RVL Pharmaceuticals PLC (RVLP) 2020 Q4 法說會逐字稿

Thank you for standing by and welcome to the Osmotica Q4 2020 Earnings Business Update Conference Call. (Operator Instructions) As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Ms. Lisa Wilson. Ma'am, you may begin.

Thank you, operator. Welcome to Osmotica Pharmaceuticals Fourth Quarter 2020 Business Update Call. This is Lisa Wilson, Investor Relations for Osmotica. With me on today's call are Osmotica's Chief Executive Officer, Brian Markison; Chief Operating Officer, JD Schaub; and Chief Financial Officer, Andy Einhorn.

This afternoon, the company issued a press release detailing financial results for the 3 months ended December 31, 2020. This press release and a webcast of this call can be accessed through the Investors section of the Osmotica website at osmotica.com.

Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward-looking statements are based on information available to Osmotica's management as of today and involve risks and uncertainties, including those noted in this afternoon's press release and our filings with the SEC.

Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Osmotica specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

During this call, we refer to non-GAAP measures such as adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income or loss, please see the tables at the end of our press release. The archived webcast of this call will be available for 30 days on our website, osmotica.com.

For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on March 30, 2021. Since then, Osmotica may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings.

And with that, I'll turn the call over to Osmotica's CEO, Brian Markison.

Thank you, Lisa, and good afternoon, and thank you for joining our call today. The fourth quarter of last year represented a significant turning point in the company's recent history. We introduced Upneeq in the middle of a pandemic with a tightly controlled approach to a select group of eye care providers. During this time, we learned that Upneeq is everything we had hoped. Patients love it, providers are impressed by the safety and more importantly, the efficacy.

We introduced the product through our new subsidiary, RVL Pharmaceuticals, and made it exclusively available through RVL Pharmacy, which is the next level up for customer support and service. We also partnered with Santen for the global development and commercialization of Upneeq. They are off to an excellent start, and we'll be leading with regulatory authorities around the world as they complete development for the major markets.

Our base business has performed well with the highest quality of manufacturing excellence and customer service. The company's nonpromoted products and generic products have also performed as expected. Finally, our strategic review is well underway and robust. We look forward to updating you about this process in the coming months.

I'll now turn the call over to Andrew Einhorn, who will discuss the company's financial results. Andy will be followed by JD Schaub, our Chief Operating Officer, who will provide additional insights into our early progress and uptake with Upneeq. Andy?

Thank you, Brian. Total revenues for the 3 months ended December 31, 2020, were $34.5 million compared to $59.9 million for the 3 months ended December 31, 2019. The decline was primarily due to a decrease in net product sales, partially offset by higher licensing and contract revenue and royalty revenue.

Net product sales decreased by $26.7 to $32.1 million for the 3 months ended December 31, 2020. That compares to $58.8 million for the 3 months ended December 31, 2019. This decrease largely reflects lower realized pricing and volumes of our generic products, including methylphenidate ER, venlafaxine ER and Lorzone, which were partially offset by higher sales of Divigel and sales of Upneeq, which was introduced in September of last year.

Selling, general and administrative expenses decreased by $400,000 to $20.7 million during the 3 months ended December 31, 2020, as compared to $21.1 million in the 3 months ended December 31, 2019. The slight decrease reflects lower selling expenses due to sales force realignments in late 2019 and early 2020, offset by higher marketing spend associated with Upneeq and higher legal expenses.

Research and development expenses decreased by $4.4 million in the 3 months ended December 31, 2020, to $4.5 million as compared to $8.9 million in the 3 months ended December 31, 2019. This decrease is primarily due to the completion of the Phase III clinical trials of RVL-1201 and arbaclofen ER.

During the fourth quarter of 2020, we recognized intangible asset impairment charges of $49 million as compared to $29.9 million in the fourth quarter of 2019. Net loss for the fourth quarter of 2020 was $54.9 million compared to a net loss of $26.6 million in the fourth quarter of 2019. Adjusted EBITDA in the fourth quarter of 2020 was $1.2 million compared to adjusted EBITDA of $14.9 million in the fourth quarter of 2019.

