TherapeuticsMD, Inc. (TXMD) Q4 2021 Earnings Report, Transcript and Summary

0:05 Good morning, ladies and gentlemen. Thank you for joining us for the TherapeuticsMD Fourth Quarter 2021 Financial Results conference call. Following prepared remarks from the company, we will open the call for questions. 0:18 I would now like to turn the call over to Investor Relations for TherapeuticsMD. Lisa Wilson. Lisa?

0:24 Thank you, operator. Good morning, everyone. And thank you for joining today to discuss our fourth quarter financial results and business update. This morning, TherapeuticsMD issued a press release announcing, its fourth quarter 2021 financial results. The press release and accompanying presentation are available on the Company's website therapeuticsmd.com in the Investors and Media section. On today's call from TherapeuticsMD, our Chief Executive Officer Hugh O’Dowd; Chief Financial Officer, James D’Arecca; and Chief Financial, Commercial Officer, Mark Glickman. 1:08 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 expectation and there can 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. 1:42 These forward-looking statements are based on information available to TherapeuticsMD today. And the company assumes no obligation to update these 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 maybe listening to the replay or archived webcast, this call was held and recorded on March 10th, 2022. 2:17 With that, I will turn the call over to Therapeutic MD's CEO, Hugh O’Dowd. Hugh O’Dowd: 2:23 Thank you, Lisa. And thank you for everyone for joining our call today. Last quarter, we outlined our immediate priorities. And today, I'd like to share our progress against those stated goals. As a reminder, that list included: number one, driving top line growth and overall operating performance; two, addressing our capital structure to ease our restrictive cash and revenue covenants currently in place; three, eliminating $60 million from our annual cost base, including the successful divestiture of vitaCare; and finally, achieving EBITDA breakeven by Q4 of '22. These are the actions we committed to. 3:08 Let me first turn to our top line performance. Our fourth quarter revenue performance was impacted by ANNOVERA manufacturing and supply challenges that we've previously announced. To be clear, our immediate challenge here is not about demand generation. But instead, it's an issue of short-term supply and scale. We believe that this is a temporary event, which will be resolved by the end of Q1. Our underlying ANNOVERA demand, according to Symphony remains significantly higher than our ability to fulfill in this immediate period. As we continue to manufacture and supply ANNOVERA, we have assembled a cross-functional team to ensure that we are efficiently allocating every ring available across our distribution channels. As a company, we are at a pivotal moment that we believe will help transform us into a more focused women's health care company, dedicated to our mission of empowering women of all ages through better and affordable healthcare. 4:15 We are implementing changes, both large and small, that we believe will help enable us to maximize our three unique products: ANNOVERA, IMVEXXY and BIJUVA and thus create and grow value for our patients, customers and shareholders. As an example, we have recently partnered with ZS Associates, to implement an innovative targeting analytics approach designed to allow us to utilize the full productivity of our field force, calling on the highest decile and most productive health care providers. as well as optimize our full portfolio of women's health products. Mark will have more to share in this in a few moments. 4:58 In regard to our second priority and in support of a new capitalization plan for the company. We have amended our credit agreement with Sixth Street. We believe this was the most prudent way to bridge through the close of the vitaCare transaction and the refinancing of our Sixth Street debt facility with another party. In a few moments, James will highlight the key details of this amendment. 5:26 Let me now turn to our third priority. Starting with our recently announced transaction to divest vitaCare to GoodRx. Obtaining maximum value for this business unit has been a top priority for us. As announced earlier this week, we entered into a definitive agreement with GoodRx for $150 million in cash plus additional earnouts of up to $7 million. This reinforces our commitment to maximizing value to our shareholders. We are pleased that we've delivered on this important commitment. This transaction enables us to accelerate the transformation of our company. And importantly, it allows us to narrow our focus as a pharmaceutical business dedicated to empowering women of all ages through better and affordable health care. James will offer color on the effect of the vitaCare divestiture on our previously announced cost savings initiative. 6:24 And finally, with regard to achieving EBITDA breakeven, we will provide further details when we discuss earnings guidance in Q2. Pending the closing of our divestiture of vitaCare, we are now poised to address our capital structure removed Sixth Street as our creditor and deliver our balance sheet, thus easing our restricted cash and revenue covenants. Now beyond our progress against our immediate priorities, I wish to provide clarity in more details surrounding our efforts in regard to ANNOVERA manufacturing. In this impacted period, we have experienced supply disruptions due to a higher rate of batch rejections primarily associated with a restrictive specification for one test method. Last August, we took action and submitted to the FDA a manufacturing supplement which sought amendments to our specification for that one test method. 