Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS) Q3 2023 Earnings Call Transcript

Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS) Q3 2023 Earnings Call Transcript November 10, 2023

Operator: Good afternoon and welcome to the Tarsus Pharmaceuticals Third Quarter 2023 Financial Results Conference Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to David Nakasone, Head of Investor Relations to lead off the call. Please begin.

David Nakasone : Thank you. Before we begin, I encourage everyone to go to the Investors Section of the Tarsus website to view the earnings release and related financial tables we will be discussing today. Joining me on the call this afternoon are Bobby Azamian, our Chief Executive Officer and Chairman; Aziz Mottiwala, our Chief Commercial Officer; and Jeff Farrow, our Chief Financial Officer and Chief Strategy Officer. 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 language 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 detail. With that, I’ll turn the call over to Bobby. Bobby?

Bobak Azamian : Thank you, Dave, and thank you all for joining us for our first ever earnings call, and our first opportunity to speak with you since the highly anticipated launch of XDEMVY, the only FDA approved treatment for Blepharitis. We are off to a great start and I’m pleased to share our progress with you today. Blepharitis is a pervasive and damaging eyelid disease that affects approximately 25 million Americans. Of these more than 7 million are seeking treatment for a complimentary eye condition. Double clicking on that number, more than 1.5 million people have already been diagnosed with arthritis and are highly motivated to find an effective treatment. As anticipated, this is the patient segment driving strong initial demand, and as the XDEMVY launch progresses, we expect to expand further into that group of 7 million patients.

XDEMVY was approved a month ahead of its scheduled PDUFA date, and as planned, we made sure it was available to patients within a month of approval. Today, I’m proud to report that we are delivering on the expectations we set for ourselves and for the launch of XDEMVY. Specifically, in the third quarter, we generated $1.7 million in net sales net, and we delivered XDEMVY to more than 1,700 patients, eagerly awaiting a new solution for Blepharitis. These results speak to the two key advantages that make XDEMVY launch unique. One, XDEMVY is the first and only FDA approved medicine to treat Demodex blepharitis, which has enabled us to build an entirely new market focused on eyelid health. Two, XDEMVY offers a defined course of treatment that delivers strong and durable outcomes and provides value to payers, eye care providers and patients.

You’ll hear more about our progress on both fronts later in this call. For those of you who are not familiar with Demodex blepharitis, it’s caused by an infestation of Demodex mites, the most common parasite found on humans. Patients with this disease need treatment. They can experience ocular redness, dryness, discomfort, missing or misdirected eyelashes, itching and burning. Importantly, the cost, quality of life burden and psychosocial effects are significant. Patient impact ranges from the inability to wear makeup to functional issues such as driving, difficulty driving at night, and in the most advanced stages of disease, there may also be corneal involvement, which can negatively impact the patient’s vision. Turning to the next slide, you’ll see exactly what I mean.

This is a photo gallery of patients who have been suffering for years of Demodex blepharitis and prior to their treatment with XDEMVY. I’d like to draw your attention to one image in particular, the one in the upper right-hand corner. This is Lucas. He’s a very active gentleman, retired chemical engineer. In addition to keeping up with his 8 grandchildren, he is also a competitive fencer. I had the great chance to meet Lucas last week. He shared with me that his watery eyes, irritation and blurred vision not only made it hard for him to participate in competitive fencing tournaments, but also made it hard to read the newspaper every day. As you can see in this photo, his eyelashes are crusted with collarettes to telltale signs of the Demodex blepharitis.

Fast forward 5 weeks, a little less than a full course of therapy with XDEMVY complete. A stark contrast, no colorants. No redness. But what stands out most to me is the impact XDEMVY has had in its daily activities. And this is only one of the many similar stories we heard and similar photos we saw from eye care providers, or ECPs for short. During the recent American Academy of Ophthalmology and American Academy of Ophthalmology conferences. So when I say I’m confident about the blockbuster Potential of XDEMVY not just because of the $1.7 million in net product sales we reported for our first 5 weeks of launch, it’s also because of the impact we are having in patients like Lucas. Again, we are off to a great start. The momentum we’re already generating in these early days is proof of the value proposition of this category creating product, our extensive disease educational efforts and the seasoned leadership of our commercial organization led by our Chief Commercial Officer, Aziz Mottiwala.

