Q2 2023 RVL Pharmaceuticals PLC Earnings Call

As we begin to optimize our marketing mix our conviction in the potential outsized commercial opportunity only grows.

The next few slides highlight the output of some of the recent market research elucidating the clear unmet need.

Large addressable patient population.

Low aided awareness and important variables driving the opportunity to meaningfully accelerate the growth curve through consumer advertising.

In its most basic form demand begins with unmet need and subsequent awareness before funneling down through trial conversion and ongoing utilization.

First the market opportunity.

Our consumer research continues to highlight close to 20 million adult women as bothered by perceived I, let drew when prompted.

More specifically when filtered again to reflect those who are bothered and show high intent to try the addressable opportunity still comprises almost 14 million adult women between the ages of 20 and 70 with household income above 50000.

Importantly, the channel demographic suggests we have established the appropriate access points between eye care aesthetics, and telemedicine to support this future trial and conversion.

Moving along the next slide highlights the low awareness amongst the same demographic.

A mere 1% of adult women in the U S are very familiar with Nick a number at least five to six times below the nearest products tested like <unk> and <unk>.

Unaided awareness drops to zero.

Clearly our strategy with the sales force has established a strong baseline of provider acceptance and real world data, which reinforces the value proposition of the product.

In short we have created strong validation of product efficacy in the real world.

Coupled with two and a half years of a safety database.

Patient satisfaction remained strong across our growing user base and we have even had a growing number of investigator studies completed <unk> published which highlight the quality of life impact of <unk> in mild ptosis. These.

These fundamentals combined with our streamlined sales organization leave us well positioned to extract significant value from an investment in consumer awareness and this slide highlights the hallmark attributes, which give us confidence in shifting our mix to consumer activation.

Finally, as we entered July we formally launched the next generation of our technology platform Ella.

Elevate.

Elevate is a first of its kind prescription e-commerce platform, which serves to integrate ongoing access to uptake through connectivity between the practice patient and Rvs pharmacy.

For the practice once a patient initiated therapy at the point of care elevate serves as the hub for an active prescription whereby our pharmacy is now capable of fulfilling ongoing refill requests without the practice being required to follow up on compliance or refill requests all.

While still maintaining a margin interest in future refills from each patient through our novel stripe connected account capability.

For patients elevate offers the ability to enter a subscription based auto refill program, making access to uptake seamless and more affordable.

Note. This platform also services, our existing pharmacy patients and through the first months since implementation. Our average prescription has increased about 15% in value.

While patient behavior due to the pricing optimization within the platform has driven the average bill size from about 40 miles to about 60 vials.

Moreover, the rollout to providers has exceeded our expectations as over 2000 accounts have already been migrated about 30% of the total with about 1200, having a confirmed striped connected account already.

While we remain in the early days the elevate launch is off to a great start and we expect this capability to deliver increasing value to the business.

<unk> and our patients as we continue the rollout.

In closing we have established a strong foundation for future growth.

<unk>, a tremendous product with enhanced technology, while further optimizing our marketing mix to better align with the drivers of growth for the next phase of our evolution.

We have work to do and look forward to providing updates as we go forward with that I'll turn the call over to Mike for detailed financial commentary on the quarter.

Thanks, David Good morning, everyone I'll begin by sharing comments on our results specific to the second quarter of 2023 a.

A reminder, that our quarterly information and highlights can be found in today's earnings press release, we expect to file our quarterly report on Form 10-Q today.

Net product sales relating entirely to <unk> were $8 3 million in the second quarter of 2023, reflecting a slight decrease from prior year.

The change was due to a year over year decrease in sales volume, partly offset by nominally higher pricing from a price increase put in during April of last year.

Total cost of goods sold for Q2 decreased by <unk> $3 million to $1 $9 million in the three months ended June 32023.

The decrease was primarily driven by lower sales volumes in royalty expense inclusive of contingent earn out obligations unique to the 2022 period.

Our gross profit percentage from product sales was 76% and 74% in the current year and prior year periods.

The year over year increase reflects lower royalty expense inclusive of earn out obligations.

SG&A expenses decreased by $6 $3 million or by nearly one third year over year to only $13 $9 million in the 2023 period.

