What changed in this filing

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Item 1. Business

2026-02-25 compared with 2025-02-25 · 434 added, 501 removed, 481 unchanged (66% of the section changed)

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

We launched our lead product, ZORYVE ® (roflumilast) cream 0.3% (ZORYVE cream 0.3%) in August 2022 after obtaining our initial U.S.

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

We launched our lead product, ZORYVE cream 0.3%, in August 2022 after obtaining our initial FDA approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g.

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

ZORYVE 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.

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

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

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

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

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 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 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% 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 submitted a supplemental new drug application (sNDA) for topical ZORYVE cream 0.05% for children 2 to 5 years of age in December 2024.

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

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subjects between the ages 2 and 5 years, for which we reported positive results in September 2023 and August 2024, respectively.

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, 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 recently accepted by the FDA with a Prescription Drug User Fee Act (PDUFA) target action date in May 2025.

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

In November 2025, our supplemental New Drug Application (sNDA) was accepted for filing by the FDA to potentially expand the indication of ZORYVE cream 0.3% for the treatment of plaque psoriasis in children down to the age of 2, with a Prescription Drug User Fee Act (PDUFA) target action date set for June 29, 2026.

In June 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.

In February 2026, Health Canada accepted our Supplement to a New Drug Submission (SNDS) for ZORYVE cream 0.3% for individuals down to 2 years old.

In December 2023, we received FDA approval for ZORYVE foam 0.3% 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 is a once-daily steroid-free foam and, as a PDE4 inhibitor, was 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 January 2024 and became commercially available in Canada in December 2024 following approval by Health Canada.

We received FDA approval for ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in adults and adolescents ages 12 and older in May 2025, followed by commercial launch in the United States in June 2025.

ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in adults and adolescents ages 12 and older was also approved by Health Canada in October 2025, followed by commercial launch in November 2025.

We also received FDA approval for, and commercially launched, ZORYVE cream 0.15% in July 2024 for the topical 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.

We also received FDA approval for, and commercially launched, ZORYVE cream 0.05% for the topical treatment of mild to moderate atopic dermatitis in children 2 to 5 years of age in October 2025.

ZORYVE cream 0.15% and ZORYVE cream 0.05% are once-daily, steroid-free creams that provide rapid disease clearance and significant reduction in itch, and have been specifically developed to be treatment options for long-term disease control.

In February 2026, we announced positive topline data for INTEGUMENT-INFANT, a Phase 2 study to evaluate the safety and efficacy of investigational ZORYVE cream 0.05% in infants as young as 3 months to less than 2 years with atopic dermatitis.

We intend to submit an sNDA to the FDA in the second quarter of 2026 based on the results of this trial to potentially expand the indication for ZORYVE cream 0.05% for the treatment of infants with atopic dermatitis down to the age of 3 months.

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

(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.

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Promotion of ZORYVE in primary care and pediatrics under the Kowa agreement began in late September 2024.

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 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.

Effective January 23, 2026, we mutually agreed to terminate the promotion agreement.

Following this termination, Kowa ceased all sales and promotions of ZORYVE and we will not be required to make any further payments to Kowa.

In August 2023, we entered into a strategic collaboration and licensing agreement (the Huadong Agreement) for topical roflumilast in Greater China and Southeast Asia with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd.

a wholly owned subsidiary of Huadong Medicine Co., Ltd.

In February 2024, we entered into a a strategic collaboration and licensing agreement (the Sato Agreement) for topical roflumilast in Japan with Sato Pharmaceutical Co., Ltd.(Sato).

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

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

We plan to develop ARQ-234 in atopic dermatitis, where we believe it could be a highly complementary biologic treatment option to ZORYVE cream 0.15% in that indication, if approved.

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

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

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

We submitted an Investigational New Drug application (IND) to the FDA in July 2025, and anticipate commencing a Phase 1 study of ARQ-234 in the first quarter of 2026.

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

Moreover, we have our own intellectual property portfolio around topical uses of roflumilast, with issued and pending formulation, pharmacokinetic, and method-of-use patents in the United States and other jurisdictions from several distinct patent families, which provides us with exclusivity in the United States for our product cream formulation through 2037 and foam formulation through 2042.

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

There are many approved treatments for these conditions, but a large opportunity remains due to issues with existing treatments.

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

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

As a result, TCS are typically used intermittently for brief periods, which can lead to disease flares when patients stop TCS therapy.

While many patients see improvements, extended use of TCS carries the risk of a variety of significant side effects.

The localized side effects of extended use of TCS at the site of application, such as skin barrier damage and striae, have long been established.

More recently, there is an increasing appreciation for the potential systemic side effects of prolonged TCS use, such as hyperglycemia, adrenal insufficiency, and osteoporosis.

As a result, TCS are typically used intermittently for brief periods, making them an insufficient therapeutic option for inflammatory skin diseases that are chronic in nature.

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

Topical tapinarof was approved in May 2022 for the treatment of adults with plaque psoriasis and in December 2024 for adults and children with atopic dermatitis, but this non-steroidal agent also carries significant application site reactions.

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

Topical tapinarof (Vtama ® ) was approved in May 2022 for the treatment of adults with plaque psoriasis and in December 2024 for adults and children with atopic dermatitis, but this non-steroidal agent also carries significant application site reactions.

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

TCIs also have a boxed warning for cancer risk.

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

Topical ruxolitinib (Opzelura ® ) was approved for the treatment of atopic dermatitis in September 2021, but carries an extensive boxed warning for numerous severe side effects, is limited to short-term, intermittent use, and is contraindicated for concomitant use with systemic therapies.

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

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

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

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

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

In atopic dermatitis, biologic and systemic therapy continues to evolve, and we see opportunity

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to continue to advance the standard of care for patients, for example with regard to response rates and dosing frequency.

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

Importantly, most patients on biologic and systemic therapies for inflammatory skin conditions still require adjunctive topical therapies to treat residual disease and occasional flaring of symptoms.

Biologics for psoriasis have shown impressive response rates but are only indicated for a minority of patients with moderate-to-severe forms and can often leave patients with some degree of residual disease.

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

In atopic dermatitis, where biologic and systemic therapies have shown lower response rates, we see opportunity to both supplement

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current therapies and to continue to advance the standard of care for patients, for example with regard to response rates and dosing frequency.

Given the limitations associated with existing treatments, we believe patients with inflammatory skin conditions and their dermatologists are dissatisfied with their current treatment options.

We believe that there is a significant opportunity to leverage developments in other fields of medicine, particularly inflammation and immunology, to address the significant need for effective chronic treatments in immuno-dermatology.

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

Based on market research and our internal estimates, we estimate there is an overall actively prescription treated patient market of approximately 17.0 million patients in the United States that are treated with topical therapies for plaque psoriasis, seborrheic dermatitis, and atopic dermatitis in dermatology offices (approximately 8.4 million) and outside dermatology (approximately 8.6 million).

Our primary focus since our founding has been to address patients’ significant need for innovative treatments that directly target molecular mediators of disease, have the potential to show significant symptomatic improvement, maintain a low risk of toxicity or side effects, and are suitable for chronic use on all areas of the body.

Based on market research and our internal estimates, we estimate there is an overall actively prescription-treated patient market of approximately 17.0 million patients in the United States that are treated with topical therapies for plaque psoriasis, seborrheic dermatitis, and atopic dermatitis, with approximately 8.4 million treated in dermatology offices and the remaining approximately 8.6 million treated outside dermatology.

Of the patients that are treated in dermatology offices, we estimate that approximately 3.7 million of these patients are covered by Medicare or Medicaid, while approximately 4.7 million are covered by private payers.

Patients that are treated outside of dermatology offices are primarily treated by primary care providers and pediatricians, and the ratio of commercial to government insurance is similar.

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Our Portfolio and Pipeline

The following chart summarizes our product portfolio and pipeline:

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Our strategy is to leverage innovations in inflammation and immunology to identify molecules against validated biological targets in dermatology, and to develop and commercialize best-in-class products based on those molecules that address significant unmet needs in immuno-dermatology:

Key elements of our strategy include:

• Commercialize ZORYVE cream 0.3% for the treatment of patients with plaque psoriasis and ZORYVE cream 0.15% for the treatment of patients with atopic dermatitis.

We commercially launched ZORYVE cream in August 2022 after obtaining FDA approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas ( e.g., groin or axillae), in individuals 12 years of age or older.

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

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

In atopic dermatitis, we commercially launched ZORYVE cream 0.15% in July 2024 for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older.

We submitted a subsequent sNDA for ZORYVE cream 0.05% for 2-5 year olds in December 2024.

• Commercialize ZORYVE foam for the treatment of patients with seborrheic dermatitis and further expand our addressable market with the potential approval of the foam in scalp and body psoriasis.

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

ZORYVE foam became commercially available in late January 2024.

We announced positive topline data from our Phase 3 scalp and body psoriasis trial 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 accepted by the FDA with a PDUFA target action date in May 2025.

• Exploit our integrated development and commercial organization to maximize the value of our products and product candidates .

We have built a fully integrated commercial organization and a targeted specialty sales force for the commercialization of our products among dermatology specialists.

Because of the concentrated prescriber base of the U.S.

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

We have also partnered with Kowa to promote our approved ZORYVE in the United States to primary care practitioners and pediatricians.

To further enhance the value of our product candidates, we have partnered with companies in Japan, China, and greater Asia to develop and commercialize ZORYVE, and may selectively seek additional partners to develop and commercialize our products in other markets.

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

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

• Further expand our product portfolio through the development of ARQ-25 5 and ARQ-252.

