CAH - scPharmaceuticals: Furoscix Firing On All Cylinders In Q1 Bullish Than Ever

2023-05-20 00:15:35 ET

Summary

• SCPH's Furoscix, despite just launching, defied street consensus with an impressive $2.1M revenue in 1Q23, indicating a promising ramp trajectory.
• Witnessing a substantial increase in Furoscix's prescriptions and robust demand, supported by a growing sales force, hints at a sound growth strategy.
• Despite market access apprehensions, SCPH secured positive coverage from top national commercial health plans and Medicaid, which is anticipated to bolster their sales ramp in 2H 2023.
• Financially, SCPH reported a less-than-expected $0.30 loss per share in 1Q23, alongside a decent $75M cash reserve, positioning them well for at least two years of runway.
• Despite first-time launcher risks, SCPH's potential outshines the concerns, advocating our maintained "Buy" rating.

Q1 earnings update and our take

After analyzing the Q1 2023 earnings , we are maintaining a buy rating on scPharmaceuticals (SCPH), given the promising launch trajectory of Furoscix, their lead commercial cardiovascular product. Furoscix yielded a healthy $2.1M revenue in 1Q23, marking an auspicious start to its market introduction in February 2023, following FDA approval for treating fluid congestion in chronic heart failure patients. The revenue exceeded the street consensus of ~$1.8M, underscoring the initial inventory build by Cardinal Health (CAH), SCPH's third-party logistics provider.

Furoscix's sales ramp was highly compelling, supporting our initial view, at the end of 1Q23, there were 381 prescriptions written by 194 prescribers (total and unique prescribers), with a sustained increase in scripts and units sold into 2Q. This robust demand, coupled with the company's deployment of 41 field sales representatives and the planned addition of more reps, signifies a firm growth strategy that can translate to a continued earnings beat.

Also, we remind readers that the biggest concern we raised was market access (payer coverage and reimbursement), considering the company's limited commercial track record and small commercial force (~40-50 sales raps). We find it reassuring that the company secured positive coverage and a preferred formulary decision by a top five national commercial health plan (effective from June 1) and Medicaid coverage for Furoscix (from July 1). We believe this signifies better than expected speed of payer coverage (both in private and public payer front), boding well for the 2H 2023 sales ramp. We expect the company to announce additional coverage decisions; for example, the company's ongoing engagement with other commercial payers and Part D will yield positive reimbursement decisions considering the strong health economic rationale from the FREEDOM-HF trial . The FREEDOM-HF trial demonstrated a reduction in heart failure hospitalization (by 37%) and lowered costs meaningfully.

Please read our initiation report from Jan 2023 for a more detailed analysis of the company's pipeline candidate and clinical data.

Financials

scPharmaceuticals reported a $0.30 loss per share in 1Q23. Expectedly, R&D expenses fell by 51% year-over-year to $2.1m (from $4.3m during 1Q22), and G&A expenses rose by 277% year-over-year to $10.9m (from $2.9M in 1Q 2022). The company currently holds around $75m of cash (as of March 2023), and we believe this would be enough runway until the company reaches cashflow positive status and at least for ~2 years.

Risks

1. Commercial Adoption Risk: SCPH's growth largely depends on the successful commercial adoption of Furoscix. The adoption could be slower than anticipated due to a variety of factors, such as limited market acceptance, competition, or potential side effects. The success of SCPH's sales strategy, including the effectiveness of its sales representatives, is also critical.

2. Dependence on a Single Product: Currently, SCPH's most developmentally advanced asset is Furoscix. Their financial condition and future growth largely rely on the commercial success of this product. If it fails to meet the market expectations or if there's a product recall, it could pose a significant financial risk.

3. Regulatory Risk with Ceftriaxone: Ceftriaxone, one of SCPH's pipeline products, has not yet received FDA approval. The product's advancement into pivotal trials may be delayed, or the trials may produce negative or inconclusive results, jeopardizing the potential revenue from this source.

4. Formulary Coverage Risk: SCPH's strategy assumes broad insurance coverage of Furoscix. The company is engaging with commercial and Part D payers to expand coverage, but there is a risk that some large insurance providers might deny or delay the inclusion of Furoscix on their formularies. If SCPH can't secure widespread formulary coverage, it could impact the sales and financial performance.

Conclusion

We are keeping a firm "Buy" rating on SCPH stock moving into 2H 2023. The company's cardiovascular crown jewel, Furoscix, is striking gold with a $2.1M revenue within Q1 2023, outpacing street expectations. The Furoscix sales engine is accelerating, backed by a growing force of field reps and a surge in prescriptions. Overcoming the obstacles of market access, SCPH has bagged positive coverage decisions from top-tier national health plans and Medicaid, illuminating a promising horizon for their sales growth. Also, let's not overlook the strong health-economic evidence from their FREEDOM-HF trial. SCPH financially holds sufficient cash reserves to fuel the company's growth until cashflow positive. Granted that first launcher risks persist, but the upside potential - with successful Furoscix adoption, broader formulary coverage, and regulatory approval for pipeline products - makes SCPH an investment prospect with promising returns.

Please read our initiation report from Jan 2023 for a more detailed analysis of the company's pipeline candidate and clinical data.

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