Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS) Q4 2023 Earnings Call Transcript

Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS) Q4 2023 Earnings Call Transcript February 27, 2024

Tarsus Pharmaceuticals, Inc. beats earnings expectations. Reported EPS is $-1.31, expectations were $-1.37. Tarsus Pharmaceuticals, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to Tarsus’s Fourth Quarter and Year-End 2023 Financial Results Conference Call. As a reminder, this call is being recorded. At this time, I would like to turn the call over to David Nakasone, Head of Investor Relations, to lead off the call. Please begin.

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; Sesha Neervannan, our Chief Operating Officer, and Jeff Farrow, our Chief Financial Officer and Chief Strategy Officer. I’d like to draw your attention to Slide 3, which contains our forward-looking statements. During this call, we will be making forward-looking language 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: Thank you, Dave. Good morning, everyone, and thank you for joining us on the call today. 2023 was the defining and foundational year for Tarsus, as we successfully started our next chapter as a commercial company. We made significant progress on several programs in our pipeline, and most importantly launched our first commercial product, XDEMVY, the first and only FDA approved treatment for demodex blepharitis. Since its launch in late August, we have seen tremendous demand in growing uptake of XDEMVY among eyecare professionals, or ECPs, and demodex blepharitis patients who have long awaited an effective treatment for this damaging and impactful eyelid disease. Today, I am pleased to report on the great progress made in XDEMV’s first full quarter in the marketplace as we continue to reach patients affected by this disease.

For the full year 2023, we reported nearly $15 million in net product sales and delivered more than 17,400 bottles of XDEMVY to patients. These are impressive early numbers, exceeding even our own expectations. Throughout the fourth quarter of 2023 and early weeks of 2024, XDEMVY has continued to solidify its place as an innovative category-creating therapeutic. Diagnosed patients with demodex blepharitis, or DB for short, have driven initial demand for XDEMVY, and we expect this to continue as we work to reach the 1.5 million patients in the US who were already diagnosed prior to the approval of XDEMVY. In parallel, we are seeing early signals that we are reaching the next wave of DB patients proactively visiting ECPs for complementary eye conditions such as dry eye disease, cataracts, and patients who struggle to maintain their use of contact lenses.

We estimate that these groups make up a significant portion of the more than 7 million patients currently visiting the ECPs who we aim to reach with XDEMVY, and we are already seeing increasing use across all these patient segments. This traction is attributed to the tremendous strides we’ve made with ECPs over the last couple of years. We’ve engaged with all of our 15,000 target ECPs. More than a third have written at least one dispense prescription, and more than half have become repeat prescribers who see the clear benefit of XDEMVY and are taking action to help their patients find relief. Just this past weekend, we met with many of the top surgeons at the American-European Congress of Ophthalmic Surgery, or AECOS for short, and we heard very consistent and positive feedback about their experiences with XDEMVY, and more importantly, the benefits their patients are experiencing.

Our focus for 2024 is serving more ECPs and more patients. We expect to accelerate XDEMVY’s reach by adding to the base of current prescribers, increasing the number of prolific writers, and working with payers to secure broad coverage. In fact, our improving gross-to-net underscores the strong traction we’ve already made with payers in just the first few months of launch. We are delivering on the high expectations we set for ourselves, and look forward to making even more progress throughout the year. I’m also proud of our continued pipeline progress as we work to bring more new categories of therapeutics to patients with meibomian gland disease, rosacea, and Lyme disease prevention. Finally, I would like to thank all (Tarsuns) for their incredible contributions, relentless execution, and passion for serving patient needs.

Together, we look forward to serving countless more patients and advancing additional category-creating medicines. And with that, I will turn the call over to our Chief Commercial Officer, Aziz Mottiwala, for more on the strong launch of XDEMVY.

Aziz Mottiwala: Thanks, Bobby. As I said last quarter, the response to XDEMVY has been truly remarkable, and the results we’re seeing so far demonstrate that our unique strategy and executional strengths are delivering exactly as planned. It’s clear from our results that the launch of XDEMVY is off to a tremendous start. During the first months of launch, we have served a significant number of patients with DB, engaged and educated a broad foundation of prescribing ECPs, and made significant early progress with payers. We’ve noted from the beginning that creating the next category in eyecare takes time and requires teams to educate providers, not only on the strengths of XDEMVY, but also on the disease itself. As such, high impact disease education campaigns and ECP engagement have been among the key pillars to our success, and we’re beginning to see the initial waves of ECP adoption, leading to growing prescription volumes and meaningful patient outcomes.

