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Tarsus Pharmaceuticals(TARS) - 2025 Q1 - Quarterly Report

Part I - Financial Information Financial Statements The company reported $78.3 million in Q1 2025 revenues, a reduced net loss, and a strengthened balance sheet with $407.9 million in cash and equivalents, bolstered by a $134.8 million public offering Condensed Consolidated Statements of Operations (Q1 2025 vs Q1 2024) | Financial Metric | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | :--- | | Product sales, net | $78,335 | $24,720 | | License fees and collaboration revenue | $0 | $2,894 | | Total revenues | $78,335 | $27,614 | | Cost of sales | $5,211 | $1,654 | | Research and development | $14,409 | $12,066 | | Selling, general and administrative | $84,995 | $51,578 | | Total operating expenses | $104,615 | $65,298 | | Loss from operations | ($26,280) | ($37,684) | | Net loss | ($25,120) | ($35,731) | | Net loss per share, basic and diluted | ($0.64) | ($1.01) | Condensed Consolidated Balance Sheets | Balance Sheet Item | March 31, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $175,787 | $94,819 | | Marketable securities | $232,129 | $196,557 | | Accounts receivable, net | $62,426 | $46,760 | | Total current assets | $480,773 | $356,705 | | Total assets | $500,750 | $376,991 | | Total current liabilities | $86,308 | $80,612 | | Long-term debt, net | $71,984 | $71,845 | | Total liabilities | $158,292 | $152,457 | | Total stockholders' equity | $342,458 | $224,534 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2025 (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($20,651) | ($37,789) | | Net cash used in investing activities | ($34,942) | ($102,224) | | Net cash provided by financing activities | $136,562 | $108,771 | | Net increase (decrease) in cash | $80,969 | ($31,242) | - In March 2025, the company completed a follow-on public offering, selling 2,808,988 shares at $44.50 per share and an additional 421,348 shares via underwriter option exercise, raising approximately $134.8 million in net proceeds27 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2025 revenue growth to XDEMVY's successful launch, with increased operating expenses for commercial expansion and R&D, while affirming sufficient capital for the next 12 months - XDEMVY net product sales grew to $78.3 million in Q1 2025, a 217% increase year-over-year, with approximately 72,000 bottles dispensed to patients and payer coverage extending to over 90% of covered lives192211 - Selling, General and Administrative (SG&A) expenses increased by $33.4 million year-over-year to $85.0 million, driven by a $25.6 million increase in commercial and marketing costs for XDEMVY, including direct-to-consumer advertising, and a $9.6 million increase in personnel-related costs215 - Research and Development (R&D) expenses increased by $2.3 million to $14.4 million, primarily due to increased spending on the TP-04 (Ocular Rosacea) program, early-stage programs, and higher personnel costs214 - As of March 31, 2025, the company had $407.9 million in cash, cash equivalents, and marketable securities, which management believes are sufficient to support operations for at least the next 12 months217226 - The company plans to initiate a Phase 2 study for TP-04 in Ocular Rosacea in the second half of 2025, and for TP-05 in Lyme disease, the FDA has agreed to a Phase 2b trial design, with initiation expected in 2026, though the company intends to partner the program195198 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate changes affecting its $407.9 million in investments and $75.0 million floating-rate debt, though a 100 basis point change is not expected to have a material impact - The company's main market risk is from interest rate changes affecting its cash, cash equivalents, marketable securities ($407.9 million), and its floating-rate debt ($75.0 million)247248 - Due to the short-term and low-risk nature of its investments, management believes a 100 basis point change in interest rates would not materially affect the fair value of its cash and investments247 - The $75.0 million debt accrues interest at a floating rate (SOFR + 6.75%) with a 3.75% SOFR floor, and a hypothetical 100 basis point change in the applicable rate is not expected to have a significant impact on interest expense248249 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level252 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls253 Part II - Other Information Legal Proceedings The company is not currently a party to any material legal proceedings, though it may face litigation in the ordinary course of business - Tarsus is not currently a party to any material legal proceedings256 Risk Factors The company faces extensive risks, primarily its dependence on XDEMVY, limited operating history, need for capital, reliance on third parties, intellectual property challenges, and stringent government regulation Risks Related to Business and Operations The company faces operational risks due to its early commercial stage, reliance on third parties, cybersecurity threats, and global economic conditions, with a history of significant net losses - The company is an early commercial-stage biopharmaceutical firm with a single approved product, XDEMVY, and a history of significant net losses ($25.1M for Q1 2025), with an accumulated deficit of $385.3M as of March 31, 2025258259 - The company relies heavily on third-party contract organizations (CROs, CMOs) for clinical trials and manufacturing, which exposes it to risks of delays, quality issues, and termination of services262264 - Information technology systems are vulnerable to security breaches and disruptions, which could compromise confidential data, delay product development, and result in liability under laws like the CCPA270273 - Unfavorable global economic conditions, including inflation and geopolitical conflicts, could reduce demand for products, increase operating costs, and disrupt the supply chain278280 Risks Related to Development and Commercialization The company's success depends on XDEMVY's commercialization and pipeline development, facing risks in market acceptance, competition, clinical development uncertainties, and compliance with government pricing programs - The company is heavily dependent on the successful commercialization of its single approved product, XDEMVY, and the development of its pipeline candidates (TP-04, TP-05)293 - Market acceptance of XDEMVY is a risk, as the company must educate eye care providers (ECPs) and patients about Demodex blepharitis and compete with existing over-the-counter and off-label treatments295296297 - Clinical drug development is identified as a lengthy, expensive, and risky