We are developing ARQ-255 and ARQ-252, both of which contain ivarmacitinib, a JAK1 inhibitor with a high relative selectivity to JAK1 ov er Janus ki nase type 2 (JAK2), for the treatment of alopecia areata, chronic hand eczema, and vitiligo.

Given their high relative selectivity to JAK1 over JAK2, we believe ARQ-255 and ARQ-252 have the potential to treat inflammatory diseases without causing the hematopoietic adverse effects associated with JAK2 inhibition, which in turn gives them the potential to be best-in-class treatment options, if approved.

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.

Reformulation efforts continue for ARQ-252.

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

We believe that ARQ-234, which we obtained through the acquisition of Ducentis in September 2022, has the potential to have a highly differentiated profile and could be a highly complimentary biologic treatment to ZORYVE for the treatment of atopic dermatitis, if approved.

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

Our strategy is to leverage innovations in inflammation and immunology to identify molecules acting against validated biological targets in dermatology, and to develop and commercialize best-in-class products based on those molecules that address significant unmet needs in immuno-dermatology.

The key pillars of our strategy are:

• Grow our core ZORYVE business as we establish ZORYVE as the foundational therapy for adults and children who need long-term therapeutic solutions for managing their plaque psoriasis, seborrheic dermatitis, and atopic dermatitis.

A primary component of this pillar of our strategy is to provide a therapeutic alternative to TCS amidst the increasing calls for safer alternatives for the treatment of inflammatory dermatosis as the local and systemic side effects of prolonged topical steroid use become more broadly appreciated.

This pillar also includes our efforts to extend the breadth of our prescribing base beyond dermatologists to primary care and pediatric health care providers, and to continue expanding insurance coverage for ZORYVE, particularly in Medicare and Medicaid.

We believe further extension of our current indications and incremental clinical data generation to bolster ZORVYE's position in these indications is an additional important component of this growth strategy.

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• Expand the ZORYVE franchise into additional indications through strategic lifecycle management .

Our new indication expansion efforts will be guided by a large body of case reports received by our medical team from clinicians who have used ZORYVE in various inflammatory dermatoses and seen encouraging signs of efficacy.

We will seek to evaluate these potential signals of efficacy in a controlled setting with resource-efficient Phase 2 proof-of-concept trials before selecting potential indications to evaluate in Phase 3 pivotal trials.

The decision on which programs to advance will be based on the collective data from across these proof-of-concept studies, feedback received from regulatory agencies, and analysis of the unmet need and market potential of these various indications.

Initial diseases of interest that are currently being evaluated in ongoing Phase 2 trials are hidradenitis suppurativa and vitiligo.

• Build our pipeline by advancing innovative medicines for patients, leveraging our leading drug development capabilities.

Our initial focus in building our pipeline is on advancing ARQ-234 through clinical development.

We believe that ARQ-234 has the potential to have a very differentiated profile and could be a highly complimentary biologic treatment to ZORYVE for the treatment of atopic dermatitis, if approved.

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

ARQ-234 also has the potential to treat multiple other inflammatory diseases, which we may choose to pursue ourselves or through partnerships.

Currently, we are working towards

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submitting an IND during 2025.

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

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

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

Leveraging our deep expertise in identifying promising drug candidates, we will continue to seek best-in-class assets, similar to ARQ-234, across treatment modalities directed against validated targets.

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

We believe one of our core strengths is our leading platform for dermatology product development.

This platform, coupled with our deep expertise in dermatology clinical development and commercialization, is the engine that allows us to generate our highly differentiated product candidates.

Our platform has already generated several significant innovations, including:

• Our innovative topical cream and foam formulations of ZORYVE (patented);

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

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

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

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

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

ZORYVE Cream (ARQ-151)

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

Beyond ARQ-234, we will continue to evaluate strategic opportunities to in-license or acquire select dermatology and inflammation and immunology (I&I) assets.

Leveraging our deep expertise in identifying promising drug candidates, we will continue to seek assets across treatment modalities.

We believe our team's capabilities in dermatological and I&I clinical development and commercialization position us well to advance, register and commercialize drug candidates and to generate value with any future acquired assets.

Our lead product, ZORYVE cream, offers symptomatic improvement in psoriasis and atopic dermatitis patients similar to a high potency steroid, but with a favorable tolerability profile, the ability to be used chronically, and little-to-no application site reactions associated with many existing topical treatments.

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

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

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

Roflumilast, the active pharmaceutical ingredient in ZORYVE, is a highly potent and selective PDE4 inhibitor.

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

We commercially launched ZORYVE cream 0.3% in August 2022 after obtaining FDA approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g.

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

ZORYVE 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.

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

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

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

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

We are also commercially launched topical ZORYVE cream 0.15% in July 2024 after obtaining approval for the treatment of mild to moderate atopic dermatitis in individuals 6 years and older.

We have developed a lower-dose-concentration, ZORYVE cream 0.05%, and have completed our Phase 2 and Phase 3 studies in this population.

Based on positive data, we submitted an sNDA in December 2024.

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

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

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Plaque Psoriasis

For the treatment of plaque psoriasis, ZORYVE cream 0.3% is currently commercially available in the United States and Canada for individuals 6 years and older, with no limitation on location or duration of use.

Additionally, ZORYVE cream 0.3% for 2-5 year olds with plaque psoriasis has a PDUFA target action date of June 29, 2026.

Psoriasis Background

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population, representing approximately 9 million patients.

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

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

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

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

Plaque Psoriasis

DermNet (right)

Current Psoriasis Treatment Landscape

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

The vast majority of psoriasis patients are treated with topical therapies, of which there had been no novel treatments approved in over 20 years, until the approvals of ZORYVE cream and tapinarof in 2022.

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

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Some of these side effects are irreversible.

Growing evidence also points to risks of other systemic side effects, such as hyperglycemia, adrenal insufficiency, and osteoporosis.

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

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

DermNet (right)

• Vitamin D3 analogs provide substantially less symptomatic improvement than high potency steroids and are frequently irritating.

While they can be used chronically, tolerability issues with their use can be a challenge, and physicians generally will not prescribe them for use on the face or in the intertriginous regions.

• Vitamin D3/steroid combinations offer better symptomatic improvement than either of the two individual components alone, but still carry a risk of HPA axis suppression, and are limited in their duration of use.

• Vitamin D3/steroid combinations offer better symptomatic improvement than either of the two individual components alone, but still carry all of the adverse event risks associated with topical steroids, and are limited in their duration of use.

• Tapinarof is a non-steroidal topical aryl hydrocarbon receptor (AhR) agonist approved in May 2022 for adults with plaque psoriasis.

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

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

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

However, due to the limitations on duration of treatment to between 2 and 8 weeks, most physicians will switch the patient to a low- to mid-potency steroid or to a vitamin D analog to manage the patient’s psoriasis chronically.

However, due to the limitations on duration of treatment between 2 and 8 weeks, most physicians will switch the patient to a low- to mid-potency steroid or to a vitamin D analog to manage the patient’s psoriasis chronically.

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

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As a result, patients are constantly cycling between effective short courses of high potency steroids and less effective “step down” maintenance treatments.

Treatment with biologics remains highly restricted.

Index to Financial Statements

Treatment with biologics remains restricted.

In the United States, less than 33% of moderate-to-severe psoriasis patients (equivalent to 27% of all psoriasis patients) are on biologic therapy.

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

Psoriasis Key Completed Trials

DERMIS-1 and DERMIS-2 pivotal Phase 3 studies

The DERMIS-1 and DERMIS-2 studies were identical pivotal Phase 3 randomized, parallel, double-blind, vehicle-controlled, multi-national, multicenter studies in which subjects age 2 years and above with mild, moderate, or severe chronic plaque psoriasis involving between 2% and 20% body surface area received 8 weeks of (i) ZORYVE cream 0.3% once daily or (ii) matching vehicle once daily.

DERMIS-1 enrolled 439 subjects and DERMIS-2 enrolled 442 subjects.

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

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

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

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

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

There were no treatment-related serious adverse events.

ARQ-151-202 (Long-Term Safety Study)

The long-term safety study was a Phase 2, multicenter, open-label study of the long-term safety and efficacy of ZORYVE cream 0.3% in adult subjects with chronic plaque psoriasis involving up to 25% total body surface area (BSA), evaluated in two cohorts:

subjects who completed the ARQ-151-201 Phase 2b, randomized, controlled trial;

and previously untreated subjects.

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

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

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

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

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

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

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

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

Index to Financial Statements

had an IGA of clear or almost clear at the end of 64 weeks of treatment or their last visit.

Of the 332 subjects in this study, 73.5% completed the full 52 weeks of open-label treatment, with only 3.9% of subjects discontinuing the study due to an adverse event and less than 1% of subjects discontinuing due to lack of efficacy.

There were no treatment-related serious adverse events reported.

Atopic Dermatitis

For the treatment of atopic dermatitis, ZORYVE cream is currently available in the 0.15% concentration for individuals 6 years and older in the United States and Canada, and in the 0.05% concentration for children ages 2 to 5 in the United States, with no limitation on location or duration of use.

Atopic Dermatitis Background

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

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

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

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

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Atopic Dermatitis

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

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Current Atopic Dermatitis Treatment Landscape

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

The vast majority of atopic dermatitis patients are being treated with topical therapies, particularly low- to mid-potency topical steroids and TCIs.

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

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• Opzelura is a topical JAK inhibitor approved in September 2021 for the topical short-term and non-continuous chronic treatment of mild to moderate atopic dermatitis in non-immunocompromised adult and pediatric patients 2 years of age and older whose disease is not adequately controlled with topical prescription therapies or when those therapies are not advisable.

