What changed in this filing

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Item 9A. Controls and Procedures

2025-02-25 compared with 2024-02-27 · 344 added, 237 removed, 971 unchanged (37% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K.

Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such required information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Management Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based our assessment on the criteria set forth in "Internal Control - Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the results of our assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2023.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting during the three months ended December 31, 2023 covered by this Annual Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls and Procedures

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S.

Based on an evaluation under the supervision and with the participation of the our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective as of December 31, 2024 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such required information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Inherent Limitations over Controls and Procedures

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

Our internal control over financial reporting includes those policies and procedures that:

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(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

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Management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our internal controls will prevent or detect all errors and all fraud.

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Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

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Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act.

Management conducted an assessment of the effectiveness of our internal control over financial reporting based our assessment on the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2024.

The effectiveness of our internal control over financial reporting as of December 31, 2024 has been audited by an independent registered public accounting firm, as stated in their report included in Part IV Item 15, “Exhibits, Financial Statement Schedules” of this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the three months ended December 31, 2024, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Arcutis Biotherapeutics, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Arcutis Biotherapeutics, Inc.’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, Arcutis Biotherapeutics Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and our report dated February 25, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Los Angeles, California

February 25, 2025

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OTHER INFORMATION

During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

On December 13, 2024 , Patrick Burnett , our Chief Medical Officer , entered into a Rule 10b5-1 trading plan , intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act.

The plan provided for the potential sale of up to 177,732 shares of Common Stock held by Mr.

Burnett between March 11, 2025 and February 27, 2026 .

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

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A copy of our insider trading policy and procedures is filed as Exhibit 19 to this Annual Report on Form 10-K.

Further, the company will not transact in any of its own securities unless in compliance with U.S.

securities laws.

The remaining information required by this item is incorporated by reference to our definitive proxy statement relating to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates.

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PRINCIPAL ACCOUNTING FEES AND SERVICES

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The information required by this item is incorporated by reference to our definitive proxy statement relating to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates.

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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

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Notes to Consolidated Financial Statements

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All other schedules are omitted because they are not applicable, not required, or because the required information is included in the consolidated financial statements or notes thereto.

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(b) Exhibits.

[YET TO BE UPDATED]

Description of Document Incorporated by Reference Form Date Number Filed/Furnished Herewith

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10-K 3/19/20 4.3

4.4 F orm of Pre-Funded Warrant

4.4 Form of Pre-Funded Warrant

10.1# Form of Indemnity Agreement.

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10-Q 11/4/21 10.1

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10.20 Offer Letter, dated December 13, 2021, by and between the Registrant and Mas Matsuda.

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and the lenders party thereto.

10.24 F irst Amendment to Amended and Restated Loan and Security Agreement dated November 1, 2023, by and amo ng the Registrant, SLR Investment Corp., and the lenders party thereto.

10.24 First Amendment to Amended and Restated Loan and Security Agreement dated November 1, 2023, by and among the Registrant, SLR Investment Corp., and the lenders party thereto.

10.25 Non-Employee Director Compensation Program

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License Agreement, dated August 10, 2023, by and between the Registrant and Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd.

10.30 E mployment Agreement , dated September 1, 2023, by and between John Smither and the Registrant

S everance & C h a nge in Control Agreement, dated Septem ber 6, 2023, by and between John Smither and the Registrant

E mployment Agreement, dated as of Sep tember 16, 2023, by and between Todd Edwards and the Registrant

S everance and Change in Control Agreement, dated September 16, 2023, by and between Todd Edwards and the Registrant

A mended an d Restated Sales Agreement, dated January 31, 2024, by and between Registrant and Cowen and Company, LLC

10.35 Ame ndment Employment Agreement , dated February 22, 2024, by and between the Regist rant and Matthew R.

10.30 Employment Agreement, dated September 1, 2023, by and between John Smither and the Registrant

Severance & Change in Control Agreement, dated September 6, 2023, by and between John Smither and the Registrant

Employment Agreement, dated September 16, 2023, by and between Todd Edwards and the Registrant

Severance and Change in Control Agreement, dated September 16, 2023, by and between Todd Edwards and the Registrant

Amended and Restated Sales Agreement, dated January 31, 2024, by and between the Registrant and Cowen and Company, LLC

10.35 Amendment to Employment Agreement, dated February 22, 2024, by and between the Registrant and Matthew R.

10.36 O ffer Letter of Employment Agreement, dated April 5, 2024, by and between the Registrant and Da vid Topper

10.37 Severance and Change in Control Agreement, dated April 5, 2024, by and between the Registra nt and David Topper

Li cense Agreement, dated February 27, 202 4, by and between the R egistra nt and S ato Pharmaceutical Co., Ltd.

10.39 First Amendment to the Lic ense Agreement, dated Febr uary 18 , 2024, by and between the Registrant and Hangzhou Zhongmei Hua dong Pharmaceutical Co., Ltd.

Second Amendment to Amended and Restated Loan and Security Agreement, dated August 9, 2024, by and among the Registrant, Arcutis Canada, Inc., SLR Investment Corp., and the lenders party thereto.

19 Insider Trading Policy and Procedures

23.1 Consent of Independent Registered Public Accounting Firm.

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24.1 Power of Attorney (included in the signature page to this Annual Report on Form 10-K).

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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97.1 Arcutis Biotherapeutics, Inc.

Policy for Reco very of Erroneously Awarded Compensation

Policy for Recovery of Erroneously Awarded Compensation

101.INS Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

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# Indicates management contract or compensatory plan.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Arcutis Biotherapeutics, Inc.

Opinion on the Consolidated Financial Statements

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Arcutis Biotherapeutics, Inc.

(the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023 and the related notes (collectively referred to as the “financial statements”).

(the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S.

generally accepted accounting principles.

The Company's Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has not yet met a requirement under its loan agreement to raise capital by April 1, 2024, has recurring losses from operations, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern.

Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1.

The 2023 consolidated financial statements do not include any adjustments to reflect the possible future effects on the amounts and classification of liabilities that might result from the outcome of this uncertainty.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 25, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Sales deductions

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As described in Note 2 to the consolidated financial statements, revenues from product sales are recognized net of variable consideration for invoice discounts for prompt payment and distribution service fees, government and private payer rebates, chargebacks, discounts and fees, product returns and costs of co-pay assistance programs, which are collectively recorded at the time of sale.

Auditing the Company’s accounting for accrued sales deductions related to co-pay assistance programs and managed care rebates, is complex and requires significant judgment.

Revenue from product sales is recognized upon transfer of control of a product to a customer, generally upon delivery, and is based on an amount that reflects the consideration to which the Company expects to be entitled, which represents an amount that is net of accruals for estimated sales deductions.

Auditing the accrued liabilities related to private payer rebates required significant judgment.

The accrued sales deductions related to private payer rebates are based on data received from its customers, current contractual arrangements, market events and trends, external historical data, and forecasted customer buying patterns and patient utilization.

Auditing the Company’s accounting for accrued sales deductions related to co-pay assistance programs requires a higher degree of judgment to evaluate the relevance and reliability of audit evidence.

The accrued sales deductions related to co-pay assistance programs are estimated based on historical program payments and utilization.

The accrued sales deductions related to managed care rebates are based on current contractual arrangements, market events and trends, external historical data, and forecasted customer buying patterns and patient utilization.

Addressed the

Matter in Our

To test the adequacy of the Company’s accrued sales deductions for co-pay assistance programs and managed care rebates, we obtained management’s calculations for the respective estimates and performed the following procedures, among others.

For accrued managed care rebates, we tested management’s estimation process by developing an independent expectation of the estimated accrual balance based upon actual historical payment data.

We also validated terms and conditions for a sample of contracts to the executed agreement and tested a sample of payments made throughout the year.

To test the adequacy of the Company’s accrued sales deductions for private payer rebates and co-pay assistance we obtained management’s calculations for the estimates and performed the following procedures, among others.

For accrued private payer rebates, we tested management’s estimation process by developing an independent expectation of the estimated accrual balance based upon actual historical payment data.

We also tested terms and conditions for a sample of contracts to the executed agreement and tested a sample of payments made throughout the year.

For accrued co-pay assistance programs, we assessed the company’s assumptions of distributor inventory quantities by agreeing the quantities to third party reports.

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February 25, 2025

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ARCUTIS BIOTHERAPEUTICS, INC.

