Tarsus Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; unaudited. Dollar amounts are in millions except per-share data. Tarsus is a late clinical-stage biopharmaceutical company with no approved products and no revenue.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $7.99 | $0.40 | $11.24 | $2.47 |
| General and administrative expense | $2.15 | $0.23 | $4.28 | $0.75 |
| Total operating expenses | $10.14 | $0.63 | $15.52 | $3.21 |
| Net loss | $10.14 | $0.68 | $15.34 | $3.26 |
| Net loss per share, basic and diluted | $3.71 | $0.28 | $5.73 | $1.41 |
Profit margins are not meaningful because the company had no revenue. R&D accounted for most operating costs; the filing reports no product sales or other revenue.
- Cash and cash equivalents: $86.33 at September 30, 2020, compared with $57.95 at December 31, 2019. Restricted cash was $0.02.
- Cash flows, nine months: $11.13 used in operations and $0.51 used in investing, offset by $40.01 provided by financing; cash, cash equivalents and restricted cash increased by $28.38.
- Balance sheet: Total assets were $92.19; total liabilities were $6.86. Current assets of $89.07 compared with current liabilities of $6.14.
- Debt and other obligations: The $2.0 million of 2019 convertible notes had been converted to Series B preferred stock in December 2019; none remained outstanding at September 30, 2020. Operating lease liabilities totaled $0.82, including imputed interest.
Material changes and significant transactions
- Year-to-date net loss increased to $15.34 million from $3.26 million. R&D expense rose by $8.77 million, primarily reflecting increased manufacturing and clinical activity, added development staff, a $1.0 million clinical milestone payment, and $3.1 million of stock issued for an expanded lotilaner license.
- G&A expense increased by $3.53 million, mainly due to additional personnel, professional services and market research.
- In September, Tarsus raised approximately $39.8 million net through its Series C preferred stock financing. Preferred stock had a $103.7 million aggregate liquidation preference at September 30.
- Subsequent IPO: On October 20, 2020, the company sold 6.325 million shares at $16 per share, including the fully exercised underwriters’ option, for approximately $91.7 million net proceeds. All 11.107 million outstanding preferred shares converted to common stock at closing. These events occurred after the reporting date and are not reflected in the September 30 balance sheet. A 1-for-7.4276 reverse stock split was approved before the IPO; reported share and per-share figures reflect the split.
Outlook, management commentary and risks
- Management estimated that existing cash plus IPO proceeds would fund operating and capital expenditure needs into the fourth quarter of 2022, based on current assumptions. It expects significant operating losses and negative cash flows to continue and anticipates needing additional capital to develop and potentially commercialize its candidates.
- The lead candidate, TP-03, is in a Phase 2b/3 trial for Demodex blepharitis; the company intended to start the Saturn-2 Phase 3 trial in 2021. Earlier TP-03 Phase 2 trials met primary, secondary and/or exploratory endpoints, but the company cautioned that those results may not predict later-stage outcomes.
- Development depends on clinical efficacy and safety, regulatory review, manufacturing and supply, and third-party clinical organizations. The FDA had recommended carcinogenicity testing and embryo-fetal development studies in a second species; additional requested studies could delay an application and increase costs.
- COVID-19 had not significantly affected operations to date, but could disrupt trial enrollment, sites, suppliers, manufacturing or regulatory timelines. The company reported mitigation measures for Saturn-1, including over-enrollment and identifying additional sites.
- Lotilaner rights are licensed from Elanco. The agreements provide for potential clinical milestone payments of up to $9.5 million in aggregate and commercial/sales milestone payments of up to $156 million, plus royalties. Under the expanded license, another 187,500 shares valued at $3.0 million at the IPO price are due at the 18-month anniversary if the agreement has not been terminated.
- The company cited risks including dependence on TP-03, uncertain clinical and regulatory outcomes, unproven market estimates and acceptance, reliance on single-source suppliers and CROs, license obligations, and future financing needs. It reported no material legal proceedings or material loss contingencies known for financial statement recognition.
Most important facts for investors to verify
- Progress, enrollment, safety and efficacy results for Saturn-1, and the timing and design of Saturn-2.
- Whether management’s projected runway into Q4 2022 remains achievable as trial, manufacturing, staffing and public-company costs change.
- Elanco license terms, milestone deadlines, royalty obligations and the conditions for the additional $3.0 million share issuance.
- Post-IPO share count, preferred-stock conversion, equity-plan dilution and the effect of the reverse split on per-share comparisons.
- Potential COVID-19, FDA testing, trial-site, manufacturing and supply-chain effects on development timelines and funding requirements.