Arcutis Biotherapeutics Q1-Q3 2023 Cheat Sheet
Introduction
This article is designed to get new and existing retail investors up to speed on Arcutis’s operations before their new earnings report is released on Tuesday February 27, 2024.
After I have time to sift through the new earnings report, I will post a much more in depth article detailing the full 2023 fiscal year.
Outline
- Company Overview
- Products
- Future Products
- Financials
- Big Daddy Institutional Ownership
- Short Selling Activity
Company Overview
Arcutis Biotherapeutics, Inc. (ARQT) is an early commercial-stage medical dermatology company focusing on the needs of individuals living with immune-mediated dermatological (skin related) diseases and conditions.
Immune-mediated diseases are conditions that result from an abnormal immune system response. In these diseases, the immune system mistakenly targets the body, creating an inflammatory response that causes damage.
Their current focus area’s are:
- Plaque & Scalp Psoriasis
- Atopic & Seborrheic Dermatitis
- Chronic Hand Eczema
- Vitiligo
- Alopecia Areata
In this article, we will be focusing on their psoriasis and dermatitis treatments.
Products
Arcutis’s current products are sold under the brand name Zoryve, and are available for patients via a cream or foam solution.
Plaque Psoriasis (Cream)
This product was approved by the FDA on July 29, 2022 for the treatment of plaque psoriasis in individuals age 12 and older. As of October 6, 2023 the FDA has approved it’s use for individuals age 6 and older.
This is the only product that we are concerned with in regards to revenue for Q4 in my opinion. The expansion of the customer pool may have allowed for additional earnings potential.
Seborrheic Dermatitis (Foam)
Approved by the FDA on Dec. 15, 2023.
I don’t see how this could have any impact on Q4 revenues after being approved just 16 days before the quarter ended. Then again, I am not really familiar with the industry, so this could be a misstep on my part.
Future Products
None of these are technically products, nor guaranteed to gain approval from the FDA, but I think it’s useful to mention them.
Awaiting FDA Approval
- Atopic Dermatitis (Cream) . FDA will likely give a decision by July 07, 2024.
Phase 3 Trials
- Scalp and Body Psoriasis (Foam)
Financials (As of 9/30/2023)
Seeing as Q4 reports are right around the corner, and that we barely have any good historical data on revenues, I’ll give a quick breakdown of where we left off at the end of Q3 2023, focusing solely on the core business, where I will use operating revenue instead of total revenue.
The reason for this is that in Q3 2023, Arcutis earned a total revenue of $38.1m. Upon further inspection of the cash flow statement, it shows that they profited off the sale of an investment. That sale of investment would greatly skew the data, and make an investor think that there was a big surge of revenue from products in Q3.
Cash & Cash Equivalents
Cash, cash equivalents, restricted cash, and marketable securities on hand at the end of Q3 2023 were $228m. Not much when you consider that they are spending +$70m cash on operating expenses alone each quarter.
Which brings me to my next point…
Public Offering of $100 million
In October 2023, Arcutis completed a public offering of $100 million gross.
- 32,500,000 shares of common stock priced at $2.50/share.
- Pre-funded warrants priced at $2.4999/warrant to purchase 7,500,000 shares of common stock.
- In addition, Arcutis granted the underwriters a 30-day option to purchase up to an additional 6,000,000 shares of its common stock at the public offering price per share, less underwriting discounts and commissions.
The public offering was made pursuant to an effective shelf registration statement on Form S-3 that was filed with the Securities and Exchange Commission (the “SEC”) on February 1, 2021. Morgan Stanley, TD Cowen and Guggenheim Securities acted as bookrunning managers for the offering.
In theory, and disregarding any costs associated with the offering, this would result in a balance of $328m cash & cash equivalents on hand.
Sounds great right? Not so much for existing shareholders, who have been heavily diluted in the past year.
Debt
In 2021, Arcutis closed a $225m term loan facility from funds managed by SLR Capital Partners.
Here’s a breakdown of the agreement:
- $75m tranche A loan, which was received by Arcutis on Dec. 22, 2021.
- $125m tranche B loan available after FDA approval of topical Roflumilast Cream for plaque psoriasis (sold as Zoryve).
- $25m tranch C loan after trailing-six-month revenue of $110.0 million and is available until Sept. 30, 2024.
Amendments
In November 2023, just after Q3, Arcutis amended its loan agreement with SLR, modifying the financial covenants by removing the minimum market capitalization requirement, changing specific product revenue minimums to at least 75% of the Company’s plan, and requiring the Company to obtain additional capital (non-dilutive or otherwise) of $31 million before April 1, 2024. The final undrawn tranche C loan of $25 million was eliminated from the agreement.
Speculation
Perhaps the company knew that they weren’t going to hit that tranch C target, and realized that they would not be able to raise any additional capital through debt financing. This would put them in a precarious position, which may have lead them to raising additional capital via the public offering mentioned previously.
Do not any under circumstances believe this as truth. I am still new to the company, and am just taking a wild guess. Use what I’ve given you, and come to your own conclusions.
More On The Shelf Offering
I had no clue what a shelf offering was until yesterday, and don’t have any time to do any further research at the moment because my head hurts.
Here is just a dump of the summary from the filing:
- A base prospectus covering the offering, issuance and sale by us of up to $300,000,000 of the Company’s common stock, preferred stock, debt securities, depositary shares, warrants, purchase contracts, and/or units, in each case from time to time in one or more offerings; and
- A sales agreement prospectus covering the offering, issuance and sale by us of up to a maximum aggregate offering price of $100,000,000 of the Company’s common stock that may be issued and sold under a sales agreement, or the Sales Agreement, with Cowen and Company, LLC, or TD Cowen.
Here is a link to the form on Seeking Alpha. You can also use this other link to visit Arcutis’s filings on SEC Edgar.
Institutional Ownership
I am only going to cover what I think are recent holding amounts by reading SEC filings. I don’t know much about these companies, maybe you do? Leave a comment.
One could definitely conclude that this buying interest is a positive sign.
Prudential Financial
Prudential recently had to file a 13G to disclose that they currently own 9,884,137 shares of Arcutis through three of their subsidiaries.
- Jennison Associates 9,066,082
- PGIM, Inc 730,000
- PGIM Quantitative Solutions 88,055
Vanguard Group
4,896,513 shares
Suvretta Capital Management, LLC
9,534,837 shares
Polar Capital Holdings
6,297,688 shares
Morgan Stanley
6,093,497 shares
Point72 Capital Advisors, Inc.
4,836,116 shares
Blackrock
5,916,546 shares
There are others, but yeah, I’m not going to bother.
Short Selling
Since the stock market is rigged against retail investors, it’s impossible to get timely data on short selling interest. But you have to realize that short interest was very high, and definitely could explain some of the meteoric rise of the share price.
If you recall our discussion on the $100m offering in October 2023, one could point to the lowest area on the chart and speculate that the smart money was buying at firesale prices at $2.50/share. This buying, could have eventually lead to short seller panic.
This is wild speculation though.
Outro
That’s about all the time I can dedicate to this, until Q4 results come out. After that, I will compile a very in depth article with forward guidance. Be very careful with your buying decisions, and realize there are levels to this game we play.
