Conference Transcript - TARS 2026-06-03

Dennis Deng, Analyst — Jefferies

Welcome to the Jeffries Healthcare Conference. My name is Dennis Deng, biotech and spec pharma analyst here at Jeffries. I have the wonderful pleasure of having Tarsus Pharmaceuticals We have the CFO and CSO, Jeff Farrow, and the Chief Commercial Officer, Aziz Matawalla. Before we kind of get into the fireside, we'd love to hand it over to you to give some opening comments around Tarsus and just where you are in terms of the business and the tremendous progress you guys have made around Xtendvi and the pipeline as well over the last few years.

Bobak Azamian, CEO

Thank you, Dennis, for inviting us. We're very pleased to be here. So Tarsus is a commercial pharmaceutical company based in Orange County in Irvine, California, and we have a marketed product called Xtemvi for the treatment of demodex blephritis. It impacts about 25 million patients. It's a disease of the eye, and we have been on market since September of 2023. The launch has gone extremely well, and we've recently guided to top-line revenue of about $670 million to $700 million for this year, which is about 50% growth from the prior year. We also have an exciting program in ocular rosacea that's starting a Phase II study or has initiated a Phase II study. This is a disease that impacts about 15 to 18 million patients in the United States, and there's nothing out there for the treatment of these patients and then we also have a really neat prophylactic potential treatment for Lyme disease we initiated a phase 2 study in that program and expect to have top-line data in the first half of next year as well so Dennis I'll turn it over to you from there yeah perfect I would love to start off with just the fundamentals just around Xdenby and how it's being used.

Dennis Deng, Analyst — Jefferies

I mean, when you guys first launched into DB, it didn't seem like there was a real appreciation for how big the market can be. So ever since then, I guess, what have you done to really drive that adoption? And how much room is there? How much runway is there left as you think about going into the 2030s?

Aziz Mottiwala, Other

Yeah, the progression of the market's actually been one of the most exciting things. And we built that very early on, very intentional path of education focused on increasing awareness around the prevalence of disease how easy it is to diagnose it and the multiple use cases you see in an average practice as we sit here three years into the launch you've got more doctors prescribing this and then we originally envisaged we've got over 20,000 doctors that have put pen to pad half of our core audience is now writing this with a regular cadence or at least weekly so we've really establish a strong demand engine here with our physician base and that will allow us to continue to grow the brand the other thing we've been able to do is engage the consumer and the patient we knew day one that this is something that was going to resonate with patients and being able to do direct to consumer where in one year we moved unaided awareness from 2% to 20% really speaks to how much this resonates with patients and how motivated they are so now you have another way of expanding the market by being able to engage the patient directly and then the last piece which is really exciting is the peer-to-peer the physician-to-physician evidence base is a really significant catalyst here when doctors hear from their colleagues on the podium they see new data sets like the one we mentioned on our last earnings call around Chalazia or they start to think this start to think about this much more broadly than they would have said to your point a few years ago so the way we see this is you've got a product that's performed exceptionally well on the market, you've got a strong base of prescribers that can continue to deepen their use, you've got an activated consumer base which can expand the funnel, and you've got peer-to-peer in data that's going to support all of those efforts with good science.

Dennis Deng, Analyst — Jefferies

Sure.

Aziz Mottiwala, Other

When you look across your prescriber base and, you know, you stratify them by high prescribers, medium low like what are some specific factors that you have you've identified in the high prescribers that you could use as we're like a leading indicator for some of the later adopters of extend me the biggest indicator we see is you know how quickly we can get them to threshold utilization meaning once they get to about 10 or 15 cases you start to see a pretty precipitous ramp up in their utilization the other thing we see is that even our top factors haven't capped out so we're still focused on how to get them to unlock their full potential which is a great opportunity for us i'd say what we've learned we've learned that being really thoughtful about the use cases giving doctors specific areas and i think that's been intentional in our education right so if it's a surgeon focusing on that pre-cataract patient where we've seen great traction where doctors are saying hey i want a clean and pristine eyelid prior to doing surgery if it's an optometrist it's a great way to expand their practice they're thinking about this as a way to catalyze more medical management so a lot of these doctors optometrists where we get about two-thirds of our business a lot of their initial visits are for lenses and frames or contact lenses and when they identify a disease like demodex blepharitis they can actually convert these patients to medical which is great for their practice it actually increases their reimbursement and enhances patient retention it gives them reasons to bring the patient back for multiple visits which then helps build the practice so what we've learned is being very clear and specific about the patient type and really leveraging the unique aspects of building a category and how it improves patient outcomes but also can improve you know the practice dynamics for a physician.