Our full year financials are as follows. Total revenues decreased by $62.1 million to $177.9 million in 2020 as compared to $240 million in 2019, primarily due to a decrease in net product sales, partially offset by higher licensing and contract revenues including $25 million from Santen Pharmaceuticals for the license of Asian and EU rights for Upneeq. Net product sales decreased by $89.6 million to $145.9 million for the full year of 2020 as compared to $235.5 million for 2019.

Net product sales of methylphenidate ER inclusive of M-72, venlafaxine ER and Lorzone decreased by 57%, 66% and 73%, respectively, due to price erosion from generic competitors resulting in significantly lower net selling prices and lower volumes. We expect that the additional competition for our generic products as well as additional generic product approvals and launches in the future, if any, will continue to negatively affect sales of our products in 2021 and in future years.

Selling, general and administrative expenses decreased by $11 million in 2020 to $82 million as compared to $93 million in 2019. The decrease reflects the previously mentioned sales force reductions in 2019 and 2020, partially offset by higher marketing expenses associated with the launch of Upneeq and higher general and administrative expenses largely due to costs associated with the Santen license transaction and legal expenses during the year.

Research and development expenses decreased by $12.6 million in 2020 to $19.7 million as compared to $32.3 million in 2019, reflecting the completion of the Phase III clinical trials of both arbaclofen ER and RVL-1201. We incurred intangible asset impairment charges of $72.2 million during the 12 months ended December 31, 2020, primarily related to the write-down to fair value of methylphenidate ER, venlafaxine ER, oxybutynin and Ontinua ER due to price and volume decreases resulting from competing generic products and delays associated with the anticipated commercialization of Ontinua ER, if approved.

Our net loss for the full year of 2020 was $79.6 million compared to a net loss of $270.9 million for 2019. Our adjusted EBITDA for the full year 2020 was $40.6 million compared to adjusted EBITDA of $68.8 million for 2019. As of December 31, 2020, we had cash and cash equivalents of $114.1 million and borrowing availability under our revolving credit facility of $50 million. As of December 31, 2020, we also had debt of $219.5 million net of deferred financing costs following the prepayment of $50 million in the third quarter of 2020.

I'll now turn the call over to JD.

Thanks, Andy. As Brian stated, this has been a truly exciting time for our organization with the launch of Upneeq. Today, I'll update you on the highlights, share additional details on the tactics, which are building momentum and touch on the expansion of those efforts.

As the first FDA-approved therapeutic treatment, we are building a market. The first phase of our launch through the end of this past year was designed to provide seamless trial through an early experience program and allow us to generate real-world insights which would further inform and shape an expanded rollout.

In short, we provided almost 18,000 samples representing almost 12,000 30-count equivalents, to a select group of over 4,000 eye care providers. This introductory period was met with tremendous receptivity from both clinicians and their patients and has validated what we have always believed, which is an outsized commercial opportunity for Upneeq.

Perhaps most importantly, the practical utilization of Upneeq thus far has highlighted the safety and efficacy profile, particularly given the broader range of adult patients beyond the controlled setting of clinical trials with acquired ptosis now being treated. More specifically, the majority of our early prescriptions are being driven by the more obviously severe patients, those who may or may not be ready for surgery. This is to be expected and extremely encouraging because it's also the smallest subset within ptosis and indicates that we have barely scratched the surface.

The fact that the average age of our patients has already shifted from about 65 at launch to between 62 and 63 more recently is also very encouraging. Obviously, as our medical and marketing campaign rolls out, we would expect this trend to continue.

Lastly, the early success has provided a platform for us to attract some top tier talent, complementing the foundational team already in place. We have added significantly to the depth of eye care experience within the RVL organization, including leadership across sales, marketing, market development and medical.

Turning to some more recent highlights. In February, we began the transition to a broader launch with the expectation that pandemic-related restrictions would begin to open up, leveraging what we learned and expanding our commercial efforts to include an increasing array of launch tactics.

We launched a new website, print and digital media campaigns, created the platform for social media engagement across key platforms, including Instagram and YouTube; kicked off our speaker programs with a series of educational and promotional webinars led by experts across the eye care continuum; expanded our medical marketing efforts and have begun to fill in the gaps beyond personal promotion. Now I know that everyone is hungry for data, so I'd like to spend the next few minutes covering our most recent trends.

