Tarsus Pharmaceuticals, Inc. Q3 FY2025 earnings call

Bobby Azamian

• XDEMVY is a best-selling prescription eye drop with over 20,000 doctors prescribing it, and more than 400,000 patients helped. Pipeline progress for ocular rosacea Phase II trial by year-end and global expansion plans.

Aziz Mottiwala

• XDEMVY had net sales of $119 million in Q3, with double-digit growth from Q2. Weekly prescribers increased by ~20% and multiple times weekly prescribers by ~30%. DTC efforts driving awareness and patient access.

Jeff Farrow

• Q3 financials: $118.7 million in net product sales, double-digit growth in volumes and revenues. Distributor inventory at 2.5 weeks. Q4 guidance for XDEMVY net product sales $140M-$145M, full year 2025 revenue $440M-$445M. Pipeline progress including Phase II for ocular rosacea and Lyme disease program.

The main product segment is XDEMVY. In the third quarter, Tarsus recognized approximately $119 million in net revenue and delivered more than 103,000 bottles of XDEMVY to patients. XDEMVY dominates the revenue contribution as it's the key product discussed.

Q4 Guidance

• XDEMVY net product sales expected $140 million to $145 million.
• Full year 2025 revenue expected $440 million to $445 million.

Gross-to-net Discounts

• Q4 gross-to-net discounts expected 43% to 45%, stabilizing similar range in 2026.

Operating Expenses

• Q4 operating expenses higher due to variable costs and increased DTC investment, with full year DTC investment at top end of $70M to $80M.

Q: Congrats on the impressive progress in the quarter. You mentioned in the prepared remarks that doctors are changing their practice patterns and broadening their use of XDEMVY across a wider range of patients and partly due to the meibomian gland disease data. Can you just elaborate on what changes you're seeing and how broader use translates to the lift you are seeing in prescriptions?

A: Yes. Thanks for that question. Really insightful when we talk about how the evolution of prescribing has progressed over the last several months. I think there is a few things to look into here. One is the broad base of prescribing that we highlighted last quarter that continues to grow modestly. I think the real opportunity here is the depth of prescribing we're seeing, which we highlighted in the prepared comments, where you're seeing the increase of 20% in our weekly prescribers, 30% of those who are writing multiple times a week and I think that's great evidence that they are changing their patterns. And we do see the MGD data as one of those drivers. I think it underpins almost every single patient that comes through the door, because what the doctors think about now is who should I be screening for Demodex blepharitis. And as they start their journey, they typically think about the obvious patient. But when they get more experience, they start thinking about other patients, their dry eye patient, their cataract surgery patient, their MGD patient, their contact lens patient. And MGD is such a prevalent disease that it helps the doctor think about the value of treatment beyond just MGD, but also in patients that have DB and other comorbidities. So for example, one of the data points there is fluctuating vision. So, if a doctor says, "Wow, DB can impact fluctuating vision, I might want to think about screening my cataract patients where post surgically, I want to avoid those visual fluctuations." So that's an example where doctors will have that progression. And then what will happen is they'll start to screen, say, their premium cataract patients, and then they'll expand to all of their cataract patients. And that's an example of how you see a doctor progressing from trial to weekly prescribing to being in that 30% growth bucket of writing multiple times a week. And as Bobby mentioned, we're at the conferences lately, and that's something you hear pretty, clearly from the doctors that that's the progression. I try it here, I see great success and then as I get that experience, I look for other opportunities as well.

Q: Congrats on the performance this quarter. Just a few questions for me. With regard to the refill rates, do you have any sense of the average time between initial filling and first refill? Is this within your expectations that these patients are coming back the next year, or are they coming back sooner? And what are you doing to keep those early adopters coming back at a minimum year after year? And then in light of the growth trajectory that you're seeing and guiding for, are you updating your internal peak sales estimate for XDEMVY?

