RVL Pharmaceuticals PLC (RVLP) 2022 Q1 法說會逐字稿

Good morning, everyone. My name is Britney, and I will be your conference operator. At this time, I'd like to welcome everyone to the RVL Pharmaceuticals First Quarter 2021 Financial Results Call. (Operator Instructions)

Thank you, operator. Welcome to RVL Pharmaceuticals First Quarter 2022 Financial Results and Commercial Update Call. This is Lisa Wilson, Investor Relations for RVL. With me on today's call are RVL's Chief Executive Officer, Brian Markison; Chief Operating Officer, JD Schaub; and Interim Chief Financial Officer, Mike DePetris.

This morning, the company issued a press release detailing financial results for the 3 months ended March 31, 2022. This press release and a webcast of this call can be accessed through the Investors section of the RVL website at rvlpharma.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 upon information available to RVL's management as of today and involve risks and uncertainties, including those noted in the press release and our filings with the Securities and Exchange Commission. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. RVL specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.

During this call, we may refer to non-GAAP financial measures, such as adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income or loss from continuing operations, please see the tables at the end of today's press release.

The archived webcast of this call will be available for 1 year on RVL's website, rvlpharma.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on Thursday, May 12, 2022. Since then, RVL 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 RVL CEO, Brian Markison.

Good morning, and thank you for joining our call today. We're off to a great start with the first quarter behind us. We continue to grow in line with our plan. Through the end of last week, we have activated over 1,600 accounts, with our second quarter plan continuing: To open new accounts and drive utilization or depth from recently opened accounts, to generate a reorder cadence that we plan to report on in the future.

The recent award we received from Shape magazine adds to the mounting evidence of social proof, and joins awards and/or mentions from the likes of Vogue, ELLE, Allure, NewBeauty and People, to name a few. As we look ahead, we plan to increase the aesthetic sales team at the beginning of Q3, expand the small insights, sales and customer service group and increase our educational presence in aesthetics, all within the expense guidance we have previously discussed. As we continue to build the eye care and aesthetics markets, we are confident that the growth levers are clear, and most importantly, the efficacy and safety of UPNEEQ continue to drive patient and provider satisfaction.

Now it's important to keep in mind a few things. First, as we create a market in eye care and aesthetics, we have no competition and are not defined by market share in a category, we are our own category. And second, the safety and efficacy of UPNEEQ, combined with an attractive margin profile, have and will see rapid and widespread utilization for those patients who have droopy eyelids, or blepharoptosis.

Now I'd like to turn the call over to Mike De DePetris, who, after joining our team in January in a consulting capacity, assumed the Interim CFO role in mid-April, following Andy's departure. Now just shy of a month into the role, Mike's been coming up to speed, and will cover our Q1 financial results in some depth.

Mike?

Thank you, Brian, and good morning to everyone. I'll begin by providing commentary on our quarterly results of continuing operations specific to the first quarter of 2022 with references back to the first and fourth quarters, as appropriate. A reminder that our quarterly info and highlights can be found in today's earnings press release. With regard to our quarterly report on Form 10-Q, we anticipate filing that with the SEC later today after markets.

Total revenues for Q1 increased by $20.5 million to $21.4 million, primarily due to $15.5 million of licensing revenues unique to the 2022 period, and also due to a $5.1 million year-over-year increase in net product sales of UPNEEQ.

As announced in late March, we amended a license agreement with our global partner, Santen, effective March 31, expanding our relationship and allowing Santen to take on more territories and buy out approval milestones for Japan, China and the European Union. With the licensing earnings process now complete upon signing, RVL immediately recognized the Santen licensing income in Q1, although we had to wait until mid-April to receive the Santen cash.

Net product sales, which relate entirely to sales of UPNEEQ, increased by $5.1 million to $5.9 million in the 2022 period as compared to $0.8 million in the 2021 period. The increase was mostly due to higher sales volume, reflecting expanded commercialization into eye care markets; and effective in February 2022, the medical aesthetics market. Most importantly, sequential sales of UPNEEQ were up $2.8 million or 90% from the fourth quarter of 2021.

