to the 45th Million Black Girls' Health Conference. My name's Lachlan Henry Brown. I am the research analyst here covering Tarsus Pharmaceuticals. Before we get started, I do want to direct everybody to please visit williamblair.com to see any and all relevant disclosures. We have Jeff Farrow here today, the CFO and Chief Strategy Officer of Tarsus. He's going to run through a few slides, and then we'll jump into Q&A. I will lead Q&A, but by all means, you know, if you have a question, raise your hand and we'll try to get to you.
Great.
Thank you, Lachlan. It's great to be here. Thank you for everybody joining us so early in the morning. Much like Lachlan did, I do refer to our forward-looking statement here and encourage you to take a look at our SEC filings, including the risk factors there. I will be making some forward-looking statements today. Tarsus is a commercial stage company focused on eye care. Our first medicine, XDEMVY, was approved in September, actually, it was launched in September of 2023. The launch is going quite well. We think it has a blockbuster status, potentially over $1 billion. We have seen continued growth quarter-over-quarter, as well as underlying demand. We also have an exciting pipeline. Really, it's a pipeline and a product, somewhat cliché, but in this case, it's true. It's the same active ingredient that's in XDEMVY.
We're purposing it for a disease called ocular rosacea, again, another category-creating area where there's no FDA-approved therapeutics for it. We're really excited about it. It's synergistic with our sales pull point and could have a big potential impact for the patients that are impacted by this. We also have something for Lyme disease. It's an oral prophylactic for the treatment of Lyme disease. That is something fundamentally that we think probably is better suited in a partner's hands. We look to out-license that at a certain stage. Demodex blepharitis is a highly prevalent disease. There's about 25 million patients that are impacted by it in the United States. It's caused by Demodex mites. We all have these mites on us almost from the day that we're born. These mites sometimes over-proliferate in some of our patients.
They go and migrate into the eyelashes. They like an oily, sebaceous environment. It is very easy to diagnose. Everybody that's been to an eye doctor has probably been in a slit lamp. You basically put your chin on the slit lamp, and the doctor asks you to look down. If you have these collarets, which you can see here on the left-hand side of the slide, this waxy sort of buildup that goes around the eyelashes, that's the hallmark of the disease. It is pathognomonic for the disease. Our treatment is an eye drop, and the treatment course is a six-week course of treatment. We saw very impactful clinical data that showed 85% of the patients saw clinically meaningful improvement in a very efficacious or very benign safety profile. I talked about the 25 million patients that are impacted.
We're actually initially going after nine million patients. These are patients that are actively going in to see their eye care professional for one of these particular diseases, DB itself, or perhaps MGD, dry eye, cataract, or contact lens. That is our initial effort. That is where our sales force is really focused. We're focused on 15,000 eye care professionals that treat these patients. As you can see here, we have seen quarter-over-quarter growth as well as underlying demand here. Arguably, this is one of the best eye care launches in perhaps the last decade. It is important to remind everybody that this is essentially an NRX product. It is basically one treatment course can prevent this disease for a period of time, although we did start to see the mites migrate back up into the eyelashes somewhere post-treatment in the area of 6-12 months.
We do expect refills to occur over time. Initially, this is all new patients. The launch beyond that has gone really well. We've seen broad ECP adoption. We're targeting the 15,000 that are highlighted. We have 90% coverage across all payers. We continue to see metrics that show increased growth across the dynamics of the prescribing. From a milestone perspective, you can see here we've got some milestones ahead of us. We continue to look at Europe as an opportunity for Demodex blepharitis as well as Japan. We're initiating the ocular rosacea study here in the second half of this year with proof of concept probably in the second half of next year. We could initiate a phase II study in Lyme disease as well. With that, that's the prepared section, Lachlan.
All righty. Thank you. I guess the first question for those in the room that maybe haven't been following the story for the past year and a half, two years or so, the launch has obviously gone very well, I think better than most expected. I often tell people that I think starting 2024 or at the start of 2024, Consensus called for about $55 million in revenues, and you guys tripled it. Can you maybe walk through why that is? I think people obviously were initially a little hesitant. You're building a new market that typically takes time, perhaps not as much time as we expected here. Could you just talk through some of the factors that have allowed you to sort of exceed those initial expectations?
