RVNC - Revance Therapeutics: Not Even Daxxify Can Treat Investor Frown Lines

2023-11-29 12:06:50 ET

Summary

• Revance Therapeutics' share price has been characterised by volatility ever since its IPO - but today shares trade close to an all-time low.
• The company's focus is on maximising the potential of Daxxify - approved to treat frown lines, and recently approved in the therapeutic setting of cervical dystonia.
• Revance's share price has plummeted due to delays in FDA approval, legal challenges from AbbVie, and disappointing sales of Daxxify.
• AbbVie is a Pharma giant that is fiercely protective of its best-selling assets, of which Botox is one.
• As such, with cash evaporating and revenue growth not as impressive as hoped, Revance faces a make-or-break year - I am leaning towards "break".

Investment Overview - From IPO To Present Day - Revance Fights For Approval Of Frown Line Injection

Ever since its initial public offering ("IPO") in 2014, which raised ~$96m via the issuance of ~6m shares priced at $16 per share, to fund development of botulinum toxin products for use in aesthetic and therapeutics indications, Revance Therapeutics (RVNC) has led investors on a merry dance, thanks to the volatility of its share price.

As we can see above, the market has been unable to make up its mind about the value of Revance, and there are several good reasons for this.

Since dropping its lead candidate, DaxibotulinumtoxinA Topical Gel ("RT001") after it flunked a late stage study in patients with moderate-to-severe lateral canthal lines (crow's feet) in 2015, Revance's primary focus has been on the development of a second candidate, "RT002", or daxibotulinumtoxinA for injection.

When two Phase 3 studies of daxibotulinumtoxinA in patients with moderate-to-severe glabellar lines (frown lines) met their primary and secondary endpoints in late 2017 , delivering "highly statistically significant improvement against placebo in reducing the severity of glabellar lines, i.e., the frown lines or wrinkles between the brows", it looked as though the company had produced a genuine challenger to the all-conquering Botox injection, then marketed and sold by Allergan, prior to its $63bn acquisition by AbbVie ( ABBV ).

Dan Browne, Co-Founder, President and Chief Executive Officer of Revance Therapeutics at the time, suggested (via a press release ) that the results from the twin SAKURA studies, which enrolled ~600 patients, "demonstrate it is scientifically and clinically possible to create a significantly longer-acting neuromodulator with a duration of six months, compared to three to four months observed with currently available products" i.e. Botox. Apparently, "88 percent of RT002-treated patients in SAKURA 1 and 91 percent of RT002 patients in SAKURA 2 said they were very satisfied or satisfied with their treatment experience."

Shares had soared to a value of over $35 - surely it was only a matter of time before the therapy secured a commercial approval as an aesthetic treatment, while a Phase 3 study in cervical dystonia was also underway, opening up an opportunity in the therapeutics market also.

Revance promised to submit a marketing application for frown lines in 2019, but by Q3 2019, its share price had fallen to $10.50, and no marketing application had been submitted. The company had also lost its Chief Financial Officer and Chief Business Officer Lauren Silvernail, who left for another role, and its CEO Browne, who had been in the role for 17 years, after an incident described as a "misjudgment in handling an employee matter".

Finally, in February 2020, the marketing application was filed, pushing the share price back above $20, although it quickly sank again after Revance issued ~$200m of convertible debt. In November 2020, the FDA announced it would be delaying its response to Revance's Biological License Application ("BLA"), in order to complete a full inspection of the company's California based manufacturing facility, and almost a year later, informed Revance it had uncovered issues at the plant, sending the share price tumbling once again, from ~$28, to ~$14 practically overnight. Shortly afterward, the FDA declined to approve "Daxxify" for treatment of frown lines.

Revance's new CEO Mark Foley's insider purchases of stock gave shareholders and investors hope, and the BLA for "Daxxify" was resubmitted in March 2022, and approved at the second time of asking in September 2022. The share price touched $27, before a $200m stock offering checked its progress. In October, the company submitted a supplemental BLA for Daxxify in cervical dystonia.

