Arcutis Biotherapeutics Inc.

10/28/2025 | Press release | Distributed by Public on 10/28/2025 06:38

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidatedfinancial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto as of and for the year ended December 31, 2024 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2024, which has been filed with the Securities and Exchange Commission (SEC). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans, objectives, expectations, projections, and strategy for our business, includes forward-looking statements that involve risks and uncertainties. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. As a result of many factors, including those factors identified below and those set forth in the "Risk Factors" section of our Annual Report on Form 10-K, our actual results and the timing of selected events could differ materially from the forward-looking statements contained in the following discussion and analysis.
Overview
We are a commercial-stage biopharmaceutical company focused on developing and commercializing treatments for dermatological diseases with high unmet medical needs. Our current portfolio is comprised of highly differentiated topical and systemic treatments with significant potential to treat immune-mediated dermatological diseases and conditions. We believe we have built a leading platform for dermatologic product development and commercialization. Our strategy is to focus on validated biological targets, and to use our drug development platform and deep dermatology expertise to develop and commercialize differentiated products that have the potential to address the major shortcomings of existing therapies in our targeted indications. We believe this strategy uniquely positions us to rapidly advance our goal of bridging the treatment innovation gap in dermatology, while maximizing our probability of technical success and financial resources.
We launched our lead product, ZORYVE®(roflumilast) cream 0.3% (ZORYVE cream 0.3%), in August 2022 after obtaining our initial U.S. Food and Drug Administration (FDA) approval for the treatment of plaque psoriasis, including psoriasis in the intertriginous areas (e.g. groin or axillae), in individuals 12 years of age or older. ZORYVE cream 0.3% is a once-daily topical formulation of roflumilast, a highly potent and selective phosphodiesterase-4 (PDE4) inhibitor. ZORYVE cream 0.3% is approved for once-daily treatment of mild, moderate, and severe plaque psoriasis with no limitations on location or duration of use. In October 2023, we received FDA approval for an expanded indication in plaque psoriasis down to 6 years of age. In September 2025, we submitted a supplemental New Drug Application (sNDA) to FDA to expand the indication of ZORYVE cream 0.3% for the treatment of plaque psoriasis in children down to the age of 2. In June 2023, we had our first commercial launch outside of the United States following Health Canada approval of ZORYVE cream 0.3% for the treatment of plaque psoriasis in individuals 12 years or age or older.
In December 2023, we received FDA approval for ZORYVE®(roflumilast) topical foam 0.3% (ZORYVE foam) for the treatment of seborrheic dermatitis in individuals aged 9 years and older, with no limitation on severity, location, or duration of use. ZORYVE foam is a once-daily steroid-free foam and, as a PDE4 inhibitor, is the first drug approved for the treatment of seborrheic dermatitis with a new mechanism of action in over two decades. ZORYVE foam became commercially available in the United States in January 2024, and was approved by Health Canada in October 2024 and became commercially available in Canada in December 2024. We also received FDA approval for ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in adults and adolescents ages 12 and older in May 2025, followed by commercial launch in June 2025.
In addition to the approval of ZORYVE cream 0.3% for plaque psoriasis and ZORYVE foam for seborrheic dermatitis and plaque psoriasis of the scalp and body, we also received FDA approval for and commercially launched ZORYVE (roflumilast) cream 0.15% (ZORYVE cream 0.15%) in July 2024 for the treatment of mild to moderate atopic dermatitis in adults and pediatric patients 6 years of age and older, with no limitation on location, body surface area treated, concomitant use, or duration of use specified in the approved labelling. ZORYVE cream 0.15% was also approved by Health Canada in March 2025 and commercially launched in April 2025. We also received FDA approval for ZORYVE cream 0.05% for treatment of mild to moderate atopic dermatitis in children 2 to 5 years of age and plan to commercially launch in October 2025. ZORYVE cream 0.15% and 0.05% are once-daily,
steroid-free creams that provide rapid disease clearance and significant reduction in itch and have been specifically developed to be treatment options for long-term disease control. In June 2025, we initiated INTEGUMENT-INFANT, a Phase 2 study to evaluate the safety and efficacy of investigational ZORYVE cream 0.05% in infants as young as 3 months to less than 2 years with atopic dermatitis, which potentially could serve as the basis for a further expansion of the indication for ZORYVE cream 0.05% to this group of patients.