7:27 Subsequently, we received a CRL last December. The CRL provided a rationale for the rejection of the revised specification, but also provided a pathway for resubmission. We responded to the CRL in January providing the requested information and we anticipate FDA response by the end of Q2. So what are we doing today beyond our FDA resubmission? First, we've added resources at our CDMO to significantly increase our production volumes. And second, we have improved our production process to drive a double-digit percentage increase in our yield per batch. To be clear, our top line growth assumption does not assume FDA approval of the ANNOVERA manufacturing supplement. Approval would accelerate our ability to achieve this goal, but it's not dependent on that outcome. 8:27 Based on these factors, and depending sale of vitaCare, we intend to provide earnings guidance in Q2 when we believe we will have more visibility, and we can provide that guidance with greater certainty. Since stepping into the role as CEO, I and the entire TherapeuticsMD leadership team have undertaken a number of highly effective steps toward achieving our immediate priorities. Thus, setting us on the pathway towards attaining a leadership position in women's health. And now with the vitaCare definitive agreement announced, we are positioned to become a far more focused company and to capture the full value of our portfolio of products. 9:06 Let me summarize, this is a transformational moment for us. The path ahead is bright, and with the sale of vitaCare, we fulfill our commitment to reduce our annual cost base by $60 million. We believe we are positioned to bring the company to profitability and restructure our capitalisation, which we aim to complete in the second quarter. We are on a pathway to successfully scale manufacture and supply our flagship product ANNOVERA. 9:36 And finally, our priority is to deliver results to our shareholders and provide a pathway to EBITDA breakeven. Our company core values have high standards, empowerment, and respect mean a lot to me. It will be reflected in all the work we do moving forward. 9:54 And with that, I'll turn it over to our Chief Financial Officer James D’Arecca to discuss our financial results in greater detail. James? James D’Arecca: 10:03 Thank you and good morning, everyone. Before we review our financials, I would first like to review the terms of our amended debt agreement with Sixth Street announced this morning. We have agreement with Sixth Street to adjust the $60 million minimum cash covenant, waive the fourth quarter covenant default and eliminate the first quarter 2022 revenue covenant. We also agreed to pay the first $120 million of net proceeds of the vitaCare divestiture to Sixth Street to reduce the loan balance, the company will keep up to $15 million of net proceeds from the divestiture. The amended loan facility will now have a new maturity date of June 1, 2022. This amendment will provide the company with the necessary financial flexibility to complete the announced sale of vitaCare and refinance our remaining debt with another lender. 11:00 Now let's focus on our financial results in greater detail. Slide 8 shows a snapshot of our quarterly net product revenue trends, which were impacted by production issues as previously discussed. Our net product revenue for the fourth quarter was $18.7 million as compared to the fourth quarter of 2020, our net product revenue decreased by 15%. For ANNOVERA, net revenue increased by 14% as compared to the fourth quarter of 2020 to $7.8 million. ANNOVERA's performance in the quarter was significantly affected by the production and supply issues previously discussed by Hugh. Despite the supply challenges, the demand for ANNOVERA at the patient level continues to grow, and we closed the fourth quarter with significant unfilled orders, which if filled, would have led to significant revenue growth for ANNOVERA. We look forward to bringing ANNOVERA back to its strong revenue growth trajectory for the remainder of 2022 and beyond. 12:04 IMVEXXY net revenue increased – decreased by 24% as compared to the fourth quarter of 2020 to $6.7 million. This decrease was mainly attributable to a decrease in sales volume shipped to customers as a result of a shift in managed care coverage and coupon copay assistance, modestly offset by more favorable pricing. 12:28 Let me now share some highlights from our financial statements on Slide 9. Our gross profit margin was 75% in the fourth quarter of 2021 and gross profit margins were negatively impacted by approximately $700,000 of BIJUVA export sales, which were recorded in the fourth quarter and were sold at cost. Total operating expenses of $49.3 million for the fourth quarter of 2021 included approximately $4.5 million of severance-related expenses attributable to the exit of a former executive. Absent these severance-related expenses, our total operating expenses were in line with our expectations as we continue to invest in ANNOVERA and IMVEXXY. 13:16 Now that we've announced our divestiture of vitaCare to GoodRx, we can provide some further details regarding our $60 million cost reduction initiative that we started last year. vitaCare accounted for approximately $20 million of operating expenses in 2021. That will no longer continue once it's divested completing our cost reduction initiative. As we move forward, the variable cost of using vitaCare services under GoodRx ownership will be included and managed together with our marketing and selling expenses. As you noted, we intend to provide earnings guidance in Q2. 13:54 Net cash used in operating activities was $39.6 billion for the fourth quarter and as of December 31, 2021, we have $65.1 million in cash. I'll now turn the call over to our Chief Commercial Officer, Mark Glickman to provide more detail around our commercial progress. Mark?

