Arcutis (ARQT) Q4 2025 Earnings Call Transcript

Motley Fool Transcribing, The Motley FoolThu, February 26, 2026 at 12:08 AM UTC

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Date

Feb. 25, 2026, at 4:30 p.m. ET

Call participants -

President and Chief Executive Officer — Frank Watanabe

Chief Commercial Officer — Todd Edwards

Chief Medical Officer — Patrick E. Burnett

Chief Financial Officer — Latha Vairavan

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Takeaways -

Net product revenues -- $127,500,000 for the quarter, up 84% year over year and 29% sequentially from fiscal Q3 2025 (period ended Dec. 31, 2025).

Full-year net product revenues -- $372,100,000, a 123% increase, driven by a doubling in prescription volume.

Net income -- $17,400,000 for the quarter, compared to a net loss of $10,800,000 a year ago.

Prescription market share -- XEREVE holds roughly 45% share in branded nonsteroidal topical prescriptions across approved indications.

Sales force expansion -- Dermatology sales force increased by approximately 20% to around 160 representatives, and a new primary care/pediatric pilot team of about 30 reps was launched.

Gross-to-net ratio -- Remained in the “50s” range for 2025 and anticipated to remain stable in 2026, with a first-quarter seasonality-related uptick to the high 50s.

Medicare Part D access -- Achieved inclusion on formularies covering roughly one-third of all Medicare Part D beneficiaries for XEREVE, as the only branded nonsteroidal topical in category.

2026 revenue guidance raised -- Full-year net product revenue guidance lifted to $480,000,000–$495,000,000 from $455,000,000–$470,000, citing strong Q4 momentum and franchise investment.

Positive cash flow achieved -- Achieved positive cash flow in Q4 and reaffirmed expectation of quarterly positive cash flow throughout 2026.

Pediatric regulatory progress -- Supplemental NDA for XEREVE Cream 0.3% in psoriasis for ages two to five under FDA review, with a PDUFA target date of June 29, 2026.

INTEGUMENT-Infant trial results -- 58% of infants with atopic dermatitis achieved EASI-75 at week four, with a third achieving EASI-75 after two weeks, and no treatment-emergent serious adverse events reported.

Pipeline advancement -- Initiated Phase II proof-of-concept studies for XEREVE Foam 0.3% in vitiligo and hidradenitis suppurativa, planning advancement decisions in Q4 2026 and 2027, respectively.

Other revenue -- $2,000,000 of other revenue in Q4 from a Wadog milestone payment, and $4,000,000 for the full year (down from $30,000,000 in 2024 due to prior Sato Japan license revenue).

Cash and marketable securities -- $221,300,000 as of year-end, with $26,200,000 positive cash flow from operations in the quarter.

Total debt -- $108,000,000, with an available option to draw an additional $100,000,000 through 2026.

Summary

Arcutis Biotherapeutics (NASDAQ:ARQT) reported record quarterly and annual revenue growth, driven by expanded XEREVE adoption and strategic indications broadening that boosted market share. Management raised 2026 revenue guidance on the basis of escalating script volume, increased payer and Medicare Part D access, and ongoing sales force build-out. Positive INTEGUMENT-Infant trial results and new supplemental NDA submissions marked significant pediatric pipeline advances, with timing targets for new approvals in 2026. Double-digit increases in SG&A and R&D costs reflect calculated investment supporting both commercial execution and clinical expansion, underpinned by the company’s cash flow-positive operating posture. The pipeline broadened further with ARQ-234’s IND acceptance and new proof-of-concept studies initiated in vitiligo and hidradenitis suppurativa.

If you look at our commercial access, more than 80% of patients insured by commercial insurance have access to XEREVE, and it is high-quality access, meaning that it is at a single-step edit through a steroid. As mentioned earlier, we also have exceptional Medicaid access, with more than half of the patient population in Medicaid having access to XEREVE with a single-step edit or less. Then, just announced, were our Medicare Part D wins, effective Jan. 1. We have optimal access, and we do not anticipate having to give any additional rebates in 2026 that would adversely impact our gross-to-net to be able to maintain that.

XEREVE’s "unique profile" as a nonsteroidal topical is credited with fueling rapid franchise uptake across multiple age groups and indications.

Market favorability is supported by "not anticipate any material erosion of our gross-to-net," distinguishing Arcutis Biotherapeutics from branded topical competitors.

The commercial model emphasizes high-frequency engagement with top and mid-decile prescribers, with impact from sales team additions expected in the second half of 2026.

Executives said, one-point share shift from topical corticosteroids translates to approximately 15% volume growth for the branded nonsteroidal topical segment.

Cash flow generation is targeted to support incremental investments and maintain operational flexibility, including potential draws on remaining credit facilities.

Expansion into the primary care and pediatric markets will begin as a pilot, with measured scaling contingent on real-time performance evaluation.

INTEGUMENT-Infant data showed rapid and significant disease improvement, and the submission of an sNDA is targeted for the second quarter of 2026.

For HS and vitiligo, final Phase II advancement decisions are scheduled for Q4 2026 and 2027, with endpoints focused on kinetic response and clinically meaningful improvement.

Industry glossary -

EASI-75: A clinical endpoint representing a 75% improvement in the Eczema Area and Severity Index, commonly used in clinical trials for atopic dermatitis.

Gross-to-net: The ratio reflecting deductions (such as rebates, discounts, and co-pays) from gross product sales to arrive at net revenues reported.

PDUFA date: The FDA’s target date for action on a New Drug Application under the Prescription Drug User Fee Act.

PBM: Pharmacy Benefit Manager; third-party administrators managing prescription drug benefits on behalf of health plans, and a key determinant of drug access and cost.

sNDA: Supplemental New Drug Application; a regulatory submission seeking approval for new indications, dosing, or populations for an already approved drug.

Full Conference Call Transcript

Frank Watanabe: Thanks, Brian, and thanks, everyone, for joining us today. I want to start out today's call by reviewing some key highlights and achievements from 2025, a year that I would characterize as one of tremendous growth and progress for Arcutis Biotherapeutics, Inc. as we pursue our mission of serving individuals living with chronic inflammatory skin conditions. We will then transition to Todd for a commercial update, then Patrick for an R&D update, and Latha for a review of our financial results. So in 2025, we made significant strides to solidify Arcutis Biotherapeutics, Inc.’s position as one of the industry's foremost leaders in delivering meaningful innovation in medical dermatology.

Throughout the year, we saw robust net product sales revenue growth, steady prescription growth, and strong market share growth across all of our approved indications and formulations of XEREVE, or topical roflumilast. We are incredibly humbled by the increasing number of health care practitioners and patients who are placing their trust in XEREVE as an innovative, safe, and effective treatment option for chronic inflammatory skin conditions, an important and welcome alternative to topical steroids. In 2025, we saw explosive revenue growth for XEREVE, strengthening its position as the number one branded nonsteroidal topical treatment across all of our approved indications: psoriasis, seborrheic dermatitis, and atopic dermatitis.

