Tarsus Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed August 11, 2022. Financial statements are unaudited. Tarsus is a clinical-stage biopharmaceutical company focused on therapeutics, initially in eye care. It had no product sales; reported revenue primarily reflects its China out-license of TP-03.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $15.3 million | $22.0 million | $15.8 million | $55.4 million |
| Research and development | $9.6 million | $7.2 million | $21.7 million | $23.5 million |
| General and administrative | $10.4 million | $6.8 million | $18.3 million | $12.0 million |
| Operating income (loss) | $(5.2) million | $7.3 million | $(24.7) million | $18.0 million |
| Net income (loss) | $(5.7) million | $6.3 million | $(26.0) million | $16.7 million |
| Net income (loss) per diluted share | $(0.24) | $0.29 | $(1.15) | $0.76 |
At June 30, 2022, cash and cash equivalents were $245.4 million, versus $171.3 million at December 31, 2021; there were no marketable securities and $0.2 million in long-term investments. Current assets were $250.3 million and current liabilities $11.7 million. Total liabilities were $31.3 million, including a $20.0 million gross term-loan balance ($19.3 million net of issuance costs and adjustments). Accumulated deficit was $72.7 million. The filing does not present a gross-margin percentage.
For the first six months, operating cash flow was $(19.5) million, investing cash flow $(0.3) million, and financing cash flow $93.9 million, resulting in a $74.0 million increase in cash. Financing was principally $74.6 million of net follow-on offering proceeds and a $20.0 million credit-facility draw. The company sold 5.89 million shares in the offering for $79.5 million gross and $74.3 million net proceeds.
Material changes versus comparable periods
- Q2 revenue declined $6.7 million year over year; first-half revenue declined $39.6 million. The comparison was affected by the timing and amount of China out-license revenue recognition, including $52.4 million of license fees in the first half of 2021 versus $13.9 million in 2022. These are not product sales.
- Q2 operating expenses increased $5.8 million, including higher R&D spending in preparation for the TP-03 NDA and higher G&A costs, including personnel and market research. First-half operating expenses increased $3.1 million; lower R&D expense versus 2021 reflected prior-year one-time in-license-related costs, partly offset by increased payroll, clinical, regulatory, and manufacturing costs.
- The company moved from net income to a net loss in both Q2 and the first half. Debt and interest expense began in 2022 following the February credit-facility draw. Share count also increased after the follow-on offering.
Business developments, outlook, and risks
- TP-03: Management reported positive topline results from the second pivotal Demodex blepharitis trial, Saturn-2, with all prespecified primary and secondary endpoints met and the treatment described as well tolerated. The company planned to use Saturn-1 and Saturn-2 data to support an NDA submission in the second half of 2022. The filing describes this as a plan, not a guarantee of submission or approval.
- Other programs: The first patient entered the Phase 2a MGD trial on August 5, 2022. TP-05’s Phase 1 Lyme disease-prevention study was ongoing, with data expected in the second half of 2022. TP-04 is being developed for rosacea.
- China out-license: Tarsus had received $70 million from LianBio through June 30, including a $15 million milestone received in June. Management expected a further $15 million in the second half of 2022, including $10 million tied to initiation of a China Phase 3 trial and a $5 million drug-supply agreement milestone. Additional development/regulatory milestones, sales milestones, and royalties are contingent on future events and sales.
- Runway: Management stated that cash on hand was expected to fund operations for at least 12 months from filing and, together with expected China milestone receipts, was projected to support planned development and expenses at least into 2026. This estimate depends on assumptions and may change. Management expects continued operating losses and negative operating cash flow; additional capital may be needed.
- Credit facility: The facility provides up to $175 million in conditional tranches. $20 million was drawn; interest is floating, and the reported rate at June 30 was 9.95%. The agreement includes covenants and a four-year interest-only period, with later principal amortization and potential extension subject to conditions. Availability depends on milestones, revenue thresholds, or lender approval.
- Key risks and contingencies: Clinical efficacy and safety, FDA and other regulatory approval, commercialization and market acceptance, competition, reliance on third parties, intellectual-property protection, hiring, and access to future financing remain material uncertainties. COVID-19 had not significantly disrupted operations to date, but future clinical or operational effects were uncertain. No material litigation was reported, and management disclosed no material changes to previously reported risk factors.
Important facts for investors to verify
- Whether and when the TP-03 NDA was submitted, and the FDA’s subsequent review and decision.
- Whether LianBio achieved the expected Phase 3 initiation and supply-agreement milestones, and whether anticipated milestone cash was received.
- Actual cash burn and runway versus management’s projections, including the effect of clinical, launch-preparation, and staffing costs.
- Credit-facility draw conditions, outstanding principal, effective borrowing cost, and compliance with covenants.
- Revenue-recognition timing for out-license milestones and the distinction between recognized revenue and cash receipts; Tarsus had no product sales.
- Potential dilution from equity awards and future financing; 26.6 million common shares were outstanding at June 30, and 26.7 million were reported outstanding as of August 5, 2022.