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300,000,000 shares authorized;

96,787,343 and 61,052,250 shares issued at December 31, 2023 and 2022, respectively;

96,787,343 and 61,037,403 shares outstanding at December 31, 2023 and 2022, respectively

117,848,033 and 96,787,343 shares issued and outstanding at December 31, 2024 and 2023, respectively

Additional paid-in capital 1,279,479 1,070,558

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The accompanying notes are an integral part of these consolidated financial statements.

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ARCUTIS BIOTHERAPEUTICS, INC.

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Other revenue

30,000 30,420 —

Total revenues 196,542 59,606 3,686

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The accompanying notes are an integral part of these consolidated financial statements.

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ARCUTIS BIOTHERAPEUTICS, INC.

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882,353 — 14,366 — — 14,366

Issuance of shares of common stock net of discount and issuance costs of $ 10,844

8,625,000 1 161,656 — — 161,657

Issuance of shares of common stock related to the acquisition of Ducentis Biotherapeutics 610,258 — 12,468 — — 12,468

Issuance of common stock upon the exercise of stock options 331,890 — 1,016 — — 1,016

Vesting of founder shares subject to repurchase 37,362 — — — — —

Issuance of common stock upon the vesting of restricted stock units 118,174 — — — — —

Lapse of repurchase rights related to common stock issued pursuant to early exercises 75,293 — 82 — — 82

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33,425,000 3 95,762 — — 95,765

Issuance of shares of common stock, net of discount and issuance costs of $ 10,844

Issuance of common stock from ATM offering, net of issuance costs of $ 116

1,250,000 — 3,136 — — 3,136

Issuance of shares of common stock related to the acquisition of Ducentis Biotherapeutics 610,258 — 12,468 — — 12,468

Issuance of common stock upon the exercise of stock options 348,169 — 1,247 — — 1,247

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Stock-based compensation expense — — 38,813 — — 38,813

Unrealized loss on marketable securities — — — ( 831 ) — ( 831 )

Unrealized gain on marketable securities

— — — 1,186 — 1,186

Foreign currency translation adjustment — — — ( 96 ) — ( 96 )

Net loss — — — — ( 262,140 ) ( 262,140 )

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18,157,895 3 161,679 — — 161,682

Issuance of common stock from ATM offering, net of issuance costs of $ 116

1,250,000 — 3,136 — — 3,136

Issuance of common stock upon the exercise of stock options 649,109 — 2,807 — — 2,807

Issuance of common stock upon the vesting of restricted stock units 1,719,962 — — — — —

Lapse of repurchasing rights related to common stock issued pursuant to early exercises 14,847 — — — — —

Shares issued pursuant to the ESPP 533,724 — 1,713 — — 1,713

Stock-based compensation expense — — 42,722 — — 42,722

Unrealized loss on marketable securities — — — 1,186 — 1,186

Unrealized gain on marketable securities — — — 219 — 219

Foreign currency translation adjustment — — — ( 230 ) — ( 230 )

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The accompanying notes are an integral part of these consolidated financial statements.

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ARCUTIS BIOTHERAPEUTICS, INC.

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Change in fair value of embedded derivative instrument

( 279 ) 849 —

Changes in operating assets and liabilities:

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CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of common stock upon exercise of stock options 1,247 1,016 1,265

Proceeds from issuance of shares under ATM, net of issuance costs 3,136 14,455 —

Proceeds from issuance of common stock and pre-funded warrants, net of issuance costs

Proceeds from issuance of common stock, net of issuance costs 161,682 — 161,592

Repayment of long-term debt

( 100,000 ) — —

Proceeds from issuance of common stock upon exercise of stock options 2,807 1,247 1,016

Proceeds from issuance of common stock for ESPP 1,713 1,175 1,922

Proceeds from issuance of common stock and pre-funded warrants, net of issuance costs

Proceeds from long-term debt — — 125,000

Proceeds from issuance of shares under ATM, net of issuance costs — 3,136 14,455

Payment of debt issuance costs — — ( 2,187 )

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Effect of exchange rate changes on cash

( 235 ) ( 50 ) —

Net increase (decrease) in cash, cash equivalents and restricted cash

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commercialization in late January 2024.

The Company's current portfolio is comprised of what management believes to be highly differentiated topical and systemic treatments with significant potential to treat immune-mediated dermatological diseases and conditions.

The Company received FDA approval of ZORYVE ® (roflumilast) cream 0.15%, (ZORYVE cream 0.15%) on July 9, 2024, for the treatment of mild to moderate atopic dermatitis in adult and pediatric patients 6 years of age and older, and began U.S.

commercialization in late July 2024.

The Company received Health Canada approval of ZORYVE foam in October 2024.

Initial Public Offering and Follow-On Financings

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The Company completed subsequent public sales of its common stock in October 2020, February 2021 and August 2022, receiving aggregate net proceeds of $ 93.4 million, $ 207.5 million, and $ 161.6 million, respectively.

On October 24, 2023, the Company completed an offering relating to the sale of securities consisting of:

(i) 32,500,000 shares of the Company's common stock at $ 2.50 per share, and (ii) prefunded warrants to purchase 7,500,000 shares of the Company's common stock at $ 2.4999 per underlying share of common stock.

In addition to the sale of common stock, the offering completed in October 2023 consisted of prefunded warrants to purchase 7,500,000 shares of the Company's common stock at $ 2.4999 per underlying share of common stock.

The exercise price of the warrants is $ 0.0001 per underlying share of common stock.

The prefunded warrants are exercisable at any time on or after their original issuance, and were not exercised as of December 31, 2024.

The aggregate net proceeds to the Company was $ 93.6 million after deducting underwriting discounts, commissions and estimated offering expenses payable by the Company.

The Company also granted the underwriters an option to purchase up to an additional 6,000,000 shares of the Company's common stock at $ 2.50 per share.

This option was exercised on November 7, 2023 for an additional 925,000 shares.

On February 28, 2024, the Company completed an offering relating to the sale of 15,789,474 shares of the Company's common stock at $ 9.50 per share.

The Company also granted the underwriters an option to purchase up to an additional 2,368,421 shares at $ 9.50 per share, which the underwriters exercised in full on February 29, 2024.

The aggregate net proceeds to the Company was $ 161.7 million after deducting underwriting discounts, commissions, and estimated offering expenses payable by the Company.

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In December 2023, the Company sold 1,250,000 shares under the ATM for $ 2.60 per share and received $ 3.1 million in net proceeds.

In January 2024, the Company amended and restated its Sales Agreement with Cowen and Company, LLC, or Cowen, to reset the shares available for sale, from time to time, through our ATM equity offering program to such number of shares as would generate aggregate gross sales proceeds of up to $ 100.0 million.

All terms are substantially the same as the original Sales Agreement entered into in May 2021.

In January 2024, the Company amended and restated its Sales Agreement with Cowen to reset the ATM program to provide for the offer and sale of shares of common stock having an aggregate gross offering price of up to $ 100.0 million.

All other terms of the amended and restated Sales Agreement are substantially the same as the original Sales Agreement.

The Company has not yet issued or sold any common stock under the amended and restated Sales Agreement.

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The Company has $ 100.0 million outstanding under the Loan Agreement as of December 31, 2024.

On November 1, 2023, the Company entered into an amendment to the Loan Agreement with SLR.

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

The minimum financing covenant requires that the Company raise $ 31.0 million by April 1, 2024.

To date, the Company has raised $ 5.3 million and has not complied with the minimum financing covenant.

If the Company does not comply with the covenant there would be an event of default under the Loan Agreement and the Company’s debt could be accelerated.

The Company intends to raise additional capital through (a) the sale or issuance of equity interests, (b) business development or collaboration agreements (including upfront, milestone, royalty and other payments), or (c) subordinated debt, in each case as permitted pursuant to the terms of the Loan Agreement.

However, as the Company's ability to raise any such additional capital is based in part on factors that are outside of the Company's control, the Company cannot provide any assurance that we will be successful in raising such additional capital.

This uncertainty as to the Company's ability to comply with the minimum financing covenant indicates that there is substantial doubt about the Company's ability to continue as a going concern.

The financial statements do not include adjustments that might result from the outcome of this uncertainty.

The Company believes that its existing capital resources will be sufficient to meet the projected operating requirements for at least 12 months from the date of issuance of its financial statements, so long as the Company's debt covenant is not accelerated.

If the Company's available cash and marketable securities, amounts available under the Loan Agreement and anticipated future cash flows from operations are insufficient to satisfy its liquidity requirements, the Company may need to raise additional capital to fund its operations.

