Arcutis Biotherapeutics, Inc. 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto as of and for the year ended December 31, 2025 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2025, which has been filed with the Securities and Exchange Commission (SEC). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans, objectives, expectations, projections, and strategy for our business, includes forward-looking statements that involve risks and uncertainties. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. As a result of many factors, including those factors identified below and those set forth in the “Risk Factors” section of our Annual Report on Form 10-K, our actual results and the timing of selected events could differ materially from the forward-looking statements contained in the following discussion and analysis. Overview We are a commercial-stage biopharmaceutical company focused on developing and commercializing treatments for dermatological diseases with high unmet medical needs. Our current portfolio is comprised of highly differentiated topical and systemic treatments with significant potential to treat immune-mediated dermatological diseases and conditions. We believe we have built a leading platform for dermatologic product development and commercialization. Our strategy is to focus on validated biological targets and to use our drug development platform and deep dermatology expertise to develop and commercialize differentiated products that have the potential to address major shortcomings of existing therapies in our targeted indications. 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 efficient use of 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., 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 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. 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 assigned for June 29, 2026. In June 2023, we achieved 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 of 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 of age. In December 2023, we received FDA approval for ZORYVE 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, 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 in Canada in November 2024. We also received FDA approval for ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in adults and adolescents aged 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 have completed enrollment in a Maximum Usage Systemic Exposure (MUSE) trial for ZORYVE foam in children with plaque psoriasis of the scalp and body 2 to 11 years old. 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 and older, with no 22 Table of Content s limitation on location, body surface area treated, concomitant use, or duration of use specified in the approved labeling. 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. In October 2025, Health Canada accepted our SNDS for ZORYVE cream 0.05% for the topical treatment of mild to moderate atopic dermatitis in children 2 to 5 years old. In February 2026, we announced positive topline data for INTEGUMENT-INFANT, a Phase 2 study evaluating the safety and efficacy of investigational ZORYVE cream 0.05% in infants as young as 3 months to less than 2 years of age with atopic dermatitis. We submitted an sNDA to the FDA in April 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. 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 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. 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, 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. (Huadong), a wholly owned subsidiary of Huadong Medicine Co., Ltd. In February 2024, we entered into 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). We are developing ARQ-234 for moderate to severe 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. In March 2026, we announced that the first participant had been enrolled in a Phase 1a/1b clinical study evaluating the safety and tolerability of ARQ-234. In July 2018, we executed a licensing agreement with AstraZeneca AB (AstraZeneca) for exclusive worldwide rights to roflumilast as a topical product for use 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. We have incurred annual net losses in each year since inception, including net losses of $11.3 million and $25.1 million for the three months ended March 31, 2026 and 2025, respectively. As of March 31, 2026, we had an accumulated deficit of $1,149.4 million and cash, cash equivalents, restricted cash, and marketable securities of $224.3 million. As of March 31, 2026, we had $100.0 million outstanding under a loan and security agreement, as amended, with SLR Investment Corp. (SLR) and the lenders party thereto. While we generated net income for the quarters ended September 30, 2025 and December 31, 2025, the extent of any net income or losses for future periods is uncertain, and we may continue to incur net losses in future periods. We expect to continue to incur significant expenses as we commercialize ZORYVE, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions and potentially commercialization. We expect to incur commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE, while we focus our clinical development spending on ARQ-234 and ZORYVE label expansions. While we do not anticipate the need to obtain funds through financings or other sources to support our current planned operations, if our available cash and marketable securities balances, amounts available under financing arrangements, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as potential future collaboration agreements. Adequate funding may not be available to us on acceptable terms, or at all. Any failure to obtain sufficient funds on acceptable terms if or when needed could have a material adverse effect on our business, results of operations, and financial condition. 