Tarsus Pharmaceuticals, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited interim financial statements. Tarsus is a biopharmaceutical company preparing to commercialize its lead eye-care product while continuing clinical development of other candidates.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| License and collaboration revenue | $0 | $15.3 million | $2.5 million | $15.8 million |
| Research and development expense | $12.5 million | $9.6 million | $24.9 million | $21.7 million |
| General and administrative expense | $20.3 million | $10.4 million | $35.4 million | $18.3 million |
| Operating loss | $32.8 million | $5.2 million | $57.8 million | $24.7 million |
| Net loss | $31.4 million | $5.7 million | $54.8 million | $26.0 million |
| Basic and diluted loss per share | $1.17 | $0.24 | $2.05 | $1.15 |
| Cash used in operating activities | — | — | $45.8 million | $19.5 million |
No product sales had been generated by June 30. Revenue came from the China out-license with LianBio; the $2.5 million recognized in the first half related to a milestone. Gross margin is not meaningful given the absence of product sales.
Balance sheet and liquidity
- At June 30, cash and cash equivalents were $106.8 million and marketable securities were $71.5 million, totaling $178.2 million. Current assets were $183.5 million and current liabilities $14.8 million.
- Term-loan principal was $25.0 million; the balance-sheet carrying value, net of unamortized costs and adjustments, was $24.6 million. The facility matures February 2027 and bears interest at the greater of 8.45% or prime plus 4.45%, capped at 11.45%.
- For the first half, investing activities provided $75.4 million, primarily from investment maturities; financing activities provided $5.5 million, including a $5.0 million loan draw. Cash increased by $35.1 million to $106.8 million.
- After quarter-end, the company completed an August 2023 stock offering of 5.7 million shares for approximately $93.6 million in net proceeds; underwriters also received a 30-day option for up to 857,142 additional shares.
- Management estimated existing resources would fund planned operations for at least 12 months from the filing date, based on assumptions about expenses, revenue and debt availability. The company warned that additional capital may be needed.
Changes versus prior comparable periods
- Q2 net loss increased to $31.4 million from $5.7 million, chiefly because the prior-year quarter included $15.3 million of China out-license revenue while Q2 2023 had none, alongside higher operating expenses.
- First-half net loss more than doubled to $54.8 million from $26.0 million. Revenue declined by $13.3 million, while operating expenses rose by $19.7 million.
- First-half R&D expense increased $3.2 million, including higher personnel costs, TP-05 trial spending and a $1.0 million Elanco clinical milestone; lower TP-03 and TP-04 external costs partly offset increases.
- First-half G&A expense increased $17.0 million, reflecting commercialization preparation, staffing and market research, plus $0.9 million of former CFO separation costs.
- First-half operating cash use increased to $45.8 million from $19.5 million, as payroll and vendor spending expanded and prior-year cash receipts included China-license proceeds.
Outlook, significant developments and risks
- The FDA approved XDEMVY (lotilaner ophthalmic solution 0.25%) on July 24, 2023, after quarter-end, for Demodex blepharitis. The company described it as the first and only FDA-approved treatment for the condition.
- Management expected its 85-person sales force to be deployed by the end of August 2023 and product availability around that time. It expected sequential commercial coverage during 2024 and Medicare coverage in 2025; these are expectations, not assured outcomes.
- Management expected topline results from the TP-03 MGD Ersa trial in the second half of 2023, TP-05 Lyme disease Carpo trial in the second half of 2023, and TP-04 rosacea Galatea trial in the first half of 2024.
- The company expects continued operating losses and higher expenses as it launches XDEMVY and advances its pipeline. Commercial adoption, payer access, pricing, product supply, clinical and regulatory outcomes, and the ability to obtain further financing are key uncertainties.
- The credit facility had $130 million of potential remaining tranche availability as of June 30, subject to conditions, including revenue thresholds and lender approval. Some tranches had draw deadlines. Debt availability should not be treated as committed cash without confirming conditions.
- Additional China-license payments depend on milestones and sales. The company reported $82.5 million received through June 30 and described potential further regulatory, sales-threshold and royalty consideration; timing and receipt depend on future events.
- No material legal proceedings were reported. Management said disclosure controls were effective and there were no material changes in internal control over financial reporting.
Important facts for investors to verify
- Commercial launch progress: actual availability, prescriptions, sales, payer coverage, pricing and patient access for XDEMVY.
- Updated cash runway and operating cash burn after the August offering, including actual use and availability of credit-facility tranches.
- Upcoming trial readouts and any changes to the stated timelines for Ersa, Carpo and Galatea.
- Progress and timing of LianBio milestones, China commercialization and any resulting royalties or other payments.
- Debt interest costs, tranche deadlines and conditions, as well as dilution from the offering and outstanding equity awards.