Registrant’s telephone number, including area code)WASHINGTON,☒ ☒20172023☐ ☐from________ fromto ___________No.001-001000THERAPEUTICSMD,Number:Namename of Registrant as Specifiedspecified in Itsits Charter)Nevada87-0233535Other Jurisdictionother jurisdiction of IncorporationOrganization)organization) 6800 Broken Sound Parkway NW, Third Floor, FL 33487Florida(561) 961-1900Principal Executive Offices)principal executive offices)Issuer’s Telephone Number)Zip Code)N/AFormer Name, Former Address and Former Fiscal Year, if Changed Since Last Report)registrant: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 registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.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 (§registrantRegistrant was required to submit and post such files).Act (Check one):Act:Large accelerated filer ☒Accelerated Filer☐ Accelerated filer ☐ Non-accelerated filer ☐☒ Smaller reporting company ☐☒ (Do not check if a smaller reporting company)Emerging growth company ☐ registrantRegistrant is a shell company (as defined in RuleThe number outstanding of the registrant’s common stock, par value $0.001 per share, as of October 30, 2017 was 216,429,642.
Table of Contents
31 | ||||||
Item 4. | Mine safety disclosures | 31 | ||||
Item 5. | Other information | 31 | ||||
Item 6. | Exhibits | 32 | ||||
33 |
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 148,292,654 | $ | 131,534,101 | ||||
Accounts receivable, net of allowance for doubtful accounts of $377,929 and $376,374, respectively | 4,392,635 | 4,500,699 | ||||||
Inventory | 1,293,517 | 1,076,321 | ||||||
Other current assets | 3,001,777 | 2,299,052 | ||||||
Total current assets | 156,980,583 | 139,410,173 | ||||||
Fixed assets, net | 448,066 | 516,839 | ||||||
Other Assets: | ||||||||
Intangible assets, net | 2,793,421 | 2,405,972 | ||||||
Security deposit | 139,036 | 139,036 | ||||||
Total other assets | 2,932,457 | 2,545,008 | ||||||
Total assets | $ | 160,361,106 | $ | 142,472,020 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 4,199,369 | $ | 7,358,514 | ||||
Other current liabilities | 6,677,232 | 7,624,085 | ||||||
Total current liabilities | 10,876,601 | 14,982,599 | ||||||
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; 216,429,642 and 196,688,222 issued and outstanding, respectively | 216,430 | 196,688 | ||||||
Additional paid in capital | 514,499,865 | 436,995,052 | ||||||
Accumulated deficit | (365,231,790 | ) | (309,702,319 | ) | ||||
Total stockholders’ equity | 149,484,505 | 127,489,421 | ||||||
Total liabilities and stockholders’ equity | $ | 160,361,106 | $ | 142,472,020 |
September 30, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Assets: | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,166 | $ | 38,067 | ||||
Restricted cash | — | 11,250 | ||||||
Royalty receivable, current portion | 2,705 | — | ||||||
Prepaid and other current assets | 4,570 | 6,034 | ||||||
Total current assets | 17,441 | 55,351 | ||||||
Fixed assets, net | 19 | 78 | ||||||
License rights and other intangible assets, net | 6,657 | 6,943 | ||||||
Right of use assets | 7,055 | 7,580 | ||||||
Royalty receivable, long term | 19,067 | 20,253 | ||||||
Other non-current assets | 254 | 253 | ||||||
Total assets | $ | 50,493 | $ | 90,458 | ||||
Liabilities and stockholders’ equity: | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 696 | $ | 2,162 | ||||
Accrued expenses and other current liabilities | 6,928 | 18,846 | ||||||
Current liabilities of discontinued operations | 6,888 | 25,831 | ||||||
Total current liabilities | 14,512 | 46,839 | ||||||
Operating lease liabilities | 6,740 | 7,369 | ||||||
Other non-current liabilities | 1,189 | 1,107 | ||||||
Total liabilities | 22,441 | 55,315 | ||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders’ equity (deficit): | ||||||||
Common stock, par value $0.001; 32,000 and 12,000 shares authorized, 10,575 and 9,498 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | 11 | 9 | ||||||
Additional paid-in capital | 976,799 | 974,497 | ||||||
Accumulated deficit | (948,758 | ) | (939,363 | ) | ||||
Total stockholders’ equity | 28,052 | 35,143 | ||||||
Total liabilities and stockholders’ equity | $ | 50,493 | $ | 90,458 | ||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues, net | $ | 4,417,598 | $ | 5,535,685 | $ | 12,653,495 | $ | 14,869,023 | ||||||||
Cost of goods sold | 700,814 | 1,237,446 | 2,042,174 | 3,475,997 | ||||||||||||
Gross profit | 3,716,784 | 4,298,239 | 10,611,321 | 11,393,026 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales, general, and administration | 12,057,868 | 14,721,710 | 43,524,412 | 35,019,268 | ||||||||||||
Research and development | 6,436,802 | 14,664,123 | 22,878,037 | 43,602,333 | ||||||||||||
Depreciation and amortization | 54,055 | 40,460 | 156,943 | 84,319 | ||||||||||||
Total operating expense | 18,548,725 | 29,426,293 | 66,559,392 | 78,705,920 | ||||||||||||
Operating loss | (14,831,941 | ) | (25,128,054 | ) | (55,948,071 | ) | (67,312,894 | ) | ||||||||
Other income: | ||||||||||||||||
Miscellaneous income | 167,300 | 109,942 | 442,322 | 265,879 | ||||||||||||
Accreted interest | — | 2,451 | 7,699 | 7,850 | ||||||||||||
Total other income | 167,300 | 112,393 | 450,021 | 273,729 | ||||||||||||
Loss before taxes | (14,664,641 | ) | (25,015,661 | ) | (55,498,050 | ) | (67,039,165 | ) | ||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
Net loss | $ | (14,664,641 | ) | $ | (25,015,661 | ) | $ | (55,498,050 | ) | $ | (67,039,165 | ) | ||||
Net loss per share, basic and diluted | $ | (0.07 | ) | $ | (0.13 | ) | $ | (0.27 | ) | $ | (0.34 | ) | ||||
Weighted average number of common shares outstanding | 207,938,338 | 196,502,327 | 203,282,335 | 195,912,173 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
License and service revenue | $ | (53 | ) | $ | 354 | $ | 800 | $ | 1,397 | |||||||
Cost of revenue | — | 354 | — | 1,397 | ||||||||||||
Gross profit (loss) | (53 | ) | — | 800 | — | |||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 1,590 | 14,246 | 7,427 | 46,367 | ||||||||||||
Depreciation & amortization | 130 | 273 | 285 | 884 | ||||||||||||
Total operating expenses | 1,720 | 14,519 | 7,712 | 47,251 | ||||||||||||
Loss from operations | (1,773 | ) | (14,519 | ) | (6,912 | ) | (47,251 | ) | ||||||||
Other (expense) income: | ||||||||||||||||
Interest expense and other financing costs | (20 | ) | — | (115 | ) | — | ||||||||||
Miscellaneous income (expense) | 359 | (112 | ) | 869 | (128 | ) | ||||||||||
Total other income (loss), net | 339 | (112 | ) | 754 | (128 | ) | ||||||||||
Loss from continuing operations before income taxes | (1,434 | ) | (14,631 | ) | (6,158 | ) | (47,379 | ) | ||||||||
Income (loss) from discontinued operations, net of income taxes | (1,944 | ) | (14,334 | ) | (3,237 | ) | 81,674 | |||||||||
Net income (loss) | $ | (3,378 | ) | $ | (28,965 | ) | $ | (9,395 | ) | $ | 34,295 | |||||
Income (loss) per common share, basic and diluted: | ||||||||||||||||
Continuing operations | (0.13 | ) | (1.58 | ) | (0.60 | ) | (5.34 | ) | ||||||||
Discontinued operations, net | (0.18 | ) | (1.55 | ) | (0.32 | ) | 9.20 | |||||||||
Net income (loss) per common share, basic and diluted | $ | (0.32 | ) | $ | (3.13 | ) | $ | (0.92 | ) | $ | 3.86 | |||||
Weighted average common shares, basic | 10,701 | 9,261 | 10,241 | 8,877 | ||||||||||||
Weighted average common shares, diluted | 10,701 | 9,261 | 10,241 | 8,877 | ||||||||||||
Net income (loss) | $ | (3,378 | ) | $ | (28,965 | ) | $ | (9,395 | ) | $ | 34,295 | |||||
Other comprehensive income | — | — | — | — | ||||||||||||
Comprehensive income (loss): | $ | (3,378 | ) | $ | (28,965 | ) | $ | (9,395 | ) | $ | 34,295 | |||||
Nine Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (55,498,050 | ) | $ | (67,039,165 | ) | ||
Adjustments to reconcile net loss to net cash flows used in operating activities: | ||||||||
Depreciation of fixed assets | 104,622 | 45,759 | ||||||
Amortization of intangible assets | 52,321 | 38,560 | ||||||
Provision for doubtful accounts | 1,555 | 2,261,568 | ||||||
Share-based compensation | 5,037,783 | 13,385,215 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 106,509 | (4,245,151 | ) | |||||
Inventory | (217,196 | ) | (153,245 | ) | ||||
Other current assets | (831,623 | ) | 379,930 | |||||
Accounts payable | (3,159,145 | ) | 1,098,245 | |||||
Other current liabilities | (946,853 | ) | 703,895 | |||||
Net cash used in operating activities | (55,350,077 | ) | (53,524,389 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Patent costs | (439,770 | ) | (541,686 | ) | ||||
Purchase of fixed assets | (35,849 | ) | (307,714 | ) | ||||
Payment of security deposit | — | (14,036 | ) | |||||
Net cash used in investing activities | (475,619 | ) | (863,436 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from sale of common stock, net of costs | 68,572,635 | 134,863,475 | ||||||