Prior to approval, we launched action-oriented, visually-focused physician and patient education campaigns to familiarize both groups with the impacts of DB and reinforce the simplicity and ease of diagnosis. We’ve also kept ECPs engaged through active peer-to-peer scientific exchanges conducted by our all-optometrist medical force. Clearly, these efforts are paying off. As of February 23rd, approximately 6,000 ECPs have started patients on XDEMVY, and more than half are repeat prescribers. As a result, more than 17,400 bottles have been delivered to patients in 2023. We’re thrilled with these results and the impact we’re having on patients. We’ve also learned a lot, and we’re leveraging these insights to further optimize our sale strategy, particularly when it comes to transforming the next wave of ECPs into routine and repeat prescribers.

While we continue to call on existing writers, we are shifting gears with the focus on reaching the next group of ECPs who are familiar with DB and ready for a solution that may need a little more experience with XDEMVY before becoming routine writers. Based on our experience, this behavior shift often requires multiple visits by our sales force. Our goal is to make XDEMVY a regular part of ECP clinical practices, and we found that this usually happens after prescribers write five to 10 prescriptions and see the positive impact of XDEMVY on their patients. This threshold is not only important because they become frequent writers, they also become more confident and look more proactively across all the patient segments for additional DB patients that can be helped by XDEMVY.

Our most recent market research indicates that 75% of ECPs plan to more proactively look for and diagnose DB, and 90% of those that have prescribed XDEMVY, expect to write more, given their positive experience with this medicine. These numbers are powerful and reflect the strong potential growth opportunity ahead. So, while having the next 6,000 target ECPs prescribed may take more time and effort on the part of our sales team, we have great confidence in our ability to convert this next wave of ECPs to proactive prescribers. In addition to the tremendous strides we’ve made in reaching ECPs and their patients, we’ve also had great success with payers. I’m pleased to report that we have secured several payer contracts since our last earnings call, including a major commercial plan with more than 19 million covered lives that has put XDEMVY on preferred status.

We should begin to see the benefits of this coverage in the first quarter of 2024. In the meantime, and due to the clear value proposition of XDEMVY, we continue to see initial non-contracted coverage that resulted in better than expected gross-to-net discounts of 58%. The substantial improvement in gross-to-net discounts is based on our differentiated approach to distribution and patient access, and all the work we’ve done over the past couple of years and will continue to do with payers. Before I turn the call over to Sesha, I would like to take this opportunity to express how proud I am of our commercial organization. This is a team that was strategically and thoughtfully assembled based on their expertise in eyecare and successful new product launch experience, and they’ve executed exceptionally, and we are setting a new standard in product launches.

I’ll now turn the call over to Sesha Neervannan, our Chief Operating Officer, who also leads our research and development, to cover the progress we’re making on our clinical programs. Sesha?

Sesha Neervannan: Thank you, Aziz. I’m pleased to share that we have made significant progress across our entire clinical portfolio since our last earnings call, reporting three very positive top-line data sets for all our Phase 2 programs. These data highlight the potential of TP-03 in meibomian gland disease, TP-04 in papulopustular rosacea, and TP-05 for the prevention of Lyme disease. All three product candidates target high unmet needs and are based on lotilaner, the same active ingredient found in XDEMVY. And like XDEMVY, all three target the underlying cause of disease. In December 2023, we announced topline results from the Ersa Phase 2a clinical trial evaluating TP-03 for the treatment of meibomian gland disease, or MGD, in patients with demodex mites.

TP-03 demonstrated statistically significant and clinically meaningful improvements compared to baseline in two objective measures of disease. One, the presence and quality of liquid secretion as measured by the Meibomian gland secretion score. Two, the number of glands secreting normal or clear liquid as measured in the central 15 glands of the lower eyelid, and the treatment was well tolerated. Much like XDEMVY for DB, these data demonstrate the immense potential of TP-03 in addressing the underlying cause of MGD, a disease that can lead to permanent changes in the tear film and progressive gland loss. We plan to present the complete data set from this trial at a major medical meeting later this year, and look forward to discussions with the FDA before the end of the year regarding the path forward for TP-03 in MGD.

