Commercial-Stage Biotech Is Undervalued. Q1 Earnings Recap, Part 2.

Companies mentioned: AVDL, EOLS, HROW, GERN, SCPH, TARS, TGTX, APLS, ARQT, DCTH.

Word count: 3,871 words, Reading Time: 18 minutes

The title says it all. After listening to many earnings calls in the commercial-stage biotech space, my takeaway is there is a lot of potential upside in the next 12 months. In fact, I’m now staking a significant portion of net worth on it increasing my net exposure to the sub-sector this week and now nearly every biotech I own is a commercial-stage name or will be by the end of the year.

Last week I covered Avadel AVDL 0.00%↑, Evolus EOLS 0.00%↑, Harrow HROW 0.00%↑, and Geron GERN 0.00%↑. I thought I’d give some quick updates.

The best performer over those four over the last week was Harrow Health. I mentioned last Monday how the company’s prepared remarks were extremely bullish (if you trust management), the business was more seasonal than ever (causing the light Q1 revenue print), and everything was in place for a massive year in 2025 for their Big 3 of branded products. It seems the market might have caught on. The stock traded as low as 21 in the post-market session before going on a multi-day run and closing at $28.41 on Friday. There is that much inefficiency in these lightly covered names that a stock can go up 33% in roughly a week on…nothing. Nothing except the market digesting the call transcript and press release that is. I’m still a bit cautious here as management has been bombastic in the past but if Q2 is strong for their VEVYE and IHEEZO products then the path is clear for a triple digit stock price in the future.

The market isn’t getting them all right, however. Evolus is still trading at 1.7x Price/Sales ratio based on the next twelve months’ estimated sales. The market blew past management’s commentary on gaining greater than expected share in the toxin market, the excellent start of the filler line, and management upholding full year guidance. This is an excellent management team that is doubted again and again. Well, more time to buy for me, I guess. Eventually the numbers should prove me right. For this to have a negative return over the last month, three months, six months, one year, and three years is absolutely insane to me. Look at the execution. And their comps over the next year will be great with the filler line and international revenue backfilling any slight weakness in the U.S. neurotoxin market.

You could forgive the market for being skeptical about the turnaround story for Geron. But I have more conviction after listening to the call a couple more times. I think the market as a whole is underestimating just how bad and passive the previous CEO was. He might have been like…reaaaaaaaally bad. New management seems fired up and is correcting the many mistakes from before including a sales team that was undersized, utilizing more aggressive promotion through digital ads, and stepping up medical leadership with enhanced KOL engagement, medical conference presentations, and branded dinner programs to create increased awareness and understanding of their product. Add on top of that the knowledge that even good drugs can stumble 6 to 9 months into launch as companies experiement to figure out which messages resonate best with prescribers. I think Geron has a pretty good drug right now considering it’s one of only three possible treatment options in LR-MDS… and if it works in JAK-refractory Myelofibrosis it could be a really GREAT drug. Also, let’s say the new efforts lead them to print a $60 million revenue number next quarter. That’s a drug that is annualizing at $240 million per year four quarters into launch. That is certainly not bad at all. In fact, it would be very impressive at this valuation. But the impending Phase 3 interim data read out in Myelofibrosis in 2026 is the jet fuel that can take this much higher. That trial should be enrolled by October.

Along those same lines I guess I shouldn’t be surprised the market didn’t bid Avadel up much in the past week, although it did perk up on Thursday and Friday. That’s another drug that had a hot first 6 to 9 months of launch and then stalled out of nowhere, killing the stock price. But, like Geron, there are real signs of a turnaround -in fact they started their strategy adjustment and sales team expansion roughly three months before Geron so they are further along in their turnaround. The changes seem to be working. And, like Geron, they have a Phase 3 trial ongoing for a label expansion (Idiopathic Hypersomnia) that could at least their double their total addressable market. They should be profitable next quarter if revenue growth continues.

Okay, enough with those names that I discussed last week. I know you want some new ideas. And I have some that have emerged over the last month.

