Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS) Q4 2023 Earnings Call Transcript
Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS) Q4 2023 Earnings Call Transcript February 27, 2024
Tarsus Pharmaceuticals, Inc. beats earnings expectations. Reported EPS is $-1.31, expectations were $-1.37. Tarsus Pharmaceuticals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Tarsus’s Fourth Quarter and Year-End 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 materials 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; Sesha Neervannan, our Chief Operating 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 would like to turn the call over to Bobby.
Bobby Azamian: Thank you, Dave. Good morning, everyone, and thank you for joining us on the call today. 2023 was the defining and foundational year for Tarsus, as we successfully started our next chapter as a commercial company. We made significant progress on several programs in our pipeline, and most importantly launched our first commercial product, XDEMVY, the first and only FDA approved treatment for demodex blepharitis. Since its launch in late August, we have seen tremendous demand in growing uptake of XDEMVY among eyecare professionals, or ECPs, and demodex blepharitis patients who have long awaited an effective treatment for this damaging and impactful eyelid disease. Today, I am pleased to report on the great progress made in XDEMV’s first full quarter in the marketplace as we continue to reach patients affected by this disease.
For the full year 2023, we reported nearly $15 million in net product sales and delivered more than 17,400 bottles of XDEMVY to patients. These are impressive early numbers, exceeding even our own expectations. Throughout the fourth quarter of 2023 and early weeks of 2024, XDEMVY has continued to solidify its place as an innovative category-creating therapeutic. Diagnosed patients with demodex blepharitis, or DB for short, have driven initial demand for XDEMVY, and we expect this to continue as we work to reach the 1.5 million patients in the US who were already diagnosed prior to the approval of XDEMVY. In parallel, we are seeing early signals that we are reaching the next wave of DB patients proactively visiting ECPs for complementary eye conditions such as dry eye disease, cataracts, and patients who struggle to maintain their use of contact lenses.
We estimate that these groups make up a significant portion of the more than 7 million patients currently visiting the ECPs who we aim to reach with XDEMVY, and we are already seeing increasing use across all these patient segments. This traction is attributed to the tremendous strides we've made with ECPs over the last couple of years. We've engaged with all of our 15,000 target ECPs. More than a third have written at least one dispense prescription, and more than half have become repeat prescribers who see the clear benefit of XDEMVY and are taking action to help their patients find relief. Just this past weekend, we met with many of the top surgeons at the American-European Congress of Ophthalmic Surgery, or AECOS for short, and we heard very consistent and positive feedback about their experiences with XDEMVY, and more importantly, the benefits their patients are experiencing.
Our focus for 2024 is serving more ECPs and more patients. We expect to accelerate XDEMVY’s reach by adding to the base of current prescribers, increasing the number of prolific writers, and working with payers to secure broad coverage. In fact, our improving gross-to-net underscores the strong traction we've already made with payers in just the first few months of launch. We are delivering on the high expectations we set for ourselves, and look forward to making even more progress throughout the year. I'm also proud of our continued pipeline progress as we work to bring more new categories of therapeutics to patients with meibomian gland disease, rosacea, and Lyme disease prevention. Finally, I would like to thank all (Tarsuns) for their incredible contributions, relentless execution, and passion for serving patient needs.
Together, we look forward to serving countless more patients and advancing additional category-creating medicines. And with that, I will turn the call over to our Chief Commercial Officer, Aziz Mottiwala, for more on the strong launch of XDEMVY.
Aziz Mottiwala: Thanks, Bobby. As I said last quarter, the response to XDEMVY has been truly remarkable, and the results we're seeing so far demonstrate that our unique strategy and executional strengths are delivering exactly as planned. It's clear from our results that the launch of XDEMVY is off to a tremendous start. During the first months of launch, we have served a significant number of patients with DB, engaged and educated a broad foundation of prescribing ECPs, and made significant early progress with payers. We've noted from the beginning that creating the next category in eyecare takes time and requires teams to educate providers, not only on the strengths of XDEMVY, but also on the disease itself. As such, high impact disease education campaigns and ECP engagement have been among the key pillars to our success, and we're beginning to see the initial waves of ECP adoption, leading to growing prescription volumes and meaningful patient outcomes.
