TherapeuticsMD, Inc. (TXMD) Q2 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for joining us for the TherapeuticsMD second quarter 2020 financial results conference call. [Operator Instructions] I would now like to turn the call over to TherapeuticsMD’s vice president of investor relations, Nichol Ochsner. Nichol, you may begin.

Good morning, everyone. Thank you for joining today to discuss our second-quarter financial results and business update. This morning, TherapeuticsMD issued a press release, announcing our second-quarter financial results. The press release is available on the company’s website, therapeuticsmd.com, in the investors and media section. On today’s call from TherapeuticsMD are Chief Executive Officer Robert Finizio, Chief Financial Officer James D’Arecca, Chief Commercial Officer Dawn Halkuff, Executive Vice President Ed Borkowski and Mitchell Krassan, our chief strategy and performance officer. 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 can be no assurances 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 and 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 August 6, 2020. With that, I’ll turn the call over to TherapeuticsMD CEO Robert Finizio.

Good morning, and thank you, Nichol. I’ll open this morning’s call with a strategic overview, then turn the call over to James to provide an update on the agreement that we reached with Sixth Street to amend our revenue covenants and our financial results for the quarter. Next, Dawn will review our key commercial trends and plans for the second half of the year. Starting with COVID’s impact. Women’s health has been significantly impacted by COVID-19, including both the VVA and birth control classes. IMVEXXY and ANNOVERA experienced the same weakness early in the quarter, but I’m happy to say April was our bottom, and we’ve had strong growth over the past eight to 12 weeks. Dawn will walk you through why we expect the strong pace of growth to accelerate throughout the remainder of 2020, even with the current state of COVID persisting. Management took proactive steps to refocus our efforts on ANNOVERA and IMVEXXY and reduced the focus on BIJUVA to extend our cash runway due to COVID-19. We decreased our total operating expense target of approximately $40 million by the fourth quarter, excluding noncash items. Next, our management team wanted to update our Sixth Street minimum revenue covenants to reflect COVID-19’s impact. To fully understand our growth trajectory during this pandemic, we agreed with Sixth Street to operate for a full quarter with COVID-19 before calculating our minimum revenue covenants to ensure they were realistic, accurate and achievable, as James will show you shortly. In addition, the changes made to our operating plan and the significant progress of Sixth Street, we also undertook shaping or reshaping of the TXMD Board of Directors and management team. Starting with the board of directors. Our Chairman Tommy Thompson strengthened our board of directors by reducing the membership from 11 directors to nine directors, doubling our female director presence and reducing insider directors from three to one director. We’re honored to have seasoned veterans like Paul Bisaro, Karen Ling and Gail Naughton added to the TXMD Board of Directors. From a management perspective, this year, we brought in a new CFO James D’Arecca who was previously the chief accounting officer at Allergan; Ben Foulk, our new VP of HR, previously at BI; Ed Borkowski, our executive vice president, a seasoned pharmaceutical executive previously at Mylan and CareFusion who has already made significant contributions to our strategy and discipline; and finally, Chris Gish, our new VP of sales who has an outstanding track record of success at both Pfizer and Sunovion. Chris has raised the quality of our sales program to what I consider best-in-class. With all these strategic and operational changes, one thing has not changed. TXMD is laser-focused on reaching EBITDA breakeven on a quarterly basis in 2021. I’d now like to turn the call over to our new CFO and also extend a warm welcome to James D’Arecca? James D’Arecca: Thanks, Rob. It’s nice to meet everyone, and it’s great to be here. I joined TXMD because I saw an excellent opportunity to help drive value creation. I was attracted to the company’s products, particularly ANNOVERA, which I believe is poised to become an excellent option for women seeking a long-lasting, reversible contraceptive. I was also impressed by the company’s management, particularly the sales and marketing team that has been assembled to drive growth. During my first few weeks, I conducted a deep dive into the company’s previously announced cost savings initiatives and revised forecasts. I also had the opportunity to assess, along with my colleagues, the impact COVID-19 was having on our business in real-time. I concluded from that assessment that the company’s previously announced proactive restructuring due to COVID gave us the clarity needed to set the foundation for a successful renegotiation of our minimum revenue covenants with Sixth Street. Let’s turn to Slide 6. In this regard, I’m pleased to announce that we have amended our financing agreement with Sixth Street to adjust the minimum revenue covenants. The minimum revenue covenant was set to $20 million for the fourth quarter of this year. In 2021, the first-quarter net revenue covenant is $25 million, $37.5 