Agile Therapeutics Inc (AGRX) 2023 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Agile Therapeutics First Quarter 2023 Financial Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Matt Riley, Head of Investor Relations.

Hello, everyone, and welcome to today's conference call to discuss our first quarter 2023 financial results and corporate update.

Before we start, let me remind you that today's call will include forward-looking statements based on current expectations, including statements concerning our financial outlook and financing prospects for the future; our outlook for the first half and full year of 2023; management's expectations for our future financial and operational performance, including our expectations regarding the market growth of Twirla and our operating expenses; our business strategy, our partnership with Afaxys and its ability to promote growth; our product supply agreement with Nurx and its ability to make Twirla broadly available to patients; and our assessment of the combined hormonal contraceptive market generally, among other statements regarding our plans, prospects and expectations.

Such statements represent our judgments as of today, are not promises or guarantees and may involve risks and uncertainties that may cause actual results to differ from the results discussed in the forward-looking statements.

Further, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued today, which can be found on the Investor Relations section of our website. For more information concerning risk factors that may affect the company, please refer to our filings with the SEC, which are available through the Investor Relations section of our website.

We undertake no obligation to update forward-looking statements, except as required by law. The information on today's call is not intended for promotional purposes and not sufficient for prescribing decisions.

Joining me on today's call is Al Altomari, Agile Therapeutics' Chairperson and Chief Executive Officer. Following our prepared remarks, we'll open the call to your questions.

I will now turn the call over to Al.

Thank you, Matt, and good afternoon, everyone. I'm pleased to report another successful quarter for Twirla. We believe our Twirla net revenue level to date, along with the demand continuing to grow at double-digit rates, add us in on the path to achieving our 2023 financial goal of net revenue in the range of $25 million to $30 million.

I want to begin by reviewing Twirla's first quarter 2023 performance and providing some commentary on our outlook in these areas. First, Twirla demand. We are excited about the growth in Twirla demand that we're seeing across all our channels. We think this demonstrates that we're making good progress, penetrating our markets and that patients are continuing to choose Twirla.

Twirla total demand for the first quarter as reported by Symphony was 45,036 total cycles, a 20% increase from the fourth quarter of 2022, a single quarter record. Retail demand, which is our most profitable channel, was 30,576 total cycles in the first quarter of 2023, a 20% increase from the fourth quarter of 2022.

Non-retail demand, the first quarter 2023 was 14,460 total cycles, also an increase of 20% from the fourth quarter of 2022. Throughout March and April, we've consistently seen new weekly highs of Twirla demand as reported by Symphony, and we expect our telemedicine partnerships to further advance the retail channel demand beginning in the second half of 2023, as Twirla become the only path to be offered by Nurx partner pharmacy.

Our vision and the ambition is that our retail partnerships can potentially accelerate the growth in the retail channel like Afaxys accelerated the growth in our non-retail channel.

Now turning to net revenue and factory sales. First quarter 2023, net revenue was $3.8 million, which was approximately the same as the net revenue reported in the fourth quarter of 2022 and in line with our expectations.

Net revenue results for the first quarter 2023 reflects flat factory sales quarter-on-quarter due to wholesaler work down of inventories levels, which rose at the end of 2022, and are slightly higher -- and a slightly higher mix on our non-retail sales, which represent higher gross-to-net reduction.

Factory sales for the first quarter of 2023 as reported by our wholesalers were 43,446 cycles compared to 43,340 total cycles for the fourth quarter of 2022. Wholesaler inventory decreased in the first quarter by 24%, with the wholesaler purchasing patterns realized in April 2023, signaling, we believe the channel inventory levels have now normalized. We would expect to see both net revenue and factory sales to grow at higher rates moving forward.

Now gross margin. Another encouraging sign for Agile is that we continue to make progress in generating gross profit. In the first quarter of 2023, we generated gross profit of about $1.8 million, or a gross margin of 47% compared to only $234,000, or a gross margin of 13% in the first quarter of 2022. We believe that we have the ability to increase this growth over the rest of 2023.

