TVTX - Calliditas Therapeutics: First Quarter Not As Bad As It Looks

2023-05-31 12:07:41 ET

Summary

• Shares of Calliditas Therapeutics plunged after the company missed Q1 revenue estimates.
• The quarter was better than it looks and the company saw record new patient enrollments for Tarpeyo.
• It was also too early for the recently reported 2-year eGFR data to have a positive impact on prescriptions or net sales.
• Calliditas is still well-positioned to grow and deliver shareholder value in the following quarters and years.

Shares of Calliditas Therapeutics ( CALT ) plunged after the company missed the first quarter revenue estimates by $3.9 million. However, the results are not nearly as bad as they seem as Tarpeyo net sales were impacted by the seasonal headwinds in the first part of the quarter. Demand was strong and the company generated a record number of new patient enrollments, but most of the new patients came in at the end of the quarter and many did not have a chance to generate a paid Tarpeyo prescription.

I continue to see Calliditas as well-positioned to deliver shareholder value in the following quarters and years and expect Tarpeyo to deliver significant sequential growth in the second quarter and measured increases in the second half of the year, followed by another boost in 2024 driven by the likely full approval that includes the recently reported positive 2-year eGFR data.

Calliditas is trading at around 7x this year's revenue estimate and around 3x next year's revenue estimate, and it could become profitable by late 2023 or early 2024. Provided it meets next year's revenue and EPS estimates, it would trade at around 7x next year's EPS.

Sales miss masked a good first quarter

Tarpeyo net sales grew 11% sequentially to $18.4 million, missing the $22.3 million consensus.

In my previous article , I said we need to see how it did in the first quarter to have a better idea of its performance potential in 2023 and that patient and revenue growth rates in the second half of 2022 point to sales trending toward the lower end of the guidance range. However, I also said that the 2-year results should increase the demand for the drug in the second half of the year.

What I said still stands. The demand for Tarpeyo in the first quarter was strong, but it appears the first half of the quarter was soft and that a lot of the prescriptions came in March. That left the company without revenues from patients who were prescribed Tarpeyo and did not get the prescription filled until April and many patients filled only one paid prescription. These demand dynamics in combination with Tarpeyo being on the market just long enough to see the initial cohort of patients stop taking the drug coupled with the seasonal dynamics that impact demand for most drugs resulted in Tarpeyo falling short of the analyst consensus.

It was also too early for the 2-year results of Tarpeyo that the company announced in March to have a significant impact on prescription or sales numbers.

Management reiterated the full-year guidance range of $120 million to $150 million and it still looks like sales will fall into that range.

If we look at the underlying demand, Q1 was the best quarter for Tarpeyo since its launch. The company generated 408 enrollments, a significant sequential increase over 309 in the fourth quarter. I would expect this positive trend to continue in the following quarters, helped primarily by the mentioned availability of 2-year data as well as the recently expanded sales force.

Other than presenting the data at scientific and medical conferences, Calliditas cannot promote the 2-year data until the data are included in Tarpeyo’s label. The company expects to submit the sNDA in July and it will ask for Priority Review which could shorten the review period from ten months to six months, and if all goes well, the sales team should be able to promote the significant eGFR benefits as early as January 2024 if the FDA grants the application Priority Review, or May 2024 if it does not. Being able to promote the positive eGFR data should provide another sales boost in 2024.

Another reason to be optimistic about Tarpeyo’s growth trajectory is that patients are staying on the drug beyond nine months. I mention this as patients were taking it this long in the phase 3 trial, but management noted that physicians do not consider this as a cutoff date and that many patients are staying on Tarpeyo well beyond nine months. The duration of treatment depends on disease severity and patients with more severe disease are more likely to stay on Tarpeyo longer.

Overall, I am pleased with record patient enrollments in the first quarter and expect a strong second quarter for Tarpeyo and an additional boost in growth rates in the second half of the year driven by the presentations and publications of the 2-year data at scientific and medical conferences.

Conclusion

Tarpeyo’s first quarter was not as bad as it looks and the record quarterly patient enrollments point to a stronger net sales trajectory in the following quarters. There was also not enough time for the 2-year eGFR data to find their way to physicians and to impact demand. The availability of the data and the likely FDA approval next year that will allow the company to promote the eGFR benefits are the main catalysts for net sales growth in the following quarters and years.

I should also note that competitor Travere Therapeutics ( TVTX ) reported that Filspari (sparsentan) failed to show an eGFR benefit in patients with focal segmental glomerulosclerosis ('FSGS'). This is not the same disease as IgA nephropathy for which Tarpeyo and Filspari are approved, but I believe that failure in FSGS increases the probability of Filspari failing to show positive eGFR data in IgAN patients. If that turns out to be the case, Tarpeyo's competitive positioning in the IgAN market would improve.

And lastly, Calliditas remains in good financial shape. It ended the first quarter with $98 million in cash and equivalents and needs Tarpeyo net sales to reach a $40 million or so quarterly revenue run rate to achieve cash flow breakeven. This could happen as soon as Q4 2023 if Tarpeyo sales come at the low end of the $120-$150 million guidance range or as soon as Q3 2023 if sales are closer to the mid-point or the high-end of the guidance range.

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