million in the second quarter, $47.5 million in the third and $57.5 million in the fourth quarter. The amended minimum revenue covenants with Sixth Street continued to apply to the total combined net revenue for ANNOVERA, IMVEXXY and BIJUVA. As part of the process for resetting the minimum revenue covenants, we took sufficient time to evaluate our performance while litigating COVID environment for the past four months. This has given us confidence that the covenants are set appropriately. While these amended covenants do not represent financial guidance for the company, they were based on our post-COVID revised forecast and reflect our confidence that we can grow in the back half of the year and into 2021. The company and Sixth Street are not moving forward with the undrawn $50 million tranche, which was designed to be available following the commercial launch of ANNOVERA in the second quarter due to the pause in the launch timing caused by the COVID-19 pandemic. However, there is an active dialogue with Sixth Street regarding potential additional financing. Moving forward, we plan to take steps to strengthen our balance sheet. Our capital needs are driven by funding the launch of our products, supporting our infrastructure and funding necessary working capital, all while maintaining a minimum cash balance of $60 billion as required by the Sixth Street facility. When considering additional funding alternatives, we would seek to minimize potential dilution by striking a balance among sources of capital that include debt, equity or a combination thereof. We are fortunate that TherapeuticsMD has the assets that we believe can drive significant growth over the next several years. Let’s move to a review of our financial results and key metrics from the second quarter. Turning to Slide 8. Total net revenue for the second quarter came in at $10.7 million. As expected, the second quarter was significantly impacted by COVID-19. Early in the quarter, there was a reduction in patient visits to healthcare providers that negatively impacted volumes. However, later in the quarter, we saw patient demand for ANNOVERA outpace wholesaler orders, resulting in a drawdown of inventory in the channel. More recently, we are pleased to see early momentum building through commercial execution of our plans and expect this to continue throughout the rest of 2020. Moving now to Slide 9. I will now review key metrics for each of our brands. Let’s start with ANNOVERA. As a reminder, we paused the full commercial launch of ANNOVERA in March, and it resumed on July 1. In the second quarter, ANNOVERA delivered net revenue of approximately $1.8 million at $1,332 per unit, calculated from units sold to wholesalers and pharmacies, which was consistent with the first quarter. As Dawn will cover shortly, we are already seeing strong growth in the marketplace. With regard to payers, we had an adjudication rate of 99% for ANNOVERA with the vast majority of patients covered without a co-pay. Moving to IMVEXXY, we achieved net revenue of $5.1 million for the quarter. Net revenue per unit, calculated from units sold to wholesalers and pharmacies for IMVEXXY was $41. The overall adjudication rate for IMVEXXY was 44%. According to Symphony Health, the overall VVA class for the second quarter of 2020 was down 15% when compared to the fourth-quarter 2019, which we believe was primarily due to COVID-19. However, during the same time period, IMVEXXY managed to have a modest market share growth. We are pleased to see early indicators, showing recent growth in new prescriptions that Dawn will cover later. And finally, turning to BIJUVA. We reported net revenue of $1.4 million for the quarter. Net revenue per unit calculated from units sold to wholesalers and pharmacies for BIJUVA was $45 with the overall adjudication rate at 56%. Please move to Slide 10. During the second quarter, our decision to deemphasize BIJUVA triggered write-offs that included a $1.9 million impact to cost of sales that negatively impacted our gross margin and a $3.9 million charge to write-off BIJUVA samples that negatively impacted our total operating expenses. Given the expected impact of COVID-19 on net revenue, we took swift actions to reduce our expenses. We expected second-quarter expenses to be in the range of $45.5 million to $47.5 million through deferment of marketing spend and other measures we quickly implemented to reduce costs. Total operating expenses for the second quarter came in at $51.3 million. Excluding the BIJUVA write-offs, total operating expenses were $47.4 million, in line with our expectations. We still plan for operating expenses to trend down to approximately $40 million in the fourth quarter, excluding noncash items. However, depending on performance, we may pursue additional investments in SG&A to further drive growth and enhance employee retention. During the second quarter, our cash used in operating activities was $56 million. Our cash burn was impacted by $11 million in accrued expenses incurred in the first quarter for the launch of ANNOVERA, which were paid in the second quarter. We believe executing on our commercial plans, revising our revenue covenants, reducing our cash burn and strengthening our balance sheet support our goal of becoming EBITDA breakeven on a quarterly basis in 2021. I’d now like to turn the call over to Dawn to discuss our commercial progress and plans for the back half of the year.

