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Operator: Good afternoon, and welcome to Tarsus’s 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.

David Nakasone: Thank you. Before we begin, I encourage everyone to go to the Investors Section of the Tarsus website to view the earnings release and related materials we will be discussing today. Joining me on the call this afternoon are Bobby Azamian, our Chief Executive Officer and Chairman; Aziz Mottiwala, our Chief Commercial Officer; 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 would like to turn the call over to Bobby.

Bobby Azamian: 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 XDEMVY, the first and only FDA-approved treatment for Demodex blepharitis, or DB for short, which is continuing on a tremendous pace and not just in terms of sales. We are establishing a new market, and I know we are only scratching the surface of what we can achieve with XDEMVY 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 have reported nearly $25 million in net product sales this quarter and delivered approximately $26,000 in DB patients. As of last week, more than 8,000 eye care professionals, or ECPs for short, have started their patients on XDEMVY and more than half are prescribing to multiple patients. These remarkable results are a testament to our category-creating approach, which centers on the clear compelling value proposition of XDEMVY 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 and we’re only just beginning to see the impact of XDEMVY. I’ve been spending a lot of time in the field with our sales team and ECPs, and I see they’re excited to share their early patient experiences, which illustrate the importance of our efforts and the opportunity ahead.

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 DB, then how to prescribe and facilitate medication access for their patients, and finally, the initial experience with the first several XDEMVY prescriptions. The 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 with a chief complaint and over time, more and more are diagnosed upon further examination. Whether the ECP was gaining initial experience or has become a champion of XDEMVY, I did not hear anyone who felt they had realized the full potential of patients they could serve.

We have also made great strides in engaging our 15,000 target ECPs and inspiring more than half of them to action with XDEMVY so far. Other key drivers of our success are the creative and targeted educational initiatives we launched to raise awareness of DB among patients, providers, and payers. These include Mite Party, our first consumer-focused campaign launched earlier this quarter as well as prior ECP-focused campaigns. These strong initiatives help to promote the behavioral changes needed to increase awareness and diagnosis of DB. 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 makeup the remaining 5.5 million who visit the ECPs with complementary eye conditions, such as dry eye disease, cataracts and patients like myself, who struggle to stay in their contact lenses.

Not to mention the additional 18 million patients visiting ECP offices, who we know, can ultimately be served with XDEMVY. We knew this category-creating product had blockbuster potential and it makes me so proud to see the launch of XDEMVY 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 riders 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 ECP engagement and more prescriptions, which is why beginning in the third quarter, we plan to add even more fuel to the fire with expansion of our sales force.

We’re also contemplating a consumer campaign in our 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 XDEMVY. 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 with 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 2 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 XDEMVY. We look forward to boosting this launch with additional resources, while also continuing to advance the pipeline of other potential category-creating therapies. Aziz, over to you.

Aziz Mottiwala: Thanks, Bobby. The experience you shared represents we are hearing from the field more broadly about the positive impact of XDEMVY. Knowing to make a difference in the daily lives of patients is deeply motivating as we work to bring XDEMVY to millions of patients, who are living with this pervasive and debilitating eyelid disease. As Bobby noted, we generated nearly $25 million in XDEMVY sales this quarter. That’s an increase of almost 90% over last quarter. Additionally, more than half of our target 15,000 ECPs are now riding XDEMVY. And as anticipated, we maintained a consistent gross-to-net discount of approximately 55%, which was encouraging in 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 DB. Now, in addition to the already diagnosed patients, we’re also beginning to reach into the other patient segments. Those who are seeking treatment for complementary eye conditions, in particular, patients with dry eye or those presenting for cataract surgery. Likewise, we are making significant progress with ECP adoption. Our existing writers are increasingly prescribing to more patients and we are seeing initial signs of success in moving beyond the early adopters and into the next wave of ECPs. These successes are highly attributable to the educational efforts we initiated well before launch. The 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 XDEMVY. But as we said, building a blockbuster takes time, and creating a new category requires a sizable disease education effort. We’re turning up the dial on our 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 XDEMVY launch and the culture we’ve established at Tarsus has generated a high volume of interest from folks with and we’re excited to apply their experience to positively disrupting growth markets.

We also believe we can grow the market directly through impactful consumer advertising and marketing efforts, like our recent Mite Party campaign. This dynamic multi-channel campaign is designed to elevate awareness of DB and encourage people to visit an ECP per strain. 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 have secured 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 XDEMVY on preferred status.