First, we have continued to see sequential monthly growth in paid prescriptions since launch with the most recent month, March, expected to exceed 2,000 paid prescriptions and representing over 50% growth versus February. Second, we continue to see similar growth in new prescribers, first-time prescribers every week.

Since launch, we have sampled just over 6,500 ECPs. And through this past Friday, over 3,800 of them have written a prescription for Upneeq. Over recent weeks, the number of first-time prescribers has further accelerated, averaging just under 200 a week in the month of March. Again, we're seeing these trends with only a fraction of the ECP universe having been sampled and prescriptions being disproportionately skewed toward a more severe patient type out of the gate. We are truly just getting going.

Though it remains far too early to draw conclusions around refills, we are encouraged by the early data. Additionally, we continue to see a consistent split of OD, MD prescribing, about 55% and 45%, respectively; and 90-count, 30-count prescriptions, again, about 55% and 45%, respectively.

Lastly, we continue to be encouraged by the conversion of new patients to filled prescriptions. Another indicator that we are coming out of the heavy sampling phase of the early launch period. Awareness is building, momentum is accelerating, and all of this has occurred in just a fraction of both the prescriber and potential patient population.

Ultimately, we are focused on creating a large enough prescriber base to serve as the platform for an increased emphasis on consumer activation and DTC advertising. Moving forward, we will continue to increase our corresponding investments in sales, marketing and medical to further accelerate the growth of this unique asset.

As we've previously discussed, we expect to increase our sales team from the current 65 to about 100 over the next couple of months. The increased reach, coupled with growing investments in digital marketing, direct-to-consumer advertising and disease education and data generation will all contribute to the continued acceleration and market penetration of Upneeq.

Towards the middle of the year, we expect to roll out a volume-based program, which includes the ability for our ECP partners to dispense directly from their office, where allowed. The patient response and market feedback thus far is also accelerating our efforts toward finalizing our plan and strategy to expand up nice into the aesthetic channel, which could significantly enhance the already large commercial potential of this brand.

In closing, we see a drug with tremendous upside, a noninvasive treatment, which has an almost immediate positive effect on patients and is promotionally sensitive. We look forward to updating you all on our progress again in a couple of months.

With that, I'd like to turn the call back to Brian.

Thanks, JD. And with that, operator, we are happy to open the call for questions. Operator?

(Operator Instructions) Our first question comes from Randall Stanicky of RBC.

This is Dan Busby on for Randall. I'd like to start by going back to your early experience program and the 650 physicians that were part of that. Can you talk a little bit about the shape of the adoption curve for that specific cohort of physicians now that we're about 6 months into launch for that group? And do you expect subsequent phases of the launch to follow a similar pattern with respect to uptake?

And second, can you elaborate a little bit more on how you expect your use of samples to evolve going forward? And can you share any details on the conversion rate from samples to paid prescriptions?

Yes. I think -- this is Brian. You packed a lot of questions into that, and thank you. I think the early experience program and the adoption is something that's very different than what's happening today. So what we did is we put an early experience program in front of our providers with a lot of free product. And we asked them to commit to a certain number of patients upfront and really not look beyond that group of patients so they could adequately treat them with the free product and give us really, really good real-time feedback.

However, what I'll say is that even outside of that group, we saw prescriptions right away. So we did notice an immediate uptake outside of our early experience program, but nothing that you would -- we really anticipated. But we were pleased to see it because we saw our prescriptions coming into the pharmacy.

Now I'm going to let JD comment further on it in a few seconds. But what we did from that program is we dialed back our sampling profile quite substantially. We had full boxes of 30 out there or our UP kits out there for the early experience program that had quite a lot of product. We're now distributing much, much sleeker and fewer individual samples. Not leaving it around the office all that much because we really don't need to, and it does impact refills and sales. So JD, do you want to add a little bit to that?

Yes. I think, Dan, just to expand a bit on what Brian was saying with the 650. I think the important aspect of the early experience program for us was, at the end of the day, this is a new market, right? The first-in-class product for a condition that largely hasn't been considered in the mind of the eye care practitioner historically, and I think a large market at that.

