Good day. Thank you for standing by. Welcome to the Arcutis Biotherapeutics Q1 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message confirming that your hand is raised. To withdraw your questions, please press star one one again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Eric McIntyre, Head of Investor Relations. Please go ahead, Eric.
Thank you, Mark. Good afternoon, everyone, and thank you for joining Arcutis' First Quarter 2023 Earnings Call. Slides for today are available on the investors section of our website. On the call, we have Frank Watanabe, President and CEO; Ken Lock, Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and Scott Burrows, Chief Financial Officer. During this call, I'd remind everyone that we will be making forward-looking statements. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. We encourage you to review the information disclosed in our latest SEC filings. With that, I'll hand the call over to Frank to kick us off.
All right. Thanks, Eric. I'm on slide five of the deck for those of you who are following along in the deck, provide a high-level overview. You know, during the first quarter of the year, we made strong progress in laying the foundation for sustained long-term growth at Arcutis. I'll start with ZORYVE, our innovative product for plaque psoriasis. We believe this product is very well-positioned for long-term success with the real potential to eventually replace topical steroids. Physician and patient feedback has been exceedingly positive, and the launch continues to build momentum. We're seeing encouraging script growth as physicians gain positive real-world experience with ZORYVE. We roughly doubled our TRXs quarter-over-quarter in Q1, and we see continued growth in April.
I think it's worth noting that whereas the last five branded topical launches have seen growth stall somewhere between three and six months into the launch, we've now continued steady growth through nine months of our launch. We also continue to make progress on gaining broad high-quality access for patients to ZORYVE. We now have coverage at two of the three large PBMs as well as a number of other large downstream health plans within just six months of our launch, and we're making good progress with the remaining large PBMs. We have now over $110 million commercial lives, which is about 2/3 of the commercial market.
I think it's important to note that over 90% of those patients have access to ZORYVE without a prior authorization, which meets our goals for high-quality access for ZORYVE. We believe we should be able to get to over 80% commercial coverage before the end of 2023 and likely even sooner than that. I will note that while obtaining coverage is a necessary precondition for patients to gain access, it is not alone sufficient, and we are augmenting our field deployed forces to increase our pull-through of that coverage into covered prescriptions, and Ken will talk a little bit more about that a little bit later. At the same time, we've made continued progress on regulatory milestones to expand to additional indications and geographies with topical roflumilast
We received a confirmation of our PDUFA date for the foam in seborrheic dermatitis in mid-December, which is setting us up for our first launch of the foam. We believe this product is massively differentiated and there's a very high level of physician excitement around this product and a very high sense of customer urgency for this product given the unmet needs in this area. We also recently received the approval of ZORYVE cream in Canada for plaque psoriasis, and the launch in Canada is going to be in the next coming couple of weeks. Obviously, it's a smaller market than U.S., but we still think it's a very attractive opportunity. This represents the first regulatory approval for ZORYVE outside of the United States, which is another key milestone for Arcutis
We also had a presentation of late-breaker data from the INTEGUMENT-1 and INTEGUMENT-2 trials in atopic dermatitis at the American Academy of Dermatology meeting in March. We continue to get very positive physician feedback on the clinical profile in AD, especially the early onset, including the impact on itch in as little as 24 hours, which was presented at AAD, as well as the differentiated safety and tolerability profile, which is particularly important in atopic dermatitis. We expect to file for approval in ages six and above in atopic dermatitis late in the third quarter or early fourth quarter of this year. We also just recently completed enrollment in the INTEGUMENT-PED study in ages two to five, and we expect to see top-line data from that study in Q3.
I would note that that will be a supplemental NDA, so that data is not on critical path for the aforementioned filing late Q3, early Q4 in six and above. You know, really, so that we can capitalize on this incredible opportunity, we are adjusting our capital allocation priorities, and we're making some specific adjustments to drive success in our commercialization efforts, and Scott will provide some more details on that shortly.
Turning to slide six, you know, I think topical roflumilast really represents, you know, you hear this word a lot, but a pipeline in a product with potentially four unique products in one, and multiple inflection points coming up ahead with, you know, potentially new launches every two or three quarters for the next several years. With ZORYVE today, we're competing in a market of around 2 million topically treated psoriasis patients in dermatology offices in the U.S. The total TAM, the TAM effectively doubles in size with the expected approval of SebDerm to more than 4 million patients in the dermatology office in the U.S. The TAM will nearly double again to almost 7 million patients in dermatologist offices with subsequent launch in AD.
There's nearly as large an opportunity outside of the dermatology office, with about 6 million additional patients being topically treated outside of dermatology offices, mostly in primary care and pediatrics. We do plan on a capital-efficient partnership to allow us to access this broader opportunity outside the dermatology offices rather than building our own sales team. When you factor in all of these different opportunities, that's a six-fold increase over our current psoriasis market that we're targeting at the moment with ZORYVE, and I think that really speaks to the long-term potential of topical roflumilast and Arcutis in the space. We think that the topical roflumilast product profile is ideally aligned with what physicians and patients need and are looking for.
As I mentioned before, you know, the catalyst path really sets us up very nicely for a potential new launch every two to three quarters with SebDerm at the beginning of 2024, atopic dermatitis later in 2024, and then scalp and body psoriasis early in 2025. With those introductory remarks, I'm gonna turn things over to Ken.
All right. Thanks, Frank. For those of you following along, I'm now on slide eight. Moving to commercial performance, our launch momentum continues to grow, with steady prescription growth built on the back of the exceptional feedback that we've been receiving on the product profile. As Frank mentioned, we've nearly doubled the TRX volume quarter-over-quarter and grown new prescription growth by nearly 80%, with continued positive momentum into Q2 on both fronts. We continue to hear exceptional feedback on the product profile of ZORYVE from physicians and patients alike, and in particular, the rapid efficacy, the effectiveness in treating the most difficult plaques, even on the palms and soles, in addition to the sensitive areas. Physicians are seeing very little, if any, tolerability issues associated with the product.
