Pharmaceuticals with us. Tarsus, a company we've been covering over the last couple of years, has had a pretty strong execution with XDEMVY till now, also reflected in how the stock's performed too. Jeff, delighted to have you here. Thank you for joining us at the conference.
Thank you for having us.
Yeah.
It's a pleasure to be here.
Yeah. I'd love to invite you to start with some opening remarks. You recently reported Q4 results, provided some 2025 outlook. Would want you to invite, start with some opening remarks there.
Sure.
Get into questions.
Happy to do so. Tarsus Pharmaceuticals is a commercial stage company. We launched our first product, XDEMVY, in 2023, in September of 2023. It is for a drug, for a disease called Demodex blepharitis. It impacts about 25 million patients in the United States. We are targeting 9 million of those 25 million. These are patients that are actively going in to see their physicians for either Demodex blepharitis or various other eye care, underlying diseases. We have had a very robust launch, as Balaji had highlighted. Our first year of sales was about $180 million. The team has done an amazing job on managing the gross-to-net discounts. We have broad payer coverage that is over 90%. Of those 9 million patients, we have really only scratched the surface. We have only dispensed bottles of 165,000 since launch.
We have a long way to go, and this is just the early start of the launch. Beyond XDEMVY, we also have an interesting pipeline. We recently discussed ocular rosacea, which we think is another exciting, groundbreaking opportunity for us, much like Demodex blepharitis. It's a disease that is really sort of an ocular rosacea or rosacea that goes around the eye orbital area. It impacts somewhere between 15-18 million patients out there, and a large majority of those are thought to be caused by Demodex mites. We know that we're very efficacious against these mites. There's no other approved therapies out there, so we're excited about this opportunity, and we'll be kicking off a phase II study later this year. Then we have an interesting program in Lyme disease.
It's an oral prophylactic for the treatment of Lyme, that is a big unmet need, much like the other therapies that we have. And, you know, we do think ultimately this is probably better suited for a partner, just given the call points, likely a GP. But it's a unique, potential therapeutic that would be taken the night before you go out on a hike and get therapeutic levels by that next morning. And based on the PK and the recent data that we presented on phase II data, it shows that it's durable to beyond 30 days. So a unique opportunity and potentially an opportunity to do some non-dilutive financing down the road.
Great. We'll dig into each of these. But firstly, 2025 outlook. I mean, post Q4 results recently, I mean, we got a lot of questions around the quarterly cadence. Understandable. Clearly, gross-to-net evolution is something which is a huge focus for investors, and understandably so. The other thing we also got questions around was, like, OpEx spend and what are the components of it. I would love to get your thoughts around each of these, each of these moving parts here and what drives the outlook for each for 2025.
Sure. Happy to. Maybe I'll start with the gross-to-net.
Mm-hmm.
Maybe I'll back up into the third quarter of last year.
Mm-hmm.
In the third quarter, we had a gross-to-net discount of about 40%, but that included about 3% or $3 million that was related to an accrual reversal that we did there. We had anticipated that Medicare donut hole would impact us in the first half of the year, but that did not turn out to be the case. In fact, it appears that most of our patients do not have as many comorbid diseases as maybe some of the typical patients do. We ended up reversing that $3 million in that third quarter. If you think about an unaffected gross-to-net discount, it was probably closer to 43%.
Mm-hmm.
We had guided, given that Medicare donut hole dynamic, that we expected to have more pressure in the back half of the year. We did see that, in fact, in the fourth quarter. We said we expected a 1%-2% increase in the fourth quarter, and that's ultimately what we saw. We saw a 45% gross-to-net discount. We do always see all manufacturers, not just Tarsus, typically have a little bit more pressure on the gross-to-net discount as deductibles reset.
Sure.
You typically provide more patient assistance programs, and so we expect very similar to that. What we guided to was a 46%-49% gross-to-net discount, and that's, you know, really driven by some of those programs that we'll be providing patients. We do expect that gross-to-net discount to stepwise decrease, particularly as we get, you know, more patients coming online. By the fourth quarter, we expect our gross-to-net discount to be in the low 40s. Think about 42%-43%. That should be more or less our steady state gross-to-net discount beyond that timeframe now that we've got that 90% payer coverage. That's where we sort of expect to land there, on an ongoing basis.
Got it. Beyond gross-to-net, are stepping up. What about the revenue cadence for the year? How are you thinking about this? Maybe any potential seasonal variation? What?
Yeah.
Okay.
There is some seasonal variation, not due to the disease, but really just the dynamics.
Yes.
