Tarsus Pharmaceuticals Inc (TARS) 2024 Q1 法說會逐字稿

Good afternoon, and welcome to the Tarsus first-quarter 2024 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 go ahead.

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 Bobak Azamian, our Chief Executive Officer and Chairman; Aziz Mottiwala, our Chief Commercial Officer; Jeff Farrow, our Chief Financial Officer and Chief Strategy Officer; and joining us for the question and answer session, Sesha Neervannan, our Chief Operating 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 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 will turn the call over to Bobak.

Good afternoon, everyone, and thank you for joining us. 2024 is off to a great start for Tarsus, and I'm excited to share our progress with you today. We continue to build and grow a new category with exceptional commercial performance and make strides to do it again with the advancement of our pipeline.

I'll start with extending the first and only FDA-approved treatment for Demodex blepharitis or DB for short with just continuing at a tremendous pace and not just in terms of sales, we are establishing a new market. I know we are only scratching the surface of what we can achieve with extended for DB patients and their doctors in just the second full quarter of launch, we are seeing increased adoption amongst both existing and first-time prescribers as well as increasing demand among patients.

As a result, we reported nearly 25 million in net product sales this quarter and deliver approximately 26,000 bottles of extend be the patient as of last week, more than 8,000 eye care professionals or HCPs for short has started their patients on extended and more than half are prescribing the multiple patients.

These remarkable results are a testament to our category, creating approach which centers on the clear compelling value proposition of extend value for all stakeholders, the positive impact of our educational efforts in building a new market.

And finally, the expertise and commitment of our commercial and medical teams that we're only just beginning to see the impact of extended. I've been spending a lot of time in the field with our sales team and HCPs.

And I see they're excited to share their early patient experiences, which illustrates the importance of our efforts and the opportunity and have most recently I was in Georgia visiting a variety of optometrists and ophthalmologists. I saw firsthand the journey.

Each new eye care provider takes to understand first, the sheer volume of patients in their clinics with DVD then 100 prescribers facilitate medication access for their patients. And finally, the initial experience with the first several extended prescription medicine does not disappoint and momentum is continuing to build as doctors gain experience, they start looking more and finding more DB patients.

Initially those presenting the chief complaint that over time more and more diagnosed upon further examination, whether the ECP. was gaining initial experience or has become a champion of extend. We did not hear anyone who felt they had realized the full potential of patients that could serve. We have also made great strides in engaging our 15,000 target HCPs and inspiring more than half of them to action with extended so far.

Other key drivers of our success are the creative and targeted educational initiatives. We've launched to raise awareness of DB. among patients, providers and payers. These include my party, our first consumer-focused campaign launched earlier this quarter as well as prior ACP focused campaigns.

These strong initiatives help promote the behavioral changes needed to increase awareness and diagnosis of DPN. These efforts are also driving greater patient demand and utilization amongst the 1.5 million patients already diagnosed with DB., and we're beginning to see early traction among the patient segments, we believe make up the remaining 5.5 million who visit DCPs with complementary eye conditions such as dry eye disease, cataracts and patients like myself who struggled to stay in their contact lenses.

Not to mention the additional 18 million patients visiting ECP offices. So we know can ultimately be served with extending. We knew this category, creating product has blockbuster potential, and it makes me so proud to see the launch of extending off to such a strong start.

But as we go beyond the early adopters, we know it will take more time and more engagement to support the next group of ECPs to become routine writers and to reach deeper into the additional patient segments in the clinics.

In my most recent visit to the field, I experienced firsthand the scale of the educational opportunity ahead, more visits by our field teams lead to more HCP engagement and more prescriptions, which is why beginning in the third quarter, we plan to add even more fuel to the fire with the expansion of our sales force.

We're also contemplating a consumer campaign in our efforts to continue the upper launch trajectory of SMB and reach even more patients. We are further investing in greater capabilities and capacity. Now because we see the demand, positive payer feedback and growth potential of extending with this further investment, we believe we will be able to achieve our goals even faster. And I look forward to keeping you updated on our progress.

Before I turn the call over to our Chief Commercial Officer, Aziz Mottiwala, I also want to highlight the progress we made with our pipeline this quarter for the reporting of positive clinical data from two Phase 2 studies, one for the treatment of rosacea and another for the prevention of Lyme disease.