Payers continue to value the high unmet patient needs and strong product efficacy of XDEMVY. As with the previous contracts, there is 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 XDEMVY and the power of 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.

Jeff?

Jeff Farrow: 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 the key highlights, we generated $27.6 million in total revenues comprised of approximately $24.7 million in XDEMVY 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-O3. As part of this agreement, LianBio, our previous partner made a one-time payment of $2.5 million and an equity warrant cancellation payment of approximately $400,000. We also completed an equity raise of nearly $108 million and strengthened our financial position with a $200 million non-dilutive financing commitment from Pharmakon Advisors, a leading life science investor.

We are encouraged by the increasing number of eye care professionals and patients benefiting from XDEMVY. We are also pleased with the progress we’re making with payers as evidenced by the additional payer contracts we secured since our year-end earnings call as Aziz mentioned earlier. And to be clear, the 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 a steady gross-to-net discount 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 hurdles potentially impacting XDEMVY’s near-term progress. Further, we expect to see similar dynamics on second-quarter scripts consistent with what we’ve seen over the last two 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 XDEMVY 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 XDEMVY 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 in 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 to 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 a $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 compared to our previous credit facility.

We elected to draw $75 million at the close, providing us with the net of approximately $40 million after the repayment of the previous facility in full. 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 that Aziz 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 the cost of sales from the launch of XDEMVY and increases in selling, general, and administrative expenses due to the addition of commercial infrastructure, marketing, and education efforts and the sales force to support the launch of XDEMVY. Gross margins for the first quarter were approximately 93%, which includes the royalty we paid to Lonco [ph] 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 the sales force expansion, which we expect to be fully deployed by the end of the third quarter, and potential ECP efforts in the fourth quarter.

Turning now to a quick review of our pipeline. We have recently reported three positive top-line data sets for all of our Phase 2 programs: TP-03 in Meibomian Gland Disease; TP-04 in Papular-Pustular Rosacea; and TP-05 for the prevention of Lyme disease. All three programs target the underlying cause of the disease, address high unmet needs, and are based on lotilaner, the same active ingredient found in XDEMVY. 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 in XDEMVY, and our pipeline that is designed to create other new categories of medicines.

With that, I will turn the call back to Bobby for final remarks.

Bobby Azamian: Thank you, Jeff. What 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, XDEMVY, and our pipeline. We look forward to investing even further in the launch of XDEMVY and to advancing three more candidates with category-creating potential. We appreciate your time and engagement today and look forward to speaking with you soon. Operator, please open the line for questions.

Operator: Thank you. At this time, we will conduct a question-and-answer session [Operator Instructions]. The first question comes from Eddie Hickman with Guggenheim Securities. Eddie, go ahead. Your line is open.

Eddie Hickman: Hey, guys, thanks for taking my question and congrats on the great quarter. Just a few from me. You noted that, your prescribers increased from 8,000 or from 6,000, but only 50% have written a 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 Aziz, 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 that you’ve quoted previously. Thanks.

Bobby Azamian: Thank you, Eddie. Before I pass to Aziz, this is Bobby. I just want to make a couple of comments. To your question, we are seeing our category-creating medicine taking hold and it’s taking hold of patients, doctors, and payers and really that’s why the time is now to double down on education, education involving the sales force, DTC potentially, and other efforts and we look forward to building this market and ultimately serving more patients and I’ll ask Aziz to address the prescribing dynamics and the patient dynamics that you’ve asked about.

Aziz Mottiwala: Thanks, Bobby. Eddie, great question. Thanks for that. I think the few things we’re really delighted by is the continued progress and momentum we’re seeing on that new prescriber adoption. We’ve consistently added about 2,000 prescribers per quarter. So, we haven’t slowed at all, and that 50% metric has endured through the course of the launch so far. I think there’s a couple from that. One is we’re continuing to build new prescribers coming in. The question of why haven’t more of them written a second script, a lot of them just started a couple of weeks ago. So that number is contemporary. 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.

In terms of how concentrated it is, I think as you add more prescribers, that concentration continues to broaden. 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 routine with XDEMVY. They start to look for it more routinely. They’ve seen the benefits of the product. 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, Here’s a dry eye patient that failed the therapy or two. Let me take a beat and let me look at their lids. Sure enough, if they have cholera, I can treat them and six weeks later, I can resolve that problem. If that works, then let me think about my pre-surgical patients.

