Agile Therapeutics, Inc. (AGRX) on Q2 2023 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Agile Therapeutics Second Quarter of 2023 Financial Results Conference Call. Please note today’s event is being recorded. I would now like to turn the conference over to Matt Riley, Head of Investor Relations.
Matt Riley: Hello, everyone, and welcome to today's conference call to discuss our second quarter 2023 financial results and corporate update. Before we start, let me remind you that today's call will include forward-looking statements based on our current expectations, including statements concerning our financial outlook and financing prospects for the future, our outlook for the second half of 2023, management's expectations for our future financial and operational performance, including our expectations regarding the market growth of Twirla, and our operating expenses. Our business strategy, our partnerships with Afaxys and Syneos and their ability to promote growth, our relationship with Nurx and its ability to make Twirla broadly available to patients and our assessment of the combined hormonal contraceptive market, among other statements regarding our plans, prospects and expectations. Such statements represent our judgments as of today, are not promises or guarantees and may involve risks and uncertainties that may cause actual results to differ from the results discussed in forward-looking statements. Further, during today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued today, which can be found on the Investor Relations section of our website. For more information concerning risk factors that may affect the company, please refer to our filings with the SEC, which are available through the Investor Relations section of our website. We undertake no obligation to update forward-looking statements, except as required by law. The information on today's call is not intended for promotional purposes and not sufficient for prescribing decisions. Joining me on today's call is Al Altomari, Agile Therapeutics' Chairperson and Chief Executive Officer; and Amy Welsh, Chief Commercial Officer. Following our prepared remarks, we'll open the call to your questions from our covering analysts. I will now turn the call over to Al.
Al Altomari: Thanks, Matt, and thank you for everyone joining us this morning. I’m personally very excited to share our quarterly results with you and that is in part of the reason why this is our first quarter we’re holding our call in the pre-market. We think a 44% growth in our net revenues of $5.5 million for the second quarter combined with our double digit growth in demand made this a significant quarter for both Agile and Twirla. We believe this affirms our confidence in our business plans, our progress towards the goal of generating positive cash flow and achieving 2023 net revenue in the range of $25 million to $30 million. I'm going to kick things off by reviewing the performance metrics from the second quarter 2023 that have us all excited. Amy will then discuss why we are confident in our belief we can sustain momentum into future quarters. Twirla demand for the second quarter was 55,687 total cycles, a 24% increase from the first quarter of 2023 and another single quarter record. Retail demand, as reported by Symphony, was 35,682 total cycles in the second quarter of 2023, a 17% increase from the first quarter 2023. The retail channel is our most profitable channel, and the retail demand accounted for 64% of the second quarter 2023 demand. Non-retail demand for the second quarter of 2023 was 20,005 total cycles, an increase of 38% from the first quarter 2023. Our non-retail demand is comprised of data from Symphony as well as our wholesalers. Second quarter 2023 net revenue was $5.5 million, which represents a 44% increase from the $3.8 million reported for the first quarter in 2023 and the 159% increase from the $2.1 million reported for the comparable period in 2022. Factory sales for the second quarter 2023, as reported by our wholesalers, were 61,770 total cycles compared to the 43,446 total cycles reported for the first quarter 2023, a 42% increase. As discussed last quarter, on a year-to-date basis, we think channel inventory has now normalized. We expect to see both net revenue and factory sales continue to grow in the second half of 2023, driven by our growth in demand and the execution of our business plan that Amy will describe. Gross margin. Along with the growth in our net sales and demand, we continue to make progress in generating gross profit. In the second quarter of 2023, we generated a gross profit of approximately $3.2 million or a margin of 58% compared to $1.8 million or gross margin of 47% in the first quarter of 2023. We think gross margin is becoming a meaningful part of our progress, and we believe we will continue to see improvement in the second half of 2023. Operating expenses, or OpEx, for the second quarter 2023 were $8.3 million, a 2% decrease from $8.5 million reported in the first quarter of 2023. Before Amy takes over, I'd like to comment on a few other of our financial results, which we believe also demonstrates continued progress of our business. Cost of goods sold, or COGS, which represents direct and indirect costs related to the manufacturing of Twirla sold was $2.3 million or 42% for the second quarter of 2023 compared to $2 million or 53% for the first quarter of 2023. We ended the second quarter of 2023 with cash on hand of $2.8 million. In addition to our aftermarket or ATM arrangement, we will continue to evaluate all available options to finance the company. Our GAAP net loss for the second quarter of 2023 was $3.8 million or $2.15 per share for the second quarter of 2023 compared to a GAAP net loss of $5.4 million or $5.91 for the first quarter of 2023 and a GAAP net loss of $5.2 million or $57.29 per share for a comparable period in 2022, respectively. Non-GAAP loss was $5.5 million or $3.10 a share for the second quarter of 2023 compared to a non-GAAP loss of $7.1 million or $7.76 per share for the first quarter of 2023 and $12.2 million or $135.46 per share for the comparable period in 2022. The non-GAAP results reflect the exclusion of fair market remeasurement of warrant liabilities, which resulted in other income of $1.7 million in the second quarter of 2023, $1.7 million in the first quarter of 2023, and $7.1 million in the second quarter of 2022. We set a single quarter record highs in demand, net revenue, factory sales, all by reporting another quarterly decrease in operating expenses. We are beyond pleased with the second quarter results, but the job is not done. We continue to ask ourselves how we can accelerate our growth. I will now hand over the call to Amy to answer that question by explaining the business model, which we have built and is designed to deliver future growth across the board.