In January this year Revance stock matched its all-time high share price of $35, after revealing it expected RHA Collection dermal filler revenues of $34-$35m in Q4 2022, plus $10.5-$11.5m of DAXXIFY revenues.

Surely, nothing could check the company's progress now, with a potentially best-in-class product to challenge Botox, now owned by AbbVie, and earning $2.7bn as a therapeutic treatment, and $2.6bn as a cosmetic treatment - over $5bn in total - in 2022.

Revance's Nightmare 2H 2023 - Disappointing Sales, Price Confusion, Debt, Legal Challenges

Unfortunately, Revance's stunning gains made in the first month of 2023 were quickly wiped out when news broke that AbbVie had filed a lawsuit against Revance, claiming, according to court documents, that Revance:

Has taken shortcuts by misappropriating trade secrets and repeatedly poaching multiple Allergan employees with access to those secrets. In attempting to accelerate the development of its BoNT injectable products and the marketing and sales of those products and its dermal fillers, Revance is unfairly exploiting the enormous efforts and financial commitment that Allergan devoted to its flagship products, Botox and Botox Cosmetic injectable products (collectively, "Botox") and Juvéderm dermal fillers.

AbbVie claimed that "Allergan pioneered the harnessing of BoNT, one of the world's most dangerous substances, to obtain regulatory approval for Botox throughout the world", while, conversely:

Revance started in 1999 as a company focused on topical applications. Revance spent roughly 15 unsuccessful years trying to develop and commercialize a topical BoNT formulation (RT001). Weary of repeated flops in bringing a topical product to market, Revance discontinued its efforts in 2016 and pivoted to other potential products.

The effect a bona-fide Pharma giant like AbbVie's lawsuit had on Revance's share price was immediate and profound - Revance's share price is down 77% over the last six months, and currently trades at a price of $7, its lowest price ever.

Additionally, Revance has failed to help itself, by initially offering Daxxify at a premium price to Botox - in the region of $450-$900 for a year's treatment, where Botox costs $300-$600. Requiring fewer injections, Revance reasoned it should charge more for its shot, but sales have ultimately been disappointing.

Q3 2023 DAXXIFY revenue was $22m, and after its first full year on the market, the therapy earned $71m in total. While management has claimed this figure surpasses "total first year sales of all Botox Cosmetic competitors combined", it is also clear that DAXXIFY has barely made a dent in Botox's share of the market. Worse still, Revance, which has recorded net losses of ($282m), $(281m), and $(356m) in 2020, 2021, and 2022 respectively, provided FY 2023 guidance as follows (in its Q3 earnings press release ):

Revance expects its 2023 GAAP operating expenses to be $545 million to $585 million and non-GAAP operating expenses, which exclude costs of revenue, depreciation and amortization, stock-based compensation, and restructuring and impairment charges to be $315 million to $335 million. Revance expects its 2023 non-GAAP research and development expense to be $75 million to $85 million.

Total product and service revenues across 2023 to date are $164m, so we can anticipate another year of heavy losses for the company, which reported total current assets of $388m as of Q3, against current liabilities of $82m, and with non-current debt standing at $427m.

Revance is backpedaling on its premium pricing strategy, and is now seeking to match Botox on price, ultimately making it cheaper than its more recognised rival, because Daxxify lasts longer and therefore requires fewer injections. But could this move be considered "too little, too late"?

Looking Ahead - Can Revance Plot Any Kind Of Path To Recovery?

In Q3, Revance did manage to finally secure approval for DAXXIFY in cervical dystonia, which company President Dustin Sjuts told analysts on the Q3 earnings call gives it:

The unique potential to disrupt a well-established $2.5 billion U.S. therapeutic toxin market and to address a large patient population with significant unmet needs.

