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What changed in Arcutis Biotherapeutics, Inc.'s 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Arcutis Biotherapeutics, Inc.'s 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+706 added−714 removedSource: 10-K (2026-02-25) vs 10-K (2025-02-25)

Top changes in Arcutis Biotherapeutics, Inc.'s 2025 10-K

706 paragraphs added · 714 removed · 544 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

229 edited+78 added−93 removed154 unchanged
Biggest changeThe ACA, among other things, (i) subjected therapeutic biologics to potential competition by lower-cost biosimilars by creating a licensure framework for follow-on biologic products, (ii) established a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs and therapeutic biologics that are inhaled, infused, instilled, implanted or injected, (iii) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) established annual nondeductible fees and taxes on manufacturers of certain branded prescription drugs and therapeutic biologics, apportioned among these entities according to their market share in certain government healthcare programs, (v) expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the federal poverty level, thereby potentially increasing manufacturers’ Medicaid rebate liability, (vi) expanded the entities eligible for discounts under the Public Health program, (vii) created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research, and (viii) established a Center for Medicare and Medicaid Innovation at Centers for Medicare and Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
Biggest changeThe ACA, among other things, (i) increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extended manufacturer rebate liability to utilization by individuals enrolled in Medicaid managed care organizations, (ii) established annual nondeductible fees and taxes on manufacturers of certain branded prescription drugs and therapeutic biologics, and (iii) established a Center for Medicare and Medicaid Innovation at Centers for Medicare and Medicaid Services (CMS) to test innovative payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
However, due to the limitations on duration of treatment to between 2 and 8 weeks, most physicians will switch the patient to a low- to mid-potency steroid or to a vitamin D analog to manage the patient’s psoriasis chronically. These “step down” options provide less symptomatic improvement and are often irritating.
However, due to the limitations on duration of treatment between 2 and 8 weeks, most physicians will switch the patient to a low- to mid-potency steroid or to a vitamin D analog to manage the patient’s psoriasis chronically. These “step down” options provide less symptomatic improvement and are often irritating.
On the studies’ primary efficacy endpoint of percentage of subjects achieving Investigator Global Assessment (IGA) success, which was defined as a score of “clear” or “almost clear” plus a 2-grade improvement from baseline at Week 8, 42.4% of subjects treated with ZORYVE cream achieved IGA Success, compared to 6.1% of subjects treated with vehicle (p ZORYVE cream was well-tolerated by the patient populations, with rates of treatment-emergent adverse events (TEAEs) low and similar to vehicle, with most TEAEs assessed as mild-to-moderate in severity.
On the studies’ primary efficacy endpoint of percentage of subjects achieving Investigator Global Assessment (IGA) success, which was defined as a score of “clear” or “almost clear” plus a 2-grade improvement from baseline at Week 8, 42.4% of subjects treated with ZORYVE cream achieved Investigator Global Assessment (IGA) Success, compared to 6.1% of subjects treated with vehicle (p ZORYVE cream was well tolerated by the patient populations, with rates of treatment-emergent adverse events (TEAEs) low and similar to vehicle, and most TEAEs assessed as mild-to-moderate in severity.
Of the subjects treated with ZORYVE cream, five subjects (1.7% of subjects) in DERMIS-1 and one subject (0.3% of subjects) in DERMIS-2 discontinued the study due to a TEAE. There were no treatment-related serious adverse events.
Of the subjects treated with ZORYVE cream, five subjects (1.7%) in DERMIS-1 and one subject (0.3%) in DERMIS-2 discontinued the study due to a TEAE. There were no treatment-related serious adverse events.
Our success will be based in part on our ability to identify, develop, and commercialize a portfolio of product candidates that have a lower risk of side effects and/or provide more symptomatic improvement than competing products.
Our success will be based in part on our ability to identify, develop, and commercialize a portfolio of products and product candidates that have a lower risk of side effects and/or provide more symptomatic improvement than competing products.
In addition, on a Licensed Product-by-Licensed Product basis, commencing from the first commercial sale of such Licensed Product in Japan until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by us to Sato under the License Agreement covering such Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Licensed Product in Japan, or (iii) ten years after the first commercial sale of such Licensed Product in Japan, we will receive low double-digit to mid-teen double-digit percentage royalties on Sato’s, its affiliates’ and sublicensees’ total annual net sales of all Licensed Products, subject to certain royalty reductions.
In addition, on a Sato Licensed Product-by-Sato Licensed Product basis, commencing from the first commercial sale of such Sato Licensed Product in Japan until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by us to Sato under the Sato License Agreement covering such Sato Licensed Product in Japan, (ii) the expiration of regulatory exclusivity for such Sato Licensed Product in Japan, or (iii) ten years after the first commercial sale of such Sato Licensed Product in Japan, we will receive low double-digit to mid-teen double-digit percentage royalties on Sato’s, its affiliates’ and sublicensees’ total annual net sales of all Sato Licensed Products, subject to certain royalty reductions.
AstraZeneca In July 2018, we entered into an exclusive license agreement, or the AstraZeneca License Agreement, with AstraZeneca, pursuant to which we obtained a worldwide exclusive license, with the right to sublicense through multiple tiers, under certain AstraZeneca-controlled patent rights, know-how and regulatory documentation, to research, develop, manufacture, commercialize, and otherwise exploit products containing roflumilast in topical forms, as well as delivery systems sold with or for the administration of roflumilast, or collectively, the AZ-Licensed Products, for all diagnostic, prophylactic, and therapeutic uses for human dermatological indications, or the Dermatology Field.
AstraZeneca In July 2018, we entered into an exclusive license agreement with AstraZeneca (the AstraZeneca License Agreement), pursuant to which we obtained a worldwide exclusive license, with the right to sublicense through multiple tiers, under certain AstraZeneca-controlled patent rights, know-how and regulatory documentation, to research, develop, manufacture, commercialize, and otherwise exploit products containing roflumilast in topical forms, as well as delivery systems sold with or for the administration of roflumilast (collectively, the AZ-Licensed Products) for all diagnostic, prophylactic, and therapeutic uses for human dermatological indications (collectively, the Dermatology Field).
In December 2019, we exercised our exclusive option, and also contemporaneously amended the agreement to expand the territory to additionally include Canada, and therefore now have a license from Hengrui under certain patent rights and know-how controlled by Hengrui to research, develop and commercialize products containing ivarmacitinib in the Field in the Territory.
In December 2019, we exercised our exclusive option, and also contemporaneously amended the agreement to expand the Territory to additionally include Canada, and therefore now have a license from Hengrui under certain patent rights and know-how controlled by Hengrui to research, develop and commercialize products containing ivarmacitinib in the Hengrui Field in the Territory.
During the term of the Hengrui License Agreement, Hengrui will not develop or commercialize ivarmacitinib or any licensed product in the Field in the Territory.
During the term of the Hengrui License Agreement, Hengrui will not develop or commercialize ivarmacitinib or any licensed product in the Hengrui Field in the Territory.
We may also terminate the License Agreement if Sato or any director, officers, employee, agent, affiliate, sublicensee, or subcontractor is charged by a governmental authority for a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations, or, subject to the terms of the License Agreement, if Sato, its affiliates and sublicensees do not conduct any material development or commercialization activities of a Licensed Product in Japan for a certain period of time.
We may also terminate the Sato Agreement if Sato or any director, officers, employee, agent, affiliate, sublicensee, or subcontractor is charged by a governmental authority for a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations, or, subject to the terms of the Sato Agreement, if Sato, its affiliates and sublicensees do not conduct any material development or commercialization activities of a Sato Licensed Product in Japan for a certain period of time.
Our primary focus since our founding has been to address patients’ significant need for innovative topical treatments that directly target molecular mediators of disease, have the potential to show significant symptomatic improvement, maintain a low risk of toxicity or side effects, and are suitable for chronic use on all areas of the body.
Our primary focus since our founding has been to address patients’ significant need for innovative treatments that directly target molecular mediators of disease, have the potential to show significant symptomatic improvement, maintain a low risk of toxicity or side effects, and are suitable for chronic use on all areas of the body.
Based on market research and our internal estimates, we estimate there is an overall actively prescription treated patient market of approximately 17.0 million patients in the United States that are treated with topical therapies for plaque psoriasis, seborrheic dermatitis, and atopic dermatitis in dermatology offices (approximately 8.4 million) and outside dermatology (approximately 8.6 million).
Based on market research and our internal estimates, we estimate there is an overall actively prescription-treated patient market of approximately 17.0 million patients in the United States that are treated with topical therapies for plaque psoriasis, seborrheic dermatitis, and atopic dermatitis, with approximately 8.4 million treated in dermatology offices and the remaining approximately 8.6 million treated outside dermatology.
Pediatric Information The Pediatric Research Equity Act (PREA) as amended, requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver.
Pediatric Information The Pediatric Research Equity Act (PREA) as amended, requires a sponsor to conduct pediatric clinical trials for most drugs, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs, BLAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver.
Huadong may terminate the License Agreement at-will in its entirety upon 90 days’ written notice. Unless unenforceable under applicable law, we may terminate the License Agreement in its entirety if Huadong, its affiliate or sublicensee contests or assists a third party in contesting the scope, validity or enforceability of any patent or patent application licensed by us to Huadong.
Huadong may terminate the Huadong Agreement at-will in its entirety upon 90 days’ written notice. Unless unenforceable under applicable law, we may terminate the Huadong Agreement in its entirety if Huadong, its affiliate or sublicensee contests or assists a third party in contesting the scope, validity or enforceability of any patent or patent application licensed by us to Huadong.
Additionally, the FDA will generally inspect the facility or the facilities at which the drug is manufactured to ensure the facility is compliant with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs.
Additionally, the FDA will generally inspect the facility or the facilities at which the drug is manufactured to ensure the facility is compliant with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA may inspect one or more clinical trial sites to assure compliance with GCPs.
A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
A product candidate can receive Breakthrough Therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA in condition for approval, including requests for additional information or clarification. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will typically issue an approval letter.
In issuing the CRL, the FDA may recommend actions that the applicant might take to place the NDA or BLA in condition for approval, including requests for additional information or clarification. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA will typically issue an approval letter.
In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast Track designation, Breakthrough Therapy designation, priority review, and accelerated approval do not change the standards for approval, but may expedite the development or approval process.
In addition, the FDA requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast Track designation, Breakthrough Therapy designation, priority review, and accelerated approval do not change the standards for approval, but may expedite the development or approval process.
However, a drug must meet certain criteria relative to the Listed Drug to be eligible to use the Section 505(b)(2) pathway as opposed to the abbreviated NDA, or ANDA pathway, which is described below. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an ANDA.
However, a drug must meet certain criteria relative to the Listed Drug to be eligible to use the Section 505(b)(2) pathway as opposed to the abbreviated NDA ( ANDA) pathway, which is described below. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an ANDA.
ZORYVE cream 0.3% is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use. In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age.
ZORYVE cream 0.3% is approved for once-daily topical treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use. In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age.
Approximately half (164 out of 332) of the subjects entered this long-term study after completing treatment with ZORYVE cream 0.3% or 0.15% in the randomized Phase 2b study (ARQ-151-201) and therefore received up to 64 weeks of total treatment with ZORYVE cream (12 weeks in the randomized Phase 2b study and 52 weeks in the long-term safety study).
Approximately half (164 of 332) of the subjects entered this long-term study after completing treatment with ZORYVE cream 0.3% or 0.15% in the randomized Phase 2b study (ARQ-151-201) and therefore received up to 64 weeks of total treatment with ZORYVE cream (12 weeks in the randomized Phase 2b study and 52 weeks in the long-term safety study).
In addition, we have sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products in the Field and in the Territory, at our sole cost and discretion, and shall use commercially reasonable efforts to (1) develop at least one licensed product and to (2) commercialize the licensed products following regulatory approval thereof.
In addition, we have sole responsibility for development, regulatory, marketing and commercialization activities to be conducted for the licensed products in the Hengrui Field and in the Territory, at our sole cost and discretion, and shall use commercially reasonable efforts to (1) develop at least one licensed product and to (2) commercialize the licensed products following regulatory approval thereof.
Any product candidate that we successfully develop and commercialize will compete with existing treatments, including those that may have achieved broad market acceptance, and any new treatment that may become available in the future. Many of our competitors have greater financial, technical, and human resources than we have.
Any product, or product candidate that we successfully develop and commercialize, will compete with existing treatments, including those that may have achieved broad market acceptance, and any new treatment that may become available in the future. Many of our competitors have greater financial, technical, and human resources than we have.
The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the additional information must be included in any resubmitted NDA, which is subject to review before the FDA accepts it for filing.
The FDA may refuse to file any NDA or BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the additional information must be included in any resubmitted NDA or BLA, which is subject to review before the FDA accepts it for filing.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap or be combined: • Phase 1: The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition.
Clinical trials to support NDAs or BLAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap or be combined: • Phase 1: The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition.
A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling.
A CRL will describe all of the deficiencies that the FDA has identified in the NDA or BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting required inspections and/or reviewing proposed labeling.
Despite initial interest among the physician community to adopt the product, its growth has been hampered by frequent occurrences of application site burning and stinging as well as disadvantaged reimbursement status compared to other atopic dermatitis treatments. • Opzelura is a topical JAK inhibitor approved in September 2021 for the topical short-term and non-continuous chronic treatment of mild to moderate atopic dermatitis in non-immunocompromised adult and pediatric patients 12 years of age and older whose disease is not adequately controlled with topical prescription therapies or when those therapies are not advisable.
Despite initial interest among the physician community to adopt the product, its growth has been hampered by frequent occurrences of application site burning and stinging as well as disadvantaged reimbursement status compared to other atopic dermatitis treatments. • Opzelura is a topical JAK inhibitor approved in September 2021 for the topical short-term and non-continuous chronic treatment of mild to moderate atopic dermatitis in non-immunocompromised adult and pediatric patients 2 years of age and older whose disease is not adequately controlled with topical prescription therapies or when those therapies are not advisable.
In atopic dermatitis, topical calcineurin inhibitors, or TCIs, and crisaborole (Eucrisa ® ), a topical non-steroidal PDE4 inhibitor, are used, but have lower response rates than TCS and are associated with application site burning. TCIs also have a boxed warning for cancer risk.
In atopic dermatitis, topical calcineurin inhibitors (TCIs) and crisaborole (Eucrisa ® ), a topical non-steroidal PDE4 inhibitor, are used, but have lower response rates than TCS and are associated with application site burning. TCIs also have a boxed warning for cancer risk.
Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by independent investigators. The cost of preparing and submitting an NDA is substantial.
Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by independent investigators. The cost of preparing and submitting an NDA or BLA is substantial.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for review, or “filed” by FDA, based on the FDA’s threshold determination that it is sufficiently complete to permit substantive review.
The FDA has 60 days from its receipt of an NDA or BLA to determine whether the application will be accepted for review, or “filed” by FDA, based on the FDA’s threshold determination that it is sufficiently complete to permit substantive review.
Healthcare Reform In the United States there have been, and continue to be, proposals by the federal government, state governments, regulators, and third-party payers to control or manage the increased costs of health care and, more generally, to reform the U.S. healthcare system.
Health Care Reform In the United States, there have been, and continue to be, proposals by the federal government, state governments, regulators, and third-party payers to control or manage the increased costs of health care and, more generally, to reform the U.S. health care system.
An NDA for a product candidate is eligible for priority review if the product candidate is designed to treat a serious or life-threatening disease or condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition.
An NDA or BLA for a product candidate is eligible for priority review if the product candidate is designed to treat a serious or life-threatening disease or condition, and if approved, would provide a significant improvement in safety or effectiveness compared to available alternatives for such disease or condition.
Pursuant to the terms of the License Agreement, Sato will, at its expense, develop, obtain regulatory approval for, commercialize, and conduct medical affairs activities related to the Licensed Products in the Field in Japan, subject to certain of our approval and oversight rights.
Pursuant to the terms of the Sato Agreement, Sato will, at its expense, develop, obtain regulatory approval for, commercialize, and conduct medical affairs activities related to the Sato Licensed Products in the Sato Field in Japan, subject to certain of our approval and oversight rights.
After the FDA evaluates the NDA and conducts any necessary inspections, it will issue either an approval letter or a complete response letter (CRL). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.
After the FDA evaluates the NDA or BLA and conducts any necessary inspections, it will issue either an approval letter or a complete response letter (CRL). An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.
Topical tapinarof was approved in May 2022 for the treatment of adults with plaque psoriasis and in December 2024 for adults and children with atopic dermatitis, but this non-steroidal agent also carries significant application site reactions.
Topical tapinarof (Vtama ® ) was approved in May 2022 for the treatment of adults with plaque psoriasis and in December 2024 for adults and children with atopic dermatitis, but this non-steroidal agent also carries significant application site reactions.
Key Completed Trials DERMIS-1 and DERMIS-2 pivotal Phase 3 studies The DERMIS-1 and DERMIS-2 studies were identical pivotal Phase 3 randomized, parallel, double-blind, vehicle-controlled, multi-national, multi-center studies in which subjects age 2 years and above with mild, moderate, or severe chronic plaque psoriasis involving between 2% and 20% body surface area received 8 weeks of (i) ZORYVE cream 0.3% once daily or (ii) matching vehicle once daily.
Psoriasis Key Completed Trials DERMIS-1 and DERMIS-2 pivotal Phase 3 studies The DERMIS-1 and DERMIS-2 studies were identical pivotal Phase 3 randomized, parallel, double-blind, vehicle-controlled, multi-national, multicenter studies in which subjects age 2 years and above with mild, moderate, or severe chronic plaque psoriasis involving between 2% and 20% body surface area received 8 weeks of (i) ZORYVE cream 0.3% once daily or (ii) matching vehicle once daily.
Changes to the conditions established in an approved NDA, including changes in indications, labeling, or manufacturing processes or facilities, require a submission to the FDA in the form of an NDA supplement or as part of the NDA Annual Report.
Changes to the conditions established in an approved NDA or BLA, including changes in indications, labeling, or manufacturing processes or facilities, require a submission to the FDA in the form of an NDA or BLA supplement or as part of the NDA or BLA Annual Report.
Moreover, eligibility for reimbursement does not imply that any drug or therapeutic biologic will be reimbursed in all cases or at a rate that covers a drug company’s costs, including research, development, manufacture, sale, and distribution. Third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness of products, in addition to their safety and efficacy.
