TherapeuticsMD, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. This is an annual report, not a report limited to 2012 Q4. The company sells women’s health supplements and cosmetics and is developing hormone-therapy drug candidates.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $3.818 million | $2.088 million |
| Gross profit / margin | $2.470 million / 65% | $1.141 million / 55% |
| Operating expenses | $18.618 million | $6.568 million |
| Operating loss | $16.148 million | $5.427 million |
| Net loss | $35.120 million | $12.913 million |
| Cash used in operating activities | $12.737 million | $4.967 million |
- Revenue grew 83%, primarily following the launch of prescription prenatal vitamins and expanded pharmaceutical distribution. Gross margin improved as prescription products contributed a larger share of sales.
- R&D expense rose to $4.492 million from $107,000, principally for hormone-therapy development. Operating expenses increased 184%, reflecting R&D, staffing, and sales and marketing expansion.
- Net loss included substantial financing-related charges: $10.308 million loss on debt extinguishment, $6.717 million beneficial conversion feature, and $1.604 million debt-discount amortization. These were largely noncash items.
- Year-end cash was $1.553 million, versus $126,000 a year earlier. Current assets were $4.527 million and current liabilities $3.512 million, leaving $1.015 million of working capital, compared with a $1.914 million deficit in 2011.
- Total liabilities were $7.251 million. Long-term notes payable were reported at $3.589 million net of $1.103 million debt discount, with $150,000 accrued interest; no notes payable were classified as current at year-end. The June 2012 notes bear 6% interest, are secured by company assets, and mature February 24, 2014.
- Stockholders’ deficit was $1.433 million and accumulated deficit was $52.113 million. The company reported no material off-balance-sheet arrangements.
Material changes and financing
- The company launched three vitaMedMD prescription prenatal products during 2012 and introduced three corresponding BocaGreenMD Prena1 products in Q4.
- Cash from financing activities was $14.437 million, including $7.895 million net proceeds from an October private placement and $8.7 million in note proceeds, partly offset by debt repayments. The October placement sold 3,953,489 shares at $2.15 per share.
- Common shares outstanding increased to 99,784,982 at year-end from 82,978,804. Options and warrants also represent potential dilution.
- After year-end, the company issued a revolving credit note with Plato and Associates, an entity owned by a principal stockholder, permitting advances up to $10 million at 6% interest and maturing February 24, 2014. The company had drawn $200,000 by March 7, 2013; a warrant to purchase 1.25 million shares was issued as additional consideration.
- On March 7, 2013, the company filed a prospectus supplement for a proposed underwritten common-stock offering with anticipated gross proceeds of up to $50 million. Completion, size, and terms were not assured. The company said proceeds were intended for corporate purposes, including Phase 3 trials, and repayment of the June 2012 notes.
Outlook, risks, and unusual items
- Management planned Phase 3 trials for its estradiol/progesterone combination and progesterone-only candidates after raising sufficient capital. The filing estimated Phase 3 development costs of approximately $20–$25 million for the combination candidate and $5–$8 million for the progesterone candidate. No commercial drug approval had been obtained.
- The company had FDA-effective INDs for three candidates; it did not plan further development of TX 12-003HR and was considering an IND for a fourth candidate later in 2013. Early pharmacokinetic testing of the combination candidate was reported as bioequivalent to reference products, but this does not establish clinical efficacy or FDA approval.
- Auditors expressed substantial doubt about the company’s ability to continue as a going concern, citing the operating loss and approximately $13 million of negative operating cash flow. Management’s plans depended on additional financing and growth in sales, with no assurance of success.
- Key risks include continuing losses and financing needs; clinical, regulatory, and commercialization uncertainty; dilution and debt secured by company assets; reimbursement and competitive pressures; and reliance on third parties. One supplier accounted for approximately 76% of purchases in 2012, and three wholesalers accounted for 28% of recognized revenue and 98% of deferred revenue.
- Two lawsuits filed in late 2012 alleged, respectively, improper use of Quatrefolic-related products and trademarks, and unfair competition and trademark infringement relating to the Prena1 name. The company disputed the claims and did not expect a material adverse effect, but outcomes were uncertain.
- Management reported effective disclosure controls and internal control over financial reporting at year-end; the auditor gave an unqualified opinion on internal control. The filing says the company engaged outside experts and implemented improvements after material weaknesses had been disclosed in 2011.
- The company had no stated numerical revenue or earnings guidance. It intended to expand sales coverage from 36 to 60 territories by the end of 2013, subject to execution and resources.
Important facts for investors to verify
- Whether the proposed $50 million equity offering closed, its final terms, and the resulting dilution; also confirm subsequent draws and repayment terms under the Plato credit note.
- Available cash, cash burn, and financing runway, including the status and terms of the asset-secured June 2012 notes.
- Actual timing, funding, enrollment, and results of planned Phase 3 trials, and any subsequent FDA decisions or changes to the pipeline.
- Sales growth, gross margins, deferred prescription revenue and returns, customer concentration, and supplier continuity.
- Developments, potential costs, and any required changes to products or branding arising from the Aceto and Avion lawsuits.