Agile Therapeutics Inc (AGRX) 2023 Q2 法說會逐字稿

Good morning, and welcome to the Agile Therapeutics Second Quarter 2023 Financial Results Conference Call. Please note today's event is being recorded. I would now like to turn the conference over to Matt Riley, Head of Investor Relations.

Hello, everyone, and welcome to today's conference call to discuss our second 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 our current expectations, including statements concerning our financial outlook and financing prospects for the future.

Our outlook for the second half 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 partnerships with the Afaxys and Syneos and their ability to promote growth, our relationship with Nurx and its ability to make Twirla broadly available to patients and our assessment of the combined hormonal contraceptive market, 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 forward-looking statements.

Further, during 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 guiding decisions. Joining me on today's call is Al Altomari, Agile Therapeutics' Chairperson and Chief Executive Officer; and Amy Welsh, Chief Commercial Officer. Following our prepared remarks, we'll open the call to questions from our covering analysts. I will now turn the call over to Al.

Thanks, Matt, and thank you for everyone joining us this morning. I'm personally very excited to share our quarterly results with you, and that is in part of the reason why this is our first quarter, we're holding our call in the pre market.

We think a 44% growth in our net revenue to $5.5 million for the second quarter, combined with our double-digit growth in demand, made this a significant quarter for both Agile and Twirla. We believe this affirms our confidence in our business plan, our progress towards the goal of generating positive cash flow and achieving 2023 net revenue in the range of $25 million to $30 million.

I'm going to kick things off by reviewing the performance metrics from the second quarter 2023 that have us all excited. Amy will then discuss why we are confident in our belief, we can sustain momentum into future quarters.

Oil demand for the second quarter was 55,687 total cycles, a 24% increase from the first quarter 2023 and another single quarter record. Retail demand, as reported by Symphony, was 35,682 total cycles in the second quarter of 2023, a 17% increase from the first quarter 2023. The retail channel is our most profitable channel, and the retail demand accounted for 64% of the second quarter 2023 demand.

Non-retail demand for the second quarter of 2023 was 20,005 total cycles, an increase of 38% from the first quarter 2023. Our non-retail demand is comprised of data from Symphony as well as our wholesalers. Second quarter 2023 net revenue was $5.5 million, which represents a 44% increase from the $3.8 million reported for the first quarter in 2023 and 159% increase from the $2.1 million reported for the comparable period in 2022.

Factory sales for the second quarter 2023, as reported by our wholesalers, were 61,770 total cycles compared to the 43,446 total cycles reported for the first quarter 2023, a 42% increase. As discussed last quarter, on a year-to-date basis, we think channel inventory have now normalized. We expect to see both net revenue and factory sales continue to grow in the second half of 2023, driven by our growth in demand and the execution of our business plan that Amy will describe.

Gross margin, along with the growth in our net sales and demand, we continue to make progress in generating gross profit. In the second quarter of 2023, we generated a gross profit of approximately $3.2 million or a margin of 58% compared to $1.8 million or gross margin of 47% in the first quarter of 2023.

We think gross margin is becoming a meaningful part of our progress and we believe we will continue to see improvement in the second half of 2023. Operating expenses or OpEx for the second quarter 2023 were $8.3 million, a 2% decrease from the $8.5 million reported in the first quarter of 2023.

Before Amy takes over, I'd like to comment on a few other of our financial results which we believe also demonstrates continued progress of our business. Cost of goods sold or COGS, which represent direct and indirect costs related to the manufacturing of Twirla sold, was $2.3 million or 42% for the second quarter of 2023 compared to $2 million or 53% for the first quarter of 2023.

We ended the second quarter of 2023 with cash on hand of $2.8 million. In addition to our at-the-market or ATM arrangement, we'll continue to evaluate all available options to finance the company. Our GAAP net loss for the second quarter of 2023 was $3.8 million or $2.15 per share for the second quarter of 2023 compared to a GAAP net loss of $5.4 million or $5.91 for the first quarter of 2023 and a GAAP net loss of $5.2 million or $57.29 per share for a comparable period in 2022, respectively.

Non-GAAP loss was $5.5 million or $3.10 a share for the second quarter of 2023 compared to a non-GAAP loss of $7.1 million or $7.76 per share for the first quarter of 2023 and $12.2 million or $135.46 per share for the comparable period in 2022. The non-GAAP results reflect the exclusion of fair market remeasurement of warrant liabilities which resulted in an other income of $1.7 million in the second quarter of 2023, $1.7 million in the first quarter of 2023 and $7.1 million in the second quarter of 2022.

