RVL Pharmaceuticals plc (NASDAQ:RVLP) Q1 2023 Earnings Call Transcript May 11, 2023

RVL Pharmaceuticals plc reports earnings inline with expectations. Reported EPS is $-0.12 EPS, expectations were $-0.12.

Operator: Good morning, everyone. My name is Todd, and I will be your conference operator. At this time, I’d like to welcome everyone to the RVL Pharmaceuticals First Quarter 2023 Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. [Operator Instructions]. As a reminder, this conference call is being recorded today, May 11, 2023. It is now my pleasure to turn the floor over to Ms. Lisa Wilson, Investor Relations for RVL Pharmaceuticals. Please go ahead.

Lisa Wilson: Thank you, operator. Welcome to RVL Pharmaceuticals First Quarter 2023 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 Principal Accounting Officer, Mike DePetris. This morning, the company issued a press release detailing financial results for the three months ended March 31, 2023. 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 on information available to RVL’s management as of today and involve risks and uncertainties, including those noted in today’s press release and the company’s 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 refer to non-GAAP financial measures such as adjusted EBITDA loss. For a reconciliation of adjusted EBITDA loss to net loss, please see the tables at the end of today’s press release. The archived webcast of this call will be available for 30 days 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 11, 2023. 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’s CEO, Brian Markison.

Brian Markison: Thank you, Lisa. With the first quarter in the rearview mirror, we are now past the one year mark in our Aesthetic launch, and we remain truly excited about the prospects for UPNEEQ brand. Our cash pay multichannel strategy is beginning to pay dividends as we leverage the P&L to drive growth. Our Eye Care business continue to grow, which is remarkable considering that there has been no personal promotion in this sector for over six months. We believe that, that is testimony to the efficacy, safety and ultimately, patient satisfaction with the brand. It is also meaningful that there is no competition. When examining our aesthetic progress, we once again see a strong reorder pattern emerge as practices learn how to integrate a novel product into their daily routine.

Our sales professionals were heavily focused on helping the accounts cycle through inventory during the first quarter and also increased our total new accounts. Later in the call, JD will walk through the specific metrics behind our performance. Telemedicine will also begin to play a meaningful role in our business over time, especially for those patients who do not wish to visit a provider. We are in the early phase of this strategy where our partners are optimizing their approach behind a calculated spend. In the very near future, their advertising should become more prominent. JD will also describe our new e-commerce platform called Elevate, which will open a whole new line of communication with our providers; and most importantly, their patients.

Finally, I’d like to add that we reached an agreement on a Special Protocol Assessment, or SPA, with the FDA for Arbaclofen. We will now ramp up our effort to partner the brand and deliver value for this important asset. And with that, I’d like to turn the call over to Mike for more specifics around our financial performance in the quarter. Mike?

Michael DePetris: Thank you, Brian. Good morning, everyone. I’ll begin by sharing comments on our results specific to the first quarter of 2023. A reminder that our quarterly information and highlights can be found in today’s earnings press release. We expect to file our quarterly report on Form 10-Q, later in the day. Net product sales relating entirely to UPNEEQ increased by $2.9 million to $8.8 million in Q1, from an increase in sales volume. Royalty and licensing revenues were $15.5 million in the prior-year quarter, reflecting Santen milestones unique to that period. There were no royalty or licensing revenues in the first quarter of 2023. Total cost of goods sold for Q1 increased by $0.2 million to $2.3 million, this increase was also due to higher volumes.

Our gross profit percentage from product sales was 74% in Q1, as compared to 64% in the prior-year quarter. The year-over-year improvement in product margin reflects a lower royalty expense, inclusive of contingent earn out obligations and from improved overhead absorption driven by higher volumes. SG&A expenses decreased by $7.6 million or by nearly one-third to $16.2 million in Q1. The decrease in SG&A was primarily driven by $5.6 million in lower net compensation and training costs, mostly due to the absence of an eye care sales force in the 2023 period; by $0.9 million in lower legal, insurance and other professional fees; by $0.5 million in lower share-based comp; and finally, from $0.4 million in lower marketing. R&D expenses for Q1 decreased by $0.3 million to $0.6 million, mostly reflecting lower share-based comp.