No assurance can be given as to whether additional needed financing will be available on terms acceptable to the Company, if at all.

The Company believes that its existing capital resources will be sufficient to meet the projected operating requirements for at least 12 months from the date of issuance of its financial statements.

If the Company's available cash, cash equivalents and marketable securities and anticipated future cash flows from operations are insufficient to satisfy its liquidity requirements, the Company may need to raise additional capital to fund its operations.

No assurance can be given as to whether additional needed financing will be available on terms acceptable to the Company or at all.

If sufficient funds on acceptable terms are not available when needed, the Company may be required to curtail certain planned activities.

Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives and have an adverse effect on its results of operations and future prospects.

Failure to manage discretionary spending or raise additional funds, as needed, may adversely impact the Company’s ability to achieve its intended business objectives and have an adverse effect on its results of operations and future prospects.

Summary of Significant Accounting Policies

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Actual results could differ from those estimates.

To date, the Company has viewed its financial information on an aggregate basis for the purposes of evaluating financial performance and allocating the Company’s resources.

Accordingly, the Company has determined that it operates in one segment.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

See below for change in prior period estimates related to revenue recognition which was recorded in the fourth quarter of 2024.

Cash and Cash Equivalents

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Available-for-sale securities with original maturities beyond three months at the date of purchase, including those that have maturity dates beyond one year from the balance sheet date, are classified as current assets on the consolidated balance sheets due to their highly liquid nature and availability for use in current operations.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive income (loss) on the consolidated balance sheets.

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Trade Receivables, net

The Company’s trade accounts receivable consists of amounts due primarily from pharmaceutical wholesalers and specialty pharmacy providers in the United States and Canada (collectively, its "Customers") related to sales of ZORYVE cream and have standard payment terms.

The Company’s trade accounts receivable consists of amounts due primarily from pharmaceutical wholesalers and specialty pharmacy providers in the United States and Canada (collectively, its Customers) related to sales of ZORYVE and have standard payment terms.

For certain Customers, the trade accounts receivable for the Customer is net of distribution service fees, prompt pay discounts, and other adjustments.

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Products that may be used in clinical development programs are excluded from inventory and their costs are charged to research and development expense in the consolidated statement of operations as incurred, as long as they do not have an alternative use.

Prior to the initial date regulatory approval is received, costs related to the production of inventory were recorded as research and development expense on the Company’s consolidated statements of operations in the period incurred.

Prior to the initial dates of regulatory approval, costs related to the production of inventory were recorded as research and development expense on the Company’s consolidated statements of operations in the period incurred.

Intangible Assets, net

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

The Company paid a milestone payment of $ 7.5 million to AstraZeneca in the third quarter of 2022 related to the FDA approval and launch of ZORYVE cream 0.3%.

This milestone payment was capitalized as an intangible asset and will be amortized to cost of sales over its useful life of 10 years from the date of first commercial sale, as this is the minimum amount of time that the related License Agreement will be in effect.

Amortization expense was $ 1.1 million and $ 0.3 million for the year ended December 31, 2023 and 2022, respectively.

The Company paid an additional milestone payment of $ 5.0 million related to the achievement of $ 100.0 million worldwide net sales in the third quarter of 2024.

This milestone payment was recorded as a cumulative catch-up adjustment to the carrying value of the intangible asset.

Amortization expense was $ 2.0 million, $ 0.8 million, and $ 0.3 million for the years ended December 31, 2024, 2023, and 2022 , respectively.

Estimated future amortization expense for the intangible assets subsequent to December 31, 2024 is as follows (in thousands):

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Thereafter 3,229

15 unchanged sentences

To manage accounts receivable credit risk, the Company continuously evaluates the creditworthiness of its customers and the need for an allowance for potential credit losses.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Major customers are defined as customers that individually accounted for greater than 10% of the Company's revenue.

The following table presents each major customer that accounted for more than 10% of its gross product sales.

% of gross product sales

Total gross product sales from major customers

* Represents less than 10% of respective balance

The following table presents each major customer that accounted for more than 10% of its accounts receivable, net.

% of accounts receivable, net

Total accounts receivable, net from major customers

* Represents less than 10% of respective balance

Fair Value Measurement

6 unchanged sentences

The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability.

26 unchanged sentences

The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements.

The Company makes significant judgments and estimates in determining the accrued liabilities and prepaid costs balance in each reporting period.

The Company makes significant judgments and estimates in determining the accrued liabilities and prepaid costs balances in each reporting period.

As actual costs become known, the Company adjusts its accrued liabilities.

For the years ended December 31, 2023, 2022 and 2021, the Company has not experienced any material differences between accrued costs and actual costs incurred.

Pursuant to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606), the Company recognizes revenue when a customer obtains control of promised goods or services.

21 unchanged sentences

If actual results vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.

See below for change in prior period estimates related to revenue recognition which was recorded in the fourth quarter of 2024.

Distribution Service Fees :

11 unchanged sentences

The Company provides Customers a return credit in the amount of the purchase price paid by Customers for all products returned in accordance with the Company’s returned goods policy.

In the initial sales period, the Company estimates its provision for sales returns based on industry data and adjusts the transaction price for such estimate at the time of sale to the Customer.

Once sufficient history has been collected for product returns, the Company will utilize that history to inform its returns estimate.

Once the product is returned, it is destroyed.

If actual returns vary from estimates, the Company may need to adjust accruals, which would affect revenue in the period of adjustment.

The Company does not record a right-of-return asset.

In the early product launch period, the Company estimated its provision for sales returns based on industry data and adjusted the transaction price for such estimates at the time of sale to the Customer.

As of the fourth quarter of 2024, the Company had collected history for its actual product returns, which it utilized to refine its estimated returns rate and adjust its accrual.

This analysis resulted in a $ 4.1 million reduction in its accrual and favorable true-up impact to product revenue in the fourth quarter of 2024 related to adjusting prior period estimates.

The Company will continue to monitor its actual returns and if they vary from estimates, the Company may need to adjust accruals and reserve rates, which would affect revenue in the period of adjustment.

A chargeback is the difference between the manufacturer's invoice price to the wholesaler and the wholesaler’s customer's contract price.

5 unchanged sentences

Rebates and Discounts:

The Company accrues rebates for contractually agreed-upon discounts with commercial insurance companies and mandated discounts under government programs such as the Medicaid Drug Rebate Program in the United States.

The Company's estimates for expected utilization of commercial insurance rebates are based on data received from its customers.

The Company accrues rebates for contractually agreed-upon discounts with private payers and mandated discounts under government programs such as the Medicaid Drug Rebate Program in the United States.

The Company's estimates for expected utilization of private payer rebates are based on data received from its customers.

The Company's estimates for rebates under government programs are based on statutory discount rates and expected utilization as well as historical data it has accumulated since product launch.

1 unchanged sentence

If actual rebates vary from estimates, the Company may need to adjust accruals, which would affect revenue in the period of adjustment.

Other Revenues

Other revenues is related to the Huadong License and Collaboration Agreement.

The Company evaluated the agreement with Huadong and determined that it is within the scope of ASC 606.

Other Revenue

Other revenue is related to the Huadong License and Collaboration Agreement and Sato License Agreement.

The Company evaluated the agreements with Huadong and Sato and determined that they are within the scope of ASC 606.

The Company applied the five-step model as required by ASC 606 to determine revenue recognition.

The nonrefundable upfront payment that the Company received in September 2023 in connection with the transfer of the license and related know-how to Huadong was determined to be a distinct performance obligation, and therefore was recognized in Other revenues.

The nonrefundable upfront payments received in connection with the transfer of the license and related know-how to Huadong in September 2023 and to Sato in March 2024 were determined to be distinct performance obligations, and therefore were recognized in Other revenue.

The Company evaluated whether the development and regulatory milestones are considered probable of being reached and determined that their achievement is highly dependent on factors outside of the Company’s control.

Therefore, these payments are subject to significant revenue reversal and are therefore not included in the transaction price.

At the end of each reporting period, the Company will re-evaluate the probability of achievement of each milestone and, if necessary, adjust its estimate of the overall transaction price and accordingly recognize the related revenue once the probability of significant reversal of revenue is low.

Any such adjustments are recorded on a cumulative catch-up basis, and would be reported in Other revenues in the period of adjustment.

The sales milestones and royalties will be recognized in Other revenues when the related sales occur.

