scPharmaceuticals (SCPH) has taken two drugs that are generically available and very widely utilized in IV form and has reformulated them allowing for a more convenient subcutaneous route of administration. The innovation the company is offering is that the reformulated drugs have a pH that allows for delivery under the skin at home without an IV line. This seemingly simple modification provides a value proposition for payers that is very compelling. Each of the two drugs in the pipeline is very widely prescribed and according to the company has a market opportunity in the 4 billion dollar range. The company will be resubmitting its NDA for Furoscix in mid 2020 and anticipates a six month timeframe for review. The drug delivery device combination for their lead product, Furoscix, is patent protected through 2034 allowing for years of substantial revenue. If the company takes even a small part of these markets, scPharmaceuticals is extremely undervalued given its market cap of just 190 million dollars.
Figure 1: The West Pharmaceutical Services, Inc. device for subcutaneous administration.
Treating Heart Failure with Furoscix
Patients with heart failure are usually treated with oral diuretics on a daily basis but as the disease progresses, these patients tend to develop congestion and fluid overload that is not controlled with oral diuretics. The natural course of heart failure is characterized by episodes of acute decompensation where symptoms such as swollen legs and difficulty breathing emerge. Commonly, the worsening fluid reduces the efficacy of oral diuretics and physicians intervene with increasing dosages of oral diuretics or with IV diuretics. These episodes are the most common reason for hospital admission in heart failure and it is estimated that there are 3.8 million episodes of heart failure annually. Of these, approximately 1 million to 1.5 million episodes of decompensation occur every year.
Heart failure accounts for 33 percent of Medicare Part A & B spending. This staggering figure highlights that heart failure patients are some of the most expensive patients Medicare has. It also suggests that there is a huge need for alternative ways to treat heart failure and supports that approaches which can reduce costs are likely to be widely adopted. Recent studies have shown that outpatient settings, such as ambulatory heart failure clinics, where patients can receive IV diuretics can reduce costs. Researchers at Brigham and Women’s found that outpatient administration of IV diuretics in their heart failure clinic cut the cost per decompensation episode from $12,000 to roughly $6000. scPharmaceutical’s Furoscix would be even more convenient because it can be administered at home while further reducing the cost of managing these episodes as the drug cost is estimated to be just $2,000.
Does Furoscix work?
scPharmaceutical’s lead program is a subcutaneous form of Lasix ( furosemide) called Furoscix which is the most commonly used diuretic in the treatment of acute episodes of decompensation in heart failure. This formulation does not require an IV line and can be self administered by the patient using a pre-filled cartridge. The company has been able to replicate the pharmacokinetics of the IV formulation while also showing comparable efficacy in diuresis validating that this is an effective treatment.
Figure 2: Furoscix shows similar efficacy and pharmacokinetics to IV furosemide
Will Furoscix be approved by the FDA?
scPharmaceuticals has had a rocky path to FDA approval for Furoscix. The company was founded in 2013 and went public in 2017. In 2018, they submitted an NDA to the FDA for their subcutaneous furosemide product. The FDA responded in a CRL by raising multiple issues including the need for “more human factors studies, device modifications and possibly a clinical validation study.” Since then, the company switched devices to the West Pharmaceuticals SmartDose device. By utilizing this device, scPharmaceuticals addressed the device modifications issues that the FDA raised. The FDA was concerned about the need to fill the device with drug which is no longer an issue because the patient now uses a pre filled cartridge. The FDA also had concerns about the patient making an error in administration and being unaware of the error. The West Pharma’s device has alarms if administration is not properly completed which eliminated another concern.
Results of the human factors studies that were required by the FDA demonstrated a user success rate of 99 percent which should be sufficient to prove to the FDA that the drug and device can be successfully used by patients. The company was fortunate that the FDA did not require any additional clinical studies. The issues in the CRL have been meaningfully addressed and other regulatory hurdles including drug stability testing and device validation are currently underway which will support NDA submission by mid 2020. The results of the FDA review should be received by the company in 6 months so approval could occur in late 2020 or early 2021 making a commercial launch possible in early 2021.
Figure 3: Results of Human Factors Study
The company has conducted market research and found that 95 percent of their target audience would prescribe Furoscix. More specifically, they found that Doctors said that they would use Furoscix 65 percent of the time in patients before admitting them and in 50 percent of patients who might be at risk of being readmitted to the hospital. Given that most of the patients with heart failure are elderly, Medicare is the payer in 76 percent of the patients. This makes obtaining formulary status straightforward as there are approximately 9 major plans and most of them bear the cost for both inpatient and drug costs so they are incentivized to utilize Furoscix as it saves money. Hospitals are incentivized to send patients home on Furoscix when appropriate because Medicare reimburses 3.9 days for heart failure even though the average hospital stay is 5.2 days. Thus, those who do need to be admitted to the hospital can potentially have a shorter stay and then be released on Furoscix. Moreover, CMS has targeted heart failure as an area to reduce readmissions and Furoscix can certainly be a part of the solution. The economics are favorable for payers and thus adoption is likely to be embraced. scPharmaceuticals has a unique tailwind- the interests of all the stakeholders-the company, the patient and the payer are all aligned. The company will need to work with payers to gain coverage and there is no easier conversation than one where you can show a cost savings over the current standard of care that they are covering.
The company plans to utilize a sales force of 40 representatives to launch the drug if they launch it themselves. No projections for peak sales were provided by management. They estimated 1 million to 1.5 million episodes of decompensation annually. To obtain a very conservative figure for peak sales, if you assume the low range of that figure, and assume the company can obtain 50 percent of those cases, that is 1 billion dollars in annual peak sales domestically.