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

The label carries an extensive boxed warning for serious infections, all-cause mortality, malignancy, major adverse cardiovascular events and thrombosis, as well as limitations on duration, body surface area, and concomitant use with immunosuppressive agents.

• Tapinarof is a non-steroidal topical aryl hydrocarbon receptor (AhR) agonist approved in May 2022 for adults with plaque psoriasis.

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

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In clinical trials, treatment with tapinarof was associated with certain adverse events such as folliculitis, contact dermatitis, burning, stinging, and itching.

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

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however, similar to plaque psoriasis, we believe such use will ultimately remain limited due to multiple factors, including the fact that they are indicated only for use in moderate-to-severe patients, their high cost and patient co-payments, reimbursement and access restrictions, and patient fear of injection for biologics.

ZORYVE Cream Clinical Development

Plaque Psoriasis

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

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

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

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

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

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

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

Key Completed Trials

DERMIS-1 and DERMIS-2 pivotal Phase 3 studies

The DERMIS-1 and DERMIS-2 studies were identical pivotal Phase 3 randomized, parallel, double-blind, vehicle-controlled, multi-national, multi-center studies in which subjects age 2 years and above with mild, moderate, or severe chronic plaque psoriasis involving between 2% and 20% body surface area received 8 weeks of (i) ZORYVE cream 0.3% once daily or (ii) matching vehicle once daily.

DERMIS-1 enrolled 439 subjects and DERMIS-2 enrolled 442 subjects.

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

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

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

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

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

There were no treatment-related serious adverse events.

ARQ-151-202 (Long-Term Safety Study)

The long-term safety study was a Phase 2, multi-center, open label study of the long-term safety and efficacy of ZORYVE cream 0.3% in adult subjects with chronic plaque psoriasis involving up to 25% total body surface area (BSA), evaluated in two cohorts:

subjects who completed the ARQ-151-201 Phase 2b, randomized, controlled trial;

and previously untreated subjects.

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

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

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

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

Index to Financial Statement s

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

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

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

Of the 332 subjects in this study, 73.5% completed the full 52 weeks of open label treatment, with only 3.9% of subjects discontinuing the study due to an adverse event and less than 1% of subjects discontinuing due to lack of efficacy.

There were no treatment related serious adverse events reported.

Atopic Dermatitis

We commercially launched ZORYVE cream 0.15% for the treatment of mild to moderate atopic dermatitis in adults and children down to age six in August 2024.

Our NDA submission was based on three Phase 3 studies, as well as a Phase 2 dose-ranging study, and two Phase 1 pharmacokinetic studies.

We have also developed ZORYVE cream 0.05% for the treatment of atopic dermatitis between the ages of 2 and 5 years of age.

Based on positive data of our two Phase 3 studies in this age group, we submitted an sNDA in December 2024.

Key Completed Trials

Additionally, in the atopic dermatitis context, systemic therapies often leave patients with residual symptoms, and patients can flare while on systemic therapy, creating the need for adjunctive topical treatment.

Atopic Dermatitis Key Completed Trials

INTEGUMENT-1 and INTEGUMENT-2 pivotal Phase 3 studies

Our atopic dermatitis Phase 3 program includes three 4-week pivotal studies and a 52-week open-label extension study.

The INterventional Trial EvaluatinG roflUMilast cream for the treatmENt of aTopic dermatitis (INTEGUMENT) 1 and 2 were multi-center, double-blind, vehicle-controlled Phase 3 studies, with more than 650 subjects in each study, ages 6 and above with mild to moderate atopic dermatitis.

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

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

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

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

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

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

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

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

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

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

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

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INTEGUMENT-PED Trial

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

Index to Financial Statements

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

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There were no treatment-related serious adverse events.

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INTEGUMENT OLE (long range study)

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

In addition, our INTEGUMENT-OLE study is a Phase 3, multicenter, open label extension study that has enrolled 1220 subjects who have completed INTEGUMENT-1, -2, or -PED.

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

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

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In August 2024, we announced positive results for subjects 2 to 5 years old.

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

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ZORYVE Foam (ARQ-154)

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

INTEGUMENT-INFANT

In February 2026, we announced positive topline data from the INTEGUMENT-INFANT trial.

The INTEGUMENT-INFANT Phase 2, open-label, multicenter study evaluated the safety and tolerability of ZORYVE cream 0.05% applied once-daily over a four-week period in 101 infants aged 3 months to less than 24 months with mild to moderate atopic dermatitis.

The study builds upon the earlier Maximal Usage (MUSE) pharmacokinetic trial ARQ-151-105, which also evaluated ZORYVE cream 0.05% in this age group.

Results from this trial demonstrated that ZORYVE cream 0.05% was well tolerated with a safety profile consistent with previous ZORYVE clinical trials, with low overall incidence of adverse events with all being mild to moderate in severity.

ZORYVE cream improved the severity of disease and reduced the area of skin affected by atopic dermatitis, with 58% of participants achieving EASI-75 at Week 4.

We intend to present further details on the INTEGUMENT-INFANT study results at future medical meetings.

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

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

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

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

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

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 the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades.

ZORYVE foam became commercially available in late January 2024.

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

We announced positive topline data in September 2022, and have submitted our sNDA with a PDUFA in May 2025.

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

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

Seborrheic Dermatitis

ZORYVE foam is currently commercially available in the United States and Canada, for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on location or duration of use.

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

Seborrheic Dermatitis Background

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

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

It appears most often on the scalp, face (especially on the nose, eyebrows, ears, and eyelids), upper chest.

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

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

Seborrheic Dermatitis

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Current Seborrheic Dermatitis Treatment Landscape

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

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

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

Physicians report that up to one-third of severe patients suffering from seborrheic dermatitis, and a smaller percentage of mild- and moderate-severity patients, have an inadequate response to current seborrheic dermatitis treatments.

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

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

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

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

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

Scalp Psoriasis

Scalp Psoriasis Background

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

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

As with psoriatic plaques on other parts of the body, psoriasis on the scalp is often itchy and is sometimes painful.

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

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Scalp Psoriasis

DermNet (left)

Current Scalp Psoriasis Treatment Landscape

Scalp psoriasis treatments are similar to plaque psoriasis treatments, given that the plaques are identical to the plaques in other body areas.

Topical treatments for scalp psoriasis include TCS, vitamin D analogs, or the combination, in a topical formulation suitable for hair-bearing areas, such as shampoos, solutions, or foams.

However, many of the current topical formulations for hair-bearing areas are poorly formulated and are not well-received by patients.

Existing topical treatments for the scalp also suffer from the same efficacy, safety, tolerability, and patient acceptability issues as existing creams and ointments.

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

Seborrheic Dermatitis

Key Completed Trials

Seborrheic Dermatitis Key Completed Trials

STRATUM Pivotal Phase 3 Study

The " ST udy of R oflumilast foam A pplied T opically for the red U ction of seborrheic der M atitis" (STRATUM) was a Phase 3, parallel group, double blind, vehicle-controlled study of the safety and efficacy of ZORYVE foam 0.3% administered once-daily.

STRATUM was a Phase 3, parallel group, double-blind, vehicle-controlled study of the safety and efficacy of ZORYVE foam 0.3% administered once-daily.

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

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

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

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

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

ZORYVE foam also demonstrated statistically significant improvements compared to vehicle on key secondary endpoints, including itch as measured by WI-NRS.

62.8% of patients with a WI-NRS of 4 or higher at baseline treated with ZORYVE foam achieved a 4-point or greater reduction in itch at

Index to Financial Statements

Week 8, compared to 41% of patients treated with vehicle (P=0.0001).

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

ZORYVE foam was well-tolerated.

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ARQ-154-214 (Long-Term Safety)

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

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

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

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

Scalp Psoriasis

Key Completed Trials

Scalp and Body Psoriasis

ZORYVE foam for the treatment of scalp and body psoriasis is currently commercially available in the United States for individuals down to age 12, with no limitation on location or duration of use.

Scalp Psoriasis Background

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

As with psoriatic plaques on other parts of the body, psoriasis on the scalp is often itchy and is sometimes painful.

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

Current Scalp Psoriasis Treatment Landscape

Scalp psoriasis treatments are similar to plaque psoriasis treatments, given that the plaques are identical to the plaques in other body areas.

Topical treatments for scalp psoriasis include TCS, vitamin D analogs, or the combination, in a topical formulation suitable for hair-bearing areas, such as shampoos, solutions, or foams.

However, many of the current topical formulations for hair-bearing areas are poorly formulated and are not well-received by patients.

Existing topical treatments for the scalp also suffer from the same efficacy, safety, tolerability, and patient acceptability issues as existing creams and ointments.

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

Scalp Psoriasis Key Completed Trials

ARRECTOR Pivotal Phase 3 Study

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

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

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

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

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

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

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

Overall, the most common adverse events in the study

Index to Financial Statements

population (over 2%) included headache, diarrhea, and COVID-19.

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

ZORYVE Indication Expansion

Pursuing new patient populations that may benefit from ZORYVE has been a principal focus of our clinical development strategy from the outset.

This is evidenced by the five additional approvals we have secured across plaque psoriasis, seborrheic dermatitis, and atopic dermatitis following our initial plaque psoriasis approval in 2022.

We believe that there are additional skin diseases that may respond to, and more patients who may benefit from, ZORYVE.

This belief is supported by our understanding of ZORYVE's broadly applicable anti-inflammatory and antipruritic properties, its potential impact on stimulating melanocytes, and by the direct and ongoing feedback from health care providers in the field on their real-world ZORYVE experiences as well as their interest in non-steroidal therapies.

As part of our obligations as the manufacturer of ZORYVE, our medical team monitors this clinical feedback.

