Earnings Call Transcript - TXMD Q1 2021

Operator, Operator

Good morning, ladies and gentlemen. Thank you for joining us for TherapeuticsMD First Quarter 2021 Financial Results Conference Call. Following prepared remarks from the company, we will open the call for questions. I would now like to turn the call over to TherapeuticsMD's Vice President of Investor Relations, Nichol Ochsner. Nichol?

Nichol Ochsner, Vice President of Investor Relations

Good morning, everyone. Thank you for joining today to discuss our first quarter financial results and business update. This morning, TherapeuticsMD issued a press release announcing our first 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, Rob Finizio; Chief Financial Officer, James D'Arecca; Chief Commercial Officer, Dawn Halkuff; and Chief Strategy & Performance Officer, Mitchell Krassan. 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 assurance 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 on May 6, 2021. With that, I'll turn the call over to TherapeuticsMD's CEO, Rob Finizio.

Rob Finizio, CEO

Good morning and thank you for attending our Q1 call. This quarter we had strong execution across the organization while investing in our most important assets to create shareholder value through revenue growth and the continued protection of our assets. Let's begin on Slide 3. With the progress made on ANNOVERA, we have strong year-over-year growth in launching our new strategies to overcome challenges that COVID-19 has created in commercializing products. In addition, the patent state for ANNOVERA has doubled, strengthening its durability and extending our exclusivity to June of 2039. With regard to our menopause franchise, we achieved record net revenue per unit for both IMVEXXY and BIJUVA. I'm also happy to announce that we won our appeal for approval with the FDA for the new lower dose 0.5/100 BIJUVA and have a meeting set in May to discuss next steps. The company continues to advance the vitaCare divestiture process to unlock shareholder value. We are creating significant revenue opportunities with two new live customers, a third scheduled to launch in the fourth quarter, and a pipeline with approximately 20 potential new deals. With this progress, vitaCare continues to build on its foundation to become a freestanding, rapidly growing entity in a new sector with no established leader. Most importantly, Q1 year-over-year financial improvement was significant, with increasing revenue growth while lowering operational expenses all in the midst of a pandemic. I will now turn the call over to James to discuss more details.

James D'Arecca, CFO

Thanks, Rob and good morning, everyone. Turning to Slide 5. Our net product revenue for the first quarter was $19.6 million, which satisfied our first quarter revenue covenant. This was a 60% increase in product net revenue from the first quarter of 2020. That was primarily driven by ANNOVERA, which had only just been launched. ANNOVERA net revenue per unit decreased to $1,071 because of increased rebates owed resulting from a new payer contract becoming effective during the first quarter. We expect net revenue per unit of ANNOVERA to approximate $1,100 per unit for 2021, although it will likely fluctuate over the next three quarters as the mix of payer reimbursement changes. Additionally, as you can see on the chart, the vaccine net revenue grew to $7 million or 9.7% compared to the first quarter of 2020. The average net revenue per unit increased to $61, the highest level for IMVEXXY since its launch. This was driven by the increase to $75 in our cash co-pay program along with our new preferred payer contract. BIJUVA net revenues for the quarter increased to $2.4 million. And as of March 31, 2021, inventory levels in the wholesaler and pharmacy channel for our products were within normal levels. Moving on to Slide 6, let's review some key financial statement items. Our product gross margin of 76% for the first quarter was adversely affected by production-related write-offs through ANNOVERA of $900,000. We continue to maintain our focus on strict cost discipline, which allowed us to reduce operating expenses to $44.5 million for the first quarter, a decrease of $16 million compared to the first quarter of 2020. While we plan to maintain an efficient cost base that can be leveraged as revenue grows, we expect to make investments this year to improve our supply chain, enhance marketing, and strengthen digital capabilities related to commercial initiatives. With these investments, we expect our highest spending occurring in the second quarter. Net cash used in operating activities was $38.4 million for the first quarter of 2021. Our debt balance decreased to $183.9 million resulting from a $50 million principal repayment made during the first quarter. Overall, I continue to be pleased with our financial performance and believe we are well positioned to execute on our commercial plans to drive our growth in 2021. I'd now like to turn the call over to Dawn to discuss our commercial progress.

