Agile Therapeutics, Inc. (NASDAQ:AGRX) Q4 2022 Earnings Call Transcript

Agile Therapeutics, Inc. (NASDAQ:AGRX) Q4 2022 Earnings Call Transcript March 24, 2023

Operator: Good afternoon and welcome to the Agile Therapeutics Fourth Quarter and Full Year 2022 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.

Matt Riley: Hello, everyone and welcome to today’s conference call to discuss our fourth quarter and full year 2022 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 first half and full year of 2023; management’s expectations for our future financial and operational performance, including our expectations regarding the market growth of Twirla and our operating expenses; our business strategy; our partnership with Afaxys and its ability to promote growth; our product supply agreement with Nurx and its ability to make Twirla broadly in hub locations; our digital advertising campaign and its ability to promote growth; and our assessment of the combined hormonal contraceptive market generally, among other statements concerning our plans, prospects and expectations.

Such statements represent our judgments as of today, are not promises or guarantees and may involve risks and uncertainties that may cause actual results to differ from the results discussed in the forward-looking statements. Further, during the course of today’s call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued today, which can be found on the Investor Relations section of our website. Please refer to our filings with the SEC, which are available through the Investor Relations section of our website, for information concerning risk factors that may affect the company. 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 is not sufficient for prescribing decisions. Joining on today’s call is Al Altomari, Agile Therapeutics’ Chairman and Chief Executive Officer. Following our prepared remarks, we’ll open the call to your questions. I will now turn the call over to Al.

Al Altomari: Great. Thank you, Matt. Thank you, all, for joining us on our call this afternoon. 2022 was a turning point for Agile as we continue to advance revenue growth for Twirla and transform and streamline our operating model to reduce expenses, which we believe sets Agile up for a strong year of continued revenue growth in 2023. We think the third quarter of 2022 was a breakout quarter for Agile and Twirla because we saw meaningful growth in net revenue, total demand and Twirla factory sales. Following the third quarter, many of you have been asking an important question: How do we know that the performance is sustainable and not just an anomaly? Today, I believe we can answer that question with our fourth quarter 2022 performance, which we saw continued double-digit quarter-over-quarter revenue growth combined with disciplined spending and provides insight into why we are encouraged by what we’re seeing so far in 2023.

Earlier today, we issued a press release with our detailed fourth quarter and full year 2022 results. I want to walk you through a few of those results now. Net revenue for the fourth quarter was $4 million, which represented a 33% increase from the $3 million we reported in the third quarter of 2022. The 33% increase comes after we reported a 43% quarter-over-quarter from the second quarter to the third quarter of 2022. We think this is notable because we finished the second half of 2022 with momentum that contributed to full year 2022 net revenue of $10.9 million, a 165% increase over 2021 net revenue of $4.1 million. Our fourth quarter net revenue reflects improvements in the following key areas. Twirla demand for the fourth quarter, as reported by Symphony, was 37,452 total cycles, a 25% increase from the third quarter of 2022.

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Full year 2022 total Twirla demand was 105,667 total cycles, a 213% increase from 2021. Twirla factory sales for the fourth quarter of 2022, as reported by our wholesalers, were 43,230 total cycles, a 30% increase from the third quarter of 2022. For the full year 2022, Twirla factory sales were 114,546. This total exceeded the 113,600 total cycles which we previously guided for the year and represents a 235% increase from full year 2021. As a reminder, the difference between the demand and the factory sales cycle is that not all the prescription demand in the non-retail channel is reported into third parties like Symphony or IQVIA. The demand numbers we received from our wholesalers do include the sales to non-retail channel. And therefore, we believe that the factory sales more closely represent the total demand for Twirla across all our channels.

