TherapeuticsMD, Inc. (TXMD) Q1 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for joining us in the TherapeuticsMD First Quarter 2018 Financial Results Conference Call. Following prepared remarks from the company, we will open the call for questions. I would now like to turn the call over to TherapeuticsMD's Director of Investor Relations, David DeLucia.

Good afternoon, everyone. Thank you for joining today to discuss our first quarter 2018 financial and business results. This afternoon, TherapeuticsMD issued a press release announcing first quarter 2018 financial results. The press release is available on the company's website, therapeuticsmd.com, in the Investors & Media section. On today's call from TherapeuticsMD are Chief Executive Officer, Robert Finizio; Chief Financial Officer, Daniel Cartwright; Chief Clinical Officer, Dr. Brian Bernick; and Chief Medical Officer, Dr. Sebastian Mirkin. I would like to remind everyone that certain statements made during this conference call may be forward-looking statements. Such forward-looking statements are based upon current expectations, and there could be no assurance that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release and our annual, quarterly and other reports filed with the SEC. These forward-looking statements are based on information available to TherapeuticsMD today, and the company assumes no obligation to update statements as circumstances change. An audio recording and webcast replay for today's conference call will also be available online in the Investors & Media section of the company's website. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 3, 2018. With that, I'll turn the call over to TherapeuticsMD's CEO, Rob Finizio.

Thanks, Dave. Good afternoon, everyone. On today's call, we'll review the following developments in our prepared remarks and then open up for Q&A. Dan will start with a review of our financial results and our announced debt deal; then Dr. Mirkin will provide a regulatory update for both clinical programs. And lastly, I'll discuss the progress we've made on the commercial front as we prepare for potential approval and launch of TX-004HR. Let me now turn the call over to Dan.

Thanks, Rob. First quarter 2018 financial results are included in the press release issued today. Let me summarize a few key points. Net revenue from the company's prescription prenatal vitamin business was approximately $3.8 million for the first quarter of 2018 compared with approximately $4.0 million for the first quarter of 2017. Total operating expenses for the first quarter of 2018 increased compared with the first quarter of 2017. These changes primarily reflect an increase in pre-commercialization expenses as we move towards the launch of TX-004HR in the third quarter of this year, if approved. R&D expenses during the first quarter of 2018 were approximately $7.0 million compared with approximately $7.7 million during the prior year's quarter. This change is a direct result of the completion of the REPLENISH trial for TX-001HR. SG&A expenses for the first quarter of 2018 were approximately $20.8 million compared with approximately $16.8 million for the prior year's quarter. This is primarily due to higher sales, marketing, personnel costs to support future commercialization. We have expanded our women's health sales force to continue to invest in pre-commercialization activities to support the potential launch of TX-004HR in the third quarter of 2018. We expect these factors to increase the growth rate of our SG&A expenses throughout 2018. Turning to the bottom line. Our net loss for the first quarter of 2018 was approximately $24.4 million or $0.11 per basic and diluted share compared with approximately $21.2 million or $0.11 per basic and diluted share for the first quarter of 2017. We finished the first quarter of 2018 with approximately $107.3 million in cash, compared with approximately $127.1 million at December 31, 2017. Cash burn was approximately $19.8 million for the first quarter. This afternoon, we announced the closing of a five year $200 million non-dilutive term loan financing agreement with MidCap Financial, which is managed by Apollo Capital. The term loan will be available to the company in three tranches following specific milestones throughout 2018 and 2019: initially, $75 million upon the approval of TX-004HR; then $75 million upon the approval and launch of TX-001HR; and finally, $50 million upon meeting certain sales milestones in 2019. Upon drawing the capital, the loan will accrue interest at 1 month LIBOR plus 7.75%. Currently, LIBOR stands at approximately 1.9%, equating to an interest rate of approximately 9.65%. The maturity date is May 1, 2023. Completion of this deal secures non-dilutive financing to support the launch of both of our late-stage product candidates. We have structured our loan to provide flexibility for the company and our shareholders by not drawing funds until they are needed while minimizing interest cost associated with the debt capital. We did an exhaustive search during our debt financing process, and we chose MidCap Financial for 3 main reasons: a competitive interest rate currently under 10%, a non-dilutive loan with no equity or warrants attached and flexibility to draw capital when the company actually needed it. We believe that MidCap Financial is a strong long-term partner for our company, and we are very excited to add them as our new debt stakeholder in TherapeuticsMD. Further information on the loan arrangement is available in the Form 8-K filed today. Let me turn the call over to Sebastian for our clinical and development update.

