TherapeuticsMD, Inc. Q2 FY2020 Earnings Call

Good morning, everyone. Thank you for joining us for the TherapeuticsMD second quarter 2020 financial results conference call. I will now hand the call over to TherapeuticsMD’s vice president of investor relations, Nichol Ochsner. Nichol, you may begin.

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. On today’s call from TherapeuticsMD are Chief Executive Officer Robert Finizio, Chief Financial Officer James D’Arecca, Chief Commercial Officer Dawn Halkuff, Executive Vice President Ed Borkowski and Mitchell Krassan, our chief strategy and performance officer. I would like to remind everyone that certain statements made during this conference call may be forward-looking statements. Such forward-looking statements are based upon current expectations, and there can be no assurances that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release and our annual, quarterly and other reports filed with the SEC. These forward-looking statements are based on information available to TherapeuticsMD today, and the company assumes no obligation to update statements as circumstances change. An audio recording and webcast replay for today’s conference call will also be available online in the investors and media section of the company’s website. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded August 6, 2020. With that, I’ll turn the call over to TherapeuticsMD CEO 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 to 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. Starting with the board of directors. Our Chairman Tommy Thompson strengthened our board of directors by reducing the membership from 11 directors to nine directors, doubling our female director presence and reducing insider directors from three to one director. We’re honored to have seasoned veterans like Paul Bisaro, Karen Ling and Gail Naughton added to the TXMD Board of Directors. From a management perspective, this year, we brought in a new CFO James D’Arecca who was previously the chief accounting officer at Allergan; Ben Foulk, our new VP of HR, previously at BI; Ed Borkowski, our executive vice president, a seasoned pharmaceutical executive previously at Mylan and CareFusion who has already made significant contributions to our strategy and discipline; and finally, Chris Gish, our new VP of sales who has an outstanding track record of success at both Pfizer and Sunovion. Chris has raised the quality of our sales program to what I consider best-in-class. With all these strategic and operational changes, one thing has not changed. TXMD is laser-focused on reaching EBITDA breakeven on a quarterly basis in 2021. I’d now like to turn the call over to our new CFO and also extend a warm welcome to 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. The amended minimum revenue covenants with Sixth Street continue to apply to the total combined net revenue for ANNOVERA, IMVEXXY and BIJUVA. As part of the process for resetting the minimum revenue covenants, we took sufficient time to evaluate our performance while navigating the COVID environment for the past four months. This has given us confidence that the covenants are set appropriately. While these amended covenants do not represent financial guidance for the company, they were based on our post-COVID revised forecast and reflect our confidence that we can grow in the back half of the year and into 2021. The company and Sixth Street are not moving forward with the undrawn $50 million tranche, which was designed to be available following the commercial launch of ANNOVERA in the second quarter due to the pause in the launch timing caused by the COVID-19 pandemic. However, there is an active dialogue with Sixth Street regarding potential additional financing. Moving forward, we plan to take steps to strengthen our balance sheet. Our capital needs are driven by funding the launch of our products, supporting our infrastructure and funding necessary working capital, all while maintaining a minimum cash balance of $60 million as required by the Sixth Street facility. When considering additional funding alternatives, we would seek to minimize potential dilution by striking a balance among sources of capital that include debt, equity or a combination thereof. We are fortunate that TherapeuticsMD has the assets that we believe can drive significant growth over the next several years. Let’s move to a review of our financial results and key metrics from the second quarter. Turning to Slide 8. Total net revenue for the second quarter came in at $10.7 million. As expected, the second quarter was significantly impacted by COVID-19. Early in the quarter, there was a reduction in patient visits to healthcare providers that negatively impacted volumes. However, later in the quarter, we saw patient demand for ANNOVERA outpace wholesaler orders, resulting in a drawdown of inventory in the channel. More recently, we are pleased to see early momentum building through commercial execution of our plans and expect this to continue throughout the rest of 2020. Moving now to Slide 9. I will now review key metrics for each of our brands. Let’s start with ANNOVERA. As a reminder, we paused the full commercial launch of ANNOVERA in March, and it resumed on July 1. In the second quarter, ANNOVERA delivered net revenue of approximately $1.8 million at $1,332 per unit, calculated from units sold to wholesalers and pharmacies, which was consistent with the first quarter. As Dawn will cover shortly, we are already seeing strong growth in the marketplace. With regard to payers, we had an adjudication rate of 99% for ANNOVERA with the vast majority of patients covered without a co-pay. Moving to IMVEXXY, we achieved net revenue of $5.1 million for the quarter. Net revenue per unit, calculated from units sold to wholesalers and pharmacies for IMVEXXY was $41. The overall adjudication rate for IMVEXXY was 44%. According to Symphony Health, the overall VVA class for the second quarter of 2020 was down 15% when compared to the fourth-quarter 2019, which we believe was primarily due to COVID-19. However, during the same time period, IMVEXXY managed to have modest market share growth. We are pleased to see early indicators, showing recent growth in new prescriptions that Dawn will cover later. And finally, turning to BIJUVA. We reported net revenue of $1.4 million for the quarter. Net revenue per unit calculated from units sold to wholesalers and pharmacies for BIJUVA was $45 with the overall adjudication rate at 56%. Please move to Slide 10. During the second quarter, our decision to deemphasize BIJUVA triggered write-offs that included a $1.9 million impact to cost of sales that negatively impacted our gross margin and a $3.9 million charge to write-off BIJUVA samples that negatively impacted our total operating expenses. Given the expected impact of COVID-19 on net revenue, we took swift actions to reduce our expenses. We expected second-quarter expenses to be in the range of $45.5 million to $47.5 million through deferment of marketing spend and other measures we quickly implemented to reduce costs. Total operating expenses for the second quarter came in at $51.3 million. Excluding the BIJUVA write-offs, total operating expenses were $47.4 million, in line with our expectations. We still plan for operating expenses to trend down to approximately $40 million in the fourth quarter, excluding noncash items. However, depending on performance, we may pursue additional investments in SG&A to further drive growth and enhance employee retention. During the second quarter, our cash used in operating activities was $56 million. Our cash burn was impacted by $11 million in accrued expenses incurred in the first quarter for the launch of ANNOVERA, which were paid in the second quarter. We believe executing on our commercial plans, revising our revenue covenants, reducing our cash burn and strengthening our balance sheet support our goal of becoming EBITDA breakeven on a quarterly basis in 2021. I’d now like to turn the call over to Dawn to discuss our commercial progress and plans for the back half of the year.