To date, we've identified more than 40 published case reports and case series from clinicians who have themselves determined to use ZORYVE in a multitude of other inflammatory dermatoses and have seen signs of potential efficacy.

We believe these reports are important signals of new opportunities for ZORYVE.

In order to evaluate some of these signals of potential efficacy, we will selectively evaluate certain disease areas with clinical development programs, beginning with resource efficient Phase 2 proof-of-concept trials.

We will decide which programs, if any, to advance through later stages of clinical development by considering data generated in a controlled clinical setting, feedback received from regulatory agencies, and analysis of unmet need and market potential.

Initial diseases that we are currently evaluating as part of this effort are vitiligo and hidradenitis suppurativa.

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

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ARQ-234 binds to CD200R and has the potential to restore immune homeostasis by inducing inhibitory signaling on immune cells that regulate inflammation.

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CD200R has been validated as a target in atopic dermatitis, with preclinical data for ARQ-234 and clinical data for a similar molecule under development by another company each providing evidence of a robust and durable therapeutic response, even after discontinuation of treatment.

CD200R has been validated as a target in atopic dermatitis, with preclinical data for ARQ-234 and clinical data for a similar molecule that progressed to clinical development by another company each providing evidence of a robust and durable therapeutic response, even after discontinuation of treatment.

Ducentis completed preclinical comparisons of ARQ-234 against the clinically-validated CD200R antibody.

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

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

We are working towards submitting an IND in 2025.

We are developing ARQ-255, an innovative topical formulation of ivarmacitinib, a potent and highly selective small molecule inhibitor of JAK1, for the treatment of alopecia areata.

Alopecia areata is an autoimmune disorder that causes the immune system to incorrectly attack the body’s own cells, specifically the hair follicles, leading to loss of hair—usually in patches—on the scalp, face, or sometimes other areas of the body.

While oral JAK inhibitors have shown symptomatic improvement in the treatment of alopecia areata and baricitinib is FDA approved for this indication, multiple topically applied JAK inhibitors have failed to demonstrate symptomatic improvement in alopecia areata.

It is our belief that this discrepancy is due to the site of inflammation driving alopecia areata, deep in the skin at the base (bulb) of the hair follicle.

While oral JAK inhibitor administration can achieve required levels of drug at the site of inflammation, conventional topical applications are unlikely to deliver concentrations of JAK inhibitors to the site of inflammation adequate to treat alopecia areata.

We have developed a unique drug delivery technology that we refer to as Deep Dermal Drug Delivery (“4D” technology), which we believe may allow us to topically deliver sufficient concentrations of ivarmactinib deep down the hair follicle to the site of inflammation, to potentially treat alopecia areata via topical administration.

Additionally, in a nonclinical study, ivarmactinib proved to be highly selective to JAK1 over JAK2.

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

Alopecia Areata

Alopecia Areata Background

Alopecia areata is an autoimmune condition that affects about 1 in 500 adults.

In alopecia areata, the immune system attacks the body’s own hair follicles—leading to patches of hair loss on the scalp, face, and other areas of the body.

Typically, these bald patches appear suddenly and in some patients, can involve the whole body.

Recurrence is common and most sufferers will have several episodes during their lifetimes.

A small percentage of patients have persistent hair loss even with treatment.

Alopecia areata has been shown to lead to significant psychosocial impacts in patients, negatively impacting self-esteem, body image, and/or self-confidence.

Alopecia Areata

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Current Alopecia Areata Treatment Landscape

In addition to the oral JAK inhibitor baricitinib, which was approved in June 2022, most patients are treated with off-label steroids for alopecia areata.

• JAK inhibitor (baricitinib), approved only for severe alopecia areata and the only JAK inhibitor approved for alopecia areata, however, it carries an extensive black box warning on its label in the United States.

Topical JAK inhibitors to date have not demonstrated efficacy in alopecia areata and, other than ARQ-255, we believe that there are no other topical development programs progressing currently.

• Topical and intralesional steroids , typically topical super potent steroids or intralesional injections of triamcinolone, are often prescribed for patients suffering from alopecia areata because of the inflammatory component of the disease.

Due to the risks associated with steroid use, including atrophy and systemic exposure from intralesional injections, many physicians try to limit duration or avoid steroid therapy.

A growing body of evidence indicates that inhibition of JAK signaling in alopecia areata can effectively promote hair regrowth.

We believe ARQ-255 may present a unique opportunity to treat alopecia areata topically.

The current approved treatment option is for oral treatment of severe disease, and we believe that a substantial unmet medical need remains for patients with mild and moderate disease states.

In addition, the safety profile of oral baricitinib presents an opportunity for treatment in severe patients who may need to limit the chronic exposure to systemic JAK inhibition and potential risks of cancer, infection, and other identified risks.

ARQ-255 Clinical Development

Alopecia Areata

ARQ-255-126 Study (Phase 1b Study)

We 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.

The Phase 1b study is a vehicle-controlled, double-blind, multi-center study designed to evaluate the safety, tolerability, and pharmacokinetics of treatment with ARQ-255 topical suspension 3% or vehicle in healthy adult subjects and individuals with patchy alopecia areata.

ARQ-252 is an alternative topical cream formulation of ivarmacitinib that we are developing for chronic hand eczema and vitiligo.

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

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

We submitted an IND to the FDA in July 2025 and anticipate commencing a Phase 1 study of ARQ-234 in the first quarter of 2026.

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ARQ-252 and ARQ-255

ARQ-252 is an alternative topical cream formulation of ivarmacitinib that we had developed for chronic hand eczema and vitiligo.

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

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

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

The ARQ-255 formulation, a topical suspension using our 4D technology, is separate and distinct from the ARQ-252 cream formulation, and thus there are no implications to ARQ-255 from ARQ-252.

Chronic Hand Eczema

Eczema is a term used to describe a group of different diseases that cause the skin to become red, itchy, and inflamed.

There are multiple forms of eczema, including atopic dermatitis, contact dermatitis, hand eczema, dyshidrotic eczema, and seborrheic dermatitis.

Eczema is very common, with some estimates that up to 30 million people in the United States may have some form of eczema.

Hand eczema is a common, predominantly inflammatory, skin disease characterized variously by redness, fluid filled blisters or bumps, scaling, cracking, itching, and pain occurring on the hands, especially the palms (see figures below).

It is the most common skin disease affecting the hands, with prevalence estimated at up to 2.5% of the population.

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

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Current Hand Eczema Treatment Landscape

Hand eczema is a difficult disease to treat.

The palms of the hand have skin that can be up to ten times thicker than skin from other body areas, which inhibits drug absorption and the ability to deliver drugs topically.

Hand eczema is typically treated with high potency topical steroids, mostly due to the aforementioned skin barrier challenges.

In some cases, physicians also will incorporate barrier creams to aid in hydration and to prevent the irritant effect caused by occupational exposure, a common cause of hand eczema.

There are currently no FDA-approved treatments specifically for the indication of hand eczema.

However, LEO Pharma has reported positive Phase 3 study results for their topical JAK inhibitor, delgocitinib.

Physicians report that a significant percentage of patients, including up to 40% of patients with severe dyshidrotic eczema (one type of hand eczema), have an inadequate response to currently available treatments.

In those who respond to high potency topical steroids, skin atrophy becomes a problem with chronic use, even on the thick skin of the palms.

Vitiligo is a chronic and disfiguring autoimmune disease that causes the complete loss of skin color in blotches or patches, frequently in a symmetrical distribution, and has a significant impact on the patient's quality of life.

The disease is caused by the localized destruction by the immune system of melanocytes, the skin cells that produce the skin pigment melanin, resulting in complete depigmentation in the affected area.

Vitiligo can have profound psychological impact on patients, particularly those with skin of color.

Patients may feel loss of self-esteem and experience stigmatization.

At this point in time, there are no FDA-approved treatments for vitiligo, so patients are often treated with off-label combinations of steroids, TCIs, ultraviolet light, and lasers.

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

Given these analyses, we also elected to terminate the Phase 2a clinical trial evaluating ARQ-252 as a potential treatment in vitiligo.

ARQ-255 is a deep penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 (JAK 1) inhibitor, we had developed for the treatment of alopecia areata.

Following the completion of a Phase 1b study in the middle of 2025, we elected to halt further development of the program.

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

We will face competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, and generic drug companies.

Any product candidate that we successfully develop and commercialize will compete with existing treatments, including those that may have achieved broad market acceptance, and any new treatment that may become available in the future.

We face competition, and will continue to face new competition, from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, and generic drug companies.

Any product, or product candidate that we successfully develop and commercialize, will compete with existing treatments, including those that may have achieved broad market acceptance, and any new treatment that may become available in the future.

Many of our competitors have greater financial, technical, and human resources than we have.

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Our commercial opportunity could be reduced or eliminated if our competitors develop or market products or other novel therapies that offer more symptomatic improvement, have a lower risk of side effects, or are less costly than our current or future product candidates.

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

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

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

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

Pfizer Inc., and Takeda Pharmaceutical Company Limited;

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

topical therapies such as tapinarof, marketed by Organon;

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

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

For psoriasis, our primary competitors include:

• injected biologic therapies such as Skyrizi®, marketed by AbbVie Inc., and Bimzelex®, marketed by UCB, Inc.;

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

• topical therapies such as VTAMA, marketed by Organon;

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

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

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

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

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

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

Ustekinumab biosimilars, under development by Biocon and others;

lcotrokinra, under development through a collaboration between Johnson & Johnson and Protagonist Therapeutics;

ME3183, under development by Meiji Pharma;

and Orismilast, under development by UNION.

