Good day, and welcome to the Arcutis Biotherapeutics Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Eric McIntyre, Head of Investor Relations. Please go ahead.

Thank you, Abigail. Good morning, everyone, and thank you for joining this morning to discuss our Q3 2023 financial results. The slides for today are available on the Investors section of our website. On the call this morning, we have Frank Watanabe, President and CEO; Todd Edwards, our Chief Commercial Officer; Patrick Burnett, Chief Medical Officer; and John Smither, Chief Financial Officer. I'd remind everyone that we will be making forward-looking statements during this call. These statements are subject to certain risks and uncertainties, and our actual results may differ. With that, let me hand the call over to Frank. Frank?

Thanks, Eric. So, I'm on Slide 5 of the deck now. So, we're really pleased with the Arcutis team and our execution in the quarter. We made remarkable progress since the last time we spoke regarding our Q2 earnings. Starting off with the ZORYVE launch in psoriasis, that continues to gain momentum, and we now have over 110,000 prescriptions and about 9,000 unique prescribers launched to date, as our product delivers positive clinical experience for healthcare providers and their patients. This positive tailwind sets us up to launch our future topical roflumilast formulations as well from a position of strength. We also saw significant gross net improvements in the quarter, averaging in the low 70%s for the quarter. Once again, we had flawless execution against our clinical and regulatory milestones with a steady flow of successes this past quarter. Patrick will go in a lot more detail in his remarks, but during the quarter, we received FDA approval for an expanded psoriasis indication down to the age of six. We filed a supplemental NDA for atopic dermatitis down to the age of six, with an expected approval in early Q3 of 2024. We announced positive pivotal Phase III data for AD in the 2- to 5-year-old range, and we released some really exciting long-term data in AD that demonstrated efficacy continues with -- and actually improved with treatment with ZORYVE long-term up to 52 weeks, along with a very favorable long-term safety and dependable disease control. We also strengthened our capital position with a follow-on raise we completed in October, as well as the upfront from the out-licensing deal we executed in Huadong for Greater China and Southeast Asia, and John will go into more details in just a minute. John will also talk about some more positive news around…

Thanks, Frank. I'm very enthusiastic about joining Arcutis team, and looking forward to the tremendous opportunity ahead. It is great to be speaking with all of you today to provide a brief commercial update. Moving to Slide 8. The ZORYVE psoriasis launch continues to progress nicely, and we have specific plans to further accelerate the launch trajectory, laying a solid foundation for sustained growth in psoriasis and further growth in new indications. As I come on board, I see healthy, steady ZORYVE demand that was driven by the strength of the clinical profile. After spending the last several weeks in meetings with dermatologists, MVs and PAs currently using ZORYVE, the feedback I received about the product is exceptional. These prescribers spoke to me about the patients being delighted by the results achieved with ZORYVE. The NRx and TRx prescription volume is growing every quarter, and ZORYVE has over 100,000 Rxs launched to date. We are starting to see a preference for ZORYVE relative to non-steroidal competitor, and 8 in 10 ZORYVE writers are increasing their utilization of ZORYVE. The new pediatric label expansion down to six years of age incrementally expands our opportunities for growth, and further strengthens ZORYVE's safety and tolerability profile. We expect demand growth as we capitalize on our investments in the launch and strengthen our field execution. One very large incremental opportunity to accelerate prescription growth is expansion into Medicaid and Medicare beginning in early 2024. Roughly a third of psoriasis patients and nearly half of Seb Derm atopic dermatitis patients are on Medicare or Medicaid. ZORYVE's pricing falls below the CMS specialty threshold, unlike other branded topicals, so we are much better positioned to access these patient segments. I am now on Slide 9. ZORYVE's differentiated pricing and access strategy continues to resonate with payers…