Unique to Q1 and classified among SG&A, we incurred $0.6 million in debt repayment fees. Notably, in Q1, we again kept to our long-standing commitment to keep total operating expenses or TOE, in check. After adjusting for nonrecurring or exceptional items, and noncash share-based comp, our first quarter monthly TOE spend was just above $5 million, well below the $7 million ceiling we’ve set for ourselves. Moving below operating income, total other non-operating activities in Q1, 2023, contributed $1.3 million of income as compared to income of $1.5 million in the 2022 period. Non-operating income in each of the reporting periods was primarily attributable to the receipt of $5 million in cash from Alora related to contingent milestone payments earned in connection with the sale of our legacy business.

In both periods, this non-operating income was partly offset by aggregate losses recognized from the change in fair value of our debt and warrant liability. Lastly, our adjusted EBITDA loss for Q1 was $8.7 million, nearly 60% lower than the comparable EBITDA loss of $18.9 million in the prior-year quarter. Finally, turning to our balance sheet and liquidity. At March 31, we held cash of $33 million and had senior secured indebtedness with principal maturities of $70.7 million. In the year-to-date 2023 period, there were a few developments to share regarding our liquidity. In February, we received $5 million from Alora related to a contingent milestone. In March, we forwarded that $5 million owned to our lenders in satisfaction of mandatory repayment conditions under our debt.

The repayment reduced the principal of our second tranche notes by $4.3 million, thereby reducing our overall debt principal with Athyrium from $75 million prior, to $70.7 million at present. On March 8, we entered into a second amendment to our debt to secure the immediate reduction of a minimum cash requirement from $15 million previously to $12.5 million, going forward. Lastly, and effective April 15, our lenders commitment to issue third tranche notes expired as we did not achieve the associated revenue target. As mentioned previously, there continue to be many variables in play that will likely influence our cash runway and our related compliance with financial covenants. Our near-term commercial development, in particular, in light of increasing — increasingly challenging macroeconomics continues to play an important factor.

And with that, I’ll turn the call over to JD for some added color. JD?

James Schaub: Thanks, Mike, and good morning, everyone. As you heard from Brian, we continued to make solid progress with our multichannel strategy in the first quarter. Notably, the 49% year-over-year revenue growth was anchored by significant operating leverage, as our sales and marketing investments decreased about 35% within the same period. Again, in the first quarter, we saw steady growth across key aspects of our UPNEEQ business, sequentially and year-over-year in both aesthetics and eye care, highlighted by the following. Total net revenue for the quarter was split approximately 60/40 between aesthetics, which includes telemedicine; and eye care, which includes the pharmacy. Specific to the pharmacy, paid prescriptions reached another all-time quarterly high, up about 2% sequentially versus Q4 and 11% year-over-year, totaling 15,415 for the quarter.

Total paid prescribers reached 19,869, an increase of 8% or 1,455 new unique prescribers versus year-end 2022. Specific to aesthetics, total purchasing accounts increased over 500 in the first quarter to over 4,800 in total as of March 31, representing an increase of about 12% versus year-end. In the quarter, reorder revenue comprised over 55% of the aesthetic revenue contribution, also inching up as a percent of quarterly sales versus Q4. At quarter-end, cumulative reordering accounts totaled over 1,800 out of 4,834 total unique locations, just under 40% and an increase of more than 300 reordering locations since year-end. Wrapping up some introductory commentary, we remain excited by the growth prospects for UPNEEQ in the quarters ahead. Clearly, our data suggests increasing patient demand as evidenced by the growth in reorder as a percent of revenue, new patient starts and refill prescriptions.

This is a product that patients want and continue to repurchase. Looking ahead, we remain focused on continuing to drive growth while maintaining discipline in our financial management and capital allocation, as we drive towards cash flow breakeven as quickly as possible. Now, I’ll share some additional updates on our overall progress in aesthetics, along with some insights on the upcoming launch of our next-generation technology platform. As we move further into 2023, our strategic priorities remain anchored in growth from the aesthetic channel. As described previously, our sales effort continues to evolve towards a heavier emphasis on supporting penetration within existing accounts versus the opening of new accounts. While we do expect to steadily grow our new location presence, we also recognize the importance of our team’s efforts to help our customers integrate UPNEEQ.

