Arcutis (ARQT) Q1 2025: Zareve Scripts Jump 10% Despite Seasonal Headwinds, Underscoring Market Conversion Momentum
Arcutis delivered an atypically resilient first quarter, with Zareve prescription demand up 10% quarter over quarter despite standard Q1 insurance resets that usually drive notable declines in dermatology scripts. Management’s narrative and prescription data signal accelerating conversion from topical steroids to branded non-steroidal treatments, with Zareve’s unique clinical profile and broad coverage positioning it as the primary beneficiary. As the company readies for two label expansions and maintains strong payer access, operational execution and portfolio effect are setting the stage for continued share gains in a still underpenetrated $17 billion addressable market.
Summary
- Prescription Growth Defies Seasonality: Zareve scripts rose 10% sequentially, outpacing typical Q1 declines and signaling robust demand momentum.
- Market Conversion Accelerates: Branded non-steroidal adoption is gaining share from topical steroids, with Arcutis capturing a leading position.
- Portfolio Effect Drives Utilization: Multi-indication prescribers are writing exponentially more scripts, amplifying the franchise’s growth potential.
Performance Analysis
Arcutis’ Q1 results demonstrated operational strength, with net product revenue nearly doubling year over year and only a modest 2% sequential dip despite the industry’s typical Q1 insurance headwinds. The company’s Zareve franchise, which now spans three major inflammatory skin indications, is seeing prescription volume reach record highs, with 17,000 weekly scripts on a four-week rolling average. Notably, unit demand grew 10% compared to Q4, a rare outcome in branded pharmaceuticals where Q1 is usually marked by significant pullbacks due to deductible resets and insurance plan changes.
Gross-to-net (GTN, the ratio of gross sales to net sales after discounts and rebates) stabilized in the 50% range, with management anticipating incremental improvement as the year progresses. Insurance coverage also remains a key operational lever, with approximately 80% of Zareve prescriptions reimbursed—a level management views as optimal and sustainable. The company’s cost structure reflects ongoing investment in launches and promotional activity, with SG&A up 17% year over year but expected to normalize in the back half of 2025.
- Volume Resilience Outpaces Peers: Zareve’s Q1 prescription growth contrasts with flat or declining trends seen in other branded topicals during the same period.
- SG&A Investment Fuels Launches: Higher promotional spend supported new and upcoming indication launches, positioning the franchise for further expansion.
- Cash Burn Trends Downward: Quarterly cash burn declined versus Q3 2024, with management reiterating a path to cash breakeven in 2026.
This combination of volume growth, payer access, and disciplined spend is driving a virtuous cycle for Arcutis as it continues to scale its Zareve platform.
Executive Commentary
"If you take nothing else away from our call today, I want to highlight four key points. First, our team continues to execute exceptionally well, most notably our commercial and R&D teams, as evidenced by yet another strong quarter performance across our portfolio and our continued progress in advancing our pipeline."
Frank Watanabe, President and CEO
"Our SG&A spend in Q2 will be higher than Q1, associated with the scalp and body psoriasis launch, and then normalized in the second half of the year. This expense stabilization, combined with the tremendous growth potential of our Zuri portfolio, gives us continued confidence that we can reach cash breakeven in 2026."
Latha Virovan, Chief Financial Officer
Strategic Positioning
1. Conversion from Topical Steroids Accelerates
Arcutis is capitalizing on a structural shift in dermatology as clinicians increasingly move away from topical steroids toward branded non-steroidal agents. The company’s data show a 200 basis point decline in topical steroid share over the past year, with branded topicals—led by Zareve—absorbing that volume. This trend is supported by new clinical guidelines and growing awareness of steroid safety concerns, reinforcing Zareve’s positioning as the go-to alternative for chronic inflammatory skin conditions.
2. Portfolio Effect Multiplies Prescriber Engagement
Prescribers writing Zareve across multiple indications are generating ten times more scripts than those using it for a single disease, demonstrating a powerful portfolio effect. With upcoming label expansions (scalp and body psoriasis foam in May, atopic dermatitis in young children in October), this effect is expected to intensify, further anchoring Arcutis’ presence in both dermatology and primary care channels.