Net revenue, demand and factory sales are all key components of our overall growth plan. So growth in these areas is only meaningful if we can simultaneously manage our operating expenses. As you can see from our results, we were disciplined in managing our spending in the fourth quarter and total year of 2022. Non-GAAP operating expenses for the fourth quarter 2022 were $9.2 million, which is identical to the $9.2 million reported for the third quarter of 2022. Full year 2022 non-GAAP operating expenses were $45.5 million, a 29% decrease from the $64.4 million reported for the full year of 2021. Before I move on to the outlook for 2023, I want to take a moment to put 2022’s year-over-year performance into perspective. From the end of the fourth quarter 2021 to the end of the fourth quarter 2022, factory sales increased 205% while OpEx decreased from $18.2 million to $9.2 million.

So in the past year, we were able to grow our sales over 200% while decreasing our spending by 49%. We plan to maintain spending discipline and therefore, expect to see our total operating expenses for 2023 to be lower than 2022. Our outlook for all these measures is primarily attributable to the reengineering of our business plan as a commercial company that focuses on leveraging external partnerships while keeping our internal infrastructure lean and efficient. We are confident in our ability to execute on our business plan, and we believe that our lean commercial platform can continue to produce strong results in 2023. To that end, in January of 2023, we reported that we expect 2023 net revenue to be in the range of $25 million to $30 million, which would represent a year-over-year growth of 129% to 175%.

We recognize this goal may sound ambitious, so let me explain why we think it’s attainable. Our initial review of January 2023 demand saw a single-month record high for Twirla demand and a single-month record high for retail cycle demand, which is important because the retail side of our business is our most profitable. As we continue through the first quarter of 2023, we expect to see factory sales reflect wholesaler work down of inventory levels, which rose slightly at the end of 2022, but are encouraged by these initial trends. From what we can tell in 2023 thus far, February demand numbers appear to be on par with January and February factory sales appear to be slightly higher than that of January. The preliminary reports for the first 2 months of 2023 give us confidence that we can continue to grow Twirla and meet our 2023 goal of achieving net revenue of $25 million to $30 million and our greater financial goal of generating positive cash flow.

Our commercial plan is designed to create growth by focusing on the 5 states that have the highest level of reimbursement potential for Twirla and are estimated to allow us to reach 45% of U.S. women between the ages of 18 and 24. We believe there’s still a lot of room for growth in this segment of the contraceptive market by going deeper into these 5 states. We believe our lean commercial platform can continue to deliver the growth needed to meet our goals and, in part, because of our continued focus on collaborations with our telemedicine providers, which we hope to accelerate in the second half of 2023; and our relationship with Afaxys, which allows us to grow the non-retail channel through the Planned Parenthood centers and public health center clinics.

I’d like to take a moment to comment on a few of our other financial results, which we believe also demonstrate a year of progress in 2022. Cost of goods sold, or COGS, which consists of direct and indirect costs related to manufacturing Twirla solely were $1.7 million for the fourth quarter and $6.8 million for the full year of 2022 compared to $5.7 million and $10.7 million for the same periods of time in 2021. We closed out the fourth quarter and the full year of 2022 with a net loss of $3.9 million or $0.10 per share and $25.4 million or $1.18 per share, respectively, compared to a net loss of $19.5 million or $6.63 per share and $71.1 million or $29.28 per share for the comparable periods in 2021. These reflect the reclassification of certain warrants, which were issued in conjunction with the financing in 2021 and 2022.

The reclassification of these warrants as liabilities resulted in $3.8 million in other income for 2021 and $25.5 million in other income for 2022. Moving forward, we expect to see fluctuations in our net income or loss depending on the valuation of these warrants, which will need to perform on a quarterly basis and are expected to result in non-cash accounting adjustments. We do not expect these adjustments to have any effect on the company’s previously reported revenue, operating expenses, cash flows or cash. After deducting the other income attributed to the valuation of these warrants and the one-time only non-cash charge associated with the transfer of our equipment to Corium in the third quarter of 2022, non-GAAP loss was approximately $39.8 million for the year ending December 31, 2022, or $1.84 per share.

