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Item 1. Business

2024-02-27 compared with 2023-02-28 · 295 added, 203 removed, 682 unchanged (42% of the section changed)

We are an early commercial-stage biopharmaceutical company focused on developing and commercializing treatments for dermatological diseases with high unmet medical needs.

We are a commercial-stage biopharmaceutical company focused on developing and commercializing treatments for dermatological diseases with high unmet medical needs.

Our current portfolio is comprised of highly differentiated topical and systemic treatments with significant potential to treat immune-mediated dermatological diseases and conditions.

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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 ® (roflumilast) cream 0.3%, in August 2022 after obtaining Food and Drug Administration (FDA) approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g.

We launched our lead product, ZORYVE ® (roflumilast) cream 0.3% ("ZORYVE cream"), in August 2022 after obtaining our initial 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 addition, we submitted and Health Canada has accepted a New Drug Submission (NDS) for roflumilast cream for plaque psoriasis in Canada with a target action date of April 30, 2023.

ZORYVE is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 (PDE4) inhibitor.

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

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 following the generation of additional clinical data.

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

ZORYVE cream is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 (“PDE4”) inhibitor.

PDE4 is an established biological target in dermatology, with multiple PDE4 inhibitors approved by the FDA for the treatment of dermatological conditions.

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

In atopic dermatitis, we are conducting or have completed three pivotal Phase 3 clinical studies:

INTEGUMENT-1 and -2 enrolled subjects six years of age or older and INTEGUMENT-PED is enrolling subjects between the ages of two and five 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 six years or older in the second half of 2023 based on the results of INTEGUMENT-1 and -2.

We expect to provide topline data from INTEGUMENT-PED in the second half of 2023 and 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 six years 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.

In seborrheic dermatitis, we submitted a New Drug Application (NDA) for the treatment of moderate-to-severe seborrheic dermatitis to the FDA in February 2023, supported by the positive results from the pivotal Phase 3 STRATUM trial, with potential FDA approval in late 2023.

In scalp and body psoriasis, we announced positive topline data in September 2022 and we expect the data to be a sufficient basis for an sNDA submission in the first quarter of 2024, following the potential approval of roflumilast foam for treatment of seborrheic dermatitis.

Beyond topical roflumilast, we are developing ARQ-255, a deep-penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 (JAK1) inhibitor, designed to preferentially deliver the drug deep into the hair follicle, the site of inflammation in alopecia areata, in order to potentially develop the first topical treatment for this disease.

In December 2022, we announced that the first subject had been enrolled

We have made significant progress in driving access and coverage of ZORYVE cream since launch.

Weekly prescriptions have continued to increase since launch, with approximately 165,000 prescriptions written as of February 16, 2024.

We believe this growth is due to our ability to drive prescriber awareness and use, patient engagement and positive experience with ZORYVE cream, and our efforts to establish broad, high-quality access for ZORYVE cream.

For example, we established access through three large pharmacy benefit managers in the United States within 12 months of launch.

We estimate that more than 10,700 unique prescribers have prescribed ZORYVE cream since launch.

We estimate that approximately one third of our prescriptions are currently refill prescriptions, and we experienced significant growth in refill prescriptions in the second half of 2023 following our early commercialization efforts and patient engagement.

Market research points to an increasing preference among dermatologists to prescribe ZORYVE cream as a topical treatment of plaque psoriasis, and transitions from topical corticosteroids have been the largest source of new prescriptions for ZORYVE cream since launch.

With respect to commercial payers, we have engaged multiple key insurers and estimate that insurance coverage for ZORYVE cream is available to approximately 132 million commercially covered lives in the United States.

We anticipate that we will be able to obtain Medicare and Medicaid coverage for ZORYVE as early as 2024.

In December 2023, we received FDA approval for ZORYVE ® (roflumilast) topical foam 0.3% ("ZORYVE foam") for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on severity, location, or duration of use.

ZORYVE foam has been shown to provide rapid disease clearance and significant

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in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata.

We are also developing ARQ-252, an alternative cream formulation of ivarmacitinib for chronic hand eczema, vitiligo, and other inflammatory dermatoses.

reduction in itch in clinical trials.

In a pivotal Phase 3 study, 80% of individuals treated with ZORYVE foam achieved the primary efficacy endpoint of IGA Success, defined as an IGA score of “clear” or “almost clear” plus a 2-point improvement at Week 8 and just over 50% of individuals achieved an IGA score of clear at Week 8.

In addition, individuals treated with ZORYVE foam reported reductions in itch from baseline within 48 hours of first application.

ZORYVE foam is a once-daily steroid-free foam and, as a PDE4 inhibitor, is the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades.

ZORYVE foam became commercially available in late January 2024, and as of February 16, 2024, 7,000 prescriptions have been written since launch.

Seborrheic dermatitis is estimated to occur in as many as 10 million people in the United States, and is associated with a substantial psychosocial burden for those suffering from the disease.

In addition to the approval of ZORYVE cream for plaque psoriasis and ZORYVE foam for seborrheic dermatitis (collectively, "ZORYVE"), we are also developing ZORYVE cream for the treatment of atopic dermatitis.

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

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.

We are also conducting INTEGUMENT-OLE, an open label extension study of the long-term safety of ZORYVE 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 submitted a supplemental new drug application (“sNDA”) for ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older, which was accepted by the FDA and assigned a Prescription Drug User Fee Act ("PDUFA") target action date of July 7, 2024.

Based on the positive results from the INTEGUMENT-PED study in September 2023, we expect to submit a subsequent sNDA for topical ZORYVE cream 0.05% for children ages 2 to 5 years of age if our current sNDA for ZORYVE cream 0.15% is approved for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older.

Beyond seborrheic dermatitis, we are also developing ZORYVE foam for scalp and body psoriasis and have successfully completed our pivotal Phase 3 clinical trial.

We announced positive topline data in September 2022, and we plan to submit an sNDA in the second half of 2024.

Beyond ZORYVE, we are developing ARQ-255, a deep-penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 ("JAK1") inhibitor, designed to preferentially deliver the drug deep into the hair follicle, the site of inflammation in alopecia areata, in order to potentially develop the first topical treatment for this disease.

In December 2022, we announced that the first subject had been enrolled in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata.

The first subject in the alopecia areata cohort enrolled in the second quarter of 2023.

In September 2022, we acquired Ducentis BioTherapeutics LTD ("Ducentis") and its lead asset, DS-234 (now ARQ-234), a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 Receptor (CD200R).

Currently in the preclinical stage, we plan to develop ARQ-234 in atopic dermatitis, where we believe it could be a potentially highly complementary biologic treatment option to roflumilast cream in that indication, if approved.

ARQ-234 could potentially be used to treat other inflammatory conditions as well.

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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.

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modest response rates, side effects, patient adherence, application site restrictions, and limits on duration of therapy.

Topical corticosteroids, or TCS, are commonly used as the first-line therapy for the treatment of inflammatory skin conditions such as psoriasis, atopic dermatitis, and seborrheic dermatitis.

Topical corticosteroids ("TCS"), are commonly used as the first-line therapy for the treatment of inflammatory skin conditions such as psoriasis, atopic dermatitis, and seborrheic dermatitis.

While many patients see improvements, long-term TCS treatment carries the risk of a variety of significant side effects.

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Our initial development and commercial focus is to address patients’ significant need for innovative topical treatments that directly target molecular mediators of disease, have the potential to show significant symptomatic improvement, maintain a low risk of toxicity or side effects, and are suitable for chronic use on all areas of the body.

Based on market research and our internal estimates, we estimate our primary addressable market opportunity, which focuses on U.S.

patients treated in dermatology offices with topical therapies, at 7 million patients across psoriasis, atopic dermatitis, and seborrheic dermatitis.

There are millions of additional U.S.

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.