But when you don't have many options to treat something, it tends to fall by the wayside. And so for us, that group of practitioners -- and remember, if you go back to some of the earlier comments upfront, we pretty quickly expanded because it turned into a real opportunity to generate insights as much as accelerate adoption within different practices.

And I think the thing that we really have taken out of that is this product cuts across all of the different specialties of eye care. And what that means in terms of the adoption curve specific to each of those specialties is going to be a bit different. And by that, I mean, if you're an optometrist, the way in which you're interacting with your patients from a care perspective, whether it's comanagement of surgical patients within an integrated practice, whether it's an optically focused practice or whether it's just simply a private practice providing primary care eye care, you're going to approach how you incorporate and implement Upneeq differently.

If you're a cataract surgeon, right, overhauling protocol within the way in which you operate -- and we're talking about surgeons that, on average, are doing upwards of 40-plus surgeries a day, that's a process that takes several months. And so I think most importantly, we've taken those things and really worked over the last several months to develop and position ourselves to now be able to go affect that behavior more broadly across this spectrum as we expand the launch and really put the full weight of our organization behind it.

From an accelerated adoption perspective, I think what we're seeing is, number one, the increase in the number of prescribers that's happening so quickly given this is a new market is just incredible. Number two, the ability for the range of utilization that we're seeing from an adoption standpoint is low-hanging fruit, what's most obvious, the more severe patient.

And then those that have gotten comfortable, the practices -- and again, we're working off of small ends here that we have really kind of dug into and worked with or partnered with to figure out the best way to implement, have started to move where we're starting to see 1, 2 patients a day coming out of these practices because they're now actively looking for it. They've trained the staff, and the entire practice is bought in.

And I think those are the things that you're going to see and that we're focused on continuing to drive in a systematic manner that will allow this thing to accelerate at the exponential pace that we've started to see here through February and March as the investments have ramped up.

Got it. That's all very helpful color. I'll ask just one more, maybe for Andy. If we look at the fourth quarter as a baseline, how should we think about the cadence of operating spend this year just given the ongoing investment behind the Upneeq launch?

Yes. Sure, Dan. The cadence of operating spend as it relates to Upneeq was frankly limited in 2020 to just the introduction of the UP program. As we head into '21, we would see the marketing spend increase. And also, we've -- we'll be looking to expand the number of sales reps we have. So I think on the SG&A line for sales and marketing, we would see those expenses creep up as well.

Our next question comes from Greg Fraser of Truist Securities.

Can you speak to the mix of use that you're seeing with Upneeq in terms of aesthetics versus impairment? It sounds like, just given your comments about severity, most of the use is probably in patients with impaired vision, but just curious about that.

Yes. It's a great question. JD mentioned it in his prepared remarks. I think out of the gate, the average age of our subjects was around 65 years. And in the time when the pandemic was most restrictive, these were folks that were stacked up considering surgery, and we got them as a trial in our program. And these are not -- it's not the market we're really going after, but we got great results and great feedback. Today, the average age has pushed a little south of that to around 62, 63, right, JD?

Yes.

And we are beginning to branch more into the mild to moderate. However, I could tell you that we have not scratched the surface outside of a patient that's more severe and sort of some -- obvious to the clinician. So I think really, the theme of this call is we've barely scratched the surface.

And we're very, very excited with what we're seeing as -- once -- and again, JD mentioned it already and I hate to be repetitive. But once the practices get comfortable with the efficacy and safety profile, they use it for themselves, a few patients. And then they begin to understand how broadly applicable it can be across the entire spectrum of ptosis and how people perceive their eyelids and how to enter into that conversation. This thing is only beginning to expand and flourish. So right now, we're getting a sliver of really what's there in ptosis and almost nothing in aesthetics.

There's a few folks out there working with it as an aesthetic agent. I won't name names, but they're very close to us, and they're doing a lot of great work with us. And they're just loving it. So we will get there hopefully sooner than later. JD mentioned we're going to try to begin that rollout middle of the year to the aesthetic market. But we've got a lot of wood to chop right now in ptosis. And again, we're only reaching a fraction of the eye care providers that we need to see to establish that broad base of utilization and acceptance.

