RVL Pharmaceuticals plc (NASDAQ:RVLP) Q2 2022 Earnings Conference Call August 11, 2022 8:30 AM ET
Company Participants
Lisa Wilson – IR
Brian Markison – CEO
Mike DePetris – Interim CFO
JD Schaub – COO
Conference Call Participants
Louise Chen – Cantor
Douglas Tsao – H.C Wainwright
Michaela Diverio – Barclays
Operator
Good day and thank you for standing by. Welcome to the RVL Pharmaceuticals Second Quarter 2022 Earnings Call.
At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today’s conference is being recorded.
I’d now like to hand the conference over to Lisa Wilson. Please go ahead.
Lisa Wilson
Thank you, operator. Welcome to RVL Pharmaceuticals’ second quarter 2022 financial results and commercial update call. This is Lisa Wilson, Investor Relations for RVL.
With me on today’s call are RVL’s Chief Executive Officer, Brian Markison; Chief Operational Officer, JD Schaub; and Interim Chief Financial Officer, Mike DePetris.
This morning, the company issued a press release detailing financial results for the three months ended June 30, 2022. This press release and a webcast of this call can be accessed through the Investors section of the RVL website at rvlpharma.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 upon information available to RVL’s management as of today, and involve risks and uncertainties, including those noted in the press release and our filings with the Securities and Exchange Commission. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statements. RVL specifically disclaims any intent or obligation to update these forward-looking statements, except as required by law.
During this call, we refer to non-GAAP financial measures such as adjusted EBITDA. For a reconciliation of adjusted EBITDA to net income or loss from continuing operations, please see the tables at the end of today’s press release. The archived webcast of this call will be available for one year on RVL’s website, rvlpharma.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on Thursday, August 11 2022. Since then RVL may have made announcements related to the topics discussed, so please reference to company’s most recent press releases and SEC filings.
And with that, I’ll turn the call over to RVL’s CEO, Brian Markison.
Brian Markison
Good morning, everyone and thank you for joining our call. Before we dive into the quarter, I’d like to comment on the $68.9 million financing we announced last week. This insider-led raise is extremely important to note because it illustrates our belief in our product, which is anchored in the positive response we’re seeing from patients and customers and of equal importance, we now have the opportunity to run the playbook through 2023, without the need to come back to the capital markets.
I’d also like to add that Alisa Lask has joined our Board of Directors. Ms. Lask brings over 20 years of commercial experience in pharmaceuticals and medical aesthetics and of note, she recently held Senior Leadership positions at Galderma and Allergan. Welcome Alisa.
UPNEEQ, which was approved by the US Food and Drug Administration for the treatment of acquired blepharoptosis or droopy eye has been broadly accepted by the eye care community and can be counted on as the foundation of our growing business.
As we turn our focus to medical aesthetics, we are experiencing a terrific receptivity to the product and our team. That said, our excitement is tempered by the necessity to educate and train one practice, one provider at a time, as we grow a new product in a new category, ocular aesthetics. UPNEEQ is a one and only, and the results of the product and our sales speak for themselves.
With that, I’ll turn the call over to Mike. Mike?
Mike DePetris
Thank you, Brian and good morning to everyone. I’ll begin by providing commentary on our quarterly results of continuing operations, specific to the second quarter of 2022, with references back to the second quarter of 2021 or the first quarter of 2022 as appropriate. A reminder that our quarterly info and highlights can be found in today’s earnings press release. With regard to our quarterly report on form 10 Q, we anticipate filing that with the SEC later today, after markets.
Total revenues for Q2 decreased by $3.1 million to $8.4 million, primarily due to $10 million of licensing revenues, unique to the 2021 period, partly offset by a $6.9 million year-over-year in sales of UPNEEQ. Net product sales, which relate entirely to sales of UPNEEQ in each period increased by $6.9 million to $8.4 million in the 2022 period. This increase was mostly due to an increase in sales volume, reflecting expanded commercialization into eye care markets and effective February, 2022, the medical aesthetics market.
Sequentially sales of UPNEEQ grew $2.5 million or 42% from the first quarter of 2022. Total cost of goods sold for Q2 increased by $1.5 million to $2.2 million. This increase was primarily driven by $0.9 million in higher product costs for UPNEEQ influenced by higher sales volume and by $0.7 million related to increased royalties and contingent milestone payments.
On a reported basis, our gross profit percentage decreased to 74% for the second quarter of 2022, compared to 94% in the 2021 period, largely due to the absence of licensing revenue from Santen during the 2022 period. Excluding the Santen licensing income, our gross profit percentage in the 2021 period was approximately 52%.