Sizeable year over year drop in SG&A was driven by $4 $2 million and lower net compensation and training costs, mostly due to the absence of an eye care sales force in the current year.

Zero $9 million and lower insurance rent legal and other professional fees.

Zero point $8 million and lower share based compensation.

And by zero point $2 million and lower marketing expenses.

R&D expenses for Q2 decreased by zero point $7 million or by just over half year over year.

<unk> zero point $5 million due to lower compensation and lower project spending and lower share based compensation expense.

Unique to the second quarter of 2023.

And following our recent discontinuance of marketing efforts associated with our baclofen we.

We recognized impairment charges of $13 9 million to write off the asset a.

A reminder, that this noncash impairment charge is included in our reported total opex.

No similar charges were recognized in the prior year period.

Notably in Q2, we again kept to our long standing commitment to keep total operating expenses are in check.

After adjusting for nonrecurring or exceptional items.

Noncash share based comp.

Our second quarter monthly spend was solidly below $5 million well short of the $7 million benchmark, we had set.

Moving below operating income other non operating charges and credits net reflected a $2 million net expense in the 2023 period.

And a $3 3 million dollar net income in the 2022 period.

The net nonoperating activities in each period were primarily influenced by fair value re measurements required under our debt and warrants.

Lastly, our adjusted EBITDA loss for Q2 was $7 $4 million nearly 40% lower than the comparable EBITDA loss of $11 8 million in the prior year quarter.

Finally, turning to our balance sheet liquidity at June 30, we held cash of $19 $2 million and had senior secured indebtedness with principal maturities of $70 $7 million.

As Brian mentioned earlier, we have streamlined operating expense in order to extend runway optimize marketing mix and support our strategic business development initiatives with that I will turn the call back over to Brian .

Thanks, Mike and operator, let's turn it over for the Q&A.

Operator.

If you'd like to ask a question at this time. Please press star one one on your Touchtone telephone and wait for your name to be announced.

Or withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Douglas Tsao with H C. Wainwright.

Hello.

Good morning, Doug.

Hey, guys can you hear me Brian .

We can hear you fine yes, okay, great. Thank you so much.

Just a couple of questions for me first you obviously spoke about your interest in pursuing business development I'm, just curious what elements would having other products provide you that you can't necessarily accomplish on a standalone basis.

And to just.

Curious also in terms of.

The the focus now on DTC, obviously consumer awareness is important I'm just curious, though given where you are at today.

Are you finding.

Physicians are bringing the product and now two patients that you really need to have.

More pull from on the part of the patient that sort of a push model is insufficient. Thank you.

Yeah, Thanks, Doug look on business development.

It's pretty straightforward for us yes.

We've got a pretty meaningful salesforce.

Effort and anything we do that can advertise.

That.

Call point, if you will what the providers is just going to feed the engine.

Also we're fighting for attention amongst a plethora of other products devices services that are being offered to the aesthetic practice practitioner.

And anything we can do to build the portfolio to make us more relevant.

Can only be helpful. The other thing that we're looking for.

Is meaningful synergies cost synergies right, we don't need two separate sales teams, calling on the same call point.

We don't need to G&A is that overlap.

So theres a lot of complementary.

Sort of elements to build on and basically what we're doing to describe as a bit of a roll up strategy. The second point and perhaps maybe a little more important to us in the short term is theres vertical integration opportunities, where there's operations out there that are designed to help.

Bringing products or services to the patient and were looking very closely at those and hopefully in the not too distant future I'll be able to elaborate further with a very clear target that we're going to disclose.

But let me turn the consumer activation over to J D.

Yeah. He is as you would imagine very close to this.

Thanks, Brian Good morning, Doug So look I think it's pretty simple right. This isn't.

By no means do we want people thinking massive traditional television campaigns, but at a basic level right as we've set about building. This new category, we've really done it strictly with the boots on the ground in the personal promotional selling.

Effort.

And I think one of the things that we found is without some more levers to toggle.

Optimizing the opportunity to build this market at an accelerating pace and so one of the key things, particularly over the first year plus in aesthetics is when we have an opportunity and again Bryan touched on it these are busy practices.

Think there has been.

Negative reaction to the product, but I think doing anything new if you think about the average practice is a heavy lift.

