Therapeuticsmd, Inc. quarterly report, Q2 FY2012

TherapeuticsMD, Inc. — Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2012. TherapeuticsMD, through VitaMedMD, sells women’s-health products, including OTC and prescription nutritional products. The company launched three prescription prenatal products during 2012.

Financial performance

MetricQ2 2012Q2 2011Six months 2012Six months 2011
Revenue$819,150$508,303$1,540,842$994,159
Gross profit$446,780$269,327$832,348$551,427
Gross margin54.5%53.0%54.0%55.5%
Operating expenses$4,421,362$1,320,141$7,674,951$2,373,682
Operating loss$(3,974,582)$(1,050,814)$(6,842,603)$(1,822,255)
Net loss$(11,850,038)$(1,066,381)$(25,139,641)$(1,840,746)
  • Revenue increased 61% year over year in Q2 and 55% for the first half. Management attributed growth to additional sales territories and staff, and new prescription products.
  • Operating expenses rose sharply with expansion in staffing, product development, sales and marketing, professional fees, and noncash compensation.
  • First-half net loss included a $10.3 million debt-extinguishment loss, a $6.7 million beneficial conversion feature charge, and debt-discount amortization. These financing-related charges substantially increased reported losses.
  • Cash used in operating activities was $5.25 million for the first half, versus $1.56 million in the comparable 2011 period. Investing activities used $516,244; financing activities provided $6.97 million. Cash increased by $1.20 million to $1.33 million.
  • At June 30, cash was $1.33 million; working capital was approximately $967,000. Total assets were $4.88 million, total liabilities $5.58 million, and stockholders’ deficit $704,405. Accumulated deficit was $42.13 million.
  • Debt included $3.09 million of long-term notes, reported net of a $1.60 million discount; $299,220 on a bank line; and $150,000 owed to related parties. The June notes are secured by all company assets, bear 6% interest, and are due in a lump sum in February 2014.

Material changes, outlook, and risks

  • Revenue growth was accompanied by higher operating costs: first-half operating expenses increased $5.30 million year over year. Gross margin fell about 1.5 percentage points for the first half.
  • The company reported substantial doubt about its ability to continue as a going concern, citing operating losses, negative operating cash flow, and accumulated deficit. It depends on additional debt or equity financing; management’s ability to raise funds is not assured.
  • Management did not expect profitable operations until 2013, while acknowledging there was no assurance this would be achieved. It expected to spend at least $4.5 million on R&D in 2012 and estimated inventory needs could rise by approximately $800,000. The filing says up to three IND applications were planned for 2012 and describes anticipated clinical trials and potential NDA filings in 2013–2015; these are plans, not assured outcomes.
  • The company issued new secured notes and warrants to existing shareholder-lenders and converted debt into shares. These transactions involved significant noncash accounting charges and potential shareholder dilution. The company also pledged all assets as collateral.
  • Prescription-product revenue is deferred until the right of return ends or products are dispensed; deferred revenue was approximately $619,000. Supplier concentration was significant, with one supplier accounting for about 87% of first-half purchases.
  • Management concluded disclosure controls were not effective because of material weaknesses, including insufficient segregation of duties in financial reporting. No legal proceedings were reported.

Important facts for investors to verify

  • Whether the company can obtain additional financing and fund operations, product development, and inventory without unfavorable terms or substantial dilution.
  • Whether sales growth from expanded territories and new products can improve margins and eventually support the expanded cost structure.
  • The cash and liquidity runway, including expected R&D spending and upcoming debt obligations, and the terms and collateral provisions of the secured notes.
  • Progress and regulatory milestones for planned clinical trials, IND submissions, and potential NDA filings.
  • Execution of prescription-product returns and revenue recognition estimates, supplier dependence, and any related-party vendor arrangements.
  • Remediation of the disclosed internal-control material weaknesses and the effects of outstanding options and warrants on future share dilution.