Episode 3 of First in Human features Frank Watanabe, President & CEO at Arcutis Biotherapeutics. First In Human is a biotech podcast that interviews industry leaders and investors to learn about their journey to in-human clinical trials. Presented by Vial, a tech-enabled CRO. Episodes launch every other Tuesday.
Simon Burns: Thank you so much for taking the time to chat with us today, Frank.
Frank Watanabe: My pleasure, Simon.
Simon Burns: I’m Simon Burns, co-founder and CEO of, Vial we started the company with a mission to reimagine trials and make them far efficient for sponsors just like Arcutis. Frank, we’d love to do a quick introduction for the audience before we jump in.
Frank Watanabe: I’m Frank Watanabe and I am the President and CEO of Arcutis. I was the third employee at the company and we’ve been around for a little over six years, with a mission to become the leading innovation-driven company in the dermatology space.
Simon Burns: Fantastic. We’re huge fans of Arcutis. you’ve been a huge advocate of not only what, you’re doing in the space, but also dermatology research more, broadly. Give us a sense of, level of investment, where you’d like to see it, what’s holding that back, and taking a macro lense onto something you think a lot about.
Frank Watanabe: If you take a step back, I think the challenge in dermatology has been that over the last couple of decades there’s been massive consolidation in the dermatology industry. We actually did a study a number of years ago and there were 140 mergers and acquisitions in dermatology. And there was a lot of roll-ups in a couple of fairly large companies that didn’t do a lot of R&D. And that really led to an atrophying of the dermatology pipeline and the obliteration of ure med-derm companies, right? So what we were left with was, a bunch of large pharma companies who happened to have a dermatology product but not, a true commitment to dermatology.
And then, about six, seven, eight years ago a new wave of smaller companies started up, again, purely focused med-derm companies with a focus on innovation and, unfortunately a few of them didn’t make it and haven’t survived. But there are several of us who are still around, and who are now, starting to bring really innovative products to the market that solve for problems that doctors and, patients have struggled with.
For example, we just had not that long ago, the first new acne drug approved in 40 years. That’s amazing, right? Psoriasis, we’ve had, two products approved in the last year for the first time in 26 years. There’s not been anything new in seborrheic dermatitis in about four decades. Atopic dermatitis has been a little more fortunate. They’ve had a couple of innovations. But there’s still huge unmet needs in the atopic dermatitis space. And then we think about other diseases like, or PN and, there’s nothing, right? Vitiligo just had it’s very first drug approved ever. We still don’t have a good topical for alopecia areata. So just massive swaths of the marketplace that, doctors don’t have very good options. And, fortunately I think there is a real burgeoning now of the R&D in the dermatology space. I think you guys [laughs] probably see at Vial with all the trials you guys are running.
And I think it’s a really exciting time to be a dermatologist or dermatology clinician since NPs and PAs play a really important role in the space as well because you, all of a sudden you have all these new options for your patients and you’re able to, offer something new, some hope after having, for many years not having anything to offer them.
Simon Burns: Yeah. And we’re certainly seeing it firsthand. I’m curious, all the dermatologists we talk to will tell us about unmet need in the clinic. And, it tends not to be some of that kind the leading indications, it tends be, oh, no one’s been working on melasma or I’d really like to see some onychomycosis. Everyone’s got their kind of, their, pet, unmet need. I’m curious, when you think about the market, what’s still unmet, what are some of the key areas that you think are maybe not talked about as much as they should be?
Frank Watanabe: I think there’s two ways to answer that. I think that for example, if you are a moderate to severe psoriasis patient, you have tons of great options, right? Some of the IL-23’s the are remarkable, life-changing drugs. If you’re moderate to severe. But that’s only a quarter of psoriasis patients, right? So what if you’re mild to moderate and you don’t qualify for a biologic? And what’s really exciting I think now in psoriasis is that, the mild to moderate patients now have some great new options for treatment as well.
Atopic dermatitis Is, still catching up. Again. We’ve got some, really good biologics like, Dupixent and ADBRY, lebrikizumab should be here soon. But there’s still a lot of work to be done in the moderate to severe atopic dermatitis space. And, again, in the mild to moderate, there is nothing. Now, there are a couple of drugs in development including one from Arcutis for mild to moderate, atopic dermatitis, but still a huge unmet need. I think acne’s another area where there’s still very large unmet needs. And then you do get into some of these smaller diseases where there really isn’t anything, or there’s very little. You think about a drug or a disease like vitiligo, and, I think the data with JAK inhibitors is promising, but do patients really want to take the risk of taking a [00:05:00] systemic JAK inhibitor to treat their vitiligo? And that’s crux I think of one of the challenges in dermatology is that many times patients and doctors are having to make a choice between efficacy on the one hand and safety on the other. And that’s not a choice that anyone should ever have to make. So we need to start finding drugs, that are both effective and safe and well-tolerated and also fit into patients’ lives.
