TherapeuticsMD, Inc.
Q2 2020 Earnings Call Transcript

Published: 7 Aug 2020

[Operator:]

Good morning, ladies and gentlemen. Thank you for joining us for the TherapeuticsMD second quarter 2020 financial results conference call. I would now like to turn the call over to TherapeuticsMD’s vice president of investor relations, Nichol Ochsner. Nichol, you may begin.

[Nichol Ochsner:]

Good morning, everyone. Thank you for joining today to discuss our second-quarter financial results and business update. This morning, TherapeuticsMD issued a press release, announcing our second-quarter financial results. The press release is available on the company’s website, therapeuticsmd.com, in the investors and media section.

[Robert Finizio:]

Good morning, and thank you, Nichol. I’ll open this morning’s call with a strategic overview, then turn the call over to James to provide an update on the agreement that we reached with Sixth Street to amend our revenue covenants and our financial results for the quarter. Next, Dawn will review our key commercial trends and plans for the second half of the year. Starting with COVID’s impact. Women’s health has been significantly impacted by COVID-19, including both the VVA and birth control classes. IMVEXXY and ANNOVERA experienced the same weakness early in the quarter, but I’m happy to say April was our bottom, and we’ve had strong growth over the past eight to 12 weeks. Dawn will walk you through why we expect the strong pace of growth to accelerate throughout the remainder of 2020, even with the current state of COVID persisting. Management took proactive steps to refocus our efforts on ANNOVERA and IMVEXXY and reduced the focus on BIJUVA to extend our cash runway due to COVID-19. We decreased our total operating expense target of approximately $40 million by the fourth quarter, excluding noncash items. Next, our management team wanted to update our Sixth Street minimum revenue covenants to reflect COVID-19’s impact. To fully understand our growth trajectory during this pandemic, we agreed with Sixth Street to operate for a full quarter with COVID-19 before calculating our minimum revenue covenants to ensure they were realistic, accurate and achievable, as James will show you shortly. In addition, the changes made to our operating plan and the significant progress of Sixth Street, we also undertook shaping or reshaping of the TXMD Board of Directors and management team.

[James D’Arecca:]

Thanks, Rob. It’s nice to meet everyone, and it’s great to be here. I joined TXMD because I saw an excellent opportunity to help drive value creation. I was attracted to the company’s products, particularly ANNOVERA, which I believe is poised to become an excellent option for women seeking a long-lasting, reversible contraceptive. I was also impressed by the company’s management, particularly the sales and marketing team that has been assembled to drive growth. During my first few weeks, I conducted a deep dive into the company’s previously announced cost savings initiatives and revised forecasts. I also had the opportunity to assess, along with my colleagues, the impact COVID-19 was having on our business in real-time. I concluded from that assessment that the company’s previously announced proactive restructuring due to COVID gave us the clarity needed to set the foundation for a successful renegotiation of our minimum revenue covenants with Sixth Street. Let’s turn to Slide 6. In this regard, I’m pleased to announce that we have amended our financing agreement with Sixth Street to adjust the minimum revenue covenants. The minimum revenue covenant was set to $20 million for the fourth quarter of this year. In 2021, the first-quarter net revenue covenant is $25 million, $37.5 million in the second quarter, $47.5 million in the third and $57.5 million in the fourth quarter.

[Dawn Halkuff:]

Thanks, James. Let’s start with the impact COVID-19 had on Q2. As Rob mentioned, COVID-19 caused a significant decrease in our portfolio scripts in March, April and May. I’m very happy to say that we have returned to growth for all products in June and July with the adaptation of our plans and the opening of access and expect that growth to continue for the remainder of 2020, even with a strong COVID headwind.

[Robert Finizio:]

Thanks, Dawn. In closing, we’re focused on driving revenue and achieving our goal of EBITDA breakeven -- quarterly EBITDA breakeven in 2021. We’re excited about the momentum we’re currently seeing, and expect it to accelerate in the near term, as well as into the back half of 2020. That being said, we’ll open up the call for questions.

[Operator:]

Your first question comes from Louise Chen, Cantor Fitzgerald.

[Jen Kim:]

Hi. Thanks so much for taking our question. This is Jen Kim on for Louise. I have a few questions. The first is, I know the covenants aren’t formal guidance, but can you give some additional color on maybe what assumptions around refill rates you have going into those outer year sales numbers? I know you noted a certain percentage of women’s saying they will refill. Is that what you’re assuming in those covenants? My second question is, you noted there was a drawdown of inventory in ANNOVERA in the channel this quarter. So how should we think about that carrying through to next quarter? And then, my final question, is just an update on net revenue per unit. Is that still expected to normalize starting in the third quarter? Are we sort of at that base currently? Or how should we think about that? Thanks.

