RVL Pharmaceuticals plc
Q2 2021 Earnings Call Transcript

Published: 16 Aug 2021

[Operator:]

Thank you for standing by and welcome to the Osmotica Pharmaceuticals' Second Quarter 2021 Business Update. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the conference to your host Ms. Lisa Wilson of Investor Relations. You may begin.

[Lisa Wilson:]

Thank you operator. Welcome to Osmotica Pharmaceuticals' second quarter 2021 business update call. This is Lisa Wilson, Investor Relations for Osmotica. With me on today's call are Osmotica's Chief Executive Officer, Brian Markison; Chief Operating Officer, JD Schaub; and Chief Financial Officer, Andrew Einhorn. This afternoon, the company issued a press release detailing financial results for the three months ended June 30th, 2021. This press release and a webcast of this call can be accessed through the Investors section of the Osmotica website at osmotica.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 Osmotica's management as of today and involve risks and uncertainties including those noted in this afternoon's press release and our filings with the SEC. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. Osmotica 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 measures such as adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income or loss, please see the tables at the end of our press release. The archived webcast of this call will be available for 30 days on our website at osmotica.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on August 16th, 2021. Since then, Osmotica 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 Osmotica's CEO, Brian Markison.

[Brian Markison:]

Good afternoon everyone and thank you for joining our call today. During the quarter, we took a major step in transforming our company. In late June, we announced the sale of our entire legacy business to Alora Pharmaceuticals. The singular purpose of this divestiture has been to delever and clear the runway for RVL Pharmaceuticals, the home of Upneeq. We are now solely focused on the success of Upneeq and expanding the market opportunity for this important brand. Upneeq, as the first and only FDA-approved product for the treatment of acquired ptosis in adults, is truly a unique asset. The response to the product from providers and most importantly, patients has been terrific as seen in the steady increase in new prescriptions. In the second quarter, we had nearly 9,000 paid prescriptions, an 85% increase over the first quarter and we know that Q3 is already off to a great start. Our eye care franchise now has approximately 100 territories working seamlessly with our exclusive pharmacy. It should be noted that RVL Pharmacy is the only way Upneeq can be purchased, thus assuring a level of customer service commensurate with our expectations. We also recently brought on Aaron Green to finalize and lead our aesthetic go-to-market strategy. Later in this call, JD will provide more highlights framing the consumer market research we recently completed and some of our near-term catalysts. This is an exciting time in our evolution and we look forward to sharing more information as we work to capture the growing value of Upneeq both in the US and around the world through our partnership with Santen. We also recently submitted an amended protocol for arbaclofen Phase III study to the FDA. We look forward to working with the agency on the development plans for this product and potentially meaningful benefits it can deliver to patients suffering from MS spasticity. Now, I'd like to turn the call over to Andy Einhorn.

[Andrew Einhorn:]

Thank you, Brian. As an opening comment, this quarter our financials look very different than in the past. Under the accounting rules, the divestiture of our legacy business is now accounted for as a discontinuing operation, meaning that the business' P&L results assets and liabilities are collapsed into single line items on our face financial statements. The operating results we're reporting generally consist of revenues and expenses related to Upneeq and the G&A expenses of the business. Our revenues for the second quarter totaled $11.5 million made up of $1.5 million of product sales of Upneeq and a $10 million milestone payment from Santen Pharmaceuticals our ex-US license partner for Upneeq. As Upneeq was launched in September of 2020, there were no revenues from Upneeq during the comparable period last year. Cost of goods sold were $700,000 during the quarter, again primarily attributable to Upneeq. Gross profit for the quarter was $10.8 million. Selling, general and administrative expenses consisted of promotional activities related to the Upneeq launch and the expenses of running the company. Expenses during the quarter reflected an expansion of our sales force to approximately 100 professionals and greater marketing spend as we broaden our reach into eye care. We expect these promotional expenses to increase in the quarters ahead, as we deepen our penetration in eye care and plan to launch into aesthetics. During the quarter, we took better measures to align our cost structure with our post-divestiture profile. We curtailed the operations of our research and development subsidiary in Buenos Aires, Argentina resulting in employee termination expenses totaling $3.2 million which are reflected in our G&A and R&D expenses for the quarter. Additionally, we recognized a nonoperating asset disposal charge of $1.3 million related to the closure of our Argentine subsidiary. Research and development expenses of $2.1 million in the second quarter consisted of the Argentine restructuring costs and a small amount of project spend on arbaclofen and follow-on Upneeq candidate. During the second quarter we recognized impairment charges of $7.9 million related to a write-down of the arbaclofen intangible asset, the launch of which if approved would be delayed from our previous anticipated launch date. As mentioned earlier, other nonoperating expenses of $1.7 million in the quarter, primarily reflected the disposal of fixed assets of our Argentine subsidiary. Net income from the discontinued operations of our legacy business was $4.2 million in the second quarter. Overall, we had a net loss of $17.7 million in the quarter. Adjusted EBITDA loss from our continuing operations for the second quarter of 2021 was $8.4 million, compared to an adjusted EBITDA loss from continuing operations of $15.3 million for the second quarter of 2020. As of June 30, 2021, we had cash and cash equivalents of $99.8 million and borrowing availability under our revolver of $25 million. We also had $214.7 million aggregate principal amount borrowed under our term loans net of deferred financing costs. With that I'd like to turn the call over to JD.