As you may have seen in this morning’s earnings release, we announced positive topline results from the Phase 2a Galatea trial evaluating TP-04 for the treatment of papulopustular rosacea, or PPR. TP-04 is a topical aqueous gel formulation of lotilaner in development for the potential treatment of PPR, a chronic skin disease characterized by facial redness, inflammatory lesions, burning, and stain. TP-04 is designed to potentially treat PPR by eradicating demodex mites, which may play a key role in triggering inflammatory responses associated with the disease. In the Galatea trial, statistically significant improvements in inflammatory lesions and IGS score were observed at week 12 compared to vehicle. These are well-established regulatory endpoints for PPR, and the data also show that TP-04 was generally well tolerated.

The next steps for TP-04 will be complete data analysis and a potential meeting with the FDA by the end of the year to determine a path forward. The last of the three studies, but certainly not the least, last week, we reported results from the Phase 2a Carpo trial for TP-05 for Lyme disease prevention. As a reminder, TP-05 is an oral tablet designed to be an on-demand solution for prevention of Lyme disease. It is believed to be the only non-vaccine drug-based preventative therapeutic in development that targets and kills infected ticks before they can transmit the borrelia bacteria that causes Lyme disease. Results from the Carpo trial demonstrated statistically significant benefit in killing attached soil ticks versus placebo within 24 hours at both day one and day 30 after a single dose.

No significant differences were observed between the high and low dose groups, and the TP-05 was generally well tolerated. These data demonstrate that TP-05 has the potential to provide both rapid and durable protection against multiple tick-borne diseases. We plan to report the full data set from this trial later in 2024, and look forward to providing updates on our conversations with the FDA regarding the regulatory path forward. In parallel with the incredible success we’ve had with XDEMVY, we’re also advancing a clinical pipeline that we believe has the potential to deliver even more category-creating medicines, and we look forward to additional catalysts later in the year. Lastly, I would like to take a minute to thank all the investigators and patients who made these studies successful.

With that, I’ll turn the call over to Jeff to discuss the financial results.

Jeff Farrow: Thank you, Sesha. In 2023, we made great progress on our goal to further strengthen our financial foundation in support of our strategic priorities. Our fourth quarter and full-year results reflect our ability to generate meaningful revenue while continuing to advance our pipeline of innovative therapeutics, and I’m proud to report that we generated fourth quarter XDEMVY net product sales of approximately $13.1 million and full-year 2023 product sales of approximately $14.7 million. As a reminder, we recognize revenue when we ship XDEMVY from our warehouse to the distributors, not on bottles received by patients. As mentioned earlier, sales for the year were driven by the thousands of ECPs who have started their patients on XDEMVY to more than 17,400 bottles that were delivered to patients, and better-than-expected gross-to-net discounts of approximately 58%.

As stated, 2024 is off to a strong start. We are pleased with the increasing number of bottles dispensed thus far, and we have secured several payer contracts since our last earnings call, including, as Aziz noted, a major commercial plan with more than 19 million covered lives, and we remain on track for broad commercial coverage by the end of the year, and Medicare coverage beginning in 2025. To be clear, the benefits of this new major commercial plan are not reflected in the fourth quarter numbers we are reporting today. As many of you are likely aware, signing a contract with a payer does not have an immediate impact, and it can take time for coverage to be reflected in the gross-to-nets. So, we expect to begin recognizing the benefits of these contracts in the first quarter of 2024.

I also want to note that while the gross-to-net discounts we’re reporting today is very strong, this improvement is primarily due to an increase in the non-contracted coverage we saw in the fourth quarter. Remember, payers have the ability to make changes that could impact gross-to-nets in future quarters until we secure these additional payer contracts. This could include increasing copays or co-insurance, which could result in greater bridging and higher gross-to-net discounts. Further, we expect to see the typical first quarter dynamics on scripts and net sales, including higher patient out-of-pocket costs due to the planned resetting of deductibles, the Medicare coverage gap, both of which would increase the gross-to-net discounts, the impact of the holidays, winter storms across the country, and the out-of-office impact of medical conferences, as well as other potential patient dynamics, all three of which could impact script numbers.