Now on to operating expenses. Non-GAAP operating expenses or OpEx for the first quarter of 2023 were $8.5 million, an 8% decrease from the $9.2 million reported for both the third and fourth quarters of 2022. We are proud of our ability to grow Twirla, while effectively managing our OpEx levels.

Our goal is to continue to manage OpEx to be in line with the first quarter of 2023 results, which would lead to a significant reduction in our full year 2023 OpEx compared to the $45.5 million reported for the full year of 2022.

Looking ahead to the second quarter of 2023, we expect to see meaningful quarter-over-quarter growth in net revenue, factory sales and demand while continuing to manage our OpEx levels. This is a formula that is driving our confidence in our ability to achieve the 2023 net revenue in the range of $25 million to $30 million.

We believe we will continue to produce results by delivering on our business plan that is designed to allow Agile to thrive, not just survive, by, first, focusing primarily on our 5 key states; second, growing non-retail prescriptions through our partnership with Afaxys and focusing on the Planned Parenthood; number three, growing our retail prescriptions for our telemedicine partnership, while also increasing the effectiveness of our sales force.

In the past, you've heard me allude to our business plan and its emphasis on leveraging external partnerships that allows us to keep our internal infrastructure lean and efficient. While this plan has demonstrated its ability to grow Twirla, while keeping our OpEx managed, we believe it has also demonstrated our credibility as a true commercial partner.

We believe our ability to launch and consistently grow Twirla makes us an effective potential partner as we continue exploration of business development and product licensing opportunities. While we believe we can achieve our 2023 net goal with Twirla alone, adding a second commercial product to the company could potentially allow us to accelerate the time line to generating positive cash flow.

Before we open the line for Q&A, I'd like to comment on a few other of our financial results, which we believe demonstrate our continued progress on our business. Cost of goods sold, which consists of direct and indirect costs related to the manufacturing of Twirla sold, were $2 million for the first quarter of 2023, compared to $1.7 million for the fourth quarter of 2022.

We ended the first quarter of 2023 with $4.4 million cash on hand, and in addition to our ATM or at-the-market arrangement, we will continue to evaluate all available options to finance the company and continue to explore opportunities that could potentially accelerate our time line to generate positive cash flow, including exploring business development opportunities.

We closed out our first quarter 2023 with a GAAP net loss of $5.4 million or $5.91 per share compared to a net loss of $10.4 million or $166.68 per share for the comparable period in 2022. Non-GAAP net loss was $7.1 million or $7.76 per share for the first quarter of 2023, compared to non-GAAP net loss of $11.8 million or $188.91 per share for the comparable period in 2022.

The non-GAAP results reflect the exclusion of $1.7 million in other income for the first quarter of 2023 and $1.4 million in other income for the first quarter of 2022, resulting from the fair market value remeasurement on our warrant liabilities.

We acknowledge that we are operating in very challenging times in the capital markets. We feel fortunate to be a growing revenue-generating company, and believe that puts Agile in a more advantageous position to execute on our business plan.

We believe that our results for this quarter demonstrate that our business plan is working and that we're making good progress in achieving our goals and establishing Agile in the contraceptive marketplace by growing Twirla and moving towards positive cash flow generation.

We'd now like to give our covering analysts a chance to ask if any questions. Operator, you can open the lines.

(Operator Instructions) Our question comes from Oren Livnat of H.C. Wainwright.

I have several questions. First, it obviously jumps off the pages, this growth despite of revenue and demand and scripts that we see, despite, actually, I think it was reduced OpEx quarter-over-quarter and certainly much lower year-over-year. And I'm curious, I think you said in your comments that you hope to keep that approximately flat going forward through the year despite pretty ambitious revenue growth. Did I hear that right?

Oren, it's Al. Yes, you heard it right. Yes, that's -- we think we've got our arms around our -- the model that we want to execute on there. I mean you see we're generating significant growth. Now I think we believe 5 quarters in a row. So it's not a fluke, and we think we figured out the way the model should work and what should be on our books versus our partners' books.

