Tarsus Pharmaceuticals, riding high on the wave of their blockbuster Demodex blepharitis (DB) treatment XDEMVY, delivered another impressive quarter. Sales are soaring, new prescribers are piling on, and payer coverage is expanding. The company's future, as painted by management during their Q1 2024 earnings call, seems blindingly bright. Yet, hidden beneath the surface of these glowing pronouncements lies a subtle shift in strategy, one that could unlock even more explosive growth and send Tarsus' valuation skyrocketing.

The Clue? It's all about the "Mite Party."

No, this isn't some bizarre celebration of those microscopic creatures causing eyelid inflammation. "Mite Party" is the name of Tarsus' first direct-to-consumer advertising campaign, launched in Q1. On the surface, it seems like a logical next step. After all, XDEMVY is a category-creating drug. Public awareness of DB is low, and patient demand can be a powerful force in convincing doctors to prescribe new therapies.

But here's where things get interesting. Tarsus has been remarkably cautious about DTC advertising. They've repeatedly emphasized the need to build a solid base of prescribers and secure broad payer coverage before unleashing a full-blown consumer campaign. During the Q4 2023 call, DTC was still on the back burner, contingent on achieving significant progress with Medicare coverage in 2025.

Now, just three months later, the "Mite Party" is in full swing, and Tarsus is seriously contemplating a streaming TV campaign later this year. What changed? The answer lies in the numbers.

XDEMVY's Performance Exceeds Expectations

First, XDEMVY's commercial performance has exceeded all expectations. In just its second full quarter of launch, net product sales hit nearly $25 million, representing a staggering 90% increase over the previous quarter. More importantly, over 8,000 eye care professionals (ECPs) have already prescribed XDEMVY, representing over half of their target audience. This rapid uptake has given Tarsus confidence that they have a large enough base of prescribers to absorb a surge in patient demand driven by DTC advertising.

Payer Coverage is Rapidly Expanding

Second, payer coverage is rapidly falling into place. Since the last earnings call just a few months ago, Tarsus has secured contracts with two major commercial plans covering approximately 18 million lives, both of which have placed XDEMVY on preferred status. While broad commercial coverage is still expected by year-end, Medicare coverage remains a key driver of future profitability, and that goal remains on track for 2025.

Supercharging Growth with DTC

The implications of this strategic shift are significant. A successful DTC campaign could supercharge XDEMVY's growth trajectory. Currently, Tarsus is primarily reaching the 1.5 million patients already diagnosed with DB. But the vast majority of the estimated 7 million potential XDEMVY patients are undiagnosed, often seeking treatment for related conditions like dry eye disease.

A well-executed consumer campaign, particularly on streaming TV, could drive a surge in patient inquiries, forcing ECPs to more proactively diagnose DB and consider XDEMVY as a first-line treatment option.

Consider this:

Tarsus estimates that 80% of patients experiencing DB symptoms would seek out an ECP for diagnosis if they were aware of the condition. With over 25 million Americans suffering from dry eye disease, even a small percentage seeking DB diagnosis could translate to millions of new XDEMVY prescriptions. Assuming a conservative average net price of $500 per XDEMVY treatment, capturing just 10% of the undiagnosed DB market could generate over $3.5 billion in annual revenue.

XDEMVY Quarterly Net Product Sales (USD Million)

Tarsus' Pipeline Offers Further Upside

This is a conservative estimate. It doesn't factor in potential revenue from retreatment, international expansion, or growth in the already diagnosed DB patient population. Moreover, Tarsus' pipeline, with promising Phase 2 data in meibomian gland disease, rosacea, and Lyme disease prevention, offers further upside potential.

The Market is Starting to Recognize XDEMVY's Blockbuster Potential

The market is starting to recognize XDEMVY's blockbuster potential. Tarsus' stock has more than doubled since the beginning of the year, but their current valuation still reflects a significant discount to their long-term revenue potential. The "Mite Party" might just be the catalyst that sends their stock price soaring, leaving analysts scrambling to catch up.

"Fun Fact: Demodex mites are tiny, cigar-shaped creatures that live in hair follicles, including those on your eyelids. They are generally harmless, but an overabundance can lead to Demodex blepharitis."