As such, we expect gross-to-net discounts to be flat to slightly higher in the first quarter, and then improving to our expected steady state of 50% in 2025. Turning to our P&L, our total operating expenses were approximately $57.5 million, and $160.6 million for the fourth quarter and full-year 2023, respectively. The increase in operating expenses quarter-over-quarter and year-over-year was primarily driven by increases in selling, general, and administration 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 fourth quarter were 91%, which includes the royalties that we pay to Elanco. Looking at Q1, we expect total operating expenses to be in line with the fourth quarter of 2023.

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

Bobby Azamian: Thank you, Jeff. Looking at the progress we’ve made within our pipeline and in the early months of launch, I remain confident about Tarsus’s ability to become a leading eyecare company, and we look forward to keeping you updated as we continue executing on an already successful launch trajectory. Operator, please open the line for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from François Brisebois with Oppenheimer. Your line is open.

François Brisebois: Hey, thanks, guys, for taking the questions and congrats on a very nice full quarter here. Just in terms of a couple of questions, and thanks, Jeff, for the clarity on the gross-net. Very helpful. Is there any possibility here that your peak 50% gross-to-net can end up being better, or are we sticking to that? And this is kind of more of an effect of a non-contracted plans with the gross-to-nets here?

Bobby Azamian: Thank you, Frank. This is Bobby. I’m just going to reflect for a moment sitting here with the team at this early point in our launch about a couple of things I’m really proud of, and then pass it to Jeff. Just to reiterate, first and foremost, what an excellent first quarter serving our patients, doctors, payers, as you know, and generating revenues. And all of these, as you’ve seen, are above target and signify the large impact that we anticipate with XDEMVY, and really the category-creating commercial leadership that we’re pioneering in eye care. Secondly, I’m really proud that we can create additional categories through our now demonstrated ability to deliver other new medicines. Three positive Phase 2a readouts in the last three months. And I think all this signifies a very bright future for Tarsus for both XDEMVY and our future products, en route to becoming an eyecare leader. So, with that I’ll pass to you Jeff to answer Frank’s question.

Jeff Farrow: Right. Thanks Bobby, and good morning, Frank. It’s early days yet. I think we’re cutting a new pathway here with XDEMVY, and we don’t really have a strong analog we can point to. So, I think we continue to guide to a ultimate steady state gross-to-net of around 50% at this point. As time goes on and we print a few more quarters, we might adjust that, but at this point, I think it’s appropriate to keep it at that 50% gross-to-net.

François Brisebois: Great. And then just maybe a question on patients coming back, and I’m just wondering – obviously, some prescribers are going to want to see how this works with their patients, and any feedback there that you’re getting in terms of patients coming back, just to make sure everyone stays confident here that this isn’t kind of a bullish start and these prescribers will keep going, and just any anecdotal feedback of patients coming back for a checkup after having XDEMVY.

Aziz Mottiwala: Hey, Frank, it’s Aziz. Thanks for that additional question. I’ll tell you that one of the most exciting parts of this launch is hearing that feedback from doctors and patients. Almost every single prescriber we talk to has had a extremely positive experience. So, you’re seeing physicians bring patients back mid-treatment, at the end of treatment, and almost universally you’re hearing vast improvements in these patients, positive feedback. I think that’s actually one of the reasons we’ve been able to penetrate 40% of the prescriber base so quickly is that these doctors are hearing from their colleagues how great things are working. So, I think this is going to continue to be a strength for us going forward. The drug doesn’t disappoint.

Feedback is positive, and I think doctors are really taken aback by how impactful this has been on their patients. And I think ultimately what happens is it potentiates the physicians to think about additional patients in the practice. So, you’re starting to see them more proactively diagnosed, moving on beyond just the typical demodex blepharitis patient, but thinking about potentially their recalcitrant dry eye patient, their cataract surgery patient, or someone that can’t stay in their contact lenses. So, I think it’s really two things that we’re seeing there. One is positive experiences leading to additional uptake, and two, really broadening the funnel in terms of how doctors think about the patient base.

François Brisebois: Okay, great. And then Bobby, I think in your remarks you talked about the team just being in Europe for the conference. Can you just help us understand the thought process of XDEMVY’s potential, US versus ex-US?

