TherapeuticsMD, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise.
Business context
TherapeuticsMD has shifted from operating a women’s healthcare business to a pharmaceutical royalty company. Under its December 2022 transaction, Mayne Pharma received U.S. commercialization rights to IMVEXXY, BIJUVA, prenatal vitamins and ANNOVERA. The former commercial operations are presented as discontinued operations. The company reported one full-time employee at September 30, 2023, supported by external consultants.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| License and service revenue | $(0.053) | $0.354 | $0.800 | $1.397 |
| Operating expenses | $1.720 | $14.519 | $7.712 | $47.251 |
| Loss from continuing operations | $(1.434) | $(14.631) | $(6.158) | $(47.379) |
| Net income (loss), including discontinued operations | $(3.378) | $(28.965) | $(9.395) | $34.295 |
| Net cash used in continuing operating activities | — | $(18.121) | $(20.877) |
- Q3 license revenue was negative due to partner sales adjustments and revenue reallocations. For the first nine months, the company reported $0.8 million of license revenue; royalties above contractual minimums were approximately $1.0 million year to date, with portions classified as license revenue and other income.
- Operating expenses fell substantially as the company wound down commercial operations. No meaningful operating margin comparison is available because the business model and reported operations changed.
- Cash and cash equivalents were $10.2 million at September 30, down from $38.1 million at December 31, 2022. Total assets were $50.5 million; total liabilities were $22.4 million, including $6.7 million of non-current operating lease liabilities. The filing reports no outstanding debt following repayment and termination of the former financing agreement.
- Royalty receivables totaled $21.8 million: $2.7 million current and $19.1 million long term. Current liabilities were $14.5 million, including $6.9 million of discontinued-operations liabilities.
- Continuing operating cash use was $18.1 million and discontinued-operations cash use was $22.2 million in the first nine months. The company received $1.15 million gross from a June share sale to Rubric.
Material changes and unusual items
- Q3 continuing-operations loss narrowed to $1.4 million from $14.6 million a year earlier, principally due to the transition to a royalty model and lower expenses.
- Nine-month net results changed from $34.3 million income in 2022 to a $9.4 million loss in 2023. The 2022 comparison included substantial discontinued-operations income, including the gain associated with the vitaCare divestiture; 2023 discontinued operations recorded a $3.2 million loss.
- The company recorded an incremental approximately $2 million accrual in Q3 for potential net-working-capital adjustments under the Mayne transaction. The parties’ closing calculations differ, and the company intends to resolve the matter through the agreement’s dispute process.
- After quarter-end, on November 10, 2023, the company issued a drawdown notice to sell 877,192 shares to Rubric at $2.28 per share for approximately $2.0 million gross proceeds; settlement was expected after the notice date.
Outlook, risks and contingencies
- The company provided no specific operating or earnings guidance. Management said additional capital may be needed to fund operations until cash flow positive and warned that failure to obtain financing could require curtailing operations, selling assets or pursuing a transaction.
- Management stated that the combination of potential liquidity needs, uncertainty in capital markets and other risks raises substantial doubt about the company’s ability to continue as a going concern for the 12 months following issuance of the financial statements. The statements include no adjustments for a potential failure to continue as a going concern.
- Mayne royalties are subject to the license terms: generally 8% on the first $80 million of annual U.S. net sales and 7.5% above that level, with a stated minimum annual royalty of $3 million for 12 years, subject to adjustments. Rates may fall to 2% for a product after specified patent or generic-entry events. Sales performance by Mayne is a key revenue dependency; all Q3 and year-to-date 2023 license revenue was concentrated in Mayne and Theramex.
- Potential additional financing could dilute shareholders. The company also noted that it does not believe the possible vitaCare earn-out of up to $7 million will be realized.
- Legal matters include the Teva challenge to IMVEXXY patents and a September 2023 breach-of-contract lawsuit by a former ANNOVERA marketing contractor. Mayne is responsible for patent enforcement under the license agreement. The filing says it is not involved in other proceedings believed to have a material financial effect.
- Disclosure controls were assessed as effective. The company said it revised its control design to reflect its reduced staffing and reliance on consultants. It reported no material changes to risk factors since its 2022 Form 10-K.
Important facts for investors to verify
- Available cash, cash use and the company’s ability to fund operations through the next 12 months, including the status and proceeds of the November Rubric drawdown.
- Mayne’s product sales, royalty calculations and the contractual minimum-royalty receivable, including adjustments and timing of collections.
- Resolution and final amount of the approximately $2 million Mayne working-capital accrual and any other transaction-related adjustments.
- Whether the reported royalty receivables are collectible as scheduled and how much represents future minimum royalties.
- Potential dilution from the Rubric financing arrangement and other capital-raising needs, as well as developments in the disclosed litigation.