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. Under the terms of the agreement, Kowa will receive a commission from net sales attributed to Kowa. Promotion of ZORYVE in primary care and pediatrics under the Kowa agreement began in late September 2024.
In addition to ZORYVE, we had developed ARQ-255, a deep penetrating topical formulation of ivarmacitinib, a potent and highly selective topical Janus kinase type 1 (JAK 1) inhibitor, for the treatment of alopecia areata. Following the completion of a Phase 1b study in the middle of 2025, we elected to halt further development of the program.
In September 2022, we acquired Ducentis BioTherapeutics LTD (Ducentis) and its lead asset, DS-234 (now ARQ-234), a fusion protein that is a potent and highly selective checkpoint agonist of the CD200 Receptor (CD200R). Currently in the preclinical stage, we plan to develop ARQ-234 in atopic dermatitis, where we believe it could be a potentially highly complementary biologic treatment option to ZORYVE cream 0.15% in that indication, if approved. ARQ-234 could potentially be used to treat other inflammatory conditions as well. The Company submitted an Investigational New Drug (IND) application to the FDA in July 2025, and anticipates commencing a Phase 1 study of ARQ-234 in the first quarter of 2026.
We have incurred annual net losses in each year since inception, including net losses of $33.5 million and $129.3 million for the nine months ended September 30, 2025 and 2024, respectively. As of September 30, 2025, we had an accumulated deficit of $1,155.5 million and cash, cash equivalents, restricted cash, and marketable securities of $191.4 million. As of September 30, 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.
While we generated net income for the quarter ended September 30, 2025, the extent of any net income or losses for future periods is uncertain and we may continue to incur net losses in future periods. We expect to continue to incur significant expenses as we commercialize ZORYVE, and as we advance our product candidates and label extensions through clinical trials, regulatory submissions and commercialization. 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. While we do not anticipate the need to obtain funds through financings or other sources to support our current planned operations, if our available cash and marketable securities balances, amounts available under 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. Adequate funding may not be available to us on acceptable terms, or at all. Any failure to obtain sufficient funds on acceptable terms if or when needed could have a material adverse effect on our business, results of operations, and financial condition.
We rely on third parties to conduct our nonclinical studies and clinical trials and for manufacturing and supply of our product candidates. We have no internal manufacturing capabilities and we rely on third parties, many of whom are single source suppliers, for our nonclinical and clinical trial materials, as well as the commercial supply of our products.
Components of Our Results of Operations
Revenue
Product Revenue, Net
In August 2022, in conjunction with the launch of our first FDA-approved product, ZORYVE cream 0.3%, we began to recognize revenue from product sales, net of rebates, chargebacks, discounts and other adjustments. We also began recognizing revenue net of deductions for ZORYVE cream 0.3% in Canada in June 2023, ZORYVE foam for seborrheic dermatitis in the United States in January 2024, ZORYVE cream 0.15% for atopic dermatitis in July 2024, ZORYVE foam for seborrheic dermatitis in Canada in December 2024, ZORYVE cream 0.15% in Canada in April 2025, and ZORYVE foam for scalp and body psoriasis in the United States in June 2025. Additionally, if our development efforts for our other product candidates and ZORYVE label expansions are successful and result in regulatory approval, we may generate additional revenue in the future from sales of such other products and label expansions.
Other Revenue
Other revenue relates to our license agreements, primarily the Sato Agreement and the Huadong Agreement. See Note 6 to the condensed consolidated financial statements for additional information.
Operating Expenses
Cost of Sales
Cost of sales includes direct and indirect costs related to the manufacturing and distribution of ZORYVE, including raw materials, third-party manufacturing costs, packaging services, and freight-in, as well as third-party royalties payable on our net product sales and amortization of intangible assets associated with ZORYVE.
