TherapeuticsMD, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; filed May 7, 2018. TherapeuticsMD is a women’s health company developing hormone-therapy medicines and selling prescription prenatal vitamins.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 or comparison |
|---|---|---|
| Net revenue | $3.77 million | $3.99 million; down 5% |
| Gross profit and margin | $3.14 million; approximately 83% | $3.33 million; approximately 83% |
| Operating expenses | $27.86 million | $24.61 million; up 13% |
| Operating loss | $24.72 million | $21.29 million |
| Net loss | $24.40 million | $21.16 million |
| Basic and diluted loss per share | $0.11 | $0.11 |
| Net cash used in operating activities | $19.65 million | $20.53 million |
| Cash at March 31 | $107.35 million | $127.14 million at December 31, 2017 |
At March 31, 2018, total assets were $122.96 million, current liabilities $15.66 million, and stockholders’ equity $107.30 million. The balance sheet reports no borrowings. Cash exceeded current liabilities by approximately 6.9 times. Cash declined $19.79 million during the quarter. The company reported 122 days sales outstanding, versus 97 days at year-end 2017.
Changes versus the prior period
- Revenue declined primarily because estimated discounts reduced average net revenue per unit, partly offset by higher unit volume; cost of goods sold fell 4%.
- Operating expenses rose $3.24 million. Sales and marketing costs increased $2.80 million, primarily to support prospective hormone-therapy commercialization; human-resource costs rose $0.75 million. R&D declined $0.69 million, partly following completion of the TX-001HR REPLENISH trial.
- Net loss increased $3.25 million. Operating cash use improved by approximately $0.88 million year over year, while 2017 financing cash flow included $2.46 million from warrant exercises; Q1 2018 financing inflow was only $44,000.
Outlook, developments and risks
- Pipeline and regulatory milestones: The TX-004HR NDA resubmission, covering 4 mcg and 10 mcg doses, had an FDA target action date of May 29, 2018; management said a launch could occur as early as Q3 2018 if approved. The TX-001HR NDA had an October 28, 2018 target action date. FDA’s March filing letter for TX-001HR allowed substantive review but was preliminary, not assurance of approval. The company committed to a post-approval observational study for TX-004HR.
- Financing after quarter-end: On May 1, 2018, the company entered into a secured term-loan agreement for up to $200 million in three milestone-dependent tranches. The first $75 million tranche was conditional, including on FDA approval of TX-004HR; the facility was not reported as drawn in this filing. Interest is one-month LIBOR, subject to a 1.50% floor, plus 7.75%. The agreement includes a $50 million minimum-cash covenant and revenue requirements, as well as restrictions and default provisions.
- Management believed existing cash and funds available under the facility would fund its operating plan for at least 12 months from the filing date. It cautioned that delays could leave cash insufficient and prevent access to facility proceeds. Management expected operating losses in the near term and sales and marketing expense to rise as commercialization preparations continued.
- Key risks include FDA review outcomes and timing, possible additional clinical requirements, commercialization and reimbursement uncertainty, reliance on third parties for trials and manufacturing, product safety, and the ability to meet loan covenants. One vendor supplied approximately 100% of purchases in both comparative quarters, creating supplier concentration.
- The filing reports no legal proceeding believed to have a material effect and no material change to previously disclosed risk factors. Disclosure controls were assessed as effective; no material internal-control changes were reported.
- ASC 606 was adopted January 1, 2018 with no material financial-statement impact. The company was still assessing the effect of the forthcoming lease standard, expected mainly to affect its operating lease accounting.
Important facts for investors to verify
- Subsequent FDA decisions and actual approval, launch timing, labeling, and any further requirements for TX-004HR and TX-001HR.
- Whether and when any loan tranche is drawn, the conditions attached, covenant compliance, and the resulting interest and repayment burden.
- Cash burn, collections and DSO trends, commercial revenue growth, and whether cash runway remains adequate if approval or launch is delayed.
- Customer concentration disclosure: the filing states five major customers represented approximately 80% of recognized revenue in Q1 2017 and also states approximately 72% for Q1 2017, despite separately listing Q1 2018 customer sales. The period labels are inconsistent and should be checked against the filed statements.
- Supplier concentration and the potential effect of any disruption, as well as the assumptions behind estimated discounts, rebates, coupons, returns, and receivables.