Of the eye care professionals and the patients. Beyond that gross-to-net pressure we see in Q1, we've also seen eye care patients tend to prioritize other medical visits in the first quarter because of some of those deductible resets. We've expected some, we expect growth. We guided to 62,000-67,000 bottles dispensed, on top of the 58,500 that we saw last quarter. We expect to see in Q2 a pop-up in that growth rate there.
Mm-hmm.
Just given that most of the patients have gone through those deductible resets. We expect to see more patients coming in to visit their eye care professionals in the second quarter. We do expect to see a tempering of growth, but still growth in the acute in the third quarter.
Mm-hmm.
Much like we saw last year. And we also looked at other eye care products as well, but, you know, just particularly the NRx is there. And given the dynamics of, you know, patients going on holiday, doctors going on holidays, conferences, and things like that, we expect to see a little bit, you know, slower growth in the third quarter, but then again, popping up in the fourth quarter, much like we saw last year, due to people wanting to utilize their FSA and people getting back into the office there.
Got it. I want to dig a bit more into the clinical side of things. It's been now around six quarters, very correct, right, that the product's been launched. Tell me a bit more about the patients that are being prescribed XDEMVY at this point. You said that you want to target 9 million of the 25 million overall addressable market. What kind of adoption trends are we seeing across different kinds of patient segments?
Yeah. I think, initially, out of the gate, unsurprisingly, you saw probably most of the patients were coming in complaining of Demodex Blepharitis. That's about 1.5 million patients.
Mm-hmm.
That had been previously diagnosed with Demodex blepharitis prior to the launch of XDEMVY. Prior treatments were over-the-counter, lid wipes, tea tree oil that just were not efficacious. You know, having a new therapy that showed 85% of the patients, you know, positively reacted clinically and a positive safety profile, you could see that doctors were willing to and anxious to see a new therapy out there. Initially, I think most of the patients were within that bucket. As time goes on, and we get to get out there and educate the doctors that they should be looking for these collarettes, which are pathognomonic for the disease.
Mm-hmm.
On all of their patients. It's very easy to diagnose you. All the patients, you know, typically go through the slit lamp process where they stick their chin in the slit lamp, and you ask the patients to look down. If you've got these collarettes or this sort of scruffiness around the eyelids, the patients typically have Demodex blepharitis. What we're encouraging doctors to think about is looking at all their patients that sit in that slit lamp.
Mm-hmm.
That includes MGD patients, about 1.5 million. There are cataract patients, there are contact lens patients as well as dry eye patients. What we've heard from doctors is as many as 40% of them have started reaching down into these other categories and looking for these collarettes that are pathognomonic for the disease. We'll continue to educate on that and, you know, drive, you know, the basically, we've got what we call the four Es.
Mm-hmm.
It's evidence generation, and then education on that evidence, ensuring ease of access, you know, which we have now with 90% payer coverage, and then just execution. You know, right now, you know, we've talked about MGD in the past. We had some really strong phase II data in MGD that we are getting out there and educating the physicians on. That's all part of the process. You know, we'll be generating further evidence, including in contact lenses.
Mm-hmm.
Some of those other categories as time goes on.
Got it. I look forward to that. As we think about, maybe from evidence generation to education, what are the things that you're doing on the prescriber's side to influence their prescription patterns and behavior? Now, I think incorporating slit lamp examination within the practice, that's a relatively easy one, I'm sure.
Exactly.
Many other physicians have changed that.
Yep.
What do you want to do next there?
Yeah. I think it's continued education on, you know, looking for all of their patients. I think the other practice dynamic that has helped is the Medicare coverage coming online.
Mm-hmm.
We'd heard, you know, from some physicians that, you know, it's a painful process if you don't have, you know, either payer coverage on the commercial side or the Medicare side. You know, we got very robust commercial coverage by the middle of last year, and then we really turned on the payer coverage in Medicare in the fourth quarter, and that's going into impacting Q1 and Q2. The prior auth process or getting the medical exceptions required a lot of time.
Mm-hmm.
Some of the physicians just said, "Well, I'm just gonna wait till you get coverage before I start to prescribe." Educating the physicians that we now have the broad coverage and access should be much easier will be part of the process. It's also educating on MGD, you know, having the physicians be aware of, you know, take a look at your patients that have Demodex blepharitis or MGD and see if, maybe XDEMVY is a good therapeutic for that as well.
Got it. I'll follow through with the MGD part of your response. I mean, there's an area that we had dug into quite deeply a couple of years ago, hosted a few KOL calls and really realized that there's a massive market opportunity, and you're targeting this market too. Help us understand the kind of initial traction that you've got on the MGD launch till now. I think you had also mentioned that you should build over time as ECPs kind of understand this product better and understand the data better. What can you do to raise awareness there and the traction that you're seeing?
