TherapeuticsMD, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. The unaudited filing was signed November 8, 2019. TherapeuticsMD is a women’s healthcare company commercializing prescription products, including IMVEXXY, BIJUVA and ANNOVERA, as well as prenatal vitamins.
Financial performance
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net product revenue | $8.2 million | $3.5 million | $18.2 million | $11.0 million |
| License revenue | $15.5 million | — | $15.5 million | — |
| Total net revenue | $23.7 million | $3.5 million | $33.7 million | $11.0 million |
| Operating expenses | $49.3 million | $37.1 million | $137.1 million | $101.3 million |
| Operating loss | $(27.1) million | $(34.4) million | $(106.8) million | $(92.1) million |
| Net loss | $(32.0) million | $(35.6) million | $(126.7) million | $(93.2) million |
| Basic and diluted loss per share | $(0.13) | $(0.16) | $(0.53) | $(0.42) |
- Product revenue rose 136% in Q3 and 66% for the nine-month period. IMVEXXY growth was partly offset by lower prenatal vitamin sales. BIJUVA and ANNOVERA contributed revenue following their launches.
- The $15.5 million license revenue was the non-refundable upfront fee from Theramex for ex-U.S. rights to IMVEXXY and BIJUVA, recognized when regulatory materials and clinical data were transferred. It materially increased reported revenue but is not recurring product sales.
- Prescription-product gross margin was approximately 82% in Q3 versus 80% a year earlier, and 81% for the nine months versus 84%. Management attributed the changes primarily to product mix.
- Cash and cash equivalents were $155.3 million at September 30, down $6.3 million from December 31, 2018. Nine-month operating cash use was $114.9 million; investing cash use was $3.2 million; financing provided $111.8 million.
- At September 30, total assets were $250.0 million, current liabilities $67.3 million, long-term debt carrying value $194.4 million, and stockholders’ deficit $21.2 million. The debt had $200 million principal outstanding under the new facility; its stated effective interest rate was approximately 11%.
Material changes and developments
- Q3 operating loss narrowed year over year, helped by higher revenue, including the Theramex fee. Nine-month operating loss increased 16%, as commercialization spending outpaced revenue growth. Nine-month net loss rose 36%, also reflecting higher interest expense and a $10.1 million loss on extinguishment of the prior debt.
- Sales and marketing expense increased 39% for the nine months, and human-resources costs rose 60%, largely to support commercial launches. R&D expense declined 25% as activities and personnel shifted toward commercialization and some development costs decreased.
- In April, the company entered a $300 million first-lien term-loan facility and drew $200 million, using part of the proceeds to repay the MidCap facility. Two additional $50 million tranches were conditional: one on FDA designation of ANNOVERA as a new birth-control category by December 31, 2019, and one on at least $11 million of defined product net revenue in Q4 2019, each subject to other conditions.
- On October 29, 2019, after quarter-end, the company completed a public offering of 29.9 million shares at $2.75 per share, raising approximately $77 million net. The filing reported 271.2 million shares outstanding as of November 4, compared with 241.3 million at September 30.
Outlook, risks and unusual items
- Management expected a full ANNOVERA commercial launch in Q1 2020, following a limited “test and learn” introduction begun in October 2019. It also planned to submit a BIJUVA dose efficacy supplement in Q4 2019. These are expectations, not guarantees.
- Management anticipated continued operating losses in the near term and rising sales and marketing expense as launches continue. It stated that cash and facility availability were expected to fund the operating plan for at least 12 months from the filing date, but cautioned that delayed commercialization or inability to access facility funds could leave liquidity insufficient.
- The loan carries substantial interest costs and restrictive covenants, including minimum unrestricted cash requirements of $50 million, increasing to $60 million if either conditional tranche is drawn, and future minimum revenue requirements. A 1 percentage-point interest-rate change was estimated to affect annual pre-tax income by approximately $2 million.
- Commercial execution depends on payer coverage, prescription uptake, product acceptance, manufacturing and third-party suppliers, and access to financing. Four customers together accounted for 68% of prescription revenue in the first nine months; supplier concentration is also disclosed. Management noted that reimbursement, competition, regulatory outcomes and product safety risks may affect results.
- The FDA’s decision on ANNOVERA’s potential inclusion as a new contraceptive category could be delayed and affect the related loan draw condition. The company said it had begun discussing a possible change to that trigger with its lender, with no assurance of agreement.
- ANNOVERA and IMVEXXY have required post-approval studies; the filing describes costs and obligations, including the company-funded ANNOVERA venous-thromboembolism study. In August 2019, the company consented, without admitting or denying findings, to an SEC order concerning Regulation FD communications and agreed to a $200,000 penalty.
Key facts for investors to verify
- Whether product sales and payer coverage improve, and whether the Q1 2020 ANNOVERA launch proceeds as expected.
- Whether the company met the Q4 revenue and FDA-category conditions, or obtained lender agreement to revise the ANNOVERA tranche trigger, and whether it could draw either additional $50 million tranche.
- Cash burn, covenant compliance, interest burden and the impact of the October equity offering on liquidity and dilution.
- How much of reported revenue growth reflects recurring product sales versus upfront licensing revenue, and whether customer and supplier concentration changes.
- Progress and costs of post-approval studies, regulatory submissions and product commercialization obligations.