So yes, that's what we want to do. We want to kind of try to hold steady here, so that -- and I think we can do it. I think we can do it. We're pleased to put up an 8% decrease from the first quarter -- I'm sorry, from year-end in the first quarter. So -- and we want to try to hold it from here.

So it sounds like these outsourced, if you want to call it, or partnerships models, clearly, there's some margin in it for them, but I'm trying to think about just the actual work of helping grow demand. You have your sales force out there in the traditional retail channel.

But when you think about telemedicine and Nurx, how -- what's the flow of demand there? Are those patients coming in, looking for anything and some algorithm or active engagement from the Nurx side potentially pushes them towards your product? And also in that channel, can you remind us what is your relative positioning to Xulane? Is it that nobody can get a Xulane through there at all or that they're just not offering it or promoting it, so to speak?

Yes. Great question. Yes, so like 2 parts of our strategy, Oren. First, we'll talk about specialty pharmacy. I think we mentioned before to you and everybody in the call that we have -- our strategy, a lot of times, pharma companies said, we're going to have a hub or a specialty pharm that's our favorite.

And a lot of times, the local doctors want to use their local specialty pharm. So Amy has built a network, first of all, national players like Sterling and a number of regional players. So we, rather than putting all our eggs in one basket, so that's specialty pharm, where doctors write the scripts. They want to make sure the paperwork is filled out right, the letter, the medical assessment need to be done. So they provide that service. But that's for an office space off.

In the Nurx model, it works a little bit different. In that case, it's truly a tale of prescribing. So they employ doctors around the countries and then patients dial in and they want a consult with the doctor. In this case, they want to talk about contraception. And then the doctor at that point, if they're new start patients, more than likely they're going to account for them on all the methods, all right, so including now a patch.

So we are their preferred patch. So if they're going to offer a patch, it's going to be the Agile patch, Twirla. So we are in a unique relationship with them that with its partner, it's a true partnership. So the doctor, let's say, write the script for Twirla. They have a pharmacy no different than an online pharmacy, but a patient gets a choice, if you will. They could have it sent to their home through their online pharmacy, or they can have the script around at CVS.

So back to your question or the way those scripts flow through, these doctors are going to be more than likely captured in Symphony, like a retail doctor. So in this case, you're going to have optics and visibility. And our reps, if they have relationships with doctors, we know who they are, we try to service them. But these doctors generally don't have offices the way we think of offices. They sit in a unique situation online and discount for the patients like that.

So they don't really have an office the way we think, an exam room and things like that, they're really doing online services. So that's the way the patients flow. So beginning in the second quarter, May 1 was our kind of go-live date. Twirla is the only faster offering. And we're expecting that, that business kicks off in this quarter, and we expect that, that really augments our growth in the second half of the year, as I mentioned.

So that's the way the model works, and that's the way the ins and outs work.

That's an interesting question. So if you're not calling on these docs directly, like you had a traditional office-based physician, I guess what is the model for them being educated? Is that done? Are they ready to go? And are they -- how are they determining what sort of patient is best for Twirla?

Yes. Great question. We do train them. So like Amy, Amy, first and foremost, trains their pharmacists and their marketing people. We do joint marketing. So Amy and the home office people has already trained them up.

For a partner, Kimberly Whelan, who's our reimbursement and our advocacy specialist talked about -- talking through how to handle these letters of medical necessity. And then on the doctor's levels, our Dr. Korner in our home office has educated these doctors. So we've actually did a teach-in.

And then we make ourselves available to them. So hey, if you have any questions and we can service you. We do pull in some of the doctors in the community. Our reps have some relationships with some of them. But again, it's not a traditional office setting. We don't go there and say, "Here, you want samples." They don't want samples. It's all done online.

So if we can get in front of them, we do. But in the meantime, it's probably more effective than Amy handles it at a national level. So we did a rollout. We did a training, a teach-in, and they asked a lot of questions, and they got kind of a private seminar with Dr. Korner and Amy and Kimberly.

