Evofem Biosciences, Inc.
Q1 2019 Earnings Call Transcript

Published: 12 May 2019

[Operator:]

Good day, ladies and gentlemen and welcome to the Evofem Biosciences' First Quarter Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded. I would now like to introduce your host for today's conference Miss. Amy Raskopf. Ma'am, please go ahead.

[Amy Raskopf:]

Thank you. This is Amy Raskopf, Investor Relations for Evofem Biosciences. Thank you for participating in today's call. Please note that the press release we issued this morning is available in the Investors section of the Evofem website at evofem.com. With me today are Evofem's CEO, Saundra Pelletier; and our CFO, Jay File. During this call, management will make forward-looking statements regarding the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed in or implied by these forward-looking statements as a result of various important factors, including those described in the Company's SEC filings which are available at sec.gov and in the Investors section of our website. The forward-looking statements made during this call should be considered accurate only as of the date of the live broadcast May 7, 2019. Although the Company may elect to update forward-looking statements from time-to-time in the future, the Company specifically disclaims any duty or obligation to do so even as new information becomes available or other events occur in the future. With that, I will turn the call over to Saundra Pelletier, Evofem's Chief Executive Officer.

[Saundra Pelletier:]

Thank you very much, Amy, and hi to everybody. Thank you all for joining our call. It's been a very productive four months of 2019. And through the collective efforts of our dynamic leadership team, we’ve made substantial progress for Evofem and for Amphora, our lead Multipurpose Vaginal pH Regulator or MVP-R. Amphora regulates vaginal pH in the normal 3.5 to 4.5 range, which is inhospitable to sperm and also various bacterial pathogens. But most importantly, let me remind you and let me emphasize that the most critical attribute is non-hormonal, which means no systemic side effects. And the second most important attribute is on demand. As our market research continues, we hear repeatedly from women and from providers that it's almost unfathomable that Amphora has not existed until now. And market research also tells us that women have sex on average eight times a month. So why over medicate if you experience side effects? This logic is increasingly hard for women to rationalize. Since our last call, we have successfully negotiated a significant financing agreement at a premium price relative to where our shares are trading on the NASDAQ, and we closed the first two planned tranches bringing in $30 million from a strategic investment from PDL BioPharma. Jay is going to discuss this in a lot more detail, but let me say that we greatly value PDL as a strategic partner, and we’ve a shared vision and look forward to working together as we endeavor to advance the reproductive healthcare of women worldwide and most importantly build a premier women's healthcare company together. We’ve continued to make meaningful progress on our clinical development of Amphora for hormone-free birth control. We requested and we recently held a Type B meeting with the FDA to discuss our planned NDA submission for Amphora for the prevention of pregnancy. This is a very positive and a very constructive meeting, and we look forward to resubmitting our NDA in the second half of this year. As we previously reported, Amphora has met the pre-specified primary endpoint of Phase 3 AMPOWER trial. Amphora was used in over 34,000 acts of sexual intercourse in this trial, and Amphora has a very favorable safety profile as well as being very well tolerated. So few investors have asked us, why, given a high level of confidence, are we shifting towards resubmitting the NDA in the second half of this year? To be perfectly frank, in our Type B meeting with the FDA, a door was opened to an expedited route to include an additional manufacturing site. Including an additional manufacturer in our submission will only cause a minimal delay to our lunch timeline, but it will significantly reinforce our position to supply the market at scale, which is going to be required to fulfill our anticipated demand for Amphora. We feel this will add strength to our application and we think, it's an appropriate adjustment to make. This will still allow for a six-month FDA review and our U.S launch in the first