SG&A expenses for Q2 decreased by $0.8 million to $20.2 million. The SG&A decreased primarily reflects $1.1 million of lower, legal and other professional fees and $0.6 million of lower marketing expenses for UPNEEQ partially offset by $1 million in higher net compensation and training costs mostly relating to our expanded sales force.
R&D expenses for Q2 decreased by $0.9 million to $1.2 million. The decrease primarily reflects $1.2 million in restructuring expenses that for R&D were unique to the 2021 period. Rounding out our commentary on operating income and unique to the second quarter of 2021, we recognized impairment charges of $7.9 million. No such impairments were recognized in the 2022 period.
Moving below operating income, total other non-operating activities in Q2 2022 contributed $3.3 million of net income, largely reflecting gains of $4.2 million from the change in fair value of the company’s debt and warrant liability. Total other non-operating activities in the 2021 period contributed a loss of $1.7 million, primarily consisting of $1.3 million of asset disposal costs recognized under a prior year restructuring program.
Next, turning to our balance sheet and liquidity update. As of June 30, 2022, we held cash and cash equivalents of $27.4 million. Our total debt and financing obligations at quarter end had aggregate principle amounts due of $55.6 million, including $55 million of long-term debt, which is carried on our balance sheet at its fair value of $42.9 million.
On Monday, August 08, the company legally closed on two separate financing transactions, each has executed and announced last Thursday, August 04. Firstly, we closed on an insider-led private placement of roundly 15.5 million ordinary shares of the company with no discount, meaning an after-market issuance, thereby generating nearly $24 million in aggregate gross proceeds. Take note that our outstanding share count subsequent to Monday’s private placement reflects approximately 99.1 million ordinary shares.
Second and concurrently, the company accelerated the issuance of second trench notes in an aggregate principle amount of $20 million. Following an amendment of our note purchase agreement with funds managed by Athyrium Capital Management.
Importantly, under the notes amendment, an affiliate of Athyrium, also agreed to commit up to $25 million from the issuance of third trench notes at RVL’s election through April of 2023 and subject to a minimum revenue target.
For a more complete description of our private placement and the material changes in terms and conditions of our indebtedness, please reference our current report on Form 8-K filed with the SEC on Thursday, August 04. Our forthcoming quarterly report on Form 10-Q will include copies of relevant agreements.
Buoy by the injection of $44 million in gross cash proceeds, we’ve meaningfully advanced our cash runway for UPNEEQ. There are admittedly many variables in play, but depending on the commercial development, we believe it is possible to extend our cash runway through the entirety of 2023 with or possibly without borrowing under the third trash notes. Accordingly, we believe our near-term liquidity is reasonably assured and thereby expect to continue to fully invest and act upon our commercial ambitions for UPNEEQ.
With that, I’d like to turn the call over to JD for some commercial insights. JD?
JD Schaub
Thanks, Mike and good morning, everyone. As you heard from Brian, our progress reflects growing conviction in UPNEEQ, anchored by the unique multi-channel business strategy we have created. Remember, the provider and subsequently their patients have the ability to access this product directly through our pharmacy within the provider office setting or virtually in states where direct dispensing is prohibited.
These channels all serve as meaningful growth levers for UPNEEQ as well as any future business development opportunities. Beyond the continued sales growth, during the quarter, our leading indicators demonstrated robust expansion and brand awareness and importantly adoption, while also delivering on our commitment to manage operating expense within the range of $7 million a month.
Beginning with eye care, going back to our launch, we set out to build a foundation of broad utilization and acceptance and have done just that. Our lead metrics remain like what we’ve experienced in prior quarters. Continued prescription growth through our fully owned pharmacy, first time paid prescriber growth in excess of 150 new prescribers per week, bringing our launch-to-date paid prescriber base to over 15,000 and a solid base of reordering accounts tied to direct dispense provider partners.
Of note, our year-to-date results within eye care coincide with our efforts to reallocate investments towards the expanding aesthetic launch and we are confident the broad awareness and utilization within this segment will continue to provide a solid foundation for the accelerating growth we are experiencing within the medical aesthetic channel.
Turning now to the medical aesthetic launch; the second quarter represented our first full quarter of promotion, given the onboarding of our initial sales team in February of this year. In short, our experience and results thus far validate our fundamental belief in the commercial opportunity.
We finished the second quarter with more than 2200 locations onboarded; growth of just over a 100% since Q1. Notably, more than 25% of those locations reordered at least once by the end of the quarter, further strengthening our confidence in the brand. The expanding points of sale and reordering accounts highlight the growing enthusiasm we are seeing from providers and their patients. At this stage, we are confident that growth beyond our existing expectations is only limited by time and our ability to execute as efficiently as possible.
