RVL Pharmaceuticals: Chapter 1 Gives A Mixed Picture (NASDAQ:RVLP)

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I last covered RVL Pharmaceuticals (NASDAQ:RVLP) in 03/2022’s “RVL Pharmaceuticals: A Makeover For An Ugly Duckling” [“Makeover“]. Makeover described the company’s new business plan focused on its FDA approved therapy UPNEEQ. It provided a favorable picture of its prospects, closing with the following:

The question for current investors has to be can the run continue? By my estimate, it clearly can. In order to maintain its new upward trend, it will need to convince investors that it is on target with its 2022 guidance. It will also need to show that it is not overspending to do so.

This will be a story that will unfold in four chapters over the next year (likely 05/2022, 08/2022, 11/2022, and 03/2023) as RVL Pharmaceuticals reports its 2022 earnings. It is an interesting story. With its modest market cap and its 01/2022 guidance in hand, it is well worth a go for investors looking to deploy high-risk capital.

This article assesses RVL’s actual results in chapter 1 (Q1, 2022).

Acquired blepharoptosis (ptosis) has both medical and aesthetic implications

During RVL’s first conference call following the 07/2020 FDA approval of UPNEEQ in treatment of ptosis, COO Schaub noted that it was a condition “at the intersection of ocular medicine and ocular aesthetics”. RVL’s initial marketing ran with its ocular medicine aspects.

As he stated at the time:

…all of our efforts to build a market and elevate awareness will be rooted in a new narrative that transcends the medical connotations of this condition and unlocks value across the largest potential patient population of mild to moderate ptosis. Not only are we delivering on a significant unmet need, but Upneeq represents the first and only FDA approved prescription treatment for droopy eyelid.

Following its initial ocular medicine focused launch, it planned to “expand UPNEEQ into the aesthetic channel” as Schaub noted during RVL’s Q4, 2020 earnings call.

Makeover describes RVL’s unusual business operation. It currently has but a single product, UPNEEQ. UPNEEQ is a cash-only product sold directly and exclusively through RVL’s mail order pharmacy.

Its ocular medicine customers are sourced 62% through optometry businesses and 38% through ophthalmology practices. RVL’s initial medical launch consisted of alerting the market to the product focused on select practitioners. In its Q1, 2022 presentation (slide 7) it referred to this as a “soft launch”. Neither its Q4, 2020 earnings call, press release, nor 10-K advised the amount of 2020 UPNEEQ sales.

Over time, UPNEEQ has generated modest growing sales in its medical launch. Q4, 2021 was the last quarter before UPNEEQ’s Q1, 2022 launch into the medical aesthetics channel. Accordingly, RVL’s Q4, 2021 earnings, with $3.1 million of UPNEEQ sales, were exclusively ocular medicine sales. The $3.1 million represented a 39% increase over the previous quarter.

UPNEEQ’s 39% bump was nice, but still discouraging for a company spending $23.7 million in quarterly selling, general and administrative expenses. Additional revenues are clearly important to succeed in this market. That is where RVL’s aesthetic channel launch becomes critical.

UPNEEQ’s aesthetic channel launch is now well underway

In its Q4, 2021 earnings release, RVL set expectations for Q1, 2022 UPNEEQ revenues from its combined channels to be in a range from $5.5 to $6 million. Importantly, RVL met this target; it reported net UPNEEQ product sales for Q1, 2022 of $5.9 million, 90% growth over fourth quarter 2021.

Its lifetime sales trajectory is reflected on the slide below:

UPNEEQ net sales

UPNEEQ net sales (seekingalpha.com)

Significantly in its Q1, 2022 reporting, RVL reconfirmed its Q4, 2022 guidance for $20 to 25 million in fourth quarter 2022 net product sales of UPNEEQ. So Chapter 1 is in the books and all’s well? There are two sides to every launch, revenue and expense.

UPNEEQ’s launch seems to be on track from a revenue perspective as confirmed during Q1, 2022. Its expenses present a more nuanced situation.

Despite UPNEEQ’s solid revenue potential, RVL has more work to do

According to its Q1, 2022 earnings call (the “Latest Call“), the expense side of the UPNEEQ riddle looks more troublesome. RVL’s SG&A spend for Q1, 2022 increased by an aggregate of $7.5 million, for increased UPNEEQ marketing, sales force compensation and training.

Today’s markets are unforgiving, particularly for small biotechs. In RVL’s case, where UPNEEQ is the whole story chapter and verse, it comes under a high-res microscope. When quarterly product sales total $5.9 million, a $7.5 million quarterly increase in expenses muddies the clarity of the picture.

Certainly, since RVL’s 05/12/2022 earnings report, ostensibly delivering a beat, RVL has underperformed the broader market and its biotech peers as reflected below:

RVLP Stock Chart
Data by YCharts

Conclusion

Chapter 1 is now complete. Instead of a price of $1.75 and a market cap, of ~$154 million, as was the case when Makeover was published, RVL now (05/14/2022) has a share price of $1.22, a discount of 30%. Its market cap has shrunk to ~$115 million.

Chapter 2 will likely be published in August. It will be particularly interesting in terms of UPNEEQ sales and expenses. There is no specific guidance for Q2 UPNEEQ sales, only for Q4 where RVL reconfirmed its UPNEEQ revenue guidance of $20-$25 million, with a midpoint of $22.5 million.

Net sales were $5.9 million for Q1, 2022. It will require tremendous growth of 281% for them to reach $22.5 million. Despite its confirmed revenue guidance, there will be skeptics that RVL can get there; particularly if it can do so within its monthly expense run rate of $7 million per month, as CEO Markison estimated during the Latest Call.

Investors will be looking closely at UPNEEQ metrics revealed during chapter 2. Expect some crazy price fluctuations as this plays out.

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