Arcutis Biotherapeutics, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the figures below are for the full year, not Q4 alone. Arcutis is an early commercial-stage dermatology biopharmaceutical company. It launched its first approved product, ZORYVE cream for plaque psoriasis in patients aged 12 and older, in August 2022.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net product revenue | $3.7 million | None |
| Research and development expense | $182.4 million | $145.6 million |
| Selling, general and administrative expense | $122.1 million | $61.0 million |
| Operating loss | $301.6 million | $206.5 million |
| Net loss | $311.5 million | $206.4 million |
| Net loss per share, basic and diluted | $5.66 | $4.18 |
| Cash used in operating activities | $257.7 million | $174.6 million |
Sales began following ZORYVE’s launch and included an initial inventory build-up by wholesalers. Cost of sales was $0.8 million; revenue less cost of sales was approximately $2.9 million, but this is not a meaningful mature-product margin comparison: pre-approval manufacturing costs were expensed as R&D, and cost of sales included royalties and intangible amortization.
At year-end, cash and cash equivalents were $53.6 million, marketable securities were $355.9 million, and restricted cash was $1.2 million. Working capital was $399.6 million. Total assets were $449.3 million. Debt was $200.0 million gross, or $197.8 million net of debt issuance costs and fees; stockholders’ equity was $209.6 million. The company reported $410.8 million in cash, cash equivalents, restricted cash, and marketable securities combined.
Changes versus the prior year
- Revenue began in 2022; there was no product revenue in 2021.
- Net loss widened by $105.1 million, or 51%, and operating cash use increased by $83.1 million.
- R&D expense rose 25%, including $29.6 million of acquired in-process R&D related to Ducentis. SG&A doubled, primarily reflecting the ZORYVE commercial build-out and higher personnel costs.
- Debt increased from $75 million gross at year-end 2021 to $200 million after a $125 million draw in 2022. The company also raised $161.6 million net in an August stock offering and $14.5 million net through its ATM program.
Outlook, commentary, and notable items
- Management said existing capital resources were expected to fund projected operating requirements for at least 12 months from issuance of the financial statements. The company nevertheless expected continuing losses and significant R&D and commercialization spending; it did not provide revenue or profitability guidance.
- Management planned to seek FDA approval for ZORYVE cream in plaque psoriasis down to age two, with a potential decision in Q4 2023; submit an atopic dermatitis supplement for patients aged six and older in the second half of 2023; and report pediatric atopic dermatitis trial topline data in the second half of 2023.
- Arcutis submitted an NDA in February 2023 for roflumilast foam for seborrheic dermatitis, with potential FDA approval in late 2023. It expected to seek an expanded foam indication for scalp and body psoriasis in Q1 2024, following potential seborrheic dermatitis approval. These are management expectations, not assured outcomes.
- ARQ-255 entered a Phase 1b study for alopecia areata in December 2022. ARQ-252 development continued with reformulation following a prior chronic hand eczema study that missed its primary endpoint because of inadequate local drug delivery. ARQ-234, acquired with Ducentis in September 2022, remained preclinical.
- The SLR loan carries a floating rate that was 11.62% at year-end, is secured by substantially all assets including intellectual property, and matures January 1, 2027. A revenue covenant begins with the month ending December 2023, subject to a market-capitalization exception. The company reported covenant compliance at year-end.
- Potential contingent payments related to the Ducentis acquisition could total approximately $400 million if specified milestones are achieved; none were considered probable or recognized at year-end. The AstraZeneca roflumilast license also includes future regulatory and sales milestones and low- to high-single-digit royalties. Hengrui’s ivarmacitinib license includes up to $20.5 million in development and regulatory milestones and up to $200 million in sales milestones.
- Key risks include reliance on successful ZORYVE commercialization and payer access, continued cash burn and possible need for financing, competition, regulatory and clinical uncertainty, and dependence on third-party manufacturers and suppliers. The filing reports no material litigation. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether ZORYVE prescription demand, payer coverage, wholesaler inventory, and net sales develop beyond the initial launch period.
- Actual cash burn and financing runway relative to management’s 12-month liquidity statement, including any additional financing or dilution.
- Loan terms, floating-rate exposure, upcoming revenue-covenant thresholds, collateral provisions, and repayment obligations.
- Regulatory decisions and trial results against the stated timelines, including whether topline findings are confirmed in final data.
- Potential future milestone, royalty, and purchase commitments, including the contingent Ducentis consideration and ZORYVE supply commitments.