What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-08 · 105 added, 76 removed, 286 unchanged (39% of the section changed)

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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 and financial resources.

We launched our lead product, ZORYVE, in August 2022 after obtaining FDA approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g.

We launched our lead product, ZORYVE, in August 2022 after obtaining our original U.S.

Food and Drug Administration (FDA) approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g.

groin or axillae), in individuals 12 years of age or older.

ZORYVE is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use.

In December 2022, we submitted a supplemental New Drug Application (sNDA) for ZORYVE for an expanded indication in plaque psoriasis down to the age of two, with potential FDA approval in the fourth quarter of 2023.

In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age.

We are currently working with the FDA to potentially further expand this indication in plaque psoriasis down to 2 years of age.

In addition, we had our first commercial launch outside of the United States after receiving regulatory approval from Health Canada of ZORYVE in April 2023 for the treatment of plaque psoriasis in individuals 12 years or age or older.

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In addition to the approval of ZORYVE for plaque psoriasis, we are also developing roflumilast cream for the treatment of atopic dermatitis.

In atopic dermatitis, we have completed enrollment in three pivotal Phase 3 clinical studies:

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

INTEGUMENT-1 and -2 enrolled subjects 6 years of age or older and INTEGUMENT-PED enrolled subjects between the ages of 2 and 5 years.

In the fourth quarter of 2022, we announced positive topline data from both INTEGUMENT-1 and -2 in atopic dermatitis.

We intend to submit an sNDA for topical roflumilast cream for the treatment of atopic dermatitis in patients aged, 6 years or older late in the third quarter or early in the fourth quarter of 2023, based on the results of INTEGUMENT-1 and -2.

In May 2023, we announced the last subject enrolled in INTEGUMENT-PED, and we expect to provide topline data from this study in the third quarter of 2023.

We then expect to submit a subsequent sNDA for the younger age cohort following the potential initial approval of roflumilast cream for treatment of atopic dermatitis in patients aged 6 years or older.

We also initiated INTEGUMENT-OLE, an open label extension study of the long-term safety of roflumilast cream 0.15% in individuals 6 years of age or older and roflumilast cream 0.05% in subjects between the ages 2 and 5 years.

In the fourth quarter of 2022, we announced positive topline data from both INTEGUMENT-1 and -2 in atopic dermatitis, and in September 2023, we announced positive topline data from INTEGUMENT-PED and positive interim results from INTEGUMENT-OLE.

In September 2023, we also submitted a supplemental new drug application (“sNDA”) for topical roflumilast 0.15% for the treatment of mild-to-moderate atopic dermatitis in individuals 6 years of age or older, creating potential for FDA action as early as the third quarter of 2024.

Based on the positive results from the INTEGUMENT-PED study in September 2023, we expect to submit a subsequent sNDA for children ages 2 to 5 years of age following the potential initial approval of roflumilast cream 0.15% for treatment of mild-to-moderate atopic dermatitis in individuals 6 years of age or older.

We are also developing a topical foam formulation of roflumilast and have successfully completed pivotal Phase 3 clinical trials in both seborrheic dermatitis and scalp and body psoriasis.

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See Notes 1 and 8 to the condensed consolidated financial statements for additional information.

We have incurred net losses in each year since inception, including net losses of $71.0 million and $67.4 million for the three months ended June 30, 2023 and 2022, respectively, and net losses of $151.1 million and $131.7 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, we had an accumulated deficit of $870.9 million and cash, cash equivalents, restricted cash, and marketable securities of $269.6 million.

As of June 30, 2023, we had $200.0 million outstanding under the Loan Agreement, with an additional $25.0 million in funding that may become available subject to the satisfaction of specified conditions.

We have incurred net losses in each year since inception, including net losses of $44.8 million and $107.7 million for the three months ended September 30, 2023 and 2022, respectively, and net losses of $195.9 million and $239.4 million for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, we had an accumulated deficit of $915.6 million and cash, cash equivalents, restricted cash, and marketable securities of $228.0 million.