Also in the pipeline- Ceftriaxone
Ceftriaxone is one of the most prescribed antibiotics in the hospital setting but is only available for IV administration or by IM injection. The WHO lists it as an essential medication and it used all over the globe. It is stocked in most US hospital pharmacies just as penicillin is and most physicians are very familiar with its dosing, bacterial coverage and side effect profile. It was sold by Roche under the brand name Rocephin and achieved peak sales of over a billion dollars but has been generically available since 2005. Ceftriaxone is a third generation cephalosporin that can be used for a variety of infections due to its broad coverage and relatively benign safety profile. Doctors prescribe it alone or with other antibiotics for pneumonia, sexually transmitted infections, skin infections, sepsis and it is the drug of choice for Lyme disease.
scPharmaceuticals is developing a subcutaneous formulation that can be administered easily at home. Doctors often have to switch to an oral quinolone antibiotic upon discharge due to the difficulty of home IV administration of ceftriaxone. A subcutaneous version would solve a problem for physicians as they could send patients home from the hospital earlier while still administering ceftriaxone. This may be particularly useful for patients who need only a week more of antibiotic which makes placing a PICC line not worth the time, effort and cost.
Currently, if a physician wants to continue on IV ceftriaxone after discharge or use it in an outpatient setting for Lyme disease, they would need to have a PICC line placed. This is a catheter that is placed in a vein and then threaded towards the larger veins near the heart. This procedure is usually done by a radiologist using ultrasound guidance. The line allows IV drugs to be infused daily by the patient but requires ongoing skilled nursing care at home to maintain and remove the PICC line. Ceftriaxone has to be mixed by a professional pharmacist and has a limited shelf life. The patient needs to have this line in their arm for the weeks or months that antibiotics are administered. It is uncomfortable for the patient and also poses a risk of infection. Subcutaneous administration using prefilled vials is convenient, avoids the placement procedure, the inconvenience and risks of a PICC line while allowing home administration of ceftriaxone.
scPharmaceuticals is advancing their program and has shown that the pharmocokinetic profile of their subcutaneous formulation is similar to IV. They have not yet chosen a delivery device but report this will be a drug/delivery device combination which will offer patent protection. The path to approval will be similar to the path they have followed for Furoscix but hopefully smoother.
The company estimates that there will be 15 million doses of ceftriaxone administered in the home setting in 2021. An insurance company would not have to pay for a PICC line to be placed, for a pharmacist to mix the solution or for the skilled nursing visits so they may be willing to pay a premium price for subcutaneous Ceftriaxone. The company represents that this as a 4.5 billion market opportunity. However, investors should know that anti-infectives tend to have very moderate pricing. Patients and payers would have the alternative of traditional IV administration of generic ceftriaxone if the cost of scCeftriaxone is excessive.
Ceftriaxone is routinely given IV in the outpatient setting currently and thus the benefit is the convenience of subcutaneous administration for the patients. However, it will not offer the insurance companies the dramatic cost savings possible where a hospital admission is avoided. Thus, insurance companies are unlikely to want to pay a large premium over the cost of generic IV ceftriaxone. The company offered no peak sales projections. A very conservative estimate (the author’s estimate) would be that each dose could be sold for $30 and if scPharmaceuticals achieved 50 percent market penetration, this would translate to a peak sales figure of $225 million domestically.
An Excellent Cash Position
Including $50 million raised in May, the company has cash on hand of about $125 million and anticipates a burn rate of 36-40 million annually. The cash on hand should be sufficient to propel the company through the launch and ideally they would become cash flow positive in 2022. Dilution does not appear to be a near term risk. The company will need to increase their spending when clinical studies are conducted for subcutaneous ceftriaxone.
The largest risk for shareholders of scPharmaceuticals is an unfavorable response from the FDA for Furoscix which would likely to cause shares to dramatically plunge. A secondary risk is a luke warm reception from physicians treating heart failure and unimpressive sales. Both seem unlikely outcomes but they are possible.
Valuation of SCPH
Given the company has adequate cash to launch, a product with a compelling value propositon, a simple path due to the limited number of payers, scPH could easily become profitable quickly. Some companies flounder after approval when they meet the realities of the commercial landscape. Given the compelling value proposition of Furoscix, scPharmaceuticals is likely to be commercially successful.
While the reformulation of tried and true drugs lacks the excitement of gene therapy or other transformative technology, subcutaneous administration does offer convenience and a huge cost savings in the case of Furoscix. Furoscix also has a very unique tailwind-that the interests of all the stakeholders- the company, the patient and the payer are all aligned.
The near term potential catalysts for the stock are the resubmission of the NDA and the subsequent approval of Furoscix. If peak sales for Furoscix are a fraction of my projection and scPharmecueticals is valued at 2x peak sales, a price target of $20 is reasonable for 2022 given the patent is valid through 2034. Currently, the company is valued at just 200 million dollars and shares of SCPH trade at approximately $7.50. The share price is likely to spike in late 2020 or early 2021 if and when the company receives FDA approval offering an opportunity for active traders. Another outcome investors should consider possible is a buyout or a licensing deal upon approval from a larger company. Either is likely to be beneficial for shareholders. Overall, scPharmaceuticals offers a compelling asymmetrical risk reward for investors.
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.
Additional disclosure: This article is not a recommendation to buy or sell any security.