On slide nine, we take a deeper dive into what's driving our continued growth through the lens of market research. Dermatologists' preference for ZORYVE has grown substantially as positive patient feedback and clinical experience builds. On the left is a look at longitudinally, physician preference on ZORYVE growing over time. We believe the consistency of the profile for ZORYVE is truly shining through. As expected in the early days of launch, prescribers were trialing both new products, with the majority expressing no clear preference. As clinical experience is built, more and more of these same physicians are shifting preference to ZORYVE, and in the most recent wave, demonstrating a doubling of preference since we began measuring this in November of 2022. Unsurprisingly, and consistent with what we hear in conversations with customers every day, ZORYVE's tolerability and safety profile lead the way in terms of the reasons for product preference.
This is followed very closely and importantly by our absolute efficacy and speed of onset. It's critically important to continue to have physicians gain confidence in topical roflumilast as we look to launch additional indications, as their current experience and perceptions will significantly shape the reception of our future launches. On the right-hand side of the slide, we take a closer look at the new prescription trend, which is reflective of critical brand choice in the moment. For ZORYVE, we continue to show positive trajectory. This can be thought of as a leading indicator and a platform for repeat business. We believe the momentum is just getting started as preference takes hold and prescribers select ZORYVE increasingly often for their next eligible patient versus other alternatives.
As Frank mentioned, other recent branded topical launches have not seen the ability to sustain that launch growth trajectory through nine months, so we're very encouraged by what we are seeing here. On slide 10, the next slide depicts here the source of business for ZORYVE from launch to date. We're very encouraged, as our volume grows, that two-thirds of our business continues to be sourced from topical steroids and steroid-containing combinations, with the balance coming from a mix of older non-steroidal products such as vitamin D analogs and topical calcineurin inhibitors, as well as a very healthy portion of competitive branded products for plaque psoriasis. We continue to position ZORYVE to convert a significant percentage of the topical steroid market. That is really where the long-term opportunity remains in psoriasis, as with all of our subsequent indications.
Moving to the next slide, on slide 11, we have continued to unlock the requisite broad, high-quality access for ZORYVE that will drive further unit demand, revenue realization, and gross-to-net improvements. As Frank mentioned, now approximately nine months into launch, we have 2/3 of the commercial lives covered in the U.S. and well over 110 million lives. Importantly, over 90% of these 110 million or so are actually covered without a formal prior authorization requirement, which is critical to facilitating the long-term conversion from steroids by making it as easy to write, I'm sorry, as easy to write ZORYVE as that next steroid instead of that next steroid. On the right side, just a recap of our historically stated access and coverage goals anchored by our responsible pricing strategy.
Firstly, preservation of long-term gross to net, which I'll speak to more in detail in a moment. The second is to optimize for both our volume and our franchise value. Specifically, gaining access to government payers and avoiding specialty tier and co-insurance thresholds with our future indications is important because there's a larger government pay demographic with those indications. Thirdly, obtaining high-quality coverage with the minimization of step edits and prior authorizations. We've also now begun to see differential coverage emerge across national PBMs and health plans compared to topical derm competitors. Depending on the payer and plan, these branded competitors are seeing higher out-of-pocket costs to patients as a result of tiering, incomplete adoption across formularies, imposed quantity limits, and requirements for formal prior authorizations.
Lastly, faster formulary adoption, which we have seen play out thus far with the major payers. Now circling back to the gross to net aspect. While we've made extraordinary progress on securing formulary coverage, we need to now push down execution to the office and pharmacy level to ensure appropriate reimbursement. It has taken us longer than expected to convert that coverage to paid prescriptions, and this must change. We have also seen some delays in terms of coverage implementation at the downstream plans and some pharmacies still running our covered patients as uncovered in our co-pay program. We believe we've diagnosed these underlying causes, and we are taking a number of specific steps to improve this as we continue to launch and gain more payer coverage.
For example, we've increased our field-based footprint focused on reimbursement support and pharmacy education to enhance coverage pull-through, and further partnered with dermatology offices on the specific criteria needed in order to drive covered prescriptions. We are encouraged by the improvement in translating coverage to paid prescriptions in certain regions of the country where we've already implemented these measures, and the trending of co-pay cost reduction over the year as we more broadly address some of these key dynamics. We've also felt the effects that most manufacturers typically see in the first quarter, which are insurance plan changes, deductible resets, and higher co-insurance populations year-over-year, which drive our co-pay offset costs up. We expect this to improve as we move throughout the year.
Importantly, and above all, we are securing the payer coverage necessary to build the foundation to meaningfully convert the topical steroid market with ZORYVE. Slide 12. In conclusion, I want to revisit the three core pillars to commercial success that we've spoken about in the past that set the foundation for sustained ZORYVE growth. Driving physician awareness and expanding our prescriber base, we've now seen over 6,000 unique writers since launch, and this has grown approximately 50% since the last read, where we showed in Q1 commensurate with our volume growth. While our breadth is growing nicely, there's still plenty of headroom for our targeted HCPs to experience the benefits of ZORYVE.
With respect to the patients, we are receiving testimonials daily on a positive experience with ZORYVE, and refills are growing very nicely, contributing now in excess of 20% to TRXs each week in April, and reflective of the confidence that our writers have to continue prescribing. We also, as our coverage improves, are continuing to evaluate the right time to supplement our current DTC efforts by way of highly targeted means such as connected television. Lastly, we continue to build on our broad high-quality access, as discussed with coverage secured at two of the three major PBMs, and the quality of that coverage meeting our hurdle of minimizing step edits and prior authorizations. At this point, all of our indicators and measured launch metrics, prescriber sentiment and awareness, and patient reception continue to point upwards.
We continue to learn and adjust our tactical approach in order to maximize the number of patients that receive the benefit of ZORYVE. With the foundational elements largely in place, we look forward to delivering on the long-term promise of ZORYVE. I'd like to now pass it to Patrick for an R&D update. Patrick?
Thanks, Ken. I want to touch on our atopic dermatitis and seborrheic dermatitis programs briefly before updating on upcoming milestones. As investors are aware, AD is a key opportunity for topical roflumilast, and physician feedback on our AD data has been very positive. What continues to jump out is the speed of onset in our trials, which gives a clear early indication that the drug is working, and of course, the ever-important safety tolerability data that are a key aspect of the product profile. Consistent with this is our itch response across all indications. Itch is particularly a critical element for patients with AD. Atopic dermatitis is often referred to as the itch that rashes and is the most important signal for AD patients to know that a drug is working early and an important indicator of clinical response.