Bobby Azamian: Yes, thanks, Frank. To be clear, the conference I was referring to was called AECOS. It’s the American-European Congress of Surgeons. It’s actually held here and in Europe. So, we were at the one here, but it’s a good question about Europe, and I’ll pass to Sesha to talk about some of the regulatory and opportunities there, and then also Jeff to talk about some of the broader strategic potential there.

Sesha Neervannan: Thanks, Bobby. Hey, Frank, Sesha here. Yes, with respect to Europe, we are proceeding with our plans to develop a product, preservative-free product for Europe. As you know, Europe is very big on preservative-free medicines and really prefer that over preserved products. So, we are developing a preservative-free medicine. And in parallel, we are also in the process of seeking input from the European Medicines Agency for a pathway for regulatory filing and approval. And hopefully, we’ll be able to report on that later in the year. And Jeff, you want to address the other part?

Jeff Farrow: Sure, yes. So, we, Frank, are in the process of doing a study that looks at both pricing and launch strategy over in Europe. I think right now, it’s a little early to make a ultimate decision on which pathway we’re going. We’re exploring all opportunities, whether it be a build it ourselves, distributor relationship, or licensing. So, that’ll be probably something we’ll update to later during the year.

François Brisebois: Okay, great. Well, thank you and congrats, guys, on a great start here. Thanks.

Operator: One moment for our next question. Our next question comes from Andrea Tan with Goldman Sachs. Your line is open.

Unidentified Analyst: Hi, this is (Jelani) on for Andrea. Congrats on the quarter, and thanks for taking the questions. First here, what’s your – if you could describe your level of confidence that the ramps seen to date with XDEMVY can continue as the prescriber education goes on and more patients are treated. And then related to that, could you characterize the level of inventory stocking for 4Q?

Aziz Mottiwala: Yes, I’ll start with the ramp, and I think as I mentioned earlier, we’ve been really pleased. I think the key things here are, one, the penetration into the ECP market, right, we’ve got 6,000 prescribers already writing this product. We’re seeing a very high repeat prescriber rate of over 50%, and that’s only in six months. And I think that’s really remarkable. I’ve been doing this for a long time, and to get to that level of penetration in just a few short months really speaks to the impact XDEMVY has on patients and also the need in the marketplace that’s there longer term. I think secondly, we’ve made great progress of payers, and I think as we continue to do that, that’ll also enhance the uptake as we have consistency and depth in our payer coverage.

And then I think lastly, as I mentioned in the earlier question, the feedback here is really remarkable. I think that we’re seeing a lot of additional support as doctors are on podium at these conferences, sharing the before and afters, the impact it’s having on patients. We actually had to update our website to let doctors upload their before and after pictures because they’re so excited about the results they’re seeing. So, I think we remain very confident in the continued progress that we’re going to make in the launch. With that said, we mentioned in the opening comments that 6,000 doctors are really remarkable number. Getting to the next 6,000, it’s going to take additional work, right? We’ve gotten through sort of the early adopters. So, the next wave is going to take a little bit more work.

The sales force is out there hitting the pavement. So, I think we’re going to continue to make that progress, but it’s definitely going to take continued efforts and consistency in those efforts to have that come to fruition. And I’ll let Jeff speak to the other part of the question there.

Jeff Farrow: Thanks, Aziz. And good morning, (Jelani). On the inventory, much like any manufacturer, there’s always going to be a certain amount of inventory in the channel, be it, in our case, at the pharmacies. We’ve contractually limited the amount of inventory that these pharmacies can hold to between two to three weeks. And I would just say that we are within that contractual period. If there is any sort of event that causes us to sort of go outside of that realm, we’ll certainly highlight it because it could impact the following quarter, but at this point, we’re within that that range.

Unidentified Analyst: Perfect. Thank you both. Really helpful. And then second question here, on the back of the Lyme disease and rosacea data, I believe you touched on it earlier, but if you could just reiterate the next steps and then how you’re thinking about strategic options regarding partnering versus (indiscernible) externally. And lastly, if you could share details again around the commercial opportunity.

