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

Good afternoon, and welcome to Tarsus investor call announcing the acquisition of iRenix Medical, Inc. As a reminder, this call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to David Nakasone, Head of Investor Relations, to lead off the call. David, you may begin.

Thank you. Before we begin, I encourage everyone to visit the Investors section of the Tarsus website to view the press release and related materials we will be discussing today. Joining me on the call this afternoon are Bobby Azamian, our Chief Executive Officer and Chairman; Liz Yeu, our Chief Medical Officer; Aziz Mottiwala, our Chief Commercial Officer; Jeff Farrow, our Chief Financial Officer and Chief Strategy Officer; and joining us for the question-and-answer session, Neera Clase, Senior Vice President, Market Access and Reimbursement. I'd like to draw your attention to Slide 3, which contains our forward-looking statements. During this call, we will be making forward-looking statements that 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 contained in our SEC filings for additional details. With that, I'll turn the call over to Bobby.

Thank you, Dave, and thank you to everyone joining us today. Today's announcement marks an important milestone in the evolution of Tarsus as we continue building a leading eye care company. With XDEMVY, we demonstrated that some of the greatest opportunities in eye care come from solving significant problems that have been overlooked for decades despite their impact on patients. Today's acquisition extends that approach to another important unmet need in eye care. IRX-101 is a late-stage investigational ocular surface antiseptic with the potential to improve the standard of care for millions of patients who require repeated retinal procedures to preserve their vision. Additionally, it represents the next step in expanding our pipeline, broadening our impact across eye care and establishing our first strategic position in retina, one of the largest and most important specialties in eye care. In many ways, our first step into the back of the eye begins by addressing an impactful problem at the front of the eye, the ocular surface, where we have deep expertise. It also reflects how we think about innovation, start with what matters most to patients and physicians, understand and address the root cause of the burden and bring forward solutions that have the potential to fundamentally transform patient outcomes. One of the many reasons we're excited about this acquisition is the scale of the need. More than 11 million intravitreal or IVT injections are performed each year in the United States. Many patients return every 4 to 8 weeks, often for years to preserve their vision. Yet one of the most fundamental parts of the procedure, antiseptic preparation before the injection has not seen any meaningful innovation in more than 40 years. With IRX-101, we believe we have the opportunity to substantially improve the patient treatment experience and outcomes, making it easier for patients to continue sight-preserving treatment while also reducing the burden for physicians. Before I hand the call over to Dr. Liz Yeu, our Chief Medical Officer, I want to acknowledge Dr. Stephen Smith, Co-Founder and CEO of iRenix, a vitreoretinal surgeon and Clinical Assistant Professor of Ophthalmology at Stanford. Stephen understands this problem firsthand from treating retinal patients, and he and the entire iRenix team built IRX-101 with a clear focus on improving the IVT injection experience. We are grateful for the innovation, passion and patient focus they brought to this program, and we are honored that they have entrusted Tarsus to carry this forward. With that, I will turn the call over to Liz.

Thank you, Bobby, and good afternoon, everyone. As many know, I've spent my career as a practicing ophthalmologist helping patients restore and preserve their vision often through ongoing treatment. Echoing Bobby's comments, I'm thrilled with the acquisition of IRX-101 because it has the potential to address the significant shortcomings of a critical part of every intravitreal injection, the application of povidone-iodine before the injection. When I talk with my retinal specialist colleagues, they tell me one of the biggest complaints they hear from the patients is the burning, irritation and pain that can follow antiseptic preparation. And our own survey results confirmed exactly that. More than 3/4 of retinal specialists we surveyed attributed patient complaints to povidone-iodine, not the needle, povidone-iodine. For patients with retinal disease, treatment doesn't end with a single injection. They often return every 4 to 8 weeks for years to preserve their vision. When a povidone-iodine application is followed by ocular surface damage, causing corneal epithelial cell death, it can lead to days of pain and irritation and that burden can accumulate over time. As a clinician, I've seen firsthand how it can make patients more reluctant to return for ongoing care. That's why improving the patient experience is so important, and that's what makes IRX-101 so compelling. Turning now to the data. In the iRenix RELEIF Phase IIb/III trial, IRX-101 was compared directly against povidone-iodine in patients undergoing intravitreal injections. In this study, IRX-101 demonstrated statistically significant improvements in both endpoints, post-procedural pain and corneal fluorescein staining, a test showing damage to the ocular surface. Furthermore, approximately half of patients treated with IRX-101 reported a pain score of 0, 1 hour after their procedure, not lower pain, but no pain. Looking ahead, the pivotal Phase III study has a defined path forward aligned with input from the FDA, and we anticipate initiating this study in the first half of 2027. We plan to enroll approximately 270 patients and compare directly against povidone-iodine with top line data expected in 2028. The path is clear and the need is significant. We look forward to advancing this program and the potential to deliver a new patient-centric option that can benefit physicians and patients alike. I'll now turn the call over to Aziz.