[Robert Finizio:]

Sure. So thank you, Jen. So I’m going to pass a couple of those around here. So when you say refill rates, I’m assuming you’re talking about the refill rates for ANNOVERA and not for BIJUVA or IMVEXXY. Correct?

[Jen Kim:]

Yeah.

[Robert Finizio:]

So, yeah, yeah, so we’re lucky. The population council did so much research with this product, and it took them, I think, 16 years to get it approved, 17 years. We know pretty well with a very large population what the refill rate should be. To give you the blunt answer, we don’t think we think we need that level of a refill rate or anything even close to it to reach our minimum revenue covenants. If you just take our current growth rate, we’ll easily flow through those. So as we said before, they’re not guidance, but they certainly gave us a very realistic with what we expect over the next six to 12 months of strong COVID headwind, which has been holding back growth. I know ANNOVERA has seen 100% growth over the last eight weeks, but we expect that will accelerate without -- when COVID does finally disappear. And we also -- to give you a feeling, we expect in the near term, like August, September, to see faster acceleration with ANNOVERA, and we’re pretty confident in that. A lot of the things that kind of slow you down during launch. There is millions of things. We call them rocks and boulders here, have recently kind of converged and moved for ANNOVERA. We expect as early as the second week of August, you can start to see some even faster acceleration. And in addition to that, our partners, as Dawn went into in a lot of detail for a reason. You’re not seeing much contribution from any of the Title X, Public Health, military. We’ve had great contributions from some of the early telehealth folks, but some of the other ones are just starting. And then, Dawn had a phenomenally successful consumer campaign that typically, those types of things take nine to 12 months to really pull through. So you see none of that yet for ANNOVERA. We expect they will all contribute, some significantly. But even before that, you’re going to see some good acceleration and acceleration for ANNOVERA here in August and September. With that being said, I know you left one question open there that I have to hit, which is the drawdown in the channel. And I’m going to turn that over to Mitch. Mitch?

[Mitch Krassan:]

OK, thank you. What we saw in this quarter is a drawdown of inventory levels in the channel of about 1,000 units where demand, patient demand, was greater than what gets sold into the channel. The good news is, we came to a reasonable level of inventory right now, and they’ll have to be reorders going forward to just keep up with the patient demand.

[Robert Finizio:]

So I think that gives us some really good confidence in our performance in Q3 and Q4. Putting all this together, will be very, very solid. I would -- and last piece, on the refills. I would expect the refills to bring on additional escalation outside of what I talked about. Is there anything else we missed on that?

[Jen Kim:]

I think an update on net revenue per unit. Is that still expected to normalize in the third quarter?

[Robert Finizio:]

So net revenue per unit. So when we talk about ANNOVERA, it held in from last quarter. Looking forward, we expect it to continue to be strong. In the event that our net revenue per unit for ANNOVERA were to go down below $1,200, that would signal that one of the government programs, DoD, Medicaid, Title X, 340B is getting an incredible market share, disproportionate, which means the revenue that will couple with that would be very, very strong and very welcome, to be honest. So yes, we feel good about the brackets we have. They’re proportionately developed around our revenue targets. But again, if it does get down below $1,200, that means we’re having considerable growth, revenue growth in one of the government areas, which we would welcome. We’re happy to do it. And by the way, if it did dip down, we wouldn’t expect it to significantly dip down by any means.

[Operator:]

Your next question comes from Stacy Ku, Cowen and Company.

[Stacy Ku:]

Good morning. Hey, how’s it going? Thanks for taking my questions, and congratulations on the progress. So I was just trying to kind of pin down a little bit more this cadence of ANNOVERA growth. How should we be thinking about the extent of the return to normalization for sales rep activity for the month of July? I’m just trying to take what we have in terms of Symphony prescriptions that’s been reported so far and trying to understand the month-over-month growth for Q3? And maybe any commentary for Q4 as well?