Total cost of goods sold for Q1 increased by $1.4 million to $2.1 million. The increase was primarily driven by $0.8 million in higher product costs for UPNEEQ, influenced by higher sales volume; and from $0.6 million relating to increased royalties and contingent milestone payments due under an intellectual property license agreement, each attributable to sales of UPNEEQ.

On a reported basis, our gross profit percentage increased to 90% for the first quarter of 2022 compared to only 27% in the 2021 period, when margins were more water down due to the relatively small commercial base. Take note that 90% margins are abnormally high because of the unique licensing revenue from Santen during the current period. Excluding the Santen licensing income, our gross profit percentage in Q1 would be approximately 64%, which we believe represents a more normalized margin rate for UPNEEQ at this time. We believe there are opportunities to expand margins as we go forward.

Selling, general and administrative expenses for Q1 increased by $6.8 million to $23.8 million. The SG&A increase primarily reflects $6.8 million in higher compensation and training costs for the expanded sales force, $0.7 million of higher marketing expenses for UPNEEQ and $0.7 million of transactional fees unique to the 2022 period, all being partly offset by approximately $1.1 million of lower legal and other professional fees.

Research and development expenses for Q1 decreased by $1.3 million to $0.9 million. The decrease primarily reflects $0.6 million of lower personnel costs and $0.5 million in lower project spending on our baclofen and UPNEEQ.

Rounding out our commentary on operating income and unique to the first quarter of 2021, we recognized a $5.6 million gain on the sale of rights to Osmolex ER, a transaction that closed in January 2021.

Moving below operating income. Total other nonoperating activities in Q1 2022 contributed $1.5 million of net expense, largely reflecting $5.5 million of losses from the change in fair value of our debt and warrants and $1 million of amortization expense from our financial commitment asset. Such expenses, however, were substantially offset by $5 million in contingent milestone gains earned in Q1 2022 following the sale of our legacy business to Alora Pharmaceuticals. Take note that any such contingent gains relating to the Alora sale, for which there are tens of millions of dollars in potential future milestones remaining, these represent nonoperating income, not revenues. And they will only be recognized, if ever, when the related milestone is achieved.

Importantly, the noted mark-to-market adjustments on both our term loan debt and our warrants, each newly issued in October 2021, are a result of recent accounting determinations or elections that require us to remeasure these instruments at fair value each reporting period. As a result, the comparability of our results will be influenced by these remeasurements. See our Forms 10-K and 10-Q for additional information about these accounting determinations and measurements.

By contrast, in Q1 2021, total other nonoperating activities were comparatively small and represented a net expense of $0.5 million, consisting solely of interest expense and amortization related to our prior debt.

Our net loss from continuing operations for the first quarter of 2022 was $6.8 million compared to a net loss of $13.8 million in the prior year quarter. Our adjusted EBITDA loss for the first quarter of 2022 was $18.9 million compared to a loss of $15.8 million in the prior year quarter.

Finally, turning now to our balance sheet and liquidity. As of March 31, 2022, we held cash and cash equivalents of $26.3 million. Our total debt and financing obligations at quarter end had aggregate principal amounts due of $56.5 million, including $55 million of long-term debt. As mentioned earlier, although we recognized $15.5 million of licensing revenues from Santen in Q1, our March 31 ending cash balance excludes the Santen cash as the receivable was ultimately collected in April.

Importantly, under our new purchase agreement with Athyrium and subject to the satisfaction of certain conditions, which include a minimum net product sales target for UPNEEQ, we can draw up to an additional $20 million of notes through October 2022. We believe it remains within our ability to timely satisfy the draw conditions and avail ourselves of this incremental cash borrowing as it may become necessary.

Accordingly, our near-term liquidity is stable and thereby allows us to fully invest and act upon our commercial ambitions for UPNEEQ. We remain highly focused on striking a balance between investing in our rapid commercial growth and prudently managing cash.