Looking at slide 14, as Frank mentioned, we presented these exciting daily itch data at a podium presentation at the recent American Academy of Dermatology meeting. This is a great commentary on the early onset of action for roflumilast. We show a statistically significant improvement in itch just 24 hours after the first application of drug, and then again at all time points thereafter across both of our pivotal phase III trials. This profile aligns well with the unmet need in the market, and this kind of early response of symptoms is exactly what patients and HCPs want to experience when initiating treatment in atopic dermatitis. Switching to our foam program now on slide 15 and our first indication of seborrheic dermatitis, the recent FDA acceptance of our application is yet another major milestone for the company, and we're looking forward to the December PDUFA for an anticipated approval.
Excitement is intensifying in the physician community based on the strength of our topical roflumilast data and because they have so little to offer these patients currently. Keeping in mind that there are just as many patients in derm offices with seborrheic dermatitis as there are with psoriasis. roflumilast foam would be the first topical drug for seborrheic dermatitis in decades. A reminder on our phase III data. Here we are again on slide 15. We're showing a very strong early response with over 40% of patients with IGA success already at week two, which increases to 80% IGA success at week eight. That was our primary endpoint. Looking at the graph on the right, this tracks to 50% of patients going all the way to completely clear at eight weeks.
We as well showed a significant impact on itch, which is a major symptom of seborrheic dermatitis as well as AD. We haven't included those data here, although they have been presented. These absolute efficacy levels are unheard of for a topical. Just to note that these data are from our registrational phase III study. They replicate the impressive data from our phase II study that was just published in the Journal of the American Medical Association. Again, this is with the foam formulation. We're hearing that this formulation really aligns well with patient needs in this space and provides a strong competitive differentiation. I'll finish up my update on the R&D progress with a summary of our milestones on slide 16. Taken together, these represent an opportunity for significant, sustained long-term growth with additional approvals and expanded geographies as well as label expansions.
Highlighting just a few of these now. Continued regulatory execution with our recent Canada psoriasis approval. Just to contextualize the importance of this for patients in Canada, this is the first non-steroidal approved there in over 25 years. Canada played a central role in our development of ZORYVE. Over a third of all clinical trial participants came from Canada, lots of familiarity with the ZORYVE already there and excitement within the derm community for Arcutis. Moving on to atopic dermatitis, we updated our sNDA submission timeline to late Q3, early Q4 this year. That'll include ages six and above, as Frank mentioned. We also announced last week the completion of enrollment of our INTEGUMENT-PED trial. That's ages two to five years, our top line there, as mentioned, is expected in Q3 of 2023, Q3 of this year.
That's going to be an important data set for our differentiated profile in atopic dermatitis. Thanks for the chance to update you on our R&D progress, I'll turn you over to Scott for the finance update.
Thanks, Patrick. Turning to page 18 of the slide deck. Net product revenues were $3 million in the 1st quarter, in line with our prior guidance. Strong unit demand growth, which doubled sequentially, was offset by the anticipated higher gross to net in Q1. As Ken discussed earlier, Q1 gross to net was higher quarter-over-quarter due to the typical 1st quarter insurance deductible resets and the dynamics in getting our prescriptions covered by insurance. We expect gross to net will improve through the balance of 2023 based on our ability to continue to expand our high-quality commercial coverage and our continuing efforts to translate that coverage into covered prescriptions. For Q2 specifically, we expect that sequential net sales growth will be driven primarily by the continued demand growth we are seeing with improving gross to nets only modestly contributing quarter-over-quarter.
For the balance of 2023, we expect revenue growth to be driven by both demand growth and further gross to net improvement. Turning to the rest of the P&L, research and development expenses were $35 million in the quarter and included a one-time $3 million NDA filing fee for seborrheic dermatitis. The decrease year-over-year is primarily due to lower clinical development costs for our topical roflumilast programs. SG&A expenses were $43 million for the quarter as we continue to invest in the ZORYVE launch and the upcoming launches in seborrheic dermatitis and atopic dermatitis. Net loss per share was $1.31 for the quarter. Turning to our final slide on page 19, we provide some key balance sheet and cash flow items. We remain well-capitalized with cash of $333 million as of March 31st.
We are excited about the progress we're making in these early innings of the ZORYVE launch and then in our ability to drive increased shareholder value. We also recognize the criticality of continuing to invest in the growth of the launch in psoriasis, as well as prepare for the follow-on launches in seborrheic dermatitis and atopic dermatitis. In response, we are taking proactive steps to reduce R&D spend, specifically investment in our early-stage pipeline, as well as spend in other areas of the company to ensure we have the resources to invest in the launch. For the remainder of 2023, we would expect R&D quarterly OpEx to be modestly down sequentially, with more significant declines in 2024 as the remainder of our roflumilast clinical program approaches completion.
We are reducing planned expense growth in G&A areas as well. Still expect overall SG&A expense to grow modestly as we continue to fuel the ZORYVE launch and prepare for our next two product launches in 2024. In addition to these prioritization efforts, we have made meaningful progress in our ex-U.S. out licensing efforts with the potential to further strengthen our balance sheet with non-dilutive capital. This concludes the financial update. I'll now turn the call back to Frank to wrap up our remarks.
Okay. Well, thanks everyone for joining us for the call today. I know for our East Coast colleagues, it's late in the day. So we appreciate you making the time. With that, we will open things up to Q&A.
Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, press star one one again. We stand by while we create our question-and-answer roster. Our first question will come from Vikram Purohit of Morgan Stanley. Please go ahead.
Hi. Good afternoon. Thanks for taking our questions. We have two, both on the ZORYVE launch, one on reimbursement and one on, I guess patient use dynamics. On reimbursement, you mentioned that it's taking a little bit longer than you'd expect it to get gross to net down to levels where you were hoping to get them. Could you just unpack for us, I guess what's taken longer than you would have expected? Specifically, what do you think you could, what are the levers you can pull on in the next six to nine months to help to compress that gross to net down? Secondly, you mentioned roughly 60% of patients are switching from topical corticosteroids to ZORYVE. Are you seeing that as a direct one to one switch or a direct replacement?
Are patients who were previously using topical corticosteroids also using ZORYVE in conjunction with TCS, and just mixing and matching therapies across their body? We ask that question to help get a sense of durations. If you could comment on kind of duration, what you're seeing in terms of annualized tubes of use, that'd be great. Thanks.
Sure. Ken, maybe you can take that. Patrick, if you have any additional color from a clinical standpoint.
