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

Good afternoon, everyone. My name is Balaji Prasad, I'm the Senior Analyst for the Barclays Spec Pharma coverage. And continuing the session for the day. We have the management team from Tarsus Pharmaceuticals with us. I have the pleasure of having Jeff Farrow, Chief Financial Officer; and Sesha Neervannan, the Chief Operating Officer; Sesha and Jeff, thank you for joining us today.

Thank you for having us.

Yes. So it's been an exciting time for you launch a few months ago and the launch seems to be going well. The stock, which was in the mid-teens around the PDUFA time went to the high 30s and still below 30s, which is not a bad place to be in. It's up nearly 100%. So tell us about the launch and what's going right and what's going for your expectations, better-than-expectations, lower-than-expectations?

Sure, sure. And maybe what I'll do is I'll start with XDEMVY and talk a little bit about our pipeline as well, too. So we do have commercial assets, as you mentioned, it's called XDEMVY for the treatment of Demodex Blepharitis. We got approved in August and launched the drug in September. And as you highlighted, we had a great third and fourth quarter for that matter, we recorded $14.7 million in revenue, driven by, I think, great uptake on the physician side, but also we've gotten better gross to net than what we had anticipated. So despite not having any contracted coverage until, say, mid to late December, we are seeing payers cover this. Now that still means we're likely helping on the co-pay side, larger co-pay than what we'll ultimately get when we get at coverage. But -- and on the coinsurance on the Medicare side, we do have a foundation as well. So that's driven really the better-than-expected gross to net and what we have guided the Street to is to have broad commercial coverage by the end of 2024 with Medicare coming in, in 2025 and getting that broad coverage sometime in mid-2025. And then beyond that, we actually have an exciting pipeline to all utilizing the same active ingredient. As the API, we had announced some very compelling data in Meibomian Gland disease in December. We also had some live disease Tick-Kill study as we call it, that we announced in late February. And then on the earnings call, we also announced that we had some compelling data in the rosacea side of the business as well. So -- and I'll turn that over to Sesha to talk a little bit more about it. But you asked about what's going well on the launch and what surprised? We had high expectations for the launch just given the feedback we had from the KOL community. We really got the medical affairs team out there early on about a year ahead of launch. We've had some really good -- from the commercial marketing teams and disease education. So we anticipated a good launch. It's actually gone even better than what we anticipated. I think there's a couple of things that are driving that. One is the people understanding the value of treating this disease, but it's also very efficacious, easy to diagnose. You can see it through the collarettes and the patients feel better, sort of the holy grail of therapeutic launch, you capture all of those things in your a launch should do well and you can monitor that. And I think the work that the payer team did early on in terms of educating the payers, has paid off, and that's why we're seeing coverage despite having contracting on that side. So as a result of that, we've had better gross-to-net than what we anticipated and also seeing scrip uptake larger than what we had expected at this point of the year.

Clearly seeing the results of that in terms of numbers, but maybe setting out the lay of the land, help us understand as a stance. As I said, there is the mites factor, how are patients being diagnosed and the feedback that you're getting back getting from the KOLs?

Yes. So it's very easy to diagnose. It just took some training on our Med Affair side of the house to have docs look at their patient's eyelid. So everybody that goes in for an eye exam usually gets the slit, that's where you rest your chin on the little thing and then they look at the back of the eye, we're asking the docs to have the patients look down. And if you see these collarettes, which is sort of scrum on the eye lashes that's pathognomonic for the disease. So it's very easy to diagnose, and we're having great success with the doctors now looking at the lids and the more they look, the more they see, They have a lot of patients that actually have Demodex Blepharitis. And the feedback has been overwhelming. This is my fourth commercial launch, and I have never had such overwhelming feedback from the KOL community that they're seeing their patients see improvement within 2 weeks. And most of the patients clear up their DB within 6 weeks. And they're saying even the "asymptomatic" patients are saying, boy, I didn't know I shouldn't recognize my eyeballs. I always just felt that's the way it is, but they are coming in and saying, boy, I feel so much better. So that is a self-perpetuating circle. We think that feedback coming into the docs helps refer additional patients to XDEMVY.

Got it. And there are like multiple equation, multiple sides of this equation, right? There is the physician education factor, there's a patient education factor and then there's a commercial coverage factor, we'll come to the commercial coverage later on. But I think a huge part of this is really educating -- I mean the market is out there. We made multiple millions of patients. So speak to us a bit more about your DTC campaign efforts, your Mite Party that you launched and what's -- how is that progressing?