Moreover, eligibility for reimbursement does not imply that any drug will be reimbursed in all cases or at a rate that covers a drug company’s costs, including research, development, manufacture, sale, and distribution. Third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness of products, in addition to their safety and efficacy.
The License Agreement sets forth each party’s respective obligations with respect to the development, medical affairs activities, manufacture and supply, and commercialization of the Huadong Licensed Products.
The Huadong Agreement sets forth each party’s respective obligations with respect to the development, medical affairs activities, manufacture and supply, and commercialization of the Huadong Licensed Products.
A Fast Track product candidate may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
A Fast Track product candidate may also be eligible for rolling review, where the FDA may consider for review sections of the NDA or BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA or BLA, the FDA agrees to accept sections of the NDA or BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA or BLA.
Dermatological diseases such as psoriasis, atopic dermatitis, seborrheic dermatitis, and alopecia areata affect hundreds of millions of people worldwide each year, impacting their quality of life, and physical, functional, and emotional well-being. There are many approved treatments for these conditions, but a large opportunity remains due to issues with existing treatments.
Dermatological diseases such as psoriasis, atopic dermatitis, and seborrheic dermatitis affect hundreds of millions of people worldwide each year, impacting their quality of life, and physical, functional, and emotional well-being. There are many approved treatments for these conditions, but a large opportunity remains due to issues with existing treatments.
Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a Fast Track product candidate has opportunities for more frequent interactions with the applicable FDA review team during development and, once an NDA is submitted, the product candidate may be eligible for priority review.
Fast Track designation applies to the combination of the product candidate and the specific indication for which it is being studied. The sponsor of a Fast Track product candidate has opportunities for more frequent interactions with the applicable FDA review team during development and, once an NDA or BLA is submitted, the product candidate may be eligible for priority review.
We may also terminate the License Agreement if Huadong (a) is convicted in a final and non-appealable judgment of a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations or (b) any director, officer, employee, agent, affiliate, sublicensee or subcontractor of Huadong is convicted in a final and non-appealable judgment of a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations in relation to the performance of the License Agreement or, subject to the terms of the License Agreement, if Huadong, its affiliates and sublicensees do not conduct any material development or commercialization activities of a Licensed Product in the Territory for a certain period of time.
We may also terminate the Huadong Agreement if Huadong (a) is convicted in a final and non-appealable judgment of a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations or (b) any director, officer, employee, agent, affiliate, sublicensee or subcontractor of Huadong is convicted in a final and non-appealable judgment of a violation of any anti-corruption, anti-money laundering, sanctions or export or import control laws or regulations in relation to the performance of the Huadong Agreement or, subject to the terms of the Huadong Agreement, if Huadong, its affiliates and sublicensees do not conduct any material development or commercialization activities of a Huadong Licensed Product in the Huadong Territories for a certain period of time.
These so-called Phase 4 studies, may be conducted after initial marketing approval, and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.
These so-called Phase 4 studies, may be conducted after initial marketing approval, and may be used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA or BLA.
If a drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, healthcare reimbursement or other federal or state government healthcare programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm.
If a drug company’s operations are found to be in violation of any such requirements, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment, the curtailment or restructuring of its operations, loss of eligibility to obtain approvals from the FDA, exclusion from participation in government contracting, health care reimbursement or other federal or state government health care programs, including Medicare and Medicaid, integrity oversight and reporting obligations, imprisonment, and reputational harm.
The term of the License Agreement continues until, on a Licensed Product-by-Licensed Product and country or region-by-country or region basis, the expiration of the Royalty Term. The License Agreement may be terminated by either party in its entirety if the other party commits a material breach, subject to a cure period, or if the other party becomes insolvent.
The term of the Huadong Agreement continues until, on a Huadong Licensed Product-by-Huadong Licensed Product and country or region-by-country or region basis, the expiration of the Royalty Term. The Huadong Agreement may be terminated by either party in its entirety if the other party commits a material breach, subject to a cure period, or if the other party becomes insolvent.
The FDA may also require one or more Phase 4 post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and the labeling and prescribing information for the product may be changed based on the results of these post-marketing studies.
The FDA may also require one or more post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and the labeling and prescribing information for the product may be changed based on the results of these post-marketing studies.
While physicians have a number of relatively inexpensive treatment options that provide symptomatic improvement for seborrheic dermatitis, the greatest unmet need relates to inadequate response to existing therapies in some patients, particularly in patients with more severe disease.
While physicians have a number of relatively inexpensive treatment options that provide symptomatic improvement for seborrheic dermatitis, the greatest unmet need relates to inadequate response to existing therapies in many patients, particularly in patients with more severe disease.
Pursuant to the terms of the License Agreement, we received an upfront payment of $25.0 million and will potentially receive additional payments (i) up to an aggregate amount of $10.0 million upon the achievement of certain regulatory milestones and (ii) up to an aggregate amount of $30.0 million upon the achievement of certain sales milestones.
Pursuant to the terms of the Sato Agreement, we received an upfront payment of $25.0 million and will potentially receive additional payments (i) up to an aggregate amount of $10.0 million upon the achievement of certain regulatory milestones and (ii) up to an aggregate amount of $30.0 million upon the achievement of certain sales milestones.
The submission of most NDAs is additionally subject to a substantial application user fee, and the manufacturer and/or sponsor of an approved NDA is also subject to an annual program fee. Waivers of application user fees may be obtained in certain limited circumstances.
The submission of most NDAs and BLAs is additionally subject to a substantial application user fee, and the manufacturer and/or sponsor of an approved NDA or BLA is also subject to an annual program fee. Waivers of application user fees may be obtained in certain limited circumstances.
A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin.
A deferral may be granted for several reasons, including a finding that the product is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data needs to be collected before the pediatric clinical trials begin.
ARQ-151-202 (Long-Term Safety Study) The long-term safety study was a Phase 2, multi-center, open label study of the long-term safety and efficacy of ZORYVE cream 0.3% in adult subjects with chronic plaque psoriasis involving up to 25% total body surface area (BSA), evaluated in two cohorts: subjects who completed the ARQ-151-201 Phase 2b, randomized, controlled trial; and previously untreated subjects.
ARQ-151-202 (Long-Term Safety Study) The long-term safety study was a Phase 2, multicenter, open-label study of the long-term safety and efficacy of ZORYVE cream 0.3% in adult subjects with chronic plaque psoriasis involving up to 25% total body surface area (BSA), evaluated in two cohorts: subjects who completed the ARQ-151-201 Phase 2b, randomized, controlled trial; and previously untreated subjects.
Increasingly, third-party payers who reimburse patients or healthcare providers, such as government and private insurers, are requiring that drug companies provide them rebates off list prices, and are seeking to reduce their prices to secure coverage. A payer’s decision to provide coverage for a product does not imply that an adequate reimbursement rate or formulary position will be available.
Increasingly, third-party payers who reimburse patients or health care providers, such as government and private insurers, are requiring that drug companies provide them rebates off list prices, and are seeking to reduce their prices to secure coverage. A payer’s decision to provide coverage for a product does not imply that an adequate reimbursement rate or formulary position will be available.
In April 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older.
In June 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older.
Additionally, a d urable treatment effect was maintained through 52 to 64 weeks as 57.1% (n=185) of ZORYVE cream-treated patients achieved an IGA score of clear or almost clear (IGA 0/1) at any time in study, and these participants had a median duration of IGA of clear or almost clear of more than 10 months (40.1 weeks).
Additionally, a d urable treatment effect was maintained through 52 to 64 weeks as 57.1% (n=185) of ZORYVE cream-treated patients achieved an IGA score of clear or almost clear (IGA 0/1) at any time during the study, and these participants had a median duration of IGA of clear or almost clear of more than 10 months (40.1 weeks).
Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.
Recently, several pharmaceutical and other health care companies have been prosecuted under these laws for allegedly inflating drug prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product.
Physicians are especially wary of using steroids near the eyes due to the potential increased risk of cataracts and glaucoma. Finally, many physicians are reluctant to treat chronically with steroids and TCIs, the main anti-inflammatory agents used in treatment of seborrheic dermatitis. We believe ZORYVE foam may present a unique dual mechanism of action to treat patients with seborrheic dermatitis.
Physicians are especially wary of using steroids near the eyes due to the potential increased risk of cataracts and glaucoma. Finally, many physicians are reluctant to treat chronically with steroids and TCIs, the main anti-inflammatory agents used in treatment of seborrheic dermatitis. We believe ZORYVE foam presents a unique dual mechanism of action to treat patients with seborrheic dermatitis.
The U.S. federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid, or other federally financed healthcare programs.
The U.S. federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally financed health care programs.
We may also potentially receive additional payments (i) up to an aggregate amount of $19.0 million upon the achievement of certain development and regulatory milestones and (ii) up to an aggregate amount of $40.3 million upon the achievement of certain sales milestones.
We may also potentially receive additional payments (i) up to an aggregate amount of $15.0 million upon the achievement of certain development and regulatory milestones and (ii) up to an aggregate amount of $40.3 million upon the achievement of certain sales milestones.
For example, as a condition of approving an NDA, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of the drug outweigh the potential risks.
For example, as a condition of approving an NDA or BLA, the FDA may require a risk evaluation and mitigation strategy (REMS) to help ensure that the benefits of the drug outweigh the potential risks.
License, Collaboration and Co-Promotion Agreements Kowa Co-Promotion Agreement In July 2024, we entered into a co-promotion agreement with Kowa Pharmaceuticals, Inc. to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE in the United States to primary care practitioners and pediatricians for all FDA-approved indications until at least July 2029.
License, Collaboration, and Promotion Agreements Kowa Promotion Agreement In July 2024, we entered into a promotion agreement with Kowa to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE in the United States to primary care practitioners and pediatricians for all FDA-approved indications until at least July 2029.
A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicine by managing its safe use, and can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU.
A REMS is a safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued access to such medicine by managing its safe use, and can include medication guides, communication plans for health care professionals, and elements to assure safe use, or ETASU.
Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.
Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other health care reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products.
In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual healthcare practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals.
In addition, several states now require prescription drug companies to report certain expenses relating to the marketing and promotion of drug products and to report gifts and payments to individual health care practitioners in these states. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals.
FDA approval prior to implementation is required for most major changes, and the FDA’s timeline for review varies according to the type of change being made. An NDA supplement for a new indication typically requires clinical data, and the FDA uses the same general procedures when reviewing such NDA efficacy supplements as it does in reviewing original NDAs.
FDA approval prior to implementation is required for most major changes, and the FDA’s timeline for review varies according to the type of change being made. An NDA or BLA supplement for a new indication typically requires clinical data, and the FDA uses the same general procedures when reviewing such efficacy supplements as it does in reviewing original applications.
Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. Human Capital Resources and Employees As of December 31, 2024, we had 342 full-time employees.
Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing. Human Capital Resources and Employees As of December 31, 2025, we had 354 full-time employees.
The License Agreement sets forth each party’s respective obligations with respect to the development, medical affairs activities, manufacture and supply, and commercialization of the Licensed Products.
The Sato Agreement sets forth each party’s respective obligations with respect to the development, medical affairs activities, manufacture and supply, and commercialization of the Sato Licensed Products.
In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if a second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or, as noted above, if a second applicant demonstrates that its product is clinically superior to the approved product with orphan exclusivity within the relevant approved use or indication or the manufacturer of the approved product is unable to assure sufficient quantities of the product to meet the needs relating to the approved use or indication of patients with the relevant rare disease or condition.
Delays can occur in obtaining reimbursement for newly-approved drugs or therapeutic biologics, and coverage may be more limited than the purposes for which the drug or therapeutic biologic is approved by the FDA or similar foreign regulatory authorities.
Delays can occur in obtaining reimbursement for newly-approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar foreign regulatory authorities.
In the trial, 25.4% of patients treated with ZORYVE cream 0.05% achieved IGA success, compared to 10.7% of patients treated with vehicle (p ZORYVE cream 0.05% also demonstrated statistically significant improvements compared to vehicle on key secondary endpoints, which included EASI-75, the percentage of patients achieving IGA success at Weeks 1 and 2, and the percentage of patients achieving a vIGA-AD score of “clear” or “almost clear” at Weeks 1 and 2, with significant improvements observed for these endpoints as early as Week 1.
In the trial, 25.4% of patients treated with ZORYVE cream 0.05% achieved IGA Success, compared to 10.7% of patients treated with vehicle (P 12 Table of Contents Index to Financial Statements ZORYVE cream 0.05% also demonstrated statistically significant improvements compared to vehicle on key secondary endpoints, which included EASI-75, the percentage of patients achieving IGA Success at Weeks 1 and 2, and the percentage of patients achieving a vIGA-AD score of “clear” or “almost clear” at Weeks 1 and 2, with significant improvements observed for these endpoints as early as Week 1.
Jiangsu Hengrui Medicine Co., Ltd In January 2018, we entered into an exclusive option and license agreement, or the Hengrui License Agreement, with Jiangsu Hengrui Medicine Co., Ltd, or Hengrui, whereby Hengrui granted us an exclusive option to obtain certain exclusive rights to research, develop, and commercialize products containing the compound designated by Hengrui as ivarmacitinib, a potent and selective JAK1 inhibitor, in topical formulations for the treatment of skin diseases, disorders, and conditions, or the Field, in the United States, Japan, and the EU (including for clarity the United Kingdom), or the Territory.
Jiangsu Hengrui Medicine Co., Ltd In January 2018, we entered into an exclusive option and license agreement (the Hengrui License Agreement) with Jiangsu Hengrui Medicine Co., Ltd (Hengrui), whereby Hengrui granted us an exclusive option to obtain certain exclusive rights to research, develop, and commercialize products containing the compound designated by Hengrui as ivarmacitinib, a potent and selective JAK1 inhibitor, in topical formulations for the treatment of skin diseases, disorders, and conditions (the Hengrui Field), in the United States, Japan, United Kingdom, and the European Union (the Territory).
These studies are designed to test the safety, dosage tolerance, absorption, metabolism, and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. • Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule, and to identify possible adverse side effects and safety risks.
These studies are designed to test the safety, dosage tolerance, absorption, 26 Table of Contents Index to Financial Statements metabolism, and distribution of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. • Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule, and to identify possible adverse side effects and safety risks.
For new-molecular-entity NDAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date.
For new-molecular-entity NDAs and original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date.
The process required by the FDA before a drug may be marketed in the United States generally involves the following: • completion of nonclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s Good Laboratory Practice (GLP) requirements and other applicable regulations; • submission to the FDA of an Investigational New Drug application (IND) which must become effective before human clinical trials may begin; • approval by an independent Institutional Review Board (IRB) or ethics committee at each clinical site before each trial may be initiated; • performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (GCP) to establish the safety and efficacy of the proposed drug for its intended use; • preparation of and submission to the FDA of an NDA after completion of all pivotal trials; • a determination by the FDA within 60 days of its receipt of an NDA to file the application for review; • satisfactory completion of an FDA advisory committee review, if applicable; • satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current Good Manufacturing Practice (cGMP) requirements to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity, and potential inspection of selected clinical investigation sites to assess compliance with GCPs; and • FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the United States.
The process required by the FDA before a drug or biologic may be marketed in the United States generally involves the following: • completion of nonclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s Good Laboratory Practice (GLP) requirements and other applicable regulations; • submission to the FDA of an IND which must become effective before human clinical trials may begin; • approval by an independent Institutional Review Board (IRB) or ethics committee at each clinical site before each trial may be initiated; • performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (GCP) to establish the safety and efficacy of the proposed drug for its intended use, or with respect to biologics, the safety, purity, and potency of the proposed biologic for its intended use; • preparation of and submission to the FDA of an New Drug Application (NDA) or a Biologics License Application (BLA) after completion of all pivotal trials, as applicable; • a determination by the FDA within 60 days of its receipt of an NDA or BLA to file the application for review; • satisfactory completion of an FDA advisory committee review, if applicable; 25 Table of Contents Index to Financial Statements • satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with current cGMP requirements to assure that the facilities, methods, and controls are adequate to preserve the drug’s identity, strength, quality, and purity, and potential inspection of selected clinical investigation sites to assess compliance with GCPs; and • FDA review and approval of the NDA or BLA to permit commercial marketing of the product for particular indications for use in the United States.
Topical corticosteroids (TCS), are commonly used as the first-line therapy for the treatment of inflammatory skin conditions such as psoriasis, atopic dermatitis, and seborrheic dermatitis. While many patients see improvements, long-term TCS treatment carries the risk of a variety of significant side effects.
Topical corticosteroids (TCS) are commonly used as the first-line therapy for the treatment of inflammatory skin conditions such as psoriasis, atopic dermatitis, and seborrheic dermatitis. While many patients see improvements, extended use of TCS carries the risk of a variety of significant side effects.
Under the PDUFA guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete a standard review of an NDA for a drug that is a new molecular entity (NME), and of ten months from the date of NDA receipt to complete a standard review of an NDA for a drug that is not an NME.
Under the PDUFA guidelines that are currently in effect, the FDA has a goal of ten months from the filing date to complete a standard review of an NDA for a drug that is a new molecular entity (NME), or a BLA for an organic biologic, and of ten months from the date of NDA or BLA receipt to complete a standard review of an NDA for a drug that is not an NME.
Our issued patents relating to a roflumilast cream and/or a roflumilast foam contain claims directed to, among other things, pharmaceutical compositions comprising roflumilast and hexylene glycol, pharmaceutical compositions comprising roflumilast and diethylene glycol monoethyl ether, pharmaceutical compositions comprising roflumilast and cetostearyl alcohol, dicetyl phosphate, and ceteth-10 phosphate, methods of making such compositions, and methods of treatment using such compositions, methods of treating fungal infections by administering compositions comprising roflumilast, and methods for improving treatment adherence by improving delivery and extending the plasma half-life of a roflumilast composition.
Our issued patents relating to a roflumilast cream and/or a roflumilast foam contain claims directed to, among other things, pharmaceutical 20 Table of Contents Index to Financial Statements compositions comprising roflumilast and hexylene glycol, pharmaceutical compositions comprising roflumilast and diethylene glycol monoethyl ether, pharmaceutical compositions comprising roflumilast and cetostearyl alcohol, dicetyl phosphate, and ceteth-10 phosphate, methods of making such compositions, and methods of treatment using such compositions, methods of treating fungal infections by administering compositions comprising roflumilast, and methods for improving treatment adherence by improving delivery and extending the plasma half-life of a roflumilast composition.