In my pre-op evaluation, let me scan all the lids 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, the core base of prescribers continues to expand as well. So, utilization across the prescribing base expands. 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? In short, we’re really pleased with that momentum. I think it’s a great sign of help that we’ve continued at that clip. We haven’t seen any slowing of new prescriber adoption yet, and I think that speaks to the work we’re doing as well as the value of the product.

Operator: Thank you. One moment for our next question. Our next question comes from Balaji with Barclays. Balaji, go ahead. Your line is open.

Balaji: Hi. Good evening, everyone, and congratulations on the quarter. Just a couple of questions from me. As I think about the dynamics between an ECP listening to your sales force detailing it and writing a prescription, what have you seen with regard to those ECPs who are not yet prescribed? What is it that’s still holding them back? Are they looking for additional data and how do the dynamics work there? That’s one. Two, looking at the data provider metrics that we track, I did see around 27,000 bottles and $34 million of primary sales. If I had to extrapolate this to previous quarters, we would have looked at around $17 million to $20 million. But clearly, you’re reporting a substantially higher number. Is this all due to the fact that you report sales as they ship out of your warehouse and not primary sales? Thanks.

Bobby Azamian: 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, your question of, what might be holding back the other remaining 7,000 doctors that comprise our 15,000 audience that they’ve 8,000 have written so far. We don’t see a lot of pushback in the data. 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. That’s a critical thing that we’ve seen and some of this also takes repeat visits from the sales force. 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? They are a little bit hesitant to do the PA process, et cetera. Again, that is resolved when we get repeat visits in because our process is actually really good. We’ve done a great job with our pharmacy 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. I think that’s again why we are thinking about expanding the sales force. Two, they love to hear the experience of other doctors. Now as we’re getting more and more doctors with experience, that peer-to-peer impact is starting to take hold.

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. You can imagine longer-term, as we mentioned in the comments, potentially even empowering the consumer, right? If the consumer is 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?

Jeff Farrow: Sure. Hi, Balaji. 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.

Balaji: Got it. That’s helpful. Could I just had a follow-up question on the sales force expansion? You did comment upon this in our recent fireside at the conference. Good to see that this is being actioned and that signals the confidence on your part. How should I think about the incremental costs and the revenue contribution from the sales force towards the end of the year? Thanks.

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

Operator: Thank you. One moment while we prepare our next question. The next question comes from Francois Brisebois with Oppenheimer. Franc, go ahead. Your line is open.

Francois Brisebois: Hi. Thanks for the questions and congrats on the quarter. I was just wondering, you had talked about DTC. 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, like pre-Medicare and the pluses and maybe minuses of that, if there’s any?

Aziz Mottiwala: Sure. Hey, Franc, it’s Aziz. And, yes, I think we are starting to see some real great momentum here and that’s really what’s potentiated is to think about this a little earlier. The way to think about this is really two things we’re doing, right? We really want 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 in accelerating the launch. The consumer piece is then something we’re contemplating potentially in Q4, and you’re spot on. The two things we’re going to look for is making sure that that incremental sales force is out there that hit the ground. They’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 it 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 we’re on. We’re very clear in the plan we have in terms of the sales force, both market access and then DTC that’s been very consistent with our plan. If those things are hitting sooner, why wouldn’t we go out there sooner and start to empower the patient and drive incremental volumes here?

Francois Brisebois: Understood. Can you give us a little color on the ophthalmologist versus optometrists’ reception to the product? And then that’s from the docs side. Maybe from the patient side, can you help us have you learned anything that maybe surprised you or didn’t just any learnings from the launch in terms of symptomatic versus asymptomatic patients? I guess, sorry, I’ll log 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 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 the right way?” Thank you.

Aziz Mottiwala: Yes. I think there’s there’s a couple of things there. From an optometry and ophthalmology standpoint, very consistent. About two-thirds optometry, about a third of ophthalmology. We see deep utilization across both segments. We were at the ASCRS conference in Boston a few weeks back. Receptivity and ophthalmology is really great. In fact, you’re starting to hear more organically from the podium after the American Society of Cataract and Refractive Surgery. That’s cataract surgeons, and they’re starting to say, ”Hey. Some of the top thought leaders are starting to implement this as a routine habit in their pre-surgical evaluations” and I think that speaks to even though a little bit more volume is coming out of optometry that there’s some real critical opportunity here in ophthalmology.