Dennis Deng, Analyst — Jefferies

I think another part of it is just you know being able to incorporate the diagnosis process into their protocol right because you know Aziz like how you have previously characterized is just look through the slit-eye lamp and then tell them to look down right so is that practice kind of you know is like are optometrists starting to do that more or if not what's preventing them and you know at what point should that just become part of their every new patient workup or follow-up it's a really good point Dennis it's one of the most fascinating things about this launch is you've got a built-in

Aziz Mottiwala, Other

diagnostic and it doesn't require any specific equipment it doesn't require any training it only takes a few seconds during a normal eye exam for a physician to make a definitive diagnosis just if they see the colorettes or the crusties on the lid, if you will, they know for sure that this is a demodex blepharitis patient, a good qualifier for X-Dem-V. So the bar is not very high. So we're seeing more and more doctors do this routinely. They're screening all their patients. Some of our top prescribers, for instance, are cataract surgeons that screen every patient that's coming in for surgery. We hear optometrists that have now built this into their program. And even personally, I had an experience, my mom just had cataract surgery about a month ago. And when we walked into the university where she had surgery, they have a protocol sheet that all the staff members use. And it's a checklist, right? Did you check the vision? Did you ask for concomitant medications? Did you check for demodex blepharitis? So we are seeing this standardized more and more. Again, it's a new thing, right? It's only been out for three years. So I think, you know, what's the holdup? I think it's just time and changing behaviors. But to your point, it's such an easy behavior to shift. We are seeing it shift very quickly and in a meaningful way.

Dennis Deng, Analyst — Jefferies

Yeah, it sounds like a no-brainer to me, especially if you do get some form of diagnosis, and then just the reimbursement aspect of it and the follow-through makes a lot of financial sense, especially for optometrists. So where do you think we are in that process of incorporating that diagnostics into their workflow? Are we like 10% of the way there or like 30%? Just would love to hear how you're thinking about that.

Aziz Mottiwala, Other

I'd say we've made a lot of progress but I think there's still a lot of opportunity here when you think about the fact that we've had over 20,000 doctors write this that's a lot of behaviors to change and to me that's exciting I mean to be at a point where our guidance for this year is 670 to 700 million and to say I'd say we're we've made great progress but we still have a lot more education to be able to do and I think it's it's really predicated on a couple things right one is just changing that diagnostic behavior but having the doctors think about this in the broader swath the patients and that's another thing to your point right our high adopters or heavy users are seeing this across every patient type now they're not discriminating they're screening every single patient in the door so maybe a doctor starts with cataract surgery but a real high adopter saying I don't care

Dennis Deng, Analyst — Jefferies

what you're here for I'm going to screen you no matter what so that's the opportunity I think everyone's doing it in some subset of patients it's can they do it in every single patient and that's really the the vision of getting to the peak potential of the product okay and speaking of peak potential you guys recently raised your peak sales guidance to two billion plus so I guess you know can you just comment on when do you expect to get there right and that's important because it also kind of helps us understand the trajectory from where it is today to that two billion number so any color there and just potentially also even how IRA could impact sure happy to address that Dennis so yeah we've been pretty intentional about our peak guidance over the years you might