Sure. Yeah. No, most people haven't heard of Demodex blepharitis, nor had I before coming across the company. With 25 million patients, it did create a head-scratcher for some folks. I think a lot of people were sort of analogizing us to dry eye launches, which have been generally unsuccessful primarily because of the competition and the gross-to-net discounts can be particularly onerous. This is really a category-creating effort that we did, as you highlighted. It really goes back to probably a year before the launch, maybe 18 months before the launch. The team did a really great job of getting out there and educating the eye care professionals on disease education. What is Demodex blepharitis? What does it do to the patients? They were educating the eye care professionals, but also educating the payers as well and showing why it should be covered essentially.
They showed pharmacoeconomic benefit. They showed them the clinical data. That really resonated with the payers. I think that was one of the reasons for our early success. We got commercial coverage and ultimately Medicare coverage much more quickly than we anticipated. With those sort of wheels moving, it was really just getting out there, starting our sales force. We started with 100 sales reps. Because of the success of the launch, we had always anticipated increasing the number of sales reps, but we brought them on a little bit earlier than we anticipated, probably about six months earlier, just to sort of reduce the size of the territory, still focusing on the 15,000 eye care professionals that I referenced earlier. It's really about driving depth in those different categories that we highlighted there.
It's really been sort of an evolution going back to the early days. Then we initiated a direct-to-consumer campaign in the fourth quarter, focused initially on streaming. In the first part of this year, in Q1, we initiated network TV ads as well. That is really driving consumer disease education and patients coming into their office asking if they've got Demodex mites.
Okay, great. Let's talk about those 15,000 eye care professionals. I think you've talked several times about you now have all of them have written a script for XDEMVY, and the goal is now to move them sort of along that continuum of frequency of prescribing. How do you do that? Because every doctor that we've spoken to says it's a great experience, like their patients love it, it's hugely effective. In some senses, why do they not do that on their own if they have a great experience with it?
Yeah. I think it's a continuum. Initially, there's, I think, a group of physicians that were very aware of the disease and the impact of the disease. The low-hanging fruit initially was patients had a Demodex blepharitis. We had about 1.5 million there that were diagnosed with that disease. It's really educating the eye care professionals that there is no such thing as an asymptomatic patient that has Demodex blepharitis. While they might not be initially complaining about it, there's still some underlying disease that they're probably facing there. It's really continued educate. Look at your patients that have MGD. Look at your patients that maybe are not able to wear their contacts for the full day or contact lens intolerant. They can't wear them at all. Just really going through those different sort of segments.
That is really an effort that the sales force is doing right now to drive that sort of depth of prescribing. It seems to be working. We saw in December through an ATU or a survey with the physicians that 40% of the docs that are prescribing, so 40% of those 15,000, have already started to move into those categories, those other categories. To your point, Lachlan, it's really moving some of those doctors that are maybe prescribing monthly, once a month or twice a month, to weekly to daily. Really just sort of educating the docs that all patients could be benefiting from XDEMVY.
Okay. Is there a sort of typical timeline that that takes for someone from the first time they try it, try it in a few patients, see how it goes?
Yeah.
Is that like a few months before they're writing it every week, or is it a few quarters?
It depends. Typically what we find is they want to treat if they're a naive doc, haven't treated a patient before, take six- eight patients before they start to maybe prescribe monthly. Then it's just one of those things where they do see the efficacy and the patient feedback has been phenomenal, that that starts to resonate. It is detail-specific. It really does behoove us to go in and really remind the doctors about this disease. It hasn't become standard practice yet, just given it's the only year in launch. Reminding them to continue to look for the collarets, ask their patients to look down. It's a process, and it'll probably take some time before it becomes regular course for those 15,000. Some of them are prescribing daily.
The nice thing is none of the doctors, even our highest prescribers, have not said they've come up against a glass wall where they don't have any more patients. They continue to see more patients come in with these collarets.
Okay. Okay. I guess that sort of leads into the discussion of the different patient populations. You said 40% of prescribers had written in one of those populations beyond those patients with a diagnosis of DB. Is it fair for us to assume that at this point, most of the prescriptions that have been written are probably for those patients with an existing diagnosis?
I think early on in the launch, that was the low-hanging fruit, right? Because these patients had previously been diagnosed with Demodex blepharitis, and they were using non-efficacious therapeutic sort of homeopathic lid wipes or tea tree oil, which do not get to the root cause. They do not kill the mite. I think that was probably the initial couple quarters of the patient population. As time has gone on, we have seen them sort of anecdotally. We have heard that they were going through all of those different categories. It is not something we can get real-time data on. It is something we really have to go through surveys or chart reviews at this point. We will plan on updating that metric as time goes on as well. I think what we are seeing is there is more and more depth in those different segments as time goes on.