Finally, I know the XDEMVY launch is top of mind, but I want to close by reminding everyone of the potential of our robust pipeline and the near-term data readouts that will be important for our long-term growth. All of which will be addressed by Jeff Farrow, our Chief Financial Officer and Chief Strategy Officer, later in the call. I will now turn the call over to Aziz for more detail on our launch progress.

Aziz Mottiwala: Thanks, Bobby. As the initial launch metrics demonstrate, the enthusiasm for XDEMVY is truly remarkable. I’ve worked in the eye care industry for more than 20 years, and I’ve never this kind of early response, which I believe speaks to our unique and differentiated approach. In July, we shared our strategic and deliberate launch plan. And we are executing successfully on this plan. We have a driven, best-in-class team comprised of eye care experts and product launch veterans that are exceeding expectations on a daily basis. So far, our near-term accomplishments are delivering a solid foundation for the long-term expectations we have set for ourselves and for XDEMVY. That said, launching a first-in-class therapeutic is a marathon and not a sprint.

And we are primed for a steady launch trajectory as we continue to build demand and secure high value payer contracts. Category creation requires both substantial disease education and behavioral change. Diagnosing the Demodex blepharitis is a simple task as it just requires patients to look down during every eye exam and looking for collarettes, the sure sign of disease. And as it’s simple as it sounds, not every eye doctor is doing it, at least not yet. We recognize that a shift in behavior like this will take time, which is why we initiated the D state education campaigns for every eye care provider as well as for patients well in advance of approval. We’ve now transitioned our efforts to might over month, a complementary branded campaign that highlights the benefits of XDEMVY.

As a result, recent market research indicates that nearly 70% of ECPs say they recognize the importance of screening for collarettes in every eye exam, and more than 90% of ECPs indicate intent to prescribed XDEMVY. That is truly a remarkable number. And what it says to me is that ECPs understand both the importance of treating this disease and the value that XDEMVY brings to their patients. This is further bolstered by the recent addition of XDEMVY to the American Academy of Ophthalmology’s practice guidelines has the first and only FDA approved treatment for Demodex blepharitis. We’ve also been highly successful in our differentiated approach to distribution, reimbursement and patient access. Due to the unique, high value proposition of XDEMVY, we are already seeing initial non-contracted coverage that has resulted in better than expected gross to net discounts of 73%.

It’s a very encouraging metric for us. But I also want to caution that as more prescriptions start to come through their systems, payers may put more short-term and onerous prior authorization is in place until we can work through our ongoing contract negotiations. That said, based on our ongoing discussions with all the top payers, we still expect broad commercial coverage to build throughout 2024 and Medicare coverage to come online in 2025. Before I turn the call over to Jeff, I want to acknowledge our sales force, which has done a remarkable job of generating the initial demand for XDEMVY. They’ve already called on 80% of our top 4 desktop prescribers, who in the vast majority of cases have been called on multiple times. As a result of these efforts and launch to date, more than 2,000 ECPs have started patients on XDEMVY and nearly half of those ECPs are repeat prescribers.

We’re also seeing a positive trend in new ECPs writing every day. Now when we look specifically at the third quarter results, we’re pleased to report that approximately 1,700 bottles of XDEMVY were delivered to patients, and we recognized better than anticipated gross to net discounts of 73%. This encouraging first quarter after launch says to me that we have established a solid foundation for ongoing momentum that gives us great confidence shows the potential of XDEMVY. I’ll now turn the call over to Jeff Farrow for additional commentary on our financials and our pipeline. Jeff?

Jeff Farrow: Thanks, Aziz. I’ve been lucky enough to have been part of several companies who have brought innovative new solutions to patients in need. And based on that experience, I believe Tarsus is on the cusp of delivering blockbuster potential in an entirely new category of eye care. As Bobby noted, we had an exciting third quarter marked by $1.7 million in net product sales. We also completed an equity raise of nearly $100 million that will be used to support the ongoing launch of XDEMVY and other strategic priorities. As a reminder, we recognize revenue when we ship XDEMVY from our warehouse to the distributors, not just on bottles received by the patients. Looking forward, we are very encouraged by the meaningful numbers of bottles dispensed so far in the fourth quarter.

But as we are still in the early days of an uncharted new launch, I wanted to highlight the potential fluctuations in both demand and gross to net discounts we might see in the future due to prescribers being out of the office for the American Academy of Ophthalmology and Optometry Conferences, multiple holidays in the fourth quarter, potential short-term and more challenging prior authorization changes that payers may implement while we work to finalize contracts. Turning now to our pipeline, I’m pleased to provide an update on the multiple near-term Phase 2 data readouts we anticipate in the coming months. Beyond XDEMVY, we are continuing to advance three novel therapeutics that target the root cause of the disease. All three are based on [Lotilaner], the same active ingredient in XDEMVY, providing us with a pipeline in a product.