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. Let’s now move to payer access on Slide 12. Even though COVID has impacted the sales side, we have had payer progress for the quarter across our products. Starting with ANNOVERA, commercial access is 79% with the vast majority of patients paying $0 co-pay. ANNOVERA currently has unrestricted coverage for fee-for-service Medicaid in 37 states, plus D.C. We expect a decision on California in Q4, which represents 13% of the overall Medicaid market. For IMVEXXY, we met our commercial goals and access remains at 72%. We are happy to announce Wellcare was added as a Part D payer. Moving on to BIJUVA. Commercial access increased to 73% unrestricted with the addition of CVS and Anthem. We now have nine of the top 10 commercial payers secured. Let’s move on to the plans for each of our products. On Slide 13, let’s start with IMVEXXY. As mentioned earlier, this class of drugs was heavily affected by the decreased patient flow due to COVID. Since the fourth quarter, the VVA class on a quarterly basis declined 15%. That said, IMVEXXY continued to deliver approximately 10,000 prescriptions per week in this environment and grew share modestly. The takeaway is that we were less impacted than the class. As assets have started to open up, we are seeing a reengagement in the class and in IMVEXXY with eight straight weeks of new prescription growth. And we believe that is a precursor to TRx growth given our strong refill rates and the value of each patient. Moving to Slide 14. Let’s review our initiatives that we believe will help fuel IMVEXXY growth in the second half of the year. A new consumer campaign will be launched in August, focusing on holistic care as a woman ages. We also plan to increase mediums for the consumer campaign to include patient testimonials, video and social media to extend our reach. In addition, we will continue to reinforce adherence messaging that has driven positive momentum for us since launch. Let’s move to ANNOVERA on Slide 15. Similar to IMVEXXY, growth for ANNOVERA has been on a strong upward trend. The month of June and July were up approximately 100% over April and May, which were the months most heavily impacted by COVID. If you compare June and July to the pre-COVID months of January and February, we were still up over 47%, demonstrating the reestablishment of our launch trajectory. We would expect continued growth throughout 2020 even with strong COVID headwinds given these results. In the second quarter, we had approximately 1,100 prescribers writing ANNOVERA, leading to approximately 2,400 total prescriptions. Turning to Slide 16. So what led to the acceleration throughout Q2? Starting with the left-hand column, our sales force has adapted to a hybrid selling model. In June, 43% of calls were live versus 11% in May. Our expectation is effectiveness no matter how the call is being conducted, and we have been focused on training the sales force on new technology and agility skills during this time. As you can see in the middle column, over 250 providers attended our virtual speaker programs in the second quarter, which demonstrates that birth control and ANNOVERA continue to be a focus during COVID. Moving to the column on the right, a key driver during Q2 was telemedicine. The telemedicine segment is growing fast in the COVID-19 world and contraception is an important category within telemedicine. We believe we are well-positioned to deliver patient access through this channel as it is a trend we saw and started working on in 2019. Moving to Slide 17. Although still early in the launch trajectory, we have received some great insight from early adopters of ANNOVERA. From a provider perspective, we are seeing that early adopters tend to be higher NuvaRing writers, as well as low IUD writers. From a patient perspective, we are seeing a range of ages, but an average age of 31, suggesting that this is a great option for younger women, likely switching from their original birth control. Both providers and patients are easily able to understand and relate to our value proposition of being the only procedure-free, reversible, long-lasting option, and see it as a viable choice for their patients and women see it as something that is useful for their lifestyle. Moving to Slide 18. While we are pleased with the early progress for ANNOVERA, I wanted to take a few minutes to ground us in the larger opportunity and future growth drivers. ANNOVERA has a large market opportunity with 18 million women and 28 million new prescriptions annually. To put ANNOVERA’s opportunity in perspective, traditionally, leading products in this category over time have achieved 4% to 5% market share. As you can see in the middle column, Lo Loestrin launched in 2011 and achieved this share in approximately four years. If ANNOVERA achieved this level of success, as seen in the column on the right, it would mean approximately 700,000 prescriptions annually. The next big growth drivers for ANNOVERA are consumer initiatives. Turn now to Slide 19 that shows an illustration of our consumer campaign called Unapologetically, ANNOVERA, which launched on July 1. Typically, you start to see positive return on the media investment about nine months to a year as you begin to see the volume of patients taking action grow over time. That said, we have begun to see early indicators that provide confidence for continued future growth. Moving to Slide 20. Here are our early indicators. You can see that the consumer campaign and ANNOVERA as a product is getting noticed. Mentioned in USA Today with a circulation of 58 million, as well as Women’s Health magazine, are differentiated and impactful public relations results for our pharmaceutical