Based on market research and our internal estimates, we estimate there is an overall patient market of approximately 15.2 million patients in the United States that are treated with topical therapies for plaque psoriasis, seborrheic dermatitis, and atopic dermatitis in dermatology offices (approximately 7.8 million) and outside dermatology (approximately 7.4 million).

Of the patients that are treated in dermatology offices, we estimate that approximately 3.3 million of these patients (approximately 0.7 million plaque psoriasis patients, 1.5 million seborrheic dermatitis patients, and 1.2 million atopic dermatitis patients) are addressable or accessible with Medicare and Medicaid coverage and that approximately 4.4 million patients across plaque psoriasis (approximately 1.4 million), seborrheic dermatitis (approximately 1.7 million), and atopic dermatitis (approximately 1.4 million) are covered by commercial insurance.

Patients that are treated outside of dermatology offices are addressable through other physicians, especially primary care physicians, pediatricians, and allergists.

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The following chart summarizes our product portfolio and pipeline:

* Note on above chart:

We submitted and Health Canada has accepted an NDS for roflumilast cream for plaque psoriasis in Canada with a target action date of April 30, 2023.

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Key elements of our strategy include:

• Commercialize ZORYVE cream for the treatment of patients with plaque psoriasis, and obtain approval for roflumilast cream for atopic dermatitis.

We believe ZORYVE is a best-in-class non-steroidal topical treatment for plaque psoriasis, with symptomatic improvement in psoriasis patients similar to the combination of a high potency steroid and calcipotriene, the ability to use anywhere on the body including sensitive areas, a rapid and significant impact on itch, coupled with a low rate of side effects and a favorable tolerability profile that enables chronic administration, including for pediatric patients.

We commercially launched ZORYVE in August 2022 after obtaining 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.

In atopic dermatitis, we have completed two pivotal Phase 3 clinical studies with topical roflumilast:

INTEGUMENT-1 and -2 in subjects six years of age or older, and we are conducting a third pivotal Phase 3 study, INTEGUMENT-PED, in subjects between the ages of two and five years.

• Commercialize ZORYVE cream for the treatment of patients with plaque psoriasis, and obtain approval for ZORYVE cream for atopic dermatitis.

We believe ZORYVE cream is a best-in-class non-steroidal topical treatment for plaque psoriasis, with symptomatic improvement in psoriasis patients similar to the combination of a high potency steroid and calcipotriene, the ability to use anywhere on the body including sensitive areas, a rapid and significant impact on itch, coupled with a low rate of side effects and a favorable tolerability profile that enables chronic administration, including for pediatric patients.

We commercially launched ZORYVE cream in August 2022 after obtaining 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.

On October 6, 2023, we announced FDA approval of our sNDA to expand the indication of ZORYVE cream for the treatment of plaque psoriasis, including psoriasis in intertriginous areas, to children ages 6 to 11 years of age.

Following this approval, ZORYVE cream is indicated for use in patients 6 years of age and older.

In atopic dermatitis, we have completed two pivotal Phase 3 clinical studies with ZORYVE cream, INTEGUMENT-1 and -2 in subjects 6 years of age or older, and a third pivotal Phase 3 study, INTEGUMENT-PED, in subjects between the ages of 2 and 5 years, in each case in subjects with mild to moderate atopic dermatitis.

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 patients aged six years or older in the second half of 2023 based on the results of INTEGUMENT-1 and -2.

• 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 pivotal Phase 3 clinical trials with roflumilast foam in both seborrheic dermatitis and scalp and body psoriasis, demonstrating promising efficacy and tolerability in both diseases.

In seborrheic dermatitis, we submitted an NDA to the FDA in February 2023, supported by the positive results from the pivotal Phase 3 STRATUM trial.

In scalp and body psoriasis, we announced positive topline data in September 2022 and we expect the data to be a sufficient basis for an sNDA submission following the potential approval of roflumilast foam for treatment of seborrheic dermatitis.

In November 2023, the FDA accepted for filing our sNDA for ZORYVE cream 0.15% for the treatment of atopic dermatitis in adults and children down to age 6 and assigned a PDUFA target action date of July 7, 2024.

In September 2023, we announced positive topline data from the INTEGUMENT-PED trial.

We intend to submit a subsequent sNDA for the younger age cohort if the FDA approves our sNDA for ZORYVE cream 0.15% for treatment of atopic dermatitis in patients aged 6 years or older.

• Commercialize ZORYVE foam for the treatment of patients with seborrheic dermatitis and further expand our addressable market with potential additional foam indications.

In December 2023, we received FDA approval for ZORYVE foam for the treatment of seborrheic dermatitis in individuals aged 9 years and older.

ZORYVE foam became commercially available in late January 2024.

We have also successfully completed a pivotal Phase 3 clinical trial with ZORYVE foam in scalp and body psoriasis, demonstrating promising efficacy and tolerability results.

In scalp and body psoriasis, we announced positive topline data in September 2022, and we plan to submit an sNDA in the second half of 2024.

• Establish an integrated development and commercial organization .

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dermatology segment, we believe our infrastructure should be sufficient for us to commercialize our products to dermatology specialists.

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.

• Price our drugs responsibly to enable rapid and high-quality insurance coverage .

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

and Canadian market.

• Execute on responsible pricing strategy and product access to enable rapid and high-quality insurance coverage .

We are committed to helping patients have access to our product, including setting a responsible price, working with payers to help ensure broad high-quality payer access, and supporting programs like our Arcutis Cares TM patient assistance program and the ZORYVE Direct TM patient access support program.

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In December 2022, we announced that the first subject had been enrolled in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata.

Reformulation efforts continue for ARQ-252.

• Develop ARQ-234 as a complimentary treatment to topical roflumilast.

We believe that ARQ-234, which we obtained through the acquisition of Ducentis in September 2022, has the potential to have a highly differentiated profile and could be a highly complimentary biologic treatment to topical roflumilast

The first subject in the alopecia areata cohort enrolled in the second quarter of 2023.

Reformulation efforts

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for the treatment of atopic dermatitis, if approved.

We believe our management team's experience in developing dermatological drugs, including biologics, will enable us to rapidly move ARQ-234 into the clinic and through the development process.

continue for ARQ-252.

• Develop ARQ-234 as a complimentary treatment to ZORYVE.

We believe our management team's experience in developing dermatological drugs, including biologics, will enable us to move ARQ-234 into the clinic and through the development process.

• 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.

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

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Our platform has already generated several significant innovations, including:

• Our innovative topical formulation of roflumilast (patented);

• Our innovative topical cream and foam formulations 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);

• A novel method for treating a fungal infection by administering a composition comprising roflumilast (patented);

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

Roflumilast Cream (ARQ-151)

Our lead product, ZORYVE, offers 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.

ZORYVE 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.

• A composition of roflumilast without a paraben preservative (patent pending).

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ZORYVE Cream (ARQ-151)

Our lead product, ZORYVE cream, offers 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.

ZORYVE 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 chronic obstructive pulmonary disease (COPD) in 2011.

Roflumilast is a highly potent and selective PDE4 inhibitor that was approved by the FDA as an oral 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 commercially launched ZORYVE in August 2022 after obtaining FDA approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g.

We commercially launched ZORYVE cream in August 2022 after obtaining 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.

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We are also developing topical roflumilast cream for atopic dermatitis, and our Phase 3 program includes four studies:

two identical studies with approximately 650 subjects each, ages 6 and above (INTEGUMENT-1 and -2);

a study with more than 650 subjects ages 2-5 in each study (INTEGUMENT-PED);

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

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

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

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

In October 2023, we announced FDA approval of our sNDA to expand the indication of ZORYVE cream for the treatment of plaque psoriasis, including psoriasis in intertriginous areas ( e.g.

, groin or axillae), to children ages 6 to 11 years of age.

Following this approval, ZORYVE cream is indicated for use in patients 6 years of age and older.