For atopic dermatitis, our primary competitors include:

• topical therapies such as Eucrisa, marketed by Pfizer Inc.;

Opzelura, marketed by Incyte Corporation;

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

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

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

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

VTAMA, marketed by Organon;

ADQUEY, marketed by Arcotech;

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• generic and branded versions of low to mid-potency steroids, such as hydrocortisone or triamcinolone, including Kenalog, marketed by Bristol Meyers Squibb;

• ANZUPGO, marketed by LEO Pharma, was recently approved for the topical treatment of moderate to severe chronic hand eczema;

• injected biologic therapies approved for moderate-to-severe atopic dermatitis, including Dupixent®, marketed by Sanofi and Regeneron Pharmaceuticals, Inc;

Adbry®, marketed by LEO Pharma, and Ebglyss®, marketed by Eli Lilly and Company;

• non-injectable systemic therapies approved for moderate-to-severe atopic dermatitis, including RINVOQ®, marketed by AbbVie, and CIBINQO®, marketed by Pfizer;

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

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

(approved as Corectim in Japan), topical PF-07038124, under development by Pfizer Inc, topical difamilast ointment, under development by Medimetriks/Otsuka Pharma, injectable lebrikizumab, under development by Eli Lilly and Company, injectable rocatinlimab, under development by Amgen, and injectable amlitelimab, under development by Sanofi.

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

intralesional corticosteroid injections such as branded and generic versions of triamcinolone, including Kenalog, marketed by Bristol-Myers Squib;

and systemic immunosuppressants including generic versions of systemic steroids such as prednisone, branded and generic versions of cyclosporine, including Sandimmune ® , marketed by Sandoz, and branded systemic JAK inhibitors, especially Olumiant ® (baricitinib), marketed by Eli Lilly and Company, an oral JAK inhibitor and the first FDA-approved treatment for alopecia areata.

In addition, there are several prescription product candidates under development that could potentially be used to treat alopecia areata and compete with ARQ-255, including but not limited to:

ritlecitinib, under development by Pfizer, Inc., and deuruxolitinib (CTP-543), under development by Concert Pharmaceuticals (being acquired by Sun Pharmaceuticals).

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

The only other prescription product candidate we are aware of under development for the treatment of hand eczema that would compete with ARQ-252 is delgocitinib, under development by LEO Pharma A/S, which has reported positive Phase 3 results.

For vitiligo, our primary competitors include topical therapies such as generic and branded versions of calcineurin inhibitors, including Elidel ® , marketed by Bausch Health;

branded and generic versions of high potency steroids, including Clobex, marketed by Galderma Laboratories, LP;

the topical JAK inhibitor Opzelura, marketed by Incyte Corporation;

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

In addition, there are several prescription product candidates under development that could potentially be used to treat vitiligo and compete with ARQ-255, including but not limited to:

oral PF-06651600 and oral PF-06700841, both under development by Pfizer Inc.

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topical difamilast ointment (under development by Medimetriks/Otsuka Pharma);

injectable rocatinlimab (under development by Kyowa Kirin);

injectable amlitelimab (under development by Sanofi);

APG777 (under development by Apogee Therapeutics);

rezpegaldesleukin (under development by Nektar Therapeutics);

temtokibart (under development by LEO Pharma);

and JNJ-95475939 (under development by Janssen).

Commercial Operations

We intend to commercialize ZORYVE and our other product candidates ourselves in the United States and Canada within the dermatology specialty.

In the United States, we have completed the build-out of our commercial organization, including marketing, market access, sales and marketing operations, and professional relations.

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

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

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

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

We currently commercialize ZORYVE and intend to commercialize our other product candidates ourselves in the United States and Canada.

In the United States, we have built our commercial organization that includes marketing, market access, sales and marketing operations, professional relations, and a focused specialty sales force targeting dermatologists and allergists.

We expect to expand these operations as needed to support the growth of our business.

Following the termination of our promotion agreement with Kowa in January 2026, we plan to assume responsibility for sales and promotion of ZORYVE in the pediatric and primary care settings, initially through a small, targeted sales team focused on high-prescribing primary care and pediatric health care providers.

In Canada, we have established the infrastructure we believe is necessary to support commercialization of our products.

We may also seek partners to access additional geographic markets.

For example, we have partnered with companies to develop and commercialize roflumilast formulations for certain dermatological indications in Japan, China, and certain other countries within Asia.

Manufacturing & Supply

We do not own or operate, and currently have no plans to establish, any manufacturing facilities.

We source all of our nonclinical, clinical, and commercial compound supply from third-party contract manufacturing organizations (CMOs).

We also contract with well-established third-party manufacturers for our drug substance, drug product, and analytical testing.

We use additional contract manufacturers to label, package, and store our products.

We also have secondary suppliers to ensure redundant supply for our commercial products.

In addition, we have personnel and third-party consultants with substantial technical and product development experience who actively manage the CMOs producing our products and plan to use such personnel to manage CMOs for any other product candidates or products that we may develop in the future.

Our CMOs are required to operate in full compliance with applicable regulatory requirements, including those of the FDA and Health Canada.

Such requirements include adherence to FDA Good Laboratory Practices (GLP) and current Good Manufacturing Practices (cGMP) for the manufacture and testing of drug substance and drug product, as well as alignment with relevant International Council for Harmonization (ICH) guidelines.

All of our CMO partners have extensive technical expertise and experience manufacturing our specific technology.

We believe our supply arrangements are satisfactory for our current operations.

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Intellectual Property

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Patent term is based on the filing or grant date of the patent, as well as the governing law of the country in which the patent is obtained.

In the United States, some pharmaceutical patents are also eligible for Patent Term Extension, or PTE, which can extend exclusivity for up to five additional years under certain conditions.

In the United States, some pharmaceutical patents are also eligible for Patent Term Extension (PTE), which can extend exclusivity for up to five additional years under certain conditions.

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

As of February 25, 2025, we own or have an exclusive license to 32 issued U.S.

As of December 31, 2025, we own or have an exclusive license to 29 issued U.S.

patents and 59 issued foreign patents, which include granted European patent rights that have been validated in various European Patent Organization (EPO) member states, and 21 pending U.S.

patent applications, 187 pending foreign patent applications, including 4 applications filed under the Patent Cooperation Treaty.

Of these patents and patent applications:

Of these patents and patent applications, we have the following for roflumilast cream & roflumilast foam, as of December 31, 2025:

Roflumilast cream & roflumilast foam

As of February 25, 2025, we own 20 issued U.S.

patents, three issued Australian patents, three issued Canadian patents, two issued Chinese patents, two issued Eurasian patents, two issued European patents (validated in various EPO member states), one issued Hong Kong patent, two issued Indian patents, two issued Israeli patents, seven issued Japanese patents, three issued Mexican patents, two issued New Zealand patents, and two issued South Korean patents.

We also own 19 pending U.S.

patent applications, and 76 pending foreign applications (four in Australia, seven in Brazil, five in Canada, ten in China, one in Eurasia, eight in Europe, seven in Hong Kong, two in India, five in Israel, five in Japan, four in Mexico, seven in New Zealand, five in South Korea, three in Singapore, and three under the Patent Cooperation Treaty), relating to a roflumilast cream and/or roflumilast foam.

Patents Owned/Issued

Patents Pending

United Arab Emirates

Patent Cooperation Treaty

Twelve of our U.S.

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

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

Our issued patents relating to a roflumilast cream and/or a roflumilast foam contain claims directed to, among other things, pharmaceutical

Index to Financial Statements

compositions comprising roflumilast and hexylene glycol, pharmaceutical compositions comprising roflumilast and diethylene glycol monoethyl ether, pharmaceutical compositions comprising roflumilast and cetostearyl alcohol, dicetyl phosphate, and ceteth-10 phosphate, methods of making such compositions, and methods of treatment using such compositions, methods of treating fungal infections by administering compositions comprising roflumilast, and methods for improving treatment adherence by improving delivery and extending the plasma half-life of a roflumilast composition.

These issued U.S.

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

Our pending patents relating to roflumilast cream and roflumilast foam contain claims directed to,

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among other things, pharmaceutical compositions comprising roflumilast and diethylene glycol monoethyl ether, pharmaceutical compositions comprising roflumilast, cetostearyl alcohol, dicetyl phosphate, and/or ceteth-10 phosphate, methods of treatment using such compositions, methods of manufacturing such compositions, and other aspects of our roflumilast formulations, including unique pharmacokinetic aspects of topical roflumilast compositions.

• ARQ-252 & ARQ-255 :

As of February 25, 2025, we have an exclusive license from Hengrui to six issued U.S.

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

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

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

We own four issued U.S.

patents, two issued Japanese patents, and have filed four pending U.S.

patent applications and 44 pending foreign patent applications (three in each of Australia, Brazil, Canada, China, Europe, India, Israel, Japan, Mexico, Singapore, South Korea, and New Zealand, two in each of Hong Kong, Indonesia, Thailand, and Vietnam) relating to, among other things, ivarmacitinib compositions and methods of treatment using ivarmacitinib compositions.

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

Additionally, we have a patent directed to the 0.3% roflumilast foam composition that expires in 2042.

Our pending patents relating to roflumilast cream and roflumilast foam contain claims directed to, among other things, pharmaceutical compositions comprising roflumilast and diethylene glycol monoethyl ether, pharmaceutical compositions comprising roflumilast, cetostearyl alcohol, dicetyl phosphate, and/or ceteth-10 phosphate, methods of treatment using such compositions, methods of manufacturing such compositions, and other aspects of our roflumilast formulations, including unique pharmacokinetic aspects of topical roflumilast compositions.