Thanks, James. Let’s start with the impact COVID-19 had on Q2. As Rob mentioned, COVID-19 caused a significant decrease in our portfolio scripts in March, April and May. I’m very happy to say that we have returned to growth for all products in June and July with the adaptation of our plans and the opening of access and expect that growth to continue for the remainder of 2020, even with a strong COVID headwind. Let’s now move to payer access on Slide 12. Even though COVID has impacted the sales side, we have had payer progress for the quarter across our products. Starting with ANNOVERA, commercial access is 79% with the vast majority of patients paying $0 co-pay. ANNOVERA currently has unrestricted coverage for fee-for-service Medicaid in 37 states, plus D.C. We expect a decision on California in Q4, which represents 13% of the overall Medicaid market. For IMVEXXY, we met our commercial goals and access remains at 72%. We are happy to announce Wellcare was added as a Part D payer. Moving on to BIJUVA. Commercial access increased to 73% unrestricted with the addition of CVS and Anthem. We now have nine of the top 10 commercial payers secured. Let’s move on to the plans for each of our products. On Slide 13, let’s start with IMVEXXY. As mentioned earlier, this class of drugs were heavily affected by the decreased patient flow due to COVID. Since the fourth quarter, the VVA class on a quarterly basis declined 15%. That said, IMVEXXY continued to deliver approximately 10,000 prescriptions per week in this environment and grew share modestly. The takeaway, we were less impacted than the class. As assets have started to open up, we are seeing a reengagement in the class and in IMVEXXY with eight straight weeks of new prescription growth. And we believe a precursor to TRx growth given our strong refill rates and value of each patient. Moving to Slide 14. Let’s review our initiatives that we believe will help fuel IMVEXXY growth in the second half of the year. A new consumer campaign will be launched in August, focusing on holistic care as a woman ages. We also plan to increase mediums for the consumer campaign to patient testimonials, video and social to extend our reach. In addition, we will continue to reinforce adherence messaging that has driven positive momentum for us since launch. Let’s move to ANNOVERA on Slide 15. Similar to IMVEXXY, growth for ANNOVERA has been on a strong upward trend. The month of June and July were up approximately 100% over April and May, which were the months most heavily impacted by COVID. If you compare June and July to the pre-COVID months of January and February, we were still up over 47%, demonstrating the reestablishment of our launch trajectory. We would expect continued growth throughout 2020 even with strong COVID headwinds given these results. In the second quarter, we had approximately 1,100 prescribers reading ANNOVERA, leading to approximately 2,400 total prescriptions. Turning to Slide 16. So what led to the acceleration throughout Q2. Starting with the left-hand column, our sales force has adapted to a hybrid selling model. In June, 43% of calls were live versus 11% in May. Our expectation is effectiveness no matter how the call is being conducted, and we have been focused on training the sales force on new technology and agility skills during this time. As you can see in the middle column, over 250 providers attended our virtual speaker programs in the second quarter, a demonstration that birth control and ANNOVERA continue to be a focus during COVID. Moving to the column on the right, a key driver during Q2 was telemedicine. The telemedicine segment is growing fast in the COVID-19 world and contraception is an important category within telemedicine. We believe we are well-positioned to deliver patient access through this channel as it is a trend we saw and started working on in 2019. Move to Slide 17. Although still early in the launch trajectory, we have received some great insight from early adopters of ANNOVERA. From a provider perspective, we are seeing that early adopters tend to be higher NuvaRing writers, as well as low IUD writers. From a patient perspective, we are seeing a range of ages, but an average age of 31, suggesting that this is a great option for younger women, likely switching from their original birth control. Both providers and patients are easily able to understand and relate to our value proposition of the only procedure-free, reversible, long-lasting option and see it as a viable option for their patients and women see it as something that is useful for their lifestyle. Move to Slide 18. While we are pleased with the early progress for ANNOVERA, I wanted to take a few minutes to ground us in the larger opportunity and future growth drivers. ANNOVERA has a large market opportunity with 18 million women and 28 million new prescriptions annually. To put ANNOVERA’s opportunity in perspective, traditionally, leading products in this category over time have achieved 4% to 5% market share. As you can see in the middle column, Lo Loestrin launched in 2011 and achieved this share in approximately four years. If ANNOVERA achieved this level of success, seen in the column on the right, it would mean approximately 700,000 prescriptions annually. The next big growth driver for ANNOVERA is consumer. Turn now to Slide 19 that shows an illustration of our consumer campaign called Unapologetically, ANNOVERA, which launched on July 1. Typically, you start to see positive return on the media investment at about nine months to a year as you start to see the volume of patients taking action grow over time. That said, we have begun to see early indicators that provide confidence for continued future growth. Moving to Slide 20. Here are our early indicators. You can see that the consumer campaign and ANNOVERA as a product is getting noticed. Mentioned in USA Today with a