Tarsus Pharmaceuticals, Inc. (TARS) stock intrinsic value fair value estimate & owner earnings analysis

Tarsus Pharmaceuticals sells XDEMVY, a topical eye drop and the first and only FDA-approved treatment for Demodex blepharitis, a common eyelid-margin condition the company estimates affects roughly 25 million Americans, most of them currently undiagnosed or untreated. Launched in late 2023, XDEMVY has scaled quickly: net product revenue grew from about $17 million in the launch year to $183 million in 2024 and $451 million in 2025, while the company reached and has maintained coverage across more than 90% of commercial, Medicare and Medicaid lives -- meaning the payer-access work needed to support broad prescribing is largely done. Gross margins on the drug itself are very high (about 93%), and the heavy early spending on sales, marketing and stock-based compensation that produced large losses in 2023-2025 has been shrinking steadily as a share of revenue each year. The most recent quarters show this playing out in practice: operating cash flow, which had been consistently negative since launch, turned solidly positive in the first half of 2026. Because the business is only two full years into commercialization, its reported cash earnings understate its durable earning power once the fixed costs of building a national sales and marketing infrastructure are spread over a larger, still-growing revenue base. We built three cases around that transition, using the pace of the company's own already-reported deceleration (year-over-year revenue growth has slowed from roughly 147% in 2025 to about 69% in the most recent reported quarter) as the discipline on how fast growth is assumed to fade, rather than assuming the recent torrid pace continues. In the base case, revenue growth decelerates further over the next several years toward a low single-digit rate by the end of the decade as the diagnosed and treated patient population matures, while selling and marketing costs continue falling as a share of revenue (though not all the way to the extremes of a fully mature drug company, given the size of the still-underpenetrated patient population). This produces a per-share value in the low $100s. The bear case assumes growth stalls out much sooner, marketing spend stays elevated as a share of a smaller revenue base, and the company's fixed-rate term loan (roughly $75 million, maturing in 2029, carrying a floating rate well above what a low-risk borrower would pay) has to be refinanced on worse terms or partly replaced with new equity -- producing a per-share value in the mid-$30s. The bull case assumes the recent execution -- strong payer coverage, a marketing campaign the company says is already generating a positive and growing return, and no approved competing product -- continues at a pace toward the high end of what the company has already demonstrated, producing a per-share value above $200. We gave no value to the company's earlier-stage pipeline (an ocular rosacea treatment now in a Phase 2 trial that began in December 2025, and an early-stage Lyme-disease program), since neither has reached a regulatory or commercial milestone that would let us price it responsibly; all of the value above rests on XDEMVY alone. We also stopped crediting any value beyond the roughly 2038 expiration of the company's owned composition-of-matter patents on the drug, since nothing in the filings tells us what, if anything, survives generic competition after that point -- the true value could be somewhat higher if some brand loyalty or switching-cost advantage persists, but we did not assume it. On the balance sheet, the company holds far more cash and short-term investments (about $417 million at the last year-end) than its roughly $75 million term loan, so it is in a net cash position; we treated that debt as costing more than a low-risk lender would charge given its floating rate structure, which modestly reduces its value versus face amount, but the large net cash cushion outweighs it in all three cases. Given this is a single-product company whose entire value depends on one drug's continued adoption and eventual patent life, we used a wide margin of safety in setting the margin-of-safety price, well below even our base-case estimate, to allow for the real risk that the growth and margin improvement path does not play out as assumed. One item we could not fully reconcile from the cash flow statement: a large part of the swing from operating cash outflow to inflow between 2024 and 2025 came from a fast buildup in accrued rebate and chargeback liabilities as sales scaled -- a normal feature of specialty-pharmacy billing, but one that means part of the recent cash-flow improvement is a timing benefit that will not repeat indefinitely at the same rate; we excluded it from our estimate of sustainable earning power rather than treating it as a permanent gain.