scPharmaceuticals Inc. (NASDAQ:SCPH) Q3 2022 Results Conference Call November 9, 2022 4:30 PM ET
Company Participants
Hans Vitzthum – IR
John Tucker – CEO
Rachael Nokes – SVP, Finance
Steve Parsons – VP, Head of Commercial
Conference Call Participants
Roanna Ruiz – SVB Securities
Glen Santangelo – Jefferies
Douglas Tsao – H.C. Wainwright
Naz Rahman – Maxim Group
Operator
Greetings, and welcome to the scPharmaceuticals Third Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Hans Vitzthum. Thank you, Mr. Vitzthum. You may begin.
Hans Vitzthum
Thank you, operator. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. All statements on this conference call, other than historical facts, are forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding scPharmaceuticals expected future financial results and management’s expectations and plans for the business and FUROSCIX. The words anticipate, believe, estimate, expect, intend, guidance, confidence, target, project and other similar expressions are used typically to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to certain risks and uncertainties and other important factors that may affect scPharmaceuticals business, financial condition and other operating results.
These include, but are not limited to, the risk factors and other qualifications contained in scPharmaceuticals’ annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by the company with the SEC to which your attention is directed. Actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Any forward-looking statements made on this conference call, including responses to your questions, are based on current expectations as of today, and scPharmaceuticals expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. It is now my pleasure to turn the call over to Mr. John Tucker, Chief Executive Officer of scPharmaceuticals. John?
John Tucker
Thank you, Hans, and thanks to everyone listening to this afternoon’s call and webcast, our first in the history of our company. I will begin with an operational overview, including a recap of recent development, and Rachael Nokes, our SVP of Finance, will follow with a brief review of our financials. The October FDA approval of FUROSCIX, the first and only self-administered subcutaneous loop diuretic for the at-home treatment of congestion in chronic heart failure, represents the culmination of years of unwavering effort on behalf of the entire scPharmaceuticals team. We have successfully developed what we believe is to be a truly significant advancement in the management of heart failure. FUROSCIX offers a treatment option outside of the hospital, either pre- or post-admission. By reducing preventable hospital admissions and readmissions, we have the potential to effectively treat patients in the comfort of their own homes and potentially deliver significant cost savings for payers. Given that the benefits of FUROSCIX can accrue to multiple healthcare stakeholders, we anticipate positive uptake and are preparing for a robust commercial launch of FUROSCIX.
It is worth noting that we are very pleased with the final approved package insert and label, which we believe allows us to pursue the large population of New York Heart Association Class II and III heart failure patients who may stand to benefit from this novel treatment. For those who may be new to the scPharmaceuticals story, FUROSCIX is our proprietary formulation of furosemide that is designed to be administered by an on-body infuser, West Pharmaceutical Services proprietary SmartDose on-body drug delivery system technology. Furosemide is the most widely used oral and parental diuretic available for patients with congestive heart failure, but the bioavailability of oral furosemide decreases and becomes highly variable during episodes of worsening symptoms. However, by enabling subcutaneous administration via the West SmartDose on-body delivery system technology, we have been able to achieve greater than 99% bioavailability, comparable to that of an IV bolus, which is typically administered in a hospital setting. So with FUROSCIX, the patient can receive IV comparable treatment in the comfort of their own home when oral furosemide isn’t sufficient. It has been estimated that up to 90% of patients presenting to the emergency department with symptoms of worsening heart failure are admitted to the hospital, and 50% of these admissions may be potentially avoided. Heart failure is therefore a significant pain point for healthcare payers.
The average cost of a heart failure-related hospital admission for a Medicare patient is nearly $19,000, and heart failure is a top condition that is being targeted by the Centers for Medicare and Medicaid Services under its Hospital Readmission Reduction Program, or HRRP. Heart failure’s also a significant burn to hospitals. The average length of stay is 5.2 days, while CMS reimburses just 3.9 days under the current DRG. Hospitals also face significant exposure to financial penalties resulting from readmissions under the HRRP program just referenced. So to demonstrate the magnitude of the cost savings that can potentially be realized with FUROSCIX, we ran a prospective clinical trial, FREEDOM-HF, the results of which we read out in July of last year. To summarize the key takeaways, select patients who present at the emergency room with a worsening heart failure event were treated with FUROSCIX at home as opposed to being admitted to the hospital. Heart failure-related costs were then tracked for 30 days.