There has not previously been a drug for chronic inflammatory conditions with a profile or the reach of XEREVE: an advanced targeted topical that can be used safely and effectively for any duration, anywhere on the body, across multiple indications and age groups. This unique profile of XEREVE, and at a moment in time when there are increasing calls by both providers and patients for innovative, safe alternatives to topical steroids, has really fueled XEREVE's robust commercial growth and success. So in 2025, net product revenues grew to $372,000,000, representing a 123% year-on-year increase versus 2024.

This revenue growth was driven by a year-on-year doubling in total prescription volume and has further cemented our leadership position in the branded nonsteroidal topical segment where we now hold roughly 45% and a growing share of prescription volume across our approved indications. XEREVE's commercial growth in 2025 was bolstered by FDA approvals of 0.3% for patients with psoriasis of the scalp and body 12 years of age and older, as well as the approval of 0.05% for the treatment of atopic dermatitis in children ages two to five years of age.

These approvals, which mark our fifth and sixth XEREVE approvals, respectively, demonstrate our commitment to ensuring that we can bring the benefits of XEREVE to as broad a group of patients with psoriasis, seborrheic dermatitis, and AD as possible. The approval of XEREVE Foam's expanded indication offered an important new option for individuals who struggle with psoriasis of the scalp and other sensitive areas. These patients now have a formulation that can be used anywhere on their body, affording them a new level of convenience to manage their chronic skin condition.

And we are particularly proud of the approval of 0.05% in young children with AD, given the frequent early onset of this disease and the meaningful number of patients in this age group. For far too long, there has been a significant unmet need, and we are proud now to be in a position to address it with XEREVE. In 2025, we also submitted a supplemental NDA for XEREVE Cream 0.3% for psoriasis in children ages two to five, with a target action date of June 29 of this year. If approved, this will mark another critical step in serving the unmet needs of this pediatric demographic and their parents and caregivers.

On the clinical development front, in 2025, we completed enrollment in the Phase II INTEGUMENT-Infant trial evaluating XEREVE Cream 0.05% in infants ages three to 24 months with atopic dermatitis. Earlier this month, we were delighted to report positive top-line results from that study, which Patrick will review later on the call, and we are now preparing to submit this data to the FDA for a further label expansion. This is another important milestone as we work diligently to ensure that we can serve this youngest and most vulnerable population who have nearly no FDA-approved treatment options.

In 2025, we also initiated Phase II proof-of-concept studies with XEREVE Foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, marking an important step as we explore potential new indications that would enable us to expand the benefits of XEREVE to additional individuals in need of effective treatment options and further maximize the pipeline-in-a-molecule opportunity that XEREVE represents. Finally, last year, we submitted an IND application for ARQ-234, our novel biologic with best-in-class potential to address a large unmet need in atopic dermatitis as we look to expand our pipeline and extend our mission to deliver meaningful innovation to patients with chronic inflammatory skin conditions.

In short, we have had a tremendous year of progress, and we are confident that these accomplishments have set the stage for a successful 2026 and well beyond. None of this, of course, would be possible without the incredible talent, hard work, and persistence of the Arcutis Biotherapeutics, Inc. team, so I would like to take a moment to acknowledge and thank each and every one of our team members for their deep and continued dedication to our company's mission and, above all, to the patients that we serve.

Moving to slide six, to frame the rest of today's discussion, I would like to recap the three-pillar corporate strategy that we introduced a few months ago to describe how we will sustain both near- and long-term growth for Arcutis Biotherapeutics, Inc. We have already made progress across all three of these pillars. On the growth front, I just mentioned the compelling data from the INTEGUMENT-Infant trial and our plans to pursue a label expansion based on that data.

As you will hear more from Todd in just a minute, we have recently announced an expansion of our dermatology specialty sales force to drive further XEREVE growth, as well as our decision to take over promotion of XEREVE to primary care physicians and pediatricians. In terms of the expand pillar, as Patrick will expound on shortly, we continue to progress our Phase II POCs in HS and vitiligo and look forward to sharing data from these trials later this year or early next, and we are evaluating additional POC studies for other diseases.

Finally, we look forward to enrolling the first patients in the Phase I study of ARQ-234 shortly, eventually sharing data from that study with the investment community. These concrete steps in realizing our strategy are evidence of our dedicated and disciplined strategic approach to ensuring Arcutis Biotherapeutics, Inc. is well positioned for both near- and long-term success. Before turning the call over to Todd and Latha to review our fourth quarter results in more detail, I want to give an update on some key points about the revenue guidance that we gave during our Investor Day in November.

First, we are raising our 2026 full-year net product revenue guidance range from originally $455,000,000 to $470,000,000 to now $480,000,000 to $495,000,000 to reflect both the strong momentum for XEREVE as demonstrated by our fourth quarter results and also the investments that we continue to make in the franchise that the team will detail further today. We will evaluate our revenue guidance throughout the year and may update that when appropriate. Second, not only did we achieve positive cash flow in Q4 as promised, but we are reaffirming that we will maintain positive cash flow on a quarterly basis throughout 2026, even as we continue to increase our investment in XEREVE's growth and our pipeline.

With that, I will hand the call over to Todd for a Q4 commercial update.

Todd Edwards: Thank you, Frank, and good afternoon, everyone. Turning to slide eight, as Frank noted, the strong momentum of XEREVE's growth continued in 2025, where we generated sustained revenue growth driven by the increased adoption of XEREVE across our approved indications. In the fourth quarter, net product revenues were $127,500,000. This reflects 84% year-over-year growth and 29% sequential growth from Q3 2025. This sequential revenue growth was primarily fueled by sustained increases in prescription volume of 19%. This reflects the increasing confidence clinicians and patients have in XEREVE as a trusted treatment across a broad spectrum of inflammatory diseases.

While still in the early days of launch, we are encouraged by the initial uptake of XEREVE Cream 0.05% for the treatment of atopic dermatitis in children aged two to five years old, following the approval in Q3 2025. There was also a very small contribution from a channel inventory build during the period, accounting for approximately 2%, or $2,500,000, of revenue in the fourth quarter, which we anticipate will unwind in Q1. We also saw stronger-than-anticipated price improvement in the fourth quarter, driven by continued reduction of co-pay card utilization as more patients met their deductibles and out-of-pocket maximums, contributing to the remainder of our quarter-over-quarter growth.

Our gross-to-net remains stable in the 50s, and we anticipate it will remain in the same range in 2026. Unlike some of our competitors in the branded topical space, we did not see any gross-to-net erosion last year, and we do not anticipate any significant gross-to-net erosion as we progress through 2026. We do anticipate a typical reduction in net product revenues in Q1 2026, as compared to Q4 2025. This sequential decrease in sales will primarily be driven by typical seasonality resulting from patient deductible resets leading to higher co-pay usage.