Amy Welsh: Thanks, Al, and hello, everyone. Our whole organization is energized by our results in the second quarter of 2023. I would like to take a few minutes to explain why we are excited and answer the question, can we reach our 2023 net revenue guidance of 25 million to 30 million by sustaining our current momentum, driving increased growth in future quarters and holding our operating expenses at current levels? We think the answer to this question is yes, because of the structure of our commercial business model and the continued receptivity towards Twirla, which is now approaching 15,000 cumulative prescribers since launch. We are pursuing a business plan that is built on a commercial platform that we believe is scalable without adding a lot of fixed costs. Let me explain further. First, our business plan focuses on driving Twirla in the five states that are estimated to reach over 45% of the U.S. women ages 18 to 24 and have strong reimbursement profiles. This targeted geographical strategy maximizes our sales force spend in the areas we believe have the greatest opportunity and potential for growth. And second, our commercial platform is based on collaborations with Syneos and Afaxys that have been structured to minimize fixed costs and allow us to scale up or down, as needed, as well as align our key partners’ interests with ours so that our partner succeeds when Agile and Twirla succeed. We have pursued this by converting what we would typically be considered fixed costs for a company like Agile into variable costs. For example, through our partnership with Afaxys, second quarter 2023 non-retail demand grew 38% from our first quarter of 2023. Rather than allocating the time, resources and dollars to build and maintain our own non-retail sales force, we partnered with Afaxys to drive non-retail growth, because we identified them as experts in that area. The fact this is compensation is a combination of a fixed fee, along with performance-based incentives, which helps us keep quarterly operating expenses at a stable rate without sacrificing growth potential. We have taken the same approach with Syneos, which provides our retail sales force. We believe we can now build out this commercial platform and drive additional Twirla growth by expanding our distribution channels, which we expect will increase access to Twirla without incurring additional significant operating costs. So this is why we remain confident that we can achieve net revenue in the range of 25 million to 30 million while holding our operating expenses relatively steady. Now I would like to take a few more minutes to provide some additional details on our plan to build out our distribution channel. In the first quarter of 2023, you saw us announce new relationships designed to further expand our commercial reach and drive Twirla growth. In the retail channel, we focused on collaborations to grow Twirla through telemedicine platforms, which we will expect to contribute to second half 2023 net revenue and retail channel growth. Advancing Twirla’s availability through Nurx, Twentyeight Health and Pandia are all part of our strategy to sustain future growth in the retail channel. We also focused on growing the non-retail channel. Twirla’s availability through our relationship with FPA Women's Health and MMCAP are planned to augment Afaxys’ efforts and contribute to further second half 2023 non-retail growth. Their expected contributions are a large part of why we are confident in sustained growth across the board and the second half of 2023. Strong focused external relationships are an integral part of our business plan, and we expect to continue to explore collaborations that can positively impact our business, allow us to expand without incurring significant costs and promote a growing, sustainable fiscally responsible business. We now like to give our covering analysts the opportunity to ask questions. Operator, you may now open the line for Q&A.
Operator: Thank you. [Operator Instructions].
Al Altomari: Operator, while we're doing that, I want to introduce somebody else in the room. We also are joined in the room by Scott Coiante, our incoming new CFO. I think most of you know that Scott was a big part of the company when we took the company public. So we're thrilled to have him back. So I just want to let you know he's also in the room and he'll be transitioning to the job in the next week or so.
Operator: All right. Thank you. So our first question comes from the line of Oren Livnat from H.C. Wainwright. Your line is now open.
Oren Livnat: Thanks. I have a bunch of questions. Congrats on a nice upside this quarter and reiterating that guidance. I guess first, you just mentioned Scott's on the call. Welcome back, Scott. I'm curious what you found compelling about this opportunity to return to Agile. Then I'll ask about the fundamentals.