[Robert Finizio:]

Yeah, sure. So I’ll take the first piece, and I’ll hand it off to Dawn, if that’s okay. So we track in the Edge system, how much we are able to operate. And what we look at -- when I say operate, I mean, face-to-face time that reps are able to spend with doctors, OK? Our systems track that. And when COVID hit, that virtually went down to only, I think, a couple of reps in two or three states able to see anybody. So what Dawn did is, we literally implemented entirely new programs and developed new skill sets that I think you’re seeing since April when it bottomed, a great uptick in ANNOVERA. So with that being said, what we see here, and what we’ve modeled for ourselves with these TPG covenants, and I’ll turn it over to Dawn on the sales operations, is we expect a 50%, what we call, caseload or headwind from COVID. So doctors from a GYN perspective, will only have about a 50% caseload, and that is truly what we’re seeing today. OB is much higher. These are GYN specifically. VVA is much more sensitive than birth control, and hot flashes are least sensitive for BIJUVA. And with that being said, we think that will last throughout the remainder of this year, and then a 25% headwind going into Q1 and Q2 of next year is what’s expected, but that will not stop our growth. We will continue to grow, and you’re going to see acceleration in August and September, we believe, with some of our recent wins here. Dawn, anything to add?

[Dawn Halkuff:]

Sure. And maybe we could go back to -- so I know I covered a lot of information fast. Let me go back to Slide 23. So first, on the sales rep activity, we are seeing they’re about 50% live, right now, live calls. And I would expect that rate to continue into the end of this year. We know we’re seeing markets open up and close down. I think the good news there is that no matter if the rep is live or they’re virtual, we are being able to get in contact with physicians. And in some cases, even when they’re virtual, they have more time. So I think the sales organization has really figured out how to have impact, no matter what. Your next question is, what should we expect in terms of growth. And these are the channels that I’ve covered. Most of the prescriptions that you’re -- that we’re seeing to date are from the commercial segment, and that’s really where the sales force is focused. But as we think about growth forward, certainly, we’ll continue to see acceleration in the commercial segment. But because we’ve just gotten started in areas like Public Health and the military, those are really going to add to our trends in the third and fourth quarter. And the online channel, which has been a really nice anchor for us, I mean, really gave us some solid meaningful volume in Q2. As Rob said, we’ve just started with some of the biggest player. So all that together, I would expect would give us acceleration. And the biggest driver, in addition, which impacts all segments, is the consumer campaign. And that really started on July 1. And as I mentioned, although it takes nine months of the year to start to see a positive ROI, the reality is that with what we’re seeing in terms of the views and the PR, we should start to see that really impact across the board. So bottom line continued acceleration in near term and throughout the year.

[Robert Finizio:]

Stacy, last way to look at that is the public consensus that is out there. Obviously, we’re not giving guidance yet due to COVID. But the consensus out there, I believe, is somewhere in the $60 million, mid-$60 million range in Q3. And we don’t -- as you can see at these rates, we don’t see any issues achieving that whatsoever. One thing Dawn did not talk about that most people don’t have in their models but they should go and take a look at the data that’s out there because it’s a lot of it, is the refill rate. Look, it could be anywhere about 70%. We certainly don’t need that to hit these numbers at all, but it could be a very strong, healthy escalator as we move into October, which is when we first let ANNOVERA to the market.

[Operator:]

Your next question comes from Douglas Tsao.

[Douglas Tsao:]

Can you hear me?

[Robert Finizio:]

Yes, sir.

[Douglas Tsao:]

So a couple of questions. One, in terms of IMVEXXY, and sorry if I missed it. Where are we in terms of getting the Part D plans? Just, and I suspect some of the process has been disrupted by COVID. But just are we at the point -- and you’ve, obviously, made some progress, are we sort of starting to think ahead more -- focus more about 2021? Or could there be planned additions that have an impact on 2020? And then, in terms of ANNOVERA, as we think about renewals, which you indicated you might start to see in 4Q. Typically, and I don’t know if you have this information, how many renewals do patients typically have of a product like -- of sort of like a long-term product like Ring. And so I guess, like using NuvaRing as a proxy. I mean, typically, your patients renew once, twice, three times, four times. I mean, do you have an average number of refills? Just sort of to help think about the product over the long term and that potential on how we sort of build the patient model. Thank you.

