What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-06 compared with 2024-11-06 · 78 added, 193 removed, 170 unchanged (61% of the section changed)

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

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

We believe we have built a leading platform for dermatologic product development and commercialization.

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

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

ZORYVE cream 0.3% is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 (PDE4) inhibitor.

ZORYVE cream 0.3% is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use.

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In April 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older.

ZORYVE cream 0.3% is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 ("PDE4") inhibitor.

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

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

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

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

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

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

ZORYVE foam became commercially available in the United States in late January 2024, and announced Health Canada approval on October 18, 2024 and will become commercially available in Canada by the end of 2024.

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

In addition to the approval of ZORYVE cream 0.3% for plaque psoriasis and ZORYVE foam for seborrheic dermatitis, we also received FDA approval for and commercially launched ZORYVE (roflumilast) cream 0.15% ("ZORYVE cream 0.15%"), (collectively, "ZORYVE") in July 2024 for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older, with no limitation on location, body surface area treated, concomitant use, or duration of use.

ZORYVE foam became commercially available in the United States in January 2024, and was approved by Health Canada in October 2024 and became commercially available in Canada in December 2024.

In addition to the approval of ZORYVE cream 0.3% for plaque psoriasis and ZORYVE foam for seborrheic dermatitis, we also received FDA approval for and commercially launched ZORYVE (roflumilast) cream 0.15% (ZORYVE cream 0.15%), (collectively, ZORYVE), in July 2024 for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older, with no limitation on location, body surface area treated, concomitant use, or duration of use specified in the approved labelling.

ZORYVE cream 0.15% was also approved by Health Canada in March 2025 and commercially launched in April 2025.

ZORYVE cream 0.15% is a once-daily, steroid-free cream that provides rapid disease clearance and significant reduction in itch and has been specifically developed to be a treatment option for long-term disease control.

We have also completed a Phase 3 trial of ZORYVE cream 0.05% in pediatric patients 2 to 5 years of age with mild to moderate atopic dermatitis (INTEGUMENT-PED).

Based on the positive results from the INTEGUMENT-PED study, and given our recent approval of ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in individuals 6 years of age or older, we expect to submit a supplemental new drug application ("sNDA") for topical ZORYVE cream 0.05% for children 2 to 5 years of age in the first quarter of 2025.

We conducted INTEGUMENT-OLE, an open label extension study of the long-term safety of ZORYVE cream 0.15% in subjects 6 years of age or older and ZORYVE cream 0.05% in subjects between the ages 2 and 5 years, for which we reported positive results in August 2024.

Based on the positive results from the INTEGUMENT-PED study, and given our recent approval of ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in individuals 6 years of

age or older, we submitted a supplemental new drug application (sNDA) for topical ZORYVE cream 0.05% for children 2 to 5 years of age in December 2024, which was accepted by the FDA with a Prescription Drug User Fee Act (PDUFA) target action date in October 2025.

Beyond seborrheic dermatitis, we are also developing ZORYVE foam for scalp and body psoriasis and have successfully completed our Phase 2b and pivotal Phase 3 clinical trials.

We announced positive topline data in September 2022, and we submitted an sNDA to the FDA for a label expansion to include scalp and body psoriasis in adults and adolescents ages 12 and over, which was recently accepted by the FDA with a Prescription Drug User Fee Act ("PDUFA") target action date in May 2025.

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

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

Patients that are treated outside of dermatology offices are primarily addressable through primary care physicians and pediatricians.

We announced positive Phase 3 topline data in September 2022, with ZORYVE foam showing rapid disease clearance and significant reduction in itch.

In the pivotal Phase 3 ARRECTOR study, at Week 8, 66% of individuals treated with ZORYVE foam achieved the co-primary efficacy endpoint of Scalp IGA Success, defined as a Scalp IGA score of “clear” or “almost clear” plus a 2-point improvement, and 46% of patients achieved the co-primary efficacy endpoint of Body IGA Success, defined as a Body IGA score of "clear" or "almost clear" plus a 2-point improvement.

In addition, individuals treated with ZORYVE foam reported reductions in itch from baseline within 24 hours of first application.

Based on the ARRECTOR results and a Phase 2b study, we submitted an sNDA to the FDA for a label expansion to include scalp and body psoriasis in adults and adolescents ages 12 and over, which was accepted by the FDA with a PDUFA target action date of May 22, 2025.

In July 2024, we entered into a co-promotion agreement with Kowa Pharmaceuticals, Inc.

to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE in the United States to primary care practitioners and pediatricians for all FDA-approved indications until at least July 2029.