Dawn Halkuff, CCO

Thank you, James. Let me start with ANNOVERA. Slide 8 shows the continued growth of ANNOVERA this past year, even in the face of the operational constraints brought about by the pandemic. Year-over-year growth was 164% and sequential TRx growth was 5%. The quarter-over-quarter growth is meaningful given that historically first quarter volume and net revenue per unit are lower than the fourth quarter levels as a result of high deductible plans and co-pay resets at the beginning of this New Year. Net revenue per unit came in at approximately $1,100 as expected. In addition to volume and net revenue growth, we saw a 17% increase in prescribers in the first quarter of '21 versus the fourth quarter of 2020, another continued positive trend. Moving to Slide 9, I am pleased to show you that ANNOVERA is gaining market share from across the spectrum of birth control product methods; more than half of ANNOVERA patients are new to rings. As you can see, with the growth from Q4 to Q1, the percentage of ANNOVERA patients who have switched from IUDs or implants is now at 18%. We believe this data is compelling as it suggests an unmet need for a long-acting, procedure-free contraceptive, which ANNOVERA is now filling. Moving to the environment on Slide 10. We continue to successfully grow ANNOVERA in the face of headwinds from both payers as well as COVID limiting access to prescribers. Recently, EFI announced that it has replaced branded contraceptives with generics on formulary, and most branded products are on the drug exclusion list, which led to ANNOVERA’s commercial coverage at 57%. Despite this change, we have confirmed that patients continue to receive ANNOVERA when their providers submit letters of medical necessity through the protection of the Affordable Care Act. Moving to Slide 11, the most significant headwind we are experiencing is the lack of access to prescribers. Current industry prescriber access is shown on the left, which is about one-third of the pre-COVID level. This is reflective of our first quarter data with 40% access to our targets. Now the good news is that access is expected to double over the next year, allowing our salesforce to increase their productivity. That said, many prescribers believe that in-person visits will remain below pre-COVID levels permanently, leaving a significant gap versus pre-COVID access. We intend to continue to address this issue with innovative solutions to complement and supplement the traditional salesforce model to drive continued uptick of the brand.

Rob Finizio, CEO

Thanks, Dawn. To close, let me highlight the following on Slide 29. In Q1, we improved our cash position, lowered our debt, had strong revenue growth while lowering expenses, and set record net revenue per unit for our menopausal franchise. In addition, vitaCare continues to progress through the divestiture process and has increased in value through acquisition of new customers and a significant pipeline in the works. Results this quarter are in line with our 2021 operating plan, and we believe keep us on track for achieving EBITDA breakeven on a quarterly basis in the first half of 2022. I’d now like to open up the call for questions.

Operator, Operator

Your first question comes from the line of Dana Flanders with Guggenheim Partners.

Devin Geiman, Analyst

Hi, this is Devin on for Dana. Congrats on the net price improvements. I’ve got a couple of questions. First, what are you seeing as far as underlying trends for IMVEXXY at price that led you to increase the top end of guidance? I believe it was previously 70? Is it more attributed to the relative customer mix, meaning like cash pay versus non-cash pay? And I guess, more favorable profitability across this mix?

Rob Finizio, CEO

Hey Devin, it's Rob. Good question. So when you say we raised guidance for IMVEXXY, can you give me a little more clarity on that?

Devin Geiman, Analyst

I thought previously that the net price was the top end of the range for net price was 70 and it looks like 65 to 75 now?

Rob Finizio, CEO

No, it's still 65 to 70. We have not changed that. However, we did raise the cash pay price to $75. We anticipated two months of downward trends, but after one month it turned around in February. Now we're experiencing meaningful growth and much higher net figures. Therefore, we expect the blended average for the year to remain at 65 to 70, and we anticipate continued appreciation throughout the year. Although we started at 61, you should see a strong upward trend from this point. We had great movement in this area, and the large PBM contract is also contributing positively. We're also working on securing additional large PBM contracts for preferred positions. Overall, we feel optimistic about IMVEXXY, its net revenue per unit, and its volume in the future.

Devin Geiman, Analyst

What percentage of total covered lives does ESI represent for ANNOVERA? Additionally, regarding the patents, what types of patents are included, and what claims do they contain?

Rob Finizio, CEO

Yeah. So I'll take the patent one, and then I will turn it over to Dawn for the ESI portion, which, by the way, they're approximately 15%. So the IP growth that we've had is significant. And its strategic durability are really where we hoped to get them and are really proud of our team that's gotten that done. And the extra five months are nice to have through 2039, but really it's the strategic value of the types of IP we have and the placement of it given the regulatory pathway that's there to protect our assets. Dawn, you want to comment on ESI?

Dawn Halkuff, CCO

Sure. And thanks, Devin for the question. So again, as Rob mentioned, it's about 15%. But I just wanted to remind you of a couple of things with ESI. The first is that the decision was made at a class level, not a brand level, and it's actually happening in multiple classes. So what we're really lucky with is that in the birth control class, we have the protection of the ACA and ANNOVERA has been very successful with that given the uniqueness of the product, which has allowed doctors to continue to provide ANNOVERA for those patients that want it, through the letter of medical necessity. So we haven't seen an impact.

Rob Finizio, CEO

Yeah, we've noted no impact from the ESI change at all, because of letters of medical necessity. That's great.

Devin Geiman, Analyst

Okay, great. And one last one for me. Can you just remind me, have you given guidance on where you expect net price for BIJUVA to end for the year going forward?

Rob Finizio, CEO

No, we haven't provided guidance for this quarter. I think this quarter might be a bit optimistic. It seems reasonable to expect the net price to be somewhere in the 60s, whether it's in the low 60s or the high 60s. It's not a priority for us, so we haven't shared much detail on that. However, we believe it will trend similarly to IMVEXXY. Would you like to know anything else?

Devin Geiman, Analyst

Yes. Thank you very much.

