TherapeuticsMD, Inc. (TXMD) Q4 2021 Earnings Call Transcript

TherapeuticsMD, Inc. (TXMD -1.54%)
Q4 2021 Earnings Call
Mar 10, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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. I would now like to turn the call over to investor relations for TherapeuticsMD, Lisa Wilson, Lisa.

Lisa Wilson -- Investor Relations

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 21 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. 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 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 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 may be listening to the replay or archive webcast. This call was held and recorded on March 10th, 2022. With that, I'll turn the call over to TherapeuticsMD CEO, Hugh O'Dowd.

Hugh O'Dowd -- Chief Executive Officer

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 1, 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 break-even by Q4 of 22. These are the actions we committed to.

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 in a very 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 healthcare company, dedicated to our mission of empowering women of all ages through better and affordable healthcare. We are implementing changes both large and small, that we believe will help us, and they 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 GS and 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 [inaudible] and most productive healthcare providers. As well as optimize our full portfolio of women's health products, Mark will have more to share on this in a few moments. In regard to our second priority, and in support of a new capitalization plan for the company, we have amended our trade agreement with Sixth Street. We believe this was the most prudent way to bridges 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. Let me now turn to our third priority, starting with our recently announced transaction to a divest vitaCare to GoodRX. Obtaining maximal 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 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 healthcare. James will offer color on the effect of vitaCare divestiture on our previously announced cost savings initiative.

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, remove Sixth Street is our creditor, and deliver our balance sheet, for us easing our restrictive cash and revenue covenants. Now, beyond our progress against our immediate priorities, I wish to provide clarity and 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. 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 assumptions 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.

Based on these factors, and the pending sale of vitaCare, we intend to provide earnings guidance in Q2 when we believe we'll have more visibility, and we can provide that guidance with greater certainty. Since stepping into the role of CEO, I, in the entire TherapeuticsMD leadership team, have undertaken a number of highly effective steps toward achieving our immediate priorities, thus setting from the pathway toward 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. 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 capitalization, which we aim to complete in the second quarter. We are on a pathway to successfully scale, manufacture, and supply our flagship product ANNOVERA. And finally, our priority is to deliver results to our shareholders and provide a pathway that EBITDA breakeven.

Our company core values of high standards, empowerment, and respect mean a lot to me and will be reflected in all the work we do moving forward. 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 -- Chief Financial Officer

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, waived 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 1st, 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. Now, let's focus on our financial results in greater detail.

Slide eight 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, kind of various 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. IMVEXXY net revenue decreased by 24% as compared to the fourth quarter of 2020 to $6.7 billion. 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 co-pay assistance, modestly offset by more favorable pricing. Let me now share some highlights from our financial statements on slide nine.

Our gross profit margin was 75% in the fourth quarter of 2021, and gross profit margins were negatively impacted by approximately $700 thousand 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 or 7% related expenses attributable to the exit of a former executive. Absolutely severance-related expenses, our total operating expenses were in line with our expectations as we continue to invest in ANNOVERA and IMVEXXY. Now that we have 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. Net cash used in operating activities was $39.6 billion for the fourth quarter, and as of December 31st, 2021, we had $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. 

Mark Glickman -- Chief Business officer

Thank you, James. I'd like to echo Hugh's remarks and reiterate that TherapeuticsMD is transforming itself as a commercial organization. We are confident that with the changes we are implementing, we can achieve the goals that Hugh described. 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.

Turning now to our performance metrics, and you could see on Slide 11, despite the revenue shortfall, total prescriptions for ANNOVERA grow by 11% Q4r over Q3 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. Moving to slide 12.

You can see the steady growth in 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 to drive these numbers even higher. I'll have more to say about these growth accelerators, and how we realigning our commercial efforts to capture more value in just a moment.

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 can see that the same is true for BIJUVAin terms of Q4 total prescriptions, which were flat, slightly down. As a company, we opted to shift our focus to out of our 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're 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. So let me now turn to our growth acceleration plan and a 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 healthcare providers.

Second, a culture of accountability is essential. And third, we must become a performance-based organization with clearly delineated objectives that ultimately lead us to achieve our goals of becoming the best in class women's healthcare space. To achieve this, we are concentrating on targeting, focus, and alignment. Since last quarter, we've made significant headway to transform the TXMD commercial effort from the inside.

We studied and mapped the [inaudible] 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. As you can see, we are now singularly focused on the high decile market writers, meaning, we are selectively targeting those healthcare 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 prescribers our top priority. From a commercial standpoint, our activity is now better aimed at identifying those opportunities that will enhance our portfolio. Slide 16 highlights this new focus.

We continue to sport 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 approach in sales, and how we may do this more effectively. We looked closely at the differences, overlaps, and segments among the prescribers of contraception versus menopause products. These metrics allow us to create a highly prescribed directed approach.