Sesha Neervannan: Thanks, Andrea, for the question. This is Sesha again. Yes. First, let me highlight again the data from the Carpo trial. It’s a remarkable data to see. This is a very unique trial where we attach sterile ticks to healthy volunteers to look for tick kill, which is our appropriate mechanism of action for preventing Lyme disease with our drug. And then the data, we are really, really pleased with the data. And to see that ticks killed within 24 hours before it has a chance to prevent Lyme disease, is a very important component. Our plan is to continue to complete our analysis from this trial and take it to the FDA later this year and explore a pathway for additional studies in this particular indication. And it’s too early to predict how those studies are going to go, but we’ll have a chance – once we have a chance to talk to them, we’ll be happy to report that. And then I’ll pass it on to Jeff for the partnering question that you have.

Jeff Farrow: Sure. Thanks, Sesha. So, as Sesha mentioned, we’re going to be developing TPPs for both of these products, and we’ll have some discussions with the agency. What’s interesting about rosacea is the eyecare professionals have been expressing quite a bit of interest in this program. They see rosacea in their patients, and they want to ultimately treat that if they have an opportunity to. So, we’re going to explore that from a market research opportunity and see if there’s a opportunity to potentially drop this into our sales reps bag, and then potentially the derm indication could be partnered with maybe a derm company. On the Lyme program, we are really excited about this program. I mean, the data is pretty profound.

I think what we would like to do is also have some discussions with the agencies and then potentially talk with some partners about a pathway forward. It is a likely large clinical study, ultimately as a pivotal study. And the call point will likely be sort of a general practitioner. So, we would probably partner that one out either following this program readout or potentially we might do a smaller Phase 2b data if we think there’s a good return on investment there.

Unidentified Analyst: Great. Thank you so much. Congrats again.

Operator: One moment for our next question. Our next question comes from Jason Gerberry with Bank of America. Your line is open.

Jason Gerberry: Hey, guys, good morning. Thanks for taking my questions and congrats on all the progress here. So, a couple for me. Just would love to get your comment on this sort of early adopter 6,000 prescribers, how that nets out between optometrist and ophthalmologist and early observations from the field in terms of whether you’ve got a right-sized field force to go after the next kind of leg of prescribers, or if you feel like there may be a need down the line to increase the size of the field force. And then ultimately, given the massive prevalence, is there a revenue threshold that you get to that a DTC advertising campaign to either patients or providers is something that you can justify and make sense? Thanks.

Aziz Mottiwala: Hey, Jason, it’s Aziz. Thanks for those questions. I think first off, when we think about the uptake, as we mentioned, we’ve been really pleased with how things are going. The sales force has done a remarkable job here. And I think the 85 territories we have was absolutely suitable for the 15,000 targets that we’ve had, right? And when you think about how we reach those doctors, the 6,000 is roughly 60% optometrists, 40% ophthalmologists, but we’re seeing great uptake in utilization across both those segments. I think as we look at going forward, one thing we have seen is that there’s a high degree of promotional sensitivity, which makes sense. When we’re making calls, doctors are more proactive about seeing things here.

And as we think about converting the next wave of adopters, we certainly do think about things like sales force expansion, primarily focused on frequency. Can we see these doctors more often accelerate that change in behavior and create more deep adoption among these doctors, including having them think about additional patient types. So, it is something we’re contemplating. I think that’s something if we continue the momentum we have, we could do sooner than later. But it’s something that we’ll be really rigorous and disciplined in how we approach. I think same thing applies here in terms of direct-to-consumer. I think it’s less of a revenue threshold to your point. I think it’s a little bit more around, do we continue to see the level of physician adoption?

Do we have enough doctors out there that would provide a “landing pad” for these patients if we drive them in? And then the second factor we really think about is continued progress and coverage and gross-to-net so that we’re able to drive the highest value for those incremental patients we’re driving through a campaign. And I would also say that we think about those things sequentially, right? You can think about a sales force expansion to really help broaden that adoption in parallel with coverage going. And then when you have a great base both on prescribers as well as gross-to-net, then you’d layer in a more assertive direct-to-consumer campaign to educate and drive patients in. So, really good point in terms of how we think about those levers, and I think we’re contemplating both of those in the not-too-distant future.