This will lead to an increase in our gross-to-net rate to the high 50s in the first quarter, which will then gradually improve throughout the year and end with the lowest gross-to-net in the fourth quarter, as we experienced in 2025. Additionally, we did see demand across a couple weeks in January was impacted by winter storm Fern, as expected from a storm of this magnitude. These factors in aggregate will lead to a more pronounced step-down in quarter-on-quarter total product revenue Q4 versus Q1 than we experienced in 2025, when we saw increased quarter-on-quarter demand driven by our launch in AD that offset the typical seasonal headwinds. This is only a Q1 dynamic.

As you heard from Frank earlier, our conviction in XEREVE’s continued growth and momentum in 2026 is strong and increasing, giving us the confidence to raise our guidance range at this early point in the year. As you can see from slide nine, weekly prescriptions on a rolling four-week average were approximately 22,000 scripts, another record high for the XEREVE franchise. Over the next year, we anticipate robust and sustained demand will remain the primary driver of XEREVE’s revenue expansion. A factor that will contribute to the sustained volume growth in 2026 is the recent market access improvements that we have made with multiple national PBMs and health plans.

On the commercial side, several plans improved XEREVE's access by expanding coverage and improving utilization management criteria to a single step to a topical steroid. Furthermore, we were successful in obtaining coverage with several Medicare Part D plans effective January 1, with roughly one third of all Medicare Part D recipients now having access to XEREVE through their insurance plan. This makes XEREVE the only branded nonsteroidal topical included on these Medicare formularies and helps us open the door to access for patients served by Medicare. This has been a key objective for Arcutis Biotherapeutics, Inc. from day one, and these formulary wins are clear validation of our differentiated pricing and access strategy.

Because Medicare formularies favor generic therapeutics, such as topical corticosteroids, XEREVE has been assigned to the non-preferred drug tier, which is associated with higher co-pays or coinsurance costs than preferred tier drugs. While we are delighted to expand access to XEREVE because of this achievement, we anticipate that the impact on demand may be tempered due to XEREVE's non-preferred position. Turning to slide 10, our sustained momentum in Q4 and throughout 2025 highlights XEREVE’s exceptional utility, the growing confidence in our brand among both clinicians and patients, and the broader shift in the treatment of inflammatory skin diseases away from topical corticosteroids. The three charts on this slide demonstrate important factors shaping the treatment paradigm for inflammatory skin diseases.

The chart on the left illustrates that the branded nonsteroidal topical segment continues to grow meaningfully, gaining share from topical corticosteroids where usage remains flat or declining. Within the branded nonsteroidal category, XEREVE is driving the majority of that growth. The pie chart in the center highlights the share shift driven by faster growth in advanced targeted topicals versus topical steroids. As a result, branded nonsteroidal topicals now account for 7% of total topical prescriptions, against a sizable 2025 base of 24,000,000 prescriptions. This represents meaningful progress. As volume continues to shift from topical corticosteroids to branded nonsteroidal topicals, growth should accelerate.

Each one-point share shift from topical corticosteroids translates to approximately 15% volume growth for the branded nonsteroidal topical segment. Finally, the chart on the right-hand side of the slide makes clear that XEREVE is positioned to overwhelmingly benefit from this trend of topical corticosteroid displacement, as we hold a strong and expanding share of branded nonsteroidal volume at 45%. At our Investor Day last October, we shared our peak sales guidance and reaffirmed our conviction that XEREVE could become a multibillion-dollar brand. This confidence is rooted in the ongoing shift of a meaningful portion of the topical steroid market toward advanced targeted topical therapies like XEREVE.

For every one point of share we capture in the corticosteroid-dominated topical market, we estimate approximately $150,000,000 in incremental revenue. Evidence that this shift is underway is strong and growing as we enter 2026. Demand from both providers and patients for safer options to manage chronic inflammatory skin diseases continues to build. At the major dermatology conferences held in the first quarter of this year, a consistent theme from the podium was the need to move beyond topical steroids and adopt advanced targeted topicals. We remain well positioned to provide a safe and effective alternative for those seeking one.

Now moving to slide 11, I would like to spend some time providing further detail on our recently announced dermatology sales force expansion and the benefits we anticipate gaining from it. In January, we announced that we would expand our dermatology sales force by approximately 20% to roughly 160 sales personnel. The primary intent of this expansion is to increase our call frequency with mid-decile prescribers without impacting or diluting the level of engagement we have with our most productive top-decile dermatology clinicians. Said another way, the intent of the investment is to optimize the frequency of our sales force touch points in dermatology; we already have sufficient breadth of coverage in this provider setting.

To further illustrate our strategy with this expansion, we have detailed prescribing behaviors across different provider categories. High-decile prescribers are relatively few in number but, as you can see, have the highest volume of potential XEREVE patients. It is important to note that we evaluate activity based on total topical prescription writing, including topical corticosteroids, not XEREVE writing or nonsteroidal topical writing. These health care providers have an outsized impact on prescriptions they drive a year and have been our primary focus to date. With our sales force expansion in mid-2024 on approval in atopic dermatitis, we had already optimized our coverage of these highest-value clinicians, frequently engaging them on the potential benefits XEREVE can offer their patients.

The mid-decile prescriber group is more numerous and frequently sees patients as they reach target indications, albeit not the same very high volume as the high-decile group. To date, we have also been engaging these clinicians, but to focus our efforts on the highest potential prescribers, the frequency of the sales team's interaction with them has been lower than optimal and less than with high prescribers. With the expansion of our sales force, we will be able to increase our call frequency among mid-decile prescribers to an optimal level, driving increased awareness and adoption of XEREVE within this group.

To round out the picture, there is a final category of low-decile prescribers who are far more numerous than the other groups but, based on their low prescription writing, are lower priority for our sales efforts. We are already in the process of hiring these additional reps to strengthen our sales force, are enthusiastic about the level of talent we are bringing to the team, and the impact they will have once in the field. We anticipate beginning to see the impact of this investment in the second half of the year and expect it to be accretive in the first year as the team ramps up.

Turning to slide 12, expanding Arcutis Biotherapeutics, Inc.'s commercial presence into primary care physicians and pediatricians is a key component of our growth pillar. As announced in January, we have begun building a targeted sales force focused exclusively on these clinicians. In earlier stages of XEREVE’s commercialization, while executing our new product launches and building our operational leverage, the partnership model provided an effective approach to this segment of the market that reduced our financial exposure. We now have the opportunity to combine what we have learned from the initial partnership with our core commercial capabilities to create a targeted, accretive opportunity that can scale with time as we further expand our operating leverage.

Importantly, this initial deployment is focused not on whether to pursue the opportunity, but on how best to execute it. We are taking a disciplined, stepwise approach, starting with a limited pilot to refine our go-to-market strategy, then we will scale thoughtfully while maintaining a highly targeted focus on the highest-value PCPs and pediatricians. The initial sales team that we are putting in place for this will be comprised of approximately 30 sales reps and supporting personnel. This effort is distinct from, and additive to, our dermatology sales force expansion, which remains exclusively focused on driving growth within dermatology practices.