A twice a day ointment is a non-starter for a parent. I’ve been there myself. That just is not gonna work. It may work, it may be safe, but if you gotta strip your kid down twice and day and slather them in Vaseline that’s not gonna happen, right? We need drugs that fit in their lives and that patients will use and are both safe and effective.
Simon Burns: Yeah. Adherence in topicals is always what [inaudible 00:07:23], right?
Frank Watanabe: Yes.
Simon Burns: Let’s talk about, two, three, four, five years out. I know a lot of people watch the approvals and know what’s coming from their clinic. Now I’m curious what you think is the next generation around the corner, JAK TYK combination’s a lot of talk. Cell and gene therapy is starting to make it’s way in a little bit, targeted RNA. What are you tracking?
Frank Watanabe: You know, I think for some of these more exotic modalities like, cell therapy and gene therapy, I think the challenge is going to be cost, right? If you have a, life threatening disease, or you have a very small number of patients, maybe the healthcare system can afford, pay for a drug like that. But even, again, you take the example of biologics in psoriasis. As wonderful as those drugs are, they’re not used in the majority of patients primarily because of the cost . These are large populations and so drugs need to be widely available if you’re really gonna treat the majority of patients out there. And that’s why Arcutis has been so focused on responsible pricing so that more patients can get access to the innovation.
I do think, JAK, TYK, that’s an interesting question, you know? TYK is actually JAK4. It’s all part of the same family. And I think what’s interesting about drugs is that hitting TYK2 looks like you may be able to avoid some of the issues of JAK inhibition. So if you make a TYK-JAK combination, have you just thrown out the baby with the bath water? I don’t know. Think we’re gonna have to see.
I do think, though, as new products come to market, Arcutis for example now has a product on the market where we’re generating revenue. That gives us financial resources to invest in other areas of research, for instance, we just acquired, a very exciting new target in atopic dermatitis, a biologic, for the moderate to severe patients that, we’re hoping is an improvement on the IL4’s and the IL13s. But I think, new products coming to market, you create this virtuous cycle where the innovation-driven companies have more money to invest in R&D. think we’re gonna have to see, does ROR gamma work? i don’t know. I think it’s gonna be an interesting question.
CV200R, that asset that we just acquired, could have broad application across a whole range of different inflammatory diseases. I think that’s another very exciting target potentially. And, you look at psoriasis again, we went from the TNFs to the 17s to the 23s and every time we saw big upticks in efficacy, right? We haven’t cracked that code yet in AD. It’s either more complicated than we think it is or we haven’t found the right target yet. And I think that, the research will continue. I think itch is an area, understanding itch and treating itch is an area that’s very interesting. I think doctors often don’t appreciate how maddening the itch can be for patients. For example, in psoriasis it’s the most bothersome symptom for patients, right? The patients can live with the plaques as long as they don’t itch. And most of them itch.
If you have a idiopathic itch, boy, that’s really gotta be maddening. Nothing’s worked yet to specifically target and treat itch. But there’s a lot of work going on in that space, so I think that could be another area that’s very interesting. I think there’s, a whole range of different areas though that I think we’re gonna see innovations maybe not in all of them or all of them at the same speed. I think the increasing interests run, like HS is really exciting. Terrible disease with no good treatment, but a lot of activity going on in the labs and in the clinic trying to solve that problem now. And that’s only going to be good for patients and doctors.
Simon Burns: Let’s transition to talking about your, career path, your growth from employee number three to now CEO of the organization that you oversee today. I’m curious, key lessons learned in going from early stage biotech start up to now commercial stage?
Frank Watanabe: So, first of all, I’ve done this a few times. This is my, third startup. And secondly, I’m a commercial guy by background. So it’s, fun to actually get to that point. If I think back on Arcutis and what’s made us successful, I think one of the most important things was having a very clear strategy about how we were going to be successful. And that really boiled down to three things.
Focusing on biologically validated targets, thing that we already knew worked in dermatology, looking for best in class molecules, we don’t do me-too products. And then the third one, and I think this is really important and relevant probably for Vial, too, is having people with deep dermatology expertise. I continue to be amazed at how people think that they can run a dermatology company or a big dermatology franchise without a dermatologist.
Simon Burns: [laughs].