So -- and then from time to time, we'll check in with them. They note if there's any questions. What are you hearing? So it's a lot more home office driven, if you will. So that's kind of the way the organization rolled it out. And they're excited.

I believe, and this is the first time they've had a formal relationship with a brand. And also, I think this is a really important turning point for that, their model, clearly then have better margins. So they're excited. They're excited. We're excited, they're excited. So it's a win-win for both companies, Oren.

So that's the case that it's sort of the first brand partnership for them. And is it presumptuous for me to think that this is actually relatively important for them to show that it can be successful and actually drive demand for your products, so they can do more of these with other companies in the future?

Sure. Sure. I mean this is -- I mean I've been involved with their CEO. He's a super -- I believe, we -- this is a top to top, it's important to both organizations, yes. I mean we want to prove principle here.

And I just want to clarify, best of my knowledge is that the only brand they've -- well, they're certainly in contraception. They do other verticals, yes. But I believe this is the first one ever. And look, plan is a little bit more complicated. It's a lot easier to dispense generics.

So they -- that's why filling out these forms and all that stuff is important for them to understand it, but also understanding clinically what's different about our patch versus the other patches out there.

Sure. And I'm sorry, and should we not think that there's -- is this going to take a few months to sort of ramp up, especially with the adjudication of letters and -- this more second half thing than a second quarter?

Yes. Yes, that's why we're guiding. I think we want to kind of walk before we run. The other thing that I think is exciting for us, one last thing I maybe failed to mention, does they have a pharmacy that they actually dispense out of -- they buy product right from us. In this case, it doesn't go through the wholesalers. So -- which is nothing wrong with the wholesalers when we make a better margin. People buy directly with us.

So we like this model, earn a lot for a lot of reasons. There is a new patient base for us. And so we're guiding to the second half to give us a chance to get our sea legs under us. And so I think -- they purchased product from us. That's a good thing. We're seeing that they're reordering, that's a good thing. The doctors are starting to write.

So we always want to kind of dampen expectations as some kind of hockey stick. I think we're going to continue to grow that business as they get more clinical experience with us.

And the gross to nets on volume that goes through there, is that -- which end of the spectrum then all in with their cuts versus no wholesaler fees from retail to non-retail?

Yes. I mean our most profitable patient, as we said on the call, is a commercial patient. If a commercial patient flow through there, it kicks them up to a different level in a gross to net. Because you're saving the margin on -- quite frankly, on the -- because of, you're not going through wholesale organizations, it's come directly from the manufacturer.

So we pick up margin rate there even though they do get a margin. Just so I'm clear, they do get kind of a wholesale margin, but it's a lot more efficient kind of just going directly to them. So we pick up the margin. So it's the same rank and order, Oren. Commercial is always first. Medicaid, in this case, the effect this business won't flow through there. So it just kind of gives us a couple of little extra points on the margin.

Okay. And speaking of margins on gross margin, it ticked down this quarter. I know it's been lumpy. Can you just help us understand what COGS or gross margins look like going forward through this year and long term as this product grow?

Yes. I think this is just a little bit of a speed bump. The reason are -- it's directly related to our sales and our volume, and as I mentioned in there, the mix. Proportionally, the Afaxys business kind of was more of a piece of our business in the first quarter. So we kind of took a haircut on the gross to net in that business, and then it flows through the margin a little bit. So there's nothing there. It's a little -- we make some allocations and I think the good news, we broke through and we're generating margins.

So that new gap we're showing you, now my favorite graph. I mean hopefully, you and everybody else can see that we're closing in, we're closing in. If you look at the gap between those 2, the red line and the green line, that's the loss, if you will.

So if you look at where we started and where we are now and hopefully, you can see, my job is to make those lines cross orange. So I need a green line to get bigger, and I need the red line to get smaller. So that's the goal.