With that, I'd like to turn the call over to JD for some important commercial color. JD?

Thanks, Mike, and good morning, everyone. As you heard upfront from Brian, we're excited about the continued growth and momentum coming out of a very strong first quarter. I'll begin with some updates on the eye care side before wrapping up on the aesthetic business.

Our lead metrics within eye care have been a continuation of what we've seen throughout the first year-plus of our launch. Still seeing first-time prescriber growth of 150 to 200 every week as of this past week ending 5/7, paid RXs through our pharmacy reaching all-time highs in recent weeks and a growing base of reordering accounts tied to our direct dispense program.

As we described on our Q4 call, we have built broad brand awareness in eye care since launch, with over 16,000 physicians having written a prescription. With that foundation, our focus remains driving depth within a smaller group of practices in each territory and building that in a step-wise manner from quarter-to-quarter. We have seen a growing appreciation from our eye care providers around the functional impact of ptosis as it relates to vision and ocular health. This message really resonates with providers and ultimately aligns with their overall goals as an eye care physician.

Turning now to the aesthetic launch. As Brian mentioned upfront, the receptivity has been tremendous. We are thrilled with the pace at which awareness in this channel has evolved through just 13 weeks and believe the impact has also spilled over into growing consumer awareness, given how active these providers are on social media. There continues to be a growing interest in carrying the product from new accounts, and the team has done an incredible job of balancing new customer acquisition with the time and education required to integrate a new technology into these busy practices. The result has been a growing group of reordering accounts, which is a strong leading indicator of the potential stickiness of this opportunity.

Importantly, we are beginning to increase our presence beyond just the 50-person sales team from the first few months, layering in a growing presence at aesthetic meetings, launching additional peer-to-peer educational programs this month and expanding our sales footprint to about 80 territories. As we move forward, the focus remains building the market and establishing UPNEEQ as a routine part of the noninvasive or minimally invasive facial aesthetic protocol.

From what we have seen, the product really sells itself, so the effort revolves around finding the time in busy practices to learn how to do something new in a simple and streamlined way that also supports the overall objectives for each practice from a patient outcome and business perspective.

At the end of the day, we see this opportunity as an integral part of the more than 30,000 aesthetic practices out there and are thrilled with the early success. The aesthetic patient wants to look better, and the asymmetry, sleepy or tired look associated with low-lying lids aligns with many of these patient needs. Lastly, the majority of these patients are looking for treatments that provide 4 things: Natural-looking results, immediate satisfaction, no downtime and no pain, all things that a product like UPNEEQ can deliver.

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

Thanks, JD I think you could tell we are extremely excited about our progress and the prospects for this brand. Operator, I'd like to turn it over to questions. Thank you.

(Operator Instructions) We will take our first question from Douglas Tsao with H.C. Wainwright.

Congrats on the great results. Just first, I'm just curious in terms of actual sales, what percent came from aesthetics versus eye care right now?

JD, do you want to spool that one? And the question was what percent of our sales came from aesthetics versus eye care. So referencing the first quarter only.

Yes, yes. So I think what we saw coming out of the quarter, Doug, was a movement towards about 50-50. So from February through March, I think, and as we moved into the second quarter, it was a pretty even split between the 2 businesses. And I think kind of moving forward, we've continued to see growth in both sides of the business. But obviously, there's quite a bit of momentum in terms of receptivity and new account activations on the aesthetic side that are continuing to drive greater than 50% of the revenue here up front.

Okay. Great. That's helpful. And so should we assume though, JD, from your comments, that it sort of ended at 50-50. But if we look at the total $5.9 million in aggregate, probably a little bit weighted towards eye care, still?

Yes, that's fair.

And then, Doug, as we move through the year, we certainly expect aesthetic sales to surpass eye care fairly meaningfully.

Okay. And then just, Brian, in the proxy that you recently filed, there was some language about sort of some of your top shareholders, they're referred to as the Concert group, being willing to support the company, or sort of getting a provision to allow them to buy more stock without triggering Irish takeover laws. Could you just expand on that? And just sort of clarify for investors some of the mechanics.