On October 24, 2023, we completed a public offering of shares of our common stock and prefunded warrants to purchase shares of our common stock, and received net proceeds of $94.0 million.

As of September 30, 2023, we had $200.0 million outstanding under the Loan Agreement.

We expect to continue to incur losses and significant expenses as we commercialize ZORYVE in psoriasis and as we advance our product candidates and label extensions through clinical trials, regulatory submissions, and commercialization.

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In addition, if applicable, we will make payments amounting to a mid-single-digit percentage of any annual net sales of Ducentis’s products exceeding $1.5 billion.

As of June 30, 2023, none of the milestones were probable of achievement and, accordingly, no amounts have been recognized in the accompanying condensed consolidated financial statements with respect to these contingent payments.

As of September 30, 2023, none of the milestones were probable of achievement and, accordingly, no amounts have been recognized in the accompanying condensed consolidated financial statements with respect to these contingent payments.

Under the terms of the Share Purchase Agreement, we will develop and seek FDA approval of a therapeutic product containing Ducentis’s DS-234 product candidate, now ARQ-234, for an atopic dermatitis indication, and if FDA approval of ARQ-234 is obtained by us, to launch it in the United States.

Huadong License and Collaboration Agreement

In August 2023, we entered into a license and collaboration agreement ("Huadong Agreement") with Hangzhou Zhongmei Huadong Pharmaceutical Co ("Huadong"), a wholly owned subsidiary of Huadong Medicine Co., Ltd., whereby Huadong received an exclusive license for the development, manufacture, and commercialization of both the cream and foam formulations of topical roflumilast in Greater China (mainland China, Hong Kong, Macau, and Taiwan) and Southeast Asia (Indonesia, Singapore, The Philippines, Thailand, Myanmar, Brunei, Cambodia, Laos, Malaysia, and Vietnam) ("Huadong Licensed Products").

Huadong will, at its expense, develop, obtain regulatory approval for, commercialize and conduct medical affairs activities for the Huadong Licensed Products, subject to certain of our approval and oversight rights.

Pursuant to the terms of the agreement, upon closing in September 2023, we received a net payment of $27.0 million, which consisted of a $30.0 million upfront payment less the applicable tax withholding obligation in China of $3.0M, and may potentially receive additional payments (i) up to an aggregate amount of $24.0 million upon the achievement of certain development and regulatory milestones and (ii) up to an aggregate amount of $40.3 million upon the achievement of certain sales milestones.

In addition, we will receive tiered low double-digit to high-teen double-digit percentage royalties on Huadong’s, its affiliates’ and sublicensees’ total net sales of the Huadong Licensed Products, subject to certain royalty reductions.

The agreement term continues on a Licensed Product-by-Licensed Product and country-by-country and Region-by-Region basis until the expiration of the last Royalty Term for the last Licensed Product in the Territory.

The Royalty Term is 10 years after the first commercial sale of such Licensed Product in such country or region, subject to certain termination clauses in the agreement.

See Note 6 to the condensed consolidated financial statements.

Components of Our Results of Operations

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Other Revenue

Other revenue relates to the Iolyx Agreement.

Other revenue relates to the Iolyx Agreement and the Huadong License and Collaboration Agreement .

See Note 6 to the condensed consolidated financial statements for additional information.

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Our cost of sales will reflect a lower average per unit cost of materials over the next two years approximately, due to inventory that was previously expensed.

As of June 30, 2023 and December 31, 2022, the value of this inventory, mostly at the raw materials stage, was approximately $11.5 million and $14.1 million, respectively.

As of September 30, 2023 and December 31, 2022, the value of this inventory, mostly at the raw materials stage, was approximately $10.0 million and $14.1 million, respectively.

