Agile Therapeutics, Inc. (AGRX) on Q3 2023 Results - Earnings Call Transcript
Operator: Good morning, and welcome to the Agile Therapeutics Third Quarter 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: Thank you, operator, and welcome to everyone joining us on today's call. With me today are Al Altomari, Chair and Chief Executive Officer; and Scott Coiante, Chief Financial Officer. Our Chief Commercial Officer, Amy Welsh, will also be available for the Q&A portion of today's call. Our prepared remarks today will include forward-looking statements based on current expectations, including statements concerning our financial outlook and financing prospects for the future. Our outlook for the fourth quarter 2023 and first quarter 2024, management's expectations for our future financial and operational performance including our expectations regarding the market growth of Twirla, our operating expenses, our business strategy, our partnership with Afaxys and its ability to promote growth, our relationship with telemedicine providers and their ability to make Twirla broadly available to patients and our assessment of the combined hormonal contraceptive market generally, 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 the 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. And with that, I'll turn the call over to, Al.
Alfred Altomari: Great. Thank you, Matt, and thank you to everyone for taking the time to join our call this morning. In the third quarter 2023, we once again achieved all-time highs across several leading indicators, including net revenue, Twirla demand, factory sales and gross margin. The combination of continued strength and execution and increasing momentum gives us confidence that we will achieve our 2023 net revenue goal of at least $25 million. And, today we're announcing that we expect to generate positive cash flow from operations with our single product Twirla in the first quarter of 2024. It's been approximately one year since we recalibrated our business plan to emphasize partnerships that maximize total growth, while simultaneously managing our operating expenses or OpEx levels. In the past year, we've seen consistent quarter-over-quarter improvements across all of our key performance areas, and we believe there is room for additional growth both in the fourth quarter of 2023 as well as into the first quarter of 2024. I'll now get into some of the details of our third quarter 2023 performance that supports our confidence in achieving our 2023 net revenue goal and generating positive cash flow from operations in the first quarter of 2024. Net revenue, third quarter 2023, net revenue was $6.7 million, which represents a 21% increase from the second quarter of 2023. The continued increase in net revenue was primarily driven by our ability to once again accelerate Twirla demand across both the retail and non-retail channels. Twirla demand for the third quarter 2023 was 74,325 total cycles a 33% increase from the second quarter of 2023, a new single quarter record. Retail demand as reported by Symphony was 40,196 total cycles, a 13% increase from the second quarter of 2023, also a single quarter record. Non-retail demand was 34,129 total cycles, a 71% increase from the second quarter of 2023. As a reminder, our non-retail demand is comprised of data from both Symphony as well as our wholesalers. Factory sales for the third quarter 2023 as reported by our wholesalers with 74,424 cycles, a 20% increase from the 61,770 total cycles that were reported in the second quarter of 2023. Gross margin, along with our growth in sales and demand, we continue to make progress towards our goal of generating gross profit, which has become a more meaningful part of our story as we approach positive cash flow from our operation. In the third quarter of 2023, we generated gross profit of $4.2 million or gross margin of 63% compared to $3.2 million or gross margin of 58% in the second quarter of 2023. As our net revenue levels increase and our OpEx level remains steady, we are focused on increasing both gross margin and gross profit as we expect to see continued improvement moving forward. OpEx for the third quarter of 2023 were $8.2 million, a 2% decrease from the $8.3 million reported for the second quarter of 2023. Early in the call, I alluded to recalibrating our business plan approximately one year ago. The recalibration focus on the following: building a scalable commercial platform without adding fixed costs by driving Twirla in the five key states that have strong reimbursement profiles and are estimated to reach approximately 45% of the women, 18 to 24 years old. And collaborating with our partners who we believe can drive additional Twirla growth by expanding our distribution channels. Compared to the first nine months of 2022 versus the first nine months of 2023, our recalibrated business plan has delivered the following: Net revenue growth a 132%. Twirla demand growth, 156%. OpEx reduction of 31%. The growth that our plan has delivered to-date affirms our belief that our model is sustainable and we expect to see continued Twirla growth in both the fourth quarter and into 2024. We see additional growth and upside potential coming from the following areas: First, further penetration in the five key states, we believe there's room for growth through increased penetration into our prescriber base in these states, as well as focusing on converting current non-writers of Twirla. Second, additional volume from Afaxys customer network, while we grew non-retail demand, an impressive 71% from the second quarter of 2023, to the third quarter 2023, we estimated that we are currently reaching less than 20% of the total Afaxys customer network and plan to tap into additional non-retail volume moving forward. Third, advancing Twirla through telemedicine platforms such as Nurx, TwentyEight Health and Pandia are all part of our strategy to sustain growth in the retail channel, our most profitable channel. Before we open to Q&A, Scott will comment on a few other financial results, which we believe also demonstrate continued progress for our business and fiscal discipline. We’d also encourage you to read the press statement and our Form 10-Q for a broader review of all our financial results for the third quarter of 2023. I'll turn it over to, Scott.