Yes. Thanks for asking the question. And I'll admit, it is a little complicated because we are an Irish company, but I'll try to simplify it a bit. Under the Irish takeover rules, since our insider group owns more than 30% of the outstanding shares, if in this case, we -- what they refer to in the proxy as the Concert Party, were to increase our shares by more than 0.05%, which is a little bit, then we would be obligated to extend an all-cash offer to all the other shareholders of the company. So in essence, making an offer to buy the company, which seems a little unusual.

We have -- therefore, we've asked the Irish Takeover Panel, and they have agreed to waive this provision subject to a shareholder vote, which is Proposal 3 in the proxy. That's very important. And I think the intention here is to protect all of the current shareholders should we see the need to raise additional capital. And really just speaking for myself, it can only be viewed as a sign of confidence in our business plan.

And all of this info on our website, including the letter from the takeover panel. And it's an important vote for us at the upcoming vote. So I appreciate you asking the question, Doug.

Okay. Great. That's helpful. So just to make sure I think I understand, a little bit of sense, that basically, this will allow you to continue to support the company, or the entire to support the company without being forced to essentially buy the company.

Correct. And also, if we should choose to raise additional capital at the market with no discount, we could choose to do that.

We will take our next question from Louise Chen with Cantor.

Congratulations on all the progress this quarter. So I wanted to ask you, what are the pushes and pulls on your cash runway? I think you also talked about this $20 million drawdown that you have. So just curious how you think about how you want to allocate your resources here.

And then secondly, one question that we get from people is the impact of inflation and price elasticity of your product, are you seeing any impact yet? Do you anticipate to? And what kind of price elasticity do you have?

And then last question here. I know you've got a lot going on already right now. But curious, as you think going forward over the next couple of years, do you plan to add on adjacent products to your current product portfolio?

Louise, thanks for that bundle of questions. If I don't nail all of them with JD and Mike, then please just tell us which one we didn't get to.

Do we plan to add more products? The answer is, obviously, we're -- our history and our plan is to be acquisitive. But right now, it's head down and build this brand. So until we can really establish ourselves and demonstrate the growth we're projecting, I think everything we're doing right now is focused on building this business. However, we've had a lot of people come to us with lots of ideas, and we are definitely open to many of them. And if they can help us accelerate today's platform, then we're more than open to entertaining it.

As far as how we plan to use our current cash and capital runway. Right now, we are mostly driven by boots on the ground. I think in JD's remarks, and I'll let him expand on it a bit, for us to open a new account is not really all that hard. I think just taking a new modality, a new treatment, a new business, if you will, to these accounts, and the time required to run a complete in-service, make sure everybody, from the office manager, the aesthetician, the injector, the clinician, everybody needs to be on the same page in how they're assessing patients and evaluating them and also administering a sample if they should choose to do that and getting that wow experience in the clinic.

But JD, do you want to add to that?

Yes. I think the simplest way to think about it, Louise, is we've been kind of overemphasizing prudent expense management from a base infrastructure standpoint. So coming out of kind of the reemergence of the business is RVL dedicated to UPNEEQ. We've streamlined the G&A side of the business, and that's very stable right now. And we're allocating everything that we can while being cognizant of getting to cash flow breakeven, towards sales and marketing. And to Brian's point, this is a boots on the ground-driven effort upfront, but we're obviously doing it in a step-wise manner as we continue to see the signs of stickiness and the opportunity that I think we view as so great from a market standpoint.

So Louise, I'm sure I forgot a question.

Inflation.

Inflation. Inflation, I think it's going to hit us a little bit on the interest rate, possibly with Athyrium. But other than that, the war for talent continues, and we will only be onboarding people who have a proven track record in aesthetics that we feel meet our culture and our needs. So I think supply chain, I think we're pretty much set there. I don't see a lot going on to affect us negatively as we go forward, other than making sure we have continuous supply, and Nephron has been doing a great job with that.

I think JD would like to add a little bit as well.