So for us where we have some of the greatest success in terms of beginning to turn the wheel is an opportunity when our people are in there supporting events.

<unk> focused events within the practice and the patients are directly hearing the story and a clear and consistent manner, which prompts intrigue intend to trial and subsequent conversion without that every time. We go in I think we make progress we.

Step away.

And the wheel continues to spend without nique and so for us it's really about optimizing the marketing mix, which is something historically I think if you look back over time, it's really been a field centric effort, which obviously is critically important given this is a new category new products.

But we need to enhance the surround sound that supports that so that it becomes more of a push poll and and we're giving ourselves the best shot at at continuing to accelerate growth and look to close the loop.

If we weren't seeing the patient satisfaction and continued success across a range of potential patient profiles, none of that would make sense, but we feel really good about the impact the product has and now it's about opening up what it is what it does and why there is.

And inherent need for to more and more patients and we think the best way to do that is through more consumer education and awareness.

Doug.

When you are.

Take a look at the hallmarks for consumer activation.

Large tam.

Low exceptionally low.

Awareness is particularly unbranded.

We're like nowhere in the awareness column.

<unk> got a really broad and expansive provider base by design right, because JD mentioned, our boots on the ground approach.

We have a large provider base now.

And <unk> has no competition.

So whatever we do to activate the consumer.

So we should we should see the benefit of that in a much greater return on investment than what's typical in the industry and our brand has ALLETE patient satisfaction.

So field force support is the pull through and we're going to see the top of the funnel.

Okay, great. Thank you so much.

Thanks, Doug.

Our next question comes from the line of Louise Chen with Cantor.

Hi, Louise.

Hi, Good morning team. This is the way Alpha Louise Thanks for taking our questions. So our first question is for Dave.

Direct to consumer and also the business to business to customers. So which one are you most excited about and how do you size. These opportunities and then how should we think about the operating expenses going forward as 2022nd quarter, a 23, a good benchmark.

No.

Yeah. Good morning. This is J D. So I'll take the first part of the question and then Brian can can come in and address the run rate fill in any gaps.

But look I think they're both they're both important right the b to B to C side, the Tec technological enhancements.

That we've developed and launched as of early July .

Create a very unique connection at the practice where patients that now initiate therapy.

In over 6500 of our locations where providers are dispensing directly up Meek now have seamless ongoing access to the product via this technology and our pharmacy, so that obviously creates a.

A captive connection where we can service in an efficient manner patients on an ongoing basis, which is something that didn't exist. During the first year plus of our launch in aesthetics and certainly the eye care component of things and when it comes to DTC I think look we.

I don't want to beat a dead horse here, but at some level right demand.

Comes from awareness and until we meaningfully expand awareness given this is a new technology, it's really something that people arent looking at themselves and overtly contemplating as I can improve this with a simple drop it's rich.

Important that we begin to hammer that and I think we've laid the right foundation to set up for an inflection point with that type of investment and today look there's so many ways to be efficient with that spend I mentioned in print. So this isn't.

Talking linear TV.

Mass of 32nd spots on on television, we're talking about a range of programmatic advertising.

Actually investing in paid search.

Some some digitally focused tactics that are going to put this product in the message.

Front of more and more patients with consistency and that's something we just have not done to date. So we're excited about it we've got the work ongoing in terms of a true creative campaign and we really think the combination is going to help to optimize and maximize what we think is in front of us from an addressable.

Market.

Wayne I would expect Q3.

The expense space to be comparable to Q2.

And then as we begin to plant the seeds for the direct to consumer.

Campaign that J D referenced I think Q4 will see a bit of a ramp as we head into that fourth quarter holiday season for aesthetics.

And we're very excited about what we think those seeds will.

We will do them into.

Okay.

Great. Thank you very much.

Our next question comes from the line of <unk> Prasad with Barclays.

Okay.

Good morning, everyone.

This is Nick Hiller on fertilizer.

<unk> how are you.

Good good just a.

Quick one from US just wondering if you could provide just a bit more color on the impact of economic headwinds that you would expect for the remainder of the year. Thanks. So much.

<unk> I think we're so underpenetrated in general with the.

Aesthetic practices at World I think.

I don't think we're really subject to a lot of economic headwinds at the moment.

