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

Welcome to the UBS Virtual Event. Ashwani Verma, you may begin.

Great. Thanks for that. Hi, everybody. Welcome to UBS Virtual Ophthalmology Day. My name is Ash Verma, I cover SMID-cap biotech and spec pharma here at UBS. And our next company session is Tarsus Pharmaceuticals. With me today, I'm really excited to host Aziz Mottiwala, who is the Chief Commercial Officer at Tarsus. Hey, Aziz.

Ash, thanks so much for having us. I'm really delighted to be here and share a little update on how things are going for us.

Excellent. Thanks. And just as a reminder for the audience that are listening in, if you have any questions that you want me to ask, feel free to e-mail me or ping them to me on Bloomberg, and we can bring that into the conversation.

Maybe, Aziz, I guess, like it might be helpful just if you can give like a brief overview of the company for the benefit of the audience, and we can get started from there.

Certainly. Thank you. So Tarsus, we are a commercial stage company that recently launched about a year ago, the first-ever approved product for Demodex blepharitis. This is a disease that affects over 25 million Americans. It's essentially inflammation, irritation of the eyelids that's caused by a microscopic organism called the Demodex mite. So this is our first area of launch. A year in, the launch is going exceptionally well. And I'd say, the way you can think about Tarsus is a commercial stage company with great launch momentum, a lot more to come and then a budding pipeline that we're really excited about. And I'll tell you a little bit about the launch, and then I'll touch briefly on the pipeline. And then certainly, I'm sure you had some questions. So I think the launch so far has been a real surprise for a lot of folks, but one that's even exceeded our expectations, I would say. As of the second quarter, we have delivered nearly 100,000 bottles to patients. So we treated almost 100,000 patients, and that's remarkable. But what's really exciting is that we're really just scratching the surface. There's so many patients. We focus on about 7 million patients out of the 25 million that are in the clinic. And treating 100,000 of those patients is great, but we have a lot more to do there and a lot more opportunity to be had. Secondly, I think the other highlight of the launch has been categorized by really great progress in reimbursement. And this was shown with our better-than-expected gross-to-net discount of 44% in the second quarter, really underscores the value. We're netting over $1,000 a bottle for XDEMVY, and I think that's been a great value driver. And I think that's something that folks are starting to appreciate how impactful this product is and the value it provides with each prescription. And then the third really exciting thing is just the physician receptivity. The physician receptivity has been remarkable. We talk to about 15,000 doctors on a routine basis. And as of the second quarter, we hit over 11,000 of them prescribed, meaning we've got to about 3/4 of our core audience in less than a year. And that is also very exciting and bodes well for the future trajectory of the launch, as these doctors now become more routine writers and deepen their prescribing habits. When you look at the totality of that effort, that yielded us about $40 million in revenue in the second quarter. And of course, we're excited about where we're going to be taking things forward. And as we look forward on the launch, there's really a few things that we think about in terms of building and maintaining this momentum. One is continued education of the physician and just building that deepening of prescribing with the doctors. For that, we've actually increased the sales force size by about 50%. We started at launch with about 100 sales reps, and we're now fully deployed with 150 reps that are out there. And they are seeing these doctors more frequently, which is driving increased prescribing per doctor. Secondly, we see a great opportunity with continuing to build out great reimbursement. The 44% discount was really based on establishing great commercial coverage. But we also announced that we got at least one Part D payer on board. And as we expect to see the rest of the Part D payers come in, in 2025, we expect stability and improvements on that 44% discount, and that will maintain throughout in the low 40s at steady state. And then the third exciting thing we see here is the opportunity to really engage the consumer. We see this as a consumer-driven disease, one where patients will be very motivated to seek treatment. And to that end, we are launching a direct-to-consumer campaign in the fourth quarter. So I think what you're seeing is a great launch so far and many more levers to pull in terms of sales force, reimbursement and consumer activation that will continue to accelerate this launch. And we're really excited about that. And the other part I mentioned is the pipeline, right? We've got a pipeline that's essentially a pipeline and a molecule of lotilaner. And we expect updates across the pipeline programs in prevention of Lyme, in rosacea and also in meibomian gland disease, which is essentially a great extension into the eye. So lots going on, lots of great opportunities to increase the value of the company as we progress the quarter, but the launch trajectory is obviously the primary focus. And as I mentioned, we've got a lot of great things coming there. And then the pipeline, I think, is going to provide some great updates for folks as we progress.