Well, from a product standpoint, I think we feel really good in this environment about the stickiness. We have optimized price against the backdrop of rising inflation, and we haven't seen the drop-off in terms of things like fill rate and obviously, new account openings as we've expanded into aesthetics. And I think from my perspective, that gives me a lot of confidence that we're working in a business model that allows us to operate, drive growth and build, irrespective of some of the macroeconomic factors.

And I think, look, when you think about particularly the aesthetic side, it's all systems go. I mean, the demand for aesthetic procedures continues to be resilient. And I think it's not just this environment. We've seen it historically over the last 10, 15 years as that channel continues to grow. So we feel really good about our product and the business model in this type of environment.

We will take our next question from Greg Fraser with Truth Securities.

On aesthetics, can you talk more about the average order size and how the order size has been changing for practices that have placed multiple reorders?

And then can you speak a bit more about consumer awareness? To what extent are patients asking their providers about UPNEEQ? And how are you thinking about building consumer awareness over time?

So I'll start with the orders. And thanks for the question, Greg. So I think we're actually seeing what you would expect to see around the size of orders. Pretty consistently, the opening orders are a couple of cases. And I think that's what we expected. This is a new product. I think there's a lot of interest and intrigue. But what is -- how is it going to work in my practice? And so that's been very consistent through the first 13 weeks.

And then I think as we look at the reordering accounts, which continues to grow week to week as well, you do see a tick up in terms of the second reorder, being closer to maybe 2.5 cases and the third reorder being closer to 3 cases. So some really good signs in terms of what's happening as this product begins to take shape within each practice.

Consumer awareness, I think, was the next question.

And then -- yes. So we are absolutely seeing a greater influx of patients in practices, on both the eye care and the aesthetic side, walking in, asking about the product. One of the things that I think right now from a consumer awareness standpoint that we're focused on, because we're spending as much time as we can in these practices, is branding the practice, whether that's waiting rooms, treatment rooms. So that it's creating a link between whatever they're in there for.

Since there's never been a product like this and it's not a focus area, if you will, in terms of a drop to lift the lid and open the eye, and that is resulting in more people asking. I also believe the consistency of feedback in terms of how active these practices are on social media, both with their peers, but also with their patient base, no doubt, contribute. So that's sort of here and now.

As we look at it, we continue to be focused on getting to a reasonable number of aesthetic practices and laying a foundation before we start to think about ramping direct-to-consumer spend. And so what we'll do in the interim is continue to focus maybe more in a pilot setting, looking at certain markets, testing some different messaging and content, and making sure that the engagement that we've seen so far, in terms of the minimal efforts that we have put behind consumer marketing, continues to be sort of above the average. So that's kind of, in summary, how we look at it.

We will take a follow-up question from Douglas Tsao H.C. Wainwright.

I think you indicated, Brian, that you expected to expand the aesthetic sales force in the third quarter. I'm just curious to understand why 3Q, just given the momentum you're seeing now, why not sort of do that earlier? Is it just a question of finding the right people?

I think it's -- we're relatively new in the game, right? Our 50-person team really went live in the market in February. And we also made a resource shift to pull down a few resources from eye care as we're seeing the aesthetic ramp. And we've always had it in our plan to expand the team. And I think we were looking for the right time within our expense base, but also to build the right kind of experience so that when we did expand, we had a pretty good playbook for what we would expect from every single new person coming into the company.

I think, JD, you probably want to add to that.

Yes. I think, look, we've certainly talked about, and we have added kind of one-off territories in recent months. But I think when we look at the driver of an expansion, it's really to be on the same page with what we're doing and how we're doing it. And so that's sort of the runway between today and just adding territories.

We're going to add a couple of regions, so we need to get a couple of new managers in. We want the managers to be an integral part of the hiring process and take ownership of the teams that they're building. And then we want to put them through a consistent training meeting, so that when we hit the ground in Q3 with an expansion, that will put, I guess, more than 50% growth over the current aesthetic footprint, it's guns blazing.

