UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended SeptemberJune 30, 20162017

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from________ to ___________

 

Commission File No. 001-00100001-001000

 

THERAPEUTICSMD, INC.
(Exact Name of Registrant as Specified in Its Charter)

 

Nevada 87-0233535
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)

 

6800 Broken Sound Parkway NW, Third Floor, Boca Raton, FL 33487 (561) 961-1900
(Address of Principal Executive Offices) (Issuer’s Telephone Number)

 

N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer ☒Accelerated filer ☐
Non-accelerated filer ☐Smaller reporting company ☐
(Do not check if a smaller reporting company) Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of OctoberJuly 31, 20162017 was 196,580,212.204,027,142.

 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES
INDEX

 

THERAPEUTICSMD, INC. AND SUBSIDIARIESPage
INDEXPART I - FINANCIAL INFORMATION
    
 Item. 1Page
PART I - FINANCIAL INFORMATIONFinancial Statements 
Item. 1Financial Statements
    
  Consolidated Balance Sheets as of SeptemberJune 30, 20162017 (Unaudited) and December 31, 201520163
    
  Consolidated Statements of Operations for the Three and NineSix Months Ended SeptemberJune 30, 20162017 (Unaudited) and 20152016 (Unaudited)4
    
  Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 20162017 (Unaudited) and 20152016 (Unaudited)5
    
  Notes to Consolidated Financial Statements6
    
 Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2021
    
 Item 3.Quantitative and Qualitative Disclosures about Market RiskRisks3235
    
 Item 4.Controls and Procedures3235
    
Part II - OTHER INFORMATION3336
    
 Item 1.Legal Proceedings3336
    
 Item 1A.Risk Factors3336
    
 Item 6.2.ExhibitsUnregistered Sales of Equity Securities and Use of Proceeds37
 33
Item 6.Exhibits38

THERAPEUTICSMD, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS

 

 September 30, 2016 December 31, 2015  June 30, 2017 December 31, 2016 
 (Unaudited)   (Unaudited)   
         
ASSETSASSETS ASSETS
Current Assets:                
Cash $147,534,065  $64,706,355  $96,476,483  $131,534,101 
Accounts receivable, net of allowance for doubtful accounts of $113,034 and $81,910, respectively  5,033,298   3,049,715 
Accounts receivable, net of allowance for doubtful accounts of $358,268 and $376,374, respectively  3,396,419   4,500,699 
Inventory  843,398   690,153   1,414,015   1,076,321 
Other current assets  2,693,475   2,233,897   2,228,755   2,299,052 
Total current assets  156,104,236   70,680,120   103,515,672   139,410,173 
                
Fixed assets, net  460,546   198,592   483,688   516,839 
                
Other Assets:                
Intangible assets, net  2,118,378   1,615,251   2,739,686   2,405,972 
Prepaid expense     1,109,883 
Security deposit  139,036   125,000   139,036   139,036 
Total other assets  2,257,414   2,850,134   2,878,722   2,545,008 
Total assets $158,822,196  $73,728,846  $106,878,082  $142,472,020 
                
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES AND STOCKHOLDERS’ EQUITY 
        
Current Liabilities:                
Accounts payable $4,224,419  $3,126,174  $8,108,034  $7,358,514 
Other current liabilities  8,243,421   7,539,526   5,180,218   7,624,085 
Total current liabilities  12,467,840   10,665,700   13,288,252   14,982,599 
Total liabilities  12,467,840   10,665,700 
                
Commitments and Contingencies - See Note 15        
Commitments and Contingencies - See Note 14        
                
Stockholders’ Equity:                
Preferred stock - par value $0.001; 10,000,000 shares authorized; no shares issued and outstanding            
Common stock - par value $0.001; 350,000,000 shares authorized; 196,580,212 and 177,928,041 issued and outstanding, respectively  196,580   177,928 
Common stock - par value $0.001; 350,000,000 shares authorized; 204,027,142 and 196,688,222 issued and outstanding, respectively  204,027   196,688 
Additional paid in capital  433,023,801   282,712,078   443,952,952   436,995,052 
Accumulated deficit  (286,866,025)  (219,826,860)  (350,567,149)  (309,702,319)
Total stockholders’ equity  146,354,356   63,063,146   93,589,830   127,489,421 
Total liabilities and stockholders’ equity $158,822,196  $73,728,846  $106,878,082  $142,472,020 

 

The accompanying footnotes are an integral part of these consolidated financial statements.

THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2016  2015  2016  2015 
         
Revenues, net $5,535,685  $5,190,175  $14,869,023  $14,513,158 
                 
Cost of goods sold  1,237,446   1,193,965   3,475,997   3,270,695 
Gross profit  4,298,239   3,996,210   11,393,026   11,242,463 
                 
Operating expenses:                
Sales, general, and administration  14,721,710   7,060,944   35,019,268   20,089,998 
Research and development  14,664,123   16,421,753   43,602,333   58,789,302 
Depreciation and amortization  40,460   16,548   84,319   44,400 
Total operating expense  29,426,293   23,499,245   78,705,920   78,923,700 
                 
Operating loss  (25,128,054)  (19,503,035)  (67,312,894)  (67,681,237)
                 
Other income:                
Miscellaneous income  109,942   27,630   265,879   71,728 
Accreted interest  2,451   2,760   7,850   15,162 
Total other income  112,393   30,390   273,729   86,890 
                 
Loss before taxes  (25,015,661)  (19,472,645)  (67,039,165)  (67,594,347)
                 
Provision for income taxes            
                 
Net loss $(25,015,661) $(19,472,645) $(67,039,165) $(67,594,347)
                 
Net loss per share, basic and diluted $(0.13) $(0.11) $(0.34) $(0.39)
                 
Weighted average number of common shares outstanding, basic and diluted  196,502,327   177,206,168   195,912,173   171,589,595 

THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2017  2016  2017  2016 
                 
Revenues, net $4,250,433  $4,403,247  $8,235,897  $9,333,338 
                 
Cost of goods sold  681,725   1,130,108   1,341,360   2,238,551 
                 
Gross profit  3,568,708   3,273,139   6,894,537   7,094,787 
                 
Operating expenses:                
Sales, general, and administration  14,628,927   10,619,006   31,466,544   20,297,558 
Research and development  8,716,395   13,841,193   16,441,235   28,938,210 
Depreciation and amortization  53,189   24,262   102,888   43,859 
Total operating expense  23,398,511   24,484,461   48,010,667   49,279,627 
                 
Operating loss  (19,829,803)  (21,211,322)  (41,116,130)  (42,184,840)
                 
Other income:                
Miscellaneous income  149,054   114,320   275,022   155,937 
Accreted interest  3,832   2,863   7,699   5,399 
Total other income  152,886   117,183   282,721   161,336 
                 
Loss before taxes  (19,676,917)  (21,094,139)  (40,833,409)  (42,023,504)
                 
Provision for income taxes            
                 
Net loss $(19,676,917) $(21,094,139) $(40,833,409) $(42,023,504)
                 
Net loss per share, basic and diluted $(0.10) $(0.11) $(0.20) $(0.21)
                 
Weighted average number of common shares outstanding  203,384,610   196,325,715   200,602,778   195,613,639 

 

The accompanying footnotes are an integral part of these consolidated financial statements.

THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

  Nine Months Ended 
  September 30, 2016  September 30, 2015 
     
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(67,039,165) $(67,594,347)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation of fixed assets  45,759   22,104 
Amortization of intangible assets  38,560   22,296 
Provision for doubtful accounts  2,261,568   37,163 
Share-based compensation  13,385,215   4,740,906 
Changes in operating assets and liabilities:        
Accounts receivable  (4,245,151)  (1,549,532)
Inventory  (153,245)  312,054 
Other current assets  379,930   (621,923)
Other assets     (15,162)
Accounts payable  1,098,245   (1,025,504)
Deferred revenue     (522,613)
Other current liabilities  703,895   2,546,138 
Other long-term liabilities     1,213,874 
Net cash used in operating activities  (53,524,389)  (62,434,546)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Patent costs  (541,686)  (117,992)
Purchase of fixed assets  (307,714)  (15,559)
Payment of security deposit  (14,036)   
Net cash used in investing activities  (863,436)  (133,551)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sale of common stock, net of costs  134,863,475   91,374,649 
Proceeds from exercise of warrants  1,373,000   366,000 
Proceeds from exercise of options  979,060   589,829 
Net cash provided by financing activities  137,215,535   92,330,478 
         
Increase in cash  82,827,710   29,762,381 
Cash, beginning of period  64,706,355   51,361,607 
Cash, end of period $147,534,065  $81,123,988 

THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  Six Months Ended 
  June 30, 2017  June 30, 2016 
       
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(40,833,409) $(42,023,504)
Adjustments to reconcile net loss to net cash flows used in operating activities:        
Depreciation of fixed assets  69,000   19,216 
Amortization of intangible assets  33,888   24,643 
(Recovery of) provision for doubtful accounts  (18,106)  447,388 
Share-based compensation  3,051,357   9,200,844 
Changes in operating assets and liabilities:        
Accounts receivable  1,122,386   (1,874,980)
Inventory  (337,694)  (193,503)
Other current assets  (58,601)  1,001,120 
Accounts payable  749,520   (86,786)
Other current liabilities  (2,443,867)  (1,239,743)
Net cash used in operating activities  (38,665,526)  (34,725,305)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Patent costs  (367,602)  (393,221)
Purchase of fixed assets  (35,849)  (265,036)
Payment of security deposit     (4,864)
Net cash used in investing activities  (403,451)  (663,121)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sale of common stock, net of costs     134,863,475 
Proceeds from exercise of warrants  3,798,999   1,373,000 
Proceeds from exercise of options  212,360   978,042 
Net cash provided by financing activities  4,011,359   137,214,517 
         
(Decrease) increase in cash  (35,057,618)  101,826,091 
Cash, beginning of period  131,534,101   64,706,355 
Cash, end of period $96,476,483  $166,532,446 

 

The accompanying footnotes are an integral part of these consolidated financial statements.


THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – THE COMPANY

 

TherapeuticsMD, Inc., a Nevada corporation, or TherapeuticsMD, or the Company, has three wholly owned subsidiaries, vitaMedMD, LLC, a Delaware limited liability company, or VitaMed; BocaGreenMD, Inc., a Nevada corporation, or BocaGreen; and VitaCare Prescription Services, Inc., a Florida corporation, or VitaCare. Unless the context otherwise requires, TherapeuticsMD, VitaMed, BocaGreen, and VitaCare collectively are sometimes referred to as “our company,” “we,” “our,” or “us.”

 

Nature of Business

 

We are a women’s health care product company focused on developingcreating and commercializing products targeted exclusively for women. As of the date of these unaudited consolidated financial statements,Currently, we are focused on conducting the clinical trials and pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of our advanced hormone therapy pharmaceutical products. TheOur drug candidates used in ourthat have completed clinical trials are designed to alleviate the symptoms of and reduce the health risks resulting from menopause-related hormone deficiencies, including hot flashes, osteoporosis and vaginal discomfort. We are developing these hormone therapy drug candidates, which contain estradiol and progesterone alone or in combination, with the aim of demonstrating equivalent clinical efficacy at lower doses, thereby enabling an enhanced side effect profile compared with competing products. Our drug candidatesWith our SYMBODA™ technology, we are developed using our SYMBODA technologydeveloping advanced hormone therapy pharmaceutical products to enable delivery of bio-identical hormones through a variety of dosage forms and administration routes. In addition, we manufacture and distribute branded and generic prescription prenatal vitamins, as well as over-the-counter, or OTC, vitamins.iron supplements.

 

NOTE 2 – BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

Interim Financial Statements

 

The accompanying unaudited interim consolidated financial statements of TherapeuticsMD, Inc., which include our wholly owned subsidiaries, should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015,2016, as filed with the Securities and Exchange Commission, or the SEC, from which we derived the accompanying consolidated balance sheet as of December 31, 2015.2016. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying unaudited interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year or any other interim period in the future.

 

Recently Issued Accounting Pronouncements

 

In August 2016, May 2017, the Financial Accounting Standards Board, or FASB, issued an Accounting Standards Update, or ASU, that clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. The new guidance will allow companies to make certain changes to awards without accounting for them as modifications. This guidance does not change the accounting for modifications. The guidance will be applied prospectively to awards modified on or after the adoption date and is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including in an interim period. We do not expect that adoption of this guidance will have a material effect on our consolidated financial statements.

6  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. EarlyWe adopted ASU 2016-09 effective January 1, 2017, electing to account for forfeitures when they occur. The impact from adoption is permittedof the provisions related to forfeiture rates was reflected in any annual or interim period for whichour consolidated financial statements have not been issued or made available for issuance, but allon a modified retrospective basis, resulting in an adjustment of approximately $31,000 to retained earnings. The impact from adoption of the guidance must be adoptedprovisions related to excess tax benefits or deficiencies in the same period. Ifprovision for income taxes rather than paid-in capital was adopted on a modified retrospective basis. Since we have a full valuation allowance on our net deferred tax assets, an entity early adoptsamount equal to the guidance incumulative adjustment made to retained earnings to recognize the previously unrecognized net operating losses from prior periods was made to the valuation allowance through retained earnings for the first quarter financial statements. Adoption of all other changes did not have an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.statements.

 

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluatingin the process of analyzing the quantitative impact of this guidance on our consolidatedresults of operations and financial statements and disclosures.

In July 2015,position. While we are continuing to assess all potential impacts of the FASB issued ASU 2015-11, Inventory (Topic 330), simplifying the Measurement of Inventory. This guidance requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market (LOCOM). The guidance applies only to inventories for which cost is determined by methods other than last-in first-out (LIFO) or the retail inventory method (RIM). Entities that use LIFO or RIM will continue to use existing impairment models. The new guidance does not change the calculation of net realizable value that entities are required to calculate when applying existing LOCOM guidance. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Under the new guidance, however, entities will no longer need to calculate other measures of “market.” The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We arestandard, we currently evaluatingbelieve the impact of this guidance, if any, onstandard will be primarily related to the accounting for our consolidated financial statements and disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We do not expect the adoption of ASU 2014-15 to have a material effect on our consolidated financial statements and disclosures.operating lease.