circulation of 58 million, as well as Women’s Health magazine, are differentiated and impactful public relations results for our pharmaceutical brand. In addition, our digital metrics show that the campaign has gained visibility, quickly resulting in over 100 million impressions and 3 million views of the video in less than a month. Finally, the brand and campaign has been picked up across media, showing the cultural relevance of the product and the campaign. Moving to Slide 21. You can see through the remainder of the year, we have consumer initiatives to deepen the connection of women to ANNOVERA to generate awareness and ultimately, drive pull-through of the product. Later in August, we will have a POPSUGAR Takeover, a well-known online content provider, which reaches one in two millennials every month. Millennials are who we are seeing as the initial users of ANNOVERA. In September, we plan to launch influencer programs, including a well-known influencer that will amplify the ANNOVERA message to their followers. And finally, during the fourth quarter, we will expand our consumer campaign into new medium and launch a PR initiative that will broaden our impact of the consumer campaign. Turning to Slide 22. One area we have not discussed that will be a future growth driver for ANNOVERA, are patient refills. Beginning in the fourth quarter of this year, we will begin to see that impact as the women who started in October of ‘19, have the opportunity to renew their prescription. We are confident in the opportunity of refill due to the robust data we have on patient acceptability in a study of over 1,000 women conducted by the population council. In the Phase 3 study, patient intent to refill was at 85% if free and 75% of women said they would continue even if they had to pay for it. As a reminder, the vast majority of women pay $0 out of pocket. The growth driver for refills will be significant for us in the out years as ANNOVERA volume grows. Move to Slide 23. The final growth driver for ANNOVERA are the multiple markets and channels, most of which are at an early stage, but all of which we believe will contribute volume in the back half of this year. We believe each of these channels will help us achieve the 4% to 5% market share opportunity we see for the product over time. First, in the commercial segment of the business, which is 76% of the market, we will continue with our sales force with ANNOVERA in the No.1 position and focus on building provider adoption with the 20,000 providers we call on today. Most of our progress and the prescriptions we have received to date are from this segment as we have spent the most time here. Moving on to Public Health, which is a meaningful opportunity, about 15% of the total market. In order to maximize this opportunity in a quickest fashion, we are working with Afaxys, the No.1 provider of contraception in public health clinics. We have just begun in this segment and expect acceleration throughout the remainder of 2020 and beyond. In addition, we are working with WSI, a leader into selling into the military channel. We now have 14 of the 92 military facilities that have put us on formulary and 13 bases that have ordered. This is only a small percentage of the birth control category, but we expect it to be larger for ANNOVERA, given we are the only long-lasting reversible, procedure-free option. This segment has been slower to move given the pandemic, but we are seeing progress as bases open. Finally, we are working with leading online telemedicine platforms who focus on directly prescribing and filling birth control directly to patients. We saw meaningful volume in Q2 from this channel and expect acceleration as we begin working with new online providers early in the third quarter. With the early acceleration seen on ANNOVERA and the multiple channels that are just beginning, you can see why we are bullish on continued growth throughout the remainder of the year. Before I end, I’d like to quickly touch on BIJUVA. In the second quarter, we had approximately 4,200 prescribers writing BIJUVA, leading to approximately 27,000 total prescriptions. Prescriptions are encouraging, given the limited focus as a result of the decision to deemphasize BIJUVA at this stage. Our goal is to maintain the writer base through the remainder of 2020. Now move to Slide 25. We are following and aware of the National Academies of Sciences, Engineering and Medicine that is referred to as the NASEM Report, a report commissioned by the FDA on compounding practices. Recommendations from this report on future regulation of the compounding area were released on July 1. The debate over hormonal compounding has been ongoing for decades, and we are aware of the continued pressure on the compounding community. Our approach, however, is unchanged. The largest segment of the E&P market is within the compounding market at approximately 12 million to 18 million prescriptions and ensuring BIJUVA is available is critical to future growth. We remain committed to our BIO-IGNITE program and partnership with community pharmacies, and we will continue to be advocates for women’s health and hormone therapy. Let me end with some thoughts on the back half of the year. At the current rate of growth, we are on track to meet or exceed our minimum revenue covenants. We are starting to see acceleration of our portfolio with the current plans in place. Further accelerators will be the consumer plans just launching now, growth fuel from telemedicine, as well as partnerships with WSI for the military and Afaxys for public health. COVID is a significant variable, but even with just 50% live cost today, we are seeing our ability to grow the portfolio, and we will continue to adapt to the environment as needed. In short, it is about execution now, and we are ready. With that, I would like to turn the call over to Rob for closing remarks.

