Buy by alpha (23/02/2024)
- 245.00 +99.35% by 01/09/2024
Calliditas is an orphan drug biotech developing Nefecon as treatment against kidney failure (IgA-nefrit). Nefecon, marketed as TARPEYO, gained accelerated approval in Dec'21 and full approval with extended label in December 2023.
The 2023 growth trajectory (before full approval) indicates that the company can turn profitable in the first half of 2024. The company has a first-mover advantage and is 12-months ahead of the competition. When the number of active treated patients double from ±750 (Q4'23) to ±1500 (in Q4 2024) the company's market cap (6.5Bkr) is <10x forward looking earnings (excluding milestones).
The patients growth and financial results will de-risk the investment, increase profitability and increase PE multiple. The Q4'23 performance and full approval are positive signals. Calliditas is a buy with strong potential upside under a base-case scenario in the next 12 months.
In Jan'24 short positions increased to 7.65% after an initial decline following the FDA decision in December. In my view the company has a large upside potential and limited downside risk. This makes it hard to see the rational for the short positions.01
First mover advantage
After the full approval in December'23 Calliditas ($650M) is one year ahead of its closest competitor Travere Therapeutics ($650M) with a similar market cap. The main driver for the company valuation in 2024 will be patient growth in the US and in other territories.
Both companies have significant short positions (increasing in Q4-23/Q1'24).
In Q4'23 Calliditas outperformed its closest competitor with 555 new patients (459). The company has a clear advantage in 2024 with Nefecon's full approval.01
Total addressable market
Calliditas estimates a $5-8B TAM for IgAN. In the US market the company operates with direct sales and in other regions it sells through partners receiving royalties between 10-30%.01
A key factor for the valuation is the path to profitability. In Q3'23 the company posted a loss of 150Mkr on 300Mkr revenue after 50Mkr one-off R&D costs. This means that profitability requires around 450Mkr revenue per quarter. The revenue per US patient is $15k per month. An average of 1000 active US patients per month should generate $45M (450Mkr) revenue per quarter for break-even results.
Key investment milestones:
- Q1 2024: cash-flow positive (from -73Mkr Q3'23)
- Q2 2024: profitable with >450Mkr revenue
- Q4 2024: >175Mkr profit (PE <10 on annual basis - $650M market cap)
These milestones can be realized when the company doubles the number of quarterly paying patients to 1500 (from 738 in Q4'23). Total revenue would also double to 2Bkr in 2024 (1Bkr 2023). These results are feasible when the company keeps its existing 25% quarterly patients growth pace in 2024.
Partnership milestones could improve profitability resulting in PE <10x for 2024.01
Nefecon is a disease modifying drug that improves estimated Glomerular Filtration Rate (eGFR), the primary indicator for the kidney function (filter). eGFR improved across the entire study population, independent of baseline UPCR (proteinuria) which positions the drug positive compared to competitors.
The working substance budesonide is a relative cheap corticosteroid or steroid (cortisone-like medicine). Nefecon is a patented and unique, oral medicine with targeted-release of budesonide. The medication significantly delays the need for kidney dialysis or transplantation.
FDA approval with extended label was based on Phase-3 study results that after 9-month of medication the improvement lasted until the end of the 24-months study for all patient groups.01
The company has full commercial approval for TAPEYO in the US. And the US patent is expected to be extended from 2029 to 2043.
In the EU/UK the drug is licensed to STADA and marketed as Kinpeygo. Approval applications are being reviewed and decisions are expected latest Q1-2024.
Everest Medicines is the Asia partner for Nefecon (approved in China in Dec'23).
Commission revenue from Asia could potentially reach 100Mkr in 2024 (based on Everest target).
VIATRIS is the selected partner for Japan.01
Setanaxib is a potential drug for 4 different medications under development in Phase-2. Calliditas has not signed any partner agreements yet. Phase-2 study results are expected in 2024. This development is not calculated in the investment case.01
In the conference calls the CEO gives clear answers and demonstrates a good understanding of the business.
2024 Tarpeyo targets are set with assumption of start-up friction for the new label.01
Nefecon (TARPEYO) is subscribed as a 9-months treatment at total cost of $135k per patient in the US. The product sells as 120x 4mg capsules for $15k that last 1 month.
With direct sales in the US and through partners in other regions Calliditas has the potentially for a very strong annual sales growth in 2024-2026.
The company does not yet report any material sales in Europe/UK market. The progress is slow.01
After Q3'23 the cash position is 760Mkr. With a recent cash burn-rate of 150Mkr/quarter the company has at least a one year runway to turn cash-flow positive. The company is sufficiently funded and share dilution is unlikely.01
Travere Therapeutics offers the only Tarpeyo alternative for US patients with the conditional approved FILSPARI. FILSPARI requires 24 months treatment (vs Trapeyo 9M). FILSPARI received accelerated approval with a Risk Evaluation and Mitigation Strategy (REMS) requirement. The application for full commercial approval was delayed in 2023.
After the December'23 meeting with the FDA the competitor announced additional focus on approval for FILSPARI with a supplemental New Drug Application (sNDA) in Q1-24. For FSGS the FDA communicated that Phase-3 results alone are not sufficient to support an sNDA submission.
Calliditas is at least one year ahead (based on 10 months approval timelines).
Swiss Novartis is a another competitor that has produced first Phase-3 results and plans to apply for FDA Accelerated approval in 2024. The company is at least two years behind Calliditas. Novartis has the resources to start a sales campaign after Accelerated Approval.
In total 5 companies are developing drugs for kidney failure Igan in Phase II and Phase III.01
The paying subscription has been slower then expected in 2023 as patients are awaiting approval for the prescription from commercial insurers. It takes more time than analysts expected to increase sales.01
Reduced treatment period
There is a risk that the treatment period is reduced from 9-months to 3-months. As shown in the below chart there is no meaningful effect, compared to the baseline, after the first 3-months. On the positive side this change could increase repeat treatments. Most likely at a lower annual cost per patient.01