We believe excluding these items represents a more useful comparison of the results from our operations in the periods we’re discussing. We ended 2022 with $5.2 million of cash on hand, in addition to the $75 million at-the-market, or ATM, arrangement. We will continue to evaluate all available options to finance the company and continue to explore opportunities that can potentially accelerate our time line to generating positive cash flow, including exploring business development opportunities. Before we open to Q&A, I want to emphasize that the entire organization remains focused on achieving our goals of growing Twirla, attaining the 2023 net revenue target of $25 million to $30 million and ultimately, generating cash flow positive. We remain confident we can accomplish these goals by: first, focusing on the five states that have the highest level of reimbursement potential for Twirla and are estimated to allow us to reach 45% of U.S. women between the ages of 18 and 24; second, continuing to cultivate the non-retail channel through every reach of the Afaxys customer network, which includes Planned Parenthoods and student health centers; third, increasing our footprint in telemedicine through our collaboration with Nurx, which has provided contraceptive options to more than 1 million patients.

Our vision and ambition is that Nurx can accelerate the retail channel growth similar to the way Afaxys help us accelerate the non-retail channel growth. Now we’d like to give an opportunity for our covering analysts to ask any questions. Operator, you can now open the line for Q&A.

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Q&A Session

Operator: Thank you. Our first question will come from the line of Oren Livnat from H.C. Wainwright. Your line is open.

Oren Livnat: Thanks for taking my questions. Can you hear me?

Al Altomari: Yes, Oren.

Oren Livnat: Okay. Great. So I was hoping, first, to just talk about this $25 million to $30 million guidance that you’ve reiterated. I mean that would be a pretty remarkable growth year-over-year. And I’m hoping we can dig a little bit into, I guess, the contributors to that and visibility on that. First, I guess, can you characterize what contribution you expect, I guess, year-over-year from the retail and non-retail channels to that number? I mean, currently, I think volume-wise, retail €“ or non-retail is already at or above 40%. Do you expect like a major change in the mix for 2023?

Al Altomari: Yes. So Oren, this is Al. Besides Matt and I in the room, Amy Welsh, our Chief Commercial Officer; and Jason Butch, our Chief Accounting Officer, are joining me. So I’ll turn it over to Amy, but at a high level, we expect all boats to rise. I mean we expect significant contributions both from the retail, which, as I mentioned in the script, we had an all-time high in January. So retail seems to be performing well. That’s our most profitable book and non-retail, but maybe you can go in a little bit more detail.

Amy Welsh: Yes, thank you for the question, Oren. I don’t €“ I expect the growth to be the same as you saw in Q4. From a non-retail perspective, that growth came from one large account and a couple of handful of moderate to smaller accounts. We look at 2023 and we see here we will have one large account each quarter. So we should be able to see that type of growth. And what we’re learning from the growth of a large account or the addition of a large account is when they come on board, that’s where Al used to always say it looks a little lumpy. They’ll maybe buy a lot in the beginning, and then they’ll normalize and then they’ll buy consistently. So I think that, that mix should look the same. Retail is where our bread and butter is. So we’re ensuring that we have a field that’s optimized and growing and augmented by partners like Nurx. But I think that we’re going to stay consistent to the type of mix you’re seeing in the same type of growth rate.

Al Altomari: Yes. So Oren, to answer your question, I mean, like mathematically, the fourth quarter, we did $4 million. So on a run rate basis, we’re $16 million plus business. So we €“ if you apply the same growth, as Amy was saying, that we’ve seen particularly in the fourth quarter and then if we could stay on that curve, you’d start seeing the numbers we’ve seen. So there is no reason to believe we can’t keep growing this business the way we’ve been. At the same time, we will keep our hand on the rudder of the OpEx, and that’s the 1-2 combination that gets us across the goal line and starts generating cash.

Amy Welsh: Does that answer your question, Oren?

Oren Livnat: Well, sure. I’m going to keep digging in there until you tell me to stop. So you kind of anticipated my next question, which is this non-retail channel growth. So it’s pretty amazing how big an impact one large, I guess in California, Planned Parenthood network win can add to the total volume picture here. And you mentioned expecting one large account win each quarter. What sort of visibility do you have on that? Are you already through the process with, I guess, the P&T equivalent there and highly confident in these new wins? Do you know we have a good grasp on what kind of volume each one of those can produce? And I have more…