14:17 Thank you, James. I'd like to echo huge remarks and reiterate TherapeuticsMD is transforming itself as a commercial organization. We are confident that with the changes we are implementing, we can achieve the goals that he would describe. We believe we are on the right track to capture the full value of our portfolio products and ensure access to the providers and patients who depend on them. 14:40 Turning now to our performance metrics, as you can see on slide 11, despite the revenue shortfall, total prescriptions for ANNOVERA rose by 11% quarter four over quarter three in 2021 and saw a 57% increase from Q4 2020. Absent the supply challenge, the quarterly increase would have been greater. The bottom line is that patients and providers want ANNOVERA and we are confident that as we manage and address these challenges, we will be able to fulfill the increased demand. 15:11 Moving to Slide 12, you can see the steady growth and momentum since our launch. We added 1,300 new prescribers to our base in the fourth quarter. We are pleased that the initial changes we made last year with regard to prescriber targeting have had an impact and believe that the even more focused targeting plans we are currently implementing should drive these numbers even higher. I'll have more to say about these growth accelerators and how we are realigning our commercial efforts to capture more value in just a moment. 15:42 Moving to IMVEXXY. As shown on Slide 13, we saw a slight decline in quarterly TRx, which reflects the greater focus on ANNOVERA during the period. On Slide 14, you could see that the same is true for BIJUVA in terms of Q4 total prescriptions, which were flat to slightly down. As a company, we opted to shift our focus to ANNOVERA last quarter. So the fact that both IMVEXXY and BIJUVA held their own for the most part, despite the lack of support is meaningful. It tells us that patients and providers are loyal and remain committed despite the pullback of investment in these two assets. It further gives us confidence that as we continue to make progress and focus on maximizing the value of all three products in our portfolio that we will begin to see accelerated growth across the product mix. A key takeaway here is that we are still driving demand for our products, and we believe we are positioning ourselves well to take full advantage as we work through the supply challenge. Keep in mind, there has never been an issue of quality with ANNOVERA supply in the marketplace. It is a high-quality, unique, easy-to-use product with a low dropout rate and high patient satisfaction. 16:56 So let me now turn to our growth acceleration plan and the major overhaul of our prescriber targeting efforts that was just implemented. As I described last quarter, there are three key factors that I believe will drive our long-term success. First, we must continue to prioritize the patients and health care providers. Second, a culture of accountability is essential. And third, we must become a performance-based organization clearly delineated objectives that ultimately lead us to achieve our goals of becoming the best-in-class women's health care space. To achieve this, we are concentrating on targeting, focus and alignment. 17:36 Since last quarter, we have made significant headway to transform the TXMD commercial effort from the inside. We studied and mapped the deciles of our target prescribers and assessed various productivity measures. This exercise provided critical information that now guides our commercial strategy. This slide shows how we are overhauling the entire approach to sales targeting across our portfolio, a change that we believe will lead to an expansion of our prescriber base. 18:05 As you can see, we are now singularly focused on the high-decile market riders, meaning we are selectively targeting those health care providers with the highest potential. This represents a shift from the past and one that we believe will help us accelerate growth among all three products for the first time. Capturing this untapped potential of prescriber is our top priority. From a commercial standpoint, our activity is now better aimed at identifying those opportunities that will enhance our portfolio. 18:36 Slide 16 highlights this new focus. We continue to support our culture of accountability, and you can see the granular level of detail that we are bringing forward. In retooling our strategic commercial plan, we performed an exhaustive audit of how we're approaching sales and how we may do this more effectively. We look closely to differences, overlaps and segments among the prescribers of contraception versus menopause products. These metrics allow us to create a highly prescribed directed approach. 19:06 We now know exactly where our seasoned professional women's health specialists should be focusing their attention. Our newly created commercial plans have been designed to our teams in the field to be more effective in optimizing efforts across the product portfolio. By this, I mean, we are still a young company, and we are now working to put the full strength of a committed sales force behind each of our three products. Rather than see our portfolio in aggregate, this new focus is designed to allow us to distinguish our work in the menopause space in a very new way and reenergize these brands. 19:43 We are also ramping our call plans with more aggressive benchmarks and realigning territories. As shown on Slide 17, we are ensuring that our sales specialists are in the right territories and in front of the right prescribers. What you'll see on this slide is that a vast majority of our territories are now in the proper alignment and in the right location to maximize productivity. We have painstakingly gone through these exercises and feel confident that with this new commercial plan in place, we are now positioned for success. 20:16 Turning now to our marketing strategy as shown on Slide 18, we have put a lot of effort into owning our marketing messaging and ensure that the differentiators of our three products are well understood by both health care providers and consumers. ANNOVERA is positioned to play a significant role in the contraceptive market as the only long-lasting procedure-free patient-controlled option for women providing pregnancy prevention for an entire year. Importantly, our market research now shows that total brand awareness amongst HCPs has increased to 87% from just 67%. We will continue our consumer-focused celebrity partnership with Whitney Cummings. Content featuring Whitney has performed well above the industry click-through benchmarks with a focus on social media, including Instagram, Snapchat, TikTok as well as online video such as Hulu and Display. 21:12 We will focus our marketing initiatives on HCP's menopause brands to increase their preference based on the unique product differentiators. For IMVEXXY, we emphasize that as the only ultra low dose vaginal insert that works as early as two weeks for the treatment of moderate to severe dyspareunia, a symptom of VVA. And for BIJUVA, it is the only FDA-approved once-daily combination bio-identical hormone therapy to treat moderate-to-severe nasal motor symptoms. As we work to execute our commercial strategy, we believe we can grow ANNOVERA, our long-lasting procedure-free, reversible contraceptive for women as well as our menopause products in two category leaders. 21:58 One final note we held our national sales meeting just last week, where we rolled out these new plans and I truly believe that the TherapeuticsMD team has embraced this new vision as a company and a fresher, more focused road map for going forward. We know we have great products that patients want and need. We are working tirelessly to address the recent challenges and to provide ample supply to meet rising demand. I'd like to thank you for all of your time and listening. Operator, if you could please go ahead and open the call for questions.

