By Beth Senko, CFA
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Innovus Pharamceutical (INNV) announced preliminary 3Q18 revenues of $7.0 - $7.1 million, up over 200% from $2.2 million in the year earlier period, but down sequentially from $7.3 million posted in 2Q18. We were looking for a slight sequential improvement to $7.6 million (including $7.3 million in product sales).
In our initiation report (October 2, 2018), we noted that the supplements business differs from traditional pharmaceutical business. The supplements market relies more on customer interest than disease incidence. There are few blockbuster perennial products in the supplements market – particularly at a brand level. It is a marketing-driven business, where demand can wax and wane. As a result, marketing investment in the supplements market is not as “sticky” as in OTC and prescription drugs.
Innovus spent $5.5 million in 2Q18 largely on a 200k+ piece direct mail campaign. This represented a $2 million sequential increase in marketing expense, which caught us off guard. So while INNV reported stronger than expected revenue results in 2Q18, much of the upside surprise was offset by the increased marketing spend.
We understand that INNV did not make the same level of marketing investment this quarter and instead will focus on smaller, more frequent campaigns to determine which programs are most effective and with which customers. We believe that this marketing strategy will provide more meaningful metrics and improve operating cash flow – both keys to improving investor confidence in the shares.
Our 2018 revenue estimate stays at $27.6 million, slightly ahead of guidance at $23 million. We expect the Company to make another marketing push in 4Q18 to target customers who include “improving health” in their new year’s resolutions and we anticipate that some of these revenues may book before year-end. Additionally, the Company appears close to releasing its GlucoGorx product/test strip bundle, which along with several other pipeline products may give the Company a 4Q revenue boost.
Innovus is scheduled to release 3Q18 results on November 14.
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By Beth Senko, CFA