In clinical trials, treatment with tapinarof was associated with folliculitis, contact dermatitis, burning, stinging, and itching. Because high potency steroids and combinations containing high potency steroids provide robust symptomatic improvement for psoriasis patients, most physicians initiate treatment for nearly all patients with them.
In clinical trials, treatment with tapinarof was associated with adverse events such as folliculitis, contact dermatitis, burning, stinging, and itching. Because high potency steroids and combinations containing high potency steroids provide robust symptomatic improvement for psoriasis patients, most physicians initiate treatment for nearly all patients with them.
Scalp Psoriasis Scalp Psoriasis Background Scalp psoriasis is a manifestation of plaque psoriasis that occurs in nearly half of all psoriasis patients, characterized by plaques in the hair-bearing area of the scalp and sometimes extending to the forehead, back of the neck, or behind or inside the ears as depicted in the figures below.
Scalp Psoriasis Background Scalp psoriasis is a manifestation of plaque psoriasis that occurs in nearly half of all psoriasis patients, characterized by plaques in the hair-bearing area of the scalp and sometimes extending to the forehead, back of the neck, or behind or inside the ears.
In addition, on a Licensed Product-by-Licensed Product and country or region-by-country or region basis, commencing from the first commercial sale of such Licensed Product in such country or region until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by us to Huadong under the License Agreement covering such Licensed Product in such country or region, (ii) the expiration of regulatory exclusivity for such Licensed Product in such country or region, or (iii) ten years after the first commercial 28 Table of Contents Index to Financial Statement s sale of such Licensed Product in such country or region (the Royalty Term), we will receive low double-digit to high-teen double-digit percentage royalties on Huadong’s, its affiliates’ and sublicensees’ total net sales, subject to certain royalty reductions.
In addition, on a Huadong Licensed Product-by- Huadong Licensed Product and country or region-by-country or region basis, commencing from the first commercial sale of such Huadong Licensed Product in such country or region until the latest of (i) the expiration of the last valid claim in the intellectual property rights licensed by us to Huadong under the Huadong Agreement covering such Huadong Licensed Product in such country or region, (ii) the expiration of regulatory exclusivity for such Huadong Licensed Product in such country or region, or (iii) ten years after the first commercial sale of such Huadong Licensed Product in such country or region (the Royalty Term), we will receive low double-digit to high-teen double-digit percentage royalties on Huadong’s, its affiliates’ and sublicensees’ total net sales, subject to certain royalty reductions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe commercial success of ZORYVE and the clinical and commercial success of other product candidates will depend on a number of factors, including the following: • timely completion of our nonclinical studies and clinical trials, which may be significantly slower or cost more than we currently anticipate, including as a result of competitive trials, and will depend substantially upon the performance of third-party contractors; • whether we are required by the FDA or similar foreign regulatory authorities to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or any future product candidates; • acceptance of our proposed indications and primary and secondary endpoint assessments relating to the proposed indications of our product candidates by the FDA and similar foreign regulatory authorities; • the prevalence, duration, and severity of potential side effects or other safety issues experienced with ZORYVE or our product candidates; • the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; • achieving, maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual obligations and with all regulatory requirements applicable to ZORYVE or any of our product candidates; • the willingness of physicians and patients to utilize or adopt ZORYVE and our product candidates, if approved; • the ability of third parties upon which we rely to manufacture clinical trial and commercial supplies of ZORYVE or any of our product candidates to remain in good standing with relevant regulatory authorities and to develop, validate, and maintain commercially viable manufacturing processes that are compliant with cGMP; • our ability to successfully implement and execute on a marketing strategy for ZORYVE and to commercialize any of our product candidates in the United States and internationally, if approved, whether alone or in collaboration with others; • the availability of coverage and adequate reimbursement from private third-party payers and governmental healthcare programs, such as Medicare and Medicaid; • acceptance by physicians, payers, and patients of the benefits, safety, and efficacy of ZORYVE or any product candidates, if approved, including relative to alternative and competing treatments; • patient demand for any approved products; • our ability to establish and enforce intellectual property rights in and to any current and future products and product candidates; • our ability to avoid third-party patent interference, intellectual property challenges, or intellectual property infringement claims; and • the ability to raise any additional required capital on acceptable terms, or at all. 48 Table of Contents Index to Financial Statement s Furthermore, because ZORYVE and each of our product candidates targets one or more indications in the medical dermatology field, if ZORYVE or any of our product candidates encounter safety or efficacy problems, developmental delays, regulatory issues, supply issues, or other problems, our development plans for the affected product or product candidate and some or all of our other product candidates could be significantly harmed, which would harm our business.
Biggest changeThe commercial success of ZORYVE and the clinical and commercial success of other product candidates will depend on a number of factors, including the following: • timely completion of our nonclinical studies and clinical trials, which may be significantly slower or cost more than we currently anticipate, including as a result of competitive trials, and will depend substantially upon the performance of third-party contractors; • whether we are required by the FDA or similar foreign regulatory authorities to conduct additional clinical trials or other studies beyond those planned to support the approval and commercialization of our product candidates or any future product candidates; • acceptance of our proposed indications and primary and secondary endpoint assessments relating to the proposed indications of our product candidates by the FDA and similar foreign regulatory authorities; • the prevalence, duration, and severity of potential side effects or other safety issues experienced with ZORYVE or our product candidates; • the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities; • achieving, maintaining, and, where applicable, ensuring that our third-party contractors achieve and maintain, compliance with our contractual obligations and with all regulatory requirements applicable to ZORYVE or any of our product candidates; • the willingness of physicians and patients to utilize or adopt ZORYVE and our product candidates, if approved; 42 Table of Contents Index to Financial Statements • the ability of third parties upon which we rely to manufacture clinical trial and commercial supplies of ZORYVE or any of our product candidates to remain in good standing with relevant regulatory authorities and to develop, validate, and maintain commercially viable manufacturing processes that are compliant with cGMP; • our ability to successfully implement and execute on a marketing strategy for ZORYVE and to commercialize any of our product candidates in the United States and internationally, if approved, whether alone or in collaboration with others; • the availability of coverage and adequate reimbursement from private third-party payers and governmental health care programs, such as Medicare and Medicaid; • acceptance by physicians, payers, and patients of the benefits, safety, and efficacy of ZORYVE or any product candidates, if approved, including relative to alternative and competing treatments; • patient demand for any approved products; • our ability to establish and enforce intellectual property rights in and to any current and future products and product candidates; • our ability to avoid third-party patent interference, intellectual property challenges, or intellectual property infringement claims; and • the ability to raise any additional required capital on acceptable terms, or at all.
If the FDA does not accept for filing or approve any applications for our product candidates, it may require that we conduct additional clinical, nonclinical, or manufacturing validation studies and submit that data before it will reconsider such applications.
If the FDA does not accept for filing or approve any applications for our product candidates, it may require that we conduct additional clinical, nonclinical, or manufacturing validation studies and submit such data before it will reconsider such applications.
For psoriasis, our primary competitors include injected biologic therapies such as Humira, marketed by AbbVie Inc. and Eisai Co., Ltd., and Enbrel, marketed by Amgen Inc.; Pfizer Inc., and Takeda Pharmaceutical Company Limited; non-injectable systemic therapies used to treat plaque psoriasis such as Otezla, marketed by Amgen Inc., and Sotyktu, marketed by Bristol Myers Squibb; topical therapies such as Vtama, marketed by Organon & Co.; branded and generic versions of clobetasol, such as Clobex, marketed by Galderma Laboratories, LP; generic versions of calcipotriene and the combination of betamethasone dipropionate/calcipotriene; and other treatments including various lasers and ultraviolet light-based therapies.
For plaque psoriasis, our primary competitors include injected biologic therapies such as Humira, marketed by AbbVie Inc. and Eisai Co., Ltd., and Enbrel, marketed by Amgen Inc.; Pfizer Inc., and Takeda Pharmaceutical Company Limited; non-injectable systemic therapies used to treat plaque psoriasis such as Otezla, marketed by Amgen Inc., and Sotyktu, marketed by Bristol Myers Squibb; topical therapies such as Vtama, marketed by Organon & Co.; branded and generic versions of clobetasol, such as Clobex, marketed by Galderma Laboratories, LP; generic versions of calcipotriene and the combination of betamethasone dipropionate/calcipotriene; and other treatments including various lasers and ultraviolet light-based therapies.
These transactions entail numerous operational and financial risks, including exposure to unknown liabilities, dependence upon the performance and discretion of counterparties that we do not control and that may underperform or fail, disruption of our business, and diversion of our management’s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs, higher than expected collaboration.
These transactions entail numerous operational and financial risks, including exposure to unknown liabilities; dependence upon the performance and discretion of counterparties that we do not control and that may underperform or fail; disruption of our business; diversion of our management’s time and attention in order to manage a collaboration or develop acquired products, product candidates or technologies, incurrence of substantial debt or dilutive issuances of equity securities to pay transaction consideration or costs; and higher-than-expected collaboration costs.
District Court for the District of Delaware on March 27, 2024 for infringement of certain of our patents and amended our complaint on July 19, 2024 to add additional patents to our infringement allegations.
District Court for the District of Delaware on March 27, 2024, for infringement of certain of our patents and amended our complaint on July 19, 2024, to add additional patents to our infringement allegations.
Our information technology systems and infrastructure, and those of our current and any future service providers, strategic partners, and other collaborators, contractors and consultants, are vulnerable to attack, damage and interruption from computer viruses and malware (e.g., ransomware), misconfigurations, “bugs” or other vulnerabilities, malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks or cyber-intrusions over the Internet, phishing attacks and other social engineering schemes, employee theft or misuse, human error, fraud, denial or degradation of service attacks and, sophisticated nation-state and nation-state-supported actors.
Our information technology systems and infrastructure, and those of our current and any future service providers, strategic partners, and other collaborators, contractors, and consultants, are vulnerable to attack, damage, and interruption from computer viruses and malware (e.g., ransomware), misconfigurations, “bugs” or other vulnerabilities, malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyber-attacks or cyber intrusions over the Internet, phishing attacks and other social engineering schemes, employee theft or misuse, human error, fraud, denial or degradation of service attacks, and sophisticated nation-state and nation-state-supported actors.
If either we or our manufacturers are unable to purchase the raw materials necessary for the manufacture of our product candidates on acceptable terms, at sufficient quality levels, or in adequate quantities, if at all, the commercial launch of our lead product candidates or any future product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of such product candidates, if approved, or impact the costs of procuring sufficient demand of materials or costs of manufacturing the product.
If either we or our manufacturers are unable to purchase the raw materials necessary for the manufacture of our product candidates on acceptable terms, at sufficient quality levels, or in adequate quantities, if at all, the commercial launch of any future product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of such product candidates, if approved, or impact the costs of procuring sufficient demand of materials or costs of manufacturing the product.
Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report annually to the government information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants, and certified nurse midwives) and teaching hospitals, the ownership and investment interests held by such physicians and their immediate family members; • federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows, or should know, it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies; • the U.S.
Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program (with certain exceptions) to report annually to the government information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, anesthesiologist assistants, and certified nurse midwives) and teaching hospitals, the ownership and investment interests held by such physicians and their immediate family members; • federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows, or should know, it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies; • the U.S.
In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities, or otherwise regarding a particular drug, product candidate, or our business.
In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities, or otherwise regarding a particular drug, product candidate, or our business.
Manufacturers of generic or biosimilar drugs may also challenge the scope, validity, or enforceability of the patents to which we have right in court or before a patent office, and we may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively.
Manufacturers of generic or biosimilar drugs may also challenge the scope, validity, or enforceability of the patents to which we have rights in court or before a patent office, and we may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively.
Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period for which a determination is made.
Although we believe our tax estimates are reasonable, the final determination of any tax audits could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period for which a determination is made.
We cannot assure you that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs.
We cannot assure that our business will be able to generate sufficient cash flow from operations or that future borrowings or other financings will be available to us in an amount sufficient to enable us to service our indebtedness and fund our other liquidity needs.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased.
If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If our operations are found to be in violation of any of these or any other health regulatory laws that may apply to us, we may be subject to significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other U.S. health care programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
These provisions include the following: • a classified board of directors with three year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; • the ability of our board of directors to alter our bylaws without obtaining stockholder approval; • the required approval of a super-majority of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chief executive officer or the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may 89 Table of Contents Index to Financial Statement s discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
These provisions include the following: • a classified board of directors with three year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; 80 Table of Contents Index to Financial Statements • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; • the ability of our board of directors to alter our bylaws without obtaining stockholder approval; • the required approval of a super-majority of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chief executive officer or the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited.
In the United States, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent and the protection it affords are limited.
We expect to conduct most of our clinical trials in the United States and Canada, with limited reliance on Australia, the Caribbean, and the European Union for clinical trials subjects.
We expect to conduct most of our clinical trials in the United States and Canada, with limited reliance on Australia, the Caribbean, and the European Union for clinical trial subjects.
Recently enacted and future legislation may increase the difficulty and cost for us to commercialize ZORYVE and to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
Recently enacted and future legislation and regulation may increase the difficulty and cost for us to commercialize ZORYVE and to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
We may become subject to claims alleging infringement of third parties’ patents or proprietary rights and/or claims seeking to invalidate our patents, which would be costly, time consuming and, if successfully asserted against us, delay or prevent the development and commercialization of ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, ZORYVE foam, ARQ-252, ARQ-255, ARQ-234, or any other product candidates.
We may become subject to claims alleging infringement of third parties’ patents or proprietary rights and/or claims seeking to invalidate our patents, which would be costly, time consuming and, if successfully asserted against us, delay or prevent the development and commercialization of ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, ZORYVE foam, ARQ-234, or any other product candidates.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other U.S. healthcare programs, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other U.S. health care programs, imprisonment, other sanctions, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Any of these events could prevent us from achieving or maintaining market acceptance and could significantly harm our business, results of operations, and prospects. As a company, we have obtained marketing approval for only three products and we may be unable to successfully obtain marketing approval in a timely manner, or at all, for any of our other product candidates.
Any of these events could prevent us from achieving or maintaining market acceptance and could significantly harm our business, results of operations, and prospects. As a company, we have obtained marketing approval for only four products and we may be unable to successfully obtain marketing approval in a timely manner, or at all, for any of our other product candidates.
Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, ZORYVE foam, ARQ-252, ARQ-255, or ARQ-234.
Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we are unaware and which may later result in issued patents that we may infringe by commercializing ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, ZORYVE foam, or ARQ-234.
The FDA may also require a REMS as a condition of approval of our products and product candidates, such as ZORYVE, ARQ-252, ARQ-255 and ARQ-234, which could include requirements for a medication guide, physician communication plans, or additional elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools.
The FDA may also require a REMS as a condition of approval of our products and product candidates, such as ZORYVE, and ARQ-234, which could include requirements for a medication guide, physician communication plans, or additional elements to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools.
Our operating expenses and capital requirements are difficult to predict, depend on many factors and are affected by, and are subject to assumptions regarding, among others: • the timing, receipt, and amount of sales of any current and future products, including the success of our commercialization efforts involving ZORYVE; • market acceptance of our current and future products, including ZORYVE, and the impact of competing products; • the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for any current or future products; • our ability to successfully execute on our business plan and our internal projections and estimates of costs and execution timing; • the scope, progress, results, and costs of developing product candidates and conducting nonclinical studies and clinical trials, including in connection with our current product candidates; • suspensions or delays in enrollment of our ongoing and future clinical trials, issues with data collection, or changes to the number of subjects we decide to enroll in our clinical trials, including as a result of competing trials or otherwise; • the number and scope of clinical programs we decide to pursue, and the number and characteristics of any product candidates we develop or acquire; • the timing of, and the costs involved in, obtaining regulatory reviews and approvals for our product candidates; 43 Table of Contents Index to Financial Statement s • the cost of manufacturing any current and future products and product candidates, including any products we successfully commercialize and the costs associated with building out our supply chain; • the cost of commercialization activities for any current and future products that are approved for sale, including marketing, sales, and distribution costs, and any discounts or rebates to obtain access; • our ability to establish and maintain strategic collaborations, licensing, or other arrangements and the financial terms of any such agreements that we may enter into; • the impact of any acquisitions or similar transactions or partnerships; • the costs related to milestone and royalty payments due to AstraZeneca, Hengrui, the former owners of Ducentis, which we acquired in September 2022, or any future collaboration or licensing partners upon the achievement of negotiated milestones; • any product liability or other lawsuits related to our products; • the expenses needed to attract and retain skilled personnel; and • the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio.
Our operating expenses and capital requirements are difficult to predict, depend on many factors and are affected by, and are subject to assumptions regarding, among others: • the timing, receipt, and amount of sales of any current and future products, including the success of our commercialization efforts involving ZORYVE; • market acceptance of our current and future products, including ZORYVE, and the impact of competing products; • the ability of patients or health care providers to obtain coverage of or sufficient reimbursement for any current or future products; • our ability to successfully execute on our business plan and our internal projections and estimates of costs and execution timing; • the scope, progress, results, and costs of developing product candidates and conducting nonclinical studies and clinical trials, including in connection with our current product candidates; • suspensions or delays in enrollment of our ongoing and future clinical trials, issues with data collection, or changes to the number of subjects we decide to enroll in our clinical trials, including as a result of competing trials or otherwise; • the number and scope of clinical programs we decide to pursue, and the number and characteristics of any product candidates we develop or acquire; • the timing of, and the costs involved in, obtaining regulatory reviews and approvals for our product candidates; • the cost of manufacturing any current and future products and product candidates, including any products we successfully commercialize and the costs associated with building out our supply chain; • the cost of commercialization activities for any current and future products that are approved for sale, including marketing, sales, and distribution costs, and any discounts or rebates to obtain access; • our ability to establish and maintain strategic collaborations, licensing, or other arrangements and the financial terms of any such agreements that we may enter into; • the impact of any acquisitions or similar transactions or partnerships; • the costs related to milestone and royalty payments due to AstraZeneca, Hengrui, the former owners of Ducentis, which we acquired in September 2022, or any future collaboration or licensing partners upon the achievement of negotiated milestones; • any product liability or other lawsuits related to our products; 38 Table of Contents Index to Financial Statements • the expenses needed to attract and retain skilled personnel; and • the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio.