Thanks, Dan. I will now provide a regulatory update for our TX-004 and TX-001 clinical programs as well as our scientific presence in key medical meetings throughout 2018. Regarding TX-004, on April 11, the company announced that we have entered label negotiations with the FDA. We still expect an approval decision on our current PDUFA target action date of May 29, 2018. At this time, we're not going to comment further on the label negotiation process. Turning now to TX-001. We successfully submitted the NDA for TX-001 at the end of last year. On March 8, 2018, the FDA formally accepted the NDA. And at that time, the FDA had not identified any potential review issues in the application. The PDUFA target action date for TX-001 is October 28, 2018. Lastly, we have a busy year ahead of us with numerous presentations of upcoming medical meeting. At ACOG last week, we participated as a cosponsor presenting 2 abstracts. We will have a strong presence during the World Congress of Menopause, where we will present seven abstracts related to TX-001 and TX-004. We also expect to have a very strong presence during the North American Menopause Society 2018 Annual Meeting in October presenting novel data related to our products in 11 abstracts. With the potential for 2 FDA approvals in the next 6 months, 2018 is the most important year for the clinical, medical and regulatory teams at TherapeuticsMD. We're excited with our progress, and I would like to thank our teams for all the hard work. Rob?

Thanks, Sebastian. This past quarter, we've been focused on our launch strategy, staffing and have made significant progress. In the first quarter, we completed the hiring of our 150-person sales force on top of the 15 regional managers we have in place today. Our expanded sales force continues to be focused on non-branded VVA disease state awareness. We structured our sales force so that each rep has approximately 125 VVA writers to call on. The main goal of our campaign is to educate providers about the prevalence and impact of VVA among menopausal women in the U.S. The campaign also offers an opportunity for our reps to learn the physician's and the office staff's understanding of the VVA disease state, how they treat and the most important aspects of the current treatment paradigm. This understanding will allow our sales force to engage effectively at launch of TX-004HR, if approved. In addition, patient affordability is a top priority for launch. We have implemented a new co-pay assistance program that will eventually apply to all TherapeuticsMD products. This experience with our prescription prenatal vitamins will help guide the introduction of the co-pay program for TX-004HR as well as to help address any issues related to patient out-of-pocket costs. Keeping co-pays easily affordable for patients and pricing competitively for payers will complete our positioning strategy for the launch of TX-004HR, if approved. In addition, our channel team has done a great job preparing for retail stocking and distribution of TX-004 with large retail pharmacies, compounding pharmacies, distributors and wholesale partners for launch. Finally, on the payer side for both TX-004 and TX-001HR, we currently expect commercial insurance to take approximately 6 months after approval for reimbursement to be in place with most plants. Given the industry-wide issues in this area, we feel this is a very attractive dynamic for TXMD. Our direct discussions with commercial payers related to TX-004HR have been received positively due to the unique physical characteristics and user experience as well as the potential for a new lower effective dose product. We do not expect prior authorizations or step edits to be implemented for commercial payers even with the introduction of generics for both Vagifem and ESTRACE as long as TX-004 is priced competitively to current branded products and offers a new lowest effective dose. The VVA class remains an open category, and the payers have been very receptive towards TX-004. Our market access team has done a tremendous job preparing the company for a robust market access in 2018 and beyond. Due to the FDA label negotiations for TX-004, we will remain in a quiet period until our PDUFA action date. We will most likely not participate in the Deutsche Bank Conference as well as the Bank of America Conference in May. We do apologize for any inconveniences, but we've been looking forward to this process for well over a year. Now that our non-dilutive debt financing is secure, we can focus on our transformative catalyst throughout the remainder of 2018. Our PDUFA date for TX-004 is May 29 and, if approved, becomes the new lowest effective dose for the treatment of moderate to severe dyspareunia due to VVA. We're also planning to host a commercialization or analyst day post approval of TX-004 but before launch. We look forward to announcing the finalized date soon. We also remain on track to launch TX-004 in the third quarter of 2018 assuming approval. Finally, our PDUFA date for TX-001 is October 28 and, if approved, the launch of TX-001 will be as early as the first quarter of 2019. So by this time next year, TXMD has the potential to have both of our late-stage products approved and launched, delivering on our promise to bring innovative, bio-identical and new lower dose hormone products to this large underserved and growing market of postmenopausal women. We'll now open up the call for Q&A. Operator?

Thank you. [Operator Instructions] And our first question comes from Annabel Samimy with Stifel. Your line is now open.

