Tarsus Pharmaceuticals, Inc. (TARS) Earnings Call Transcript & Summary

Pleased to be introducing Tarsus Pharmaceuticals, Bobby Azamian, Chief Executive Officer; and Jeff Farrow, CFO. Gentlemen, thanks for joining us at the conference. And I guess, hot off of the 1Q update. For those less familiar, you guys are launching XDEMY for treatment of Demodex Blepharitis, a new ophthalmology category. So maybe the initial impressions of how the launch is going relative to expectation, and we could start there and then jump into more specific questions.

That's great, Jason. Thanks for having me and Jeff here. It's a pleasure to be here. Now 2 full quarters into our launch. So we're -- as Jason said, we're creating a new category of medicine, and we're bringing that to eye care. So we're treating a condition called Demodex Blepharitis with our drug XDEMY. And we're really pleased with how the launch is going. So we just announced our first quarter results last week, and I'm really proud that category creation as a small company is going really, really well. We've really been diligent about serving the patient, serving the doctor and serving the payer. And we have a drug that has a very strong value proposition for each of those stakeholders. So $24.7 million in sales in Q1, a really strong trajectory, 90% increased revenue from Q4 and 26,000 patients served. Over 8,000 doctors, over 8,000 eye care providers, optometrists and ophthalmologists now having experience with XDEMY. Over half of those having multiple prescriptions and a strong continued gross to net discount of 55%. So just really, really pleased with the second quarter of our launch, and we're looking forward to more things to come.

What do you see as -- I guess the obvious would be you're building a new category and you got to create awareness, you got to drive a paradigm shift. But like the unique hurdles that you face and then maybe the tailwinds that you see as reimbursement comes online and some of this heavy lifting occurs in the first, call it, a year of the launch. And then as we look ahead to '25 plus.

Yes. No, I mean we're mindful that this is going to take time. We're building a new category, we're serving more and more doctors. So in terms of tailwinds and headwinds, I think of it as we've got a lot more patients to serve, and we're just getting started with a number of these doctors. I'm in the field a lot. And so I see that firsthand. I see that doctors that have had experience for a few months, they're prescribing more and more. They're getting to more and more patients that might not be raging Demodex Blepharitis coming in the door, but still are suffering and still have collarettes. And I also see that as access gets better, that gets easier for doctors that don't have experience yet. So I think of it as we've got segments of patients to serve. We've got 7 million patients that are presenting to eye care clinics with Demodex Blepharitis. There's 1.5 million of those that are already diagnosed. We are serving patients to date, the vast majority of those 1.5 million. So we've got a lot more segments to serve. And then as we get more and more doctors educated and as access gets better and better, we expect that to be more downhole sledding. So what we anticipate is really steady growth quarter-over-quarter from here and really demonstrating the buster potential of XDEMY.

Yes. And maybe one of the big challenges, I think, with forecasting the peak revenue opportunity is getting a handle on the prevalence in the epidemiology, right? In terms of the number of patients out there could be substantial versus the -- your best understanding of where we are with patients and how you define the top of the funnel, right? So -- and maybe if you can help frame where your current understanding of things are and the work you're doing to better understand and communicate that to investors so that you can give investors a better handle on that?

No. Thanks, Jason. We think there's about 25 million patients in the United States impacted by Demodex Blepharitis we're really focused on about 7 million at this stage in what we consider to be the immediate target is the 1.5 million patients that have been diagnosed and seeking treatment for DB. These folks are actively going into the office and seeking treatment. Before XDEMY came along, they really didn't have an efficacious therapy. It was Tea tree oil, lid wipes, which resulted in them coming back more frequently into the office and sometimes being off-label prescribed dry eyes, which again is an efficacious. So that's the obvious area that we're focused on now and seeing the biggest penetration, but we also see dry eye as being a potential opportunity for us. We know that there's patients that have DB that are also seeing dry eye indications. The other two areas that we're focused on are contact lenses. There's a lot of folks that can't tolerate contact lens wearing or can only wear it for a fraction of the time that they should be able to use it. And then finally, cataract patients. We know that a lot of these patients that are coming in for cataract surgery have the collarettes, having the symptoms of DB. So with a better potential therapy prior to cataract surgery, you might get a better outcome following the cataract surgery. So those are the initial areas that we're focused on. We do think that 1.5 million patients that have DB is probably going to expand now that there are therapies out there right now. But that has been our biggest area of penetration today.

