RVL Pharmaceuticals plc (NASDAQ:RVLP) Q4 2022 Earnings Call Transcript

RVL Pharmaceuticals plc (NASDAQ:RVLP) Q4 2022 Earnings Call Transcript March 20, 2023

Operator: Good morning everyone. My name is Shelby and I will be your conference Operator. At this time, I’d like to welcome everyone to the RVL Pharmaceuticals fourth quarter and full year 2022 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. At that time, if you have a question, please press star and one on your telephone keypad. As a reminder, this conference call is being recorded today, March 20, 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 fourth 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 three months ended December 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 on information available to RVL’s management as of today and involve risks and uncertainties, including those noted in this morning’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. 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 one 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 Monday, March 20, 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. With that, I’ll turn the call over to RVL’s CEO, Brian Markison.

Brian Markison: Thank you Lisa, and thank you everyone for joining our call this morning. Last year was a transformational year for RVL Pharmaceuticals. We launched into medical esthetics and clearly created a new category in ocular esthetics around Upneeq for the treatment of blepharoptosis, or droopy eyelid. We also opened two new commercial channels or customer segments, more specifically we launched direct-to-practice sales in medical esthetics and two quarters later we entered into two telemedicine partnerships. We also wound down personal selling in eye care, and I am pleased to share that our sales in that channel remain stable with a high percentage of refills supporting underlying demand; in fact, we will still consistently see adding more than 100 new Upneeq eye care prescribers each week.

Clearly at some point in the future, we will revisit the potential in the eye care segment. We have barely scratched the surface with Upneeq, and later in this call, JD will give more color around our early growth and will provide a view as to the untapped potential of this brand, but what I’d like to highlight very briefly is that fourth quarter esthetic sales were comprised approximately of 50% reorder customers which gives us clear signals into the traction within our accounts, and it’s very exciting. Upneeq is uniquely positioned as a first-in-class cash pay product with no competition. Our model is designed to optimize patients and provide our access across multiple channels: eye care, esthetics, and now telemedicine, which we believe caters to a segment of the population that is reluctant to visit a clinician.

As we look ahead, we are heavily focused on two near term imperatives: first, the roll-out of Elevate, our next generation ecommerce portal where we will be introducing subscription options across our esthetics and eye care segments, and secondly, business development. We have been able to attract an outstanding sales and leadership team responsible for growing Upneeq and we believe that it’s only natural to leverage our footprint and see if we can bring more into this company. Before I turn the call over to Mike, I will briefly describe a refinement to our revenue methodology that we recently adopted. Since the inception of our direct dispense model in which we ship to our customers through a third party logistics company, or 3PL, we have recognized sales upon shipment from the 3PL.

As the company has grown in size and scale, we will now refine our methodology to record sales upon receipt to the final customer destination starting with the fourth quarter of 2022; therefore, approximately $2.3 million of net product sales that were a part of the previously disclosed $12.1 million will now be booked in Q1 of 2023. The $2.3 million of sales was supported by firm unconditional orders and have all been received by the end customer. With that, I’d like to now turn the call over to Mike for a further review of our fourth quarter financials. Mike?

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Mike DePetris: Thank you Brian, and hello everyone. I’ll begin by sharing comments on our results specific to the fourth quarter of 2022. A reminder that our quarterly and annual information and highlights can be found in today’s earnings press release. We expect to file our annual report on Form 10-K later in the day. Net product sales relating entirely to Upneeq increased by $6.7 million to $9.8 million in Q4 from an increase in sales volume reflecting expanded commercialization through the year. Total cost of goods sold for Q4 increased by $1.5 million to $2.6 million. This increase was primarily driven by higher product costs due to volume growth. Our gross profit percentage from product sales was 75% in Q4 as compared to 58% in the prior year quarter, reflecting improved overhead absorption driven by higher volumes and from more favorable average selling prices.

SG&A expenses for Q4 decreased by $6.1 million to $17.6 million. The decrease in SG&A was primarily driven by a $3.3 million decrease from debt and equity issuance fees unique to the 2021 period, a $2.4 million decrease from foreign currency translation also unique to the 2021 period, and from $1.4 million in lower legal and other professional fees. R&D expenses for Q4 decreased by $0.2 million to $0.9 million, reflecting slightly lower year-over-year spending in support of medical grants. Unique to Q4 and classified among total operating expenditures, we booked a $13.3 million non-cash impairment charge. The write-down was against our IP R&D for arbaclofen, an asset that treats the alleviation of spasticity in multiple sclerosis patients. The current quarter charge was triggered by an accounting revaluation after we received a potentially adverse response from the FDA in Q4.

