scPharmaceuticals: A Recent IPO With A Novel Drug Delivery Platform

| About: scPharmaceuticals (SCPH)

Summary

The company launched an IPO on NASDAQ raising $89.6M (1.4M shares at $14/share) recently.

Its platform is focused on providing subcutaneous delivery of commonly used intravenous drugs, allowing convenient at home administration and early hospital discharge.

We are initiating coverage on the common stock with a Buy rating and first price target=$26.

scPharmaceuticals (Pending:SCPH), a recent IPO on NASDAQ, is based in Burlington, MA. The company launched an IPO on NASDAQ raising $89.6M (1.4M shares at $14/share). Its platform is focused on providing subcutaneous delivery of commonly used intravenous drugs, allowing convenient at home administration and reducing the cost of hospitalization. Early investors in the company include OrbiMed Advisors, Sun Pharmaceuticals, and WellPoint.

Chart SCPH data by YCharts

(Source)

A novel drug delivery platform

Reducing hospitalizations due to acute heart failure

The problem: An estimated prevalence of heart failure, HF is about 23 million people worldwide and about 5.1 million people in the US. The annual incidence of HF is projected to increase over next 4 decades (about 772K new cases in the US in 2040), source; SEC filings. About 1 million hospitalizations are seen each year due to acute decompensated HF, DHF in the US every year. It is the leading cause of hospital admission among people >65 years of age.

Diuretics like furosemide are one of the cornerstones of the management of acute DHF. Early use of diuretics has been shown to improve outcomes. Usually, IV furosemide with a 2-3x dose of oral maintenance dose is required for acute DHF. Oral furosemide may not be well absorbed in acute DHF due to gut edema and thus IV form is needed. To receive the IV form of furosemide, the patient has to go to the hospital where he/she is usually admitted.

The cost of inpatient admissions for acute DHF is astronomical (about $30.7 billion in 2012) and is projected to increase to $69.7 billion in 2030. The total cost of HF treatment in the US is about $123 billion or 33% of annual Medicare expenditure. The company estimates that for every 10% of acute DHF patients managed outside inpatient setting, Medicare could save up to $1.5 billion per year (source: prospectus).

The solution: The company's lead product candidate is Furoscix, a subcutaneous formulation of furosemide which is delivered by a patented sc2Wear Infusor for acute DHF.

The sc2Wear Infusor comes preprogrammed for use with the prescribed medication to prevent user error. It has an advanced electronically controlled needle insertion and retraction mechanism. The micro-piston pump can be filled from a standard drug vial.

Furoscix does not have the burning and discomfort associated with the subcutaneous delivery of the current alkaline IV furosemide formulation. Furoscix has shown diuresis comparable to IV furosemide in clinical studies done so far (SEC filings). Each dose of furosemide is delivered over 5 hours, while the patient is ambulatory and free to do other activities. The patient can use Furoscix at home at the first signs of decompensation. This can avoid a visit to the ED and inpatient admission, and potentially allow early discharge from the hospital after the initial assessment and tests for acute DHF. The product has the potential to reduce the ballooning costs associated with inpatient treatment of acute DHF.

(PK data showing bioequivalence between Furoscix and IV furosemide)

In another investigator-sponsored study, Furoscix resulted in equivalent diuresis and weight loss compared to IV furosemide in patients with acute DHF presenting to an outpatient heart failure clinic (source: prospectus). A phase 3 open-label, single-arm, single-dose study of Furoscix was conducted in 74 adult HF patients. There were 4 cases in which the dose of Furoscix fell below the predetermined level (one due to dispensing failure, 3 due to undetected, incomplete filling of the sc2Wear Infusor, likely due to user errors). When the sc2Wear Infusor was filled adequately, 63 of 64 (98%) Furoscix infusions were within the pre-specified performance criteria (source: prospectus).

The infusion was also considered comfortable to use (secondary performance criteria).

In addition, there was a minimum impact on a subject's daily activities due to the Infusor use.

