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.

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 statements 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?

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, 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 from Demodex blepharitis before 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 eight 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 difficult to read the newspaper every day. As you can see in this photo, his eyelashes are crusted with collarettes, the telltale signs of Demodex blepharitis. Fast forward five 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 on his daily activities. And this is only one of the many similar stories we heard and similar photos we saw from eye care providers during the recent American Academy of Ophthalmology conferences. So when I say I'm confident about the blockbuster potential of XDEMVY, it's not just because of the $1.7 million in net product sales we reported for our first five weeks of launch; it's also because of the impact we are having on 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.

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 seen 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 look for collarettes, the sure sign of disease. And as 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 disease education campaigns for every eye care provider as well as for patients well in advance of approval. We've now transitioned our efforts to a might-over-month 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 prescribe 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 as 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 authorizations 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 four desktop prescribers, who in the vast majority of cases have been called on multiple times. As a result of these efforts and the 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 and 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?

Thanks, Aziz. I've been lucky enough to be part of several companies that have brought innovative new solutions to patients in need. 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. However, 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, and 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 advancing 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.

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 on 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.

Our first question comes from Jason Gerberry of Bank of America.

Couple for me, just your comments in the PR about 1,700 bottles that pretty closely line up with the IQVIA data. So, I'm just curious about 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?

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 of things to keep in mind here. One is we have a very unique distribution network with four focused pharmacies, and secondly, it's very early in the launch. Those two factors 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. For now, I'd tell you that focusing on the trajectory and the trend is more meaningful than the week-to-week numbers because you're going to see some fluctuations in their projections. Our goal is to focus on driving volumes, and as the volumes increase, those will 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 using our 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.

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

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, 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 how many have incorporated looking forward into the existing practice?

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 six weeks, getting 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 proposition 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. So payers are covering this. We're having ongoing discussions with all the payers, and we're not seeing a lot of pushback there. Those are all negotiations and they're active negotiations. But I think the payers do recognize the value proposition XDEMVY brings. They do acknowledge the unique aspect of the drug and the fact that it's a first and only. So we feel really good about that and stay committed to the idea of building commercial coverage through '24 and having Part D come in on 2025. When it comes to education, this has been a focus of ours even prior to the launch. We had multiple campaigns educating the physicians and patients on the disease. Our disease campaign was essentially about having physicians screened for the disease by having patients look down. We're seeing that momentum continue to build now that the product is approved. As we stated in our prepared comments, 70% of doctors we survey say that it's important to look for collarettes. Furthermore, we know that if they're looking for collarettes, they understand that collarettes are pathognomonic for Demodex blepharitis. So they are making the link. I think in early days, it's still important to build that habit and make it a routine in every exam. And that's our focus going forward. Right? You can see the sales force and our Medicare team are continuing to educate on the disease. The sales force is out there linking the disease to the benefits of the product, and that's going to be a continued focus for us, right? We're building a new category. It will take some time, but we are seeing great momentum there.

And I just want to add to that, Aziz. This is Bobak Azamian. I've been in the field, as has our executive team, roughly monthly. I've seen that education take place. I was once in a very urban environment, and next in a more suburban environment. And just as Aziz said, you see some doctors that are immediately prescribing, having been doing multiples, and then you see some doctors that need a couple of visits to start to understand the value proposition, start to look for patients, and then come online and start prescribing. So we're seeing that really, week in, week out in terms of that education taking hold.

And our next question comes from Eddie Hickman of Guggenheim Securities.

Just two from me. Can you give any additional color on what went into that 73% gross-to-net discount and how you think that will track over the next few quarters given it's already better than where we thought it would start? How many of those 1,700 bottles were reimbursed? And how does the limiting sampling work for this product? And then if you can give us sort of any data benchmark on the upcoming MGD study and sort of what you're hoping to see move forward in that program?

It's Jeff. I'll start with the gross-to-net question. So we did do better than we anticipated, ending up with an overall gross-to-net discount of about 73%. I think we were anticipating closer to 80%. The vast majority of that discounting was related to our bridging program. The delta between our expectations and what we ultimately saw was a little more coverage than we were expecting from the commercial side in particular. We do think over time that as we start to get payer coverage in 2024, we'll see that gross-to-net improve. Ultimately, in 2025, once Medicare comes on board, we'll get to a steady state of about 50% gross-to-net discount. The thing we're cautioning folks on, as I mentioned earlier, is in the fourth quarter, now that some of these payers are seeing more scripts come through, they're trying to manage their budgets if we are not currently contracted with them. So we're anticipating somewhat of a flat gross-to-net discount from the third quarter. We're starting to see more onerous prior authorizations. Again, that will be short term, and we do expect to see that improve over time starting in Q1 of 2024.