So a little bit of just being thoughtful and considerate about impact as we layer in an additional group of 25 to 30 reps in a couple of regions.

And making or that we have the room within the expense guidance that we have previously given...

And Brian, could you just review just sort of the expense guidance? And just the cadence and how we think about it should go through the rest of the year?

Yes. I mean we typically and consistently said that our operating expense will be roughly $7 million per month run rate. And we're not looking at a change to that. If we see some pretty impressive tailwinds, then obviously, we're going to add to it. But right now, we're right on our plan. Our second quarter looks to be within the range of the analyst estimates, which is very strong. So yes, we're staying with the $7 million a month OpEx, and we're going to put our head down and execute.

And we will take a follow-up from Louise Chen with Cantor.

Just curious, are these additional -- and I think you said 25 to 30 reps that you're going to add, could that drive upside to your fourth quarter guidance that you gave on revenues? Or is that part of your anticipated plan when you thought about everything in the guidance for this year?

Completely part of the plan, Louise.

(Operator Instructions) We will take our next question from Balaji Prasad with Barclays.

So Brian, I missed the last 10 minutes of the call, so apologies if I'm repeating any of the questions.

Firstly, in terms of your spend, can I get a sense of what you're spending in towards your promotion at floors and campaigns? I'm probably directly complimenting you about, when I see peers with similar launches, their spends seem to be in the tens, [several tens of dollars] or even hundreds of millions of dollars versus your spend. So I do want to get a sense of what you're spending on and where. And maybe extension of that is how immediate is impact from being featured in beauty magazines, aesthetic magazines and the recall effect that it creates?

Second, we have seen pretty strong aesthetics numbers across the industry, be it neurotoxins or fillers. I want to see if that ties in with the trends that you are seeing on the ocular side and if there's any way of quantifying it. I know it's still too early in the day for you, but if there's something that you can quantify over there.

Lastly, a bookkeeping question on the contingent milestone gains. I thought you reported $5 million at the end of March for 1Q. I seem to be seeing around $0.6 million in the results. Is there something that I'm missing?

All right. We're going to start with the cash answer and then work our way backward. Mike, do you want to take that?

Yes, Balaji. The milestone payments that we recognizes. Those were contingent income that we recognized below operating income. That's not anything that you'll find within revenues. So that $5 million contingent gain in cash to the quarter is classified below operating -- operations.

So if you look at the tailwinds affecting the industry, we kind of love it because it means more people are going in to see their aesthetician, the med spas, et cetera. And -- but remember, we're not anchored to a class, like a toxin, filler, et cetera. So we're our own category, and the growth we're going to see as the general aesthetic market grows is only going to help us.

And the enthusiasm for the brand from -- you mentioned Shape Magazine or ELLE or Vogue. What's happening, and we're seeing it is more and more people are seeing the social proof out there. And we had one of the housewives go on Instagram the other day, I forgot which particular show she's from. And was talking about UPNEEQ. So we're seeing a lot of organic social proof and it is building that groundswell. And when we see patients come into the pharmacy who have asked for a prescription, the fill rate is extremely high, and it's gratifying to see.

On the expense base, look, the majority of our spend is directed toward field sales, followed by marketing. And a lot of the marketing spend is field support, digital, and we're now beginning to ramp up our medical education effort a bit in aesthetics. But look, we are certainly spending a lot less than a lot of our peers, but we're also conscious of the fact that we have no competition. So we're not in a migraine race or a toxin race. We're going to build carefully, we can spend carefully. And we are seeing the growth and we're being rewarded for it.

I think JD, do you want to add to that?

No, I think you summed it up.

All right. So Balaji, I think I nailed all the questions. But if I left one out, let me know.

No, you got it all.

We have no further questions on the line at this time. I will turn the program back over to Brian Markison for any additional or closing remarks.

Okay. Operator, thank you. I want to thank everyone again for joining the call and putting up with us and also thank the team at RVL, if they're listening or listen later, because they're doing a hell of a job and I really appreciate it. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.