Thanks, Dawn. In closing, we’re focused on driving revenue and achieving our goal of EBITDA breakeven -- quarterly EBITDA breakeven in 2021. We’re excited about the momentum we’re currently seeing, and expect it to accelerate in the near term, as well as into the back half of 2020. That being said, we’ll open up the call for questions.

[Operator instructions] Your first question comes from Louise Chen, Cantor Fitzgerald.

Hi. Thanks so much for taking our question. This is Jen Kim on for Louise. I have a few questions. The first is, I know the covenants aren’t formal guidance, but can you give some additional color on maybe what assumptions around refill rates you have going into those outer year sales numbers? I know you noted a certain percentage of women’s saying they will refill. Is that what you’re assuming in those covenants? My second question is, you noted there was a drawdown of inventory in ANNOVERA in the channel this quarter. So how should we think about that carrying through to next quarter? And then, my final question, is just an update on net revenue per unit. Is that still expected to normalize starting in the third quarter? Are we sort of at that base currently? Or how should we think about that? Thanks.

Sure. So thank you, Jen. So I’m going to pass a couple of those around here. So when you say refill rates, I’m assuming you’re talking about the refill rates for ANNOVERA and not for BIJUVA or IMVEXXY. Correct?

Yeah.

So, yeah, yeah, so we’re lucky. The population council did so much research with this product, and it took them, I think, 16 years to get it approved, 17 years. We know pretty well with a very large population what the refill rate should be. To give you the blunt answer, we don’t think we think we need that level of a refill rate or anything even close to it to reach our minimum revenue covenants. If you just take our current growth rate, we’ll easily flow through those. So as we said before, they’re not guidance, but they certainly gave us a very realistic with what we expect over the next six to 12 months of strong COVID headwind, which has been holding back growth. I know ANNOVERA has seen 100% growth over the last eight weeks, but we expect that will accelerate without -- when COVID does finally disappear. And we also -- to give you a feeling, we expect in the near term, like August, September, to see faster acceleration with ANNOVERA, and we’re pretty confident in that. A lot of the things that kind of slow you down during launch. There is millions of things. We call them rocks and boulders here, have recently kind of converged and moved for ANNOVERA. We expect as early as the second week of August, you can start to see some even faster acceleration. And in addition to that, our partners, as Dawn went into in a lot of detail for a reason. You’re not seeing much contribution from any of the Title X, Public Health, military. We’ve had great contributions from some of the early telehealth folks, but some of the other ones are just starting. And then, Dawn had a phenomenally successful consumer campaign that typically, those types of things take nine to 12 months to really pull through. So you see none of that yet for ANNOVERA. We expect they will all contribute, some significantly. But even before that, you’re going to see some good acceleration and acceleration for ANNOVERA here in August and September. With that being said, I know you left one question open there that I have to hit, which is the drawdown in the channel. And I’m going to turn that over to Mitch. Mitch?

OK, thank you. What we saw in this quarter is a drawdown of inventory levels in the channel of about 1,000 units where demand, patient demand, was greater than what gets sold into the channel. The good news is, we came to a reasonable level of inventory right now, and they’ll have to be reorders going forward to just keep up with the patient demand.

So I think that gives us some really good confidence in our performance in Q3 and Q4. Putting all this together, will be very, very solid. I would -- and last piece, on the refills. I would expect the refills to bring on additional escalation outside of what I talked about. Is there anything else we missed on that?

I think an update on net revenue per unit. Is that still expected to normalize in the third quarter?

So net revenue per unit. So when we talk about ANNOVERA, it held in from last quarter. Looking forward, we expect it to continue to be strong. In the event that our net revenue per unit for ANNOVERA were to go down below $1,200, that would signal that one of the government programs, DoD, Medicaid, Title X, 340B is getting an incredible market share, disproportionate, which means the revenue that will couple with that would be very, very strong and very welcome, to be honest. So yes, we feel good about the brackets we have. They’re proportionately developed around our revenue targets. But again, if it does get down below $1,200, that means we’re having considerable growth, revenue growth in one of the government areas, which we would welcome. We’re happy to do it. And by the way, if it did dip down, we wouldn’t expect it to significantly dip down by any means.

Your next question comes from Stacy Ku, Cowen and Company.

Good morning. Hey, how’s it going? Thanks for taking my questions, and congratulations on the progress. So I was just trying to kind of pin down a little bit more this cadence of ANNOVERA growth. How should we be thinking about the extent of the return to normalization for sales rep activity for the month of July? I’m just trying to take what we have in terms of Symphony prescriptions that’s been reported so far and trying to understand the month-over-month growth for Q3? And maybe any commentary for Q4 as well?

