Tarsus Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; filed August 5, 2021. Amounts below are in U.S. dollars. Tarsus is a late clinical-stage biopharmaceutical company with no approved products or product sales.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $22.0M | — | $55.4M | — |
| Operating expenses | $14.7M | $3.3M | $37.5M | $5.4M |
| Operating income (loss) | $7.3M | $(3.3)M | $18.0M | $(5.4)M |
| Net income (loss) | $6.3M | $(3.3)M | $16.7M | $(5.2)M |
| Operating cash flow | Not separately presented by quarter | $8.8M | $(4.6)M |
- Q2 diluted EPS was $0.29 versus a loss of $1.23 per share; six-month diluted EPS was $0.76 versus a loss of $1.96. The large change in weighted-average shares reflects the 2020 IPO and conversion of preferred stock.
- Q2 gross margin on reported revenue was approximately 96.7%; operating margin was approximately 33.1%. Six-month figures were approximately 96.3% and 32.4%, respectively. These margins reflect license and collaboration revenue, not product sales.
- At June 30, cash and cash equivalents were $176.7M, accounts receivable was $20.0M, total current assets were $200.9M and current liabilities were $10.5M. Total liabilities were $11.0M; the filing reports no material financing commitments such as a line of credit.
- Six-month investing cash outflow was $0.2M and financing cash inflow was $0.02M; cash increased $8.6M. Operating cash flow benefited from China-license proceeds, while $20.0M of recognized milestone revenue remained in accounts receivable.
Material changes and unusual items
- Revenue arose from the March 2021 China out-license of TP-03 rights to LianBio. Six-month reported revenue comprised $52.4M of license fees and $3.1M of collaboration revenue. Tarsus received $35.0M cash through June, and recorded a further $20.0M milestone receivable.
- Q2 R&D expense rose $5.5M year over year to $7.2M; six-month R&D rose $20.2M to $23.5M. Drivers included trial and preclinical work, manufacturing, staffing, a $2.0M clinical milestone, and $5.5M of stock issued to Elanco for continued license exclusivity.
- Q2 G&A increased $5.3M to $6.8M; six-month G&A increased $9.8M to $12.0M, primarily from staffing and stock compensation, insurance, professional fees, and commercial preparation.
- Q2 included an $0.876M loss from remeasurement of LianBio equity warrant rights, partly offset by $0.719M warrant-related value recognized within license fees. Stock-based compensation was $2.8M in Q2 and $4.2M for the first half.
Business outlook, risks and contingencies
- Management estimated that June 30 cash, together with expected additional China-license proceeds, would fund operating and capital requirements into the first half of 2023. It also stated resources were sufficient for at least 12 months from the filing date. This runway depends on assumptions and milestone collections; additional capital will be needed to fully develop the pipeline.
- Management expects substantial losses and rising expenses as clinical development and potential commercialization preparation advance. Tarsus had no product revenue and does not expect product sales before successful development, regulatory approval and launch.
- TP-03’s Saturn-1 Phase 2b/3 trial met prespecified endpoints, and Saturn-2 began in May 2021. The company expected Saturn-2 topline results in Q1 2022 and, if positive, an NDA submission in the first half of 2022. These are forward-looking expectations, not assured outcomes.
- Other pipeline programs included TP-05, whose Phase 1 trial began dosing in June 2021, and development plans for TP-03 in meibomian gland disease and TP-04 for rosacea. Clinical success, FDA approval, market acceptance, competition, IP protection, third-party manufacturing and trial execution remain material risks.
- COVID-19 had not significantly affected operations to date, but could disrupt trials or timelines. The company reported no material legal proceedings and no material changes to the risk factors in its 2020 Form 10-K. Management concluded disclosure controls were effective.
Investor verification priorities
- Confirm collection of the $20.0M LianBio milestone receivable and timing/conditions for remaining expected China-license payments; distinguish cash received from revenue recognized.
- Track Saturn-2 enrollment, results and the expected NDA timeline, alongside regulatory and safety developments for TP-03.
- Assess the durability of revenue and reported profitability: Q2 and first-half earnings primarily reflect out-license accounting, while the company has no product sales and expects continued development spending.
- Monitor cash burn, the assumptions underlying the first-half-2023 runway estimate, and potential financing needs or dilution.