process with uncertain outcomes, and results from earlier trials may not predict future success335 - The company is subject to government pricing programs like the Medicaid Drug Rebate Program and the 340B program, and failure to comply with complex pricing and rebate calculations could lead to significant penalties and fines318320 Risks Related to Financial Position and Need for Additional Capital The company faces significant capital requirements for commercialization and pipeline development, risking dilution or restrictive debt covenants if additional funding is not secured, and may have limitations on NOL carryforwards - The company will require substantial additional capital to fund the commercialization of XDEMVY and develop its pipeline, and failure to obtain this capital could force delays or elimination of programs368371 - Raising additional capital could lead to stockholder dilution through equity offerings or restrictive covenants from debt financing, which could limit operational flexibility374 - The existing 2024 Credit Facility with Pharmakon contains negative covenants that restrict the company's ability to dispose of assets, incur more debt, make investments, or pay dividends, among other actions383 - The company's ability to use its net operating loss (NOL) carryforwards may be limited under Section 382 of the Internal Revenue Code if an "ownership change" occurs387 Risks Related to Reliance on Third Parties The company's high dependence on third-party CROs and CMOs for clinical trials and manufacturing, including single-source API suppliers, poses significant risks to development and commercialization efforts - The company relies on third parties like CROs to conduct clinical trials, which reduces control over these activities and may lead to delays or data integrity issues if these parties fail to perform390391 - The company contracts with third parties for all manufacturing and relies on single-source suppliers for certain materials, including the API (lotilaner) for XDEMVY from Elanco, creating a high risk of supply chain disruption395396 - All manufacturing partners must comply with cGMP regulations, and any failure to do so could lead to an inability to meet commercial demand, product recalls, or delays in regulatory approvals397400 - The company may be unable to successfully scale-up manufacturing in sufficient quality and quantity, which could delay or prevent the commercialization and development of its products402 Risks Related to Intellectual Property The company's success is highly dependent on its intellectual property, facing risks from reliance on Elanco licenses, patent enforceability uncertainties, potential infringement claims, and inadequate patent terms - The development and commercialization of the company's entire pipeline, including XDEMVY, TP-04, and TP-05, is dependent on intellectual property licensed from Elanco, and a breach or termination of these license agreements could cause the company to lose its rights to these products409410 - The company's ability to obtain and maintain sufficient patent protection is uncertain, as pending applications may not issue, and issued patents may be challenged, invalidated, or circumvented by competitors411416 - The company may be sued for infringing third-party intellectual property rights, which could be costly, time-consuming, and could force it to cease commercializing its products or obtain expensive licenses438441 - Patent terms are of limited duration and may expire before or shortly after products are commercialized, and the company may not be able to obtain patent term extensions, which would shorten its period of market exclusivity443458 Risks Related to Government Regulation The company faces significant risks from extensive government regulation, including uncertain regulatory approvals, impacts of healthcare reform on pricing, compliance with fraud and abuse laws, and complex data privacy requirements - The company's products and activities are subject to extensive and strict regulation by the FDA and comparable foreign authorities, and securing and maintaining marketing approval is a long, costly, and uncertain process459 - Changes in healthcare laws, such as the ACA and the Inflation Reduction Act (IRA), could significantly impact pricing, reimbursement, and profitability through mechanisms like drug price negotiation and inflation rebates462463468 - The company is subject to federal and state healthcare fraud and abuse laws, and arrangements with physicians and payers could be scrutinized, potentially leading to significant penalties if found to be in violation482483 - Compliance with complex and evolving U.S. (e.g., CCPA) and international (e.g., GDPR) data privacy and security laws is required, and failure to comply could result in government enforcement, significant fines, and private litigation496499501 Risks Related to Ownership of our Common Stock Ownership of common stock involves risks including price volatility, concentrated ownership, increased compliance costs as a non-emerging growth company, potential stock price depression from future sales, and anti-takeover provisions - The market price of the company's common stock is subject to significant volatility due to factors such as clinical trial outcomes, regulatory developments, and overall market performance507 - A significant concentration of stock ownership among officers, directors, and 5%+ holders limits the ability of other stockholders to influence corporate matters515 - As of December 31, 2024, the company no longer qualifies as an emerging growth company or a smaller reporting company, which will increase operating and compliance costs510511 - The company's amended and restated certificate of incorporation includes anti-takeover provisions and designates the Court of Chancery of the State of Delaware as the exclusive forum for most stockholder disputes, which could limit stockholder actions527530 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None535 Other Information The company disclosed the adoption of Rule 10b5-1 trading plans by CEO Bobak Azamian and CCO Aziz Mottiwala, with some shares already sold by the CEO in Q1 2025 - CEO Bobak Azamian adopted a Rule 10b5-1 trading plan in December 2024 for the sale of up to 24,000 shares; 6,000 shares were sold under this plan in Q1 2025538 - Chief Commercial Officer Aziz Mottiwala adopted a Rule 10b5-1 trading plan in March 2025 for the sale of up to 17,500 shares, with sales eligible to begin in June 2025539 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and the Inline XBRL documents - The exhibits filed with this report include certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act, as well as XBRL data files541