fees and taxes on manufacturers of certain branded prescription drugs and therapeutic biologics, apportioned among these entities according to their market share in certain government healthcare programs, (v) established a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs and therapeutic biologics to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs and therapeutic biologics to be covered under Medicare Part D, which has since been increased to 70%, (vi) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability, (vii) expanded the entities eligible for discounts under the Public Health program, (viii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research, and (ix) established a Center for Medicare Innovation at Centers for Medicare and Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

Since its enactment, there have been judicial, executive, and Congressional challenges to certain aspects of the ACA.

On June 17, 2021, the U.S.

Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA.

Thus, the ACA will remain in effect in its current form.

Further, prior to the U.S.

Supreme Court ruling, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace from February 15, 2021 through August 15, 2021.

The executive order instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.

In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted to reduce healthcare expenditures.

6 unchanged sentences

These reductions may also impact the ability of relevant agencies to timely review and approve research and development, manufacturing, and marketing activities, which may delay our ability to develop, market, and sell any products we may develop.

Index to Financial Statements

Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.

1 unchanged sentence

At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

Index to Financial Statements

We anticipate that these new laws will result in additional downward pressure on coverage and the price that we receive for any approved product, and could seriously harm our business.

3 unchanged sentences

Further, it is possible that additional governmental action is taken in response to the evolving effects of the COVID-19 pandemic.

Additionally, health reform initiatives may arise in the future, particularly as a result of the recent presidential election.

Additionally, health reform initiatives may arise in the future, particularly as a result of the 2020 presidential election.

Human Capital Resources and Employees

1 unchanged sentence

Of these full-time employees, 25 have an M.D., a Ph.D.

D and 3 have been Nurse Practitioners or Physician Assistants.

From time to time, we also retain independent contractors to support our organization.

17 unchanged sentences

The information found on or accessible through our website is not incorporated into, and does not form a part of, this Annual Report on Form 10-K.

Index to Financial Statements

Available Information

We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, and we therefore file periodic reports, proxy statements and other information with the U.S.

Securities and Exchange Commission (SEC) relating to our business, financial statements and other matters.

We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, and we therefore file periodic reports, proxy statements, and other information with the SEC relating to our business, financial statements, and other matters.

The SEC maintains an Internet site, www.sec.gov, that contains reports, proxy statements, and other information regarding issuers such as Arcutis Biotherapeutics, Inc.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business