As compared to historically matched comparators, patients we treated with FUROSCIX had a heart failure-related costs that were lower by an average of $16,995. Though this figure excludes the cost of FUROSCIX, which had not been established at the time of the study completion, the conclusion is unchanged. By more aggressively treating patients outside of the hospital, where possible, significant healthcare costs can be avoided. Notably, this result was achieved with a very high level of statistical significance. And in fact, based on the results from a planned prespecified interim analysis conducted to confirm the final sample size, and following input from statisticians, principal investigators, payer advisers and health economics and outcomes research experts, enrollment was terminated early at 24 subjects versus the original enrollment target of 34. The final analysis, therefore, included 24 subjects treated with FUROSCIX and 66 matched comparators based on 7 variables associated with hospitalization. More recently, we announced positive results from a Phase II pilot study, AT HOME-HF.
This study compared FUROSCIX with treatment as usual approach in chronic heart failure patients presenting to a heart failure clinic with worsening congestion requiring augmented diuresis. Study enrolled 51 subjects of which 34 received FUROSCIX and 17 received treatment as usual. Along the key findings, subjects randomized to FUROSCIX had a 37% reduction in the risk of a heart feature hospitalization at Day 30 relative to patients randomized to treatment as usual. In addition, all predefined secondary endpoints measuring symptoms of congestion, quality of life and functional status favored the FUROSCIX group. Needless to say, we were very pleased with the results of these studies, which added significantly to the growing body of clinical and pharmacoeconomic evidence favoring the FUROSCIX versus the current standard treatment protocol. Our presence at important medical meetings is key to our efforts to drive awareness of FUROSCIX as a new element of the heart failure treatment paradigm.
To that end, last month we presented 2 posters at the 2022 Annual Scientific Meeting of the Heart Failure Society of America. This is among the most important, well-intended gatherings of heart failure experts each year. We also had a large coming-soon campaign that allowed us the opportunity to drive both brand and name awareness in anticipation of the FUROSCIX launch. Turning now to the total addressable market. There are approximately 7.2 million heart failure patients in the U.S. who experience approximately 4.1 million heart failure episodes of fluid overload per year.
Of these, we estimate 2.1 million episodes to be addressable by FUROSCIX. If we assume an average cost of FUROSCIX of approximately $3,300 per episode, the equivalent of 4 doses, at a WACC price of $822 per dose, that yields an addressable market opportunity of $6.9 billion. So we believe there is a substantial amount of opportunity here, and we believe FUROSCIX, once launched, will be adopted rapidly. Turning now to our launch preparation activities. We are working towards a broad commercial launch of FUROSCIX in the first quarter of 2023. We have completed or are in the process of including several important activities associated with the launch.
Beginning with distribution. We’ve identified Cardinal Health as our third party logistics provider. We are building a limited specialty pharmacy network with BioMatrix serving as lead specialty pharmacy. In terms of reimbursement, we have held productive discussions with the largest provider of Medicare Part D plans. With our compelling pharmacoeconomic data, such as those that we obtained from our FREEDOM-HF study, we have P&T committee meetings arranged with a number of the top payers this quarter.
As we indicated previously, given the strong clinical and pharmacoeconomic case we made for FUROSCIX as a key component of updated heart failure treatment regimen, we anticipate few obstacles in securing favorable formulary placement. From a marketing perspective, we rolled out our comprehensive coming-soon campaign at both the recent Heart Failure Society of America Annual Meeting and the American Heart Association Scientific Sessions that generated encouraging interest. Our MSLs have been busy in the field and have already made contact with over 500 key opinion leaders in the heart failure space in 2022.Finally, in terms of sales team and infrastructures. We have hired a highly qualified VP of sales in what I regard as top-tier regional sales directors. We also have contingent offers out to approximately 40 field territory sales representatives. We are advancing a comprehensive, multifaceted launch plan that we believe positions us well to maximize our reach broadly to both heart failure physicians and patients. To ensure that we have the resources available to support our launch and commercialization plan, we entered into a $100 million secured debt facility with funds managed by Oaktree Capital Management on October 13, 2022, at which point $50 million became payable to us immediately.