Prior to the date on which the initial regulatory approval was received for each product, costs of inventory production were recorded as research and development expense. Subsequent to initial regulatory approval, costs of production are capitalized into inventory, and as that inventory is sold and revenue is recognized, the cost of the inventory is recognized in cost of sales. During the second half of 2025, the Company expects to have sold its remaining finished goods inventory produced prior to regulatory approval for which the cost was previously recognized as research & development expense. As of September 30, 2025 and December 31, 2024, the value of this inventory, mostly at the raw materials stage, was approximately $0.2 million and $5.5 million, respectively.
Research and Development Expenses
Since our inception, we have focused significant resources on our research and development activities, including conducting nonclinical studies and clinical trials, manufacturing development efforts, activities related to regulatory filings for our product candidates, and medical affairs activities related to ZORYVE. Research and development costs are expensed as incurred. These costs include direct program expenses, which are payments made to third parties that specifically relate to our research and development, such as payments to clinical research organizations, clinical investigators, manufacturing of clinical material, nonclinical testing and consultants. In addition, employee costs, including salaries, payroll taxes, benefits, stock-based compensation and travel for employees contributing to research and development activities are classified as research and development costs. We allocate direct external costs on a program specific basis (topical roflumilast program and CD200R program). 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. 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 license agreements to access and utilize certain molecules for the treatment of dermatological diseases and disorders. 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. 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. At this time, we cannot reasonably estimate the nature, timing, or costs required to complete the remaining development of ZORYVE cream and ZORYVE foam, and ARQ-234 or any other product candidates. This is due to the numerous risks and uncertainties associated with the development of product candidates. See "Risk Factors" for a discussion of the risks and uncertainties associated with the development of our product candidates.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of salaries and related costs, including payroll taxes, benefits, stock-based compensation, and travel, and costs related to sales and marketing of ZORYVE. 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. We expect our selling, general and administrative expenses to continue to increase in the future as we continue to commercialize ZORYVE and potentially other product candidates and support our operations, including increased expenses related to legal, accounting, insurance, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, directors and officers liability insurance premiums, and investor relations activities.
Other Income, Net
Other income, net primarily consists of interest income earned on our cash, cash equivalents, and marketable securities, as well as changes in the fair value of the derivative related to our debt. See Note 8 to the condensed consolidated financial statements for additional information.
Interest Expense
Interest expense is related to interest incurred on our long-term debt.
Provision for Income Taxes
Provision for income taxes is primarily related to foreign income tax expense and foreign withholding taxes incurred in relation to a license agreement.
Results of Operations
Comparison of the Three Months Ended September 30, 2025 and 2024
Product Revenue, Net
We began recording U.S. product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE cream 0.3% in August 2022, and Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE cream 0.3% in June 2023. In the first quarter of 2024, we began recording U.S. product revenue following the FDA approval and subsequent commercial launch of ZORYVE foam for seborrheic dermatitis in January 2024. In the third quarter of 2024, we began recording U.S. product revenue following the FDA approval and subsequent commercial launch of ZORYVE cream 0.15% in July 2024. In the fourth quarter of 2024, we began recording Canada product revenue following the Health Canada approval and subsequent commercial launch of ZORYVE foam for seborrheic dermatitis in December 2024. In the second quarter of 2025, we began recording Canada product revenue following the Health Canada approval and subsequent launch of ZORYVE cream 0.15% in April 2025, as well as U.S. product revenue following the FDA approval and subsequent commercial launch of ZORYVE foam for scalp and body psoriasis in June 2025.
Three Months Ended September 30,
Change
2025 2024 $ %
(in thousands)
Product revenue, net
ZORYVE cream 0.3%
$ 30,491 $ 22,041 $ 8,450 38 %
ZORYVE foam
49,781 20,262 29,519 146 %
ZORYVE cream 0.15%
18,947 2,452 16,495 673 %
Total product revenue, net
$ 99,219 $ 44,755 $ 54,464 122 %
______________
*Not applicable
Product revenue, net, for ZORYVE cream 0.3% increased by $8.5 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily driven by higher end customer demand in the United States and Canada.