As of December 31, 2025, we also have the following patents and patent applications for ARQ-234 and other CD200 mutant proteins:

ARQ-234 and other CD200 mutant proteins

As of February 25, 2025, we own one issued U.S.

patent, one issued Australian patent, one issued Chinese patent, one issued Eurasian patent, one issued Israeli patent, one issued Indian patent, one issued Japanese patent, one issued Mexican patent, two issued South Korean patents, one issued Singapore patent, one issued South African patent, and 3 pending U.S.

applications, and 37 pending foreign applications (four in each of Canada and Europe, three in each of China, Japan, and New Zealand, two in each of Australia, Brazil, India, Israel, and South Korea, and one in each of Eurasia, Great Britain, Hong Kong, Indonesia, Mexico, Philippines, Singapore, South Africa, Thailand, and the Patent Cooperation Treaty), relating to ARQ-234 and other CD200 mutant proteins.

Patents Owned/Issued

Patents Pending

Great Britain

Patent Cooperation Treaty

The issued U.S.

patent for ARQ-234 is related to its composition of matter and currently projected to expire on July 14, 2038, unless any PTE is granted.

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

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Maintaining the confidential nature of our non-publicly disclosed products and technologies is of paramount importance.

For this reason, our employees, contractors, consultants, and advisors are required to enter into nondisclosure and invention assignment agreements when their employment or engagement commences.

For this reason, our employees, contractors, consultants, and advisors are required to enter into

Index to Financial Statements

nondisclosure and invention assignment agreements when their employment or engagement commences.

Those individuals also enter into agreements that prohibit the communication or implementation of any third-party proprietary rights during the course of their employment with us.

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

License, Collaboration and Co-Promotion Agreements

Kowa Co-Promotion Agreement

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.

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

License, Collaboration, and Promotion Agreements

Kowa Promotion Agreement

In July 2024, we entered into a promotion agreement with 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 received a commission from net sales attributed to Kowa.

Promotion of ZORYVE in primary care and pediatrics under the Kowa agreement began in late September 2024.

Effective January 23, 2026, both parties mutually agreed to terminate the promotion agreement.

Following this termination, Kowa ceased all sales and promotion of ZORYVE and we will not be required to make any further payments to Kowa.

Sato License Agreement

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

Pursuant to the terms of the License Agreement, we grant to Sato an exclusive, sublicensable (under certain circumstances) license under certain patent rights and know-how controlled by us for Sato to develop, conduct medical affairs activities for, manufacture, commercialize, and otherwise exploit roflumilast formulations (the

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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 our approval and oversight rights.

Pursuant to the terms of the License Agreement, we 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 us 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, we 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, we 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 us to Sato.

We 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, 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.

On February 27, 2024, we entered into the Sato Agreement with Sato.

Pursuant to the Sato Agreement, we grant Sato an exclusive, sublicensable (under certain circumstances) license under certain patent rights and know-how controlled by us for Sato to develop, conduct medical affairs activities for, manufacture, commercialize, and otherwise exploit roflumilast formulations (the Sato Licensed Products) for all therapeutic uses for certain dermatological indications in humans (the Sato Field) in Japan.

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

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

Pursuant to the terms of the Sato Agreement, we 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 Sato Licensed Product-by-Sato Licensed Product basis, commencing from the first commercial sale of such Sato Licensed Product in Japan until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by us to Sato under the Sato License Agreement covering such Sato Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Sato Licensed Product in Japan, or (iii) ten years after the first commercial sale of such Sato Licensed Product in Japan, we 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 Sato Licensed Products, subject to certain royalty reductions.

The term of the Sato Agreement continues until, on a Sato Licensed Product-by-Sato Licensed Product basis, the expiration of the Royalty Term, which is the (i) the expiration of the last valid claim in the licensed technology covering such Sato Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Sato Licensed Product in Japan, or (iii) ten years after the first commercial sale of such Sato Licensed Product in Japan.

The Sato 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 Sato Agreement at-will in its entirety upon 90 days’ written notice.

Unless unenforceable under applicable law, we may terminate the Sato 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 us to Sato.

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

Huadong License and Collaboration Agreement

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

(Huadong), a wholly owned subsidiary of Huadong Medicine Co., Ltd., whereby Pursuant to the terms of the agreement, we granted to Huadong an exclusive, sublicensable (under certain circumstances) license under certain patent rights and know-how controlled by us for Huadong to develop, conduct medical affairs activities for, manufacture, commercialize and otherwise exploit both ZORYVE cream and ZORYVE foam (the Huadong Licensed Products) for all therapeutic uses for certain dermatological indications (the Field) in Greater China (mainland China, Hong Kong, Macau and Taiwan) and Southeast Asia (Indonesia, Singapore, The Philippines, Thailand, Myanmar, Brunei, Cambodia, Laos, Malaysia, and Vietnam) (the Huadong Territories).

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

In August 2023, we entered the Huadong Agreement with Huadong, pursuant to which we granted to Huadong an exclusive, sublicensable (under certain circumstances) license under certain patent rights and know-

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how controlled by us for Huadong to develop, conduct medical affairs activities for, manufacture, commercialize, and otherwise exploit both cream and foam topical roflumilast for all therapeutic uses for certain dermatological indications (Huadong Licensed Products) in Greater China (mainland China, Hong Kong, Macau, and Taiwan) and Southeast Asia (Indonesia, Singapore, The Philippines, Thailand, Myanmar, Brunei, Cambodia, Laos, Malaysia, and Vietnam) (Huadong Territories).

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

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

We will retain exclusive rights for the development, manufacture and commercialization of topical roflumilast outside the Huadong Territories.

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

In addition, we received payments of $3.0 million and $2.0 million in March 2024 and December 2024, respectively, related to the achievement of a development and regulatory milestones.

As consideration for the rights granted under the Huadong Agreement, we received a net payment of $27.0 million in September 2023, which consisted of a $30.0 million upfront payment less the applicable tax withholding obligation in China of $3.0 million.

In addition, we received net payments of $2.7 million in March 2024, and $1.8 million in each of December 2024, March 2025, and November 2025, related to the achievement of a development and regulatory milestones less the applicable tax withholdings.

We may also potentially receive additional payments (i) up to an aggregate amount of $15.0 million upon the achievement of certain development and regulatory milestones and (ii) up to an aggregate amount of $40.3 million upon the achievement of certain sales milestones.

In addition, on a Licensed Product-by-Licensed Product and country or region-by-country or region basis, commencing from the first commercial sale of such Licensed Product in such country or region until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by us to Huadong under the License Agreement covering such Licensed Product in such country or region, (ii) the expiration of regulatory exclusivity for such Licensed Product in such country or region, or (iii) ten years after the first commercial

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sale of such Licensed Product in such country or region (the Royalty Term), we will receive low double-digit to high-teen double-digit percentage royalties on Huadong’s, its affiliates’ and sublicensees’ total net sales, subject to certain royalty reductions.

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

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

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

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

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

See Note 7 to the consolidated financial statements.

In July 2018, we entered into an exclusive license agreement, or the AstraZeneca License Agreement, with AstraZeneca, pursuant to which we obtained a worldwide exclusive license, with the right to sublicense through multiple tiers, under certain AstraZeneca-controlled patent rights, know-how and regulatory documentation, to research, develop, manufacture, commercialize, and otherwise exploit products containing roflumilast in topical forms, as well as delivery systems sold with or for the administration of roflumilast, or collectively, the AZ-Licensed Products, for all diagnostic, prophylactic, and therapeutic uses for human dermatological indications, or the Dermatology Field.

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

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

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

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

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

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

In July 2018, we entered into an exclusive license agreement with AstraZeneca (the AstraZeneca License Agreement), pursuant to which we obtained a worldwide exclusive license, with the right to sublicense through multiple tiers, under certain AstraZeneca-controlled patent rights, know-how and regulatory documentation, to research, develop, manufacture, commercialize, and otherwise exploit products containing roflumilast in topical forms, as well as delivery systems sold with or for the administration of roflumilast (collectively, the AZ-Licensed Products) for all diagnostic, prophylactic, and therapeutic uses for human dermatological indications (collectively, the Dermatology Field).

Under this agreement, we have sole responsibility for development, regulatory, and commercialization activities for the AZ-Licensed Products in the Dermatology Field, at our expense, and we shall use commercially reasonable efforts to develop, obtain, and maintain regulatory approvals for, and commercialize the AZ-Licensed Products in the Dermatology Field in each of the United States, Italy, Spain, Germany, the United Kingdom, France, China, and Japan.

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

We also paid AstraZeneca $7.5 million upon ZORYVE cream's FDA approval of ZORYVE cream 0.3% and have agreed to make additional cash payments to AstraZeneca of up to an aggregate of $5.0 million upon the achievement of specific regulatory approval milestones with respect to the AZ-Licensed Products.

W e paid AstraZen eca $5.0 million upon achievement of $100.0 million in worldwide net sales and have agreed to m ake an additional payment of $10.0 million when the company achieves $250.0 million in worldwide net sales.

We also paid AstraZeneca $7.5 million upon ZORYVE cream's FDA approval of ZORYVE

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cream 0.3% and have agreed to make additional cash payments to AstraZeneca of up to an aggregate of $5.0 million upon the achievement of specific regulatory approval milestones with respect to the AZ-Licensed Products.

W e paid AstraZen eca $5.0 million in October 2024 upon achievement of $100.0 million in worldwide net sales and $10.0 million in May 2025 upon achievement of $250.0 million in worldwide net sales.

With respect to any AZ-Licensed Products we commercialize under the AstraZeneca License Agreement, we will pay AstraZeneca a low to high single-digit percentage royalty rate on our, our affiliates’, and our sublicensees’ net sales of such AZ-Licensed Products, 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.