Proceeds from exercise of warrants | 3,798,999 | 1,373,000 | ||||||
Proceeds from exercise of options | 212,615 | 979,060 | ||||||
Net cash provided by financing activities | 72,584,249 | 137,215,535 | ||||||
Increase in cash | 16,758,553 | 82,827,710 | ||||||
Cash, beginning of period | 131,534,101 | 64,706,355 | ||||||
Cash, end of period | $ | 148,292,654 | $ | 147,534,065 |
Additional | ||||||||||||||||||||
Common Stock | Paid in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance, January 1, 2023 | 9,498 | $ | 9 | $ | 974,497 | $ | (939,363 | ) | $ | 35,143 | ||||||||||
Shares issued for vested restricted stock units | 455 | 1 | — | — | 1 | |||||||||||||||
Share-based compensation | — | — | 483 | — | 483 | |||||||||||||||
Net loss | — | — | — | (3,603 | ) | (3,603 | ) | |||||||||||||
Balance, March 31, 2023 | 9,953 | $ | 10 | $ | 974,980 | $ | (942,966 | ) | $ | 32,024 | ||||||||||
Shares issued for vested restricted stock units | 309 | — | — | — | — | |||||||||||||||
Shares issued for sale of common stock related to private placement sale | 313 | 1 | 1,149 | — | 1,150 | |||||||||||||||
Share-based compensation | — | — | 437 | — | 437 | |||||||||||||||
Net loss | — | — | — | (2,414 | ) | (2,414 | ) | |||||||||||||
Balance, June 30, 2023 | 10,575 | $ | 11 | $ | 976,566 | $ | (945,380 | ) | $ | 31,197 | ||||||||||
Share-based compensation | — | — | 233 | — | 233 | |||||||||||||||
Net loss | — | — | — | (3,378 | ) | (3,378 | ) | |||||||||||||
Balance, September 30, 2023 | 10,575 | $ | 11 | $ | 976,799 | $ | (948,758 | ) | $ | 28,052 | ||||||||||
Balance, January 1, 2022 | 8,598 | $ | 9 | $ | 957,730 | $ | (1,051,360 | ) | $ | (93,621 | ) | |||||||||
Shares issued for vested restricted stock units | 71 | — | — | — | — | |||||||||||||||
Share-based compensation | — | — | 2,062 | — | 2,062 | |||||||||||||||
Net loss | — | — | — | (49,021 | ) | (49,021 | ) | |||||||||||||
Balance, March 31, 2022 | 8,669 | $ | 9 | $ | 959,792 | $ | (1,100,381 | ) | $ | (140,580 | ) | |||||||||
Shares issued for rounding up of fractional shares in connection with the reverse stock split | 142 | — | — | — | — | |||||||||||||||
Shares issued for vested restricted stock units | 44 | — | — | — | — | |||||||||||||||
Shares issued for sale of common stock related to employee stock purchase plan | 5 | — | 14 | — | 14 | |||||||||||||||
Share-based compensation | — | — | 2,219 | — | 2,219 | |||||||||||||||
Net income | — | — | — | 112,281 | 112,281 | |||||||||||||||
Balance, June 30, 2022 | 8,860 | $ | 9 | $ | 962,025 | $ | (988,100 | ) | $ | (26,066 | ) | |||||||||
Sale of common stock, net of costs | 565 | — | 2,454 | — | 2,454 | |||||||||||||||
Shares issued for vested restricted stock units | 42 | — | — | — | — | |||||||||||||||
Share-based compensation | — | — | 4,306 | — | 4,306 | |||||||||||||||
Net loss | — | — | — | (28,965 | ) | (28,965 | ) | |||||||||||||
Balance, September 30, 2022 | 9,467 | $ | 9 | $ | 968,785 | $ | (1,017,065 | ) | $ | (48,271 | ) | |||||||||
THERAPEUTICSMD, INC. AND SUBSIDIARIES
Nine Months Ended September 30, | ||||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (9,395 | ) | $ | 34,295 | |||
Less: income (loss) from discontinued operations, net of tax | (3,237 | ) | 81,674 | |||||
Net loss from continuing operations | (6,158 | ) | (47,379 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 285 | 884 | ||||||
Write-off of patents and trademarks | 59 | — | ||||||
Share-based compensation | 1,155 | 8,587 | ||||||
Other | 525 | (25 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Other assets | 1,185 | — | ||||||
Prepaid and other current assets | (1,241 | ) | 394 | |||||
Accounts payable | (1,466 | ) | (1,290 | ) | ||||
Accrued expenses and other current liabilities | (11,918 | ) | 18,337 | |||||
Lease liabilities | (629 | ) | — | |||||
Other non-current liabilities | 82 | (385 | ) | |||||
Total adjustments | (11,963 | ) | 26,502 | |||||
Net cash used in continuing operating activities | (18,121 | ) | (20,877 | ) | ||||
Cash flows from investing activities: | ||||||||
Payment of patent related costs | — | (260 | ) | |||||
Purchase of fixed assets | — | (21 | ) | |||||
Net cash used in continuing investing activities | — | (281 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of common stock, net of costs | 1,149 | 2,454 | ||||||
Proceeds from exercise of options and warrants | — | 14 | ||||||
Repayments of debt | — | (125,000 | ) | |||||
Payment of debt financing fees | — | (729 | ) | |||||
Net cash provided by (used in) continuing financing activities | 1,149 | (123,261 | ) | |||||
Discontinued operations: | ||||||||
Net cash provided by (used in) operating activities | (22,179 | ) | 117,573 | |||||
Net cash provided by investing activities | — | 54 | ||||||
Net cash provided by financing activities | — | — | ||||||
Net cash provided by (used in) discontinued operations | (22,179 | ) | 117,627 | |||||
Net decrease in cash | (39,151 | ) | (26,792 | ) | ||||
Cash, cash equivalents and restricted cash - continuing operations, beginning of period | 49,317 | 65,122 | ||||||
Cash, cash equivalents and restricted cash - discontinued operations, beginning of period | — | — | ||||||
Total cash and restricted cash, end of period | $ | 10,166 | $ | 38,330 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | — | $ | — | ||||
Supplemental disclosure of noncash financing activities: | ||||||||
Paid in kind (“PIK”) interest with corresponding increase in debt | $ | — | $ | 2,452 | ||||
PIK debt financing fees with corresponding increase in debt | $ | — | $ | 16,980 | ||||
Issue of warrants to lenders related to debt financing fees | $ | — | $ | 1,983 | ||||
Nature of Business
We are a women’s health care company focused on creating and commercializing products targeted exclusively for women. Currently, we are focused on pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of our advanced hormone therapy pharmaceutical products. Our drug candidates that 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, (“vitaCare”) with the aimsale of demonstrating clinical efficacyall of vitaCare’s issued and outstanding capital stock (the “vitaCare Divestiture”). We received net proceeds of $142.6 million, after deducting transaction costs of $7.2 million, and we recognized a gain on sale of business of $143.4 million. Included in the net proceeds amount was $11.3
NOTE 2 – BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Interim Financial Statements
a result vitaCare activities were reclassified to discontinued operations for the nine months ended September 30, 2023 and 2022.
Recently Issued Accounting Pronouncements
In 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 companiesconformity with U.S. GAAP requires us to make certain changes to awards without accounting for them as modifications. This guidance does not changeestimates and assumptions that affect the accounting for modifications. The guidance will be applied prospectively to awards modified on or afterreported amounts of assets and liabilities, disclosure of contingent assets and liabilities at 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.
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 do not expect that adoption of this guidance will have a material effect on our 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. We adopted ASU 2016-09 effective January 1, 2017, electing to account for forfeitures when they occur. The impact from adoption of the provisions related to forfeiture rates was reflected in our consolidated financial statements on a modified retrospective basis, resulting in an adjustment of approximately $31,000 to retained earnings. The impact from adoption of the provisions related to excess tax benefits or deficiencies in the provision 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 amount equal to the cumulative 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 impact on our consolidated financial 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-typereported amounts of revenue and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018,expenses during the reporting periods. We evaluate our estimates and interim periods within those years. Early adoption is permitted for all entities. Weassumptions based on historical experience and on various other assumptions that are inbelieved to be reasonable, the process of analyzing the quantitative impact of this guidance on our results of operations and financial position. While we are continuing to assess all potential impactswhich form the basis for making judgments about the carrying values of the standard, we currently believe the impact of this standard will be primarily related to the accounting for our operating lease.