Got it. That's very helpful. Can you talk about the study that you're thinking about that would help to broaden the consumer opportunity?

Yes. Sure, Greg. This is JD. So look, we have what we consider to be a very broad label. And I think this foundation of acquired ptosis as a condition in and of itself, we believe, is incredibly large, much larger than the ICD-10 diagnosis codes would tell you.

I think some of the feedback that we've gotten and that we continue to parse through as we think about expanding the consumer piece of this and maybe the more aesthetic-leaning profile of this product, the things that are most important, we talk about onset. The relevance of -- this is immediate satisfaction and gratification.

That's a rare thing when you talk about a product where you see a change within a matter of minutes and are able to make that determination. Now we looked at that in our clinical program. But I think it's something that we're certainly keen on teasing out in a bit more of a robust manner as we move forward.

You think about things like the subjectivity of a low line lid. We measure in millimeters, but the reality is the before and after impact of this drop is going to mean something different dependent upon who you are. And so the concept of age-relevant ptosis, millimeters matter, the effect of eyelid symmetry, what is the impact of raising the lid on things like brow height and contour with and without a variety of other aesthetic procedures, just to give you a sense of the range of data that we're looking to generate that I think, number one, will really resonate most with clinicians on the aesthetic side and then number two, also provide a greater platform for us to engage directly with consumers with things that are meaningful.

Got it. That's very helpful. And then a question for Andy. How should we think about an average for net sales per prescription? And how might that change once providers are able to dispense the product in their office?

Yes. Thanks, Greg. Again, this is -- we're selling Upneeq through a kind of a closed system through our own pharmacy. So the traditional gross to nets you'd see on a retail pharmacy system, you're not going to see in this kind of product. There are some ancillary costs involved in getting the product to the patient. Those are fairly de minimis.

We are considering to answer the question from doctors, what's in it for me, a number of programs, a loyalty program where we might offer some kind of incentive back in the form of a rebate or something like that. And that would affect the gross to net. Brian?

Right. And as we lean harder into the full year, we will be exploring a direct dispense model where the physicians will be able to sell it to the patients. We're doing more market research now real time with providers who are giving the product and selling it to patients.

And once we narrow in on the pricing dynamic that we prefer, then we'll be able to roll that program out. And again, it will be exclusively through our proprietary channels. So that's the best I can tell you on the direct dispense model right now. We've got some more work to do, but we have a lot of people asking for it.

But the other part of it that's really staying our hand, if you will, there's a number of patients out there that should get this drug no matter what. And we do not want to give up economics and pay for that baseline.

So in our view, performance will need to be above a certain baseline for the eye care providers if they're going to dispense it directly to their patients and charge money for it. So we're still a little early on. We're still early on, and we need to refine it. So I think that's really the punchline.

(Operator Instructions) Our next question comes from David Steinberg of Jefferies.

A couple of questions I have. First, you're obviously in your -- you're still in your experimental phase. And I'm just curious around feedback you're getting from physicians and optometrists.

First, what are some of the side effects that patients have, they most commonly report? Or are there just no side effects? And then you've mentioned prescriptions have exploded. What percent -- or are a lot of the prescriptions coming from the base of doctors who actually haven't been sampled yet and it's just sort of a word-of-mouth phenomenon?

And then just in terms of pricing, do you think you priced it right with the prescriptions growing rapidly? Are you hearing back from both either patients or doctors or both that, gee, some patients feel like the price is too high and just can't afford it? Or do you think maybe you underpriced it? Just curious.

David, it's great to hear you. I think we probably underpriced our 90 count a bit, and we're thinking about making a change to that. We think the 30 count is probably in the right zone. So that's the last part of your question.

In terms of adverse events, there are minor reports into the hot line. Like any product out there, we're not really sure if it's an adverse event related to our product or not, but some things do come in. But in terms of direct provider feedback, we're not getting anything. And in fact, the drop is very soothing.