Cost of Sales

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Cost of sales includes direct and indirect costs related to the manufacturing and distribution of ZORYVE cream, including raw materials, third-party manufacturing costs, packaging services, freight-in, third-party royalties payable on the Company’s net product revenue, and amortization of certain intangible assets associated with ZORYVE.

the related revenue once the probability of significant reversal of revenue is low.

Any such adjustments are recorded on a cumulative catch-up basis, and would be reported in Other revenue in the period of adjustment.

The sales milestones and royalties will be recognized in Other revenue when the related sales occur.

Cost of Sales

Cost of sales includes direct and indirect costs related to the manufacturing and distribution of ZORYVE, including raw materials, third-party manufacturing costs, packaging services, freight-in, third-party royalties payable on the Company’s net product revenue, and amortization of certain intangible assets associated with ZORYVE.

Cost of sales may also include period costs related to certain inventory warehouse and distribution operations and inventory adjustment charges.

The Company began capitalizing inventory costs upon FDA approval of ZORYVE cream on July 29, 2022.

As a result, manufacturing and other inventory costs incurred prior to FDA approval of ZORYVE cream were expensed and, therefore, are not included in cost of sales.

The Company began capitalizing inventory costs upon related FDA approval dates for each product.

As a result, manufacturing and other inventory costs incurred prior to FDA approval were expensed and, therefore, are not included in cost of sales.

Research and Development

9 unchanged sentences

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, and costs related to sales and marketing of ZORYVE cream.

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

Advertising costs are expensed as incurred and were $ 11.2 million and $ 1.5 million for the years ended December 31, 2023 and 2022, respectively.

There were no advertising costs for the year ended December 31, 2021.

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

Advertising costs are expensed as incurred and were $ 6.9 million, $ 11.2 million, $ 1.5 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Pre-funded Warrants

Pursuant to the Company’s offering relating to the sale of securities completed in October 2023, the Company issued pre-funded warrants to purchase 7,500,000 shares of the Company's common stock at $ 2.4999 per underlying share of common stock.

The exercise price of the warrants was $ 0.0001 per underlying share of common stock, were fully exercisable upon issuance, and have no expiration date.

The Company determined that the pre-funded warrants should be equity classified because they are freestanding financial instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of shares of common stock upon exercise, are indexed to the Company’s common stock and meet the equity classification criteria.

In addition, such pre-funded warrants do not provide any guarantee of value or return.

Accordingly, the proceeds from the issuance of the warrants were recorded as additional paid-in capital on the Company’s consolidated balance sheet and included in weighted-average shares used in computing net loss per share as of December 31, 2023.

The warrants had an exercise price of $ 0.0001 per underlying share of common stock, were fully exercisable upon issuance, and have no expiration date.

The shares underlying the pre-funded warrants, the exercise of which requires nominal consideration for the delivery of the shares of common stock, are included in weighted-average shares used in computing net loss per share as of December 31, 2024 and 2023.

Stock-Based Compensation

2 unchanged sentences

For share-based awards that vest subject to the satisfaction of a service requirement, the fair value measurement date for such awards is the date of grant and the expense is recognized on a straight-line basis over the expected vesting period.

For share-based awards that vest subject to a performance condition, the Company will recognize compensation cost for awards if and when the Company concludes that it is probable that the awards with a performance condition will be achieved on an accelerated attribution method.

The Company accounts for forfeitures as they occur.

For share-based awards that vest subject to a performance condition, the Company will recognize compensation cost for awards if and when the Company

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

concludes that it is probable that the awards with a performance condition will be achieved on an accelerated attribution method.

The Company accounts for forfeitures as they occur.

Income taxes are accounted for using the asset and liability method.

3 unchanged sentences

The Company records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

Due to the Company’s historical operating performance and the recorded cumulative net losses in prior fiscal periods, the net deferred tax assets have been fully offset by a valuation allowance.

Due to the Company’s historical operating performance and the recorded cumulative net losses in prior fiscal periods, the net deferred tax assets for the United States have been fully offset by a valuation allowance.

The Company has an immaterial deferred tax asset related to foreign jurisdictions which is not offset by a valuation allowance.

The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position.

1 unchanged sentence

To date, there have been no interest or penalties incurred in relation to the unrecognized tax benefits.

Income tax expense of $ 3.1 million for the year ended December 31, 2023 was primarily due to foreign withholding taxes on the up-front payment received in connection with the Huadong Agreement.

There was no income tax expense recognized for the year ended December 31, 2022 or 2021.

See Note 6 and Note 11.

Foreign Currency Translation

9 unchanged sentences

Shares of common stock subject to repurchase are excluded from the weighted-average shares.

Co-promotion Agreement

I n July 2024, the Company entered into a co-promotion agreement with Kowa Pharmaceuticals America, Inc.

(Kowa) to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE to primary care practitioners and pediatricians for all FDA-approved indications until July 2029.

The Company recognizes all revenue and Kowa receives a commission for the net sales attributed to Kowa, which is reflected in selling, general and administrative expense.

For the year ended December 31, 2024, revenue from sales attributed to Kowa were immaterial and related commissions were immaterial.

Recently Issued Accounting Pronouncements

2 unchanged sentences

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company adopted the guidance in the fiscal year beginning January 1, 2024.

There was no impact on the Company's reportable segments identified and additional required disclosures have been included in Note 13.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The amendments should be applied prospectively;

however, retrospective application is also permitted.

The Company is currently evaluating the impact of adopting ASU 2023-09.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses , which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement.

ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently evaluating the impact of adopting ASU 2024-03.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Revenues are recognized under guidance within ASC 606, Revenue from Contracts with Customers .

The following table presents the Company's disaggregated revenue for the periods presented (in thousands):

Year Ended December 31,

2024 2023 2022

ZORYVE cream 0.3%

$ 85,082 $ 29,186 $ 3,686

ZORYVE cream 0.15%

Total product revenue, net

166,542 29,186 3,686

Other revenue

30,000 30,420 —

Total revenues

$ 196,542 $ 59,606 $ 3,686

Other revenue relates primarily to the Sato and Huadong licensing agreements.

Major customers are defined as customers that individually accounted for greater than 10% of the Company's revenue.

The following table presents each major customer that accounted for more than 10% of its gross product sales.

Year Ended December 31,

% of gross product sales

2024 2023 2022

14 % 21 % 45 %

12 % 13 % 16 %

Total gross product sales from major customers

55 % 69 % 98 %

* Represents less than 10% of respective balance

As of December 31, 2024, amounts due from five of these customers each exceeded 10% of gross trade receivables and accounted for 69 % of net trade receivables on a combined basis.

As of December 31, 2023, amounts due from four of these customers each exceeded 10% of gross trade receivables and accounted for 68 % of net trade receivables on a combined basis.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Fair Value Measurements

4 unchanged sentences

$ 71,335 $ — $ — $ 71,335

Commercial paper — 11,806 — 11,806

Certificates of deposit

— 5,042 — 5,042

Corporate debt securities — 83,955 — 83,955

12 unchanged sentences

Treasury securities are valued based on quoted market prices in active markets, with no valuation adjustment.

Commercial paper and corporate debt securities are valued taking into consideration valuations obtained from third-party pricing services.

Commercial paper, certificates of deposits, and corporate debt securities are valued taking into consideration valuations obtained from third-party pricing services.

The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value.

12 unchanged sentences

$ 71,335 $ — $ — $ 71,335

Corporate debt securities

14,851 3 — 14,854

Total cash and cash equivalents $ 71,335 $ — $ — $ 71,335

Marketable securities:

Commercial paper $ 11,817 1 ( 12 ) $ 11,806

Certificates of deposit

$ 5,042 — — $ 5,042

Corporate debt securities 83,855 100 — 83,955

12 unchanged sentences

$ 73,544 $ — $ — $ 73,544

Corporate debt securities

14,851 3 — 14,854

Total cash and cash equivalents $ 88,395 $ 3 $ — $ 88,398

6 unchanged sentences

(1) This balance includes cash requirements settled on a nightly basis.

Realized gains or losses on investments for the years ended December 31, 2023 and 2022 were no t material.

As of December 31, 2023 and 2022, it was determined that no credit losses exist, because the change in market value of those securities resulted from fluctuations in market interest rates since the time of purchase, rather than a deterioration of the credit worthiness of the issuers.

As of December 31, 2023 and 2022, all securities have a maturity of 18 months or less and all securities with gross unrealized losses have been in a continuous loss position for less than one year.

As of December 31, 2024, all securities have a maturity of 18 months or less and there were no individual securities that were in a significant unrealized loss position.