Scott Coiante : Thanks, Al. Cost of goods sold, which consists of direct and indirect costs related to the manufacturing of Twirla sold were $2.5 million, resulting in a gross margin of 63% for the third quarter of 2023, compared to $2.3 million or a gross margin of 58% for the second quarter of 2023. We ended the third quarter of 2023 with cash of $2.9 million. In addition to our existing at-the-market or ATM arrangement, we will continue to evaluate all available options to finance the company. Our GAAP net loss was $0.8 million or $0.27 per share for the third quarter of 2023 compared to a GAAP net loss of $3.8 million or $2.15 per share for the second quarter 2023, and a GAAP net loss of $5.9 million or $8.01 per share, for the comparable period in 2022. Non-GAAP net loss was $4.3 million or $1.47 per share for the third quarter of 2023 compared to a non-GAAP net loss of $5.5 million or $3.10 per share for the second quarter of 2023, and $19.7 million or $26.58 per share for the comparable period in 2022. The company incurred a one-time non-cash operating expense charge of $11.1 million, in the third quarter of 2022 related to the transfer of equipment ownership to Corium, which was reflected in the net loss for the third quarter of 2022. The non-GAAP results reflect the exclusion of the fair market value remeasurement of warrant liabilities, which resulted in other income of $3.5 million in the third quarter of 2023, $1.7 million in the second quarter of 2023, and $13.7 million in the third quarter of 2022. We once again set single quarter record highs in demand, net revenue and factory sales, all while reporting another quarterly decrease in operating expenses. This continues our quarterly momentum for Agile, but we are now excited to articulate where we believe our results are taking the company, achieving our 2023 net revenue goal, generating positive cash flow from operations in the first quarter of 2024, and delivering continued growth in 2024. We believe our continued focus on revenue growth and fiscal discipline can lead to continued improvement in our gross margin, which can in turn help us to begin to generate positive cash flow from operations, and put us in the position of having options about how to invest that future cash. We'd 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] One moment for our first question, is from Oren Livnat from H.C. Wainwright. Please proceed with your question.
Oren Livnat: Thanks and congrats on a continued growth in Twirla. I have a few, I appreciate the refined outlook you gave us, specifically highlighting the $25 million minimum sales this year and, Q1 breakeven. I'm just curious, at what quarterly or annual sales run rate or exit rate from 2023, do project needing to breakeven? I guess I'm asking is, where do you see your current the margin and OpEx profile at that point and going forward? And I have several follow-ups.
Alfred Altomari: Yes. Oren, it's Al. First of all, thanks for joining us. Yes. I think you see two things, with this business, continued growth a momentum on the topline. And we're hitting a point of leverage. We're seeing continued improvement on the margin both in real dollars, nominal dollars, but also as a percent. So, we would expect, as Scott mentioned in his comments that would continue to improve. So, when we project out margin improvement, if you will, as a percent, and growth on the topline, we think we're on that glide path in the first quarter, so that, in effect, those lines in path cross if you will. It's kind of a little bit of a [yinyang] (ph) or in that grows on the topline as always your best friend, but also margin improvement. Because I think we've tried to educate the street for the last year or so. Some of the charges we take to the margin are fixed costs. So, as we grow, we just hit points of leverage. So, basically when we look forward and saying, okay, what's the glide path we're on sales and demand? And what's our ability to manage in effect the fixed expenses, both in the OpEx line, but also on the margin, we see it crossing in the first quarter. I'll let Scott, is that --
Scott Coiante: That's fair.
Alfred Altomari: Okay.
Oren Livnat: Yes, makes sense. As we think about continued growth through the rest of this year and into next year, where do you think the biggest contributions are going to come from? I mean, obviously, we've seen Afaxys do a great job. Retail has sort of been steady as she goes at least as far as the, IQVIA scripts that I track. Is there anything you can do in your view in the five states strategy to accelerate the retail business, or should we think of that as sort of a, hopefully, a straight line grower and continuing to add on other new lines of business?
