Executive Summary / Key Takeaways

• Pioneering Category Creation: Tarsus Pharmaceuticals is establishing itself as a leader in eye care by successfully creating new therapeutic categories, exemplified by XDEMVY for Demodex blepharitis, and aiming to replicate this success with pipeline candidates for ocular rosacea and Lyme disease.
• XDEMVY's Blockbuster Trajectory: XDEMVY, the first and only FDA-approved treatment for Demodex blepharitis, is demonstrating exceptional commercial momentum, with Q3 2025 net product sales reaching $119 million, a 147% year-over-year increase, driven by strong physician adoption, broad market access, and effective direct-to-consumer (DTC) campaigns.
• Robust Financial Position and Strategic Investment: The company maintains a solid liquidity position with $401.8 million in cash, cash equivalents, and marketable securities as of September 30, 2025, bolstered by recent equity raises, enabling continued investment in commercial expansion and pipeline development.
• Differentiated Lotilaner Platform: Tarsus's core technology, centered on the active pharmaceutical ingredient lotilaner, offers a unique mechanism of action by selectively inhibiting parasite-specific GABA-Cl channels, providing a foundational competitive advantage across its therapeutic pipeline.
• Future Growth Catalysts: Key upcoming milestones include the initiation of a Phase 2 study for TP-04 in ocular rosacea by December 2025, a Phase 2b study for TP-05 in Lyme disease in 2026, and potential European regulatory submission for XDEMVY in 2026, signaling sustained growth opportunities.

The Genesis of a Category Creator: Tarsus's Vision in Eye Care

Tarsus Pharmaceuticals, Inc. (NASDAQ:TARS), founded in 2016, has rapidly evolved from a development-stage entity into a commercial-stage biopharmaceutical company with a clear mission: to revolutionize treatment paradigms by creating new therapeutic categories, starting with eye care. The company's journey has been marked by strategic intellectual property acquisitions and a focused research and development effort, culminating in the launch of its flagship product, XDEMVY. This foundational strategy of identifying and addressing highly prevalent, underserved conditions with targeted, innovative solutions underpins Tarsus's investment thesis.

The company's core technological differentiator lies in its use of lotilaner, an active pharmaceutical ingredient (API) that selectively inhibits parasite-specific gamma-aminobutyric acid-gated chloride (GABA-Cl) channels. This mechanism of action is crucial as it effectively paralyzes and eradicates mites and other parasites, such as Demodex mites, without inhibiting human GABA-Cl channels. This specificity translates into a favorable safety profile and targeted efficacy, providing a tangible benefit over existing, often off-label, treatments. The lotilaner platform is not only the basis for XDEMVY but also extends to its pipeline candidates, TP-04 and TP-05, offering a consistent technological thread across its portfolio. This proprietary technology forms a significant competitive moat, allowing Tarsus to develop first-in-class therapies for conditions where no FDA-approved options previously existed.

In the competitive landscape, Tarsus operates as a specialized player, contrasting with larger, more diversified biopharmaceutical companies like AbbVie (ABBV), Bausch Health (BHC), Novartis (NVS), and Alcon (ALC). While these industry giants possess extensive global market reach, broader R&D capabilities, and established distribution networks, Tarsus differentiates itself through its agility and focused expertise in pioneering treatments for niche, yet substantial, unmet medical needs. For instance, in eye care, Tarsus's direct competitors offer a wide array of products, but none directly address Demodex blepharitis with an FDA-approved therapeutic, giving XDEMVY a unique market position. This specialized focus allows Tarsus to potentially achieve faster innovation cycles in its targeted areas, although its smaller scale means it lags in overall market presence and established revenue streams compared to its larger rivals.

XDEMVY's Ascendant Commercial Trajectory

XDEMVY (lotilaner ophthalmic solution 0.25%), approved by the FDA in July 2023 for Demodex blepharitis, has become the cornerstone of Tarsus's commercial success. The launch has been exceptional, setting new benchmarks in the prescription eye drop market. For the third quarter of 2025, XDEMVY generated approximately $119 million in net product sales, representing a remarkable 147% increase year-over-year. This robust growth is particularly impressive given that Q3 is typically a softer quarter for eye care products due to seasonal factors. The company dispensed over 103,000 bottles to patients in Q3 2025, building on approximately 91,000 bottles in Q2 2025 and 72,000 in Q1 2025.