 

In May 2014, the FASB and the International Accounting Standards Board (IASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under previous guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligations.obligation. In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. Early adoption is permitted after December 15, 2016, and the standard is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU 2016-08) as well as, accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10) and, narrow-scope improvements and practical expedients (ASU 2016-12) and technical corrections and improvements to topic 606 (ASU 2016-20) in its new revenue standard. We have performed a preliminary review of the requirements of the new revenue standard and are currently evaluatingmonitoring the impactactivity of the FASB and the transition resource group as it relates to specific interpretive guidance. We have reviewed customer contracts and applied the five-step model of the new standard to our contracts as well as compared the results to our current accounting practices. At this point of our analysis, we do not believe that the adoption of this guidancestandard will have a material effect on our consolidated financial statements and disclosures.but will potentially expand our disclosures related to contracts with customers.

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Fair Value of Financial Instruments

 

Our financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses. The carrying amount of cash, accounts receivable, accounts payable and accrued expenses approximates their fair value because of the short-term maturity of such instruments, which are considered Level 1 assets under the fair value hierarchy.

 

We categorize our assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy as defined by Accounting Standards Codification, or ASC, 820, Fair Value Measurements.Measurements. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). Assets and liabilities recorded in the consolidated balance sheet at fair value are categorized based on a hierarchy of inputs, as follows:

 

Level 1unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2quoted prices for similar assets or liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and
Level 3unobservable inputs for the asset or liability.

 

At SeptemberJune 30, 20162017 and December 31, 2015,2016, we had no assets or liabilities that were valued at fair value on a recurring basis. The fair value of indefinite-lived assets or long-lived assets is measured on a non-recurring basis using significant unobservable inputs (Level 3) in connection with our impairment test. There was no impairment of intangible assets or long-lived assets during the three and ninesix months ended SeptemberJune 30, 20162017 and 2015.2016.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are customer obligations due under normal trade terms. We review accounts receivable for uncollectible accounts and credit card charge-backs and provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. We consider trade accounts receivable past due for more than 90 days to be delinquent. We write off delinquent receivables against our allowance for doubtful accounts based on individual credit evaluations, the results of collection efforts, and specific circumstances of customers. We record recoveries of accounts previously written off when received as an increase in the allowance for doubtful accounts. To the extent data we use to calculate these estimates does not accurately reflect bad debts, adjustments to these reserves may be required.

 

Revenue Recognition

 

We recognize revenue on arrangements in accordance with ASC 605, Revenue Recognition. We recognize revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability is reasonably assured.

8  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Our OTC and prescription prenatal vitamin products are generally variations of the same product with slight modifications in formulation and marketing. The primary difference between our OTC and prescription prenatal vitamin products is the source of payment. Purchasers of our OTC prenatal vitamin products pay for the product directly while purchasers of our prescription prenatal vitamin products pay for the product primarily via third-party payers. Both OTC and prescription prenatal vitamin products share the same marketing support team utilizing similar marketing techniques. As of January 1, 2017, we ceased manufacturing and distributing our OTC product lines, except for Iron 21/7, which have declined steadily over time resulting in immaterial sales. The revenue that is generated by us from major customers is all generated from sales of our prescription prenatal vitamin products which is disclosed in Note 14.13. There are no major customers for our OTC prenatal vitamin or other products.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Over-the-Counter Products

 

We generate OTC revenue from product sales primarily to retail consumers. We recognize revenue from product sales upon shipment, when the rights of ownership and risk of loss have passed to the consumer. We include outbound shipping and handling fees, if any, in revenues, net, and bill them upon shipment. We include shipping expenses in cost of goods sold. A majority of our OTC customers pay for our products with credit cards, and we usually receive the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to OTC sales.sales (Iron 21/7). We provide an unconditional 30-day money-back return policy under which we accept product returns from our retail and eCommerce OTC customers. We recognize revenue from OTC sales, net of estimated returns and sales discounts,discounts. As of January 1, 2017, we ceased manufacturing and eCommerce fees.distributing our OTC product lines, except for Iron 21/7, which have declined steadily over time resulting in immaterial sales.

 

Prescription Products

 

We sell our name brand and generic prescription products primarily through drug wholesalerswholesale distributors and retail pharmacies.pharmacy distributors. We recognize revenue from prescription product sales, net of sales discounts, chargebacks, wholesaler fees, customer rebates and customer rebates.estimated returns.

Revenue related to prescription products sold through wholesale distributors is recognized when the prescription products are shipped to the distributors and the control of the products passes to each distributor. We accept returns of unsalable prescription products from customerssold through wholesale distributors within a return period of six months prior to and up to 12 months following product expiration. Our prescription products currently have a shelf life of 24 months from the date of manufacture. We estimate returns based

Prior to September 1, 2016, we recognized revenue related to prescription products sold through retail pharmacy distributors when the product was dispensed by the retail pharmacy distributor, at which point all revenue and discounts related to such product were known or determinable and there was no right of return with respect to such product. On September 1, 2016, we centralized the distribution channel for both our retail pharmacy distributors and wholesale distributors, in order to facilitate sales to a broader population of retail pharmacies and mitigate exposure to any one retail pharmacy. Beginning on historical return rates and recorded actual product returns against this reserve as received. September 1, 2016, all of our prescription products are distributed under the wholesale distributor model described above.

We offer various rebate programs in an effort to maintain a competitive position in the marketplace and to promote sales and customer loyalty. The consumer rebate program is designed to enable the end user to submit a coupon to us. If the coupon qualifies, we send a rebate check to the end user. We estimate the allowance for consumer rebates and coupons that we have offered based on our experience and industry averages, which is reviewed, and adjusted if necessary, on a quarterly basis. We record distributor fees based on amounts stated in contracts and estimate chargebacks based on the number of units sold each period.

9  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Share-Based Compensation

 

We measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements may include options, restricted stock, restricted stock units, performance-based awards, and share appreciation rights, and employee share purchase plans. As such, compensation cost is measured on the date of grant at fair value.rights. We amortize such compensation amounts, if any, over the requisiterespective service periods of the award. We use the Black-Scholes-Merton option pricing model, or the Black-Scholes Model, an acceptable model in accordance with ASC 718, Compensation—StockCompensation-Stock Compensation, to value options. Option valuation models require the input of assumptions, including the expected life of the stock-based awards, the estimated stock price volatility, the risk-free interest rate, and the expected dividend yield. The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the instrument. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the term of the award. Prior to January 1, 2017, the expected volatility of share options was estimated based on a historical volatility analysis of peer entities whose stock prices were publicly available that were similar to our company with respect to industry, stage of life cycle, market capitalization, and financial leverage. On January 1, 2017, we started using our own stock price in our volatility calculation along with two other peer entities whose stock prices were publicly available that were similar to our company. Our calculation of estimated volatility is based on historical stock prices over a period equal to the expected term of the awards. The average expected life of warrants is based on the contractual terms of the awards. The average expected life of options is based on the contractual terms of the stock option using the simplified method. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. Calculating share-based compensation expense requires the input of highly subjective judgment and assumptions, including forfeiture rates, estimates of expected life of the share-based award, stock price volatility and risk-free interest rates. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.

 

Equity instruments (“instruments”) issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC 505, Equity - Based Payments to Non-Employees, or ASC 505. ASC 505 defines the measurement date and recognition period for such instruments. In general, the measurement date is when either (a) a performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The estimated expense is recognized each period based on the current fair value of the award. As a result, the amount of expense related to awards to non-employees can fluctuate significantly during the period from the date of the grant through the final measurement date. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in ASC 505.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

We recognize the compensation expense for all share-based compensation granted based on the grant date fair value estimated in accordance with ASC 718. We generally recognize the compensation expense on a straight-line basis over the employee’s requisite service period. We estimateadopted ASU 2016-09, effective January 1, 2017, electing to account for forfeitures when they occur. Prior to that, we estimated the forfeiture rate based on our historical experience of forfeitures. If our actual forfeiture rate is materially different from our estimate, share-based compensation expense could be significantly different from what we have recorded in the current period.

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Research and Development Expenses

 

Research and development, or R&D, expenses include internal R&D activities, services of external contract research organizations, or CROs, costs of their clinical research sites, manufacturing, laboratory supplies, scale-up and validation costs, and other activities. Internal R&D activity expenses include laboratory supplies, salaries, benefits, and non-cash share-based compensation expenses. Advance payments to be expensed in future research and development activities are capitalized, and were $244,335$0 at SeptemberJune 30, 2017 and $228,933 at December 31, 2016, all of which waswere included in other current assets on the accompanying consolidated balance sheets. Advance payments to be expensed in future research and development activities were $1,138,073 at December 31, 2015, of which $1,009,175 was included in other current assets and $128,898 was included in long term prepaid expense on the accompanying consolidated balance sheets. CRO activity expenses include preclinical laboratory experiments and clinical trial studies. Other activity expenses include regulatory consulting and legal fees and costs. The activities undertaken by our regulatory consultants that were classified as R&D expenses include assisting, consulting with, and advising our in-house staff with respect to various U.S. Food and Drug Administration, or the FDA, submission processes, clinical trial processes, and scientific writing matters, including preparing protocols and FDA submissions. Legal activities that were classified as R&D expenses related to designing experiments to generate data for patents and to further the formulation development process for our pipeline technologies. Outside legal counsel also providedinclude professional research and advice regarding R&D, patents and regulatory matters. These consulting and legal expenses were direct costs associated with preparing, reviewing, and undertaking work for our clinical trials and investigative drugs. We charge internal R&D activities and other activity expenses to operations as incurred. We make payments to CROs based on agreed-upon terms, which may include payments in advance of a study starting date. We expense nonrefundable advance payments for goods and services that will be used in future R&D activities when the activity has been performed or when the goods have been received rather than when the payment is made. We review and accrue CRO expenses and clinical trial study expenses based on services performed and rely on estimates of those costs applicable to the completion stage of a study as provided by CROs. Estimated accrued CRO costs are subject to revisions as such studies progress to completion. We charge revisions expense in the period in which the facts that give rise to the revision become known.

 

Segment Reporting

 

We are managed and operated as one business, which is focused on creating and commercializing products targeted exclusively for women. Our business operations are managed by a single management team that reports to the President of our Company.company. We do not operate separate lines of business with respect to any of our products and we do not prepare discrete financial information with respect to separate products. All product sales are derived from sales in the United States. Accordingly, we view our business as one reportable operating segment.

 

NOTE 4 – INVENTORY

 

Inventory consists of the following:

 

  September 30,
2016
  December 31,
2015
 
Finished product $816,400  $661,167 
Raw material  26,998   28,986 
     TOTAL INVENTORY $843,398  $690,153 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  June 30,
2017
  December 31,
2016
 
Finished product $1,399,979  $1,062,285 
Raw material  14,036   14,036 
TOTAL INVENTORY $1,414,015  $1,076,321 

 

NOTE 5 – OTHER CURRENT ASSETS

 

Other current assets consist of the following:

 

 September 30,
2016
 December 31,
2015
  June 30,
2017
 December 31,
2016
 
Prepaid manufacturing costs $999,508  $991,809 
Prepaid marketing costs  535,936    
Prepaid insurance $842,020  $695,421   350,571   628,039 
Prepaid manufacturing costs  988,835    
Prepaid research and development costs     100,035 
Prepaid consulting  193,347   334,822      128,898 
Prepaid vendor deposits  5,000   44,311 
Other prepaid costs  318,407   369,812   337,740   405,960 
Prepaid vendor deposits  299,878   159,489 
Prepaid research and development costs  50,988   674,353 
TOTAL OTHER CURRENT ASSETS $2,693,475  $2,233,897  $2,228,755  $2,299,052 

 

NOTE 6 – FIXED ASSETS, NET

11  

 

Fixed assets consist of the following:

 

  September 30,
2016
  December 31,
2015
 
Accounting system $296,746  $149,699 
Equipment  164,013   132,150 
Computer hardware  80,211    
Furniture and fixtures  80,158   69,454 
Leasehold improvements  37,888    
   659,016   351,303 
Accumulated depreciation  (198,470)  (152,711)
     TOTAL FIXED ASSETS, NET $460,546  $198,592 

Depreciation expense for the three months ended September 30, 2016 and 2015 was $26,543 and $7,856, respectively, and $45,759 and $22,104 for the nine months ended September 30, 2016 and 2015, respectively, which was included in operating expenses in the accompanying consolidated financial statements.

NOTE 7 – PREPAID EXPENSE

Prepaid expense consists of the following:

  September 30,
2016
  December 31,
2015
 
Prepaid manufacturing costs $  $980,985 
Prepaid research and development costs     128,898 
     TOTAL PREPAID EXPENSE $  $1,109,883 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 86 – FIXED ASSETS

Fixed assets consist of the following:

  June 30,
2017
  December 31,
2016
 
Accounting system $301,096  $301,096 
Equipment  247,568   215,182 
Computer hardware  80,211   80,211 
Furniture and fixtures  116,542   113,079 
Leasehold improvements  37,888   37,888 
   783,305   747,456 
Accumulated depreciation  (299,617)  (230,617)
     TOTAL FIXED ASSETS $483,688  $516,839 

Depreciation expense for the three months ended June 30, 2017 and 2016 was $35,400 and $10,853 respectively, and $69,000 and $19,216 for the six months ended June 30, 2017 and 2016, respectively.

NOTE 7 – INTANGIBLE ASSETS NET

 

The following table sets forth the gross carrying amount and accumulated amortization of our intangible assets as of SeptemberJune 30, 20162017 and December 31, 2015:2016:

 

 September 30, 2016  June 30, 2017 
 Gross
Carrying
Amount
 Accumulated
Amortization
 Net
Amount
 Weighted-
Average
Remaining
Amortization
Period (yrs.)
  Gross
Carrying
Amount
 Accumulated
Amortization
 Net
Amount
 Weighted-
Average
Remaining
Amortization
Period (yrs.)
 
Amortizing intangible assets:                                
OPERA® software patent $31,951  $(5,991) $25,960   13  $31,951  $(7,488) $24,463   12.25 
Development costs of corporate website  91,743   (91,743)     n/a   91,743   (91,743)     n/a 
Approved hormone therapy drug candidate patents  959,059   (86,907)  872,152   16.25   1,207,267   (135,282) $1,071,985   15.5 
Hormone therapy drug candidate patents (pending)  1,037,829      1,037,829   n/a   1,444,581      1,444,581   n/a 
Non-amortizing intangible assets:                                
Multiple trademarks  182,437      182,437   indefinite   198,657      198,657   indefinite 
TOTAL $2,303,019  $(184,641) $2,118,378     
Total $2,974,199  $(234,513) $2,739,686     

 

12  

  December 31, 2015 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Amount
  Weighted-
Average
Remaining
Amortization
Period (yrs.)
 