Operating Expenses

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Other selling, general and administrative expenses include legal costs of pursuing patent protection of our intellectual property, insurance, and professional services fees for auditing, tax, and general legal services.

including increased expenses related to legal, accounting, insurance, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors and officers liability insurance premiums, and investor relations activities.

We expect our selling, general and administrative expenses to continue to increase in the future as we continue to commercialize ZORYVE and potentially other product candidates and support our operations, including increased expenses related to legal, accounting, insurance, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors and officers liability insurance premiums, and investor relations activities.

Other Income, Net

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Interest expense is related to interest incurred on our long term debt.

Provision for Income Taxes

Provision for income taxes is related to the Huadong License and Collaboration Agreement .

See Note 6 to the condensed consolidated financial statements for additional information.

Results of Operations

Comparison of the Three Months Ended June 30, 2023 and 2022

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table sets forth our results of operations for the periods indicated:

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2023 2022 $ %

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Interest expense (7,559) (4,899) (2,660) 54 %

Total other income (expense) (4,228) (1,579) (2,649) 168 %

Loss before income taxes

(41,742) (107,709) 65,967 (61) %

Provision for income taxes

3,023 — 3,023 *

Net loss $ (44,765) $ (107,709) $ 62,944 (58) %

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product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE in August 2022, and Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE in June 2023.

During the three months ended June 30, 2023, we recognized $4.8 million of net product revenue related to sales of ZORYVE.

Revenue was primarily driven by end customer demand, partially offset by sales discounts, which consisted primarily of co-pay assistance discounts, distribution fees, and managed care rebates.

Net product revenue increased by $7.4 million for the three months ended September 30, 2023 compared to three months ended September 30, 2022.

The increase in revenue was primarily driven by end customer demand.

Other revenue

Other revenue is a result of shares of common stock acquired in connection with the Iolyx Agreement.

Other revenue is a result of license revenues received in connection with the Huadong Agreement.

See Note 6 to the condensed consolidated financial statements for additional information.

Cost of Sales

Cost of sales of $0.8 million for the three months ended June 30, 2023 is related primarily to product costs incurred after FDA approval of ZORYVE, amortization of intangible assets as a result of the milestone payment to AstraZeneca in connection with the FDA approval of ZORYVE, as well as royalties on net sales payable to AstraZeneca under a license agreement.

Cost of sales increased by $0.9 million for the three months ended September 30, 2023 compared to three months ended September 30, 2022.

The increase is related primarily to additional ZORYVE product costs incurred.

Prior to the date on which the initial regulatory approval was received, costs of raw materials were recorded as research and development expense.

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Research and Development Expenses

Three Months Ended June 30, Change

Three Months Ended September 30, Change

2023 2022 $ %

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Other early stage programs 2,026 132 1,894 1435 %

In-process research and development — 29,630 (29,630) (100) %

Indirect costs:

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Total research and development expense $ 26,236 $ 69,731 $ (43,495) (62) %

Research and development expenses decreased by $13.0 million, or 34%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

The decrease was primarily due to the completion of Phase 3 studies of roflumilast cream in atopic dermatitis and roflumilast foam in seborrheic dermatitis and scalp and body psoriasis.

Research and development expenses decreased by $43.5 million, or 62%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

The decrease was primarily due to IPR&D expense as a result of the acquisition of ARQ-234 from Ducentis, as well as the completion of Phase 3 studies of roflumilast cream in atopic dermatitis and roflumilast foam in seborrheic dermatitis and scalp and body psoriasis.

Additionally, manufacturing costs recorded as research and development expenses decreased as we began capitalizing such costs to inventory upon FDA approval of ZORYVE in July 2022.

The increase in compensation and personnel related expense is mainly due to accrued severance related to headcount reductions implemented in September 2023.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased by $18.3 million, or 66%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Selling, general, and administrative expenses increased by $12.1 million, or 34%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

The increase was primarily due to higher compensation and personnel-related expenses of $5.3 million, higher sales and marketing expenses of $4.0 million, and higher professional services of $1.4 million.