Alfred Altomari: Yes. I'll queue up, Amy, but I think what gets me excited about the retail is I'm going to call it the synergies. We're starting to see in between the non-retail and retail to spill over. And Amy's got some more information she'll share with you all about that. So, that's where, the non-retail business, if in effect, it helps accelerate our retail business. And the other thing that gets me excited also is the channels, specifically telemedicine, I literally believe we're only scratching the surface there. This is a channel that we rely on partners and, as you know Nurx was acquired by Thirty Madison, so we went through an acquisition period of time. So, we're just starting to hit our stride there. So, when I looked at the business forward, deeper in the five states, more market share, as we alluded in my comments, but the synergy of the non-retail channel and the specialty farm and then look, I mean, we try not to overdo this, Oren, but, we believe that the ACA will get fixed. We believe we're on the goal line of that turning around. And I think that just adds layer of acceleration that both on our margin, but also on the topline. So, that's what gets me excited. I don't know, Amy, if you want to comment.
Amy Welsh: Yes. You made that much tough to add to. That was very well said. I'll maybe add some more context to Al’s point, the reason why I believe in the spillover is we had a, recently another large account in the Q3, timeframe for non-retail. We did some measuring, and we saw that that help to grow in that area in one state alone, about 60%., right? So, I think non-retail continues to be the bridge that strategically we wanted it to be to improve, retail, confidence with Twirla and offices perhaps where they haven't even been prescribing it. So, as we continue to add more accounts that we are seeing true spillover and, partners like the Nurx who have been doing a good job this year. We're looking forward to partnering even better and maybe even having a bit of a broader reach, in ‘24. Now that they've stabilized and we have some good systems in place moving forward. So, and that's just the couple of things that you know about, we're constantly looking at other ways to improve. So, really for me it's about optimizing the partners that we have. We have just begun to do well with them. So, I know we can do better.
Oren Livnat: Okay. If I may, you mentioned now that you're on the goal line for ACA, really confident there. That seems like a change in tone, I think, from past calls where, you thought Washington is Washington, and see what happens, but it's not something you're, basing your expectations on. And, is there a change of tone there or something is something improved on that front?
Alfred Altomari: Yes. I mean, there is. How do I dance around this without being too political? I mean, look, it’s hard to ignore the last couple days in the country. I think reproductive rights are on top of mind everywhere in this country. So, Washington, I believe we do direct lobbying, including myself, with the folks that actually make these decisions, are looking to put up a win for women in this country. And brought in the reproductive rights, what's interesting in the state we live in, or working, I should say, New Jersey, just put a very ACA like mandate in place that, so we see the state stepping up. We -- but also the there's a lot of people leaning into this and telling DC this has got to happen, because one of the things that was really interesting and wanted to congressional reports has studied this is unfortunately, who gets hurt worse by denying women coverage of brands is disenfranchised women and women of color. They get hit hardest in this country, and it's time for that to stop. So, I think our are drum beat, and as this is a unifying principle between all the competitors, if you will, in this space, we're all leaning into this. It's just, but I'm proud to say the work we've all done, I think, is on the goal line. So, our net, I so, yes, I feel more bullish, but we made a commitment to you and the street that we would not use that as an excuse for not getting to the goal line. We'll get to the goal line without it. And this is on the morning after, this just throws a little bit of gasoline on what we hope is a hot brand already.
Oren Livnat: Alright. Thank you so much.
Operator: Thank you. [Operator Instructions] One moment for our next question please, comes from the line of Naz Rahman with Maxim Group. Please proceed.
Naz Rahman: Hi, everyone. Congrats on the progress, and thanks for taking my questions. I have a few. To touch on a point you just made, since President Biden issued that executive order over the summer, I believe the TRI Department is responsible for issuing additional FAQs regarding contraceptive reimbursements. Do you have any updates on potentially the TRI Department’s progress or any potential timelines among when we may see additional FAQs and what they may look like?