We aim to further expand the indication in plaque psoriasis down to 2 years of age following the generation of additional clinical data.

We are also developing topical ZORYVE cream for atopic dermatitis, and our Phase 3 program includes four studies:

two identical studies with approximately 650 subjects each, ages 6 and above (INTEGUMENT-1 and -2) using ZORYVE cream 0.15%;

a study with more than 650 subjects ages 2-5 in each study (INTEGUMENT-PED) using ZORYVE cream 0.05%;

and an open label extension study with up to 1,500 subjects ages 2 and up (INTEGUMENT-OLE).

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

In November 2023, the FDA accepted for filing our sNDA for topical ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in adults and children down to age 6 and assigned a PDUFA target action date of July 7, 2024.

In September 2023, we announced positive topline data from the INTEGUMENT-PED trial.

We intend to submit a subsequent sNDA for ZORYVE cream 0.05% for the younger age cohort if the FDA approves our sNDA for ZORYVE cream 0.15% for treatment of mild to moderate atopic dermatitis in patients aged 6 years or older.

In September 2023, we announced positive interim results regarding patients 6 years of age and older from the INTEGUMENT OLE study.

The primary objective of the study was to assess the long-term safety based on the occurrence of adverse events and serious adverse events.

The interim results regarding patients 6 years of age and older from the study demonstrated long-term safety and a tolerability profile consistent with data from our INTEGUMENT-1 and -2 trials, with no new safety signals observed up to 56 weeks of treatment.

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.

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Psoriatic plaques can appear on any area of the body, but most often appear on the scalp, knees, elbows, trunk, and limbs, and the plaques are often itchy and sometimes painful.

At least 40% of plaque psoriasis patients have plaques on their scalp, about 15% have plaques in their intertriginous regions, approximately 10% have plaques on their face, and one in three has plaques on their elbows and knees.

Each of these areas present a variety of treatment challenges which may be well suited to treatment with ZORYVE.

Approximately 40% of plaque psoriasis patients have plaques on their scalp, about 15% have plaques in their intertriginous regions, approximately 10% have plaques on their face, and one in three has plaques on their elbows and knees.

Each of these areas present a variety of treatment challenges which may be well suited to treatment with ZORYVE cream.

Psoriasis patients are generally characterized as mild, moderate, or severe, with approximately 75% experiencing a mild-to-moderate form of the disease and 25% experiencing a moderate-to-severe form of the disease.

Pruritus (itching) is a particularly common and bothersome symptom for patients, which can be severe and impact sleep patterns.

Pruritus (itching) is a particularly common and bothersome symptom for patients, which can be severe and

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impact sleep patterns.

In addition, patients with plaque psoriasis can suffer substantial psychosocial impacts from their disease and have a 50% greater chance of depression than the general population.

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Current Psoriasis Treatment Landscape

The vast majority of psoriasis patients are treated with topical therapies, of which there have been no novel treatments approved in over 20 years, until the recent approvals of ZORYVE and tapinarof.

The vast majority of psoriasis patients are treated with topical therapies, of which there have been no novel treatments approved in over 20 years, until the recent approvals of ZORYVE cream and tapinarof.

Despite their widespread use, other existing topical therapies all possess substantial shortcomings:

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Some of these side effects are irreversible.

Consequently, high potency topical steroids are

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not recommended for chronic use, and physicians generally will not prescribe them for treatment on the face or in the intertriginous regions.

Consequently, high potency topical steroids are not recommended for chronic use, and physicians generally will not prescribe them for treatment on the face or in the intertriginous regions.

Steroid-induced striae (left) and Steroid-induced skin atrophy (right)

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In clinical trials, treatment with tapinarof was associated with folliculitis, contact dermatitis, burning, stinging, and itching.

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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 chronically.

However, due to the limitations on duration of treatment to between 2 and 8 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 chronically.

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

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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.

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reaction produces a red, itchy rash, most frequently occurring on the face, arms and legs, and the rash can cover significant areas of the body (see figures below).

This reaction produces a red, itchy rash, most frequently occurring on the face, arms and legs, and the rash can cover significant areas of the body (see figures below).

The rash causes significant pruritus (itching), which can lead to damage caused by scratching or rubbing and perpetuating an ‘itch-scratch’ cycle.

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Current Atopic Dermatitis Treatment Landscape

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The vast majority of atopic dermatitis patients are being treated with topical therapies, particularly low- to mid-potency topical steroids and TCIs, and these two classes of drugs constituted nearly all atopic dermatitis prescriptions in 2022.

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The label carries an extensive boxed warning for serious infections, all-cause mortality, malignancy, major adverse cardiovascular events and thrombosis.

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Treatment with biologics such as Dupixent ® , as well as recently launched oral agents, remains highly restricted.

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however, similar to plaque psoriasis, we believe such use will ultimately remain 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 for biologics.

Roflumilast Cream Clinical Development

ZORYVE Cream Clinical Development

Plaque Psoriasis

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

We commercially launched ZORYVE cream in August 2022 after obtaining 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 duration of use.

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

We aim to further expand the indication in plaque psoriasis down to 2 years of age following the generation of additional clinical data.

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

Our NDA submission was 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, ZORYVE was generally well-tolerated with a favorable safety and tolerability profile.

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

Key Completed Trials

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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 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 ZORYVE 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 ZORYVE achieved IGA Success, compared to 6.9% of subjects treated with vehicle (p<0.0001) in DERMIS-2.

ZORYVE 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).

ZORYVE 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 subjects treated with ZORYVE, 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.

Index to Financial Statements

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 ZORYVE cream achieved IGA Success, compared to 6.9% of subjects treated with vehicle (p<0.0001) in DERMIS-2.

ZORYVE 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).

ZORYVE 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 subjects treated with ZORYVE 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.

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and previously untreated subjects.

All subjects applied ZORYVE once daily for 52 weeks at home.

Approximately half (164 out of 332) of the subjects entered this long-term study after completing treatment with ZORYVE cream 0.3% or 0.15% in the randomized Phase 2b study (ARQ-151-201) and therefore received up to 64 weeks of total treatment with ZORYVE (12 weeks in the randomized Phase 2b study and 52 weeks in the long-term safety study).

All subjects applied ZORYVE cream once daily for 52 weeks at home.

Approximately half (164 out of 332) of the subjects entered this long-term study after completing treatment with ZORYVE cream 0.3% or 0.15% in the randomized Phase 2b study (ARQ-151-201) and therefore received up to 64 weeks of total treatment with ZORYVE cream (12 weeks in the randomized Phase 2b study and 52 weeks in the long-term safety study).

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

The primary outcome measures of this long-term safety study were the occurrence of TEAEs and the occurrence of serious adverse events.

Index to Financial Statements

In this open label study, ZORYVE 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 as 57.1% (n=185) of roflumilast cream-treated patients achieved an IGA score of clear or almost clear (IGA 0/1) at any time in study, and these participants had a median duration of IGA of clear or almost clear of more than 10 months (40.1 weeks).

Additionally, a d urable treatment effect was maintained through 52 to 64 weeks as 57.1% (n=185) of ZORYVE cream-treated patients achieved an IGA score of clear or almost clear (IGA 0/1) at any time in study, and these participants had a median duration of IGA of clear or almost clear of more than 10 months (40.1 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.

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Atopic Dermatitis

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

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

We are also developing ZORYVE cream for the treatment of atopic dermatitis.

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

INTEGUMENT-1 and -2 enrolled subjects 6 years of age or older and studied ZORYVE cream 0.15%, and INTEGUMENT-PED enrolled subjects between the ages of 2 and 5 years and studied ZORYVE cream 0.05%.

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

In September 2023, we submitted an sNDA for topical ZORYVE 0.15% for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older, and in November 2023, the FDA accepted for filing our sNDA and assigned a PDUFA target action date of July 7, 2024.