Yeah. No, it's really been, you know, encouraging. It's early days. You know, the data was released last year. We've been, you know, really thinking about how to educate the physician community on this disease. I think what's resonated, you know, and it was right out of the gate when we had ad boards on the data, there's no FDA-approved therapeutic out there.
Yep.
That shows clinically, you know, impactful results on the actual glands themselves and the secretion score. And so we saw, clinically, improvements, you know, from sort of, I would say moderately severe patients to moving into "normal.
Mm-hmm.
Both in the meibomian gland secretion scores as well as the number of glands that are able to secrete the optimal secretion. That data has really resonated with the patient community or the physician community. We've been getting out at various conferences and educating the doctors on this disease state, and also doing peer-to-peer education as well. Doctors using this with patients that have Demodex blepharitis and MGD, and what's the practice patterns there.
Got it. I think as I just looking into the revenue projection and the models, I think one of the things that I have in my model is retreatment rate. I know that we've not anticipated much last year, but now that we are at around this one-and-a-half-year timeline, what kind of retreatment patterns are you seeing in the clinic? How should we model this? The fact that this is in our expectations for 2025?
Sure. It's still early days just given where we are on the launch. We're only about a year and a half into the launch.
Mm-hmm.
Our clinical study, phase III clinical study where we follow patients out to 12 months, we saw some of the patients start to develop collarettes again between 6-12 months. That was about 40% of the patients. We expect that probably most patients will see some recurrence. They.
Mm-hmm.
These mites will migrate back up into the eyelids. They like that oily, sebaceous environment. They're coming from other parts of the skin, maybe from your hair, and re-infesting, you know, your eyelids there. The best data we have is really coming from that clinical data where we saw the 40%. We're being, you know, conservative in saying that probably 20% of those will come back annually.
Mm-hmm.
You know, on the subsequent year. We're continuing to, you know, monitor this. IQVIA is currently showing a mid-single-digit retreatment. They're really showing that as on a denominator of the weekly prescription. So it's probably not the best way to be taking a look at it. It's probably not the most complete data.
Yep.
Either. It's really, you know, difficult to track refills, I think, in this area. We'll be able to, you know, as time goes on, be able to publish some results on that. Our expectation is that we will get to that 20% level over time. It's not gonna be a light switch, but it'll be.
Mm-hmm.
Sort of something that'll be increasing year over year. Over time, we should get to that 20% or higher level.
Got it. I wanna spend some time around the pipeline and especially around ocular rosacea that you started speaking about earlier this year. Walk us through the broader market opportunity here, the next steps for you, Jeff, and what stage are we in currently?
For ocular rosacea?
Yep.
Yeah. Yeah. This was a unique opportunity that came about in an unusual way. We had shown the ocular.
Mm-hmm.
The rosacea data was coming off of phase II- A data, which we initially thought we were going to partner because we are really an eye care company and we wanted to, you know, stick to our knitting there. As we presented this data to a group of KOLs and physicians at an ad board, they came to us and said, "Hey, have you thought about looking at ocular rosacea?" There is nothing out there that I can use to treat my patients, and I see it a lot in my practice, and I would love to have something there. We spent more time looking at the market, doing some more KOL work. We wanted to make sure this was not just coming from a few doctors that see this, but, you know, is there a really broad market opportunity? It turns out there is.
There's about 15-18 million patients that are thought to be impacted by this ocular rosacea. And as these physicians highlighted, there's really nothing out there from an FDA-approved therapeutic perspective. Much like Demodex blepharitis, this is a complete white space and really an opportunity to help patients that have nothing out there. Of those 15-18 million patients, you know, over 50% are thought to be caused by Demodex mites.
Mm-hmm.
You know, with that data, we are developing a phase II study that will kick off in the second half of this year. We're looking specifically at some endpoints that are pathognomonic for the disease and really are the major complaints of the patients. It's obviously the redness that you see there, as well as the vessels that sort of dilate.
Mm-hmm.
You can really see them pronounced on the eyelids that you typically do not see with other patients. We are developing, you know, a study that will look at those as well as some other secondary endpoints. You know, ultimately, we will kick off that study sometime in the back half of this year with a data readout sometime in 2026. We are excited about this just given the fact that it is an untapped area to really be able to help these patients that have nothing else out there. It might be an opportunity, much like Demodex Blepharitis out there, that can be really impactful, you know, for the patients as well as for the company.
Got it. Help us understand why, especially as it's caused by Demodex blepharitis, Demodex mites, it's reasonable to assume that many of these patients will also have blepharitis, Demodex blepharitis. What is the overlap in this population of 15-18 million? What is the overlap? What are the incrementally new patient population that you have? That's one. Two, maybe also help us understand why XDEMVY itself is not able to resolve this and why do you need a new formulation?