A: Yes, Eddie, thanks for that question. I'll take the first part, and I'll let Jeff handle the second. When it comes to refills, I think, we're seeing a real positive trend here. We highlighted this last quarter and we provide a little bit more color this quarter, right? So when you look on a weekly basis, we're seeing just over 10% on a weekly basis in terms of what's a retreatment or refill versus the total volumes. And when you look on a cohort basis, meaning if you look at patients that were treated, say, a year ago, what they're getting, it's about in the mid-teens in terms of the retreatment rate. Both of those numbers are progressing positively and in line with our expectation that we could get to a 20% annualized retreatment rate. So, right where we think it should be and progressing nicely towards our expectations. What are we doing to maintain that and to continue that trend? There is a couple of things. I'd say, first and foremost, is education with the physicians and the patients that this is a chronic disease, XDEMVY works exceptionally well at getting rid of the disease acutely, but these might they do come back, and we do share with them the data of recurrence from our pivotal trials. And that encourages the doctors to put together a protocol where they're bringing the patients back. What that behavior looks like for each patient is a little different, some doctors are a little bit more proactive and they may say, I'm going to bring you back every 6 months. Some doctors will say, I'll wait until your annual exam. So I don't know if we can give you a precise average time, we look at different metrics, but that metric is moving as more doctors establish their protocols. I think the takeaway there is that it's moving in the right direction and in line with expectations. The other thing that we are doing is ensuring that our pharmacy distribution network is really helping those patients stay on therapy. So there is reminders that go out that second script is typically easier for the patient because they already have a report established at the pharmacy, they've already got all their information in the database, et cetera. So we've really streamlined the process, not just for patients to get the initial treatment, but also for those follow-up retreatments that are inevitable. So physician education, streamlined patient experience is going to continue a positive and in line trend that we expect.

Q: This is Jason on for Bhavin. With respect to TP-04 in the Phase II ocular rosacea, do you still need an FDA meeting before you start that trial? Just wondering where you stand with FDA alignment before starting that. And then just thinking to 2026 and just the general operational spending needs of the business, I wonder if you can give a little bit of insight there, that would be helpful.

A: Jason, this is Sesha. Thank you for that question. With regards to the TP-04 study, no, we don't need another FDA conversation. We had a very robust and productive conversation with the FDA on the program sometime back as we had reported. And we are progressing towards starting a trial later this year. More details to come on the study itself.

Q: Sesha, maybe another question for you, just following up on the last one regarding the TP-04 study in ocular rosacea. Can you just provide an update where things stand with developing the assays? And then do those need to be validated with the regulatory agencies before you're able to initiate the Phase II study?

A: So the study preparations are ongoing as we expected. We are developing the scales in collaboration with our strong partnership with the ECPs. At this point, the FDA doesn't require validation per se, but we are obviously in conversation with the FDA and FDA gave us input earlier, as we had reported in our previous conversations. And so, we are progressing as planned.

Q: First one, maybe, Jeff, just curious on the change from guiding to revenue from bottles. What was the thinking of the rationale behind that? And then second, maybe for Aziz, you've talked about wanting to see multiples of ROI on DTC, and it sounds like over the past few quarters, you've been seeing that, you've been seeing a pretty good impact. So kind of curious to think or to hear how you think about where you are in sort of reaching the peak effect of DTC and how much more impact is left there?

A: Lachlan, it's Jeff. We evaluate, and I think we've mentioned this in the past on a quarter-by-quarter basis whether and what we're going to provide for guidance. And I think one of the reasons we held back on providing revenue guidance in the sort of past has been there has been some data points that we wanted to see evolve. And I think we've seen those data points evolve and in particular, the DTC impact. And so, I think we've got that behind us now. So our decision was to provide revenue guidance granted in the fourth quarter here understandably makes it a little bit easier, but we did feel it was the right time to do it.

A: And in regards to DTC, I think, this has been a really exciting part of the launch, it had a really profound effect. I think before getting into the mechanics here, I think, a couple of things to highlight are the impact it's having, right? You're seeing the growth in awareness, the growth in website visits. Those are directly translating into prescriptions. Patients are getting more easily identified. You're hearing from doctors at all the meetings that patients are coming in proactively asking to be screened. When doctors make the diagnosis, that discussion with the patient is more streamlined. So there's a lot of color that's happening there that's really enabling us to have such an impact. And what we stated in the prepared comments is we're now experiencing a positive ROI. And I'll remind you, in the past, we've said that it takes a handful of quarters to get to that ROI point. So we're progressing really nicely. I go so far as to say that we're even ahead of schedule from what we expected early on. In terms of reaching the peak potential, I think, there is still a lot of room to see increased ROI from the DTC, right? We have a very high threshold. We want to see multiples, and we're seeing a positive ROI, we're trending slightly ahead of what we'd expect in terms of that impact, and that's reflected in the results here. And I'd expect that impact to continue to scale into next year as we get more and more time with these patients getting exposed to the ad multiple times, the doctors enhancing their experience and I think when you stack that on with the physician experience being so positive, the access being great, our sales force being continuously in these offices, I think, there is a lot of room to grow our impact with DTC. And I'm really excited to see how that takes hold into next year. And I think as Jeff mentioned, we expect it to be a good growth driver for us into the next year as well.

