TherapeuticsMD, Inc. — FY2017 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2017; fourth-quarter figures are unaudited. TherapeuticsMD develops women’s health products, with its principal near-term focus on obtaining FDA approval for hormone-therapy candidates. At year-end, substantially all revenue came from prescription prenatal vitamins.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $16.8 million | $19.4 million |
| Gross profit / gross margin | $14.1 million / 84% | $15.2 million / 78% |
| Operating expenses | $91.8 million | $105.4 million |
| Operating loss | $77.6 million | $90.3 million |
| Net loss | $76.9 million | $89.9 million |
| Net loss per share | $0.37 | $0.46 |
| Cash used in operating activities | $76.2 million | $69.1 million |
Revenue fell 13%, primarily because higher coupons reduced average net revenue per unit, partly offset by slightly higher unit sales. Gross margin improved after distribution-channel centralization lowered distribution costs. R&D expense declined 37% to $33.9 million as phase 3 trial costs fell; SG&A rose to $57.7 million, including increased commercialization-related sales and marketing costs.
Fourth-quarter 2017 revenue was $4.1 million, gross profit $3.5 million, net loss $21.4 million and loss per share $0.10. In fourth-quarter 2016, those figures were $4.5 million, $3.8 million, $22.8 million and $0.12, respectively.
At December 31, 2017, cash was $127.1 million, working capital $126.2 million, total current liabilities $13.3 million and total liabilities $13.3 million. The balance sheet reports no long-term debt. The company said existing cash was expected to fund its operating plan for at least 12 months from the filing date, but warned that delays in commercialization could make cash insufficient. FY2017 financing provided $72.6 million, including $68.6 million net proceeds from a September stock offering. Operating cash burn exceeded the prior year despite a smaller net loss.
Material developments, outlook and risks
- TX-004HR: The FDA issued a complete response letter in May 2017, citing lack of long-term safety data beyond the 12-week phase 3 trial. After further safety information and FDA discussions, the company resubmitted the NDA for the 4 mcg and 10 mcg doses in November. The FDA set a May 29, 2018 target action date; the company committed to a post-approval observational study. Approval and the proposed 2018 launch were not assured.
- TX-001HR: The company submitted its NDA in December 2017 for an oral estradiol/progesterone combination. Management said approval could occur as early as fourth-quarter 2018 if the FDA accepted the filing and reviewed it on the assumed timeline. Phase 3 results showed the 1 mg/100 mg and 0.5 mg/100 mg doses met all co-primary efficacy endpoints; endometrial hyperplasia or malignancy was reported at 0% across study doses.
- Management expected continuing operating losses until product approvals and successful commercialization, neither of which was assured. It planned to leverage and expand its sales organization if the candidates were approved and was discussing debt financing to support commercialization; no financing commitment was disclosed.
- Key risks include FDA review and manufacturing inspections, hormone-therapy safety and labeling requirements, competition and reimbursement, dependence on third-party manufacturers, and financing needs. One supplier provided approximately 100% of vitamin products, and four customers together represented about 59% of FY2017 revenue. The company also reported a $387 million accumulated deficit and approximately $338.6 million in federal tax-loss carryforwards, whose use may be limited.
- The Tax Cuts and Jobs Act reduced the federal corporate tax rate to 21% beginning in 2018. The company recorded a provisional $46.7 million net adjustment to its valuation allowance; it reported no income-tax provision for FY2017. No material litigation or material off-balance-sheet arrangements were disclosed. The auditor issued an unqualified opinion on the financial statements and internal controls.
Most important facts for investors to verify
- FDA decisions, review timing, labeling and any additional conditions for TX-004HR and TX-001HR.
- Cash burn, commercialization spending, available runway and whether proposed debt financing is secured on acceptable terms.
- Whether prenatal-vitamin revenue stabilizes, and the effects of coupons, customer concentration and distributor payment timing.
- Manufacturing readiness and inspection outcomes for commercial supply, including reliance on third-party manufacturers.
- Potential dilution from future equity financing and the limits on realizing tax-loss carryforwards.