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

Good morning, and welcome to the Approval Webcast of XDEMVY, formerly known as TP-03, for the treatment of demodex blepharitis. Before we begin, I encourage everyone who has not launched the webcast to proceed to the Investors & News section of our website to find the link to this webcast and the related slides. As a reminder, this webcast is being recorded, and a replay will be available on the Investor & News section of the Tarsus website later today. We have one Q&A session at the end of today's program. And to ask a question, please submit your questions in the question-and-answer chat box and then click Send. Today's slides may also be downloaded from the Presentations section of our website or directly from the webcast. For technical assistance, click on the Help icon. I'd like to draw your attention to Slide 3, which contains our forward-looking language statement. We will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. With me on today's webcast are Bobby Azamian, our Chief Executive Officer and Chairman; Aziz Mottiwala, our Chief Commercial Officer. And with that, I'll turn the webcast over to Bobby, our CEO and Chairman. Bobby?

Thank you so much, Dave. What an exciting day for us here at Tarsus. A week ago to the day, I welcomed my first child, [ August ], held my son in my arms. That was the best day of my life. And I think today, with the approval, birth of XDEMVY, it's really the best day in our lives at Tarsus. And that's because we now get to get this product to millions of patients. So I'm so proud of XDEMVY, we'll hear more about the brand, the label and talk about what we're doing next to get this to patients. Of course, this represents now the first and only approved treatment for demodex blepharitis. And I think many of you are familiar with the disease. We've made incredible strides on building awareness of demodex blepharitis. But let's talk about that to level set. Blepharitis has been known about for a long time. This is a disease that affects millions of patients in the U.S. Doctors, companies have known about blepharitis. Demodex blepharitis is really the main cause of blepharitis and demodex blepharitis affects 25 million Americans. We'll talk a little bit more today about how we're going to address those segments of patients in need progressively in our launch. And this is a disease that creates a substantial burden for patients. On a daily basis, patients suffer inflammation, redness, irritation. This disease impacts daily lives of patients suffering with it. And the key to diagnosing this disease is a very simple test. It's simply looking down a slit-lamp and you can see this image on the left, collarettes forming on the base of the eyelashes. And it's amazing. The more we know about this, we see our family members, our friends, people we know with this disease is so common and prevalent. And now, at last, we have an approval for demodex blepharitis with XDEMVY. So we're thrilled with the label. We're thrilled with the information we have in the label. So let me go over that. We have an indication that allows broad usage, that allows us simply to serve the millions of Americans with demodex blepharitis. We have efficacy data that includes really broadly all the data that we've had in our pivotal trials. And that's an improvement in lids with a Grade 0 collarette reduction, eradication of mites down to 0 mites per lash and a cure of erythema down to Grade 0. We know this is a safe and well-tolerated drug that's reflected in our label. And from the start, we wanted a very convenient product profile, an eye drop twice daily for 6 weeks, a single course that delivered lasting value. And you'll hear more about the product name, but I just want to comment for a second, XDEMVY, this is a product that -- name that really gets to what this drug is doing; eradicating demodex mites, underlying costs, giving patients and doctors a sense of accomplishment, a sense of victory. And as we dig into the data, we see why that is. This is data from our label now. And we see this collarette improvement on the proportion of patients getting 2 or less collarettes. That is a change from cure, but that really reflects the complete resolution of collarettes, 2 or fewer, which is very consistent with all of the discussions we've had with the FDA and with all the data in our pivotal trials. We also see now in the label that many patients respond within 2 weeks, a very rapid onset of effect of XDEMVY. And we get to talk about the broad effects of our drug XDEMVY. That includes mite eradication in over 50% of patients across 2 pivotal trials, a cure of redness, Grade 0 redness, which is very rarely seen with any drug, with any eye drop and a very well-tolerated, well-demonstrated safety profile with AE rates of 10% or less. And so we now have all the information we need to get this drug on the market. We are ready to do that, and I will pass to Aziz Mottiwala, our Chief Commercial Officer, to talk about what's next and finally, how we can realize our vision to serve millions of patients at Tarsus. Aziz?