This commercial momentum is a direct result of Tarsus's multi-pronged strategy. Over 20,000 Eye Care Professionals (ECPs) have prescribed XDEMVY, with a 30% quarter-over-quarter increase in ECPs prescribing more than once a week in Q3 2025. This indicates a deepening adoption and integration of XDEMVY into clinical practice. ECPs are increasingly screening for Demodex blepharitis across various patient segments, including those with dry eye, cataracts, and contact lens intolerance, partly influenced by positive data on Meibomian Gland Disease (MGD). Management emphasizes that ECPs view XDEMVY as one of the most meaningful therapeutic advances in eye care in decades.

Patient awareness and access have also been critical drivers. Tarsus's direct-to-consumer (DTC) advertising campaign is proving highly effective, generating a positive and growing return on investment. Unaided awareness of XDEMVY has more than tripled since the campaign's inception, and website visits to xdemvy.com increased by 90% in Q3 2025 compared to Q2 2025. This engagement translates into patients proactively seeking screening and asking for XDEMVY by name. Furthermore, Tarsus has secured broad, high-quality payer coverage, with over 90% of commercial, Medicare, and Medicaid lives covered, ensuring affordability for many patients who pay less than $30 out-of-pocket. This broad access has removed a significant barrier to physician adoption.

The company's sales force, expanded to 150 representatives in late 2024, is instrumental in driving this adoption, focusing on moving ECPs from monthly to weekly and daily prescribing. While XDEMVY remains predominantly a new prescription (NRx) business, retreatment behavior is steadily building, with over 10% of weekly prescriptions being refills. Management anticipates retreatment rates to stabilize around 20% over time, based on recurrence data from clinical trials, providing a sustainable growth contributor. The gross-to-net discount for Q3 2025 was 44.7%, influenced by Medicare Manufacturers Discount Program accrual adjustments and increased Medicare patients in catastrophic coverage, but is expected to stabilize in the low 40s beyond 2025. Gross margins have remained strong at approximately 93%.

Expanding Horizons: Pipeline and Global Ambitions

Beyond XDEMVY, Tarsus is actively advancing a pipeline of product candidates, leveraging its lotilaner platform to address other high-unmet-need conditions.

TP-04 for Ocular Rosacea: This investigational sterile aqueous gel formulation of lotilaner targets ocular rosacea, a chronic, pervasive eye disease affecting an estimated 15 million to 18 million Americans, with no FDA-approved therapy. Similar to Demodex blepharitis, a majority of ocular rosacea cases are caused by Demodex mites, making TP-04 a natural extension of Tarsus's expertise. Positive topline results from the Phase 2a Galatea trial for papulopustular rosacea, which demonstrated statistically significant improvements in inflammatory lesions and Investigator's Global Assessment score, as well as a reduction in erythema, provide strong confidence for the ocular rosacea program. Tarsus plans to initiate a Phase 2 study for ocular rosacea in December 2025, with topline results expected by year-end 2026. The FDA has aligned on the protocol and endpoints for this pioneering study, which is anticipated to cost between $7 million and $10 million, split between 2025 and 2026.

TP-05 for Lyme Disease Prophylaxis: TP-05 is an investigational oral systemic formulation of lotilaner for the potential prevention of Lyme disease and community malaria reduction. It is positioned as the only on-demand oral tablet in development designed to rapidly kill infected ticks before they transmit the Borrelia bacteria. Positive Phase 2a Carpo trial results in February 2024 showed statistically significant tick mortality (>90% tick kill rate versus placebo). The FDA has agreed to a Phase 2b clinical trial involving several hundred subjects, expected to initiate in 2026. A subsequent Phase 3 study would require thousands of participants in a disease prevention field study. Given the scale of the Phase 3 study and the general practitioner (GP) call point, Tarsus believes this program may be best suited for a larger strategic partner in the long term.

International Expansion: Tarsus is also pursuing global opportunities for XDEMVY. A potential European regulatory submission for a preservative-free formulation is expected in 2026, with approval anticipated in 2027. The European Medicines Agency (EMA) has indicated that a Phase 3 study is not required, reflecting the strength of XDEMVY's clinical data. In Japan, discussions with regulatory authorities are ongoing, supported by data from the Elara prevalence study showing a high prevalence and significant impact of Demodex blepharitis, consistent with U.S. findings. The company is considering flexible commercial strategies for these markets, including direct sales or partner models.

