2023-06-29 23:05:38 ET
Summary
- scPharmaceuticals' Furoscix dose-filling rates increased by 55% month over month in May.
- Despite the lower figures than market expectations, SCPH stock price has fallen, but we expect an inflection point in 2H 2023 as more coverage is added.
- Risks to the company's growth and stock value include potential disappointment in future script numbers, delays in obtaining broad preferred formulary status for Medicare Part D plans, issues with prescriber education and adoption, and difficulties in expanding the sales force.
- The company's current cash holdings of ~$117m are comforting (quarterly cash burn only~11m) and we expect the company to expand its sales force further and ramp to accelerate in 2H'23.
- We maintain a buy rating and see the current weakness as a buying opportunity.
Update: uptake on the monthly Furoscix scrip trends (8-K) doesn't worry us
We are writing a short update to address the recent unexpected sell-off in the stock price and share why we are continuously optimistic about the launch success of Furoscix.
The management disclosed more concrete launch metrics in the company's 8-K statement , where the May data showed that Furoscix doses filled had increased 55% month over month. We believe this explains the recent weakness in the stock price, as the script numbers were lower than what the market anticipated. Still, we believe it is early to draw too many conclusions from the May number, and the recent negative price movement seems fairly dramatic and not driven by fundamentals.
Company 8-K (Company statement)
To provide more context, if we do a quick back of the envelop calculation, $38m would indicate around 6,000 scrips filled per month which is slightly higher than the 1,000 scrips per month, which is almost 3 times higher than the scrips filled in may (440 scripts and 230 filled during May).
2H 2023 is expected to be the inflection point with the tailwind from market access
However, it is important to note that 2H 2023 would be an inflection point, with UNH coverage starting on June 1 and Medicare kicking in on July 1st. Furthermore, the company is also pushing for Medicare part D plans, and prescriber education is ongoing. For Medicare part D, we believe the key focus should be securing a broad preferred formulary status (removing prior authorization requirements), which can facilitate physician prescribing faster and increase prescribing momentum (prescribers get discouraged if the administrative burden of prescribing increases with step edits and prior authorizations). Furthermore, the management plans to increase the sales force to ~55 from 40 (currently), which we believe can increase the prescriber coverage in the US from 40% to beyond 50%. Because heart failure clinics are fairly easy to target (compared to primary care providers) and the drug has unique positioning as the only available SC agent before IV therapy, it should allow the penetration to ramp up fast with wider coverage.
Consensus number
Biomedtracker consensus number ScPH (Biomedtracker)
Risks
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Script Numbers Disappointment: The company's Furoscix dose filling rates had increased by 55% month over month as per May data, but these figures were lower than market expectations, causing the stock price to dip. If future script numbers do not meet or exceed market expectations, this could pose a risk to the investment.
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Payer Coverage Risks: scPharmaceuticals Inc. (SCPH) is striving to expand payer coverage, including Medicare Part D plans. However, any delays or failure in obtaining broad preferred formulary status, which would remove prior authorization requirements and ease the prescription process, could adversely impact the company's growth and stock value.
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Prescriber Education and Adoption Risks: The company's strategy involves significant prescriber education efforts. If physicians do not adopt or prescribe Furoscix as widely or as quickly as the company anticipates, this could impact sales and market share, thereby affecting the stock value.
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Sales Force Expansion Risks: The company plans to expand its sales force from 40 to approximately 55 to increase US coverage from 40% to 50%. Any issues, delays, or difficulties in this expansion could affect the company's growth trajectory and hence pose a risk to the investment.
Conclusion
Net-net, we maintain a buy rating as a) the company is continuously executing on prescriber education, b) expanding market access and payer coverage, and c) clear clinical/health economic rationale around the drug in a highly attractive large volume heart failure market. We believe the 2H 2023 and 1H 2024 scrip numbers will continue toward the consensus number ($38m 2024 consensus), with both private and public payer coverage accelerating. We believe a small deviation from the trend (toward the consensus number) should be something investors should be worried about, and the current weakness offers an attractive entry point for long-term investors. Furthermore, we find the current cash holdings of the company, ~$117m, highly comforting as the company is only burning ~$11m in operating expenses (Q1 2023). From an operation standpoint, we see that there is further upside from the company allocating more resources to expanding the current sales force (~40 personnel). Although not a fundamental driver, the recent addition to Russell 2000 and Russell 3000 index should provide more passive demand for the stock moving forward.
For further details see:
scPharmaceuticals: Oversold Territory, Drug Launch Still Looks Robust