Rob Finizio, CEO

You got it. Thanks.

Operator, Operator

Your next question is from Louise Chen with Cantor Fitzgerald.

Unidentified Participant, Analyst

Hi, this is Jen for Louise. Thanks so much for taking our questions and congrats on the quarter.

Rob Finizio, CEO

Thank you.

Unidentified Participant, Analyst

I have two questions here. I guess just to start with the low dose BIJUVA. Can you go more into detail on what you're looking to get out of the May meeting? And maybe what's the base case timeline for next steps? And then my next question is, I know during your remarks you mentioned that the highest spending due to investments is expected to occur in the second quarter. I just first want to confirm that you're talking about SG&A there, and or is it just SG&A that you're talking about? And how expensive is that increase expected to be? And related to that, is it fair to say that, at least for the third quarter and fourth quarter, what we saw in the first quarter is sort of a good example of what spending could look like? Thanks.

Rob Finizio, CEO

Sure, I'll take the BIJUVA expectations. And what we plan to get. Maybe Dawn, you might want to add something you're closer to it than I am. So we thought BIJUVA low dose should have been approved when we originally submitted it. And it wasn't, so we filed an appeal. And that appeal was granted by the FDA very recently. We're going to go meet with them in May to look at the next steps there. And there's a very challenging division here at times and we don't know whether they're going to want to move it forward really quickly or it's going to move forward slowly. So I don't want to set any expectations at all for that right now. But the good news is that at the office level, they thought it should have been approved originally. And they made that pretty clear in the summary and it's in good shape.

Dawn Halkuff, CCO

Hey Jen, it’s Dawn. I think the only thing to add is as Rob said, the FDA agreed that the data originally submitted supported approval as far as timing. I think you asked for a base case; we won't know that until we have the meeting in May. When we have something to update we will.

James D'Arecca, CFO

Hi Jen, it’s James. To address your questions about spending, I am referring to our operational expenses, specifically our total OpEx excluding non-cash items. We have consistently provided guidance on this in the past. In our last call, we indicated that we expected our average quarterly OpEx to fall between $45 million and $48 million, and we will maintain that estimate for this year. As for the trend, with the launch of new products, there is typically a lot of seasonality. Your suggestion to use last year as a benchmark is valid. Last year, our expenses peaked around the middle of the year and then tapered off toward the end, and we anticipate a similar pattern this year.

Unidentified Participant, Analyst

Okay, great. If I could squeeze in one more question. I think previously you mentioned that for ANNOVERA, your goal was to increase annual CRS per writer to 15. I'm just wondering, is that still the case?

Rob Finizio, CEO

For a specific type of writer? Yes, absolutely. We have loyalists of different types. Our strategic operating plan for 2021, which we shared at JPM, indicated that this quarter aligned closely but showed slightly lower spending than projected. We intend to persist with that plan and deliver on it. Some new initiatives we've found, which Dawn has discussed, should significantly boost growth in areas where we've seen success. Currently in the pilot phase, we're transitioning to full implementation in Q2 and Q3, and we're quite enthusiastic about that regarding ANNOVERA. So, yes, the answer to your question for that type of provider is yes.

Unidentified Participant, Analyst

Okay, great. That's super helpful. Thanks, everyone. And congrats again.

Rob Finizio, CEO

Thank you.

Operator, Operator

Your next question comes from Douglas Tsao with H.C. Wainwright.

Douglas Tsao, Analyst

Could be interested in the ESI change, and I know it's been fairly recent. But just curious how long is it taking to get the letters of medical necessity approved? And sort of, should we think of this release or just that group of patients just sort of pushing out the curve? And do you have the sense of sort of the success rate from a physician wanting to initially prescribe that to getting the LMN done? What's the sort of pull-through rate that you've seen so far?

Rob Finizio, CEO

So the pull-through rate is constant to what it was before. If anything is better for us, obviously, Doug. So so far it's been excellent. I don't know if you've seen we've been growing since this has happened. The pull-through rate or the approval percentage that we have has been identical to what it was before. So we feel really good; just give yourself credit for following the letter of the law, right. And they're doing a good job. And ANNOVERA uniquely, not all birth control has this unique form. So when a letter of medical necessity goes through, it gets approved unless there are certain religious exclusions or things like that. So there's been zero impact, and we're growing.

Dawn Halkuff, CCO

And Doug, what I was mentioning with the vitaCare is how we are supporting an initiative to support patients to make sure expectations are set with the LMN process, and really doesn’t take that long, but just making sure that all the paperwork is complete, and that the doctor submits, and again, setting those expectations with patients. That really helps with the pull-through as well.

Rob Finizio, CEO

You got it, Doug. Thank you. All right. Is that's the last question.

Operator, Operator

Yeah, there are no additional questions at this time. I'd like to turn it back over to Rob for closing.

Rob Finizio, CEO

Thank you very much. Thank you for joining our Q1 call and we look forward to seeing you next quarter. Thank you.

Operator, Operator

Thank you. This concludes today's conference call. You may now disconnect.