Wonderful. Thank you, Bobby, and thanks for those on the call. Really delighted to share with you our plans to launch XDEMVY to the eye care community and be on our way to launch the next potential blockbuster in the eye care space. That, of course, starts today with the approval of the first therapeutic for the treatment of demodex blepharitis, a product that uniquely gets to the underlying cause of disease and will enable us to unlock one of the most significant unmet needs in the eyecare space. We'll do this with an effective and durable therapeutic with no competition that will provide us the definitive standard of care. This has been established in 2 pivotal trials where we've been able to show efficacy across multiple parameters. That compelling product profile creates a value proposition for patients, doctors and payers. We've already seen high receptivity from the eyecare community. Ophthalmologists and optometrists are anxiously awaiting getting this product in their patients' hands. And this product profile also will enable broad reimbursement potential. The feedback we've received from payers we've met with and surveyed indicate that all payers will cover this product. Knowing that, we've been ready. Our commercial platform is prepared for a rapid launch. We intend to have product available and our sales force deployed by the end of August so that we can quickly and rapidly serve this market and get this product into the hands of the doctors and patients that are so anxiously awaiting this drug. And we've seen this. We know that the doctors are ready. They see the disease. They believe that it's important to treat and they certainly intend to do so. Through our market research, we've seen that over 2/3 of physicians recognize the importance of screening patients for collarettes, the pathognomonic sign of disease. It's also the primary endpoint in our clinical studies. When these physicians see collarettes, they know that it means the patient has demodex blepharitis and 93% indicate that they would prescribe an FDA-approved therapeutic for demodex blepharitis. Now I've been in the eyecare space and working in therapeutics for a long time and to see an intent to prescribe over 90% is truly remarkable. And I think, again, reflects the need in the market as well as the compelling product profile that extend the offer of the eyecare community. Knowing that need in the market, we've mobilized our commercial organization. We'll be ready within weeks with a best-in-class sales force to meet the needs of our eyecare partners. We've already established a strong leadership base, a team that has hundreds of years of experience across eyecare as well as launching new innovative products. We're in the process of building out the remainder of our sales force, 85 territory leaders, who will meet the needs of 15,000 eye doctors across the country who account for over 80% of all the eyecare prescriptions. We're actually in the process of interviewing those people today, and we've gotten over 4,000 resumes for those 85 territories. We'll be ready to deploy that sales force in the next couple of weeks and be ready to go. Previously, we've shared our plans around pricing. As I mentioned earlier, the feedback from the payer community has been quite positive. Payers understand that there's nothing available today. They like the profile that XDEMVY offers in terms of being able to address multiple aspects of disease with the definitive standard of care potential. And to that end, we took that feedback into account as we priced XDEMVY. We looked across the eyecare spectrum of drugs, thinking about the drugs that are highly commoditized such as in glaucoma or dry eye where prescriptions are about $300 to $600 per script, and also looking at the other end, where you have drugs to treat retinal disease, which often go for $2,000 per injection where patients require multiple injections per year. With XDEMVY, we established a new category, pricing XDEMVY at $1,850 per prescription. Knowing the impact this drug has on patients, we expect to see one script per patient per year, which provides significant pharmacoeconomic value for payers, and our research and conversations thus far have reflected that sentiment. Now while we do expect one treatment per year, we do expect those retreatments to start coming in. But given the durability of effect, we don't expect those retreatments to come in until 2025. So again, a pricing that reflects the profile of the product and the strong value it provides to the payer community. To ensure that we're able to get this product in the patients' hands, we've also established a unique and innovative distribution model; a model that leverages a high-touch approach across digital and retail access points. This means patients can get the drug sent directly to them or they can go to one of 18,000 retail pharmacy chains and get the product in their hands. The host of services we intend to offer these patients should lead to a higher fill rate as well as a simplified patient experience as well as a simplified experience for the doctors. We're going to be able to optimize the access we expect over time, and we're also implementing a robust set of assistance programs to help support these patients at launch. Through these efforts, we intend to make the patient out-of-pocket cost for XDEMVY $100 or less per course of treatment. And this is important because this is below the threshold we've seen in our research in which we see abandonment. So again, reflecting our commitment to make XDEMVY affordable and accessible for the patients that need it. At the top of the call, Bobby mentioned the 25 million Americans that suffer from demodex blepharitis. We see that as a tremendous market potential. But near-term, we have focused our efforts on the 7 million patients that are currently in eyecare clinics, looking for relief. These 7 million patients represent a multibillion-dollar market opportunity. And that market segment is comprised of the 1.5 million patients who are already diagnosed with demodex blepharitis who are seeking treatment and have no good approved therapies until today. It also includes dry eye patients who are on a prescription but have demodex blepharitis and are not on the ideal treatment. Beyond that, we think about patients who want to enhance their vision, either through visiting their ophthalmologists to be consulted for cataract surgery or visiting their optometrists to optimize their contact lens use. All of these patients that have demodex blepharitis could potentially benefit from XDEMVY. At a WAC price of $1,850 per script and a steady state gross to net assumption of 50%, we can easily see the total market potential and even treating a fraction of these patients, it's easy to do the math to see a $1 billion peak sales potential in the next 4 to 6 years. The journey on that ramp begins today. Between now and the end of the year, we will be focused on driving demand through early adoption and a positive experience. We want physicians and patients to see the full benefit of this treatment. We want them to have a great experience and build adoption through that experience. To that end, we'll be supporting that use through patient bridge programs and discounts to ensure patients can easily access the product as we build coverage. As we run into 2024, we expect to build our demand curve as well as our reimbursement curve. We'll establish commercial coverage throughout the year with coverage coming on sequentially every quarter in 2024 on the commercial side. As that coverage builds, we expect our demand to build as well as the prescribing depth and breadth. As that coverage builds, we'll also begin to wind down our discounting programs with 2025 representing the opportunity to access the Medicare coverage market. Once we establish Medicare coverage, we can continue to accelerate our revenue curve, optimize our gross to nets and wind down our discounting programs. So a very thoughtful step-wise approach to a successful launch and building that potential to $1 billion peak sales. With that, I'll tell you that we are delighted to be here today, we're ready, and we're anxiously awaiting getting the product into patients' hands in the coming weeks. With that, I'll turn it back over to Bobby for closing comments. Thank you.