We remain on track with our plans to bring these data to the FDA by the end of this year along with the positive Phase two data for meibomian gland disease we already reported. I'm so proud of the foundation we have built here at Tarsus.

The strength of our first commercial product launch has put us well down the path of becoming an eye care leader, thanks to the relentless execution of our world-class team. We have only just begun to realize the full potential of extending. We look forward to boosting this launch with additional resources while also continuing to advance a pipeline of other potential category creating therapies. Aziz, over to you.

Thanks Bobby. dexterity shared represents we are hearing from the field more broadly about the positive impact of extending known can make a difference in the daily lives of patients is deeply motivating as we work to bring extending to millions of patients who are living with this pervasive and debilitating disease.

As Bobby noted, we generated nearly $25 million in extremity sales. This quarter, an increase of almost 90% over last quarter. Additionally, more than half of our target 15,000 ECPs are now writing exams and as anticipated, we maintained a consistent gross-to-net discount of approximately 55%, which was encouraging the face of traditional first quarter headwinds.

These robust metrics highlight the success of the differentiated and disruptive approach to launch. We laid out last year as well as the commitment of our best-in-class sales force, which is continuing to raise the bar on new product launches.

And as Bobby noted, we're just getting started in the early weeks of launch, we are predominantly reaching patients already diagnosed with DD. Now in addition to the already diagnosed, patients were also beginning to reach into the other patient segments. Those are seeking treatment for complementary conditions, in particular patients with dry eye or those presenting for cataract surgery.

Likewise, we are making significant progress with the city adoption. Our existing writers are increasingly prescribing to more patients, and we're seeing initial signs of success in moving beyond the early adopters and into the next wave of DCT.

These successes are highly attributable to the educational efforts. We initiated well before launch visually compelling patient and physician disease awareness campaigns that have become our hallmark, the peer-to-peer exchanges we are facilitating and of course, the commitment of our team. All of this gives us great confidence in the full market potential of extending.

But as we've said, building a blockbuster takes time and creating a new category requires sizable disease education efforts. So we're turning up the dollar investment in the sales force and in the size and scope of our consumer educational efforts.

Moving into the next phase of launch. We know that getting more ECPs to become prolific writers is going to take more time and more business as part of our effort to increase demand within the current base of prescribing ECPs and to secure the next base of recurring writers.

We plan to recruit, hire and onboard approximately 50 new sales representatives and leaders by the end of the third quarter. While that's no small feat, the success of the extended launch and the culture we've established at Tarsus has generated a high volumes and interest from folks with significant sales leadership talent, and we're excited to apply their experience to positively disrupt and grow them.

We also believe we can grow the market directly through impactful consumer advertising and marketing efforts like a recent light party campaign. This dynamic multichannel campaign is designed to elevate awareness of DB. and encourage people to visit. You see people shrinks.

Additionally, our most recent market research indicates that more than 80% of patients said that if they experience symptoms of DB., they would seek out their ECPs for a proper diagnosis, giving us confidence in the potential impact of an even more fulsome and broad consumer campaign on streaming TV, which we're thinking about launching later this year.

On the payer front, I'm pleased to report that we've secured multiple payer contracts since our year-end earnings call just a couple of months ago, including two major commercial plans with approximately 18 million covered lives that have placed extended on preferred status.

Payers continue to value the high unmet patient need and strong product efficacy of exactly as with the previous contracts, there's a lag before coverage begins and we should start to see the benefits of this coverage in the second quarter of 2024. I'd like to close by acknowledging the entire Tarsus team for their efforts in helping us reach more and more patients in need of a solution.

Our tremendous results this quarter speak not only to the compelling value proposition of extending and the power category creation, but also to the expertise, creativity and tenacity of our team, and we're continuing to invest in both.

With that, I will turn the call over to Jeff to discuss our financial results and provide an update on our clinical pipeline.

Thanks, Aziz. The first quarter of 2024 was another example of how we are continuing to raise the bar for eye care product. Launches among key highlights. We generated $27.6 million in total revenues and price of approximately $24.7 million in extending net product sales and approximately $2.9 million in license fees and collaboration revenue from the signing of a new China health license agreement with Grand pharma for TP oh three.