Yes. No, we had multiple efforts under the disease education, but also recently on XDEMVY itself. And you highlighted the Mite Party, which is a recent initiative that we had. And it's really just making patients aware of Demodex Blepharitis? And what causes Demodex Blepharitis and want to ask the eye care professionals to look for if you go and to see the office. And so it's a fine line. You want to make sure patients understand the disease and the issues with the disease, but you don't want to scare them either. The concept of mites in your eyelash. So it's a nice balancing act that we had to sort of walk.

Great. Maybe coming to the commercial side of things recently secured a major commercial payer. You said that you did lay out your expectations that you expect to have broad commercial coverage by the end of the year. So help us understand again the traction that you're seeing and what is left to do here? And what is it that's really resonating with the payers?

Yes. So we have -- as I highlighted, even better coverage than you were anticipating without the payer coverage. So we expected that it's going to be relatively flat Q4 to Q1, just given sort of the payer dynamics that typically happens, the co-pay resets. You also have the Donut Hole issue. But we expect that gross-to-net discount to decrease over time until we get to that 50% steady-state gross-to-net discount. And so we've been having conversations with the payers about the pharmacoeconomic value of treating DB and the fact that this is essentially a onetime 6-week treatment and that patients feel better and there's -- and the beauty is there's really nothing out there that's efficacious. There's certainly FDA approved, but the over-the-counter medications are also -- have proven not to be efficacious. So that's all been helping us with those payer conversations, and we still believe that we'll have that broad coverage by the end of this year on the commercial side.

Got it. I want to just clarify one point though. You said it's a onetime 6 weeks treatment, the one course of 6 weeks, but the disease can recur after a year or more.

That's right. That's right. We do -- we saw in our clinical study, our pivotal clinical study that over time, over a year that the mites do tend to migrate back in. So the mites come from other parts of the face. They like the oily sebaceous glands of the eyelids, so they tend to migrate back up into the eyelashes. So our expectation is that most patients will see retreatment over time.

Got it. And considering that we are still in the early stages of the launch, just in terms of educating our investors about the operational details, help us through the reimbursement process and the bridging process that you've been doing right now. And how long does it take for a patient who wants to know that you have mite infestation, Demodex infestation that insurance is going to cover this product? And how long does this process take?

Sure. Yes. So the patient typically comes in to go see their eye care professionals and the eye care professional will see the collarettes and say, okay, you've got something we call Demodex Blepharitis. And I'll walk you over to my office staff and there's 4 pharmacies you can choose from. Consider it sort of a specialty pharmacy lite type of program. And the -- one of these 4 pharmacies will be called to help get the patient on drug. And so that will help with the payer adjudication process. If after a period of time, it's determined that this patient will get covered and perhaps they need some co-pay assistance, will help with co-pay down to an average about $100, less than $100. If they are a Medicare patient, we can refer them to a foundation that will cover them or help cover that cost. And if ultimately they are not covered, and they're a commercial payer, we can bridge them. But what we try to do or what we do have the pharmacies do is paying the payers multiple times. If there's a prior auth requirement like prior off-the-label. We'll have covered my meds, print out a form for them that they can easily fill out and bring back. But ultimately, if that doesn't happen, we will bridge them down and get them that medication.

Got it. And I know that Sesha is here, and I do want to make best use of him. Sesha I mean, congratulations on quite a few positive updates on the pipeline side. Clearly, something which sets up the company for the next phase of growth. So walk us through your current pipeline and with all the recent positive Phase II, Phase III data that we saw, be it MGD or Lyme and most recent one Rosacea as Jeff said. What are the next steps from here, including meeting with the FDA and updates?