Hi, guys. Thanks for taking my question. So I just want to square what you said earlier. You don't expect reimbursement for six months, but you're launching in the third quarter. So we probably shouldn't be expecting any sales until fourth quarter? How do you see this playing out? Can you just go back to those comments also that you made about your reps going to physicians' offices, training them about VVA? And then are you doing an official launch after that six month time frame and that 6-month magic window? So that's the first question. Second has to do with, I guess, any discussions that you're -- any updates or discussions that you're having with compounders for VVA specifically? And for TX-001, if you're doing any differently to prepare for that launch next year? Thanks.

Anabbel, it's Rob. Thank you. So yes, it takes up to 6 months for most major payers to come on, that's vast majority of them. It doesn't take exactly 6 months. It's up to 6 months, just to be clear. So as we've talked about on our last presentation publicly, the -- so we plan on launching in Q3. We're not going to wait for that six months to go by before we launch. So you'll see initially the scrips move. And after that six months time frame, you'll see the gross to nets kind of inverse as the payers come on. And so after that 6-month point, which should be approximately January post-approval, you should see the gross to nets reverse and things begin to come in, in a very positive nature. So we're really excited about that. We think this is a refill game. This is a compliance game. And we also like the way our products is positioned here. So we've had a really, really good interaction with payers so far and we're not worried about that side. So we're going to get it out and get the compliance going as soon as we can and offer this new experience to women. As far as to what the reps are doing today, so the non-branded campaign allows the reps to get out. So as you know, we are fully staffed. So all 150 reps for the most part are on board. They're divided into 15 regions throughout the country. Each rep has about 125 physicians in their territory. So by the reps going out in understanding what the doctors, what the nurses, what the office staff, how they treat VVA, what their awareness is, do they understand what PKs are, do they understand how uncomfortable this is to women, what's important to that nurse, what's important to that doctor, what's important to that office staff when they treat? That allows, once approved and when the reps see what the label is, to know and have pre-identified what levels are applicable to what doctor, what office staff and what nurse in those offices. So it just really allows us to hit the ground running and not take the first 6 months to figure that out. So we're having some great progress there as well. The staff we've hired is excellent for the most part. They have either launch or women's health or both experience, and we've got a great, great team. Your second question was around compounders and 004. So yes, surprising to us, we are seeing demands through the BIO-IGNITE program in the compounding channel for 004 for that type of a product. It's not specific to our drug, but it is specific to compounders are making VVA, estradiol or a different estrone, different estrogens for women. And it's the typical type of reasons that we're hearing from these compounders if they're making it that you would READ and REVIVE or REVEAL or some of those large studies in the space, that a lot of the existing products might be a little messy or a little uncomfortable to use, just typical things you've read before. So we're really excited to offer this to our partners in the compounding channel. We don't think it's anywhere near the size of 001, but there's certainly some scrips to get there.

Okay. And then anything you're doing differently with the 004 launch? Or is it just an expansion of the sales force and then folded into the bag?

You mean the 001 launch on top of 004?

Yes, yes.

Yes, absolutely. So yes, there will be some different things that we'll do there that we'll get into once we're a little closer to approval or maybe on investor day. We'll -- our goal is on investors/analyst day before launch to put down the whole playbook and show The Street exactly what we're going to do, how we're going to do it and where we're going to do it. But in essence, what you said about 004 is really correct here. 004 is for us to build relationships with compounders, although we don't think it will be the volume that 001 would be or anywhere close. It's still a great way for us to get the model up and working, build the relationship, build the trust because the compounding channel is key for us. And we just like everything we see there, and they are a critical part of this development here for 001 and 004.

Our next question comes from Bill Maughan with Cowen.

First question is just on the final $50 million of the loan that is available upon certain milestones. Are you disclosing what those milestones are? And if not, are you able to say at least if it's based on 004 or 001 or combination or even just if there's a high probability number to hit? Or just any color around that extra $50 million?

Hi, this is Dan Cartwright. How are you doing today?

How are you doing?

Good, thanks. Yes, the milestone we're trying to hit there is $75 million in 2019. It's in the press release that went out today, the 8-K. We do believe we're going to hit that. We wouldn't have agreed to that if we didn't think we were going to reach that. So we feel comfortable that in taking these drugs to market, and it counts for both drugs, 001 and 004. And we think we'll be able to hit that milestone and pull down that $50 million if needed, and that's the good news about it. We get a choice here and we think we'll hit the milestone and it'll be our choice.

Okay, great. And then on the impending -- hopefully, impending launch of 004. Given the fact that there is another competitor also doing a number of new campaigns in this space, how is this space shaping up compared to what you initially expected when you thought you'd be launching into this space as the only new branded drug?