As part of this agreement, we and bio. Our previous partner made a one-time payment of $2.5 million and an equity warrant cancellation payments of approximately $400,000. We also completed an equity raise of nearly $108 million and strengthen our financial position with a $200 million nondilutive financing commitment from Pharmakon Advisors, a leading life science investors. We are encouraged by the increasing number of eye care professionals and patients benefit from extending.

We are also pleased with the progress we're making with payers as evidenced by the additional payer contracts we secure since our year-end earnings call. As disease mentioned earlier, and to be clear, benefits of these new major commercial plans we secured are not reflected in the first quarter gross-to-net numbers we're reporting today but are expected to benefit the second quarter and beyond.

As expected, we saw steady gross to net discounts of approximately 55% despite the impact of typical first quarter dynamics, including higher patient out-of-pocket costs due to plans, resetting deductibles and the Medicare coverage gap.

Looking ahead, we remain on track for broad commercial coverage by the end of the year and Medicare coverage beginning in 2025. While we continue to work with the payers to establish commercial coverage, there's always a chance that payers could decide to implement short-term additional requirements and or hurdles potentially impacting extend these near term progress.

Further, we expect to see similar dynamics on second quarter scripts, consistent with what we've seen over the last few quarters, including holidays and vacations, the out of office time because of medical conferences as well as other patient dynamics, all of which could impact net sales.

As a reminder, we recognize revenue when we ship extended from our warehouse to the distributors, not on the bottles dispensed to patients in the first quarter due to strong demand coming off the initial launch, our distributors increased their extensive purchases, resulting in approximately one additional week of days on-hand inventory at the end of the first quarter versus the fourth quarter of 2023.

We do not expect to see this incremental stocking in the second quarter. We further expect for the second quarter days on-hand inventory to remain consistent with the first quarter and an increase in the number of bottles dispensed to patients to be in line with the increase and the number of bottles dispensed to patients we saw in the first quarter.

We also expect gross-to-net discounts to improve incrementally in the second quarter and continue to improve quarter over quarter for our expected steady state of 50% in 2025. We ended the quarter with a strong balance sheet of approximately $298 million in cash and marketable securities, inclusive of the $108 million equity raise.

Additionally, in April, we refinanced our existing term loan with a new $$200 million credit facility from Pharmakon Advisors, which enables us to borrow a larger sum on more flexible terms, compare to our previous credit facility, we elected to draw 75 million at the close, providing us with a net of approximately $40 million after the repayment of the previous facility. For this will further enable our ongoing efforts to expand our pipeline as we progress towards our goal of becoming a leader in eye care.

Based on the health of the business and the success we are seeing in the early days of the launch, we plan to deploy a portion of this capital to support the following key launch initiatives. As highlighted earlier, hiring an incremental 50 sales representatives and leaders, ensuring we're continuing to increase the depth and breadth of adoption as we begin to engage with the next wave of target ECPs and potentially increasing our investment in direct-to-consumer advertising, including streaming TV, to encourage more patients to see their eye care providers.

Turning to our P&L, our total operating expenses were approximately $65.3 million. The increase in operating expenses quarter over quarter was primarily driven by increases in cost of sales from the launch of extending and increases in selling, general and administrative expenses due to the addition of commercial infrastructure, marketing and education efforts and the sales force or launch extent, the gross margins for the first quarter were approximately 93%, which includes the royalty we pay to Lonca.

Looking at the second quarter, we expect total operating expenses to be in line with the first quarter of 2024. As we move into the second half of 2024. And based on our current plan, we expect total operating expenses to increase due to sales force expansion, which we expect to be fully deployed by the end of the third quarter and potential DTC efforts in the fourth quarter.

Turning now to a quick review of our pipeline. We recently reported three positive top line data sets for all of our Phase two programs, TPO. three in meibomian gland disease, PPO. four in popular pustular realization in PPO. five for the prevention of Lyme disease.

All three programs target the underlying cause of the disease address high unmet needs and are based on little later the same active ingredient found and extending and the next steps for advancing all three programs include completing full data analysis of the Phase 2 studies and engaging with the FDA by the end of the year. We look forward to providing updates on each of these programs as they progress.

Finally, we plan to continue strategically investing and extending and our pipeline that is designed to create other new categories of medicine with them. I will turn the call back to Bobby for final remarks.

Thank you, Jeff, for a tremendous start to the year and with so much more to come. Our foundational elements are strong and we believe we are only just beginning to unlock the full potential of Tarsus extend the and our pipeline. We look forward to investing even further in the launch of extending into advancing three more candidates with category creating potential. We appreciate your time and engagement today and look forward to speaking with you soon.

