TherapeuticsMD, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; interim financial statements are unaudited. TherapeuticsMD develops women’s health products, including hormone therapy drug candidates, and sells prescription prenatal vitamins and OTC vitamins.
Financial results
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Net revenue | $4.40 million | $4.85 million | $9.33 million | $9.32 million |
| Gross profit | $3.27 million | $3.81 million | $7.09 million | $7.25 million |
| Operating expenses | $24.48 million | $31.07 million | $49.28 million | $55.42 million |
| Operating loss | $(21.21) million | $(27.26) million | $(42.18) million | $(48.18) million |
| Net loss | $(21.09) million | $(27.23) million | $(42.02) million | $(48.12) million |
| Basic and diluted loss per share | $(0.11) | $(0.16) | $(0.21) | $(0.29) |
- Gross margin was approximately 74% for Q2 and 76% for the first half; the filing attributes the decline from prior-year periods to lower average net selling prices.
- Six-month operating cash use was $34.73 million, versus $44.00 million a year earlier. Investing cash use was $0.66 million; financing provided $137.21 million. Cash rose to $166.53 million from $64.71 million at year-end 2015.
- At June 30, cash was $166.53 million and current assets were $174.03 million, against current liabilities of $9.34 million. The balance sheet reports no debt; total liabilities were $9.34 million.
- The January 2016 common-stock offering generated approximately $134.9 million net proceeds. Shares outstanding increased from 177.9 million at December 31, 2015 to 196.5 million at June 30, 2016.
Changes and operating drivers
- Q2 revenue fell 9% year over year, primarily because of lower average net selling prices, partly offset by slightly higher unit sales. First-half revenue was essentially flat.
- First-half R&D expense declined 32% to $28.94 million, primarily following completion of enrollment in the TX-001HR REPLENISH trial; increased manufacturing and scale-up activity partly offset the decline.
- First-half sales, general and administrative expense rose to $20.30 million from $13.03 million. Management cited higher share-based compensation, personnel, sales and marketing, and other costs. Share-based compensation totaled $9.20 million for the first half, versus $2.97 million.
- Revenue concentration eased but remained significant: three customers each exceeded 10% of first-half 2016 revenue, and major customers represented approximately 60%, versus approximately 91% in first-half 2015. One supplier accounted for approximately 96% of purchases.
Outlook, risks and other matters
- Management said existing cash was expected to fund its operating plan for at least the next 12 months, while warning that spending could exceed expectations. It anticipates continued operating losses as it develops its hormone therapy candidates; further financing may be needed and could dilute shareholders.
- The company submitted the TX-004HR NDA to the FDA on July 7, 2016, after quarter-end. The filing says the FDA has a 60-day filing review and, if accepted, approval could occur as soon as the first half of 2017, assuming a ten-month review. These are conditional expectations, not guaranteed outcomes.
- Management expected TX-001HR REPLENISH results late in Q4 2016. As of August 2, approximately 1,642 patients had exited the trial, and the reported incidence of consensus endometrial hyperplasia among those patients was below 1%.
- TX-002HR enrollment was suspended and its trial stopped in 2014; the company was considering a revised protocol subject to FDA input. It reported no current plans for TX-003HR clinical trials.
- Key risks include clinical-trial outcomes and timing, FDA approval, product safety, commercialization and reimbursement, reliance on third-party research and manufacturing, and potential additional financing. The company reported no material litigation and no material changes to previously disclosed risk factors.
- The Boca Raton office lease was extended through October 31, 2021; minimum future lease payments totaled $3.91 million. Management reported effective disclosure controls and no material adverse effect from implementing a new general-ledger system.
Investor verification priorities
- Check whether the FDA accepted the TX-004HR NDA for filing and track review milestones and any changes to the stated timeline.
- Review the eventual REPLENISH results, especially efficacy, safety, and endometrial safety, against the filing’s interim update.
- Monitor cash burn and clinical, manufacturing, and commercialization spending against the stated minimum 12-month funding outlook.
- Assess ongoing revenue trends, gross margins, customer concentration, and dependence on the principal supplier.
- Track share-based compensation, potential dilution, and any future equity or debt financing.