Yeah, sure. So I’ll take the first piece, and I’ll hand it off to Dawn, if that’s okay. So we track in the Edge system, how much we are able to operate. And what we look at -- when I say operate, I mean, face-to-face time that reps are able to spend with doctors, OK? Our systems track that. And when COVID hit, that virtually went down to only, I think, a couple of reps in two or three states able to see anybody. So what Dawn did is, we literally implemented entirely new programs and developed new skill sets that I think you’re seeing since April when it bottomed, a great uptick in ANNOVERA. So with that being said, what we see here, and what we’ve modeled for ourselves with these TPG covenants, and I’ll turn it over to Dawn on the sales operations, is we expect a 50%, what we call, caseload or headwind from COVID. So doctors from a GYN perspective, will only have about a 50% caseload, and that is truly what we’re seeing today. OB is much higher. These are GYN specifically. VVA is much more sensitive than birth control, and hot flashes are least sensitive for BIJUVA. And with that being said, we think that will last throughout the remainder of this year, and then a 25% headwind going into Q1 and Q2 of next year is what’s expected, but that will not stop our growth. We will continue to grow, and you’re going to see acceleration in August and September, we believe, with some of our recent wins here. Dawn, anything to add?

Sure. And maybe we could go back to -- so I know I covered a lot of information fast. Let me go back to Slide 23. So first, on the sales rep activity, we are seeing they’re about 50% live, right now, live calls. And I would expect that rate to continue into the end of this year. We know we’re seeing markets open up and close down. I think the good news there is that no matter if the rep is live or they’re virtual, we are being able to get in contact with physicians. And in some cases, even when they’re virtual, they have more time. So I think the sales organization has really figured out how to have impact, no matter what. Your next question is, what should we expect in terms of growth. And these are the channels that I’ve covered. Most of the prescriptions that you’re -- that we’re seeing to date are from the commercial segment, and that’s really where the sales force is focused. But as we think about growth forward, certainly, we’ll continue to see acceleration in the commercial segment. But because we’ve just gotten started in areas like Public Health and the military, those are really going to add to our trends in the third and fourth quarter. And the online channel, which has been a really nice anchor for us, I mean, really gave us some solid meaningful volume in Q2. As Rob said, we’ve just started with some of the biggest player. So all that together, I would expect would give us acceleration. And the biggest driver, in addition, which impacts all segments, is the consumer campaign. And that really started on July 1. And as I mentioned, although it takes nine months of the year to start to see a positive ROI, the reality is that with what we’re seeing in terms of the views and the PR, we should start to see that really impact across the board. So bottom line continued acceleration in near term and throughout the year.

Stacy, last way to look at that is the public consensus that is out there. Obviously, we’re not giving guidance yet due to COVID. But the consensus out there, I believe, is somewhere in the $60 million, mid-$60 million range in Q3. And we don’t -- as you can see at these rates, we don’t see any issues achieving that whatsoever. One thing Dawn did not talk about that most people don’t have in their models but they should go and take a look at the data that’s out there because it’s a lot of it, is the refill rate. Look, it could be anywhere about 70%. We certainly don’t need that to hit these numbers at all, but it could be a very strong, healthy escalator as we move into October, which is when we first let ANNOVERA to the market.

[Operator Instructions] Your next question comes from Douglas Tsao.

Can you hear me?

Yes, sir.

So a couple of questions. One, in terms of IMVEXXY, and sorry if I missed it. Where are we in terms of getting the Part D plans? Just, and I suspect some of the process has been disrupted by COVID. But just are we at the point -- and you’ve, obviously, made some progress, are we sort of starting to think ahead more -- focus more about 2021? Or could there be planned additions that have an impact on 2020? And then, in terms of ANNOVERA, as we think about renewals, which you indicated you might start to see in 4Q. Typically, and I don’t know if you have this information, how many renewals do patients typically have of a product like -- of sort of like a long-term product like Ring. And so I guess, like using NuvaRing as a proxy. I mean, typically, your patients renew once, twice, three times, four times. I mean, do you have an average number of refills? Just sort of to help think about the product over the long term and that potential on how we sort of build the patient model. Thank you.

