Tarsus Pharmaceuticals Proposes Terms For $80 Million IPO

Tarsus Pharmaceuticals Proposes Terms For $80 Million IPO

Tarsus Pharmaceuticals (TARS) intends to raise $80 million in an IPO of its common stock, according to an S-1 registration statement.

Irvine, California-based Tarsus was founded to advance a portfolio of treatment options for various eye conditions caused by mites and other parasites.

Management is headed by co-founder, president and CEO Mr. Bobak Azamian, M.D., Ph.D., who has been with the firm since and was previously co-founder, CEO and CMO of Metavention, a company seeking to treat diabetes and other metabolic diseases.

Below is a brief overview video of Demodex Blepharitis:

Source: Nattawut Wanumkarng

The company’s lead candidate is TP-03, a treatment being developed for three indications related to the Demodex mite.

Management expects to provide top line data results for its Phase 2b/3 Saturn-1 trial in 2021, as well as initiate a Phase 3 Saturn-2 trial in 2021.

Below is the current status of the company’s drug development pipeline:

tarsuspipe

Source: Company S-1 Filing

Investors in the firm have invested at least $63.4 million and include Horowitz Limited Partnership, Vivo Capital, Flying L Investments, Frazier Life Sciences, Visionary Venture Fund, RTW Investments and Cormorant Asset Management.

According to a 2018 market research report by Transparency Market Research, the global incidence of patients with increased ocular disorders is increasing due to the rise in the elderly population.

In a recent survey report in the U.S., 37% – 47% of patients ‘were diagnosed with signs of blepharitis.’

Related conditions to blepharitis include acne rosacea, Lyme disease and malaria, all areas in which the firm is pursuing treatments.

However, drugs with significant side effects or lengthy procedures can hamper market adoption.

Major competitive vendors that provide or are developing treatments include:

  • Azura Ophthalmics
  • Aperta Biosciences
  • Eyevance Pharmaceuticals
  • Formosa Pharmaceuticals
  • Hovione Scientia
  • Nicox SA (NICXF)
  • Novaliq GmbH
  • Premark Pharma
  • Quorum Innovations

Tarsus’s recent financial results are typical of a clinical stage biopharma; they show no revenue and significant R&D and G&A expenses associated with developing its various programs.

Below are the company’s financial results for the past two and ½ years (Audited PCAOB for full years):

tarsuspl

Source: Company registration statement

As of June 30, 2020, the company had $53.1 million in cash and $3.9 million in total liabilities. (Unaudited, interim)

Tarsus intends to raise $80 million in gross proceeds from an IPO of 5 million shares of its common stock, offered at a proposed midpoint price of $16.00 per share.

No existing shareholders have indicated an interest to purchase shares at the IPO price. This is a common feature of life science IPOs.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $247 million, excluding the effects of underwriter over-allotment options.

Management says it will use the net proceeds from the IPO as follows:

approximately $65.0 million to fund our development and regulatory approval of TP-03 for the treatment of Demodex blepharitis and to prepare for its commercial launch in the United States; and

the remaining proceeds to develop our product pipeline including TP-03 (for the treatment of MGD), TP-04, TP-05, and other general corporate purposes, which may include the hiring of additional personnel, capital expenditures and the costs of operating as a public company

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are BofA Securities, Jefferies, Raymond James, LifeSci Capital, and Ladenburg Thalmann.

Commentary

Tarsus is seeking public capital market funding to advance its product pipeline.

The firm’s lead candidate, TP-03, for the treatment of Demodex blepharitis, is entering its second Phase 3 trial.

The market opportunity is difficult to quantify, but there are an estimated 2.1 million diagnosed cases of blepharitis in the U.S. each year.

Management is also seeking to expand into other therapeutic categories, including dermatology.

TARS has disclosed no commercial or pharma firm collaborations, so is pursuing a go-it-alone approach, which has been successful so far.

The company’s investor syndicate includes several well known life science venture capital firms.

BofA Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 71.2% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, management is asking IPO investors to pay an enterprise value of $247 million, which is at the bottom end of the typical range for a biopharma firm at IPO.

Tarsus has produced impressive trial results so far, with mite eradication rates above 50% and a sharp reduction in mite density.

Given the firm’s success in efficacy trials to-date and the reasonable price for the IPO, for life science investors with an 18 to 24-month hold time frame, my opinion on the IPO is a BUY at up to $16.00 per share.

Expected IPO Pricing Date: October 15, 2020

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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