Amortizing intangible assets:                
OPERA® software patent $31,951  $(4,493) $27,458   13.75 
Development costs of corporate website  91,743   (91,743)     n/a 
Approved hormone therapy drug candidate patents  705,752   (49,845)  655,907   17 
Hormone therapy drug candidate patents (pending)  774,165      774,165   n/a 
Non-amortizing intangible assets:                
Multiple trademarks  157,721      157,721   indefinite 
TOTAL $1,761,332  $(146,081) $1,615,251     

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

  December 31, 2016 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Amount
  Weighted-
Average
Remaining
Amortization
Period (yrs.)
 
Amortizing intangible assets:                
OPERA® software patent $31,951  $(6,490) $25,461   12.75 
Development costs of corporate website  91,743   (91,743)     n/a 
Approved hormone  therapy drug candidate patents  1,093,452   (102,393)  991,059   16 
Hormone therapy drug  candidate patents (pending)  1,203,987      1,203,987   n/a 
Non-amortizing intangible assets:                
Multiple trademarks  185,465      185,465   indefinite 
Total $2,606,598  $(200,626) $2,405,972     

 

We capitalize external costs, consisting primarily of legal costs, related to securing our patents and trademarks. Once a patent is granted, we amortize the approved hormone therapy drug candidate patents using the straight-linestraight line method over the estimated useful life of approximately 20 years, which is the life of intellectual property patents. If the patent is not granted, we write-off any capitalized patent costs at that time. Trademarks are perpetual and are not amortized. As of SeptemberDuring the six months ended June 30, 2017 and year ended December 31, 2016, the remaining lifethere was no impairment recognized related to OPERA® patent was approximately 13 years and the remaining life related to the approved hormone therapy drug candidate patents was approximately 16 years.intangible assets.

 

In addition to numerous pending patent applications, as of SeptemberJune 30, 2016,2017, we had 17 issued patents, including:

 

13 utility patents that relate to our combination progesterone and estradiol product candidates, which are owned by us and are U.S. jurisdiction patents with expiration dates in 2032.  We have pending patent applications with respect to certain of these patents in Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea;
two utility patents that relate to TX-004HR, our applicator-free vaginal estradiol softgel product candidate, which establish an important intellectual property foundation for TX-004HR, which are owned by us and are U.S. jurisdiction patents with expiration dates in 2033 and 2032.  We have pending patent applications with respect to certain of these patents in Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea;
one utility patent that relates to a pipeline transdermal patch technology, which is owned by us and is a U.S. jurisdiction patent with an expiration date in 2032.  We have pending patent applications with respect to this technology in Australia, Brazil, Canada, Europe, Mexico, Japan, and South Africa; and
13 utility patents that relate to our combination progesterone and estradiol product candidates, which are owned by us and are U.S. jurisdiction patents with expiration dates in 2032. We have pending patent applications with respect to certain of these patents in Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea.
two utility patent that relates to TX-004HR, our applicator-free vaginal estradiol softgel product candidate, which establishes an important intellectual property foundation for TX-004HR, which are owned by us and are U.S. jurisdiction patents with an expiration date in 2033.  We have pending patent applications with respect to certain of these patents in Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea.
one utility patent that relates to a pipeline transdermal patch technology, which is owned by us and is a U.S. jurisdiction patent with an expiration in 2032. We have pending patent application with respect to this patent in Australia, Brazil, Canada, Europe, Mexico, and Japan.
one utility patent that relates to our OPERA®OPERA® information technology platform, which is owned by us and is a U.S. jurisdiction patent with an expiration date in 2029.

13  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Amortization expense was $13,917$17,789 and $8,692$13,409 for the three months ended SeptemberJune 30, 20162017 and 2015,2016, respectively, and $38,560$33,888 and $22,296$24,643 for the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. Estimated amortization expense for the next five years for the patent cost currently being amortized is as follows:

 

Year Ending December 31,  Estimated
Amortization
 
2016 (3 months)  $13,917 
2017  $55,668 
2018  $55,668 
2019  $55,668 
2020  $55,668 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

Year Ending
December 31,
  Estimated
Amortization
 
 2017(6 months)  $35,579 
 2018  $71,157 
 2019  $71,157 
 2020  $71,157 
 2021  $71,157 
 Thereafter  $776,241 

 

NOTE 98 – OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

 September 30, 
2016
  December 31,
2015
  June 30,
2017
 December 31,
2016
 
Accrued clinical trial costs $3,778,784  $3,725,377  $527,979  $1,281,080 
Accrued payroll, bonuses and commission costs  1,622,333   2,108,143   1,738,495   3,531,440 
Accrued compensated absences  772,958   562,096   934,370   665,561 
Accrued legal and accounting expense  377,172   210,309   263,375   176,518 
Accrued sales and marketing costs  617,961      100,821   665,773 
Other accrued expenses  231,037   546,264   171,487   224,865 
Allowance for wholesale distributor fees  100,434   32,659   98,729   76,510 
Accrued royalties  27,495   46,851   71,775   26,507 
Allowance for coupons and returns  564,864   224,300   1,019,853   794,816 
Accrued rent  150,383   83,527   253,334   181,015 
TOTAL OTHER CURRENT LIABILITIES $8,243,421  $7,539,526  $5,180,218  $7,624,085 

 

NOTE 109 – NET LOSS PER SHARE

 

We calculate earnings per share, or EPS, in accordance with ASC 260, Earnings Per Share, which requires the computation and disclosure of two EPS amounts: basic and diluted net loss per share allocable to common stockholders usingdiluted. We compute basic EPS based on the weighted-average number of shares of common stock, par value $0.001 per share, or Common Stock, outstanding during the period, less anyperiod. We compute diluted EPS based on the weighted-average number of shares subject to repurchase or forfeiture. There were no shares of our Common Stock outstanding subject to repurchase or forfeiture for the three and nine months ended September 30, 2016 and 2015.

Since we are in a net loss position, we have excluded outstanding stock options,plus all potentially dilutive shares of which are subject to forfeiture, as well as warrants for the purchase of our Common Stock outstanding during the period. Such potentially dilutive shares of Common Stock consist of options and warrants and were excluded from ourthe calculation of diluted earnings per share because their effect would have been anti-dilutive due to the net loss per share.reported by us. The table below presents potentially dilutive securities that could affect our calculation of diluted net loss per share allocable to common stockholders for the periods presented.

 

 Three and Nine months ended,  Three and Six months ended 
 2016  2015  June 30, 2017 June 30, 2016 
Stock options  20,705,923   17,414,242   23,402,100   20,668,657 
Warrants  12,060,571   12,722,431   3,115,905   12,060,571 
TOTAL  32,766,494   30,136,673 
  26,518,005   32,729,228 

 

NOTE 1110 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

At SeptemberJune 30, 2016,2017, we had 10,000,000 shares of Preferred Stock,preferred stock, par value $0.001, authorized for issuance, of which no shares of Preferred Stockpreferred stock were issued or outstanding.

 

14  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Common Stock

 

At SeptemberJune 30, 2016,2017, we had 350,000,000 shares of Common Stock authorized for issuance, of which 196,580,212204,027,142 shares of Common Stock were issued and outstanding.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Issuances During 2017

During the three months ended June 30, 2017, certain individuals exercised stock options to purchase 5,000 shares of Common Stock for $20,050 in cash. During the six months ended June 30, 2017, certain individuals exercised stock options to purchase 100,046 shares of Common Stock for $212,360 in cash.

Issuances During 2016

 

On January 6, 2016, we entered into an underwriting agreement with Goldman Sachs & Co. and Cowen and Company, LLC, as the representatives of the several underwriters, or the Underwriters, relating to an underwritten public offering of 15,151,515 shares of our Common Stock at a public offering price of $8.25 per share. Under the terms of the underwriting agreement, we granted the Underwriters a 30-day option to purchase up to an aggregate of 2,272,727 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $134.9 million,$134,864,000, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of our Common Stock.

On July 9, 2015, we entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated and Guggenheim Securities, LLC, as the representatives of the several underwriters, or the Stifel Underwriters, relating to an underwritten public offering of 3,846,154 shares of Common Stock at a public offering price of $7.80 per share. Under the terms of the underwriting agreement, we granted the Stifel Underwriters a 30-day option to purchase up to an aggregate of 576,923 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $32.2 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on July 15, 2015 and we issued 4,423,077 shares of our Common Stock.

On February 10, 2015, we entered into an underwriting agreement, or the Cowen Agreement, with Cowen and Company, LLC, as the representative of the several underwriters, or the Cowen Underwriters, relating to an underwritten public offering of 13,580,246 shares of Common Stock, at a public offering price of $4.05 per share. Under the terms of the Cowen Agreement, we granted the Cowen Underwriters a 30-day option to purchase up to an aggregate of 2,037,036 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $59.1 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on February 17, 2015 and we issued 15,617,282 shares of our Common Stock.

Exercises During 2016

 

During the three months ended SeptemberJune 30, 2016, certain individuals exercised stock options to purchase 127,109 shares of Common Stock. Stock options to purchase77,123 shares of Common Stock were exercised as follows: (i) 10,000 options for $1,018$191,592 in cash and (ii) 117,109 options, pursuant to the stock options’ cashless provision, wherein 78,017 shares of Common Stock were issued.cash. During the ninesix months ended SeptemberJune 30, 2016, certain individuals exercised stock options to purchase 544,277 shares of Common Stock. Stock options to purchase shares of Common Stock were exercised as follows: (i) 427,168 options for $979,060 in cash and (ii) 117,109 options, pursuant to the stock options’ cashless provision, wherein 78,017 shares of Common Stock were issued.

Exercises During 2015

During the three months ended September 30, 2015, certain individuals exercised stock options to purchase 95,000417,168 shares of Common Stock for $98,478 in cash. During the nine months ended September 30, 2015, certain individuals exercised stock options to purchase 472,867 shares of Common Stock for $589,829$978,042 in cash.

 

Warrants to Purchase Common Stock

 

As of SeptemberJune 30, 2016,2017, we had warrants outstanding to purchase an aggregate of 12,060,5713,115,905 shares of Common Stock with a weighted-average contractual remaining life of 1.3approximately 2.3 years, and exercise prices ranging from $0.24 to $8.20 per share, resulting in a weighted average exercise price of $2.08$2.58 per share.

 

The valuation methodology used to determine the fair value of our warrants is the Black-Scholes-Merton valuation model, or the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions, including volatility of the stock price, the risk-free interest rate and the term of the warrant.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

During the threesix months ended SeptemberJune 30, 20162017, we granted warrants to purchase 125,000 shares of Common Stock to outside consultants at an exercise price of $6.83 per share. The fair value for these warrants was determined by using the Black-Scholes Model on the date of the grant using a term of five years; volatility of 63.24%; risk free rate of 1.47%; and 2015, we did not issue any warrants.dividend yield of 0%. The grant date fair value of the warrants was $3.67 per share. The warrants are vesting ratably over a 12-month period and have an expiration date of March 15, 2022. During the ninesix months ended SeptemberJune 30, 2016, we granted warrants to purchase 245,000 shares of Common Stock to outside consultants at a weighted average exercise price of $7.90 per share. The weighted average grant date fair value of these warrants was $4.78 per share. The fair value for these warrants was determined by using the Black-Scholes Model on the date of the grant using a term of five years; volatility of 74.10%-74.15%; risk free rate of 1.04%-1.28%; and dividend yield of 0%. These warrants vest and have expiration dates as follows: warrants to purchase 75,000 shares of Common Stock vested on April 21, 2016 and have an expiration date of April 21, 2021, warrants to purchase 50,000 shares of Common Stock vest ratably over a 24-month period and have an expiration date of April 21, 2021, and warrants to purchase 120,000 shares of Common Stock vest ratable over a 12-month period and have an expiration date of January 21, 2021.

15  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

During the nine months ended September 30, 2015, we granted warrants to purchase 50,000 shares of Common Stock to an outside consultant at an exercise price of $6.35 and the expiration date of April 6, 2020. We recorded share-based compensation expense related to these warrants totaling $137,161 and $42,266 for the three months ended SeptemberJune 30, 2017 and 2016, we recorded $68,089 and 2015,$556,125, respectively, and $820,751 and $86,008 forduring the ninesix months ended SeptemberJune 30, 2017 and 2016 we recorded $115,774 and 2015,$683,590, respectively, as share-based compensation expense in the accompanying consolidated financial statements.statements related to warrants. As of June 30, 2017, unamortized costs associated with these warrants totaled approximately $420,000.

 

In May 2013, we entered into a consulting agreement with Sancilio and Company, Inc., or SCI, to develop drug platforms to be used in our hormone replacement drug candidates. These services include support of our efforts to successfully obtain FDA approval for our drug candidates, including a vaginal capsule for the treatment of vulvar and vaginal atrophy, or VVA. In connection with the agreement, SCI agreed to forfeit its rights to receive warrants to purchase 833,000 shares of Common Stock that were to be granted pursuant to the terms of a prior consulting agreement dated May 17, 2012. As consideration under the agreement, we agreed to issue the consultantto SCI a warrant to purchase 850,000 shares of our Common Stock at $2.01 per share that has vested or will vest, as applicable, as follows:

 

1.Warrants to purchase 283,333 shares were earned on May 11, 2013 upon acceptance of an Investigational New Drug application by the FDA for an estradiol-basedestradiol based drug candidate in a softgel vaginal capsule for the treatment of VVA; however, pursuant to the terms of the consulting agreement, the shares did not vest until June 30, 2013. The fair value of $405,066 for the shares vested on June 30, 2013 was determined by using the Black-Scholes Model on the date of vesting using a term of 5 years; a volatility of 45.89%; risk free rate of 1.12%; and a dividend yield of 0%. We recorded the entire $405,066 as non-cash compensation as of June 30, 2013;
2.Warrants to purchase 283,333 shares vested on June 30, 2013. The fair value of $462,196 for these shares was determined by using the Black-Scholes Model on the date of the vesting using a term of five5 years; a volatility of 45.84%; risk free rate of 1.41%; and a dividend yield of 0%. During the three months ended SeptemberJune 30, 20162017 and 2015,2016, we recorded share-based compensation expense of $0 and $38,517,$38,509, respectively, related to these warrants and during the nine months ended September 30, 2016 and 2015, we recorded $77,026 and $115,551, respectively, related to these warrantsas non-cash compensation in the accompanying consolidated financial statements.statements related to this warrant. During the six months ended June 30, 2017 and 2016, we recorded $0 and $77,026, respectively, as non-cash compensation in the accompanying consolidated financial statements related to this warrant. As of June 30, 2016, the fair value of these warrants has beenthis warrant was fully amortized; and
3.Warrants to purchase 283,334 shares will vest upon the receipt by us of any final FDA approval of a drug candidate which the warrant holderthat SCI helped us design. It is anticipated that this event will not occur before March 31, 2017.in the near future.