The remaining $50 million becomes available in 2 $25 million tranches, each tied to the achievement of prespecified commercial milestones. The debt facility carries an interest rate equal to the 3-month secured overnight financing rate, SOFR, plus 8.75% with the interest rate capped at 11.75% per year. Following the achievement of $100 million in trailing 12-month U.S. net sales of FUROSCIX, the SOFR premium will be lowered to 8.25%. The debt facility is expected to mature 5 years from funding and carries a 36-month interest-only period.
We believe these terms are favorable to our company, and we are very grateful for the support of Oaktree at this transformational time. At this point, I’ll turn the call over to our Senior Vice President of Finance, Rachael Nokes, for a review of our third quarter results and financial position. Rachael?
Rachael Nokes
Thanks, John. As of September 30, 2022, we held $45.4 million in cash, cash equivalents, restricted cash and investments. This excludes any net funds received from Oaktree per our debt financing agreement as previously discussed. Now I will cover a few income statement items. We reported a net loss of $10.2 million for the third quarter of 2022 compared to a net loss of $6.6 million for the comparable period in 2021.Research and development expenses were $3.7 million for the third quarter of 2022 compared to $3.7 million for the comparable period in 2021.General and administrative expenses were $6.3 million for the third quarter of 2022 compared to $2.2 million for the comparable period in 2021. The increase in general and administrative expenses for the quarter ended September 30, 2022, was primarily attributable to an increase in employee-related costs and commercial preparation costs. Based on our current operating plan, we have adjusted our 2022 net loss to $38 million to $41 million, a decrease over prior guidance of $43 million to $48 million. As of September 30, 2022, we had 27,402,121 total shares outstanding. That concludes the financial update. John?
John Tucker
Thanks, Rachael. This concludes our prepared remarks. At this point, we will open the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Roanna Ruiz of SVB Securities.
Roanna Ruiz
So a couple quick questions on FUROSCIX and the patient types that you expect in the beginning of the launch. Could you just go over what the features you expect to see in the early adopter patients in first quarter when FUROSCIX launches?
John Tucker
Sure, Roanna. I’ll have Steve answer that question. Steve?
Steve Parsons
Yes. I think the largest absolute patient volume for FUROSCIX is the patients pre-hospitalization who are worsening. They are on oral diuretics. Despite that background therapy, they’re still increasing in symptoms and signs and the severity. And that will be the best opportunity for FUROSCIX to intervene and reset their fluid status and help them stay at home and avoid having to go to the ER or the hospital.
There’s also a good population of patients who do reach the hospital. They’ve been treated, stabilized and they’re discharged. We know a significant portion of those, 25%, 30% of them are readmitted within 30 days. And those patients would also benefit from FUROSCIX in the post-discharge setting if there’s any increase in signs and symptoms of fluid overload.
Roanna Ruiz
Got it. Helpful. And I was also curious, anecdotally, what are you hearing from KOLs and physicians regarding FUROSCIX’s label? And also particularly curious what you’re hearing about the monitoring recommendations, because my sense is it did seem fairly flexible. So if you could elaborate on that, that’d be great.
John Tucker
Okay. Thanks, Roanna. I’ll have Steve answer that again.
Steve Parsons
Yes. The folks who have looked at the label are very pleased with it. They don’t see anything that is out of the ordinary. It’s routine monitoring as they do now with an escalation of oral diuretics or addition of non-loop thiazide diuretic. So when they see the label, they just see it as routine and normal. They’ll do what they normally do today without FUROSCIX when they do prescribe FUROSCIX, and that’s to order labs within a couple days of escalating care.
Roanna Ruiz
Got it. Makes sense. And last one for me. I was curious on the commercial scale-up side. How many devices do you plan to have ready for a launch in first quarter?
John Tucker
Yes. So we plan to, when we launch, have about 6 months of inventory ready to go at launch and then continually update that as we sell through it.
Operator
Our next question is from Glen Santangelo of Jefferies.
Glen Santangelo
John, last time we spoke, I think you sort of talked about already having roughly a 40-person sales infrastructure — sales force ready to go. I was wondering if you can give us an update there. And then maybe if you’re expecting — when are you expecting to start incurring the expenses around that? And do you expect to start generating revenues in the first quarter? Because I think you said you already chose Cardinal Health as your distributor with — to distribute to specialty pharmacy networks.