half of 2020. Based on both our AMPOWER study results and our discussions to-date with the FDA, we remain steadfastly confident that Amphora will be approved by the FDA with a competitive label at the end of this fast-track review period. I want to reiterate the women, who we will serve once Amphora is approved. In the United States today, there are 16 million women who are not using a contraceptive method, they are sexually active, they do not want to get pregnant, and this includes women who cannot and will not use hormonal therapy. We expect additional uptick from another nearly 9 million women in aggregate, who rely on barrier methods, withdrawal or the rhythm method and maybe ready to try a new hormone-free method that they control and use only when they need to. Based on our extensive market research, we also expect Amphora will appeal to women, who are currently using hormonal contraception, but are concerned about the side effects or the long-term impact of hormones and they would welcome hormone-free methods. Furthermore, a research among payers, representing 70% of the covered lives in the United States, indicates that insurers will reimburse a prescription for Amphora as a standalone contraceptive method in the same way as other monthly contraception. So if approximately 1 million women in the U.S representing just 3% to 5% of the identified likely candidates choose Amphora, assuming each of those women fills a prescription seven times a year, we believe that this will represent $1 billion annual gross sales opportunity for Amphora. The response to our marketing for AMPOWER enrollment was significant. This is a key indicator that we understand how to appeal to this target audience. We drove these women into participate in our clinical trial and we well exceeded our targeted enrollment numbers. So we are very, very confident that we understand how to message and how to ignite women to act when it comes towards asking for products like Amphora. Later, we conducted a survey amongst 188 of the AMPOWER participants, who completed the study. We learned that 88% of these women surveyed were not using hormonal contraception prior to enrolling in AMPOWER and 30% of them were not using anything at all to prevent pregnancy. So clearly, we’ve successfully reached our target Amphora women and we’ve spurred them to take action. So now let's discuss what providers think. Findings from recent market research commissioned with 1,024 U.S healthcare providers revealed that Amphora would be their second most commonly prescribed birth control, second only to the pill. This also validates a significant unmet need currently in the market for women, who are ready to say no to hormones. And this continues to strengthen our confidence that Amphora is going to be a commercial success. To maximize the opportunity, we continue to explore partnership opportunities to commercialize Amphora outside of the United States. Market research and data analysis conducted by IQVIA, identifies a very attractive commercial opportunities in multiple regions, including Asia Pacific, which represents a market opportunity of $1.4 billion with an addressable population of 800 million women, and the European and CIS regions represent a market opportunity of $1.1 billion with an addressable population of 109 million women. We also continued to advance Amphora for additional indications, which would expand our label. We recently completed enrollment in AMPREVENCE, our Phase 2b clinical trial of Amphora for the prevention of chlamydia and gonorrhea. Approximately 850 women, who've been diagnosed with chlamydia or gonorrhea in the preceding 16 weeks were randomized to either Amphora or placebo vaginal gel treatment arms for the four-month interventional period. We're very eager to gain deeper insights into Amphora's ability to prevent these common STDs. We look forward to reporting our top line data from this landmark trial in the fall. And I say and I mean landmark, because as a reminder there is no product indicated for the prevention of chlamydia or gonorrhea. Chlamydia is the most diagnosed and prescribed infectious disease in the United States. So as you evaluate our value proposition in this organization, it's critical that you consider that we expect to have not only the first non-hormonal on demand prescription contraceptive product, but also the only product indicated for the prevention of chlamydia and gonorrhea. So, with that, I’m going to turn the call over to our CFO, Jay File.

[Jay File:]