Financial Strength and Outlook

Tarsus ended Q3 2025 with a strong liquidity position, reporting $401.8 million in cash, cash equivalents, and marketable securities. This financial strength was significantly enhanced by a follow-on public offering in March 2025, which raised approximately $134.8 million in net proceeds, and a $75 million initial term loan from a 2024 Credit Facility with Pharmakon. The company also has an additional $50 million available from this credit facility, contingent on sales milestones that have been met.

Despite its commercial success, Tarsus has incurred significant operating losses since inception, with a net loss of $12.6 million in Q3 2025 and $58 million for the nine months ended September 30, 2025. Operating expenses continue to be substantial, driven by commercialization efforts for XDEMVY and pipeline development. Selling, general, and administrative (SG&A) expenses increased by $50.7 million in Q3 2025 year-over-year, primarily due to increased commercial and marketing costs, including DTC advertising, and a larger sales force. Research and development (R&D) expenses also rose by $4.2 million in Q3 2025, reflecting investments in TP-04 and other early-stage programs.

For Q4 2025, Tarsus projects XDEMVY net product sales to be between $140 million and $145 million, leading to an estimated full-year 2025 revenue of $440 million to $445 million. The gross-to-net discount is expected to be in the 43% to 45% range for Q4 2025 and stabilize in the low 40s beyond 2025. Operating expenses are anticipated to be higher in Q4 2025 due to increased volumes and a full-year DTC investment at the top end of the $70 million to $80 million range. Management expects 2026 SG&A spend to be similar to 2025, with additional R&D for TP-04 ($7 million to $10 million split across 2025-2026) and potential investment in the TP-05 Phase 2b study.

Risks and Competitive Dynamics

While Tarsus has demonstrated impressive growth, several risks warrant investor consideration. The company's reliance on XDEMVY as its sole approved commercial product presents a concentration risk; its profitability hinges on XDEMVY's sustained market acceptance and growth. Overestimating the market size for Demodex blepharitis or other pipeline indications could adversely affect sales growth. Competition is intense, with existing over-the-counter and off-label treatments posing a challenge, and larger pharmaceutical companies potentially developing competing products.

Product liability claims, inherent in commercializing and testing therapeutics, could lead to substantial liabilities. Tarsus's reliance on third parties for manufacturing and clinical trials introduces supply chain and operational risks, particularly given the use of single-source suppliers for certain materials. Clinical development is inherently risky, and delays or failures in pipeline programs could impact future revenue streams. Intellectual property protection is crucial, and any challenges to Tarsus's patents or breaches of its licensing agreements with Elanco (ELAN) could severely harm its business. Furthermore, increased regulatory scrutiny on DTC marketing and evolving healthcare laws and reimbursement policies could impact pricing and market access.

Despite these challenges, Tarsus's strategic positioning as a category creator, backed by its differentiated lotilaner technology, provides a strong competitive advantage. Its ability to rapidly gain physician adoption and patient awareness for XDEMVY, coupled with robust clinical data, allows it to carve out significant market share in previously unaddressed therapeutic areas. The company's proactive approach to market access and its expanded sales force further enhance its competitive standing against rivals who may offer broader portfolios but lack a first-mover advantage in these specific niches.

Conclusion

Tarsus Pharmaceuticals stands at a pivotal juncture, having successfully launched XDEMVY and established a compelling blueprint for category creation in eye care. The company's innovative lotilaner platform provides a strong technological foundation, enabling the development of targeted therapies for underserved conditions. XDEMVY's exceptional commercial performance, driven by strategic investments in sales, market access, and direct-to-consumer engagement, underscores its potential as a blockbuster product.

Looking ahead, Tarsus is poised for continued growth through its pipeline, with TP-04 for ocular rosacea and TP-05 for Lyme disease representing significant future opportunities. While the company faces inherent risks associated with biopharmaceutical development, commercialization, and a competitive landscape, its strategic focus, strong financial position, and proven execution capabilities position it favorably. Investors should observe the continued expansion of XDEMVY's market penetration, the successful advancement of its pipeline programs, and the strategic partnerships that could unlock the full potential of its broader therapeutic platform.