[JD Schaub:]

Thanks, Andy and good afternoon, everyone. Today, I'll update you on the recent highlights with our expanding launch of Upneeq and share additional details on the tactics building momentum, as we continue to create a new category in ocular aesthetics. In July, we recently completed our sales team expansion in eye care, with approximately 100 sales professionals now supporting the Upneeq launch. The broader reach helped expand the prescriber base by more than 3,000 in Q2. And as of the end of July, we have more than 8000 HCPs, who have prescribed Upneeq at least once, truly remarkable breadth which continues to grow as awareness builds. From a mix perspective, optometry makes up about 60% of prescribers today, while ophthalmology makes up the remaining 40%. Similarly, total prescriptions in Q2 grew 85% over Q1, totaling nearly 9,000 for the quarter. We are seeing prescription mix hover around 60-40 between 30 count and 90 count and are also beginning to see a growing stickiness from refills. Though it remains early to have a holistic view on annual patient utilization, the first cohort of patients those who filled their first prescriptions in September, October of last year, appears to be tracking north of 120 days of therapy on average per start, an encouraging signal as to patient value and preliminarily quite a bit higher than our early estimates of about 90 days per patient. Obviously, we are thrilled by the continued adoption and early utilization by so many of our ECP partners and moving forward, remain focused on continuing to reach an expanding group of ECPs, while at the same time working with those existing prescribers to unlock a behavioral shift and incorporate lid evaluations as part of their daily routines in our effort to build this market and importantly, depth within each practice. We are building a market and a key part of that effort is our ability to deepen the market's understanding of acquired blepharoptosis, including the prevalence, something which has been lacking historically. Obviously, the tip of the iceberg is fairly well understood, over 0.5 million patients annually who opt for corrective surgery and/or experience toxin-induced ptosis. Ultimately, we believe the market to be tens of millions of adults, which is supported by market research we completed during the second quarter with 10,000 consumers. The research consisted of adult women between the ages of 20 and 70, the only qualifier being household income greater than $50,000. In short, the results highlight the significant potential market opportunity for Upneeq and importantly, that this opportunity is largely agnostic to age and/or severity of ptosis. Specifically, about six in 10 adult women self-identify as having some level of ptosis or low-lying lid. Moreover, more than four of 10 were bothered by the appearance of their eye and after presented with a product profile believed Upneeq would fulfill a need regardless of whether they identified as ptotic or normal. Obviously, this research further highlights what we have always believed is an outsized market opportunity and unmet need. As we look forward, we have a number of catalysts supporting accelerating growth. First, several weeks ago, we began to pilot our physician dispense model with eye care providers. Selected offices were allowed to purchase directly from us and dispense Upneeq at the point of care. The early feedback has been tremendous and we see this initiative as a meaningful strategy in our efforts to drive deeper utilization at a practice level through a true partnership with the practice and their patients. Additionally, you will begin to hear more from us in the aesthetic space in the months ahead as we work towards expanding the launch in this market early next year. We are ramping up our engagement with KOLs and influencers across the core and non-core specialists, and continue to refine our strategy based upon these discussions and increasing utilization amongst the key group of these clinicians. Similar to eye care, we see a tremendous opportunity to expand the prescriber base to these specialties and incorporate Upneeq into the daily patient flow of aesthetic practices throughout the country. In closing, we see a drug with tremendous upside, a non-invasive treatment, which has an almost immediate positive effect on patients. With numerous catalysts continuing to drive awareness and utilization in the months ahead, we are incredibly excited about the future of RVL and Upneeq, and look forward to updating everyone on our progress again in a couple of months. With that, I'll turn the call back to Brian.