As we expand into primary care and pediatrics, we do so with four distinct competitive advantages that position us to execute effectively and drive meaningful impact. First, a highly targeted approach focused on high-volume early-adopter PCPs and pediatricians, positioning this investment to be accretive from the outset. Second, proven reimbursement support capabilities, including our patient access infrastructure, to help ensure written prescriptions translate into reimbursed prescriptions. Third, the ability to leverage the core commercial model that has driven our success in dermatology. And fourth, strong dermatologist advocacy, which provides important specialist validation for PCPs and pediatricians.

XEREVE’s differentiated profile as a safe, nonsteroidal topical suitable for use anywhere on the body and for any duration offers primary care clinicians a level of confidence not typically associated with topical steroids. As the shift away from topical steroids expands beyond dermatology, we are well positioned to benefit. While we begin with a focused pilot with early adopters, we believe XEREVE’s profile has the potential to resonate broadly over time across both primary care and pediatricians. I am now on slide 13. Yesterday, we were excited to announce that Max Homa has joined our Free To Be Me awareness campaign, sharing his experience in managing seborrheic dermatitis with XEREVE Foam.

Max joins Tori Spelling, who, along with her daughter Stella, have shared their experience with atopic dermatitis and seborrheic dermatitis in advocating for individuals with inflammatory skin diseases to initiate conversations with their health care providers about XEREVE, a safe, effective, long-term treatment for these chronic diseases. The range of impact that Tori and Stella have had in driving awareness around treatment options for atopic dermatitis and seborrheic dermatitis has been wide and impactful, with coverage in over 60 traditional news outlets, and thousands of broadcast and radio/TV airings to achieve close to 5,000,000,000 media impressions, and social media reaching millions on Instagram and TikTok.

We look forward to Max further contributing to these efforts, and based on the media and social media coverage over the last 24 hours, it is off to a great start, with over 25 original articles achieving over 400,000,000 impressions. With that, I will turn it over to Patrick.

Patrick E. Burnett: Thank you, Todd. I am now on slide 15. Ensuring that we can deliver XEREVE to as broad a number of individuals with psoriasis, seborrheic dermatitis, and atopic dermatitis as possible, thereby benefiting from the unique profile of this drug, remains a top priority for us. Our ongoing efforts to support young children with plaque psoriasis and infants suffering from atopic dermatitis are central to this goal. I would like to start off today by highlighting the positive top-line results from the INTEGUMENT-Infant Phase II trial of XEREVE Cream 0.05% in infants aged three to less than 24 months with mild to moderate atopic dermatitis, which we announced earlier this month.

Fifty-eight percent of participants achieved a 75% improvement in Eczema Area and Severity Index, also known as an EASI-75, with XEREVE Cream 0.05% at week four, and notably, a third of patients reached EASI-75 after only two weeks of treatment, demonstrating a very rapid and robust result, one that has already garnered highly positive feedback from clinicians. Turning to safety, we saw no treatment-emergent serious adverse events, and only one patient discontinuing the study due to an adverse event, reinforcing the consistency of the safety and tolerability profile of XEREVE Cream 0.05% already seen in the four-week pivotal INTEGUMENT-PED clinical trial in children ages two to five years.

Finally, and still on slide 15, we have photographs of a 10-month-old Latino child from the study who achieved an EASI-75 at week four. We can see clearly he has significant atopic dermatitis at baseline on the arms and the legs, as well as facial involvement, which is really characteristic of infants with atopic dermatitis. As a practicing dermatologist, to see this type of rapid and meaningful clearance in patients at this young age, who have historically been difficult to treat given very limited available therapeutic options, is really encouraging.

Of note, enrollment in the trial for this age range was very brisk and exceeded typical enrollment patterns and our expectations, confirming that there is significant interest in nonsteroidal treatment options for these most vulnerable patients. These results of the INTEGUMENT-Infant trial are extremely promising, as infant atopic dermatitis patients urgently need innovative alternatives to topical steroids, with vanishingly few FDA-approved treatment options for this segment. Unlike other inflammatory skin conditions, atopic dermatitis often presents at an early age. Nearly 10,000,000 children in the U.S. are impacted by atopic dermatitis, with roughly 60% developing symptoms in their first year of life.

Within just the study age range here—infants three to 24 months old—there are nearly 1,000,000 prescription topically treated patients in need of better therapeutic options. AD presents unique challenges in these younger age groups, not only because the skin is more sensitive, but also because the condition often covers a greater percentage of their total body surface area compared to adolescents and adults. This raises the risk of greater systemic absorption. Therefore, parents of these young infants are particularly sensitive to potential negative side effects of topical steroids.

These concerns range from the impact of chronic steroid use on the child's growth and bone development to more immediate concerns, like application to the child's face or contact with the eyes and mouth, which can be difficult to control. Given the size of the patient population and the acute need for safe and tolerable therapeutic interventions, we have been methodically pursuing label expansion for XEREVE to younger ages of children with atopic dermatitis. Notable about the INTEGUMENT-Infant data is that we are moving closer to having a marketed product that can be used to treat individuals with chronic inflammatory skin conditions like atopic dermatitis across the lifetime continuum, from infant to adult.

This means that there will be a nonsteroidal treatment option that spares patients from the youngest stage onward from exposure to steroids while effectively treating skin conditions. Moving on to slide 16, we are already engaging pediatricians on our currently approved indication for two- to five-year-old atopic dermatitis patients. The INTEGUMENT-Infant data combined with our pending PDUFA date for two- to five-year-olds in psoriasis, if approved, all support further outreach to pediatricians by our internal sales force.

With the treatment alternative to steroids that is now demonstrated to be safe and effective, once approved for infants, and as pediatricians gain familiarity with prescribing XEREVE to, for example, a 12-month-old infant with atopic dermatitis, they will be more likely and more inclined to then prescribe it for an older child or an adolescent as well. As Todd noted, we have been encouraged by our initial launch of XEREVE Cream 0.05% for the treatment of children ages two to five years old with atopic dermatitis, a population of about 1.8 million patients. We are excited to continue our introduction of this important new therapeutic option to clinicians and, most importantly, to pediatric patients and their caregivers.

We plan to report the full results of the INTEGUMENT-Infant trial at a future medical conference. Based on these data, we plan to submit an sNDA for XEREVE Cream 0.05% in infants in the second quarter of this year. In addition to atopic dermatitis, we are also pursuing a label expansion to treat pediatric plaque psoriasis patients. This patient population is smaller than that of pediatric AD patients, but there is still an acute need for better therapeutic interventions that we are working to address. In Q3 of last year, we announced that we submitted a supplemental NDA for XEREVE Cream 0.3% to expand its indication for the treatment of plaque psoriasis in ages two to five.