brand. In addition, our digital metrics show that the campaign has gained visibility, resulting in over 100 million impressions and 3 million views of the video in less than a month. Finally, the brand and campaign have been picked up across media, showing the cultural relevance of the product and the campaign. Moving to Slide 21. You can see through the remainder of the year, we have consumer initiatives to deepen the connection of women to ANNOVERA to generate awareness and ultimately drive pull-through of the product. Later in August, we will have a POPSUGAR Takeover, a well-known online content provider, which reaches one in two millennials every month. Millennials are who we are seeing as the initial users of ANNOVERA. In September, we plan to launch influencer programs, including a well-known influencer that will amplify the ANNOVERA message to their followers. Finally, during the fourth quarter, we will expand our consumer campaign into new mediums and launch a PR initiative that will broaden the impact of the consumer campaign. Turning to Slide 22. One area we have not discussed that will be a future growth driver for ANNOVERA is patient refills. Beginning in the fourth quarter of this year, we will begin to see that impact as the women who started in October of ‘19 have the opportunity to renew their prescription. We are confident in the opportunity of refill due to the robust data we have on patient acceptability in a study of over 1,000 women conducted by the population council. In the Phase 3 study, patient intent to refill was at 85% if free and 75% of women said they would continue even if they had to pay for it. As a reminder, the vast majority of women pay $0 out of pocket. The growth driver for refills will be significant for us in the out years as ANNOVERA volume grows. Moving to Slide 23. The final growth driver for ANNOVERA are the multiple markets and channels, most of which are at an early stage but all of which we believe will contribute volume in the back half of this year. We believe each of these channels will help us achieve the 4% to 5% market share opportunity we see for the product over time. First, in the commercial segment of the business, which is 76% of the market, we will continue with our sales force with ANNOVERA in the No.1 position and focus on building provider adoption with the 20,000 providers we call on today. Most of our progress and the prescriptions we have received to date are from this segment as we have spent the most time here. Moving on to Public Health, which is a meaningful opportunity, about 15% of the total market. To maximize this opportunity in the fastest fashion, we are working with Afaxys, the No.1 provider of contraception in public health clinics. We have just begun in this segment and expect acceleration throughout the remainder of 2020 and beyond. In addition, we are working with WSI, a leader in selling into the military channel. We now have 14 of the 92 military facilities that have put us on formulary and 13 bases that have ordered. This is only a small percentage of the birth control category, but we expect it to be larger for ANNOVERA, given we are the only long-lasting reversible, procedure-free option. This segment has been slower to move given the pandemic, but we are seeing progress as bases open. Finally, we are working with leading online telemedicine platforms who focus on directly prescribing and filling birth control directly to patients. We saw meaningful volume in Q2 from this channel and expect acceleration as we begin working with new online providers early in the third quarter. With the early acceleration seen on ANNOVERA and the multiple channels that are just beginning, you can see why we are optimistic about continued growth throughout the remainder of the year. Before I end, I’d like to quickly touch on BIJUVA. In the second quarter, we had approximately 4,200 prescribers writing BIJUVA, leading to approximately 27,000 total prescriptions. Prescriptions are encouraging, given the limited focus as a result of the decision to deemphasize BIJUVA at this stage. Our goal is to maintain the writer base through the remainder of 2020. Now move to Slide 25. We are following and aware of the National Academies of Sciences, Engineering and Medicine that is referred to as the NASEM Report, a report commissioned by the FDA on compounding practices. Recommendations from this report on future regulation of the compounding area were released on July 1. The debate over hormonal compounding has been ongoing for decades, and we are aware of the continued pressure on the compounding community. Our approach, however, is unchanged. The largest segment of the E&P market is within the compounding market at approximately 12 million to 18 million prescriptions, and ensuring BIJUVA is available is critical to future growth. We remain committed to our BIO-IGNITE program and partnership with community pharmacies, and we will continue to be advocates for women’s health and hormone therapy. Let me end with some thoughts on the back half of the year. At the current rate of growth, we are on track to meet or exceed our minimum revenue covenants. We are starting to see acceleration of our portfolio with the current plans in place. Further accelerators will be the consumer plans just launching now, growth fuel from telemedicine, as well as partnerships with WSI for the military and Afaxys for public health. COVID is a significant variable, but even with just 50% live calls today, we are seeing our ability to grow the portfolio, and we will continue to adapt to the environment as needed. In short, it is about execution now, and we are ready. With that, I would like to turn the call over to Rob for closing remarks.