Scott Coiante: Thanks, Oren. Good to connect with you. Look, as you know, I was part of some really good productive years here at Agile. And look, it's a great team. There's a great group of people here. The opportunity presented itself for me to come back. And I'm happy to be here and continue to build on that progress that the company has been doing.
Oren Livnat: Obviously, it's a pivotal time. Sorry, I heard some feedback on the end. Can you hear me?
Al Altomari: Yes, you’re good, Oren. Go ahead.
Oren Livnat: Okay, good. Well, let's talk about Twirla. I think we're five weeks into Q3. And I know you don't give quarter-by-quarter guidance. But since you reiterated the top line guidance, can you just talk about what sort of trends you're seeing I guess quarter-to-date sequentially in growth? I think we've seen over 20% total cycle demand for a couple quarters in a row. And I'm just wondering, can that trend continue or do you expect some lumpiness as we get into summer?
Al Altomari: So, Oren, you're stealing our thunder from my closing comments. There’s nothing we're seeing -- that's okay, and I will answer. There's nothing we're seeing in July that doesn't get us any concern. In fact, we're ecstatic with July. The momentum we've seen in the second quarter continues to accelerate into the third quarter. So far, as you said about five weeks in it, we're thrilled. So fingers crossed for the rest of the quarter like this one, but we're not surprised. We would expect that. The model that Amy built has walked you through. We would expect to continue to see momentum and that's why we reaffirm guidance and that's why we're bullish on the year.
Oren Livnat: All right. And one of the big things you talked about in the past is how this success in the non-retail channel, particularly Planned Parenthood, spills over into the retail channel, which is obviously the most profitable as you highlighted. You've seen nice sequential demand as well, near 20% in the retail as well, I think. Are you seeing that spillover or is this just traditional boots on the ground driving retail demand, or the new telemedicine channels?
Al Altomari: I'll turn it over to Amy, the expert, Oren. She will have a better answer.
Amy Welsh: Hi, Oren. Thank you for the question. Yes, we are. We saw that spillover as early as third quarter last year. And every time that we add another account on, we do some analytics in that state and we're confident when we see -- a few months after looking into it that we see the spillover continue. It's the model that we had talked about a few times, Oren, where these physicians that are in Planned Parenthood more than likely also have a private or a group practice. So the confidence that they start to gain on Twirla within the Planned Parenthood structure, they're bringing over. So yes, we continue to see the spillover. So again, when we get a new account, again, we're confident that the non-retail growth will go into the retail growth.
Oren Livnat: All right. And I guess one of the new things you announced this quarter was the non-340B non-retail accounts with FPA, and I think there was another one in there that I might have missed the name of. You said that's an important contributor for second half. Big picture, how big a channel is that as an opportunity? How many more accounts are there like that? And remind us where do they fall sort of on the profitability spectrum of your multiple channels?
Al Altomari: Yes, so I'll do profitability. Then I'll just give you kind of an overview and Amy can talk you through FPA specifically. But profitability, if we look at kind of our profitability yield, commercial cycles are still clearly our best. Next in the pecking order would be SG&A. Then we would put our Medicaid business, and then the Afaxys’ business that's a GPO business. Kind of that's our cascade. So SG&A is closer to commercial, which is a really great thing for us. Oren, I mentioned this to our team. I said, when you look at California, California is bigger than the country of Germany from a GDP perspective. So we landed not only the biggest private account in California, they claim to be -- FPA claims to be the biggest in the country. So, Amy, why don’t you take it from there?
Amy Welsh: I think I'll take the part on, how much potential is there with that one and other amounts reported to the account. FPA is a phenomenal account led by a great group of OBGYN. We just started the partnership. So we're in no way at a steady state. We're just beginning to normalize now. So there's lots of growth with that single account. But strategically, other non-340B accounts, other sort of hybrid like accounts that sit in between the commercials for the cost structure and a Planned Parenthood, 340B if you will cost structure, that's part of our new back half of the year strategy. So some more to come on that. But we were very lucky to start with an account like FPA. It's meaningful nationwide and meaningful financially for us.
Al Altomari: Maybe explain how MMCAP fits into that strategy or just the importance of MMCAP?
Amy Welsh: Yes, MMCAP serves as a GPO for Afaxys and enables their sales folks to sell deeper into colleges and universities and some government health services that Afaxys may or may not have accounts with. So MMCAP, we signed on and it's basically again a volume opener, like I was saying earlier in the call. We're looking for partnerships that can help us have access for Twirla. So MMCAP serves for us in those two channels again, that is colleges and universities nationwide, as well as government health and human services statewide.