Based on the positive results from the INTEGUMENT-PED study announced in September 2023, we expect to submit a subsequent sNDA for children ages 2 to 5 years of age if our current sNDA for ZORYVE cream 0.15% is approved for treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older.

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Key Completed Trials

ARQ-151-311 and 312 (INTEGUMENT-1 and INTEGUMENT-2 pivotal Phase 3 studies)

Our atopic dermatitis Phase 3 program includes four studies, two ongoing studies (INTEGUMENT-PED and INTEGUMENT-OLE), and the two completed studies INTEGUMENT-1 and -2.

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

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

Our atopic dermatitis Phase 3 program includes four studies, one ongoing study (INTEGUMENT-OLE), and the three completed studies INTEGUMENT-1 and -2 and INTEGUMENT-PED.

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

Subjects were randomized to receive once daily topical applications for 4 weeks of ZORYVE cream 0.15%, or vehicle.

The primary endpoint was the proportion of all randomized subjects who attain IGA Success, defined as a validated Investigator Global Assessment – Atopic Dermatitis (vIGA-AD) score of ‘clear’ or ‘almost clear’ plus a 2-grade improvement from Baseline at Week 4.

Both INTEGUMENT-1 and INTEGUMENT-2 met their primary endpoint.

In INTEGUMENT-1, 32.0% of individuals treated with roflumilast cream 0.15% achieved IGA Success, compared to 15.2% of individuals treated with vehicle (P<0.0001).

In INTEGUMENT-2, 28.9% of individuals treated with roflumilast cream 0.15% achieved IGA Success at Week 4 compared to 12.0% of individuals treated with vehicle (P<0.0001).

Roflumilast cream also demonstrated rapid and statistically significant improvements compared to vehicle on key secondary endpoints, including, in INTEGUMENT-1, 43.2% of individuals treated with roflumilast cream 0.15% achieving a 75% improvement in Eczema Area and Severity Index (EASI-75) at Week 4 compared to 22.0% treated with vehicle (P<0.0001).

In INTEGUMENT-2, 42.0% of individuals treated with roflumilast cream 0.15% achieved an EASI-75 at Week 4 compared to 19.7% treated with vehicle (P<0.0001).

In an additional secondary endpoint, INTEGUMENT-1 evaluated reduction in itch in individuals 12 years of age and older, with 33.6% of individuals treated with roflumilast cream achieving a 4-point reduction in Worst Itch Numeric Scale (WI-NRS) at Week 4 (vs.

In INTEGUMENT-1, 32.0% of individuals treated with ZORYVE cream 0.15% achieved IGA Success, compared to 15.2% of individuals treated with vehicle (P<0.0001).

In INTEGUMENT-2, 28.9% of individuals treated with ZORYVE cream 0.15% achieved IGA Success at Week 4 compared to 12.0% of individuals treated with vehicle (P<0.0001).

ZORYVE cream also demonstrated rapid and statistically significant improvements compared to vehicle on key secondary endpoints, including, in INTEGUMENT-1, 43.2% of individuals treated with ZORYVE cream 0.15% achieving a 75% improvement in Eczema Area and Severity Index (EASI-75) at Week 4 compared to 22.0% treated with vehicle (P<0.0001).

In INTEGUMENT-2, 42.0% of individuals treated with ZORYVE cream 0.15% achieved an EASI-75 at Week 4 compared to 19.7% treated with vehicle (P<0.0001).

In an additional secondary endpoint, INTEGUMENT-1 evaluated reduction in itch in individuals 12 years of age and older, with 33.6% of individuals treated with ZORYVE cream achieving a 4-point reduction in Worst Itch Numeric Scale (WI-NRS) at Week 4 (vs.

20.7% for vehicle-treated subjects [p<0.01]).

For INTEGUMENT-2, 30.2% of individuals treated with roflumilast cream achieving a four-point reduction in WI-NRS at Week 4 (vs.

For INTEGUMENT-2, 30.2% of individuals treated with ZORYVE cream achieving a four-point reduction in WI-NRS at Week 4 (vs.

12.4% for vehicle-treated subjects, [P<0.01]).

Roflumilast cream 0.15% was well tolerated in both studies.

In addition, individuals treated with ZORYVE cream reported reductions in itch from baseline as early as 48 hours from first application.

ZORYVE cream 0.15% was well tolerated in both studies.

The incidence of Treatment Emergent Adverse Events (TEAEs) was low in both active treatment and vehicle arms, with most TEAEs assessed as mild-to-moderate severity.

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The most frequent adverse events (≥1%) included COVID-19, application site pain, headache, nausea, vomiting, diarrhea, nasopharyngitis, and upper respiratory tract infection.

Over 90% of patients who were randomized to roflumilast cream in both studies completed the full four weeks, and there were few discontinuations due to adverse events.

Over 90% of patients who were randomized to ZORYVE cream in both studies completed the full 4 weeks, and there were few discontinuations due to adverse events.

INTEGUMENT-PED Trial

In September 2023, we announced positive topline data from INTEGUMENT-PED trial.

This pivotal trial investigated ZORYVE cream 0.05% as a potential treatment for children 2 to 5 years of age with mild to moderate atopic dermatitis.

The trial was a Phase 3, randomized, parallel group, double-blind, vehicle-controlled trial in which subjects ages 2 to 5 with mild to moderate atopic dermatitis involving 3% or greater body surface area received 4 weeks of (i) ZORYVE cream 0.05% once daily or (ii) vehicle once daily.

A total of 652 children were enrolled in INTEGUMENT-PED.

Results from the four-week treatment period demonstrated statistically significant improvements compared to matching vehicle.

The primary endpoint was the percentage of patients achieving IGA success, which is vIGA-AD score of "clear" or "almost clear" plus a 2-grade improvement from baseline, at Week 4.

In the trial, 25.4% of patients treated with ZORYVE cream 0.05% achieved IGA success, compared to 10.7% of patients treated with vehicle (p < 0.0001), with significant improvements observed as early as Week 1.

ZORYVE cream 0.05% also demonstrated statistically significant improvements compared to vehicle on key secondary endpoints, which included EASI-75, the percentage of patients achieving IGA success at Weeks 1 and 2, and the percentage of patients achieving a vIGA-AD score of “clear” or “almost clear” at Weeks 1 and 2, with significant improvements observed for these endpoints as early as Week 1.

In the trial, 39.4% of patients treated with ZORYVE cream 0.05% achieved EASI 75 at Week 4, compared to 20.6% of patients treated with vehicle (p < 0.0001).

In addition, 21.2% of patients achieved IGA success at Week 2, compared to 6.8% of patients treated with vehicle (p < 0.0001), and 9.4% of patients achieved IGA success at Week 1, compared to 0.9% of patients treated with vehicle (p < 0.0001).

In the trial, 35.3% of patients treated with ZORYVE cream 0.05% with an itch score of at

Index to Financial Statements

least four at baseline achieved a four-point reduction in itch score compared to baseline, as measured by the WI-NRS, compared to 18.0% of patients treated with vehicle (p = 0.0002).

ZORYVE cream 0.05% was well-tolerated, with rates of treatment-emergent adverse events ("TEAEs") low across the active treatment and vehicle arms.

Overall, adverse events were uncommon, with no adverse event occurring in more than 4.1% of subjects in the trial.

The only adverse event occurring in >3% of subjects in either arm was upper respiratory tract infection, and the most frequent adverse events (>2%) included upper respiratory tract infection, pyrexia, diarrhea, vomiting, and, in the vehicle arm only, atopic dermatitis.

Of the patients treated with ZORYVE cream 0.05% in the trial, 410 (93.8% of patients) completed the full 4 weeks, and there were few discontinuations due to adverse events in both the ZORYVE cream 0.05% group and vehicle group.