Okay. Yeah. So I was going to ask it, is there a sort of claims analysis that you can do at some point to see if it's presumably these patients that are in those other categories are getting diagnosed and getting coded for that? So is there at some point an analysis of claims?
Yeah. It's hard at this point because they're all being coded with the ICD-10 code for Demodex blepharitis. The only way we can really do it is through doc surveys or going in and taking a look at some charts to see, yes, they have MGD and Demodex blepharitis. And they got an XDEMVY script for that.
Okay. A claims analysis, I guess, would show that the diagnosis of Demodex blepharitis is probably increasing.
That's right. Yeah, exactly.
Okay. Awesome. The ECP population that you're targeting is a mix of optometrists and ophthalmologists.
That's right.
Can you talk about the different dynamics there in terms of, I guess, what you expect, but also what you're seeing in terms of the prescribing behaviors, how they differ?
Yeah, they're a little bit different. We talked about the 15,000, half of which are ophthalmologists, half of which are optometrists. It's really a subset of the optometrists. It's not your sort of optometrists that work at LensCrafters or Warby Parkers. These are doctors that are essentially writing 85% of the scripts for anything that's in the anterior segment, sort of dry eye, glaucoma, those type of things. It's about 7,500 of that 40,000 of the ODs. Right now, we're seeing about 60% of the scripts coming from the ODs and the other portion coming from the ophthalmologists. We do think over time they'll probably get more 50/50, but right now it's about 60/40. There is a little bit of a different dynamics.
A lot of these physicians, ODs, have migrated to this sort of front-of-the-eye, eyedrop type of practice because of the dynamics of Warby Parkers and online type things. This is an opportunity for them to build a practice, a specialized practice. There is some benefit to them for treating these things. Typically, if you go in for an eye exam, you use your vision insurance, and it is reimbursed at about $50. If you go in and they see that you have Demodex blepharitis or dry eye, they are going to ask for your medical insurance, which reimburses, say, at $125-$150. You get a much better sort of reimbursement under that scenario. They will typically have you come back to see how the drug has been doing and continue to follow you on that.
It also is an opportunity to, if the patient's perhaps got, was previously intolerant to contact lenses, now they can try contact lenses. It is a little bit of a practice builder for the OD.
Yeah. Sort of makes for a sticky patient.
Yes.
Yeah. Okay. So for this year, you've highlighted several sort of growth factors that are going to keep driving adoption of XDEMVY. Probably the first to highlight would be the sales force. You expanded them in September. They were sort of fully in the field for Q4 and Q1. Are they sort of at full efficiency now? Do they continue to get more effective over time, or?
Yeah. No, I think so we did basically introduce the field force around right after Labor Day, the incremental sales force. Q4 and Q1, I think they're still sort of getting their sea legs, but we anticipate them really kind of getting up to speed here in the second quarter and beyond. It essentially made the territories cut in half. It made less windshield time, as we call it, less time spent on the road traveling between appointments and more time being able to actually interact with the doctors. I would say the continued growth that we've been seeing this year is probably being driven by primarily those new sales reps coming on board and driving that demand there. It'll continue to go on as before. Some of the other initiatives is the DTC campaign that we talked about.
That typically takes one to two quarters to see the impact of that. It takes a while for really the light bulb to go off on the patient, the patient to get online and make an appointment, and then they have to go into the office. We typically say it's not an immediate impact on the typical investment there. It takes a quarter or two. We expect to see that impact hit in the second half of this year. We have the recent MGD data, which seems to be really resonating with the physicians as well. There's really been nothing out there that has demonstrated what we've been able to demonstrate there.
As we get out there and educate the physicians on this, patients that have Demodex blepharitis and MGD, we expect that to be some of the pull-through that we see in the back half of this year as well.
Okay. Okay. So on the sales force, are there, I guess, how hard are metrics can you look at to see how effective they are or how much impact they've had on prescribing by a given physician? Yeah, to sort of evaluate their efficiency or the kind of ROI you're seeing on them?
Yeah. Yeah. No, we've got great data there. We can actually trace the prescribers and how many scripts they've written. We monitor, to your point earlier, are they monthly writers? Are they weekly writers? Are they daily writers? How many scripts are written? How many are dispensed? We've got really good data on the impact of the sales force.