Thank you, Todd. I'm now on Slide 12. As Frank highlighted, it's been a very busy quarter, and I'm extremely proud of the team's performance in delivering on the promise of topical roflumilast to the dermatology community and hitting all of our timelines with regard to regulatory milestones. So, starting with psoriasis first. Here, we announced the approval down to the age of six. This expands our current indication and the overall opportunity in pediatrics, and we look forward to adding to the five-year-olds in psoriasis, which will be the subject of a future FDA review pending some additional data. Moving on to Seb Derm, which will be the first indication for the foam where we have an upcoming PDUFA on December 16, with an early 2024 launch being planned. Physician excitement for Seb Derm is palpable, driven both by our unprecedented efficacy with this once-a-day foam, and an area where there has been no innovation in decades and no branded competition, all this in a market as big as psoriasis. So, moving on to Slide 13, where I want to highlight a few points on the efficacy in Seb Derm. On the left, I'm showing the 80% of patients got the IGA success. This means that they reached clear or almost clear on the IGA scale in eight weeks, and they started from a baseline of moderate or severe. But what's really generated a lot of excitement is on the right, where we show that we've got 50% of patients to completely clear. This means they had no erythema, no scaling, no evidence of disease. Not shown on this slide, but also we saw improvement in itch in as little as 48 hours after initiating treatment. Itch is the primary symptom of Seb Derm, and really drives an impact…

Thank you, Patrick. Good morning, everybody. I'm beginning on Slide 18. For the third quarter, we reported net product revenue of $8.1 million, reflecting a 70% growth quarter-over-quarter on top of the about 70% growth in Q2. This was largely driven by substantial gross to net percentage improvements down to the lower 70s, particularly with the CVS coverage win and the team's execution to ensure prescriptions are covered by insurers. We also saw healthy demand growth in the quarter. Looking forward to Q4, we expect further ZORYVE demand growth and gross to net improvement versus Q3. On Slide 19, I'll walk you through the rest of the P&L. We reported total revenues of $38 million for the quarter, which included in other revenues, the upfront payment we received from Huadong collaboration and license agreement. R&D expenses of $26.2 million were down significantly from Q3 2022, due to the upfront milestone payment for the Ducentis acquisition, as well as continued decrease of development costs of topical roflumilast programs. We expect Q4 R&D to be on par with Q3, and expect fiscal-year 2024 R&D expense to decline versus fiscal-year 2023. SG&A is a result of higher commercialization expense year-over-year, which reflects our continued investment in the ZORYVE launch and upcoming launches in Seb Derm and atopic dermatitis. As Todd mentioned, additional sales force will drive modest incremental SG&A growth in Q4 versus Q3. Lastly, net loss per share of $0.73 improved by over $1.15 per share year-over-year. Moving on to Slide 20. On the balance sheet. Cash and marketable securities of $228 million as of the end of the quarter, which obviously does not include the recent raise of $100 million that we completed in early October. That raise provides a path to expand our psoriasis launch, as well as capitalize on…

Thanks, John. As John mentioned, we continue to evaluate all of our activities as we transition from a development stage to a commercial stage company in order to effectively manage our expenses. Back in Q1, we announced a de-prioritization of a number of our R&D programs. And then based on those changes and as our ongoing large Phase III trials are winding down, earlier this quarter, we completed a limited restructuring to better align our organization with our ongoing activities. Today, with the expected approval of roflumilast foam and the successful submission of the AD sNDA, we're announcing some further changes in our leadership to further align our organization with our priorities. Patricia Turney will be stepping down as our Senior Vice President of Operations, and David Osborne will be retiring as our Chief Technical Officer. Both Patricia and David will continue on as consultants to the company to facilitate this organizational transition and to lend their extensive expertise in the future. We will be merging our technical operations and product development organizations and Bethany Dudek has been promoted to the role of Chief Technical Officer, overseeing the range of these activities. We're excited to have Bethany taking over our technical operations. She's been with Arcutis for the past three years as the Head of Quality and has done an outstanding job. I would add, I've worked with Bethany off and on for the past 15 years. She's an outstanding executive and I feel very confident about her. She brings to her new position, extensive experience across product development and quality and manufacturing built over a 28-year career at Arcutis, Kite, Novartis and Amgen. So, with the ongoing ZORYVE launch and all of the additional opportunities ahead of us, I believe we are incredibly well positioned to execute on our mission of building the preeminent immunodermatology company and continuing to build shareholder value. And with that, we'll open it up for Q&A.