Alfred Altomari: Yes. Thanks. Thanks, Naz. Yes, excellent question. I mean, just to reeducate everybody, Naz, alluding to the TRI Departments. It's really three departments in the government that regulate our insurance industry and/or the Affordable Care Act, Health And Human Services, Treasury and believe it or not Labor. So, probably goes back to our days as in the unionized systems. But if you're thinking them as the TRI agencies, the quarterback is how is helping Human Services since we're in football season, I can use quarterback. Health and Human Services, that's the primary responsibility of issuing the guidelines. So, unlike, when we see what's going on in our country, this doesn't have to go to the floor of Congress or the Senate to be debated. These are guidelines that need to be issued by Health and Human Services to clarify and really put into guidance, if you will, what Biden said in his in the executive order. What Biden said in his executive order that gets us excited is, on the Affordable Care Act, if a physician, if we weren't on formulary or a drug wasn't on formulary, physicians had to go through this onerous prior authorization letters of medical necessity, which is in direct violation of Affordable Care Act, at least a spirit of what that act should be. So, to make the system work better, Biden suggested in, Congress believes they're right saying, let's just make this easy. If you have an approved drug for contraception that doesn't have a generic equivalent, you get, no cost sharing or in effect your own formulary. That just makes the whole system work better. And then when you lose your exclusivity, it's up to the plan to decide whether your own formulary though different than other formulary decisions. So, that's what we're waiting for. We're waiting to see what Congress and the oversight committees had recommended get adopted by Health and Human Services. And the reason I'm bullish Naz, it doesn't have to go to the floor of either house for debate. It gets into the guidelines. And then, to be fair balance, we've got to see the insurance companies and their PBMs adopt these guidelines once and for all. And we're hopeful that after, in this time, the President getting involved in this, we hope that they'll comply. So, that's the watchful waiting we're in right now. So, we believe Health and Human Services is getting a lot of inquiries about this, lot of attention. The Secretary [Pacira] (ph) is certainly aware of this. He was in California where he put a lot of these laws in place, and then the interesting party is married to an ObGyns. So I'd hopefully, he's getting a little help at home on this issue of what an ObGyns is going through.
Naz Rahman: Thanks for that color. And on that point, based on your contacts and everyone you've been speaking to, do you think there's a greater sense of urgency to get this done. Like, let's call in the first half of ’24 just because we're entering an election cycle to, like, I guess, mitigate --
Alfred Altomari: Yes.
Naz Rahman: The risk administration change?
Alfred Altomari: Yes. Now I'll go into the world of what I believe. And, yes, I think I believe that personally, and I believe our management team believes that from a practical point of view, it's a lot easier doing it ahead of election cycle. This is something you don't want to leave on the table. So, yes, if there seems to be a sense of urgency of kind of getting your house in order, on the eve of an election, so, yes, I believe that plays into it. Again, I want to be fair balanced. There's two other issues that take a lot of mind space down DC, clearly abortion, takes a lot of reproductive health mind space this issue. And now we have an over to counter product for the first time. How does that get reimbursed? And that's a very complicated subject. So, these are all issues that are being dealt with and parallel. I believe a lot of what we've been held up by is because of what happened with Roe V. Wade. That took a lot of the mind space down DC of how to handle that. What can the federal government do? So, we think we're out of that. So, we think that, we're rising to the top, reproductive health, and the contraceptive sectors coming up, and then that's evidenced by the Biden executive order.
Naz Rahman: Thanks for that. And to dig a little deep on, Twirla’s performance to-date on this quarter, I know you talked quite a bit about the script growth, but could you provide some commentary on prescriber growth from Twirla? Like, how much are prescribers increasing? And how much of the growth do you think is due to just script yield versus prescribers at this point.
Alfred Altomari: I'll let Amy handle it. I'll collect it out.
Amy Welsh: Yes. It's a great question to us because we recently were looking at that. So, we were coming here at the end of the year, and what we're starting to see is, or we're now understanding better. Most of our growth is coming from the new prescribers. And what that means is new patients. We're seeing about 50%, 51% of our total scripts, week-over-week, month-over-month are coming from naive, our new patients. From a retail perspective, as a quarter, I know we already went through the data on the slides of Al, but we see a little over a 100 new prescribers each week. Some weeks, we see more, which is good, but that's pretty much an average. So, let me know if I've got -- or if you need any additional call on what I've already said, Naz.
Naz Rahman: Yes. Those prescribers, the new prescribers, do you find them consistently writing new scripts?