Product revenue, net, for ZORYVE foam increased by $29.5 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily driven by higher end customer demand related to seborrheic dermatitis in the United States, the commercial launch of ZORYVE foam for the treatment of plaque psoriasis of the scalp and body in the United States in June 2025, as well as the commercial launch of ZORYVE foam for seborrheic dermatitis in Canada in December 2024.
Product revenue, net, for ZORYVE cream 0.15% increased by $16.5 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily driven by higher end customer demand and, to a lesser extent, net price improvement in the United States.
Cost of Sales
Cost of sales increased by $3.2 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was due to the increase in royalty expense and cost of products sold, consistent with the growth in ZORYVE cream and foam product revenue.
Research and Development Expenses
Three Months Ended September 30, Change
2025 2024 $ %
(in thousands)
Direct external costs:
Topical roflumilast program $ 3,340 $ 1,320 $ 2,020 153 %
Topical JAK inhibitor program 61 1,089 (1,028) (94) %
Other early stage programs 1,379 2,910 (1,531) (53) %
Indirect costs:
Compensation and personnel-related 10,553 9,834 719 7 %
Other 4,271 4,348 (77) (2) %
Total research and development expense $ 19,604 $ 19,501 $ 103 1 %
Research and development expenses increased slightly by $0.1 million, or 1%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Direct external costs decreased due to lower ARQ-234 preclinical costs and the completion of a Phase 1b study in our topical JAK inhibitor program for the treatment of alopecia areata, which we elected to halt. These decreases were partially offset by an increase in expenses related to a Phase 2 study of ZORYVE cream 0.05% for the treatment of atopic dermatitis in infants.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $3.6 million, or 6%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was primarily due to continued commercialization efforts and growing revenue for ZORYVE and consisted of $2.2 million in compensation and personnel-related expenses and $2.0 million in sales and marketing expenses, partially offset by decreases in costs related to professional services.
Other Income, Net
Other income, net decreased by $2.1 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to less interest income resulting from lower cash, cash equivalents, and marketable securities balances, coupled with the impact of lower investment yields.
Interest Expense
Interest expense decreased by $3.6 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, due to a lower outstanding principal balance on our long-term debt driven by our $100.0 million principal paydown in October 2024, coupled with the impact of lower interest rates. See Note 8 to the condensed consolidated financial statements for additional information.
Comparison of the Nine Months Ended September 30, 2025 and 2024
Product Revenue, Net
We began recording U.S. product revenue in the third quarter of 2022 following the FDA approval and subsequent commercial launch of ZORYVE cream 0.3% in August 2022, Canada product revenue in the second quarter of 2023 following the Health Canada approval and subsequent commercial launch of ZORYVE cream 0.3% in June 2023, and additional U.S. revenue in the first quarter of 2024 following the FDA approval and subsequent commercial launch of ZORYVE foam for seborrheic dermatitis in January 2024. In the third quarter of 2024, we began recording U.S. product revenue following the FDA approval and subsequent commercial launch of ZORYVE cream 0.15% in July 2024. In the fourth quarter of 2024, we began recording Canada product revenue following the Health Canada approval and subsequent commercial launch of ZORYVE foam for seborrheic dermatitis in December 2024. In the second quarter of 2025, we began recording Canada product revenue following the Health Canada approval and subsequent launch of ZORYVE cream 0.15% in April 2025, as well as U.S. product revenue following the FDA approval and subsequent commercial launch of ZORYVE foam for scalp and body psoriasis in June 2025.
Nine Months Ended September 30, Change
2025 2024 $ %
(in thousands)
Product revenue, net
ZORYVE cream 0.3%
$ 81,553 $ 54,325 $ 27,228 50 %
ZORYVE foam
119,233 40,405 78,828 195 %
ZORYVE cream 0.15%
43,783 2,452 41,331 1686 %
Total product revenue, net
$ 244,569 $ 97,182 $ 147,387 152 %
______________
*Not applicable
Product revenue, net, for ZORYVE cream 0.3% increased by $27.2 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily driven by higher end customer demand in the United States and Canada.