Prior to approval, we launched action-oriented, visually-focused physician and patient education campaigns to familiarize both groups with the impacts of DB and reinforce the simplicity and ease of diagnosis. We've also kept ECPs engaged through active peer-to-peer scientific exchanges conducted by our all-optometrist medical force. Clearly, these efforts are paying off. As of February 23rd, approximately 6,000 ECPs have started patients on XDEMVY, and more than half are repeat prescribers. As a result, more than 17,400 bottles have been delivered to patients in 2023. We're thrilled with these results and the impact we're having on patients. We've also learned a lot, and we're leveraging these insights to further optimize our sale strategy, particularly when it comes to transforming the next wave of ECPs into routine and repeat prescribers.
While we continue to call on existing writers, we are shifting gears with the focus on reaching the next group of ECPs who are familiar with DB and ready for a solution that may need a little more experience with XDEMVY before becoming routine writers. Based on our experience, this behavior shift often requires multiple visits by our sales force. Our goal is to make XDEMVY a regular part of ECP clinical practices, and we found that this usually happens after prescribers write five to 10 prescriptions and see the positive impact of XDEMVY on their patients. This threshold is not only important because they become frequent writers, they also become more confident and look more proactively across all the patient segments for additional DB patients that can be helped by XDEMVY.
Our most recent market research indicates that 75% of ECPs plan to more proactively look for and diagnose DB, and 90% of those that have prescribed XDEMVY, expect to write more, given their positive experience with this medicine. These numbers are powerful and reflect the strong potential growth opportunity ahead. So, while having the next 6,000 target ECPs prescribed may take more time and effort on the part of our sales team, we have great confidence in our ability to convert this next wave of ECPs to proactive prescribers. In addition to the tremendous strides we've made in reaching ECPs and their patients, we've also had great success with payers. I'm pleased to report that we have secured several payer contracts since our last earnings call, including a major commercial plan with more than 19 million covered lives that has put XDEMVY on preferred status.
We should begin to see the benefits of this coverage in the first quarter of 2024. In the meantime, and due to the clear value proposition of XDEMVY, we continue to see initial non-contracted coverage that resulted in better than expected gross-to-net discounts of 58%. The substantial improvement in gross-to-net discounts is based on our differentiated approach to distribution and patient access, and all the work we've done over the past couple of years and will continue to do with payers. Before I turn the call over to Sesha, I would like to take this opportunity to express how proud I am of our commercial organization. This is a team that was strategically and thoughtfully assembled based on their expertise in eyecare and successful new product launch experience, and they've executed exceptionally, and we are setting a new standard in product launches.
I'll now turn the call over to Sesha Neervannan, our Chief Operating Officer, who also leads our research and development, to cover the progress we're making on our clinical programs. Sesha?
Sesha Neervannan: Thank you, Aziz. I'm pleased to share that we have made significant progress across our entire clinical portfolio since our last earnings call, reporting three very positive top-line data sets for all our Phase 2 programs. These data highlight the potential of TP-03 in meibomian gland disease, TP-04 in papulopustular rosacea, and TP-05 for the prevention of Lyme disease. All three product candidates target high unmet needs and are based on lotilaner, the same active ingredient found in XDEMVY. And like XDEMVY, all three target the underlying cause of disease. In December 2023, we announced topline results from the Ersa Phase 2a clinical trial evaluating TP-03 for the treatment of meibomian gland disease, or MGD, in patients with demodex mites.
TP-03 demonstrated statistically significant and clinically meaningful improvements compared to baseline in two objective measures of disease. One, the presence and quality of liquid secretion as measured by the Meibomian gland secretion score. Two, the number of glands secreting normal or clear liquid as measured in the central 15 glands of the lower eyelid, and the treatment was well tolerated. Much like XDEMVY for DB, these data demonstrate the immense potential of TP-03 in addressing the underlying cause of MGD, a disease that can lead to permanent changes in the tear film and progressive gland loss. We plan to present the complete data set from this trial at a major medical meeting later this year, and look forward to discussions with the FDA before the end of the year regarding the path forward for TP-03 in MGD.
As you may have seen in this morning's earnings release, we announced positive topline results from the Phase 2a Galatea trial evaluating TP-04 for the treatment of papulopustular rosacea, or PPR. TP-04 is a topical aqueous gel formulation of lotilaner in development for the potential treatment of PPR, a chronic skin disease characterized by facial redness, inflammatory lesions, burning, and stain. TP-04 is designed to potentially treat PPR by eradicating demodex mites, which may play a key role in triggering inflammatory responses associated with the disease. In the Galatea trial, statistically significant improvements in inflammatory lesions and IGS score were observed at week 12 compared to vehicle. These are well-established regulatory endpoints for PPR, and the data also show that TP-04 was generally well tolerated.