Notably in Q4, we again demonstrated our commitment to rationalize total operating expenditures and to keep spend in check. After adjusting for non-recurring or exceptional items, such as the impairment, I’m pleased to share that Q4 opex spend was once again below the $7 million average monthly ceiling that we have so often referred to. Moving below operating income, total other non-operating activities in Q4 2022 contributed $5.9 million of income as compared to income of $3.3 million in the 2021 period. The year-over-year change is largely influenced by changes in the fair value of the company’s debt and warrant liability, which have been re-measured through our earnings since October 2021. Our adjusted EBITDA loss for Q4 was $9.3 million, nearly 40% lower than the comparable EBITDA loss of $15.2 million in the prior year quarter.

Next turning to our balance sheet and liquidity, at December 31 we held cash of $45 million while total debt and financing obligations at year end had aggregate principal amounts due of $75 million. Subsequent to year end, there are a few developments to share regarding our liquidity. In February, we received $5 million in cash from Alora related to a contingent milestone payment. In March, we subsequently paid the $5 million to our lenders in satisfaction of mandatory repayment conditions under our debt. The repayment reduced the outstanding principal of our notes by $4.3 million. On March 8, we entered into a second amendment of our debt solely to secure the immediate reduction of the minimum liquidity requirement from $15 million previously to $12.5 million going forward.

Lastly, between January and March, the company received an aggregate of $4.1 million in federal tax refunds relating to income taxes paid in prior periods. The company is continuing to pursue the collection of $1.8 million of residual federal refund claims. As mentioned previously, there continues to be many variables in play that will likely influence our cash runway through 2023. Our near term commercial development in particular in the midst of changing and increasingly challenging macroeconomic conditions will play a very important factor. With that, I’ll turn the call over to JD for some added color.

JD Schaub: Thanks Mike, and good morning everyone. As you heard from Brian, we made tremendous progress in 2022 across our business, most importantly with the growth of Upneeq. We are incredibly proud of the results and collective achievements and we’d be remiss to not acknowledge and thank the entire RVL team for their contributions. This past year was a critical step in our evolution as an organization, specifically the continued expansion of our market building efforts with Upneeq. All told, the approximately 11 months with an esthetics sales team in place delivered the most robust medical esthetic product launch in recent history when measuring new location openings. Not only did the team introduce Upneeq to over 4,300 locations but we were able to solidify and expand our talented sales organization because of growing provider and patient enthusiasm for Upneeq.

Another important component to our success was delivering this year-over-year growth while decreasing opex, a testament to the discipline and operating leverage we can create with this brand. Turning now to some comments regarding Q4 momentum and general expectations ahead in 2023, the eye care segment continued to be a stable contributor in Q4 despite being the first quarter with no personal promotion. We continue to see a growing paid prescriber base, 18,414 as of year-end, an increase of 1,467 or 9% over Q3, a steady flow of new prescriptions and an ever-expanding base of refills. These factors along with growing awareness are expected to drive continued growth in 2023. Overall, we expect eye care to be about 20% to 30% of revenue, largely dependent upon the ultimate growth from the esthetic channel.

Now some updates on our medical esthetic launch. As mentioned upfront, 2022 represented the establishment of our esthetic business and the introduction of Upneeq to a large and diverse new group of providers. What began as about 50 reps and 1,000 new locations in Q1 of ’22 evolved into a stronger and more talented footprint of between 65 and 70 and over 4,300 locations with Upneeq by year-end. We are extremely proud of the leadership and execution across this team. Throughout the year, this segment of our business has continued to grow quarter over quarter, and importantly, though not the focus, the composition of revenue from quarter to quarter was increasingly from reordering accounts, resulting in a Q4 esthetic revenue contribution comprised of about 50% new, 50% reorder.

As we move further into 2023, our strategic priorities are anchored in growth from this channel, specifically our sales effort is going to be more heavily focused on supporting the existing practices around integration and ultimately realizing the true potential of Upneeq in each practice. Having established a meaningful breadth of ordering locations, we believe this will be the greatest return on the team’s time and effort. Conservatively, our data and market research continues to suggest a low end of 10% to 20% of patients within these practices as potential patients which, if you assume approximately 2,000 unique patients within the average practice, puts somewhere between 200 to 400 patient starts per practice when providers are integrating Upneeq into their treatment protocols and patient assessment.