3. Broad and Durable Market Access
Approximately 80% of Zareve scripts are reimbursed, with the company achieving parity in coverage across psoriasis, seborrheic dermatitis, and atopic dermatitis. Expanded Medicaid access (now 53% of state Medicaid lives with a single step) and a steady gross-to-net ratio strengthen profitability and lower financial risk from payer mix volatility.
4. Primary Care Channel Expansion
Arcutis’ partnership with COA, its commercial partner for primary care and pediatrics, is beginning to yield early traction, though management acknowledges a longer ramp due to the need for education and repeated engagement. As primary care physicians become more familiar with non-steroidal topicals, this channel represents a significant untapped growth lever.
5. Pipeline and IP Defensibility
The company is advancing its early-stage pipeline (ARQ255 for alopecia areata, ARQ234 for atopic dermatitis), with key readouts expected in 2025. On the intellectual property front, Arcutis extended the litigation stay with Patagas, maintaining its 30-month Hatch-Waxman exclusivity and reducing near-term legal distraction and cost.
Key Considerations
This quarter’s results reinforce Arcutis’ ability to drive prescription growth and sustain pricing power even as it scales, but the company’s trajectory will hinge on continued market conversion and execution against upcoming launches.
Key Considerations:
- Seasonality Impact Muted by Demand: Despite typical Q1 insurance headwinds, Zareve delivered sequential script growth, reflecting strong underlying demand and prescriber adoption.
- Label Expansions as Catalysts: Upcoming approvals for scalp/body psoriasis foam and pediatric atopic dermatitis are poised to unlock new patient segments and reinforce the portfolio effect.
- Payer Access Remains Robust: Broad insurance coverage and Medicaid expansion support sustained volume growth and margin stability.
- Primary Care Ramp Is Gradual: The COA partnership is making inroads, but education and workflow integration will take time before meaningfully moving the revenue needle.
- Cash Flow Inflection on Horizon: Management targets cash breakeven in 2026, with scale-driven margin expansion and expense normalization as key drivers.
Risks
Key risks include slower-than-expected conversion from topical steroids, potential payer pushback on reimbursement, and execution risk around new indication launches. Pipeline development carries standard clinical and regulatory uncertainty, while primary care adoption may underwhelm if education efforts stall. Ongoing IP litigation, though currently stayed, could reemerge as a distraction or cost burden if revived.
Forward Outlook
For Q2 2025, Arcutis expects:
- Incremental SG&A increase tied to the scalp and body psoriasis foam launch
- Continued script and revenue growth, with seasonal moderation in summer months
For full-year 2025, management maintained guidance:
- Gross-to-net to remain in the 50% range, with modest improvement as the year progresses
- Cash burn to trend downward, with cash flow breakeven targeted in 2026
Management highlighted several factors that will shape results:
- Label expansion approvals are expected to drive incremental demand and amplify portfolio effect
- Primary care and pediatric channel growth will be a gradual contributor, but with significant long-term upside
Takeaways
Arcutis is executing on a rare market expansion opportunity in dermatology, with Zareve’s clinical profile and payer access driving rapid share gains from entrenched steroid use. The company’s ability to sustain demand growth through seasonal headwinds and leverage multi-indication prescribing sets it apart from peers.
- Resilient Prescription Growth: Outperformance in Q1 highlights the durability of demand and growing clinician preference for non-steroidal options.
- Strategic Launch Sequencing: Forthcoming approvals will further entrench Zareve as a first-line choice, especially as the portfolio effect multiplies prescriber engagement.
- Watch for Primary Care Inflection: The pace of adoption in primary care and pediatrics will be a key determinant of the franchise’s long-term upside.
Conclusion
Arcutis’ Q1 results showcase a business in the early stages of a structural shift in dermatology prescribing. With strong payer access, disciplined investment, and a robust launch calendar, the company is well positioned to extend its leadership in branded non-steroidal topicals and approach cash flow breakeven in 2026.
Industry Read-Through
Arcutis’ performance and clinician feedback signal a broader inflection in dermatology prescribing, with branded non-steroidal topicals rapidly gaining share from legacy steroid treatments. This dynamic is likely to benefit other advanced topical players with differentiated profiles and broad coverage, while legacy steroid and older non-steroidal franchises may see accelerating share loss. Payer willingness to reimburse innovative topicals at scale, coupled with growing safety concerns around steroids, suggests a favorable environment for continued branded expansion across chronic inflammatory skin conditions.