Evofem Biosciences, Inc. (ticker: EVFM), a biopharmaceutical company focused on developing and commercializing innovative products to address unmet needs in women’s sexual and reproductive health, has released its first-quarter 2023 results. The results reveal an increase in the company’s variable consideration reserves for the period. This detail plays a crucial role in determining the revenue recognized for the sale of the company’s product, Phexxi.
Evofem follows the provisions of ASC 606, Revenue from Contracts with Customers, which requires the identification of contractual agreements with customers and the allocation of the transaction price based on the performance obligations in the contract. The company then recognizes revenue when the performance obligation is satisfied or when control of the product is transferred to the customer.
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Phexxi Sales and Variable Considerations
Phexxi is sold at the wholesale acquisition cost (WAC), with discounts given in some cases. Along with WAC, Evofem records product revenue, net of reserves for applicable variable considerations. These variable considerations can include distribution fees, prompt pay and other discounts, product returns, chargebacks, rebates, and patient support programs. The reserves play a pivotal role in determining the amount of revenue recognized for the sale of Phexxi.
As of March 31, 2023, and December 31, 2022, the variable considerations were recorded in the condensed consolidated balance sheets. These considerations amounted to approximately $0.2 million and $0.1 million, respectively, in contra trade accounts receivable and $3.1 million and $2.6 million, respectively, in other current liabilities. This indicates an increase in variable consideration reserves for the first quarter of 2023.
Estimating Variable Considerations
The company must make significant judgments to estimate certain variable considerations, such as determining the percentage of end-users obtaining the product through public insurance like Medicaid or through private commercial insurance. As Phexxi was launched in September 2020, the historical data available to make these estimates is limited. The company relies on trend analysis and professional judgment in developing these estimates.
Debt Management and Financial Position
In addition to the variable consideration reserves, the company has been actively managing its debt through various amendments to its Baker Bros. Purchase Agreement and the issuance of convertible senior secured promissory notes. Through these agreements, Evofem has taken steps to improve the company’s financial position while working to achieve the milestone of $100.0 million in cumulative net sales of Phexxi by June 30, 2023.
Evofem’s first-quarter 2023 report demonstrates the importance of carefully monitoring variable consideration reserves and making informed decisions based on historical data and current trends. It also highlights the company’s ongoing focus on strategic financial management to ensure a positive trajectory. The continued growth of Phexxi and the achievement of milestones related to sales will be key factors to monitor as Evofem seeks to maintain a strong financial position in the future.
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