Bobak Azamian, CEO

recall we started out thinking at the time of launch that this was a billion-dollar opportunity and then about a year later we mentioned that based on the data we thought it was a billion-dollar-plus blockbuster plus and most recently on the on the call we said we think this is a two billion-dollar-plus opportunity and it's really based on you know the data we've been able to gather and generate you know we are seeing the impact of the DTC campaign really driving you know patients in at the top of the funnel You know, we're really getting the eyeballs, so to speak, no pun intended, on the commercial, which drives them to the website to find a doctor. And as a result of that, we're actually seeing organically the number of prescribers increase from the 15,000 that we were targeting to 20,000, likely because they saw the commercial and they're coming in and seeing their physicians at that point. so the DTC campaign is very effective you might have noticed that we had a recent initiative with John Cena who described his experience with demodex blephritis and the success that he had with Xtempie and that has really resonated with the social media efforts as well and driving people to the website looking to take the quiz or find a doctor on the website so that's been very successful today so that continues to drive top of the funnel and then in terms of driving you know broader adoption about the 15,000 ECPs that we're targeting which right about 85% of the scripts as disease highlighted it's really just continuing to have our sales reps and key account leaders that we've recently hired to drive further depth within those those prescribers and look Look at all eyelids, you know, to your point, Dennis, right? Look at the cholera. It's very easy to diagnose, and don't just focus on the patients that are coming and complaining of denmic lephritis. And then finally, we're adding continued Phase IV studies that will generate additional evidence and provide additional reasons for these doctors to treat. We recently had an abstract that came out related to Hordeola and Chalasia, which shows a high degree of prevalence of patients that have demonexplophritis and have these type Almost 70 percent of the patients that have Hortiole or Chalasia have demonexplophritis, and so another reason for these doctors to treat, and they were not initially in that 9 million TAM that we had, and that's about a million to 2 million patients incremental on top of that. So all of that data and the impact of the pair, broad pair of coverage, you know, lead us to believe that, you know, we are able to achieve $2 billion plus in this market.

Dennis Deng, Analyst — Jefferies

What proportion of your revenue right now comes from Medicare?

Bobak Azamian, CEO

So it's about 45% of our patients are Medicare, and another 45% are commercial, and then the rest are Medicaid and other governmental department events.

Dennis Deng, Analyst — Jefferies

Do you have an estimate as to, like, when you think you guys will be included into the IRA? Don't know at this point. you know we're monitoring it you know our revenues are quite robust but you know there are some other companies out there that have higher revenues that have a high Medicare patient population as well it's honestly incredibly difficult to figure out because every year it's like a different sort of inclusion criteria that's right okay when you gave your tubing plus peak sales guidance do you think you can accomplish that with the existing Salesforce and maybe also remind us how big that sales force is yeah so our current sales force size uh after we added our key account leaders about 175 all in and yeah we can get to the peak potential i think that's about the

Aziz Mottiwala, Other

right size um you know the adding of the key account leaders are opportunistic to untap even more potential and even some of our top accounts are biggest opportunity accounts but you know to put it in perspective that 175 is probably the second largest interior segment sales force in eye care so we've got a really strong footprint and I think more so than the number the quality of the people we have is phenomenal we get the best talent in the space by far so to me it's we've got the right number the right people and we're in front of the right doctors so we feel really good about our commercial structure and infrastructure to be able to continue to grow the brand and achieve that peak potential mm-hmm and on DTC you know you guys have spent I think 70 to 80 million a year or somewhere in that ballpark um at what point do you sort of reevaluate that and what sort of metrics are you looking at to to make that decision yeah we evaluate the dtc my team will probably laugh probably on a daily basis i'm asking for something but we're looking at you know are we moving the needle so as we shared right are we changing consumer perception so unaided awareness continue to drive that awareness and likelihood to go see your doctor we focus a lot acutely on the action metrics are people going to the website we shared those metrics on the on the last quarterly call or seeing continued growth in engagement on the website and then as Jeff mentioned earlier we say okay what are they doing when they go to the website are they just looking for information are they actually doing things that would lead us to believe they're gonna get a prescription so something like taking a quiz or finding a doctor we refer to those as high-value actions meaning they have a high propensity then to follow on and get a prescription so we're looking at that sort of funnel of patients. Do they go to the site? What do they do on the site? What happens after they visit the site? And that's an acute, and then obviously we go back and do all the statistical modeling to measure ROI, which is why we were able to share that we are getting a strong and positive ROI that's continuing to scale. So we'll continue to evaluate that. I think for this year, we're in a good place with that approximately 80 million in spend. And then long-term, I think we look at what that potential is, right? If it's such a great ROI, do we add a little bit? or vice versa if we're seeing strong resonance can we even pulse it on and off and maybe get some efficiencies out of that so i think all those things are on the table but i think the most important thing here is that this is a very powerful lever that's working extremely well and as jeff mentioned we've uncorked some additional things with that same cost space right we've got john cede on board now we've got a new version of the commercial that just hit this week this is going to expand the lens of the types of patients we're able to reach so this a real way to expand the market potential and we see that as probably the most compelling part of this right is opportunity to expand that that market potential and then the last thing i'd say is the other thing we're able to do is really execute even better right we've got a year of