(Operator Instructions)

Eddie Hickman, Guggenheim Securities.

Thanks for to my question and congrats on the great quarter. Just a few from me. You noted that your prescribers increased from 8,000 tests or from 6,000, but only 50% have written the second script.

I'm just wondering if you could comment on how much of the volume is concentrated to a small group of prescribers and why those other sort of 50% aren't writing more.

And then as you commented on the penetration sort of going outside those initially diagnosed patients. I'm wondering if you're starting to see that in the claims data you quoted previously. Thank you.

Eddie. Before I pass to the Bobby, I just want to make a couple comments some. So to your question, we are seeing our category creating medicine taking hold and is taking hold with patients, doctors and payers. And really that's why the time is now to double down on education education, evolving the sales force of DTC. potentially and other efforts. And um, you know, we look forward to building this market and ultimately serve more patients.

And I'll pass disease to address the on the prescribing dynamics and the payer and the patient dynamics that you asked about.

Yes. Thanks, Bobby. And a great question. Thanks for that. And I think the two things we're really delighted by the continued progress and momentum we're seeing on that new prescriber adoption. We've consistently added about 2000 prescribers per quarter.

So we haven't slowed at all. And that 50% metric has endured through the course of the launch so far, right? So I think there's a couple of things you can extrapolate from that. One is we're continuing to build new prescribers coming in the question of why haven't more of them written the second script? Well, a lot of them just started a couple weeks ago.

Right? So that number is contemporary, right? That's not just for the first quarter. That's as of the most recent week of data that we have. So a large proportion of these physicians just haven't had the chance to write that second script yet.

And that's consistent with what we saw last quarter as well. And in terms of how concentrated it is. I think as you add more prescribers, that concentration continues to broaden. And I think that's driven really as we talked about in the comments earlier by doctors that once they get to about five to 10 scripts, they really start to get the sort of routine with extending.

They start to look forward and are routinely they've seen the benefits of the product. And what happens is they start to think about this in more patient types. So beyond the traditional Demodex blepharitis patient, they're starting to think about, oh, here's a drive patient that failed that therapy or to let me take a beat and let me look at their lives.

Sure enough. If they have collarettes, I can treat them in six weeks later, I can resolve that problem. If that works.

Then let me think about my pre-surgical patients and it must pre-op evaluation. Let me scan all the lives to make sure these patients have a holistic good outcome.

So I think what you're seeing is that as we continue to add new prescribers, core base of prescribers continues to expand as well. So utilization across the prescribing base expands.

And as we talked about, our goal is to maintain this momentum of adding new prescribers and of course, then increasing the depth of prescribing, which is really one of the reasons we're thinking about expanding the sales force, right? So in short, we're really pleased with that momentum.

I think it's a great sign of health that we've continued at that clip. We haven't seen any slowing of new prescriber adoption yet. I think that's to the work we're doing as well as the value there.

Thanks. Congrats again.

Balaji Prasad, Barclays.

Hi. Good evening, everyone, and congratulations on the quarter. A couple of questions from me. As I think about the dynamics between MECP., listening to your sales force detailing and writing a prescription at home what have you seen any with regard to those EVPs will not prescribe? What is it that's still holding them back or they are looking for additional data on and how would how do the dynamics work there.

But one two, looking at the data provider metrics that we track, I mean, I did see around 27,000 bottles and 34 million of primary sales. And if I had to extrapolate this to previous quarters, were a little around 17 to $20 million, but clearly you were reporting substantially higher number. Is this all due to the fact that you report sales as the shape of your warehouse and our primary sales.

Thanks. And so I'll take the first part and then I'll pass it to Jeff to speak to the revenue booking in terms of the adoption we're seeing in your question of what might be holding back the other remaining 57,000 doctors that comprise our 15,000 audience that they have 8,000 written so far. And we don't see a lot of pushback in the data on. It's a function of some doctors are just late adopters.

They want to see how other doctors do they want to see how the product performs. They want to hear the experience of other doctors. I mean that's a critical thing that we've seen and some of this also takes repeat visits from the sales force, right? It's a new category. It takes time. It's a new habit we're building. So sometimes it's repetition that's required from the sales force.