Product revenue, net, for ZORYVE foam increased by $78.8 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily driven by higher end customer demand for seborrheic dermatitis in the United States, the commercial launch of ZORYVE foam for plaque psoriasis of the scalp and body in the United States in June 2025, as well as the commercial launch of ZORYVE foam for seborrheic dermatitis in Canada in December 2024.
Product revenue, net, for ZORYVE cream 0.15% increased by $41.3 million for the nine months ended September 30, 2025, primarily driven by its commercial launch in the United States in July 2024.
Other Revenue
Other revenue of $2.0 million for the nine months ended September 30, 2025 relates to license revenues received in connection with the Huadong Agreement. Other revenue for the nine months ended September 30, 2024 includes $25.0 million received as an upfront payment in connection with the Sato Agreement and a $3.0 million milestone payment received in connection with the Huadong Agreement. See Note 6 to the condensed consolidated financial statements for additional information.
Cost of Sales
Cost of sales increased by $12.8 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, and was due to a $2.5 million increase in amortization expense recorded in connection with the AstraZeneca milestones achieved in the first quarter of 2025, with the remainder due to the increase in royalty expense and cost of products sold consistent with the growth in ZORYVE cream and foam product revenue.
Research and Development Expenses
Nine Months Ended September 30, Change
2025 2024 $ %
(in thousands)
Direct external costs:
Topical roflumilast program $ 7,613 $ 7,839 $ (226) (3) %
Topical JAK inhibitor program 780 2,351 (1,571) (67) %
Other early stage programs 5,069 8,878 (3,809) (43) %
Indirect costs:
Compensation and personnel-related 29,970 29,574 396 1 %
Other 13,168 13,298 (130) (1) %
Total research and development expense $ 56,600 $ 61,940 $ (5,340) (9) %
Research and development expenses decreased by $5.3 million, or 9%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease was primarily
due to lower ARQ-234 preclinical costs and the completion of a Phase 1b study in our topical JAK inhibitor program for the treatment of alopecia areata, which we elected to halt.
We expect research and development expenses in future periods to increase primarily due to the development and clinical study associated with ARQ-234 and ZORYVE life cycle management.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $23.8 million, or 14%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase was primarily due to continued commercialization efforts and growing revenue for ZORYVE, and consisted of $13.4 million higher sales and marketing expenses and $12.1 million higher compensation and personnel-related expenses. These increases were partially offset by a decrease in professional services costs.
Other Income, Net
Other income, net decreased by $6.6 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to less interest income resulting from lower cash, cash equivalents, and marketable securities balances, coupled with the impact of lower investment yields.
Interest Expense
Interest expense decreased by $12.5 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, due to a lower outstanding principal balance on our long-term debt driven by our $100.0 million principal paydown in October 2024, coupled with the impact of lower interest rates. See Note 8 to the condensed consolidated financial statements for additional information.
Liquidity, Capital Resources, and Requirements
Sources of Liquidity
Our primary sources of capital to date have been private placements of preferred stock, our IPO completed in January 2020, our follow-on financings in October 2020, February 2021, August 2022, October 2023, and March 2024, our Loan Agreement, our ATM program, and revenue from the sale of ZORYVE cream 0.3%, ZORYVE cream 0.15%, and ZORYVE foam. We have incurred annual operating losses since our inception and have an accumulated deficit as a result of ongoing efforts to develop and commercialize our products and product candidates, including conducting nonclinical and clinical trials and providing selling, general and administrative support for these operations. As of September 30, 2025, we had cash, cash equivalents, restricted cash, and marketable securities of $191.4 million, and an accumulated deficit of $1,155.5 million. As of September 30, 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 on October 8, 2024, with the right to re-draw that principal for a defined period. See Note 8 to the condensed consolidated financial statements for additional information.
We believe that our existing capital resources will be sufficient to meet the projected operating requirements for at least 12 months from the date of issuance of our financial statements.