Thank you, Liz. Hearing that perspective from someone who treats these patients every day reinforces exactly why this asset has the potential to be so impactful. The success of XDEMVY has given us much more than a product on a path towards more than $2 billion in peak U.S. sales. It has given us a proven commercial engine, one built on strong clinical evidence, physician education, broad patient access and exceptional execution. We've demonstrated that we can change physician behavior, build lasting relationships across eye care and successfully bring an innovative therapy to patients. We believe IRX-101 is another opportunity where those capabilities matter. Commercially, this is an attractive opportunity because it's a highly focused market that already exists. More than 11 million IVT injections are performed every year in the United States, and every one of those procedures requires an ocular antiseptic preparation. Additionally, the vast majority of those procedures are performed by approximately 3,500 retinal specialists, which means we have the opportunity to build a dedicated focused commercial effort, including a sales force that is expected to be less than half the size of our current XDEMVY sales force. We don't need to create demand. We need to facilitate adoption through education that demonstrates meaningful value to retinal specialists and the patients they care for. We believe our commercial capabilities, combined with a differentiated product, position us to do exactly that. With that, I'll now turn it over to Jeff to highlight the details of the transaction.

Thank you, Aziz, and good afternoon, everyone. When we evaluated this opportunity, we focused on 3 things: a large and durable market with significant unmet need; second, a differentiated late-stage asset with a clear regulatory path; and a transaction structure that reflects efficient capital allocation. The iRenix acquisition ticks all of the right boxes. It advances our long-term strategy to build a leading eye care company while preserving the financial strength to continue investing in XDEMVY and our broader pipeline. It also represents a thoughtful use of capital that has the potential to create meaningful long-term value for shareholders. Let me now walk you through the transaction structure. Under the terms of the acquisition agreement, Tarsus will pay upfront consideration of approximately $75 million, consisting of $37.5 million in cash and $37.5 million worth of Tarsus common stock and potential approval and commercial milestones of up to $490 million and low to mid-single-digit tiered royalties upon achievement of certain milestones. I'm pleased to announce that the acquisition has closed, and we have financed the purchase with our balance sheet. From a financial perspective, what makes this opportunity particularly compelling is the combination of a well-defined development program, a focused commercial model and a transaction structure that aligns significant portions of the economics with future value creation. This asset is also supported by an attractive intellectual property position with patent protection expected into at least 2039. As Liz outlined, the pivotal study is expected to initiate in the first half of 2027 with top line data expected in 2028. We anticipate the cost to approval to be in the range of approximately $20 million to $30 million. Stepping back, this transaction is about much more than adding a promising late-stage asset. It allows us to leverage the capabilities we've built with XDEMVY from clinical development and commercial execution to market access as we thoughtfully expand into one of the largest specialties in eye care. At the same time, we're doing so from a position of financial strength while preserving our ability to continue investing in XDEMVY and the rest of our pipeline. We believe that combination, strategic expansion, focused execution and financial flexibility positions Tarsus to create meaningful long-term value for patients, physicians and shareholders. I'll now hand the call back to Bobby for closing remarks.

Thanks, Jeff. We've always said our ambition is to build a leading eye care company, and now we've taken another important step forward. With XDEMVY, we proved that meaningful innovation can transform areas of eye care that have been overlooked for far too long. IRX-101 provides us the opportunity to do it again, bring meaningful innovation to millions of patients while establishing the foundation for our next chapter of growth. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Jason Gerberry with Bank of America.

A couple for me. Just what do you need to show to command a price premium versus Betadine, which I understand to be more of a genericized price point per bottle. And is this a category where you think you can get a price premium with good access if you deliver on the remaining outstanding Phase III trial requirements? And as it pertains to the upcoming Phase III, the press release suggests this is like a safety tolerability trial. So can you just remind us what are the endpoints, treatment duration? What are you looking to show in this type of trial? Is this really about showing a comparable antiseptic benefit to Betadine?

