Tarsus Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. Tarsus is a clinical-stage biopharmaceutical company focused on developing therapeutics, initially in eye care; it had no product sales.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $1.24 million | $15.82 million | $56.69 million |
| Research and development | $10.91 million | $10.21 million | $32.60 million | $33.67 million |
| General and administrative | $11.99 million | $6.67 million | $30.32 million | $18.63 million |
| Net income (loss) | $(22.51) million | $(15.70) million | $(48.49) million | $1.02 million |
| Basic and diluted EPS | $(0.84) | $(0.76) | $(2.03) | $0.05 |
- Q3 operating expenses were $22.91 million, up $5.96 million year over year. Q3 loss from operations was $22.91 million; the company reported no Q3 revenue.
- Nine-month operating expenses were $63.47 million, versus $54.40 million. The shift from prior-year income to a loss mainly reflects revenue falling $40.87 million, partly offset by lower R&D and higher G&A.
- At September 30, cash and cash equivalents were $169.49 million and marketable securities were $57.08 million, totaling $226.57 million. Current assets were $234.08 million versus current liabilities of $14.27 million.
- Total liabilities were $33.84 million, including a term loan with $20.0 million principal outstanding and a $19.36 million net carrying value. The loan bears a floating rate; the coupon was 11.45% at quarter-end. Interest-only payments run through February 2026, with principal amortization thereafter unless extended.
- Nine-month cash flow: $38.16 million used in operations, $57.41 million used in investing, and $93.72 million provided by financing. Financing included $74.35 million net proceeds from the follow-on offering and $20.0 million of loan proceeds. Cash and cash equivalents decreased by $1.84 million.
Margins are not especially informative for this pre-commercial company; the filing reports no product sales and no Q3 revenue.
Material changes and business developments
- Nine-month license and collaboration revenue was $15.82 million, primarily from the China out-license, down from $56.69 million in 2021. Revenue depended on contractual milestones and clinical performance obligations; no royalties had been recognized.
- Q3 G&A rose $5.32 million, reflecting additional personnel and commercial-readiness marketing costs. Management said sales and marketing hiring and vendor spending were expected to increase meaningfully during 2023. R&D rose $0.70 million in Q3, as higher personnel and regulatory costs were partly offset by lower trial costs after completion of Saturn-2.
- The May–June 2022 follow-on offering sold 5.89 million shares for $74.3 million net proceeds, increasing outstanding shares from about 20.7 million at year-end 2021 to 26.7 million at September 30.
- Under the China out-license, Tarsus had received $70 million through September 30. Subsequent to quarter-end, LianBio initiated dosing in a Phase 3 trial, triggering a $10 million milestone. Tarsus also expected a $5 million supply-agreement milestone in Q1 2023; further potential consideration includes development and regulatory milestones, sales milestones up to $100 million, and tiered mid-to-high-teen royalties.
Outlook, risks and contingencies
- After quarter-end, on November 9, 2022, Tarsus announced FDA acceptance of the TP-03 NDA for Demodex blepharitis, with a PDUFA decision date of August 25, 2023. The company was preparing for a potential U.S. launch in the second half of 2023; approval and commercialization remained uncertain.
- Management estimated September 30 cash, equivalents and marketable securities would fund operations for at least 12 months from the filing date. Including expected China-out-license milestones, management expected resources to support planned operations into at least 2026, while cautioning that estimates may change. The credit facility provided additional conditional borrowing capacity.
- The company expects continued operating losses and higher spending as it advances TP-03 and other candidates, builds commercial capabilities, and funds clinical, manufacturing and regulatory work. Additional capital may be needed; financing could be unavailable or dilutive, and the credit facility includes covenants.
- Key risks include clinical and regulatory uncertainty, market acceptance and competition, reliance on third-party clinical and manufacturing providers, intellectual-property protection, hiring needs, and potential disruption from COVID-19. The filing reported no material litigation and no material changes to previously disclosed risk factors.
- The company reported no material effect from a hypothetical 100-basis-point interest-rate change on the fair value of its short-term investments. Its floating-rate debt exposes it to higher interest expense if rates rise.
Investor verification checklist
- Verify the FDA review timeline and outcome for TP-03, including the August 25, 2023 PDUFA date and any subsequent regulatory updates.
- Track TP-03 commercial-launch spending, staffing, manufacturing readiness and any product revenue; none was reported in this quarter.
- Confirm receipt and accounting treatment of the $10 million China milestone and expected $5 million supply-agreement milestone, and monitor remaining contingent payments and royalties.
- Monitor operating cash burn, cash runway assumptions, loan draws, floating interest costs and the conditions attached to undrawn credit-facility tranches.
- Assess dilution and share-count changes following the follow-on offering and any future equity financing.