Strong Market Adoption
Botanix launched its drug, Sofdra, in December last year (first prescriptions). In the March quarter, total prescriptions were 3,222 for just under 3,000 new patients being treated. By the end of March there were 1,075 doctors prescribing the drug.
In the June quarter, prescriptions jumped by more than 300% to 13,647, with over 7,000 new patients taking the drug, and prescribers more than doubling to 2,316. Total patients to receive the drug in the first half of this calendar year was just under 8,000. Gross sales in March were $4.8 million in the March quarter and increased to $20.4 million in the June quarter. Net revenue increased from $0.7 million to $4.3 million over the same period. The gross-to-net margin at the end of June was 23%. The company is seeking to get this margin up to between 30% and 40%.
Part of the reason for the initial low margin is that the company has been focusing on getting strong early adoption, with patients initially not being charged any out-of-pocket expenses (co-pay). These patient rebates can reduce the net yield from what is called the “wholesale acquisition cost” by 50%. The zero co-pay will not be permanent. The co-pay (called deductible) at the start of the year is also generally higher than at the end of the year, when the patient has paid their minimum deductible, after which no co-payments apply for additional medical expenses. Managed care rebates can add a further 21%, and distribution generally accounts for around 12% of the gross revenue.
Botanix made the comparison with another topical dermatology product, Zoryve, for the treatment of dermatitis and psoriasis (made by Arcutis Biotherapeutics). In the first March quarter of sales, the gross-to-net margin was 16%, increasing to 20% in the June quarter. By the end of the year its margin was 36%. Once stabilised, the gross-to-net margin can be expected to oscillate between March and December quarters. For Arcutis, this varies between 33% and 41%.
Expansion Ahead
Botanix has increased its sales force from 27 to 33, with a further 17 to be hired and trained by year’s end. The patient script refill rate is currently tracking at 79%, which is very good.
Funding
During the June quarter Botanix raised $40 million at $0.33 per share, and also accessed net debt funding of $28 million. The company finished the quarter with $65 million in cash, and access to a further $15 million in debt. The net cash outflow for the quarter was $28.4 million; however this is expected to decline rapidly in the current quarter as Sofdra sales continue to grow. Purchase of inventory was $11.2 million for the quarter, with further inventory costs not expected in this half.
Summary
Botanix is capitalised at just $323 million. In the first six months, the company has provided its product to 8,000 patients, which is a very strong market entry. Sales can be expected to grow, as can net margins. Sofdra has the potential to become a high-income generating product. The level of detail the company continues to provide to the market is also pleasing to see. The challenge for the company will be to manage its working capital needs during this period of high growth.
(Botanix has been added to the Bioshares Model Portfolio)
Bioshares recommendation: Speculative Buy Class A
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