We currently do not have drug discovery efforts, and we have no intention to develop a drug discovery capability. The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful commercialization of ZORYVE and the successful development, regulatory approval, and commercialization of other product candidates.
We currently do not have drug discovery efforts, and we have no intention of developing a drug discovery capability. The success of our business, including our ability to finance our company and generate any revenue in the future, will primarily depend on the successful commercialization of ZORYVE and the successful development, regulatory approval, and commercialization of other product candidates.
Filing, prosecuting, and defending patents on product candidates, including all of the licensed rights under our exclusive supply and license agreements with AstraZeneca and Hengrui, in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.
Filing, prosecuting, and defending patents on ZORYVE and product candidates, including all of the licensed rights under our exclusive supply and license agreements with AstraZeneca, in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.
The degree of market acceptance will depend on a number of factors, including but not limited to: 49 Table of Contents Index to Financial Statement s • the safety, efficacy, risk-benefit profile, and potential advantages compared to alternative or existing treatments, such as steroids topical treatments, oral treatments, and biologic injections for the treatment of psoriasis, which physicians may perceive to be adequately effective for some or all patients; • the prevalence and severity of any side effects and the difficulty of, or costs associated with, resolving such side effects; • the content of the approved product label, including any limitations or warnings contained in the labeling approved by FDA or other applicable foreign regulatory authorities; • any restrictions on the use of our products; • the effectiveness of our sales and marketing efforts; • the strength of our marketing and distribution support; • the cost of treatment in relation to alternative treatments, including any similar generic treatments and over-the-counter (OTC) treatments; • our ability to offer our products for sale at competitive prices; • the convenience and ease of administration compared to alternative treatments; • the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies over existing therapies; • the availability of coverage and adequate reimbursement from private third-party payers and governmental healthcare programs, such as Medicare and Medicaid; • the willingness of patients to pay out-of-pocket in the absence of health insurance coverage or sufficient reimbursement; and • utilization controls imposed by third-party payers, such as prior authorizations and step edits.
The degree of market acceptance will depend on a number of factors, including but not limited to: • the safety, efficacy, risk-benefit profile, and potential advantages compared to alternative or existing treatments, such as steroids topical treatments, oral treatments, and biologic injections for the treatment of psoriasis, which physicians may perceive to be adequately effective for some or all patients; • the prevalence and severity of any side effects and the difficulty of, or costs associated with, resolving such side effects; • the content of the approved product label, including any limitations or warnings contained in the labeling approved by FDA or other applicable foreign regulatory authorities; • any restrictions on the use of our products; • the effectiveness of our sales and marketing efforts; • the strength of our marketing and distribution support; 43 Table of Contents Index to Financial Statements • the cost of treatment in relation to alternative treatments, including any similar generic treatments and over-the-counter (OTC) treatments; • our ability to offer our products for sale at competitive prices; • the convenience and ease of administration compared to alternative treatments; • the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies over existing therapies; • the availability of coverage and adequate reimbursement from private third-party payers and governmental health care programs, such as Medicare and Medicaid; • the willingness of patients to pay out-of-pocket in the absence of health insurance coverage or sufficient reimbursement; and • utilization controls imposed by third-party payers, such as prior authorizations and step edits.
If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly, or impossible, and our clinical trials may be extended, delayed or terminated, or may need to be repeated, which would have a material adverse effect on our business. 70 Table of Contents Index to Financial Statement s Risks Related to Intellectual Property We may not be able to obtain, maintain or enforce patent rights or other intellectual property rights that cover ZORYVE or our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
If the third parties conducting our clinical trials do not perform their contractual duties or obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical trial protocols or GCPs, or for any other reason, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly, or impossible, and our clinical trials may be extended, delayed or terminated, or may need to be repeated, which would have a material adverse effect on our business. 62 Table of Contents Index to Financial Statements Risks Related to Intellectual Property We may not be able to obtain, maintain or enforce patent rights or other intellectual property rights that cover ZORYVE or our product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
For example, if a third-party files an abbreviated NDA, or ANDA, for a generic drug bioequivalent to ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, ZORYVE foam, ARQ-252, or ARQ-255, and relies in whole or in part on studies conducted by or for us, the third-party will be required to certify to the FDA that either: (1) there is no patent information listed in the FDA’s Orange Book with respect to our NDA for the applicable approved drug candidate; (2) the patents listed in the Orange Book have expired; (3) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of the third-party’s generic drug.
For example, if a third-party files an ANDA for a generic drug bioequivalent to ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, or ZORYVE foam, and relies in whole or in part on studies conducted by or for us, the third-party will be required to certify to the FDA that either: (1) there is no patent information listed in the FDA’s Orange Book with respect to our NDA for the applicable approved drug candidate; (2) the patents listed in the Orange Book have expired; (3) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of the third-party’s generic drug.
Such laws include: • the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a U.S. healthcare program such as Medicare and Medicaid.
Such laws include: • the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving, or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a U.S. health care program such as Medicare and Medicaid.
With respect to any AZ-Licensed Products we commercialize under the agreement, we will pay AstraZeneca a low to high single-digit percentage royalty rate on our, our affiliates’, and our sublicensees’ net sales of such AZ-Licensed Products, until, as determined on an AZ-Licensed Product-by-AZ-Licensed Product and country-by-country basis, the later of the date of the expiration of the last-to-expire AstraZeneca-licensed patent right containing a valid claim in such country and ten years from the first commercial sale of such AZ-Licensed Product in such country.
With respect to any AZ-Licensed Products we commercialize under the agreement, we will pay AstraZeneca a low-to-high single-digit percentage royalty rate on our, our affiliates’, and our sublicensees’ net sales of such AZ-Licensed Products until, as determined on an AZ-Licensed Product-by-AZ-Licensed Product and country-by-country basis, the later of (i) the expiration of the last-to-expire AstraZeneca-licensed patent right containing a valid claim in such country and (ii) ten years from the first commercial sale of such AZ-Licensed Product in such country.
For example: • we might not have been the first to invent or the first to file the inventions covered by each of our pending patent applications and issued patents; • others may independently develop similar or alternative technologies or duplicate any of our technologies; • the patents of others may have an adverse effect on our business; • any patents we obtain or our licensors’ issued patents may not encompass commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties; • for some product candidates, we expect that composition of matter patent protection for the API will not be available at the time we expect to commercialize, and we will therefore need to rely on formulation, method of use, and other forms of claims for patent protection; • any patents we obtain or our in-licensed issued patents may not be valid or enforceable; and • we may not develop additional proprietary technologies that are patentable. 72 Table of Contents Index to Financial Statement s Patents have a limited lifespan.
For example: • we might not have been the first to invent or the first to file the inventions covered by each of our pending patent applications and issued patents; • others may independently develop similar or alternative technologies or duplicate any of our technologies; • the patents of others may have an adverse effect on our business; • any patents we obtain or our licensors’ issued patents may not encompass commercially viable products, may not provide us with any competitive advantages or may be challenged by third parties; • for some product candidates, we expect that composition of matter patent protection for the API will not be available at the time we expect to commercialize, and we will therefore need to rely on formulation, method of use, and other forms of claims for patent protection; • any patents we obtain or our in-licensed issued patents may not be valid or enforceable; and • we may not develop additional proprietary technologies that are patentable. 64 Table of Contents Index to Financial Statements Patents have a limited lifespan.
FDA guidelines and requirements, and the quantity of production; • our ability to obtain funding to develop our products and product candidates and operate our business; • expenditures that we will or may incur to acquire or develop additional product candidates and technologies, which may include obligations to make significant upfront and milestone payments; • potential side effects of any current and future products and product candidates that could delay or prevent commercialization or cause an approved product to be taken off the market; • our dependency on Contract Research Organizations (CROs) to help manage our clinical trials, and third-party manufacturers for adequate supply or manufacturing capabilities; • our ability to establish and maintain collaborations, licensing, or other arrangements; • our ability to maintain and enforce our intellectual property position; • costs related to and outcomes of potential litigation, potential government investigations, or other disputes; • our ability to adequately support future growth; • our ability to attract and retain key personnel to manage our business effectively; • potential liabilities associated with hazardous materials; • our ability to maintain adequate insurance policies; and • future accounting pronouncements or changes in our accounting policies.
FDA guidelines and requirements, and the quantity of production; • our ability to obtain funding to develop our products and product candidates and operate our business; 39 Table of Contents Index to Financial Statements • expenditures that we will or may incur to acquire or develop additional product candidates and technologies, which may include obligations to make significant upfront and milestone payments; • potential side effects of any current and future products and product candidates that could delay or prevent commercialization or cause an approved product to be taken off the market; • our dependency on Contract Research Organizations (CROs) to help manage our clinical trials, and third-party manufacturers for adequate supply or manufacturing capabilities; • our ability to establish and maintain collaborations, licensing, or other arrangements; • our ability to maintain and enforce our intellectual property position; • costs related to and outcomes of potential litigation, potential government investigations, or other disputes; • our ability to adequately support future growth; • our ability to attract and retain key personnel to manage our business effectively; • potential liabilities associated with hazardous materials; • our ability to maintain adequate insurance policies; and • future accounting pronouncements or changes in our accounting policies.
It is also possible that other federal, state, or foreign enforcement authorities might take action if they determine our business activities constitute promotion of an off-label use or promotion inconsistent with the label, which could result in significant penalties, including criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment or restructuring of our operations.
It is also possible that other federal, state, or foreign enforcement authorities might take action if they determine our business activities constitute promotion of an off-label use or promotion inconsistent with the label, which could result in significant penalties, including criminal, civil or administrative penalties, damages, fines, disgorgement, exclusion from participation in government health care programs and the curtailment or restructuring of our operations.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • limited daily trading volume resulting in the lack of a liquid market; • the success of, and fluctuations in, the commercial sales of ZORYVE or any product candidates approved for commercialization in the future; • the development status of our product candidates, including whether we discontinue development or if any of our product candidates receive regulatory approval; • the performance of third parties on whom we rely for clinical trials, manufacturing, marketing, sales and distribution, including their ability to comply with regulatory requirements; • regulatory, legal or political developments in the United States and foreign countries; • the results of our clinical trials and nonclinical studies; • the clinical results of our competitors or potential competitors; • the execution of our partnering and manufacturing arrangements; • our execution of collaboration, co-promotion, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements; • variations in the level of expenses related to our nonclinical and clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites; 91 Table of Contents Index to Financial Statement s • variations in the level of expenses related to our commercialization activities for ZORYVE or any of our product candidates, if approved; • overall performance of the equity markets; • changes in operating performance and stock market valuations of other pharmaceutical companies; • market conditions or trends in our industry or the economy as a whole, including as a result of market volatility related to global health concerns; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC, and announcements relating to acquisitions, strategic transactions, licenses, joint ventures, capital commitments, intellectual property, litigation or other disputes impacting us or our business; • developments with respect to intellectual property rights; • our commencement of, or involvement in, litigation; • FDA or foreign regulatory actions affecting us or our industry; • changes in the structure of healthcare payment systems; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock; • ratings downgrades by any securities analysts who follow our common stock; • the development and sustainability of an active trading market for our common stock; • the size of our market float; • the expiration of market standoff or contractual lock-up agreements and future sales of our common stock by our officers, directors and significant stockholders; • recruitment or departure of key personnel; • changes in accounting principles; • other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events; and • any other factors discussed in this report.
The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including: • limited daily trading volume resulting in the lack of a liquid market; • the success of, and fluctuations in, the commercial sales of ZORYVE or any product candidates approved for commercialization in the future; • the development status of our product candidates, including whether we discontinue development or if any of our product candidates receive regulatory approval; • the performance of third parties on whom we rely for clinical trials, manufacturing, marketing, sales and distribution, including their ability to comply with regulatory requirements; • regulatory, legal or political developments in the United States and foreign countries; • the results of our clinical trials and nonclinical studies; • the clinical results of our competitors or potential competitors; • the execution of our partnering and manufacturing arrangements; • our execution of collaboration, promotion, licensing or other arrangements, and the timing of payments we may make or receive under these arrangements; 82 Table of Contents Index to Financial Statements • variations in the level of expenses related to our nonclinical and clinical development programs, including relating to the timing of invoices from, and other billing practices of, our CROs and clinical trial sites; • variations in the level of expenses related to our commercialization activities for ZORYVE or any of our product candidates, if approved; • overall performance of the equity markets; • changes in operating performance and stock market valuations of other pharmaceutical companies; • market conditions or trends in our industry or the economy as a whole, including as a result of market volatility related to global health concerns; • the public’s response to press releases or other public announcements by us or third parties, including our filings with the SEC, and announcements relating to acquisitions, strategic transactions, licenses, joint ventures, capital commitments, intellectual property, litigation or other disputes impacting us or our business; • developments with respect to our intellectual property rights and in general; • our commencement of, or involvement in, actual or threatened litigation or other legal disputes, including intellectual property and other matters; • FDA or foreign regulatory actions affecting us or our industry; • changes in the structure of health care payment systems; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • changes in financial estimates by any securities analysts who follow our common stock, our failure to meet these estimates or failure of those analysts to initiate or maintain coverage of our common stock; • ratings downgrades by any securities analysts who follow our common stock; • the development and sustainability of an active trading market for our common stock; • the size of our market float; • the expiration of market standoff or contractual lock-up agreements and future sales of our common stock by our officers, directors and significant stockholders; • recruitment or departure of key personnel; • changes in accounting principles; • other events or factors, including those resulting from war, incidents of terrorism, natural disasters or responses to these events; and • any other factors discussed in this report.
The FDA or any foreign regulatory authorities can delay, limit, or deny approval of expanded labels for our products or our product candidates for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory authority that any of our product candidates is safe and effective for the requested indication; • the FDA or other relevant foreign regulatory authorities may disagree with the number, design, size, conduct, or implementation of our clinical trials; • the FDA or other relevant foreign regulatory authorities may not find the data from nonclinical studies or clinical trials sufficient to demonstrate that the clinical and other benefits of these products candidates outweigh their safety risks or that there is an acceptable risk-benefit profile; • the results of our clinical trials may not meet the level of statistical significance or clinical meaningfulness required by the FDA or other relevant foreign regulatory authorities for marketing approval; • the FDA’s or the applicable foreign regulatory authority’s requirement for additional nonclinical studies or clinical trials which would increase our costs and prolong our development timelines; 52 Table of Contents Index to Financial Statement s • the FDA or other relevant foreign regulatory authorities may disagree with our interpretation of data or significance of results from the nonclinical studies and clinical trials of any product or product candidate, or may require that we conduct additional studies; • the FDA or other relevant foreign regulatory authorities may not accept data generated from our clinical trial sites; • the CROs that we retain to conduct clinical trials may take actions outside of our control, or otherwise commit errors or breaches of protocols, that adversely impact our clinical trials and ability to obtain market approvals; • if our NDA or other foreign application is reviewed by an advisory committee, the FDA or other relevant foreign regulatory authority, as the case may be, may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA or other relevant foreign regulatory authority, as the case may be, require, as a condition of approval, additional nonclinical studies or clinical trials, limitations on approved labeling, or distribution and use restrictions; • the FDA or other relevant foreign regulatory authorities may require development of a Risk Evaluation and Mitigation Strategy (REMS), or its equivalent, as a condition of approval; • the FDA or other relevant foreign regulatory authorities may require additional post-marketing studies and/or a patient registry, which would be costly; • the FDA or other relevant foreign regulatory authorities may find the chemistry, manufacturing, and controls data insufficient to support the quality of our product candidates; • the FDA or other relevant foreign regulatory authorities may identify deficiencies in the manufacturing processes or facilities of our third-party manufacturers; • the FDA or other relevant foreign regulatory authorities may change their approval policies or adopt new regulations; • the FDA’s or the applicable foreign regulatory authority’s non-approval of the formulation, dosing, labeling, or specifications; • the FDA’s or the applicable foreign regulatory authority’s failure to approve the manufacturing processes of third-party manufacturers upon which we rely or the failure of the facilities of our third-party manufacturers to maintain a compliance status acceptable to the FDA or the applicable foreign regulatory authority; or • the potential for approval policies or regulations of the FDA or the applicable foreign regulatory authorities to significantly change in a manner rendering our clinical data insufficient for approval.
The FDA or any foreign regulatory authorities can delay, limit, or deny approval of expanded labels for our products or our product candidates for many reasons, including: • our inability to demonstrate to the satisfaction of the FDA or the applicable foreign regulatory authority that any of our product candidates is safe and effective or, with respect to product candidates regulated as biologics, safe, pure, and potent for the requested indication; • the FDA or other relevant foreign regulatory authorities may disagree with the number, design, size, conduct, or implementation of our clinical trials; • the FDA or other relevant foreign regulatory authorities may not find the data from nonclinical studies or clinical trials sufficient to demonstrate that the clinical and other benefits of these products candidates outweigh their safety risks or that there is an acceptable risk-benefit profile; • the results of our clinical trials may not meet the level of statistical significance or clinical meaningfulness required by the FDA or other relevant foreign regulatory authorities for marketing approval; • the FDA’s or the applicable foreign regulatory authority’s requirement for additional nonclinical studies or clinical trials which would increase our costs and prolong our development timelines; • the FDA or other relevant foreign regulatory authorities may disagree with our interpretation of data or significance of results from the nonclinical studies and clinical trials of any product or product candidate, or may require that we conduct additional studies; • the FDA or other relevant foreign regulatory authorities may not accept data generated from our clinical trial sites; 46 Table of Contents Index to Financial Statements • the CROs that we retain to conduct clinical trials may take actions outside of our control, or otherwise commit errors or breaches of protocols, that adversely impact our clinical trials and ability to obtain market approvals; • if an NDA, BLA, or other foreign application is reviewed by an advisory committee, the FDA or other relevant foreign regulatory authority, as the case may be, may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA or other relevant foreign regulatory authority, as the case may be, require, as a condition of approval, additional nonclinical studies or clinical trials, limitations on approved labeling, or distribution and use restrictions; • the FDA or other relevant foreign regulatory authorities may require development of a Risk Evaluation and Mitigation Strategy (REMS), or its equivalent, as a condition of approval; • the FDA or other relevant foreign regulatory authorities may require additional post-marketing studies and/or a patient registry, which would be costly; • the FDA or other relevant foreign regulatory authorities may find the chemistry, manufacturing, and controls data insufficient to support the quality of our product candidates; • the FDA or other relevant foreign regulatory authorities may identify deficiencies in the manufacturing processes or facilities of our third-party manufacturers; • the FDA or other relevant foreign regulatory authorities may change their approval policies or adopt new regulations; • the FDA’s or the applicable foreign regulatory authority’s non-approval of the formulation, dosing, labeling, or specifications; • the FDA’s or the applicable foreign regulatory authority’s failure to approve the manufacturing processes of third-party manufacturers upon which we rely or the failure of the facilities of our third-party manufacturers to maintain a compliance status acceptable to the FDA or the applicable foreign regulatory authority; or • the potential for approval policies or regulations of the FDA or the applicable foreign regulatory authorities to significantly change in a manner rendering our clinical data insufficient for approval.