Oren Livnat: Okay. I guess since we're talking about profitability and mix, can you talk about sort of overall value for cycle trends I guess from last quarter or this quarter, and then going forward? Obviously, both channels or all channels are growing. So it's hard for us to really guess what direction this is going. But can you give us big picture how we should think about that?
Al Altomari: Yes, I'll take a shot and I’ll let Amy comment. But when you look at the second quarter versus the first quarter, our mix of retail was stronger in the second quarter. So that's a good thing. So if you do like -- you like calculating the yield per script or yield per cycle. So what did we yield per cycle one-off in the second quarter? And that was primarily due to more I call it a favorable mix, so a quarter that's more balanced on retail and non-retail. And then, just to put a footnote on FPA, one of the things we're realizing is that when we say non-retail, that's got some shades of grey in there too now because there's a lot of differences in pricing on there. So one of the things we're concerned with [indiscernible], Scott, when he came here, he called it a hybrid, and that's what we think of as FPA, because it's kind of somewhere in the middle. So the mix is better. The pricing is stronger, which is great. And then as you saw on our comments with gross profit, we've outgrown some of the fixed allocations and COGS. So the margin is improving. So we have a better yield per script, Oren. We would expect to see that continue, if we can continue to deliver on the retail mix. And then we would expect our COGS to continue to improve as we just become more variable, if you will, in COGS. We've outgrown those things. So it was nice -- as I commented in my talk, we're throwing off a margin now. That's starting to get pretty significant. And that's why we continue to see us zooming in on throwing off cash in this business, so that's a nice thing. So as our revenue grows, our COGS become more efficient. And then we continue the partnering model that Amy built, hopefully the OpEx stays referral [ph] to the zip code we're in. And that's why we can close the gap. That's why we feel the top line and also our ability to start generating cash off this business.
Oren Livnat: You anticipated my next question --
Al Altomari: Every metric is looking better more and everything is kicking in nicely.
Oren Livnat: You actually anticipated my next question which is can you just remind us sort of how your fixed cost base on the COGS side, the magnitude of that, such that even though regardless of your weighted -- and even if you had a flat net value per cycle, how fast your gross margin can grow just with sales as they increase. What's your quarterly underlying fixed, I guess, emporium commitment versus your variable costs? And just to layer on to that -- sorry, just to interrupt, and a fact that you mentioned performance-based incentives. I'm just wondering as that non-retail channel grows, do they get a bigger piece of the gross to net?
Al Altomari: Yes. So let's do COGS first. As we mentioned, we've reduced our -- if you look at -- one of the most impressive things I think on our P&L is if you look at our OpEx spending six months ago, the first six months of last year versus the first six months this year, I think it's eye opening how much OpEx we've taken off the board. So that's the model Amy described. But also, Oren, we've been able to reduce our fixed costs internally that we were allocating in the COGS. What we're allocating in the COGS is people cost here to help run the business. So look, we've been able to reduce that too. So the effort to reduce OpEx hit not only the SG&A lines, but it also hit COGS. So the good news is there's not much allocations going forward, going gone in the COGS anymore. There's a little bit, but for the most part, it's going to be variable. That's why we're signaling and that's going to continue to improve. The reductions in -- the incentives Amy describes in our relationships with people like Afaxys are offsets of sales. So they run through the net sales line. So that's where you'll see that so. The cheaper ones are -- the GPO business on the Afaxys relationship, that's becoming less of a big portion of our mix, as Amy brings on people like FPA and grows the retail. So that's what I'm referring to as mix. So all those incentives are running through the reduction of sales, so even with those, we're then able to increase our yield per cycle, if that makes sense. So the model is becoming efficient, Oren. I'll leave you with that. It’s just becoming efficient. Just everything we're doing now gets even more efficient as this model really takes shape. Our partners, as Amy mentioned, are incentivized to grow our business or they don't get paid. It's just that simple for the most part. And so their incentives are aligned with ours. And in the meantime, we can keep our fixed costs in general across the whole P&L leaner.
Oren Livnat: A segue into my next question like you're looking at my page here, speaking of the incentives of your partners to do a good job, how are the telemedicine channels working out so far? Nurx and others, I think Nurx has been on board for a while in terms of partnership, but I think maybe last quarter, you talked about sort of it just being turned on or being fully trained up and ready to go. How are they doing in terms of I guess you could call it promoting the products, maybe not per se? But when women go into the Nurx channel, how are they doing with regards to offering Twirla as an option for appropriate patients, and are they hitting the targets that they or you had set in that arrangement?