And then lastly, of course, some doctors are a little bit more averse to working through new products and market access, right there a little bit hesitant to do the PA process, et cetera. And again, that is resolved when we get repeat visits and because our process is actually really good. We've done a great job with our pharmacies.

Our payer coverage continues to improve and the reps have done a great job of being able to get in there and educate the practice holistically on how to manage that process. It's actually a lot easier than most new products.

So I think in short, it takes multiple visits, right? And I think that's again why we are thinking about expanding the sales force two, they love to hear the experience of other doctors. And now as we're getting more and more doctors with experience that peer-to-peer impact is starting to take hold. And I think that's why we're continuing to see that ramp in new prescribers.

And then lastly, it's just getting into the office and really educating that whole office component. And you can imagine longer term, as we mentioned in the comments, potentially even empowering the consumer right. And it's good at the consumers asking that's certainly going to potentiate the position to reconsider and write the product.

So I think it's a matter of time. It's a new category. You have to build these new habits. You have to show the success we've been doing that consistently over the last couple of quarters, and we've got some great plans in place to continue that momentum.

Jeff, you want to comment on the revenue piece?

Sure, I believe you're right. In essence, we do, as do most manufacturers recognize revenue when they ship from our warehouse to our distributor or pharmacy. So there is going to be a delta. This one, it was we had an extra week of inventory that was built as well. The other thing that could potentially being a delta in the revenue side is maybe a difference in the gross to net that you're modeling versus what we actually recorded here as well.

Got it. That's helpful. And could I just had a follow-up question on the sales force expansion. You did comment upon this in our recent five side or the bond friends on a good to see that there is this being action than that of signals of confidence on your part?

Or how should I think about the incremental costs and the and have any contribution from the sales force towards the end of the year?

Our largest, Jeff, again, we had guided that we expect them to be hitting the field sometime late in Q3. So I would model it out at about $300,000 fully burdened cost for sales reps funded 50 sales reps. And from a revenue perspective, we think it will be net net neutral essentially. So from a P&L perspective, net neutral. So probably same incremental revenue will be generated in 2024, but obviously seeing much more of an upside in 2025.

Francois Brisebois, Oppenheimer.

Congrats on the quarter. So I was just wondering, you had talked about DTC., and I think it was maybe waiting to see the impact of Medicare, which is obviously important with this patient population. So can you just talk maybe a little bit about the strategic move to maybe do the DTC campaign earlier as a pre Medicare and you know, the pluses and the minuses of that, if there's any

Sure Hey, Frank, it's Aziz. And yes, I think we are starting to see some real great momentum here, right? And that's really what's potentiators to think about this a little earlier. And the way to think about this is really two things we're doing right? We really wanted to establish a core base of prescribers as we've continued to do.

We think we can accelerate the depth of prescribing with the sales force expansion. So that's really the first step and accelerating the launch consumer pieces and something we're contemplating potentially in Q4. And you're spot on, right.

The two things we're going to look for is making sure that that incremental sales forces out there that hit the ground. We've got good momentum. And then secondly, we want to make sure that we're delivering on our goals in terms of market access and have a clear line of sight to Part D in 2025. Clearly, we're really pleased with how that's going.

And we feel confident, which is why we're communicating the contemplation to do this in Q4. But for any reason if the market conditions weren't right, certainly we'd push back. And likewise, if we saw opportunities, we could solidify that plan to launch in Q4. So I think we're still watching the launch progress, but we feel very confident in the trajectory, Ron, we're very clear in them.

And we have in terms of the sales force, both market access and then DTC., that's been very consistent with our plan. And if those things are hitting sooner, why wouldn't we got there sooner and start to empower the patient and drive incremental volumes here?

Understood. And then can you give us a little color on the ophthalmologists versus optometrists reception to the product arm and then you know, that's from the doc side and maybe from the patient side, can you help us have you learned anything that maybe surprised you or Dan, just any learnings from the launch in terms of symptomatic versus asymptomatic patients?

And I guess, sorry, I logged in a last one on that. It seems to me like a lot of docs maybe thought they were looking for these. But is it is it fair to say that some doctors actually take a second look now that there's a product out there and say, Oh, my goodness, I didn't realize I wasn't looking the right way maybe through the slit lamp or is it very obvious.