Will you start booking revenues immediately once you start selling to Cardinal? So I’m just trying to get a sense for how we should think about the income statement sort of evolving right around the launch.
John Tucker
Sure, Glen. This is John. So I’ll try to take all of those. So we would recognize the revenue we sell to — not to Cardinal. Cardinal’s our third party logistics, but when it’s sold to the specialty pharmacy and they take title. And as far as the reps, yes, we have contingent offers out to all of those representatives. We’re planning to launch in Q1. So we anticipate having revenues in Q1 and having that sales force cost hit us in Q1 as well.
Glen Santangelo
Right. All right. So just back to sort of the inventory question. I mean, if you’re going to start generating revenues once the specialty pharmacy take title, will you start shipping in 1Q, so we should see the revenues start right in 1Q? And then consistent with that, should we — you have the agreements already in place with the sales people. Should we start to see the expenses matching that in the first quarter?
John Tucker
Yes. Yes. We would book the revenue in the first quarter and see the sales force costs hit us in the first quarter as well.
Glen Santangelo
And any — I know you don’t want to give 2023 guidance at this point, but any sort of high level thoughts in terms of how we should think about the cadence of the launch as we roll through 2023?
John Tucker
Yes. So we haven’t given guidance. We are planning to give updates. We’ll give updates as they come along on big managed care plans. And then we’ll have a series of key performance indicators that we’ll announce quarterly. Steve, do you want to kind of hit some of those high-level KPIs?
Steve Parsons
Sure. Of course, gross sales and net sales. We’ll talk about the number of total doses, the average number of doses per prescription. The payer formulary coverage, the percentage of lives that have access. We’ll talk about out-of-pocket costs to our patients. The number of unique prescribers as well as the number of new prescribers. The number of unique patients and the number of repeat patients. So we’ll update that each time we talk with you guys.
Operator
Our next question is from Douglas Tsao of H.C. Wainwright.
Douglas Tsao
Just maybe, John, as a starting point, in terms of the field force, once they get out into the field, how long do you think it will take for them to make initial contact with the target audience?
John Tucker
Doug, it’s John. I guess I’m going to have Steve answer that one, too. Steve?
Steve Parsons
Yes. There’s some pent-up demand already. People are reaching out to us, asking when they can begin to prescribe, when they can get access to it. So we’ll make contact with the prescribers, with the HCPs in the first week on the job. And there’s a lot of interest here. This is not a me-too. It’s very disruptive. There’s a big unmet need, and we’ve had a lot of time to increase awareness of the product. So, right away.
John Tucker
Yes. And Doug, we did — we’ve been doing a coming-soon campaign to drive awareness of the name and the brand. And again, the FUROSCIX name really tells people what it does, right? Furo, furosemide, SC for subcutaneous. So we’ve been doing that digitally. We were big at the HFSA meeting. And so we think that we’ve driven in. And our MSLs that have been out in the field made over 500 contacts with KOLs over the last couple of months. So we think we’re doing a lot to drive awareness now.
Douglas Tsao
And I get it, but I guess how long before your target number of docs or providers do you think you’ll have that initial sort of face-to-face interaction? Do you think you can accomplish that all in the first quarter, several weeks? I’m just curious about how you’re sort of mapping out that.
Steve Parsons
Yes. We intend to reach our entire target list with a face-to-face conversation in the first 3 months of promotion. A lot of them, 2 and 3 times.
John Tucker
Yes, we super target for the real high prescribers, and we’ll see them at launch as often as weekly, Doug.
Douglas Tsao
Okay. Great. That’s helpful. And just maybe some color on some of the initial interactions with payers now that you are an approved price, you have a WACC in the market, and just how those are going and what you — how we should think about the reimbursed access landscape.
Steve Parsons
Yes. The interaction with payers has been — has exceeded our expectations. We’ll have P&T formulary meetings and decisions made with a couple of the biggest Medicare Part D PBM plan combinations in November, and they don’t have to do that. They’ve all scheduled expedited meetings. Typically it’s 3 months, 4 months, 5 months.