[Robert Finizio:]

Yeah. Doug, thank you. So I’m going to hand off a couple of those. But as far as getting IMVEXXY next up, is I think, the general question. We did get one big Part D win, which we were surprised during COVID, which is Centene. So that leaves two or the three left that we need to get. I can’t give you any confidence we’ll get those this year. I can tell you that we are not in a position where they’re saying, go away, we don’t want to talk to you. This class is shut down. So I wish I can give you more color, but with COVID, your point and lots of other things going on, it’s just -- I don’t have any other color on it other than that. But the overall program this year that I think we tried to really push this year, last year going into this year, our goal starting in April was to start co-pay card optimization, which is literally for 6% or 7% of the patients that bring in above 50% of the cost to the program that will drive that higher also distribution optimization. We can’t do that when you’re not getting enough time with doctors. You change those co-pay card programs, and you don’t clearly articulate it to your providers, and they start getting callbacks, these things aren’t working, you can end up in some trouble. So we’re going to wait until we have full open dialogue at, at least, a 75% caseload with doctors and full interaction and visibility before we implement those programs. We’re hoping we can start January 1. That’s the current goal. We’re going to continue to work on Part D. Don’t be surprised if we get another one here before the end of the year, but I certainly can’t guarantee it. And then, as far as refill goes, I’m going to have to turn that over to Dawn because I just really don’t know.

[Dawn Halkuff:]

Sure. So thanks for the question, Doug. And let me take this from a couple of angles. First of all, let’s start with what drives refills. What drives refills is a good experience with the product, which we know from our patient acceptability study is very high for ANNOVERA. And the second thing that drives refills is actually reminding the patient that it’s time. And I think we’ve proven with IMVEXXY and BIJUVA that we are highly focused on adherence, and we do what above the category in terms of our refill rate. So it’s something that is part of our model. In terms of a proxy, you mentioned NuvaRing, it’s not really as relevant because it’s that -- NuvaRing is a monthly product. But what we see for NuvaRing is they have about five refills per year. What I would expect for ANNOVERA, we have -- the data would tell you that from the study, and that was over 1,000 women, so it’s pretty significant, that 85% of those women would renew. While I don’t have ANNOVERA data, I’m confident it’s going to be above the 50% mark, given the programs we have in place. And as Rob said, we’ll drive significant volume for us.

[Robert Finizio:]

How many leaseholds -- was this a question, do you think?

[Douglas Tsao:]

Well, I guess, sort of my question, if I can jump in, and that’s helpful, and it’s a good point, right, because, obviously, NuvaRing is a monthly product. You have more opportunities for patients in theory fall off, right? So a big advantage is, you just have to hit this once a year. But do you -- is this an expectation for a patient that sort of want if you have research, how long patients would want a long-term birth control just because maybe the family planning desires change, right? They decide they want to have a kid. So should we be thinking that this is a three-year window of opportunity for you? And obviously, there’s going to be a lot of variance. But just trying to get an understanding of that because I think as -- what you’ve shown is so exciting for the product. Just trying to see how significant that patient build can be.

[Robert Finizio:]

We heard the wrong question. Mitch definitely has an answer for that. Shoot, Mitch?

[Mitch Krassan:]

So what we see is women stay on -- once they have a birth control that works for them, they stay on it for multiple years, three to five years. What changes their decision during that time frame is life events. They got married. They got divorced. They had kids. And then, some of the things they do is some of the side effects, which we think ANNOVERA is really strong on being an option when they do have without an oral that there are issues that we could become something to switch to. But typically, women stay on it three to five years, particularly in the younger years until they have their first child.

[Robert Finizio:]

Yeah. And the way that in 31, it’s to the stronger side, five years. But yes, whenever you’re -- whether you’re a Lo Loestrin or somebody else, when a woman likes a product, the typical duration is three to five years.

[Operator:]

Your next question comes from Annabel Samimy with Stifel. Your line is open.

[Robert Finizio:]

Annabel, you there? Might have a technical issue.

[Annabel Samimy:]

Hello. Can you hear me? Sorry. Can you hear me?

[Robert Finizio:]

Yes, now we can.

[Annabel Samimy:]

OK, sorry about that. So I apologize if I missed part of the call, it’s a busy morning. But I saw the revenue covenants that you laid out for TPG. I was curious about the cash covenant, and if that still holds? And if there’s been any adjustment to that? And separately, again, apologies if you covered this, but in terms of the marketing campaign, I know that you started ANNOVERA in July, and you’re talking about the hits. For the marketing campaign on IMVEXXY, which is starting in August, clearly, this COVID situation has not gone away. It’s gotten worse in many of the regions. So the question is, given that this population is much more vulnerable to older population. Is this the right time for a marketing campaign for IMVEXXY? What in the environment makes you believe that this is the right time? And then, I guess, finally, on BIJUVA, what kind of impact do you expect the recommendations and I think recommendations to have on the compounded hormones? BIJUVA seems to be growing on its own. So do you think that those recommendations are going to accelerate that? Thanks.

[Robert Finizio:]

Yeah, Annabel, thanks for joining. I know you guys are really busy this morning. So the cash $60 million minimum cash on hand still exists. That being said, I’ll turn it over on the marketing to Dawn, and then I’m happy to speak on the compounding piece.