And if you're looking, you're looking the right way. Yes. So I think there's a couple of things there, right, from an Optum optometry and ophthalmology standpoint, very consistent, right about two thirds of commentary about a third ophthalmology. We see digitalization across both segments. We were at the Oscars Conference in Boston.

A few weeks back receptivity in ophthalmology is really great. In fact, you're starting to hear more organically from the ODM Martin. And after the American Society of cataract refractive surgeons, right? That's cataract surgeons and they're starting to say, hey, some of the top thought leaders are starting to implement. This is a routine habit and they're pre-surgical evaluations.

And I think that speaks to even even though a little bit more volumes coming out of Optometry that there's some real critical opportunity here in ophthalmology. So we're seeing that progress across both segments really nicely.

You ask a little bit about the patient I think what happens is initially the doctors probably start with the patient that's got a chief complaint with really clear collarettes. They treat those patients are typically seeing great results and then two things happened. One is they do start looking a little bit more closely, right? It's a positive feedback loop that worked really well.

Let me take a closer look, let me make sure I'm not missing this because this is a problem I can solve. And then secondly, there are less and less waiting for the patient to initiate that dialogue. They're actively asking the patients.

Are you feeling do you have any trouble wearing contact lenses dry still tired in the morning or at night, and they're actually soliciting feedback from the patient so as the doctors gain that confidence, we talk about that five to 10, that's really what happens, right.

The two elements is the doctor starts to look a little bit closely more closely, I should say, and they start to question the patient a little bit more.

So this idea of a symptomatic versus asymptomatic patient really is not a factor. Most of these patients are symptomatic 90% plus are symptomatic. It's just a matter of the doctor taking that extra fee to look and ask. And we're seeing that as the physicians get experience they're doing.

And I'll just add one personal anecdote. So I'm a physician and them being in the field. It really struck me. Patients are either coming in with a chief complaint or they're being asked on history are being examined in the physical. And that's when you see collarettes in those patients that don't necessarily have to be as a prior diagnosis and so so that a symptomatic symptomatic.

I think when you get in the field and talk to doctors a lot more about what the patient presenting with chief complaint, I was talking to a KOL who's been one of our big prescribers this morning, and he reaffirmed that to me, you know that he is seeing more and more patients and looking for more and more.

And this scale has over 20 years of experience treating you be with some of the prior options that weren't as effective. So it really crystallizes to me that market education and the physician journey it as is described.

Thank you and congrats again.

Jason Gerberry, Bank of America.

Good evening, guys. Thanks for taking my questions. Just just a couple on Medicare actually. So there's Part D redesign impact. Any of your operating assumptions around sort of steady-state gross to net? And then how should we think about like the addition of Part D next year?

Does it open the floodgates to half the market? Or do you feel like you're already getting patient to our Medicare patients, but maybe they're getting covered through some medical exceptions or something like that? Just curious if you can sort of frame how the impact of how the market opening See you next year from an insurance perspective, how that potentially impacts 2025 volumes. Thanks.

Yes. So I think a couple of things, right? So on starting with the gross-to-net to all of our gross-to-net of getting to 50% steady state, that accounts for all the factors in Part D. So we've taken that into account in our in our goals there.

In terms of when you get to that 2025 point, I would tell you that we're already seeing Medicare scripts come through, right, as you mentioned, through exception or through FDA. So we are seeing a decent amount of volume come through that. Of course, that volume should continue to grow as we get more coverage.

The one thing to keep in mind is at the beginning of the year, of course, you get on the formularies, but then you have the typical Q1 headwind, Q1 headwinds, right? So there's some time to get through that first period of time.

So that would build over time. It's not like a light switch, right? The coverage is a light switch, but to be able to pull it through, does take a few months to really get to that steady state. So steady build as you get that coverage.

And I think the biggest factor of getting that coverage is going to be our ability to optimize that gross-to-net. And if that 50% target, because then we'll be not giving away free product anymore in terms of the bridge that will go away.

So I think the way to think about it is we factored in all the accounts in terms of gross-to-net modeling the trigger to get to that steady-state, 50% is getting on Medicare. And then obviously the volumes will increase as we get that opportunity. But it's a steady build over time.

Andrea Tan, Goldman Sachs.

Good afternoon. Thanks for taking our questions on Aziz. Maybe one for you here.