Yeah, I'll start. Hey, Vikram, how are you? Some of the dynamics I talked about, some of the underlying causes I'll just expound on. First of all, there's a little bit of inertia where, you know, prior to us having coverage, you know, the best way, you know, to get the patient the drug was just simply to process that as non-covered. Even as coverage comes on board, you know, we have to kinda educate and be out there to help with the pharmacy networks to help, you know, process the prescriptions correctly. Secondly, I'd say we've seen some lag in terms of the implementation of coverage. As Frank mentioned earlier, we've been, you know, getting the wins at the payer level.
They're being announced, but it takes some time to push those down into the plans themselves and ultimately sort of get the system up and running to acknowledge the fact that we're getting covered. Thirdly, you know, I'd say, you know, coverage in of itself does not necessarily mean reimbursed scripts. The fact that, you know, there is coverage, let's just take an example at, you know, PBM 1. There might be other criteria we then are on the hook for, meaning the prescription has to be processed correctly, the right information has to be included in that prescription, i.e., you know, the diagnoses code, tried and failed medications. That's first and foremost. There's some work to do. That's why I mentioned earlier execution now at the office level.
Secondly, on the pharmacy side, to make sure that those are being run correctly and sort of end to end the things that have to happen get sort of ultimately happen. That's why we've taken some of those steps, as I mentioned, to increase both our education level as well as our field-based footprint to focus on these aspects of reimbursement such that, you know, we really can enhance that rate of covered prescription. That's what we're staring at in terms of, you know, the kinda challenges that we're working through.
You know, we haven't really given guidance on sort of how long, but what I'll say is that, you know, we are very encouraged to see that, you know, our internal co-pay costs or offsets are, you know, continuing to come down, which means that there's an increasing number of prescriptions being processed correctly and covered. You know, I think what's obfuscating this picture is the quarter one dynamics that we talked about earlier, which were, you know, in addition to the challenges of sort of implementing one's own coverage, you also see dynamics in which, you know, we mentioned the insurance change over the high deductibles.
One of the interesting dynamics, you know, is that if, you know, we're seeing a larger population of healthy patients that are opting for high deductible plans, which means that if, you know, you're otherwise a healthy patient, the deductibles, you know, would largely sort of fall to the manufacturer that you know, the drug that you happen to be taking. We're seeing an increase year-over-year in the population of patients who are picking those kind of high deductible plans. We largely expect that to resolve over time as the year goes on, when we get out of that deductible loop. That's part of the dynamics in the I think your first question. Your second question had to do with the ratio, I think, of TCS to us.
I think You know, what we're seeing is we're seeing a whole variety of sort of use cases, including, you know, people who are on multiples of steroids, coming over to ZORYVE and thus rationalizing their overall regimen. We also see people who are on a single steroid that are coming over. The third aspect you mentioned sort of in combination, we are also seeing that use case too. It's sort of, I'd say, a mixed bag with respect to the use case. I don't know that it tracks sort of perfectly on a one-to-one basis. I will reconfirm the fact that we are very confident in our tube utilization guidance that we've given in the past. Again, the refills are really starting to kick in now as the volume increases.
We're seeing, you know, week over week increasing percentages of refills. We also have seen patients receiving now up to their fifth refill. It's good confidence building. In general, we need a little bit more time to sort out sort of the exact ratios. I feel reasonably or I feel confident that, you know, the guidance that we provided before on tube use is still appropriate.
Okay. Thanks for taking my question.
Just to add a little bit on the clinical context of that. I think, you know, the real value of this product to patients with skin disease, patients with psoriasis and the doctors and healthcare providers that take care of them, is the eventual ability to manage these conditions without the use of a steroid. You know, the patients have grown up their whole life using topical corticosteroids, and the doctors that we're working with have, you know, throughout their training and throughout their whole practice, have used these.
I think as experience grows within the patient, within the healthcare providers, that comfort in being able to move patients over to being treated as monotherapy with ZORYVE so that they don't have that exposure cumulatively to topical corticosteroids that we know from publications is associated with, you know, bone demineralization and some of these other side effects that we associate with systemic exposure to steroids, I think is a real benefit. You know, as Ken mentioned, we're already starting to see, like, all these different ways that doctors are using this as a tool to treat their patients.
I think over time, what we're gonna start seeing is more and more of a shift towards treating patients with monotherapy because of the fact that this profile supports being able to treat the disease no matter where it occurs on the patient. That will only be more true when the foam is approved for patients with scalp psoriasis, because then you really will be able to treat it from head to toe every single place the disease manifests.
Okay, understood. Thank you.
Thank you. Please stand by for our next question. Our next question comes from Seamus Fernandez with Guggenheim Securities. Please go ahead.
Oh, great. Thanks for the question. It sounds like the coverage implementation has been a bit challenging. I'm just trying to better understand what we're looking at in terms of scripts written versus scripts filled. You know, if we're seeing abandonment of scripts at a higher level, or if there's, you know, substantial couponing, such that we'll see a stronger directional change as we move into the second and third quarters of this year. Just trying to get a little bit of a sense of how the coverage implementation is gonna be coming on in the subsequent quarters. Just my second question, can you talk a little bit about how the coverage implementation is likely to be applied to the potential approval of the foam formulation?
Certainly in the feedback that we're getting from physicians with active experience with ZORYVE, is only quite a bit greater in terms of the enthusiasm, not just for the SebDerm indication, but for the broader utility of the foam formulation. Just hoping to get a better understanding of how the current coverage that you've really battled for and fought for and priced for is likely to play through into the launch of the foam formulation next year. Thanks.
All right. Seamus, good to hear from you. You guys are gonna keep Ken busy today. Ken, I'll let you handle Seamus' question.
Sure. Absolutely. Seamus, thanks for the question. You know, we had not spoken previously to, specifically to sort of fill versus abandonment rates. What I will tell you though is, you know, the co-pay programs that we have in place, largely mitigate the concern, you know, over abandonment. Meaning, you know, our fulfillment rates are reasonably high because we have programs to support either, you know, covered patients or non-covered patients. If your insurance type, for example, let's just say you were, you know, part of the original first PBM approval, you know, in that case, you'd be eligible to be reimbursed, you know, given the right criteria that would become a covered script. I think in the case of the implementation delays, what we're seeing is, you know, that should come on now.