Thanks, Dawn. In closing, we’re focused on driving revenue and achieving our goal of 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.

Your first question comes from Louise Chen, Cantor Fitzgerald.

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 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.

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?

Yeah.

We’re fortunate that the Population Council conducted extensive research on this product, which took about 16 to 17 years to get approved. We have a strong understanding of what the refill rate should be for a large population. To be straightforward, we believe we do not need to reach that refill rate to meet our minimum revenue requirements. With our current growth rate, we will easily accommodate those expectations. As previously mentioned, while these aren't formal guidance, they do provide us with a realistic outlook for the next six to twelve months, particularly considering the strong headwinds posed by COVID that have impacted growth. ANNOVERA has recently experienced 100% growth over the last eight weeks, and we anticipate that it will accelerate once COVID is no longer a significant issue. In the near future, around August and September, we expect to see increased growth with ANNOVERA, and we are confident about that. Various factors that typically hinder a product launch have recently improved for ANNOVERA. We believe that by the second week of August, we could witness even faster growth. Additionally, as Dawn explained, there hasn't been much contribution from Title X, Public Health, or military sectors yet. However, we have seen strong contributions from some early telehealth providers, and others are just beginning to come online. Dawn also highlighted a very successful consumer campaign, which usually takes nine to twelve months to fully take effect. Therefore, we haven’t seen the benefits of that initiative for ANNOVERA yet, but we expect to see significant contributions from these channels soon. Despite this, we still anticipate solid growth for ANNOVERA in August and September. Lastly, I want to address the question regarding the drawdown in the channel and hand it over to Mitch.

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.