We’re seeing that progress across both segments really nicely. You asked a little bit about the patients. I think what happens is initially, the doctors probably start with the patient that’s got a chief complaint with really clear cholera. They treat those patients. They’re typically seeing great results and then two things happen. One is they do start looking a little bit more closely. 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, they’re less and less waiting for the patient to initiate that dialogue. They’re actively asking the patient. How are you feeling? Do you have any trouble wearing contact lenses? Are your eyes still tired in the morning or at night?

They’re actually eliciting the feedback from the patient. So as the doctors gain that confidence, we talk about that 5 to 10. That’s really what happens. 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 as most of these patients are symptomatic. 90% plus are symptomatic. It’s just a matter of the doctor taking that extra feel to look and ask. We’re seeing that as the physicians get experienced, they’re doing just that.

Bobby Azamian: I’ll just add one personal anecdote. I’m a physician and being in the field, it really struck me, patients are either coming in with a chief complaint or they’re being asked on history or being examined in the physical. That’s when you see colorects in those patients that don’t necessarily have DB as a prior diagnosis. And so, asymptomatic, symptomatic, I think when you get in the field and talk to doctors, it’s a lot more about what’s the patient presenting with as a chief complaint. I was talking to a KOL who’s been one of our big prescribers this morning and he reaffirmed that to me, that he’s seeing more and more patients and looking for more and more and this KOL has over 20 years of experience treating DB with some of the prior options that weren’t as effective. So it really crystallizes to me that market education and the physician journey that Aziz has described.

Operator: Thank you. Please stand by for our next question. The next question comes from Jason Gerberry with Bank of America. Go ahead, Jason. Your line is open.

Jason Gerberry: Hey, good evening, guys. Thanks for taking my questions. Just a couple on Medicare actually. Does Part D redesign impact any of your operating assumptions around sort of steady take 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 patients who are 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 half the market opening up to you next year from an insurance perspective, how that potentially impacts 2025 volumes? Thanks.

Bobby Azamian: Yes. I think a couple of things, right? Starting with the gross to net. 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 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, as you mentioned through exception or through PA. We are seeing a decent amount of volume come through that. Of course, that volume should continue to grow as we get more coverage. But one thing to keep in mind is at the beginning of the year, of course, you get on formularies, but then you have the typical Q1 headwinds. There’s some time to get through that first period of time.

That would build over time. It’s not like a light switch. 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. It’s a 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 hit that 50% target because then we’ll be not giving away free product anymore in terms the bridge. That’ll go away. I think the way to think about it is we factored in all the accounts in terms of gross-to-debt modeling. The trigger to get to that steady state of 50% is getting on Medicare. Obviously, the volumes will increase as we get that opportunity, but it’s a steady build over time

Operator: Thank you. One moment for our next question. The next question comes from Andrea Tan with Goldman Sachs. Go ahead. Your line is open.

Andrea Tan: Good afternoon. Thanks for taking our questions. 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 force that you’re planning here?

Aziz Mottiwala: Yes. So, we don’t get into the specific breakdown, but what I can tell you is that, clearly at 8,000, we’re beyond 50% of our prescribing base. Clearly, we’ve gotten all the early adopters or the vast majority of them. We’re really deep into our eager treaters, and we’re really starting to bring in those new to DB and when you think about the sales force expansion, it’s not as much of a reach play. 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 a higher prescribing pattern right now. They’ve really adopted this in their practice.

The eager treaters are getting to that threshold and the new to DB, they’re just getting the feet wet. They’re just starting that early prescribing and they’re looking to get that second, third, eventually fifth, 10th 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 really make great progress in the early treaters and now that is new to DB, 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 have had and share that with the eager treaters and the new to DB. That’s been one of the most compelling things. Particularly when you go to conferences, you hear a personal experience of 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 it. I’m having great success. I’ve now implemented this across the practice, whether it be in my cataract patients or if it’s an optometrist. I’m starting to look in 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 DB doctor, in addition to our sales force. And then the third leg of that would be obviously the consumer. Empowering the consumer really does resonate coming in actively asking, right. It’s going to prompt the doctor to take a second look and think about, okay. Wait. Let me understand. Let me look at your list. Let me understand your history and symptomatology.