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

Under the terms of the agreement, Kowa will receive a commission from net sales attributed to Kowa.

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

We recently completed enrollment in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata and expect data in the first half of 2025.

We completed enrollment in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata and expect data in the middle of 2025.

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

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

We are working towards submitting an IND during 2025.

We have incurred net losses in each year since inception, including net losses of $129.3 million and $195.9 million for the nine months ended September 30, 2024 and 2023, respectively.

As of September 30, 2024, we had an accumulated deficit of $1,111.2 million and cash, cash equivalents, restricted cash, and marketable securities of $331.2 million.

As of September 30, 2024, we had $200.0 million outstanding under the Loan Agreement, of which we paid down $100.0 million of principal from our available cash on October 8, 2024, with the right to re-draw that principal for a defined period.

See Note 10 to the condensed consolidated financial statements for additional information.

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

commercialization.

We expect to incur significant and prioritized commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE, while we focus our clinical development spend on ARQ-234, ARQ-255, and ZORYVE label extensions, if we obtain regulatory approval for them.

If our available cash and marketable securities balances, amounts available under the Loan Agreement, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as future potential collaboration agreements.

We are working towards submitting an Investigational New Drug (IND) application during 2025.

We have incurred net losses in each year since inception, including net losses of $25.1 million and $35.4 million for the three months ended March 31, 2025 and 2024, respectively.

As of March 31, 2025, we had an accumulated deficit of $1,147.0 million and cash, cash equivalents, restricted cash, and marketable securities of $198.7 million.

As of March 31, 2025, we had $100.0 million outstanding under the Loan Agreement.

We paid down $100.0 million of principal related to the Loan Agreement using available cash on October 8, 2024, with the right to re-draw that principal for a defined period.

We expect to continue to incur losses and significant expenses in 2025 as we commercialize ZORYVE, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions, and commercialization.

We expect to incur commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE, while we focus our clinical development spend on ARQ-234, ARQ-255, and ZORYVE label extensions, if we obtain regulatory approval for them.

While we do not anticipate the need to obtain funds through financings or other sources to support our current operations, if our available cash and marketable securities balances, amounts available under the Loan Agreement, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as future potential collaboration agreements.

Adequate funding may not be available to us on acceptable terms, or at all.

Any failure to obtain sufficient funds on acceptable terms as and when needed could have a material adverse effect on our business, results of operations, and financial condition.

Any failure to obtain sufficient funds on acceptable terms if or when needed could have a material adverse effect on our business, results of operations, and financial condition.

See “Liquidity, Capital Resources, and Requirements” below and Note 1 to the condensed consolidated financial statements for additional information.

We rely on third parties to conduct our nonclinical studies and clinical trials and for manufacturing and supply of our product candidates.

We have no internal manufacturing capabilities, and we will continue to rely on third parties, many of whom are single source suppliers, for our nonclinical and clinical trial materials, as well as the commercial supply of our products.

We have no internal manufacturing capabilities, and we will continue to rely on

third parties, many of whom are single source suppliers, for our nonclinical and clinical trial materials, as well as the commercial supply of our products.

Components of Our Results of Operations

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In August 2022, in conjunction with the launch of our first FDA-approved product, ZORYVE cream 0.3%, we began to recognize revenue from product sales, net of rebates, chargebacks, discounts, and other adjustments.

Additionally, in June 2023, we began recognizing revenue net of deductions for ZORYVE cream 0.3% in Canada and, in January 2024, for ZORYVE foam.

We received FDA approval of ZORYVE cream 0.15% for atopic dermatitis and began recognizing related revenues in July 2024.

We will continue to evaluate trends related to revenue for ZORYVE.

Additionally, if our development efforts for our other product candidates and ZORYVE label extensions are successful and result in regulatory approval, we may generate additional revenue in the future from product sales.

We also began recognizing revenue net of deductions for ZORYVE cream 0.3% in Canada in June 2023, ZORYVE foam in the United States in January 2024, ZORYVE cream 0.15% for atopic dermatitis in July 2024, and ZORYVE foam in Canada in December 2024.

Other Revenue

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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, and freight-in, as well as third-party royalties payable on our net product sales and amortization of intangible assets associated with ZORYVE.

Our cost of sales will reflect a lower average per unit cost of materials until inventory that was previously expensed is sold, which is expected to occur over the next seven months.

As of September 30, 2024 and December 31, 2023, the value of this inventory, mostly at the raw materials stage, was approximately $3.4 million and $8.7 million, respectively.