22:30 Thank you. [Operator Instructions] Our first question comes from Louise Chen with Cantor. Your line is open.

22:46 Hi, thanks for taking my questions and congratulations on all the progress this quarter. So I had a few questions. First question I had for you is, how will the new management team do things differently than the prior one? And then I wanted to ask you how we think about ANNOVERA sales for the first quarter of 2022. Or if you give us a little bit more color on what they would have been, the demand sales would have been in fourth quarter '21. However, whatever you can say would be helpful. 23:14 And then the last question I had was just on the Sixth Street loan. It sounds like you're going to use $120 million of the $150 million to pay it down and then you're going to refinance the debt. So could you give us a little bit more color on exactly what the numbers look like and then how much cash you're going to have after June this year? Thank you. Hugh O’Dowd: 23:33 So thank you, Louise. Appreciate the opportunity for the question. Let me take the first, and then I'll have James give you some thoughts as it relates to the second and third question. I think there was a fourth snuck in there, but let us make sure we get to your question before I answer it. So how is this management team different? I think the first thing I want to say is we're not really looking to the past. We're looking to the future here. And everything is very forward looking. I think the tone was established on the announcement last quarter of my new appointment and Slide number one told everything you needed to know. It really focused on four immediate priorities. And this is a company, frankly, that needed for immediate priorities. So let me state that clearly and categorically. That's why I methodically went back to them because it's the notion of accountability. 24:21 What am I and the management team accountable for standing up and delivering. And I think the second contract there is this is a management team that is devoted not to overpromise and therefore, under deliver. So I think I'd like to point you to that set of philosophy first. And I rest upon the immediate priorities as my point of focus of what this management team is doing going forward. As it relates to the second and third question, James? James D’Arecca: 24:46 Yes, sure, Hugh. Thanks. So on the question of what ANNOVERA sales would have been in the fourth quarter. There was probably at least 6,000 rings or so that we could have probably delivered an additional demand, maybe even more. It's hard to do total what if but that would have been a much better performing quarter for us. And then as we move into first quarter hesitant to really say much until we have a little bit more certainty on our supply situation, which is very fluid. We are selling every ring that we produce. So we'll have a little bit more to say, I think, on that on the full year when we give guidance in Q2. 25:37 And then to take your -- the final question on the refinance, yes, you have it pretty right. We are going to take the proceeds from the vitaCare divestiture and use that to refinance our Sixth Street debt and size the amount of the refinancing to ensure that we have enough cash for the foreseeable future. beyond that. But we have a bunch of different stages we have to go through to get to that point. And once we complete those transactions, we'll give some more guidance on our cash flow forecast and runway.

