TherapeuticsMD, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; filed November 8, 2018. Financial statements are unaudited. TherapeuticsMD is a women’s health company commercializing prescription products and developing hormone therapies.
Business context and developments
IMVEXXY, for menopause-related dyspareunia, launched in 2018; both 4-mcg and 10-mcg doses were commercially available by September. ANNOVERA, a one-year contraceptive vaginal system licensed from the Population Council, was FDA-approved August 10, 2018. After quarter-end, BIJUVA received FDA approval on October 28, 2018. Knight received exclusive commercialization rights for IMVEXXY and BIJUVA in Canada and Israel.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Net revenue | $3.47 million | $4.42 million | $11.01 million | $12.65 million |
| Gross profit | $2.77 million | $3.72 million | $9.22 million | $10.61 million |
| Gross margin | 79.9% | 84.1% | 83.8% | 83.9% |
| Operating expenses | $37.14 million | $18.55 million | $101.32 million | $66.56 million |
| Operating loss | $(34.36) million | $(14.83) million | $(92.10) million | $(55.95) million |
| Net loss | $(35.61) million | $(14.66) million | $(93.23) million | $(55.50) million |
| Basic and diluted loss per share | $(0.16) | $(0.07) | $(0.42) | $(0.27) |
Prescription vitamins generated $3.26 million of Q3 revenue and IMVEXXY generated $212,076; the nine-month figures were $10.80 million and $212,076, respectively. Revenue fell 21% in Q3 and 13% for the nine-month period, principally as prenatal vitamin sales declined. Q3 gross margin was lower primarily due to coupons and co-pay assistance.
Operating expense growth was driven largely by commercialization: Q3 sales and marketing expense excluding human-resource costs rose to $16.58 million from $3.16 million; nine-month expense rose to $43.70 million from $16.59 million. Nine-month R&D declined 10% to $20.55 million, reflecting completion of the BIJUVA REPLENISH trial and IMVEXXY approval, partly offset by manufacturing scale-up and pipeline work. Management expects operating losses to continue in the near term while products are commercialized.
Cash, liquidity, debt and cash flow
- Cash was $190.00 million at September 30, 2018, versus $127.14 million at December 31, 2017. Current assets were $211.69 million and current liabilities $29.28 million.
- Nine-month operating cash use was $78.67 million, investing cash use was $20.83 million, and financing provided $162.36 million. Investing included the $20 million ANNOVERA license milestone; financing included $89.91 million net equity proceeds and a $75 million term-loan draw.
- Long-term debt had a $75 million principal balance and $73.26 million carrying value after debt discount and financing fees. The secured loan bears one-month LIBOR, subject to a 1.50% floor, plus 7.75%; the reported effective rate was 10.9%. Principal installments begin May 2020, with maturity in May 2023.
- The facility permits additional tranches of $75 million and $50 million subject to approval, first-sale, revenue and other conditions. Covenants include a $50 million minimum cash balance and minimum revenue requirements; the company reported compliance at quarter-end.
- Management believed cash and available term-loan funding would support its operating plan for at least 12 months from the report date, but warned that delays or faster-than-expected cash use could require reduced commercialization activity or additional financing.
Material changes, outlook and risks
- Losses increased substantially year over year as commercial launch and pre-launch costs expanded, while revenue declined. Shares outstanding increased to 236.46 million at quarter-end, including the August offering; 237.88 million were outstanding November 1.
- Management’s IMVEXXY access objective was unrestricted coverage for 40% of commercially insured lives by year-end 2018. It expected revenue to improve as payer coverage expanded, but noted coverage and formulary conditions can change. ANNOVERA was expected to be available as early as Q3 2019, with a planned Q4 2019 launch; anticipated annual wholesale acquisition cost was $1,000–$1,400.
- ANNOVERA terms include a further $20 million payment after release of the first commercial batch, potential sales milestones and royalties of 5%–15%, and company-funded post-approval study costs, subject to a royalty offset for certain costs above $20 million. The company also committed to a new 11-year office lease after quarter-end, with estimated minimum payments of approximately $19.6 million including estimated operating expenses and sales tax.
- Key risks include product uptake and reimbursement, continued operating losses and financing needs, loan covenants and conditional access to future tranches, dependence on third-party manufacturers and suppliers, regulatory and post-approval obligations, and concentration in a small number of customers. Four customers generated approximately 71% of nine-month revenue; approximately 100% of products were manufactured by one vendor related to each of prenatal vitamins and IMVEXXY.
- The SEC staff was conducting a formal investigation into whether certain 2017 company communications about TX-004HR may have violated Regulation FD. The company said it was cooperating; outcome and potential remedies were uncertain.
Important facts for investors to verify
- Reconcile the Q3 net-loss figure: the financial statements report $35.61 million, while one MD&A passage states $36.605 million. The financial-statement figure is used above.
- Track IMVEXXY prescriptions, payer coverage, co-pay assistance costs, returns and receivables collection; reported gross DSO rose to 90 days and net DSO to 339 days, with launch-related factors cited.
- Confirm BIJUVA launch progress and the conditions for drawing the additional loan tranches, especially the third tranche’s $75 million trailing-twelve-month revenue threshold.
- Assess ANNOVERA’s launch readiness, manufacturing arrangements, remaining milestone payment, royalty burden and post-approval study obligations.
- Monitor cash burn, minimum-cash and revenue covenant compliance, customer and manufacturer concentration, the SEC investigation, and the financial impact of the new office lease.