Lastly, we are seeing and continue to expect new accounts to contribute as a function of growing awareness and desire to carry the product, though to a lesser extent than the more than 4,000 new openings from last year. More recently, we’ve strategically layered in a third channel of our business, which we call telemedicine. During the latter part of this past year and early part of Q1, we have partnered with two national providers of telemedicine to position the brand for broader access to a segment of patients who do not rely on traditional eye care and/or esthetic providers for treatments. Additionally, these channels serve to further enhance consumer awareness and education which in turn supports our efforts of establishing this new market.

Importantly, we view this channel as synergistic. Both retail pricing and patient base do not compete with our ongoing efforts within the practice and subsequently requires minimal investment from our P&L. The early quarters involve ramp-up and optimization on the part of our partners, and we expect this segment to contribute more consistently as the year progresses. Lastly, we do not anticipate expanding this effort through additional partners and feel confident we have the existing capabilities to deliver Upneeq via telemedicine with our current consortium. Beyond the segments that comprise our growth in revenue, we continue to believe in the under-penetrated yet outsized commercial opportunity for Upneeq. Just recently, we updated a consumer research study of awareness among adult women of Upneeq.

Of this nationally projectable group of 1,500 adult women, only 4% had at least some knowledge of the brand, 1% very aware and 3% a little aware. When coupled with the broad points of access established and a growing real world repository of positive patient feedback and provider buy-in, we remain excited by what’s in front of us and confident in our ability to continue to build. Lastly, we believe the strength of our business and unique model leaves us well positioned to capitalize on strategic opportunities to further scale through business development. We look forward to updating our progress throughout the year and continuing to deliver on our mission to establish Upneeq as a meaningful brand in the U.S. With that, I’d like to turn the call back to Brian for any closing remarks.

Brian Markison: Thanks JD, and thanks everyone for listening to our prepared remarks today. As you can tell, we are really excited about our progress with Upneeq, and with that, what I’d like to do is ask the Operator to open up the lines for questions. Operator, I’ll turn it to you.

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Q&A Session

Operator: Thank you. We’ll take our first question from Louise Chen with Cantor.

Louise Chen: Hi. Congratulations on all the progress this quarter, and thanks for taking my questions here. I had a few questions for you. First one I wanted to ask you is how do we think about revenues in 2023, maybe the quarterly progression, if you could give a little bit of color at least on the first quarter given the change in accounting methodology for revenue. Then second thing is, following on that, how do we think about opex, is the fourth quarter 2022 a good proxy for building upon for the rest of the year? Then last question I have for you is just on impact of the economy and what it’s meant for your business. We’ve heard some conflicting views out there from other competitors, so just curious what you’re thinking here. Thank you.

Brian Markison: Yes, thanks Louise, and good morning to you and the team. Starting with the economy, I think bridging from JD’s last comments, our view is that we’re fairly under-penetrated across the board in esthetics, and even eye care, so while the economy is certainly headline news, we believe that we’re not seeing a material impact and we’re too new as a category, so it’s hard for us to really judge based on what we’re hearing from others as well. We’re putting our head down and basically just continuing to grow the brand, so I’m not really that focused on the economy with respect to our penetration into esthetic accounts. As far as revenue build for the year, a couple of things of importance. In the first quarter, we’re spending a lot of time working with the accounts that have previously ordered, getting them to work through the product, make it become an everyday part of their practice, and as JD mentioned, seeing nearly 50% reorders in Q4 gives us a really strong signal that traction is gaining here.

But I think the way our revenue shapes up for this year is we see it more ramping almost a reflection of how it looked last year, because right now we’re following the playbook where we’re focused on the reorder customer to make sure we have traction, and we’re seeing it. But you know, the other thing I want to point out, and it’s really important, is you can’t look at this product like a toxin or a filler. You can’t compare us to those markets because we don’t need to pay for market share. We’re not competing against anyone. We’re basically competing for a slice of the total market, not just a piece of a market, so while the toxin and filler markets certainly claim a lot of headlines, we’re going at our own pace, which brings me to opex. I think Q4 is a fairly reasonable way to look at our opex for the year.

We’re going to be very disciplined in how we spend money, and we’re looking to create leverage within the P&L right now because we’re one and only and have no competition.

Operator: We’ll take our next question from Douglas Tsao with HC Wainwright.

Douglas Tsao: Hi, good morning. Just curious if you can help us maybe understand a little bit in the context of the shift in revenue from the fourth quarter into 1Q23, how we should look at that in terms of the growth trajectory, because obviously now when we look at the performance in 4Q versus 3Q, we saw sort of basically flat revenues, and so just trying to understand how we should think about that. Thank you.