We really, you know, that's largely resolved. Going forward, we have one more PBM that's going to be coming on board. Those two things I see as sort of tailwind to improving the rates of covered scripts. Abandonment has not historically been a problem so long as you have sort of a mechanism, in our case, a non-covered co-pay offer, to cover that. I don't think that's the challenge. It's more about making sure that we capitalize on the coverage we are getting in a timely manner. That means, again, you know, as the coverage comes on board, we have an obligation to provide the right information about the patient at the office level and to get the prescription processed at the pharmacy level correctly in terms of getting, you know, that process as a covered patient.
Those two things have to happen in concert ultimately for us to tap into the coverage that's actually negotiated for at the PBM level. As for the subsequent quarters, I think that's what I'm looking forward to as well, which is as we, you know, come to the full scheme on implementation of our two PBMs and then pick up our third, which we expect sometime, you know, at the middle of the year, this one should ramp up significantly in terms of both, you know, capitalizing on the coverage itself, but also reaping the benefit of the education we're putting in now in terms of, you know, educating the offices, educating the pharmacies on sort of what it takes to get ZORYVE covered. I feel like that trajectory will only get better in terms of sort of implementing coverage.
As for the second question regarding subsequent indications, the good news is, you know, unlike, when we're launching a product from ground zero, you know, in some of the PBM contracts that we're negotiating or have negotiated in several cases, there are instances where the next indication, for example, seborrheic dermatitis, would be viewed as a line extension, and therefore the coverage that's assumed for the current PSO indication would be transposed to that. We would not be starting from zero. That's not true about every payer, but it's true about, you know, some of the negotiated contracts that we have already. Sort of that immediate, you know, kind of offset, you know, or drop, if you will.
We won't take a huge punishment, if you will, by launching another indication. In fact, we think that will facilitate the uptake in the launch trajectory because of that preexisting coverage on that next indication. That's going to translate over and sort of, you know, be again, a tailwind to that next launch.
Perfect. Super helpful. Just as a final question, you know, Frank, I think you said at some recent meetings that, you know, sort of the target gross to net exiting the year that you were anticipating to achieve is somewhere between 40% and 60%. Just wanted to get a sense if we're sort of consistently on that trajectory, and we should sort of think about the balance of the remainder of the year kind of coming on in a linear fashion. Admittedly, this quarter obviously being the sort of low watermark in that regard, or the high, I don't know if it's the water or low, but thanks.
Yeah, sure thing. Just to clarify, I don't believe I've ever put a timeframe on when I thought we would get to our steady state gross to net. We do continue to believe that you know, we'll get to something around, you know, the 50th sort of range there, 40%-60% range, which, you know, is about as good as anyone performs these days. How quickly we'll get there, I think is still to be determined. You know, there's obviously the coverage decision at the PBMs, and as Ken mentioned there, we've seen some implementation lags. Also there's the follow on in the downstream health plans making formulary decisions. You know, we announced, for example, some decisions in April that were a reflection of the coverage that we got at Express Scripts in November.
There can be a fairly significant lag there. At this point, you know, I won't say that we'll get there by the end of the year, but certainly we expect to see continued progress, as Scott mentioned, quarter and quarter throughout the year, and we do continue to believe that we will get to that sort of that 50th sort of range on a gross to net.
Perfect. Okay. Thank you.
Thank you for your question. Please stand by for our next question. Our next question will come from Uy Ear of Mizuho. Please go ahead.
Hey, guys. Thanks for taking my questions. I guess my first question is, could you kind of just help us to understand a little bit more in terms of what you guys are doing to improve this processing issues? like, I guess I just quite don't understand what's going on in the doctor's office. Is there some difficult code that they need to generate or is it a software issue? Just, yeah, just a little more clarification. The second question, I guess, is, like, Were you able to quantify what proportion of scripts that had these issues and what proportion, you know, could have just been due to seasonal fluctuations? Thanks.
Yeah. Ken, I think it's back over to you again.
Okay. I'll just keep the mic. Uy Ear, how are you? Let me start with kind of trying to explain a little bit about what's happening at a high level. You know, when you get a coverage decision and sort of formulary implementation, you know, there are criteria that have to be met in order to access that particular sort of lack of term, I guess, access to access the coverage that we've been. There are conditions that the patient has to meet. As this very specific example, if, you know, the insurance company needs to know that, number one, the patient is confirmed a plaque psoriasis patient. To, you know, you mentioned the code, for example.
The ICD or diagnosis code would have to be included in that prescription. The second piece is any information associated with the utilization management of that payer. Just to bring that down further, what therapies has that patient tried? Those two bits of information have to be included in the prescription itself, ultimately for the payer to kind of accept those conditions. Yes, you've met the conditions that we've agreed upon, and we're gonna go ahead and pay you for that prescription. Those are aspects that happen in the office. You know, there are many dynamics that can happen in the office where, you know, one or more of those particular conditions may or may not be met.
That's what we're focused on, Uy Ear, in terms of making sure that every office understands that criteria. That's very common. You would see that for most, if not all, branded products. Something that, you know, we are looking at in terms of how do we help continue to educate those that actually input those prescriptions to know what do you have to do to get ZORYVE. That's a large part of our focus and our field footprint, including our sales reps, sort of spending time with the folks there to make sure they understand that on the front end. It's not a software problem or anything like that as much as the consistent application and recording of those criteria in order for us to get that prescription processed.
The other piece of the puzzle is, you know, making sure that the pharmacies understand that we do have coverage and that patients with that particular type of coverage should be processed as such. Trying to, you know, make sure that they implement and use that route in terms of the covered offer. You know, those two things sort of work in concert to make sure that you get a covered script. Those are the things we're working on. Like I said, it's mostly education, and not a problem and not a technical problem that's going on in the offices.
Now we haven't spoken to the proportion of scripts that are having these issues because that is sort of a roundabout way of talking about sort of the covered, not covered. Now, we know that it is the minority of prescriptions currently coming through as covered in Q1, and we're working obviously very hard to implement and improve this. Like I said, it happens in several places at once on the front end and on the back end in terms of both prescription initiation as well as prescription processing at the pharmacy level. Those are the areas of focus, and we continue to work with those two areas in terms of partnership, education, and sort of, that's the focus of our field-based team today.
Okay. Thank you.
Yep.