Thank you. At this time, we'll conduct the question-and-answer session. [Operator Instructions] Our first question comes from Tyler Van Buren with TD Cowen. Your line is open.

Congratulations on all the progress during the quarter. I have a couple for you related to Seb Derm. So, for the potential topical roflumilast approval for Seb Derm, can you elaborate on where you are with the regulatory review and if you've started labeling discussions? And then the second question, just regarding the launch trajectory and the coverage relative to ZORYVE. I think you mentioned that two or three -- two of the three major PBMs expect to approve it as a line extension. So does that happen immediately upon approval? Or what's the timeframe on logistics? And then also, how long do you think it will take to get the third PBM online?

Yes, Tyler, great to hear from you. With regard to Seb Derm, as a policy, we don't comment on ongoing reviews with the FDA. So I don't feel it would be appropriate for me to make any comments on the process. I will say that I think we feel very confident about the upcoming PDUFA date. And we think that the data speaks for itself. With regard to the coverage, I think I'd ask Todd to respond to that one, if you could both to clarify around the first two and then our timing on the third.

Yes, absolutely, Frank. Thank you. And good question relative to the contracts and Seb Derm. So two of the -- as mentioned, with two of the large PBMs within our contracts today, the Seb Derm launch will be treated as a line extension. So what that translates to is that we're starting this launch at a position of strength, meaning that at launch, those two PBMs will cover Seb Derm as a covered product, which will help us also with a good strong -- good start to our gross to net. The third PBM, we are currently in negotiations with, and those negotiations are very positive right now. So we look to further those conversations with the ambition of having coverage at launch with that third PBM.

Thanks. Abigail, we can go to the next question.

[Operator Instructions] Our next question comes from Seamus Fernandez with Guggenheim Securities. Your line is open.

So maybe just as a first discussion point. Would you guys mind sort of comparing and contrasting the launch of ZORYVE? And where you are in the launch relative to the impact of the sort of vitiligo launch for the brands that you used to work with? I think it's sort of an important and interesting comparison relative to the coverage dynamics as well as the opportunity for warehousing and sort of accelerated growth. So, just trying to get a relative sense of where you feel awareness is as a comparison? What this could mean for the overall brand? Because unique indications really do seem to accelerate brands overall. And then just maybe if you can provide us a little bit of color on how you see the -- this sort of extension of coverage impacting gross to net, should we be thinking about overall gross to net having a step down or even a slight movement down in the fourth quarter to kind of accommodate that case? And then just a question for John. It does state in terms of the covenants, the 75% of -- can you just clarify the 75% of revenue target? Is that just for this year? Or is it the sort of sequential targets that are laid out, so 75% of all of the targets that are laid out in that sort of revenue planning phase?

Seamus, it's always good to hear from you. So just so we're clear, you were asking Todd about ZORYVE and sort of the dynamics between psoriasis and Seb Derm and how that compares to OPZELURA and the dynamics with atopic dermatitis and vitiligo?

Yes, I just didn't name the product.

Yes, that's okay. I can say that. Go ahead, Todd.

