TARS - Tarsus Pharma: Despite Dropping After FDA Approval 2 Catalysts Still Remain

2023-07-25 17:56:43 ET

Summary

• Tarsus Pharmaceuticals, Inc. achieved FDA approval of XDEMVY for the treatment of patients with Demodex blepharitis; XDEMVY for this indication could offer $1 billion + peak net sales potential.
• Results from the phase 2 study using XDEMVY [TP-03] for the treatment of patients with Meibomian Gland Disease is expected in the 2nd half of 2023.
• Results from the phase 2 study using TP-05 for the prevention of Lyme Disease expected in the 2nd half of 2023.
• Tarsus Pharmaceuticals had $201.2 million in cash as of March 31, 2023, and believes it has enough cash to fund its operations for 12 months; With cash projection and FDA approval of XDEMVY in, it should likely raise cash immediately.

Tarsus Pharmaceuticals, Inc. ( TARS ) was able to receive FDA approval of its drug XDEMVY for the treatment of patients with Demodex blepharitis. Why this is important is because of the potential market that this biotech can go after, which is approximately 25 million patients in the United States.

Despite FDA approval of XDEMVY for this patient population, the stock is trading lower by as much as 25%. I believe that there is a chance for recovery as the company starts to prove that it can generate sales with this large target market. Not only that, but it has a few clinical products in the pipeline which are being developed for other diseases. For instance, it is advancing its drug TP-04 for the treatment of patients with rosacea in an ongoing phase 2a study. It expects to have data readouts from two other phase 2a studies, which are for the prevention of Lyme Disease and treatment of patients with Meibomian Gland Disease. Results from these studies are expected to be released in the 2nd half of 2023.

FDA Approval Of XDEMVY Brings About Ability To Tap Into Very Large Market Opportunity

As I stated above, Tarsus Pharmaceuticals was able to achieve FDA approval of its drug XDEMVY for the treatment of patients with Demodex blepharitis, which is a highly prevalent eyelid disease. How big of a market is this? It is expected that there are about 25 million eye care patients in the United States who have this disorder. This is expected to be a multi-billion dollar market. It said that XDEMVY for this indication could offer $1 billion + peak net sales potential. Demodex blepharitis is a disorder characterized by inflammation, redness, and irritation of the eyelid. It is caused by Demodex mites in the eyelashes. According to published literature, of the 45 million people who visit eye care clinics each year, 58% have collarettes, which may be a sign of Demodex blepharitis. This disorder can be further divided into anatomically anterior and posterior blepharitis, such descriptions are as follows:

• Anterior blepharitis - infestation of eyelashes and follicles by D. folliculorum, clustering to the root of the eyelashes.
• Posterior blepharitis - infestation of the meibomian gland.

This is a huge win for Tarsus, as before XDEMVY, there were no FDA approved drugs to treat these patients with Demodex blepharitis. It is expected that this drug will be available for patients by prescription by the end of August 2023.

FDA approval of XDEMVY for the treatment of patients with Demodex blepharitis was given on the basis of two randomized, multi-center, double-masked, vehicle-controlled studies. These two studies were known as Saturn-1 and Saturn-2, whereby XDEMVY was evaluated to treat these patients. There were a total of 833 patients recruited across both studies, however, 415 of the patients actually received treatment with XDEMVY. Demodex blepharitis patients were randomized 1:1 to receive either twice daily dosing of XDEMVY in each eye or vehicle over a 6-week period. For instance, in the Saturn-2 trial it was noted that the primary endpoint of "complete collarette cure" [defined as 0 to 2 collarettes per lid at day 43] was achieved with respect to 56% of patients , compared to only 13% for those on vehicle. Such statistical significance was achieved with a p-value of p<0.0001.

Not only that, but some were able to achieve an endpoint known as collarette cure [defined as being able to obtain collarette grade of zero "0" or "1" at day 43]. This was achieved in 89% of the patients who took XDEMVY, compared to only 33% who took a vehicle instead. The positive data from this late-stage Saturn-2 study, plus the other late-stage Saturn-1 study, is what formed the basis of Tarsus Pharmaceuticals being able to file its New Drug Application [NDA] to the FDA to receive approval of XDEMVY for the treatment of these patients with Demodex blepharitis.

Other Catalysts On The Way In 2023 That May Provide Upside Value For Shareholders

With FDA approval of XDEMVY for the treatment of patients with Demodex blepharitis out of the way and the stock declining on the back of this news, how can investors still benefit with respect to Tarsus Pharmaceuticals? It is because there are two other major catalyst opportunities, which are approaching in 2023.

