TherapeuticsMD, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018; filed July 30, 2018. TherapeuticsMD develops and commercializes women’s health products, including prescription prenatal vitamins and hormone therapies. IMVEXXY was FDA-approved in May 2018 but had not generated revenue by June 30; commercial distribution began in late July. The FDA’s target action date for TX-001HR was October 28, 2018.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Net revenue | $3.76 million | $4.25 million | $7.54 million | $8.24 million |
| Gross profit | $3.31 million | $3.57 million | $6.45 million | $6.89 million |
| Gross margin | 88% | 84% | 86% | 84% |
| Operating expenses | $36.33 million | $23.40 million | $64.19 million | $48.01 million |
| Net loss | $33.22 million | $19.68 million | $57.62 million | $40.83 million |
| Basic and diluted loss per share | $0.15 | $0.10 | $0.27 | $0.20 |
- Revenue declined 11% in Q2 and 8% for the first half. Management attributed the decline mainly to lower average net revenue per unit from higher discounts, partly offset by higher unit sales.
- Sales and marketing expense rose to $16.62 million in Q2 and $27.12 million for the first half, reflecting IMVEXXY launch and TX-001HR pre-commercialization spending. R&D expense fell to $6.80 million in Q2 and $13.84 million for the first half, primarily after completion of the REPLENISH trial and IMVEXXY approval.
- Cash was $154.39 million at June 30, 2018, versus $127.14 million at year-end 2017. Six-month operating cash use was $44.60 million; investing cash use was $0.49 million. Cash increased by $27.25 million, principally due to financing.
- The company drew $75 million under a secured term loan; reported long-term debt, net of debt discount and financing fees, was $73.14 million. The loan carries interest at one-month LIBOR, subject to a 1.50% floor, plus 7.75%; the reported effective rate was 10.6%.
- Total current assets were $167.10 million and current liabilities $21.21 million. Total liabilities were $94.35 million and stockholders’ equity $77.55 million at June 30.
Material changes and outlook
- Operating loss increased to $33.02 million in Q2 and $57.74 million for the first half, as higher commercialization-related spending more than offset reduced R&D expense and lower revenue.
- Management expects operating losses to continue in the near term and sales and marketing expenses to rise as commercialization proceeds. It believes existing cash and term-loan availability will fund its operating plan for at least 12 months from the filing date, but cautions that delays or weaker commercialization could require spending reductions or additional financing.
- The loan facility provides up to $200 million in three tranches. The $75 million second tranche depends on, among other conditions, FDA approval of TX-001HR and its first U.S. commercial sale. The $50 million third tranche requires the second tranche and at least $75 million in qualifying trailing-12-month product revenue. The agreement also requires at least $50 million in cash and compliance with minimum revenue covenants; the filing does not state the specific revenue thresholds.
- Management reported compliance with loan covenants at June 30. The agreement includes first-priority security over substantially all assets, prepayment fees and restrictions on additional debt and certain other activities.
- IMVEXXY approval requires a post-approval observational study of endometrial cancer risk, with annual progress reports to the FDA. TX-001HR remained under FDA review, with the October 28, 2018 target action date; the company noted that the FDA’s preliminary filing review did not rule out later-identified issues.
Risks, contingencies and other notable items
- Management cited risks including regulatory approval and commercialization, clinical and product-safety outcomes, third-party manufacturing and clinical-trial reliance, reimbursement, financing needs, loan covenant compliance and extensive regulation.
- A formal SEC staff investigation concerns whether certain 2017 TX-004HR communications may have violated Regulation FD. The company is cooperating; the outcome and any penalties or remedies are uncertain.
- Customer concentration is significant: four customers accounted for approximately 71% of first-half 2018 revenue. Approximately 100% of purchases came from one supplier in the first half of 2018.
- Days sales outstanding rose to 136 days from 97 days for 2017, partly due to extended customer terms associated with the IMVEXXY launch and timing of payments. Management expects DSO to fluctuate.
- The company reported no material change to previously disclosed risk factors and no material effect from adopting the new revenue standard.
Investor verification priorities
- Confirm the FDA decision and commercial progress for TX-001HR, and assess whether IMVEXXY sales and repeat demand justify launch spending.
- Track revenue, discounts and rebates, receivables/DSO, customer concentration, and operating cash burn.
- Verify cash levels, covenant compliance, interest costs and the conditions and availability of future loan tranches.
- Monitor the SEC investigation, required IMVEXXY post-approval study, and any new regulatory or product-safety developments.
- Assess dilution and potential financing needs, including the effect of outstanding options and warrants.