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

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

(1) by either party upon written notice for the other party’s material breach or insolvency event if such party fails to cure such breach or the insolvency event is not dismissed within specified time periods;

(1) by either party upon written for the other party’s material breach or insolvency event if such party fails to cure such breach or the insolvency event is not dismissed within specified time periods;

(2) by AstraZeneca if we, our affiliates, or our sublicensees take actions to invalidate AstraZeneca-licensed patent rights, or if we permanently cease development of all AZ-Licensed Products, and an AZ-Licensed Product is not being commercialized by us;

or (3) by us upon 120 days’ written notice or in the event of certain adverse clinical trial or other regulatory outcomes.

In the event the agreement is terminated, except by us for AstraZeneca’s material breach or in the event of certain adverse clinical trial or other regulatory outcomes, we will be obligated to pay a termination fee in the amount of $5.0 million or 3% of net sales of AZ-Licensed Products for the 3-year period following the first regulatory approval of an AZ-Licensed Product, whichever is greater.

Jiangsu Hengrui Medicine Co., Ltd

In January 2018, we entered into an exclusive option and license agreement, or the Hengrui License Agreement, with Jiangsu Hengrui Medicine Co., Ltd, or Hengrui, whereby Hengrui granted us an exclusive option to obtain certain exclusive rights to research, develop, and commercialize products containing the compound designated by Hengrui as ivarmacitinib, a potent and selective JAK1 inhibitor, in topical formulations for the treatment of skin diseases, disorders, and conditions, or the Field, in the United States, Japan, and the EU (including for clarity the United Kingdom), or the Territory.

In December 2019, we exercised our exclusive option, and also contemporaneously amended the agreement to expand the territory to additionally include Canada, and therefore now have a license from Hengrui under certain patent rights and know-how controlled by Hengrui to research, develop and commercialize products containing ivarmacitinib in the Field in the Territory.

In January 2018, we entered into an exclusive option and license agreement (the Hengrui License Agreement) with Jiangsu Hengrui Medicine Co., Ltd (Hengrui), whereby Hengrui granted us an exclusive option to obtain certain exclusive rights to research, develop, and commercialize products containing the compound designated by Hengrui as ivarmacitinib, a potent and selective JAK1 inhibitor, in topical formulations for the treatment of skin diseases, disorders, and conditions (the Hengrui Field), in the United States, Japan, United Kingdom, and the European Union (the Territory).

In December 2019, we exercised our exclusive option, and also contemporaneously amended the agreement to expand the Territory to additionally include Canada, and therefore now have a license from Hengrui under certain patent rights and know-how controlled by Hengrui to research, develop and commercialize products containing ivarmacitinib in the Hengrui Field in the Territory.

Such license is sublicensable through multiple tiers, exclusive as to the patent rights licensed from Hengrui and nonexclusive with respect to the know-how licensed from Hengrui, and does not extend to patent rights for improvements to ivarmacitinib which Hengrui may come to control in the future unless otherwise mutually agreed by the parties.

In addition, we have sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products in the Field and in the Territory, at our sole cost and discretion, and shall use commercially reasonable efforts to (1) develop at least one licensed product and to (2) commercialize the licensed products following regulatory approval thereof.

In addition, we have sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products in the Hengrui Field and in the Territory, at our sole cost and discretion, and shall use commercially reasonable efforts to (1) develop at least one licensed product and to (2) commercialize the licensed products following regulatory approval thereof.

Pursuant to the Hengrui License Agreement, a joint coordination committee reviews the progress of development and commercialization of each parties’ products containing ivarmacitinib in their respective territories and fields.

During the term of the Hengrui License Agreement, if we acquire or develop certain JAK inhibitor products that are not controlled by Hengrui, or Competing Products, we must negotiate in good faith with Hengrui whether to terminate the agreement or license to Hengrui the right to develop and commercialize such Competing Product in China.

During the term of the Hengrui License Agreement, Hengrui will not develop or commercialize ivarmacitinib or any licensed product in the Field in the Territory.

During the term of the Hengrui License Agreement, Hengrui will not develop or commercialize ivarmacitinib or any licensed product in the Hengrui Field in the Territory.

Additionally, if Hengrui decides to develop or commercialize a non-topical formulation of ivarmacitinib for the treatment of certain dermatologic indications in the Territory, we have the first right to negotiate a co-development and/or co-commercialization agreement with Hengrui for the same.

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In addition, we have agreed to make cash payments of up to an aggregate of $20.5 million upon our achievement of specified clinical development and regulatory approval milestones with respect to the licensed products and cash payments of up to an additional aggregate of $200.0 million in sales-based milestones based on achieving certain aggregate annual net sales volumes with respect to a licensed product.

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

With respect to any products we commercialize under the agreement, we will pay tiered royalties to

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Hengrui on net sales of each licensed product by us, or our affiliates, or our sublicensees, ranging from mid single-digit to sub-teen percentage rates based on tiered annual net sales bands subject to specified reductions.

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

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

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The agreement continues in effect until the expiration of our obligation to pay royalties as described above, unless earlier terminated in accordance with the following:

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In June 2022, we 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.

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

Following the completion of a Phase 1b study for ARQ-255 in alopecia areata in the middle of 2025, we elected to halt further development of ARQ-255, a topical formulation of ivarmacitinib.

Government Regulation

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Drug Development Process

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

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

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

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

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

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

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

• submission to the FDA of an IND which must become effective before human clinical trials may begin;

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

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

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

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

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

• preparation of and submission to the FDA of an New Drug Application (NDA) or a Biologics License Application (BLA) after completion of all pivotal trials, as applicable;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

These studies are designed to test the safety, dosage tolerance, absorption,

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metabolism, and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.

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

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

These clinical trials are intended to

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establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.

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

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

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

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

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

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

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FDA Review and Approval Process

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

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

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

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

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

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

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

The cost of preparing and submitting an NDA is substantial.

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

The cost of preparing and submitting an NDA or BLA is substantial.

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

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

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

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

In this event, the additional information must be included in any resubmitted NDA, which is subject to review before the FDA accepts it for filing.

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

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

In this event, the additional information must be included in any resubmitted NDA or BLA, which is subject to review before the FDA accepts it for filing.

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

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

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

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

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

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

The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.

Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP requirements.

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Before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP requirements.

Additionally, the FDA will generally inspect the facility or the facilities at which the drug is manufactured to ensure the facility is compliant with cGMP requirements and adequate to assure consistent production of the product within required specifications.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For example, as a condition of approving an NDA or BLA, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of the drug outweigh the potential risks.

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

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

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

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

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

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

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

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

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

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

Pediatric Information

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

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

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

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

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

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

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

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

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

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request from the FDA.

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

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

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

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

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

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

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

For example, the Fast Track program is intended to expedite or facilitate the process for reviewing new product

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candidates that are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Orphan drug designation and exclusivity

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

Orphan drug designation must be requested before submitting an NDA.

Orphan drug designation must be requested before submitting an NDA or BLA.

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

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

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

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

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

Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same use or indication within the rare disease or condition, or the same drug for any use or indication within a different rare disease or condition.

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

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

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

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

Post-Approval Requirements

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

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

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

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

The FDA also may require post-marketing Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product.

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

The FDA also may require post-market studies, a REMS, and/or surveillance to monitor the effects of an approved product, or may place conditions on an approval that could restrict the distribution or use of the product.

In addition, quality control, drug manufacture, packaging, and labeling procedures must continue to conform to cGMPs after approval.

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• fines, warning letters, or holds on post-approval clinical trials;

• refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension, or revocation of product approvals;

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• refusal of the FDA to approve pending NDAs or BLAs or supplements to approved NDAs or BLAs, or suspension, or revocation of product approvals;

• product seizure or detention, or refusal to permit the import or export of products;

• injunctions or the imposition of civil or criminal penalties.

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

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

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

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

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This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for an existing product, or published literature, in support of its application.

However, a drug must meet certain criteria relative to the Listed Drug to be eligible to use the Section 505(b)(2) pathway as opposed to the abbreviated NDA, or ANDA pathway, which is described below.

However, a drug must meet certain criteria relative to the Listed Drug to be eligible to use the Section 505(b)(2) pathway as opposed to the abbreviated NDA ( ANDA) pathway, which is described below.

Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an ANDA.

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

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decision in the infringement case that is favorable to the applicant, or such shorter or longer period as may be ordered by a court.

The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the application until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the applicant, or such shorter or longer period as may be ordered by a court.

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

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

In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owner(s) regularly take action to

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trigger the 30-month stay, recognizing that the related patent litigation may take many months or years to resolve.

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

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

Other Healthcare Laws

Biosimilars and Reference Product Exclusivity

The Biologics Price Competition and Innovation Act of 2009 (BPCIA) created an abbreviated approval pathway for biological products that are highly similar, or “biosimilar,” to or interchangeable with an FDA-approved reference biological product.

Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, is generally shown through analytical studies, animal studies, and a clinical study or studies.

Interchangeability requires that a product be biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic.

A product shown to be biosimilar or interchangeable with an FDA-approved reference biological product may rely in part on the FDA’s previous determination of safety and effectiveness for the reference product for approval, which can potentially reduce the cost and time required to obtain approval to market the product.

Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA.

In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed.

During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of its product.

The BPCIA also created some exclusivity periods for biosimilars approved as interchangeable products.

Both drugs and biological products can also obtain pediatric market exclusivity in the United States.

Pediatric exclusivity, if granted, adds six months to existing exclusivity periods for all formulations, dosage forms, and indications of the active ingredient and to patent terms.

This six-month exclusivity, which runs from the end of existing regulatory exclusivity protection and patent terms, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study, provided that at the time pediatric exclusivity is granted there is not less than nine months of exclusivity or patent term remaining.