In May 2014, the FASB 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. This 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 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), accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10), 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 monitoring the activity 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. We are currently in the process of drafting disclosures required by the new standard. At this point of our analysis, we do not believe that the adoption of this standard will have a material effect on our financial statements but will potentially expand our disclosures related to contracts with customers.
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 valuednot readily apparent from other sources. Actual results may differ, at fair valuetimes in material amounts, from these estimates under different assumptions or conditions.
At September 30, 20172023 and 2016, we had no assets or liabilities that were valuedDecember 31, 2022.
Three months ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Product revenue, net | $ | (833 | ) | $ | 20,562 | $ | (833 | ) | $ | 67,413 | ||||||
Cost of goods sold | — | 3,434 | — | 11,991 | ||||||||||||
Gross profit | (833 | ) | 17,128 | (833 | ) | 55,422 | ||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | — | 19,129 | — | 61,703 | ||||||||||||
General and administrative | (39 | ) | 3,107 | 296 | 8,157 | |||||||||||
Research and development | — | 1,112 | — | 4,092 | ||||||||||||
Depreciation & amortization | — | 8 | — | 36 | ||||||||||||
Total operating expenses | (39 | ) | 23,356 | 296 | 73,988 | |||||||||||
Operating loss from discontinued operations | (794 | ) | (6,228 | ) | (1,129 | ) | (18,566 | ) | ||||||||
Other income (expense), net | (1,150 | ) | (8,106 | ) | (2,108 | ) | 100,240 | |||||||||
Total other income (expense), net | (1,150 | ) | (8,106 | ) | (2,108 | ) | 100,240 | |||||||||
Net income (loss) from discontinued operations | $ | (1,944 | ) | $ | (14,334 | ) | $ | (3,237 | ) | $ | 81,674 | |||||
September 30, 2023 | December 31, 2022 | |||||||
Liabilities: | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 113 | $ | 12,243 | ||||
Accrued expenses and other current liabilities | 6,775 | 13,588 | ||||||
Total current liabilities | $ | 6,888 | $ | 25,831 | ||||
September 30, 2023 | December 31, 2022 | |||||||
Insurance | $ | 632 | $ | 1,167 | ||||
Rent receivable | 429 | — | ||||||
Capitalized legal | 2,334 | 2,334 | ||||||
Other | 1,175 | 2,533 | ||||||
Prepaid and other current assets | $ | 4,570 | $ | 6,034 | ||||
September 30, 2023 | December 31, 2022 | |||||||
Furniture and fixtures | $ | 931 | $ | 931 | ||||
Computer and office equipment | 1,167 | 1,168 | ||||||
Computer software | 375 | 375 | ||||||
Leasehold improvements | 49 | 49 | ||||||
Fixed assets | 2,522 | 2,523 | ||||||
Less: accumulated depreciation and amortization | (2,503 | ) | (2,445 | ) | ||||
Fixed assets, net | $ | 19 | $ | 78 | ||||
September 30, 2023 | December 31, 2022 | |||||||||||||||||||||||
Gross Carrrying Amount | Accumulated Amortization | Net | Gross Carrrying Amount | Accumulated Amortization | Net | |||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||
Hormone therapy drug patents | $ | 6,224 | $ | 1,824 | $ | 4,400 | $ | 6,225 | $ | 1,598 | $ | 4,627 | ||||||||||||
Hormone therapy drug patents applied and pending approval | 1,936 | — | 1,936 | 1,995 | — | 1,995 | ||||||||||||||||||
Intangible assets subject to amortization | 8,160 | 1,824 | 6,336 | 8,220 | 1,598 | 6,622 | ||||||||||||||||||
Intangible assets not subject to amortization: | ||||||||||||||||||||||||
Trademarks/trade name rights | 321 | — | 321 | 321 | — | 321 | ||||||||||||||||||
License rights and other intangible assets, net | $ | 8,481 | $ | 1,824 | $ | 6,657 | $ | 8,541 | $ | 1,598 | $ | 6,943 | ||||||||||||
Year ending December 31, | ||||
2023 | $ | 110 | ||
2024 | 439 | |||
2025 | 438 | |||
2026 | 438 | |||
2027 | 438 | |||
Thereafter | 2,537 | |||
Total | $ | 4,400 | ||
September 30, 2023 | December 31, 2022 | |||||||
Payroll and related costs | $ | 332 | $ | 8,748 | ||||
Accrued contract termination costs | 1,632 | 4,700 | ||||||
Research and development expenses | — | 978 | ||||||
Professional fees | 273 | 415 | ||||||
Operating lease liabilities | 1,464 | 1,390 | ||||||
Prepaid royalty | — | 1,011 | ||||||
Other accrued expenses and current liabilities | 3,227 | 1,604 | ||||||
Accrued expenses and other current liabilities | $ | 6,928 | $ | 18,846 | ||||
Trade Accounts Receivable$20.0 million in 2019 following the first commercial batch release of ANNOVERA. The aggregate $40.0 million of milestone payments were recorded as license rights. The Population Council was also eligible to receive future payments upon the achievement of certain commercial sales milestones of ANNOVERA. On December 30, 2022, we assigned the ANNOVERA license to Mayne Pharma. Our rights and Allowance for Doubtful Accounts
Trade accounts receivable are customer obligations due under normal trade terms. We review accounts receivable for uncollectible accountsthe Population Council License Agreement have been transferred to Mayne Pharma and credit card charge-backsmay revert back to us upon the occurrence of certain events.
Revenue Recognition
We recognize revenue on arrangements in accordance with ASC 605, Revenue Recognition. We recognize revenue only whena date no earlier than 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 variationsexpiration of the same product with slight modifications in formulationIMVEXXY Patents and marketing. The primary difference between our OTCequitable relief enjoining Teva from infringing the IMVEXXY Patents. Teva has filed its answer 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 13. There are no major customers for our OTC prenatal vitamin or other products.
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 passedcounterclaim to the consumer. We include outbound shippingcomplaint, alleging that the IMVEXXY Patents are invalid and handling fees, if any,not
Prescription Products
We sell our name brand and generic prescription products primarily through wholesale distributors and retail pharmacy distributors. We recognize revenue from prescription product sales, net of sales discounts, chargebacks, wholesaler fees, customer rebates and estimated returns.
Revenue related to prescription products sold through wholesale distributors is recognized whenseal. In September 2021, the prescription products are shipped to the distributors and the controlDistrict Court made available a public version of the products passesorder following the parties’ agreement to each distributor. We accept returnsa consent motion to redact information Teva contended was confidential. The order provides that the statutory stay that prevents the FDA from granting final approval of unsalable prescription products sold 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 24the ANDA for 30 months from the date of manufacture.
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 channelIMVEXXY Notice Letter will be extended 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 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. 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.
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Compensation
days that the stay of the IMVEXXY litigation is in place. The length of the stay of the IMVEXXY litigation is dependent on further action by Teva. We measurehave incurred and recorded legal costs amounting to $2.3 million in prepaid expenses and other current assets as of September 30, 2023, for the compensationIMVEXXY Paragraph IV legal proceeding since we believe that we will successfully prevail in this legal proceeding. Upon the successful conclusion of the legal proceeding, the related capitalized legal costs of share-based compensation arrangements based on the grant-date fair valuewill be reclassified to patents, in license rights and recognize the costsother intangible assets, net, in the financial statementsaccompanying condensed consolidated balance sheets, and such costs will be amortized 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. We amortize such compensation amounts, if any, over the respective 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-Stock Compensation, to value options. Option valuation models require the input of assumptions, including the expectedremaining useful life of the stock-based awards,patents. If we are unsuccessful in this legal proceeding, then the estimated stock price volatility, the risk-free interest rate,related capitalized legal costs for this legal preceding 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 availableany unamortized IMVEXXY patent costs 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, 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.
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 adopted 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.
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 salaries, benefits, and non-cash share-based compensation expenses. Advance payments to be expensed in future research and development activities arepreviously capitalized and were $0 at September 30, 2017 and $228,933 at December 31, 2016, all of which were included in other current assets 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 include 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 expenseimmediately expensed in the period in which we become aware of an unsuccessful legal proceeding.
Segment Reporting
We are managed and operated as one business, whichMayne License Agreement, Mayne Pharma is focused on creating and commercializing products targeted exclusivelyresponsible for women. Our business operations are managed by a single management team that reports to the Presidentall enforcement of our company. We do not operate separate lines of businesspatents, including the litigation discussed above with respect to anyTeva.
NOTE 4 – INVENTORY
Inventory consistsdefined in their respective employment agreements. In the aggregate, as of September 30, 2023, we have accrued severance liabilities for executive termination obligations of $1.6 million.