Bobby Azamian: And Jason, can I just add to that? This is Bobby. We’re in the field every month as a team. I mean, I’m personally in the field every month with the team, and it is been really striking, the waves of adoption that Aziz alluded to. We’re certainly seeing some of those folks that are still being educated about DB and take a few visits from the sales force. But more and more, we’re seeing doctors that have had great experience with XDEMVY and are thinking about other patients in their practice. We’ve even heard doctors thinking about family members and treating them. There’s such a strong response to this medicine, and we’re seeing really no shortage of uptake by the ECPs. So, I just want to reiterate that. And as Aziz mentioned, this is very promotionally-sensitive.

So, that would – with the strategy that that we’ve implemented commercially, that would be the rationale for potential expansion to really bring doctors along that journey more rapidly in the future.

Jason Gerberry: If I could squeeze a pipeline question in, with Lyme, the update there, just curious, now that you’ve got this initial data, do you think that there’s a stronger argument now for a pathway that’s different than the Valor study that Pfizer is running, which is nearly a 10,000 patient study, given that you seem to have demonstrated being able to deliver something that’s more on demand with maybe a faster clinical proof point? So, just curious. I mean, obviously, don’t want to front-run your FDA interactions here, but just your thoughts. It seems like probably a key swing point perhaps in how you can partner and secure value for the asset.

Sesha Neervannan: Thanks, Jason. Sesha again here. Yes, we’re really pleased with the results that we saw, as I mentioned earlier. And the FDA hasn’t – we haven’t taken this to the FDA obviously, but our hope is that the FDA views this data favorably as well. And as far as the comparison to the Lyme disease – sorry, the vaccine, the vaccine is a very different approach compared to what we have. As you know, we have a tick-kill mechanism, whereas vaccine targets the actual bacteria that causes Lyme disease and is very specific for the strains of those bacterias, whereas we are not. And so, the mechanism is inherently different and the way we approach it is very different. It’s early to speculate how the FDA will view our data.

This is a brand-new mechanism. So, this is something that they have to absorb and understand as well. And we do hope to negotiate a trial that can effectively assess the Lyme prevention through this mechanism, but it’s too early to tell exactly how we will – how that will go, and we’ll certainly keep that in mind when we talk to them.

Jason Gerberry: Got it. Thank you, guys.

Operator: One moment for our next question. Our next question comes from Oren Livnat with H.C. Wainwright. Your line is open.

Oren Livnat: Thanks for taking the question. I was hoping we could just talk a little bit more about gross-to-nets. After the 3Q calls in November, you told us to be cautious going forward on gross-to-nets and/or volume, I guess, given some expected maybe unbudgeted pushback from payers, given the early uptake. And clearly, you dramatically outperformed that, improving meaningfully quarter-over-quarter. So, can you just help us just better understand, I guess, how was that happening? Is this just due to persistence of docs getting through prior auths and getting, I guess, essentially full coverage for some mix of this product balanced out with bridging volume? Or is there something different going on behind the scenes that we don’t understand? And I have a follow up. Thanks.

Aziz Mottiwala: Hey, Oren, thanks for the question. Yes, I think what you’re seeing here is a real uptick in non-contracted coverage. And I think this is due to a couple of things, right? One is, we’ve been working with the payers for quite some time, right? We’ve initiated our engagement with them while in advance of launch, with disease education and obviously post-approval, really sharing the value proposition that XDEMVY brings. I think the other part of this is our really unique distribution network. That network really optimizes coverage for patients. We’ve obviously streamlined the process for Pas, appeals, what have you, for the physician’s office. And I think that has allowed us to maximize this opportunity. I think as Jeff mentioned in the opening comments, it is something that want to keep an eye on in terms of headwinds because when you have non-contracted coverage, of course those policies can change at any given time.

And that’s really what motivates us to continue to secure contracts, and we’re making great progress there. We remain confident in our ability to get the vast majority commercial lives covered by the end of this year in 2024. And you see the progress there with the win that we mentioned earlier. And then Part D would kick in in early 2025. So, we’re continuing to make progress there. The way to think about that is, that progress is to really solidify and secure where we are. And I think the other point is, we’ve obviously made great strides and we have better than expected gross-to-nets, but getting to that 50% threshold that Jeff mentioned earlier, that next step up is going to take a lot of work and that’s going to take those contracts coming into place.