Yes. Great. Thank you. So first thing relative to Seb Derm launch. So currently, we're working on some disease state awareness activity for both patients and dermatologists that's a targeted education, which will likely be focused, obviously, prelaunch. With the emphasis on the frustration of the condition, the impact on quality of life as well as the polypharmacy that occurs here. We're talking about five to six treatments per patient. And often, it takes 15 to 30 minutes a day spent with this regimen. So it's a very frustrating situation for patients. There's been no innovation branded products within this space for over two decades. And if you think about the number of available patients that you talked about a warehouse of patients, so there is a ready pool of patients that are yearning for a product like ZORYVE that provides a very unique value proposition. Because this product you can use once-a-day product that you can use, it's one product versus polypharmacy and delivers long-term disease control. If you think about it, there's about 10 million patients that are diagnosed with seborrheic dermatitis. Of that, about 7 million of them are treated within Rx. If you continue to break it down, about 4 million are treated within Rx in derm setting, and of that, 3.2 million are treated with the TCS. And if you drop it into our treatment zone, 2.2 million of those are moderate to severe patients that are currently taking to TCS. So there's significant opportunity here to really bring ZORYVE to life. Furthermore, we're starting from a position of strength with this formulary position, as mentioned, where two of the three PBMs will cover as a line extension at launch. And you asked the question about gross to net. So we expect that with the Seb Derm launch, we're not starting from ground zero, launching a new asset into the market where you have to provide a free goods program is going to have an adverse impact on your gross to net. We'll have coverage with the two PBMs, those will be reimbursed claims and a positive gross to net. So the gross to net will, for Seb Derm, at launch will be higher relative to the gross to net that we have in psoriasis. But nonetheless, we believe that, that gap will rapidly close over time in 2024 as we bring on that third PBM coverage and maximize our covered claims.

John?

Seamus, this is John. To answer your question on the covenants, the 75% applies to the year-end number for 2023 or the year plan number, and then it's a monthly calculation in 2024 with a six-month lagging average. So, whatever that number is, you apply 75%. If we're above it, we're good. And that's measured each month in 2024.

Great. Thank you. And maybe just a quick final follow-up. In terms of the stocking necessary to really have this be executed as a robust launch, when should we anticipate the sort of official launch of the foam, regardless of the sort of PDUFA approval timelines? Is this a day of kind of PDUFA hitting the ground running? Or should we think about this as more of a potential sort of stocking the pharmacies event in the last few weeks of the year, followed by maybe a mid-January to kind of February launch timeframe? Just trying to get a little bit of incremental granularity before we get too excited to track the Seb Derm scripts.

Yes. Absolutely. So as mentioned, we have the PDUFA December 16, with the full commercial launch anticipated to be mid to late January. So we want to make certain we have ample time to be able to stop the channel, make certain pharmacies have product on shelf as we launch this and drive demand.

Yes. And maybe just to put a fine point on that. Seamus, as you know, with topicals, is a little challenging because of labeling. It's more challenging than pills or biologics. So I don't think you should anticipate to see any stocking in Q4.

Our next question comes from Vikram Purohit with Morgan Stanley. Your line is open.

We had two. First, on ZORYVE psoriasis specifically. Could you just unpack for us in a bit more detail, what drove the quarter-to-quarter gross to net change we saw from 2Q to 3Q? And then specifically, what needs to happen from here on out to compress gross to net? From where it is now to kind of steady state and I think you mentioned second half of next year? And then secondly, on seborrheic dermatitis, apologies if you mentioned this in response to a previous question, and I missed it, but how do you think the actual uptake in script trajectory, excuse me, for Seb Derm for the initial couple of quarters could compare to what we saw with ZORYVE for psoriasis post the launch of that product?

Yes. So I think those probably are both for Todd.

Yes, absolutely. So let me first cover off on relative to the gross to net and what drove the change in gross to net, what we need to continue to do to amplify improvement. So improvement in [coverage] (ph), as we saw in Q2, obviously accelerated in Q3. So we saw an improvement in the percentage of covered prescriptions across all the major PBMs in Q3, with CVS driving the most dramatic improvement. Also seen improvement across the other two large PBMs. If you think about it, if this translates into reduced co-pay expenses and provides us a springboard to continue to improve gross to net and leverage this progress further. We expect our field force execution and to be a continued focus on pulling through our coverage to produce approved gross to net in Q4 and beyond. And as we roll forward, we're going to be building and working -- developing partnerships with dermatology pharmacies, which reinforces our conviction that we can achieve our target gross to net. So through coverage, through our partnerships with these independent derm pharmacies will translate into further improvements as we go forward with our gross to net. And then the other question was?