If our capital resources are insufficient to satisfy our requirements, we may need to fund our operations through the sale of our equity securities, accessing or incurring additional debt, entering into licensing or collaboration agreements with partners, grants, or other sources of financing. There can be no assurance that sufficient funds will be available to us at all or on attractive terms when needed from these sources. If we are unable to obtain additional funding from these or other sources if or when needed it may be necessary to significantly reduce our current rate of spending through, among other things, reductions in staff and delaying, scaling back, or stopping certain research and development programs, nonclinical studies, clinical trials or other development activities, and commercialization efforts. In addition, market conditions impacting financial institutions could impact our ability to access some or all of our cash, cash equivalents and marketable securities, and we may be unable to obtain alternative funding when and as needed on acceptable terms, if at all.
We have based our projected operating requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Any future funding requirements will depend on many factors, including, but not limited to:
•the timing, receipt, and amount of sales of any current and future products;
•the scope, progress, results, and costs of researching and developing our product candidates or any future product candidates, and conducting nonclinical studies and clinical trials, in particular our planned or ongoing development activities and our formulation and nonclinical efforts;
•suspensions or delays in the enrollment or changes to the number of subjects we decide to enroll in our ongoing clinical trials;
•the number and scope of clinical programs we decide to pursue, and the number and characteristics of any product candidates we develop or acquire;
•the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates;
•the number and characteristics of any additional product candidates we develop or acquire;
•the cost of manufacturing ZORYVE or any future product candidates and any products we successfully commercialize, including costs associated with building out our supply chain;
•the cost of commercialization activities for ZORYVE or any future product candidates that are approved for sale, including marketing, sales and distribution costs, and any discounts or rebates to obtain access;
•our ability to acquire attractive assets or businesses or to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into;
•the costs related to milestone payments to AstraZeneca or any future collaborator or licensing partner, upon the achievement of predetermined milestones;
•any product liability or other lawsuits related to our products;
•the expenses needed to attract and retain skilled personnel;
•any disputes, lawsuits, or other legal proceedings related to contracts or employment matters;
•the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing our intellectual property portfolio; and
•costs associated with any adverse market conditions or other macroeconomic factors.
Indebtedness
On December 22, 2021, we entered into a loan and security agreement (the Prior Loan Agreement) with SLR Investment Corp (SLR) and the lenders party thereto. The Prior Loan Agreement was amended and restated on January 10, 2023 (the AR Loan Agreement) to include Arcutis Canada, Inc., a corporation incorporated under the laws of the Province of Ontario, as a borrower and party. On November 1, 2023, we entered into an amendment to the AR Loan Agreement to, among others, (i) modify the financial covenant relating to minimum net product revenue, and (ii) include an additional minimum financing covenant. On August 9, 2024, we entered into a second amendment to the AR Loan Agreement (the AR Loan Agreement, as amended by the first and second amendments, the Loan Agreement) to, among others, (i) permit, during the period commencing on October 7, 2024 and ending on December 15, 2024, an optional partial prepayment of term loans outstanding, subject to a 1.0% prepayment penalty (the 2024 Partial Prepayment), (ii) add the tranche C-1 and tranche C-2 term loans, and (iii) facilitate certain other changes, including with respect to the applicable interest rate and maturity date in the event of a 2024 Partial Prepayment. The term loan facility is comprised of (i) a tranche A term loan of $75.0 million, (ii) a tranche B-1 term loan of $50.0 million, (iii) a tranche B-2 term loan of up to $75.0 million, (iv) a tranche C-1 term loan of up to $50.0 million, and (v) a tranche C-2 term loan of up to $50.0 million (collectively, the Term Loans). The tranche A term loan was funded in December 2021. With the approval of ZORYVE cream 0.3% on July 29, 2022, the tranche B term loans were funded in August 2022. As of September 30, 2025 and December 31, 2024, the aggregate principal amount outstanding under the Loan Agreement was $100.0 million.
