Seeking Alpha • Sep 22
RVL Pharmaceuticals: Chapter 2 - A Developing Quandary
Summary
RVL Pharmaceuticals shares have performed admirably over the last quarter.
UPNEEQ appears well short of its ambitious revenue guidance for Q4, 2022.
Q3 promises to present further challenges to the UPNEEQ growth narrative.
Liquidity will be an existential challenge for RVLP unless, maintaining discipline on expenditures, its UPNEEQ revenues solidify at a high level.
This article provides a Q2 update to June's article, "RVL Pharmaceuticals: Chapter 1 Gives A Mixed Picture" ("Chapter 1"). RVL Pharmaceuticals (RVLP) is a small/micro cap stock with big ambitions. It is working to parlay its FDA approved UPNEEQ into an entry to the aesthetics market.
The June article reviewed RVLP's plans for making headway in this new market. I questioned whether the company could meet its guided revenue targets. As I will discuss, it is indeed struggling to meet its goals.
For Q2, 2022, RVLP shares have outperformed during an awful market environment.
RVLP reported Q2 earnings on 08/11/2022. Its shares have been on a tear for the whole month of August continuing into September. Shares closed 07/2022
Data by YCharts
at $1.44. Despite a slight recent downdraft as I write on 09/19/2022, shares are trading at $2.89. RVLP has doubled over the last ~six weeks. Seeking Alpha's RVLP news feed offers nothing to account for this dramatic move.
However in my review of RVLP's Q2, 2022 10-Q, I ran across a possible explanation. Under a subheading "equity financing" (p. 20) it stated:
...on August 4, 2022, the Company entered into a series of share subscription agreements (collectively, the "Share Subscription Agreements") with Athyrium Opportunities IV Co-Invest 2 LP ("Athyrium"), Avista Healthcare Partners, L.P. ("Avista"), Brian Markison, Chief Executive Officer, and James Schaub, Executive Vice President and Chief Operating Officer, (together, the "Equity Purchasers") pursuant to which the Company sold and issued to the Equity Purchasers, in a private placement (the "Private Placement"), an aggregate of 15,451,612 ordinary shares of the Company, nominal value $0.01 per share (the "Ordinary Shares"), at a purchase price of $1.55 per Ordinary Share, the closing market trading price on August 4, 2022.
As reflected by the price chart above, $1.55 was a nice anchor price for these shares which had been trading in a range from a low of ~$1.00 to a high of ~$2.00 since the start of the year. The fact that investors, including the CEO and COO were willing to make such large purchases at $1.55 seems to have emboldened the market.
The market for RVLP shares since 08/04/2022 has launched upwards in terms of both volume and price. The share purchases were not only helpful in terms of volume, they were also most apt in terms of pricing. RVLP's Q2 earnings were only so-so as reflected by Seeking Alpha's earnings headline below:
GAAP EPS of -$0.14 beats by $0.07, revenue of $8.45M misses by $0.07M
A revenue miss during a key early quarter when RVLP was trying to establish its credibility in aesthetics could have been received poorly. Significant share purchases from the CEO and COO help to defray any such narrative.
UPNEEQ's Q2, 2022 net sales were $8.4 million, well short of its guided for Q4, 2022 net sales.
In 01/2022 RVLP issued its guidance pegging net sales for UPNEEQ during Q4, 2022 to fall in the range between $20-$25 million. At the time it issued this guidance RVLP was selling UPNEEQ exclusively as a medical treatment being offered through medical channels. Its intent at the time was to open up sales to take place in the aesthetics market. It hoped by doing so to significantly expand its market.
Success in this new approach is critical to RVLP. That is the reason I have been so focused on its quarterly earnings. During Q1, 2022, it generated net UPNEEQ sales of $5.9 million. In doing so it achieved a 90% increase over its Q4, 2021 UPNEEQ sales. Now for its latest Q2, 2022 report it has net UPNEEQ sales of $8.4 million, a quarterly increase of 42%.
Revenues of $8.4 million for Q2 are well short of the low end of its guided range of $20-25 million for Q4. With decelerating growth rate from 90% to 42% it is hard to see it reaching its guided goal.
Q3 promises to present even greater challenges to the UPNEEQ growth narrative.
RVLP's Q2, 2022 earnings call (the "Call"), reporting earnings as of 06/30/2022, did not take place until 08/11/2022. By that time RVLP had pretty good visibility into Q3 UPNEEQ sales trajectory. An analyst question as to the phasing of UPNEEQ sales during the 3rd and 4th quarters and as to whether RVLP wanted to update its Q4 guidance for UPNEEQ was a real eye-opener.
I was hoping that this might generate a serious discussion of how RVLP hoped to reach its guided target. Not so. Rather in terms of guidance, CEO Markison advised that RVLP was sticking to its previous range albeit he made it clear that it was the lower end of the range which seemed doable. In this regard he explained:
...we're remaining on, on at the lower end of our initial range and I think it has to do a bit with phasing. We know that July was a heavy vacation month. Other folks have said at the macros in the industry certainly support it and our expanded team originally was scheduled to be out July 05. We took the time to train them during the month of July and they really didn't hit the street until the end of the month, the very last week.
So, I think we're still on the low end of the range of what we gave as guidance almost a year ago before we launched into aesthetics. Feel really good about it, but I would think that our third quarter will be tempered a bit by what we seeing in July, certainly supported by the industry.
This is a bit of a downer for RVLP bulls. It had intended to get its expanded sales team working during July. Instead it pulled them back for additional training. Expanded training could be a good thing; time will tell. A need for expanded training is nonetheless concerning.
RVLP has prepared for potential ongoing losses with a recent hefty cash raise.
The liquidity section, at pg. 10-11 of RVLP's Q2, 2022 10-Q, provides cautionary advice that investors need to take to heart. For example it states:
...there is a substantial doubt as to the Company's ability to operate as a going concern. The Company's ability to continue as a going concern will require it to obtain additional funding, generate positive cash flow from operations and/or enter into strategic alliances or sell assets.