Yeah. Doug, thank you. So I’m going to hand off a couple of those. But as far as getting IMVEXXY next up, is I think, the general question. We did get one big Part D win, which we were surprised during COVID, which is Centene. So that leaves two or the three left that we need to get. I can’t give you any confidence we’ll get those this year. I can tell you that we are not in a position where they’re saying, go away, we don’t want to talk to you. This class is shut down. So I wish I can give you more color, but with COVID, your point and lots of other things going on, it’s just -- I don’t have any other color on it other than that. But the overall program this year that I think we tried to really push this year, last year going into this year, our goal starting in April was to start co-pay card optimization, which is literally for 6% or 7% of the patients that bring in above 50% of the cost to the program that will drive that higher also distribution optimization. We can’t do that when you’re not getting enough time with doctors. You change those co-pay card programs, and you don’t clearly articulate it to your providers, and they start getting callbacks, these things aren’t working, you can end up in some trouble. So we’re going to wait until we have full open dialogue at, at least, a 75% caseload with doctors and full interaction and visibility before we implement those programs. We’re hoping we can start January 1. That’s the current goal. We’re going to continue to work on Part D. Don’t be surprised if we get another one here before the end of the year, but I certainly can’t guarantee it. And then, as far as refill goes, I’m going to have to turn that over to Dawn because I just really don’t know.

Sure. So thanks for the question, Doug. And let me take this from a couple of angles. First of all, let’s start with what drives refills. What drives refills is a good experience with the product, which we know from our patient acceptability study is very high for ANNOVERA. And the second thing that drives refills is actually reminding the patient that it’s time. And I think we’ve proven with IMVEXXY and BIJUVA that we are highly focused on adherence, and we do what above the category in terms of our refill rate. So it’s something that is part of our model. In terms of a proxy, you mentioned NuvaRing, it’s not really as relevant because it’s that -- NuvaRing is a monthly product. But what we see for NuvaRing is they have about five refills per year. What I would expect for ANNOVERA, we have -- the data would tell you that from the study, and that was over 1,000 women, so it’s pretty significant, that 85% of those women would renew. While I don’t have ANNOVERA data, I’m confident it’s going to be above the 50% mark, given the programs we have in place. And as Rob said, we’ll drive significant volume for us.

How many leaseholds -- was this a question, do you think?

Well, I guess, sort of my question, if I can jump in, and that’s helpful, and it’s a good point, right, because, obviously, NuvaRing is a monthly product. You have more opportunities for patients in theory fall off, right? So a big advantage is, you just have to hit this once a year. But do you -- is this an expectation for a patient that sort of want if you have research, how long patients would want a long-term birth control just because maybe the family planning desires change, right? They decide they want to have a kid. So should we be thinking that this is a three-year window of opportunity for you? And obviously, there’s going to be a lot of variance. But just trying to get an understanding of that because I think as -- what you’ve shown is so exciting for the product. Just trying to see how significant that patient build can be.

We heard the wrong question. Mitch definitely has an answer for that. Shoot, Mitch?

So what we see is women stay on -- once they have a birth control that works for them, they stay on it for multiple years, three to five years. What changes their decision during that time frame is life events. They got married. They got divorced. They had kids. And then, some of the things they do is some of the side effects, which we think ANNOVERA is really strong on being an option when they do have without an oral that there are issues that we could become something to switch to. But typically, women stay on it three to five years, particularly in the younger years until they have their first child.

Yeah. And the way that [indiscernible] in 31, it’s to the stronger side, five years. But yes, whenever you’re -- whether you’re a Lo Loestrin or somebody else, when a woman likes a product, the typical duration is three to five years.

Your next question comes from Annabel Samimy with Stifel. Your line is open.

Annabel, you there? Might have a technical issue.

Hello. Can you hear me? Sorry. Can you hear me?

Yes, now we can.

OK, sorry about that. So I apologize if I missed part of the call, it’s a busy morning. But I saw the revenue covenants that you laid out for TPG. I was curious about the cash covenant, and if that still holds? And if there’s been any adjustment to that? And separately, again, apologies if you covered this, but in terms of the marketing campaign, I know that you started ANNOVERA in July, and you’re talking about the hits. For the marketing campaign on IMVEXXY, which is starting in August, clearly, this COVID situation has not gone away. It’s gotten worse in many of the regions. So the question is, given that this population is much more vulnerable to older population. Is this the right time for a marketing campaign for IMVEXXY? What in the environment makes you believe that this is the right time? And then, I guess, finally, on BIJUVA, what kind of impact do you expect the recommendations and I think recommendations to have on the compounded hormones? BIJUVA seems to be growing on its own. So do you think that those recommendations are going to accelerate that? Thanks.

Yeah, Annabel, thanks for joining. I know you guys are really busy this morning. So the cash $60 million minimum cash on hand still exists. That being said, I’ll turn it over on the marketing to Dawn, and then I’m happy to speak on the compounding piece.