Five patients treated with ZORYVE cream 0.05% (1.1% of patients treated with ZORYVE cream 0.05%) and four patients in the vehicle group (1.9% of patients treated with vehicle) discontinued the trial due to an adverse event.

There were no treatment-related serious adverse events.

Key Ongoing Trials

Our atopic dermatitis Phase 3 program includes two key ongoing trials.

INTEGUMENT-PED shares a similar overall design to INTEGUMENT-1 and -2, and 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 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.

We expect to provide topline data from INTEGUMENT-PED in the second half of 2023.

In addition, 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.

Roflumilast Foam (ARQ-154)

We are also developing a foam formulation of topical roflumilast for the treatment of scalp and body 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 that has been designed to deliver the drug to the scalp while not leaving a greasy residue or disturbing hair style.

In addition, our “INterventional Trial EvaluatinG roflUMilast cream for the treatmENt of aTopic dermatitis Open Label Extension” (INTEGUMENT-OLE) study is a Phase 3, multicenter, open label extension study that has enrolled 1220 subjects who have completed INTEGUMENT-1, -2, or -PED.

The study examines the long-term safety of ZORYVE cream 0.15% in subjects 6 years of age and older with atopic dermatitis and ZORYVE cream 0.05% in subjects 2 to 5 years of age with atopic dermatitis.

The primary objective of the study is to assess the long-term safety based on the occurrence of adverse events and serious adverse events.

Individuals that completed INTEGUMENT-1 and -2 are eligible to enroll for either 24 or 52 weeks of additional treatment, representing 28 or 56 weeks of treatment in aggregate.

In September 2023, we announced positive interim results from this ongoing study regarding subjects 6 years of age and older with atopic dermatitis.

A total of 657 subjects had been enrolled in INTEGUMENT-OLE at such time.

After 4 weeks of treatment, subjects who achieved a vIGA-AD score of “clear” transitioned to twice weekly maintenance dosing, after which any subjects who reached a vIGA-AD score of “mild” would resume once-daily dosing.

Subjects could also resume once-daily dosing if signs or symptoms were not adequately controlled with maintenance dosing despite maintaining a vIGA-AD score of “almost clear.” More than two-thirds of participants who transitioned to maintenance dosing remained on the twice weekly maintenance dosing schedule for more than half of their time in the trial.

Results from the study demonstrated long-term safety and a tolerability profile consistent with data from our INTEGUMENT-1 and -2 trials, with no new safety signals observed up to 56 weeks of treatment.

Rates of TEAEs were generally consistent with INTEGUMENT-1 and -2, with 241 subjects (36.7% of subjects) experiencing any TEAE and 31 subjects (4.7% of subjects) experiencing treatment-related TEAEs.

No adverse event occurred in more than 4.6% of subjects.

The only adverse events occurring in >2% of subjects included COVID-19, upper respiratory tract infection, nasopharyngitis and headache, and 21 subjects (3.2% of subjects) discontinued the study due to adverse events.

There were eight subjects (1.2% of subjects) with serious adverse events and no treatment-related serious adverse events.

ZORYVE cream 0.15% also performed well on secondary endpoints, including IGA success, which was defined as a vIGA-AD score of "clear" or "almost clear" plus a 2-grade improvement from baseline in INTEGUMENT-1 or -2, and EASI-75.

For example, 46.1% and 51.0% of patients treated with ZORYVE cream 0.15% achieved IGA success in Week 28 and 56, respectively, compared to 41.5% and 44.6%, respectively, of patients treated with vehicle.

In addition, 61.5% and 66.2% of patients treated with ZORYVE cream 0.15% achieved EASI-75 at Week 28 and 56, respectively, compared to 60.9% and 64.6%, respectively, of patients treated with vehicle.

We believe these results demonstrate the durability of treatment and the potential for improvement in patient symptoms over time.

Index to Financial Statements

ZORYVE Foam (ARQ-154)

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

ZORYVE foam contains the same highly potent and selective PDE4 inhibitor in ZORYVE cream, and is nearly identical to ZORYVE 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.

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

The foam breaks easily upon agitation, creating a thin solution that can be rubbed easily into the scalp.

Additionally, the product does not melt on the fingers prior to application.

Roflumilast foam will not stain clothing or bedding and does not have an unpleasant smell.

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

We have successfully completed pivotal Phase 3 studies of roflumilast foam in seborrheic dermatitis (STRATUM) as well as scalp and body psoriasis (ARRECTOR), demonstrating promising efficacy and tolerability in both diseases.

We submitted an NDA for roflumilast foam in seborrheic dermatitis in February 2023, and plan to submit an sNDA for roflumilast foam in scalp and body psoriasis following the potential approval of roflumilast foam for treatment of seborrheic dermatitis.

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.

ZORYVE foam will not stain clothing or bedding and does not have an unpleasant smell.

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

In December 2023, we received FDA approval for ZORYVE foam for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on severity, location, or duration of use.

ZORYVE foam has been shown to provide rapid disease clearance and significant reduction in itch in clinical studies.

and just over 50% of individuals achieved an IGA score of clear at Week 8.

In addition, individuals treated with ZORYVE foam reported reductions in itch from baseline within 48 hours of first application.

ZORYVE foam is a once-daily steroid-free foam and the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades.

ZORYVE foam became commercially available in late January 2024.

We have successfully completed our pivotal Phase 3 study of ZORYVE foam in scalp and body psoriasis (ARRECTOR), demonstrating promising efficacy and tolerability results.

We announced positive topline data in September 2022, and we plan to submit an sNDA in the second half of 2024.

We believe that ZORYVE foam could 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 potentially scalp and body psoriasis.

Seborrheic Dermatitis

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It appears most often on the scalp, face (especially on the nose, eyebrows, ears, and eyelids), upper chest, and back as depicted in the figures below.

A milder variant of the disease is dandruff.

While the pathogenesis of seborrheic dermatitis is not well understood, some experts believe a contributor is an over-abundance of Malassezia , a naturally occurring yeast found on normal skin but found in excess numbers on skin with seborrheic dermatitis.

There also is an immunological or inflammatory component, possibly as a result of the proliferation of the Malassezia yeast and its elaboration of substances that irritate the skin.

Seborrheic dermatitis can occur in both adults and infants, and in infants is commonly referred to as “cradle cap”.

While the pathogenesis of seborrheic dermatitis is not well understood, it is an inflammatory disease of the skin distinct from atopic dermatitis and psoriasis, it shares some features such as a skin barrier defect with atopic dermatitis and some inflammatory pathways in common with psoriasis.

Seborrheic dermatitis is associated with an over-abundance of Malassezia , a naturally occurring yeast found on normal skin but found in excess numbers on skin with seborrheic dermatitis where it may exacerbate the underlying skin inflammation that leads to the signs and symptoms well characterized in the disease.

Seborrheic dermatitis can occur in adults, adolescents and infants, and in infants is commonly referred to as “cradle cap”.

Seborrheic Dermatitis

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There are a number of widely used treatments for seborrheic dermatitis, including antifungal agents, lower potency steroids, and immunomodulators.

• Antifungal agents , particularly azoles such as ketoconazole, are the cornerstone of therapy for seborrheic dermatitis.

These agents are available in a variety of topical formulations, and oral antifungals are occasionally used in very severe cases.

Antifungals in the treatment of seborrheic dermatitis are generally well-tolerated, although some patients experience irritant contact dermatitis, a burning or itching sensation, or dryness.

• Topical steroids , mostly low- to mid-potency, are often prescribed for patients suffering from seborrheic dermatitis because of the inflammatory component of the disease.

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Additionally, TCIs only provide symptomatic improvement in seborrheic dermatitis in areas of skin that are very thin and where the drug can penetrate (i.e., largely the periocular areas only).

• Antifungal agents , particularly azoles such as ketoconazole, are the cornerstone of therapy for seborrheic dermatitis.

These agents are available in a variety of topical formulations, and oral antifungals are occasionally used in very severe cases.