If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business. As of December 31, 2024, we had $100.0 million outstanding under our Loan Agreement.
If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business. As of December 31, 2025, we had $100.0 million outstanding under our Loan Agreement.
Our license agreements and share purchase agreement with Ducentis Biotherapeutics obligates us to make certain milestone and royalty payments, some of which have been or will be triggered prior to commercialization of the applicable product candidates.
Our license agreements and share purchase agreement with Ducentis Biotherapeutics obligate us to make certain milestone and royalty payments, some of which have been or will be triggered prior to commercialization of the applicable product candidates.
Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar foreign regulatory authorities, including those laws that require the reporting of true, complete, and accurate information to such foreign regulatory authorities; manufacturing standards; U.S. federal and state healthcare fraud and abuse, data privacy laws and other similar non-U.S. laws; or laws that require the true, complete, and accurate reporting of financial information or data.
Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar foreign regulatory authorities, including those laws that require the reporting of true, complete, and accurate information to such foreign regulatory authorities; manufacturing standards; U.S. federal and state health care fraud and abuse, data privacy laws and other similar non-U.S. laws; or laws that require the true, complete, and accurate reporting of financial information or data.
Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payers to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payers is critical to new product acceptance.
Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payers to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental health care programs, such as Medicare and Medicaid, and private third-party payers is critical to new product acceptance.
As of December 31, 2024, none of the milestones were probable of achievement and, accordingly, no amounts have been recognized in the accompanying consolidated financial statements with respect to these contingent payments.
As of December 31, 2025, none of the milestones were probable of achievement and, accordingly, no amounts have been recognized in the accompanying consolidated financial statements with respect to these contingent payments.
Individual states continue to consider and have enacted legislation to limit the growth of healthcare costs, including the cost of prescription drugs and combination products. A number of states have either implemented or are considering implementation of drug price transparency legislation that may prevent or limit our ability to take price increases at certain rates or frequencies.
Individual states continue to consider and have enacted legislation to limit the growth of health care costs, including the cost of prescription drugs and combination products. A number of states have either implemented or are considering implementation of drug price transparency legislation that may prevent or limit our ability to take price increases at certain rates or frequencies.
Collaborations are subject to numerous risks, which may include risks that: • collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations; • collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to their acquisition of competitive products or their internal development of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; • collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing; • collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates; • a collaborator with sales, marketing, manufacturing, and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities, including with respect to accessing primary care and pediatric practices; • collaborators are or may in the future be entitled to fees, royalties, profit sharing, and other consideration, which may limit or otherwise negatively impact our profit and financial performance; • we have and could in the future grant exclusive rights to our collaborators that prevent us from collaborating with others; • collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; • disputes may arise between us and a collaborator that causes the delay or termination of the research, development, or commercialization of our current or future product candidates or that results in costly litigation or arbitration that diverts management attention and resources; • collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future product candidates; • collaborators may own or co-own intellectual property covering products that result from our collaborating with them, and in such cases, would result in us not having the exclusive right to develop or commercialize such intellectual property; • disputes may arise with respect to the ownership of any intellectual property developed pursuant to our collaborations; and • a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws, resulting in civil or criminal proceedings. 62 Table of Contents Index to Financial Statement s Furthermore, we cannot assure you that any collaboration or other strategic transaction will achieve the expected synergies.
Collaborations are subject to numerous risks, which may include risks that: • collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations; • collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to their acquisition of competitive products or their internal development of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; • collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing; • collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates; • a collaborator with sales, marketing, manufacturing, and distribution rights to one or more products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities, including with respect to accessing primary care and pediatric practices; • collaborators are or may in the future be entitled to fees, royalties, profit sharing, and other consideration, which may limit or otherwise negatively impact our profit and financial performance; • we have and could in the future grant exclusive rights to our collaborators that prevent us from collaborating with others; 54 Table of Contents Index to Financial Statements • collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; • disputes may arise between us and a collaborator that causes the delay or termination of the research, development, or commercialization of our current or future product candidates or that results in costly litigation or arbitration that diverts management attention and resources; • collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future product candidates; • collaborators may own or co-own intellectual property covering products that result from our collaborating with them, and in such cases, would result in us not having the exclusive right to develop or commercialize such intellectual property; • disputes may arise with respect to the ownership of any intellectual property developed pursuant to our collaborations; and • a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws, resulting in civil or criminal proceedings.
Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S. companies and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else of value to foreign government officials, employees of public international organizations and foreign government owned or affiliated entities, candidates for foreign political office, and foreign political parties or officials thereof; • federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and 82 Table of Contents Index to Financial Statement s • analogous state and non-U.S. laws and regulations, such as state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales, and marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers; state laws that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws and regulations that require manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information.
Foreign Corrupt Practices Act of 1977, as amended, which prohibits, among other things, U.S. companies and their employees and agents from authorizing, promising, offering, or providing, directly or indirectly, corrupt or improper payments or anything else of value to foreign government officials, employees of public international organizations and foreign government owned or affiliated entities, candidates for foreign political office, and foreign political parties or officials thereof; • federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and • analogous state and non-U.S. laws and regulations, such as state anti-kickback and false claims laws, which may apply to our business practices, including, but not limited to, research, distribution, sales, and marketing arrangements and claims involving health care items or services reimbursed by non-governmental third-party payers, including private insurers; state laws that require pharmaceutical and device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. government, or otherwise restrict payments that may be made to health care providers and other potential referral sources; and state laws and regulations that require manufacturers to report information related to payments and other transfers of value to physicians and other health care providers or marketing expenditures and pricing information.
It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any NDAs or sNDAs that we may submit. Additionally, similar risks could apply to receipt of marketing authorizations by comparable regulatory authorities in foreign jurisdictions.
It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA to approve any NDAs, BLAs, or supplements that we may submit. Additionally, similar risks could apply to receipt of marketing authorizations by comparable regulatory authorities in foreign jurisdictions.
We may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, ZORYVE foam, ARQ-252, ARQ-255, or ARQ-234.
We may be unaware of one or more issued patents that would be infringed by the manufacture, sale, or use of ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE cream 0.05%, ZORYVE foam, or ARQ-234.
It could also expose us to risks, including an inability to provide our services and fulfill contractual demands, and could cause management distraction and the obligation to devote significant financial and other resources to mitigate such problems, which would increase our future information security costs, including through organizational changes, deploying additional personnel, reinforcing administrative, physical and technical safeguards, further training of employees, changing third-party vendor control practices and engaging third-party subject matter experts and consultants and reduce the demand for our technology and services.
It could also expose us to risks, including an inability to provide our services and fulfill contractual demands, and could cause management distraction and the obligation to devote significant financial and other resources to mitigate such problems, which would increase our future information security costs, including through organizational changes, deploying additional personnel, reinforcing administrative, physical and technical 57 Table of Contents Index to Financial Statements safeguards, further training of employees, changing third-party vendor control practices and engaging third-party subject matter experts and consultants and reduce the demand for our technology and services.
If we or our third-party vendors were to experience a significant cybersecurity breach of our or their information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to counter-parties and data subjects could be material. In addition, our remediation efforts may not be successful.
If we or our third-party vendors were to experience a significant cybersecurity breach of our or their information systems or data, the costs associated with the investigation, remediation, and potential notification of the breach to counterparties and data subjects could be material. In addition, our remediation efforts may not be successful.
To gain approval to expand the label of our products or market our product candidates, we must provide the FDA and foreign regulatory authorities with nonclinical and clinical data that adequately demonstrate the safety and efficacy of the product for the intended indication applied for in the applicable regulatory filing.
To gain approval to expand the label of our products or market our product candidates, we must provide the FDA and foreign regulatory authorities with nonclinical and clinical data that adequately demonstrate the safety and efficacy, or as applicable, the safety, purity, and potency of the product for the intended indication applied for in the applicable regulatory filing.
Our ability to compete successfully will depend largely on our ability to: • develop and commercialize therapies that have a competitive product profile or are superior to other products in the market; • demonstrate through our clinical trials that ZORYVE and our product candidates are differentiated from existing and future therapies; • attract qualified scientific, product development, and commercial personnel; • obtain patent or other proprietary protection for our technologies, ZORYVE, and product candidates; • obtain required regulatory approvals, including approvals to market our product candidates in ways that are differentiated from existing and future therapies and OTC products and treatments; • successfully commercialize ZORYVE and our product candidates, if approved; • obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payers; and • successfully collaborate with pharmaceutical companies in the discovery, development, and commercialization of new therapies.
Our ability to compete successfully will depend largely on our ability to: • develop and commercialize therapies that have a competitive product profile or are superior to other products in the market; • demonstrate through our clinical trials that ZORYVE and our product candidates are differentiated from existing and future therapies; 52 Table of Contents Index to Financial Statements • attract qualified scientific, product development, and commercial personnel; • obtain patent or other proprietary protection for our technologies, ZORYVE, and product candidates; • obtain required regulatory approvals, including approvals to market our product candidates in ways that are differentiated from existing and future therapies and OTC products and treatments; • successfully commercialize ZORYVE and our product candidates, if approved; • obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payers; and • successfully collaborate with pharmaceutical companies in the discovery, development, and commercialization of new therapies.
It is possible that governmental authorities may conclude that our business practices, including our consulting arrangements with and/or ownership interests by physicians and other healthcare providers, do not comply with current or future statutes, regulations, agency guidance, or case law involving applicable healthcare laws.
It is possible that governmental authorities may conclude that our business practices, including our consulting arrangements with and/or ownership interests by physicians and other health care providers, do not comply with current or future statutes, regulations, agency guidance, or case law involving applicable health care laws.
In addition, California enacted the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act (collectively, the CCPA) requires covered businesses that process the personal information of California residents to, among other things: (i) provide certain disclosures to California residents regarding the business’s collection, use, and disclosure of their personal information; (ii) receive and respond to requests from California residents to access, delete, and correct their personal information, or to opt out of certain disclosures of their personal information; and (iii) enter into specific contractual provisions with service providers that process California resident personal information on the business’s behalf.
For example, the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act (collectively, the CCPA) requires covered businesses that process the personal information of California residents to, among other things: (i) provide certain disclosures to California residents regarding the business’s collection, use, and disclosure of their personal information; (ii) receive and respond to requests from California residents to access, delete, and correct their personal information, or to opt out of certain disclosures of their personal information; and (iii) enter into specific contractual provisions with service providers that process California resident personal information on the business’s behalf.
In addition, it is possible that the FDA may refuse to file for substantive review any NDAs or sNDAs that we submit for our product candidates or may conclude after review of our applications that they are insufficient to obtain marketing approval of our product candidates.
In addition, it is possible that the FDA may refuse to file for substantive review any NDAs, BLAs, or supplements that we submit for our product candidates or may conclude after review of our applications that they are insufficient to obtain marketing approval of our product candidates.
Depending on the extent of these or any other FDA-required studies, approval of any NDA, sNDA or any other applications that we submit may be delayed by several years, or may require us to expend more resources than we have available.
Depending on the extent of these or any other FDA-required studies, approval of any NDA, BLA, or supplement, or any other applications that we submit may be delayed by several years or may require us to expend more resources than we have available.
We may be subject to healthcare laws and regulations relating to our business, and could face substantial penalties if we are determined not to have fully complied with such laws, which would have an adverse impact on our business.
We may be subject to health care laws and regulations relating to our business, and could face substantial penalties if we are determined not to have fully complied with such laws, which would have an adverse impact on our business.
In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products to purchase and which suppliers will be included in their prescription drug and other healthcare programs.
In addition, regional health care authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products to purchase and which suppliers will be included in their prescription drug and other health care programs.
Our operating results may fluctuate due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following: • our ability to commercialize approved products and our ability to receive approval and commercialize our product candidates both within and outside of the United States; • market acceptance of any current and future products and our ability to forecast demand for such products; • the level of demand for any current and future products, which may vary significantly; • the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for any current or future products; • the willingness of patients to pay out-of-pocket for any current or future products in the absence of health insurance coverage or sufficient reimbursement; • delays in the commencement, enrollment, and the timing of clinical testing for our product candidates, in light of competing trials or otherwise; 44 Table of Contents Index to Financial Statement s • the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; • any delays in regulatory review and approval of product candidates in clinical development, or failure to obtain such approvals; • the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time and are subject inflation and other drivers; • the cost of manufacturing any current and future products and product candidates, which may vary depending on U.S.
Our operating results may fluctuate due to a variety of factors, many of which are outside of our control and may be difficult to predict, including the following: • our ability to commercialize approved products and our ability to receive approval and commercialize our product candidates both within and outside of the United States; • market acceptance of any current and future products and our ability to forecast demand for such products; • the level of demand for any current and future products, which may vary significantly; • the ability of patients or health care providers to obtain coverage of or sufficient reimbursement for any current or future products; • the willingness of patients to pay out-of-pocket for any current or future products in the absence of health insurance coverage or sufficient reimbursement; • the ability to obtain and maintain good coverage and quality reimbursement of our products and future products; • delays in the commencement, enrollment, and the timing of clinical testing for our product candidates, in light of competing trials or otherwise; • the timing and success or failure of clinical trials for our product candidates or competing product candidates, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners; • any delays in regulatory review and approval of product candidates in clinical development, or failure to obtain such approvals; • the timing and cost of, and level of investment in, research and development activities relating to our product candidates, which may change from time to time and are subject to inflation and other drivers; • the cost of manufacturing any current and future products and product candidates, which may vary depending on U.S.
Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions, or lack of adequate funding to continue the clinical trial.
Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or side effects, failure to demonstrate a benefit 45 Table of Contents Index to Financial Statements from using a drug, changes in governmental regulations or administrative actions, or lack of adequate funding to continue the clinical trial.
Our business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payers, customers, and patients may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations.
Our business operations and current and future arrangements with investigators, health care professionals, consultants, third-party payers, customers, and patients may expose us to broadly applicable fraud and abuse and other health care laws and regulations.
Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that 68 Table of Contents Index to Financial Statement s this is the case or eliminate the risk of accidental contamination or injury from these materials.
Although we believe that the safety procedures utilized by our third-party manufacturers for handling and disposing of these 60 Table of Contents Index to Financial Statements materials generally comply with the standards prescribed by these laws and regulations, we cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials.
As of December 31, 2024, we had capital resources consisting of cash, cash equivalents, and marketable securities of $228.0 million. In addition, as of December 31, 2024, we had $100.0 million outstanding under our loan and security agreement, or the Loan Agreement, with SLR Investment Corp., or SLR, and the lenders party thereto.
As of December 31, 2025, we had capital resources consisting of cash, cash equivalents, and marketable securities of $221.0 million. In addition, as of December 31, 2025, we had $100.0 million outstanding under our loan and security agreement, or the Loan Agreement, with SLR Investment Corp.(SLR), and the lenders party thereto.
Third-party coverage and reimbursement for ZORYVE and any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results, and prospects. Clinical drug development involves a lengthy and expensive process, with an uncertain outcome.
Third-party coverage and reimbursement for ZORYVE and any of our product candidates for which we may receive regulatory approval may not be available or adequate in either the United States or international markets, which could harm our business, financial condition, operating results, and prospects. 44 Table of Contents Index to Financial Statements Clinical drug development involves a lengthy and expensive process, with an uncertain outcome.
Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts 66 Table of Contents Index to Financial Statement s governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.
Any failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.
Risks Related to Our Limited Operating History, Financial Condition, and Capital Requirements We are a commercial-stage biopharmaceutical company with three products approved for commercial sale. We have incurred significant losses since our inception and could continue to incur losses, which, together with our limited history as a commercial-stage company, makes it difficult to assess our future viability.
Risks Related to Our Limited Operating History, Financial Condition, and Capital Requirements We are a commercial-stage biopharmaceutical company with four products approved for commercial sale. We have incurred significant losses since our inception and could incur losses in the future, which, together with our limited history as a commercial-stage company, makes it difficult to assess our future viability.
While we do not believe that we have experienced any significant system failure, accident or security breach to 65 Table of Contents Index to Financial Statement s date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss, corruption or unauthorized disclosure of our trade secrets, personal information or other proprietary or sensitive information or other similar disruptions.
While we do not believe that we have experienced any significant system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss, corruption or unauthorized disclosure of our trade secrets, personal information or other proprietary or sensitive information or other similar disruptions.
In some cases we may not have control over the prosecution, maintenance, or enforcement of the patents that we license, and may not have sufficient ability to provide input into the patent prosecution, maintenance, and defense process with respect to such patents, and our licensors may fail to take the steps that we believe are necessary or desirable in order to obtain, maintain, defend, and enforce the licensed patents.
In some cases we may not have control over the prosecution, 67 Table of Contents Index to Financial Statements maintenance, or enforcement of the patents that we license, and may not have sufficient ability to provide input into the patent prosecution, maintenance, and defense process with respect to such patents, and our licensors may fail to take the steps that we believe are necessary or desirable in order to obtain, maintain, defend, and enforce the licensed patents.
In addition, although we believe ZORYVE and our product candidates may exhibit a lower risk of side effects or more favorable tolerability profile or better symptomatic improvement than other products for the indications we are studying, without head-to-head data, we will be unable to make comparative claims for ZORYVE or our product candidates, if approved.
In addition, although we believe ZORYVE and our product candidates may exhibit a lower risk of side effects or more favorable tolerability profile or better symptomatic improvement than other products for the 78 Table of Contents Index to Financial Statements indications we are studying, without head-to-head data, we will be unable to make comparative claims for ZORYVE or our product candidates, if approved.
We are highly dependent on our management and scientific personnel, including our Chief Executive Officer, Todd Franklin Watanabe, our Chief Financial Officer, David Topper, our Chief Technical Officer, Bethany Dudek, Ph.D, our Chief Medical Officer, Patrick Burnett, M.D., Ph.D, and our Chief Commercial Officer, L. Todd Edwards.