That's why we're so confident that this company is zooming in on cash flow to generate cash flow. So that's -- so margin is important, clearly, and OpEx management is important. But the best way to grow margin is your top line, right? So I can't worry about the allocation.

If I could shift to the non-retail channel, which you haven't spoken about as much on this call as in the past. Can you just remind us, I can see in the data, it's still going strong, but are we expecting any steps up or acceleration also in that business through this year as well? Like are you expecting any new Planned Parenthood material wins to kick in this year?

Yes. We're getting them already. So yes, we're guiding them. Every Planned Parenthood that we mentioned in the past sort has a different philosophy on how to bring on a new product. The first couple we got were what Amy was calling a complete conversion. They're like, all right, you're in, we're not going to use any other product or any other patch.

So it's kind of -- it was a winner-take-all situation. Other ones tend to work down their inventory a little bit of competitive products. And so we landed some big accounts that are more in a work down. So what that looks like, Oren, is what you're seeing in the -- you got IQVIA, but more of a steady state.

So the answer is we keep picking up big accounts. They come online sort of what I said before you. You understand one Planned Parenthood, you understand one. So they all have a different philosophy of transitioning. So these newer ones tend to be in a more of a kind of a work down of their inventory versus kind of just one day you wake up and you got it all. I like the latter one, by the way, better.

So once they work through that, I'm sorry, once they work through that inventory though, are these -- do they tend to be exclusive that they're just doing Twirla?

Yes, yes. All roads lead to exclusivity. Yes. Yes, they convert. They do convert. But rather than convert, like the hard part about the first model is you have to wait for that first [virtue of order], like when are you going to get through that inventory, right?

So Amy and I pay to the offices. But on the other one, you start seeing inventory being purchased as you go. And every week, it gets bigger. I mean as they work down their inventory because a lot of times these Planned Parenthoods get multiple clinical sites.

So they -- so one site kind of exhaust their inventory, they start buying. So it's steady and consistent growth and then we get another account and you start it again. So really pretty exciting business though. I mean it's really becoming important.

And then the most important reason we're excited is that we're influencing the spillover we talk to everybody about. Once the Planned Parenthood come online, the local ZIP codes around them start writing more. So the patients flow in the community, the doc and the community. So our market share in the retail segments are growing in the epicenters around these clinics, which is really exciting because clearly that's just better to put the business for us.

So everything is working, everything. Amy, it seems deserve a lot of credit.

All right. Well, that was my last question that you beat me to it on the spillover. So I think that does it for me. I appreciate all the patience.

No. My pleasure, Oren.

I would now like to turn it back to Matt Riley for closing remarks.

Yes. Operator, it's Al, but I'll close it out. So thank you. I think Oren takes everybody's questions and we lose people out in the queue. So thank you, Oren. Just kidding, great questions.

No, I hope your takeaway from this call is that how excited we are about our consistent growth and our confidence that we've said it a number of times, this isn't a one-and-done quarter. We've showed you multiple, multiple quarters of consistent growth and consistent OpEx management, which gives us a lot of confidence that we -- I can say that we feel we're going to have a strong quarter 2.

But the big picture, we still feel confident that we're on track to deliver our promises that you'll see a $25 million to $30 million net revenue year for us, and our ultimate prize is the graph that Oren and I were just talking about of getting those lines across.

The bigger we get our top line and the better we do at OpEx management, we can deliver the ultimate prize for us, which is to generate positive cash flow at its business on the back of one brand. And then as we continue along and show people what we're doing, puts in a position to be a candidate that somebody else can trust us with their brands. So that's how this all comes together.

We are on the goal line folks, and I really appreciate everybody's support, the support of our partners that we've mentioned, but some we don't mention of Corium and Syneos, for instance, are just been bad with [business partner stuff]. So we have established a business model we have a lot of confidence in. So you should expect growth in the second quarter, and we expect that this will keep going. And we love the fact that it's in all books of business, but the growth is coming from all our channels.

So thank you, and we really appreciate your support and staying close to our story. And everybody, have a good day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.