Warrants Outstanding and exercisable | ||||||||||||||||
Warrants | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Life (in Years) | |||||||||||||
As of January 1, 2022 | 536 | $ | 13.10 | $ | 2,427 | 9.3 | ||||||||||
Exercised | (435 | ) | — | (634 | ) | (4.5 | ) | |||||||||
Expired | (2 | ) | — | — | — | |||||||||||
As of September 30, 2023 | 99 | $ | 66.61 | $ | 1,793 | 6.5 | ||||||||||
Outstanding | Exercisable | |||||||||||||||||||||||||||||||
Options Awards | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Life (in Years) | Options Awards | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Remaining Contractual Life (in Years) | |||||||||||||||||||||||||
As of January 1, 2023 | 172 | $ | 228.28 | — | 3.6 | 170 | $ | 229.43 | — | 3.6 | ||||||||||||||||||||||
Granted | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Exercised | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Cancelled/Forfeited | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Expired | (92 | ) | 206.54 | — | — | (90 | ) | 206.54 | — | — | ||||||||||||||||||||||
As of September 30, 2023 | 80 | $ | 253.31 | — | 3.2 | 80 | $ | 253.31 | — | 3.2 | ||||||||||||||||||||||
RSUs awards outstanding | ||||||||||||
RSUs | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||
As of January 1, 2023 | 57 | $ | 14.57 | $ | 318.63 | |||||||
Granted | 163 | 4.82 | — | |||||||||
Vested | (136 | ) | — | — | ||||||||
Cancelled/Forfeited | — | — | — | |||||||||
Unvested as of September 30, 2023 | 84 | $ | 8.12 | $ | 253.67 | |||||||
Outstanding | ||||||||||||
PSUs (1) | Weighted Average Grant Date Fair Value | Aggregate Intrinsic Value | ||||||||||
Unvested as of January 1, 2023 | 19 | $ | 52.15 | $ | 107.55 | |||||||
Granted | — | — | — | |||||||||
Vested | (5 | ) | — | — | ||||||||
Cancelled/Forfeited | — | — | — | |||||||||
Unvested, as of September 30, 2023 | 14 | $ | 50.87 | $ | 43.71 | |||||||
(1) | The number of PSUs represents the base number of PSUs that may vest. |
September 30, 2017 | December 31, 2016 | |||||||
Finished product | $ | 1,293,517 | $ | 1,062,285 | ||||
Raw material | — | 14,036 | ||||||
TOTAL INVENTORY | $ | 1,293,517 | $ | 1,076,321 |
NOTE 5 – OTHER CURRENT ASSETS
Other current assets consisttermination benefits for all employees who were terminated in 2022. We recorded share-based payment award compensation costs related to previously issued options, RSU and PSUs, as well as shares of the following:
September 30, 2017 | December 31, 2016 | |||||||
Prepaid manufacturing costs | $ | 999,508 | $ | 991,809 | ||||
Prepaid sales and marketing costs | 535,936 | — | ||||||
Prepaid insurance | 953,792 | 628,039 | ||||||
Prepaid research and development costs | — | 100,035 | ||||||
Prepaid consulting | — | 128,898 | ||||||
Prepaid vendor deposits | 5,000 | 44,311 | ||||||
Other prepaid costs | 507,541 | 405,960 | ||||||
TOTAL OTHER CURRENT ASSETS | $ | 3,001,777 | $ | 2,299,052 |
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – FIXED ASSETS
Fixed assets consist of the following:
September 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 | (335,239 | ) | (230,617 | ) | ||||
TOTAL FIXED ASSETS | $ | 448,066 | $ | 516,839 |
Depreciation expensetotaling $0.2 million and $4.3 million for the three months ended September 30, 20172023 and 2016 was $35,622 and $26,543 2022
NOTE 7 – INTANGIBLE ASSETS
The following table sets forth the gross carrying amount and accumulated amortization of our intangible assets as of September 30, 2017 and December 31, 2016:
September 30, 2017 | ||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Amount | Weighted- Average Remaining Amortization | |||||||||||||
Amortizing intangible assets: | ||||||||||||||||
OPERA®software patent | $ | 31,951 | $ | (7,988 | ) | $ | 23,963 | 12 | ||||||||
Development costs of corporate website | 91,743 | (91,743 | ) | — | n/a | |||||||||||
Approved hormone therapy drug candidate patents | 1,247,181 | (153,216 | ) | 1,093,965 | 15.25 | |||||||||||
Hormone therapy drug candidate patents (pending) | 1,474,061 | — | 1,474,061 | n/a | ||||||||||||
Non-amortizing intangible assets: | ||||||||||||||||
Multiple trademarks | 201,432 | — | 201,432 | indefinite | ||||||||||||
Total | $ | 3,046,368 | $ | (252,947 | ) | $ | 2,793,421 |
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016 | ||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Amount | Weighted- Average Remaining Amortization | |||||||||||||
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-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. During the nine months ended September 30, 2017 and year ended December 31, 2016, there was no impairment recognized related to intangible assets.
In addition to numerous pending patent applications, as of September 30, 2017, we had 17 issued patents, including:
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Amortization expense was $18,433 and $13,917 for the three months ended September 30, 2017 and 2016, respectively, and $52,321 and $38,560 for the nine months ended September 30, 2017 and 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 | |||||
2017(3 months) | $ | 18,433 | ||||
2018 | $ | 73,732 | ||||
2019 | $ | 73,732 | ||||
2020 | $ | 73,732 | ||||
2021 | $ | 73,732 | ||||
Thereafter | $ | 804,567 |
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
September 30, 2017 | December 31, 2016 | |||||||
Accrued clinical trial costs | $ | 556,048 | $ | 1,281,080 | ||||
Accrued payroll, bonuses and commission costs | 2,662,359 | 3,531,440 | ||||||
Accrued compensated absences | 952,587 | 665,561 | ||||||
Accrued legal and accounting expense | 366,828 | 176,518 | ||||||
Accrued sales and marketing costs | 69,041 | 665,773 | ||||||
Other accrued expenses | 319,015 | 224,865 | ||||||
Allowance for wholesale distributor fees | 145,563 | 76,510 | ||||||
Accrued royalties | 93,870 | 26,507 | ||||||
Allowance for coupons and returns | 1,218,249 | 794,816 | ||||||
Accrued rent | 293,672 | 181,015 | ||||||
TOTAL OTHER CURRENT LIABILITIES | $ | 6,677,232 | $ | 7,624,085 |
NOTE 9 – 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. 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. We compute diluted EPS based on the weighted-average number of shares of Common Stock outstanding plus all potentially dilutive shares of Common Stock outstanding during the period. Such potentially dilutive shares of Common Stock consist of options and warrants and were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive due to the net loss 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.
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Stock options | 23,383,100 | 20,705,923 | ||||||
Warrants | 3,115,905 | 12,060,571 | ||||||
26,499,005 | 32,766,494 |
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 – STOCKHOLDERS’ EQUITY
Preferred Stock
At September 30, 2017, we had 10,000,000 shares of preferred stock, par value $0.001, authorized for issuance, of which no shares of preferred stock were issued or outstanding.
Common Stock
At September 30, 2017, we had 350,000,000 shares of Common Stock authorized for issuance, of which 216,429,642 shares of Common Stock were issued and outstanding.
Issuances During 2017
On September 25, 2017, we entered into an underwriting agreement with J.P. Morgan Securities LLC relating to an underwritten public offering of 12,400,000 shares of our Common Stock at a price of $5.55 per share. The net proceeds to us from the offering were approximately $68,573,000, after deducting estimated offering expenses payable by us. The offering closed on September 28, 2017 and we issued 12,400,000 shares of Common Stock.
During the three months ended September 30, 2017, certain individuals exercised stock options to purchase 2,500 shares of Common Stock for $255 in cash. During the nine months ended September 30, 2017, certain individuals exercised stock options to purchase 102,546 shares of Common Stock for $212,615 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 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 $134,864,000, 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 Common Stock.
During the three months ended September 30, 2016, certain individuals exercised stock options to purchase 127,109 shares of Common Stock. Stock options to purchase shares of Common Stock were exercised as follows: (i) 10,000 options for $1,018 in cash and (ii) 117,109 options, pursuant to the stock options’ cashless provision, wherein 78,017 shares of Common Stock were issued. During the nine months ended September 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.
Warrants to Purchase Common Stock
As of September 30, 2017,2023, we had warrants outstanding to purchase an aggregate$0.4 million of 3,115,905 shares of Common Stock with a weighted-average contractual remaining life of approximately 2.08 years, and exercise prices ranging from $0.24 to $8.20 per share, resulting in a weighted average exercise price of $2.58 per share.
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The valuation methodology used to determine the fair value of our warrants 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 term of the warrant. During the nine months ended September 30, 2017, 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 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 nine months ended September 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.
During the three months ended September 30, 2017 and 2016, we recorded $101,376 and $137,161, respectively, and during the nine months ended September 30, 2017 and 2016 we recorded $217,150 and $820,751, respectively, asunrecognized share-based payment award compensation expense in the accompanying consolidated financial statements related to warrants. As of September 30, 2017, unamortized costs associated with these warrants totaled approximately $279,000.