Other Health Care Laws

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In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws have been applied to restrict certain general business and marketing practices in the pharmaceutical industry in recent years.

These laws include anti-kickback statutes, false claims statutes, and other healthcare laws and regulations.

federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs.

These laws include anti-kickback statutes, false claims statutes, and other health care laws and regulations.

federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally financed health care programs.

This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers, and formulary managers on the other.

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This includes claims made to programs where the federal government reimburses, such as Medicaid, as well as programs where the federal government is a direct purchaser, such as when it purchases off the Federal Supply Schedule.

Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.

Recently, several pharmaceutical and other health care companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.

In addition, certain marketing practices, including off-label promotion, may also violate false claims laws.

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

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

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

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

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

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

Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals.

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Compliance with these laws is difficult and time-consuming, and companies that do not comply with these state laws face civil penalties.

Efforts to ensure that business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs.

If a drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other federal or state government healthcare programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm.

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Efforts to ensure that business arrangements with third parties comply with applicable health care laws and regulations involve substantial costs.

If a drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, health care reimbursement or other federal or state government health care programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm.

Although effective compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, these risks cannot be entirely eliminated.

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The ability for manufacturers to secure coverage for therapeutic product candidates can be subject to significant formulary restrictions or denial by payers.

The regulations that govern coverage, pricing, and reimbursement for new drugs and therapeutic biologics vary widely from country to country.

Some countries require approval of the sale price of a drug or therapeutic biologic before it can be marketed.

The regulations that govern coverage, pricing, and reimbursement for new drugs (whether chemical or biologics) vary widely from country to country.

Some countries require approval of the sale price of a drug before it can be marketed.

In many countries, the pricing review period begins after marketing approval is granted.

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

Even if one or more products are

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successfully brought to the market, these products may not be considered cost-effective, and the amount reimbursed for such products may be insufficient to allow them to be sold on a competitive basis.

Increasingly, third-party payers who reimburse patients or healthcare providers, such as government and private insurers, are requiring that drug companies provide them rebates off list prices, and are seeking to reduce their prices to secure coverage.

Even if one or more products are successfully brought to the market, these products may not be considered cost-effective, and the amount reimbursed for such products may be insufficient to allow them to be sold on a competitive basis.

Increasingly, third-party payers who reimburse patients or health care providers, such as government and private insurers, are requiring that drug companies provide them rebates off list prices, and are seeking to reduce their prices to secure coverage.

A payer’s decision to provide coverage for a product does not imply that an adequate reimbursement rate or formulary position will be available.

Delays can occur in obtaining reimbursement for newly-approved drugs or therapeutic biologics, and coverage may be more limited than the purposes for which the drug or therapeutic biologic is approved by the FDA or similar foreign regulatory authorities.

Moreover, eligibility for reimbursement does not imply that any drug or therapeutic biologic will be reimbursed in all cases or at a rate that covers a drug company’s costs, including research, development, manufacture, sale, and distribution.

Delays can occur in obtaining reimbursement for newly-approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar foreign regulatory authorities.

Moreover, eligibility for reimbursement does not imply that any drug will be reimbursed in all cases or at a rate that covers a drug company’s costs, including research, development, manufacture, sale, and distribution.

Third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness of products, in addition to their safety and efficacy.

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Third-party payers may not consider products to be medically necessary or cost-effective compared to other available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate margin over cost or may not enable maintenance of price levels sufficient to realize an appropriate return on a drug company’s investment in drug development.

Net prices for drugs or therapeutic biologics may be reduced by mandatory discounts or rebates required by government healthcare programs or private payers and by any future relaxation of laws that presently restrict imports of drugs or therapeutic biologics from countries where they may be sold at lower prices than in the United States.

Net prices for drugs may be reduced by mandatory discounts or rebates required by government health care programs or private payers and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.

Further, no uniform policy for coverage and reimbursement exists in the United States.

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

Healthcare Reform

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Health Care Reform

In the United States, there have been, and continue to be, proposals by the federal government, state governments, regulators, and third-party payers to control or manage the increased costs of health care and, more generally, to reform the U.S.

healthcare system.

health care system.

The pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.

For example, in March 2010, the Affordable Care Act (ACA) was enacted, which was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms.

The ACA substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S.

For example, the ACA was enacted in 2010, which substantially changed the way health care is financed by both governmental and private insurers and significantly impacts the U.S.

pharmaceutical industry.

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

The ACA, among other things, (i) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended manufacturer rebate liability to utilization by individuals enrolled in Medicaid managed care organizations, (ii) established annual nondeductible fees and taxes on manufacturers of certain branded prescription drugs and therapeutic biologics, and (iii) established a Center for Medicare and Medicaid Innovation at Centers for Medicare and Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.

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

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

Thus, the ACA will remain in

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effect in its current form.

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

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

Other legislative changes have been proposed and adopted in the United States since the ACA was enacted to reduce health care expenditures.

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

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

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

On August 2, 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022, unless additional Congressional action is taken.

Moreover, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

On August 2, 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers, which went into effect on April 1, 2013, and, due to subsequent legislative amendments to the statute, will remain in effect through 2032, unless additional Congressional action is taken.

Moreover, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers.

If federal spending is further reduced, anticipated budgetary shortfalls may also impact the ability of relevant agencies, such as the FDA or the National Institutes of Health, to continue to function at current levels.

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

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

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

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

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

CMS has published the negotiated prices for the initial ten drugs, which will first be effective in 2026, and the list of the subsequent 15 drugs that will be subject to negotiation, although the Medicare drug price negotiation program is currently subject to legal challenges.

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

Most significantly, the Inflation Reduction Act, or IRA, was enacted in 2022.

Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare, with prices that can be negotiated subject to a cap (with resulting prices for the initial ten drugs first effective in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), redesigns the Medicare Part D benefit (beginning in 2025), and replaces the Part D coverage gap discount program with a new discounting program (which began on January 1, 2025).

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

CMS published the negotiated prices for the initial ten drugs, which will first be effective in 2026, and for the subsequent 15 drugs, which will first be effective in 2027.

Each year thereafter, more Part B and Part D products will become subject to the HHS price negotiation program.

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

While the impact of the IRA on us and the pharmaceutical industry is likely to be significant, the impact on us cannot be fully determined.

The One Big Beautiful Bill Act, which was enacted in July 2025, imposes significant reductions in the funding of the Medicaid program.

Such reductions are expected to decrease the number of persons enrolled in Medicaid and reduce the services covered by Medicaid, which could adversely affect our ability to grow sales of ZORYVE ® or any other product candidate that we commercialize in the Medicaid market.

The current administration is pursuing a two-fold strategy to reduce drug costs in the United States.

While it is unclear whether and how the proposals will be implemented, the policies are likely to have a negative impact on the pharmaceutical industry and may have a negative impact on revenues for ZORYVE.

On the one hand, the current administration has threatened to impose significant tariffs on pharmaceutical manufacturers that do not adopt pricing policies such as most favored nation pricing, which would tie the price for drugs in the United States to the lowest price in a group of other countries.

In response, multiple manufacturers have entered into confidential pricing agreements with the federal government.

On the other hand, the current administration is pursuing traditional regulatory pathways to impose drug pricing policies and published two proposed regulations in December 2025,

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referred to as Globe and Guard.

If finalized, these regulations would implement mandatory payment models under which manufacturers of eligible drugs would be required to pay rebates to the federal government on a portion of the units of their drugs that are reimbursed by Medicare, with the rebate amount based on most favored nation pricing.

Imposing a rebate in the United States that is based on drug prices outside the United States would mark a drastic and unprecedented shift in the U.S.

pharmaceutical market, and while the impact of the Globe and Guard proposed regulations, if finalized, cannot yet be determined, it is likely to be significant.

Even regulatory proposals or executive actions that are ultimately deemed unlawful could negatively impact the U.S.

pharmaceutical sector and our business.

In addition, pharmaceutical pricing and marketing has long been the subject of considerable discussion in Congress and among policymakers, and it is possible that Congress could enact additional laws that negatively affect the pharmaceutical industry.

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

Some states have enacted legislation creating so-called prescription drug affordability boards, which ultimately may attempt to impose price limits on certain drugs in these states.

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

Some states have enacted legislation creating so-called prescription drug affordability boards, which ultimately may attempt to impose price limits on certain drugs in these states, and at least one state board is imposing an upper payment limit.

States are also seeking to implement general, across-the-board price caps for pharmaceuticals, or are seeking to regulate drug distribution.

Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, financial condition, results of operations, and prospects.

We anticipate that these laws that have been enacted and any future laws will result in additional downward pressure on coverage and the price that we receive for our products and could seriously harm our business.

Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers.

The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

The implementation of cost containment measures or other health care reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.

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

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

Data Privacy and Security

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As of December 31, 2025, we had 354 full-time employees.

Of these full-time employees, three have an M.D., and five are Nurse Practitioners or Physician Assistants.

From time to time, we also retain independent

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contractors to support our organization.

Of these full-time employees, two have an M.D., and four are Nurse Practitioners or Physician Assistants.

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

None of our employees are represented by a labor union or covered by collective bargaining agreements, and we believe our relationship with our employees is good.

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These efforts include not only our recruitment and compensation programs, but equally importantly, include the corporate culture that we have built at the company, and the management practices we employ in order to obtain the best possible performance from our team.

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Financial Information About Segments

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See Note 13 in the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.

Additional information required by this item is incorporated herein by reference to Part II, Item 6, “Selected Financial Data.”

About Arcutis Biotherapeutics

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

For more information about us, including free access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, visit our website, www.arcutis.com.

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

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

What changed 10-K

Item 1. Business