We’re getting — we were just approved in October, and we’ll have meetings, P&T decision meetings in November and more in December. Before we launch in Q1, we’ll have formulary decisions, and we expect those to be positive. All indications are that they’re going to be positive. They recognize the unmet need. They see the cost effectiveness of this product relative to the alternative, which is going to ER and hospitals. So yes, we’re pretty bullish about it.
John Tucker
Yes, Doug. And I’ve been following this. I think we’re really bullish on the fact that they’re scheduling these meetings so quick, these P&T committee meetings. I’m not waiting for a script or anything. They’re going. So we’re very encouraged by what we’re hearing.
Douglas Tsao
Okay. And any sense of where in terms of what — is it going to be a prior auth? Are they going to ask for approval on the label to be failure of oral furosemide first?
John Tucker
Well, they might on the oral, but that’s fine because that’s how the product’s indicated. If they fail oral, they’re going to — this is why they need it. Because our goal, again, is to get them back on that generic oral as soon as they can without them being hospitalized. So we don’t think that’s an issue for us at all because all of these patients would have failed oral diuretics to be there.
Douglas Tsao
So I guess the — and no other sort of burdensome requirements in terms of step edits for you?
John Tucker
Not that we’re hearing, no.
Douglas Tsao
Congrats on the —
John Tucker
Thanks.
Operator
Our next question is from Naz Rahman of Maxim Group.
Naz Rahman
This is my question. Those 10 payers that you’re meeting with, could you give us some color on how many covered lives they represent, and like what percentage or what amount of the market opportunity represent relative to the total?
John Tucker
So what percent of the total lives have we met with on those plans? Boy, that’s a big number, Steve.
Steve Parsons
Yes. What I can say is there’s about 10 plans that cover about 85-plus percent of Medicare Part D beneficiaries, and we’re meeting with all of them. We’ve had meetings with all of them. We’ve had clinical presentations. We’ve submitted bids. So I can’t speak to how much of the commercial. There’s really not much commercial. It’s only 10% commercial for our product based on the age of the patient who have heart failure and then another 8% that are Medicaid. So yes, I’d have to say when we’re done with this, we’ll have talked to people responsible for 85-plus percent of the Medicare Part D lives.
Naz Rahman
Got it. So I guess on that point, do you guys also plan on addressing the commercial side of the market opportunity? And when do you think those conversations could happen?
John Tucker
Yes, we do. In fact, I’ll let Steve talk about it. We’ll have a copay card for the commercial to make sure we’re buying down patients’ copay. But Steve, do you want to talk a little bit about the commercial payers?
Steve Parsons
Yes. No, we haven’t targeted the regional commercial plans just yet. But when you’re talking to the big PBM plan combinations like CVS Caremark and Aetna Optum and United, ESI, Cigna, we’re talking to them about the commercial side of their business as well. What we haven’t done is gone down to every state level or Blue Cross Blue Shield of this state or that state. That’ll happen before we launch. We’re not planning to not do that. But our priority clearly has been the Medicare Part D lives. As I said, commercial will make up 10% of the total opportunity for FUROSCIX.
Naz Rahman
Now these 10 payers and the 85% of the lives, do you expect to actually have coverage for them initially at launch in January? Or do you think they’ll trickle in like through 1Q?
Steve Parsons
I think it’ll take until the end of 1Q, just based on when they have P&T committee meetings. We’re fortunate that we’re getting a few done with some big ones in November and December, but there’s others that will take until their normally scheduled meeting in Q1, which could be January or February. I think the latest we’d have to wait would be March. But Q1, for sure, we’ll have had all of the meetings scheduled, reviews conducted and decisions made. And as I said, we expect them to be universally positive. It’ll be surprising to us, very surprising if anyone makes a decision not to cover FUROSCIX.
Operator
Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to hand the call back to John Tucker for any closing comments. Please go ahead, sir.
John Tucker
Thank you. That concludes our call for this afternoon. We hope we were successful in conveying our enthusiasm for FUROSCIX following its approval and the significant advancement that it represents along the heart failure treatment paradigm, a multibillion dollar market in the U.S. alone. We are well financed, and we will be initiating what we think is a very robust commercial launch in the coming months. Thank you again for joining our call this afternoon. Have a great evening.
Operator
That concludes today’s conference. Thank you for joining us. You may now disconnect your lines.
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