And then the second question was about the upcoming MGD study. Jeff, do you want to take that one?

Sure. On the MGD study, we anticipate releasing the data here in the next month and a half prior to year-end. It includes data from two dose types, one is BID, and one is TID. We'll be able to release that top-line data sometime later this year.

And our next question comes from Oren Livnat of H.C. Wainwright.

I have a couple of questions. Just to revisit this issue of the evolving payer pushback, I guess, in the immediate term. First, can you just help us understand what kind of early experiences you're hearing about physicians having in terms of getting their patient access early on? Do they need to fill out a letter of medical necessity now, or is it just going through specialty pharmacy that's handling all that adjudication for them on the back end so that they don't experience any of that friction per se? And going forward, I guess obviously gross nets are going to potentially be volatile, but what about volumes? Do you suspect that if there's an incremental pushback and reaction to your very strong volume out of the gates here, that it could actually get harder in the near term for someone to get a patient on? And what do you have to do to make sure that that doesn't then potentially sour any doctors on the experience going forward?

So I think when you think about access right now, as Jeff mentioned earlier, through the end of the year, we can expect that as they start to see volume, the payers will put some restrictions in place. We've seen this in pockets. I think this is something that the doctors can navigate through. The doctors typically initiate prior authorization, but through our focus pharmacy network, they do get some assistance in that process. But clearly, the doctor has to initiate and they have the patient records. It varies by plan what the expectations are. So in some cases, it's a very simple prior authorization. In other cases, we are seeing a little bit more onerous prior authorizations, given that all this coverage is not contracted right now. However, as contracts come online, we would push for a more straightforward prior authorization to align with a first-and-only type of product. So we see that evolving over time. In terms of impact on volumes, I think what Jeff is saying is we're continuing to see steady uptake from the physicians. We're seeing that the doctors are getting access to the drug, and they're having great success with it. We continue to see that build. You have to keep in mind that there might be some headwinds. We don't see it as something that would keep the prescription flat, but it does present a slight headwind as we are building acceptance with physicians. They understand that new products take time to build coverage, which speaks to the value proposition of XDEMVY. People are committed; they're seeing these patients; they don't have another option. So the doctors are putting the effort in, and our programs are there to help that process along. Therefore, we think we'll continue to build volume steadily. But certainly, changes in policy or short-term prior authorization adjustments can be a slight headwind as we're ending the year here.

And just to be clear, if we're not covered or where pushback is insurmountable, is that bridging program still getting the drug into patients' hands in any and all cases essentially such that we'll continue to see the demand reflected in the prescriptions going forward? It's just a question of the economics that you realize in gross-to-net.

That's exactly right.

And our next question comes from Balaji Prasad of Barclays.

This is McKayla on for Balaji. Thanks for taking our questions. Just thinking about your pipeline, at what point might you look to expand further and are there any areas in particular that would be of interest?

We do look actively at the entire eye care landscape, as you can imagine; with a great early launch trajectory with a commercial platform, eventually we want to add more products to our pipeline and to our commercial force. Right now, we can only be so modest. But with continued success, we would look to add further products; so stay tuned. Nothing to report today, but stay tuned.

And we have time for one more question. One moment. Our next question comes from Patrick Dolezal of LifeSci Capital.

Hi, this is Corey on for Patrick. Thanks for taking our questions. In the call, you mentioned that more than 2,000 ECPs have prescribed XDEMVY so far. So it sounds like prescriber adoption has been quite broad as opposed to a really narrow focused group of prescribers leading most of the volume. We'd love to hear more about your strategy and how you've been prioritizing ECP targeting? And I guess also on that note, how are you thinking about marketing in both the near- and long-term? It seems like marketing has primarily been directed towards prescribers. Can you speak to the relevance of consumer-directed marketing in Demodex blepharitis? And what might your strategy be in that regard?