The Company generally holds its marketable securities until maturity and does not intend to sell, and is not required to sell, the investments that are in an unrealized loss position before the recovery of their amortized cost basis.

The following table summarizes the change in the fair value of the embedded derivative instrument for the year ended December 1, 2023 (in thousands).

There was no activity for the years ended December 31, 2022 or 2021.

The following table summarizes the change in the fair value of the embedded derivative instrument for the year ended December 31, 2024 and 2023 (in thousands).

There was no activity for the year ended December 31, 2022.

Beginning balance

Loss from changes in fair value

Loss (gain) from changes in fair value

Ending balance

11 unchanged sentences

Prepaid expenses and other current assets consist of the following (in thousands):

Prepaid co-pay assistance program $ 8,608 $ 3,226

Prepaid co-pay assistance program and rebates

$ 7,369 $ 8,608

Prepaid clinical trial costs 3,244 1,024

4 unchanged sentences

Accrued liabilities consist of the following (in thousands):

Accrued compensation $ 14,872 $ 14,000

Accrued sales deductions $ 38,430 $ 11,578

Accrued compensation 20,747 14,872

Clinical trial accruals — 4,192

16 unchanged sentences

License Agreements & Acquisition

Sato License Agreement

On February 27, 2024, the Company entered into a License Agreement with Sato Pharmaceutical Co., Ltd.

Pursuant to the terms of the License Agreement, the Company grants to Sato an exclusive, sublicensable (under certain circumstances) license under certain patent rights and know-how controlled by the Company for Sato to develop, conduct medical affairs activities for, manufacture, commercialize, and otherwise exploit roflumilast formulations (the Licensed Products) for all therapeutic uses for certain dermatological indications in humans (the Field) in Japan (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, Sato will, at its expense, develop, obtain regulatory approval for, commercialize, and conduct medical affairs activities related to the Licensed Products in the Field in Japan, subject to certain of the Company’s approval and oversight rights.

Pursuant to the terms of the License Agreement, the Company received an upfront payment of $ 25.0 million and will potentially receive additional payments (i) up to an aggregate amount of $ 10.0 million upon the achievement of certain regulatory milestones and (ii) up to an aggregate amount of $ 30.0 million upon the achievement of certain sales milestones.

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

The term of the License Agreement continues until, on a Licensed Product-by-Licensed Product 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.

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

Unless unenforceable under applicable law, the Company may terminate the License Agreement in its entirety if Sato, 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 the Company to Sato.

The Company may also terminate the License Agreement if Sato or any director, officers, employee, agent, affiliate, sublicensee, or subcontractor is charged by a governmental authority for a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations, or,

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

subject to the terms of the License Agreement, if Sato, its affiliates and sublicensees do not conduct any material development or commercialization activities of a Licensed Product in Japan for a certain period of time.

Other revenue under the Sato agreement was $ 25.0 million for the year ended December 31, 2024.

Huadong License and Collaboration Agreement

5 unchanged sentences

The Company received a net payment of $ 27.0 million, which consisted of a $ 30.0 million upfront payment less the applicable tax withholding obligation in China of $ 3.0 million.

In addition, the Company received a net payment of $ 2.7 million in March 2024, which consisted of $ 3.0 million related to the achievement of a development and regulatory milestone less the applicable tax withholding of $ 0.3 million.

The Company received a net payment of $ 1.8 million in December 2024 which consisted of $ 2.0 million related to the achievement of a development and regulatory milestone less the applicable tax withholding of $ 0.2 million.

The Company may also potentially receive additional payments:

4 unchanged sentences

Other revenue and related income tax expense related to the Huadong agreement was $ 5.0 million and $ 0.5 million, respectively, for the year ended December 31, 2024.

Other revenue and related tax income expense related to the Huadong agreement was $ 30.0 million and $ 3.0 million, respectively, for the year ended December 31, 2023.

AstraZeneca License Agreement

6 unchanged sentences

In the third quarter of 2022, the Company paid $ 7.5 million to AstraZeneca as a result of the approval of ZORYVE cream 0.3%, which was recorded as an intangible asset.

In the third quarter of 2024, the Company paid $ 5.0 million to AstraZeneca upon achievement of $ 100.0 million in worldwide net sales, which was recorded as a cumulative catch-up adjustment to the carrying value of the intangible asset.

The Company is amortizing the intangible asset to cost of sales over its useful life of 10 years from the date of first commercial sale as this is the minimum amount of time that the related License Agreement will be in effect.

Amortization expense was $ 1.1 million and $ 0.3 million for the year ended December 31, 2023 and 2022, respectively.

The Company has agreed to make additional cash payments to AstraZeneca of up to an aggregate of $ 5.0 million upon the achievement of specified 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 become payable when the Company achieves $ 100.0 million in worldwide sales.

Amortization expense was $ 2.0 million, $ 0.8 million and $ 0.3 million for the years ended December 31, 2024, 2023, and 2022, respectively.

With respect to any AZ-Licensed Products the Company commercializes under the AstraZeneca License Agreement, it will pay AstraZeneca a low to high single-digit percentage royalty rate on the Company’s, its affiliates’ and its sublicensees’ net sales of such AZ-Licensed Products, subject to specified reductions, 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.

As a result of the commercialization of ZORYVE cream in August 2022, the Company began accruing royalties payable to AstraZeneca, which are recorded in cost of sales and accrued liabilities, Royalty expense during the year ended December 31, 2023 and 2022 was not material.

There were no milestone payments made or payable in connection with AZ-Licensed Products for the years ended December 31, 2023 and 2021.

As a result of the commercialization of ZORYVE cream in August 2022, the Company began accruing royalties payable to AstraZeneca, which are recorded in cost of sales and accrued liabilities.

Royalty expense during the year ended December 31, 2024 was $ 5.0 million.

Royalty expense during the years ended December 31, 2023 and 2022 was no t material.

ARCUTIS BIOTHERAPEUTICS, INC.

10 unchanged sentences

In June 2022, the Company entered into a side letter agreement with Hengrui and one of its subsidiaries to extend certain rights and obligations under the Hengrui License Agreement to the subsidiary under specified circumstances, including a change of control of such subsidiary.

There were no payments made or due in connection with Hengrui for the year ended December 31, 2023, 2022 and 2021.

There were no payments made or due in connection with Hengrui for the years ended December 31, 2024, 2023 and 2022.

Ducentis Biotherapeutics LTD Acquisition

On September 7, 2022, the Company entered into a Share Purchase Agreement with Ducentis Biotherapeutics LTD (Ducentis), pursuant to which the Company acquired (the “Acquisition”) all of the outstanding equity interests in Ducentis for (i) 610,258 shares of the Company common stock valued at approximately $ 12.5 million and $ 15.9 million in cash, inclusive of liabilities acquired, and (ii) contingent payments, the amount of which is indeterminable until achieved, which may become payable upon the achievement of certain development, regulatory, and commercial milestones.

The Company currently estimates that these contingent payments may be up to an aggregate of approximately $ 400 million (although the actual amount may differ depending on whether the applicable milestones are achieved).

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

There were no payments made or due in connection with the Ducentis acquisition for the year ended December 31, 2023.

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

The Company accounted for this purchase as an in-process research and development asset acquisition and in the third quarter of 2022 recorded a charge to research and development expense in the amount of $ 29.6 million, which was not tax deductible.

On September 7, 2022, the Company entered into a Share Purchase Agreement with Ducentis Biotherapeutics LTD (Ducentis), pursuant to which the Company acquired (the Acquisition) all of the outstanding equity interests in Ducentis for (i) 610,258 shares of the Company common stock valued at approximately $ 12.5 million and $ 15.9 million in cash, inclusive of liabilities acquired, and (ii) contingent payments of up to an aggregate of $ 400 million, which may become payable upon the achievement of certain development, regulatory, and commercial milestones.

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

The Company accounted for this purchase as an in-process research and development (IPR&D) asset acquisition as it has no alternative future use and recorded a charge to research and development expense in the amount of $ 29.6 million on the acquisition date.

The contingent payments incurred in connection with the Acquisition will be recorded when it is probable that they will occur and they can be reasonably estimated, at which point the Company will determine whether the payment should be expensed or capitalized depending on whether the IPR&D has achieved market acceptance.

There were no payments made or due in connection with the Ducentis acquisition for the years ended December 31, 2024, 2023 and 2022.