These increases were primarily due to our commercialization efforts, including the hiring of our sales force.

These increases were primarily due to our commercialization efforts, including the hiring of our full sales force for ZORYVE.

Other Income, Net

Other income, net increased by $2.7 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to the impact of higher interest rates, partially offset by a lower marketable securities balance.

Other income, net increased by $0.8 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, primarily due to the impact of higher interest rates, partially offset by a lower marketable securities balance.

Interest Expense

Interest expense increased by $5.3 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, due to an increase in our long-term debt balance and the impact of higher interest rates.

Interest expense increased by $2.7 million for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, due to an increase in our long-term debt balance and the impact of higher interest rates.

See Note 8 to the condensed consolidated financial statements for additional information.

Comparison of the Six Months Ended June 30, 2023 and 2022

Provision for Income Taxes

Income tax expense of $3.0 million for the three months ended September 30, 2023 was primarily due to income tax expense related to withholding tax on the Huadong License and Collaboration Agreement.

Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table sets forth our results of operations for the periods indicated:

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2023 2022 $ %

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Interest expense (21,950) (8,737) (13,213) 151 %

Total other income (expense) (8,063) (3,275) $ (4,788) 146 %

Loss before income taxes

(192,768) (239,439) 46,671 (19) %

Provision for income taxes

3,088 — 3,088 *

Net loss $ (195,856) $ (239,439) $ 43,583 (18) %

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We began recording product revenue in the third quarter of 2022 following the approval of ZORYVE by the FDA and our subsequent commercial launch in the United States in August 2022, and Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE in June 2023.

During the six months ended June 30, 2023, we recognized $7.6 million of net product revenue related to sales of ZORYVE.

Revenue was driven by end customer demand.

Sales discounts consisted primarily of co-pay card discounts and distribution fees.

Net product revenue increased by $14.9 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, which was driven by an increase in end customer demand.

Other revenue

Other revenue is a result of shares of common stock acquired in connection with the Iolyx Agreement.

Other revenue is a result of shares of common stock acquired in connection with the Iolyx Agreement and license revenues received in relation to Huadong Agreement.

See Note 6 to the condensed consolidated financial statements for additional information.

Cost of Sales

Cost of sales of $1.6 million for the six months ended June 30, 2023 is related primarily to amortization of intangible assets as a result of the milestone payment to AstraZeneca in connection with the FDA approval of ZORYVE and product costs incurred after FDA approval of ZORYVE.

Cost of sales increased by $2.5 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The increase is primarily related to increased product costs associated with the sales of ZORYVE.

Prior to the date on which the initial regulatory approval was received, costs of raw materials were recorded as research and development expense.

Therefore, cost of sales will reflect a lower average per unit cost until the related inventory is sold, which is expected to occur over the next two years.

See Note 6 to the condensed consolidated financial statements for additional information.

Research and Development Expenses

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

2023 2022 $ %

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Other early stage programs 3,869 625 3,244 519 %

In-process research and development — 29,630 (29,630) (100) %

Indirect costs:

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Total research and development expense $ 86,800 $ 148,558 $ (61,758) (42) %

Research and development expenses decreased by $18.3 million, or 23%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The decrease was primarily due to the completion of Phase 3 studies of roflumilast cream in atopic dermatitis and roflumilast foam in seborrheic dermatitis and scalp and body psoriasis.

The decrease was partially offset by an increase in compensation and personnel-related expenses, which includes stock-based compensation, primarily due to an increase in headcount.

Research and development expenses decreased by $61.8 million, or 42%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased by $39.2 million, or 79%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Selling, general, and administrative expenses increased by $51.4 million, or 60%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

The increase was primarily due to an increase in compensation and personnel-related expenses of $26.3 million, an increase in sales and marketing expenses of $17.4 million, and an increase in professional services of $4.8 million.