Hey, Cory, it's Aziz. Yes, we've been really pleased with the physician acceptance and receptivity. We just came back from both the Academy of Ophthalmology and Academy of Optometry, got a lot of firsthand feedback. So we're really delighted with the uptake we're seeing among the physician community. We're seeing broad uptake to your point. And that's been our strategy, right? We didn't want to niche the product; we wanted to go to a broad audience of prescribers. That's why we built the sales force the way we did. We're targeting over 15,000 doctors in our efforts. So we're making great progress in penetrating that marketplace. How we prioritize that, and I think we've shared before, we take a very data-driven and informed approach. We think about where patient volumes are, we look at claims data, and we look at who has historically been early adopters of other products, and that really helps focus our efforts. We also mentioned earlier that we've already talked to 80% of our top decile doctors. So we've been very thoughtful about where we're deploying the sales force time. I think the physician receptivity and the number of doctors that have written and repeat written, which is really important, reflects that very thoughtful approach. In terms of the marketing efforts that you asked about, we've been very intentional here. I think early days, we really have focused on physician education, building that understanding, that scientific platform, if you will. That will continue to be the focus along with building coverage. The way you can think about it is once we have great physician penetration, which we're already on a good start on, and as more payer coverage comes in, that's probably going to signal a great time to think about activating the consumer more purposefully. We do have some consumer education ongoing right now; we've done some smaller campaigns. But in terms of broad-based DTC, which I think you're referring to, I think that comes online when we've got even more adoption among the physician community and improved coverage with our contracts coming online in '24 and early '25.

One moment for our last question. This question is from Frank Brisebois of Oppenheimer.

I was just wondering; we talked a little bit in previous questions about optometrists versus ophthalmologists. I was wondering if you could just help us understand how the pitches are going and the reception is going between the two different types of doctors, and if there's any sticky points or is it a very different pitch between both of them? Any color on that would be helpful. Then you talked about entering the guidelines here. I was wondering how important that is for physicians to then prescribe.

I think the pitch is very similar overall; our sales messaging is very consistent. You can think about it in really three tranches. We focus on the disease state, building awareness, continuing to promote diagnosis by looking at lids. Secondly, we focus on the value proposition that XDEMVY brings, the unique effects that XDEMVY brings across tolerance, mites, and redness. And third, we focus on our pull-through with our pharmacy network, getting the prescription in and the process to get the prescription, which is really important in the early days when we don't have contracts in place. That's pretty consistent. I think sometimes you do have nuances; obviously, optometry versus, say, a very busy surgical practice, you do take a slightly different approach. But I think, again, we're seeing great receptivity on both. Primary optometry sees a lot of medical visits that they're incorporating this in. We are hearing from ophthalmologists that they are certainly going to look for a clean, healthy lid before they do cataract or LASIK surgery. So those things are starting to take hold. When you think about things like the guidelines, I think that validates the approach, which gives physicians a lot of confidence. More so being in those guidelines also helps our discussions with the payers. It positions the product at a standard of care in eye care, which I think helps us in those care negotiations that are ongoing as well. In terms of the day-to-day feedback, I've been out in the field. I'm hearing that personally. I know Bobby mentioned he's been out in the field; maybe he has a couple other insights as well here.

Yes. I would just add, I mean, we came back from both major academies, optometry and ophthalmology, in the last several weeks. The value proposition is very strong, whether it was at our booth or advisory boards for commercial or medical affairs. There's tremendous interest. I think as you're seeing in the data, there is a little more demand from optometry out of the gate. They've been already looking at the lids probably a little bit more than the ophthalmologist. But we know how collaborative these doctors work together. When we talk about that hybrid approach, it's really because in a given clinic, you'll see optometrists and ophthalmologists working together. That was very striking to me, being out in the field. And then there was one question about guidelines I think you had, Frank. Did you want to cover that, Aziz?

Yes. What we said on the guidelines was that I think that's important validation for the physician. More importantly, I think it really does validate for the payers. We're delighted; we anticipate incorporating in other guidelines as well. But the AAO practice patterns, I think, are really important. Those aren't updated very often; they are updated every handful of years. Being included this year right after launch is a testament to the medical efforts that we had, the scientific platform we've had out there, and I think it's reflected in that.

This concludes the Q&A session. I would like to now turn it back to Bobby Azamian for closing remarks.

Thank you all, again, for your time and interest. We really look forward to keeping you updated on our progress as we work diligently to deliver on the promise of XDEMVY. Hope everyone has a great day.

This concludes today's conference call. Thank you for participating, and you may now disconnect.