Excellent. Thanks for starting us off on a strong footing here. So I think maybe just like talking about the market a little bit just so that people understand like Demodex blepharitis, I think you said that like the core -- like the 7 million out of the 25 million prevalence. And just if you can like go through the numbers in terms of like what do you think is the eventual addressable market? I remember like from back when we used to interact when I covered the stock, I think there was a lot of focus on just like driving like diagnosis expansion. And you used to talk about like dry eye disease as a positive analog. Like where are we in that type journey? Where do you think eventually you might -- like what portion of the market may you eventually be able to tap into?

Correct. Yes. So as we mentioned, there's about 25 million Americans that suffer from the disease. We focus on 7 million is the core audience, as you mentioned, Ash, and that's really comprised of a few different segments. One is you've got 1.5 million patients that are already diagnosed in the clinic. These patients have been historically diagnosed. There was no good solution for these patients and now they have one. And we think that, that's sort of the lowest hanging fruit, right, patients that are suffering have been identified and haven't had a good solution until XDEMVY. So that's an opportunity for us to continue to expand, as we mentioned, only treated a fraction of patients so far. The other segments, as you alluded to, include the areas where you have a high overlap or high propensity to have the disease, areas like dry eye where we see 60% of patients who are on a dry medication and actually have either Demodex blepharitis or concomitant disease. So either they were misdiagnosed or they have concomitant disease. And you can imagine that's a great intervention point. These patients come in, they typically fail a medication. That would be a great opportunity for the doctor to assess the eyelids and see if there's an opportunity to treat the root cause of the blepharitis if that's what the core issue is. Similarly, we see an opportunity in cataract surgery, where over half the patients presenting for cataract surgery have Demodex blepharitis. And as we talk to ophthalmologists, there's a desire to optimize the eye prior to surgery, where you want to eliminate the inflammation, irritation, all these things that can confound and provide complications for the surgical outcomes. And we think that's a great opportunity. We're hearing doctors apply XDEMVY as part of their pre-cataract screening and then, of course, the routine prep before the patient hits the OR. And then in optometry, which is another core audience for us, contact lens discomfort is a major issue. And a large proportion of these contact lens intolerant patients are actually intolerant due to blepharitis. So we think that these are core segments that are easy to identify. And to your point, now that we have XDEMVY, we'd expect the diagnosis rates to increase within the core audience of just core blepharitis. But also as a secondary diagnosis that patients are presenting with either dry eye showing up in cataract surgery or contact lens discomfort, these are core areas that the doctor can identify, diagnose and then subsequently treat patients. And we are making great progress across all of these. I think the typical journey as a doctor starts, they usually start with those routine blepharitis patients. Once they see about 5 to 10 cases and they get some good confidence and success because the product doesn't disappoint, it's very consistent in terms of great outcomes, then they start to look at other segments in the office, right? They say, okay, let me look at my dry-eye patients or let me put this into my cataract routine. And we see that natural progression as we visit the doctor more and more often and as they build experience with the product.

Yes. Do you think that the -- like the patients segmentation that you have in terms of like where the severity of the patients is, is that where most of the use is happening right now? Do you think that you could start to tap into more like a moderate or less severe patients eventually also?

Yes. We're seeing utilization across the board, Ash. I think as you would expect, the doctors typically start with the very obvious cases, right, heavy collarettes, patients actively complaining. And because the drug works so well and because the results have been so positive for the patients and the physicians, as I mentioned, they get about 5 to 10 cases and then they start opening up the utilization. So the doctor says, okay, I'm going to start looking for this more proactively. I'm going to start thinking about any and all patients coming in the door that have collarettes. So their threshold to treat quickly comes down as they get experienced. And that really underpins why we decided to expand the sales force because the more often we can get to the doctors, we can reinforce the great outcomes they're having and then sort of remind them to think about this for a broader set of patients. And we see that pretty instinctively, as we make more routine sales calls, as these doctors get to conferences, hear from other colleagues, that experience -- that surround sound as well as their personal experience really propagates broadening of use and depth of prescribing in their practice.

Great. Okay. So I think like in terms of the launch, just as you look forward, like what do you think are the major drivers? You called out like this Medicare coverage that's like you got one payer on board and looking for more of an expansion in 2025. Just if you can elaborate on that? Like is that something that you think that can drive like a substantial ramp in 2025? Like what's the sort of the volume pull-through? What kind of impact on pricing just from that book of business?