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, so our teams in the field can 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, and way, and reenergize these brands.

We are also ramping our call plans with more aggressive benchmarks and realigning territories. As shown in 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.

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 healthcare 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 among HCP 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. We will focus our marketing initiatives on HCP for menopause brands to increase their preference based on the unique product differentiators. From IMVEXXY, we emphasize that is the only ultra low dose [inaudible] insert that work 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 bioidentical hormone therapy to treat moderate to severe basal motor symptoms. As we work to execute our commercial strategy, we believe we can grow ANNOVERA hour long-lasting procedure-free, reversible contraceptive for women, as well as our menopause products into category leaders. One final note, we hold 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 roadmap 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 your time and listening. Operator, if you could please go ahead and open the call for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Louise Chien with Cantor. Your line is open.

Louise Chen -- Cantor Fitzgerald -- Analyst

Hi, thanks for taking my questions, and congratulations on all the progress this quarter. So I had a few questions. First question I have 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 ANNOVER sales for the first quarter of 2022? or if you give us a little bit more color on what there would have been? the demand sales would have been in fourth quarter 21? However, whatever you can say would be helpful. And then the last question I have was just on the Sixth Street loan, 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.

Mark Glickman -- Chief Business officer

So thank you, Louise, we appreciate the opportunity for the question. Let me take the first, and then I'll have James give you some thoughts as 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'm methodically went back to them because it's the notion of accountability. What am I in the management team accountable for standing up and delivering.

And I think the second comes up 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, third question, James.

James D'Arecca -- Chief Financial Officer

Yes, sure. 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 for that, that would have been a much better performing quarter for us. And then as we move in the first quarter of 2022, I'm 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 have a little bit more to say I think on that, and on the full year when we give guidance in Q2.

And then to take your final question on the refinance. Yeah, you have it. 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 that 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 get some more guidance on our cash flow forecast and runway.

Louise Chen -- Cantor Fitzgerald -- Analyst

Okay, thank you. 

Operator

Thank you. [Operator instructions] Our next question comes from Douglas Tsao with H.C. Wainwright. Your line is open.

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

Hi, good morning. Thanks for the question. I'm just trying to walk through and understand the manufacturing issues with ANNOVERA. Obviously, you had a little bit of a bottleneck this last quarter and you're committing additional resources.

What's your confidence in terms of getting those manufacturing back resolved? And if you're not, would you be able to meet your anticipated sort of 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 toward making it, And it just might be a slightly lower gross margin product.

Hugh O'Dowd -- Chief Executive Officer

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 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 meet in-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. Now, let me take an opportunity to highlight with you five actions that we've undertaken since Q4 of 21 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. Second, we're implementing additional environmental controls of storage of certain intermediates. Third, we have significantly reduced human error is a contributing factor to batch rejection now down to low low single digits. Fourth, we significantly increased the manufacturing yield for batch by approximately 15% to 20%.

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 [inaudible]. 

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

OK. Great. That's really helpful. And then just, I guess a second follow-up question.

Obviously, you're engaged in pretty significant sort of repositioning of the commercial organization. I guess, your commitment or sort of, how much are you limited by the commitment to sort of get into 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 -- Chief Executive Officer

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 cause. As it relates to full year, Mark, do you want to give a view on why we have confidence on that? I'll come back in EBITDA.

Mark Glickman -- Chief Business officer

Yeah. So all the work that we are taking place in transitioning really to be focused on the healthcare practitioners has been completed. So all the work, all the effort was rolled out just two weeks ago, February the week of 22nd. So we did pilot and trials some of the HCP-directed initiatives in fourth quarter and they were quite successful.

So at this point where we stand, we're growing, we're seeing, as James had mentioned earlier, a tremendous volume growth, and patient growth for demand on ANNOVERA. We now know, and believe we have IMVEXXY and BIJUVA focused on the right physicians, 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. So Hugh, I'll turn it  back to you.

Hugh O'Dowd -- Chief Executive Officer

Thanks for that. So just getting back on to 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 [inaudible] path with supply and look forward to a full update in Q2. 

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

OK. Great, thank you.

Operator

Thank you, and I'm currently short of the questions, I'd like to turn the call back over to Hugh O'Dowd for closing remarks.

Hugh O'Dowd -- Chief Executive Officer

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 share today in the progress.

I wish you all a very good day.

Operator

[Operator signoff]

Duration: 34 minutes

Call participants:

Lisa Wilson -- Investor Relations

Hugh O'Dowd -- Chief Executive Officer

James D'Arecca -- Chief Financial Officer

Mark Glickman -- Chief Business officer

Louise Chen -- Cantor Fitzgerald -- Analyst

Douglas Tsao -- H.C. Wainwright and Company -- Analyst

More TXMD analysis

All earnings call transcripts