TherapeuticsMD, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2014; financial comparisons are to the third quarter and first nine months of 2013. The interim financial statements are unaudited.
Business context
TherapeuticsMD develops women’s health products, including investigational hormone therapies, and sells prescription prenatal vitamins, other supplements, and cosmetics. Its hormone drug candidates were not yet approved for sale; reported revenue came from existing products.
Financial results and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Net revenue, 2014 (2013) | $4.19 million ($2.29 million) | $10.77 million ($5.91 million) |
| Gross profit, 2014 (2013) | $3.12 million ($1.65 million) | $7.98 million ($4.42 million) |
| Gross margin, 2014 (2013) | 74.5% (71.7%) | 74.1% (74.8%) |
| Operating expenses, 2014 (2013) | $20.97 million ($8.88 million) | $45.70 million ($22.22 million) |
| Net loss, 2014 (2013) | $17.83 million ($7.67 million) | $37.91 million ($20.04 million) |
| Basic and diluted loss per share, 2014 (2013) | $(0.12) ($(0.06)) | $(0.26) ($(0.16)) |
- For the first nine months, operating cash use was $30.24 million, investing cash use was $0.22 million, and financing provided $43.27 million. Cash increased by $12.81 million to $67.00 million.
- At September 30, cash was $67.00 million and current assets were $72.18 million, against current liabilities of $11.01 million. Total assets were $74.61 million; stockholders’ equity was $63.60 million.
- The balance sheet reports no notes payable at September 30. The prior revolving credit note had been repaid and expired in February 2014. The filing reports no material change in contractual obligations; it lists $1.54 million of future minimum office lease payments.
- The company raised approximately $42.8 million net through an August 2014 public offering. Common shares outstanding were 156,030,476 as of November 4, 2014, up from 144,976,757 at December 31, 2013.
Material changes versus prior periods
- Revenue rose 82% in both the quarter and nine-month comparison. Management attributed the increase to more prescribing physicians, improved sales-force productivity, and higher average net sales prices. It attributed about 81% of the quarterly increase and 70% of the nine-month increase to product mix and price changes; the balance was unit growth.
- Research and development expense increased to $14.91 million for the quarter and $29.05 million for the first nine months, from $4.10 million and $7.71 million, respectively. Management cited development and clinical-trial costs, particularly for TX-001HR.
- Net losses widened as operating costs grew faster than revenue. The first-nine-month increase in operating expenses was primarily driven by a $21.34 million increase in R&D.
- Cash used in operations increased by approximately $14.24 million year over year for the first nine months, principally reflecting R&D and selling, general, and administrative costs, partly offset by higher revenue. Financing cash proceeds were lower than in 2013, when the company had larger equity offerings.
Outlook, commentary, and key risks
- Management said existing cash and equivalents were expected to fund operations through at least the next 12 months, while warning that spending could exceed expectations and additional capital might be needed. Elsewhere, the risk discussion says existing cash would not be sufficient to fund development requirements. This difference in framing merits review.
- Management expected significant R&D spending to continue. It anticipated completing enrollment in the TX-001HR REPLENISH Phase 3 trial in the first half of 2015 and reporting results in the first half of 2016.
- TX-004HR began a Phase 3 trial in the third quarter, designed to enroll approximately 700 patients. The filing notes the FDA had indicated that a single-trial approval would require statistical significance at the 0.01 level.
- TX-002HR enrollment was suspended in July 2014 and the trial was stopped in October to revise its protocol following FDA discussions. The proposed changes include narrowing the target population and changing the primary endpoint; FDA acceptance was not assured. The company reported no current plans for TX-003HR trials.
- Major risks include clinical-trial delays or failure, FDA approval and safety uncertainty, dependence on third-party manufacturers and research organizations, need for capital and possible shareholder dilution, and competition and reimbursement uncertainty. Four major customers accounted for approximately 95% of recognized revenue for the first nine months; one supplier accounted for approximately 77% of purchases.
- The company reported no legal proceeding it believed would materially adversely affect its business or financial condition. Management concluded disclosure controls were effective and reported no significant quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether TX-001HR and TX-004HR trials meet enrollment, safety, efficacy, and regulatory milestones, and whether the TX-002HR protocol revision is accepted.
- Whether the stated cash runway is consistent with projected clinical-trial spending and the filing’s separate warning that current cash may not fund development requirements.
- Revenue durability and gross margins, including the contribution of pricing and product mix versus unit growth, and exposure to major customers and suppliers.
- Potential future financing needs and dilution; the filing lists 16.85 million stock options and 13.93 million warrants outstanding at September 30, 2014.
- Reliance on third parties for clinical research and manufacturing, and the consequences of any delays, supply disruptions, or regulatory deficiencies.