 

In addition, during both the three months ended September 30, 2016 and 2015,May 2012, we recorded share-based compensation expenseissued warrants to purchase an aggregate of $64,449 and during both the nine months ended September 30, 2016 and 2015, we recorded share-based compensation expense1,300,000 shares of $193,347 relatedCommon Stock to SCI for services to be rendered over approximately five years beginning in May 2012. The warrants issued in 2012 forvested upon issuance. Services provided are to include (a) services in support of our drug development efforts.efforts, including services in support of our ongoing and future drug development and commercialization efforts, regulatory approval efforts, third-party investment and financing efforts, marketing efforts, chemistry, manufacturing and controls efforts, drug launch and post-approval activities, and other intellectual property and know-how transfer associated therewith; (b) services in support of our efforts to successfully obtain New Drug Approval; and (c) other consulting services as mutually agreed upon from time to time in relation to new drug development opportunities. The warrants were valued at $1,532,228 on the date of the issuance using an exercise price of $2.57; a term of five years; a volatility of 44.71%; risk free rate of 0.74%; and a dividend yield of 0%. During both the three months ended June 30, 2017 and 2016 and both the six months ended June 30, 2017 and 2016, we recorded $64,449 and $128,898, respectively, as non-cash compensation expense with respect to these warrants in the accompanying consolidated statements of operations. The contract will expire upon the commercial manufacture of a drug product. As of SeptemberJune 30, 2016, unamortized costs associated with2017, the SCI warrants issued to the same holder in 2013 and 2012 and 2013 totaled approximately $193,347 and will be recognized over a period of nine months.were fully amortized.

16  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

During the three months ended SeptemberJune 30, 2016, no2017, certain individuals exercised warrants were exercised andto purchase 666,666 shares of Common Stock for $1,338,999 in cash. In addition, during the three months ended SeptemberJune 30, 2015,2017, certain individuals and an entity exercised warrants to purchase 310,0006,590,000 shares of Common Stock pursuant to the warrants’ cashless exercise provisions, wherein 232,1974,762,208 shares of Common Stock were issued. During the ninethree months ended SeptemberJune 30, 2016, certain individuals exercised warrants to purchase 161,372 shares of Common Stock for $63,000 in cash.

During the six months ended June 30, 2017, certain individuals exercised warrants to purchase 2,476,666 shares of Common Stock for $3,798,999 in cash. In addition, during the six months ended June 30, 2017, certain individuals exercised warrants to purchase 6,590,000 shares of Common Stock pursuant to the warrants’ cashless exercise provisions, wherein 4,762,208 shares of Common Stock were issued. During the six months ended June 30, 2016, certain individuals exercised warrants to purchase 722,744 shares of our Common Stock for $1,373,000 in cash and during the nine months ended September 30, 2015, certain individuals and an entity exercised warrants to purchase 1,255,485 shares of Common Stock as follows: (i) 945,485 shares of Common Stock were issued for $366,000 in cash and (ii) warrants to purchase 310,000 shares of Common Stock were exercised pursuant to the warrants’ cashless exercise provisions, wherein 232,197 shares of Common Stock were issued.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS cash.

 

Options to Purchase Common Stock

 

In 2009, we adopted the 2009 Long Term Incentive Compensation Plan, or the 2009 Plan, to provide financial incentives to employees, directors, advisers, and consultants of our company who are able to contribute towards the creation of or who have created stockholder value by providing them stock options and other stock and cash incentives, or the Awards. The Awards available under the 2009 Plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock or cash awards as described in the 2009 Plan. There are 25,000,000 shares authorized for issuance thereunder. DuringGenerally, the nine months ended September 30, 2016, we granted 557,500 non-qualified stock options undervest annually over four years or as determined by our board of directors, upon each option grant. Options may be exercised by paying the 2009 Plan.price for shares or on a cashless exercise basis after they have vested and prior to the specified expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally ten years from the date the option is issued. As of SeptemberJune 30, 2016,2017, there were non-qualified stock options to purchase 17,837,44918,611,959 shares of Common Stock outstanding and stock options to purchase 3,122,069under the 2009 Plan. As of June 30, 2017, there were 2,139,503 shares of Common Stock available to be issued under the 2009 Plan.

 

In 2012, we adopted the 2012 Stock Incentive Plan, or the 2012 Plan, a non-qualified plan that was amended in August 2013. The 2012 Plan was designed to serve as an incentive for retaining qualified and competent key employees, officers, directors, and certain consultants and advisors of our company. The Awards available under the 2012 Plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock or cash awards as described in the 2012 Plan. Generally, the options vest annually over four years or as determined by our board of directors, upon each option grant. Options may be exercised by paying the price for shares or on a cashless exercise basis after they have vested and prior to the specified expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally ten years from the date the option is issued. There are 10,000,000 shares of Common Stock authorized for issuance thereunder. As of SeptemberJune 30, 2016,2017, there were non-qualified stock options to purchase 2,868,4744,790,141 shares of Common Stock outstanding and stock options to purchase 7,050,000under the 2012 Plan. As of June 30, 2017, there were 5,128,333 shares of Common Stock available to be issued under the 2012 Plan.

17  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

The valuation methodology used to determine the fair value of stock options is the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the risk-free interest rate, and the expected life of the stock options. The assumptions used in the Black-Scholes Model for options granted during the ninesix months ended SeptemberJune 30, 20162017 and 20152016 are set forth in the table below.

 

  Nine Months Ended September 30, 
  2016  2015 
Risk-free interest rate  1.13-1.70%  1.47-1.54%
Volatility  70.26-71.22%  58.77-62.94%
Term (in years)  6.00-6.25   5.27-6.25
Dividend yield  0.00%  0.00%

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the expected term. Estimated volatility is a measure of the amount by which the price of our Common Stock is expected to fluctuate each year during the term of an award. Our estimated volatility is an average of the historical volatility of the stock prices of our peer entities whose stock prices were publicly available. Our calculation of estimated volatility is based on historical stock prices over a period equal to the term of the awards. We used the historical volatility of our peer entities due to the lack of sufficient historical data on our stock price. The expected term is based on the contractual terms of the stock option using the simplified method.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 Six Months Ended
 June 30, 2017 June 30, 2016
Risk-free interest rate1.84-2.01% 1.26-1.70%
Volatility61.56-63.95% 70.44-71.22%
Term (in years)5.5-6.25 6.25
Dividend yield0.00% 0.00%

 

A summary of activity under the 2009 and 2012 Plans and related information follows:

 

  Number of
Shares
Underlying
Stock
Options
  Weighted
Average
Exercise
Price
  Weighted 
Average 
Remaining 
Contractual
Life in Years
  Aggregate
Intrinsic
Value
 
Balance at December 31, 2015  20,725,325  $3.28   6.5  $146,864,184 
   Granted  557,500  $7.37         
   Exercised  (544,277) $2.27     $3,100,742 
   Expired/Forfeited  (32,625) $6.22         
Balance at September 30, 2016  20,705,923  $3.42   5.8  $77,940,710 
Vested and Exercisable at September 30, 2016  17,336,805  $2.69   5.2  $75,393,944 
Unvested at September 30, 2016  3,369,118  $7.17   8.8  $2,546,766 
  Number of Shares Underlying Stock Options  Weighted Average Exercise Price  Weighted
Average
Remaining
Contractual
Life in Years
  Aggregate Intrinsic Value 
Balance at December 31, 2016  21,767,854  $3.56   5.8  $60,495,730 
Granted  2,184,500  $6.61         
Exercised  (100,046) $2.12      $437,667 
Expired/Forfeited  (450,208) $6.54         
Balance at June 30, 2017  23,402,100  $3.79   5.6  $52,165,428 
Vested and Exercisable at June 30, 2017  18,731,808  $3.13   4.9  $51,750,547 
Unvested at June 30, 2017  4,670,292  $6.43   8.8  $414,881 

 

At SeptemberJune 30, 2016,2017, our outstanding stock options had exercise prices ranging from $0.10 to $8.92 per share. The weighted average grant date fair value per share of options granted was $4.70$3.82 and $3.49$5.08 during the ninesix months ended SeptemberJune 30, 20162017 and 2015,2016, respectively. Share-based compensation expense for options recognized in our results of operations is based on vested awards. Share-based compensation expense related to options for the three months ended SeptemberJune 30, 2017 and 2016 was $1,505,625 and 2015 was $3,982,759 and $1,626,862,$4,160,071, respectively, and $12,294,089 and $4,328,964, for the ninesix months ended SeptemberJune 30, 2017 and 2016 was $2,806,685 and 2015,$8,311,330, respectively. We estimate forfeitures at the time of grant and revise the forfeiture rate in subsequent periods if actual forfeitures differ from the estimates. At SeptemberJune 30, 2016,2017, total unrecognized estimated compensation expense related to unvested options granted prior to that date was approximately $10,225,000$14,365,000 which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period of 2.112.4 years. No tax benefit was realized due to a continued pattern of operating losses.

 

NOTE 1211 – INCOME TAXES

 

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We do not expect to pay any significant federal or state income tax for 20162017 as a result of (i)(a) the losses recorded during the ninesix months ended SeptemberJune 30, 2016, (ii)2017, (b) additional losses expected for the remainder of 2016,2017, and/or (iii)(c) net operating loss carry forwards from prior years. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As of SeptemberJune 30, 2016,2017, we maintain a full valuation allowance for all deferred tax assets. Based on these requirements, no provision or benefit for income taxes has been recorded. There were no recorded unrecognized tax benefits at the end of the reporting period.

 

18  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1312 – RELATED PARTIES

 

In July 2015, J. Martin Carroll, a director of our Company,company, was appointed to the board of directors of Catalent, Inc. From time to time, we have entered into agreements with Catalent, Inc. and its affiliates, (“Catalent”),or Catalent, in the normal course of business. Agreements with Catalent have been reviewed by independent directors of our Companycompany or a committee consisting of independent directors of our Companycompany since July 2015. During the three and nine months ended SeptemberJune 30, 2017 and 2016, the amountswe were billed by Catalent were $828,062approximately $1,754,000 and $2,906,838,$614,000, respectively, for manufacturing activities related to our clinical trials.trials, scale-up, registration batches, stability and validation testing. During the six months ended June 30, 2017 and 2016, we were billed by Catalent approximately $2,460,000 and $2,079,000, respectively, for manufacturing activities related to our clinical trials, scale-up, registration batches, stability and validation testing. As of SeptemberJune 30, 2017 and December 31, 2016, there were amounts due to Catalent of $208,233.approximately $1,132,000 and $57,000, respectively.

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

NOTE 1413 - BUSINESS CONCENTRATIONS

 

We purchase our products from several suppliers with approximately 97%100% and 54%96% of our purchases supplied from one vendor for both the ninethree and six months ended SeptemberJune 30, 20162017 and 2015,2016, respectively.

 

We sell our prescription prenatal vitamin products to wholesale distributors, specialty pharmacies, specialty distributors, and chain drug stores that generally sell products to retail pharmacies, hospitals, and other institutional customers. Revenue generated from major customers accountedAs a result of developments in the pharmaceutical industry that negatively affected independent pharmacies, including such pharmacies’ reliance on third-party payors, in 2016, we identified that payment periods for approximately 60%our retail pharmacy distributors were becoming longer than in prior years. As a result, during the third quarter of 2016, we centralized the distribution channel for both our recognized revenue forretail pharmacy distributors and wholesale distributors, in order to facilitate sales to a broader population of retail pharmacies and minimize business risk exposure to any one retail pharmacy. During the ninethird quarter of 2016, we entered into new distribution agreements with our retail pharmacy distributors to effectuate this centralization which were effective September 1, 2016.

During the six months ended SeptemberJune 30, 2016 and revenue generated from major customers accounted for approximately 90% of our recognized revenue for the nine months ended September 30, 2015. Customers that generated more than 10% of our sales are designated as customers “A”, “B”, “C” and “D”. During the nine months ended September 30, 2016, four2017, five customers each generated more than 10% of our total revenues and during the ninesix months ended SeptemberJune 30, 2015, two2016 three customers each generated more than 10% of our total revenues. Revenue generated from five major customers combined accounted for approximately 70% of our recognized revenue for the six months ended June 30, 2017 and revenue generated from three major customers combined accounted for approximately 60% of our recognized revenue for the six months ended June 30, 2016. During the ninesix months ended SeptemberJune 30, 2017, Pharmacy Innovations TX generated approximately $834,000 of our revenue, Pharmacy Innovations PA generated approximately $1,863,000 of our revenue, AmerisourceBergen generated approximately $1,053,000 of our revenue, Cardinal Health generated approximately $1,119,000 of our revenue and McKesson Corporation generated approximately $907,000 of our revenue. During the six months ended June 30, 2016, customers A, B, CWoodstock Pharmaceutical and DCompounding generated approximately $2,247,000, $1,890,000, $2,683,000 and $2,113,000, in revenues, respectively. During the nine months ended September 30, 2015, customers A and B$2,237,000 of our revenue; Medical Center Pharmacy generated approximately $6,930,000$1,540,000 of our revenue and $3,005,000, in revenues, respectively. During the three months ended September 30, 2016, we centralizedDue West Pharmacy generated approximately $1,863,000 of our distribution channel for both our retail pharmacies and wholesale partners. We also wrote off accounts receivable balances of approximately $2,200,000 related to two former customers mentioned above due to our inability to collect the outstanding balances.revenue.

 

NOTE 15 –14– COMMITMENTS AND CONTINGENCIES

Operating Lease

 

We lease administrative office space in Boca Raton, Florida pursuant to a non-cancelable operating lease that commenced on July 1, 2013 and originally provided for a 63-month term. On February 18, 2015, we entered into an agreement with the same lessors to lease additional administrative office space in the same location, pursuant to an addendum to such lease. In addition, on April 26, 2016, we entered into an agreement with the same lessors to lease additional administrative office space in the same location. This agreement was effective beginning May 1, 2016 and extended the original expiration of the lease term to October 31, 2021.

The rental expense related to our lease during the three months ended September 30, 2016 and 2015 was approximately $182,000 and $119,000, respectively. The rental expense related to our lease during the nine months ended September 30, 2016 and 2015 was approximately $482,000 and $328,000, respectively.