The first of which involves the use of TP-03 [XDEMVY] for the treatment of patients with Meibomian Gland Disease in the phase 2 Ersa Trial . Results from this mid-stage study are expected to be released in the 2nd half of 2023. Why should investors care about this catalyst? It is because like Demodex blepharitis, this is a large market opportunity as well. It is said that Meibomian Gland Disease [MGD] impacts two-thirds of the 34 million dry eye disease patients in the United States. Thus, if data is positive with respect to this phase 2 study for XDEMVY, then this would be another large market for it to be in. Especially, if you consider that the U.S. Meibomian Gland Dysfunction market is expected to surpass $8.29 billion by 2030 .

A second catalyst opportunity in play would be the use of another drug in the pipeline, which is TP-05. The use of TP-05 is being evaluated in the phase 2a Carpo trial, which is being developed for the potential prevention of Lyme Disease. One important belief on why it's important to track this study is because management states that it believes that TP-05 is the only non-vaccine, drug-based prophylaxis in development that targets the ticks and may potentially prevent Lyme Disease transmission.

Financials

According to the 10-Q SEC Filing , Tarsus Pharmaceuticals had cash, cash equivalents and marketable securities of $201.2 million as of March 31, 2023. It believes that it has enough cash on hand to fund its operations for at least 12 months from the date of this 10-Q SEC Filing. However, this biotech does have several measures in place to obtain additional capital. For instance, it has already received approximately $82.5 million in total proceeds from its China out-license of XDEMVY for the treatment of patients with Demodex blepharitis and MGD. That is, this biotech out-licensed TP-03 [XDEMVY] for both of these indications to LianBio Ophthalmology Limited [LianBio]. It expects to receive at least another 2.5 million in 2023 only because of this agreement, however, in the future it could achieve even more.

In essence, there is about $120 million remaining under this licensing and could be received upon achievement of regulatory and sales achievements within the China Territory. It did also draw about $20 million in February 2022 with its Credit Facility with Hercules and SVB as well. It still has about $130 million it can draw upon with respect to this Credit Facility. These are: $20 million available in September 2022 upon NDA submission of TP-03 [XDEMVY] to the FDA, $35 million available upon FDA approval of XDEMVY, $50 million available upon achievement of meeting certain quarterly revenue thresholds and then $25 million available with lender approval. Bases on its projection that it will only have enough cash to fund its operations for at least 12 months, plus having achieved FDA approval of XDEMVY for the treatment of patients with Demodex blepharitis, I anticipate that it will raise cash immediately.

Risks To Business

There are several risks that investors should be aware of before investing in Tarsus Pharmaceuticals. The first risk to consider would be with respect to the FDA approval of XDEMVY, which was approved for the treatment of patients with Demodex blepharitis. The expected drug launch of XDEMVY for this patient population is expected by end of August 2023. There is no guarantee that the biotech will be able to generate the expected sales for this particular market.

A second risk to consider would be with respect to the two phase 2a studies that are expected to have results before the end of 2023. One study is using TP-03 [XDEMVY] for the treatment of patients with Meibomian Gland Disease and the other one is using TP-05 as a preventative therapy for Lyme Disease.

Results from both of these phase 2a studies are expected to be released in the 2nd half of 2023. Hopefully, Tarsus will be able to achieve positive results from both of these proof-of-concept studies. However, there is no assurance that it will be able to meet the primary endpoint of one or both of these trials.

A third and final risk to consider would be with respect to the financial position that this company is in. It believes that it has enough cash to fund its operations for at least the next 12 months. With FDA approval of XDEMVY, plus this projected cash runway, then I believe it will have to raise cash almost immediately. Matter of fact, I believe that it will raise cash within the next few days.

Conclusion

Tarsus Pharmaceuticals, Inc. was able to receive FDA approval of XDEMVY for the treatment of patients with Demodex blepharitis. However, I believe that investors might still be able to capitalize on this name because of two additional catalysts which are expected before the end of 2023. These would be results from the two phase 2a studies, using TP-03 [XDEMVY] and TP-05 targeting Meibomian Gland Disease and Lyme Disease respectively.

Both of these studies are expected at some point in the 2nd half of 2023. If positive, I believe that these are other catalysts that could provide some additional upside value for shareholders. With FDA approval of XDEMVY having been received, plus a few other catalysts on the way, I believe that shareholders might be able to benefit from any gains made.

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