TherapeuticsMD, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012; unaudited. The company develops and sells women’s health products, including prenatal vitamins and supplements, and is developing three hormone-replacement drug candidates. Its common stock traded on the OTCQB under TXMD.
Financial results and condition
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $1.036 million | $0.540 million | $2.577 million | $1.534 million |
| Gross profit | $0.730 million | $0.298 million | $1.562 million | $0.849 million |
| Gross margin | 70.4% | 55.2% | 60.6% | 55.4% |
| Operating expenses | $4.640 million | $1.742 million | $12.315 million | $4.116 million |
| Operating loss | $(3.911) million | $(1.444) million | $(10.753) million | $(3.266) million |
| Net loss | $(4.253) million | $(1.487) million | $(29.393) million | $(3.328) million |
| Basic and diluted loss per share | $(0.04) | $(0.03) | $(0.33) | $(0.06) |
- Revenue grew 92% in Q3 and 68% for the nine-month period, which management attributed to expanded sales territories and personnel and a prescription product introduced in March 2012. Gross margin improved year over year in both periods.
- Operating expenses rose substantially, driven by product development, added employees, sales and marketing, professional fees, and stock-based compensation. The company remained loss-making, with operating losses well above revenue.
- Nine-month net loss included significant noncash financing-related charges: $10.505 million loss on debt extinguishment, $6.717 million beneficial conversion feature, and $1.159 million debt-discount amortization. These items explain much of the increase in net loss versus 2011.
- Nine-month operating cash outflow was $8.399 million, compared with $3.082 million in 2011. Investing cash outflow was $0.489 million; financing provided $8.916 million. Cash increased by $28,000 to $154,247.
- At September 30, current assets were $2.231 million and current liabilities $4.428 million, a working-capital deficit of approximately $2.196 million. Total assets were $3.515 million, total liabilities $7.848 million, and stockholders’ deficit $4.334 million. Accumulated deficit was $46.386 million.
- Debt included $2.099 million of current notes payable, $150,000 of related-party current notes, and $3.342 million of long-term notes payable net of a $1.350 million debt discount. The June 2012 secured notes bear 6% interest, mature February 24, 2014, and are secured by all company assets. A $299,220 bank line was due March 1, 2013.
- Common shares outstanding were 99,784,982 at September 30 and November 13, 2012. The company had 12.245 million warrants outstanding at quarter-end, in addition to outstanding options.
Material changes, outlook, and risks
- Financing and dilution: In October 2012, the company completed a private placement of 3,953,489 shares at $2.15 per share for $8.500 million gross proceeds and $7.921 million net proceeds. Proceeds were intended for drug-candidate R&D, working capital, and general corporate purposes. The agreement includes potential payments to investors if the resale registration statement is not timely effective.
- Product development: FDA accepted three HRT investigational new drug applications in 2012. Management anticipated beginning clinical trials in the near future; no specific trial start dates, budgets, or development milestones were provided. Three BocaGreen prenatal products were launched November 6, 2012.
- Going concern: Management stated that the company lacked financial resources adequate for the next 12 months. Operating losses, negative operating cash flow, accumulated deficit, and financing dependence raised substantial doubt about its ability to continue as a going concern. Management planned to seek further debt and equity financing and grow sales, but gave no assurance these efforts would succeed.
- Execution and funding risks: The company expected substantial spending on R&D and clinical trials, needed additional financing to fund operations and product development, and expected inventory needs to rise with expansion. Additional equity financing could dilute existing shareholders; failure to obtain capital could require reduced or ceased operations.
- Unusual accounting and governance matters: The February 2012 debt restructuring and warrant issuance generated large noncash charges. The June 2012 notes were secured by all company assets. Management reported disclosure controls were ineffective due to material weaknesses, including inadequate segregation of duties; no significant remediation changes were reported during the quarter.
- Other exposures: One supplier accounted for approximately 65% of purchases in the first nine months of 2012, down from 97% in 2011. The company reported no legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Post-quarter cash and liquidity after the October placement, repayment of short-term notes, and ongoing operating cash burn.
- Whether the company can obtain further financing on acceptable terms and meet its going-concern needs without material dilution.
- Clinical-trial timing, scope, costs, and regulatory progress for the three HRT candidates, as well as commercial uptake of the new products.
- Debt terms, asset-pledge implications, warrant and option dilution, and compliance with the placement’s resale-registration deadlines.
- Progress in addressing the disclosed material weakness in financial-reporting controls and the reliability of significant estimates, including returns and deferred prescription revenue.