So this is Rob. So we're -- we -- I think you're talking about INTRAROSA, which is already approved. They're not doing a branded -- non-branded awareness program. And had we not gotten the CRL, which is unfortunate, we kind of lost a year there, they still would've been approved ahead of us and not before us. So this is exactly the way we thought it would unfold. We don't see any unpredicted or new wrinkles here in the market, whatsoever. So we feel really good. But like I talked about, the payer environment is excellent for a new lower effective dose. That is estrogen, in particular. The generics that have hit ESTRACE and Vagifem, we've been told by most of the major payers or all the ones who've been in contact with, they don't see step edits coming at all, and the fact that we're a new lower effective dose and an estrogen is very important. So we feel really good, really good.

Our next question comes from Jay Olson with Oppenheimer.

Congrats on the financing, and thanks for taking the questions. Can you maybe talk about any feedback you got at the recent ACOG meeting in terms of potential inquiries from doctors who might be anticipating the launch of TX-004? And now that you've -- TXMD has kind of emerged as a leader in women's health clinical research, will you be funding grant requests for investor -- sorry, investigator-initiated studies with TX-004 assuming it gets approved in May?

Thanks, Jay. This is Brian Bernick. So starting with your second question. First, absolutely, we'd accept all inquiries for grant support and we'd be happy to review those. People can submit them through our website. With respect to ACOG, ACOG was very exciting and there was a lot of interest expressed with our company. As you know, since we are not approved yet, we had a non-branded awareness campaign there, so we weren't able to discuss the product per se. But there was a lot of excitement and interest for this future product launch.

Okay, great. And then maybe just one follow on. Is there anything you can share with us with regards to whether or not we should expect to see the PK curves for TX-004 in the label? And if they aren't in the label, what's the best way to communicate to doctors the message that there is no systemic exposure at the 10 microgram dose?

Thanks, Jay. So with respect to the label, at this time, while we're in label negotiations with the FDA, we're not commenting on the label itself. However, I can just tell you we're really excited to be at this point at this time. If you remember, we agreed to participate in a future post-approval observational study that we also believe will help provide long-term data that might support future changes to the label in our product. But again, till we have our approval, we're not going to comment specifically on the label itself.

Yes, we can't.

[Operator Instructions] And our next question comes from Esther Rajavelu with Deutsche Bank.

Congrats on the term loan financing. So seeing how the tranches are set up, how much flexibility do you have on use of funds between the 2 products? I guess my question is, if you draw down on $75 million, is it limited to using just on 004? Or do you have flexibility on using it between the 2 products?

We certainly have flexibility. MidCap is just -- the flexibility they gave us front and back end is just fantastic. I mean, they really came through above everybody else by far. But we can use it, to answer your question, for whatever we want. But I can tell you, we will use it for launch. This is the launch financing we needed, and it's enough. It's $200 million. So we're really, really happy to have it.

Got it, okay. And then with regards to the co-pay program that you mentioned at the beginning of the call, are you planning to use co-pay assistance just for the first scrip and then pull back on the refills? Or how are you guys thinking about it?

Absolutely not. Out of pocket costs for patients is a key factor when selecting a product for a woman, a provider and for basically everybody. So we will keep out of pocket very low for women. So there is no reason they would not use our products, and that is a huge key to this strategy as well as pricing appropriately or competitively where the other currently priced branded approved VVA or a lot of those estrogen products are. So out of pocket is key, and we will deliver on that side and keep out of pocket low for patients through our coupon program. And we implemented that with vitaMed. And you might have seen, our numbers have -- and I know the reps aren't focused in pushing that. They're doing the non-branded or disease state awareness for VVA. But as you can see, our volumes have gone up slightly and our margins have gone down and that's because of this what we call back end coupon program that we want to have completely fluid and battle tested before we turn it on for 004 so it works right out of the gate.

Got it. And then my last question, I'm trying to understand a little bit more about the non-branded campaign in the doctors' offices. Can you maybe give us a little bit the feedback on what you're seeing or hearing from your reps within those offices with regards to the new dyspareunia launch and physician mind share on DATA versus estrogen?