As of September 30, 2016, future minimum rental payments are as follows:

Years Ending December 31,  
2016 (3 months) $152,278 
2017  600,236 
2018  673,236 
2019  810,234 
2020  824,268 
Thereafter  698,421 
Total minimum lease payments $3,758,673 

NOTE 16 – SUBSEQUENT EVENTS

On October 4, 2016, we entered into an agreement with the same lessors to lease additional administrative office space in Boca Raton, Florida,the same location, pursuant to an addendum to our existing non-cancelable operatingsuch lease. This addendum is effective beginning November 1, 2016.

19  

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The rental expense related to our current lease during the three months ended June 30, 2017 and 2016 was approximately $265,000 and $182,000, respectively. The rental expense related to our current lease during the six months ended June 30, 2017 and 2016 was approximately $515,000 and $300,000, respectively.

As of June 30, 2017, future minimum rental payments on non-cancelable operating leases are as follows:

Years Ending December 31,    
2017 (6 months)  $449,264 
2018   951,194 
2019   1,094,116 
2020   1,113,069 
2021   943,127 
Total minimum lease payments  $4,550,770 
      

Legal Proceedings

On April 17, 2017, a securities class action lawsuit was filed against our company and certain of our officers and directors in the U.S. District Court for the Southern District of Florida (Case No. 9:17-cv-80473-RLR) that purports to state a claim for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, based on statements made by the defendants concerning the NDA for TX-004HR. The complaint sought unspecified damages, interest, attorneys’ fees and other costs. On July 18, 2017, the complaint was voluntarily dismissed by the lead plaintiff without prejudice. We and certain of our officers and directors are also subject to two shareholder derivative lawsuits regarding the NDA for TX-004HR, one filed in the U.S. District Court for the Southern District of Florida on May 30, 2017 (Case No. 9:17-cv-80686-RLR) and one filed in Florida state court in Palm Beach County on June 5, 2017 (Case No. 502017CA006289XXXXMB). We believe these lawsuits to be without merit and intend to vigorously defend against them. The derivative lawsuits are in the very early stages and, at this time, no assessment can be made as to their likely outcome or whether the outcome will be material to us.

20  

Item 2. Management’s Discussion and AnalysisAnalysis of Financial Condition and Results of Operations

 

General

 

The following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read together with our consolidated financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 20152016 filed with the Securities and Exchange Commission, or the Commission or the SEC, on February 26, 2016,28, 2017, or the Annual Report, including the audited financial statements and notes included therein. The reported results will not necessarily reflect future results of operations or financial condition.

 

In addition, this Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies as well as statements, other than historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. These statements are often characterized by terminology such as “believes,” “hopes,” “may,” “anticipates,” “should,” “intends,” “plans,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy” and similar expressions and are based on assumptions and assessments made in light of management’s experience and perception of historical trends, current conditions, expected future developments and other factors believed to be appropriate. Forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the sections titled “Risk Factors” in our Annual Report, and include the following: our ability to resolve the deficiencies identified by the U.S. Food and Drug Administration, or FDA, in our new drug application, or NDA, for our TX-004HR product candidate and the time frame associated with such resolution; whether we will be able to prepare an amended NDA for our TX-004HR product candidate and, if prepared, whether the FDA will accept and approve the NDA; our ability to maintain or increase sales of our products; our ability to develop and commercialize our hormone therapy drug candidates and obtain additional financing necessary therefor; whether the U.S. Food and Drug Administration, or FDA,we will approve our new drug applicationbe able to prepare an NDA for our TX-004HRTX-001HR product candidate and, if prepared, whether any such approvalthe FDA will occur byaccept and approve the Prescription Drug User Fee Act, or PDUFA, date;NDA; the length, cost and uncertain results of our clinical trials;trials, including any additional clinical trials that the FDA may require in connection with TX-004HR; the potential of adverse side effects or other safety risks that could preclude the approval of our hormone therapy drug candidates; our reliance on third parties to conduct our clinical trials, research and development and manufacturing; the availability of reimbursement from government authorities and health insurance companies for our products; the impact of product liability lawsuits; and the influence of extensive and costly government regulation.

 

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “TherapeuticsMD,” or “our company” refer to TherapeuticsMD, Inc., a Nevada corporation, and unless specified otherwise, include our wholly owned subsidiaries, vitaMedMD, LLC, a Delaware limited liability company, or VitaMed; BocaGreenMD, Inc., a Nevada corporation, or BocaGreen; and VitaCare Prescription Services, Inc., a Florida corporation, or VitaCare.


Overview

 

We are a women’s health care company focused on developingcreating and commercializing products targeted exclusively for women. Currently, we are focused on conducting the clinical trials and pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of our advanced hormone therapy pharmaceutical products. The currentOur drug candidates used in ourthat have completed clinical trials are designed to alleviate the symptoms of and reduce the health risks resulting from menopause-related hormone deficiencies, including hot flashes, osteoporosis and vaginal discomfort. We are developing these hormone therapy drug candidates, which contain estradiol and progesterone alone or in combination, with the aim of demonstrating clinical efficacy at lower doses, thereby enabling an enhanced side effect profile compared with competing products. Our drug candidatesWith our SYMBODA™ technology, we are developed using our SYMBODATM technologydeveloping advanced hormone therapy pharmaceutical products to enable delivery of bio-identical hormones through a variety of dosage forms and administration routes. In addition, we manufacture and distribute branded and generic prescription prenatal vitamins, as well as over-the-counter, or OTC, vitamins.iron supplements.

Our common stock, par value $0.001 per share, or Common Stock, is traded on the NYSE MKT under the symbol “TXMD”.“TXMD.” We maintain websites at www.therapeuticsmd.com, www.vitamedmd.com, www.vitamedmdrx.com, and www.bocagreenmd.com. The information contained on our websites or that can be accessed through our websites does not constitute part of this Quarterly Report on Form 10-Q.

 

Research and Development

 

We have obtained the FDA acceptance of our Investigational New Drug, or IND, applications to conduct clinical trials for fourfive of our proposed hormone therapy drug candidates:products: TX-001HR, our oral combination of progesterone and estradiol; TX-002HR, our oral progesterone alone; TX-003HR, our oral estradiol alone; and TX-004HR, our applicator-free vaginal estradiol softgel with estradiol alone.alone and TX-006HR our combination estradiol and progesterone product in a topical cream form. Our IND applications for TX-002HR and TX-003HR are currently inactive.

 

In December 2016, we announced positive top-line results from the recently completed the REPLENISH Trial, our phase 3 clinical trial of TX-001HR, our bio-identical hormone therapy combination of 17ß- estradiol and progesterone in a single, oral softgel drug candidate, for the treatment of moderate to severe vasomotor symptoms, or VMS, due to menopause in post-menopausal women with an intact uterus. In December 2015, we completed athe REJOICE Trial, our phase 3 clinical trial of TX-004HR, our applicator-free vaginal estradiol softgel drug candidate for the treatment of moderate to severe dyspareunia (vaginal pain during sexual intercourse), a symptom of vulvar and vaginal atrophy, or VVA, in post-menopausal women with vaginal linings that do not receive enough estrogen. In the fourth quarter of 2016 we are currently conductingsubmitted an IND application for TX-006HR, our combination estradiol and progesterone drug candidate in a topical cream form, and intend to commence phase 31 clinical trial for TX-001HR.trials of this drug candidate as early as the second half of 2017. In July 2014, we suspended enrollment in the SPRY Trial, our phase 3 clinical trial for TX-002HR, our oral progesterone alone drug candidate, and, in October 2014, we stopped the trial and are considering whetherin order to update the phase 3 protocol based on discussions with the FDA. We have currently suspended further development of this drug candidate to prioritize our leading drug candidates. We have no current plans to conduct clinical trials for TX-003HR.TX-003HR, our oral estradiol alone drug candidate, and the IND application for this drug candidate is currently inactive.

TX-001HR

 

TX-001HR is our bio-identical hormone therapy combination of 17ß- estradiol and progesterone in a single, oral softgel drug candidate is undergoing clinical trials for the treatment of moderate to severe vasomotor symptomsVMS due to menopause, including hot flashes, night sweats and sleep disturbances and vaginal discomfort forin post-menopausal women with an intact uterus. The hormone therapy drug candidate is chemically identicalbioidentical to – or having the same chemical and molecular structure as - the hormones that naturally occur in a woman’s body, namely estradiol and progesterone, and is being studied as a continuous combinedcontinuous-combined regimen, in which the combination of estrogen and progesterone are taken together in one product daily. If approved by the FDA, we believe this would represent the first time a combination product of estradiol and progesterone bioidentical to – or having the same chemical and molecular structure as – the estradiol and progesterone produced by the ovaries would be approved for use in a single combined product.


On September 5, 2013, we began enrollment in the REPLENISH Trial, a multicenter, double-blind, placebo-controlled, phase 3 studyclinical trial of TX-001HR in postmenopausal women with an intact uterus. The study istrial was designed to evaluate the efficacy of TX-001HR for the treatment of moderate to severe vasomotor symptomsVMS due to menopause and the endometrial safety of TX-001HR. Patients arewere assigned to one of five arms, four active and one placebo, and receivereceived study medication for 12 months. The primary endpoint for the reduction of endometrial hyperplasia iswas an incidence of endometrial hyperplasia of less than 1% at 12 months, as determined by endometrial biopsy. The primary endpoint for the treatment of moderate to severe vasomotor symptoms isVMS was the mean change of frequency and severity of moderate to severe vasomotor symptomsVMS at weeks four and 12 compared to placebo, as measured by the number and severity of hot flushes.flashes. Only subjects experiencing a minimum daily frequency of seven moderate to severe hot flushesflashes at screening arewere included in the vasomotor symptomsVMS analysis, while all subjects arewere included in the endometrial hyperplasia analysis. The secondary endpoints includeincluded reduction in sleep disturbances and improvement in quality of life measures, night sweats and vaginal dryness, measured at 12 weeks, six months and 12 months. The trial is designedevaluated 1,835 patients between 40 and 65 years old at 111 sites. On December 5, 2016, we announced positive topline data for the REPLENISH Trial.

The REPLENISH Trial evaluated four doses of TX-001HR and placebo; the doses studied were:

17ß-estradiol 1 mg/progesterone 100 mg (n = 416)
17ß-estradiol 0.5 mg/progesterone 100 mg (n = 423)
17ß-estradiol 0.5 mg/progesterone 50 mg (n = 421)
17ß-estradiol 0.25 mg/progesterone 50 mg (n = 424)
Placebo (n = 151)

The REPLENISH Trial results demonstrated:

● TX-001HR estradiol 1 mg/progesterone 100 mg and TX-001HR estradiol 0.5 mg/progesterone 100 mg both achieved all four of the co-primary efficacy endpoints and the primary safety endpoint.

● TX-001HR estradiol 1 mg/progesterone 100 mg and TX-001HR estradiol 0.5 mg/progesterone 100 mg both demonstrated a statistically significant and clinically meaningful reduction from baseline in both the frequency and severity of hot flashes compared to enroll approximately 1,750 patientsplacebo.

● TX-001HR estradiol 0.5 mg/progesterone 50 mg and TX-001HR estradiol 0.25 mg/progesterone 50 mg were not statistically significant at approximately 100 sites. We completed enrollmentall of the co-primary efficacy endpoints. The estradiol 0.25 mg/progesterone 50 mg dose was included in the clinical trial as a non-effective dose to meet the recommendation of the FDA guidance to identify the lowest effective dose.

● The incidence of consensus endometrial hyperplasia or malignancy was 0 percent across all four TX-001HR doses, meeting the recommendations established by the FDA’s draft guidance.

As outlined in the FDA guidance, the co-primary efficacy endpoints in the REPLENISH Trial were the change from baseline in October 2015the number and we currently anticipate thatseverity of hot flashes at weeks four and 12 as compared to placebo. The primary safety endpoint was the incidence of endometrial hyperplasia with up to 12 months of treatment. General safety was also evaluated.


The results of the trialREPLENISH Trial are summarized in the table below (p-values of < 0.05 meet FDA guidance and support evidence of efficacy):

Replenish Trial Co-Primary Efficacy Endpoints: Mean Change in Frequency and Severity of Hot Flashes Per Week Versus Placebo at Weeks 4 and 12, VMS-MITT Population
      
      
Estradiol/Progesterone1 mg/100 mg0.5 mg/100 mg0.5 mg/50 mg0.25 mg/50 mgPlacebo
 (n = 141)(n = 149)(n = 147)(n = 154)(n = 135)
      
      
  Frequency   
      
Week 4 P-value versus placebo<0.0010.0130.1410.001
Week 12 P-value versus placebo<0.001<0.0010.002<0.001
      
  Severity   
      
Week 4 P-value versus placebo0.0310.0050.4010.100
Week 12 P-value versus placebo<0.001<0.0010.0180.096
      
Replenish Trial Primary Safety Endpoint: Incidence of Consensus Endometrial Hyperplasia or Malignancy up to 12 months, Endometrial Safety PopulationŦ
      
Endometrial Hyperplasia0% (0/280)0% (0/303)0% (0/306)0% (0/274)0% (0/92)

MITT = Modified intent to treat

ŦPer FDA, consensus hyperplasia refers to the concurrence of two of the three pathologists be accepted as the final diagnosis

We have a pre-NDA meeting for TX-001HR scheduled with the FDA at the end of August 2017.  We anticipate that we will be reported latesubmit an NDA for TX-001HR to the FDA in the fourth quarter of 2016. Based on such timeline and assuming a successful trial, we would anticipate a New Drug Application, or2017. Assuming that the NDA for TX-001HR to be submitted as soon as the first half of 2017 and potentiallyis accepted 60 days thereafter and assuming an FDA review period of ten months from the receipt date to the Prescription Drug User Fee Act, or PDUFA, date for a non-new molecular entity, the NDA for TX-001HR could be approved by the FDA as soon as the first halfthird quarter of 2018. As of November 3, 2016, virtually all patients have exited the REPLENISH Trial and the incidence of consensus endometrial hyperplasia among the three pathologists for these patients is less than 1%.