Okay. And from a market creation or building exercise perspective, talk about how you sequence. It sounds like maybe the physician and expanding the prescriber base is sort of that next push and then utilizing DTC social media, whatever, to pull through patients at some point once the clinician is brought onboard and acclimated and has an operating history, so to speak, of prescribing this so that they're not getting inundated with patients requesting the drug or maybe they're resistant to it. Is that how that evolves over time?

That's right. Very simply, in that cadence in sequencing, it's doctor, payer, patient. So we actually started 2 years before launch educating doctors, and that's really paid off with momentum out of the gates. And we have 8,000 that have had direct prescribing experience, direct experience with their patients experiencing XDEMY. And that starts to feed back positively as they get those patients coming back. They look for more patients just then. The payer side is so critical to get access and affordable cost for patients throughout the country. We've been very pleased with our progress there. We had 18 million lives from two major payers on preferred status that came on board recently. And that 55% gross to net really tells that story positively. And I think what you're getting at is how do we actually expand that reach within the physician targets we have and how do we actually drive patients in the clinic. And so we have 2 initiatives that we're sequencing later this year. We are recruiting the next wave of sales reps, and that will be about a 50% expansion in our sales force that will come online in the field by the end of Q3. And then to your point, we also have some direct-to-patient campaigns that are kicking off. We have a mite party campaign. Mite parties, are one party you don't want to be invited to, right? Mites having a party literally in your eyelids. That's resonating, that's just about a month live at this point. And we are considering more significance in direct-to-consumer marketing after the sales force as we have coverage really fully on board.

Yes. Okay. And how does the Part D coverage come online? Is it all at the start of the year? Does it stagger between different Part D chunks of plans? How could you maybe frame that?

Yes. No. So there's typically a formulary review that happens in the springtime. We get a readout of that formulary review probably September, October time frame. But the impact will really start in January of 2025. But to your point, it will take time for that. It's not a light switch. It's a pull-through. So we'll probably see the broad coverage by middle of 2025. And at that point, we expect to be at that sort of steady state of gross to net of about 50%.

Right. And to that point around gross to net, I guess some could look at that as high for an uncompetitive category. There are no FDA-approved alternatives. What I guess, why so conservative on the gross to net ultimately is the question?

Yes. Yes. No, it's a good question, and I asked at day 1 of my joining Tarsus as well because I come from the [indiscernible]. Exactly, there was no rebate, right? It's different. The eye care space, there's an expectation of the payers that there is going to be a heavy to count. I mean, to put it in context, the dry eye drugs are typically a gross to net discount of around 80%. So we're significantly better than that. But fundamentally, despite the competition and some of the other aspects of our drug, there's just an expectation of higher gross discount and that is we're not curing blindness, we're not prolonging life. So there's that sort of pushback that we get from the payers.

Yes. And I heard it. I mean I was here actually 2 weeks ago, the same hotel for Assembly of Big Payer Conference and our Head of Market Access really is so well connected there. And you see it in the conversations, right? I mean, okay, why should we cover this? Well, it's the only drug. How much is it going to cost? Well, it's 1 course. And you'll probably save money on some of the other medicines that the patients are taking that they don't need to. And I think with that approach, we can really drive the best deals with payers. And that's why we talk about gross to net rather than covered lives because we want to get coverage in the vast majority of cases, but there may be some instances where none contracted coverage is good. So we're really looking payer by payer and really trying to get access for patients throughout the country.

So given how expansive some of the epidemiology numbers are analysts are very forced to kind of focus on the script trends, right? And so you talked about sort of seeing a similar, I guess, absolute TRx bottles at in 1Q as you saw -- I'm sorry, in 2Q as you saw in 4Q. But we've been 5 weeks through now, and we saw like really good print last Friday on TRx, and it seems mathematically a little challenging to get to only 10,000 bottles ad. So I don't know -- the question is like what do you know about the next 7 weeks that have implied in that guidance? Or are you just trying to be conservative?

No. I think we take a very sort of mathematical model approach to our guidance. And we look at potentially holidays, we take a look at conferences that could pull the doctors out and not able to write.