We set a single quarter record highs in demand, net revenue, factory sales all by reporting another quarterly decrease in operating expenses. We are beyond pleased with the second quarter results, but the job is not done. We continue to ask ourselves how we can accelerate our growth. I will now hand over the call to Amy to answer that question by explaining the business model, which we have built and is designed to deliver future growth across the board.

Thanks, Al, and hello, everyone. Our whole organization is energized by our results in the second quarter of 2023. I would like to take a few minutes to explain why we are excited and answer the question can we reach our 2023 net revenue guidance of $25 million to $30 million by sustaining our current momentum, driving increased growth in future quarters and holding our operating expenses at current levels.

We think the answer to this question is yes, because of the structure of our commercial business model and the continued receptivity towards Twirla, which is now approaching 15,000 cumulative prescribers since launch. We are pursuing a business plan that is built on a commercial platform that we believe is scalable without adding a lot of fixed costs. Let me explain further.

First, our business plan focuses on driving Twirla in the 5 states that are estimated to reach over 45% of the U.S. women aged 18 to 24 and have strong reimbursement profiles. This targeted geographical strategy maximizes our sales force spend in the areas we believe have the greatest opportunity and potential for growth. And second, our commercial platform is based on collaborations with Syneos and Afaxys that have been structured to minimize fixed cost and allow us to scale up or down as needed as well as align our key partners' interest with ours so that our partner succeeds when Agile and Twirla succeed.

We have pursued this by converting what we would typically be [conservative] fixed cost for a company like Agile into variable costs. For example, through our partnership with the Afaxys, second quarter 2023 non-retail demand grew 38% from our first quarter 2023. Rather than allocating the time resources and dollars to build and maintain our own non-retail sales force, we partnered with Afaxys to drive non-retail growth because we identified them as experts in that area. Afaxys' compensation is a combination of a fixed fee, along with performance-based incentives, which helps us keep quarterly operating expenses at a stable rate without sacrificing growth potential.

We have taken the same approach with Syneos, which provides our retail sales force. We believe we can now build out this commercial platform and drive additional Twirla growth by expanding our distribution channels, which we expect will increase access to Twirla without incurring additional significant operating costs.

So this is why we remain confident that we can achieve net revenue in the range of $25 million to $30 million while holding our operating expenses relatively steady. Now I would like to take a few more minutes to provide some additional details on our plan to build out our distribution channels.

In the first quarter of 2023, you saw us announce new relationships designed to further expand our commercial reach and drive Twirla growth. In the retail channel, we focused on collaborations to grow Twirla through telemedicine platforms, which we will expect to contribute to second half 2023 net revenue and retail channel growth.

Advancing Twirla's availability through Nurx, Twentyeight Health and Pandia are all part of our strategy to sustain future growth in the retail channel. We are also focused on growing the non-retail channel. Twirla's availability through our relationship with FPA Women's Health and MMCAP are planned to augment Afaxys' efforts and contribute to further second half 2023 non-retail growth. Their expected contributions are a large part of why we are confident in sustained growth across the board in the second half of 2023. Strong, focused external relationships are an integral part of our business plan, and we expect to continue to explore collaborations that can positively impact our business, allow us to expand without incurring significant cost and promote a growing, sustainable, fiscally-responsible business.

We'd now like to give our covering analysts the opportunity to ask questions. Operator, you may now open the line for Q&A.

(Operator Instructions)

Yes. So operator, while we're doing that, I want to introduce somebody else in the room. We also are joined in the room by Scott Coiante, our incoming new CFO. I think most of you know that Scott was a big part of the company when we took the company public. So we're thrilled to have him back. So I just want to let you know, he's also in the room, and he'll be transitioning the job in the next week or so.

So our first question comes from the line of Oren Livnat from H.C. Wainwright.

I have a bunch of questions. Congrats on a nice upside this quarter and reiterating that guidance. I guess first, you just mentioned Scott's on the call. Welcome back, Scott. I'm curious what you found compelling about this opportunity to return to Agile, and I'll ask about some fundamentals.

Thanks, Oren. Good to connect with you. Look, as you know, I was part of some really good productive years here at Agile. And look, it's a great team. There's a great group of people here. The opportunity presented itself for me to come back, and I'm happy to be here and continue to build on that progress that the company has been doing.