TX-002HR

TX-002HR is a natural progesterone formulation for the treatment of secondary amenorrhea without the potentially allergenic component of peanut oil. The hormone therapy drug candidate is bioidentical to – or having the same chemical and molecular structure as - the hormones that naturally occur in a woman’s body. We believe it will be similarly effective to traditional treatments, but may demonstrate efficacy at lower dosages. In January 2014, we began recruitment of patients in the SPRY Trial, a phase 3 clinical trial designed to measure the safety and effectiveness of TX-002HR in the treatment of secondary amenorrhea. During the first two quarters of 2014, the SPRY Trial encountered enrollment challenges because of Institutional Review Board approved clinical trial protocols and FDA inclusion and exclusion criteria. In July 2014, we suspended enrollment and in October 2014 we stopped the SPRY Trial in order to update the phase 3 protocol based on discussions with the FDA. Our IND is currently in inactive status. We are considering updating the phase 3 protocol to, among other things, target only those women with secondary amenorrhea due to polycystic ovarian syndrome and to amend the primary endpoint of the trial. We believe that the updated phase 3 protocol, if proposed by us and approved by the FDA, would allow us to mitigate the enrollment challenges in, and shorten the duration of, the SPRY Trial. However, there can be no assurance that the FDA will approve the updated phase 3 protocol if we propose it. We have currently suspended further development of this drug candidate to prioritize our leading drug candidates.


TX-004HR

 

TX-004HR is aour applicator free vaginal estradiol softgel drug candidate for the treatment of vulvar and vaginal atrophy, or VVA in post-menopausal women with vaginal linings that do not receive enough estrogen. We believe that our drug candidate will be at least as effective as the traditional treatments for VVA because of an early onset of action with less systemic exposure, inferring a greater probability of dose administration to the target tissue, and it will have an added advantage of being a simple, easier to use dosage form versus traditional VVA treatments. TX-004HR features our SYMBODATM technology. This allows for the production of cohesive, stable formulations and provides content uniformity and accuracy of dosing strengths for TX-004HR. We initiated the REJOICE Trial, a randomized, multicenter, double-blind, placebo-controlled phase 3 clinical trial during the third quarter of 2014 to assess the safety and efficacy of three doses – 25 mcg, 10 mcg and 4 mcg (compared to placebo) – of TX-004HR for the treatment of moderate to severe dyspareunia, or painful intercourse, as a symptom of VVA due to menopause.

 

On December 7, 2015, we announced positive top-line results from the REJOICE Trial. The pre-specified four co-primary efficacy endpoints were the changes from baseline to week 12 versus placebo in the percentage of vaginal superficial cells, percentage of vaginal parabasal cells, vaginal pH and severity of participants’ self-reported moderate to severe dyspareunia as the most bothersome symptom of VVA. The trial enrolled 764 postmenopausal women (40 to 75 years old) experiencing moderate to severe dyspareunia at approximately 89 sites across the United States and Canada. Trial participants were randomized to receive either TX-004HR at 25 mcg (n=190), 10 mcg (n=191), or 4 mcg (n=191) doses or placebo (n=192) for a total of 12 weeks, all administered once daily for two weeks and then twice weekly (approximately three to four days apart) for ten weeks. The 25 mcg dose of TX-004HR demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo across all four co-primary endpoints. The 10 mcg dose of TX-004HR demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo across all four co-primary endpoints. The 4 mcg dose of TX-004HR also demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo for the endpoints of vaginal superficial cells, vaginal parabasal cells, and vaginal pH; the change from baseline compared to placebo in the severity of dyspareunia was statistically significant at the p = 0.0149 level. The FDA has previously indicated to us that in order to approve the drug based on a single trial, the trial would need to show statistical significance at the 0.01 level or lower for each endpoint, and that a trial that is merely statistically significant at a higher level may not provide sufficient evidence to support an NDA filing or approval of a drug candidate where the NDA relies on a single clinical trial. Statistical improvement over placebo was also observed for all three doses at the first assessment at week two and sustained through week 12. Vaginal dryness was a pre-specified key secondary endpoint. The 25 mcg and 10 mcg doses of TX-004HR demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo for the endpoint of vaginal dryness. The 4 mcg dose of TX-004HR demonstrated statistically significant results at the p = 0.0014 level compared to placebo. The pharmacokinetic data for all three doses demonstrated negligible to very low systemic absorption of 17 beta estradiol, estrone and estrone conjugated, supporting the previous phase 1 trial data. TX-004HR was well tolerated, and there were no clinically significant differences compared to placebo-treated participants with respect to adverse events. There were no drug-related serious adverse events reported.

We submitted the NDA for TX-004HR with the FDA on July 7, 2016. The FDA determined that the NDA iswas sufficiently complete to permit a substantive review and accepted the NDA for filing. Thefiling with the PDUFA target action date for the completion of the FDA’s review isof May 7, 2017. The NDA submission was supported by the complete TX-004HR clinical program, including positive results of the recently completed phase 3 REJOICE Trial. The NDA submission included all three doses of TX-004HR (4 mcg, 10 mcg and 25 mcg) that were evaluated in the REJOICE Trial. If approved, the 4 mcg formulation would represent a lower effective dose than the currently available VVA therapies approved by the FDA.

 

On May 5, 2017, we received a Complete Response Letter, or CRL, from the FDA regarding the NDA for TX-004HR. In the CRL, the only approvability concern raised by the FDA was the lack of long-term endometrial safety data for TX-004HR beyond the 12-weeks studied in the phase 3 REJOICE Trial. The CRL did not identify any issues related to the efficacy of TX-004HR and did not identify any approvability issues related to chemistry, manufacturing and controls. We believe that the NDA was approvable as filed and have been engaged in discussions with the FDA to address the concerns raised by the FDA in the CRL.


On June 14, 2017, we participated in a Type A Post-Action Meeting with the Division of Bone, Reproductive, and Urologic Products (DBRUP) of the FDA to discuss the CRL. The meeting enabled us to present new information that we believe could address concerns raised by the FDA in the CRL and positively affect the status of the NDA for TX-004HR. We have received the minutes of the meeting and, per the FDA’s request, have formally submitted the new information for consideration related to the NDA for TX-004HR. We continue to have a productive dialogue with the FDA related to its review of this information but have not yet received a formal timeline from the FDA for a conclusion of such review. If we are not able to establish a reasonable timeline with the FDA to address its concerns, we reserve the right to pursue the FDA’s formal dispute resolution process regarding the NDA for TX-004HR.

As of SeptemberJune 30, 2016,2017, we had 17 issued patents, which included 13 utility patents that relate to our combination progesterone and estradiol formulations, two utility patents that relate to TX-004HR, which establish an important intellectual property foundation for TX-004HR, one utility patent that relates to a pipeline transdermal patch technology, and one utility patent that relates to our OPERA® information technology platform.

 

Research and Development Expenses

 

A significant portion of our operating expenses to date have been incurred in research and development activities. Research and development expenses relate primarily to the discovery and development of our drug candidates. Our business model is dependent upon our company continuing to conduct a significant amount of research and development. Our research and development expenses consist primarily of expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies; employee-related expenses, which include salaries and benefits, and non-cash share-based compensation; the cost of developing our chemistry, manufacturing and controls capabilities, and acquiring clinical trial materials; and costs associated with other research activities and regulatory approvals. Other research and development costs listed below consist of costs incurred with respect to drug candidates that have not received IND application approval from the FDA.

 

We make payments to the CROs based on agreed upon terms that may include payments in advance of a study starting date. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Advance payments to be expensed in future research and development activities are capitalized, and were $244,335$0 at SeptemberJune 30, 2017 and $228,933 at December 31, 2016 all of which waswere included in other current assets on the accompanying consolidated balance sheets. Advance payments to be expensed in future researchCRO activity expenses include preclinical laboratory experiments and development activities were $1,138,073 at December 31, 2015, of which $1,009,175 was included in other current assets and $128,898 was included in long term prepaid expense on the accompanying consolidated balance sheets.clinical trial studies.

 

The following table indicates our research and development expense by project/category for the periods indicated (in 000s):indicated:

 

  Three months ended
September 30,
  Nine months ended
September 30,
 
  2016  2015  2016  2015 
TX-001HR $7,751  $8,175  $25,101  $27,504 
TX-002HR     6      18 
TX-004HR  2,611   4,581   7,724   18,242 
Other research and development  4,302   3,660   10,777   13,025 
  $14,664  $16,422  $43,602  $58,789 
  Three Months Ended
June 30,
  Six Months Ended
June 30,
 
  2017  2016  2017  2016 
  (000s)  (000s) 
TX 001-HR $5,377  $8,324  $8,905  $17,350 
TX 002-HR            
TX 004-HR  2,767   2,676   4,712   5,113 
Other research and development  572   2,841   2,824   6,475 
Total $8,716  $13,841  $16,441  $28,938 

Research and development expenditures will continue to be significantincurred as we continue development of our drug candidates and advance the development of our proprietary pipeline of novel drug candidates. We expect to incur significantongoing research and development costs as we develop our drug pipeline, complete the ongoing clinical trials ofcontinue stability testing and validation on our drug candidates, conduct our planned phase 3 clinical trials, subject to receiving input fromprepare regulatory submissions and work with regulatory authorities and prepare regulatoryon existing submissions.


The costs of clinical trials may vary significantly over the life of a project owing to factors that include, but are not limited to, the following: per patient trial costs,costs; the number of patients that participate in the trials; the number of sites included in the trials; the length of time each patient is enrolled in the trial; the number of doses that patients receive; the drop-out or discontinuation rates of patients; the amount of time required to recruit patients for the trial,trial; the duration of patient follow-up; and the efficacy and safety profile of the drug candidate. We base our estimated expenses related to clinical trials on estimates that are based on our experience and estimates from CROs and other third parties. Research and development expenditures for the drug candidates will continue after the trial completes for on-going stability and laboratory testing, regulatory submission and response work.

 

Results of Operations

 

Three months ended SeptemberJune 30, 20162017 compared with three months ended SeptemberJune 30, 20152016

 

 Three Months Ended
September 30,
    Three Months Ended
June 30,
   
 2016 2015 Change  2017 2016 Change 
 (000s)    (000s) 
Revenues, net $5,536  $5,190  $346  $4,250  $4,403  $(153)
Cost of goods sold  1,237   1,194   43   682   1,130   (448)
Operating expenses  29,427   23,499   5,928   23,398   24,484   (1,086)
Operating loss  (25,128)  (19,503)  (5,625)  (19,830)  (21,211)  (1,381)
Other income  113   31   82 
Other income, net  153   117   36 
Net loss $(25,015) $(19,472) $(5,543) $(19,677) $(21,094) $(1,417)

 

Revenues and Cost of Goods Sold

 

Revenues for the three months ended SeptemberJune 30, 2016 increased2017 decreased approximately $346,000,$153,000, or 7%3%, to approximately $5,536,000,$4,250,000, compared with approximately $5,190,000$4,403,000 for the three months ended SeptemberJune 30, 2015.2016. This increasedecrease was primarily attributable to an increasea decrease in the number of units sold partially offset by a decrease in the average net sales price of our products.sold. Cost of goods sold increaseddecreased approximately $43,000$448,000, or 4%40%, to approximately $1,237,000$682,000 for the three months ended SeptemberJune 30, 2016,2017, compared with approximately $1,194,000$1,130,000 for the three months ended SeptemberJune 30, 2015.2016. Our gross margins increased to 78%margin was approximately 84% and 74% for the three months ended SeptemberJune 30, 2017 and 2016, compared to 77% for the three months ended September 30, 2015.respectively. The increase in gross margin changepercentage was primarily attributable to a shift in product mix from the prior period.centralization of the distribution channel for both our retail pharmacy distributors and wholesale distributors, which, among other things, lowered the costs to package, prepare and deliver our products to customers.

 

Operating Expenses

 

Our principal operating costs include the following items as a percentage of total operating expenses.

 

 Three Months Ended
September 30,
  Three Months Ended
June 30,
 
 2016 2015  2017 2016 
Research and development costs  49.8%  69.9%  37.2%  56.5%
Human resource costs, including salaries, benefits and taxes  20.3%  14.7%
Human resource related costs including salaries, benefits and taxes  24.7%  24.8%
Sales and marketing costs, excluding human resource costs  14.3%  6.2%  24.5%  8.1%
Professional fees for legal, accounting and consulting  4.9%  4.8%  5.1%  3.5%
Other operating expenses  10.7%  4.4%  8.5%  7.1%

Operating expenses increaseddecreased by approximately $5,928,000,$1,086,000, or 25%4%, to approximately $29,427,000$23,398,000 for the three months ended SeptemberJune 30, 2016,2017, from approximately $23,499,000$24,484,000 for the three months ended SeptemberJune 30, 20152016 as a result of the following items:

 

   (000s)
Decrease in research and development costs $(1,758)
Increase in human resource costs, including salaries, benefits and taxes  2,500 
Increase in other operating expenses  2,112 
Increase in sales and marketing, excluding human resource costs  2,753 
Increase in professional fees for legal, accounting and consulting  321 
  $5,928 
  Three Months Ended
June 30,
    
  2017  2016  Change 
  (000s) 
Research and development costs $8,716  $13,841  $(5,125)
Human resources related costs, including salaries, benefits and taxes  5,785   6,074   (289)
Sales and marketing, excluding human resource costs  5,729   1,976   3,753 
Professional fees for legal, accounting and consulting  1,184   864   320 
Other operating expenses  1,984   1,729   255 
Total operating expenses $23,398  $24,484  $(1,086

 

Research and development costs for the three months ended SeptemberJune 30, 20162017 decreased by approximately $1,758,000,$5,125,000, or 11%37%, to approximately $14,664,000,$8,716,000, compared with approximately $16,422,000$13,841,000 for the three months ended SeptemberJune 30, 2015.2016. Research and development costs include costs related to clinical trials as well as salaries, wages, non-cash compensation and benefits of personnel involved in research and development activities. Research and development costs decreased as a direct result of the completion of patient enrollment in the REPLENISH Trial for TX-001HR, our combination estradiol and progesterone drug candidate, which were partially offset by an increase in scale up and pre-production manufacturing activities to support clinical trials and NDA approval.candidate. Research and developments costs during the three months ended SeptemberJune 30, 20162017 included the following research and development projects.

 

During the three months ending Septemberended June 30, 20162017 and the period from February 2013 (project inception) through SeptemberJune 30, 2016,2017, we have incurred approximately $7,751,000$5,377,000 and $89,260,000,$104,921,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.

 

During the three months ended SeptemberJune 30, 20162017 and the period from April 2013 (project inception) through SeptemberJune 30, 2016,2017, we have incurred approximately $0 and approximately $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.

 

During the three months ended SeptemberJune 30, 20162017 and the period from August 2014 (project inception) through SeptemberJune 30, 2016,2017, we have incurred approximately $2,611,000$2,767,000 and $31,282,000,$37,518,000, respectively, in research and development costs with respect to TX-004HR, our applicator-free vaginal estradiol softgel drug candidate.

