RVL Pharmaceuticals, plc (NASDAQ:RVLP) reported 2Q:23 results in a press release and conference call before market open on August 14, 2023. The company subsequently filed its Form 10-Q with the SEC. RVL reported product revenues of $8.3 million, a 2% decrease relative to product sales generated in the prior year quarter. No license revenues were recognized. Highlights since the first quarter update in May include a proposal to waive offer obligations related to minority shareholder rights and a business update which indicated RVL management was seeking a strategic transaction. The e-commerce portal, Elevate, was launched in early July and is up and running and will allow increased interaction with patients while maintaining the connection with providers and aesthetic practices. Further data and analytics from this platform are expected to help improve the loyalty and efficiency of Upneeq users.
In the second quarter, RVL reported revenues of $8.3 million, which declined both sequentially and compared with the prior year. A reduction in sales expenditures and sales force reduced the support behind acquisition of new accounts. RVL has recognized that increased awareness is critical to success of Upneeq and will expand its direct-to-consumer advertising employing a variety of marketing tools including social media.
The sales force has sold to 5,400 locations, up 600 from the prior quarter with 2,100 locations reordering. The number of pharmacy prescribers also increased to 21,000 up by about 1,000. Gross and operating margins improved and operating expenditures were down over prior quarter amounts and compared with averages for 2022. This ignores the $13.9 million write down related to arbaclofen, which was classified as abandoned. The changes in the topline and expense structure reflect management's focus on profitable growth and customer loyalty rather than on new accounts. Despite the improvement in quarterly net loss, the decline in the revenue trend has motivated the RVL team to align itself towards increased marketing efforts that will serve to increase awareness and resume the growth trend in the topline.
2023 year to date milestones:
➢ Telemedicine channel opened – 3Q:22
➢ Launch of e-commerce platform – 1Q:23
➢ Special Protocol Assessment reached with FDA for arbaclofen – May 2023
➢ Rollout of Elevate – July 2023
Revenues of $8.3 million were reported for 2Q:23. Gross margins improved to 76% and, ignoring the arbaclofen write down, operating expense was $14.4 million yielding a net loss of ($10.0) million or ($0.10) per share.
For the quarter ending June 30, 2023 and versus the same three-month period ending June 30, 2022:
➢ Revenues of $8.3 million were down 2% vs. $8.4 million due to a decrease in sales volume partially offset by a price increase;
➢ Product gross margin was 76% compared to a 74% rate. Lower royalty expense and lower sales volumes contributed to the decrease in cost and increase in margin;
➢ Selling, general & administrative expense fell 31% to $13.9 million from $20.2 million impacted by lower compensation and training costs, decreased legal, insurance, rent and other professional fees, a decline in share-based compensation and a contraction in Upneeq marketing expenses;
➢ Research & development expense totaled $547,000, falling 53% from $1.2 million. A reduction in spend for arbaclofen, RVL-1201 (Upneeq) and other R&D dramatically reduced expenses in this category;
➢ Arbaclofen was impaired to the tune of $13.9 million on discontinuation of the program;
➢ Other non-operating income represented another ($2.0) million of expense related to fair value losses;
➢ Net loss, including the arbaclofen write-down, was ($23.9) million vs. ($12.1) million or ($0.24) and ($0.14) per share, respectively.
As of June 30, 2023, cash and equivalents stood at $19.2 million. This amount compares to a $44.5 million balance in cash and equivalents held at the end of 2022. Cash burn for 2Q:23 was ($13.0) million. Based on the cash burn rate to date and the cash balance, RVL will require a capital infusion in the near term.
Strategic Alternatives
In a July 5th business update, RVL announced that it will consider strategic alternatives, including the pursuit of complementary aesthetics products with revenue and synergies with Upneeq. In the second quarter press release, the company noted that it is in discussions with strategic targets that may accelerate Upneeq sales, broaden the company's portfolio and drive growth. Further details were not available to evaluate the strategic opportunity; however, we are strong believers in leveraging an in-place sales structure that can layer on additional products at minimal additional cost. RVL offers a telemedicine channel, its Elevate e-commerce platform and a sales force in place that is making daily calls on practices. A new, related product could easily be added to the portfolio of products and generate strong incremental margins. While we do not know the identity of the products being considered or the extent of their complementarity with Upneeq, it appears that RVL is in the later stages of its negotiations and we may hear additional details soon.
Board Changes and Strategy
In a recent Form 8-K filing, RVL announced that two directors had resigned from the board. As we understand it, some members of the board recognized the difficult fundraising environment that small capitalization life sciences companies are facing and favored minimizing cash burn. However, this had the unintended effect of negatively impacting sales and led to changes in the board composition and its strategy to get the topline back on track. It appears that the remaining board members are now aligned in their desire to invest in topline growth despite the hazards of difficult capital markets. In the 2Q:23 press release, management notes that it is now seeking to drive consumer awareness in order to unlock growth for Upneeq. Incremental sales will be heavily oriented towards the consumer and encourage the use of the subscription model.
Athyrium Amendment
RVL has been able to renegotiate its financing agreement with Athyrium, which management believes provides additional flexibility. Athyrium's support may allow the company to sidestep many of the risks of increasing cash burn and take the long view as the company pivots toward increasing investment in product awareness and new sales growth.
Contributors to Revenue Decline
Over the prior year, as part of the effort to reduce costs, the sales team was reduced from 75 to 45 today. While reorders have been strong, with 2,100 locations going a second round, new sales have not been keeping up due to the reduction in sales force. Based on company commentary, we anticipate that marketing spend will accelerate in the second half and sales will resume their upward trajectory with a lag.
Moving Down the Income Statement
As we look at the income statement, we observe the year over year decline in sales but also the increase in gross profit to $6.3 million from $6.2 million in the prior year. Better gross margin of 76% (compared to 74% in 2Q:22) was achieved on account of stronger Upneeq pricing and lower royalty expense. Selling, general and administrative expenses were down 31% to $13.9 million and research and development fell 53% to $547,000. This produced an operating loss of ($8.1) million compared to ($15.1) million in the prior year. Second quarter 2023 results show that RVL was able to dramatically improve the efficiency of its operations with cost cutting; however, it was at the expense of growth.
We believe that investment needs to be made to penetrate the market and drive brand awareness. Close attention should be paid to the efficiency of sales dollars to ensure that a dollar spent on sales is generating more than it costs.
Turnaround Strategy
RVL has outlined its strategy to inflect growth in the second half of 2023 with efforts to improve consumer awareness, develop the provider base and grow the field force to support conversion at the practices. Below we show a graphic from RVL's latest presentation that illustrates the awareness of many of the leading products in the aesthetics market. Note that the T1B refers to the proportion of those surveyed who are very familiar with the product.
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1. RVL Pharma corporate Presentation, August 2023.
