scPharmaceuticals Inc. (NASDAQ:SCPH) Q3 2022 Earnings Call Transcript

scPharmaceuticals Inc. (NASDAQ:SCPH) Q3 2022 Earnings Call Transcript November 12, 2022

Operator: Greetings, and welcome to the scPharmaceuticals Third Quarter 2022 Earnings Call. 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.

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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?

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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.

Q&A Session

Operator: 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.