Thank you Saundra, and good morning, everybody. For the three months ended March 31, 2019 total operating expense was $13.6 million compared to $21 million for the quarter ended March 31, 2018. Research and development costs were $7.9 million versus $12 million in the prior-year quarter. The $4.1 million decrease was driven mainly by lower clinical trial costs. AMPOWER trial costs decreased by $7.5 million, while AMPREVENCE trial costs were $3 million higher than the first quarter of 2018. General and administrative costs were $5.7 million in the first quarter of '19 versus $9 million in the prior-year quarter. The key driver for this decrease was $3.7 million reduction in professional services and professional -- and personal costs that were attributable to one-time costs associated with our merger that was completed in January of 2018. The decrease associated with these one-time costs were partially offset by $1.2 million increase in non-cash stock-based compensation that was recognized in the current period, which was mainly associated with stock-based awards granted in 2018 for which no stock-based compensation was recognized prior to March 31, 2018. Total other costs were $4.4 million in the first quarter of 2019 versus $48.1 million in the prior-year quarter, all related to non-cash items which are discussed in greater detail in the 10-Q we filed this morning. As a result, net loss attributable to common stockholders was $18.1 million or a loss of $0.67 per share for the quarter ended March 31, 2019 compared to a net loss of $69.1 million or a loss of $4.62 per share for prior-year quarter. In April 2019, we raised $30 million from the sale of 6.7 million shares of common stock to PDL BioPharma at $4.50 per share and issued PDL warrants to purchase up to 1.7 million shares of Evofem common stock at an exercise price of $6.38 per share. This strategic investment is expected to be the first of two tranches under our April 2019 securities purchase agreement. The second tranche, if closed, will provide further financing on or before June 10, 2019 of up to an additional $50 million, comprised of PDL's right to invest up to another $30 million and the right of Woodford Investment Management and Invesco Asset Management LTD to invest up to $20 million, in aggregate, at a purchase price of $4.50 per share. If the second tranche of financing is completed, additional warrants to purchase up to 2.8 million shares of common stock will be issued at a stock [ph] price of $6.38 per share, assuming the full additional $50 million is invested. For the remainder of 2019, we continue to expect our operating expense will average approximately $14 million per quarter. Based on our current plans and assuming the closing of our second tranche of our financing, we believe that we will have sufficient funding through approval and to launch Amphora in the second quarter of 2020. With that, I will turn the call back to Saundra.

[Saundra Pelletier:]

Thank you so much, Jay. Evofem has made great progress already this year. But please make no mistake, the team is on a mission to create serious positive change in women's health. We continue to build our momentum and we are working diligently to meet our clinical regulatory and corporate goals. These include resubmitting the Amphora NDA for the prevention of pregnancy; completing the AMPREVENCE trial for prevention of chlamydia and gonorrhea and reporting top line study data, deepening our discussions for commercialization of Amphora outside of the United States, and preparing to commercialize Amphora in the U.S as the first hormone-free MVP-R birth control method. So with that, I would like to open-up the call for questions.

[Operator:]

[Operator Instructions] Our first question comes from line of Randall Stanicky with RBC Capital Markets. Your line is now open.

[Daniel Busby:]

Hey, everyone. This is Dan Busby on for Randall. A few questions for me. First is on the NDA resubmission timing. You are obviously targeting the second half now, but can you [indiscernible] at all, for example is this most likely a 3Q event or 4Q event, and related to that, was this position at all related to any issues or delays at your original manufacturer?

[Saundra Pelletier:]

Kelly, do you want to start?

[Kelly Culwell:]

Sure. So, we can narrow it down to, it will be in the fourth quarter of this year, and that’s simply related to timing of ensuring we’ve the adequate data available from a stability batches for the second manufacturer. And no -- we have no issues with the first manufacturer. This is really about being able to have a robust commercial pipeline and the FDA suggested it, and we feel it's the appropriate step to make the application even more strong.

[Daniel Busby:]

Okay, got it. And then a question, perhaps, for Jay. Regarding the securities purchase agreement you recently entered into, are there any specific triggers or milestones associated with the June 10 closing date for the second tranche, or is that more of an arbitrary date?

[Jay File:]

No, it's just subject to the completion of due diligence. That’s the only caveat. There is nothing specific that relates to that. June 10 was -- wasn't specifically like -- to be like any date in particular.

[Daniel Busby:]

Okay, got it. And just one more for me. You mentioned the OUS opportunity. Are there any updates there on the status of those discussions? I think, on the last call you talked about potentially reaching a few agreements in the second half of this year, are those timelines intact or might they’ve been impacted by the NDA delay?

[Russ Barrans:]

Yes, Randall. This is Russ. And yes, they are all intact. We are still moving forward, we are further on the Asia Pacific side where we are currently in the middle of some due diligence with binding offers to be submitted soon, and the EU will actually kick off next week.

[Daniel Busby:]

Okay, great. Thanks, everyone.

[Operator:]

Our next question comes from line of Yasmeen Rahimi with ROTH Capital Partners. Your line is now open.

[Rachel Yang:]

Good morning. This is Rachel Yang on for Yasmeen. Thank you for taking my questions. Congrats on the recent progress. Can you tell us what your expectation is from the AMPREVENCE Phase 2b study, and what prevention rate is considered a home run? And I have a follow-up. Thank you.