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Other Income, Net

Other income, net increased by $5.8 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to the impact of higher interest rates, partially offset by a lower marketable securities balance.

Other income, net increased by $6.6 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to the impact of higher interest rates, partially offset by a lower marketable securities balance.

Interest Expense

Interest expense increased by $10.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022, due to an increase in our long-term debt balance and the impact of higher interest rates.

Interest expense increased by $13.2 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, due to an increase in our average long-term debt balance and the impact of higher interest rates.

Provision for Income Taxes

Income tax expense of $3.1 million for the nine months ended September 30, 2023 was primarily due to income tax expense related to withholding tax on the Huadong License and Collaboration Agreement.

Liquidity, Capital Resources, and Requirements

Sources of Liquidity

To date, our primary sources of capital have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, and August 2022, our Loan Agreement, our ATM, and revenue from the sale of our approved product.

Our primary sources of capital to date as of September 30, 2023 have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, and August 2022, our Loan Agreement, our ATM, and revenue from the sale of our approved product.

We have incurred operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations.

As of June 30, 2023, we had cash, cash equivalents, restricted cash, and marketable securities of $269.6 million, and an accumulated deficit of $870.9 million.

As of September 30, 2023, we had cash, cash equivalents, restricted cash, and marketable securities of $228.0 million, and an accumulated deficit of $915.6 million.

On October 24, 2023, we completed a public offering of shares of our common stock and prefunded warrants to purchase shares of our common stock, and received net proceeds of $94.0 million.

We maintain cash balances with financial institutions in excess of insured limits.

As of September 30, 2023, we had $200.0 million outstanding under the Loan Agreement.

See Notes 1 and 8 to the condensed consolidated financial statements for additional information.

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• costs associated with any adverse market conditions or other macroeconomic factors.

On December 22, 2021 we entered into a Loan Agreement with SLR and the lenders party thereto.

On December 22, 2021 we entered into a loan and security agreement, or Loan Agreement, with SLR and the lenders party thereto.

The Loan Agreement was amended and restated on January 10, 2023 to include Arcutis Canada, Inc.

as a borrower and party to the Loan Agreement.

Pursuant to the Loan Agreement, the lenders agreed to extend term loans to us in an aggregate principal amount of up to $225.0 million, comprised of:

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(or on any successor or substitute published rate) for a term of one month, subject to a replacement with an alternate benchmark rate and spread in certain circumstances.

On June 30, 2023, the rate was 12.61%.

On September 30, 2023, the rate was 12.88%.

Starting in July 2023, the Secured Overnight Financing Rate (SOFR) for a term of one month was substituted for the benchmark rate.

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The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, restrictions on our ability to merge or consolidate with any other entity, to incur additional indebtedness, or to pay any dividends or other distributions on capital stock.

We have also agreed to a financial covenant whereby, beginning with the month ending December 31, 2023, we must generate net product revenue in excess of specified amounts for applicable measuring periods pursuant to the Loan and Security Agreement;

provided, however, that such financial covenant shall not apply if our average market capitalization over the trailing five day period prior to the last day of any measurement month is equal to or in excess of $400.0 million.

We were in compliance with all covenants under the Loan Agreement as of June 30, 2023.

We were in compliance with all covenants under the Loan Agreement as of September 30, 2023.

In addition, the Loan Agreement contains customary events of default that entitle the lenders to cause any indebtedness under the Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the Term Loans.

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Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement.

On November 1, 2023, we entered into an amendment to the Loan Agreement.

Pursuant to the amendment, the terms of the Loan Agreement were revised to, among others, (i) eliminate the undrawn tranche C term loan of up to $25.0 million, (ii) modify the financial covenant relating to minimum net product revenue and remove the market capitalization threshold, and (iii) include an additional minimum financing covenant.

The amended Loan Agreement provides for term loans in aggregate principal amount of up to $200.0 million, which amounts were fully drawn as of September 30, 2023.