Of those 8,000 prescribers that you've talked about, could you quantify the proportion that fall into the three buckets that you've spoken about previously, maybe specifically how many of the 8,000 are early adopters versus those that are newer to DB? And then is there anything else you think you need to do to reach the balance of those prescribers outside of the additional sales forces that you're planning here?

Yes. So we don't get into the specific breakdown, but what I can tell you is that clearly at 8,000 where we're beyond 50% of our prescribing base. So clearly, we've gotten all the early adopters of the vast majority of them were really deepen or eager treaters, and we're really starting to bring in those new to DD.

And when you think about the sales force expansion, it's not as much of a reach play on. We're very confident in our current sales force ability to reach all these segments. We've been calling on all of them, but it's really an opportunity to be able to increase frequency and go deeper, right? So the early adopters have higher prescribing pattern right now.

They've really adopted this in their practice. The eager treaters are getting to that threshold and the new DDB., they're just getting their feet wet, right? They're just starting that early prescribing and they're looking to get that second third eventually fit and the prescription to become routine.

So while we don't get into quantitatively breaking those down, what I can tell you is that we've got the vast majority of early adopters who have really made great progress in the early treaters. And now there's new two D doctors are the ones that are coming in.

And I think the other things we can do beyond the sales force is really potentiate the success, the early adopters of hang on and share that with the eager treaters and the new DD., that's been one of the most compelling things particularly when you go to conferences, you hear a personal experience off the podium where doctors say I wasn't even looking for this before I started looking for this.

I can't believe I was missing and having great success have now implemented this across the practice, whether it be in my cataract patients or if it's an optometrist and starting to look at this when people complain about contact lenses or dry eye that compelling peer-to-peer education is something that we think is going to help unlock that new to the doctor.

And in addition to our sales force, and then the third leg of that would be obviously the consumer, right, empowering the consumer really does resonate with a doctor, right? If the patients coming in actually asking it's going to pop the doctor to take a second look and think about.

Okay. Wait. Let me understand. When you look at your let me understand your history and symptomatology so I think those are the ways we think about. And the way I see this is that we've made great progress so far. And the sales force expansion continued sharing of stores from the early adopters. And then eventually consumer effort is really what's going to allow us to deepen the prescribing across all the segments.

And kind of maybe one quick question if I may. I'm just recognizing maybe a bit early, but curious if you're hearing anything yet on retreatment?

It's still pretty early on. We are starting to see this right. We've been several months in the launch, you starting to see this, and I would say it's too early to draw any massive conclusion here. I think you're going to really start to be able to see that more meaningfully in 2025. But right now, what you're seeing in some patients coming back for that second treatment in some really rare one-off cases are perhaps the doctors you're shooting for perfection. They saw a great response and they maybe do a second treatment just to get complete clearance. But those are anecdotal and really one-offs I think to get any meaningful insight here, it's probably going to be in early 25 when we really start to see that volume.

Thank you so much.

Thank you.

Tony Whitman, Goldman Sachs.

One, are you there, operator, as things go to lobby works with Andrea. So if I were going to address DSL questions have been answered. Thank you.

Thank you.

Tim Lugo, William Blair.

Hey, guys, this is Lachlan on for Tim. Congrats on the strong cold U.S. As I was just wondering on gross-to-net, I think you've previously said you expect to get to about mid 50s by the end of this year.

And but you're obviously already there and talking about some incremental improvement over the end of the year. So can you maybe just sort of update us on how we should be thinking about.

Yes, the next few quarters sort of into the end of the year on gross-to-net and related to some of your comments around the payers. Can you give any color on how many or how much volume at the moment, what proportion is through covered scripts that are on formulary versus are those that are not yet there.

Third, although it started on the gross to net question and great question, ultimately that to sort of realigning, we would see said it earlier, we expect incremental growth as we get more of the commercial payers on. So even small increases in gross-to-net yields 1% to 2% per quarter upwards, but it will get much closer to 50% once we cross the threshold with the Medicare patients in 2025. And as Keith alluded to, it won't be a light switch, but we'll start to see more improvement in the early part of 25 and then getting that broad coverage sometime in the middle of JPY25.

And in terms of the coverage groups, I would say that we don't get into the gory detail there. But obviously, we've got some really big commercial plans last quarter and this quarter that we've announced. So those are obviously covered the vast majority of those have been preferred. So that's really great in terms of our ability to drive utilization and optimize our gross-to-net.