Seb Derm uptake relative to psoriasis.

Yes. Seb Derm uptake relative to psoriasis. As mentioned, there's a ready pool of patients that are gearing for new treatment options with Seb Derm. There's no branded competition within the market, no innovation in the market for over two decades. And so I would anticipate a robust uptake at launch with Seb Derm, whereas compared to the psoriasis market, it's a highly competitive market, multiple competing products within there, which Seb Derm is very much unlike that.

And Vikram, I'd just remind you. To Todd's point, we picked up that CVS coverage 7:1, so right at the beginning of Q3. So that was certainly major contributor but not the only contributor to the improvements in gross to net.

[Operator Instructions] Our next question comes from Uy Ear with Mizuho. Your line is open.

Congrats on the good quarter and all the progress. I guess the question is for Todd. You've been there for a little while now. And just wondering, what are some of the changes that are different that you're looking into executing? I know that you've already added some sales force, increased the sales force size. But what are some other changes that you might put in play to improve script uptakes for psoriasis and maybe as well as for the Seb Derm upcoming launch?

Yes, absolutely. Just a few things. After many years in dermatology, I see a tremendous opportunity to change the treatment of paradigm in these three largest disease areas that we've been talking about here today to include, psoriasis, eventually Seb Derm and atopic dermatitis. If you think about it, the dermatology communities, they've been yearning for nonsteroidal options that still fit with their -- I call it a topical first mentality, derms are oriented towards the local treatment. You think about ZORYVE data package, especially the long-term data on PsO or Seb Derm or AD and it's exceptional, in my view, and it really hits the outcomes of dermatologists and patients are looking for. So, I see a ready opportunity advancing our competitive share of voice. Our messaging, which, of course, are known levers that can drive utilization with the dermatology community. In addition to that, if you look at the perceptions of efficacy, they're very encouraging and the differentiating attributes of ZORYVE are resonating with prescribers. And as mentioned that the long-term data, I think, is extremely meaningful and really differentiates that long-term value of ZORYVE. But dermatologists, they're well ingrained, they're creatures of habits, and it takes time to get them to critical mass of patients that foam ZORYVE placed within the treatment paradigm. And by creating depth within our current prescriber base, moving them along the adoption curve, and moving up the average number of ZORYVE patients per prescriber will continue to accelerate the uptake in ZORYVE. And as mentioned, we've hired the representatives to amplify our share of voice. In September, we launched a targeted direct-to-consumer campaign, which we will continue to move forward. And we're going to have an expansion on the efficacy message to dermatologists to include a broader target patient with a higher BSA. And then I think as mentioned earlier, there's an exceptional opportunity for expansion within Medicare and Medicaid, and that's also to mention that expanded pediatric indication down to the age of six will provide us with their expansion opportunity in psoriasis.

Maybe I'll just add, because Todd is modest. We ran a very extensive search for our new Chief Commercial Officer. And it was very clear to me that Todd was the right person to join this team. I believe that leadership matters, and we chose Todd because look, he has a proven track record. He's done this before. He successfully launched other topical products in the space very recently, has very effectively driven demand and has also very effectively managed gross to nets. And I have complete confidence in him and his ability to lead our commercial team. We also did announce the promotion of Ayisha Jeter to head both marketing and market access. She had been previously -- while she was the interim Chief Commercial Officer and had been running market access. And I think along with Todd, I have real confidence in their ability to launch these additional indications and continue to drive the growth of ZORYVE in psoriasis.

Can I follow up with just a question on gross to net? So I guess if your target is to reach steady state somewhere sometime in the second half of next year, it sort of implies that the quarterly pace improvement is pretty significant. I was just wondering if you can sort of just talk a bit, perhaps help us quantify what the improvement could be in the fourth quarter, at least?