Dennis Deng, Analyst — Jefferies

experience that 80 million dollars actually punches much harder because now we know which ads which days which times to put the money to where we get the best roi so the efficiency in our investment actually improves and that's also another reason we expect the roi to continue to scale sure okay what is unaided awareness right now for extend peak the last report we gave is just over 20% 20% okay so there's still I mean I'm assuming that's not a number that you guys are happy with and I won't be happy so it's a hundred hundred something yeah okay got it so then I guess big picture just your thoughts around profitability is that a priority for you guys and you know just help us think about when that could happen you know either

Bobak Azamian, CEO

uh in a single quarter or perhaps you guys are focused on sustainable profitability even going through some of the q1 seasonalities that we see yeah we haven't given specific guidance on timing of profitability but if you look at our our guidance that we provided for the year if you take the top end of the revenue and then maybe the validem or middle part of the opex you know there is a scenario where we could go profitable this year i think the dynamic that we're you know trying to emphasize is that we do want to become an eye care leader and that means making some investments in the pipeline and continuing to you know develop the pipeline products that we have we have some earlier stage assets that we are you know hoping to move into the clinic as well but fundamentally you know we're also looking at vd as an opportunity to bring more products into the bag of our sales reps and create value for the, you know, our shareholders as we turn over those data cards. So we're looking at aspects of anything in the anterior segment right now. That's really kind of our synergistic call point. But at some point, you know, as our balance sheet grows and things evolve, we'd like to get back into the back of the eye as well and become, you know, an overall eye care leader.

Dennis Deng, Analyst — Jefferies

So long story short, Dennis, I think we're not opposed to going profitable but there could be periods of time where we do make investments that we think will drive value that could take us out of profitability for a period of time but we think will create overall value for the organization yeah okay makes sense would love to ask a couple questions just around just the quarterly cadence of extend be right like Q1 145 million was a strong number right guys reiterated for your guidance and you guys made some qualitative comments in terms of how to think about q2 q3 and q4 is there an opportunity for tarsus and you know what sort of initiatives can you guys do to kind of you know

Bobak Azamian, CEO

break out of that seasonality in terms of you know q3 and the summer months kind of being a little bit soft is there anything that that can be done yeah maybe i'll start uh with the guidance perspective and turn it over to aziz about some of the initiatives in the back half of the year but But, yeah, we firmly believe that, you know, our guidance is going to be hit. We had provided guidance of $670 million to $700 million. As you highlighted, we generated about $145 million in revenue in the first quarter. And we typically see, you know, strong growth going from Q1 to Q2. And then Q3, there tends to be, because we're still primarily an NRX product, with some of the holidays that happen in the summer, eye care professionals taking time out of the office will see growth but it'll be a little bit more temperate growth when you say compare it between Q1 to Q2 and then following the summer season in the fourth quarter that tends to be one of our highest bottles dispensed in terms of bottle growth there and so we anticipate that you know being the case here for this year as well so all of that went into our analysis of giving guidance in terms of that so really feel that you know the seasonality that we've seen in prior years is probably going to