23 Table of Content s We do not own or operate, and currently have no plans to establish any manufacturing facilities. We rely on third parties to conduct our nonclinical studies and clinical trials, as well as for the manufacturing and supply of our product candidates and for the commercial supply of our products. Many of these suppliers that we rely on are single-source suppliers. Components of Our Results of Operations Revenue Product Revenue, Net In August 2022, in conjunction with the launch of our first FDA-approved product, we began to recognize revenue from product sales, net of deductions. Below are the time periods that we began to recognize product revenue, net of deductions, related to the launches of each of our products and indications: Product/Indication Concentration Region Age 2022 2023 2024 2025 ZORYVE cream for Plaque Psoriasis 0.3% United States > 12 yrs August 0.3% Canada > 12 yrs June 0.3% United States 6-11 yrs October ZORYVE foam for Seborrheic Dermatitis 0.3% United States > 9 yrs January 0.3% Canada > 9 yrs November ZORYVE cream for Atopic Dermatitis 0.15% United States > 6 yrs July 0.15% Canada > 6 yrs April 0.05% United States 2-5 yrs October ZORYVE foam for Scalp & Body Psoriasis 0.3% United States > 12 yrs June 0.3% Canada > 12 yrs November Other Revenue Other revenue recognized to date is derived primarily from upfront license fees and milestone payments received pursuant to the Sato Agreement and Huadong Agreement. We expect that any other revenue we generate pursuant to these agreements will fluctuate from period to period as a result of the timing of potential milestone achievements and any potential regulatory approvals within the respective Sato Territory and Huadong Territory. Operating Expenses Cost of Sales Cost of sales includes direct and indirect costs related to the manufacturing and distribution of ZORYVE, including raw materials, third-party manufacturing costs, packaging services, and freight-in, as well as third-party royalties payable on our net product sales and amortization of intangible assets associated with ZORYVE. Prior to the date on which the initial regulatory approval was received for each product, costs of inventory production were recorded as research and development expense. As of March 31, 2026 and December 31, 2025, the value of this expensed inventory on hand was approximately $1.7 million and $2.6 million, respectively. Subsequent to initial regulatory approval, costs of production are capitalized into inventory, and as that inventory is sold and revenue is recognized, the cost of the inventory is recognized in cost of sales. 24 Table of Content s Research and Development Expenses Since our inception, we have focused significant resources on our research and development activities, including conducting nonclinical studies and clinical trials, manufacturing development efforts, activities related to regulatory filings for our product candidates, and medical affairs activities related to ZORYVE. Research and development costs are expensed as incurred. These costs include direct program expenses, which are third-party expenses incurred related to our research and development programs, including for clinical research organizations, clinical investigators, the manufacturing of clinical material, nonclinical testing and consultants. In addition, employee costs, including salaries, payroll taxes, benefits, stock-based compensation, and travel for employees contributing to research and development activities are classified as research and development costs. Direct external costs relate to a specific program. Our internal costs are primarily related to personnel or professional services, apply across programs, and, thus, are not allocable to a specific program. We expect to continue to incur research and development expenses in the future as we develop our product candidates. In particular, we expect to incur research and development expenses for the development of ARQ-234 for atopic dermatitis and for ZORYVE label expansions and lifecycle management. We have entered, and may continue to enter, into in-license agreements to access and utilize certain molecules for the treatment of dermatological diseases and disorders. We evaluate whether an in-license agreement is an acquisition of an asset or a business. To date, none of our in-license agreements have been considered to be an acquisition of a business. For asset acquisitions, the upfront payments, as well as any milestone payments made before regulatory approval, are immediately recognized as research and development expense, provided there is no alternative future use of the rights in other research and development projects. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream and ZORYVE foam, ARQ-234, or any other product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. See “Risk Factors” for a discussion of the risks and uncertainties associated with the development of our product candidates. Selling, General and Administrative Expenses Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, for sales, commercial operations, human resources, information technology, legal and finance employees. Other selling, general and administrative expenses include costs related to sales and marketing of ZORYVE; commissions earned by Kowa under our promotion agreement, which was terminated effective January 23, 2026; professional services costs for patent protection, accounting, auditing, tax, and general legal services; other outside services and consulting costs; information technology; and other overhead. Interest Income Interest income consists of interest earned on our cash, cash equivalents, and marketable securities. Interest Expense Interest expense is related to interest incurred on our debt. Provision for Income Taxes Provision for income taxes is primarily related to foreign income tax expense, foreign withholding taxes incurred in relation to payments received pursuant to our in-license agreements and state income tax expense related to jurisdictions with minimum taxes or taxes based on revenue. 25 Table of Content s Results of Operations Comparison of the Three Months Ended March 31, 2026 and 2025 Product revenue, net Three Months Ended March 31, Change 2026 2025 $ % (in thousands) Product revenue, net ZORYVE cream 0.3% $ 32,670 $ 23,387 $ 9,283 40 % ZORYVE foam 49,627 30,240 19,387 64 % ZORYVE cream 0.15% 21,741 10,219 11,522 113 % ZORYVE cream 0.05% 1,360 — 1,360 * Total product revenue, net $ 105,398 $ 63,846 $ 41,552 65 % ______________ *Not applicable The increase in product revenue, net, for ZORYVE cream 0.3% was primarily driven by greater patient demand for ZORYVE cream in the United States and Canada. The increase in product revenue, net, for ZORYVE foam was primarily driven by greater patient demand for ZORYVE foam for the treatment of seborrheic dermatitis in the United States and Canada,and the commercial launch of ZORYVE foam for plaque psoriasis of the scalp and body in the United States in June 2025 and Canada in November 2025. The increase in product revenue, net, for ZORYVE cream 0.15% was primarily driven by greater patient demand in the United States, as well as its commercial launch in Canada in April 2025. The increase in product revenue, net, for ZORYVE cream 0.05% was due to its commercial launch in the United States in October 2025. Cost of Sales Cost of sales increased by $1.0 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, due to higher sales volumes and the associated increase in expenses recognized for product sold and royalties , partially offset by $2.4 million of catch-up amortization expense recognized in the comparative period for an AstraZeneca milestone achieved. Research and Development Expenses Three Months Ended March 31, Change 2026 2025 $ % (in thousands) Direct external costs: ARQ-234 program $ 11,003 $ 1,189 $ 9,814 825 % Topical roflumilast program 3,307 1,446 1,861 129 % Other programs 95 1,182 (1,087) (92) % Indirect costs: Compensation and personnel-related 11,045 9,638 1,407 15 % Other 5,177 4,088 1,089 27 % Total research and development expense $ 30,627 $ 17,543 $ 13,084 75 % For research and development expense, the increase in the ARQ-234 direct program costs was primarily due to the $10.0 million milestone that became payable to certain former Ducentis stockholders upon the dosing of the first patient in the ARQ-234 Phase 1a/1b trial. The increase in the topical roflumilast direct program costs was primarily due to the completion of enrollment and related higher patient costs in our ZORYVE foam MUSE trial for 26 Table of Content s the treatment of scalp and body psoriasis in children aged 2 to 11 years. The increase in indirect costs was primarily driven by increased headcount and related compensation costs. We expect research and development expenses to continue to increase in 2026, primarily due to our clinical development program for ARQ-234, as well as the development costs associated with ZORYVE label expansions and lifecycle management efforts. Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased by $10.1 million, or 16%, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was primarily due to an increase in sales and marketing expenses of $5.9 million and an increase in compensation and employee benefit related expenses of $4.4 million. These increases were primarily due to our continued commercialization efforts for ZORYVE. We expect our selling, general and administrative expenses to continue to increase in future periods as we continue to commercialize ZORYVE and potentially other product candidates, as well as support our operations. Interest Expense Interest expense increased by $1.4 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, primarily due to fees incurred to maintain the availability of the tranche C-1 and tranche C-2 term loans through March 31, 2026 and June 30, 2026, respectively. Liquidity, Capital Resources, and Requirements Sources of Liquidity Our primary sources of capital to date have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, August 2022, October 2023, and March 2024, our Loan Agreement, our ATM program, and revenue from the sale of ZORYVE products. We have incurred annual operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations. As of March 31, 2026, we had cash, cash equivalents, restricted cash, and marketable securities of $224.3 million, and an accumulated deficit of $1,149.4 million. As of March 31, 2026, we had $100.0 million outstanding under the Loan Agreement. We believe that our existing capital resources will be sufficient to meet the projected operating requirements for at least 12 months from the date of issuance of our financial statements. If our capital resources are insufficient to satisfy our requirements, we may need to fund our operations through the sale of our equity securities, accessing or incurring additional debt, entering into licensing or collaboration agreements with partners, grants, or other sources of financing. There can be no assurance that sufficient funds will be available to us at all or on attractive terms when needed from these sources. If we are unable to obtain additional funding from these or other sources if or when needed it may be necessary to significantly reduce our current rate of spending through, among other things, reductions in staff and delaying, scaling back, or stopping certain research and development programs, nonclinical studies, clinical trials or other development activities, and commercialization efforts. In addition, market conditions impacting financial institutions could impact our ability to access some or all of our cash, cash equivalents and marketable securities, and we may be unable to obtain alternative funding when and as needed on acceptable terms, if at all. 27 Table of Content s We have based our projected operating requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Any future funding requirements will depend on many factors, including, but not limited to: • the timing, receipt, and amount of sales of any current and future products; • the scope, progress, results, and costs of researching and developing our product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities and our formulation and nonclinical efforts; • suspensions or delays in the enrollment or changes to the number of subjects we decide to enroll in our ongoing clinical trials; • the number and scope of clinical programs we decide to pursue, and the number and characteristics of any product candidates we develop or acquire; • the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates; • the number and characteristics of any additional product candidates we develop or acquire; • the cost of manufacturing ZORYVE or any future product candidates and any products we successfully commercialize, including costs associated with building out our supply chain; • the cost of commercialization activities for ZORYVE or any future product candidates that are approved for sale, including marketing, sales and distribution costs, and any discounts or rebates to obtain access; • our ability to acquire attractive assets or businesses or to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into; • the costs related to milestone payments to AstraZeneca or any future collaborator or licensing partner, upon the achievement of predetermined milestones; • any product liability or other lawsuits related to our products; • the expenses needed to attract and retain skilled personnel; • any disputes, lawsuits, or other legal proceedings related to contracts or employment matters; • the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio; and • costs associated with any adverse market conditions or other macroeconomic factors. 28 Table of Content s Indebtedness On December 22, 2021, we entered into a loan and security agreement (the Prior Loan Agreement) with SLR Investment Corp (SLR) and the lenders party thereto. The Prior Loan Agreement was amended and restated on January 10, 2023 (the AR Loan Agreement) to include Arcutis Canada, Inc., a corporation incorporated under the laws of the Province of Ontario, as a borrower and party. On November 1, 2023, we entered into an amendment to the AR Loan Agreement to, among others, (i) modify the financial covenant relating to minimum net product revenue, and (ii) include an additional minimum financing covenant. On August 9, 2024, we entered into a second amendment to the AR Loan Agreement (the AR Loan Agreement, as amended by the first and second amendments, the Loan Agreement) to, among others, (i) permit, during the period commencing on October 7, 