I'm thinking about it. We tend not to give forward guidance on gross to net. I would say, we saw a very significant improvement in Q3 over Q2. We saw a nice improvement in Q2 over Q1. I think we will see a further improvement in Q4 versus Q3. I won't commit that it will be of a similar magnitude as what we saw in Q3 because that was a pretty big move. But I think Q4, you may see a little bit of noise in Q1 with the co-pay resets, but we'll continue to make progress there in Q2 next year as well. I think it's not a miracle occurs here sort of phenomenon for us to get to our target gross to net, with continued execution against the programs we already have in place and the coverage we have in place.

[Operator Instructions] Our next question comes from Chris Shibutani with Goldman Sachs. Your line is open.

On the commercialization effort, the increase in the sales footprint that you have, can you give us a sense for how maybe more specifically, the composition of this group might be able to be impactful? And what's the appropriate way to think about the timing for a potential inflection from that? And then, Frank, I think, historically, you've acknowledged how AD as a market is certainly quite vast into market to a primary care type potential market. It would contemplate a partnership for that market specifically. Can you talk about what your latest thinking is there?

Yes, sure. Maybe I'll take the second question first, and then I'll ask Todd to talk about the sales force. Yes, Shibu you are absolutely correct. You recall correctly our previous comments, about half of the atopic dermatitis market and also about half of the seborrheic dermatitis market exist out of dermatology. A lesser portion of the psoriasis market, there's not insignificant number of psoriasis patients also treated outside of dermatology. The challenge for the primary care and pediatrics markets, which is where most of those patients sit, is just the breadth of the prescriber base, you're talking 250,000 prescribers versus 13,000 prescribers, it's not economically viable for a company like ours to build a primary care sales force. And so, we have been saying all along, our intention was to find a partner that had an existing primary care sales force that could do a co-promote for us in those markets. That continues to be our plan. And I would just say at this point that we're in active discussions with potential partners to try and strike an agreement. We also have said in the past that from a timing standpoint, ideally, we want to have that partnership in place sometime around the atopic dermatitis approval. And I say around because the PCPs are going to be looking to the dermatologist for guidance. And so we have to win with the dermatologist first. I don't think we need to have that PCP partnership in place at launch, but you would want to have it sometime shortly after that launch or there wouldn't be any downside to having it before either, right? So, I think you should really be thinking about us hoping to have that in place in the second half of 2022 -- 2024, excuse me. And then, Todd, do you want to talk a little bit about the sales force expansion?

Yes, relative to the sales force expansion, the 15% increase in share of voice, so that 15%, we took that 15% and we overlaid the current sales force. What we did is look at the high-prescribing geographies to make certain that we can continue to obtain the desired frequency and reach and engagement with those high-prescribing physicians. So, we overlaid that 15% into those geographies. In addition to that, as we move through 2024 and we -- in the atopic dermatitis launch will at that time, give consideration to potentially another expansion to make certain that we have the share of voice required to be able to engage across the three indications. And don't forget, 2023, Arcutis aligned a group called the Pharmacy Access Managers within the field. This team engages directly with the independent pharmacies as well as the staff with the dermatology offices to ensure that we're getting appropriate prescription fulfillment. So, I feel that the organization is at a very good place right now to have the appropriate share of voice that we need to be able to continue the acceleration of ZORYVE psoriasis and make certain that we start from a position of strength and a quick start to the Sub Derm launch.

And that expansion, we completed October 1. So I mean, I think we'll see some impact even in the fourth quarter, and that will continue on into '24.

Yes, absolutely.

Great. Look forward to momentum from that new sales force.

[Operator Instructions] Our next question comes from Sean Kim with JonesTrading. Your line is open.