In October 2024, we made a 2024 Partial Prepayment of $100.0 million, which reduced the aggregate principal amount outstanding under the Loan Agreement to $100.0 million. In connection with the 2024 Partial Prepayment, we are obligated to pay a prepayment penalty of $1.0 million by June 30, 2026 and a final fee of $6.95 million, representing the final fee applicable to the amount of the 2024 Partial Prepayment, on January 1, 2027. As a result of such 2024 Partial Prepayment, subject to us generating a minimum net product revenue for the trailing six (6) month period ending as of the month prior to the borrowing date equal to 80% of our projected net product revenue as set forth in its annual plan for the respective period, we will be able to draw down the tranche C-1 and tranche C-2 term loans. The tranche C-1 term loan availability will expire on March 31, 2026 and the tranche C-2 term loan availability will expire on June 30, 2026. In addition, as a result of the 2024 Partial Prepayment, (i) the maturity date of the Loan Agreement is August 1, 2029 (such date, the Maturity Date), (ii) the applicable per annum interest rate is equal to 5.95% plus the greater of (a) 2.50% per annum and (b) the one-month Secured Overnight Financing Rate (SOFR), (iii) we are no longer subject to certain cost and purchase price restrictions regarding acquisitions, and (iv) we may prepay principal amounts outstanding under the Term Loans in minimum increments of $25.0 million, subject to a prepayment premium of (a) 3.0% for any prepayment made prior to the first anniversary of the second amendment, (b) 2.0% for any prepayment made prior after the first anniversary of the second amendment and prior to the second anniversary of the second amendment, or (c) 1.0% for any prepayment made prior after the second anniversary of the second amendment and prior to the Maturity Date.
Principal amounts outstanding under the Term Loans will generally accrue interest at a floating rate equal to the applicable rate in effect from time to time, as determined by SLR on the third business day prior to the funding date of the applicable Term Loan and on the first business day of the month prior to each payment date of each Term Loan. Prior to the 2024 Partial Prepayment, the applicable rate was a per annum interest rate equal to 7.45% plus the greater of (a) 0.10% and (b) the one-month SOFR. As a result of such 2024 Partial Prepayment, the applicable interest rate will be a per annum interest rate equal to 5.95% plus the greater of (a) 2.50% and (b) the one-month SOFR. On September 30, 2025, the rate was 10.20%. The benchmark SOFR is subject to change in the event of certain events with respect to the benchmark rate. Interest payments are payable monthly following the funding of any Term Loan. Any principal amounts outstanding under the Term Loans, if not repaid or prepaid, are due and payable on August 1, 2029.
As security for the obligations under the Loan Agreement, we granted SLR, for the benefit of the lenders, a continuing security interest in substantially all of our assets, including our intellectual property, subject to certain exceptions.
If the Term Loans are accelerated due to, among others, the occurrence of a bankruptcy or insolvency event, we are required to make certain mandatory prepayments of (i) all principal amounts outstanding under the Term Loans, plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees applicable by reason of such prepayment, (iii) the prepayment premiums set forth in the paragraph above, plus (iv) all other obligations that are due and payable, including expenses and interest at the Default Rate (as defined below) with respect to any past due amounts.
The Loan Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among others, requirements as to financial reporting and insurance and restrictions on our ability to dispose of our business or property, to change our line of business, to liquidate or dissolve, to enter into any change in control transaction, to merge or consolidate with any other entity or to acquire all or substantially all the capital stock or property of another entity, to incur additional indebtedness, to incur liens on our property, to pay any dividends or other distributions on capital stock other than dividends payable solely in capital stock or to redeem capital stock. We also agreed to a financial covenant whereby we must generate a minimum net product revenue equal to 75% of our projected net product revenue as set forth in our annual plan for the respective period, tested on a trailing six-month basis as of the end of each month. Each annual plan shall be approved by our board of directors and SLR, in its capacity as collateral agent, in its reasonable discretion. Any failure by us to deliver such annual plan on or before December 15 of the prior year shall be an immediate event of default.
In addition, the Loan Agreement contains customary events of default that entitle the lenders to cause any indebtedness under the Loan Agreement to become immediately due and payable, and to exercise remedies against us and the collateral securing the Term Loans. Upon the occurrence and for the duration of an event of default, an additional default interest rate (the Default Rate) equal to 4.0% per annum will apply to all obligations owed under the Loan Agreement.