Amy Welsh: We see them coming in as new? Yes. They're finding a patient that they think is a Twirla patient rather than switching from, a patch to a pill. That's how they're getting their first, confidence with Twirla. And then we see them after that, they'll add more new, and then we see them starting to give us patch and pill. But to me that's good. That's good because, like, the patients that are coming in on their annual visits may or may not be talking about wanting to switch. So, what these physicians are doing is finding patients that want to get a new contraception, their thinking control is perfect for them. So, yes, these are 100 new prescribers or so a week are starting off typically putting Twirla on with a naive, female patient.
Naz Rahman: Got it. Thank you. And my last question, regarding this quarter, it seems like the growth in the retail channel and factory sales were -- the quarter-over-quarter growth there was slower than it was in 2Q. Do you have any idea or comments around why that is, or is that just kind of an effect in Nurx?
Alfred Altomari: No. We don't. No. This is going to be a little complicated, so bear with me. I mean, Amy and I were talking this morning and a lot of times they tell them prescribing doctors don't get reported in this Symphony. So, we know we have a little bit more growth than you're seeing, but for right now, we just want to kind of leave that off to the side until it's got a bigger head of steam. So, we know we're doing our puts, better than Symphony's reporting in the retail channel. But that said, we shouldn't be I'm not, at all disappointed with putting off double-digit growth. And, look, if you look around the sector, and just look around women's health or specialty pharm. I mean, consistently putting up double-digit growth on a quarter-by-quarter basis is no small feet, but particularly as our business gets bigger, Naz, look, it's harder to beat a bigger number, right? So we and they're all the leading indicators, if you will, make us feel like we're heading in the right direction when Amy was saying spillover, so we see little insights and clues that would say we're not done yet. But to your question you asked, I mean, clearly, as Amy mentioned, new writers are great, existing writers are writing more is even better. So, we focus on getting our existing writer base to write more. So roughly, we have ample number of physicians to grow this brand to a big level. We just got to get them to write more. And we think some of that resistance is related to the frustration with the Affordable Care Act. In general, brands frustrate them in this category. So, Amy built a network of specialty pharm that help, but that that guidance will help more. But in the meantime, we're excited with the growth we're seeing. In retail, based on some of the analytics team is doing, it's more common.
Naz Rahman: Okay. That was helpful. Thanks for taking my questions and congratulations on the progress.
Alfred Altomari: Yes. We appreciate it.
Operator: Thank you. And this concludes the question-and-answer period. I will turn it back to Al Altomari for final remarks.
Alfred Altomari: Well, thanks, everybody. This will be kind of a bit reflective of the year. When we first talk to you about our ambitious goals of putting up as much as $25 million plus this year, and we showed you the first order, which was $3.8 million. Look, truth be known, a number you called me and said, how are you going to get there? How are you going to get there? And then concurrently, we said we're heading to profitability. That appeared to be a steep mountain we were having to climb, but this management team believed in this brand and the indicators we were seeing. So, that led to us posting $5.5 million in the second quarter now $6.7 million. And, we're still saying we think we can get to $25 million. So you could do the math. We expect to see big growth in the fourth quarter and that should expect us moving forward into the first quarter. We continue to see growth. So, we're just excited to be here at this moment. And then looking forward, kind of the happy thought, when we look at the business and saying, okay, we could be a company throwing off cash next year, and we expect it to be, but we called that no our the days of, having an interesting decision to make as a company is what do we do with that cash? Do we let it accrue? But I believe we have four opportunities to grow this business even more. And this is the debate we're beginning to have on the eve of this, hopefully, happy thought. Number one, our partners work. So, should we invest more in our partnerships? Number two, our salesforce works and works well. Should we do more with the salesforce? Amy, early on showed you a digital works. What should we do there? And but strategically, we also say we need to have more of a broader offering. We need to have one-on-one product. So, this is the debate we'd love to have with ourselves and eventually bring in. But for right now, we're not done. Our short-term goals we've got to post $25 million, and then we've got to show you that we can get this business to throw off cash, but we have a high degree of confidence. And then Oren’s question to me and Naz, as of my confidence that the days for this business look better ahead, but with the environment with the ACA, that just is gravy, but you have our commitment, we'll get there, without the help of DC. Now with that said, we'd love Secretary Pacira in DC to help us and help this category let women get contraception and that their physicians want them to have. So, thank you for your support. Thank you for your challenges of the team of saying, can we get there? We're almost there and then we'll rest up and do it again in ‘24, but thank you for support. Thank you for your tough questions. And, you made us a better management team, but thank you.
Operator: And thank you all for joining our call, and you may now disconnect.