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 to SCI a warrant to purchase 850,000 shares of Common Stock at $2.01 per share that has vested or will vest, as applicable, as follows:
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In May 2012, we issued warrants to purchase an aggregate of 1,300,000 shares of Common Stock to SCI for services to be rendered over approximately five years beginning in May 2012. The warrants vested upon issuance. Services provided are to include (a) services in support of our drug development 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 the three months ended September 30, 2017 and 2016, we recorded $0 and $64,449, respectively, and during the nine months ended September 30, 2017 and 2016, we recorded $128,898 and $193,347, 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 September 30, 2017, the SCI warrants issued in 2013 and 2012 were fully amortized.
During both the three months ended September 30, 2017 and 2016, no warrants were exercised. During the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2016, certain individuals exercised warrants to purchase 722,744 shares of Common Stock for $1,373,000 in 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. 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. As of September 30, 2017, there were non-qualified stock options to purchase 18,592,959 shares of Common Stock outstanding under the 2009 Plan. As of September 30, 2017, there were 2,156,003 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 September 30, 2017, there were non-qualified stock options to purchase 4,790,141 shares of Common Stock outstanding under the 2012 Plan. As of September 30, 2017, there were 5,128,333 shares of Common Stock available to be issued under the 2012 Plan.
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 nine months ended September 30, 2017 and 2016 are set forth in the table below.
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended | |||
September 30, 2017 | September 30, 2016 | ||
Risk-free interest rate | 1.84-2.01% | 1.13-1.70% | |
Volatility | 61.56-63.95% | 70.26-71.22% | |
Term (in years) | 5.5-6.25 | 6.00-6.25 | |
Dividend yield | 0.00% | 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, 2016 | 21,767,854 | $ | 3.56 | 5.8 | $ | 60,495,730 | ||||||||||
Granted | 2,184,500 | $ | 6.61 | |||||||||||||
Exercised | (102,546 | ) | $ | 2.07 | $ | 452,287 | ||||||||||
Expired/Forfeited | (466,708 | ) | $ | 6.52 | ||||||||||||
Balance at September 30, 2017 | 23,383,100 | $ | 3.79 | 5.4 | $ | 52,467,444 | ||||||||||
Vested and Exercisable at September 30, 2017 | 18,883,183 | $ | 3.15 | 4.6 | $ | 52,059,288 | ||||||||||
Unvested at September 30, 2017 | 4,499,917 | $ | 6.46 | 8.6 | $ | 408,156 |
At September 30, 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 $3.82 and $4.70 during the nine months ended September 30, 2017 and 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 September 30, 2017 and 2016 was $1,885,050 and $3,982,759, respectively, and for the nine months ended September 30, 2017 and 2016 was $4,691,735 and $12,294,089, respectively. At September 30, 2017, total unrecognized estimated compensation expensecost related to unvested options, granted prior to that date was approximately $12,419,000. This costRSUs and PSUs as well as shares issuable under our ESPP, which may be adjusted for future changes in forfeitures and is expected to be recognized over a weighted-average period of 2.2 years.included as additional
NOTE 11 – INCOME TAXES
Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – RELATED PARTIES
In July 2015, J. Martin Carroll,
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) from continuing operations | $ | (1,434 | ) | $ | (14,631 | ) | $ | (6,158 | ) | $ | (47,379 | ) | ||||
Net income (loss) from discontinued operations | (1,944 | ) | (14,334 | ) | (3,237 | ) | 81,674 | |||||||||
Net income (loss) | $ | (3,378 | ) | $ | (28,965 | ) | $ | (9,395 | ) | $ | 34,295 | |||||
Denominator: | ||||||||||||||||
Weighted average common shares for basic loss per common share | 10,701 | 9,261 | 10,241 | 8,877 | ||||||||||||
Effect of dilutive securities | — | — | — | — | ||||||||||||
Weighted average common shares for diluted loss per common share | 10,701 | 9,261 | 10,241 | 8,877 | ||||||||||||
Income (loss) per common share, continuing operations | ||||||||||||||||
Basic | $ | (0.13 | ) | $ | (1.58 | ) | $ | (0.60 | ) | $ | (5.34 | ) | ||||
Diluted | (0.13 | ) | (1.58 | ) | (0.60 | ) | (5.34 | ) | ||||||||
Income (loss) per common share, discontinued operations | ||||||||||||||||
Basic | $ | (0.18 | ) | $ | (1.55 | ) | $ | (0.32 | ) | $ | 9.20 | |||||
Diluted | (0.18 | ) | (1.55 | ) | (0.32 | ) | 9.20 | |||||||||
September 30, 2023 | ||||||||
2023 | 2022 | |||||||
Stock options | 80 | 197 | ||||||
RSUs | 84 | 301 | ||||||
PSUs | 14 | 100 | ||||||
Warrants | 99 | 411 | ||||||
277 | 1,009 | |||||||
NOTE 13 - BUSINESS CONCENTRATIONS
We purchaseRubric. On June 29, 2023, we issued and sold 312,525 shares of Common Stock to Rubric at a price per share equal to $3.6797 pursuant to the Subscription Agreement and received gross proceeds of $1.15 million, before expenses.
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. As a result2023, 100% 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 new distribution agreements with our retail pharmacy distributors to effectuate this centralization which were effective September 1, 2016.
During both the nine months ended September 30, 2017 and 2016, four customers each generated more than 10% of our total revenue. Revenue generated from four major customers combined accounted for approximately 60% of ourlicense revenue for both the nine months ended September 30, 2017 and 2016. During the nine months ended September 30, 2017, Pharmacy Innovations PA generated approximately $2,715,000 of our revenue, AmerisourceBergen generated approximately $1,716,000 of our revenue, Cardinal Health generated approximately $1,764,000 of our revenue and McKesson Corporation generated approximately $1,458,000 of our revenue. During the nine months ended September 30, 2016, Woodstock Pharmaceutical and Compounding generated approximately $2,247,000 of our revenue, Medical Center Pharmacy generated approximately $2,683,000 of our revenue, Due West Pharmacy generated approximately $1,890,000 of our revenue and Pharmacy Innovations generated approximately $2,113,000 of our revenue.
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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. On October 4, 2016, 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. This addendum is effective beginning November 1, 2016.
The rental expense related to our current lease during the three months ended September 30, 2017Mayne Pharma and 2016 was approximately $257,000 and $182,000, respectively. The rental expense related to our current lease during the nine months ended September 30, 2017 and 2016 was approximately $772,000 and $482,000, respectively.
Theramex.
Years Ending December 31, | |||||
2017 (3 months) | $ | 224,632 | |||
2018 | 951,194 | ||||
2019 | 1,094,116 | ||||
2020 | 1,113,069 | ||||
2021 | 943,127 | ||||
Total minimum lease payments | $ | 4,326,138 |
Legal Proceedings
annual royalty that Mayne Pharma is obligated to pay to us under the Mayne License
Item 2. Management’s Discussiondiscussion and Analysisanalysis of Financial Conditionfinancial condition and Resultsresults of Operations
General
operations
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 togetherin conjunction with our 2022 Annual Report on Form 10-K (“2022 10-K Report”), and the condensed consolidated financial statements and therelated notes to the financial statements, which are includedin Item 1, Financial Statements, appearing elsewhere 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, 2016 filed with the Securities and Exchange Commission, or the SEC, on February 28, 2017, or the Annual Report, including the audited financial10-Q (“10-Q Report”). The following discussion may contain forward-looking statements, and notes included therein. The reportedour actual results will not necessarily reflect futuremay differ materially from the results of operations or financial condition.
In addition, this Quarterly Report on Form 10-Q containssuggested by these forward-looking statementsstatements. Factors that involve substantial risks and uncertainties. Forward-looking statements maymight cause such differences include, but are not limited to, those discussed in Part I, Item 1A of our 2022 10-K Report under the heading “Risk Factors.” We assume no obligation to revise or update any forward-looking statements relatingfor any reason, except as required by law.
Certain amounts in the following discussion may not add due to rounding, and all percentages have been calculated using unrounded amounts.
Forward-looking statements
This 10-Q Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve substantial risks and uncertainties. For example, statements regarding our objectives,operations, financial position, debt position, liquidity, business strategy, and other plans and objectives for future operations, and assumptions and predictions about future cost reduction 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.expenses and royalties are all forward-looking statements. These statements are often characterizedgenerally accompanied by terminologywords such as “believes,“intend,” “hopes,“anticipate,” “believe,” “estimate,” “potential(ly),” “continue,” “forecast,” “predict,” “plan,” “may,” “anticipates,“will,” “could,” “would,” “should,” “intends,“expect,” “plans,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy”or the negative of such terms or other comparable terminology.
We have based these forward-looking statements on our current expectations and similar expressionsprojections about future events. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, 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 believedinformation available to be appropriate. Forward-looking statements are made as ofus on the date of this Quarterly10-Q Report, on Form 10-Q and we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we may presently be planning. These forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results or experience may differ materially from those expected or anticipated in the forward-looking statements. We do not undertake no duty to update any forward-looking statements or reviseto publicly announce the results of any suchrevisions to any statements whether as a result ofto reflect new information or future events or otherwise. developments, except as required by law or by the rules and regulations of the SEC.