Thank you very much, Aziz. So with today, we are poised to launch the next blockbuster drug in eyecare. And that's because, as Aziz has described, we have created a new category in the approval of XDEMVY. And we will show that category to be a blockbuster with all of the launch metrics that Aziz has described. As I reflect, it was less than 6 years ago that this was an idea. And the process of category creation is pretty rare, pretty unique and going from a big unmet need to a very powerful drug to proving that, building a great team and now getting the product approved is a skill set that we need more of in eyecare. And I reflect on the team and really the [ village ] that has gotten this drug to this point. I'm so grateful for the world-class Tarsus team, combining experts in eyecare, like Aziz with true experts in biotech across our company. I'm also extremely grateful for the patients, the hundreds of patients, who have helped us on our journey and our clinical trials. I'm grateful for those very first investigators and now literally thousands of doctors who are aware of XDEMVY, aware of Tarsus. And I'm grateful for all the other stakeholders that helped us along the way, the FDA whose clear and consistent collaboration has gotten us to this point, many investors who have believed in our journey, and I know will be rewarded as we look forward to the next couple of years. And finally, I want everybody to know that this is really the start. We are already looking beyond XDEMVY in terms of our company horizon. We currently have 3 products in Phase II, and they are all targeting a root cause of disease, creating new categories in different diseases, MGD, Lyme disease, Rosacea. And what you'd expect to see from Tarsus is us to do more category creation in eyecare because there are so many patients in need, so many diseases that need better solutions. So thank you so much for your time today, and we will field your questions now.

Thanks, Bobby. Our first question comes from [ Dane ] from Raymond James. Bobby, can you take us through the commercial process and expectations for access over the coming year?

Yes. Aziz, can you please take that?

Sure thing. So as we mentioned, between now and the end of the year, we'll get the product out there. There will be some significant discounting and bridging for those patients as we build coverage. And the way to think about this is the market is about half commercial and half Part D. We intend to build that commercial coverage throughout 2024. So we'd expect coverage to kick in early in the year and then build every quarter and hitting sort of that major stride at the end of 2024. And then Part D, we're sort of waiting for the annual cycle there, right? That's an annual cycle that we need to go through, and we're going to put the bids in for that annual cycle to be on the formularies in early 2025. So the way to think about it is really experiencing utilization in '23, commercial coverage building in '24 and Part D coming in, in 2025, with commercial representing about half the market potential and Part D representing the other half of that market potential.

Thanks, Aziz. The next question comes from Tim Lugo. Can you discuss the eye irritation included in the label? And also remind us to the extent of irritation, which is symptomatic of the disease.

Thank you, Tim. So as mentioned, our label really gives us a broad representation of the product. So improvement in lids, mite eradication, erythema cure, and that provides breadth and completeness in terms of representation of the efficacy of our drug. The irritation is something that patients experience. All our endpoints in our trials were very objective. We didn't include more subjective symptomatic endpoints in our label. And our primary endpoint is really focused on collarettes, which patients do notice. It's a form of debris that patients notice. It's a pathognomonic sign of disease, and that's how eye doctors are going to identify and diagnose this disease. And so, Aziz, I'll ask for any additional comments that you can provide on really the irritation that patients see with this disease.