Jason, it's Aziz, and thank you for jumping on. Really great questions here. I'll start with just talking about why we're excited about the market opportunity, right? Just to reiterate, 11 million IVTs every year in the U.S. These are patients that are undergoing therapy to save their vision, and that process really matters and all of them get antiseptic. So this is a critical step in that process. In terms of your question, we see this as being a very differentiated asset. And when it pertains to pricing reimbursement, this is an area that we actually are really keen on. And to that end, we've had Neera Clase, who's our Head of Access, join us here today, and she's the architect of all the marketing -- market access and reimbursement work we've done in XDEMVY, which, as everyone knows, has been a core pillar of the success of that launch. So I'll allow Neera to give you a little bit more color on what do we think it will take to get that differentiated reimbursement. And then maybe we can turn it over to Liz to give you a little bit more color on the clinical plan there. So Neera, I'll turn it to you.

Great. Jason, in terms of the pricing, it's early days, as you know now. So we don't have pricing yet established. But we do and will pursue the J-code pathway. Typically, how it works for a product like this is that this is a buy-and-bill product because it's physician administered. So what that means is that there's typically a miscellaneous code that's assigned. And with that, it will go through a process where at some point, we'll pursue the J-code. We feel really confident about the J-code strategy. And once we determine the strategy and the approach, we'll also get more firm on the pricing as well. And that will all be driven by the clinical insights, and we do feel like there's a strong clinical differentiation here given the TAM that you heard Aziz talk about as well as the opportunity to really differentiate from a current product that causes a lot of pain, a lot of discomfort and actual corneal toxicity. So with that, I'll turn it over to Liz to talk a little bit more about the clinical value.

Jason, thanks for your question regarding the pivotal study. So you're absolutely right as it comes to the Phase III study, it is a pivotal safety study. The name is COMFORT. With that, we will also explore various endpoints to potentially enhance the label for use over the current standard of care. That will also reinforce the earlier findings of the potential pain improvement as well as the staining over povidone-iodine. The FDA separately will require an efficacy study in order to obtain the antisepsis label. So we will run those 2 studies in parallel.

And just to clarify, the efficacy study is an in vitro antimicrobial study. So that's also something that's pretty standard and lower risk as it pertains to a late-stage study.

Our next question comes from the line of Dennis Ding with Jefferies.

Can you please clarify what's really the deciding factor here for adoption? Is it reduced pain or reduced infection rates and the subsequent corneal damage? Because it's not a product that a patient is going to request. So it's going to be up to the doctor to reach for this over a generic product. And maybe the answer here is the ASP plus 6. So curious what you guys are thinking around how you're going to pitch this to doctors? And are patients really going to come back more frequently due to less pain?

Thank you so much for that question. I believe the opportunity is the improved patient experience. IRX-101 is really a novel ocular antiseptic. It is a chlorine dioxide solution that specifically targets the bacterial cell walls. So it improves the potential for just cell damage to the microbial killing itself. So it's unlike Beta povidone-iodine, which is nonspecific and really broadly toxic, whereas IRX-101 is targeted cell killing. So it induces less cell damage. 44% of patients after their third intravitreal injections will actually stop going and stop receiving their injections. So they actually have decreased compliance because of the anxiety and the pain that is produced by these retinal injections. So the opportunity here is that with improving the actual experience themselves, we can redefine the standard of care here.

And I would just add a great point on the science here and also reiterating the point you made earlier that 3/4 of the doctors we talk to tell us the biggest issue the patients have is actually the antiseptic preparation with Betadine, not even the needle, right? So these are patients receiving injections in the eye, and they're actually complaining about the procedure preparation. So you're right, this is not going to be something that patients are going to ask for by name like XDEMVY, but this is something the doctors are going to reach for because they want to optimize that experience for the patient, right? They want to make sure the patients are happy. And most importantly, as Liz just highlighted, they want to make sure that, that process is conducive to the patients staying on therapy. This is therapy to preserve their vision. So it's very important that, that process is conducive to the patients staying in the practice, staying adherent and being comfortable in what would otherwise be a very difficult management process. So there's a lot of meat on the bone there. And as you can imagine, we've got a really strong strategy in terms of how to educate the physicians, the implications that they're going to be there. Neera talked earlier about the access model that we can have. These are all things that we've done really well with XDEMVY, and we believe we can replicate with IRX-101 quite effectively.