Antifungals in the treatment of seborrheic dermatitis are generally well-tolerated, although some patients experience irritant contact dermatitis, a burning or itching sensation, or dryness.

While physicians have a number of relatively inexpensive treatment options that provide symptomatic improvement for seborrheic dermatitis, the greatest unmet need relates to inadequate response to existing therapies in some patients, particularly in patients with more severe disease.

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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 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 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.

In addition to the opportunity in treatment resistant patients, we believe roflumilast foam may be an option for some patients as a first-line therapy, especially patients with involvement of the face where other therapies are contraindicated.

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

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

In addition, a recent nonclinical study demonstrated that ZORYVE 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, ZORYVE foam’s putative dual mechanism of action may provide symptomatic improvement for patients not achieving suitable responses from currently available therapies.

In addition to the opportunity in treatment resistant patients, we believe ZORYVE foam may be an option for some patients as a first-line therapy, especially patients with involvement of the face where other therapies are contraindicated.

Scalp Psoriasis

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

Roflumilast Foam Clinical Development

We have successfully completed pivotal Phase 3 clinical trials in both seborrheic dermatitis and scalp and body psoriasis.

In seborrheic dermatitis, we submitted an NDA to the FDA in February 2023, supported by positive results from the pivotal Phase 3 STRATUM trial.

Seborrheic Dermatitis

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ARQ-154-304 (STRATUM pivotal 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) was a Phase 3, parallel group, double blind, vehicle-controlled study of the safety and efficacy of roflumilast foam 0.3% administered once-daily.

A total of 457 subjects ages nine and older with moderate to severe seborrheic dermatitis were enrolled in the study and randomized 2:1 to roflumilast foam or vehicle.

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

The study met the primary endpoint, with 80.1% of individuals treated with roflumilast foam achieving IGA Success at week eight, compared to 59.2% of patients treated with vehicle (P<0.0001).

Improvement with roflumilast foam was seen early, with roflumilast separating statistically from vehicle on IGA Success at week two.

In addition, 50.7% of patients treated with roflumilast foam achieved an IGA score of clear at week eight, compared to 28.2% of patients treated with vehicle (p < 0.0001).

Roflumilast foam also demonstrated statistically significant improvements compared to vehicle on key secondary endpoints, including itch as measured by Worst Itch-Numerical Rating Score (WI-NRS).

63.6% of patients with a Worst Itch-Numerical Rating Score of 4 or higher at baseline treated with roflumilast foam achieved a 4-point or greater reduction in itch at week eight, compared to patients treated with vehicle (p = 0.0002).

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Roflumilast foam was well-tolerated.

A total of 457 subjects ages 9 and older with moderate to severe seborrheic dermatitis were enrolled in the study and randomized 2:1 to ZORYVE foam or vehicle.

A significant percentage of patients had seborrheic dermatitis in more than one location on their body and more than half of patients had facial seborrheic dermatitis, including a subset with seborrheic dermatitis on their eyelids.

The primary endpoint of the study was the proportion of subjects achieving IGA Success, defined as an IGA score of “clear” or “almost clear” plus a 2-point improvement at Week 8.

The study met the primary endpoint, with 79.5% of individuals treated with ZORYVE foam achieving IGA Success at Week 8, compared to 58.0% of patients treated with vehicle (P<0.0001).

Improvement with ZORYVE foam was seen early, with ZORYVE separating statistically from vehicle on IGA Success at Week 2.

In addition, 50.6% of patients treated with ZORYVE foam achieved an IGA score of clear at Week 8, compared to 28.2% of patients treated with vehicle (p < 0.0001).

ZORYVE foam also demonstrated statistically significant improvements compared to vehicle on key secondary endpoints, including itch as measured by Worst Itch-Numerical Rating Score (WI-NRS).

62.8% of patients with a Worst Itch-Numerical Rating Score of 4 or higher at baseline treated with ZORYVE foam achieved a 4-point or greater reduction in itch at Week 8, compared to patients treated with vehicle (p = 0.0001).

Individuals treated with ZORYVE foam reported a 28% improvement in itch from baseline as early as 48 hours after the first application, compared to 13% of patients treated with vehicle (p=0.0024).

ZORYVE foam was well-tolerated.

The incidence of TEAEs was low and similar between active treatment and vehicle, with most TEAEs assessed as mild-to-moderate severity.

There were no treatment-related serious adverse events.

Overall, the most common adverse events in the study population (over 1%) included COVID-19, urinary tract infection, nasopharyngitis, and nausea.

Of the subjects treated with roflumilast foam in the trial, 91% of subjects completed the full eight weeks, and there were few discontinuations due to adverse events (0.7% of subjects treated with roflumilast foam and 2.0% of the subjects in the vehicle group).

Overall, the most common adverse events in the study population (over 1%) included nasopharyngitis, nausea and headache.

ARQ-154-214 (Long-Term Safety)

Study ARQ-154-214 was a 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 included subjects who were treated previously in the Phase 2 trial (ARQ-154-203), as well as subjects naive to treatment with roflumilast foam.

Index to Financial Statements

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

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

Periodic clinic visits assessed clinical safety, application site reactions, and disease improvement, or progression.

The study demonstrated sustained durability of results for up to 52 additional weeks of treatment, as well as a favorable safety and tolerability profile consistent with earlier Phase 2 and Phase 3 studies in seborrheic dermatitis.

Scalp Psoriasis

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ARQ-154-309 (ARRECTOR pivotal 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 was a parallel group, double blind, vehicle-controlled pivotal Phase 3 study of the safety and efficacy of roflumilast foam 0.3% or a matching vehicle administered once-daily in subjects with scalp and body psoriasis ages 12 and older.

A total of 432 subjects were enrolled in the study and randomized 2:1 to roflumilast foam or vehicle.

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

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

A total of 432 subjects were enrolled in the study and randomized 2:1 to ZORYVE foam or vehicle.

The study met both co-primary endpoints and all secondary endpoints.

Specifically, 67.3% of individuals treated with roflumilast foam achieved S-IGA Success at week eight, compared to 28.1% of individuals treated with vehicle (P<0.0001), and 46.5% of individuals treated with roflumilast foam achieved B-IGA Success at week eight, compared to 20.8% of individuals treated with vehicle (P<0.0001).

Roflumilast foam also demonstrated statistically significant improvements compared to vehicle on all secondary endpoints, including scalp itch as measured by Scalp Itch Numeric Rating Scale (SI-NRS) and overall itch as measured by Worst Itch-Numerical Rating Score (WI-NRS).

Roflumilast foam was well-tolerated, with the incidence of TEAEs low and generally similar to vehicle, with most TEAEs assessed as mild-to-moderate severity.

Specifically, 67.3% of individuals treated with ZORYVE foam achieved S-IGA Success at Week 8, compared to 28.1% of individuals treated with vehicle (P<0.0001), and 46.5% of individuals treated with ZORYVE foam achieved B-IGA Success at Week 8, compared to 20.8% of individuals treated with vehicle (P<0.0001).

ZORYVE foam also demonstrated statistically significant improvements compared to vehicle on all secondary endpoints, including scalp itch as measured by Scalp Itch Numeric Rating Scale (SI-NRS) and overall itch as measured by Worst Itch-Numerical Rating Score (WI-NRS).

ZORYVE foam was well-tolerated, with the incidence of TEAEs low and generally similar to vehicle, with most TEAEs assessed as mild-to-moderate severity.

Overall, the most common adverse events in the study population (over 2%) included headache, diarrhea, and COVID-19.

In the study, 89.0% of patients who were treated with roflumilast foam completed the full eight weeks, and few subjects discontinued the study due to adverse events (2.5% of subjects treated with roflumilast foam and 1.3% of the subjects in the vehicle group).