I think our rollout of elevate.

Particularly as we're seeing early.

Promising reads in the eye care segment are going to certainly overcome anything we're seeing there because remember we're going to be now capable of offering subscription plans to patients. So the more frequent user can have a more economical solution and access to our product and thats rolling into aesthetics as well across the.

Our board and all of our models. So I think we have an answer for headwinds, but again I think we're so underpenetrated not much of an effect.

Operator next.

Our next question comes from the line of John <unk> with Zacks.

Good morning.

Hey, John how are you.

Under him pretty good let.

Let me ask about dig.

Dig a little bit deeper into the.

The strategy to increase awareness there are a number of attractive internet properties out there that probably very amenable to.

A product that has the visual aspect to it.

What what kind of efforts do you expect to do there.

Yeah.

Yes, John you are pretty close to home and some of the things we're looking at.

I think.

Expanding on our capability to interact more directly with patients.

In a model where every dollar spent on customer acquisition cost.

I can give you any immediate read roughly.

The one year long term value or LTV, I think is going to be very important to us.

And again, it's all about optimizing our mix.

So again, we're pretty close in conversation with a couple of interesting parties and I think I can just really leave it at that but I think vertical integration might be one of the keys for us.

Okay.

And are there any metrics that you're going to be using that will help kind of.

Evaluate effectiveness effectiveness of your upcoming marketing dollar that youre going to maybe share with us or at least look at internally.

Yes, J D. Yes sure. Good morning, Good morning, John So look it's pretty basic right I think the visibility around key metrics like return on Ad spend.

Become sort of the north star for Us.

Great to see impressions expand 100 fold sure right and we will certainly look at that but it's really about the level of engagement that we're able to drive and again the nice thing when you think about the digital tactics available to manufacturers today and really any industry.

<unk> your ability to be not only efficient but.

Gated in your spend because of the amount of data you are able to churn through and understand cause and effect with the things that you're doing.

We're absolutely going to go through this test control.

Pilot process before we ramp even more meaningfully so that we're toggling and putting every next dollar behind the things that have the biggest impact on on the on the revenue line, but fundamentally it's going to come back to things like return on Ad spend.

Okay helpful.

Helpful.

And then regarding the potential combination August one again I know you are not sharing too much on that but.

First of all is it is it a product or a service are you contemplating a few different things, but maybe youre looking at both a product and service.

Between the two and then.

How do you expect to pay.

Pay for the acquisition will this be a kind of a stock for stock transfer.

What do you think you might be doing on that side of things.

Well I think.

It's not one size fits all.

And.

There's a few short.

Term prospects that we're very close to.

They're not mutually exclusive I think it's really more the order in which we want to go.

We are most focused on what will give us the greatest potential to drive uptake.

And as far as cash versus stock versus that versus other means of funding look we're going to look out for the shareholder and make sure that what we acquire or pick up is going to be hopefully.

Accretive as soon as possible and provide meaningful lift in terms of valuation so.

Can't really signal, how we're going to do it but we have a lot of tools available.

And we're going to be as capital efficient as possible in this effort.

And also looking at a potential target well will you be focus more on I guess the product sales itself or are you looking at some of the infrastructure of this complementary asset.

The company that Youre looking at that May provide a better penetration in sales and I think your sales force, maybe it's down a little bit year over year.

I mean, there's I guess two components there right. There is the product sales and then also the infrastructure that can help leverage.

<unk> sales as well.

Yes. Good question, it's going to be both right I think to Brian's point, we're looking for.

Accretive opportunities. So there has to be revenue involved and then anytime youre exploring M&A.

As an opportunity to add capability and enhance the overall business. So theres certainly capabilities today that become incremental to what we have and are capable of doing whether thats enhanced medical education and support.

Whether that's <unk>.

Forward vertically integrated capability that doesn't exist today. So we're focused on both John .

And I think fundamentally it's got to be something that is bringing revenue that's important to us we do have an infrastructure.

That does a lot we've created a lot of capability that we certainly are keen on leveraging as we move forward.

But it's also about enhancing capability, particularly in light of enhancing what we're doing with up Nique that is clearly still the single biggest value driver and something we remain keen on an accelerating and extracting maximum value as we move forward.