In connection with the Loan Agreement, we are obligated to pay (i) a final fee equal to 6.95% of the aggregate original principal amount of the Term Loans outstanding as of the date of the second amendment, (x) with respect to any 2024 Partial Prepayment, upon the earliest to occur of (A) January 1, 2027, (B) the acceleration of all outstanding Term Loans and (C) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, and (y) with respect to the Term Loans outstanding as of the date of the second amendment (other than 2024 Partial Prepayment), upon the earliest to occur of (A) the Maturity Date, (B) the acceleration of all outstanding Term Loans and (C) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (ii) a 2.00% fee with respect to tranche C term loans, due and payable on the earliest to occur of (A) the Maturity Date, (B) the acceleration of all outstanding Term Loans and (C) the prepayment, or refinancing, substitution or replacement of all outstanding Term Loans, (iii) a 2.00% extension fee with respect to tranche C term loans which remain unfunded after December 31, 2025, which shall accrue during the period commencing January 1, 2026, and ending on the earliest to occur of (A) the expiration of the tranche C term loan availability, and (B) the date on which tranche C term loan is fully drawn, and (iv) a certain amount of lenders' expenses incurred in connection with the execution of the Loan Agreement. Additionally, in connection with the original Prior Loan Agreement, we previously had entered into an Exit Fee Agreement, whereby we agreed to pay an exit fee in the amount of 3.0% of each Term Loan funded upon (i) any change of control transaction or (ii) a revenue milestone, calculated on a trailing six-month basis. Notwithstanding the prepayment or termination of the Term Loan, the exit fee will expire 10 years from the date of the Loan Agreement.
We were in compliance with all covenants under the Loan Agreement as of September 30, 2025.
Cash Flows
The following table sets forth our cash flows for the periods indicated:
Nine Months Ended September 30,
2025 2024
(in thousands)
Cash used in operating activities $ (31,810) $ (111,410)
Cash provided by (used in) investing activities
3,926 (6,057)
Cash provided by financing activities 3,251 163,613
Effect of exchange rate changes on cash 109 (1)
Net (decrease) increase in cash, cash equivalents, and restricted cash
$ (24,524) $ 46,145
Net Cash Used in Operating Activities
During the nine months ended September 30, 2025, net cash used in operating activities was $31.8 million, which consisted of a net loss of $33.5 million and a change in net operating assets and liabilities of $32.5 million, partially offset by net non-cash charges of $34.2 million. The net non-cash charges were primarily related to stock-based compensation expense of $30.3 million and amortization of intangible assets of $4.1 million.
During the nine months ended September 30, 2024, net cash used in operating activities was $111.4 million, which consisted of a net loss of $129.3 million and a change in net operating assets and liabilities of $13.5 million, partially offset by net non-cash charges of $31.4 million. The net non-cash charges were primarily related to stock-based compensation expense of $32.3 million.
Net Cash Provided by (Used in) Investing Activities
During the nine months ended September 30, 2025, net cash provided by investing activities was $3.9 million, which was comprised primarily of proceeds from the maturities of marketable securities of $172.4 million, offset by purchases of marketable securities of $157.8 million and a milestone payment made to AstraZeneca of $10.0 million.
During the nine months ended September 30, 2024, net cash used in investing activities was $6.1 million, which was comprised primarily of purchases of marketable securities of $237.4 million, offset by proceeds from the maturities of marketable securities of $231.5 million.
Net Cash Provided by Financing Activities
During the nine months ended September 30, 2025, net cash provided by financing activities was $3.3 million, which was comprised primarily of proceeds from the issuance of our common stock upon exercise of employee stock options and purchase of shares pursuant to our employee stock purchase plan.
During the nine months ended September 30, 2024, net cash provided by financing activities was $163.6 million, which was comprised primarily of $161.7 million of net proceeds from our March 2024 public stock offering.
Contractual Obligations and Contingent Liabilities
Other than the changes described in Notes 6 and Note 7 to the condensed consolidated financial statements in Item 1, related to our lease amendment and Ducentis, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2024.
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