Okay. Awesome. DTC, obviously, is another one where conceptually, at least, measuring the impact seems a little challenging. If I see the ad on TV and then go see my optometrist and get diagnosed and fill a script, can you track that? How do you measure the impact of DTC?
Yeah. No, it's more difficult, particularly as you move into network TV. It's quite frankly a little scary what you should get on streaming TV unless you disable your button in order to give that data. But you can actually track a patient going from a geography and getting a script on streaming TV. When you move to network TV, it's more a sort of mathematical algorithm that you need to use. And there's a little bit more of an art to it. You don't have the clarity of the data you get on streaming, but you can get some good metrics there in terms of the return on investment.
Okay. How long does it take to see that? I mean, you said it takes probably a couple of quarters to actually see it flow through to prescribing volume of scripts. Are there metrics you can see before that that tell you it's working or probably in effect?
Yeah. There are. One of the things that we're very pleased with is we're getting a lot of active engagement at our website. What I mean by active, they're not just clicking into the XDEMVY website. They're actually going in and taking the quiz. The quiz is essentially, do I have Demodex blepharitis? They're going through that process of the questionnaire. There's a slider that can show you a before- and- after picture that they're spending a lot of time on. Finally, find a doctor. They're diving in and actually saying, where's a doctor in my area that I could go to that treats Demodex blepharitis? That active engagement is really encouraging.
Fundamentally, as CFO, I want to see scripts and revenues, but that's a good early indicator of things that they're actively engaged and are resonating based on that commercial.
Okay. So one of the other growth drivers this year was Part D coverage, which came online at the start of the year. From memory, the population is pretty evenly split commercial, Part D. I think in the past, you'd said, even though you didn't have much Part D coverage last year, you were still seeing pretty good volumes of prescriptions in Part D. So what impact does having this coverage have? Does it directly drive Part D scripts, or does it drive prescribing more broadly because physicians no longer have to think about, is this patient commercial Part D? Do I have to worry about a prior authorization? Does it sort of open up their sort of prescribing behaviors more broadly than just Medicare patients?
Yeah. No, that's a great question. It is more the latter. I think it reduces friction because we did hear that some doctors were saying, "Look, I'm just not going to prescribe to my Medicare patients because it's a pain." A lot of times, the doctors don't know what insurance you have, right? I think the fact that now that we've got Medicare Part D starting to kick in, it creates less friction within the system. It makes it easier for them to write for all of their patients now. We're hearing that the access is much better now that the Medicare is starting to come online.
Okay. Okay. Great. That, again, as the CFO, that translates into net price, obviously, with coverage. Gross nets have been pretty good. I think you've said that they are sequentially going to be declining this year to your longer-term target of 42%-43%.
That's right.
Next year, I think Q1 is always high for the seasonality. Should we expect a similar sequential decline quarter-over-quarter, or is it more what at least I would think of typical as we have a big drop down after Q1, and it's pretty steady for Q2 through Q4?
Yeah. No, we expect sort of a stepwise reduction in our gross net discount to end the fourth quarter somewhere in the range of the low 40s, the 42%-43% that you highlighted there. We're still working through some of the Medicare impacts, and that is what is causing that step down in the second quarter. We should have that full coverage by the middle of the year. We will always have that dynamic that you referenced in the first quarter where copays reset and deductibles reset. There typically is a higher gross to net, but sort of at a steady state absent the Q1 dynamics, we expect to be in the low 40s.
Okay. Okay. Great. I guess I was going to ask several other things. In the interest of time, maybe we should touch on the pipeline a bit.
Sure.
Earlier this year, you guys sort of outlined your plans to develop TP-04, the topical for ocular rosacea, which is another new market that nobody's really developed in. Can you maybe talk about how you came to that decision and the opportunity that you see there?
Sure. I think an example of us really listening to our customers, the eye care professionals. We had originally shown some data, phase II data in a dermatologic indication called papillary pustular rosacea. It's a type of rosacea where you get these pustules that develop, and you get the typical redness. We got clinically meaningful results. We hit our primary endpoints. The challenge there was we were really looking at this as an out-licensing opportunity because we're not a derm company. It's a very competitive dynamic out there in the derm space. When we showed this data to our eye care professionals and ad boards and various other sort of forums, they came to us and said, "Hey, have you thought about ocular rosacea? I see it all the time in my practice. There's nothing out there from an FDA-approved perspective.