As a novel treatment category within the medical aesthetic setting, we are committed to helping our partner practices implement new processes to incorporate UPNEEQ. To that end, we have begun to roll out a streamlined onboarding and integration process. We piloted this initiative with select accounts in recent months, and the feedback has been positive. Not only do the practices appreciate the time and effort to provide such support, but we have also been able to further highlight the outsized patient opportunity within each practice through the process. As an aside, the pilot screened about 10,000 patients across these select practices. 80% of which just under 8,000 self-diagnosed aesthetic, all of which aligns with historical data and research to support the large addressable market we believe is out there.

Further, we have trained the first network of UPNEEQ educators, representing a diverse group of plastic surgeons, dermatologists and nurse injectors who are tasked with expanding peer-to-peer education through programs highlighting the tremendous opportunity UPNEEQ represents. These programs are beginning to build on a national scale, and we are thrilled to have augmented our provider educational efforts in such an impactful way. Further, we continue to see a growing number of independent studies and publications make their way into the Eye Care and Aesthetic congresses and journals. Just last month, the first vehicle-controlled study highlighting patient outcomes and quality of life was published by Dr. Lee and colleagues in the Journal of Plastic, Reconstructive & Aesthetic Surgery.

We see these independent presentations and studies as robust third-party validation, which furthers a growing body of clinical evidence, elucidating the broader impact of potential outcomes achieved with UPNEEQ. I’d like to now spend a minute highlighting the pending launch of our next-generation tech platform, aptly named Elevate. Today, we can facilitate one-off ordering by providers with no further capabilities to connect new patient starts to additional support and/or refills. That presents the core of this new platform, whereby we will soon be able to connect every new patient start in a practice to a standing prescription at our wholly-owned pharmacy, making the ongoing utilization of UPNEEQ via subscription and/or discounted refills for increased use a possibility, all while maintaining the ongoing business relationship with each practice or provider.

This platform is truly novel and represents what we believe will be a tremendous value proposition for both our provider partners and their patients. Moving now to another layer of our multichannel strategy, we continue to engage with our select telemedicine partners, expanding access and awareness as we build. Through the first quarter, our partners have begun to develop the foundation by beginning to expand advertising and optimization of their investments. There has been limited time to assess, but the early data suggests this channel will serve as a critical access point for the majority of patients that do not seek traditional treatments in a provider’s office. As previously mentioned, we view this segment as evolving more meaningfully through the back half of this year and beyond, as our partners thoughtfully expand their rollout and the investments they’re making in the months ahead.

In closing, we continue to be motivated by the ongoing progress and results. We have established a strong foundation, which sets us up for continued growth, while further positioning us to expand the portfolio through strategic opportunities as they arise. We remain focused on delivering this growth and supporting our customers and patients with the service, support and products that deliver real value across the spectrum. We look forward to our next update in a few months, and I’ll turn the call back to Brian for any closing remarks.

Brian Markison: Thanks, JD, and thanks everyone for listening to our prepared comments. And what I’d like to do now is, turn it back to the operator, and we’re happy to take questions. Operator?

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Louise Chen with Cantor Fitzgerald.

Operator: Thank you. [Operator Instructions] We’ll go next to John Vandermosten with Zacks SCR.

Operator: Our next question comes from Balaji Prasad with Barclays.

Operator: Thank you. [Operator Instructions] Our next question comes from Jorge King with H.C. Wainwright.

Operator: Thank you. At this time, we have no further questions in queue. I’d like to turn the call back over to Brian Markison for any additional or closing remarks.

Brian Markison: Thanks, operator. And once again, thanks everyone for listening in and participating on our call today. We are certainly excited about the future for the company and UPNEEQ, as we advance our programs, particularly project Elevate, our new e-commerce portal and as we look to add assets to the product lineup and leverage our team. Thank you.

Operator: This concludes today’s call. Thank you for your participation. You may disconnect at any time.