Congratulations on the quarter. I guess just a few quick questions on my end. The first question is as you look to moving to government, Medicare, Medicaid patient populations, can you comment on the potential additional operational efforts and maybe financial burden that will be required to tap into that market and maybe potential sales opportunities there? And my second question is about the sales force expansion as you look to launch Seb Derm and also atopic dermatitis. I believe you mentioned about 9,000 unique prescribers that have prescribed ZORYVE so far. So I just wanted to hear your thoughts on the additions of sales force. Looks like about a little over 10 prescriptions per prescriber. So I'm just wondering if there is opportunities to expand the number of prescriptions per prescriber and also the potential expansion to reach the 13,000 target that you mentioned last time around? And my last question is about the SLR loan agreement, the modifications to financial covenant. I just want to make sure that I understand correctly that the original threshold or minimum threshold remains for year 2025 and 2026.

Great. Maybe let me take your second question, and then I'll have Todd address your first question, and John address your third question. So yes, look, I think with regard to our breadth and depth, we've talked about this before. There are about 13,000 targets that we are targeting with our sales force. They represent over 90% of the relevant prescriptions in dermatology. Out of that 13,000, about 9,000 are currently writing. So there clearly is an opportunity to expand the breadth of our prescribing base. I don't think we will ever get all 13,000 of them, because you have some doctors who just are ultra conservative and are never going to change from using their old topical steroids. But I think we'll eventually get very high penetration. And we've been adding roughly about 500 doctors a month for quite some time now to that prescribing base. I think we were sitting at 7,000 in the last quarter, right, something like that. So we will continue to expand the prescribing base. I'm confident of that. And I think as Todd mentioned, I think the foam could actually help us with that broadening of the prescriber base. And then I think you also are correct that there's an opportunity for a lot of deepening of the prescribing base. If you look at the topical steroid market today compared to the topical non-steroidal market, the topical steroid market is about 20x the size of the non-steroidal market, right? So even doctors who are writing 10 ZORYVE scripts are probably writing 20x that in topical steroids. And so there's an immense opportunity for us to continue to expand that market. And that really gets back to my earlier comment about the conversion. We are at early stages of the conversion process, but we're exactly where we'd expect we would be in terms of conversion. And if you look at any number of other markets, you can get a pretty good sense of how that's going to progress in the coming quarters and coming years. And we feel very confident that, that conversion will happen as it's happened in other markets, just because the new nonsteroidals offer doctors and patients so many benefits. Todd, do you want to maybe talk about what sort of the lift looks like for us getting into Medicare and Medicaid, both financially and operationally?

Yes, Medicare and Medicaid, as I mentioned in the opening remarks, there's approximately 3 million patients that are in play here. And if you think about Seb Derm, it's more so on the Medicare side and atopic dermatitis on the Medicaid side. We've been actively engaging in the Medicaid space to be able to secure coverage for patients in 2024 preparation for the atopic dermatitis launch. In addition to that, we're having conversations with the big three PBMs relative to the Part D plans in Medicare, with the ambition to secure that coverage in the first half of 2024. I think what's very important to note here, especially with the Medicare is that is the Arcutis' repricing strategy, given where our price point is and it's below the CMS specialty tier, we will very likely be able to gain this coverage in Medicare with a nominal impact on our gross to net. So we're actively engaged, and those conversations are progressing.

Let me that the...

Yes. And then if you want to...

On the SLR covenant, the way it works is if you were to look at it today, there is a table with specific revenue targets that prior to the amendment, we were held to with respect to the loan agreement. That's been replaced with an agreement around a plan, which we do every year as due course. And there's agreement and approval of that plan by our Board and SLR. And whatever that plan is, you apply this 75%, and if we're above the 75%, we've met the covenant -- is how it mechanically works.

Thank you. That concludes the question-and-answer session. At this time, I would like to turn the call back to Frank Watanabe for closing remarks.

Okay. Well, I appreciate everyone making the time to call into our earnings call this quarter, and we look forward to talking to you all in another quarter with an update on further progress at Arcutis. Thanks again.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.