Sure. Annabel, so in terms of the marketing campaign for IMVEXXY, I do believe it’s the right time. What we’re seeing is eight straight weeks of NRx growth as patients return to the office and start to reengage. And we’ve been able to get in front of physicians live or virtually, and so supporting that business with the consumer campaign that we know is very relevant. I think it is the right time for this. The other piece of it is that we have a high share of voice in this marketplace, and so it’s a great time for us to really increase awareness on IMVEXXY.

Sounds good. So Annabel, you -- I assume you’re speaking about the National Academies of Science and Engineering and Medicine Report. And for the folks on the phone that aren’t familiar with that, the FDA commissioned a study -- a very significant study on compounding bioidentical hormones. And if you look at our Slide 25, there is a link. You can actually read this report. They wanted to see the overall safety and the overall claims, they looked at every aspect of bioidentical compounded hormones. And the report was pretty negative toward a number of aspects of compounded bioidentical hormones, and the recommendation was to put all 10 sex steroid hormones, which would include estradiol and progesterone, so definitely affect both IMVEXXY and BIJUVA on to what they call the Do Not Compound list, which makes it illegal for compounders to compound it with the exception here. There was one exception of a patient having an allergy to an ingredient in one of the FDA-approved drugs. The compounding industry came back out. We put that link as well, and they felt it was a very flawed study and a very biased study. Obviously, we are in a very sensitive position here between the two. We fully support all of our compounding BIO-IGNITE customers. That’s been a very successful program, and we do not want them to lose access to bioidentical hormones because we think they are going to grow the market for us anyways. We just -- we feel we have better products period than the compounded products. But to answer your question, just to be specific, yes, if it does go on the Do Not Compound list, it would add considerable volume to both BIJUVA and IMVEXXY in a very, very rapid fashion, and that is what this committee is recommending. So that being said, I’m not sure if I covered everything you’re asking there. I hope I did.

Do you -- is there a timing for final recommendation on whether it goes on a Do Not Compound list?

So the way that works for my understanding is the demonstrably difficult to compound advisory committee that the FDA holds, meets a biannual basis. And they would have to put this on the agenda, and that agenda suggestion process is an open public forum from what I understand of that. So the process would be, it would be nominated to be put on that list, and this committee will review it. And then, if it went -- then they would either vote to approve or not to approve. Kind of like they do Advisory Committee for a drug, and they typically meet biannually. And I’ve not seen the next meeting scheduled yet. So I don’t have any more information than that on it.

If I could follow up on one of my -- the original question, the cash covenant. Can you just lay out what you believe would be the, I guess, trajectory of your burn that makes you feel comfortable keeping that cash covenant as is? James D’Arecca: Yeah, Annabel, it’s James. Good to talk to you again. So we do see the cash burn in the quarter was $55 million, as I think you saw. We do see that decreasing in the back half of the year for two obvious reasons: one, because of the expense reductions that we announced earlier; and two, because we’re hoping that the revenue is going to be increasing here. So are expecting revenue to increase here. So because of that, we see the cash flows improving, and we feel comfortable all of our planning was done with the $60 million minimum in mind. So we’re comfortable where the revenue covenants were set in sync with that $60 million, and our current assessment is that we should be good there.

And as a reminder, the back half was $80 million. Is that correct, James? James D’Arecca: Yes. The back half of the year, cash expenses are expected to be around $80 million in opex, excluding noncash items. So we think we’re in good shape there from an overall cash planning perspective.

And Annabel, as far as additional equity, right, or debt or wherever you would find the money, the $50 million tranche, if you think back that we still have not -- we don’t have from TPG that was originally, if you think back to the 19th category, and it was to expire in January, right? So obviously, they didn’t make a decision yet. That’s still open. So then we decided to make it the performance of ANNOVERA by June and then COVID hit in March, and we never launched ANNOVERA until just recently, July 1. And I think we’re getting a great response. So with that being said, instead of putting another frivolous date out there with them, we shut that -- that $50 million tranche is gone. But we are, today, currently having a financing discussion with them right now. So I think if you were trying to put a number in somewhere, that $50 number is a good place to start for our capital structure. I hope that answered your question.

Right. Thank you.

I would turn the call back over to Rob for closing remarks.

Great. Thank you, everybody. It’s been a great quarter here. We’re really excited about the growth. And please watch ANNOVERA specifically in August and September, and we expect this growth to continue. Thank you.

Ladies and gentlemen this concludes today’s call. Thank you for participating, you may now disconnect.