Pursuant to the amendment, the modified financial covenant requires us to generate a minimum net product revenue equal to 75% of each month's projected net product revenue as set forth in our annual plan for the respective period, tested on a trailing 12 month basis for the month ending December 31, 2023 and then tested on a trailing six month basis, as of the end of each month, for the month ending January 31, 2024 and each month thereafter.

Pursuant to the amendment, each annual plan shall be approved by our board of directors and SLR, in its capacity as collateral agent, in its reasonable discretion.

Any failure by us to deliver such annual plan on or before December 15 of the prior year shall be an immediate event of default.

In addition, we agreed to raise at least $31.0 million in net cash proceeds, during the period commencing on November 1, 2023 and ending on April 1, 2024, from (a) the sale or issuance of the our equity interests, (b) business development or collaboration agreements (including upfront, milestone, royalty and other payments), or (c) subordinated debt, in each case as permitted pursuant to the terms of the Loan Agreement.

Any failure by us to raise such net cash proceeds during the specified period shall be an immediate event of default.

The following table sets forth our cash flows for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Cash used in operating activities $ (190,813) $ (186,650)

Cash provided by investing activities 196,869 67,862

Cash provided by (used in) investing activities

242,418 (129,400)

Cash provided by financing activities 2,034 300,836

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Net Cash Used in Operating Activities

During the six months ended June 30, 2023, net cash used in operating activities was $146.8 million, which consisted of a net loss of $151.1 million and a change in net operating assets and liabilities of $14.7 million, partially offset by net non-cash charges of $19.0 million.

During the nine months ended September 30, 2023, net cash used in operating activities was $190.8 million, which consisted of a net loss of $195.9 million and a change in net operating assets and liabilities of $23.9 million, partially offset by net non-cash charges of $29.0 million.

The net non-cash charges were primarily related to stock-based compensation expense of $30.1 million.

During the six months ended June 30, 2022, net cash used in operating activities was $119.0 million, which

consisted of a net loss of $131.7 million and a change in net operating assets and liabilities of $4.0 million, partially

offset by net non-cash charges of $16.8 million.

The net non-cash charges were primarily related to stock-based

compensation expense of $14.6 million.

Net Cash Provided by Investing Activities

During the six months ended June 30, 2023, net cash provided by investing activities was $196.9 million, which was comprised primarily of proceeds from the maturities of marketable securities of $282.5 million, partially offset by purchases of marketable securities of $85.3 million.

During the six months ended June 30, 2022, net cash provided by investing activities was $67.9 million,

which was comprised primarily of proceeds from the maturities of marketable securities of $203.8 million, partially

offset by purchases of marketable securities of $135.7 million.

During the nine months ended September 30, 2022, net cash used in operating activities was $186.7 million, which consisted of a net loss of $239.4 million and a change in net operating assets and liabilities of $2.8 million, partially offset by net non-cash charges of $55.6 million.

The net non-cash charges were primarily related to acquired in-process research and development of $29.6 million and stock-based compensation expense of $23.4 million.

Net Cash Provided by (Used in) Investing Activities

During the nine months ended September 30, 2023, net cash provided by investing activities was $242.4 million, which was comprised primarily of proceeds from the maturities of marketable securities of $350.5 million, partially offset by purchases of marketable securities of $107.7 million.

During the nine months ended September 30, 2022, net cash used in investing activities was $129.4 million, which was comprised primarily of purchases of marketable securities of $377.3 million, cash paid for IPR&D related to the acquisition of Ducentis of $15.5 million and a milestone payment made to AstraZeneca of $7.5 million, partially offset by the proceeds from the maturities of marketable securities of $271.1 million.

Net Cash Provided by Financing Activities

During the six months ended June 30, 2023, net cash provided by financing activities was $1.2 million, which was comprised primarily of $1.0 million in proceeds from the issuance of common stock as part of our ESPP.