Obviously, it's a pivotal time. Sorry, I heard some feedback on the end. Can you hear me?

Yes, you're good, Oren. Go ahead.

Okay. Well, let's talk about Twirla. I think we're 5 weeks into Q3, and I know you don't give quarter-by-quarter guidance. But since you reiterated,the top line guide, can you just talk about what sort of trends you're seeing, I guess, quarter-to-date sequentially in growth? I mean I think we've seen over 20% total cycle demand to couple of quarters in a row. And I'm just wondering, can that trend continue? Or do you expect some lumpiness as they get into summer?

So Oren, you're stealing our thunder from my closing comments. There's nothing we're seeing in -- that's okay. I will answer. There's nothing we're seeing in July that doesn't get us any concern. In fact, we're static with July.

The momentum we've seen in the second quarter continues to accelerate into the third quarter. So far, as you said, about 5 weeks since. So we're thrilled. So figures for us the rest of the quarter (inaudible) like this one, but we're not surprised. I mean we would expect that. The model, the name we built is walked through. We would expect to continue to see momentum, and that's why we reaffirm guidance, and that's why we're bullish on the year.

All right. And one of the big things you talked about in the past is how this success in the non-retail channel, particularly planned parenthood, spills over into the retail channel, which is obviously the most profitable, as you've highlighted. You've seen nice sequential demand as well, near 20% in the retail as well, I think. Are you seeing that spill over? Or is this just traditional boots on the ground driving retail demand or the new telemedicine channels?

I'll turn it over to Amy, the expert on it. She'll have a better answer.

That's an -- thank you for the question. Yes, we are. We saw that spillover as early as third quarter last year. And every time that we add another account on -- we did some analytics in that state, and we're confident when we see a few months after looking into it, that we see the spillover continue. It's the model that we had talked about a few times are where these physicians that are in planned parenthood is more than likely also have a private or in a group practice.

So the confidence that they start to gain on Twirla within the planned parenthood structure, they're bringing over. So yes, we continue to see the spillover. So again, when we get a new account, again, we're confident that the non-retail growth will go into the retail growth.

All right. And I guess one of the new things you announced this quarter was the non-340B non-retail accounts like the FPA, and I think there was another one in there that I made is the name of. How -- you said that's an important contributor for second half big picture, how big a channel is that as an opportunity? How many more accounts are there like that? And remind us where do they fall sort of on the profitability spectrum of your multiple channels?

Yes. So I'll do profitability, and then maybe I'll just give you kind of an overview and then Amy can talk you through the FPA specifically. But profitability, if we look at kind of our profitability yield, commercial cycles are still clearly our best.

Next, in the pecking order would be FP&A. Then we would put our Medicaid business and then the Afaxys business, it's a GPO business. Kind of that's our cascade. So FP&A is closer to commercial, which is a really great thing for us. And I mentioned this to our team, I said, when you look at California, California bigger than the country of Germany from a GDP perspective. So we landed not only the biggest private account in California. They claimed the big -- FP&A claims to be the biggest in the country. So I don't -- Amy, you want to take it from there.

And I think I'll take the part on how much potential is there with that one and other non-340B accounts. FPA is a phenomenal account led by a great group of OB/GYN. We just started the partnership. So we are in no way at steady state. We're just beginning to normalize now. So there's lots of growth with that single account. But strategically, other non-340B accounts, other sort of hybrid like accounts that fit in between the commercial or the cost structure and a planned parenthood 340B, if you will, cost structure. That's part of our new back half of the year strategy. So some more to come on that, but we were very lucky to start within account like FPA. It's meaningful nationwide and meaningful financially for us.

Maybe explain that how MMCAP fits into that strategy maybe because the importance of MMCAP.

Yes. MMCAP serves as the GPO for Afaxys that enables that their sales folks to sell within deeper into colleges and universities and some government health services that Afaxys may or may not have accounts with.

So MMCAP, we signed on, and it's basically, again, a volume opener, like I was saying earlier in the call. We're looking for partnerships that could help us have access for Twirla. So MMCAP serves for us in those 2 channels again. That is colleges and universities nationwide as well as government, health and [humor] services statewide.

Okay. I guess since we're talking about profitability and mix, can you talk about the sort of overall value per cycle trends I guess, from last quarter to this quarter and then going forward, obviously, both channels or all channels are growing. So it's hard for us to really, to guess what direction this is going. But can you give us a big picture how we should think about that?