Our cost of sales will reflect a lower average per unit cost of materials until inventory that was previously expensed is sold, which is expected to occur in 2025.

As of March 31, 2025 and December 31, 2024, the value of this inventory, mostly at the raw materials stage, was approximately $2.7 million and $5.5 million, respectively.

Operating Expenses

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The successful development of our product candidates is highly uncertain.

At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE foam, ARQ-255, and ARQ-234 or any other product candidates.

to the numerous risks and uncertainties associated with the development of product candidates.

At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream and ZORYVE foam, ARQ-255, and ARQ-234 or any other product candidates.

This is due to the numerous risks and

uncertainties associated with the development of product candidates.

See “Risk Factors” for a discussion of the risks and uncertainties associated with the development of our product candidates.

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

The commission paid to Kowa under our co-promotion agreement will also be recorded as a selling expense.

The commission paid to Kowa under our co-promotion agreement is recorded as a selling expense.

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

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Results of Operations

Comparison of the Three Months Ended September 30, 2024 and 2023

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

Three Months Ended September 30, Change

2024 2023 $ %

(in thousands)

Product revenue, net $ 44,755 $ 8,109 $ 36,646 452 %

Other revenue — 30,000 (30,000) (100) %

Total revenues 44,755 38,109 6,646 17 %

Operating expenses:

Cost of sales 5,503 1,182 4,321 366 %

Research and development 19,501 26,236 (6,735) (26) %

Selling, general, and administrative 58,817 47,595 11,222 24 %

Total operating expenses 83,821 75,013 8,808 12 %

Loss from operations (39,066) (36,904) (2,162) 6 %

Other income (expense):

Other income, net 4,182 2,721 1,461 54 %

Interest expense (6,653) (7,559) 906 (12) %

Loss before income taxes

(41,537) (41,742) 205 — %

Provision for income taxes

— 3,023 (3,023) (100) %

Net loss $ (41,537) $ (44,765) $ 3,228 (7) %

______________

*Not applicable

Product Revenue, Net

We began recording U.S.

product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE cream 0.3% in August 2022, and Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE cream 0.3% in June 2023.

We since recorded U.S.

revenue in the first quarter of 2024 following the FDA approval and subsequent commercial launch of ZORYVE foam in January 2024.

In the third quarter of 2024, we recorded U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE cream 0.15% in July 2024.

Three Months Ended September 30, Change

2024 2023 $ %

(in thousands)

Product revenue, net

ZORYVE cream 0.3%

$ 22,041 $ 8,109 $ 13,932 172 %

20,262 — 20,262 *

ZORYVE cream 0.15%

2,452 — 2,452 *

Total product revenue, net

$ 44,755 $ 8,109 $ 36,646 452 %

______________

*Not applicable

Product revenue, net, for ZORYVE cream 0.3% increased by $13.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily driven by higher end customer demand and improving gross-to-net discounts for ZORYVE cream 0.3% in the United States.

Product revenue, net, for ZORYVE foam increased by $20.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, driven by its commercial launch in January 2024.

Product revenue, net, for ZORYVE cream 0.15% were $2.5 million for the three months ended September 30, 2024 compared to no sales in the three months ended September 30, 2023, driven by its commercial launch in July 2024.

Other Revenue

Other revenue for the three months ended September 30, 2023 were the result of license revenues received in connection with the Huadong Agreement.

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

Cost of Sales

Cost of sales increased by $4.3 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

The increase is related primarily to an increase in customer demand for ZORYVE cream 0.3% and foam.

Prior to the dates on which the initial regulatory approvals were received for each product, costs of raw materials were recorded as research and development expense.

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

See Note 5 to the condensed consolidated financial statements for additional information.

Research and Development Expenses

Three Months Ended September 30, Change

2024 2023 $ %

(in thousands)

Direct external costs:

Topical roflumilast program $ 1,320 $ 6,020 $ (4,700) (78) %

Topical JAK inhibitor program 1,089 978 111 11 %

Other early-stage programs

2,910 2,026 884 44 %

Indirect costs:

Compensation and personnel-related 9,834 12,289 (2,455) (20) %

Other 4,348 4,923 (575) (12) %

Total research and development expense $ 19,501 $ 26,236 $ (6,735) (26) %

Research and development expenses decreased by $6.7 million, or 26%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

The decrease was primarily due to the completion of Phase 3 studies of roflumilast cream in atopic dermatitis, coupled with a decrease in compensation and personnel-related expenses.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased by $11.2 million, or 24%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

The increase was primarily due to an increase in compensation and personnel-related expenses of $7.6 million and an increase in sales and marketing expenses of $3.2 million.