During the six months ended June 30, 2022, net cash provided by financing activities was $15.8 million,

which was comprised primarily of the net cash proceeds received from shares sold under our ATM of $14.5 million.

During the nine months ended September 30, 2023, net cash provided by financing activities was $2.0 million, which was comprised of $1.0 million in proceeds from the issuance of common stock upon the exercise of stock options and $1.0 million in proceeds from the issuance of common stock as part of our ESPP.

During the nine months ended September 30, 2022, net cash provided by financing activities was $300.8 million, which was comprised primarily of the net cash proceeds received from our August 2022 public stock offering of $161.6 million, our August 2022 debt facility draw down of $125.0 million, and our March 2022 sale of stock under our ATM facility of $14.5 million.

Contractual Obligations and Contingent Liabilities

The following summarizes our significant contractual obligations as of June 30, 2023.

The following summarizes our significant contractual obligations as of September 30, 2023.

Facility Operating Lease

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The amended lease agreement required that we deliver a letter of credit to the landlord of $1.5 million upon occupying the space, which is allowed to be reduced throughout the lease period as rent obligations are met.

Accordingly, as of June 30, 2023, we have a letter of credit and related restricted cash account of $0.9 million.

The total commitment under the operating lease agreement is $5.3 million, including $0.5 million for the remaining six months of 2023, $1.0 million for each of the years 2024 through 2025, $1.1 million for each of the years 2026 through 2027, and $0.6 million for the year 2028.

Accordingly, as of September 30, 2023, we have a letter of credit and related restricted cash account of $0.9 million.

The total commitment under the operating lease agreement is $5.1 million, including $0.3 million for the remaining three months of 2023, $1.0 million for each of the years 2024 through 2025, $1.1 million for each of the years 2026 through 2027, and $0.6 million for the year 2028.

See Note 7 to the condensed consolidated financial statements for additional information.

Long-Term Debt Obligations

As of June 30, 2023, we had $200.0 million outstanding under our Loan Agreement.

We have $25.0 million in additional funding remaining that may become available subject to the satisfaction of specified conditions.

As of September 30, 2023, we had $200.0 million outstanding under our Loan Agreement.

See Notes 1 and 8 to the condensed consolidated financial statements for additional information.

The total commitment under the Loan Agreement as of June 30, 2023 is $304.2 million, including $13.0 million for the remaining six months of 2023, $25.9 million for the year 2024, $25.7 million for each of the years 2025 through 2026, and $213.9 million for the year 2027.

The total commitment under the Loan Agreement as of September 30, 2023 is $298.9 million, including $6.6 million for the remaining three months of 2023, $26.2 million for the year 2024, $26.1 million for each of the years 2025 through 2026, and $213.9 million for the year 2027.

These amounts do not represent or include any future draw downs, but instead represent only the contractually obligated minimum payments of interest, principal, and loan fees related to the funding of the $75.0 million tranche A term loan on December 22, 2021 and the $125.0 million tranche B term loan on August 2, 2022.

5 unchanged sentences

We have entered into manufacturing supply agreements for the commercial supply of ZORYVE, which include certain minimum purchase commitments.

Firm future purchase commitments under these agreements are approximately $4.9 million within the next six months, and approximately $0.8 million per year for 2024 and 2025.

Firm future purchase commitments under these agreements are approximately $1.2 million within the next three months, and approximately $0.8 million per year for 2024 and 2025.

This amount does not represent all of our anticipated purchases, but instead represents only the contractually obligated minimum purchases or firm commitments of non-cancelable minimum amounts.

14 unchanged sentences

Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2022.

There were no material changes to our critical accounting policies during the six months ended June 30, 2023.

There were no material changes to our critical accounting policies during the nine months ended September 30, 2023.

Recent Accounting Pronouncements

1 unchanged sentence

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-Q

Item 2. Management’s Discussion and Analysis