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Introduction
I give a hold rating to scPharmaceuticals Inc. (NASDAQ:SCPH). Big gains were made in the riskier early stages of clinical development. I am unsure of how much market share the company will be able to win, considering that there is a generic drug competing in the same market. I am waiting to see how drug sales begin before I fully decide on my position.
SCPH is a pharmaceutical company that engages in the development and commercialization of various pharmaceutical products. The company’s lead product, FUROSCIX, approved on October 10th by the FDA, consists of a Furosemide formulation delivered through an on-body infusor to treat congestion in patients with heart failure. Currently, the company sits on $56 million in cash and short-term investments with $15 million in liabilities. The 2nd quarter of 2022 saw a $9.7 million loss, which should start to turn around with the recent approval. The company currently sits at a $110 million market cap with its recently approved drug in a competitive $5.9 billion addressable market.
Furoscix
Furoscix is LASIX, the widely used and prescribed hospital-administered drug that can be injected subcutaneously at home. Lasix’s generic name is Furosemide, a diuretic for people with congestive heart failure. The highlight of SCPH’s clinical trial was “FUROSCIX demonstrated 99.6% bioavailability (90% CI: 94.8%-104.8%) and 8-hour urine output of 2.7 L, which was similar to subjects receiving intravenous furosemide.” The hope is that Furoscix is a cheaper, more straightforward solution and, at a minimum, a backup option when generic Furosemide does not work. The cost savings from the trial can be seen,
Patients were treated with the Company’s investigational Furoscix, post-discharge from the emergency department, compared to a historical comparator group treated with intravenous furosemide in the inpatient hospital setting. The mean difference in heart failure-related costs between the two groups was $17,753 per study subject, favoring the Furoscix group.
Furoscix is expected to sell for $2,800 a pop. I think this company’s potential is not as big as some believe. The generic version of Lasix can be found for $4.20 for 30 tablets on Mark Cuban’s Cost Plus drug company. I give SCPH a hold rating because I want to wait and see how the company’s sales look.
Recent Approval
On October 10th, SCPH released a press release stating the FDA has approved their drug. Below are highlights from that press release,
The U.S. Food and Drug Administration (FDA) has approved FUROSCIX® (furosemide injection), a proprietary formulation of furosemide delivered via an On-Body Infusor for the treatment of congestion due to fluid overload in adults with New York Heart Association Class II/III chronic heart failure. FUROSCIX is not indicated for emergency situations or in patients with acute pulmonary edema. FUROSCIX Infusor will deliver only an 80-mg dose. FUROSCIX is the first and only FDA-approved subcutaneous loop diuretic that delivers IV equivalent diuresis at home via the FUROSCIX Infusor.
CEO John Tucker had the following to say,
Congestion due to worsening heart failure is one of the most common causes of hospital admissions in patients over 65, and today’s approval of FUROSCIX represents an important treatment advancement for the over seven million heart failure patients in the U.S. that will be able to self-administer IV equivalent diuresis at home… We are preparing to optimize commercialization efforts to offer FUROSCIX to patients in the first quarter of next year [Q1 2023] with the goal of driving rapid patient adoption to meet the needs of the $5.9 billion addressable market in the U.S.
William T. Abraham, M.D., Professor of Internal Medicine (Cardiology), Physiology and Cell Biology and College of Medicine Distinguished Professor at The Ohio State University and scPharmaceuticals Board member believes,
This marks a tremendous opportunity to improve the at-home management of worsening congestion in patients with heart failure who display reduced responsiveness to oral diuretics and require administration of intravenous diuretics, which typically requires admission to the hospital… The FDA’s approval of FUROSCIX is significant and will allow patients to be treated outside of the hospital setting, and I look forward to incorporating it into my own practice as quickly as possible.
Debt Agreement
On October 10th, SCPH announced that they had entered into a binding term sheet with Oaktree Capital Management, L.P., for $100 million in secured debt. SCPH is planning to use the funds from this loan and the cash the company currently has to repay its existing loan and primarily launch its approved drug, which is mentioned above, FUROSCIX.
Per the terms of the binding term sheet, Oaktree is expected to provide scPharmaceuticals with $50 million immediately upon signing of the definitive agreements. The remaining $50 million would be made available in two additional $25 million tranches based upon the achievement of pre-specified commercial milestones. The debt facility is expected to carry an interest rate equal to the three month secured overnight financing rate (SOFR) plus 8.75%, with the interest rate capped at 11.75% per annum. Following the achievement of $100 million in trailing twelve-month U.S. net sales of FUROSCIX, the interest rate margin will be lowered to 8.25%. The debt facility is expected to mature five years from funding and carry a 36 month interest-only period.
The CEO, John Tucker, stated in the announcement,
With FUROSCIX now approved for marketing in the U.S., we have transitioned to a commercial stage company and combined with our current cash balances, this flexible financing provided by Oaktree will provide us with the resources to help drive a very robust commercial launch in the near term… We firmly believe that FUROSCIX will fundamentally change the treatment paradigm for worsening heart failure due to congestion by significantly reducing the complications and costs associated with hospital admissions, a significant percentage of which are unnecessary. We will work tirelessly to make FUROSCIX available to patients who can benefit from it as expeditiously as possible.
The Managing Director of Life Sciences Lending at Oaktree, Steve DeNelsky, also added,
We are pleased to be partnering with scPharmaceuticals during this transformatory period marked by the recent approval and upcoming launch of FUROSCIX… After a lack of innovation for several decades in the management of congestion due to fluid overload in heart failure patients, FUROSCIX represents an innovative breakthrough that now enables subcutaneous delivery of furosemide outside the hospital. Through this extension of capital, Oaktree looks forward to supporting the Company’s leadership team in making this novel therapy available to adult patients across the United States.
This is a big loan to be taken, and with such high-interest rates, it is not on the most favorable terms. The market seems to be buying the rumor selling the news pattern regarding SCPH’s drug approval, and this unfavorable financing agreement has led to an even more violent sell-off. The big concern is the company could pay more in interest for the foreseeable future as revenues build. It will take time for Doctors to convert to prescribing this drug; as a result, payment will only slowly trickle in at first. Most companies in similar positions would partner with a Big Pharma company to help deal with distribution rather than doing it themselves. Like Aaron Judge did this season in baseball, SCPH is betting on themselves in a “contract year.” The bulls can only hope that the results turn out as much in favor of SCPH as they have for Aaron Judge.
Risks and Conclusions
Much of the risk of an early-stage biotech company has been lifted with the news of SCHP’s drug approval. Revenue will start flowing into the company, and the company should begin to earn a profit. The risks lie in whether or not the company can capitalize on the approval and achieve good sales numbers. I have my doubts as there is a very cheap generic drug they are competing against. My concern has led me to give a hold rating as I watch how the first sales go.
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