So, I think those are the waves we think about. The way I see this is, I think that we have made great progress so far and the sales force expansion and continued sharing stories of early adopters and then eventually a consumer effort is really what’s going to allow us to deepen the prescribing across all these segments.

Andrea Tan: Got it. Maybe one quick question, if I may. Just recognize it may be a bit early, but curious, if you’re hearing anything yet on retreatments.

Bobby Azamian: It’s still pretty early. We are starting to see this right. We’ve been several months in the launch, so you’re 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, we’re hearing some patients coming back for that second treatment. In some really rare one off cases, perhaps the doctors are 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 insights here, it’s probably going to be in early ’25 when we really start to see that volume.

Operator: Please hold for our next question. The next question comes from Telani Uthman [ph] with Goldman Sachs. Go ahead. Your line is open. Telani, are you there?

Bobby Azamian: Operator, I think, Telani works with Andrea.

Unidentified Analyst: I work under Andrea. Questions have been answered. Thank you. Great.

Operator: Thank you. Our next question will come from Tim Lugo with William Blair. Go ahead. The line is open.

Unidentified Analyst: This is Lachlan on for Tim. Congrats on the strong quarter. So, I was 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. 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 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 those that are not yet there?

Bobby Azamian: Sure. I’ll go ahead and start on the gross-to-net question and great question. Ultimately, just sort of realigning with what Aziz said earlier. We expect incremental growth as we get more of the commercial payers on. So small increases in gross-to-net yields 1% to 2% per quarter upwards, but it’ll get much closer to 50% once we cross the threshold with the Medicare patients in 2025. And as Aziz 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 ‘25.

Aziz Mottiwala: Yes. In terms of, the coverage scripts, 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. Those are obviously covered. The vast majority of those have been preferred. 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 medical necessity or exception. 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 of Part D really kicking in in 2025, I think then you’d start to see sort of the bridging product go away to a very minimal level.

I think that’s the way to think about it. 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.

Unidentified Analyst: Thanks. And I guess quickly on the sales force, should we expect any disruption as you add more reps in realign territories there?

Bobby Azamian: 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 launch is, we’ve got some great learnings from the launch. We’ve got some great insights from our sales force. We got great data. So, I think there’s a few things that work in our favor. One, the launch has gone well and the word’s gotten out. 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. 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. Sure, there’s always going to be a little disruption anytime you 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 time frame. And then lastly, we’ve got great learnings in terms of what resonates with the doctors in terms of messaging, et cetera. These reps are actually gonna 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. Like I said, I’m really pleased with the quality of people that we’re looking at.

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.

Operator: Thank you. One moment while we queue up our final question. This question comes from Corey Jubinville with Life Sci Capital. Go ahead. Your line is open.

Corey Jubinville: Congrats on the numbers and thanks for taking our question. You mentioned potential seasonality due to ECP practices, holidays, vacations, et cetera. Curious if you have any indication that there might also be seasonality in DB that might dictate sales similar to how there might be seasonality in the incidence or in severity of rosacea or allergies.

Aziz Mottiwala: Yes. It’s a good question, Corey. I think it’s still early to tell sort of market seasonality. What we can look at is other product proxies and that we see the impact of holidays when the doctors being out of the office. I think keeping in mind also that this is a, NRx product. The vast majority of the volume comes from NRx. 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 all the 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 under our belt to see if there’s any additional, seasonality that impacts it.

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 Q4s, tend to be a little bit better as people try to come in and get in before their deductible resets and then people are visiting the doctor a little bit more often. That’s not specific to XDEMVY or damaged blepharitis That’s something we see pretty much across the board.

Corey Jubinville: How should we think about R&D spend moving forward now that the Phase 2 studies for rosacea and Lyme are complete? I know we’re awaiting regulator feedback, but are you thinking about taking either of these programs into a Phase 2b or Phase 3 studies and curious if you could speak on how discussions around potential partnership opportunities have progressed so far?

Jeff Farrow: Hey, Corey. It’s Jeff. Yeah, I think for the R&D, we expect it 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. I’ll turn it over to Sesha for further discussion on the plans forward.

Sesha Neervannan: Thanks, Jeff. 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 2 trials. Once we have those analysis, our plan is to go to the agency by end of this year. The progress is, progressing really well. We are collecting all of the data and we’ll be pleased to report any progress as we move forward.

Operator: Thank you. I am showing no further questions at this time. Thank you for your participation in today’s conference. And this does conclude the program. You may now disconnect.