Fresh from $94.5M crossover round, Frazier-groomed dermatology biotech shoots for $100M IPO
Back in October, when Frazier Healthcare Partners took the wraps off their latest dermatology play, few had heard of Arcutis Therapeutics. But execs are quickly changing that, following up a $94.5 million Series C crossover round with a pitch for $100 million in IPO cash.
It is perhaps fitting for Arcutis to claim the second S-1 filing of the decade. The biotech isn’t doing anything groundbreaking, per se; rather, the idea is to deliver topical formulations of known drugs — from well-established drug classes — thereby plugging a gap between ineffective topical treatments and expensive injectables.
By the time they appear on the Nasdaq as $ARQT, the hope is that their twin Phase III trials in plaque psoriasis for the lead drug will be well underway.
The four drug candidates, spanning seven clinical programs, in Arcutis’ pipeline stem from two compounds it has in-licensed. The active ingredient in both ARQ-151 cream and ARQ-154 foam is roflumilast, a PDE4 inhibitor that AstraZeneca markets for chronic obstructive pulmonary disease in oral form. Hengrui provided the JAK1 inhibitor that Arcutis is turning into ARQ-252 (cream) and ARQ-255 (suspension).
Arcutis got rights to roflumilast on the cheap, the filing revealed: upfront of $1 million and $3 million in Series B stock. Clinical, regulatory and sales milestones add up to less than $30 million, $2 million of which has been paid. The Hengrui JAK1 inhibitor (originally dubbed SHR0302) cost Arcutis $1.9 million total upfront, with over $220 million in milestones tagged to a deal that covers the US, Canada, Japan and the EU.
In addition to targeting psoriasis and atopic dermatitis with ARQ-151 and seborrheic dermatitis and scalp psoriasis with ARQ-154, Arcutis has also enlisted Hawkeye Therapeutics to develop more applications of roflumilast. As part of the deal, it purchased around 20% of its partners’ shares at the time.
Given the mass-market indications that they are eyeing — which also include hand eczema, vitiligo and alopecia areata — Arcutis is keenly aware of blockbuster, generic and experimental rivals, from Humira and Otezla to Clobex and corticosteroids. But it still believes it can carve out a niche, particularly in patients with mild to moderate diseases.
“The biologics account for something like 80% of the total market size of psoriasis but it’s only something like 6% of the patients,” CFO John Smither previously told Endpoints News. “We’re trying to solve a different thing by actually treating more patients at a more cost-effective price” — a sweet spot where patients won’t need physician approval to get reimbursement.
Smither owns 1.1% of the stock, while CEO Frank Watanabe — an Amgen vet involved in the marketing of Enbrel — holds 4.1%. Watanabe’s compensation package for 2019 came in at $970,546.
But Frazier, led by Bhaskar Chaudhuri, remains the largest shareholder, having started the company around three years ago, at 36.9%. Bain Capital and OrbiMed, which were brought in during Series B, claim 13.5% and 15.1%, respectively.