 

For a discussion of the nature of efforts and steps necessary to complete these projects, see “Item 1. Business — Research and Development”Pharmaceutical Regulation” in our Annual Report and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Research and Development” above. For a discussion of the risks and uncertainties associated with completing development of our products, see “Item 1A. Risk Factors — Risks Related to Our Business” in our Annual Report. For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see “Liquidity“— Liquidity and Capital Resources” below. For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see “Item 1. Business — Our Hormone Therapy Drug Candidates,” “Item 1. Business — Products in Development” and “Item 1. Business — Pharmaceutical Regulation” in our Annual Report. Future milestones, including NDA submission dates and potential approval dates, are not easily determinable as such milestones are dependent on various factors related to our clinical trials, including the timing of ongoing patient recruitment efforts to find eligible subjects for the applicable trials.

Human resource costs, including salaries, benefitsscale-up and taxes, for the three months ended September 30, 2016 increased by approximately $2,500,000, or 72%, to approximately $5,965,000, compared with approximately $3,465,000 for the three months ended September 30, 2015, primarily as a result of an increase of approximately $1,156,000 in personnel costs in the sales, marketing and regulatory areas to support commercialization of our hormone therapy drug candidates and an increase of approximately $1,344,000 in non-cash compensation related to stock awards.manufacturing activities.

Other operating expense for the three months ended September 30, 2016 increased by approximately $2,112,000, or 204%, to approximately $3,146,000, compared with approximately $1,034,000 for the three months ended September 30, 2015, primarily as a result of a write-off of accounts receivable balances of approximately $2,200,000 related to former customers due to our inability to collect the outstanding balances, and increased data, computer and insurance expenses, partially offset by lower investor relations and other miscellaneous expenses.


Sales and marketing costs for the three months ended SeptemberJune 30, 20162017 increased by approximately $2,753,000,$3,753,000, or 190%, to approximately $4,201,000,$5,729,000, compared with approximately $1,448,000$1,976,000 for the three months ended SeptemberJune 30, 2015,2016, primarily as a result of increased expenses associated with sales and marketing efforts to support commercialization of our hormone therapy drug candidates, including costs related to outsourced sales personnel and their related expenses, coupled with an increase in commissionemployee incentives.

Other operating expense for the three months ended June 30, 2017 increased by approximately $255,000, or 15%, to approximately $1,984,000 compared with approximately $1,729,000 for the three months ended June 30, 2016, as a result of increased rent, information technology and other office expenses partially offset by decreased allowance for bad debt expense.

Human resource costs, including salaries, benefits and taxes, for the three months ended June 30, 2017 decreased by approximately $289,000, or 5%, to approximately $5,785,000, compared with approximately $6,074,000 for the three months ended June 30, 2016, primarily as a result of a decrease of approximately $1,816,000 in non-cash compensation expense included in this category related to employee stock option amortization, partially offset by an increase of approximately $1,527,000 in personnel costs in sales, marketing and regulatory areas to support commercialization of our hormone therapy drug candidates.

 

Professional fees for the three months ended SeptemberJune 30, 20162017 increased by approximately $321,000,$320,000, or 28%37%, to approximately $1,450,000,$1,184,000, compared with approximately $1,129,000$864,000 for the three months ended SeptemberJune 30, 2015,2016, primarily as a result of increased legal expense.expenses.

 

Operating Loss

 

As a result of the foregoing, our operating loss increaseddecreased approximately $5,625,000, or 29%,$1,381,000 to approximately $25,128,000$19,830,000 for the three months ended SeptemberJune 30, 2016,2017, compared with approximately $19,503,000$21,211,000 for the three months ended SeptemberJune 30, 2015,2016, primarily as a result of decreased research and development costs, partially offset by increased personnel costs, sales and marketing expenses to support commercialization of our hormone therapy drug candidates, higher stock-based compensationincluding costs related to outsourced sales personnel and their related expenses, coupled with a write-off of accounts receivable balances mentioned above and an increase in professional fees and other operating expenses. This was partially offset byexpenses as well a decrease in research and development expenses and an increase in our revenue.

As a result of the continued development of our hormone therapy drug candidates, we anticipate that we will continue to have operating losses for the near future until our hormone therapy drug candidates are approved by the FDA and brought to market, although there is no assurance that we will attain such approvals or that any marketing of our hormone therapy drug candidates, if approved, will be successful.

 

Other Income

 

Other non-operating income increased by approximately $82,000,$36,000, or 265%31%, to approximately $113,000$153,000 for the three months ended SeptemberJune 30, 20162017 compared with approximately $31,000$117,000 for the comparable period in 2015,2016, primarily as a result of increased interest income.

 

Net Loss

 

As a result of the net effects of the foregoing, net loss increaseddecreased approximately $5,543,000, or 28%,$1,417,000 to approximately $25,015,000$19,677,000 for the three months ended SeptemberJune 30, 2016,2017, compared with approximately $19,472,000$21,094,000 for the three months ended SeptemberJune 30, 2015.2016. Net loss per share of Common Stock, basic and diluted, was ($0.13)0.10) for the three months ended SeptemberJune 30, 2016,2017, compared with ($0.11) per share of Common Stock for the three months ended SeptemberJune 30, 2015.2016.


NineSix months ended SeptemberJune 30, 20162017 compared with ninesix months ended SeptemberJune 30, 20152016

 

 Nine Months Ended
September 30,
    Six Months Ended
June 30,
   
 2016 2015 Change  2017 2016 Change 
    (000s)      (000s) 
Revenues, net $14,869  $14,513  $356  $8,236  $9,333  $(1,097)
Cost of goods sold  3,476   3,271   205   1,341   2,239   (898)
Operating expenses  78,706   78,923   (217)  48,011   49,279   (1,268)
Operating loss  (67,313)  (67,681)  (368)  (41,116)  (42,185)  (1,069)
Other income  274   87   187 
Other income, net  283   161   122 
Net loss $(67,039) $(67,594) $555  $(40,833) $(42,024) $(1,191)

 

Revenues and Cost of Goods Sold

Revenues for the ninesix months ended SeptemberJune 30, 2016 increased2017 decreased approximately $356,000,$1,097,000 or 2%12%, to approximately $14,869,000,$8,236,000, compared with approximately $14,513,000$9,333,000 for the ninesix months ended SeptemberJune 30, 2015.2016. This increasedecrease was primarily attributable to a decrease in the average net revenue per unit of our products, which was primarily related to higher estimates related to discounts and returns in 2017, partially offset by an increase in the number of units sold partially offset by a decrease in the average net sales price of our products.sold. Cost of goods sold increaseddecreased approximately $205,000,$898,000, or 6%40%, to approximately $3,476,000$1,341,000 for the ninesix months ended SeptemberJune 30, 2016,2017, compared with approximately $3,271,000$2,239,000 for the ninesix months ended SeptemberJune 30, 2015.2016. Our gross margins of 77%margin was approximately 84% and 76% for the ninesix months ended SeptemberJune 30, 2017 and 2016, remained unchanged fromrespectively. The increase in gross margin percentage was primarily attributable to the nine months ended September 30, 2015.centralization of the distribution channel for both our retail pharmacy distributors and wholesale distributors, which, among other things, lowered the costs to package, prepare and deliver our products to customers.

 

Operating Expenses

Our principal operating costs include the following items as a percentage of total operating expenses.

 

 Nine Months Ended
September 30,
  Six Months Ended
June 30,
 
 2016 2015  2017 2016 
Research and development costs  55.4%  74.5%  34.2%  58.7%
Human resource costs, including salaries, benefits and taxes  22.0%  12.2%
Human resource related costs, including salaries, benefits and taxes  23.9%  23.0%
Sales and marketing costs, excluding human resource costs  9.9%  5.6%  28.0%  7.3%
Professional fees for legal, accounting and consulting  4.6%  3.9%  5.8%  4.4%
Other operating expenses  8.1%  3.8%  8.1%  6.6%

30  

 

Operating expenses decreased by approximately $217,000,$1,268,000, or 0.3%3%, to approximately $78,706,000$48,011,000 for the ninesix months ended SeptemberJune 30, 2016,2017, from approximately $78,923,000$49,279,000 for the ninesix months ended SeptemberJune 30, 20152016 as a result of the following items:

  

  ��(000s)
Decrease in research and development costs $(15,187)
Increase in human resource costs, including salaries, benefits and taxes  7,665 
Increase in other operating expenses  3,349 
Increase in sales and marketing, excluding human resource costs  3,413 
Increase in professional fees for legal, accounting and consulting  543 
  $(217)
  Six Months Ended
June 30,
    
  2017  2016  Change 
  (000s) 
Research and development costs $16,441  $28,938  $(12,497)
Human resources related costs, including salaries, benefits and taxes  11,449   11,344   105 
Sales and marketing costs, excluding human resource costs  13,428   3,594   9,834 
Professional fees for legal, accounting and consulting  2,790   2,165   625 
Other operating expenses  3,903   3,238   665 
Total operating expenses $48,011  $49,279  $(1,268)

Research and development costs for the ninesix months ended SeptemberJune 30, 20162017 decreased by approximately $15,187,000,$12,497,000, or 26%43%, to approximately $43,602,000,$16,441,000, compared with approximately $58,789,000$28,938,000 for the ninesix months ended SeptemberJune 30, 2015.2016. Research and development costs include costs related to clinical trials as well as salaries, wages, non-cash compensation and benefits of personnel involved in research and development activities. Research and development costs decreased as a direct result of the completion of patient enrollment in the REPLENISH Trial for TX-001HR, our combination estradiol and progesterone drug candidate, which were partially offset by an increase in scale up and pre-production manufacturing activities to support clinical trials and NDA approval.candidate. Research and developments costs during the ninesix months ended SeptemberJune 30, 20162017 included the following research and development projects.

 

During the ninesix months ending Septemberended June 30, 20162017 and the period from February 2013 (project inception) through SeptemberJune 30, 2016,2017, we have incurred approximately $25,101,000$8,905,000 and $89,260,000,$104,921,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.

 

During the ninesix months ended SeptemberJune 30, 20162017 and the period from April 2013 (project inception) through SeptemberJune 30, 2016,2017, we have incurred approximately $0 and approximately $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.

 

During the ninesix months ended SeptemberJune 30, 20162017 and the period from August 2014 (project inception) through SeptemberJune 30, 2016,2017, we have incurred approximately $7,724,000$4,712,000 and $31,282,000,$37,518,000, respectively, in research and development costs with respect to TX-004HR, our applicator-free vaginal estradiol softgel drug candidate.

 

For a discussion of the nature of efforts and steps necessary to complete these projects, see “Item 1. Business — Research and Development”Pharmaceutical Regulation” in our Annual Report and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Research and Development” above. For a discussion of the risks and uncertainties associated with completing development of our products, see “Item 1A. Risk Factors — Risks Related to Our Business” in our Annual Report. For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see “Liquidity“— Liquidity and Capital Resources” below. For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see “Item 1. Business — Our Hormone Therapy Drug Candidates,” “Item 1. Business — Products in Development” and “Item 1. Business — Pharmaceutical Regulation” in our Annual Report. Future milestones, including NDA submission dates and potential approval dates, are not easily determinable as such milestones are dependent on various factors related to our clinical trials, including the timing of ongoing patient recruitment efforts to find eligible subjects for the applicable trials.

Human resource costs, including salaries, benefitsscale-up and taxes, for the nine months ended September 30, 2016 increased by approximately $7,665,000, or 79%, to approximately $17,309,000, compared with approximately $9,644,000 for the nine months ended September 30, 2015, primarily as a result of an increase of approximately $2,401,000 in personnel costs in sales, marketing and regulatory areas to support commercialization of our hormone therapy drug candidates and an increase of approximately $5,264,000 in non-cash compensation related to stock awards.

Other operating expense for the nine months ended September 30, 2016 increased by approximately $3,349,000, or 110%, to approximately $6,384,000, compared with approximately $3,035,000 for the nine months ended September 30, 2015, primarily as a result of a write-off of accounts receivable balances of approximately $2,200,000 related to former customers due to our inability to collect the outstanding balances, and higher investor relations, insurance, rent and other office expenses.manufacturing activities.

 

Sales and marketing costs for the ninesix months ended SeptemberJune 30, 20162017 increased by approximately $3,413,000,$9,834,000, or 78%274%, to approximately $7,796,000,$13,428,000, compared with approximately $4,383,000$3,594,000 for the ninesix months ended SeptemberJune 30, 2015,2016, primarily as a result of increased expenses associated with sales and marketing efforts to support commercialization of our hormone therapy drug candidates, including costs related to outsourced sales personnel and their related expenses, coupled with an increase in commission expense.employee incentives.

31  

Other operating expense for the six months ended June 30, 2017 increased by approximately $665,000, or 21%, to approximately $3,903,000, compared with approximately $3,238,000 for the six months ended June 30, 2016, as a result of increased rent, information technology and other office expenses partially offset by decreased investor relations expenses and allowance for bad debt.

Human resource costs, including salaries, benefits and taxes, for the six months ended June 30, 2017 increased by approximately $105,000, or 1%, to approximately $11,449,000, compared with approximately $11,344,000 for the six months ended June 30, 2016, primarily as a result of an increase of approximately $3,593,000 in personnel costs in sales, marketing and regulatory areas to support commercialization of our hormone therapy drug candidates partially offset by a decrease of approximately $3,488,000 in non-cash compensation expense included in this category related to employee stock option amortization.

Professional fees for the ninesix months ended SeptemberJune 30, 20162017 increased by approximately $543,000,$625,000, or 18%29%, to approximately $3,615,000,$2,790,000, compared with approximately $3,072,000$2,165,000 for the ninesix months ended SeptemberJune 30, 2015,2016, primarily as a result of increased legal fees and consulting expenses.

 

Operating Loss

 

As a result of the foregoing, our operating loss decreased approximately $368,000, or 0.5%,$1,069,000 to approximately $67,313,000$41,116,000 for the ninesix months ended SeptemberJune 30, 2016,2017, compared with approximately $67,681,000$42,185,000 for the ninesix months ended SeptemberJune 30, 2015,2016, primarily as a result of decreased research and development expenses and an increase in our revenue,costs, partially offset by increased stock-based compensation expenses, personnel costs, and sales and marketing expenses to support commercialization of our hormone therapy drug candidates, coupled with a write-off of accounts receivable balances mentioned aboveincluding costs related to outsourced sales personnel and an increase intheir related expenses, professional fees and other operating expenses. expenses as well a decrease in revenue.

