Evofem Biosciences : EVFM Q3 2021 Results Call Transcript

Evofem Biosciences, Inc. (NASDAQ: EVFM)

Q3 2021 Results Conference Call

November 15, 2021, 4:30 PM ET

Company Participants

Amy Raskopf - Vice President, IR

Saundra Pelletier - CEO

Jay File - CFO

Tim Glennon - Vice President of Business Development & Marketing

Conference Call Participants

Ram Selvaraju - H.C. Wainwright

David Amsellem - Piper Sandler

Annabel Samimy - Stifel

Melina Santoro - Morgan Stanley

Operator

Thank you for standing by and welcome to the Evofem Biosciences Third Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded.

And now, I'd like to introduce your host for today's program, Amy Raskopf, Vice President of Investor Relations. Please go ahead.

Amy Raskopf

Thank you. Good afternoon, everyone. And welcome to the Evofem Biosciences results call for the third quarter of 2021.

If you haven't done so already, I encourage you to access the press release we issued earlier today, and the presentation that accompanies this call, both of which are at evofem.com under the Investors tab.

Before we begin, I would like to remind you that remarks on this call will contain forward- looking statements, which are made only as of today, November 15, 2021. For a more detailed description of important risk factors that could cause our actual results to differ materially, please refer to our annual report on Form 10-K and our most recently filed 10-Q.

With that, I'll turn the call over to Evofem's CEO, Saundra Pelletier.

Saundra Pelletier

Thank you Amy, and thank you everyone for joining us today.

Our focus on driving awareness and uptake for Phexxi for hormone-free birth control enabled us to reach new heights for the fourth consecutive quarter. The substantial Phexxi growth in Q3 and Q4 to-date is being elevated by the 'House Rules' DTC campaign, starring Emmy Award- winning actress Annie Murphy, which we launched on September 9th, as well as the ongoing work of our sales force with OB/GYN, nurse practitioners and midwives.

More than 19,000 prescriptions were filled in Q3, which is a 48% increase from Q2.

Q4 is off to a strong start with a spectacular October. Monthly total prescriptions, which jumped to over 7,800 in September grew 27% to a new record high in October.

I'll discuss other metrics and ongoing initiatives in greater detail after our CFO, Jay File, reviews the financial results. Jay?

Jay File

Thank you, Saundra.

Today, I'm going to focus on the third quarter of 2021 relative to Q2, since we believe sequential growth is more meaningful at this stage of our corporate development.

Solid growth in ex-factory sales of Phexxi drove a 29% increase in gross revenues in Q3. This was offset by gross-to-net adjustments, most of which were for programs that we put in place to better ensure that cost and coverage are not barriers to getting Phexxi to those women whose plans are not yet covering Phexxi at zero copay, despite the intent of the Affordable Care Act. Primarily as a result of these GTN adjustments, we saw a slight decrease in net product sales to $1.7 million for Q3.

Research and development costs were $8.7 million, up $194,000 from Q2, reflecting higher enrollment in our pivotal Phase 3 trial, EVOGUARD. Positive outcomes should enable us to expand the Phexxi label to include two new indications, the prevention of chlamydia and gonorrhea in women. As a reminder, trial costs for EVO100 are covered through the end of the year by restricted cash from the adjuvant investment last fall.

Selling and marketing costs were $30.5 million, up 12% from Q2 due primarily to higher media expenses related to the 'House Rules' DTC marketing campaign.

General and administrative costs were $5 million, down 23% from Q2 primarily due to reductions in payroll-related expenses, including stock-based compensation.

As a result, total operating expenses were $45.1 million, up 5% compared to Q2. And our loss from operations was $43.4 million.

We currently expect fourth quarter operating expenses will be lower than Q3 by several million dollars, primarily driven by a shift in our DTC strategy, away from broad awareness tactics, like television, to digital channels such as streaming, and other social media-based approaches.

As we look forward to 2022, we expect to reduce total operating expenses by approximately $50 million. The key driver will be marketing expenses, which we anticipate will be approximately 50% lower than 2021 levels.

R&D expenses are likely to remain at 2021 levels due to the ongoing EVOGUARD trial and preparations for the sNDA filing. And we expect G&A will also remain flat. We plan to provide more guidance for 2022 during our year-end 2021 calls in March.

At the close of Q3, we had $14.9 million in cash and cash equivalents as well as $9 million in restricted cash from the Adjuvant notes available for use. This totals $23.9 million for use in ongoing operations as of September 30, 2021. In October, we raised $10 million in gross proceeds from the sale and issuance of shares of our Series B preferred stock to an institutional investor. We believe our existing capital resources will be sufficient to sustain our planned operations into the first quarter of 2022.

Finally, I want to address the notice we received in late August from NASDAQ about Evofem's noncompliance with NASDAQ's listing standards because we do not currently meet the minimum bid price requirement. We have until February 21, 2022 to regain compliance. And at that time, if the stock is still trading below $1, we anticipate being able to apply for an additional six months' grace period. We have an approved asset that is growing faster than any other recently launched contraceptive brand, as well as several near-term catalysts that we believe position Evofem for success. We currently expect that will regain compliance with the listing standard within the allotted time.

And with that, I'll turn it back to Saundra.

Saundra Pelletier

Thank you, Jay.