Yes, Bobby, you mentioned it, right? It's not uncommon to see that in patients that have demodex blepharitis or other ocular diseases. I think when you look at the totality of this product profile, I think we're going to be in really great shape considering the tolerability and AEs -- the tolerability is great and the AEs are quite low. And you compare and contrast that to other eye drops, where burning and stinging rates are significantly higher. So I think we feel really good about the overall safety and AE profile of the product. And I think that the physician community will respond as well.

Our next question comes from Balaji Prasad of Barclays. What are the key points that excite you the most in the label? What do you think about the broad and -- excuse me, and what do you think about the broad-based access with this label? Bobby?

Yes. Thank you. I mean we are so happy with this label. Firstly, we have a broad indication treatment of demodex blepharitis that will enable us to reach all the patients suffering from this disease. Secondly, really excited that all the data got included, and that includes the primary and 2 secondaries. It also includes the time course that showed on the collarette primary. And so we can truly speak to the broad value and efficacy of this drug. And so that's what excites me the most. In terms of broad-based access, I'll again ask Aziz to comment. I think our patient distribution access is a really unique part of our strategy here.

Yes. Thanks, Bobby. So I think when it comes to the label and access, the 3 things I would focus on are, one, there's no restrictions or limitations on the patient population, so we'll be able to serve all the demodex blepharitis patients that are out there. Two, to Bobby's point, we've got all the data in there, so we've got multiple efficacy endpoints as well as the mechanism, which speaks to the direct and targeted nature of the drug. And third, we're going to be able to couple this with our robust distribution and patient savings programs to ensure access and affordability for these patients. And I think when it comes to the payers, they're going to respond very favorably to the profile of the product and the label. And again, the most important thing here is there's no restrictions on the label, no limitations on who can use this. It's a broad-based label that would allow us to treat these patients across the board. So I think we're going to be in really good shape, given the nature of the label that we have.

Great. Our next question comes from Tim Lugo of William Blair. What is the status of the preservative-free formulation of XDEMVY? And will you also bring that formulation to the U.S. after Europe?

Yes. Thank you, Tim. Preservative-free is something we're developing really exclusively for Europe, and that's because that's really the standard with any eye drop in Europe is preservative-free. To be clear, there's nothing clinically adverse about a preservative. And we have a very commonly used and very soft preservative and [indiscernible] in XDEMVY. So we do not intend to bring that formulation to the U.S., that's strictly for Europe.

Great. The next question comes from Frank from Oppenheimer. Bobby, would you please compare and contrast dry eye disease to demodex blepharitis in terms of launch?

Yes. We have Aziz who is uniquely qualified to talk about that, having built the dry eye market and now launching DB. So Aziz?

Sure, thanks. Thanks for that question, Frank. The way to think about this is there's a lot of similarities, but there are some key differences as well. So let's talk about the similarities. Large underserved market that is likely to see diagnoses and treatments increase now that there's an approved product, again, eyecare-focused. I think beyond that, we think about the differences here. When the dry eye market opened up, it was primarily driven by ophthalmology. Today, we have both ophthalmology and optometry driving prescriptions, which really creates a larger landing pad for these patients to get diagnosed and eventually treated. So we have a much more rich prescribing audience, if you will. Secondly, I think the impact on patients is uniquely different. With dry eye, it's a disease that the patients feel and the doctors have to sort of explore to understand what's going on. With demodex blepharitis, it's a disease that patients feel but they can also see, and it's one that physicians can make a definitive diagnosis of by just doing a slit lamp exam by looking for collarettes. So you've got sort of the disease you can see and feel, which I think, again, will facilitate easier and more definitive diagnoses for these patients. Lastly, I think that we're launching into a market where there's nothing available today. There's no standardized over-the-counter. There's no competition. So it's really incumbent upon us to build this market without any competition. And I think that's very different where we see dry eye where even with the first prescription product, there was a tremendous amount of over-the-counter options for these patients that worked quite well. In fact, in my prior life, we marketed both those products, which gave patients significant alternatives. Here, there's really no alternatives. And I think that sets us up for a compelling value proposition with a product that has a standard of care potential. So again, just to summarize, a much more rich prescribing audience, a disease that allows for more intuitive diagnoses and one with truly no other alternatives for these patients, I think, will facilitate strong uptake in the market.

Thanks, Aziz. A follow-up from Frank. Do you intend to have the entire sales force ready and hired by the end of August?

Aziz?

Sure thing. Yes. So the plan is, as we've talked about, we expect to have product available by the end of August and our sales force deployment will coincide with that product availability by the end of August, and we expect to deploy the entire sales force at that time.