Revance Therapeutics Inc (RVNC)

[soma2022]

Why would they sell now at $6.66?

While we will have much more clarity on the negotiations when the tender offering documents post by end of August we can assume that this was reasonably and fairly shopped out by their banking partner: Centerview, and passed legal scrutiny by their law firm: Skadden, Arps.

So what did the board likely see that forced their hand?

1) They were not going to make Q3/Q4 revenue numbers and that they would likely have to revise those estimates down to the $260 to $265M range and this would then lead to analyst downgrades and further revision down to 2025 revenue targets, a possible going concern statement in 2025 with a $150M short term debt time bomb payoff of Athyrium debt in 2026. my thinking: if we could find someone to refinance that Athyrium debt out an additional 2 to 4 years it would help to take pressure off the balance sheet until they reach cash flow breakeven in late 2025/early 2026.

2) it was getting well into Q3, and they wouldn't be able to maintain the "at least $280M in 2024 Revenue guidance line" for much longer. They elected to sell before this announcement. The board and management team had grown tired and took the easier and less risky path is how I see it. I only wish they would have fought to somehow preserve some potential future upside for long term loyal shareholders in the event that Crown can help get this across the cash flow positive finish line.

3) a revenue estimate warning and $150M in short term debt payments in 2026 would likely force a dilutive raise of $100M in the $2 to $3 range in 2025 which would require 30 to 40M additional shares = 22 to 28% share dilution.

4) Other headwinds: Allergan trial expenses in 2025, China fosun payments paid in arrears which likely means we don't see China revs until 2nd half of 2025 and they will not be as significant until China market gains traction, slower Daxxify therapeutic payer reimbursements than many of us are modeling, competition from Hugel as new low cost Botox biosimilar in 2025.

So the board said let's take the $6.66 and protect shareholder value and get them 2.8x higher price compared to the recent lows, but capping all future shareholder gains. I am not happy about that. It appears they have swam 50 to 75% of the distance and decided to quit rather than risking failure and continuing to their goal of cash flow break even in 2nd half of 2025 or even early 2026. I suspect Revance is 12 months away from a clear path to breakeven which would help to bolster share price and a chance for debt refi. As you can see in my post below, I had already lowered my 2024 Revenue target to $265M which implies $148M of sales for Q3 and Q4 = flat in Q3 and $83M in Q4. For those of you who crunched their numbers, they lowered cash burn significantly from Q1 to Q2 and reduced cash flow from continuing operations significantly while increasing GMs to 73% from 71% last quarter. I now have them finishing the year with around $180M cash after receipt of $15 to $20M in Fosun milestone payments. I expect $350M in 2025 Revenue and additional $80M in cash burn to $100M by year end 2025 and before the needed prep for Athyrium debt payoff in 2026.

Based on how Daxxify is growing in my practice and the practices I am in close communication with, injectors finally figuring out optimal injection patterns and pricing, accelerating new account growth, a therapeutic sales ramp in 2025, Fosun China license revenue starting mid to late 2025, and how well RHA is doing against their competitors, I would have been willing to undergo the potential need for a dilutive share sale next year in order to hold my ownership and eliminate the cap on my future share gains.

My past post. As you can see, they beat on my Q2 Revenue growth.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=174570035

$277M was cash at quarter end March 31, 2024 and after the $100M raise.

Non GAAP OPEX this year trending to bottom of range $290M to $310M....So let's assume $295M for full year minus $73.6M in Q1 = $221M for remainder of year.

$280M total revenue guidance for 2024 minus $52.1M in Q1 = $227.9M Revenue for remainder of 2024. This does not include any milestone payments from Fosun/Viatris.

$227.9M x 72% GMs = $164M Gross Profit for Q2 to Q4 2024.

$164M GP minus $221M non GAAP opex = $57M Non GAAP loss for remaining 3 quarters.

Now add debt paydown and Interest expenses and finance lease payments of $35M for remainder of year:
Net Interest Expense of $2.3M/qtr for next 3 quarters:
My estimate of Finance Lease pre-payments (this is for Anji and PCI manuf/Fill/finish facilities): $8M/qtr
Athyrium debt payments: $2.5M total Q3/Q4

Add in $10M to AR/AP deficit/working capital as sales grow and I have cash burn of $57M + $35M + $10M = $102M

$277M - $102M = $175M Cash to end 2024 plus any milestone payment from Fosun/Viatris = $15M and based on current Revenue projections, Revance should finish 2024 with $190M.

Assuming revenue hits $85M in Q4: $39M RHA (15% year/year increase) , $38M in Daxi Aesthetic (58% y/y revenue increase), and $8M Daxi for CD; and we should shrink cash burn to around $27M in Q4.

Revance will need $110 to $115M in quarterly revenue to get to cash flow break even. My thinking: $40M RHA, $50M Daxi Aesthetic, and $20M Daxi CD. Should be recognizing China Fosun daxi sales by 2025 first half of 2025.

When will this happen? Q2 to Q3 2025. Revance should have over $100M cash remaining despite the accelerating Athyrium loan payoff schedule.

A solid Q2 revenue increase of 15% over Q1 would get us to $60M but that means Q3 and Q4 will need to see some big revenue growth and I am not so confident they will hit their revenue guidance so I feel that $280M revenue guidance for 2024 is at risk. My rev target is $265M, and, while disappointing, I still see Fosun milestone payment and CD milestone payments in 2025 as countering the $10M higher cash burn for 2024.