That disruption may be slight, however, since in the therapeutic setting Botox is approved in multiple indications - overactive bladder, urinary incontinence, prophylaxis of headaches in adult patients with chronic migraines, spasticity, cervical dystonia, axillary hyperhidrosis, blepharospasm, and strabismus. A single approval in a smaller indication is unlikely to transform Revance's fortunes, or turn losses into profits, although it does represent a small step in the right direction.

The ironic aspect of Revance's travails is that Daxxify does seem to be a strong product that is superior to Botox in several ways, but even after Revance held an investor day and guided analysts through a +100 slide presentation outlining its opportunities and strengths, analysts still seem to be fixated instead on the weaknesses and threats to the business model. Post investor day, shares slipped from ~$17 per share, to ~$12 per share. Let's consider those threats.

• Finances: Revance is a heavily loss making company with debt of over $400m. An objective assessment of likely losses in 2023 and 2024 raises the prospect of the company running out of cash. Revance filed for a mixed shelf to raise $47m this month, although this is unlikely enough to sustain the company beyond 2024 if performance next year is anything like 2023.
• Legal Matters: It may be interesting to note that AbbVie's legal challenge came almost as soon as Revance launched Daxxify commercially. Had the Pharma giant known all along it could challenge the legitimacy of Daxxify, and only done so when it considered the therapy to be a potential threat to Botox? Revance may not have the financial resources to fight the case and prove its innocence, although if the case were to be dropped, or won, Revance stock would surely surge in value.
• Other competitive threats: Besides Botox, Evolus ( EOLS ) has won marketing authorisation for Jeuveau, for the treatment of glabellar lines in the U.S. This product has also been challenged by AbbVie for being too close an imitation of Botox. Supernus Pharmaceuticals ( SUPN ) is also approved for cervical dystonia, as is Ipsen's Dysport. Xeomin is yet another product similar to Botox in the aesthetic setting.
• Development Costs: To grab meaningful market share from Botox, Revance may need to secure further approvals for Daxxify in the therapeutic and aesthetic settings - in aesthetics, Botox is approved for appearance of moderate to severe forehead lines, and lateral canthal lines in adults, as well as glabellar lines. This will involve financing lengthy and expensive studies, and then waiting 6-12 months for FDA approvals.

Concluding Thoughts - Can Revance Hit Back Against Big Pharma Market Supremacy, Or Is Its' Race Run?

Fans of contrarian trades will undoubtedly look at Revance's product and its superiority to Botox (in some aspects), and perhaps even dismiss AbbVie's legal challenges as sour grapes, in which case, arguably, Revance, with its new pricing strategy, could turn its fortunes around in 2024 and perhaps even achieve break-even by driving e.g. +$300m of product revenues. The fact that sales of Botox in Q3 were up 5% year-on-year hints at a growing market, which could be encouraging news for the likes of Revance and Evolus.

With that said, my take - and it is only my take, based on an objective assessment of the facts and arguments presented in this post, is that Revance may ultimately find itself "a day late and a dollar short", as the expression goes, in 2024.

AbbVie enjoys a reputation as a company that is fiercely protective of its most valuable assets - witness how the company was able to preserve Humira patents almost a decade beyond their initial expiration date - and I would share the market's concerns that the Pharma giant can successfully challenge Daxxify, perhaps resulting in Revance paying substantial royalties to AbbVie on sales of Daxxify.

That result could even be the only way Revance can survive, with cash evaporating rapidly, and profitability seemingly a long way off. Can Revance keep funding advertising campaigns making the case for Daxxify over Botox? The task is made all the harder given the time and expense wasted pitching Daxxify as a premium product with a substantially higher price point than Botox.

Ultimately, despite its promising product, my concern would be that Revance has made too many costly missteps, and therefore, even in a year - 2024 - where I believe aesthetics product performance will improve markedly as post pandemic pressures ease further (although it's worth noting Revance has been shy of providing any FY24 guidance), I think the company may struggle to recoup any of the share price losses experienced in 2H 2023.

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