Amy Welsh: Yes, I'll jump in, Oren. Thank you. All of our telemedicine partners -- we're lucky to have a great partner, Nurx. You're right. We signed them at the end of last year. And they officially now offer through their distribution channels our patch and their only patch that they send out, and that started in May. They're growing month-over-month-over-month. It was a bit of a slow start because of some of the structural changes that were happening on their end, but they have now a solid team. And I'm pleased when I look at their growth week-over-week. Again, we're very lucky to have them as a partner. We just signed on Twentyeight Health, so early days there. But again, we always see growth. I think the best thing about our telemedicine partners is it's a channel that is meaningful to the women, our age group 18 to 24 year olds, so it’s always going to be available for them. And branded products, Twirla has kind of broken the ceiling a bit and been one of the first branded products offered on these channels. So the negative about that is we help them set up a process. The positive about that is we stand there alone. But it does take a while sometimes, but we see growth and I'm more than confident in the back half of the year. We're going to make up any type of slowness, because of some of the training and the process changes that happened in the first part of the year. The upside, a lot of the upside in retail will be due to telemedicine.
Oren Livnat: All right. Bigger picture, Washington activities have been interesting. We've seen maybe the third executive order to come out of this administration related to women's health and specifically coverage or lack of coverage of contraceptives. Al, you're down there a bunch, I think. What's going on there in terms of words versus potential enforcement actions that they've been hinting at for a while? Do you expect anything to change, especially as we're heading into an election cycle where women's healthcare is such an important part of this narrative?
Al Altomari: The answer is yes. I don't think it was a surprise to us, the symbolism of that executive order being on the Roe v. Wade anniversary. The Biden administration clearly is signaling that women's health in the broadest sense is important to them. The Roe v. Wade or the abortion discussion on boards is a very complicated discussion. So they see contraception -- we believe they see contraception as an important win for women. So that executive order, as you saw, including us, but also including things like TRICARE, which is the military Medicare, I'm sorry, Medicaid. So it probably had a five-point plan. So contraception needed a lot of work. So based on my discussions, we believe that the right thing to do is to clarify once and for all that products like us that were approved but don't have generic equivalents need to get access to this country. So we believe that that's coming. I can't tell you when. I don't know when. I shouldn't say. I would tell you if I thought I had a handle on it, because it's a different pace in Washington than I have. But what I think we've tried to communicate here is that that is an upside to our investors. What we created is a sustainable growing model that's growing in every channel and Amy's put a stake in, Oren. So we still believe that's upside to us. We believe it's coming. We don't think, Oren, personally I don't believe enforcement is the answer. Because while there's three PBMs that control a vast majority of lives in this country, it's up to every plan under them to administer this thing, so it's unwielding. You could say it’s PBMs, and that's true. But the implementation of the Affordable Care Act has really been the downstream plan. So we think that enforcement is a bit chasing of a tail. We think to get regulations out clearly stating what I just said I think is the ultimate answer. And then we would expect there's going to be a lot of oversight from the administration, and also the agencies that monitor this. I think that enforcement will be on the back end of this new regs, if you will. So I think it's coming on. I have high degree of confidence. I don't want a guide to something I don't have control over. But I think it's coming. But in the meantime, you should know we’re just blowing out to third quarter, and that will put more wind in our sails.
Oren Livnat: All right. Well, I think that's it for me. I appreciate your patience with all the questions.
Operator: All right. As at the moment, I do not see any other questions at this point. I would like to turn the conference back to Al Altomari for closing remarks.
Al Altomari: Great, thank you. So, Oren, thank you for the thoughtful questions. You look like you preempted a couple of the callers, which is great. I guess my final thought is that in a statement I would say the proof is in our progress. We're not saying this is going to happen. We're saying this is happening. For the first six months of this year versus the first six months of 2022, you saw on our data that net revenue is up 140%, OpEx on the other hand is down nearly 38%. And as Oren asked me, based on what I've seen of the third quarter so far, Amy and I feel great about the momentum is still continuing. We say that time-in and time-out, but come in and have record quarters and every metric that's important to us. And the momentum that we're seeing isn't in any one channel. It's in all the channels. Retail continues to grow. Non-retail continues to grow. As Amy mentioned in a question Oren has asked about telemedicine, the momentum theirs is growing. So we're just layering on in all our channels continued growth, because we're on a quest to once and for all, first of all, hit our guidance we've given you for the year. So hopefully to see why we're confident in that based on this quarter's results. And the ultimate prize is [indiscernible] cash off this business. So thank you for your attention. Thank you for following our story. And we appreciate you staying close to us. Thank you, everybody.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