As a result of the continued development of our hormone therapy drug candidates, we anticipate that we will continue to have operating losses for the near future until our hormone therapy drug candidates are approved by the FDA and brought to market, although there is no assurance that we will attain such approvals or that any marketing of our hormone therapy drug candidates, if approved, will be successful.

 

Other Income

Other non-operating income increased by approximately $187,000,$122,000, or 215%76%, to approximately $274,000$283,000 for the ninesix months ended SeptemberJune 30, 20162017 compared with approximately $87,000$161,000 for the comparable period in 2015,2016, primarily as a result of increased interest income.

 

Net Loss

 

As a result of the net effects of the foregoing, net loss decreased approximately $555,000, or 0.8%,$1,191,000 to approximately $67,039,000$40,833,000 for the ninesix months ended SeptemberJune 30, 2016,2017, compared with approximately $67,594,000$42,024,000 for the ninesix months ended SeptemberJune 30, 2015.2016. Net loss per share of Common Stock, basic and diluted, was ($0.34)0.20) for the ninesix months ended SeptemberJune 30, 2016,2017, compared with ($0.39) per share of Common Stock0.21) for the ninesix months ended SeptemberJune 30, 2015.2016.

 

Liquidity and Capital Resources

 

We have funded our operations primarily through public offerings of our Common Stock and private placements of equity and debt securities. For the nine months ended September 30, 2016 and the year ended December 31, 2015,2016, we received approximately $134.9 million and $91.4 million$134,864,000 in net proceeds respectively, from the issuance of shares of our Common Stock. As of SeptemberJune 30, 2016,2017, we had a cash balance ofand cash equivalents totaling approximately $147.5 million,$96,476,000, however, changing circumstances may cause us to consume funds significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.

 

32  

On January 6,

During the six months ended June 30, 2017, certain individuals exercised warrants to purchase 2,476,666 shares of Common Stock for $3,798,999 in cash. During the six months ended June 30, 2017, certain individuals exercised stock options to purchase 100,046 shares of Common Stock for $212,360 in cash.

As a result of developments in the pharmaceutical industry that negatively affected independent pharmacies, including such pharmacies’ reliance on third party payors, in 2016, we identified that payment periods for our retail pharmacy distributors were becoming longer than in prior years. As a result, during the third quarter of 2016, we centralized the distribution channel for both our retail pharmacy distributors and wholesale distributors, in order to facilitate sales to a broader population of retail pharmacies and minimize business risk exposure to any one retail pharmacy. During the third quarter of 2016, we entered into an underwriting agreementnew distribution agreements with Goldman Sachs & Co. and Cowen and Company, LLC,our retail pharmacy distributors to effectuate this centralization which were effective September 1, 2016.

For the three months ended June 30, 2017, our days sales outstanding, or DSO, was 74 days compared to 92 days for the year ended December 31, 2016. This decline in DSO was primarily due to higher collections as well as the representativespaydown of receivables outstanding prior to the centralization of the several underwriters, ordistribution channel for both our retail pharmacy distributors and wholesale distributors. We anticipate that our DSO will fluctuate in the Underwriters, relatingfuture based upon a variety of factors, including longer payment terms associated with the centralization of the distribution channel for both our retail pharmacy distributors and wholesale distributors in September 2016, as compared to an underwritten public offering of 15,151,515 sharesthe terms previously provided to our retail pharmacy distributors, changes in the healthcare industry and specific terms that may be extended in connection with the launch of our Common Stock at a public offering price of $8.25 per share. Under the terms of the underwriting agreement, we granted the Underwriters a 30-day option to purchase up to an aggregate of 2,272,727 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $134.9 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of our Common Stock.

On July 9, 2015, we entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated and Guggenheim Securities, LLC, as the representatives of the several underwriters, or the Stifel Underwriters, relating to an underwritten public offering of 3,846,154 shares of Common Stock at a public offering price of $7.80 per share. Under the terms of the underwriting agreement, we granted the Stifel Underwriters a 30-day option to purchase up to an aggregate of 576,923 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $32.2 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on July 15, 2015 and we issued 4,423,077 shares of our Common Stock.

On February 10, 2015, we entered into an underwriting agreement, or the Cowen Agreement, with Cowen and Company, LLC, as the representative of the several underwriters, or the Cowen Underwriters, relating to an underwritten public offering of 13,580,246 shares of Common Stock, at a public offering price of $4.05 per share. Under the terms of the Cowen Agreement, we granted the Cowen Underwriters a 30-day option to purchase up to an aggregate of 2,037,036 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $59.1 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on February 17, 2015 and we issued 15,617,282 shares of our Common Stock.hormone therapy drug candidates, if approved.

 

We believe that our existing cash will allow us to fund our operating plan through at least the next 12 months.months from the date of this quarterly report. However, if the commercialization of our hormone therapy drug candidates is delayed, our existing cash may be insufficient to satisfy our liquidity requirements until we are able to commercialize our hormone therapy drug candidates.  If our available cash is insufficient to satisfy our liquidity requirements, we may curtail our sales, marketing and other pre-commercialization efforts and we may seek to sell additional equity or debt securities or obtain a credit facility. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our existing shareholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or proposed products. Additionally, we may have to grant licenses on terms that may not be favorable to us.

 

We need substantial amounts of cash to complete the clinical development of and commercialize of our hormone therapy drug candidates. The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

 

Summary of (Uses) and Sources of Cash

 

 Nine Months Ended
September 30,
  Six Months Ended
June 30,
 
 2016 2015  2017 2016 
 (000s)  (000s) 
Net cash used in operating activities $(53,524) $(62,434) $(38,666) $(34,725)
Net cash used in investing activities $(863) $(134) $(403) $(663)
Net cash provided by financing activities $137,216  $92,330  $4,011  $137,214 

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Operating Activities

 

The principal use of cash in both periods resultedoperating activities for the six months ended June 30, 2017 was to fund our current expenses primarily from our net lossrelated to supporting clinical development, scale-up and manufacturing activities and future commercial activities, adjusted for non-cash charges and changes in components of working capital.items. The decreaseincrease of approximately $8,910,000$3,941,000 in cash used in operating activities for the ninesix months ended SeptemberJune 30, 20162017 compared with the comparable period in the prior year was due primarily to lower non-cash compensation expense coupled with changes in researchthe components of working capital and development, and sales, general, and administrative costs.decreased net loss.

 

Investing Activities

 

An increaseA decrease in spending on patent and trademarks and fixed assets resulted in an increasea decrease in cash used in investing activities for the ninesix months ended SeptemberJune 30, 20162017 compared with the same period in 2015.2016.

Financing Activities

 

Financing activities represent the principal source of our cash flow. Our financing activities for the both the ninesix months ended SeptemberJune 30, 2017 provided net cash of approximately $4,011,000 which was related to the exercise of warrants and options. The cash provided by financing activities during the six months ended June 30, 2016, and 2015 consisted ofincluded approximately $134,864,000 in proceeds from underwritten public offeringsthe sale of our Common Stock and stock optionapproximately $2,351,000 in proceeds from the exercise of options and warrant exercises.warrants.

 

Contractual ObligationsNew Accounting Pronouncements

 

On October 4, 2016, we entered intoIn May 2017, the Financial Accounting Standards Board, or FASB, issued an agreementAccounting Standards Update, or ASU, that clarifies when changes to lease additional administrative office spacethe terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance will reduce diversity in Boca Raton, Florida, pursuantpractice and result in fewer changes to an addendum to our existing non-cancelable operating lease. This addendum is effective beginning November 1, 2016.

We have entered into long-term supply agreements with Catalent Pharma Solutions, LLC for the commercial supply of our TX-001HR and TX-004HR hormone therapy drug candidates. Under the terms of an award being accounted for as modifications. The new guidance will allow companies to make certain changes to awards without accounting for them as modifications. This guidance does not change the agreements, weaccounting for modifications. The guidance will be obligatedapplied prospectively to purchase certain minimumawards modified on or after the adoption date and is effective for annual amountsperiods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including in an interim period. We do not expect that adoption of each product once we commence commercial sales of such product following regulatory approval of Catalent asthis guidance will have a manufacturer of the product. We may terminate the agreement for a particular drug candidate in the event that we cease pursuit of regulatory approval for such drug candidate for certain specified reasons.

New Accounting Pronouncementsmaterial effect on our consolidated financial statements.

 

In August 2016, the Financial Accounting Standards Board, or FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. EarlyWe adopted ASU 2016-09 effective January 1, 2017, electing to account for forfeitures when they occur. The impact from adoption is permittedof the provisions related to forfeiture rates was reflected in any annual or interim period for whichour consolidated financial statements have not been issued or made available for issuance, but allon a modified retrospective basis, resulting in an adjustment of approximately $31,000 to retained earnings. The impact from adoption of the guidance must be adoptedprovisions related to excess tax benefits or deficiencies in the same period. Ifprovision for income taxes rather than paid-in capital was adopted on a modified retrospective basis. Since we have a full valuation allowance on our net deferred tax assets, an entity early adoptsamount equal to the guidance incumulative adjustment made to retained earnings to recognize the previously unrecognized net operating losses from prior periods, was made to the valuation allowance through retained earnings for the first quarter financial statements. Adoption of all other changes did not have an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.statements.

34  

 

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluatingin the process of analyzing the quantitative impact of this guidance on our consolidatedresults of operations and financial statements and disclosures.

In July 2015,position. While we are continuing to assess all potential impacts of the FASB issued ASU 2015-11, Inventory (Topic 330), simplifying the Measurement of Inventory. This guidance requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market (LOCOM). The guidance applies only to inventories for which cost is determined by methods other than last-in first-out (LIFO) or the retail inventory method (RIM). Entities that use LIFO or RIM will continue to use existing impairment models. The new guidance does not change the calculation of net realizable value that entities are required to calculate when applying existing LOCOM guidance. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Under the new guidance, however, entities will no longer need to calculate other measures of “market.” The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We arestandard, we currently evaluatingbelieve the impact of this guidance, if any, onstandard will be primarily related to the accounting for our consolidated financial statements and disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We do not expect the adoption of ASU 2014-15 to have a material effect on our consolidated financial statements and disclosures.operating lease.

 

In May 2014, the FASB and the International Accounting Standards Board (IASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under previous guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligations.obligation. In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. Early adoption is permitted after December 15, 2016, and the standard is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU 2016-08) as well as, accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10) and, narrow-scope improvements and practical expedients (ASU 2016-12) and technical corrections and improvements to topic 606 (ASU 2016-20) in its new revenue standard. We have performed a preliminary review of the requirements of the new revenue standard and are currently evaluatingmonitoring the impactactivity of the FASB and the transition resource group as it relates to specific interpretive guidance. We have reviewed customer contracts and applied the five-step model of the new standard to our contracts as well as compared the results to our current accounting practices. At this point of our analysis, we do not believe that the adoption of this guidancestandard will have a material effect on our consolidated financial statements and disclosures.but will potentially expand our disclosures related to contracts with customers.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Our market risk has not changed materially from the interest rate risk disclosed in Item 7A of our Annual Report.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms and is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, in order to allow timely decisions in connection with required disclosure.

 

35  

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q were effective in providing reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. Further, internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.

 

Changes in Internal Controls

Effective June 30, 2016, we implemented a new general ledger accounting system. We believe we have taken the necessary steps to maintain appropriate levels of internal control over financial reporting during this period of change and we continuously monitor controls through and around the system to provide reasonable assurance that such controls are effective.

 

During the three months ended SeptemberJune 30, 2016,2017, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we are involved in litigationOn April 17, 2017, a securities class action lawsuit was filed against our company and proceedingscertain of our officers and directors in the ordinary courseU.S. District Court for the Southern District of Florida (Case No. 9:17-cv-80473-RLR) that purports to state a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 thereunder, based on statements made by the defendants concerning the NDA for TX-004HR. The complaint sought unspecified damages, interest, attorneys’ fees and other costs. On July 18, 2017, the complaint was voluntarily dismissed by the lead plaintiff without prejudice. We and certain of our business.officers and directors are also subject to two shareholder derivative lawsuits regarding the NDA for TX-004HR, one filed in the U.S. District Court for the Southern District of Florida on May 30, 2017 (Case No. 9:17-cv-80686-RLR) and one filed in Florida state court in Palm Beach County on June 5, 2017 (Case No. 502017CA006289XXXXMB). We believe these lawsuits to be without merit and intend to vigorously defend against them. The derivative lawsuits are not currently involved in any legal proceeding that we currently believe would have athe very early stages and, at this time, no assessment can be made as to their likely outcome or whether the outcome will be material adverse effect on our business or financial condition.to us.

 

Item 1A. Risk Factors

 

There have been no material changes to the risk factors previously disclosed in our Annual Report.

36  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On April 5, 2017, a certain individual exercised warrants to purchase 566,666 shares of Common Stock for $1,138,999 in cash. On April 10, 2017, certain individuals exercised warrants to purchase 6,590,000 shares of Common Stock pursuant to the warrants’ cashless exercise provisions, wherein 4,762,208 shares of Common Stock were issued. On June 19, 2017, a certain individual exercised warrants to purchase 100,000 shares of Common Stock for $200,000 in cash. Proceeds from these transactions were used in working capital. The shares of Common Stock were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended.

37  

 

Item 6. Exhibits

 

Exhibit

Date

Description

10.1*October 4, 2016Third Amendment to Lease between the Company and 6800 Broken Sound, LLC.31.1*
31.1*November 4, 2016August 3, 2017Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
31.2*31.2*November 4, 2016August 3, 2017Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
32.1*32.1*November 4, 2016August 3, 2017Section 1350 Certification of Chief Executive Officer
32.2*32.2*November 4, 2016August 3, 2017Section 1350 Certification of Chief Financial Officer
101.INS*n/aXBRL Instance Document
101.SCH*n/aXBRL Taxonomy Extension Schema Document
101.CAL*n/aXBRL Taxonomy Extension Calculation Linkbase Document
ExhibitDateDescription
101.DEF*n/aXBRL Taxonomy Extension Definition Linkbase Instance Document
101.LAB*n/aXBRL Taxonomy Extension Label Linkbase Instance Document
101.PRE*n/aXBRLTaxonomyXBRL Taxonomy Extension Presentation Linkbase Instance Document

 

* Filed herewith.

38  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

DATE: November 4, 2016August 3, 2017

 

 THERAPEUTICSMD, INC.
   
 By:/s/ Robert G. Finizio
   Robert G. Finizio
   Chief Executive Officer
   (Principal Executive Officer)
   
 By://s/ Daniel A. Cartwright
   Daniel A. Cartwright
   Chief Financial Officer
   (Principal Financial and Accounting Officer)

 

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