Thank you for your question. Please stand by for our next question. Our next question comes from Tyler Van Buren of TD Cowen. Please go ahead.
Hi, guys. Good afternoon. As a follow-up to a previous question on the third and final major PBM that you said will come online by mid-year, can you offer any additional color around these ongoing interactions? If you think it's likely to include no prior authorization like the first two PBMs, and if perhaps one or two step edits would be required? Thanks.
We can't comment on sort of the final, kind of ruling, if you will, in terms of what that looks like. You know, upfront, you're obviously negotiating and sharing with the payers the value proposition of your product and, you know, arguing for, you know, various levels of utilization management. You know, I would say, you know, we're hopeful about the timing, but certainly can't guarantee anything. What I will say is, you know, congruent with the other, you know, PBMs and sort of the approach that we've taken from the beginning is that our position is, you know, with the responsible pricing should come enhanced terms or more favorable utilization management. The minimization of step edits and ultimately, you know, the lack of prior authorizations would be kind of what we'd be shooting for.
That's our goal, and we've seen that play out thus far. We're, you know, it would be very consistent with that approach in terms of thinking about, you know, the next PBM.
Yeah, you know, and I think maybe I would just add a little bit of color. You know, I think if you look at our track record in terms of coverage, what we've seen, what we've demonstrated so far is we're able to obtain coverage faster, better coverage, in many cases, than other recent brand of topical launches. You know, so we're very pleased with how things are going and we're sanguine, I would say, about the third PBM. Just quickly, I think it's probably Tara, not Tyler, but wanted to welcome the two of you to the coverage universe. I think this is your first quarterly call, so welcome aboard.
Yes. Thank you so much. Yes. I did not mention that it's Tara, not Tyler, but very great to speak with you guys today.
Thank you for your question. Please stand by while we bring up the next question. Next question will be from Chris Shibutani of Goldman Sachs. Please go ahead.
Hi, this is Steve on for Chris. Thanks for taking our questions. Two from me. Had a question on increasing this field force. Can you just speak to the magnitude of the increase in the number of reps and then when we should expect to see an impact from this expansion? In terms of capital allocation priorities, it was announced today that there's a shift to focus more on the ZORYVE launch and commercialization away from the pipeline. Just curious if we could see additional steps like this taken in the near term and kind of what that next level of reprioritization would look like. Thank you.
Sure. Maybe I'll take the second part of that question, then I'll turf the first question over to Ken for the first part. You know, we think the short answer is no. At the moment, you know, I think we have implemented the changes that we anticipate making. You know, I think we have a lot going on in Arcutis. Clearly, w e've got a very broad pipeline, but it's critical that we have the resources to launch ZORYVE successfully and to launch subdermal AD. You know, we just felt that it was a prudent shepherding of shareholder money, frankly, to do some reprioritization. You know, this is not a wholesale culling of the pipeline or anything like that.
You know, we will be continuing to advance some of the programs. You know, ARQ-255 is in the clinic right now. We are continuing to progress ARQ-234, which is, you know, the biologic we've recently acquired. We have chosen to pause some of the other earlier stage programs. For example, that 256 which is the cream version of our JAK inhibitor. We've put that program on hold. We may bring it back later and have put on hold some of the earlier stage programs, the preclinical programs in the pipeline, so that we can really focus our resources in the highest impact areas.
We also have just been looking at, you know, areas like, as Scott mentioned, G&A and headcount growth and making sure that any additions there are the most impactful, the highest priority additions. I don't anticipate us making further changes or adjustments, you know, in the coming months, at least on current plans. Ken, you wanna maybe talk a little bit about the changes in the sales force and when we might see an impact there?
Sure. Steven, how are you? I just wanna clarify, you know, it's field-based, not field force. What we've done is we've expanded upon our resources that are focused on field reimbursement. This is a pretty common type of role within many companies. You know, what we're looking at is not a huge lift. You know, we actually have some of these folks on board already. We're looking to get somewhere in the neighborhood of, you know, 10, 12 folks to help supplement. They're not actually sales team members. They're very focused on partnering with our pharmacy and our channel. They do call on some key positions, but mostly to, you know, again, offer further education regarding the information necessary to get a prescription processed correctly.
It's not a sales rep increase by any means. We're still at the number we said before, but largely, you know, focused on field reimbursement. This team should be in place, you know, almost, you know, we've actually been doing it on a rolling basis, but, you know, should be in place reasonably soon. We've actually already seen benefits of the implementation in the various regions and locations in the country that we have folks where they've been able to make an impact already. The impact is actually quite rapid once you know, put somebody in place and are able to, you know, better partner and spend resources.
What we don't wanna do is, you know, spend our field rep time, you know, talking about this aspect versus building conviction in ZORYVE. This team is really supplementing the, you know, the efforts of the field team, you know, as we go forward. It's not they're not sales reps, so just it doesn't really expand, I'd call our sales footprint proper.
Okay. Makes sense. Thank you very much for the color. Appreciate it.
You bet.
Thank you for the question. Please stand by for our next question. Our next question comes from Louise Chen of Cantor. Please go ahead.
Hi. Thanks for taking my questions. I wanted to ask you what your go-to-market strategy is for SebDerm if you get approval. How do you expect uptake to be relative to what you saw for psoriasis? My second question is, when do you think we could hear about a partnership for PED and primary care? Could it be this year, and could it be a global partnership? Thank you.
Hey, Louise. I was just thinking today, I haven't talked to you in ages, so nice to hear your voice. You know, again, I think maybe I'll take your second question, then I'll throw it back over to Ken for the first question, and Patrick for some thoughts as well. You know, in terms of the timing of a primary care partnership, you know, I think it's always difficult to predict when a negotiation could be concluded. We haven't initiated anything yet. You know, I think what we've said in the past, and we continue to believe this, is that we need to have the primary care partnership in place at latest around the atopic dermatitis launch, just given the size of the atopic dermatitis opportunity outside of primary...
of dermatology. You know, it's about 60% of the market. It certainly could be a meaningful contributor to SebDerm as well. We may, you know, end up concluding an agreement prior to atopic dermatitis, but, you know, a lot of that's gonna depend on discussions with a potential partner as well. Then Ken, do you wanna talk about the go-to-market and then add an uptake? Patrick, you may have some thoughts too from a clinical perspective.
Sure. You want Patrick to start maybe, and then I'll jump on that.