2024 and ending on December 15, 2024, an optional partial prepayment of term loans outstanding, subject to a 1.0% prepayment penalty (the 2024 Partial Prepayment), (ii) add the tranche C-1 and tranche C-2 term loans, and (iii) facilitate certain other changes, including with respect to the applicable interest rate and maturity date in the event of a 2024 Partial Prepayment. The term loan facility is comprised of (i) a tranche A term loan of $75.0 million, (ii) a tranche B-1 term loan of $50.0 million, (iii) a tranche B-2 term loan of up to $75.0 million, (iv) a tranche C-1 term loan of up to $50.0 million, and (v) a tranche C-2 term loan of up to $50.0 million (collectively, the Term Loans). The tranche A term loan was funded in December 2021. With the approval of ZORYVE cream 0.3% on July 29, 2022, the tranche B term loans were funded in August 2022. As of March 31, 2026 and December 31, 2025, the aggregate principal amount outstanding under the Loan Agreement was $100.0 million. In October 2024, we made a 2024 Partial Prepayment of $100.0 million, which reduced the aggregate principal amount outstanding under the Loan Agreement to $100.0 million. In connection with the 2024 Partial Prepayment, we are obligated to pay a prepayment penalty of $1.0 million by June 30, 2026 and a final fee of $6.95 million, representing the final fee applicable to the amount of the 2024 Partial Prepayment, on January 1, 2027. As a result of such 2024 Partial Prepayment, subject to us generating a minimum net product revenue for the trailing six (6) month period ending as of the month prior to the borrowing date equal to 80% of our projected net product revenue as set forth in its annual plan for the respective period, we obtained the ability to draw down the tranche C-1 and tranche C-2 term loans. The tranche C-1 term loan availability expired on March 31, 2026 and the tranche C-2 term loan availability will expire on June 30, 2026. In addition, as a result of the 2024 Partial Prepayment, (i) the maturity date of the Loan Agreement is August 1, 2029 (such date, the Maturity Date), (ii) the applicable per annum interest rate is equal to 5.95% plus the greater of (a) 2.50% per annum and (b) the one-month Secured Overnight Financing Rate (SOFR), (iii) we are no longer subject to certain cost and purchase price restrictions regarding acquisitions, and (iv) we may prepay principal amounts outstanding under the Term Loans in minimum increments of $25.0 million, subject to a prepayment premium of (a) 3.0% for any prepayment made prior to the first anniversary of the second amendment, (b) 2.0% for any prepayment made after the first anniversary of the second amendment and prior to the second anniversary of the second amendment, or (c) 1.0% for any prepayment made after the second anniversary of the second amendment and prior to the Maturity Date. Principal amounts outstanding under the Term Loans will generally accrue interest at a floating rate equal to the applicable rate in effect from time to time, as determined by SLR on the third business day prior to the funding date of the applicable Term Loan and on the first business day of the month prior to each payment date of each Term Loan. Prior to the 2024 Partial Prepayment, the applicable rate was a per annum interest rate equal to 7.45% plus the greater of (a) 0.10% and (b) the one-month SOFR. As a result of such 2024 Partial Prepayment, the applicable interest rate will be a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% and (b) the one-month SOFR. On March 31, 2026, the rate was 9.61%. The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate. Interest payments are payable monthly following the funding of any Term Loan. Any principal amounts outstanding under the Term Loans, if not repaid or prepaid, are due and payable on August 1, 2029. As security for the obligations under the Loan Agreement, we granted SLR, for the benefit of the lenders, a continuing security interest in substantially all of our assets, including our intellectual property, subject to certain exceptions. If the Term Loans are accelerated due to, among others, the occurrence of a bankruptcy or insolvency event, we are required to make certain mandatory prepayments of (i) all principal amounts outstanding under the Term Loans, plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees applicable by reason of such prepayment, (iii) the prepayment premiums set forth in the paragraph above, plus (iv) all other obligations that are due and payable, including expenses and interest at the Default Rate (as defined below) with respect to any past due amounts. 