In the study, 89.0% of patients who were treated with ZORYVE foam completed the full 8 weeks, and few subjects discontinued the study due to adverse events (2.5% of subjects treated with ZORYVE foam and 1.3% of the subjects in the vehicle group).

In September 2022, we acquired Ducentis and its lead asset, DS-234 (now ARQ-234), a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 Receptor (CD200R).

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The data compare favorably across key metrics including potency, efficacy, and pharmacokinetics and indicated potential differentiation from the clinically-validated CD200R antibody with an improved ability to modulate the CD200R pathway, a longer half-life, and a higher steady state volume of distribution.

We plan to develop ARQ-234 in atopic dermatitis, where it could be a potentially highly complementary treatment option to roflumilast cream in that indication, if approved.

We plan to develop ARQ-234 in atopic dermatitis, where it could be a potentially highly complementary treatment option to ZORYVE cream in that indication, if approved.

We believe the acquisition of this preclinical asset is a transformative opportunity for Arcutis and, in leveraging our team's deep dermatology expertise and broad biologics experience, that our leadership and operational team will enable us to rapidly move ARQ-234 into the clinic and through the development process.

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We believe that due to its high selectivity for JAK1 over JAK2, ARQ-255 has the potential to treat inflammatory diseases without causing the hematopoietic adverse effects associated with JAK2 inhibition.

In December 2022, we announced that the first subject had been enrolled in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata.

In December 2022, we announced that the first subject had been enrolled in the healthy volunteer cohort of a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata.

The first subject in the alopecia areata cohort was enrolled in the second quarter of 2023.

Alopecia Areata

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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.

We are aware of several companies that are working to develop drugs that would compete against ZORYVE or our product candidates for the treatment of psoriasis, atopic dermatitis, chronic hand eczema, vitiligo, and alopecia areata, including a potential generic version of ZORYVE cream.

Index to Financial Statements

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Pfizer Inc., and Takeda Pharmaceutical Company Limited;

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

and Sotyktu ® , marketed by Bristol Myers Squibb;

non-injectable systemic therapies used to treat plaque psoriasis such as Otezla, marketed by Amgen Inc., and Sotyktu ® , marketed by Bristol Myers Squibb;

topical therapies such as tapinarof, marketed by Dermavant Sciences, Inc.;

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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 and ARQ-234, including but not limited to:

In addition, there are several prescription product candidates under development that could potentially be used to treat atopic dermatitis and compete with ZORYVE cream and ARQ-234, including but not limited to:

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

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We have also built our own focused specialty sales force to target dermatologists in the United States.

We may seek partnerships that allow us to target other physicians, especially pediatricians, allergists, and primary care physicians in the United States, if required to maximize the potential of our product candidates.

In Canada, we have begun building the limited infrastructure that we believe is required to support our potential first commercial launch in Canada in 2023.

We may seek partnerships that allow us to target other physicians, especially pediatricians, allergists, and primary care physicians in the United States, to maximize the potential of our product candidates.

In Canada, we built the limited infrastructure that we believe is required to support the commercialization of our products in Canada.

We may also seek other partners to help us access other geographic markets.

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As of February 27, 2024, we own or have an exclusive license to 20 issued U.S.

patents and 25 issued foreign patents, which include granted European patent rights that have been validated in various European Union (EU) member states, and 18 pending U.S.

patents and 40 issued foreign patents, which include granted European patent rights that have been validated in various European Patent Organization (EPO) member states, and 25 pending U.S.

patent applications, 136 pending foreign patent applications, including 10 applications filed under the Patent Cooperation Treaty.

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• Roflumilast cream & roflumilast foam :

As of February 28, 2023, we own eight issued U.S.

patents, two issued Canadian patents, two issued Japanese patents, one issued Chinese patent, one issued Hong Kong patent, one issued Eurasian patent, one issued Indian patent, 12 pending U.S.

patent applications, and 71 pending foreign applications (five in Canada, five in Hong Kong, seven in Japan, six in Mexico, six in New Zealand, three in India, five in Australia, six in Europe, five in Israel, five in Brazil, six in China, five in Korea and two in Eurasia, and five under the Patent Cooperation Treaty), relating to roflumilast cream and roflumilast foam.

As of February 27, 2024, we own 11 issued U.S.

patents, two issued European patents, four issued Canadian patents, five issued Japanese patents, one issued Chinese patent, one issued Hong Kong patent, two issued Eurasian patents, one issued Indian patent, two issued Mexican patents, one issued Korean patent, and one issued New Zealand patent.

We also own 19 pending U.S.

patent applications, and 70 pending foreign applications (three in Canada, six in Hong Kong, six in Japan, five in Mexico, seven in New Zealand, one in India, six in Australia, six in Europe, six in Israel, six in Brazil, seven in China, five in Korea and one in Eurasia, one in Singapore, and four under the Patent Cooperation Treaty), relating to a roflumilast cream and/or roflumilast foam.

Six of our U.S.

patents are listed in the FDA’s Orange Book for our roflumilast 0.3% cream product, and seven of our U.S.

patents are listed in the Orange Book patents for our roflumilast 0.3% foam product.

The issued U.S.

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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.

Our issued patents relating to a roflumilast cream and/or a roflumilast foam contain claims directed to, among other things, pharmaceutical compositions comprising roflumilast and hexylene glycol, methods of making such compositions, and methods of treatment using such compositions, methods of treating a patient by topically administering compositions comprising roflumilast, diethylene glycol monoethyl ether, and an emulsifier blend comprising cetostearyl alcohol, dicetyl phosphate, and ceteth-10 phosphate, methods of treating fungal infections by administering compositions comprising roflumilast, and methods for improving treatment adherence by improving delivery and extending the plasma half-life of a roflumilast composition.

These issued U.S.

patents relating to roflumilast cream and roflumilast foam will expire not earlier than June 2037 (excluding any potential PTE).

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.

patents relating to roflumilast cream and roflumilast foam will expire not earlier than June 2037.

We also have a method of treatment patent for roflumilast foam in the treatment of seborrheic dermatitis which expires 2041.

Our pending patents relating to roflumilast cream and roflumilast foam contain claims directed to, among other things, pharmaceutical compositions of roflumilast and diethylene glycol monoethyl ether, pharmaceutical compositions of roflumilast and cetostearyl alcohol, dicetyl phosphate, and ceteth-10 phosphate, methods of treatment using such compositions, methods of manufacturing such compositions,

Index to Financial Statements

and other aspects of our roflumilast formulations, including unique pharmacokinetic aspects of topical roflumilast compositions.

• ARQ-252 & ARQ-255 :

As of February 27, 2024, 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) relating to ivarmacitinib.

patents, five issued Japanese patents, and five issued EU patents (validated in various European Patent Organisation (EPO) member states) relating to ivarmacitinib.

These patents and patent applications contain claims directed towards the composition of matter of the ivarmacitinib compound and bisulfate and crystalline forms thereof, pharmaceutical compositions and treatment methods.

The issued patents and pending applications, if issued, relating to ivarmacitinib will not begin to expire until December 2032.

We have filed four pending U.S.

patent applications and 15 pending foreign patent applications (one in each of Australia, Brazil, Canada, China, Europe, Israel, India, Japan, Korea, Mexico, Singapore, and New Zealand and three under the Patent Cooperation Treaty) relating to, among other things, ivarmacitinib 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.

We own one issued U.S.

patent and have filed four pending U.S.

patent applications and 38 pending foreign patent applications (three in each of Australia, Brazil, Canada, Europe, Israel, Japan, Korea, Mexico, Singapore, and New Zealand, two in each of China and India, one in each of Indonesia, Thailand, and Vietnam, and one under the Patent Cooperation Treaty) relating to, among other things, ivarmacitinib compositions and methods of treatment using ivarmacitinib compositions.