Yes. I'll take a shot, and I'll let Amy comment. But just when you look at the second quarter versus the first quarter, our mix of retail was stronger in the second quarter. So that's a good thing. So if you do like you like calculating the yield per script or yield per cycle. So what did we yield per cycle, it went off in the second quarter and that was primarily due to more, I call it, a favorable mix. So a quarter that's more balanced on retail and non-retail. And then just to put a footnote on FP&A, look, one of the things we're realizing is that when we say non-retail, that's got some shades of gray in there, too, now because there's a lot of differences in pricing on there.

So one of the things we're considering the fourth nearest spot what he came we called it a hybrid, but that's what we think of as FP&A because it's kind of somewhere in the middle. So the mix is better, the pricing is stronger, which is great. And then as you saw in our comments with gross profit, we've outgrown some of the fixed allocations in COGS. So the margin is improving.

So all those -- so we have a better yield versus script or in, we would expect to see that continue, if we can continue to deliver on the retail mix. And then we would expect our COGS to continue to improve as we just become more variable, if you will in COGS, we've outgrown those things. It was nice, as I commented in my tough to see we're throwing off a margin now that's starting to get pretty significant. And that's why we continue to see us zooming in on throwing off cash in this business. So that's a nice thing.

So as our revenue grows, our cost becomes more efficient and then we are in continued partnering model that Amy built, hopefully, that the OpEx save space (inaudible) for the ZIP Code we're in, and that's why we've been close to gap. So that's why we took in the top line and also our ability to start generating cash off this business. Every metric is looking better more and everything is kicking in nicely.

You actually anticipated my next question, which is just can you just remind us sort of how your fixed cost base on the COGS side, the magnitude of that such that regardless of your weighted and even if you had a flat net value per cycle, how fast your gross margin can grow just with sales as they increase. How -- what's your quarterly underlying fixed, I guess, Corium commitment versus your variable costs? And just to layer on to that -- sorry, just to interrupt. But Afaxys, you mentioned performance-based incentives. I'm just wondering, as that non-retail channel grows, does that -- do they get a bigger piece of the gross to net?

Yes. So let's do COGS first. As Amy mentioned, we've reduced our -- if you look at one of the most impressive things, I think, in our P&L is if you look at our OpEx spending 6 months ago, the first 6 months of last year versus first 6 months this year, it's -- I think it's eye-opening how much OpEx we've taken off the board, right?

So that's the model Amy described. But also Oren, we've been able to reduce our fixed costs internally that we were allocating in the COGS. What we're allocating in the COGS is people cost here that help run the business. So look, we've been able to reduce that, too. So the effort to reduce OpEx hit not only the SG&A lines, but it also hit COGS. So the good news is there's not much allocations going forward, going into COGS anymore.

So there's a little bit, but for the most part, it's going to be variable. That's why we're signaling that that's going to continue to improve. The reductions the incentives Amy described in our relationships with people like Afaxys are offsets of sales. So they run through the net sales line. So that's where you'll see that.

So those -- the cheaper ones are the GPO business on the Afaxys relationship, there's -- that's becoming less of a big portion of our mix as Amy brings on people like FP&A and grows to retail. So that's what I'm referring to as mix. So that's all those incentives are running through the reduction of sales. And so even with those, we've been able to increase our yield per cycle, if that makes sense.

So the model is becoming efficient, Oren. I'll leave you with (inaudible) just becoming efficient. It's just everything we're doing now it gets even more efficient that we can -- as this model really takes shape. Our partners, as Amy mentioned, are incentivized to grow our business or they don't get paid. It's just that simple for the most part for the most part. And so their incentives are aligned with ours. And in the meantime, we can keep our fixed costs in general across the whole opening now leaner.

You keep segueing to my next question, like you're looking at my page here. Speaking of the incentives of your partners to do a good job, how are the telemedicine channels working out so far? I mean there are Nurx and others. I think Nurx has been on board for a while in terms of partnership. But I think maybe last quarter, you talked about sort of it just being turned on or being fully trained up and ready to go. How are they doing in terms of, I guess, you could call it promoting the products, maybe not per se. But when women go into the Nurx channel, how are they doing with regards to offering Twirla as an option for appropriate patients? And are they hitting the targets that they or you had set in this arrangement?

Yes. I'll jump in, Oren, thank you. All of our telemedicine partners, we're lucky to have. They're great partners, Nurx, you're right, we signed them at the end of last year, and they officially now offer through their distribution channels our patch as their only patch that they send out, and that's certainly in May.

