TherapeuticsMD, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; filed August 3, 2017. TherapeuticsMD is a women’s health company developing hormone-therapy drugs and selling prescription prenatal vitamins and OTC iron supplements. The financial statements are unaudited.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net revenue | $4.25 million | $4.40 million | $8.24 million | $9.33 million |
| Gross profit | $3.57 million | $3.27 million | $6.89 million | $7.09 million |
| Gross margin | 84% | 74% | 84% | 76% |
| Operating expenses | $23.40 million | $24.48 million | $48.01 million | $49.28 million |
| Operating loss | $(19.83) million | $(21.21) million | $(41.12) million | $(42.18) million |
| Net loss | $(19.68) million | $(21.09) million | $(40.83) million | $(42.02) million |
| Loss per share, basic and diluted | $(0.10) | $(0.11) | $(0.20) | $(0.21) |
At June 30, cash was $96.48 million, down from $131.53 million at December 31, 2016. Current assets were $103.52 million and current liabilities $13.29 million. Stockholders’ equity was $93.59 million. The balance sheet does not show a debt balance. For the six months, operating cash use was $38.67 million, investing cash use $0.40 million, and financing cash provided $4.01 million, primarily from warrant and option exercises. Cash declined $35.06 million.
Changes versus prior period
- Q2 revenue declined 3%; first-half revenue declined 12%. Management attributed the six-month decline mainly to lower net revenue per unit from higher estimated discounts and returns, partly offset by more units sold.
- Gross margin improved, which management attributed to distribution-channel centralization and lower packaging, preparation, and delivery costs.
- First-half operating expenses declined 3%: research and development fell 43%, largely following completion of the REPLENISH trial, while sales and marketing rose 274% as the company expanded commercialization preparations.
- First-half net loss narrowed by about $1.19 million year over year. Operating cash use increased by about $3.94 million, which management attributed mainly to lower non-cash compensation and working-capital changes.
Outlook, risks, and notable items
- TX-004HR: The FDA issued a Complete Response Letter on May 5, 2017, citing lack of long-term endometrial safety data beyond the 12-week REJOICE trial. The company said the letter did not raise efficacy or manufacturing concerns. After a June Type A meeting, it submitted additional information and was awaiting FDA review timing; it reserved the option of formal dispute resolution.
- TX-001HR: Management planned a pre-NDA meeting in late August 2017 and anticipated filing an NDA in Q4 2017. It estimated possible approval as early as Q3 2018, subject to FDA acceptance and review; these are forward-looking expectations, not assured outcomes.
- The company reported positive top-line REPLENISH results for TX-001HR: two studied doses met all four co-primary efficacy endpoints and the primary safety endpoint, with no reported consensus endometrial hyperplasia or malignancy in the trial. Regulatory approval remained uncertain.
- Management expected operating losses to continue until hormone-therapy candidates are approved and commercialized. It believed existing cash would fund its operating plan for at least 12 months from the report date, but warned delays could make cash insufficient. Additional financing could dilute shareholders or impose restrictive terms.
- Customer concentration was significant: five customers accounted for about 70% of first-half 2017 revenue. One vendor supplied approximately 100% of purchases in the period, according to the filing.
- A securities class action concerning TX-004HR was voluntarily dismissed without prejudice on July 18, 2017. Two shareholder derivative suits concerning the NDA remained pending; the company said their outcomes and potential materiality could not yet be assessed.
- The company ceased most OTC product manufacturing and distribution as of January 1, 2017, retaining Iron 21/7, whose sales were described as immaterial.
- Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Check subsequent FDA communications, required safety studies, and timing or outcome of TX-004HR and TX-001HR submissions.
- Track cash burn, commercialization spending, available liquidity, and whether additional financing is needed.
- Assess revenue trends, discount and return estimates, customer concentration, and the company’s reliance on a single supplier.
- Monitor the derivative lawsuits and any developments that could affect costs or disclosure obligations.
- Consider potential dilution: 204.03 million common shares were outstanding at June 30, 2017, with 23.40 million options and 3.12 million warrants outstanding.