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

Commitments and Contingencies

2 unchanged sentences

Operating Lease

The Company leases a facility in Westlake Village, California under an operating lease that commenced in February 2019 and was amended in April 2020 in order to relocate to a new expanded space comprising 22,643 square feet, for which the Company recognized the ROU asset and lease liability for the new space on May 1, 2020.

The lease payment term for the new space began on December 30, 2020.

The lease payments terminate July 2028, with a renewal option for a term of five years .

The Company will have a one-time option to cancel the lease in July 2026.

The amended lease agreement also required the Company to have an available letter of credit of $ 1.5 million upon occupying the space, which is allowed to be reduced throughout the lease period as rent obligations are met.

Accordingly, in November 2020, the Company entered into a letter of credit for $ 1.5 million, which it secured with a restricted cash account in the same amount.

In March 2022 and 2023, the Company reduced the line of credit and related restricted cash account to $ 1.2 million and $ 0.9 million respectively.

The Company leases a facility in Westlake Village, California which terminates in July 2028, with a renewal option for a term of five years .

The Company also has a one-time option to cancel the lease in July 2026.

The lease also requires the Company to have an available letter of credit which has a related restricted cash account of $ 0.9 million and $ 0.6 million as of December 31, 2023 and 2024, respectively.

The minimum annual rental payments of the Company’s operating lease liability as of December 31, 2024 are as follows (in thousands):

6 unchanged sentences

Straight-line rent expense recognized for operating leases was $ 745,000 , $ 737,000 , and $ 716,000 for the years ended December 31, 2024, 2023, and 2022, respectively.

There were no significant variable lease payments, including non-lease components such as common area maintenance fees, recognized as rent expense for operating leases for the years ended December 31, 2023, 2022, and 2021.

The following information represents supplemental disclosure for the consolidated statements of cash flows related to the Company’s operating lease (in thousands):

9 unchanged sentences

Firm future purchase commitments under these agreements are approximately $ 7.5 million for 2025 and $ 0.9 million per year for 2026 and 2027.

This amount does

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

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

not represent all of the Company’s anticipated purchases, but instead represents only the contractually obligated minimum purchases or firm commitments of non-cancelable minimum amounts.

Indemnification

8 unchanged sentences

The Company believes any potential loss exposure under these indemnification agreements in excess of applicable insurance coverage is minimal.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Long-term debt

On December 22, 2021, the Company entered into a loan and security agreement, or Loan Agreement, with SLR Investment Corp.

On December 22, 2021, the Company entered into a loan and security agreement (the Prior Loan Agreement) with SLR Investment Corp.

(SLR) and the lenders party thereto.

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

as a borrower and party to the Loan Agreement.

The lenders agreed to extend term loans to the Company in an aggregate principal amount of up to $ 225.0 million, comprised of (i) a tranche A term loan of $ 75.0 million, (ii) a tranche B-1 term loan of $ 50.0 million, (iii) a tranche B-2 term loan of up to $ 75.0 million, available in minimum increments of $ 15.0 million, and (iv) a tranche C term loan of up to $ 25.0 million (Term Loans).

The Prior Loan Agreement was amended and restated on January 10, 2023 (the AR Loan Agreement) to include Arcutis Canada, Inc.

as a borrower and party.

On November 1, 2023, the Company entered into an amendment to the AR Loan Agreement to, among others, (i) modify the financial covenant relating to minimum net product revenue, and (ii) include an additional minimum financing covenant.

On August 9, 2024, the Company entered into a second amendment to the AR Loan Agreement (the AR Loan Agreement, as amended by the first and second amendments, the Loan Agreement), which it determined to be a modification, to, among others, (i) permit, during the period commencing on October 7, 2024 and ending on December 15, 2024, an optional partial prepayment of term loans outstanding, subject to a 1.0 % prepayment penalty (the 2024 Partial Prepayment), (ii) add the tranche C-1 and tranche C-2 term loans, and (iii) facilitate certain other changes, including with respect to the applicable interest rate and maturity date in the event of a 2024 Partial Prepayment.

As security for the obligations under the Loan Agreement, the Company granted SLR, for the benefit of the lenders, a continuing security interest in substantially all of the Company's assets, including its intellectual property, subject to certain exceptions.

On November 1, 2023, the Company entered into an amendment to the Loan Agreement with SLR.

The tranche A term loan under the Loan Agreement was funded on December 22, 2021 in the amount of $ 75.0 million.

With the approval of ZORYVE on July 29,2022, the tranche B term loans were funded and the Company received $ 125.0 million on August 2, 2022.

The amended Loan Agreement provides for term loans to the Company in aggregate principal amount of up to $ 200.0 million, which amounts were fully drawn as of December 31, 2023.

The term loan facility is comprised of (i) a tranche A term loan of $ 75.0 million, (ii) a tranche B-1 term loan of $ 50.0 million, (iii) a tranche B-2 term loan of up to $ 75.0 million, (iv) a tranche C-1 term loan of up to $ 50.0 million, and (v) a tranche C-2 term loan of up to $ 50.0 million (collectively, the Term Loans).

The tranche A term loan was funded on December 22, 2021.

With the approval of ZORYVE cream 0.3% on July 29, 2022, the tranche B term loans were funded on August 2, 2022.

As of December 31, 2024 and 2023, the aggregate principal amount outstanding under the Loan Agreement was $ 100.0 million and $ 200.0 million, respectively.

On October 8, 2024, the Company made a 2024 Partial Prepayment of $ 100.0 million, which reduced the aggregate principal amount outstanding under the Loan Agreement to $ 100.0 million.

In connection with the 2024 Partial Prepayment, the Company is obligated to pay a prepayment penalty of $ 1.0 million by June 30, 2026 and a final fee of $ 6.95 million, representing the final fee applicable to the amount of the 2024 Partial Prepayment, on January 1, 2027.

As a result of such 2024 Partial Prepayment, subject to the Company generating a minimum net product revenue for the trailing six ( 6 ) month period ending as of the month prior to the borrowing date equal to 80 % of the Company’s projected net product revenue as set forth in its annual plan for the respective period, the Company will be able to draw down the tranche C-1 and tranche C-2 term loans.

The tranche C-1 term loan availability will expire on March 31, 2026 and the tranche C-2 term loan availability will expire on June 30, 2026.

In addition, as a result of the 2024 Partial Prepayment, (i) the maturity date of the Loan Agreement is August 1, 2029, (ii) the applicable per annum interest rate is equal to 5.95 % plus the greater of (a) 2.50 % per annum and (b) the one-month Secured Overnight Financing Rate (SOFR), (iii) the Company is no longer subject to certain cost and purchase price restrictions regarding acquisitions, and (iv) the Company may prepay principal amounts outstanding under the Term Loans in minimum increments of $ 25.0 million, subject to a prepayment premium of (a) 3.0 % for any prepayment made prior to the first anniversary of the second amendment, (b) 2.0 % for any prepayment made prior after the first anniversary of the second amendment and prior to the second anniversary of the second amendment, or (c) 1.0 % for any prepayment made prior after the second anniversary of the second amendment and prior to the maturity date.

Principal amounts outstanding under the Term Loans will accrue interest at a floating rate equal to the applicable rate in effect from time to time, as determined by SLR on the third business day prior to the funding date of the applicable Term Loan and on the first business day of the month prior to each payment date of each Term Loan.

The applicable rate is a per annum interest rate equal to 7.45 % plus the greater of (a) 0.10 % and (b) the per annum rate published by the Intercontinental Exchange Benchmark Administration Ltd.

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

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

Prior to the 2024 Partial Prepayment, the applicable rate was a per annum interest rate equal to 7.45 % plus the greater of (a) 0.10 % and (b) the one-month SOFR.

As a result of such 2024 Partial Prepayment, the applicable interest rate will be a per annum interest rate equal to 5.95 % plus the greater of (a) 2.50 % and (b) the one-month SOFR.

On December 31, 2024, the rate was 10.47 %.

The maturity date for each term loan is January 1, 2027.

Commencing on February 1, 2022, interest payments are payable monthly following the funding of any Term Loan.

Any principal amounts outstanding under the Term Loans, if not repaid sooner, are due and payable on January 1, 2027, or the Maturity Date.

The Company may voluntarily prepay principal amounts outstanding under the Term Loans in minimum increments of $ 5.0 million, subject to a prepayment premium of (i) 3.0 % of the principal amount of such Term Loan so prepaid prior to December 22, 2022, (ii) 2.0 % of the principal amount of such Term

The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate.