[Brian Markison:]

Thanks, JD and Andy. Operator, we are ready for questions.

[Operator:]

Thank you. Our first question comes from David Steinberg of Jefferies. Your line is open.

[David Steinberg:]

Thanks and good afternoon. I have a couple of questions. So first is Brian, when you close transaction of Alora, what sort of financing plans do you have in place to fund operations? And I guess on the same question, when exactly or when do you think it will close? Secondly, how should we think about spending? You mentioned spending is going to ramp up. What do you sort of see as a fully loaded cost structure with the full sales force and promotions in place? And then in terms of the typical patient profile, I know you've talked about expanding into aesthetics. At last check it was a patient in their 60s or early 60s with severe forms of the disease. What's the -- as more and more patients have gotten scripts, what's the typical patient profile at this point in time? Thanks.

[Brian Markison:]

All right. Thanks, David. And so I think what I'll do is, I'll start with your last question first and that is the typical patient profile. I think when we first launched the product or introduced it in September of last year, the average age of our patients which are predominantly female was about 69 years old and that age has steadily dropped as we've been out there talking about the product and promoting particularly this year. And I think now the average age of our patients is around 60 years old, and we're going to be moving that needle further younger as we get into the mildly ptotic population. I think the other thing and JD could expand on this a little bit is, I think, the patients we got early on were those that were waiting for elective surgery, and that they had severe ptosis. And I think what we're beginning to see now is the more moderates are coming in, a few milds are coming in, but I don't have a strict breakdown on how that's shaping up. So JD, any color to add to that?

[JD Schaub:]

I think all I'd add David is, we continue to add so many new prescribers every day, every week and every month and that number has been pretty consistent in terms of a couple of hundred new prescribers every week. And that's probably why we continue to see average age at around 60 right now, because we're just adding so many new prescribers who for the first time are probably using it in those most noticeable or more severe patients. I think where we see the counterbalance to that are some of the folks that have really dug in with us and begun to change the paradigm in their own office and have these conversations and open up lid assessments with a broader range of their patients, because we're starting to see more and more of those doctors and offices throughout the country. So, I think as we move forward through the rest of the year, a number of factors will, I would anticipate, seeing that continue to tick down. And then over a longer period of time, I think, obviously, we'd like to see that number down in the low 50s in terms of really opening up this market.

[Brian Markison:]

Okay. And well we still have a couple of more parts to David's question. So David, the other part, if you wouldn't mind asking the question again?

[David Steinberg:]

Sure. So the other two pieces were when are you going to close Alora? And when you do close it, what sort of financing plans do you have in place to fund operations? And the other part was you said you're ramping up spending and promotion. I was curious what a fully loaded cost structure might look like once you're fully operational at Upneeq.

[Brian Markison:]

Right. Okay. Good. So the plan to close with Alora is any day. We've been waiting for the State Board of Pharmacy in Georgia to grant the license to Alora in order for them to operate the manufacturing facility. That's a process where an inspection is required. That inspection happened Thursday last week. So -- and we understand it went very well. So really quite frankly, we're hoping to close any day, but it could drag out a bit more because, we have no control over the State Board of Pharmacy, but that's the only thing outstanding right now when we close. With respect to financing plans, we are in discussions with a number of parties to refinance the company. Those conversations are going quite well among other strategies that we could use, but we are talking to I would say a very good group of alternative lenders and are comfortable with where we are today, although I can give no reassurance or assurance that we will be financed coming out of it. So, I have to say that for the purposes of full disclosure. But then I think run rate, I think fully loaded, we're looking at around $7 million a month rough justice maybe a little more, maybe a little less depending upon promotion sensitivity to different levers that we have. If we feel really good about some early feedback and returns on direct-to-consumer work that we're doing now, which is all pilot we could scale that up, but there'll be an immediate return. But I would say sales force, R&D, G&A all-in OpEx, if you would around $7 million a month.