We have been assigned a PDUFA date of June 29 and look forward to the FDA's decision. If approved, XEREVE would be the first and only topical PDE4 inhibitor indicated for plaque psoriasis in children as young as two, offering patients and caregivers an important alternative to topical steroids and vitamin D analogs. As we potentially gain label expansions for these younger patient populations across atopic dermatitis and plaque psoriasis, having an internal sales force dedicated to primary care and, importantly, pediatric clinicians will be of great value in our efforts to educate health care providers on XEREVE as an alternative therapeutic option to topical corticosteroids.

Beyond our clinical development efforts to make XEREVE available to more pediatric patients, we also continue to evaluate incremental data generation opportunities to further bolster our currently approved indications. At our Investor Day, we highlighted a case report that demonstrated the effectiveness of XEREVE in treating nail psoriasis. This is a good example of where incremental data generation could further strengthen our current indications, and we look forward to providing further updates throughout the year. Turning to slide 17, pursuing new patient populations that may benefit from XEREVE has been a principal focus for our clinical development strategy from the outset. This is evidenced by the five approvals we have secured since our initial plaque psoriasis approval in 2022.

These have expanded our indications to include seborrheic dermatitis and atopic dermatitis and lowered the approved ages for psoriasis and AD patients. We have good reason to believe that there are additional skin diseases that may respond to, and more patients who may benefit from, XEREVE, represented by the expand pillar of our strategy that Frank highlighted at the start of today's call. This belief is supported by our understanding of XEREVE's broadly applicable anti-inflammatory and antipruritic properties as well as its potential impact on protecting melanocytes, and by the direct and ongoing feedback we have received from health care providers in the field on their real-world XEREVE experiences.

To that end, we continue to make progress with our Phase II proof-of-concept studies with XEREVE Foam 0.3% in vitiligo and hidradenitis suppurativa, or HS, with subjects continuing to enroll. Vitiligo and HS both represent chronic inflammatory skin conditions with significant unmet patient needs. These are just two examples of multiple indications in which XEREVE has demonstrated encouraging early evidence as a promising treatment. Based on that evidence, we initiated the ongoing proof-of-concept studies in vitiligo and in additional diseases where XEREVE might be a good therapeutic option, and as we decide to initiate additional POC studies, we will inform the investment community of those developments.

We anticipate reporting a decision whether to advance vitiligo, including the Phase II proof-of-concept data, in Q4 2026, and an advancement decision in HS, including the HS Phase II data, in 2027. On slide 18, a reminder: there are three cases that typify the sort of case reports and case series that we receive and that are informing our XEREVE expansion efforts. The two patients on the left are both children with recalcitrant facial vitiligo. The girl on the upper left has previously failed multiple topical therapies, including both topical steroid and topical JAK inhibitors, and you can see meaningful repigmentation after only seven months of XEREVE treatment.

The boy on the lower left also previously failed topical steroid treatment and shows good response after only five months of XEREVE treatment. On the right-hand side of the slide, you see a 31-year-old woman with early stage 1 HS who exhibited complete clearance of her HS, including pain and itch, in only four weeks of treatment with XEREVE, in conjunction with two noninflammatory medications. In the lower right, you will also see details from two other mild HS patients who had similarly impressive results following their treatment. It is clear to see what is driving the enthusiasm that we are hearing from clinicians who are independently exploring these novel applications of XEREVE.

Now on slide 19, as I have touched upon today and as represented on the slide, we are looking forward to multiple near-term clinical catalysts in the coming year. Importantly among these clinical activities is the advancement of ARQ-234, our novel biologic targeting CD200R with best-in-class potential to address a large unmet need in atopic dermatitis and potential additional inflammatory skin diseases. As excitement around other emerging AD mechanisms such as OX40 has recently come under more scrutiny, we look forward to moving ARQ-234 into the clinic to validate what has the potential to be a meaningful therapeutic advancement for AD patients with more severe disease.

This program has become our third pillar, build, encompassing our efforts to expand our clinical pipeline beyond XEREVE. We expect to begin dosing patients in the Phase I trial for ARQ-234 very soon. With that, I will turn the call over to Latha for the financial update.

Latha Vairavan: Thank you, Patrick. I am now on slide 21, showing financial results both year over year and quarter over quarter. For the fourth quarter, we generated net product revenues of $127,500,000, which is up 84% from Q4 2024 and 29% from Q3 2025. We generated $2,000,000 of other revenue in the fourth quarter from a Wadog milestone payment. Cost of sales in the fourth quarter were $11,700,000 compared to $6,900,000 in Q4 2024, primarily driven by increased XEREVE sales volume. For the fourth quarter, our R&D expenses were $20,500,000, which is a $6,000,000 increase from $14,500,000 in Q4 2024, when a clinical trial credit of $3,300,000 lowered our R&D expenses for that period.

Looking ahead to 2026, we expect an increase in our R&D expenses as we continue to advance XEREVE's life cycle management clinical development activities and initiate the Phase I trial of ARQ-234. SG&A expenses were $79,000,000 for the fourth quarter 2025 versus $57,600,000 in the same period last year, a 37% increase attributable to investments in our continued commercialization efforts for XEREVE. In 2026, we expect to see an increase in SG&A expense as we continue to make incremental investments in the XEREVE commercialization efforts, including the expansion of our dermatology sales force and the initial build of our internal primary care and pediatric sales team as detailed by Todd earlier.

Net income for the quarter was $17,400,000 compared to a net loss of $10,800,000 for the same period last year and net income of $7,400,000 for Q3 2025. While we continue to expect positive cash flow on a quarterly basis throughout 2026, we may fluctuate between an operating income and operating loss position quarter to quarter, driven by noncash expenses such as stock compensation and milestone payments. As anticipated and reported in our Q3 financial update, the continued momentum of XEREVE net sales growth combined with our expense discipline allowed us to achieve a cash flow positive position in Q4 2025, which was earlier than expected and an important milestone and achievement for our company.

Our cash and marketable securities balance as of 12/31/2025 was $221,300,000, with positive cash flow from operations of $26,200,000 for the period. We have total debt of $108,000,000 and have the option to withdraw another $100,000,000 in whole or in part at our discretion through 2026, providing us with operational flexibility. The success of the XEREVE franchise and the economies of scale we are generating will permit us to invest in the business for sustained growth over the years ahead. Now turning to our full year 2025 results, I am on slide 22. For the full year 2025, net product revenues were $372,100,000, an increase of 123%, or $205,500,000, versus 2024.

This meaningful year-over-year increase in product revenues was primarily driven by increasing demand across the XEREVE products. Other revenue in 2025 was $4,000,000 compared to $30,000,000 in 2024, when we received a $25,000,000 upfront payment in connection with the Sato Japan license agreement. Cost of sales for 2025 were $36,700,000 compared to $19,100,000 the prior year, driven by increased XEREVE unit volume. R&D expenses remained consistent year over year with $77,100,000 expense in 2025 compared to $76,400,000 in 2024, as increased development costs for roflumilast in pediatric atopic dermatitis were largely offset by a decrease in preclinical development costs. SG&A costs increased 20% in 2025 to $274,600,000.

