Therapeuticsmd, Inc. annual report, FY2019

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TherapeuticsMD, Inc. — 2019 Form 10-K

Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. TherapeuticsMD is a women’s healthcare company transitioning from research and development toward commercializing its prescription products.

Business context

Commercial products include IMVEXXY for menopausal vaginal symptoms, BIJUVA for menopausal vasomotor symptoms, ANNOVERA, a patient-controlled contraceptive vaginal system, and prescription prenatal vitamins. BIJUVA launched in April 2019; ANNOVERA entered a test-and-learn introduction in October 2019, with a full launch planned for the first quarter of 2020. IMVEXXY and BIJUVA are licensed to partners outside the U.S.

Financial performance and liquidity

  • Revenue: $49.6 million in 2019, versus $16.1 million in 2018. Product revenue was $34.1 million, up 112%; the remaining $15.5 million was upfront license revenue from Theramex. Product revenue included IMVEXXY $16.3 million, ANNOVERA $6.2 million, BIJUVA $1.8 million, and prenatal vitamins $9.9 million.
  • Profit and margins: Gross profit was $43.3 million. Operating loss was $151.2 million, compared with $130.2 million in 2018. Net loss was $176.1 million, or $0.72 per share, versus $132.6 million, or $0.59 per share. Management reported an 81% gross margin for prescription pharmaceutical products, compared with 83% in 2018; product mix drove the decline.
  • Fourth quarter: Revenue was $15.9 million, gross profit $13.0 million, and net loss $49.4 million, or $0.19 per share. Fourth-quarter net revenue from IMVEXXY, BIJUVA, and ANNOVERA exceeded $11 million, triggering access to a subsequent loan tranche.
  • Cash flow: Operating activities used $165.7 million, investing activities used $23.9 million, and financing activities provided $188.8 million. Cash declined by $0.8 million to $160.8 million at year-end. Investing cash use included a $20 million ANNOVERA license payment.
  • Liquidity: Current assets were $208.4 million and current liabilities $53.0 million; working capital was $155.4 million. The company said existing cash and facility availability were expected to fund its operating plan for at least 12 months from the filing date, subject to commercialization and access to financing.
  • Debt: At December 31, 2019, $200 million was drawn under a first-lien term facility; reported long-term debt, net of discount and fees, was $194.6 million. Interest expense was $17.4 million, including $10.1 million in debt-extinguishment loss. The effective interest rate was approximately 11%. A further $50 million was drawn on February 18, 2020; another $50 million remained subject to lender discretion.
  • Other balance-sheet items: Total assets were $266.0 million, total liabilities $256.8 million, and stockholders’ equity $9.2 million. Accounts receivable rose to $24.4 million and inventory to $11.9 million. The company reported an accumulated deficit of $695.4 million.

Material changes versus 2018

  • Product revenue increased with the launch and expansion of IMVEXXY and the introduction of BIJUVA and ANNOVERA, while prenatal vitamin revenue fell approximately $5.2 million.
  • Operating expenses rose 35% to $194.5 million, primarily as sales, marketing, and staffing expanded to support commercialization; R&D expense fell 27% to $19.8 million.
  • Net loss widened by $43.5 million. Higher commercialization spending and financing costs, including the debt-extinguishment charge, more than offset revenue growth.
  • Cash used in operations increased to $165.7 million from $106.8 million. The company financed operations through $200 million of term debt and a $77.0 million net public stock offering.

Outlook, risks, and unusual items

  • Management expected operating losses to continue in the near term and anticipated further commercialization spending. ANNOVERA’s full commercial launch was planned for Q1 2020. No quantified sales or earnings guidance was provided.
  • The debt agreement requires minimum unrestricted cash of $50 million, rising to $60 million following a later tranche draw, and minimum commercial-product revenue beginning in Q4 2020. It also restricts additional debt, asset sales, dividends, and other activities. Principal installments begin in June 2023; the facility matures March 31, 2024.
  • Key risks include continued substantial losses and cash consumption; dependence on additional financing and successful product adoption; payer coverage, reimbursement, and pricing pressure; customer concentration; and reliance on contract manufacturers and suppliers. Four customers represented approximately 73% of 2019 revenue.
  • FDA-required post-approval observational studies include an endometrial-cancer study for IMVEXXY and a venous-thromboembolism study for ANNOVERA. The company bears ANNOVERA study costs, with a contractual offset mechanism for costs above $20 million.
  • On February 20, 2020, Teva notified the company of an ANDA seeking generic versions of both IMVEXXY strengths and alleging the listed patents are invalid, unenforceable, or not infringed. The company said it was reviewing the notice and intended to enforce its rights; the patents identified expire in 2032 or 2033.
  • The Theramex upfront fee was recognized as license revenue in Q3 2019. The company also recorded a $10.1 million loss on extinguishment of debt. No legal proceeding was identified as material. The auditor issued an unqualified opinion on the financial statements and internal controls.

Important facts for investors to verify

  • Quarterly product revenue, prescription trends, payer coverage, and the contribution of discounts and co-pay assistance to net revenue.
  • Cash burn versus available liquidity, access to the discretionary debt tranche, and compliance with cash and revenue covenants.
  • Commercial uptake, costs, and reimbursement for ANNOVERA following its planned full launch, and the timing and economics of international licensing milestones and royalties.
  • Progress and potential costs of FDA post-approval studies, as well as the status and potential impact of Teva’s IMVEXXY ANDA and any related patent litigation.
  • Customer concentration, manufacturing capacity and compliance, and the effect of minimum purchase commitments on inventory and cash needs.