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 factorsFactors that could cause actual results, developmentsor contribute to such differences include, but are not limited to, our liquidity requirements, supply chain issues, management transitions, risks related to our licensing agreements, market 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 candidategeneral economic factors, 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 salesother risks discussed in Part I, Item 1A of our products;2022 10-K Report, as updated and supplemented by Part II, Item 1A of this 10-Q Report.
Our company
TherapeuticsMD was previously a women’s healthcare company with a mission of creating and commercializing innovative products to support the lifespan of women from pregnancy prevention through menopause.
In December 2022, we changed our abilitybusiness to develop and commercializebecome a pharmaceutical royalty company, primarily collecting royalties from our hormone therapy drug candidates and obtain additional financing necessary therefor; whether we will be able to prepare an NDA for our TX-001HR product candidate and, if prepared, whether the FDA will accept and approve the NDA; the length, cost and uncertain results of our clinical trials, including any additional clinical trials that the FDA may requirelicensees. We are no longer engaged 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.commercial operations. On December 30, 2022 (the “Closing Date”), we completed a Nevada corporation, and unless specified otherwise, include our wholly owned subsidiaries, vitaMedMD,transaction (the “Mayne Transaction”) with Mayne Pharma LLC, a Delaware limited liability company or VitaMed;(“Mayne Pharma”) and subsidiary of Mayne Pharma Group Limited, an Australian public company, pursuant to which we (i) granted Mayne Pharma an exclusive license to commercialize IMVEXXY, BIJUVA and prescription prenatal vitamin products sold under the BocaGreenMD Inc.and vitaMedMD brands (collectively, the “Licensed Products”) in the United States and its possessions and territories, (ii) assigned to Mayne Pharma our exclusive license to commercialize ANNOVERA (together with the Licensed Products, collectively, the “Products”) in the United States and its possessions and territories, and (iii) sold certain other assets to Mayne Pharma in connection therewith.
Pursuant to a License Agreement, dated December 4, 2022, between TherapeuticsMD and Mayne Pharma (the “Mayne License Agreement”), a Nevada corporation, or BocaGreen;we granted Mayne Pharma, on the Closing Date, (i) an exclusive, sublicensable, perpetual, irrevocable license to research, develop, register, manufacture, have manufactured, market, sell, use, and VitaCare Prescription Services, Inc., a Florida corporation, or VitaCare.commercialize the Licensed Products in the United States and its possessions and territories and (ii) an exclusive, sublicensable, perpetual, irrevocable license to manufacture, have manufactured, import and have imported the Licensed Products outside the United States for commercialization in the United States and its possessions and territories.
Overview
19
Pursuant to the Mayne License Agreement, Mayne Pharma will pay us one-time, milestone payments of each of (i) $5.0 million if aggregate net sales of all Products in the United States during a calendar year reach $100.0 million, (ii) $10.0 million if aggregate net sales of all Products in the United States during a calendar year reach $200.0 million and (iii) $15.0 million if aggregate net sales of all Products in the United States during a calendar year reach $300.0 million. Further, Mayne Pharma will pay us royalties on net sales of all Products in the United States at a royalty rate of 8.0% on the first $80 million in annual net sales and 7.5% on annual net sales above $80.0 million, subject to certain adjustments, for a period of 20 years following the Closing Date. The royalty rate will decrease to 2.0% on a Product-by-Product basis upon the earlier to occur of (i) the expiration or revocation of the last patent covering a Product and (ii) a generic version of a Product launching in the United States. Mayne Pharma will pay us minimum annual royalties of $3.0 million per year for 12 years, adjusted for inflation at an annual rate of 3%, subject to certain further adjustments, including as described below (the “Minimum Annual Royalty”). Upon the expiry of the 20-year royalty term, the licenses granted to Mayne Pharma under the Mayne License Agreement will become a fully paid-up and royalty free license for the Licensed Products.
We arePursuant to a women’s health care company focusedTransaction Agreement, dated December 4, 2022, between TherapeuticsMD and Mayne Pharma (the “Transaction Agreement”), we sold to Mayne Pharma, at closing, certain assets for Mayne Pharma to commercialize the Products in the United States, including our exclusive license from the Population Council to commercialize ANNOVERA (the “Transferred Assets”).
The total consideration from Mayne Pharma to us for the purchase of the Transferred Assets and the grant of the licenses under the Mayne License Agreement was (i) a cash payment of $140.0 million at closing, (ii) a cash payment of approximately $12.1 million at closing for the acquisition of net working capital as determined in accordance with the Transaction Agreement and subject to certain adjustments, (iii) a cash payment of approximately $1.0 million at closing for prepaid royalties in connection with the Mayne License Agreement Amendment (as defined below) and (iv) the right to receive the contingent consideration set forth in the Mayne License Agreement, as amended.
On the Closing Date, TherapeuticsMD and Mayne Pharma entered into Amendment No. 1 to the Mayne License Agreement (the “Mayne License Agreement Amendment”). Pursuant to the Mayne License Agreement Amendment, Mayne Pharma agreed to pay us approximately $1.0 million in prepaid royalties on creating and commercializing products targeted exclusively for women. Currently, we are focused on pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of our advanced hormone therapy pharmaceutical products. Our drug candidates that have completed clinical trials are designed to alleviate the symptoms of andClosing Date. The prepaid royalties will reduce the health risks resultingfirst four quarterly payments that would have otherwise been received pursuant to the Mayne License Agreement by an amount equal to $257 thousand per quarterly royalty payment plus interest calculated at 19% per annum accruing 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. With our SYMBODA™ technology, we are developing advanced hormone therapy pharmaceutical productsClosing Date until the date such quarterly royalty payment is paid to enable delivery of bio-identical hormones through a variety of dosage forms and administration routes.TherapeuticsMD. In addition, under the Mayne License Agreement Amendment, we manufactureowed Mayne Pharma $1.5 million payable from one royalty payment. During the second quarter of 2023, Mayne Pharma held back our royalty payment and distribute brandedwe funded an additional $0.9 million in August 2023 to settle the original $1.5 million payable.
This action represented a shift in our business and generic prescription prenatal vitamins,therefore, the related assets and liabilities associated with commercial operations are classified as well as over-the-counter, or OTC, iron supplements.
Our common stock, par value $0.001 per share, or the Common Stock, has been listed on the Nasdaq Global Select Market of The Nasdaq Stock Market LLC since October 9, 2017. Our Common Stock was previously listed on the NYSE American, LLC. We maintain websites at www.therapeuticsmd.com, www.vitamedmd.com, www.vitamedmdrx.com, and www.bocagreenmd.com. The information containeddiscontinued operations on our websites or that can be accessed throughcondensed consolidated balance sheets and the results of operations have been presented as discontinued operations within our websites does not constitute partcondensed consolidated statements of comprehensive income for all periods presented. See Note 2 - Discontinued Operations to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.10-Q for further details.
We also have license agreements with strategic partners to commercialize IMVEXXY and BIJUVA outside of the U.S.
ResearchIn July 2018, we entered into a license and Developmentsupply agreement (the “Knight License Agreement”) with Knight Therapeutics Inc. (“Knight”) pursuant to which we granted Knight an exclusive license to commercialize IMVEXXY and BIJUVA in Canada and Israel.
20
In September 2019, we entered into an exclusive license and supply agreement (the “Theramex License Agreement”) with Theramex HQ UK Limited (“Theramex”) to commercialize IMVEXXY and BIJUVA outside of the U.S., excluding Canada and Israel. In 2021, Theramex secured regulatory approval for BIJUVA in certain European countries and began commercialization efforts in those countries.
In connection with our transformation into a pharmaceutical royalty company, the termination of our executive management team (except for Mr. Marlan Walker, our former General Counsel and current Chief Executive Officer) and all other employees was completed by December 31, 2022. Severance obligations for all employees other than executive officers were paid in full in the first quarter of 2023 and severance obligations for terminated executive officers will be paid in accordance with their employment agreements and separation agreements as previously disclosed. As of December 31, 2022 and September 30, 2023, we employed one full-time employee primarily engaged in an executive position. We have obtained FDA acceptanceengaged external consultants, including certain former members of our Investigational New Drug, or IND, applications to conduct clinical trials for fivemanagement team, who support our relationship with current partners and assist with certain financial, legal and regulatory matters and the continued wind-down of our proposed hormone therapy drug 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 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.historical business operations.
vitaCare Divestiture
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,On April 14, 2022, we completed the REJOICE Trial, our phase 3 clinicaldivestiture of TX-004HR, our applicator-free vaginal estradiol softgel drug candidate forvitaCare Prescription Services, Inc. (“vitaCare”) with the treatmentsale of moderateall vitaCare’s issued and outstanding capital stock (the “vitaCare Divestiture”). We received net proceeds of $142.6 million, net of transaction costs of $7.2 million, and we recognized a gain on sale of business of $143.4 million. Included in the net proceeds amount was $11.3 million of customary holdbacks as provided in the stock purchase agreement between us and GoodRx, Inc. (the “Purchase Agreement”), which was recorded as restricted cash in the condensed consolidated balance sheets until the cash was released to severe dyspareunia (vaginal pain during sexual intercourse), a symptomus. The restricted cash was held by an escrow agent and was released to us in March 2023. Additionally, we may receive up to an additional $7.0 million in earn-out consideration, contingent upon vitaCare’s financial performance through 2023 as determined in accordance with the terms of vulvar and vaginal atrophy, or VVA, in post-menopausal women with vaginal linings thatthe Purchase Agreement, however we do not receive enough estrogen.believe this earnout will be realized. We will record the contingent consideration at the settlement amount when the consideration is realized or realizable.