26:14 Okay. Thank you. [Operator Instructions] Our next question comes from Douglas Tsao with H.C. Wainwright. Your line is open.

26:31 Hi, good morning. Thanks for taking my questions. Just trying to walk through and understand the manufacturing issues with ANNOVERA. Obviously, you had a little bit of a bottleneck in last quarter and you're committing additional resources. I guess, what's your confidence in terms of getting this manufacturing spec resolved? And if you're not, would you be able to meet your anticipated sort of this demand a year or two years down the road because obviously, I think you have great ambition for the product. And so is it just a matter of in that case, just committing a lot more resources towards making it and it just might be a slightly lower gross margin product? Hugh O’Dowd: 27:12 Doug, thank you for the question. And I think this is a vital question, so I appreciate you putting it out there. So let me – let me phrase the first part of your question this way. Can we manufacture enough, particularly without FDA approval and let me frame it this way. We've implemented a number of changes that we believe will allow us to manufacture sufficient product to meeting demand starting around the second quarter, even without the approval of the FDA supplement. Our ability to meeting demand increases significantly if the FDA does improve the supplement. But to be clear, our top line '22 growth assumption does not assume FDA approval of the ANNOVERA manufacturing supplement. Approval would only accelerate our ability to achieve this goal. 27:57 Now let me take an opportunity to highlight with you five actions that we've undertaken since Q4 of '21. And that are ongoing, and I think will significantly reduce our batch rejections and therefore, improve capacity. Number one, the resubmission to FDA a revised request of the specification revision. We anticipate that response by the end of 2Q. 28:23 Second, we're implementing additional environmental controls of storage of certain intermediates. Third, we have significantly reduced human error as a contributing factor to batch rejection, now down to low, low single digits. Fourth, we significantly increased the manufacturing yield per batch by approximately 15% to 20%. 28:44 And then finally, we've added resources at our contract manufacturer to increase the number of batches made per month. So taken together, we believe we really are getting into a far stronger position from 2Q onwards.

29:00 Okay. Great. That's really helpful. And then just, I guess, a second follow-up question. Obviously, you're engaged in a pretty significant sort of repositioning of the commercial organization. I guess just your commitment or sort of how much are you limited by the commitment to sort of getting to EBITDA profitable rather than just doing a full reset and just not having that sort of hang over your head and just being able to focus on growing the portfolio in the near term? Thank you. Hugh O’Dowd: 29:33 Well, let me start first about the commitment, and then I'll go to Mark as to why we might have confidence in our approach. And you're correct. I think reset is a very appropriate word. We are resetting practically every element of our entire commercial approach. And I'm terribly proud of the leadership team that Mark has assembled. His entire team is devoted to that purpose and cost. As it relates to full year, Mark, do you want to give a view on why we have confidence on that, and I'll come back on EBITDA?

30:06 Yeah. So all the work that we had taken place in transitioning really to be focused on the health care practitioners has been completed. So all the work, all the effort was rolled out just two weeks ago, February -- the week of February 22. So we did pilot and trial some of the ACP-directed initiatives in the fourth quarter, and they were quite successful. So at this point, where we stand, we're growing, we're seeing, as James has mentioned earlier, tremendous volume growth and patient growth for demand on ANNOVERA. We now know and believe we have IMVEXXY and BIJUVA focused on the right positions and our sales representatives are now in the right place to execute on that strategy and implement this new strategy. So from a commercial perspective, we actually have everything that we need, and we're investing wisely in our initiatives. 31:00 So Hugh, I'll turn it back to you. Hugh O’Dowd: 31:01 Thanks for that. So just getting back on EBITDA, I think we're well on our way with expense reduction as stated. Prescription demand remains strong, as Mark indicated here, and we see a successful path with supply and look forward to a full update in Q2.

31:17 Okay. Great. Thank you.

31:21 Thank you and I'm currently showing no questions. I'd like to turn the call back over to Hugh O'Dowd for closing remarks. Hugh O’Dowd: 31:28 Well, thank you, everyone. We appreciate your time. We look forward to updating you as the year progresses. We remain quite enthusiastic with what we shared today in the progress. I wish you all a very good day.

31:39 This concludes today's conference call. Thank you for participating. You may now disconnect.