We are highly dependent on our management and scientific personnel, including our Chief Executive Officer, Todd Franklin Watanabe; our Chief Financial Officer, Latha Vairavan; our Chief Technical Officer, Bethany Dudek; our Chief Medical Officer, Patrick Burnett, M.D., Ph.D; and our Chief Commercial Officer, L. Todd Edwards.
Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners.
Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will 58 Table of Contents Index to Financial Statements be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners.
If any of the above occur, it could adversely affect our ability to operate our business and our results of operations. We have conducted and may in the future conduct clinical trials for ZORYVE and our product candidates outside the United States and the FDA and applicable foreign regulatory authorities may not accept data from such trials.
If any of the above occur, it could adversely affect our ability to operate our business and our results of operations. 74 Table of Contents Index to Financial Statements We have conducted and may in the future conduct clinical trials for ZORYVE and our product candidates outside the United States and the FDA and applicable foreign regulatory authorities may not accept data from such trials.
In addition, we believe the Company has had ownership changes in the past and may have additional ownership changes in the future. These ownership changes could limit our ability to use all our NOL carryforwards, credit carryforwards, or other tax attributes.
In addition, we believe that we have had ownership changes in the past and may have additional ownership changes in the future. These ownership changes could limit our ability to use all of our NOL carryforwards, credit carryforwards, or other tax attributes.
In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; • HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items, or services.
In addition, the government may assert that a claim including items or services resulting from a violation of the U.S. federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act; 73 Table of Contents Index to Financial Statements • HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, health care benefits, items, or services.
Success in our clinical trials with these or similar endpoints, requires the enrollment of subjects with conditions that are severe enough to facilitate a 2-grade improvement in the IGA scale, but not so severe that they cannot achieve a “clear” or “almost clear” in IGA score in light of the severity of their disease.
Success in our clinical trials with these or similar endpoints, requires the enrollment of subjects with conditions that are severe enough to facilitate a 2-grade improvement in the IGA scale, but not so severe that they cannot achieve a “clear” or “almost clear” in IGA 48 Table of Contents Index to Financial Statements score in light of the severity of their disease.
Efforts to ensure that our current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs.
Efforts to ensure that our current and future business arrangements with third parties will comply with applicable health care laws and regulations will involve substantial costs.
We may experience numerous unforeseen events during or as a result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including: • clinical site closures, delays to patient enrollment, subjects discontinuing treatment or follow-up visits, issues with data collection, or changes to trial protocols as a result of competing trials or otherwise; • regulators or independent institutional review boards (IRBs) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; • we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites or prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • clinical trials of our product candidates may produce negative or inconclusive results, including failure to demonstrate statistical significance, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon drug development programs; • the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials, or fail to return for post-treatment follow-up at a higher rate than we anticipate; • our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, or IRBs to suspend or terminate the trials; • our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; • regulators or IRBs may require that we or our investigators suspend or terminate clinical development for various reasons, including noncompliance with regulatory requirements, or a finding that the participants are being exposed to unacceptable health risks; • the cost of clinical trials of our product candidates may be greater than we anticipate; and • the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate. 51 Table of Contents Index to Financial Statement s In addition, we could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the data safety monitoring board for such trial, or by the FDA or other regulatory authorities.
We may experience numerous unforeseen events during or as a result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including: • clinical site closures, delays to patient enrollment, subjects discontinuing treatment or follow-up visits, issues with data collection, or changes to trial protocols as a result of competing trials or otherwise; • regulators or independent institutional review boards (IRBs) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site; • we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites or prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; • clinical trials of our product candidates may produce negative or inconclusive results, including failure to demonstrate statistical significance, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon drug development programs; • the number of subjects required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials, or fail to return for post-treatment follow-up at a higher rate than we anticipate; • our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, or IRBs to suspend or terminate the trials; • our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all; • regulators or IRBs may require that we or our investigators suspend or terminate clinical development for various reasons, including noncompliance with regulatory requirements, or a finding that the participants are being exposed to unacceptable health risks; • the cost of clinical trials of our product candidates may be greater than we anticipate; and • the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate.
The validity, scope, and enforceability of any patents listed in the Orange Book that cover ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE Cream 0.05%, ZORYVE foam, ARQ-252, ARQ-255, or ARQ-234 can be challenged by competitors.
The validity, scope, and enforceability of any patents listed in the Orange Book that cover ZORYVE cream 0.3%, ZORYVE cream 0.15%, ZORYVE Cream 0.05%, or ZORYVE foam can be challenged by competitors.
Certain of our primary and secondary endpoints in our clinical trials, including our already completed and planned clinical trials in atopic dermatitis, vitiligo, chronic hand eczema and scalp and body psoriasis involve subjective assessments by physician and subjects, which can increase the uncertainty of clinical trial outcomes.
Certain of our primary and secondary endpoints in our clinical trials, including our already completed and planned clinical trials in atopic dermatitis, scalp and body psoriasis, vitiligo, and hidradenitis suppurativa involve subjective assessments by physician and subjects, which can increase the uncertainty of clinical trial outcomes.
To compete successfully in these markets, we will have to demonstrate that the relative cost, safety, and efficacy of our approved products, if any, 58 Table of Contents Index to Financial Statement s provide an attractive alternative to existing and other new therapies to gain a share of some patients’ discretionary budgets and for physicians’ attention within their clinical practices.
To compete successfully in these markets, we will have to demonstrate that the relative cost, safety, and efficacy of our approved products, if any, provide an attractive alternative to existing and other new therapies to gain a share of some patients’ discretionary budgets and for physicians’ attention within their clinical practices.
There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it. 90 Table of Contents Index to Financial Statement s General Risk Factors Macroeconomic factors, including unfavorable or uncertain global and regional economic, political and health conditions, could adversely affect our business, financial condition or results of operations.
There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it. General Risk Factors Macroeconomic factors, including unfavorable or uncertain global and regional economic, political and health conditions, could adversely affect our business, financial condition or results of operations.
We cannot predict with certainty what impact any federal or state health reform measures will have on us, but such changes could impose new or more stringent regulatory requirements on our activities, affect the prices we may obtain, increase our discount and rebate liability, or result in reduced reimbursement for ZORYVE or our product candidates, if approved, any of which could adversely affect our business, results of operations, and financial condition.
While we cannot predict with certainty the impact any federal or state health reform measures will have on us, such changes could 76 Table of Contents Index to Financial Statements impose new or more stringent regulatory requirements on our activities, affect the prices we may obtain, increase our discount and rebate liability, or result in reduced reimbursement for ZORYVE or our product candidates, if approved, any of which could adversely affect our business, results of operations, and financial condition.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Audit Committee receives at least quarterly reports from our Chief Digital & Technology Officer and internal security staff on developments in our information technology infrastructure and cybersecurity program. This includes updates, as appropriate, on key information technology initiatives, new and existing cybersecurity risks, and how management is managing risks.
Biggest changeOur Audit Committee Chair, Sue-Jean Lin, has expertise in both cybersecurity risk management and AI. 86 Table of Contents Index to Financial Statements The Audit Committee receives quarterly reports from our Chief Digital & Technology Officer and internal security staff on developments in our information technology (IT) infrastructure and cybersecurity program.
Key elements of our cybersecurity risk management program include but are not limited to the following: • risk assessments designed to help identify material risks from cybersecurity threats to our critical systems and information; • a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security processes; • cybersecurity awareness training of our employees, including incident response personnel, and senior management; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and • a third-party risk management process for key service providers based on our assessment of their criticality to our operations and respective risk profile, suppliers, and vendors. • Risk assessments designed to help identify material risks from cybersecurity threats to our critical systems and information, as well as risks of data leakage and unauthorized access to sensitive information. • Ongoing review of the controls framework to support the security of emerging technologies, including artificial intelligence (AI) and generative AI (GenAI), ensuring alignment with evolving risks and regulatory expectations.
Key elements of our cybersecurity risk management program include, but are not limited to, the following: • a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents; • the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security processes; • cybersecurity awareness training of our employees, including incident response personnel, and senior management; • a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; • a third-party risk management process for key service providers based on our assessment of their criticality to our operations and respective risk profile, suppliers, and vendors; • risk assessments designed to help identify material risks from cybersecurity threats to our critical systems and information, as well as risks of data leakage and unauthorized access to sensitive information; and • ongoing review of the controls framework to support the security of emerging technologies, including AI and generative AI (GenAI), ensuring alignment with evolving risks and regulatory expectations.
Item 2. PROPERTIES Our corporate headquarters is located in Westlake Village, California, where we lease approximately 22,643 square feet of office space.
Item 2. PROPERTIES Our corporate headquarters is located in Westlake Village, California, where we lease 22,643 square feet of office space.
Our management takes steps to stay informed about and monitor efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal 95 Table of Contents Index to Financial Statement s security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in our IT environment.
Our VP CT&S takes steps to stay informed about and monitor efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public, or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in our IT environment.
We face risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.
We face risks from cybersecurity threats that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition. See Part I, Item 1A.
This does not imply that we meet any particular technical standards, 94 Table of Contents Index to Financial Statement s specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our security technology team, led by the Head of Core Technology & Security (Head of CT&S), is responsible for managing and directing day-to-day assessment and management of materials risks from cybersecurity threats, including oversight of our cybersecurity tools, controls and strategies to protect organization assets, networks and data. The Head of CT&S reports to our Chief Digital and Technology Officer.
Our cybersecurity technology team, led by the Vice President, Core Technology & Security (VP CT&S), is responsible for managing and directing day-to-day assessment and management of material risks from cybersecurity threats, including oversight of our cybersecurity tools, controls, and strategies to protect organizational assets, networks, and data.
The full Board also periodically receives briefings from management on our cyber risk management program and an annual report from management on our cybersecurity risks.
The Audit Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full Board also periodically receives briefings from management on our cyber risk management program and an annual report from management on our cybersecurity risks.
In addition, the Chief Digital & Technology Officer updates the Audit Committee, where it deems appropriate, regarding any cybersecurity incidents it considers to be significant or potentially significant per our established severity and response framework. The Audit Committee reports to the full Board regarding its activities, including those related to cybersecurity.
This includes updates, as appropriate, on key IT initiatives, new and existing cybersecurity risks, and how management is managing those risks. In addition, the Chief Digital & Technology Officer updates the Audit Committee, where it deems appropriate, regarding any cybersecurity incidents it considers to be significant or potentially significant per our established severity and response framework.
The Head of CT&S has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. He is an ISACA certified security manager and has over 20 years of experience in information technology, with over 10 years specifically focused on cybersecurity risk management.
He is an ISACA certified security manager and has over 20 years of experience in IT, with over 10 years specifically focused on cybersecurity risk management.
Cybersecurity Governance Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee oversight of cybersecurity risks, including oversight of management’s implementation of our cybersecurity risk management program.
Security breaches, cyber-attacks, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business, results of operations, financial condition, and prospects.” Cybersecurity Governance Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee oversight of cybersecurity risks, including oversight of management’s implementation of our cybersecurity risk management program.
Added
Risk Factors: “We depend on our information technology systems, and any failure of these systems or those of our CROs or other contractors or consultants that we may utilize, could harm our business.
Added
The VP CT&S, who reports to our Chief Digital and Technology Officer, has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeThe automatic 30-month stay of FDA approval of Padagis’s ANDA seeking approval for Arcutis’s ZORYVE® 0.3% cream is set to expire on August 14, 2026. Teva Pharmaceutical Industries Ltd. filed Oppositions with the European Patent Office against two of our European patents, European Patent Nos.
Biggest changeThe automatic 30-month stay of FDA approval of Padagis’s ANDA seeking approval for Arcutis’s ZORYVE ® 0.3% cream was set to expire on August 14, 2026. The 30-month stay will be extended for each day the stay is in place, starting March 24, 2025, until the stay is lifted.
Arcutis seeks a judgment that Padagis has infringed or will infringe one or more claims of each of the Asserted Patents and based on that judgment, a permanent injunction prohibiting the commercial manufacture, use, offer to sell, or sale within the United States or importation into the United States of Padagis’s proposed generic product before expiration of each of the Asserted Patents found to infringe.
Arcutis seeks a judgment that Padagis has infringed or will infringe one or more claims of each of the Asserted Patents and based on that judgment, a permanent injunction prohibiting the commercial manufacture, use, offer to sell, or sale within the United States or importation into the United States of Padagis’s proposed generic product before expiration of each of the Asserted Patents found to be infringed.
We may from time to time be involved in various legal proceedings of a character normally incident to the ordinary course of our business. We are not currently a party to any material litigation or other material legal proceedings.
We may from time to time be involved in various legal proceedings of a character normally incident to the ordinary course of our business. We are not currently a defendant in any material litigation or other material legal proceedings. Item 4. MINE SAFETY DISCLOSURES None. 87 Table of Contents Index to Financial Statements Part II
Removed
On July 19, 2024, Arcutis filed its first amended complaint that added the last five of the above listed patents to its infringement allegations. These patents were issued by the U.S. Patent and Trademark Office and listed in FDA’s Orange Book for Arcutis’s ZORYVE® 0.3% cream after the filing of the original complaint.
Added
In March 2025, Arcutis agreed to file a joint stipulation to stay the ongoing patent litigation with Padagis at the request of Padagi s. On April 3, 2025, the court stayed the case and cancelled all case deadlines, including the trial.
Removed
On August 2, 2024, Padagis responded to the first amended complaint, denying infringement and asserting counterclaims seeking a declaratory judgement that the asserted patents are not infringed, invalid, and/or unenforceable. The court issued a scheduling order on June 10, 2024, which sets trial at the court’s convenience, or around April 13-17, 2026.
Added
Teva Pharmaceutical Industries Ltd. filed oppositions with the EPO against two of our European patents in the third quarter of 2024. After oral proceedings for each of the respective patents, the EPO panel found in favor of Arcutis and maintained both patents .
Removed
EP 3634380 B1 and EP 3684334 B1, on September 20, 2024 and August 13, 2024, respectively. These patents relate to topical roflumilast compositions. Arcutis filed replies on January 23, 2025 and February 24, 2025, respectively. Hearings before the EPO’s Opposition Division are not yet scheduled and the proceedings are ongoing.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAny future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. 97 Table of Contents Index to Financial Statement s Stock Performance Graph The graph below shows a comparison, from January 31, 2020 (the date our common stock commenced trading on Nasdaq) through December 31, 2024, of the cumulative total return to stockholders of our common stock relative to the Nasdaq Composite Index (^IXIC) and the Nasdaq Biotechnology Index (^NBI).
Biggest changeAny future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant. 88 Table of Contents Index to Financial Statements Stock Performance Graph The graph below compares the cumulative total return on an indexed basis of a $100 investment made at the beginning of the five-year period ended December 31, 2025, in the Company's common stock, the Nasdaq Composite Index (^IXIC), and the Nasdaq Biotechnology Index (^NBI).
This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
This graph shall not be deemed “soliciting material” or deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to liabilities under that Section, and shall not be deemed incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Prior to that time there was no public market for our common stock. Holders As of February 19, 2025, there were approximately 61 holders of record of our common stock.
Prior to that time there was no public market for our common stock. Holders As of February 20, 2026, there were approximately 56 holders of record of our common stock.
The graph assumes that $100 was invested in each of our common stock, the Nasdaq Composite and the Nasdaq Biotechnology at their respective closing prices on January 31, 2020 and assumes reinvestment of gross dividends. The stock price performance shown in the graph represents past performance and should not be considered an indication of future stock price performance.
The cumulative total return reflects market prices at the end of each year and assumes reinvestment of gross dividends. The stock price performance shown in the graph represents past performance and should not be considered indicative of future stock price performance.
Removed
Cumulative Total Return Comparison 1/31/2020 (Inception) 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Arcutis Biotherapeutics, Inc. $100.00 $129.04 $95.14 $67.89 $14.82 $63.90 Nasdaq Composite Index $100.00 $140.84 $170.97 $114.38 $164.04 $211.03 Nasdaq Biotechnology Index $100.00 $133.14 $132.30 $117.87 $122.27 $120.60
Added
Cumulative Total Return Comparison 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 Arcutis Biotherapeutics, Inc. $100.00 $73.73 $52.61 $11.48 $49.52 $103.23 Nasdaq Composite Index $100.00 $121.39 $81.21 $116.47 $149.83 $180.33 Nasdaq Biotechnology Index $100.00 $99.37 $88.53 $91.84 $90.58 $119.92

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTherefore, cost of sales will reflect a lower average per unit cost until the related inventory is sold, which is expected to occur in the first half of 2025. 103 Table of Contents Index to Financial Statement s Research and Development Expenses Year Ended December 31, Change 2024 2023 $ % (in thousands) Direct external costs: Topical roflumilast program $ 5,210 $ 35,607 $ (30,397) (85) % Topical JAK inhibitor program 2,945 3,334 (389) (12) % Other early stage programs 11,477 5,681 5,796 102 % Indirect costs: Compensation and personnel-related 39,216 44,613 (5,397) (12) % Other 17,572 21,340 (3,768) (18) % Total research and development expense $ 76,420 $ 110,575 $ (34,155) (31) % ______________ *Not applicable Research and development expenses decreased by $34.2 million, or 31%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Biggest changeCost of Sales Cost of sales increased by $17.6 million for the year ended December 31, 2025 compared to the year ended December 31, 2024, and was due to the increase in cost of products sold consistent with the growth in ZORYVE cream and foam product revenue and related increase in royalty expense, coupled by a $2.7 million increase in amortization expense recorded in connection with the AstraZeneca milestones achieved in the first quarter of 2025. 94 Table of Contents Index to Financial Statements Research and Development Expenses Year Ended December 31, Change 2025 2024 $ % (in thousands) Direct external costs: Topical roflumilast program $ 10,938 $ 5,210 $ 5,728 110 % Topical JAK inhibitor program 741 2,945 (2,204) (75) % Other early stage programs 6,372 11,477 (5,105) (44) % Indirect costs: Compensation and personnel-related 39,779 39,216 563 1 % Other 19,221 17,572 1,649 9 % Total research and development expense $ 77,051 $ 76,420 $ 631 1 % Research and development expenses increased slightly by $0.6 million, or 1%, for the year ended December 31, 2025 compared to the year ended December 31, 2024.