Frank Watanabe: Would anyone run an oncology company without an oncologist? I don’t think so, right? Most drug companies seem to think that dermatology, it’s okay to do without a dermatologist. We actually have seven, dermatology clinicians at Arcutis. [00:10:00] Employee number two, he joined a, couple weeks before me, was a dermatologist. He’s now on our Board, but we have seven other dermatologists. and and that’s important for a couple reasons. The first one is that, These are all people who have walked in the shoes of our customers who, and many of ’em still practice. And they know what doctors and patients need – from the efficacy to safety intolerability and convenience and even, like pair burdens that, sort of thing. And the other thing is, I think, and you probably can see this, in designing clinical studies, people who have treated the patients that you’re studying understand things that oncologist or rheumatologists may not really appreciate. And I think that’s really given us an edge in choosing programs, in designing programs and conducting, programs. And now it’s helping us also as we commercialize our product.
Simon Burns: Let’s talk about commercialization. You said you’re a commercial guy. It’s a big investment for a biotech to, go all the way. Seems to be happening a little bit more and more. What’s your sense of, one, the shift from biotechs commercializing themselves and not selling to pharma; and two, if you were sitting down with a biotech founder who was exploring the options of, mPV math, doing the calculations, burning the abacus math, going full to commercial or selling, how would you, advise.
Frank Watanabe: One of my mentors, was always fond of saying that companies are bought, they’re not sold, right? And what he meant by that was if you have a strategy of being bought, And nobody shows up to buy you. You have a very big problem,
You can’t go into this with a strategy that someone’s gonna buy you if you are very successful, there’s a decent chance that someone is gonna come along and buy you. But that can’t be your base case, right? And that’s the approach that we’ve always taken at Arcutis, that, we were in this for the long haul, and we’re gonna build a company and if someone took us out we can’t control that. But the other thing that really has, I think, driven us at Arcutis is, and, your, listeners, the dermatologists out there know this. There are very few pure derm companies in the industry left. i believe that’s something that the dermatology community needs. And, so I would be perfectly happy to remain an independent company forever, and just continue to serve dermatologists and, the people that they treat, because I think that dermatologists deserve that, right?
Skin diseases often get downplayed. Even thought it’s not gonna kill you, or It’s just your skin. I don’t believe that for a second. If you have high cholesterol or diabetes, or even cancer, most people don’t know that you have the disease. And so they treat you just like everyone else.
If you have vitiligo or plaque psoriasis or atopic dermatitis, it changes your entire relationship with the world. And the data is very clear, whether it’s psycho-social burden or impact on work or, relationships and sexual functioning. Everything is impacted when you have a dermatologic disease and dermatologists and the people they treat deserve companies that are focused solely on serving them and solving their problems. And that’s why, we have been focused from day one on building a leading company in the space.
Simon Burns: You’ve done a great job on diversity. I feel like not a day goes by I don’t hear someone talking about you guys setting a great standard, and high bar on diversity in clinical trial, the diversity of your team, the initiatives you guys are running. Tell us more about how you, keep this kind of front and center at the company and, what some of the initiatives are that you’re proud of.
Frank Watanabe: In my mind those are two separate issues, right? Within the team, within Arcutis, diversity and inclusion is really about finding the best people regardless of their gender, their race, their ethnicity, their sexual orientation, their prior employer, right? And, I believe that having diverse backgrounds and different perspectives allows you to make better decisions, right? When everyone agrees, something is wrong. You should be [laughs] very worried about something. So that’s really how we focus on it at Arcutis is, trying to create an environment where everyone feels valued for their contributions and everyone is treated equally in terms of opportunity.
From clinical trial standpoint, think about it very differently. And again, this is particularly because we’re in the dermatology space. Doctors need information on how drugs treat different ethnic groups, right? Everyone of your listeners knows you can’t assume that because it works well and it fits one, it’s gonna work the same and it fits six. Especially when we often see the, disease manifest itself differently. Again, take plaque psoriasis. A plaque psoriasis in a fits one can look very different than in a fits six, right? And so, I think we have an obligation, as a drug company, as an industry to generate the data for our customers so that they can and make an informed decision. Can I expect this drug to work the same across various skin types or do I need to think about using this drug for the ones through threes in that drug for the fours through sixes. And we have approached our trial design that way and we’ve made a commitment to that. And think it’s one thing to say that you’re gonna, focus on diversity and inclusion in trials; it’s another thing to actually do it . And we put a great deal of time and attention at looking at who we’re enrolling in our trials.