We remain on track to report top line data from our Meibomian Gland Disease study by year end, and top line data from our Rosacea study in the first quarter of 2024. Due to additional time required to fully enroll our Lyme disease prevention study, we now expect to report top line results in the first quarter of 2024. Again, great progress here and the potential to continue building long-term value for the company and our shareholders. Finally, as you may have noted, earlier today, we filed a shelf registration statement in the amount of $300 million. This is merely a good housekeeping measure for Tarsus and we have no immediate plans for financing. I also want to take this opportunity to note that the potential $2.5 million milestone we have with the — bio is now likely to be recognized in the first half of 2024.

I will close by saying, we remain well-capitalized with approximately $247 million in cash at the end of Q3. Based on our current plan, this provides sufficient capital to support the ongoing launch of XDEMVY and the advancement of our clinical pipeline programs. And with that, I will turn the call back to Bobby.

Bobak Azamian : Thank you, Jeff. As you heard today, this is an incredibly important and exciting time for our company. With the launch of XDEMVY Tarsus is well in its way to becoming an eye care leader with the potential to deliver multiple therapies from our category creating pipeline. Operator, please open the line for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Jason Gerberry of Bank of America.

Jason Gerberry : Couple for me, just your comments in the PR about 1,700 bottles that pretty closely lines up with the IQVIA data. So, I’m just curious your thoughts on data reliability with IQVIA relative to Symphony and if IQVIA is ultimately perhaps like the better data source for tracking here. And then, just your latest thoughts on the role between optometrists and ophthalmologists. It looks like, I think you guys kind of had communicated this would be like kind of a 50-50 split, but it looks like ODs are about 62% of scripts so far. So curious if based on early observations, maybe how you’re thinking about the optometrists playing maybe a bigger role here?

Aziz Mottiwala : I’ll be happy to answer those for you. So when we think about the syndicated data like IQVIA or Symphony, I think a couple things to keep in mind here. One is we have a very unique distribution network with four focus pharmacies, and secondly, it’s very early in the launch. Those two things really yield that these audits are a little bit more directional at best in early days. I’d say in more recent weeks, where they’re looking better is just the trend in trajectory. But on a week-to-week basis, we see a lot of fluctuations in what they’re reporting versus what we see here internally. We’ve been giving them a lot of the data feeds. So we anticipate as the weeks go on that those data feeds will be getting more and more accurate.

But I think for now, I would tell you that really focusing on the trajectory and the trend versus the week-to-week numbers because you’re going to see some fluctuations in their projections. Our goal is to just focus on driving volumes and as the volumes increase, those will sort of align better over time. To your second question around the split across specialties, we’re seeing great feedback from both ophthalmology and optometry. We reported over 2,000 doctors to date use on therapy, and that is coming from a mix of both, as you mentioned. I think near-term, we are seeing a slight slant towards optometry, but I think over the long haul, it’ll start to even out. You’ll see an equal contribution from both ophthalmologists and optometry. Maybe at most, it goes to 55 optometry, but we do anticipate that balancing out a little bit more over time.

Operator: And our next question comes from Tim Lugo of William Blair.

Unidentified Analyst : Hey guys, this is [Lachlan] on for Tim, thanks for taking the question. We heard a lot of discussion, not necessarily from doctors, but other companies in the field around your pricing. So I was just wondering if you can discuss the initial feedback you’ve had, you’ve been hearing there, particularly from payers? And then second, can you maybe just talk about how the education has been going around Demodex mite to blepharitis and how that’s been received with like professionals? And do you have any sense of kind of how many have incorporated looking forward into the existing practice?

Aziz Mottiwala: Yes. Hey, thanks for the question. It’s Aziz again. So on the first one around price, I think we were very thoughtful and purposeful when we thought about the pricing for XDEMVY, really reflecting the value proposition the product brings. It’s one course of therapy for 6 weeks, gets great outcomes across multiple full measures of disease, and it’s the first and only approved product for the disease. All those things combined lead to a great value prop for physicians, patients and payers. So the feedback we’ve gotten has been very reasonable on that. I think that’s reflected in some of the non-contracted coverage we’re seeing here in early days, and that’s reflected in the better than expected gross to net discount.