[Dawn Halkuff:]

Sure. Annabel, so in terms of the marketing campaign for IMVEXXY, I do believe it’s the right time. What we’re seeing is eight straight weeks of NRx growth as patients return to the office and start to reengage. And we’ve been able to get in front of physicians live or virtually, and so supporting that business with the consumer campaign that we know is very relevant. I think it is the right time for this. The other piece of it is that we have a high share of voice in this marketplace, and so it’s a great time for us to really increase awareness on IMVEXXY.

[Robert Finizio:]

Sounds good. So Annabel, you -- I assume you’re speaking about the National Academies of Science and Engineering and Medicine Report. And for the folks on the phone that aren’t familiar with that, the FDA commissioned a study -- a very significant study on compounding bioidentical hormones. And if you look at our Slide 25, there is a link. You can actually read this report. They wanted to see the overall safety and the overall claims, they looked at every aspect of bioidentical compounded hormones. And the report was pretty negative toward a number of aspects of compounded bioidentical hormones, and the recommendation was to put all 10 sex steroid hormones, which would include estradiol and progesterone, so definitely affect both IMVEXXY and BIJUVA on to what they call the Do Not Compound list, which makes it illegal for compounders to compound it with the exception here. There was one exception of a patient having an allergy to an ingredient in one of the FDA-approved drugs. The compounding industry came back out. We put that link as well, and they felt it was a very flawed study and a very biased study. Obviously, we are in a very sensitive position here between the two. We fully support all of our compounding BIO-IGNITE customers. That’s been a very successful program, and we do not want them to lose access to bioidentical hormones because we think they are going to grow the market for us anyways. We just -- we feel we have better products period than the compounded products. But to answer your question, just to be specific, yes, if it does go on the Do Not Compound list, it would add considerable volume to both BIJUVA and IMVEXXY in a very, very rapid fashion, and that is what this committee is recommending. So that being said, I’m not sure if I covered everything you’re asking there. I hope I did.

[Annabel Samimy:]

Do you -- is there a timing for final recommendation on whether it goes on a Do Not Compound list?

[Robert Finizio:]

So the way that works for my understanding is the demonstrably difficult to compound advisory committee that the FDA holds, meets a biannual basis. And they would have to put this on the agenda, and that agenda suggestion process is an open public forum from what I understand of that. So the process would be, it would be nominated to be put on that list, and this committee will review it. And then, if it went -- then they would either vote to approve or not to approve. Kind of like they do Advisory Committee for a drug, and they typically meet biannually. And I’ve not seen the next meeting scheduled yet. So I don’t have any more information than that on it.

[Annabel Samimy:]

If I could follow up on one of my -- the original question, the cash covenant. Can you just lay out what you believe would be the, I guess, trajectory of your burn that makes you feel comfortable keeping that cash covenant as is?

[James D’Arecca:]

Yeah, Annabel, it’s James. Good to talk to you again. So we do see the cash burn in the quarter was $55 million, as I think you saw. We do see that decreasing in the back half of the year for two obvious reasons

[Robert Finizio:]

And as a reminder, the back half was $80 million. Is that correct, James?

[James D’Arecca:]

Yes. The back half of the year, cash expenses are expected to be around $80 million in opex, excluding noncash items. So we think we’re in good shape there from an overall cash planning perspective.

[Robert Finizio:]

And Annabel, as far as additional equity, right, or debt or wherever you would find the money, the $50 million tranche, if you think back that we still have not -- we don’t have from TPG that was originally, if you think back to the 19th category, and it was to expire in January, right? So obviously, they didn’t make a decision yet. That’s still open. So then we decided to make it the performance of ANNOVERA by June and then COVID hit in March, and we never launched ANNOVERA until just recently, July 1. And I think we’re getting a great response. So with that being said, instead of putting another frivolous date out there with them, we shut that -- that $50 million tranche is gone. But we are, today, currently having a financing discussion with them right now. So I think if you were trying to put a number in somewhere, that $50 number is a good place to start for our capital structure. I hope that answered your question.

[Annabel Samimy:]

Right. Thank you.

[Operator:]

I would turn the call back over to Rob for closing remarks.

[Robert Finizio:]

Great. Thank you, everybody. It’s been a great quarter here. We’re really excited about the growth. And please watch ANNOVERA specifically in August and September, and we expect this growth to continue. Thank you.

[Operator:]

Ladies and gentlemen this concludes today’s call. Thank you for participating, you may now disconnect.