TherapeuticsMD, Inc. — Q1 2017 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2017, compared with Q1 2016. TherapeuticsMD develops women’s health products, particularly hormone-therapy candidates, and sells prescription prenatal vitamins and OTC iron supplements. It ceased manufacturing and distributing most OTC product lines effective January 1, 2017. The company reports one operating segment.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Net revenue | $3.99 million | $4.93 million; down 19% |
| Gross profit / margin | $3.33 million / 83% | $3.82 million / 78% |
| Operating expenses | $24.61 million | $24.80 million |
| Operating loss | $21.29 million | $20.97 million |
| Net loss / loss per share | $21.16 million / $0.11 | $20.93 million / $0.11 |
| Operating cash flow | $(20.53) million | $(19.40) million |
| Cash and cash equivalents | $113.53 million at March 31 | $131.53 million at December 31, 2016 |
Cash used in investing activities was $0.14 million; financing provided $2.65 million, mainly from warrant and option exercises. Current assets were $121.27 million and current liabilities $14.09 million. The balance sheet presents no debt balance. Management said existing cash was expected to fund the operating plan for at least 12 months from the filing date, but warned that delays or faster-than-expected spending could make cash insufficient. No formal financial guidance was provided.
Material changes and management commentary
- Revenue fell mainly because average net revenue per unit declined, reflecting higher estimated discounts and returns, partly offset by higher unit sales. Cost of goods sold fell 41%; management attributed the higher gross margin mainly to the centralized distribution channel.
- Research and development expense declined 49% to $7.72 million, primarily following completion of the TX-001HR REPLENISH phase 3 trial. Sales and marketing expense rose to $7.70 million from $1.62 million as the company expanded commercialization-related activity. Lower R&D spending was largely offset by higher commercial, personnel and other costs, leaving total operating expenses nearly flat.
- Management expected continued operating losses while hormone-therapy candidates are developed and await potential approval and commercialization. It stated that it might need to curtail pre-commercialization spending or seek additional financing if available cash proved insufficient; equity financing could dilute shareholders.
Outlook, risks and unusual items
- TX-004HR: The FDA had set May 7, 2017 as the NDA target action date. On April 7, 2017, the company received an FDA letter saying deficiencies precluded discussion of labeling or post-marketing requirements; the letter did not identify them and was not a final decision. The company expected an FDA action, including details of the deficiencies, by the original target date and said it intended to resolve them. Approval and timing were uncertain.
- TX-001HR: Following positive top-line REPLENISH results, the company anticipated submitting an NDA as early as Q3 2017 and said approval could occur as soon as mid-2018, conditional on filing acceptance and FDA review timing.
- In April 2017, warrants were exercised for 4,762,208 shares through cashless exercise and 566,666 shares for $1.139 million in cash. The filing reported 198.6 million common shares outstanding at quarter-end and 203.9 million as of April 27.
- A securities class action filed April 17, 2017 concerns statements about the TX-004HR NDA and names the company and certain officers and directors. The company considers it without merit, but said the case was at an early stage and its outcome and potential materiality could not be assessed.
- Customer and supplier concentration is significant: five customers represented about 72% of Q1 2017 revenue, and one vendor supplied approximately 100% of purchases. The company also noted reliance on third parties for clinical trials and manufacturing, regulatory and clinical-development uncertainty, reimbursement risks, and potential need for further capital.
Key facts for investors to verify
- FDA’s final action on TX-004HR, the specific deficiencies, and any effect on approval timing or commercialization plans.
- Whether TX-001HR’s anticipated NDA filing and review schedule are achieved, and the complete clinical and regulatory evidence supporting the candidate.
- Cash burn, updated cash runway, and any additional financing needs relative to commercialization and development spending.
- Revenue trends, discount and return estimates, customer concentration, and dependence on the primary supplier.
- Share-count changes and potential dilution from outstanding options and warrants, as well as developments and exposure in the securities lawsuit.