TherapeuticsMD, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial amounts below are in U.S. dollars; financial statement amounts are unaudited. The company commercializes women’s health products including ANNOVERA, IMVEXXY, BIJUVA and prescription prenatal vitamins.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Revenue | $20.9 million | $25.4 million | $68.8 million | $68.3 million |
| Gross profit | $17.1 million | $20.1 million | $55.4 million | $54.2 million |
| Operating expenses | $37.9 million | $60.0 million | $121.2 million | $158.6 million |
| Operating loss | $(20.7) million | $(39.9) million | $(65.8) million | $(104.4) million |
| Net income (loss) | $(29.0) million | $(47.4) million | $34.3 million | $(129.5) million |
| Net cash used in operating activities | — | $(63.9) million | $(103.1) million |
- Q3 product gross margin was 81.9%; nine-month product gross margin was 80.4%.
- Q3 revenue declined 17.7% year over year, while nine-month revenue increased 0.8%. Nine-month net income reflected a $143.4 million gain on the vitaCare sale; excluding the gain, the company reported a $108.8 million net loss, versus a $129.5 million loss in the prior-year period.
- At September 30, cash was $27.1 million and restricted cash was $11.3 million. Restricted cash represents sale proceeds held in escrow, expected to be released in April 2023 subject to claims and agreement terms.
- Debt was $94.4 million gross and $93.6 million net of deferred fees. The stated Financing Agreement interest rate was 10.45%. Current liabilities exceeded current assets by $86.6 million; total liabilities exceeded total assets by $48.3 million. The balance sheet also reported $19.7 million of mandatory redeemable preferred stock as a current liability.
Material changes and unusual items
- TherapeuticsMD sold vitaCare on April 14, 2022, receiving $142.6 million in net proceeds and recognizing a $143.4 million gain. It used $120.0 million of proceeds to repay debt and retained $11.3 million in escrow. Up to a further $7.0 million of earn-out consideration is contingent on vitaCare’s performance through 2023.
- Operating expenses fell year over year, reflecting cost reductions and the vitaCare divestiture. Q3 selling and marketing expense decreased 36.2%; general and administrative expense decreased 38.0%, despite $4.8 million of severance expense for the former CEO, including accelerated equity compensation.
- Q3 revenue declines included lower average selling prices for ANNOVERA, IMVEXXY and BIJUVA, partly offset by higher ANNOVERA and IMVEXXY sales volumes. For the first nine months, ANNOVERA revenue rose 23.5%, while IMVEXXY declined 17.2% and prescription vitamins declined 35.8%.
- The company completed a 50-for-1 reverse stock split in May 2022. Preferred-stock and common-stock private placements with Rubric generated $22.0 million in gross proceeds through September; a further $7.0 million preferred-stock placement closed October 28.
Outlook, risks and contingencies
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern for the twelve months following issuance of the financial statements. The company said existing cash would not be sufficient to repay debt at maturity or meet liquidity needs without additional capital or other strategic solutions.
- The Financing Agreement maturity was extended to November 30, 2022, after the October 28 financing. The company was pursuing debt or equity refinancing and other strategic alternatives and stated it could file for Chapter 11 protection if those efforts failed. It reported compliance with the $10 million minimum unrestricted cash covenant through November 14, 2022.
- Series A Preferred Stock is mandatorily redeemable at a $1,333-per-share liquidation preference, with a stated December 31, 2022 maturity subject to extension provisions. The September and October financings also included make-whole payment obligations; the filing describes these as dependent on the share price at payment.
- Management expected operating losses to continue in the near term and provided no specific revenue or earnings guidance. It cited commercialization, demand, financing, COVID-19, and supply-chain uncertainty. Manufacturing and supply depend on third parties; certain products or ingredients lack long-term supply arrangements, and the filing identifies significant vendor and customer concentrations.
- Teva’s challenge to IMVEXXY patents remains in litigation. The proceedings were temporarily stayed; the company had capitalized $2.3 million in related legal costs based on its belief it would prevail. An adverse outcome could require those costs and other unamortized patent costs to be expensed.
Key facts for investors to verify
- Whether TherapeuticsMD secured refinancing or other capital to repay the Financing Agreement by its extended maturity, and the effects on common shareholders.
- The cash redemption, maturity and extension terms of Series A Preferred Stock, plus the eventual make-whole payment amount.
- Whether commercial sales and pricing for ANNOVERA, IMVEXXY and BIJUVA can improve enough to reduce operating cash burn.
- Whether the vitaCare escrow is released in full and whether any earn-out is achieved.
- Developments in the Teva patent litigation and any manufacturing or supply interruption affecting product availability.