TherapeuticsMD, Inc. — Q3 2020 Form 10-Q
Business context and reporting period. TherapeuticsMD is a women’s healthcare company that sells IMVEXXY and BIJUVA hormone therapies, ANNOVERA contraception, and prescription prenatal vitamins. This unaudited report covers the three and nine months ended September 30, 2020. The company paused ANNOVERA’s full launch during the COVID-19 pandemic and resumed it on July 1, 2020.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $19.3 million | $23.7 million | $42.3 million | $33.7 million |
| Product revenue | $17.3 million | $8.2 million | $40.3 million | $18.2 million |
| Operating loss | $25.0 million | $27.1 million | $120.9 million | $106.8 million |
| Net loss | $32.6 million | $32.0 million | $141.4 million | $126.7 million |
| Net loss per share, basic and diluted | $(0.12) | $(0.13) | $(0.52) | $(0.53) |
- Revenue and margins: Q3 product revenue rose 111% year over year, led by ANNOVERA, IMVEXXY, and BIJUVA; total revenue fell because Q3 2019 included a $15.5 million Theramex license fee, versus $2.0 million of Knight milestone revenue in Q3 2020. Nine-month product revenue increased 121%. Prescription-product gross margin was approximately 81% in Q3 2020 versus 82% a year earlier, and 74% for the first nine months versus 81%. The nine-month margin decline reflected product mix, ANNOVERA license amortization, and inventory obsolescence.
- Expenses and cash flow: Q3 operating expenses fell to $41.0 million from $49.3 million, mainly through lower sales and marketing, R&D, and professional fees. Nine-month operating expenses increased to $152.8 million from $137.1 million, including higher commercialization and personnel costs and product sample write-downs. Net cash used in operations was $129.1 million for the first nine months, compared with $114.9 million in 2019; financing activities provided $49.0 million. Cash decreased by $81.2 million to $79.6 million.
- Liquidity and capital structure: At September 30, cash was $79.6 million and current liabilities were $47.3 million. Long-term debt had a $250.0 million principal balance and a $237.1 million carrying value; the disclosed effective interest rate was approximately 12.5%. Total liabilities were $293.3 million, and stockholders’ deficit was $116.0 million.
Material changes versus the prior comparable period
- Commercial product revenue grew substantially, particularly from ANNOVERA, while the prior-year period benefited from a much larger license fee. The change in revenue mix contributed to lower total Q3 revenue year over year.
- Despite higher nine-month product revenue, nine-month operating loss widened by $14.1 million and net loss widened by $14.7 million. Management cited increased commercialization spending, higher personnel costs, and product sample and inventory write-downs.
- Cash fell by $81.2 million from year-end 2019. Debt principal rose by $50.0 million following a February 2020 draw, while the remaining $50.0 million facility tranche became unavailable after ANNOVERA’s launch was delayed.
Outlook, risks, and unusual items
- Management expects operating losses to continue in the near term and stated that additional capital is needed to maintain compliance with the debt facility’s minimum cash covenant over the next 12 months. It is pursuing financing alternatives, including a possible sale of a controlling interest in vitaCare; a sale process had begun and initial indications of interest were received. Financing availability, terms, and sale proceeds are uncertain and could involve dilution.
- The filing states that uncertainty around financing, commercialization, and COVID-19 creates substantial doubt about the company’s ability to continue as a going concern for the next 12 months. Management believes cash, potential asset-sale proceeds, and potential financing could meet ordinary-course cash needs, but those sources are not assured.
- The debt agreement includes minimum product-revenue covenants beginning with Q4 2020 and a $60 million minimum unrestricted cash requirement. A November 8, 2020 amendment temporarily reduced the minimum to $45 million through December 31, 2020; it then reverts to $60 million. Failure to meet covenants could accelerate repayment. The company reported covenant compliance at September 30.
- COVID-19 continued to affect healthcare-provider access, demand, and launch activity. Management reported sufficient inventory and no anticipated near-term supply interruption, but warned that pandemic duration, payer coverage, collections, supply-chain conditions, and economic effects remain uncertain.
- Unusual items include a $5.7 million inventory obsolescence reserve at quarter-end, primarily related to BIJUVA, and $5.1 million of product sample write-downs during the nine-month period. In August, the company issued lenders warrants for 4.75 million shares in connection with a debt amendment; the warrants were valued at $7.4 million and recorded as a debt discount. The November amendment also modified warrant exercise-price adjustment terms.
- The company withdrew its BIJUVA lower-dose efficacy supplement on November 5, 2020 and said it intended to seek FDA dispute resolution; approval of the lower dose is uncertain. Teva and Amneal filed generic challenges to IMVEXXY and BIJUVA patents, respectively; the company sued both, and trial dates had not been set.
Important facts for investors to verify
- Whether the company can raise capital or complete a vitaCare transaction in time to meet the cash covenant and fund operations, and the dilution or other terms involved.
- Actual product revenue against the facility’s quarterly minimum-revenue covenants, beginning with the $20 million requirement for Q4 2020, and subsequent cash balances after the temporary covenant relief expires.
- Whether commercial growth in ANNOVERA, IMVEXXY, and BIJUVA is sufficient to reduce operating losses and cash burn, particularly amid COVID-19 and payer-access uncertainty.
- Progress and outcomes in the Teva and Amneal patent cases and the FDA dispute process for BIJUVA’s lower-dose supplement.
- The effects of inventory reserves, product returns and rebates, concentrated customers and suppliers, and potential additional financing or warrant-related dilution.