Q: I'm going to ask a bit of a longer-term question, and that's on ocular rosacea. So what's the clinical, meaningful benefit on erythema, et cetera., in Phase II? And what are the various pushes and pulls on the magnitude of benefit either through disease severity or how refractory patients are to standard of care? And then number two, remind us what you saw in Phase II for papulopustular rosacea, if that could in some way help derisk ocular rosacea specifically, how similar are the underlying drivers of the inflammation seen in both that you feel like can be addressed with TP-04?

A: Ding, could I just clarify that before I pass to Sesha. The first question was what aspect of clinical meaningful benefit? Could you clarify, please?

A: The question is what level would be a clinically meaningful level?

A: Thank you, Bobby. And thank you for that question. So on the first point of the endpoints, talking to the ECPs and listening to our ECPs, the key hallmark features of the disease are prominent blood vessels that you see that we call telangiectasia in eyelids and eyelid margin. That is one of the key discerning and prominent feature of ocular rosacea as well as redness on the lids and the area around the eye, around the lids and it is called preocular region. So those are the key hallmark features of the disease, and we are really looking to establish the measures around those 2 particular aspects. And so these are features that develop over time, and we are looking to reduce the severity of these 2 measures, and that's our approach at this point. And in terms of the papulopustular rosacea, yes, papulopustular rosacea, we did a study, as you correctly pointed out, some time back. And we had very good results in the key measures for papulopustular rosacea. In fact, the approvable endpoint -- the regulatory endpoints for that indications are lesion improvement, as well as a composite endpoint of investigator-grade assessment. And we actually had very robust, statistically significant improvement in both those measures over vehicle in that particular study, which gives us a lot of confidence, as you mentioned. And we also measured erythema in that study where we also saw a reduction in erythema. And coupled with that, as you may recall, in our Saturn studies with XDEMVY, we also saw significant and meaningful cures, erythema cures, lid margin erythema cures for XDEMVY. So, we know the drug works in reducing redness. And so that is propelling our confidence in going into the study.

Q: Great to see the XDEMVY and pipeline progress. And thanks for taking our question. I was curious if there's any further granularity on the traction you're getting between optometrists compared to ophthalmologists and if the greatest untapped market and focus is among that optometrist population for potential prescriptions?

A: Yes, it's a great question. We see great traction with both ophthalmology and optometry. Historically, and even currently, we're seeing about 65% or so of the volume coming from optometry and the balance from ophthalmology. So a good mix, and that's been relatively consistent through the launch. In terms of the opportunity, I think, both audiences are really important to us. I think optometrist does a lot of the in-clinic work, there are some practice dynamics that are very favorable to optometrists here that, I think, they're capitalizing on in terms of being able to have patients stay in the practice, switching to medical insurance to treat a medical condition with Demodex blepharitis. So these things are really important factors for the optometrists. We obviously focus a lot of our sales time and educational efforts with those optometrists, but we also spend a lot of time talking to the ophthalmologists. And for ophthalmologists, cataract patients are their bread and butter. And that is a core segment for us where we see a high prevalence of Demodex blepharitis, and we know that, that inflammation and irritation of the disease can impact their surgical outcomes. So they're very motivated to screen these patients, to find these patients and to make sure that they're getting a clean, healthy eyelid around that surgical outcome. So I think great trends on both. When you look at top prescribing, there is a good mix of both ophthalmology and optometry. And our focus going forward will continue to be educating the optometrists directly and also providing that right emphasis on ophthalmology as well. So I think they go hand in hand. And I think the great thing here is that we're seeing great results from both. And as Bobby mentioned, we just came back from back-to-back academy meetings. And I can tell you, while the practice dynamics might be a little different, the one thing that you hear consistently from both ophthalmologists and optometrists is, one, the top users are saying they're still finding incremental opportunities to utilize XDEMVY. And 2, sort of rank-and-file users are having a great experience, and they're very encouraged with the ease of access, which is really opening their aperture to think about a broader set of patients. Both of those types of feedback are really encouraging for the future potential for the brand going forward.