The Purchase Agreement contains customary representations and warranties, covenants, and indemnities of the parties thereto. Our commitments under a long-term services agreement related to vitaCare were transferred to Mayne Pharma as part of the Mayne Transaction. In addition, under the fourthMayne License Agreement Amendment, we owed Mayne Pharma $1.5 million payable from one royalty payment. During the second quarter of 20162023, Mayne Pharma held back our royalty payment and we submittedfunded an IND application for TX-006HR,additional $0.9 million in August 2023 to settle the original $1.5 million payable.
The pre-divesture operations of vitaCare were reclassified to discontinued operations in December 2022 when we transitioned to becoming a royalty company and licensed our combination estradiolproducts to Mayne Pharma.
COVID-19
With multiple variant strains of the SARS-Cov-2 virus and progesterone drug candidatethe COVID-19 disease that it causes (collectively, “COVID-19”) still circulating, we continue to be subject to risks and uncertainties in a topical cream form,connection with the COVID-19 pandemic. The extent of the future impact of the COVID-19 pandemic on our business continues to be highly uncertain and intenddifficult to commence phase 1 clinical trialspredict.
As of the date of the filing of this drug candidate10-Q Report, the future extent to which the COVID-19 pandemic may continue to materially impact our financial condition, liquidity, or results of operations remains uncertain and difficult to predict. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as early as 2018. In July 2014, we suspended enrollmenta result of any economic recession or depression that has occurred or may occur 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 in 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. Our IND is currently in inactive status.We have no current plans to conduct clinical trials for TX-003HR, our oral estradiol alone drug candidate, and the IND application for this drug candidate is currently inactive.future.
TX-001HR
TX-001HR is 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 VMS due to menopause, including hot flashes, night sweats and sleep disturbances in post-menopausal women with an intact uterus. 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, namely estradiol and progesterone, and is being studied as a continuous-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 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 clinical trial of TX-001HR in postmenopausal women with an intact uterus. The trial was designed to evaluate the efficacy of TX-001HR for the treatment of moderate to severe VMS due to menopause and the endometrial safety of TX-001HR. Patients were assigned to one of five arms, four active and one placebo, and received study medication for 12 months. The primary endpoint for the reduction of endometrial hyperplasia was 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 VMS was the mean change of frequency and severity of moderate to severe VMS at weeks four and 12 compared to placebo, as measured by the number and severity of hot flashes. Only subjects experiencing a minimum daily frequency of seven moderate to severe hot flashes at screening were included in the VMS analysis, while all subjects were included in the endometrial hyperplasia analysis. The secondary endpoints included 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 evaluated 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:
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 placebo.
● TX-001HR estradiol 0.5 mg/progesterone 50 mg and TX-001HR estradiol 0.25 mg/progesterone 50 mg were not statistically significant at all 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 the number and severity 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 REPLENISH 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/Progesterone | 1 mg/100 mg | 0.5 mg/100 mg | 0.5 mg/50 mg | 0.25 mg/50 mg | Placebo |
(n = 141) | (n = 149) | (n = 147) | (n = 154) | (n = 135) | |
Frequency | |||||
Week 4 P-value versus placebo | <0.001 | 0.013 | 0.141 | 0.001 | — |
Week 12 P-value versus placebo | <0.001 | <0.001 | 0.002 | <0.001 | — |
Severity | |||||
Week 4 P-value versus placebo | 0.031 | 0.005 | 0.401 | 0.100 | — |
Week 12 P-value versus placebo | <0.001 | <0.001 | 0.018 | 0.096 | — |
Replenish Trial Primary Safety Endpoint: Incidence of Consensus Endometrial Hyperplasia or Malignancy up to 12 months, Endometrial Safety PopulationŦ | |||||
Endometrial Hyperplasia | 0% (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 had a pre-NDA meeting for TX-001HR with the FDA on August 28, 2017. We anticipate that we will submit an NDA for TX-001HR to the FDA in the fourth quarter of 2017. Assuming that the NDA is accepted 60 days thereafter and 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 fourth quarter of 2018.
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 our applicator free vaginal estradiol softgel drug candidate for the treatment of 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.
Going concern
On December 7, 2015,4, 2022, we announced positive top-line results from the REJOICE Trial. The pre-specified four co-primary efficacy endpoints were the changes from baselineentered into agreements with Mayne Pharma pursuant to week 12 versus placebo in the percentage of vaginal superficial cells, percentage of vaginal parabasal cells, vaginal pHwhich we (i) granted Mayne Pharma an exclusive license to commercialize IMVEXXY, BIJUVA, 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 acrossprescription prenatal vitamin products (in the United States and Canada. Trial participants were randomizedits possessions and territories), (ii) assigned 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 aMayne Pharma our exclusive license to commercialize ANNOVERA in the United States and its possessions and territories, and (iii) sold certain other assets to Mayne Pharma.
21
The 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 placeboconsideration we received from Mayne Pharma for the endpointspurchase of vaginal superficial cells, vaginal parabasal cells,the Transferred Assets and vaginal pH; the change from baseline compared to placebo ingrant of the severitylicenses under the Mayne License Agreement consisted of dyspareunia was statistically significant(i) a cash payment of $140.0 million at the p = 0.0149 level. The FDA has previously indicated to us that in order to approve the drug based onclosing, (ii) a single trial, the trial would need to show statistical significancecash payment of approximately $12.1 million 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 placeboclosing for the endpointacquisition of vaginal dryness. The 4 mcg dose of TX-004HR demonstrated statistically significant results at the p = 0.0014 level comparednet working capital subject 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 was sufficiently complete to permitcertain adjustments, (iii) a substantive review and accepted the NDA for filing with the PDUFA target action date for the completion of the FDA’s review of May 7, 2017. The NDA submission was supported by the complete TX-004HR clinical program, including positive results of the 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 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, on July 5, 2017 formally submitted the new information for consideration related to the NDA for TX-004HR.
On August 3, 2017, we received a formal General Advice Letter from the FDA stating that an initial review of this information has been completed and requesting that we submit the additional endometrial safety information to the NDA for TX-004HR on or before September 18, 2017. On September 14, 2017, we submitted the additional endometrial safety information that was requested by the FDA in the General Advice Letter to the NDA for TX-004HR. The submission includes a comprehensive, systematic review of the medical literature on the use of vaginal estrogen products and the risk of endometrial hyperplasia or cancer, including the safety data from the recently published Women’s Health Initiative Observational Study, or WHI Study, of vaginal estrogen use in postmenopausal women and information on the relevance of the first uterine pass effect for low-dose vaginal estrogen products. The WHI Study demonstrated no significant difference in the risk of invasive breast cancer, stroke, colorectal cancer, endometrial cancer and venous thromboembolism in vaginal estrogen users versus non-users. The WHI Study also shows that, among women with an intact uterus, there was a decreased risk of cardiovascular disease, hip fracture and all-cause mortality in vaginal estrogen users versus non-users. The WHI Study evaluated over 4,000 women who used vaginal estrogens for a median duration of two to three years.
On November 3, 2017, we participated in an in-person meeting with DBRUP. At the meeting, DBRUP agreed to the resubmission of the NDA for the 4 mcg and 10 mcg doses of TX-004HR without the need for an additional pre-approval study. We will commit to conduct a post-approval observational study. We believe that we will be in a position to resubmit the NDA for TX-004HR within the coming weeks, with a potential approval of the NDA within two to six months after resubmission, depending on the classification of the review of the NDA.
As of September 30, 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 thecash payment is made. Advance payments to be expensed in future research and development activities are capitalized, and were $0 at September 30, 2017 and $228,933 at December 31, 2016 which were included in other current assets on the accompanying consolidated balance sheets. CRO activity expenses include preclinical laboratory experiments and clinical trial studies.
