TherapeuticsMD, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; unaudited. The company develops and sells women’s healthcare products, including prescription prenatal vitamins, OTC vitamins and cosmetics, and is developing hormone-therapy drug candidates. Its common stock began trading on NYSE MKT in April 2013 under TXMD.
Financial performance and position
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Net revenue | $2.08 million | $0.82 million | $3.62 million | $1.54 million |
| Gross profit | $1.62 million | $0.45 million | $2.77 million | $0.83 million |
| Gross margin | 77.7% | 54.5% | 76.7% | 54.0% |
| Operating expenses | $7.23 million | $4.42 million | $13.33 million | $7.67 million |
| Operating loss | $(5.62) million | $(3.97) million | $(10.56) million | $(6.84) million |
| Net loss | $(6.01) million | $(11.85) million | $(12.39) million | $(25.14) million |
| Basic and diluted loss per share | $(0.05) | $(0.14) | $(0.11) | $(0.29) |
Revenue increased 154% in Q2 and 135% for the first half, which management attributed to more sales territories and sales personnel and products introduced in 2012. Gross margin improved as cost of goods sold fell as a share of revenue, largely reflecting product mix. Higher personnel, product development, and other operating costs widened the operating loss. Lower net losses versus 2012 primarily reflect the absence of large 2012 debt-extinguishment and beneficial-conversion-feature charges; the 2013 periods included financing costs.
Cash flow and liquidity: First-half operating cash use was $10.68 million, versus $5.65 million in 2012; investing cash use was $0.26 million. Financing provided $43.83 million, principally from the March–April public offering. Cash rose to $34.44 million at June 30 from $1.55 million at year-end. Current assets were $40.51 million and current liabilities $4.60 million. Stockholders’ equity was $38.47 million, compared with a $1.43 million deficit at year-end.
Debt: No notes payable or accrued interest remained on the June 30 balance sheet. The company repaid its outstanding 2012 notes and settled its bank line in the first half. A $10 million revolving credit facility with Plato was available, secured by substantially all company assets; it carried 6% interest and a February 24, 2014 maturity. No amount was outstanding at June 30.
Material developments, outlook, and risks
- The company raised approximately $48.5 million net through a public offering and over-allotment of common shares. Shares outstanding increased to 131.2 million at June 30 from 99.8 million at December 31, 2012.
- Management expected substantial additional losses as research, development, and clinical-trial activity increased. It believed cash on hand would fund operations, including hormone-therapy clinical development, for the next 12 months, while cautioning that spending could exceed expectations and future financing might be needed.
- The company had FDA acceptance of IND applications for four proposed hormone-therapy products and planned to begin Phase 3 trials for estradiol/progesterone combination and progesterone-alone products later in 2013. It was evaluating whether to proceed with trials for a proposed vaginal estradiol product. Approval and commercialization remained contingent on clinical and regulatory outcomes.
- Principal risks include ongoing operating losses, clinical-trial and FDA approval uncertainty, reliance on external capital, potential dilution or unfavorable financing terms, and dependence on suppliers and customers. The filing reports that approximately 98% of purchases came from one vendor in the first half of 2013; its customer-concentration disclosure is not clear about the precise allocation by customer and period.
- Two intellectual-property-related lawsuits were pending: Aceto’s complaint was dismissed with leave to amend in July 2013; Avion’s case remained in discovery. Management considered both matters without merit and did not expect a material adverse effect, but outcomes were uncertain.
- A new 63-month office lease began July 1, 2013, with average monthly base rent of $28,442 and total minimum payments of approximately $1.79 million.
Key facts for investors to verify
- Whether the planned Phase 3 trials began on schedule, and subsequent trial results, costs, and FDA milestones.
- Whether cash use remained consistent with management’s 12-month funding assessment and whether additional capital was raised.
- Revenue growth, product mix, gross-margin durability, and the extent of customer and single-supplier concentration.
- Current availability and terms of the secured Plato facility, and any financing costs or obligations associated with it.
- Developments and potential financial consequences in the Aceto and Avion litigation.
- The filing’s customer-concentration wording is ambiguous; verify the underlying customer-level revenue percentages in the company’s supporting disclosures.