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Okay, Some New Names

scPharmaceuticals (SCPH) - The reaction to this conference call was very interesting. The contents of the call were very bullish but the stock actually reacted, going up 28% in the session following the call and then 11% the next session. I was beginning to think I was one of the last people on Earth following this company. Seeing actual follow through buying happen was encouraging not just because there is someone with funds actually willing to commit but because bankruptcy was very much on the table with this company. Realistically they probably need to do one more offering to make sure they reach profitability and now that the stock has moved up a bit a dilutive offering might actually be possible and preferred versus more debt.

scPharmaceuticals had $75.7 million in cash at the end of 2024 and as of March 31, 2025 it was $57.5 million. That’s over $18 million burned in a quarter and, even if you assume the quarterly loss will narrow going forward as sales ramp, that’s still a runway of 9 to 12 months to reach profitability. I prefer not to play so close to the edge as we have seen a lot of biotech companies become insolvent lately. If the company does a secondary offering of 10 million shares at $3 it might be painful for the current shareholders but in their best interest in the long-term. I would be a much more eager buyer if they had a 18 month cash runway.

The company has a lot of positive trends to sell to prospective new investors to try and raise money. They just launched a new indication in April and are now marketing to nephrologists. Even though the new indication is for treatment of edema in patients with Chronic Kidney Disease, nephrologists also manage heart failure and the company is now getting the benefit of scripts for both by expanding their sales force to cover nephrologists. Frankly, it sounds like a massive tactical error that they weren’t doing this sooner but better late than never.

“So we do definitely see patients with CKD only as their indication. That's clear. But there's also a lot of patients who have CKD and heart failure coming from nephrology that we weren't getting before because we weren't calling on nephrology. So it's a double bonus for us because now we're calling on them for chronic kidney disease, and they have a lot of heart failure patients.”

Nephrologists see up to 700,000 U.S. patients eligible for one of the two approved indications and they appear to be much more receptive to the drug than cardiologists.

“So the CKD launch and the adoption is way faster than it was in heart failure. It's not even close.”

Another positive factor is that the company disclosed their their fill rate for April (first month of Q2) is 55% compared to 46% for the totality of Q1 2025. The increase was due to more patients meeting their out-of-pocket max or enrolling in Medicare copay smoothing which allows them to have a $0 out-of-pocket cost for the drug. 55% still seems like a low fill rate at first glance but this drug’s high out-of-pocket cost leads to many scripts not being filled. While the company did not guide for this, there is a chance the fill rate could go into the 60 or 70 percent range by the end of the year as more patients hit that maximum $2,000 out-of-pocket limit or enroll in copay smoothing.

“But if you think about copays, they can only go down from here. They cannot go up. They're capped at $2,000.”

“The jump in doses filled from March to April was the biggest month we've had […] and continue to see that growth in May.”

Growing sales is obviously paramount for scPharmaceuticals to survive but a growing fill rate not only means more scripts are turning into revenue but DOCTORS WILL WRITE FOR IT MORE IF THEY ARE CONFIDENT THE PATIENT WILL ACTUALLY FILL IT. It sounds so stupid but I never really thought of the positive feedback loop of doctors prescribing knowing that they aren’t wasting their time.

I mean, we're -- we talked about the acceleration from Q1 to Q2, what we're seeing halfway through the quarter is dramatically higher increase in doses shipped than we've seen quarter-over-quarter. Again, we're only halfway through the quarter […] But it's driven by 2 things, obviously driven by that much higher fill rate, but also driven by the number of scripts that are actually being written. […] I think the scripts being written follows that fill rate up if docs have confidence that patients can get it. And docs now know about the smoothing. They know we're out there educating.

Time is of the essence here. Not only because the company is sitting on less than a year of cash reserves but also because they expanded the sales force in Q4 2024. It usually takes sales reps roughly six months to be productive so if investors want to have confidence in management’s ability to lead then every subsequent quarter from here on out should be showing nice growth.

But there’s another factor at play…