[David Steinberg:]

Okay. Thanks very much.

[Brian Markison:]

Okay. Thanks, David.

[Operator:]

Thank you. Our next question comes from Greg Fraser of Truist Securities. Your line is open.

[Greg Fraser:]

Hey guys. Thanks for taking the questions. I was wondering if you could comment on prescription demand that you've seen so far in the third quarter. I know you said the quarter is off to a great start. Just hoping, you could provide some quantitative color such as month-over-month growth in July.

[JD Schaub:]

Yes. This is JD. I'll start. And I think we saw mid-teens growth July over June in terms of prescriptions. So obviously, I think given the holiday and the heart of summer really positive momentum still continuing to build with the launch here.

[Brian Markison:]

And the other factor is, we just started shipping direct dispense to a few accounts in the month of July. So we took a few of our prescribers off-line, shipped them product directly. So we're and we're going to have to break out I believe in the future how this is all going to work out so you guys can track us more accurately. But as we go forward, we think that the buy-and-bill component of this or the value share if you would call it that is going to begin to really ramp as we get into the latter part of the third quarter. And then in the fourth quarter, it's going to be fairly meaningful. So as JD said, July was pretty darn good, considering the 4th of July holiday. And again, I think August, we would expect it to be a good month as well.

[Greg Fraser:]

Got it. That's very helpful. On the physician dispense model that you're piloting, can you give us some more details on how the model works? Sort of what's the acquisition cost? And how are the practices setting the price for their customers?

[Brian Markison:]

Yeah. So yeah, let me help frame it and then JD will give you some of the exact details. So, this is now in states that permit the direct dispense model. That is exactly, what we're piloting right now. For states that do not permit it such as Texas and New York, we will be rolling out a different model that we're calling value share, probably around the first of the year, and that's more of a technology solution, where the prescriber would purchase virtual inventory, and the prescriptions would run through our pharmacy. So, we kind of like that part of it, but for the direct dispense component where states permitted now. So JD?

[JD Schaub:]

Yeah. No, I think Brian really summarized the two programs, Greg. Obviously, we're just getting the direct dispense off the ground. We've got the first handful of offices kind of using that in terms of ensuring that the infrastructure and the pull-through and the overall process is working well. We've got a very elegant ordering platform that fits seamlessly within the day-to-day flow of these practices and how they purchase. And I think, we're excited about the opportunity that that provides, to really engage not just from a margin perspective, but from a partnership perspective with these offices, and getting our folks in there, the team in there and really working with the entire office to begin to shape a full-blown solution to looking at lids and talking about this with so many patients, which I think really sort of was borne out of the market research that we did in the second quarter that highlighted just how profound of a concern this is for so many adults.

[Greg Fraser:]

Got it. Okay. That's helpful.

[JD Schaub:]

I think the second part of your question was around margin. And the way I would think about it today is obviously subject to change, but about 50% baseline margin. So if you look at $105 for a month somewhere between $70 and $80 per box is the purchase price. And look we've been – we've chosen this path and this business model with transparency and simplicity in mind. So in terms of sellout pricing, I think we anticipate trying to keep that consistent with what patients pay coming out of the pharmacy.

[Greg Fraser:]

Got it. That's very helpful. Thank you. Then my last question is a two-part question. But how many eye care professionals are you calling on now with the expanded sales force? And just curious, if the ramp in COVID cases has had an impact on patient visits to the docs that you're calling on or the level of access that your reps are able to get with the eye care professionals? Thanks.

[JD Schaub:]

Yeah. So our total footprint now covers between 15,000 and 20,000 ECPs. The number, I work off of is about 18. And through the end of July, we've sampled just about 12,000. So I think we're making good progress in terms of the growth of the team, the expansion of that reach, and the ability to get in front of, and begin to introduce these offices to the condition, to the product and build from there.