As we move forward, the focus remains on building the market and establishing UPNEEQ is a routine part of the non or minimally invasive facial aesthetic protocol. From what we continue to see when administered properly, the results can speak for themselves. So our effort centers around becoming significantly insignificant in busy practices, to teach them and help them learn how to do something new in a simple and streamlined way that supports their overall objectives within the practice from a patient outcome and business perspective.
The combination of minimal time commitment, margin and potential market size represent a compelling and differentiated value proposition, particularly in light of being the only therapeutic treatment option. Thus far, we have penetrated less than 10% of the more than 30,000 aesthetic practices out there.
Further, within many of those which have been activated, we’re just scratching the surface of what we believe the potential addressable market is within each practice. We expect a continued acceleration on both fronts as experience and confidence using the product increases along with our increasing educational efforts to support adoption and integration. The real world evidence is robust; over a 100,000 patients having initiated treatments since launch and we continue to believe in the outsized opportunity UPNEEQ represents.
Lastly, in keeping with this belief in July, we onboarded and trained the first wave of our expansion group, a highly talented and accomplished mix of sales leaders and managers, which compliments the existing teams. The majority of this group joined with robust injectable and aesthetic device experience and has positioned us as one of the strongest sales organizations out there. We look forward to keeping everyone updated on progress.
And at this time, I’d like to turn the call back to Brian for closing remarks.
Brian Markison
Thanks, JD. And thanks everybody for listening. Operator, if you don’t mind, we’ll now turn the call over to questions-and-answers.
Question-and-Answer Session
Operator
[Operator instructions] Our first question comes from the line of Louise Chen with Cantor. Please go ahead.
Louise Chen
Hi. Congratulations in all your progress this quarter and thanks for taking my questions. So I had a few here. First one I wanted to ask you were was basically any thoughts in the phasing of your sales in third and fourth quarter and any update on your guidance for the fourth quarter.
And then second thing I wanted to ask you was about expanding your product portfolio beyond UPNEEQ any color or thoughts on that front. And then last thing is what are your key objectives that you’d like to accomplish before the end of the year? Thank you.
Brian Markison
Thanks Louise for the three-in-one. So let’s start with the easy one new products to the portfolio. We would love to do that, but right now, I think we’ve got everything we can do to just open new accounts and service the accounts that we have with our recently expanded team.
As JD mentioned earlier, we’re barely in 10% of the market. So, we’ve got a lot of work in front of us with the product in our hand, but nevertheless, we remain quite open and that’s one of our major objectives and we’re always looking to add complimentary products and we know people in the industry are always looking at us as well.
So we’ve got an active dialogue going with a number of folks and we’ll see where it takes us, but right now our major objective and our singular focus is opening new accounts, driving those reorders because we’ve barely scratched the surface.
With regard to guidance, we’re remaining on, on at the lower end of our initial range and I think it has to do a bit with phasing. We know that July was a heavy vacation month. Other folks have said at the macros in the industry certainly support it and our expanded team originally was scheduled to be out July 05. We took the time to train them during the month of July and they really didn’t hit the street until the end of the month, the very last week.
So, I think we’re still on the low end of the range of what we gave as guidance almost a year ago before we launched into aesthetics. Feel really good about it, but I would think that our third quarter will be tempered a bit by what we seeing in July, certainly supported by the industry.
Nevertheless our enthusiasm and our growth prospects remain stellar, as we’ve said, and we’re seeing the uptake and we’re seeing it go viral on social media as well and we’re very excited about it. And I think there was a third question. Objectives [ph] and open more accounts.
Look, it’s very straightforward, open new accounts, drive reorders and the other thing I’ll add is I think our success and hit rate in opening new accounts, given our headcount and manpower and expense is probably an industry record, but I don’t have really good facts because everyone else would have to collaborate with me and tell me what they did.
Operator
[Operator instructions] We have a question from the line of Doug Tsao with H.C Wainwright. Please go ahead.
Douglas Tsao
Hi, good morning and thanks for taking the questions and congrats on the progress and, Brian, maybe if you could speak a little bit to what you’re seeing in the macro environment? I know you touched on it a little bit, but there seems to be a lot of focus just given, sort of some of the dynamic and then also, I’m just curious in terms of opening a new account and ramping it up, what do you see as the biggest or sort of the most time consuming element?
Is it teaching them about the profile of the drug and how to get the best result, or is it really just integrating and figuring out and teaching them about the sort of the economic model that you’re implementing?