As a result of such 2024 Partial Prepayment, subject us generating a minimum net product revenue for the trailing six (6) month period ending as of the month prior to the borrowing date equal to 80% of our projected net product revenue as set forth in its annual plan for the respective period, we will be able to draw down the tranche C-1 and tranche C-2 term loans.
As a result of such 2024 Partial Prepayment, subject to us generating a minimum net product revenue for the trailing six (6) month period ending as of the month prior to the borrowing date equal to 80% of our projected net product revenue as set forth in its annual plan for the respective period, we will be able to draw down the tranche C-1 and tranche C-2 term loans.
While our significant accounting policies are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements and understanding and evaluating our reported financial results.
While our significant accounting policies are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements and understanding and evaluating our reported financial results.
ZORYVE cream 0.3% is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use. In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age.
ZORYVE cream 0.3% is approved for once-daily topical treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use. In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age.
Net Cash Provided by Financing Activities During the year ended December 31, 2024, net cash provided by financing activities was $66.2 million, which was comprised primarily of the net cash proceeds received from our February 2024 public stock offering of $161.7 million, offset by the 2024 Partial Prepayment of our long-term debt of $100.0 million.
During the year ended December 31, 2024, net cash provided by financing activities was $66.2 million, which was comprised primarily of the net cash proceeds received from our 2024 public stock offering of $161.7 million, offset by the 2024 Partial Prepayment of our long-term debt of $100.0 million.
We have incurred operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations.
We have incurred annual operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations.
We recognize as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. Product Revenue, Net We sell our product to our Customers in the United States and Canada. Our Customers subsequently resell the products to pharmacies, health care providers, and patients.
We recognize as revenue the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied. We sell our product to our customers in the United States and Canada. Our customers subsequently resell the products to pharmacies, health care providers, and patients.
At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream and ZORYVE foam, ARQ-255, and ARQ-234 or any other product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates.
At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream and ZORYVE foam, ARQ-234, or any other product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates.
Critical Accounting Policies and Use of Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
Critical Accounting Policies and Use of Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
We evaluate if the license agreement is an acquisition of an asset or a business. To date, none of our license agreements have been considered to be an acquisition of a business.
We evaluate if the in-license agreement is an acquisition of an asset or a business. To date, none of our license agreements have been considered to be an acquisition of a business.
Net Cash Provided by (Used in) Investing Activities During the year ended December 31, 2024, net cash provided by investing activities was $28.8 million, which was comprised primarily of the proceeds from the maturities of marketable securities of $288.8 million, partially offset by purchases of marketable securities of $254.8 million, as well as a milestone payment made to AstraZeneca of $5.0 million.
During the year ended December 31, 2024, net cash provided by investing activities was $28.8 million, which was comprised primarily of the proceeds from the maturities of marketable securities of $288.8 million, partially offset by purchases of marketable securities of $254.8 million, as well as a milestone payment made to AstraZeneca of $5.0 million.
Additionally, if expectations change such that we do not expect goods to be delivered or services to be rendered, such prepayments are charged to expense. Our objective is to reflect the appropriate expense in our consolidated financial statements by matching those expenses with the period in which the services and efforts are expended.
Additionally, if expectations change such that we do not expect goods to be delivered or services to be rendered, such prepayments are charged to expense. Our objective is to reflect the appropriate expense in our consolidated financial statements by matching those costs with the period in which the services and efforts are expended.
Contractual Obligations and Contingent Liabilities The following summarizes our significant contractual obligations as of December 31, 2024: Facility Operating Lease We lease a facility in Westlake Village, California under an operating lease that commenced in February 2019 and was amended in April 2020 in order to relocate to a new expanded space.
Contractual Obligations and Contingent Liabilities The following summarizes our significant contractual obligations as of December 31, 2025: Facility Operating Lease We lease a facility in Westlake Village, California under an operating lease that commenced in February 2019 and was amended in April 2020 in order to relocate to a new expanded space.
Nonclinical and Clinical Accruals and Costs We record accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of nonclinical studies, clinical studies, clinical trials and contract manufacturing activities. These costs are a significant component of our research and development expenses.
Prepaid and Accrued Research and Development Expenses We record prepaid expenses and accrued liabilities for estimated research and development activities conducted by third-party service providers, which include the conduct of nonclinical studies, clinical studies, clinical trials and contract manufacturing activities. These costs are a significant component of our research and development expenses.
In accordance with ASC 606, we recognize net product revenues from sales when the Customers obtain control of our products, which typically occurs upon delivery to the Customer. Our payment terms are generally between 30 - 65 days.
In accordance with ASC 606, we recognize net product revenue from sales when the customers obtain control of our products, which typically occurs upon delivery to the Customer. Our payment terms are generally between 30 - 65 days.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our “Selected Financial Data” and our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
For a discussion of the year ended December 31, 2023 compared to the year ended December 31, 2022, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023.
For a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.
In April 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older.
In June 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older.
Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement. We were in compliance with all covenants under the Loan Agreement as of December 31, 2024.
Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement. We were in compliance with all covenants under the Loan Agreement as of December 31, 2025.
The amount of variable consideration that is included in the transaction price may be constrained and is included in net product revenues only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates.
The amount of variable consideration that is included in the transaction price may be constrained and is recognized as product revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates.
For asset acquisitions, the upfront payments, as well as any future milestone payments made before product approval, are immediately recognized as research and development expense when due, provided there is no alternative future use of the rights in other research and development projects. The successful development of our product candidates is highly uncertain.
For asset acquisitions, the upfront payments, as well as any milestone payments made before regulatory approval, are immediately recognized as research and development expense, provided there is no alternative future use of the rights in other research and development projects. The successful development of our product candidates is highly uncertain.
We pay the wholesalers a fee for services such as: data reporting, inventory management, chargeback administration, and service level commitment. We estimate the amount of distribution services fees to be paid to the Customers and adjust the transaction price with the amount of such estimate at the time of sale to the Customer.
We pay the wholesalers and certain specialty pharmacies a fee for services such as: data reporting, inventory management, chargeback administration, and service level commitment. We estimate the amount of distribution services fees to be paid to the customers and adjust the transaction price with the amount of such estimate at the time of sale to the customer.
Revenues Pursuant to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606), we recognize revenue when a customer obtains control of promised goods or services. We record the amount of revenue that reflects the consideration that we expect to receive in exchange for those goods or services.
Product Revenue, Net Pursuant to Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (ASC 606), we recognize revenue when a customer obtains control of promised goods or services. We record the amount of revenue that reflects the consideration that we expect to receive in exchange for those goods or services.
Revenues from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from (a) invoice discounts for prompt payment and distribution service fees, (b) government and private payer rebates, chargebacks, discounts and fees, (c) product returns and (d) costs of co-pay assistance programs for patients, as well as other incentives.
Revenue from product sales are recorded at the net sales price, or “transaction price,” which includes estimates of variable consideration that result from (a) invoice discounts for prompt payment and distribution service fees, (b) government and private payer rebates, chargebacks, discounts and fees, (c) product returns and (d) costs of co-pay assistance programs for patients, as well as other sales deductions.
We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial utilizing financial models taking into consideration discussions with applicable personnel and outside service providers.
We account for these expenses according to the progress of the trial as measured by underlying activity, such as patient progression, and the timing of various aspects of the trial utilizing financial models taking into consideration discussions with applicable personnel and outside service providers.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions 106 Table of Contents Index to Financial Statement s on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock.
The tranche A term loan was funded in December 2021. With the approval of ZORYVE cream 0.3% on July 29, 2022, the tranche B term loans were funded in August 2022. As of December 31, 2024 and 2023, the aggregate principal amount outstanding under the Loan Agreement was $100.0 million and $200.0 million, respectively.
The tranche A term loan was funded in December 2021. With the approval of ZORYVE cream 0.3% on July 29, 2022, the tranche B term loans were funded in August 2022. As of December 31, 2025 and 2024, the aggregate principal amount outstanding under the Loan Agreement was $100.0 million.
Any future funding requirements will depend on many factors, including, but not limited to: • the timing, receipt, and amount of sales of any current and future products; • the scope, progress, results, and costs of researching and developing our product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities and our formulation and nonclinical efforts; • suspensions or delays in the enrollment or changes to the number of subjects we decide to enroll in our ongoing clinical trials; • the number and scope of clinical programs we decide to pursue, and the number and characteristics of any product candidates we develop or acquire; • the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates; • the number and characteristics of any additional product candidates we develop or acquire; • the cost of manufacturing ZORYVE or any future product candidates and any products we successfully commercialize, including costs associated with building out our supply chain; • the cost of commercialization activities for ZORYVE or any future product candidates that are approved for sale, including marketing, sales and distribution costs, and any discounts or rebates to obtain access; • our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into; • the costs related to milestone payments to AstraZeneca, Hengrui, or any future collaborator or licensing partner, upon the achievement of predetermined milestones; • any product liability or other lawsuits related to our products; • the expenses needed to attract and retain skilled personnel; • the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio; and • costs associated with any adverse market conditions or other macroeconomic factors.
Any future funding requirements will depend on many factors, including, but not limited to: • the timing, receipt, and amount of sales of any current and future products; • the scope, progress, results, and costs of researching and developing our product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities and our formulation and nonclinical efforts; • suspensions or delays in the enrollment or changes to the number of subjects we decide to enroll in our ongoing clinical trials; • the number and scope of clinical programs we decide to pursue, and the number and characteristics of any product candidates we develop or acquire; • the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates; • the number and characteristics of any additional product candidates we develop or acquire; • the cost of manufacturing ZORYVE or any future product candidates and any products we successfully commercialize, including costs associated with building out our supply chain; • the cost of commercialization activities for ZORYVE or any future product candidates that are approved for sale, including marketing, sales and distribution costs, and any discounts or rebates to obtain access; • our ability to acquire attractive assets or businesses or to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into; • the costs related to milestone payments to AstraZeneca or any future collaborator or licensing partner, upon the achievement of predetermined milestones; • any product liability or other lawsuits related to our products; 96 Table of Contents Index to Financial Statements • the expenses needed to attract and retain skilled personnel; • any disputes, lawsuits, or other legal proceedings related to contracts or employment matters; • the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio; and • costs associated with any adverse market conditions or other macroeconomic factors.
As a result of such 2024 Partial Prepayment, the applicable interest rate will be a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% and (b) the one-month SOFR. On December 31, 2024, the rate was 10.47%. The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate.
As a result of such 2024 Partial Prepayment, the applicable interest rate will be a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% and (b) the one-month SOFR. On December 31, 2025, the rate was 9.79%. The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate.
Operating Expenses Research and Development Expenses Since our inception, we have focused significant resources on our research and development activities, including conducting nonclinical studies and clinical trials, manufacturing development efforts, and activities related to regulatory filings for our product candidates. Research and development costs are expensed as incurred.
Research and Development Expenses Since our inception, we have focused significant resources on our research and development activities, including conducting nonclinical studies and clinical trials, manufacturing development efforts, activities related to regulatory filings for our product candidates, and medical affairs activities related to ZORYVE. Research and development costs are expensed as incurred.
As of December 31, 2024, we had $100.0 million outstanding under the Loan Agreement. We paid down $100.0 million of principal related to the Loan Agreement using available cash on October 8, 2024, with the right to re-draw that principal for a defined period.
As of December 31, 2025, we had $100.0 million outstanding under the Loan Agreement. We paid down $100.0 million of principal related to the Loan Agreement using available cash in October 2024, with the right to re-draw that principal for a defined period.
As it relates to clinical trials, the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.
As it relates to clinical trials, the financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods 100 Table of Contents Index to Financial Statements over which materials or services are provided under such contracts.
Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Such payments are evaluated for current or long-term classification based on when they will be realized.
Payments made prior to the receipt of goods or services to be used in research and development are recorded as prepaid expenses until the goods or services are received. Such payments are evaluated for current or long-term classification based on when they will be realized.
Our internal costs are primarily related to personnel or professional services and apply across programs, and thus are not allocable on a program specific basis. We expect to continue to incur research and development expenses in the future as we develop our product candidates.
Our internal costs are primarily related to personnel or professional services and apply across programs, and thus are not allocable on a program specific basis. 92 Table of Contents Index to Financial Statements We expect to continue to incur research and development expenses in the future as we develop our product candidates.
In addition to the approval of ZORYVE cream 0.3% for plaque psoriasis and ZORYVE foam for seborrheic dermatitis, we also received FDA approval for and commercially launched ZORYVE (roflumilast) cream 0.15% (ZORYVE cream 0.15%), (collectively, ZORYVE), in July 2024 for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older, with no limitation on location, body surface area treated, concomitant use, or duration of use specified in the approved labelling.
We also received FDA approval for, and commercially launched, ZORYVE cream 0.15% in July 2024 for the topical treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older, with no limitation on location, body surface area treated, concomitant use, or duration of use specified in the approved labelling.
In addition, employee costs, including salaries, payroll taxes, benefits, stock-based compensation, and travel for employees contributing to research and development activities are classified as research and development costs. We allocate direct external costs on a program specific basis (topical roflumilast program, topical JAK inhibitor program, and early-stage programs).
In addition, employee costs, including salaries, payroll taxes, benefits, stock-based compensation and travel, for employees contributing to research and development activities are classified as research and development costs. We allocate direct external costs on a program specific basis, such as the topical roflumilast program.
The net non-cash and other charges were primarily related to stock-based compensation expense of $38.8 million.
The net non-cash and other charges were primarily related to stock-based compensation expense of $40.4 million.
If actual results vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Distribution Service Fees : We engage with wholesalers to distribute our products to end customers.
If actual results vary from our estimates, we adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. 101 Table of Contents Index to Financial Statements Distribution Service Fees : We engage with wholesalers and specialty pharmacies to distribute our products to end customers.
See Note 7 to the consolidated financial statements for additional information. Cost of Sales Cost of sales includes direct and indirect costs related to the manufacturing and distribution of ZORYVE, including raw materials, third-party manufacturing costs, packaging services, and freight-in, as well as third-party royalties payable on our net product sales and amortization of intangible assets associated with ZORYVE.
Operating Expenses Cost of Sales Cost of sales includes direct and indirect costs related to the manufacturing and distribution of ZORYVE, including raw materials, third-party manufacturing costs, packaging services, and freight-in, as well as royalties payable on our net product sales and amortization of intangible assets associated with ZORYVE.
Food and Drug Administration (FDA) approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g. groin or axillae), in individuals 12 years of age or older. ZORYVE cream 0.3% is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 (PDE4) inhibitor.
We launched our lead product, ZORYVE cream 0.3%, in August 2022 after obtaining our initial FDA approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g. groin or axillae), in individuals 12 years of age or older. ZORYVE cream 0.3% is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 (PDE4) inhibitor.
Product revenue, net, for ZORYVE cream 0.15% increased by $9.9 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, driven by its commercial launch in July 2024.
Product revenue, net, for ZORYVE cream 0.15% increased by $58.4 million for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily driven by its commercial launch in the United States in July 2024.
If the Term Loans are accelerated due to, among others, the occurrence of a bankruptcy or insolvency event, we are required to make certain mandatory prepayments of (i) all principal amounts outstanding under the Term Loans, plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees applicable by reason of such prepayment, (iii) the prepayment premiums set forth in the paragraph above, plus (iv) all other obligations that are due and payable, including expenses and interest at the Default Rate (as defined below) with respect to any past due amounts.
As security for the obligations under the Loan Agreement, we granted SLR, for the benefit of the lenders, a continuing security interest in substantially all of our assets, including our intellectual property, subject to certain exceptions. 97 Table of Contents Index to Financial Statements If the Term Loans are accelerated due to, among others, the occurrence of a bankruptcy or insolvency event, we are required to make certain mandatory prepayments of (i) all principal amounts outstanding under the Term Loans, plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees applicable by reason of such prepayment, (iii) the prepayment premiums set forth in the paragraph above, plus (iv) all other obligations that are due and payable, including expenses and interest at the Default Rate (as defined below) with respect to any past due amounts.
We have incurred net losses in each year since inception, including net losses of $140.0 million, $262.1 million and $311.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024, we had an accumulated deficit of $1,121.9 million and cash, cash equivalents, restricted cash and marketable securities of $228.6 million.
We have incurred annual net losses in each year since inception, including net losses of $16.1 million, $140.0 million and $262.1 million for the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025, we had an accumulated deficit of $1,138.1 million and cash, cash equivalents, restricted cash and marketable securities of $221.3 million.
This amount does not represent all of our anticipated purchases, but instead represents only the contractually obligated minimum purchases or firm commitments of non-cancelable minimum amounts. 108 Table of Contents Index to Financial Statement s Indemnification In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.
These future purchase commitments do not represent all of our anticipated purchases, but instead represents only the contractually obligated minimum purchases or firm commitments of non-cancelable minimum amounts. Indemnification In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications.
If our available cash and marketable securities balances, amounts available under the Loan Agreement, and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as future potential collaboration agreements.
While we do not anticipate the need to obtain funds through financings or other sources to support our current planned operations, if our available cash and marketable securities balances and anticipated future cash flows from operations are insufficient to cover these expenses, we may need to fund our operations through equity or debt financings or other sources, such as future potential collaboration agreements.
As of December 31, 2024, we had $100.0 million outstanding under the Loan Agreement. We paid down $100.0 million of principal related to the Loan Agreement using available cash on October 8, 2024, with the right to re-draw that principal for a defined period. See Note 9 to the consolidated financial statements for additional information.
As of December 31, 2025, we had $100.0 million outstanding under the Loan Agreement. We paid down $100.0 million of principal related to the Loan Agreement using available cash in October 2024, with the right to re-draw that principal for a defined period.
Other revenue Other revenue in the year ended December 31, 2024 is a result of license revenues received in connection with the Sato License Agreement of $25.0 million and the Huadong License and Collaboration Agreement of $5.0 million.
Other revenue for the year ended December 31, 2024 is a result of license revenues received in connection with the Sato License Agreement of $25.0 million and the Huadong License and Collaboration Agreement of $5.0 million. See Note 7 to the consolidated financial statements for additional information.
Once the product is returned, it is destroyed. We do not record a right-of-return asset. In the early product launch period, we estimated a provision for sales returns based on industry data and adjusted the transaction price for such estimates at the time of sale to the Customer.
In the early product launch period, we estimated a provision for sales returns based on industry data and adjusted the transaction price for such estimates at the time of sale to the customer.