This year-over-year increase was primarily driven by our continued and increasing investments in sales and marketing activities related to our commercialization efforts for XEREVE. Our net loss in 2025 was $16,100,000 compared to a $140,000,000 net loss in 2024. This reduction in our net loss of $123,900,000 was driven by an increase in net product sales that substantially outpaced the increase in our expense base. While expenses continue to grow due to strategic ROI-positive and accretive investments, the considerably faster growth of our top-line revenue is an indicator of the growing operating leverage we expect to benefit from going forward as XEREVE continues its growth trajectory.

Now moving to slide 23, as we touched upon earlier, across this business we have multiple near-term value-driving catalysts. Adding to Patrick's summary of expected clinical and regulatory developments, we anticipate continued commercial progress in 2026. This year, we anticipate full-year net product sales to be in the range of $480,000,000 to $495,000,000. This represents an increase of $25,000,000 on the top and bottom end of our guidance range announced as part of our Investor Day in October.

Our confidence in increasing our sales guidance for the year is informed both by the sustained momentum in our XEREVE business as demonstrated in the Q4 results discussed today, as well as the investments we are making in the franchise, such as the dermatology sales force expansion Todd reviewed earlier. I will note that the effect of this particular investment will take some time to materialize and will be evident in the back half of the year, but will likely have no meaningful impact in quarters one and two.

We are confident that we will be able to fund the investments we have described today to grow, build, and expand our business with the capital produced from our core XEREVE business while maintaining positive cash flow. We will continue to be protective of shareholder capital and attentive to managing our capital allocation to ensure that this dynamic plays out. We are fortunate to have a portfolio of high-ROI investment opportunities paired with a cash flow generating franchise like XEREVE. I will now hand the call back to Frank for some closing remarks.

Frank Watanabe: Okay. Thanks a lot, and thanks to all of you for joining us today. Based on our expansive progress and achievements in 2025, and our multiple anticipated value-driving catalysts across the business in 2026, we are more energized than ever about the future of XEREVE, of our company overall, our ability to grow shareholder value, and, most importantly, our ability to amplify the impact we can have on individuals impacted by chronic inflammatory skin diseases. We look forward to providing you with more updates throughout the year and we thank you for your continued interest in the unfolding Arcutis Biotherapeutics, Inc. story. We will now open for questions.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone. To withdraw your question, please press star 11 again. The first question will come from Seamus Fernandez with Guggenheim. Your line is open.

Seamus Fernandez: Great. Thanks so much, and congrats on the great results. Frank, I wanted to just tackle the update that we got from one of the potential competitors in the market. I think Incyte was commenting on some challenges or need to lower Opzelura pricing in order to improve access. It sounds like access is not really a problem for XEREVE. So I just wanted to get your thoughts and commentary around the dynamics that are occurring in the market today within both the AD marketplace, but also your broader efforts to continue to take share against topical steroids. Thanks.

Frank Watanabe: Seamus, thanks. Great question again, not a surprise after this morning. A little funny to be talking to different parts of the hotel. For a different perspective, I will ask Todd to comment on that since you heard my answer earlier today.

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Todd Edwards: I am happy to answer that. Hello, Seamus. Thank you for the question. First, we do not anticipate any material erosion of our gross-to-net resulting from actions to increase our access in 2026. As previously mentioned, we were able to achieve significant access in 2025. If you look at our commercial access, more than 80% of patients insured by commercial insurance have access to XEREVE, and it is high-quality access, meaning that it is at a single-step edit through a steroid. As mentioned earlier, we also have exceptional Medicaid access, with more than half of the patient population in Medicaid having access to XEREVE with a single-step edit or less.

Then, just announced, were our Medicare Part D wins, effective January 1. We have optimal access, and we do not anticipate having to give any additional rebates in 2026 that would adversely impact our gross-to-net to be able to maintain that. I also want to remind that our pricing strategy has been designed to facilitate this kind of reimbursement that allows for meaningful patient access. Our strategic pricing has made a difference, and now we can see that within access across both commercial insurance and government insurance.

Frank Watanabe: I will just chime in and take a little bit of a victory lap here. As I mentioned earlier, I think when we launched, there were a lot of investors who were questioning our access strategy and why we were taking such a different approach than other players in the branded topical space. I would make a strong case that the last three years has proven out the wisdom of the strategy that we adopted. As Todd has just summarized, we have really achieved outstanding access across commercial, Medicare, and Medicaid now, and that has come with a very reasonable and stable gross-to-net in the 50s, and we expect it to remain there.

So I think, really, the marketplace has proven that we took the right strategy from the outset, and it is paying off not only for our investors but also for patients.

Seamus Fernandez: Great. And if I could just ask one quick follow-up question. It is actually more related to some of the decisions and the federal court decisions around rebate dynamics and also some labor law dynamics that are calling into question, I think, some rebate structure. I also heard that it is going to be really challenging to change the dynamics of the current marketplace as it relates to the presence that the GPOs have. So as you look at some of the dynamics in the marketplace, do you see potential positive changes from an access perspective emerging from some of these recent updates and changes? Thanks so much, and I will jump back in the queue.

Frank Watanabe: That is also a really interesting question. I think that there is a lot of discussion going on right now in Washington about our current reimbursement environment. We saw in the budget bill that was passed last month, I think, the first steps in some meaningful reforms to the current payer system, but those were pretty limited steps. There continues to be a lot of discussion in Congress as well as in the administration about changes to the PBM environment, or to the reimbursement environment more broadly. I think it is too early to say what Washington is going to do on that front.

We remain confident that regardless of how the situation evolves, Arcutis Biotherapeutics, Inc. is well positioned to continue to both make XEREVE widely available to patients and to be able to generate a reasonable return for our investors. But, for one, I think it is much too early to say how this is all going to shake out in terms of a meaningful reform to the insurance system in the U.S.

Seamus Fernandez: Thank you.

Operator: Thank you. Our next question is going to come from Tyler Van Buren with TD Cowen. Your line is open.

Ekeno O'Connor: Hey. This is Ekeno O'Connor on for Tyler. Congrats, guys, on the quarter. We noticed that in your presentation you break out sales for each one of the SKUs. We are wondering if you can comment on that and any growth trends that you expect for the different SKUs going into 2026.

Frank Watanabe: Sure. Todd, do you want to take that one?

Todd Edwards: Yes. As mentioned before, we had growth across the portfolio and had meaningful growth within each of the SKUs. If you look at the growth across those SKUs, we see increased demand more so with the XEREVE Foam given that we have the two indications, seborrheic dermatitis but also the scalp and body psoriasis. Nonetheless, there is very positive growth across the products, and we do anticipate continuing to have growth across the portfolio as we enter into 2026 and throughout 2026. Across these products, they are all highly differentiated relative to the vehicle itself, but also relative to the patient, being that it is once-a-day dosing.

You can put it anywhere for any duration on the body, and it is exceptional relative to long-term disease control with these inflammatory skin conditions. We look forward to continued growth across the portfolio as we continue to roll through 2026.