Brian Markison
Yeah. Doug, thanks and good to hear your voice this morning. I’ll let JD handle the account openings and the cadence there. Look with regard to the macros, I’m not that focused on it because we have, again, barely scratched the surface, but we know that a lot of folks were on vacation around the July 4th weekend and they extended their vacation and their travel time.
So for us, it was a very simple decision to move our expansion to the back end of the month as people were returning from vacation, but all the macro support, what I just said, but quite frankly, my focus is on our brand and building it and not the airline industry. So JD, go ahead.
JD Schaub
Yeah, I think and good morning, Doug. I think when it comes to new accounts, this is — it’s a little bit counterintuitive because the product itself is tremendous. The challenge, I think, and we’ve talked about this a lot over the phasing and the staged approach is, we’re building a market and so, there’s this feel good. Everybody wants to try the product, the enthusiasm and the response, staff, etcetera, is always robust, but we’re getting them to look at something that as providers, they really haven’t ever paid attention to or looked at before and beyond that it’s an area of the face in medical aesthetics that they’re also not experts in.
And so it’s a little bit of the magnitude of the opportunity kind of redefining ptosis for these providers and teaching a bit of while not over complicating it, eye care for the non-eye care provider, so that the robust nature of the product, their confidence when they talk about it grows and they feel prepared for the questions that patients might an might ask.
So, kind of long-short it’s education, it’s helping them feel comfortable and get over that natural cliff, if you will, of something new and feeling good about their ability to interact with patients, set the right expectations and address any concerns that patients have and I think that’s very natural when you’re talking about a new market.
Douglas Tsao
And JD, just as a quick follow up to that, to your point about sort of an understanding of ptosis, do you find some clinicians or aesthetic clinicians don’t necessarily realize the full benefit of the amount of lid list that you can achieve just given the fact that in their minds they think ptosis is something much more severe?
JD Schaub
Yes, I think that’s it. And I think, the other thing, and at times it can sound a little bit silly, but almost disbelief, right as providers over the course of the last year and a half or so probably more in the medical aesthetic space over the last six months have started to hear more about this product. It’s almost like, yeah, I’m not sure that, that actually works or those before and after pictures are nice, but they must be hand selected.
And it really is you’ve got to try it to truly understand the impact and the robust efficacy and safety that this product has. And I think we’re very comfortable operating in that environment because we have a year and a half of real world experience that I think has validated everything we are trying to teach and build with this market, a wide range of patients, very consistent product performance and no AE surprises that we didn’t see in our clinical studies and probably more so a real world rate that is reflective, if not a little bit less than an already low rate of side effects seen in the clinical studies.
Douglas Tsao
And, JD to your point about the product performance, I suspect you get some disbelief in terms of the overwhelming response rate that you get, just since it’s so unusual to see pretty much everybody get some amount of list.
JD Schaub
Yeah, it’s, it’s really exciting. And I think, look, what we do see, particularly as a growing number of accounts from the first kind of several months of launch have begun to reorder and then that second reorder turns into a third reorder and fourth reorder and so on is accelerating utilization of the product in the practice as well.
And I think that’s a combination of understanding the true patient need, confidence in how to talk about it and introduce it, and also being able to make this a seamless part of what they’re doing as a practice, because it’s ultimately additive to everything else that they’re doing.
Douglas Tsao
Okay. Great. Thank you so much.
JD Schaub
Thanks Doug.
Operator
Next question comes from the line of Balaji Prasad with Barclays. Please proceed.
Michaela Diverio
Hi, thanks for taking my question. This is actually Michaela on for Balaji. Just one quick question from me, I guess what’s the percent of sales that came from aesthetics versus eye care right now. And then just, how do you expect this to evolve up for the remainder of the year? Thank you.
Brian Markison
Yeah. Hi, Michaela. Good to hear your voice. I think as we’re exiting Q2, the mix is roughly 60-40 aesthetics to eye care. And I think as we march through the year, we’re going to see that shift more greatly toward aesthetics, but I can’t really give you a final number because we’re running the playbook now. But I would suspect we will be at 70-30, fairly soon. And then probably by the end of the year, I like to be at 80-20. So that’s a rough prediction.
Operator
And I’m not showing any further questions in the queue. I will turn the call back to Brian Markison for his final thoughts.
Brian Markison
Thanks operator. And thanks everybody for joining our call today. We’re excited with our recent financing under our belt to really get going, drive the ramp. As JD mentioned, the response to this product is tremendous and we look forward to speaking with you on future calls. Thank you.
Operator
Thank you. And ladies and gentlemen, we conclude our program for today. Thank you for participating and you may now disconnect.
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