One of the things that we’re doing to try and improve that is who we [00:15:00] select to be as clinical investigators. Where is the practice and who do they serve? What’s their [inaudible 00:18:17]. That has a big impact on, enrollment. for example, we use a lotta sites in Florida and Texas because they’re very good enrolling, Hispanic, subjects. California is very good for us for Asian subjects. African Americans are particularly challenging.
In addition to the [inaudible 00:18:37] issue, you also have some of the historical issues of biomedical research in the African American community. And so, I think in that instance, sometimes having an African American investigator. In an African American area can also help, versus having a Caucasian investigator in an African American area.
But, what we’re doing now is identifying people who are interested in clinical research, but who don’t have a lot of experience yet, and training them up if they have a particularly good ability to recruit, enroll the right kinds of patients. And that, I think, longterm is going to help the whole industry in terms of improving our diversity enrollment. ‘Cause you guys know; you tend to go to the more experienced investigators, right?
If you always go to the same investigators, you’re gonna get the exact same patient types, [laughs] right? See, you gotta somehow break outta the mold. And that’s one of the things that we’re specifically doing to improve the diversity of our trial enrollment.
Simon Burns: Well you for your great work there. Like you said, moving the industry forward. So we thank you for it. We have a segment called Overrated and Underrated. I’ll send you one line statements. You tell me whether they’re currently overrated or underrated. We’ll start out with what you were talking about earlier, atopic dermatitis. Slough of, activity. Lots of clinical trials. I think every site across the country would tell you how many [inaudible 00:19:54] trials they’re, running. Have hit the peak of the boom? overrated or underrated, are we early or late in the innings of AD?
Frank Watanabe: In terms of the market?
Simon Burns: Yeah.
Frank Watanabe: Underrated. This is a bigger market than psoriasis. sure.
Simon Burns: Straight forward. I like it. talk to me a little about psoriasis, genomic [inaudible 00:20:18] profiling. Underrated, overrated, the ability and the promise there.
Frank Watanabe: Overrated.
Simon Burns: Say more.
Frank Watanabe: I think this is not like oncology, right? We don’t have the tools to actually, leverage, this knowledge and so I don’t see how it’s going to have a meaningful impact at least with the tools that we have today in, terms of the treatment of patients. It’s like nice to know, but okay, what do I do now?
Simon Burns: [laughs] So what, fair enough. lastly The size of the pruritus market generalized, the chronic pruritus that we talk about. What’s your sense of the, size of that market? Overrated or
Frank Watanabe: Underrated. Think there are a whole lot more itchy patients out there than people realize and I think that people care about itch a whole lot more than people realize. I had some sort of idiopathic itch on the side of my head last year for about six months. It just about drove me crazy and it wasn’t that bad an itch, right? You talk about a psoriasis or an atopic dermatitis or seborrheic dermatitis patient who are, whose itching every day of their life, 24/7, over a significant portion of their body, I don’t know how they don’t go mad. I really don’t. As we talked earlier, I think itch is a huge area of opportunity for the dermatology community to improve the lives of their patients.
Simon Burns: Let us know if the itch comes back. We’ll get you , into a trial. [laughs] Bet on that.
Frank Watanabe: [laughs] Okay. Well now I’ll just get some [inaudible 00:21:51], you know? [laughs]
Simon Burns: Yeah. And maybe lastly, a difficult market. Everyone’s watching XBI. Uh, biotech founders out there who are at a different stage of company and reconsidering how to think about capital allocation strategy, any advice for them as they go through turbulent times?
Frank Watanabe: It’s a really, it’s a very challenging time. I think that, this too shall pass, right? We’ve all if you’ve been around the industry before, we go through these cycles. I think that there is going to be, a culling of the field. And particularly on the public side, I think there were far too many companies that went public that probably shouldn’t have been public, and they’re either gonna go back to being private, they’re gonna consolidate or they’re gonna disappear. I think it’s gonna be painful, but that’s probably a necessary step. But having said that, if you can winter the storm, if you can ride out the storm, there’s going to be greener pastures on the other side. There always is. So I think it’s important that folks are judicious in their capital allocation. Don’t spend on everything, don’t spend [inaudible 00:22:58]. Try and get as far as you can with the cash that you have. And when the opportunity arises. Raise cash. Right? [laughs]
Every private company, you get in this discussions about dilution. One of my Board members was fond of saying that no one ever died from dilution but plenty of people starved for lack of cash. So even if it’s a down round is better than going out of business. And so if the opportunity arises, I would say, you know, take the money and live to fight another day because it will get better, I promise. It will get better.
Simon Burns: Thank you for joining us. I appreciate the conversation today.
Frank Watanabe: All right, thanks.