These increases were primarily due to our continued commercialization efforts for ZORYVE.

Other Income, Net

Other income, net increased by $1.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to the impact of higher interest rates, coupled with a higher marketable securities balance.

Interest Expense

Interest expense decreased by $0.9 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, due to the impact of lower interest rates.

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

Provision for Income Taxes

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

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

Comparison of the Nine Months Ended September 30, 2024 and 2023

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

Nine Months Ended September 30, Change

2024 2023 $ %

(in thousands)

Product revenue, net $ 97,182 $ 15,660 $ 81,522 521 %

Other revenue 28,000 30,420 (2,420) (8) %

Total revenues 125,182 46,080 79,102 172 %

Operating expenses:

Cost of sales 12,223 2,741 9,482 346 %

Research and development 61,940 86,800 (24,860) (29) %

Selling, general, and administrative 171,784 136,471 35,313 26 %

Total operating expenses 245,947 226,012 19,935 9 %

Loss from operations (120,765) (179,932) 59,167 (33) %

Other income (expense):

Other income, net 13,455 9,114 4,341 48 %

Interest expense (21,617) (21,950) 333 (2) %

Loss before income taxes

(128,927) (192,768) 63,841 (33) %

Provision for income taxes

324 3,088 (2,764) (90) %

Net loss $ (129,251) $ (195,856) $ 66,605 (34) %

______________

*Not applicable

Comparison of the Three Months Ended March 31, 2025 and 2024

Product revenue, net

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We since recorded U.S.

revenue in the first quarter of 2024 following the FDA approval and subsequent commercial launch of ZORYVE foam in January 2024.

In the third quarter of 2024, we recorded U.S.

In the first quarter of 2024, we began recording U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE foam in January 2024.

In the third quarter of 2024, we began recording U.S.

product revenue following the FDA approval and subsequent commercial launch of ZORYVE cream 0.15% in July 2024.

Nine Months Ended September 30, Change

In the fourth quarter of 2024, we began recording Canada product revenue following the Health Canada approval and subsequent commercial launch of ZORYVE foam in December 2024.

Three Months Ended March 31, Change

2025 2024 $ %

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*Not applicable

Product revenue, net, for ZORYVE cream 0.3% increased by $38.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily driven by higher end customer demand and improvements in gross-to-net discounts for ZORYVE cream 0.3% in the United States and the commercial launch of ZORYVE cream 0.3% in Canada in June 2023.

Product revenue, net, for ZORYVE foam increased by $40.4 million for the nine months ended September 30, 2024 compared to no sales in the nine months ended September 30, 2023, driven by its commercial launch in January 2024.

Product revenue, net, for ZORYVE cream 0.15% were $2.5 million for the nine months ended September 30, 2024 compared to no sales in the nine months ended September 30, 2023, driven by its commercial launch in July 2024.

Product revenue, net, for ZORYVE cream 0.3% increased by $8.4 million for the three months ended March 31, 2025 compared to three months ended March 31, 2024, primarily driven by higher-end customer demand for ZORYVE cream in the United States and Canada.

Product revenue, net, for ZORYVE foam increased by $23.7 million for the three months ended March 31, 2025 compared to three months ended March 31, 2024, driven by its commercial launch in the United States in January 2024, higher-end customer demand, and its commercial launch in Canada in December 2024.

Product revenue, net, for ZORYVE cream 0.15% increased by $10.2 million for the three months ended March 31, 2025 compared to three months ended March 31, 2024, driven by its commercial launch in the United States in July 2024.

Other revenue

Other revenue in the nine months ended September 30, 2024 includes $25.0 million received as an upfront payment in connection with the Sato Agreement and a $3.0 milestone payment received in connection with the Huadong Agreement.

Other revenue in the nine months ended September 30, 2023 primarily includes license revenues received in connection with the Huadong Agreement.

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

Other revenue of $2.0 million for the three months ended March 31, 2025 related to license revenues received in connection with the Huadong Agreement.

Other revenue for the three months ended March 31, 2024 related to license revenues received in connection with the Sato License Agreement of $25.0 million and the Huadong License and Collaboration Agreement of $3.0 million.

Cost of Sales

Cost of sales increased by $9.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase is related primarily to an increase in customer demand for ZORYVE cream 0.3% and foam.