[Kelly Culwell:]

Sure. This is Kelly Culwell. So we’ve powered our study to detect a 40% reduction in the infection rate of chlamydia over the study period compared to placebo. So anything equaling that or would be a home run for us, because it would indicate a positive study and we would be able to move forward with just a single Phase 3 confirmatory trial prior to submitting the sNDA.

[Rachel Yang:]

Okay. Thank you so much. Can you also give us an update on what steps you have already completed in commercialization, and what is left ahead of NDA filing and post-NDA filing?

[Jay File:]

We have already selected our agency of record for the commercial side of the healthcare providers. So that is ongoing. We've always -- we've already identified the partners who will work with us in areas of things like training of the sales consultants, recruiting the sales consultants, the data collection that needs to be done, those have already all been identified. But the only thing that has not yet been identified is the agency of record for consumer and that is largely because we will go out to do our DTC six to nine months post launch. So there is no need at this point to have them identified although lots of work has been done in that regard.

[Rachel Yang:]

Thank you so much. And one final question. What is left to do before you can resubmit your NDA? What is the rate limiting step?

[Saundra Pelletier:]

So we are in the process of compiling all of the modules that can be compiled based on the results of the clinical data. The last rate-limiting step will be to add the stability data from the second manufacturer, which is why the timeline has shifted to the second half of this year.

[Rachel Yang:]

Okay. Wonderful. Thank you so much.

[Operator:]

Our next question comes from line of Ram Selvaraju with H.C. Wainwright. Your line is now open.

[Ram Selvaraju:]

Hi. Thanks very much for taking my questions. So a couple on the AMPREVENCE study. I just wanted to know from a clinical spending standpoint, how AMPREVENCE's all-in cost compares to AMPOWER, how we should be thinking about the differences in costs for these two studies? Secondly, you mentioned the possibility of a single confirmatory Phase 3 trial. Do you have a sense at this juncture assuming AMPREVENCE's positive of what the principle differences would be in study design between the AMPREVENCE study and this confirmatory Phase 3 hypothetical trial? And then finally, I just wanted to know whether you’ve a sense of when you might be formally reentering active clinical development on MPT Gel? Thanks.

[Jay File:]

Hi, Ram. This is Jay. I will take that first question for Kelly. So the AMPREVENCE trial is not as extensive obviously not as many signs and the enrolment is big. So it's about two thirds of the cost of what AMPOWER will run. We do anticipate, obviously, with the full enrolment having occurred in the first quarter and that the participants are running their clinical period through, top line data at the end of the year that majority of the expenses remaining will come through 2019.

[Kelly Culwell:]

Again to answer the question about the differences in the study design. So the -- really the only major difference is, Ram, [ph] that we anticipate at this point is that we are planning to broaden the inclusion criteria for the Phase 3 trial. So we are going to not just limit the enrollment to women who have had a previous infection in the past 4 months as we do with the AMPREVENCE, but rather expand it to any woman who is at risk for chlamydia or gonorrhea infection. What that will do is it will lower the baseline risk of infection, so lower the risk of infection in the placebo group, which will mean that we need a larger study for the Phase 3. But with the broader inclusion criteria, we don't anticipate it will be more difficult to enroll the larger group of women. So, we will probably be looking at a study that's around 1,100 women in size for the Phase 3 trial with the broader inclusion criteria based on our powering that we've done to-date. However, this will all be contingent and we will have it in to Phase 2 meeting with the FDA or at least we will ask for one, and that will inform about the study design moving forward, as will the results from AMPREVENCE.

[Ram Selvaraju:]

And then the MPT Gel question?

[Kelly Culwell:]

So, yes, that really is all dependent on availability of funds. We have moved forward with the finalization of a Phase 2 protocol for moving the product forward for the BV indication for the prevention of BV. So it's really just a matter of ensuring that when we secure adequate funding to move that product forward, we will. We don't have a timeline set at this point.