Sure. Patrick, you wanna start there?
Yeah, absolutely. you know, seborrheic dermatitis is a disease where there hasn't been, as we mentioned, a new product launched in decades. I think we are really focused on the medical side on disease state education, and kind of clarifying especially what the burden of disease is on patients, you know. In some of the research that we've done, we've been able to show that patients are on five or more treatments and often taking up 30 minutes of their day, each day managing their seborrheic dermatitis. Those number of treatments are both over the counter as well as prescribed. I, you know, I think a lot of this information is something that, because this hasn't been a part of the conversation, healthcare providers may not be aware of.
We have a lot of work that we're doing with regard to education. That being said, we know from the patient perspective that there is a very strong desire for new treatments. We hear that clearly when we go out and talk to patients. We also sense a lot of frustration on the healthcare provider side, on the lack of kind of new modalities to be able to offer patients. We are doing our diligence with regard to disease state education, but it's to a very receptive, audience.
Thank you.
Yeah. I'll just add to that, Louise. I mean, I would expect, you know, you know, SebDerm is a different animal in terms of, compared to psoriasis. You know, the degree of unmet need, the degree of anticipation, and largely the familiarity that we'll be capitalizing on in terms of both our company as well as the experience with psoriasis. You know, we expect the conditions to be quite different as it relates to heading into that market. You know, we largely see ourselves having, you know, not as much direct competition in the market, not being as crowded, coupled with this, you know, very high level of anticipation, to look a little bit different.
I also mentioned earlier with respect to the access dynamics, the fact that, you know, we will be launching into a situation in which we already have some early coverage, owing to the transposition of the current coverage onto the new indication or line extension. I would expect that to really be a boost in terms of, you know, not starting at ground zero in either access, familiarity or comfort level with the mechanism or the product. We will be doing some of the similar tactics, however, in terms of thinking about, you know, sampling the product. Obviously, you know, that is a core expectation in dermatology offices, and getting people familiar. Whereas, you know, people are generally familiar with foam products, our foam product is quite different with respect to the quality of the vehicle.
We'll be getting people, you know, kind of oriented with that, ultimately launching then with, you know, samples, just like we would in any other, you know, product launch. You know, this one is gonna be a little bit different. I wouldn't count on the dynamics being sort of exactly the same, given early days, you know, relative to psoriasis.
Great. Thank you.
Thank you for your question. Please stand by for our next question. Our next question comes from Greg Fraser, Truist Securities. Please go ahead.
Good afternoon, folks. Thanks for taking the questions. Just following up on the field-based expansion, understand it's not reps. Should we expect a step up in SG&A spend in the coming quarters or could SG&A spend decline? You mentioned pulling back on some G&A growth. Just to follow up on the challenges with the coverage implementation that you're seeing, sorry to ask about this, but again, 'cause you're probably tired of talking about it, but what extent are the issues manifesting in the office versus the pharmacy with the coverage that you have? Prior auths are largely not required, but some of what you described, like the doc confirming the indications, sound a bit like prior auth steps. I just wanna understand better why NRx is not still due to these issues.
Is it usually the pharmacy when the copay is not accurate for the coverage? Just any additional color would be helpful. Thanks so much.
Sure. Scott, do you wanna maybe take the question around SG&A, and then Ken, take the question around GTN.
Sure. Thanks for the question, Greg. On SG&A, we would still expect it to go up modestly, sequentially as we continue to invest in the launch. I think this, you know, supplemental field team, you know, is one driver. You know, we're continuing to add tactics and then, you know, in addition to psoriasis, we have to prepare for the SebDerm and atopic dermatitis launches. We've been consistently saying that even with the reprioritization and reducing expense growth in certain areas of SG&A, the overall commercial investment, we wanna keep robust to make sure that we have the resources we need for the launch. SG&A, I think will still modestly grow, sequentially in support of those launches.
All right. Ken, do you.
Yeah. In terms of the, you know, kind of office versus pharmacy dynamic, you know, I think it'll be anecdotal at best because we have not been, I'd say, you know, quantitatively measuring this. I'd probably say it's probably a split of about 60/40, Greg, in terms of where I believe the challenges exist, both of which are remedy-able and addressable in terms of being able to tackle, but they take different approaches, right? The office space is about, you know, education and consistency of entering the right information. While, you know, to your point, it sounds like it'd be a, you know, a prior authorization is sort of a more formal process that sort of you have to stop and fill out a little bit more information typically.
This is, you know, you can probably look to other, you know, other systemics and such for when you have a true prior authorization process. This is a confirmation of ICD-10 and sort of, your tried and failed. A little bit softer of that process, but it is required in order to, I'd say, activate any coverage that you have. Whereas you will see products that have a quote unquote hard prioritization that sort of, you know, you absolutely have to fill out additional information and justification for that drug. We're not seeing that with respect to the type of coverage we're getting. I think, you know, it's about that ratio, about 60/40.
The pharmacy side, like I mentioned, you know, largely the realm of our reimbursement specialists who are, you know, working with those pharmacies and continuing to, you know, educate them and let them know that first and foremost, we are covered in some particular plans and that those patients should be run, you know, via the covered route and to obtain the necessary information from the office. I don't have those quantifications on my fingertips, but that's what I would say kind of anecdotally and based on what I'm seeing.
That's helpful. Thank you.
Yep.
Thank you for your question. Please stand by for our next question. Our next question will come from Sean Kim with JonesTrading. Please go ahead.
Hi, guys. Thank you for taking my questions. I guess just the one question related to the recent approval in Canada. I'm curious to hear, you know, what marketing efforts you need to do in Canada, recognizing that it is a smaller market, whether you'll lead the efforts by redeploying some of the commercial force into Canada, or partner out for efforts, and whether the expected product sales in Canada will be net positive on the bottom line. I guess more broadly for the ex-U.S. opportunities, just curious, if you have specific geographic areas that you're focusing on for the time being. Thank you.
Yeah. Sean, thanks for the question. I'll take part of this, and then I'll ask Ken to comment about the Canada launch plan. From an ex-U.S. standpoint, Canada is the only geography that we plan to do ourselves outside the United States. You know, frankly, the U.S. and Canadian dermatology communities are so tightly interwoven, that we felt that that was the right thing to do. Canada also has been a major contributor to the clinical development program for roflumilast. I think about one in three patients across all of our clinical studies came from Canada. You know, there's a very high level of familiarity there with the topical roflumilast. Beyond Canada and the United States, we would be looking for a partnership for any other geographies.