29 Table of Content s The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock. We also agreed to a financial covenant whereby we must generate a minimum net product revenue equal to 75% of our projected net product revenue as set forth in our annual plan for the respective period, tested on a trailing six-month basis as of the end of each month. Each annual plan shall be approved by our board of directors and SLR, in its capacity as collateral agent, in its reasonable discretion. Any failure by us to deliver such annual plan on or before December 15 of the prior year shall be an immediate event of default. In addition, the Loan Agreement contains customary events of default that entitle the lenders to cause any indebtedness under the Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the Term Loans. Upon the occurrence and for the duration of an event of default, an additional default interest rate (the Default Rate) equal to 4.0% per annum will apply to all obligations owed under the Loan Agreement. In connection with the Loan Agreement, we are obligated to pay (i) a final fee equal to 6.95% of the aggregate original principal amount of the Term Loans outstanding as of the date of the second amendment, (x) with respect to any 2024 Partial Prepayment, upon the earliest to occur of (A) January 1, 2027, (B) the acceleration of all outstanding Term Loans and (C) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, and (y) with respect to the Term Loans outstanding as of the date of the second amendment (other than 2024 Partial Prepayment), upon the earliest to occur of (A) the Maturity Date, (B) the acceleration of all outstanding Term Loans and (C) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (ii) a 2.00% fee with respect to tranche C term loans, due and payable on the earliest to occur of (A) the Maturity Date, (B) the acceleration of all outstanding Term Loans and (C) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (iii) a 2.00% extension fee with respect to tranche C term loans which remain unfunded after December 31, 2025 which shall accrue during the period commencing January 1, 2026, and ending on the earliest to occur of (A) the expiration of the tranche C term loan availability, and (B) the date on which tranche C term loan is fully drawn, and (iv) a certain amount of lenders’ expenses incurred in connection with the execution of the Loan Agreement. Additionally, in connection with the original Prior Loan Agreement, we previously had entered into an Exit Fee Agreement, whereby we agreed to pay an exit fee in the amount of 3.0% of each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six-month basis. Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement. We were in compliance with all covenants under the Loan Agreement as of March 31, 2026. Cash Flows The following table sets forth our cash flows for the periods indicated: Three Months Ended March 31, 2026 2025 (in thousands) Cash provided by (used in) operating activities $ 2,239 $ (30,380) Cash provided by (used in) investing activities (11,332) 11,750 Cash provided by financing activities 1,067 395 Effect of exchange rate changes on cash (119) 4 Net decrease in cash, cash equivalents, and restricted cash $ (8,145) $ (18,231) Net Cash Provided by (Used in) Operating Activities During the three months ended March 31, 2026, net cash provided by operating activities consisted of a net loss of $11.3 million, adjusted for certain non-cash charges of $11.7 million and net changes in operating assets and liabilities of $1.8 million. Non-cash items primarily related to stock-based compensation expense of $10.7 million. The overall increase in cash from changes in our net operating assets and liabilities was the result of increasing collections of our accounts receivable and an increase in accrued liabilities, in part due to the $10.0 million Ducentis 30 Table of Content s milestone liability recorded and payable as of March 31, 2026, partially offset by a reduction in accrued compensation as a result of paying our prior year annual bonus for employees in the first quarter of the current year. Other fluctuations in our operating assets and liabilities were due to the timing of payments made to third parties. During the three months ended March 31, 2025, net cash used by operating activities consisted of a net loss of $25.1 million, adjusted for certain non-cash charges of $12.4 million and offset by a decrease in net working capital of $17.7 million. Non-cash items primarily included stock-based compensation expense of $9.8 million and amortization of intangible assets of $3.0 million. Net Cash Provided by (Used in) Investing Activities During the three months ended March 31, 2026, net cash used by investing activities was comprised primarily of purchases of marketable securities of $62.2 million, partially offset by maturities of marketable securities of $50.8 million. During the three months ended March 31, 2025, net cash provided by investing activities was comprised primarily of proceeds from maturities of marketable securities of $68.5 million, partially offset by purchases of marketable securities of $56.1 million. Net Cash Provided by Financing Activities During the three months ended March 31, 2026 and March 31, 2025, net cash provided by financing activities was comprised of proceeds from the issuance of our common stock upon exercise of stock options. Contractual Obligations and Contingent Liabilities Other than the change related to Ducentis described in Note 6 to the condensed consolidated financial statements in Item 1, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2025.