I believe this reinforces our confidence in our performance for Q3 and Q4. Overall, it looks very promising. Regarding the refills, I anticipate that they will contribute to further growth beyond what I previously mentioned. Is there anything else we need to address?

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

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.

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

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?

Sure. I'll respond to the first part and then pass it over to Dawn. We monitor in the Edge system our operational capacity, specifically focusing on the amount of face-to-face interaction our representatives have with doctors. Our systems record this data. When COVID hit, the number of representatives able to meet with doctors dropped significantly, with only a few representatives in a couple of states able to do so. In response, Dawn implemented new programs and developed new skills, which have led to an increase in ANNOVERA since April, after hitting a low point. What we're forecasting, considering the TPG covenants, is a 50% impact on doctor caseloads due to COVID. Gynecologists are currently operating at about half their typical capacity, which is what we're observing now. Obstetrics is performing better, while areas like VVA are more affected compared to birth control, and hot flashes are the least impacted for BIJUVA. We anticipate this situation will persist for the rest of the year, with a 25% impact expected in the first and second quarters of next year, but this will not hinder our growth. We expect to see an increase in growth rates in August and September due to our recent achievements. Dawn, do you have anything to add?

Sure. I covered a lot of information quickly, so let me revisit Slide 23. Regarding sales rep activity, about 50% are currently engaged in live calls, and I expect this trend to continue through the end of the year. We’re observing that markets are both opening and closing, but the positive aspect is that we can connect with physicians whether reps are live or virtual. In fact, when virtual, reps may have even more time to engage. Our sales organization has adapted well to making an impact under any circumstances. In terms of growth expectations, most of the prescriptions we’re currently seeing come from the commercial segment, which is where our sales team is primarily focused. Looking ahead, we anticipate ongoing acceleration in this area. Additionally, we’re just beginning to tap into segments like Public Health and the military, which will contribute positively in the third and fourth quarters. The online channel has been a solid support for us, providing meaningful volume in Q2. We've recently partnered with some major players, which we believe will drive further acceleration. Moreover, a significant factor influencing all segments is our consumer campaign that launched on July 1. While it typically takes about nine months to see a positive return on investment, early indicators such as views and public relations suggest we will see a noticeable impact across the board soon. In summary, we expect continued growth and acceleration in the near term and throughout the year.

Stacy, one way to look at this is the public consensus. We’re not giving guidance yet due to COVID, but I believe the consensus is in the $60 million, mid-$60 million range for Q3. As we can see at these rates, we don’t anticipate any problems reaching that target. One aspect Dawn didn’t mention, which is typically overlooked in models, is the refill rate. It could be around 70%. While we don’t need that to meet our goals, it could serve as a strong growth factor as we approach October, when we first introduced ANNOVERA to the market.

Your next question comes from Douglas Tsao.

Can you hear me?

Yes, sir.

I have a couple of questions. First, regarding IMVEXXY, where do we stand with the Part D plans? I understand that some processes may have been disrupted by COVID. Have we made enough progress to start planning for 2021, or could there be additions that might affect 2020? Secondly, about ANNOVERA and renewals, which you mentioned could start in the fourth quarter, do you know how many renewals patients typically have for a long-term product like Ring? Using NuvaRing as an example, how often do patients usually renew? Do you have an average number of refills to help us understand the long-term potential and how we can develop our patient model? Thank you.

Thank you, Doug. I will address a few of those points. Regarding the timing for IMVEXXY, we did achieve a significant win with a Part D contract from Centene during the COVID period, which was unexpected. This leaves us with two out of the three contracts we are targeting. I cannot assure you that we will secure those this year, but I can confirm that the conversations haven't been shut down; they are still open. I wish I could give more detailed information, but with COVID and various other factors at play, I don’t have additional insights. This year, we aimed to optimize our co-pay card program starting in April. This program impacts a small percentage of patients but contributes significantly to the overall costs we incur. However, we cannot implement these optimizations without sufficient interaction with doctors. If we change the co-pay card programs and do not effectively communicate with providers, it could lead to complications if they encounter issues. Therefore, we plan to wait until we have strong communication and engagement with at least 75% of our doctors before proceeding. We hope to commence this on January 1. We will keep working on Part D, and while we might secure another contract by the end of the year, I can’t make any promises. As for refill information, I’ll have to pass that to Dawn, as I don’t have that information at this moment.