Although the phase 3 study did not meet the pre-specified endpoint due to reasons mentioned above, FDA accepted NDA for Furoscix in October 2017 (based on all clinical data) and scheduled PDUFA on June 23, 2018. The company is pursuing 505(b)(2) pathway for the approval based on existing clinical data for the drug. We are optimistic about the positive outcome of PDUFA. A 300-patient trial is ongoing and is investigating the impact of early discharge with continued diuresis with home administration of Furoscix compared to IV furosemide on clinical outcome and hospital length of stay in patients admitted to the hospital with acute DHF (data expected in H1, 2019).

Other applications of sc2Wear Infusor

scCeftriaxone: Ceftriaxone is a commonly used antibiotic for the treatment of gram positive and gram negative infections in inpatient setting including pneumonia and urinary infections. The global sales of ceftriaxone were $298 million in 2016 (Roche). The patent for its branded form Rocephin expired in 2005.

scPharmaceuticals has filed an IND for scCeftriaxone. A successful PK study has been completed and an additional phase 3 study is planned in 2019.

scCarbapenem: Carbapenem is a broad-spectrum antibiotic that is commonly used in inpatient setting for the treatment of gram negative infections. The annual sales of Primaxin (imipenem/cilastatin) is about $297 million.

scPharmaceuticals has completed IND-enabling studies for scCarbapenem. Patents for the company's SC infusion technology extend till 2034.

Financials

Cash reserves are expected as $113M after the IPO. Cash reserves are expected to be enough for 12 months. Net operating cash burn was $17.7M for first 9 months of 2017. There is $9.3M of a term loan and $2.1M of operating lease liability. Accumulated deficit is $60.1M. The outstanding common stock count is 17.6M.

(Income statement, from SEC filings)

(Balance sheet, from SEC filings)

Valuation of Furoscix pipeline

The target market for Furoscix was input as about 1M annual hospitalizations in the US and an equivalent number in the EU (SEC filings). A company survey indicated that 93% of target physicians would adopt Furoscix, if approved.

The company estimate for the cost of inpatient stay for acute DHF per day is about $2000 and it estimates about 1.3 days of inpatient stay could be reduced by using Furoscix. Our input for Furoscix per day's use was $1000, with each acute DHF case using it for 1.5 days (acute wholesale price, AWP per treated case=$1500). Using the average data for pharmaceuticals (Pharmagellan guide), we input average sales price, ASP as 74% of AWP or $1110. Assuming conservative 20% peak market penetration in the US, we modeled peak $200M risk-adjusted US revenue (2024). Using input of $500 ASP per treated case in the EU and similar market penetration (average per Pharmagellan guide), we modeled peak $90M of risk-adjusted EU revenue (2025).

To value scCeftriaxone, we assumed that it will be able to capture 20% of the ceftriaxone's global revenue or $60M (2025) or $18M (risk-adjusted at 30% probability for phase 2). We used a similar methodology to value scCarbapenem ($18M, 2025).

We calculated the fair value of equity=$448M or $26/share using diluted stock count.

We are initiating coverage on scPharmaceuticals common stock with a Buy rating and first price target=$26.

The stock has pulled back to IPO price and is attractive here considering near-term catalysts. There is no sell-side analyst coverage yet.

Risks: Although the phase 3 study did not meet its pre-specified endpoint due to the reasons mentioned above, FDA has accepted NDA for Furoscix​. We are optimistic about the positive outcome of FDA; still there is a small probability that FDA may ask for additional clinical data. In the clinical studies, most common side effects were injection site pain etc. Patients overall were comfortable with the use of the device, but these side effects need to be considered. Other competing therapies may arise and limit market share. Our estimated peak revenue and price target may not be achieved.

Disclaimer: This article is published for information purposes only. This article represents my own opinion and is not a substitute for professional investment advice. It does not represent a solicitation to buy or sell any security. Investors should do their own research and consult their financial advisor.

Disclosure: I am/we are long SCPH.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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