You should take a look at this." The first thing we did is, "That's interesting, but let's make sure it's not a bunch of just independent noisy KOLs," right, focused on this one area. We did some market research, and there really is a there there. There are about 15-18 million patients that are impacted by this disease, and the vast majority are caused by Demodex mites. We know we're very effective at killing mites. We did the market research and decided, "Wow, this really could be a game changer that there's nothing else out there." It's synergistic with our call point. It's really about defining the scale that we're going to be utilizing. In discussions with the agency, there are two primary complaints that the patients have and the eye care professionals see.
One is obviously the rosacea, the redness that you see. The other is this sort of pronounced vessel growth on the upper eyelid. What the feedback from the agency is, if we can show a reduction in both of those, we do not have to show a cure. If we show a reduction in both of those, that would be clinically meaningful to the patients and approvable endpoints. We are basically now developing a scale that is reproducible from eye care professional to eye care professional such that a perspective of somebody looking at a patient that has redness will say, "Okay, well, that is a grade three." The next physician will say the same thing, "That is grade three. You want consistency there." Same thing with the reduction in the vessels as well.
We want to make sure we can develop a scale that is reproducible from physician to physician. That is the process we are undergoing right now. We will kick that phase II study off in the second half of this year with proof of concept data in the second half of next year. A big opportunity and something we are really excited about.
Okay. For that scale, how much validation do you need to do before the phase II with the FDA to make sure that they would be comfortable with it as a phase III approvable endpoint?
Yeah. So we've already had that discussion with them in terms of those two key endpoints there. It is really for users to just develop that scale. We do not have to go back to the agency on that particular scale development since it has already been sort of established that this will do it. If we do not design a reproducible scale, then there is less certainty on the outcome. We are being very thoughtful as we think about moving into that initiation there.
Okay. The onus is on you really to prove or ensure that it's reproducible before you start the phase II.
Exactly. Exactly.
Okay. You've also got the Lyme disease program. As someone that spends a good amount of time in the Northeast, I'm very familiar with the fun of having to check yourself for ticks every time you go outside in summer. That one's particularly interesting to me. You've said, I think you'd probably look to out-license that, but you've also talked about a phase II next year. I guess for those in the audience that aren't familiar with the program, could you just give a quick overview of what it is and how you see that progressing?
Sure. Yeah. No, it's a really exciting program, but we're not really infectious disease- focused or in that area there. A phase III study would be thousands of patients. We're talking 7,000-9,000 patients to enroll. It's an expensive study. It's not our call point. That's why we think about out-licensing, but it's a really cool program. Basically, it's the same active ingredient that kills these mites, also kills ticks. The thought is, and we showed phase II data that showed we killed 98% of the ticks within 24 hours of this oral dosage. You get to therapeutic levels within eight hours of taking it. The thought here is you kill the tick before it transmits the bacteria that causes Lyme disease. It's not an immediate transmission. It takes 24-36 hours.
This data showed that we killed them within that before that window. It was also durable to 30 days. We are looking at a phase II study. We are deciding whether we are going to do it ourselves and maybe create more value by showing positive data there and then out-licensing it or perhaps partnering it before the initiation of the phase II study next year. That is the process we are going through right now. We have had feedback from the agency that we can use biomarkers of Lyme disease in this phase II study to show proof of concept. The phase III will require disease prevention, though. That is why it is so big and thus so expensive.
Okay. Great. I guess plenty more I could ask, especially have you been trying to read the tea leaves on MFN and Paris and so on. Given we're on time, maybe you could just talk about the cash balance. Everybody always wonders biotechs should, if, when you'll perhaps be sustainable or you're going to need to raise again. Just talk about the cash that you have now and where that gets you.
Yeah. We ended Q1 with about $408 million in cash. We haven't guided to cash flow positive at this stage just because we haven't guided on revenues, which is a big component of it. So stay tuned on that. We're evaluating the revenue guidance on a quarter-by-quarter basis. The big unknown is really the impact of the DTC network TV. So I think once we get that behind us, we'll be in a position to provide that type of guidance.
Awesome. Thank you, everyone, for joining us. I think we now have a breakout in Burnham B, upstairs for those that would like to join. Thank you, Jeff, for joining us.
Thank you. Appreciate it.