Interest payments are payable monthly following the funding of any Term Loan.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

Loan so prepaid after December 22, 2022 and prior to December 22, 2023, or (iii) 1.0 % of the principal amount of such Term Loan so prepaid after December 22, 2023 and prior to December 22, 2025.

If the Term Loans are accelerated due to, among others, the occurrence of a bankruptcy or insolvency event, the Company is required to make mandatory prepayments of (i) all principal amounts outstanding under the Term Loans, plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees applicable by reason of such prepayment, (iii) the prepayment premiums set forth in the paragraph above, plus (iv) all other obligations that are due and payable, including expenses and interest at the Default Rate (as defined below) with respect to any past due amounts.

The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on the Company’s ability to dispose of its business or property, to change its line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on its property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock.

The Company also agreed to a financial covenant whereby, beginning with the month ending December 31, 2023, the Company must generate net product revenue in excess of specified amounts for applicable measuring periods pursuant to the Loan Agreement.

The Company also agreed to a financial covenant whereby the Company must generate a minimum net product revenue equal to 75 % of its projected net product revenue as set forth in the Company's annual plan for the respective period, tested on a trailing six-month basis, as of the end of each month.

Each annual plan shall be approved by the Company’s board of directors and SLR, in its capacity as collateral agent, in its reasonable discretion.

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

The Company was in compliance with all covenants under the Loan Agreement as of December 31, 2024.

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

4 unchanged sentences

The embedded derivative instrument is remeasured at fair value each reporting period with any future changes in fair value reported in Other income, net in the consolidated statement of operations and comprehensive loss.

The fair value of the embedded derivative instrument as of December 31, 2023 was a liability of $ 0.8 million and is included in Other-long term liabilities in the accompanying consolidated balance sheets.

I n connection with the Loan Agreement, the Company paid a closing fee of $ 1.0 million on December 22, 2021, and is further obligated to pay (i) a final fee equal to 6.95 % of the aggregate original principal amount of the Term Loans funded upon the earliest to occur of the Maturity Date, the acceleration of any Term Loan and the prepayment, refinancing, substitution, or replacement of any Term Loan and (ii) a certain amount of lenders’ expenses incurred in connection with the execution of the Loan Agreement.

Additionally, in connection with the Loan Agreement, the Company entered into an Exit Fee Agreement, whereby the Company agreed to pay an exit fee in the amount of 3.0 % of each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six month basis.

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

During the year ended December 31, 2024 and 2023, the Company recognized a $ 0.3 million gain and $ 0.8 million loss, respectively, in Other income, net.

No gain or loss was recognized during the year ended December 31, 2022.

The fair value of the embedded derivative instrument as of December 31, 2024 and 2023 was a liability of $ 0.6 million and $ 0.8 million, respectively, and is included in Other-long term liabilities in the accompanying consolidated balance sheets.

I n connection with the Loan Agreement, the Company is obligated to pay (i) a final fee equal to 6.95 % of the aggregate original principal amount of the Term Loans outstanding as of the date of the second amendment (x) with respect to any 2024 Partial Prepayment, upon the earliest to occur of (a) January 1, 2027, (b) the acceleration of all outstanding Term Loans and (c) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, and (y) with respect to the Term Loans outstanding as of the date of the second amendment (other than the 2024 Partial Prepayment), upon the earliest to occur of (a) the maturity date, (b) the acceleration of all outstanding Term Loans and (c) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (ii) a 2.00 % fee with respect to tranche C term loans, due and payable on the earliest to occur of (a) the maturity date, (b) the acceleration of all outstanding Term Loans and (c) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (iii) a 2.00 % extension fee with respect to tranche C term loans which remain unfunded after December 31, 2025, which shall accrue during the period commencing January 1, 2026, and ending on the earliest to occur of (a) the expiration of the tranche C term loan availability, and (b) the date on which tranche C term loan is fully drawn, and (iv) a certain amount of lenders’ expenses incurred in connection with the execution of the Loan Agreement.

Additionally, in connection with the original Prior Loan Agreement, the Company previously had entered into an Exit Fee Agreement, whereby the Company agreed to pay an exit fee in the amount of 3.0 % of

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

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

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

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

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

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

The Company was in compliance with all covenants under the Loan Agreement as of December 31, 2023.

each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six-month basis.

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

The debt issuance costs have been recorded as a debt discount which are being accreted to interest expense through the maturity date of the term loan.

2 unchanged sentences

At December 31, 2024 and 2023, the effective interest rate was 11.57 % and 14.81 %, respectively.

Interest expense relating to the term loan was $ 29.7 million and $ 15.7 million for the year ended December 31, 2023 and 2022, respectively.

Interest expense relating to the term loan was immaterial for the year ended December 31, 2021.

Interest expense relating to the term loan was $ 27.2 million, $ 29.7 million and $ 15.7 million, respectively, for the year ended December 31, 2024, 2023 and 2022.

The following summarizes additional information related to the Company's long-term debt (in thousands):

1 unchanged sentence

Accrued final fee 7,324 4,876

Accrued prepayment penalty

Unamortized debt issuance costs ( 1,121 ) ( 3,077 )

Long-term debt, net $ 107,203 $ 201,799

Upon the contractual maturity of the Company's long term debt, a payment of principal and final fees of $ 213.9 million is due on January 1, 2027.

Stockholders’ Equity

The Company reserved the following shares of common stock for issuance as follows:

Pre-funded warrants to purchase common stock

Equity awards plans:

Options issued and outstanding 7,919,699 7,476,223

Common stock awards available for grant under employee incentive plans 3,980,356 3,784,386

Restricted stock units outstanding 2,929,602 1,576,529

Total common stock reserved 22,329,657 12,837,138

Upon the contractual maturity of the Company's long term debt, a payment of principal and final fees of $ 107.0 million is due on August 1, 2029.

Stock-Based Compensation

In January 2020, the Company’s board of directors approved the 2020 Equity Incentive Plan (2020 Plan), which became effective January 30, 2020 in connection with the IPO.

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

future awards under the 2017 Plan at the time the 2020 Plan became effective, plus shares represented by awards outstanding under the 2017 Plan that are forfeited or lapsed unexercised and which following the effective date of the 2020 Plan are not issued under the 2017 Plan.

The 2020 Plan serves as the successor incentive award plan to the Company’s 2017 Equity Incentive Plan (2017 Plan) and initially reserved 2,134,000 shares of common stock available for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, restricted stock awards, restricted stock unit (RSU) awards, and other stock-based awards, plus 1,550,150 shares of common stock that were reserved for issuance pursuant to future awards under the 2017 Plan at the time the 2020 Plan became effective, plus shares represented by awards outstanding under the 2017 Plan that are forfeited or lapsed unexercised and which following the effective date of the 2020 Plan are not issued under the 2017 Plan.

In addition, the 2020 Plan reserve will increase on January 1 of each year beginning in 2021 through 2030, by an amount equal to the lesser of (a) four percent of the shares of stock outstanding (on an as converted basis) on the day immediately prior to the date of increase and (b) such smaller number of shares of stock as determined by the Company's board of directors;

9 unchanged sentences

In December 2021, the Company’s board of directors approved the 2022 Employment Inducement Incentive Plan (2022 Plan).

The 2022 Plan initially reserved 1,250,000 shares of common stock available for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, restricted stock awards, RSU awards, and other stock-based awards.

The 2022 Plan initially reserved 1,250,000 shares of common stock available for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

rights, restricted stock awards, RSU awards, and other stock-based awards.

In November 2022, the 2022 Plan reserve was increased by 1,500,000 .

As of December 31, 2024, the Company had 401,134 shares available for future grant under the 2022 Plan.

Stock Option Exchange Program

On January 16, 2024, the Company commenced an offer to certain eligible employees and consultants to exchange certain outstanding eligible options to purchase shares of the Company’s common stock for a lesser number of restricted stock unit (RSU) awards pursuant to an option exchange program (the Option Exchange).

The Option Exchange expired on February 12, 2024.

Pursuant to the Option Exchange, eligible option holders elected to exchange, and the Company accepted for cancellation, eligible options to purchase an aggregate of 5,059,129 shares of the Company’s common stock, representing approximately 98 % of the total shares of common stock underlying the eligible options.

On February 13, 2024, immediately following the expiration of the Option Exchange, the Company granted 2,129,594 shares of Replacement RSU Awards, pursuant to the terms of the Option Exchange.

