TherapeuticsMD, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Unless otherwise stated, financial amounts below are in U.S. dollars and millions; the filing’s financial statements report amounts in thousands.
Business context
TherapeuticsMD has shifted from operating a women’s-healthcare commercial business to a pharmaceutical royalty company. In December 2022, it licensed or transferred U.S. commercialization rights for IMVEXXY, BIJUVA, ANNOVERA and prenatal vitamin products to Mayne Pharma. Historical commercial results are presented as discontinued operations. The company reports that it no longer conducts research and development or commercial operations and had one full-time employee at quarter-end.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Continuing revenue | $0.416 million | $0.695 million |
| Gross profit | $0.416 million | $0 |
| Operating expenses | $3.083 million | $17.875 million |
| Continuing-operations loss | $2.310 million | $17.875 million |
| Discontinued-operations loss | $1.293 million | $31.146 million |
| Net loss | $3.603 million; $0.37 per share | $49.021 million; $5.70 per share |
| Cash used in continuing operating activities | $8.701 million | $17.872 million |
| Cash used in discontinued operations, net | $23.368 million | $11.654 million |
| Cash and restricted cash at period end | $17.248 million | $49.317 million at Dec. 31, 2022 |
| Total assets / liabilities | $59.601 million / $27.577 million | $90.458 million / $55.315 million at Dec. 31, 2022 |
Revenue was entirely license and service revenue; the filing attributes 100% of Q1 license revenue to Mayne Pharma and Theramex. Gross profit equaled revenue because no continuing cost of revenue was reported. A gross-margin comparison is not especially informative given the business transition and low revenue base. Operating expenses fell 82.8% year over year, principally reflecting the move away from commercial operations.
The company reports no outstanding borrowings after repaying and terminating its former financing agreement in connection with the Mayne transaction. It had $7.135 million of noncurrent operating lease liabilities; total contractual operating lease obligations were $11.507 million. Stockholders’ equity was $32.024 million at March 31, down from $35.143 million at year-end. The filing reports $2.041 million of current and $20.272 million of long-term royalty receivables.
Material changes and outlook
- Mayne Pharma’s agreement provides royalties generally at 8% on the first $80 million of annual U.S. product sales and 7.5% above that level, subject to adjustments, for 20 years. A $3 million annual minimum royalty applies for 12 years, adjusted for inflation and subject to further adjustments. The rate can fall to 2% for a product after specified patent or generic-entry events. The company received approximately $0.1 million in royalty payments from Mayne during Q1.
- Potential sales-based milestone payments are $5 million, $10 million and $15 million at annual aggregate U.S. net sales thresholds of $100 million, $200 million and $300 million, respectively.
- Management states that additional capital may be needed and that uncertainty around liquidity and capital markets raises substantial doubt about the company’s ability to continue as a going concern for the next 12 months. It warns that unsuccessful financing or weaker-than-anticipated Mayne sales, working-capital adjustments or other factors could leave cash insufficient.
- On May 1, 2023, after quarter-end, the company entered into a Rubric Capital subscription agreement for up to $5 million of common stock, subject to stockholder approval and other conditions. The agreement allows up to 5 million shares; the initial drawdown is specified as 312,525 shares at $3.6797 per share.
- The company disputes Mayne Pharma’s March 2023 closing net working-capital calculation. It considers its own estimate reasonable, but the outcome is uncertain and it cannot estimate a potential loss range.
- No quantified financial guidance or earnings outlook is provided. The company also cites uncertainty from COVID-19, potential financing dilution, and dependence on licensee performance. It says it does not believe the up-to-$7 million vitaCare earn-out will be realized.
Contingencies and other notable matters
- A Nasdaq deficiency notice concerned failure to hold a 2022 annual meeting within the required period. The company planned a June 26, 2023 meeting and expected it to restore compliance by Nasdaq’s June 29 deadline.
- Patent litigation with Teva concerning generic IMVEXXY remains ongoing; the litigation is stayed pending further action. The filing says Mayne is responsible for patent enforcement under the license agreement. BIJUVA litigation with Amneal was settled, with generic entry generally permitted beginning in May 2032 or earlier in specified circumstances.
- Executive severance liabilities totaled $3.5 million at March 31, 2023. The filing also reports $5.078 million of accrued contract termination costs.
- Management concluded disclosure controls and procedures were effective; no material changes in internal control over financial reporting were reported for the quarter.
Key facts for investors to verify
- Cash runway and the company’s ability to obtain financing, including the status and terms of the Rubric subscription after stockholder approval.
- Mayne product sales, actual royalty receipts, and whether the annual minimum royalty and receivable amounts convert to cash as expected.
- Resolution and financial effect of the disputed Mayne working-capital settlement.
- Whether the annual meeting restored Nasdaq compliance by the stated deadline, and how the share count changed: the cover page reports 10,262,715 shares outstanding on May 12, 2023, versus 9.953 million at March 31 in the equity statement.
- Developments in the Teva litigation, product patent protection and potential generic competition, as well as remaining severance and lease obligations.