So, that’s where our focus is now, is securing those contracts, securing the long-term value potential. But again, we’re really pleased with starting from a great point and the progress we’ve made so far.

Oren Livnat: Okay. And I know it’s really early, but you’ve talked about physicians having a lot of positive experience, and I guess has that already translated to an understanding of durability of response? I mean, for the early – I guess, earliest patients who might have been on drug for a while, are we seeing them having, I guess, six months efficacy so to speak, or something approaching that? Or are they already coming back for repeat treatments? And if there are refills or re-treatments, how is that as far as you know, being treated by insurance? Is it any different than the first script? Is there more resistance to a refill, so to speak, and how is that being contemplated in your contracting efforts? Thanks.

Aziz Mottiwala: Yes, so it is still very early, right? We’re just six months into the launch, so we wouldn’t anticipate a lot of re-treatments, right? I think what we’ve said historically is that we’d anticipate to really start – to see that start kicking in in 2025 when you’ve got a large bolus of patients that have been treated and then would be coming back in. If you really think about it, even if a patient started six months ago, they probably haven’t come back in for their follow-on visit, right, or their annual exam. So, I think that’s something that we’d see later on down the line. With that said, we do see some exceptional cases where the doctors have had patients come in, had a great response, want to keep them on therapy.

But I’d say that’s more the exception than the rule, and I think it’s something we’d watch over time. In terms of how we view that from the payer perspective, that is something that we’ve contemplated into our planning and discussions with payers. But again, this is something that will really be a phenomena we’d see a little bit more meaningfully in 2025. And of course, the contracts that we’re working on now would account for that in the go forward thinking.

Oren Livnat: All right, thanks and congrats on the great early performance.

Operator: One moment for our next question. Our next question comes from Balaji Prasad with Barclays. Your line is open.

Balaji Prasad: Hi. Good morning and congrats again. So, it’s great to see the pipeline progress, and what I seem to heard from your comments till now is that most of the progress in the pipeline is dependent on FDA meetings, which are anticipated towards the end of the year. So, can you kind of tie up these three phase three data points that’ve seen recently, and take us through the next milestones that we need to await with each of this? Secondly, can you also comment around the business development environment you’re seeing with both front and back OFI opportunities? What kind of – how competitive are these discussions and how reasonable are the valuation expectations in this space, and what should we be expecting from you towards the year in terms of BD? Thanks.

Sesha Neervannan: Thanks, Balaji. This is Sesha. I’ll address the first part with respect to the pipeline. Yes, you’re correct. I think all three of our programs, the next steps is really to complete the analysis from these studies where we’ve just issued top-line and then look at the pathways and discuss the pathways with the agency. Beyond that, these are actually three very different programs. The pathways are slightly different. The indications are obviously different. So, they all take a different flavor. But it’s – the theme is that we are treating the underlying cause. We are showing the mechanism of eradicating the underlying root cause of all of these diseases. And it’s really going to be a discussion with the FDA based on these trials and how we want to contemplate taking it forward.

It’s going to be a discussion that it’s too early for me to predict how it’ll go, but the next steps clearly is on a development pathway because these are somewhat different pathways for each of these programs.

Bobby Azamian: Yes. And this is Bobby. On the BD question, thanks for asking that, Balaji. As we’ve mentioned, we see our expertise really in two areas at this point. One is creating new categories with really successful and focused development efforts. And the second is actually pioneering a new category commercially. And so, when we look at BD, we really think about those two capabilities that we believe we have in strength. And so, as you mentioned, we are looking actively at front of the eye opportunities. We’re going to be diligent and patient there. We are really seeking things that could satisfy those two aims, creating new categories and new indications where we can serve patients that haven’t really been served before in the front of the eye.

And also, now we have a leading sales force, and they’re calling on 15,000 ECPs. So, we’d like to find additional medicines that we can serve those ECPs and patients with. Over time, we do expect to look beyond the front of the eye, and I think the back of the eye and even some adjacencies to areas of expertise would be areas over the course of years that we would expect to look at. And we see in the front of the eye, a lot of promising assets out there, but we are going to be taking our time, and we’re very mindful of our focus and our balance sheet at this point in time.

Operator: One moment for our next question. Our next question comes from Corey Jubinville with Life Sci Capital. Your line is open.