We have said repeatedly in the past that, you know, our primary focus is on Japan and China and Asia more broadly. I think Scott mentioned in his comments, prepared comments, that we've made significant headway on potential partnerships in Japan and China. And, you know, think that that's something that could be something that could happen in the relatively near future. You know, beyond Japan and China, you know, the only other really big market out there is Europe. The challenge, I think, in Europe is reimbursement for topicals. You may be aware Pfizer actually withdrew Eucrisa from the market last year for commercial reasons. You know, most European countries want to reimburse you at the rate of a topical generic steroid, which just is not a reasonable reimbursement rate.
That creates some significant headwinds in Europe. Then I think, you know, beyond that, it would really depend on the appetite of a partner to take on other geographies. That certainly is not one of our priorities right now, trying to find partners in the Middle East, Latin America, places like that. Ken, do you wanna maybe talk a little bit about the Canada launch preparations?
Thanks, Sean, for the question. You know, just to dimensionalize Canada, you know, Canada is about 1/10 the population of the U.S., just thinking about an epi and sort of opportunity standpoint, you know, obviously smaller than the U.S. What's interesting about Canada, though, is that, you know, the concentration of prescribers in the case of dermatology specifically is quite compact. It doesn't take much in terms of, you know, a lot of footprint. Our investment is pretty modest with respect to Canadian commercialization, and we've leveraged significant amounts of resources from the U.S. team, in terms of, you know, commercial help, meaning our operations, our marketing, you know, many of the functions, regulatory, everything sort of borrowing from the U.S. and leveraging what we've already done.
This is what I would view as a very efficient sort of approach where we will have, you know, a sales team on the ground, but we're talking about, you know, seven folks, which is pretty modest in the entire country to do this. You know, again, leveraging very highly from the things that have already been done, whether we're talking about tactics or, you know, learnings or strategy. You know, we also, you know, enjoy the fact that, you know, the unmet need in Canada is significant and that the anticipation there is even greater than you would imagine. We're, you know, there are a lot of tailwinds going into this particular launch.
You know, as for the sales, you know, obviously we all know that Canada pricing is substantially different than the U.S. We'll talk more about that when we actually announce the launch terms. We do feel that, you know, this is going to be a net positive proposition in launching into Canada. We'd, of course, we'd be having the follow-on indications as well in terms of the entire portfolio.
Great. Thank you.
You bet.
Mark, maybe just one more question because I know we're past the hour mark.
Sounds great. Please stand by for our last question. Our last question will come from Rohit Bhasin with Needham & Company. Please go ahead.
Hi, this is Rohit on for Serge. Thanks for taking our questions. Where do you expect to be in terms of pricing of the roflumilast foam for SebDerm? Can you talk about how you plan to drive disease awareness? Thanks.
Yeah.
Yeah. I guess, Ken, you wanna maybe take the first one and then Patrick, you can address the disease awareness.
Yeah. You know, I think that the pricing of the foam will be largely in the neighborhood of the cream. We're doing that for a particular reason. Again, early on when we were talking about our access strategy, it's important with these follow-on indications, particularly SebDerm, that has a larger government pay component to make sure that we're not triggering, inadvertently, you know, additional burden to the patient. What that means, the plain speak is if you're priced too high, you trigger the specialty tier, which ultimately results in, you know, co-pay or co-insurance amounts to the patient of, you know, anywhere from 30%-40% of list price, which is probably too much for a Medicare patient.
We're being very conscious of trying to stay below that threshold. That threshold does change every few years from the government standpoint, you know, staying in the neighborhood of our current pricing is probably the most prudent approach to enter the market. Then we would look to see, you know, if there were movement within the definition of the tier.
Yeah. Just to talk about disease awareness for SebDerm. As you mentioned, this is something that we're working on within our medical affairs team that's already out in the field. One thing that's important to keep in mind is that seborrheic dermatitis is a highly prevalent disease. Even though many of the patients may not be under treatment right now due to the lack of kind of new treatment options in the last decade, there are still as many seborrheic dermatitis patients in dermatologist office as there are psoriasis patients. This is a disease that's very familiar to the doctors that we're engaging with right now already for ZORYVE cream. It's really just a matter of kind of incrementally increasing their awareness about some of these facts that I talked about earlier.
You know, notably the like, disease burden on patients. You know, some of the things that we've learned from a more formalized analysis of SebDerm, that hasn't really been done previously because there hasn't been a kind of, you know, kind of corporate engagement in really looking at and systematically understanding, what it is to have the disease of seborrheic dermatitis and how does that specifically impacts patients. I think, you know, it's a good opportunity for us to kind of share this information with healthcare providers as we look forward to the approval at the end of this year.
Thank you.
Okay. Yeah, we're a little over time, but I just wanna take just a minute and wrap things up. You know, I think, as I said at the beginning of my comments, you know, if you look at the fundamental indicators of the business, we're very, very encouraged. You know, demand is growing very strongly, very, very positive patient and physician feedback on the product profile, and, you know, made great headway with coverage on the product as well, outpacing, you know, all of the other recent topical launches. You know, I know a lot of the questions have come up around this gross to net question.
I think it's the first time we've probably gone into great detail around gross to nets and some of the dynamics that we're seeing. I would point out a couple of things. The first one is, you know, topical dermatology from a reimbursement standpoint is different than any other sector of the pharmaceutical market, right? This is as different from orals and injectables as buy and bill is in many respects. You know, the topics that we've discussed around our gross to net dynamics are not unique to Arcutis. In fact, you know, you see this really with every topical company having very similar sorts of issues that they have to address.
I think the most important thing is, you know, that we have I think a good understanding of where we have run into challenges with gross to nets, and we have a solid plan on how we can implement and improve our gross to nets, and we remain confident that we're gonna see quarter and quarter improvements throughout the year. As I mentioned before, we continue to believe that we're gonna be able to achieve a very solid gross to net in the foreseeable future. Wanted just to clarify that a little bit, and look forward to continuing to update you all on the progress we're making on gross to nets as well as on patient demand in subsequent calls. With that, I think we're gonna wrap up.
Thank you, everybody, for your participation in today's conference. This concludes the program, and you may now disconnect.