[Brian Markison:]

And with respect to COVID, we're worried that there's a little bit of pullback now, that could take place. We haven't seen it as of yet right now. But as more mask restrictions come into play, we could see, providers shutting us down a little bit. But we're monitoring it obviously. We're close to it. But right now we haven't seen it hurt us. But we're acutely aware of it.

[Greg Fraser:]

Great, thank you.

[Brian Markison:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Daniel Busby of RBC Capital Markets. Your line is open.

[Daniel Busby:]

Hello everyone.

[Brian Markison:]

Hi.

[Daniel Busby:]

Maybe building upon those last questions or the last couple of questions is first for those eye care professionals who haven't prescribed Upneeq yet are there any common themes in terms of pushback? And then, second, what is the typical or average period of time, between the first instances an eye care professional samples Upneeq? And when they become a repeat prescriber? Is there a kind of standard period of months that transpires there?

[Brian Markison:]

Yeah. So taking the first part of the question, there really hasn't been any pushback. I think, what we're seeing is everybody gets it rather quickly. I think that with our pretty broad and deep sampling program out of the gate, a lot of eye care providers tried it on themselves and their families. So I think the real hard work is going to begin roughly now, where we want to drive the prescription volume deeper into the practices. And examining the lids, and working it into your daily routine has really not been common practice for eye care. I think when we launch into aesthetics it will be a different situation altogether, because there the patient is coming in for that aesthetic treatment. But for here, for eye care, if you've got a very busy practice that's dealing with macular degeneration, dry eye, glaucoma et cetera ptosis is not top of mind. So there's very little if any pushback. I think the chore in front of us or the heavy lifting if you will is driving it deeper into the practice. And I think the buy-and-bill or value share programs that we've developed are going to play a very major role in that partnership with the provider. So I don't know, JD, if there's anything you want to add to that?

[JD Schaub:]

No, I think, it's important just that context. There's, very few ptosis experts out there today, right? So, on the one hand, obviously, why we're hard at it building this market, but on the other hand, just the sheer number of prescribers so far is pretty remarkable when you put it in that context. And so I think tying that to Brian's comments, this is all about taking something. There's a clear need and desire and willingness to use it, try it, start to throw it at patients that are seemingly easier to identify. And then, it's on us now through tactics such as, direct dispense, I think beginning to build around the market research that we conducted. And really bringing that story into these practices and spending time, making it relevant to each of our physician partners say look take a step back. You don't have to get behind a slit lamp here and run through a real lengthy diagnosis. Have them circle what their eyelid looks like. And the number of has over the last several weeks in particular that you start to hear back is like, wow, this really does impact a lot of these patients running through my office regardless of the reason they're in there. And so those are the things that I think are really encouraging. And I think the focus from field force perspective right now the team is out there laser-focused on that depth and spending the time with our partners and some of the early adopters to pull that through.

[Daniel Busby:]

Okay. Got it. And maybe pivoting to the aesthetics opportunity, have you put any more thought into how many more sales reps you may need to hire for that launch next year? And should we think of this as, kind of, two distinct sales forces, or would you anticipate more of a hybrid approach where a single rep may be calling on both eye care and aesthetics professionals?

[JD Schaub:]

Yes, good question. So today I would look at them as two distinct forces. And from a number perspective, I think, we're focused on a number right around 50 which gives us the coverage and reach that we need in the large MSAs and then filtering in throughout some of the other key geographies in this -- in the United States. And then I think as we go from there we're going to have a pretty good picture as we move out over time of what an optimal territory looks like and how the trajectory builds and what that means in terms of adding from that.

[Daniel Busby:]

Okay. Great. And just last question for me on Arbaclofen. When should we expect the next update on this program? Do you have any meetings set up with FDA to discuss the amended protocol?

[Brian Markison:]

Yes. The agency has 45 days to respond to our protocol submission. So I think at the end of next month at the end of September, we would expect to be in a dialogue with the agency around Arbaclofen.

[Daniel Busby:]

Okay. Cool. Thanks.

[Brian Markison:]

All right. Thank you.

[Operator:]

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Brian Markison for any closing remarks.

[Brian Markison:]

Okay. Operator, thank you and thank you all for joining our call. We are as you could tell thrilled with the progress we've made on Upneeq and also have our shoulder leaning in hard to close the transaction with Alora and continue to grow our business. So thanks again.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.