Cost of sales increased by $5.6 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

The increase was primarily due to the cumulative catch-up amortization expense recorded in connection with the $10.0 million AstraZeneca milestone achieved in the first quarter of 2025, coupled with an increase in ZORYVE cream and foam product sales.

Prior to the dates on which the initial regulatory approvals were received for each product, costs of raw materials were recorded as research and development expense.

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

Therefore, cost of sales will reflect a lower average per unit cost until the related inventory is sold, which is expected to occur in 2025.

See Note 5 to the condensed consolidated financial statements for additional information.

Research and Development Expenses

Nine Months Ended September 30, Change

Three Months Ended March 31, Change

2025 2024 $ %

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Other early stage programs 1,995 4,133 (2,138) (52) %

8,878 3,869 5,009 129 %

Indirect costs:

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Total research and development expense $ 17,543 $ 23,141 $ (5,598) (24) %

Research and development expenses decreased by $24.9 million, or 29%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The decrease was primarily due to the completion of Phase 3 studies of roflumilast cream in atopic dermatitis, coupled with decreases in compensation and personnel-related expenses and consulting costs, partially offset by manufacturing and preclinical costs incurred related to the development of early-stage programs.

Research and development expenses decreased by $5.6 million, or 24%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

The decrease was primarily due to the completion of Phase 3 studies of roflumilast cream in atopic dermatitis, coupled with lower costs related to the development of early stage programs.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased by $35.3 million, or 26%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

The increase was primarily due to an increase in compensation and personnel-related expenses of $19.1 million and an increase in sales and marketing expenses of $14.7 million.

These increases were primarily due to our continued commercialization efforts for ZORYVE.

Selling, general, and administrative expenses increased by $9.2 million, or 17%, for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

The increase was primarily due to an increase in compensation and personnel-related expenses of $7.7 million, driven by our continued commercialization efforts for ZORYVE.

Other Income, Net

Other income, net increased by $4.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, primarily due to the impact of higher interest rates and higher marketable securities balance.

Other income, net, decreased by $1.3 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to the impact of lower interest rates.

Interest Expense

Interest expense decreased by $0.3 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, due to the impact of lower interest rates.

Interest expense decreased by $4.5 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, due to a lower outstanding principal balance on our long-term debt driven by our $100.0 million principal paydown in October 2024, coupled with the impact of lower interest rates.

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

Provision for Income Taxes

Income tax expense of $0.3 million and $3.0 million for the nine months ended September 30, 2024 and 2023, respectively, were primarily due to withholding tax on the Huadong License and Collaboration Agreement.

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

Income tax expense of $0.3 million for the three months ended March 31, 2025 was primarily due to withholding tax on milestone payments related to the Huadong License and Collaboration Agreement.

Liquidity, Capital Resources, and Requirements

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

As of September 30, 2024, we had cash, cash equivalents, restricted cash, and marketable securities of $331.2 million, and an accumulated deficit of $1,111.2 million.

As of March 31, 2025, we had cash, cash equivalents, restricted cash, and marketable securities of $198.7 million, and an accumulated deficit of $1,147.0 million.

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

As of September 30, 2024, we had $200.0 million outstanding under the Loan Agreement, of which we paid down $100.0 million of principal from available cash on October 8, 2024, with the right to re-draw that principal for a defined period.

As of March 31, 2025, we had $100.0 million outstanding under the Loan Agreement.

We paid down $100.0 million of principal related to the Loan Agreement using available cash on October 8, 2024, with the right to re-draw that principal for a defined period.

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

We believe that our existing capital resources will be sufficient to meet the projected operating requirements for at least 12 months from the date of issuance of our financial statements.

If our capital resources are insufficient to satisfy our requirements, we may need to fund our operations through the sale of our equity securities, accessing or incurring additional debt, entering into licensing or collaboration agreements with partners, grants, or other sources of financing.

There can be no assurance that sufficient funds will be available to us at all or on attractive terms when needed from these sources.

If we are unable to obtain additional funding from these or other sources when needed it may be necessary to significantly reduce our current rate of spending through, among other things, reductions in staff and delaying, scaling back, or stopping certain research and development programs, nonclinical studies, clinical trials or other development activities, and commercialization efforts.

If we are unable to obtain additional funding from these or other sources if or when needed it may be necessary to significantly reduce our current rate of spending through, among other things, reductions in staff and delaying, scaling back, or stopping certain research and development programs, nonclinical studies, clinical trials or other development activities, and commercialization efforts.

Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose.