Frank Watanabe: I might just add, for investors, looking at the Rx split data since we have different SKUs is a pretty accurate depiction of the split. The gross-to-nets are effectively the same across the SKUs. There is a little bit of a lag when we first launch a product like 0.05%, but that very quickly catches up to the other SKUs. So you can look at the SKUs and get a pretty good sense of what is happening. The one exception is the foam where we have two different indications and, frankly, we do not even have enough data at this point to tease out what is seborrheic dermatitis versus what is scalp psoriasis.

I think as time goes on, we might get a better sense of an estimate of that, and we will share that with the investment community, but we are never going to have complete transparency since it is the same SKU.

Latha Vairavan: I can also add that we have the breakout of net sales in our reported financial statements, and we are happy to send you those details. The net sales are broken out by SKU, as Frank just said, in the financial statements, and you can look at those.

Ekeno O'Connor: Perfect, guys. Thank you.

Operator: Thank you. The next question is going to come from Judah C. Frommer with Morgan Stanley. Your line is open.

Judah C. Frommer: Hi, thanks for taking the question, and congrats on the progress. Just curious to get a little more color on the confidence to raise the full-year guide. Obviously, a strong Q4, but heading into what sounds like a seasonality-affected Q1. Maybe if you could just break out between formulary access, confidence in the additions to the sales force, and anything else that underscores changes to the inputs in your model. Thanks.

Frank Watanabe: Todd, not to wear out my welcome, but I think I will probably turn that one over to you too.

Todd Edwards: Yes. To frame this, first is the exceptional momentum that we have in Q4. Coupled with the investment that we are making in the franchise, the salesforce expansion—we will see that impact in the second half of the year. In addition to that, the primary care and pediatricians and the launch into that space, once again, will have an impact in the second half of the year. In reference to formulary access, as mentioned, we continue to have exceptional formulary access. We did in the previous year, and we will carry that forward into 2026 as we go forward.

In reference to the Q1 dynamic, this is typical seasonality that you see with any pharmaceutical product, to include nonsteroidal branded topicals. As mentioned, it is because of the deductible reset that happens at the beginning of the year. Also, patients are changing insurance plans effective the first of the year, which results in higher co-pay usage and, therefore, higher gross-to-net rate within the first quarter, which we mentioned will be in the high 50s. From the first quarter, that gross-to-net rate will continue to trend down, as we saw in 2025, to the lowest rate in Q4. We raised the guidance.

We are very confident in our performance that is going to happen in 2026, and we expect to have sequential quarter-over-quarter growth as we roll from Q1 to Q4 aligned with the restated guidance, once again taking note that the investments—the dermatology expansion and PCP expansion—will have impact in the second half of the year.

Operator: Thank you. The next question is going to come from Uy Ear with Mizuho. Your line is open.

Uy Ear: Guys, congrats on the good quarter. Maybe a couple of questions, if I may. First question is, I think in the fourth quarter you indicated that quarter-over-quarter growth was 29%, and about 19% of that came from Rx and 2% contributed from inventory. So that sort of implies that about 8% came from price. I am just wondering how you expect this sort of benefit to continue through the year and particularly in the fourth quarter of next year as well. That is the first question. The second question is, you indicated that you have about a third of Part D.

Maybe just help us understand why you were able to get this third, and when would you be able to get the remaining, and what was it about this particular third that facilitated access. Thanks.

Frank Watanabe: Todd?

Todd Edwards: No problem. Relative to the fourth quarter dynamics, you are accurate relative to the 29%, with 19% of that being attributed to volume, 2%, which was the inventory build that we had—once again, 2% or $2,500,000 that we expect to unwind in Q1—and then the other was due to the price upside, which was a result of patients moving quicker through their deductibles, which lowered our co-pay card expenses. We will see the seasonality in Q1 that we mentioned, but then, as mentioned, the gross-to-net will continue to improve through the quarters through Q4 as patients start to achieve their out-of-pocket maximum, which reduces our co-pay card expenditures, and levels down quarter-by-quarter expenditures.

That typically starts at the highest in Q1 to a lower expense to us, which lowers our gross-to-net in Q4. Relative to the Medicare Part D and the one third, how and why were we able to achieve this? It is two reasons. One is our strategic pricing. We priced XEREVE so that we could have access across both government and commercial payers and PBMs. The other is that XEREVE is highly differentiated. One is the portfolio that we have, which no other branded topical company can offer across the disease indications that we can.

The other is the significant volume uptake that we have had within our commercial business, duly noted by the Part D plans realizing that there is a demand from Medicare Part D beneficiaries to access this type of product, which has resulted in us picking up that one third of the Part Ds. Relative to the remainder of Medicare Part D, we will continue to work with the remaining plans and PBMs, but we do not anticipate picking that up until likely 2027, but we will work diligently to try to pull that forward if possible.

Frank Watanabe: I do think it is worth dwelling on just how big a deal this is to gain Medicare Part D access. It is very rare for patients to be able to get branded products on the Part D formularies. I think Todd mentioned in the call, we are the only branded topical on the formulary. These are your grandmothers, your mothers; these are people who deserve access to medical innovation as much as anyone else, if not more so. We are really proud of our success so far in gaining Medicare coverage and are looking forward to getting the remaining Part D formularies onboard.

I would also remind investors that Part D, unlike Medicaid, looks a little bit more like commercial markets where there are multiple commercial plans managing the Part D plans, and so you have to gain formulary access to each individual Part D provider, which is why it is lumpy the way commercial coverage is.

Operator: Thank you. The next question is going to come from Andrew Tsai with Jefferies. Your line is open.

Brian (for Andrew Tsai): Hey, Brian on here for Andrew. Just on HS and vitiligo, could you provide us the primary endpoints for both of those as well as the outcomes that you would like to see to take them both to Phase III?

Frank Watanabe: Sure. Patrick, do you want to take that one?

Patrick E. Burnett: Yes. What we are looking to focus on as we move into the fourth quarter for vitiligo—a decision and presenting those data—and then the first quarter for HS is to really be able to get an understanding of what the kinetic response of patients looks like, because I think here timing of the response is really important in both of these diseases. They have been challenging with regard to how long it has taken for patients to get to a response that is meaningful to them. So we are really going to be focused on that.

As well, for us, it will be important to understand what is that fraction of the patients that are being treated—given that these are open-label studies—who are showing a meaningful clinical improvement over that time point, so that we would be able to make an educated guess as to what the expectation for a pivotal trial would look like as we revert then to the characteristic endpoints that you would expect for a pivotal in vitiligo and HS. I think that the profile that we have seen of excellent tolerability, once-a-day treatment, and rapid response, which has characterized our efficacy patterns and safety patterns across all three indications, is what we would be hoping to replicate here.

Operator: Thank you. The next question will come from Serge Belanger with Needham. Your line is open.