Yes. No, it's a great point. So the way to think about this is our market is roughly 45% commercial, 45% Medicare. The remainder is your other government channels. So both commercial and Medicare are equally as important to us. 2024 was really about establishing commercial coverage. And we've done a great job. We're pretty much where we want to be. A couple of other plans we'd like to get into the fold, but we've got the vast majority of commercial lives where we'd like them to be. Part D was something we planned on having in 2025, very fortunate that we had one major plan put us on early. I think that speaks to the -- just the value of the product and the experience we're having and just the great work our payer team has done. And we are confident with our estimate of having the rest of the Part D payers on in 2025. And I think what that will allow us to do is certainly enhance the patient and physician experience. The PAs become more consistent, the prior authorizations that is. The experience becomes a little bit more easy. It opens the door for more patients. So it certainly opens up easier access for these patients. And then I think in terms of pricing or discounts, that will allow us to maintain a stable discount. And what we said is at steady state through 2025, by the midyear point, we should be in the low 40s. So some modest improvement from where we are today, which was actually better than we even expected to be, but a steady and consistent gross-to-net in the low 40s once Part D completely kicks in. And then I think that will also allow us to drive additional volumes of patients as that patient and physician experience becomes more consistent and even easier.

Yes. So I guess like if I think about like the commercial and the Medicare like roughly being the same lives, and you said that one of the largest Medicare plans has signed up, have you put any numbers around it? Like how much that might mean? I'm trying to figure out like how many additional -- like if we are looking at like 30%, I'm just making up a number, of the 50% becoming available, so is that the upside? And so you signed this recently? And like is that any kind of like a tailwind to 2024 numbers or more likely volume coming in '25?

Yes. So I do think that the plan that we signed, we did announce that in Q2, that's now taken into effect. So we should see some impact of that in 2024. I think that's another subtle driver here, opening the door to at least one of those large Part D payers. We do see some coverage in other Part D payers as well. Typically, that's through prior authorization, medical necessity or exception. So there are patients that are coming through. So I don't think about 2025 as a step-up. I think about it as a steady progression that will continue to open the door. And we haven't gotten specific in terms of lives, et cetera. We've really just focused on the quality of the coverage and the critical mass we're building, right? So I'd say at this stage, we've got the vast majority of commercial coverage that we want to get. One of the large Part D payers and to put it in perspective, there's really 3 big Part D players and then a handful of others. But if you get the big 3, if you will, you've got pretty much great Part D coverage. So we've got one of those big players, and I'm really delighted that, that was actually done without even a prior authorization. So high-quality Part D coverage for that first payer. We'll see where the other ones net out, but we do expect them to kick in, in early 2025. And then just keep in mind, right, when you get into Q1, there's always some headwinds, right, deductible resets, plan resets. So as you work through that, you start to see the appreciation. So what we said is you'll start to see that meaningfully pull-through as we progress through 2025, and I expect just a steady cadence of volume appreciation on the back of that increased coverage.

Got it. Okay. So you are already at like a 44% gross-to-net. And like even with almost like as many lives being added on the Medicare side, you still think that like low 40s is like a good steady state. I mean that's -- like how -- like is that because like the reception in the Medicare channel has worked out to be far better than you were originally expecting? I know typically, like you can see more gross-to-net type discounting in the Medicare channel. I'm just curious what's driving that confidence in the low 40s?

Yes. And to be clear, I think what you'd expect to see, we're at 44% in the second quarter. You may see some fluctuations in either direction in the range of a couple of points, either up or down, depending on just how things shake out through the end of the year, things like the donut hole, plan resets, et cetera, and then sort of settling in that low 40s as we get into steady state in 2025. What gives us confidence is, I think, just the quality of negotiations we've had with the payers. You alluded to this. I think for folks since it is the eye care day, right, people may think about anterior segment drugs where you've seen gross-to-net discounts upwards of 60%, 70%. So to be at a 44% discount is really remarkable. And I think that that's a testament to the work we did very early on, educating the payers and that we're continuing to do with the payers. And what I think really underpins this is, one, an appreciation that the fact that there's nothing for this disease today, right? There's no generics. There's no real over-the-counter market here. This is our really first and only and best-in-class treatment for these patients. I think when the payers look at that, they look at the quality of the product in terms of very high outcomes, over 85% of patients get a meaningful clinical outcome here. The durability, it's one treatment, essentially gets the patient resolved for 6 to 12 months, which is really remarkable. And I think the payers see that this is a very high value and impactful product. So that's really helped us in those negotiations. And I think you're right, it's very different because there's not competitors, there's not extrinsic forces pushing on us. It's really a discussion with the payer about the value of the market, the value of the product, and we've been able to do quite well in these negotiations. And I think the last thing is the product has performed in the real world, right? So the Part D payers now have seen a year of performance of this product. And certainly, they're tracking, does this product really deliver? And what they're hearing very consistently is the product works very well. It works as promised. Physicians are having a good experience. Physicians are willing to do the prior authorizations and push for the medication. So there's a pent-up demand, if you will, that the payers are seeing, which also helps in that process.