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. The second thing that drives refills is actually reminding the patient that it’s time. 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 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 is that from the data, 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.

How many leaseholds do you think this was a question?

I have a question about NuvaRing, which is a monthly product. It offers more chances for patients to stop using it, so a significant advantage is that you only need to engage with the process once a year. Is there any research on how long patients typically want long-term birth control, considering their family planning goals may shift, such as deciding to have children? Should we think of this as a three-year opportunity for you? I know there will be variations, but I’m trying to understand the potential patient growth because the information you’ve shared is really exciting for this product.

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

Women tend to stay on a birth control method that works for them for several years, typically between three to five years. Their decisions can change during this period due to significant life events such as getting married, getting divorced, or having children. Additionally, side effects play a role, and we believe that ANNOVERA is a strong alternative for those who experience issues with oral options. Generally, women remain on their chosen method for three to five years, especially in their younger years until they have their first child.

The typical duration for a product is three to five years, especially when a woman enjoys it, whether it's Lo Loestrin or another option.

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

Annabel, you there? Might have a technical issue.

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

Yes, now we can.

I apologize if I missed part of the call; it's been a busy morning. I noticed the revenue covenants you mentioned for TPG and was curious about the cash covenant and whether it still stands. Has there been any adjustment? Additionally, I know you started the marketing campaign for ANNOVERA in July, and you’re discussing the impacts. Regarding the marketing campaign for IMVEXXY starting in August, considering the worsening COVID situation in many regions and the vulnerability of the older population, do you think this is the right time for the campaign? What aspects of the current environment lead you to believe it is appropriate? Lastly, concerning BIJUVA, what impact do you anticipate the recommendations will have on compounded hormones? BIJUVA appears to be growing independently; do you think those recommendations will accelerate that? Thank you.

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.

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. 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.

Sounds good. Annabel, I assume you are referring to the National Academies of Science and Engineering and Medicine Report. For those who aren’t familiar, the FDA commissioned a significant study on compounding bioidentical hormones. On Slide 25, there is a link where you can read this report. The study examined the overall safety and claims related to bioidentical compounded hormones. The findings were largely negative regarding various aspects, and the recommendation was to place all 10 sex steroid hormones, including estradiol and progesterone, on the Do Not Compound list, which would make it illegal for compounders to produce them, except in the case where a patient has an allergy to an ingredient in an FDA-approved drug. The compounding industry responded, and we have provided that link as well; they considered the study to be flawed and biased. We find ourselves in a delicate position between the two sides. We fully support our compounding BIO-IGNITE customers, which has been a successful program. We believe they will help grow the market for us, and we feel we have superior products compared to the compounded options. To answer your question directly, if these hormones are added to the Do Not Compound list, it would significantly boost the volume for both BIJUVA and IMVEXXY at a rapid pace, as recommended by this committee. I hope I managed to address everything you were asking.

Do you have a timeline for a final recommendation on whether it will be included on a Do Not Compound list?

The FDA's advisory committee, which is known for its challenging decisions, meets twice a year. A recommendation can be put forward for discussion within an open public forum. If nominated, this committee will examine the matter and then decide whether to approve or deny it, similar to the process for drug advisory committees. As of now, I have not seen a schedule for the next meeting, so I don’t have further details to share.

Could you clarify your expectations regarding the cash covenant and the projected trajectory of your cash burn that makes you confident in maintaining that covenant?

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: one, because of the expense reductions that we announced earlier; and two, because we’re hoping that the revenue is going to be increasing here. So are expecting revenue to increase here. Because of that, we see the cash flows improving, and we feel comfortable all of our planning was done with the $60 million minimum in mind. So we’re comfortable where the revenue covenants were set in sync with that $60 million, and our current assessment is that we should be good there.

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

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.

Annabel, regarding additional equity or debt sources, the $50 million tranche from TPG is still pending since it was initially scheduled to expire in January. They have not made a decision yet, so that remains open. We aimed to align it with the performance of ANNOVERA by June, but COVID impacted our timeline, and we only launched ANNOVERA recently on July 1. The response has been very positive. Instead of setting another unrealistic deadline, we have decided to remove that $50 million tranche. Currently, we are engaged in financing discussions with TPG. If you are looking for a figure, the $50 million is a reasonable starting point for our capital structure. I hope this addresses your question.

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

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

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