Our biggest concern actually is training the patient to put the drop in their eye properly and make sure that they get it right. Because if I just use my own family members, as an example, one of them had a lot of trouble just getting the drop in her eye. And she's older than me, so you could take a guess who that could have been.

But it is concerning when you have an older population and they're not that steady. So we do have to take a lot of care to make sure that the eye drop is administered correctly. And then JD, more on feedback?

No. I think that's it, David. The feedback has been very consistent with the profile of the drug. It works. And I think the safety feedback coming in has been probably more positively inclined than not insofar as the drop is soothing and we're not seeing -- I mean, there's certainly, I think, things that we will continue to do, going back to one of the earlier questions around potential research or work with some of our partners around using this product in dry eye.

Again, there is a polymer and an artificial tear vehicle here. So I think there's some real interest but really teasing out the safety of it within those that have dry eye. But overall, the side effect profile has played out exactly as we would have expected coming out of the studies, which is a positive.

When you talk -- I think your second question was about white space and where is -- what are we seeing, is there a word-of-mouth phenomenon. There's no doubt the promotional responsiveness to this drug is there. Where we have reps, we're seeing a tremendous response. Where we don't have reps, we're seeing a response insofar as somebody via word of mouth has signed up and participated in one of our early virtual webinars or education sessions.

And I think that's what excites us about the expanded reach pieces. We know we can impact the geography by having people there and beginning to engage in person. But we're also seeing a really good response just vis-à-vis some of the word-of-mouth things that have kicked up more recently this year.

I think the last piece of concern for anyone that is going to try the product is we're getting bombarded with selfies, before and after shots that look amazing. Please make sure you hold your phone camera up high enough so that you get a level picture when you take your selfie. So that's -- now we're giving selfie tips.

Got it. Okay. Just 2 follow-ups post the selfie pitch. I guess -- and maybe it's for Andy. A 64% gross margin, does that signify kind of the bottom of the erosion of the base? Or do you think that there's more to come?

And then I think you gave us some splits between optometrists and ophthalmologists. But is there no use at all by oculoplastic surgeons? And then also perhaps, would there even be any use at this point in time by general practitioners?

I'll kick it off, David, to answer the question you have on the gross margin. The driver of the decline in gross margin is really due to the generic competition. Lower volumes means higher unit cost, higher unit fixed costs, which is showing up in the gross margin.

As a lot of the bigger generic markets that we compete in are getting fairly crowded right now, we would think the lion's share of that -- those declines are in our rearview mirror. So we would not expect that trend to continue, okay, and we would expect it kind of leveled off.

And in terms of the use by oculoplastics, I'm going to kick that one over to JD.

Yes. So David, good question and certainly should have -- we lumped the oculoplastics into the MD bucket. So absolutely, we're seeing utilization within the oculoplastic segment. That's always been, I think, going back to some of the early kind of planning and development for this launch, a key focus point for us because they are kind of the gatekeepers. They're the ones that historically have been dealing with it, and we've gotten a lot of good feedback from that group and utilization here early on.

When it comes to non-eye care specialties, I think Brian alluded to it. We see some peripheral use. Is it general practitioners? I tend not to think that this is in the general practitioner arena yet, but maybe some of the more closely related specialties in aesthetics, some of the cosmetic derms, some of the facial plastics because, again, I think there is a halo that's building and a driver of some of the earlier comments around really digging in to accelerate the strategy and plan to get into that channel.

And look, our PR efforts have also continued to ramp up, both things that we have done. Dr. Douglas did a satellite media tour in some mid-market geographies, just testing some of the responsiveness a couple of weeks ago. We saw placement in the print edition and online of a couple high-end beauty-oriented magazines actually very recently.

So there are things that are starting to percolate both because we're prompting it, but also just because I think some of the interest is starting to build and spread. And I think it's all correlated to this sort of step-wise systematic build that we've been talking about and executing against.

I believe it was Elle Magazine and Vogue Online. Yes, we'll send you the link to the Vogue article. You'll enjoy it.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Brian Markison for any closing remarks.

Okay. Operator, thank you very much. Thank you all for listening in today, and we appreciate the questions. And we look forward to updating you as we get more information and new things arise and our journey continues on Upneeq. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.