Yes, it's really interesting. And we'll have at investor day, a lot of detail there, because they're out collecting actually data for us. So we'll have not just a sample survey size, we'll have data on every single physician in this country that prescribes in this class that our 150 reps are speaking with. But it's really funny, the education amongst physician on the disease state is significantly variable. Things like the systemic level for any given product that's out there, how uncomfortable it is for women, the chronic progressive nature of the disease. There's lots and lots of different pieces here, I'd probably go on all day and bore you guys. But it really -- and really, that general data to the disease state really allows us to aggregate what's important per office, per physician, per nurse practitioner, per office staff, even the folks that are doing the insurance or passing out samples in the office, just to see what their awareness is and what's important to them. So there's a mapping exercise. Depending on how our label comes out will allow what our claims are or features of our product to match up directly to what's important to that office and for that staff. So it's going really, really well. It's incredibly important. And I know the CRL has been a very bad experience for us and for our shareholders, but the one upside of it is we get this time to really map out exactly what we're going to do and where we're going to go and how we're going to do it before we get the drug approved. So that's the upside to it.

Right. And when is the investor day? I think I missed the date.

We did not pick the date. It will be before launch and after approval. So right now, it feels like it'll probably be in June here. So -- but listen, once -- we will update The Street the second we lock down a date. I think, you know, we're securing a place and the size and the time and if there's a lot of other conferences to compete with. So there's some factors here, but we'll get a date out as soon as we have it.

Our next question comes from Matthew Andrews with Jefferies.

Rob, considering a lack of satisfaction by women with VVA and the current products, is there anything you and the team can glimpse from INTRAROSA scrips continuing to grow? I mean, admittedly, it hasn't been a great launch. But anything that you can glean relative to that, that may help you with the 004 launch?

Absolutely. So there is a large unmet growing need here, and there's lots of ways to get there. But I think any investment in this space will raise awareness, it will raise focus, and it'll bring it to top of mind of providers, office staff as well as women. And although they have a very different approach than we do, INTRAROSA being in the space is very welcome because there's only 7% of women being treated. So we think it's great, and there's plenty of room for both of us to be very successful.

And then Brian, can you just update us on the potential timing of this observational study FDA asked you to conduct as part of the discussions back in the fall?

Hey, Matt, Sebastian Mirkin. So based on the [indiscernible] we are still under conversations with the FDA.

And our next question comes from Bill Tanner with Cantor Fitzgerald.

Dan, it sounds like you're answering the questions on the credit agreement. And I'm just looking at it and I just want to make sure I'm thinking about it the right way. It looks like the first tranche is drawable on or before July 31 of this year; and then for the second one, May 31, 2018. So are there provisions that would seem like less of a chance that 004 is going to get delayed again, but are there provisions in the event that the products aren't approved by those dates to extend that? Or is that sort of hard and fast, you have to have it approved by that date to draw the tranche -- tranches.

Bill, I'll have the approval piece and leave it to Dan on the terms of the loan because he's certainly the expert here. So we see no reason or obstacle as we stated that 004, unless something changes, would not be approved on time. Well, now if we talk about last year, we've got a CRL. But we don't see any reason or any CRL coming or we would've disposed it. And as we said, when we released the 001 press release that we had no review issues at all. And unless that changes, we're looking good. And it certainly could change, right? We didn't expect the last time it did so I just want to balance my statement here. But we just don't see it at this point at all -- a delay in either one at this point.

And Bill, this is Dan. As far as when we can draw on that, that's kind of speaking differently than is it available. It's available for a period of time. They don't lock that capital up forever. But we expect to be approved, and so we have a period of time when we can choose to draw on it. We built it that way for flexibility, MidCap was right there with us to make sure we were able to do that. We didn't want to have to draw it before we needed it and we wanted to get everything in place. And so we feel very comfortable with the way those terms are built in there.

Yes. Our worst fear, Bill, is that we had to draw the capital and for some reason we weren't going to launch a drug for a month or 2 or 3 or 2 quarters, whatever it was going to be. That's certainly not anticipated and we don't expect that all, but that would be a hard situation. And MidCap was flexible enough to give us that flexibility around it so we feel good about it.

Okay. And then I just had another one, Rob. When you have talked with the payers, I mean, was there any kind of a pro forma label that you put in front of the payers as part of the discussion? And if there was, curious if you -- if the discussion would have included what you think it's going to be or just sort of a vanilla label as it were?

These are open classes for the most part. It's not a heavy P&T therapeutic-type examination. So we obviously want to expect to get a black box label in the label with our initial assuming approval here. And that -- the label with the providers does -- I'm sorry, with the insurers does not seem to matter that much. It's more on the provider side or even the most on the advertiser side. So we don't think our options for a label will affect what I'm telling you as a prognosis for coverage without step edits and without prior auths in the 6-month time frame no matter what label we get.

If there are no further questions, let me turn the call back to Rob Finizio for closing remarks.

Great. Thank you, everyone, for joining the call today. We look forward to letting folks know when the investor day is, and we thank you all for joining today. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.