Aziz Mottiwala, Other

be what we see in the future and I'd highlight it's not just Tarsus but it's eye care in general sees this impact so we we know some of our peers also see some of the impact in the first quarter in the summer quarters as well too so but Aziz maybe you want to talk about some of the initiatives yeah the two things I had I think Jeff you mentioned it really well right I don't think we'll be immune to seasonality I think that's a real factor I think one we've outperformed in those seasonal times so when you look at q1 for instance um we outperformed the market significantly i think most anterior segment products were down in the mid-teens we were in the low single digits so i think there's ways to perform better than the market in those dynamics and what are we doing now to help catalyze that for the back half we highlighted some of these right so the deployment of our key account leaders they're on board they're being trained they'll be out there and fully functional in the back half of the year so i think you're going to start to see the impact of that happen over the summer the incremental work we're doing on DTC with John Cena the new ad versions that are hitting the market right now are always to get enhanced interest in action through those time periods and then the last part that we mentioned earlier is that continued flow of data and generation there's lots of conferences that happen through the back half of the year and having doctors on podium talking about broader use cases you know to the point you mentioned earlier Dennis you know these doctors that have had good experience, what's going to get them to that next tier? It's likely a combination of these things, right? Patients coming in, raising their hand, going to a conference, and hearing their colleagues say, hey, you know, I'm starting to think about this in patients that have Chalazia and Hordiola. I'm starting to think about maybe my glaucoma patients, not just the ones that I initially thought of. So I think those three things are real ways to catalyze continued growth, despite, you know, the typical seasonality. We'd expect to see some impact from, but overall, I think you're hearing from us a high degree of confidence in the engine that we have to power through the next couple quarters and We would love to ask a little bit about competition.

Dennis Deng, Analyst — Jefferies

I think there's two that at least we are following, which they were supposed to read out in April, but I guess they updated CT.gov now it's June. And then of course, GLK321 in the fall, I believe both are phase two studies. So, you know, we'd love to hear how you are framing, you know, those readouts, you know, before they happen and just why you're not necessarily worried for extending.

Bobak Azamian, CEO

Yeah. So, not surprising that competitions, you know, came looking for Demodex blephritis. I mean, we've been really successful with the launch and we've guided to $2 billion, you know, peak potential and we're within spitting distance of a billion dollars now. You know, so it's not surprising that when you have a market that large that some competition is going to come in. That said, you know, it's really going to be a challenging bar to exceed Xstem-V. You know, if you think about the clinical efficacy, it's 85% clinically meaningful improvement, very safe. It targets, you know, from a mechanistic perspective, the mites, gabachloride channel, and essentially paralyzes the mites and kills them. no off-target human interaction and we've treated over 600,000 patients you know successfully and very safely. So you know a high bar from a from an efficacy perspective as well as a safety perspective. I'd also say that we looked at different formulations including you know the eyedrop as well as a potential cream formulation and chose the eyedrop very deliberately just because that is the preferred method that patients typically like to to utilize it's easy to use there's no interaction with the makeup that maybe some women wear so generally we think that's a preferred method of of application and then secondly i would say the load of laner chemistry you know you know beyond being efficacious and safe is the most recent form of the chemistry and we feel the best chemistry, quite frankly. We did take a look at both of those products as part of our screening and chose to go forward with Lodaliner for those particular reasons.

Dennis Deng, Analyst — Jefferies

In terms of potential safety and tolerability issues with those two products, and you just said you took a look, so I'm curious if there had to be some tolerability issues in the clinic, what would those be exactly?

Bobak Azamian, CEO

You know, it's really tough to have us talk to that just because we don't have access to that data. You know, the glaucose is an acetylcholinist race inhibitor, so there could be, you know, some off-target impact there. The other thing we would note is it does cause pupil restrictions at a certain concentration. It was used primarily as a glaucoma drug, and the pupil restriction supposedly helped reduce interocular pressure. So there could be some, you know, issues related to nighttime vision or something like that. But we just don't know at these concentrations that they're utilizing it at, you know, whether there will be any of those type of things.