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• the timing, receipt, and amount of sales of any current and future products;

• the scope, progress, results, and costs of researching and developing our lead product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities and our formulation and nonclinical efforts;

• the scope, progress, results, and costs of researching and developing our product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities and our formulation and nonclinical efforts;

• suspensions or delays in the enrollment or changes to the number of subjects we decide to enroll in our ongoing clinical trials;

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• the expenses needed to attract and retain skilled personnel;

• any disputes, lawsuits, or other legal proceedings related to contracts or employment matters;

• the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio;

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

As of each of December 31, 2023 and September 30, 2024, the aggregate principal amount outstanding under the Loan Agreement was $200.0 million.

As of March 31, 2025 and December 31, 2024, the aggregate principal amount outstanding under the Loan Agreement was $100.0 million.

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

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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.

On September 30, 2024, the rate was 11.12%.

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 March 31, 2025, the rate was 10.27%.

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

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Upon the occurrence and for the duration of an event of default, an additional default interest rate (the Default Rate) equal to 4.0% per annum will apply to all obligations owed under the Loan Agreement.

In connection with the Loan Agreement, we are 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 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.

In connection with the Loan Agreement, we are 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 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 March 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, we previously had entered into an Exit Fee Agreement, whereby we 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.

We were in compliance with all covenants under the Loan Agreement as of September 30, 2024.

We were in compliance with all covenants under the Loan Agreement as of March 31, 2025.

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Cash used in operating activities $ (30,380) $ (31,603)

Cash (used in) provided by investing activities

Cash provided by (used in) investing activities

11,750 (28,697)

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Effect of exchange rate changes on cash 4 (73)

Net increase in cash, cash equivalents, and restricted cash

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

$ (18,231) $ 101,391

Net Cash Used in Operating Activities

During the nine months ended September 30, 2024, net cash used in operating activities was $111.4 million, which consisted of a net loss of $129.3 million and a change in net operating assets and liabilities of $13.5 million, partially offset by net non-cash charges of $31.4 million.

The net non-cash charges were primarily related to stock-based compensation expense of $32.3 million.

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

During the three months ended March 31, 2025, net cash used in operating activities was $30.4 million, which consisted of a net loss of $25.1 million and a change in net operating assets and liabilities of $17.7 million, partially offset by net non-cash charges of $12.4 million.

The net non-cash charges were primarily related to stock-based compensation expense of $9.8 million and amortization of intangible assets of $3.0 million.

During the three months ended March 31, 2024, net cash used in operating activities was $31.6 million, which consisted of a net loss of $35.4 million and a change in net operating assets and liabilities of $5.4 million, partially offset by net non-cash charges of $9.2 million.

The net non-cash charges were primarily related to stock-based compensation expense of $10.0 million.

Net Cash (Used in) Provided by Investing Activities

During the nine months ended September 30, 2024, net cash used in investing activities was $6.1 million, which was comprised primarily of purchases of marketable securities of $237.4 million, offset by proceeds from the maturities of marketable securities of $231.5 million.

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

Net Cash Provided by (Used in) Investing Activities

During the three months ended March 31, 2025, net cash provided by investing activities was $11.8 million, which was comprised primarily of proceeds from the maturities of marketable securities of $68.5 million, partially offset by purchases of marketable securities of $56.1 million.

During the three months ended March 31, 2024, net cash used in investing activities was $28.7 million, which was comprised primarily of purchases of marketable securities of $106.0 million, partially offset by proceeds from the maturities of marketable securities of $77.3 million.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2024, net cash provided by financing activities was $163.6 million, which was comprised primarily of $161.7 million of net proceeds from our February 2024 public stock offering.

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

During the three months ended March 31, 2025, net cash provided by financing activities was $0.4 million, which was comprised of proceeds from the issuance of our common stock upon exercise of stock options.

During the three months ended March 31, 2024, net cash provided by financing activities was $161.8 million, which was comprised primarily of $161.7 million of net proceeds from our February 2024 public stock offering.

Contractual Obligations and Contingent Liabilities

Except as set forth in Note 7, Long-term Debt, and Note 10, Subsequent Events, of the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Smaller Reporting Company Status

As of June 30, 2024, the market value of our ordinary shares held by non-affiliates exceeded $700.0 million.

As a result, we will be a large accelerated filer.

Additionally, we will no longer qualify as a smaller reporting company beginning with our first Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2025.

As a result of this transition, we will be subject to certain disclosure and compliance requirements that apply to other public companies but did not previously apply to us and we will also not be able to take advantage of certain scaled disclosures available to smaller reporting companies.

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis