TherapeuticsMD, Inc. — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014. Financial statements are unaudited. TherapeuticsMD develops women’s health products, including hormone-therapy drug candidates in clinical trials, and sells prescription prenatal vitamins, OTC vitamins and cosmetics. Its hormone-therapy candidates had not received FDA marketing approval.
Financial performance and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net revenue | $3.75 million | $2.08 million | $6.58 million | $3.62 million |
| Gross profit | $2.86 million | $1.62 million | $4.86 million | $2.77 million |
| Gross margin | 76.2% | 77.7% | 73.8% | 76.7% |
| Operating expenses | $13.79 million | $7.23 million | $24.74 million | $13.33 million |
| Operating loss | $(10.93) million | $(5.62) million | $(19.88) million | $(10.56) million |
| Net loss | $(10.90) million | $(6.01) million | $(20.08) million | $(12.39) million |
| Basic and diluted loss per share | $(0.07) | $(0.05) | $(0.14) | $(0.11) |
- Revenue rose 80% in Q2 and 82% for the first half. Management attributed growth to more prescribing physicians, sales-force productivity and higher average net selling prices; product mix represented most of the increase.
- Research and development expense reached $8.23 million in Q2 and $14.14 million for the first half, versus $1.75 million and $3.31 million, respectively, a principal driver of higher losses.
- Cash was $35.55 million at June 30, down $18.64 million from year-end. Operating cash use was $18.78 million for the first half; investing cash use was $0.23 million and financing provided $0.37 million.
- Current assets were $41.85 million and current liabilities $6.95 million. Total assets were $44.43 million; stockholders’ equity was $37.48 million. The balance sheet reports no outstanding notes payable or credit-line balance.
- After quarter-end, the company completed an underwritten offering of 9,850,106 shares, generating approximately $42.8 million net proceeds. Shares outstanding were 155,807,765 on August 4, compared with 145,926,973 at June 30.
Changes, outlook and risks
- Revenue growth was accompanied by higher cost of goods sold as a share of revenue: 24% versus 22% in Q2 and 26% versus 23% for the first half. Gross margin therefore declined year over year.
- Management said it believed June 30 cash would fund operations for at least 12 months; the subsequent offering added approximately $42.8 million net. It also cautioned that spending could exceed expectations and additional capital might be needed. The filing provides no quantified revenue or earnings guidance.
- REPLENISH, the Phase 3 trial of TX-001HR, was expected to complete enrollment in Q4 2014, with results anticipated in Q4 2015. Management planned to begin a Phase 3 trial of TX-004HR in Q3 2014. The SPRY Phase 3 trial of TX-002HR was temporarily suspended in July to revise its protocol following FDA discussions; FDA acceptance of the proposed changes was not assured.
- The company expected substantial continuing R&D costs and losses. Key uncertainties include trial enrollment, clinical outcomes, FDA requirements and approval, manufacturing readiness, and the availability and terms of future financing.
- Revenue and supply are concentrated: four major customers generated 97.17% of first-half revenue, and one supplier provided approximately 71% of first-half purchases. The filing also identifies dependence on contract manufacturers, competition, reimbursement and regulatory risks, potential product-liability exposure, and possible dilution from future financing and equity awards.
- The company reported no off-balance-sheet arrangements and no material change in contractual obligations during the half-year. Future minimum rent payments under the office lease totaled approximately $1.63 million. Management assessed disclosure controls as effective; no significant changes in internal control over financial reporting were reported for the quarter.
Important facts for investors to verify
- Progress, enrollment and timing for REPLENISH, SPRY and the planned TX-004HR trial, including any subsequent FDA feedback or protocol changes.
- Use of proceeds from the August offering, cash runway and the pace of operating cash burn as clinical spending increases.
- Whether revenue growth continues and whether the business can improve gross margin while managing customer and supplier concentration.
- Potential dilution: the filing lists 16.52 million outstanding options and 14.12 million warrants at June 30; these were excluded from diluted loss per share because they were antidilutive.