Yes. Thanks, Balaji. Yes, we are really pleased with the data readout on all of the clinical programs. We basically use the same drug for all indications, Meibomian Gland disease, Rosacea and Lyme disease prevention, category creating, high unmet need. So we're really pleased with the readouts. So my Meibomian Gland disease is a gland in the eyelid that is also affected by the presence of Demodex mites and that causes blockade and doesn't allow gland to produce the oil that is critical for the ocular health. So what we showed in our study in our Phase IIa study is treatment with XDEMVY really improved very -- 2 very objective measures of Meibomian Gland function, really improve the function of the Meibomian Gland went from a moderate disease to a normal lid and also a significant number of glands that were not producing meibomian -- clear meibomian, the oily product. Now we're producing clear oily products. So a significant objective data that shows that the drug works and the mechanism shows a proof of mechanism and we are addressing the root cause. So in all of these indications that we are really addressing the root cause of the disease, not just treating the symptoms, right? So -- and then Lyme disease prevention is another very significant unmet need. As you know, it's -- Lyme diseases are growing health concern, public health concern causes a lot of burden on the health care system. And what we have is a very unique product, the drug is an antiparasitic drug, a very broad antiparasitic, but very specific for the parasite. It doesn't affect the human receptors, very selective drug. And what we showed is that the drug works very uniquely, it kills ticks as a bite before it has a chance to transfer the bacteria. So what we showed in our Phase IIa study is that it kills the ticks before -- within 24 hours of attachment. ticks take about 36 to 48 hours for it to transmit, and we kill it long before that it has a chance to transmit. So really a very nice proof of concept in that space. If successful, that's a huge unmet need. I'm sure many people living in the East Coast will appreciate the devastating effects of Lyme disease. So we really hope to advance that program. The third indication is Rosacea, which is, as you know, Rosacea is a facial disease, where the Demodex mites that affect the eye is also is one of the root causes. So with a natural extension for us to study the disease and what we showed is in well-established regulatory endpoints. We showed significant improvement, statistically significant improvement in those 2 end points really works. The key for us now is to differentiate the product from existing Rosacea treatment. We know the drug works, how can we develop it further and differentiate it further. So we are -- in all 3 programs, our next steps is to really dig in more with the data. We just got the top line data. So we are analyzing all of those. And the next step is to talk to the agency about the next steps and how we can advance all 3 of them into the next phase of development.

Great. Thank you for that overview, Sesha. Maybe just taking up MGD. For a long time, there's virtually no approved drug in the space, and then we saw Bausch + Lomb's product get approved. How does the product differ from Bausch + Lomb's molecule?

Yes. So our product is very different in that it actually addresses the root cause, whereas the Bausch + Lomb's product from what I understand is addressing the ocular surface and dry eye symptoms. So we are really addressing the root cause inflammation of the lid and the mites themselves that can clog the gland. And as a clog the gland, it doesn't express the liquid. So it's a very different approach, addressing the root cause and what we -- and we showed improvements in the Meibomian Gland function. Like as I said, there's 2 very objective measures that we showed. So that's where the differentiation is for our product.

Got it. And when you think about the market opportunity, again, this is the market, which runs into several millions of people suffering from this, I mean, 12 million, 13 million if I recollect right, and would be a similar educational effort. And is it fair to say that there's going to be a significant amount of education and commercial effort involved with us, too?

On the MGD front, that's -- I think we'll have a discussion about the best approach on that, once we've had the discussion with the agency, there's 2 pathways we could take either a label expansion or a separate label for MGD. But we've got such a great label as well for the treatment of Demodex Blepharitis. And technically, these patients in our clinical study had both DB and MGD. So we want to make sure that we keep that label because it is such a great label. And if we think we might get lumped into sort of a dry eye category, I think we would probably take more of a Phase IV approach, do some additional studies that expand upon the studies that we just read out and maybe take more of a disease education perspective on that.

Got it. And what would help you decide whether you want to go through the route of label expansion or a separate label, what factors would you consider in making the decision?

I think it's ultimately the discussion that we have with the agencies. And I think what we don't want to be labeled as is another dry eye drug, just given how pristine our label is for the treatment of Demodex Blepharitis.

Fair enough. We'll look forward to hearing more on that. Maybe just a question on the payer side. Considering the need for 2 bottles versus one for DB, how do you expect payers to be receptive to it or react to those?

Yes, that's part of the research that we want to do in addition to sort of the discussion with the agency, but also what payers might think about this. I think the other thing we have to think about is was a single 6-week course sufficient? Or do we actually need to 2 bottles worth. So I think we need to determine that as well. But given the fact as you highlighted, there's really nothing out there that's proved efficacious in MGD it's highly likely that an extra model isn't going to be something that the payers are going to push back on if this really does help resolve some of the issues that perhaps dry eye drugs aren't addressing.

Got it. And maybe, Sesha, just on the Rosacea side. I mean this has been a fairly challenging area to develop drugs for in the clinical process. Again, you have multiple headwinds that companies in the past have seen in the past. So help me understand the endpoints in the trial and how you plan to develop this?