Serge Belanger: Good afternoon and congrats on a strong end to 2025. First question regarding the pediatric opportunity. You have been on the market now with the 0.05% cream product for nearly four months. Could you provide more color on the level of awareness and the willingness to prescribe the product in this market segment? And then, secondly, you now have an expanding salesforce on two fronts and a growing cash balance with positive cash flows. Does that change your appetite to add a commercial asset to the bag of the salesforce? Thanks.

Frank Watanabe: I will take the second question, then I will turn the first question over to Todd to give him a little bit of a break. I would say that a commercial-stage asset is probably not our highest priority right now. The major reason for that is the wealth of new opportunities that we have around XEREVE. We have had six approvals in the last roughly three years. We expect at least one more approval this year, possibly two, depending on the speed with which the FDA reviews the three- to 24-months submission.

We still have a lot of work to do to optimize XEREVE promotion, and what I do not want to do is put products in the bag that end up distracting us from what is the highest-margin commercial opportunity we have, which is driving XEREVE growth. I think that is probably not a very high priority for us. Where I think the real opportunity for us to create shareholder value is, quite frankly, in more development-stage assets, especially mid-stage development. Patrick and his team and Bethany and her team, I think, have demonstrated that they are an exceptionally strong development organization. We have 6 FDA approvals under our belt, 4 Health Canada approvals under our belt.

For a small company, that is a pretty amazing track record—all of them on time, no CRLs. Taking a strong asset and putting it in our development team's hands, I think, is the best opportunity for us to create value beyond continuing to drive the growth of XEREVE and continuing to advance ARQ-234. Todd, do you want to comment on what we are seeing on the pediatrics?

Todd Edwards: Yes. Relative to the 0.05% in atopic dermatitis for two to five years old, there is a strong willingness to prescribe this product, and we are seeing robust uptake of the product since the launch. This is a great product relative to that patient population, offering, once again, once-a-day dosing in a very soothing, moisturizing vehicle. It is highly effective, can be put anywhere on the body for any duration, and drives long-term disease control. It is a great option for replacing steroids. Caregivers and pediatricians and dermatologists prefer not to use steroids in this patient population at this age. That is where XEREVE offers a significant value proposition both to the caregiver and patient and to the provider.

So we are very encouraged with the uptake and continue to get very positive feedback, not only from providers but from patients.

Operator: Thank you. The next question is going to come from Richard J. Law with Goldman Sachs. Your line is open.

Richard J. Law: Hey, guys. Congrats on the progress. A couple of questions here. How much of that new 2026 guidance factors in the potential sales improvement in the primary care and pediatric setting now that you are moving those efforts in-house and you are also kicking off these pilot programs? Based on that minimal contribution from Kowa, I think that is why you terminated that contract. Is there an opportunity for 2026 sales to go even higher just based on what you guided if you are able to make improvement in that PCP and pediatrics segment?

Frank Watanabe: I think it is probably a little early to speculate on the magnitude of the primary care contribution. That is something that we will continue to guide. As Todd mentioned on this call, we are taking a very methodical and stepwise approach to primary care, and we are going to start with a very small team focused on the highest-value customers so that we can really fine-tune our go-to-market strategy and figure out what is the right way to access this very large but very diffuse opportunity in primary care and pediatrics, and then we will scale that as we figure that out.

The rate that we scale that, and also the rate that it starts to inflect the top line, is probably premature for us to speculate on.

Richard J. Law: Got it. Then just a follow-up on the Medicare patients. What is the OOP expense for these patients as that nonpreferred branded category? Thank you.

Todd Edwards: I can go ahead and get that one, Frank. Relative to the out-of-pocket expense for the Medicare beneficiaries: the maximum limit on the cap in 2026 is now $2,100. A patient needs to pay the co-pay or coinsurance that is aligned with the product up to the maximum out-of-pocket expense of $2,100, and then the products are covered thereafter by the Part D plan.

Frank Watanabe: I would just add to Todd's point, as a reminder, that $2,100 is total out-of-pocket for all drugs. For an elderly patient who is on multiple medications, their total out-of-pocket expense for the year is capped at $2,100. Patients can also opt in for smoothing, which means that they pay at most one-twelfth of $2,100 in any month. It is very manageable. For an XEREVE prescription, it really depends on the patient's plan what the actual dollar amount is going to be. It varies depending on both the insurance company and what plan the patient has bought.

Operator: Thank you. The next question is going to come from Douglas Tsao with H.C. Wainwright. Your line is open.

Douglas Tsao: Good afternoon. Thanks for taking the questions. Frank, maybe just a follow-up on the Kowa and the primary care opportunity. As you put it, it is a very large opportunity as well as diverse. Was it simply a function that you did not think that they were taking the right approach and that you saw a different way forward, or was it just simply capturing all the economics for yourself? Thank you.

Frank Watanabe: I would not say it was either. When we signed this deal with Kowa about a year and a half ago, we were not in a financial position where we could build our own primary care team. We are in a very different place today. Kowa is a perfectly fine company, but when something really matters to you, it is often best to do it yourself. Given that we are in a financial position to do this ourselves, we felt that the best way to maximize shareholder returns was for us to drive primary care and pediatric promotion ourselves.

I will say, as you pointed out, we do keep all the economics on that, but there are some expenses associated with it too. We feel very confident that we are going to be able to do this in a way that will be accretive very quickly to our shareholders.

Douglas Tsao: As a follow-up, is it also, given the momentum that you have seen, that bolsters your confidence that this is doable from the company?

Frank Watanabe: Yes, absolutely. I would add that some of the early experience with Kowa added to our conviction around this. There is a very high level of excitement, I would say, in primary care and pediatrics around XEREVE. For doctors who they had called on, they started running speaker programs in Q4 2025. For those who have not been in the business, speaker programs are very difficult to run these days. The response and attendance at those programs frankly astounded us and speaks to that very high level of interest in the primary care and pediatric communities.

I think that is only going to build as we continue to expand our pediatric indications to two to five in psoriasis and eventually three to 24 months in atopic dermatitis as well. That added to our conviction that this is a real opportunity. The other thing that is really important is to remind everyone—we talked about this on the investor call—that there are something like 300,000 primary care providers in the United States. That is a colossal number for any company, but certainly for a smaller company like us. As we talked about on the investor call, about 5% of those providers are writing about a third of all topical scripts.

There is actually a very high-value, concentrated pocket of primary care and pediatricians. Where we are going to focus our efforts is on that very concentrated, high-productivity segment of the market. We may pick up some volume in the other portions of the market too, but we are not looking to build a massive primary care sales force that is calling on tens of thousands or hundreds of thousands of primary care providers. That just does not make sense for us. We are really going to focus on the tip of the spear where there are very high-volume primary care doctors for topical therapies.

Operator: Thank you. I am showing no further questions in the queue at this time. I will now turn the call back over to Frank for closing remarks.

Frank Watanabe: I will keep it short. As always, thank you for the great questions. Thank you for making the time to call in and listen to our discussion today, and we look forward to talking to you all in another 90 days to update you on the first quarter. Thanks a lot. Bye-bye.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.

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