The total commitment under the operating lease agreement is $3.8 million, including $1.0 million for each of the years 2025 and 2026, $1.1 million for the year 2027, and $0.7 million for the year 2028. See Note 8 to the consolidated financial statements for additional information.
The total commitment under the operating lease agreement, as amended, is $8.1 million, including $0.8 million for 2026, $0.5 million for the year 2027, $0.9 million for the year 2028, $1.3 million for the year 2029, and $1.3 million for the year 2030. See Note 8 to the consolidated financial statements for additional information.
In particular, we expect to incur research and development expenses for the phase 1 ARQ-255 study for alopecia areata, and early development of ARQ-234 for atopic dermatitis. We have entered, and may continue to enter, into license agreements to access and utilize certain molecules for the treatment of dermatological diseases and disorders.
In particular, we expect to incur research and development expenses for the development of ARQ-234 for atopic dermatitis and for ZORYVE label expansions and life cycle management. We have entered, and may continue to enter, into in-license agreements to access and utilize certain molecules for the treatment of dermatological diseases and disorders.
We make significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, we adjust our 109 Table of Contents Index to Financial Statement s accrued liabilities. We have not experienced any material differences between accrued costs as of December 31, 2024 and 2023 and actual costs incurred.
We make significant judgments and estimates in determining the prepaid expense and accrued liabilities balance in each reporting period. As actual costs become known, we adjust the relevant balances. We have not experienced any material differences between our estimates as of December 31, 2025 and 2024 and actual costs incurred.
Our estimates for rebates under government programs are based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch.
Our estimates for expected utilization of private payer rebates are based on data received from our customers. Our estimates for rebates under government programs are based on statutory discount rates and expected utilization as well as historical data we have accumulated since product launch. Rebates are generally invoiced and paid in arrears.
We expect to incur significant and prioritized commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE, while we focus our clinical development spend on ARQ-234, ARQ-255, and ZORYVE label extensions, if we obtain regulatory approval for them.
We expect to incur commercialization expenses related to the sales, marketing, manufacturing, and distribution of ZORYVE, while we focus our clinical development spend on ARQ-234 and ZORYVE label expansions.
Recent Accounting Pronouncements See Note 2 to our consolidated financial statements.
Recent Accounting Pronouncements See Note 2 to our consolidated financial statements. 102 Table of Contents Index to Financial Statements
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $44.2 million, or 24%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to an increase in compensation and personnel related expenses of $28.9 million and an increase in sales and marketing expenses of $14.1 million.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by $45.2 million for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily due to an increase in sales and marketing expenses of $30.8 million and an increase in compensation and personnel related expenses of $13.3 million.
As of December 31, 2024 and 2023, we had cash, cash equivalents, restricted cash, and marketable securities of $228.6 million and $272.8 million, respectively, and an accumulated deficit of $1,121.9 million and $981.9 million, respectively. We maintain cash 104 Table of Contents Index to Financial Statement s balances with financial institutions in excess of insured limits.
As of December 31, 2025 and 2024, we had cash, cash equivalents, restricted cash, and marketable securities of $221.3 million and $228.6 million, respectively, and an accumulated deficit of $1,138.1 million and $1,121.9 million, respectively. We maintain cash balances with financial institutions in excess of insured limits.
License Agreements & Acquisition The terms of certain of our license agreements and our acquisition of Ducentis require us to pay potential future milestone payments based on product development and commercial success. The amount and timing of such obligations are unknown or uncertain. These potential obligations are further described in Note 7 to the consolidated financial statements.
See Note 9 to the consolidated financial statements for additional information. 99 Table of Contents Index to Financial Statements In-License Agreements & Ducentis Acquisition The terms of our in-license agreements and our acquisition of Ducentis require us to pay potential future payments based on product development and commercial success. The amount and timing of such payments are unknown or uncertain.
The change in net operating assets and liabilities was primarily due to an increase in accounts receivable of $47.3 million, offset by an increase in accounts payable and accrued liabilities of $34.3 million.
The change in net operating assets and liabilities was primarily due to an increase in accounts receivable of $47.3 million, offset by an increase in accounts payable and accrued liabilities of $34.3 million. The net non-cash and other charges were primarily related to stock-based compensation expense of $41.7 million.
ZORYVE foam is a once-daily steroid-free foam and, as a PDE4 inhibitor, is the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades.
ZORYVE foam is a once-daily steroid-free foam and, as a PDE4 inhibitor, was the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades. ZORYVE foam became commercially available in the United States in January 2024 and became commercially available in Canada in December 2024 following approval by Health Canada.
See “Risk Factors” for a discussion of the risks and uncertainties associated with the development of our product candidates. 101 Table of Contents Index to Financial Statement s Selling, General and Administrative Expenses Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, and costs related to sales and marketing of ZORYVE.
See “Risk Factors” for a discussion of the risks and uncertainties associated with the development of our product candidates. Selling, General and Administrative Expenses Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, for sales, commercial operations, human resources, information technology, and finance employees.
Currently in the preclinical stage, we plan to develop ARQ-234 in atopic dermatitis, where we believe it could be a potentially highly complementary biologic treatment option to ZORYVE cream in that indication, if approved. ARQ-234 could potentially be used to treat other inflammatory conditions as well. We are working towards submitting an Investigational New Drug (IND) application during 2025.
We plan to develop ARQ-234 in atopic dermatitis, where we believe it could be a highly complementary biologic treatment option to ZORYVE cream 0.15% in that indication, if approved. ARQ-234 could potentially be used to treat other inflammatory conditions as well.
We believe this strategy uniquely positions us to rapidly advance our goal of bridging the treatment innovation gap in dermatology, while maximizing our probability of technical success and financial resources. We launched our lead product, ZORYVE ® (roflumilast) cream 0.3% (ZORYVE cream 0.3%) in August 2022 after obtaining our initial U.S.
We believe this strategy uniquely positions us to rapidly advance our goal of bridging the treatment innovation gap in dermatology, while maximizing our probability of technical success and financial resources.
Cash Flows The following table sets forth our cash flows for the periods indicated: Year Ended December 31, 2024 2023 (in thousands) Cash used in operating activities $ (112,158) $ (247,057) Cash provided by (used in) investing activities 28,820 180,232 Cash provided by financing activities 66,202 101,323 Effect of exchange rate changes on cash (235) (50) Net increase (decrease) in cash, cash equivalents and restricted cash $ (17,371) $ 34,448 Net Cash Used in Operating Activities During the year ended December 31, 2024, net cash used in operating activities was $112.2 million, which consisted of a net loss of $140.0 million and a change in net operating assets and liabilities of $15.1 million, partially offset by net non-cash and other charges of $43.0 million.
Cash Flows The following table sets forth our cash flows for the periods indicated: Year Ended December 31, 2025 2024 (in thousands) Cash used in operating activities $ (5,625) $ (112,158) Cash provided by (used in) investing activities (30,253) 28,820 Cash provided by financing activities 6,973 66,202 Effect of exchange rate changes on cash 168 (235) Net decrease in cash, cash equivalents and restricted cash $ (28,737) $ (17,371) 98 Table of Contents Index to Financial Statements Net Cash Used in Operating Activities During the year ended December 31, 2025, net cash used in operating activities was $5.6 million, which consisted of a net loss of $16.1 million and a change in net operating assets and liabilities of $34.8 million, partially offset by net non-cash and other charges of $45.3 million.
Indebtedness 105 Table of Contents Index to Financial Statement s On December 22, 2021, we entered into a loan and security agreement (the Prior Loan Agreement) with SLR Investment Corp (SLR) and the lenders party thereto.
Indebtedness On December 22, 2021, we entered into a loan and security agreement (the Prior Loan Agreement) with SLR and the lenders party thereto.
In July 2024, we entered into a co-promotion agreement with Kowa Pharmaceuticals, Inc. (Kowa) to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE in the United States to primary care practitioners and pediatricians for all FDA-approved indications until at least July 2029.
(Kowa) to leverage Kowa's primary care sales force to exclusively market and promote ZORYVE in the United States to primary care practitioners and pediatricians for all FDA-approved indications until at least July 2029. Under the terms of the agreement, Kowa will receive a commission from net sales attributed to Kowa.
We expect to continue to incur losses and significant expenses as we commercialize ZORYVE, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions, and commercialization.
The extent of any net income or losses for future periods is uncertain and we may continue to incur net losses in future periods. We expect to continue to incur significant expenses as we commercialize ZORYVE, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions and commercialization.
The undiscounted future payments of principal and interest under the Loan Agreement as of December 31, 2024 is $171.3 million, including $12.4 million for the year 2025, $13.6 million for the year 2026, $19.0 million for the year 2027, $12.2 million for the year 2028, and $114.1 million for the year 2029.
The undiscounted future payments of principal and interest under the Loan Agreement as of December 31, 2025 is $156.4 million, including $12.9 million for the year 2026, $18.3 million for the year 2027, $11.5 million for the year 2028, and $113.7 million for the year 2029.
In December 2023, we received FDA approval for ZORYVE ® (roflumilast) topical foam 0.3% (ZORYVE foam) for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on severity, location, or duration of use.
In February 2026, Health Canada accepted our Supplement to a New Drug Submission (SNDS) for ZORYVE cream 0.3% for individuals down to 2 years old. In December 2023, we received FDA approval for ZORYVE foam 0.3% for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on severity, location, or duration of use.
Liquidity, Capital Resources and Requirements Our primary sources of capital to date have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, August 2022, October 2023, and March 2024, our Loan Agreement, our ATM program, and revenue from the sale of ZORYVE.
The income tax expense for the periods presented primarily related to withholding taxes on payments received in connection with the Huadong License and Collaboration Agreement and tax on the income earned in Canada. 95 Table of Contents Index to Financial Statements Liquidity, Capital Resources and Requirements Our primary sources of capital to date have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, August 2022, October 2023, and March 2024, our Loan Agreement, our ATM program, and revenue from the sale of ZORYVE products.
Rebates and Discounts: We accrue rebates for contractually agreed-upon discounts with private payers and mandated discounts under government programs such as the Medicaid Drug Rebate Program in the United States. Our estimates for expected utilization of private payer rebates are based on data received from our customers.
We recognize contra-revenue for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators. Rebates and Discounts: We accrue rebates for contractually agreed-upon discounts with private payers and mandated discounts under government programs such as the Medicaid Drug Rebate Program in the United States.
Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for known prior quarters’ unpaid rebates. If actual rebates vary from estimates, we may need to adjust accruals, which would affect revenue in the period of adjustment.
The accrual balance consists invoiced amounts not yet paid as well as an estimate of the amount expected to be incurred but not yet invoiced to us as of the end of the reporting period. If actual rebates vary from estimates, we may need to adjust accruals, which would affect product revenue, net in the period of adjustment.
Long-Term Debt Obligations As of December 31, 2024, we had $100.0 million outstanding under our Loan Agreement. See Notes 1 and 9 to the consolidated financial statements for additional information.
Long-Term Debt Obligations As of December 31, 2025, we had $100.0 million outstanding under our Loan Agreement.
Other selling, general and administrative expenses include legal costs of pursuing patent protection of our intellectual property, insurance, and professional services fees for auditing, tax, and general legal services. The commission paid to Kowa under our co-promotion agreement is recorded as a selling expense.
Other selling, general and administrative expenses include costs related to sales and marketing of ZORYVE; commission paid to Kowa under our promotion agreement; professional services costs for patent protection, accounting, auditing, tax, and general legal services; other outside services and consulting costs; information technology; and other overhead.
We completed enrollment in a Phase 1b study evaluating ARQ-255 for the treatment of alopecia areata and expect data in the first half of 2025. In September 2022, we acquired Ducentis BioTherapeutics LTD (Ducentis) and its lead asset, DS-234 (now ARQ-234), a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 Receptor (CD200R).
In February 2024, we entered into a a strategic collaboration and licensing agreement (the Sato Agreement) for topical roflumilast in Japan with Sato Pharmaceutical Co., Ltd.(Sato). In September 2022, we acquired Ducentis BioTherapeutics LTD (Ducentis) and its lead asset, DS-234 (now ARQ-234), a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 Receptor (CD200R).
Product revenue, net, for ZORYVE foam increased by $71.5 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, driven by its commercial launch in January 2024.
Product revenue, net, for ZORYVE cream 0.05% increased by $0.9 million for the year ended December 31, 2025 due to its commercial launch in the United States in October 2025.
During the year ended December 31, 2023, net cash provided by investing activities was $180.2 million, which was comprised primarily of the proceeds from the maturities of marketable securities of $406.5 million, partially offset by purchases of marketable securities of $225.8 million.
Net Cash Provided by (Used in) Investing Activities During the year ended December 31, 2025, net cash used in investing activities was $30.3 million, which was comprised primarily of purchases of marketable securities of $247.0 million, coupled with a milestone payment made to AstraZeneca of $10.0 million, partially offset by the proceeds from the maturities of marketable securities of $227.4 million.
ZORYVE cream 0.15% is a once-daily, steroid-free cream that provides rapid disease clearance and significant reduction in itch and has been specifically developed to be a treatment option for long-term disease control. We have also completed a Phase 3 trial of ZORYVE cream 0.05% in pediatric patients 2 to 5 years of age with mild to moderate atopic dermatitis (INTEGUMENT-PED).
ZORYVE cream 0.15% and ZORYVE cream 0.05% are once-daily, steroid-free creams that provide rapid disease clearance and significant reduction in itch, and have been specifically developed to be treatment options for long-term disease control.
The net non-cash and other charges were primarily related to stock-based compensation expense of $41.7 million. 107 Table of Contents Index to Financial Statement s During the year ended December 31, 2023, net cash used in operating activities was $247.1 million, which consisted of a net loss of $262.1 million and a change in net operating assets and liabilities of $23.5 million, partially offset by net non-cash and other charges of $38.6 million.
During the year ended December 31, 2024, net cash used in operating activities was $112.2 million, which consisted of a net loss of $140.0 million and a change in net operating assets and liabilities of $15.1 million, partially offset by net non-cash and other charges of $43.0 million.
The wholesaler tracks these sales and "charges back" the manufacturer for the difference between the negotiated prices paid between the wholesaler's customers and wholesaler's acquisition cost. We estimate the percentage of goods sold that are eligible for chargeback and adjust the transaction price for such discount at the time of sale to the Customer.
Chargeback : A chargeback is the difference between the manufacturer's invoice price to the wholesaler and the wholesaler’s customer's contract price. The wholesaler tracks these sales and "charges back" the manufacturer for the difference between the negotiated prices paid between the wholesaler's customers and wholesaler's acquisition cost.
The change in net operating assets and liabilities was primarily due to an increase in accounts receivable of $17.3 million, an increase in prepaid expenses and other current assets of $8.6 million, and an increase in inventories of $5.6 million, offset by an increase in accounts payable and accrued liabilities of $8.7 million.
The change in net operating assets and liabilities was primarily due to an increase in accounts receivable of $73.2 million driven by higher sales, coupled with a $7.3 million increase in inventories to support higher unit demand, partially offset by a $50.0 million increase in accrued liabilities driven by higher accrued sales deductions associated with higher sales volume.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−1 removed3 unchanged
Biggest changeBecause our investments are primarily short-term in duration, we believe that this exposure to interest rate risk is not significant, and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio. 111 Table of Contents Index to Financial Statement s In addition, as of December 31, 2024, we had $100.0 million outstanding under our Loan Agreement.
Biggest changeWe also seek to maximize income from our investments without assuming significant risk. Because our investments are primarily short-term in duration, we believe that this exposure to interest rate risk is not significant, and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio.
It is difficult to predict the effect that future hedging activities would have on our operating results. We are exposed to foreign currency exchange risk as our Canadian subsidiary operates with the Canadian dollar as its functional currency. The majority of our transactions occur in U.S. dollars.
It is difficult to predict the effect that future hedging activities would have on our operating results. The majority of our transactions occur in U.S. dollars, however, we are exposed to foreign currency exchange risk as our Canadian subsidiary operates with the Canadian dollar as its functional currency.
As of December 31, 2024, we had cash and cash equivalents of $71.3 million, restricted cash of $0.6 million and marketable securities of $156.6 million, which consist of bank deposits, money market funds, commercial paper, government securities, and corporate debt securities. The primary objective of our investment activities is to preserve capital to fund our operations.
As of December 31, 2025, we had cash and cash equivalents of $42.9 million, restricted cash of $0.3 million and marketable securities of $178.1 million, which consist of bank deposits, money market funds, commercial paper, government securities, and corporate debt securities. The primary objective of our investment activities is to preserve capital to fund our operations.
A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have a material impact on our consolidated financial statements. Item 8.
We currently do not hedge any foreign currency exposure. A hypothetical 10% change in foreign exchange rates during any of the periods presented would not have a material impact on our consolidated financial statements. Item 8.
As a result, we are exposed to risks related to our indebtedness from changes in interest rates. Based on the amount outstanding under our Loan Agreement as of December 31, 2024, for every 100 basis point increase in the interest rates, we would incur approximately $1.0 million of additional annual interest expense.
Based on the amount outstanding under our Loan Agreement as of December 31, 2025, for every 100 basis point increase in the interest rates, we would incur approximately $1.0 million of additional annual interest expense.
The fluctuation in the value of the U.S. dollar against the Canadian dollar affects the reported amounts of expenses, assets and liabilities. If we expand our international operations our exposure to exchange rate fluctuations will increase. At December 31, 2024 we had cash balances denominated in Canadian dollars of $4.4 million. We currently do not hedge any foreign currency exposure.
The fluctuation in the value of the U.S. dollar against the Canadian dollar affects the reported amounts of expenses, assets and liabilities. If we would expand our international operations, our exposure to exchange rate fluctuations may increase. As of December 31, 2025, we had cash balances denominated in Canadian dollars of $8.0 million.
Amounts outstanding under our Loan Agreement bear interest at a floating rate equal a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% and (b) the one-month Secured Overnight Financing Rate (SOFR). The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate.
In addition, as of December 31, 2025, we had $100.0 million outstanding under our Loan Agreement. Amounts outstanding under our Loan Agreement bear interest at a floating rate equal a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% and (b) the one-month Secured Overnight Financing Rate (SOFR).
Removed
We also seek to maximize income from our investments without assuming significant risk.
Added
The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate. As a result, we are exposed to risks related to our indebtedness from changes in interest rates.

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