Dennis Deng, Analyst — Jefferies

Have you been reading our notes? Maybe a little bit. But, yeah, I mean, like our view is that, you know, you guys do have a high bar on both efficacy and safety, right? And just given the mechanism of action, having a acetylcholine esterase inhibitor might cause some vision changes, which, in my opinion, is probably a non-starter within ophthalmology, especially for such a broad product.

Aziz Mottiwala, Other

I think the other part is when you hear feedback from clinicians, right? There's very little room for improvement here. Doctors tell us how great the drug is.

Dennis Deng, Analyst — Jefferies

No one comes and tells us they wish the drug did something They say, this is one of the best products that they've had in the clinic, right? as Jeff mentioned high efficacy mark almost every single patient responds and extremely safe and tolerated it's actually one of the best tolerated drugs in eye care so very little room for improvement and the clinical community is saying that to us too it's not just our perspective sure let's move on to the pipeline ocular rosacea first half 27 phase 2 data can you just comment on just enrollment and you know where we are in that process and as well as what What do you, like, what are you hoping to show in phase two in terms of what's clinically meaningful?

Bobak Azamian, CEO

No, we're really excited about this program. It's another white space opportunity, much like demodex blephritis was. It's about 15 to 18 million patients that are thought to be impacted by this disease. And the hallmarks are really the redness that you see, the rosacea, around the periorbital And then the other hallmark of the disease is these elevated and more dilated blood vessels that occur on the upper and the lower eyelid the interesting fact about this is this disease is also thought to cause because by you know largely by demodex mites and we know we're very effective at killing mites and what we've done is formulated a version of the active ingredient in an extent be into a sterile gel formulation and so the thought here is you would basically rub this on the periorbital region, and it's a 16-week study. We're enrolling about 150 patients in this study, and the key outputs that we'll be looking at is obviously safety, but we'll also be looking at those two hallmarks of the disease that I mentioned, both the redness reduction as well as the reduction in the dilated vessels.

Dennis Deng, Analyst — Jefferies

Sounds good. And in terms of powering, it's not power to its physical significance.

Bobak Azamian, CEO

That's correct.

Dennis Deng, Analyst — Jefferies

And you guys are looking for a tread.

Bobak Azamian, CEO

That's right. But I might remind you, Dennis, that we did have a Phase II study in dermatologic rosacea. It's a form of rosacea called PPR, Papular Pustular Rosacea, which is also caused by Demetix. And in that study, we showed a stat-sig reduction in the redness, as well as a reduction in the pustules as well. So that helped us inform some of the sizing of the study as well. And that was a smaller study, I believe. right okay and then what about Lyme that's starting phase two when you're trying to capture you know the tick season right now so you know what what are we looking for once you disclose the data next year sure no it's an another really exciting program and there's been a lot of press recently about Lyme disease it's a huge unmet need we have initiated a study it's about 700 patients that will be enrolled as you highlighted during the tick season here which started around April and you know sometime in the late summertime key endpoints will be safety because this will be prophylactic the theory here is you kill the ticks before it transmits the bacteria that causes Lyme it's not an immediate transmission it takes about 24 hours and so since it is a prophylactic safety will be key but we're also measuring blood levels of TPO5 within the subjects blood system because we know based on a phase 2a study the tick kill study what we need to accomplish in order to kill those ticks within 24 hours and that phase 2a study we killed 95% of the ticks within 24 hours so very efficacious in terms of you know killing the ticks so we'll be measuring the blood levels and then there will be some biomarkers that we are studying as well too that were similar to what pfizer looked at when they did their vaccine study so that will be the primary impetus of potentially partnering so we expect to have with that data plus the phase 2a data that we had plus incremental data that we have in animals to be a nice phase 3 ready package that the plan would be to partner with a larger company that has, you know, perhaps a GP call point. So that's kind of our baseline assumptions on the next steps beyond the phase 2B study.

Dennis Deng, Analyst — Jefferies

Well, I think that's all the time that we have today. But thank you guys so much for being here and hanging out And I hope you have a great conference.

Bobak Azamian, CEO

Thank you, Dennis.