[Ram Selvaraju:]

Okay. And then this is a nuance with respect to the AMPREVENCE target indication and this prevention of bacterial infections -- kind of value proposition that you are going after. Can you comment on how that is situated relative to the concern over the emergence of resistant bacterial infections? Because obviously this is not being deployed in the same manner as an antibiotic, it shouldn't be thought of in the same way as an antibiotic or an antibiotic like therapy. The goal here is prevention of the infections in question, but clearly since it doesn't work like an antibiotic, you would expect that it would be effective at preventing both infections that are resistant and infections that are susceptible to existing antibiotic treatment. But I was just wondering if you could, sort of, provide some more nuance around these kinds of concepts? Thank you.

[Kelly Culwell:]

Yes. So, yes, antibiotic resistance should not in any way impact Amphora's ability to prevent the acquisition of, say, gonorrhea or chlamydia, because it really is not acting at the level that an antibiotic is, it's really just acting at -- providing [indiscernible] environment that keeps the product from -- keeps the bacteria from being able to survive. So in fact, we anticipate that the rise of antibiotic resistance will only increase the interest both from the FDA perspective, which is why we have QIDP designation for gonorrhea, but also from a healthcare provider perspective and public health perspective. It will only increase interest in achieving the clinical study to achieve the prevention for chlamydia and gonorrhea.

[Ram Selvaraju:]

Okay. And then just two very quick questions for Jay. One is, can you comment on how you expect stock-based compensation to trend over the remainder of 2019? And the other is, with respect to the possibility of future non-cash fair value of warrant liability adjustments going forward given the changes that have occurred in the warrant position and the companies cap structure, whether you think such adjustments are more likely, less likely or pretty much equivalent likely to occur going forward? Thank you.

[Jay File:]

Yes, sure. Not a problem. So I do not expect to see kind of a similar adjustment or the significant variance that you are seeing the last large charge for that grant that happened last year, which just as a quick reminder, was grant that was done after the impact of the reverse merger. That really ran out through the first quarter of this year. Any future grants at least at this time are anticipated to be over a more traditional vesting period, which is standard as a [indiscernible] and then remain monthly over three years. So you shouldn't see, at least as of right now that I’m not aware of anything new from that degree and it will just be normal run out of existing grants and ongoing grants over a four-year vesting period. As it comes to any sort of additional warrants as long as they are tied to a common stock grants, and we don't have this kind of inducement to exercise like we did, I am not expecting to see any other significant items coming through as well, at least at this time. I guess never say never, but at least there is nothing I currently anticipate having to record at the [indiscernible].

[Ram Selvaraju:]

Great. Thank you very much. Congrats on all the progress and we look forward to the Amphora resubmission.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from line of Carl Burns with Northern Securities. Your line is now open.

[Carl Burns:]

Great. Congratulations on your progress. Just real quickly, you mentioned QIDP designation for chlamydia and gonorrhea indications. So with that, would you anticipate a priority review of six months and also additional market exclusivity with a QIDP designation?

[Kelly Culwell:]

Yes, we would. So, and just to be clear, the QIDP designation is for gonorrhea. We do also have a fast track status for the chlamydia indication. So with either case we do anticipate that a six-month review will be possible, and with the QIDP that would lead to additional market exclusively.

[Carl Burns:]

Great. Thank you.

[Operator:]

And I’m showing no further questions in queue at this time. I would like to turn the call back to Saundra Pelletier for closing remarks.

[Saundra Pelletier:]

Great. Thank you all for your ongoing support of Evofem and our mission to develop and provide innovative healthcare solutions that will empower women to take control of their sexual and reproductive health. We look forward to seeing many of you at the RBC Healthcare Conference in New York later this month. And in closing, we just want to reiterate our continued excitement that we feel that we’ve the right product. And the right product really is because it is not hormonal and it is on demand and there are 16 million women, who have an unmet need that we are convinced from waiting for a product like Amphora. And we really believe this is a right time. We think it is very opportunistic and serendipitous that women's equality continues to be on the rise more now than ever. So the timing is perfect for an innovation, because it has been decades. And we also believe we’ve the right team that really understands execution and so we are poised for success. So we really look forward to continuing our discussions. And thank you again for your time and for your support. Have a great day.

[Operator:]

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day.