Great. Thanks, Judy Brian Mike I appreciate it.

Thank you Sir.

As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.

Our next question comes from the line of Glenn Santander flow with Jefferies.

Brian Your line is now open.

Yes, good morning, Glenn.

When you may be on mute.

Sorry can you hear me.

Yes, yes, now we can hear you yes.

Excellent. Thank you Hey, Brian I, just wanted to follow up on a couple of things here first on the elevate platform.

Ted in your prepared remarks that that's running ahead of your internal expectations. I was wondering if you could elaborate on that a little bit more because you'll know that you've been running the platform for a while I'm kind of curious to see if that.

That's having any impact on your margin structure of the company may be being achieved.

A cheaper way to sell and distribute the product through that platform.

Maybe it is accretive to your margins in some way shape or form and I'm wondering if you can give us more details around that.

Sure J D. Yes, good morning.

Glenn so.

Let me step back and make sure.

For the folks on the phone.

We've got the context here what elevate does is it provides us with a couple of key things number one for the first time, we can control for optimized pricing in the market and Thats really important right now none of what we've built has been intended to position up Nick.

Where there's arbitrage in terms of out of whack pricing dependent upon channel, whether it's telemedicine, whether it's our pharmacy or whether it's our provider partners and so for the first time, we've been able to now introduce and Theres. Some technology involved in this as well subscription based offerings.

<unk> reduced cost for more quantity purchased upfront and so if I think about sort of the first half of the year and prior because again, we launched elevate coming out of the fourth of July . This year were about four four weeks in five weeks in.

Patients on average.

We're filling a prescription of about 40 miles worth of up Meek.

Over the first four to five weeks.

Patients are now filling on average about 60 miles above peak now.

Now the pricing optimization has obviously reduced some of the 90 count.

Pricing was about $425 prior to the launch of elevate now a one time three months purchase is $350 or you can get a quarterly subscription for $2 99 or $99 a month, but on average the.

The increase in Bill size is compensated or any net decrease in prescription value, where we are up in terms of the value of a build prescription so it should become accretive.

To the margin profile of the product as we move forward and obviously.

The more product people are willing to purchase one aspect of that is optimized pricing and if I think historically, we've got a product right. We think we've got an entry point that is pretty close to optimized but we also recognize that 150 to $200 a month.

Is not the price point, that's going to drive increasing utilization and so this platform one of the things that it does is gives us the ability to drive that behavior.

So far so good and we think we have enough data now to feel good about that shift being sticky and then Moreover, right. If you think about over the course of the first year or.

Our estimate suggests probably somewhere between.

Call. It 150000, new patient starts in aesthetics, we don't have direct visibility so theres some triangulation there, but at the end of the day.

None of those patient starts.

Have ready access to refills, they've got to go back to their office, if they want product with elevate that now becomes an RV all pharmacy capability on behalf of the practice, where they still have a financial relationship with our pharmacy, but we have.

Direct connection to the patient and can fulfill in a seamless and efficient manner on an ongoing basis. So look we're excited about what this serves for both up meek and potentially future products as we go and fundamentally it seems as though it's going to be accretive to the <unk>.

<unk> profile.

Yes, I appreciate all those details maybe if I could just ask a follow up on the margins. The company made some nice strides in terms of trimming expenses year over year.

Is the level you're at now is that that sort of the right level to think about for the balance of the year and into next year I mean, just given the boots on the ground that you currently have in place.

Yeah, Glenn I think Q3 will be pretty much look like Q2 in terms of total operating expense and then I believe Q4 should ramp a bit.

As we head into the.

The holiday season.

Also begin to.

The early seeds for our direct to consumer campaign that we've.

Spoken about quite a bit here on the call. So.

Q3, more or less flat Q4, a little up.

But as the expense rises so will the sales.

This is an extremely promotion responsive brand.

And.

We're very conscious of the mix that we have to deploy.

Okay. Thanks for the comments.

Okay, Glenn Thank you.

That concludes today's question and answer session I would like to turn the call back to Brian Morrison for closing remarks.

Thank you operator, and thank you everyone for joining us today on the call. We look forward to future calls and interactions with many of you have a good day.

This.

Today's conference call. Thank you for participating you may now disconnect.

Okay.

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