The Replacement RSU Awards will vest based on continued service with the Company over a period of either 1 , 2 or 3 years, depending on the grant date of the exchanged options.

The exchange of stock options was treated as a modification for accounting purposes, which requires an incremental expense of $ 8.6 million to be recognized for the Replacement RSU Awards over their new service periods ( 1 - 3 years).

In addition, any unamortized expense remaining on the exchanged options as of the modification will be recognized over their original remaining service period.

Stock Option Activity

6 unchanged sentences

Forfeited (1)

( 5,384,872 ) 22.37

Expired ( 308,725 ) 24.44

3 unchanged sentences

______________

(1) Options exercisable includes early exercisable options.

(1) The number of stock options forfeited includes those exchanged in the Option Exchange as described above.

The aggregate intrinsic value is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of December 31, 2024.

3 unchanged sentences

Restricted Stock Unit Activity

The following table summarizes information regarding the Company's RSUs:

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

The following table summarizes information regarding the Company's RSUs:

Number of Units Weighted-Average

18 unchanged sentences

As of December 31, 2024, there was $ 35.3 million of total unrecognized compensation cost related to RSUs that are expected to vest, which is expected to be recognized over a weighted-average period of 2.4 years.

In April 2024, in connection with the retirement of the former Chief Financial Officer, the Company modified the terms of this individual's historical stock awards.

As a result of the modifications, the Company recognized $ 1.7 million of incremental stock compensation expense during the period, which is included in selling, general and administrative expenses.

In determining the fair value of the stock options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below.

3 unchanged sentences

The Company uses the simplified method (based on the mid-point between the vesting date and the end of the contractual term) to determine the expected term as it does not have sufficient prior exercise data to calculate based on historical data.

Expected Volatility — Beginning in 2022, having over two years of trading history, the Company began using solely its own historical stock price for expected volatility.

Expected Volatility — The Company uses its own historical stock price for expected volatility.

Risk-Free Interest Rate —The risk-free interest rate is based on the U.S.

28 unchanged sentences

Notes to Consolidated Financial Statements

The Company recorded an income tax expense of $ 3.1 million during the year ended December 31, 2023, Of the $ 3.1 million recorded, $ 3.0 million was related to foreign withholding taxes on the up-front fee in connection with the Huadong Agreement and $ 0.1 million was related to foreign tax expense.

The Company had no U.S.

The Company recorded income tax expense of $ 0.6 million during the year ended December 31, 2024.

Of the $ 0.6 million recorded, $ 0.5 million was related to foreign withholding taxes on the milestone payments received in connection with the Huadong Agreement and $ 0.1 million was related to other foreign tax expense.

The Company recorded income tax expense of $ 3.1 million during the year ended December 31, 2023.

Of the $ 3.1 million recorded, $ 3.0 million was related to foreign withholding taxes on the up-front fee in connection with the Huadong Agreement and $ 0.1 million was related to foreign tax expense.

The Company had no material U.S.

federal income tax and state income tax expense for the years ended December 31, 2024, 2023 and 2022.

28 unchanged sentences

40,158 53,715 72,149

Uncertain tax positions

Permanent differences

28 unchanged sentences

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.

Due to the lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance.

Due to the lack of earnings history, the net deferred tax assets for the United States have been fully offset by a valuation allowance.

The Company has an immaterial deferred tax asset related to foreign jurisdictions.

The valuation allowance increased by approximately $ 40.1 million and $ 53.4 million during the years ended December 31, 2024 and 2023, respectively.

12 unchanged sentences

The changes were effective for the tax years beginning after December 31, 2022.

The CAMT will require companies to compute two separate calculations for federal income tax purposes and pay the greater of the new minimum tax or their regular tax liability.

The CAMT does not currently have an impact on the Company.

The CAMT will require companies to compute two separate calculations for federal income tax purposes and pay

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

the greater of the new minimum tax or their regular tax liability.

The CAMT does not currently have an impact on the Company.

Uncertain Tax Benefits

10 unchanged sentences

$ 42,286 $ 41,390 $ 42,505

The reversal of the uncertain tax benefits would not affect the effective tax rate to the extent that the Company continues to maintain a full valuation allowance against its deferred tax assets.

The Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months.

Included in unrecognized tax benefits of $ 41.4 million at December 31, 2023 was $ 34.2 million of tax benefits that, if recognized, would reduce the annual effective tax rate, subject to valuation allowance.

Included in unrecognized tax benefits of $ 42.3 million at December 31, 2024 was $ 35.1 million of tax benefits that, if recognized, would not impact the Company's income tax benefit or effective tax rate to the extent that the Company continues to maintain a full valuation allowance against its deferred tax assets.

The Company does not expect that there will be a significant change in the unrecognized tax benefits over the next 12 months.

8 unchanged sentences

Basic net loss per share is calculated by dividing the net loss by the weighted-average common shares outstanding.

Pre-funded warrants to purchase 7,500,000 shares of the Company's stock were included in the weighted-average common shares outstanding used in calculating net loss per share for the year ended December 31, 2023.

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

7 unchanged sentences

Total 11,414,334 10,875,669 9,084,651

Subsequent Event

ARCUTIS BIOTHERAPEUTICS, INC.

Notes to Consolidated Financial Statements

number of RSUs pursuant to an option exchange program (the “Option Exchange”).

The Option Exchange expired on February 12, 2024.

Pursuant to the Option Exchange, eligible option holders elected to exchange, and the Company accepted for cancellation, eligible options to purchase an aggregate of 5,063,689 shares of the Company’s common stock, representing approximately 98 % of the total shares of common stock underlying the eligible options.

On February 12, 2024, immediately following the expiration of the Option Exchange, the Company granted 2,131,874 shares of Replacement RSU Awards, pursuant to the terms of the Option Exchange.

The Replacement RSU Awards will vest based on continued employment by or continued service as a consultant with the Company over a period of either 1 , 2 or 3 years, depending on the grant date of the exchanged options.

Segment Reporting

The Company has one reportable segment relating to the development and commercialization of treatments for dermatological diseases.

The Company’s Chief Operating Decision Maker (the CODM) is its Chief Executive Officer.

The CODM evaluates financial information on a consolidated basis for the purposes of allocating resources and assessing performance.

The table below is a summary of the segment profit or loss, including significant segment expenses (in thousands):

Year Ended December 31,

2024 2023 2022

Total revenues $ 196,542 $ 59,606 $ 3,686

Cost of sales 17,169 4,237 442

Topical roflumilast program costs

5,210 35,607 83,030

Topical JAK inhibitor program costs

2,945 3,334 4,461

Other early-stage programs costs

11,477 5,681 1,128

Research and development compensation and personnel-related expenses 39,216 44,613 41,396

Selling, general and administrative expenses 228,908 184,628 121,757

Other segment expenses (1)

20,014 22,607 53,099

Total operating expenses 324,939 300,707 305,313

Operating loss ( 128,397 ) ( 241,101 ) ( 301,627 )

Other income, net 16,173 11,786 5,821

Interest expense ( 27,168 ) ( 29,712 ) ( 15,652 )

Provision for income taxes 647 3,113 —

Segment and consolidated net loss $ ( 140,039 ) $ ( 262,140 ) $ ( 311,458 )

(1) Other segment expenses include professional services related to research and development, medical affairs, depreciation and amortization expenses.

Other segment expenses for the year ended December 31, 2022 includes in-process research and development (IPR&D) related to the acquisition of Ducentis in 2022.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

6 unchanged sentences

February 25, 2025 By:

/s/ David Topper

Chief Financial Officer

1 unchanged sentence

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Todd Franklin Watanabe, John W.

Smither and Mas Matsuda, his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Todd Franklin Watanabe, David Topper and Mas Matsuda, his or her true and lawful attorney-in-fact and agent, with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S.

Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or their, his or her substitutes or substitutes, may lawfully do or cause to be done by virtue hereof.

4 unchanged sentences

Todd Franklin Watanabe

/s/ David Topper

Chief Financial Officer

(Principal Accounting and Financial Officer) February 25, 2025

/s/ Patrick J.

Heron Director, Chairman February 27, 2024

Leonard Director, Chairman February 25, 2025

/s/ Bhaskar Chaudhuri Director February 25, 2025

4 unchanged sentences

Gilbert Director February 25, 2025

Leonard Director February 27, 2024

/s/ Patrick J.

Director February 25, 2025

/s/ Sue-Jean Lin Director February 25, 2025

4 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 9A. Controls and Procedures