Today, you're going to hear detailed and tactical information about Phexxi, both successes and challenges that we are working to overcome. I'm going to shed light on some tough issues to help you better understand our strategy and why we stand undaunted and highly positive about the future of Evofem and Phexxi.

As Jay mentioned, the strong top-line growth we are driving is not currently reflected in our net revenue. As we discussed on prior calls, this is primarily because of a co-pay assistance program we implemented at launch to ensure that cost and coverage are not barriers for any eligible commercial patients to get Phexxi. Our copay programs allow the Phexxi savings cards to be seamlessly applied to patients' out-of-pocket costs. In the absence of this program, not having coverage from insurers will cause a prescription to be denied at the pharmacy, which will result

in a call to the prescriber to make another choice. This will result in the loss of not only that prescription and future refills of that prescription, but it may also cause the prescriber to refrain from prescribing Phexxi in the future because pharmacy calls take time from both, the prescriber and their staff. It is for these reasons that we implemented copay assistance programs that ensure women are able to fill their Phexxi prescriptions when they face coverage denials or step edits.

If we were not using these programs to build our base of users, we believe that our net revenue would be well in line with current analyst consensus.

The reality of the situation is that due to the innovative nature of Phexxi, there is still work to be done to gain inclusion in the Office of Women's Health Birth Control Guide. Until that time, which we believe is soon, we are prevented from effectively building our prescriber base while optimizing revenue.

What does that mean exactly? It means that if the Office of Women's Health maintained a medically accurate birth control guide, we wouldn't have had to make that difficult choice to prioritize building the base of prescribers and Phexxi users, because Phexxi would be covered like the Affordable Care Act mandates, since it is the only vaginal pH modulator.

The truth is that coverage denial and step edits should not happen under the Affordable Care Act. Under the spirit of the ACA, health insurance companies should cover at least one product in each category of contraception at zero copay.

If all health insurance companies acted as they should, use of our savings programs would be dramatically lower, and we would stop supporting the prior authorization process with both our time and our money. Our net revenue and margins would dramatically improve. But clearly, some health insurance companies are acting in their own interests, not in the interest of patients. It will take a bigger power to force them to change. This is why our ACA strategy is of critical importance. And I'll come back to this in a few minutes.

The other factor to keep in mind is the healthcare provider. It takes a great deal of outreach and effort to educate OB/GYNs, nurse practitioners and midwives, and even more to get them to adjust their attitudes, behaviors, and contraceptive prescribing habits. Phexxi is both a clinical and behavioral sell. Our sales representatives are working to overcome the deeply ingrained habit, the gold standard mentality, if you will - following the norm. Meaning, the standard practice of prescribing oral contraceptives that are systemic, delivering hormones every day, when the reality is women do not have sex every day.

Our reps are doing a fantastic job. More than 10,000 healthcare prescribers have written a Phexxi prescription since launch, just over a year ago. And we continue to grow the provider base as well as to work to increase the prescription volume per provider.

The challenge is that the coverage denials, step edits and prior authorization letters, or PAs, required by some health insurance companies can easily result in prescriber fatigue. This in turn

can result in them reverting back to old habits of writing hormonal contraception - because it's easy - which puts us back at square one.

Despite how easy the process is, some prescriptions are never filled, because of the need for prior authorization letter or PA. To combat this, our reps check frequently to ask if PAs are getting done. And while 60% of the PAs that are submitted get approved by the health insurance companies, let me be obvious - 40% of women are being denied access to their contraceptive of choice.

Essentially, our reps have a two-call approach. They sell Phexxi, and they explain the simplicity of PA forms when they're needed.

We have observed real demand for Phexxi across the United States. Women everywhere are beyond hormones.

So yes, we couldsacrifice prescription growth, which would improve our gross-to-net and our net revenue. We did exactly that in Q2. We changed our savings card for six weeks. During this period, many prescriptions not covered on formulary, including those that required a PA, werelost. And with that, we lost some prescribers, and a number of patients were not able to get Phexxi, the hormone-free birth control of their choice.

Halting our programs improved gross to net in Q2, but if we had not started them up again, thenegative impact on prescribers and consumers alike would have translated to a business with little chance of long-termsuccess. The near-termgain was not worth it.

So, we prioritized access to Phexxi over GTN and the bottom line, with the expectation of improvements following governmental action on the ACA. We are successfully building a strongbase of healthcare providers writing the product and dramatically growing the number of women using Phexxi. More than 19,000 prescriptions were building Q3 alone, and we exceeded10,000 TRxs for the month of October.

Our sales force efforts are dovetailing with rising consumer brand awareness, which climbed to 14% in September after just three weeks of the 'House Rules' campaign, which we launched onSeptember 9th with our celebrity ambassador, the fabulous Annie Murphy. When I say she's fabulous, it's not just because she's famous. It is because her testimonial really speaks to the fact that she felt that her hormonal side effects made her feel like there was something wrong with her. So many women have resonated with that message because it is not just overt side effects, it's the covertside effects that also make Phexxi an excellent choice for these women.

Brand awareness continues to rise. We hit 19% in October, which is approaching the level of the most successful women's healthcare brands launched. Greater awareness is leading to more-and-more women requesting Phexxi prescriptions, and for more healthcare providers recognizing the unmet need for Phexxi. This in turn is driving new highs in prescriptions and unit sales week-after-week and month-after-month.