CTIC - CTI BioPharma: Q4 Missed Earnings But Compelling Progress In Market Launch

2023-03-31 08:21:20 ET

Summary

• CTI BioPharma reported Q4 2022 earnings with VONJO sales of $21.1 million, which missed consensus estimates. However, the slower quarter was attributed to seasonality in the oncology industry.
• Although sales growth slowed compared to the previous quarter, VONJO demonstrated strong new prescription growth in the community setting, with a significant amount of off-label use.
• Management expects the anemia data to drive adoption further and plans to submit its PACIFICA results to EMA, which is expected in 2026, with a projected EU launch in 2027.
• Risks include financing risk, intellectual property risk, and concentration risk due to CTIC's dependence on VONJO sales.

Q4 2022 Earnings Update

CTI BioPharma Corp. ( CTIC ) recently reported its Q4 2022 earnings with VONJO sales of $21.1 million, which missed the consensus of around $24m. During the earnings call, management attributed the slower quarter to 4Q seasonality, which is a common occurrence in the oncology industry, caused by doctors taking holidays and traveling for conferences. Although sales growth slowed compared to the previous quarter, new prescription growth in the community outpaced academic settings, with a significant amount of off-label use, which is a positive indicator for CTIC. Moreover, the management expects the anemia data to catalyze the adoption further. By the end of 2022, VONJO had provided commercial treatment to more than 1,000 patients, and over 90% of patients covered by both Medicare and commercial insurance plans were eligible for reimbursement, which further indicates the drug's increasing acceptance in the market.

Despite the missed sales estimate, CTI's cash and cash equivalents at the end of the quarter were $79.9 million, providing a strong financial foundation for the company's continued sales ramp and a potential M&A. Management anticipates that VONJO's sales and potential milestones will allow the company to turn cash flow positive by 2023, which demonstrates the company's focus on growth and profitability. Additionally, the company plans to submit its PACIFICA confirmatory trial results (expected in 2026) to EMA, with a projected EU launch in 2027.

The key takeaway from the investor Q&A

• Seasonality impacts for 4Q are due to holidays and the American Society of Hematology meeting, which takes doctors out of the office, causing a slowdown in business.
• They do not have data on whether off-label patients have anemia, and the company does not provide details on the threshold of the milestone payment from DRI.
• They expect growth to come from the community and getting better prognosis patients, and they are expanding their number of medical science liaisons to continue the conversation around the ACVR1 data.
• They had a price increase of approximately 9.9% on January 3rd, but they cannot comment on price increases for the rest of the year.
• The anemia data has been submitted to NCCN and is under review, and they expect a modification of the guidelines around midyear with the potential approval of momelotinib.
• There is no digital IP available for the anemia data as the composition of matter IP is robust, and the anemia data is not novel.

Update on FY 2022 Financials

CTIC generated $21.1 million in net revenue in Q4 and $53.9 million for the nine months of commercialization, all attributable to the sales of VONJO. The company noted some holiday seasonality towards the end of the year, which is typical for oncology drugs. VONJO product sales have led to a reduction in the company's overall operating loss in Q4 and the full year while the company continues to invest in SG&A for marketing and commercialization. As of December 31, 2022, the company had $79.9 million in cash, cash equivalents, and short-term investments, and the company received an additional $6.5 million in funding in January 2023 from the royalty agreement with DRI Healthcare Trust.

Risks

1. Financing risk: CTIC's operations and drug development pipeline require significant capital expenditures. Any difficulty in securing financings, such as debt or equity offerings, could impact the company's ability to fund operations or continue drug development programs.
2. Intellectual property risk: CTIC's patents and intellectual property are critical to its business operations. Any infringement on its patents or difficulties in securing or enforcing its intellectual property could negatively impact the company's revenue, competitive position, and financial performance.
3. Concentration risk: CTIC relies heavily on the sales of its primary drug, VONJO, for a significant portion of its revenue. Any adverse events related to VONJO, such as safety concerns or loss of market exclusivity, could significantly impact the company's revenue and financial performance.

Conclusion

Net-net, despite the missed sales estimate for Q4 2022, CTI's VONJO has demonstrated strong sales growth, particularly in the community setting, and is expected to continue to drive sales growth with increasing community adoption and off-label use. Based on the anemia benefit previously demonstrated in phase 2 trials and further data presented at ASH, we believe the drug to be well positioned to penetrate into the anemia segment (as an off-label) and compete with momelotinib from GSK ( GSK ). Furthermore, we see a lucrative market expansion optionality in myelofibrosis patients with a platelet count of 50-100×10^9/L. Net-net, based on the weak price action that we have seen since early March, a -20% decline, we upgrade CTIC to a buy rating from a hold rating.

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