One of the prior questions we mentioned that we are seeing Part D scripts go through through medical necessity or exception. So those are obviously getting covered as well. And then as we continue to build that commercial coverage reaching critical mass at the end of the year and then the remainder Part D really kicking in in 2025.

I think then you'd start to see the sort of the bridging product go away to a very minimal level. So I think that's the way to think about it right every quarter that should improve and that ties back to what Jeff's talking about those incremental improvements quarter over quarter is really as coverage comes in, that's going to allow us to reduce the gross-to-net discount and optimize to that 50% gross-to-net at steady-state Got it. Thanks.

And I guess quickly on the sales force, should we expect any disruption as you sort of add you add more reps and realigned territories?

Yes. So we've done a really good job here of mapping this out. I think one of the great things about expanding a few quarters into the launches. We've got some great learnings from the launch we've got some great insights from our sales force. We've got great data. So I think there's a few things that work in our favor.

One launch has gone well and the word has gotten out. So we've gotten a lot of great talent that wants to join the team. So it's really nice to see the volume and quality of paper that's coming across our desk in terms of folks wanting to join the team. So we're going to be able to get some really high quality talent into the Tarsus organization, which I'm delighted by.

Secondly, we've got the data that's going to inform exactly where to put this incremental effort to get the best return, right? We've done a lot of an analytics. So I'm sure there's always going to be a little disruption in Geomni change territories, but I think that's going to be offset by the ability to optimize and place the incremental effort in targeted fashion that's going to allow us to see a ramp up in a really reasonable timeframe.

And then lastly, we've got great learnings in terms of what resonates with the doctors in terms of messaging, et cetera. So these these reps are actually going to be able to be trained a little bit more effectively and efficiently than even our first class, if you will because they're going to be able to learn from the experience of the current team.

So we expect them to hit the ground running, be able to make impact and get up to speed. And like I said, I'm really pleased with the quality of people that we're looking at. So I think this is going to really strengthen our team and we're doing all we can to manage any disruption, but I think the plan in place will offset any of that temporary disruption you'd see so thanks.

Corey Jubinville, LifeSci Capital.

Thanks for taking our question. You mentioned potential seasonality due to ECP. practices, holidays, vacations, et cetera. I'm curious if you have any indication that there might also be seasonality in DB. That might dictate sales in similar to how they might be seasonality in incidence in severity, where is Asia or allergies?

Yes. So to your question, Corey, I think it's still early to tell sort of market seasonality, right, where we can, where we can look at is other product proxies and that we see the impact of holidays, the doctors being out of the office.

I think keeping in mind also that this is a an Rx product, right? The vast majority, the volume comes from NRxs, right? So it's going to be even more sensitive to those swings when the doctors are out or when people are on vacation?

I think in terms of the seasonality of the disease, historically, we haven't seen anything in the literature and other work we've done prior, but that's probably something we'll see a year or two into the launch when we've got a few more quarters under our belt to see if there's any additional seasonality that impacts it right that the only other things I would indicate are typically we know that Q1 is always a challenging quarter.

There's always headwinds in Q1 and we know that Q4's tend to be a little bit better as people tried to come in and get in before their deductible resets. And then people are visiting the doctor a little bit more often, and that's that's nonspecific takes down your Demodex blepharitis. That's something we see pretty pretty much across the board.

And how should we think about R&D spend moving forward now that the Phase two studies for realization line are complete.

I know we're awaiting regulatory regulator feedback, but are you thinking about taking either of these programs into a Phase IIb or Phase three studies? And curious if you could speak on how discussions around potential partnership opportunities, Progressive, of course, Jeff.

Yes, I think for the R & D, we expect to be relatively flat throughout the year compared to this quarter, we are still closing down sites and interrogating the data. So there's still some definite work that's going on there. And I'll turn it over to Sasha for further discussion on the plans forward.

Thanks, Jim. Bob and I have a great question, Corey, in terms of the pipeline progress, we are tracking really well as we mentioned previously, we are continuing to do additional analysis on all of our Phase two trials.

And once we have those analysis, our plan is to go to the agency by end of this year and the progress is progressing really well. We are collecting all of the data, and we'll be pleased to and support any progress as we as we move forward.

Excellent. That's helpful. Thank you. Great.

Thank you. I'm showing no further questions at this time.

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