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

• ARQ-234 and other CD200 mutant proteins :

As of February 27, 2024, we own one issued U.S.

patent, one issued Australian patent, one issued Chinese patent, one allowed Eurasian patent, one issued Israeli patent, one issued Japanese patent, one issued Mexican patent, one issued South Korean patent, one issued South African patent, and 9 pending foreign applications (one each in Brazil, Canada, Europe, Hong Kong, India, Korea, New Zealand, Singapore;

and one under the Patent Cooperation Treaty), relating to ARQ-234 and other CD200 mutant proteins.

patent, one issued Australian patent, one issued Chinese patent, one issued Eurasian patent, one issued Israeli patent, one issued Indian patent, one issued Japanese patent, one issued Mexican patent, one issued South Korean patent, one issued Singapore patent, one issued South African patent, and 9 pending foreign applications (one each in Brazil, Canada, Europe, Great Britain, Hong Kong, Korea, New Zealand;

and three under the Patent Cooperation Treaty), relating to ARQ-234 and other CD200 mutant proteins.

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

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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 also paid AstraZeneca $7.5 million upon ZORYVE's FDA approval in plaque psoriasis and have agreed to make additional cash payments to AstraZeneca of up to an aggregate of $5.0 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, of which $5.0 million will be come payable when we achieve $100 million in worldwide sales.

We also paid AstraZeneca $7.5 million upon ZORYVE cream's FDA approval in plaque psoriasis and have agreed to make additional cash payments to AstraZeneca of up to an aggregate of $5.0 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, of which $5.0 million will be come payable when we achieve $100 million in

Index to Financial Statements

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 an 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.

We began making quarterly royalty payments in 2022.

worldwide sales.

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 an 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.

We began making quarterly royalty payments in the first quarter of 2023.

The agreement continues in effect until the expiration of all royalty obligations as described above, unless earlier terminated:

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With respect to any products we commercialize under the agreement, we will pay tiered royalties to Hengrui on net sales of each licensed product by us, or our affiliates, or our sublicensees, ranging from mid single-digit to sub-teen percentage rates based on tiered annual net sales bands subject to specified reductions.

We are obligated to pay royalties until the later of (1) the expiration of the last valid claim of the licensed patent rights covering such licensed product in such country and (2) the expiration of regulatory exclusivity for the relevant

We are obligated to pay royalties until the later of (1) the expiration of the last valid claim of the licensed patent rights

Index to Financial Statements

licensed product in the relevant country, on a licensed product-by-licensed product and country-by-country basis.

covering such licensed product in such country and (2) the expiration of regulatory exclusivity for the relevant licensed product in the relevant country, on a licensed product-by-licensed product and country-by-country basis.

Additionally, we are obligated to pay Hengrui a specified percentage, ranging from the low-thirties to the sub-teens, of certain non-royalty sublicensing income we receive from sublicensees of our rights to the licensed products, such percentage decreasing as the development stage of the licensed products advance.

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

Huadong License Agreement

In August 2023, we entered into a license agreement ("Huadong Agreement") with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd.

("Huadong"), a wholly owned subsidiary of Huadong Medicine Co., Ltd., whereby Huadong received an exclusive, sublicensable (under certain circumstances) license under certain patent rights and know-how controlled by us for Huadong to develop, conduct medical affairs activities for, manufacture, commercialize and otherwise exploit ZORYVE cream and ZORYVE foam (the “Licensed Products”) for all therapeutic uses for certain dermatological indications (the “Field”) 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) (the “Territory”).

The License Agreement sets forth each party’s respective obligations with respect to the development, medical affairs activities, manufacture and supply, and commercialization of the Licensed Products.

Pursuant to the terms of the License Agreement, Huadong will, at its expense, develop, obtain regulatory approval for, commercialize and conduct medical affairs activities related to the Licensed Products in the Field in the Territory, subject to certain of our approval and oversight rights.

Pursuant to the terms of the License Agreement, we received a net payment of $27.0 million in September 2023, which consisted of a $30.0 million upfront payment less the applicable tax withholding obligation in China of $3.0 million, 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 $40.25 million upon the achievement of certain sales milestones.

In addition, on a Licensed Product-by-Licensed Product and country or region-by-country or region basis, commencing from the first commercial sale of such Licensed Product in such country or region until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by us to Huadong under the License Agreement covering such Licensed Product in such country or region, (ii) the expiration of regulatory exclusivity for such Licensed Product in such country or region, or (iii) ten years after the first commercial sale of such Licensed Product in such country or region (the “Royalty Term”), we will receive low double-digit to high-teen double-digit percentage royalties on Huadong’s, its affiliates’ and sublicensees’ total net sales, subject to certain royalty reductions.

The term of the License Agreement continues until, on a Licensed Product-by-Licensed Product and country or region-by-country or region basis, the expiration of the Royalty Term.

The License Agreement may be terminated by either party in its entirety if the other party commits a material breach, subject to a cure period, or if the other party becomes insolvent.

Huadong may terminate the License Agreement at-will in its entirety upon 90 days’ written notice.

Unless unenforceable under applicable law, we may terminate the License Agreement in its entirety if Huadong, its affiliate or sublicensee contests or assists a third party in contesting the scope, validity or enforceability of any patent or patent application licensed by us to Huadong.

We may also terminate the License Agreement if Huadong (a) is convicted in a final and non-appealable judgment of a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations or (b) any director, officer, employee, agent, affiliate, sublicensee or subcontractor of Huadong is convicted in a final and non-appealable judgment of a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations in relation to the performance of the License Agreement or, subject to the terms of the License Agreement, if Huadong, its affiliates and sublicensees do not conduct any material development or commercialization activities of a Licensed Product in the Territory for a certain period of time.

See Note 6 to the consolidated financial statements.

Index to Financial Statements

Government Regulation

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• 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;

• 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 potential inspection 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.

Index to Financial Statements

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.

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.

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.

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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,

Index to Financial Statements

generally at multiple geographically dispersed clinical trial sites.

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.

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Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs.

Index to Financial Statements

After the FDA evaluates the NDA and conducts any necessary inspections, it will issue either an approval letter or a complete response letter (CRL).

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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 benefits of the drug outweigh the potential risks.

For example, as a condition

Index to Financial Statements

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

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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

Index to Financial Statements

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 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.

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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.

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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.

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

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

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

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Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA.

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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.

The Hatch-Waxman Act establishes a period of non-patent data 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.

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However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement.

The Hatch-Waxman Act also provides three years of marketing exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant.

The Hatch-Waxman Act also provides three years of non-patent exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant.

This three year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDAs for the condition of the new drug’s approval.

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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.

On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, beginning January 1, 2024.

On March 11, 2021, the American Rescue Plan Act of 2021 was signed into law, which eliminated the statutory Medicaid drug rebate cap, beginning January 1, 2024.

The rebate was previously capped at 100% of a drug’s average manufacturer price.

federal government agencies also currently face potentially significant spending reductions, which may further impact healthcare expenditures.

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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.

On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was into law.

Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025).

On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was enacted into law.

Index to Financial Statements

increases that outpace inflation (first due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025).

The IRA permits the Secretary of the Department of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years.

On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations.

HHS has issued and will continue to issue guidance implementing the IRA, although the Medicare drug price negotiation program is currently subject to legal challenges.

For that and other reasons, it is currently unclear how the IRA will be effectuated.

4 unchanged sentences

In addition, it is possible that there will be further legislation or regulation that could harm our business, financial condition, and results of operations.

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

Additionally, health reform initiatives may arise in the future, particularly as a result of the 2024 presidential election.

6 unchanged sentences

As of December 31, 2023, we had 296 full-time employees.

Of these full-time employees, four have an M.D., four have been Nurse Practitioners or Physician Assistants, and 10% have a PhD or Pharm.

Of these full-time employees, three have an M.D., four have been Nurse Practitioners or Physician Assistants, and 8% have a PhD or Pharm.

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

24 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