The next steps for TP-04 will be complete data analysis and a potential meeting with the FDA by the end of the year to determine a path forward. The last of the three studies, but certainly not the least, last week, we reported results from the Phase 2a Carpo trial for TP-05 for Lyme disease prevention. As a reminder, TP-05 is an oral tablet designed to be an on-demand solution for prevention of Lyme disease. It is believed to be the only non-vaccine drug-based preventative therapeutic in development that targets and kills infected ticks before they can transmit the borrelia bacteria that causes Lyme disease. Results from the Carpo trial demonstrated statistically significant benefit in killing attached soil ticks versus placebo within 24 hours at both day one and day 30 after a single dose.
No significant differences were observed between the high and low dose groups, and the TP-05 was generally well tolerated. These data demonstrate that TP-05 has the potential to provide both rapid and durable protection against multiple tick-borne diseases. We plan to report the full data set from this trial later in 2024, and look forward to providing updates on our conversations with the FDA regarding the regulatory path forward. In parallel with the incredible success we've had with XDEMVY, we're also advancing a clinical pipeline that we believe has the potential to deliver even more category-creating medicines, and we look forward to additional catalysts later in the year. Lastly, I would like to take a minute to thank all the investigators and patients who made these studies successful.
With that, I'll turn the call over to Jeff to discuss the financial results.
Jeff Farrow: Thank you, Sesha. In 2023, we made great progress on our goal to further strengthen our financial foundation in support of our strategic priorities. Our fourth quarter and full-year results reflect our ability to generate meaningful revenue while continuing to advance our pipeline of innovative therapeutics, and I'm proud to report that we generated fourth quarter XDEMVY net product sales of approximately $13.1 million and full-year 2023 product sales of approximately $14.7 million. As a reminder, we recognize revenue when we ship XDEMVY from our warehouse to the distributors, not on bottles received by patients. As mentioned earlier, sales for the year were driven by the thousands of ECPs who have started their patients on XDEMVY to more than 17,400 bottles that were delivered to patients, and better-than-expected gross-to-net discounts of approximately 58%.
As stated, 2024 is off to a strong start. We are pleased with the increasing number of bottles dispensed thus far, and we have secured several payer contracts since our last earnings call, including, as Aziz noted, a major commercial plan with more than 19 million covered lives, and we remain on track for broad commercial coverage by the end of the year, and Medicare coverage beginning in 2025. To be clear, the benefits of this new major commercial plan are not reflected in the fourth quarter numbers we are reporting today. As many of you are likely aware, signing a contract with a payer does not have an immediate impact, and it can take time for coverage to be reflected in the gross-to-nets. So, we expect to begin recognizing the benefits of these contracts in the first quarter of 2024.
I also want to note that while the gross-to-net discounts we’re reporting today is very strong, this improvement is primarily due to an increase in the non-contracted coverage we saw in the fourth quarter. Remember, payers have the ability to make changes that could impact gross-to-nets in future quarters until we secure these additional payer contracts. This could include increasing copays or co-insurance, which could result in greater bridging and higher gross-to-net discounts. Further, we expect to see the typical first quarter dynamics on scripts and net sales, including higher patient out-of-pocket costs due to the planned resetting of deductibles, the Medicare coverage gap, both of which would increase the gross-to-net discounts, the impact of the holidays, winter storms across the country, and the out-of-office impact of medical conferences, as well as other potential patient dynamics, all three of which could impact script numbers.
As such, we expect gross-to-net discounts to be flat to slightly higher in the first quarter, and then improving to our expected steady state of 50% in 2025. Turning to our P&L, our total operating expenses were approximately $57.5 million, and $160.6 million for the fourth quarter and full-year 2023, respectively. The increase in operating expenses quarter-over-quarter and year-over-year was primarily driven by increases in selling, general, and administration expenses due to the addition of commercial infrastructure, marketing and education efforts, and the sales force to support the launch of XDEMVY. Gross margins for the fourth quarter were 91%, which includes the royalties that we pay to Elanco. Looking at Q1, we expect total operating expenses to be in line with the fourth quarter of 2023.
With that, I'll turn the call back to Bobby for final remarks.
Bobby Azamian: Thank you, Jeff. Looking at the progress we've made within our pipeline and in the early months of launch, I remain confident about Tarsus’s ability to become a leading eyecare company, and we look forward to keeping you updated as we continue executing on an already successful launch trajectory. Operator, please open the line for questions.
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