They're growing month over month over month. It was a bit of a slow start because of some of the structural changes that were happening on their end, but they have now a solid team. And I'm pleased when I look at their growth week over week. Again, we're very lucky to have them as a partner. We just signed on Twentyeight Health, so early days there. But again, we always see growth. I think the best thing about our telemedicine partners is it's a channel that is meaningful to the women of our age group, 18 to 24 year olds. So it's always going to be available for them.

And branded products, Twirla has kind of broken the ceiling a bit and been one of the first branded products offered on these channels. So the negative about that is we help them set up a process to positive about that as we stand at alone. But it does take a while sometimes. But we see growth, and I'm more than confident in the back half of the year. We're going to make up any type of slowness because of some of the training and the process changes that happened in the first part of the year, that the upside, a lot of the upsetting retail will be due to telemedicine.

All right. Bigger picture, Washington activities have been interesting. We've seen maybe a third executive order to come out of this administration related to women's health and specifically coverage or lack of coverage of contraceptives. Al, you're down there, a bunch, I think. What's going on there in terms of words versus potential enforcement actions that they've been hinting at for a while? And do you expect anything to change, especially if we're heading into an election cycle where women's health is -- women's health care is such an important part of this narrative?

The answer is yes. I mean I don't think it was a surprise to us, the symbolism of that executive order being on the Roe v. Wade anniversary. I mean the Biden administration clearly is signaling that women's health in the broadest sense is important to them. The Roe v. Wade or the abortion discussion on ports is a very complicated discussion.

So they see contraception, we believe they see contraception as an important win for women. So that executive order, as you saw, including us, are also including things like TRICARE, which is the military Medicare -- I'm sorry, Medicaid. So we just had a 5-point plan. So contraception needed a lot of work.

So we -- based on my discussions, we believe that the right thing to do is to clarify once and for all that products like us that were approved that don't have generic equivalents needs to get access to this country. So we believe that that's coming. I can't tell you when. I don't know when. I shouldn't say, I would tell you if I thought I had a handle on it because it's a different pace in Washington than I have.

We have -- but what I think we've tried to communicate here is that, that is an upside to our investors. I mean what we created is a sustainable growing model that's growing in every channel that Amy has put a stake in, and so we still believe that's upside to us. We believe it's coming.

We don't think, Oren, personally, I don't believe enforcement is the answer because while there's 3 PBMs that control vast majority of lives in this country, it's up to every plan under them to administer this thing. So it's unwielding. You could say PBMs, and that's true, but the implementation of the Affordable Care Act has really been the downstream plan. So we think that enforcement is a bit chasing of the tail. We think to get regulations out clearly stating what I just said, I think it's the ultimate answer.

And then we would expect there's going to be a lot of oversight from the administration and also that the agencies that monitor this I think that enforcement will be on the back end of these new regs, if you will. So I think it's coming on a high degree of confidence. I don't want to guide to something I don't have control over, but I think it's coming. But in the meantime, you should know we're just blowing out the third quarter, then that will put more wind in our sales.

All right. As of the moment, I do not see any other questions. At this point, I would like to turn the conference back to Al Altomari for closing remarks.

Right. Thank you. To Oren, thank you for the thoughtful questions. It looked like you preempted a couple of the callers, so which is great. I guess my final thought is that in a statement, I would say the proof is in our progress. We are not saying this is going to happen. We're saying this is happening.

For the first 6 months of this year versus the first 6 months of 2022, you saw in our data that net revenue is up 148%. OpEx, on the other hand, is down nearly 38%. And as Oren asked me, based on what I've seen of the third quarter so far, Amy and I feel great about that the momentum is still continuing. We say that time in and time out that come in and have record quarters and every metric that's important to us. And the momentum that we're seeing isn't in any one channel. It's in all the channels.

Retail continues to grow. Non-retail continues to grow. As Amy mentioned in the question Oren had asked her about telemedicine, the momentum there has grown. So we're just layering on in all our channels continued growth because we're on a quest to once and for all, first of all, hit our guidance we've given you for the year. So hopefully, you see why we're confident in that based on this quarter's results. And the ultimate prize is that total cash of the business.

So thank you for your attention. Thank you for following our story, and we appreciate you staying close to us. Thank you, everybody.

This concludes today's conference call. Thank you for participating. You may now disconnect.