Yes. So yes. So great question. So when you think of Rosacea, we are thinking again 2 potential ways to differentiate, right? One is right in the derm space with the Rosacea indication itself that we really need to dig into the data more to really understand it. And another area we have been thinking about and largely from the KOL feedback we've been getting from ocular space as we are launching XDEMVY is an ocular -- potential ocular manifestation from Rosacea, right? So that's a very interesting approach. There is no drug that treats ocular Rosacea and ocular manifestation from Rosacea. So that's a significant differentiation -- potential for differentiation for us with the derm space. It also fits into our space of talking to the same ECPs and the same call point. So our next step there is to really understand that market very well and understand how that fits in. Of course, talk to the agency about the endpoints. There's nothing being developed. There's no precedent to an ocular Rosacea indication, so understanding the regulatory end point all of those things we are thinking of. So 2 different approaches within the Rosacea space, the derm -- traditional derm Rosacea is challenging, but we still are looking into it, but potentially more exciting and ocular indication for that.

Got it. Great. So since you used the word exciting, I'll latch on to that. So I mean, 3 pretty strong indications, each one of them where you can differentiate being as a new to class, best-in-class. So commercially, what excites you the most, Jeff?

Yes. It's a tough call because they all have really interesting aspects of it. I think MGD clearly fits nicely in the bag. That's clearly synergistic. As Sesha highlighted, there's KOLs that have expressed interest on this sort of ocular Rosacea, which could also be synergistic with our call point. We want to do some more market research on that area, but we'll see. I do think the derm indication is likely better in a derm company, so we would probably out-license that opportunity to a derm. But you could see a co-promote where we potentially go after the ECPs and the derm goes after the dermatologists. And the Lyme program is -- it's an amazing program. It's really a unique way to attack this terrible disease. And I think the challenge there is multifactorial for us, one, probably a large study that requires bigger balance sheet than what we have. But also the call point is likely to be the general practitioner. So I think our thinking on that is have the discussion with the agency. We did have some earlier discussions with some potential big pharma partners who said, let's chat after the data card turns over. So I think with ARM, the FDA feedback on a potential path forward, we would likely have some discussions with partners on out-licensing line as well.

Got it. Great. Maybe a question which ties up all 3 of these areas, considering, of course, an aspect perspective of the payers. So how would you expect payers to react to the pricing when you launch basically same product in different forms, of course, different formulations? How do you expect payers to react to those?

Yes. I think given the fact that they are utilized in widely different indications and the fact that it is in different formulations will be helpful from that perspective. So we don't expect assuming we can show clear benefit in each of these categories that will get much push back on the payer front. So I do think the Lyme and the Rosacea will require some thinking about how we can differentiate ourselves from existing therapeutics, but they're both novel ways in which to treat these therapies. So our goal would be to think these through developed clinical studies that could differentiate us and provide benefit of existing therapies.

Got it. We have a couple of more minutes left. I just want to also cover your BD plans that you spoke about earlier between both front-of-eye and back-of-eye opportunities? And what kind of discussions you're seeing there?

Yes. We're doing a landscaping or updating, I should say, our landscaping on the front-of-the-eye and also starting a back-of-the-eye landscape, seeing what kind of opportunities are out there and perhaps even in diseases that there's currently no therapeutics, maybe we should help sponsor some research in particular areas there. I would say there's nothing immediate coming down the pipeline, but we're looking at everything from preclinical assets to late-stage assets. The other thing that we're thinking about is maybe a smaller on-market asset in -- that is would be synergistic with our sales force, so sort of front-of-the-eye type of disease that is maybe P2, P3, P4 in existing bag at a pharmaceutical or other eye care company that we could drop into our bag and have another call point touch with the ECPs. That way we can continue to educate the docs on XDEMVY and the opportunities of XDEMVY, but also provide additional opportunities for our sales force as well.

Got it. Maybe last one for me. You have commented publicly that you expect cash to loss until the second half of '26. Considering the launch, how do you balance the requirements of the balance sheet versus the requirement of your P&L in terms of OpEx? And is there an inflection point that you would consider to increase sales force for XDEMVY?

Yes. No, that's a great question. And that is something that is top of mind. I think the launch is progressing exceedingly well, and we're hitting metrics, which earlier that we anticipated. And so if the payer coverage continues like such, we're able to touch all of our targeted doctors, so they're aware of XDEMVY understand the process that needs to go through in order to get XDEMVY approved, we would pull the trigger on potentially bringing in maybe an additional 50 to 60 reps to help detail those existing 15,000 doctors. And that could happen as early as the middle of this year.

Understood. We're out of time. I think that will be a good spot to leave it at. And wishing you the best with the continued launch of the product. And thank you for joining us here.

Thank you.

Thank you, Jeff and Sesha. Wish you a very productive conference also.

Thank you. Appreciate it.

Thank you. Appreciate it.

Thank you, all.