Sure. Maybe I'll start with that second question.
Mm-hmm.
The we're looking at a gel-based version. We think an eye drop is not the topical of choice there for patients. It's not, it probably won't penetrate the skin as readily as a gel as we're formulating right now. You want a gel that you can apply once or twice a day, that will sit there and, you know, allow the drug to penetrate into the skin appropriately. With a drop, you're, you know, seeing things drip down your face there. That's the reason we're moving into a gel formulation. On the first part of your question, there shouldn't be a, this is really a distinct population there. One of the reasons that the physicians came to us was, you know, they were using XDEMVY as the eye drop.
Mm-hmm.
You know, they would clear up the redness around the eyelid margin, clear up the, you know, around the eye, but they still had redness, this ocular rosacea around the orbital area. They had, you know, as some people said, that you almost have like a raccoon-like effect there with the red eye. We view it as a distinct opportunity there. It would be above and beyond the opportunity in, in XDEMVY for Demodex Blepharitis. There is some, you know, probably some overlap with patients that probably have Demodex Blepharitis who will also have ocular rosacea, but it'll be a different therapeutic approach to how to treat those independent diseases.
Got it. Maybe a quick outlook on the Lyme disease program too. Remind us of the recent guidance that you got from the FDA around the regulatory path forward here and the market. I mean, I've spoken to a few companies targeting this area before, but it's been a largely unmet opportunity, need out there. What's the market opportunity also looking like?
Yeah. No, it's a huge unmet need. I would say Valneva, Pfizer said it's about a billion-dollar market opportunity for their vaccine. They are taking a traditional vaccine approach where you get your initial shot, and then you've had a couple boosters, and then you'd have to go back for your annual boosters.
Mm-hmm.
Ours is an oral, almost a non-demand prophylactic, that you would take, maybe a day before you go out on a hike. You would get to therapeutic levels the next day. It shows durability for beyond 30 days. It is a little easier presentation, requires less sort of forward planning, and, you know, basically, a, you know, unique opportunity that could perhaps be something, you know, probably as we talked about, better suited for a larger partner because it's gonna be a GP call point there.
Mm-hmm.
In terms of the clinical path forward, we see this as being, you know, a phase II study would be the next step where we would take a look at, at several biomarkers, that are indicators of Lyme disease. The agency has given us some guidance on what that might look like. We're talking about several hundred patients that we would need to treat to get to that proof of concept. They were pretty clear that the phase III study would need to be a disease prevention study, that would, you know, be thousands of patients there. That would be something that, you know, we would look to partner with, a potential partner and, and identify, you know, as quick a pathway to get to market for something like this. The clinical data that we showed, the phase II- A data was pretty impressive.
Mm-hmm.
You know, that what we're essentially doing is killing the tick before it can transmit the bacteria that causes Lyme disease. That's not an immediate timeframe. That typically takes anywhere from 24-48 hours. Our clinical data showed that we killed about 97% of the ticks within one day. That was durable, you know, beyond 30 days there. Pretty impactful, you know, tick kill study there. You know, the next thing would be to design a, you know, a robust phase II study that we're gonna start in 2026, and then, you know, read out sometime after that.
Got it. Jeff, I know you have your hands full with the execution and with the pipeline, multiple pipeline opportunities we discussed. I also want to spend a couple of minutes around the business development plan. I know that Bobby, as the past mentioned, is desire to look at both the front of eye and back of eye opportunities. How are you feeling about this plans and where do you stand right now?
Yeah. No, our goal is to be one of the, you know, the best eye care companies out there, if not the best eye care company out there. And, you know, right now, all capital deployments and, you know, time and effort is being spent on the launch, you know, especially given the increase in DTC spend. We wanna make sure we execute flawlessly there, much like we've been doing for the last year and a half. That'll be the key. As time goes on, you know, I think we can synergize our sales team, to maybe get something else in the bag there that has a commercial that's already on market and synergize that. We're also looking at other opportunities.
We've done a landscape of the front of the eye and keeping track of other opportunities that we might wanna execute on from a business development perspective. I would say nothing near-term and nothing expensive at this point.
Got it.
As time goes on and as we continue to execute on XDEMVY, we'll have an opportunity to do beyond that. And then, as you highlighted, you know, as time goes on, we might think about moving into the back of the eye as well, into retina programs and other back of the eye programs. But again, that's something that's gonna be evolving over time.
Got it. Great. Jeff, I think that'll be a great spot to leave this discussion at.
Great.
Thank you again for joining us at the Barclays Conference, and I wish you a very productive conference.
Thank you very much.
Thank you.
Appreciate you having us.