The following table indicates our research and development expense by project/category for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(000s) | (000s) | |||||||||||||||
TX 001-HR | $ | 3,066 | $ | 7,751 | $ | 11,971 | $ | 25,101 | ||||||||
TX 002-HR | — | — | — | — | ||||||||||||
TX 004-HR | 1,580 | 2,611 | 6,292 | 7,724 | ||||||||||||
Other research and development | 1,791 | 4,302 | 4,615 | 10,777 | ||||||||||||
Total | $ | 6,437 | $ | 14,664 | $ | 22,878 | $ | 43,602 | ||||||||
Research and development expenditures will continue to be incurred as we continue development of our drug candidates and advance the development of our proprietary pipeline of novel drug candidates. We expect to incur ongoing research and development costs as we develop our drug pipeline, continue stability testing and validation on our drug candidates, prepare regulatory submissions and work with regulatory authorities on 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; 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; the duration of patient follow-up; and the efficacy and safety profile of the drug candidate. We base our 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 September 30, 2017 compared with three months ended September 30, 2016
Three Months Ended September 30, | ||||||||||||
2017 | 2016 | Change | ||||||||||
(000s) | ||||||||||||
Revenues, net | $ | 4,417 | $ | 5,536 | $ | (1,119 | ) | |||||
Cost of goods sold | 701 | 1,237 | (536 | ) | ||||||||
Operating expenses | 18,548 | 29,427 | (10,879 | ) | ||||||||
Operating loss | (14,832 | ) | (25,128 | ) | (10,296 | ) | ||||||
Other income, net | 167 | 113 | 54 | |||||||||
Net loss | $ | (14,665 | ) | $ | (25,015 | ) | $ | (10,350 | ) |
Revenues and Cost of Goods Sold
Revenues for the three months ended September 30, 2017 decreased approximately $1,119,000, or 20%, to approximately $4,417,000, compared with approximately $5,536,000 for the three months ended September 30, 2016. This decrease was attributable to a decrease in the average net revenue per unit of our products and a slight decrease in the number of units sold. Cost of goods sold decreased approximately $536,000, or 43%, to approximately $701,000 for the three months ended September 30, 2017, compared with approximately $1,237,000 for the three months ended September 30, 2016. Our gross margin was approximately 84% and 78% for the three months ended September 30, 2017 and 2016, respectively. The increase in gross margin percentage was primarily attributable to the centralization of the distribution channel for both our retail pharmacy distributors and wholesale distributors, which, among other things, lowered the cost 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, | ||||||||
2017 | 2016 | |||||||
Research and development costs | 34.7 | % | 49.8 | % | ||||
Human resource related costs including salaries, benefits and taxes | 32.2 | % | 20.3 | % | ||||
Sales and marketing costs, excluding human resource costs | 17.0 | % | 14.3 | % | ||||
Professional fees for legal, accounting and consulting | 6.9 | % | 4.9 | % | ||||
Other operating expenses | 9.2 | % | 10.7 | % |
Operating expenses decreased by approximately $10,879,000, or 37%, to approximately $18,548,000 for the three months ended September 30, 2017, from approximately $29,427,000 for the three months ended September 30, 2016 as a result of the following items:
Three Months Ended September 30, | ||||||||||||
2017 | 2016 | Change | ||||||||||
(000s) | ||||||||||||
Research and development costs | $ | 6,437 | $ | 14,664 | $ | (8,227 | ) | |||||
Human resources related costs, including salaries, benefits and taxes | 5,966 | 5,965 | 1 | |||||||||
Sales and marketing, excluding human resource costs | 3,163 | 4,201 | (1,038 | ) | ||||||||
Professional fees for legal, accounting and consulting | 1,271 | 1,450 | (179 | ) | ||||||||
Other operating expenses | 1,711 | 3,147 | (1,436 | ) | ||||||||
Total operating expenses | $ | 18,548 | $ | 29,427 | $ | (10,879 | ) |
Research and development costs for the three months ended September 30, 2017 decreased by approximately $8,227,000, or 56%, to approximately $6,437,000, compared with $14,664,000 for the three months ended September 30, 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 the REPLENISH Trial for TX-001HR, our combination estradiol and progesterone drug candidate. Research and developments costs during the three months ended September 30, 2017 included the following research and development projects.
During the three months ended September 30, 2017 and the period from February 2013 (project inception) through September 30, 2017, we have incurred approximately $3,066,000 and $107,987,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.
During the three months ended September 30, 2017 and the period April 2013 (project inception) through September 30, 2017, we have incurred approximately $0 and $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.
During the three months ended September 30, 2017 and the period from August 2014 (project inception) through September 30, 2017, we have incurred approximately $1,580,000 and $39,098,000, 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 — 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 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,” 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, scale-up and manufacturing activities.
Human resource costs, including salaries, benefits and taxes, for the three months ended September 30, 2017 increased by approximately $1,000, or less than 1%, to approximately $5,966,000, compared with approximately $5,965,000 for the three months ended September 30, 2016, primarily as a result of a an increase of approximately $1,042,000 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 $1,041,000 in non-cash compensation expense included in this category related to employee stock option amortization.
Sales and marketing costs$1.0 million at closing for the three months ended September 30, 2017 decreased by approximately $1,038,000, or 25%, to approximately $3,163,000, compared with approximately $4,201,000 for the three months ended September 30, 2016, primarily as a result reduced spending associated with sales and marketing efforts to support commercialization of our hormone therapy drug candidates, partially offset by higher costs related to outsourced sales personnel and their related expenses together with an increase in employee incentives.
Professional fees for the three months ended September 30, 2017 decreased by approximately $179,000, or 12%, to approximately $1,271,000, compared with approximately $1,450,000 for the three months ended September 30, 2016, primarily as a result of decreased consulting expenses partially offset by a slight increase in legal expenses.
Other operating expense for the three months ended September 30, 2017 decreased by approximately $1,436,000, or 46%, to approximately $1,711,000, compared with approximately $3,147,000 for the three months ended September 30, 2016, as a result of decrease in bad debt expense, partially offset by increased rent, information technology and other office expenses.
Operating Loss
As a result of the foregoing, our operating loss decreased approximately $10,296,000, or 41%, to approximately $14,832,000 for the three months ended September 30, 2017, compared with approximately $25,128,000 for the three months ended September 30, 2016, primarily as a result of decreased research and development costs and reduced spending associated with sales and marketing efforts to support commercialization of our hormone therapy drug candidates, partially offset by higher costs related to outsourced sales personnel and their related expenses, professional fees, and other operating 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 $54,000, or 48%, to approximately $167,000 for the three months ended September 30, 2017 compared with approximately $113,000 for the comparable period in 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 $10,350,000, or 41%, to approximately $14,665,000 for the three months ended September 30, 2017, compared with approximately $25,015,000 for the three months ended September 30, 2016. Net loss per share of Common Stock, basic and diluted, was ($0.07) for the three months ended September 30, 2017, compared with ($0.13) for the three months ended September 30, 2016.
Nine months ended September 30, 2017 compared with nine months ended September 30, 2016
Nine Months Ended September 30, | ||||||||||||
2017 | 2016 | Change | ||||||||||
(000s) | ||||||||||||
Revenues, net | $ | 12,653 | $ | 14,869 | $ | (2,216 | ) | |||||
Cost of goods sold | 2,042 | 3,476 | (1,434 | ) | ||||||||
Operating expenses | 66,559 | 78,706 | (12,147 | ) | ||||||||
Operating loss | (55,948 | ) | (67,313 | ) | (11,365 | ) | ||||||
Other income, net | 450 | 274 | 176 | |||||||||
Net loss | $ | (55,498 | ) | $ | (67,039 | ) | $ | (11,541 | ) |
Revenues and Cost of Goods Sold
Revenues for the nine months ended September 30, 2017 decreased approximately $2,216,000, or 15%, to approximately $12,653,000, compared with approximately $14,869,000 for the nine months ended September 30, 2016. This decrease was attributable to a decrease in the average net revenue per unit of our products, primarily related to higher estimates related to discounts and returns in 2017, partially offset by a slight increase in the number of units sold. Cost of goods sold decreased approximately $1,434,000, or 41%, to approximately $2,042,000 for the nine months ended September 30, 2017, compared with approximately $3,476,000 for the nine months ended September 30, 2016. Our gross margin was approximately 84% and 77% for the nine months ended September 30, 2017 and 2016, respectively. The increase in gross margin percentage was primarily attributable to the centralization of the distribution channel for both our retail pharmacy distributors and wholesale distributors which, among other things, lowered the cost 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, | ||||||||
2017 | 2016 | |||||||
Research and development costs | 34.4 | % | 55.4 | % | ||||
Human resource related costs, including salaries, benefits and taxes | 26.2 | % | 22.0 | % | ||||
Sales and marketing costs, excluding human resource costs | 24.9 | % | 9.9 | % | ||||
Professional fees for legal, accounting and consulting | 6.1 | % | 4.6 | % | ||||
Other operating expenses | 8.4 | % | 8.1 | % |
Operating expenses decreased by approximately $12,147,000, or 15%, to approximately $66,559,000 for the nine months ended September 30, 2017, from approximately $78,706,000 for the nine months ended September 30, 2016 as a result of the following items:
Nine Months Ended September 30, | ||||||||||||
2017 | 2016 | Change | ||||||||||
(000s) | ||||||||||||
Research and development costs | $ | 22,878 | $ | 43,602 | $ | (20,724 | ) | |||||
Human resources related costs, including salaries, benefits and taxes | 17,415 | 17,309 | 106 | |||||||||
Sales and marketing costs, excluding human resource costs | 16,590 | 7,796 | 8,794 | |||||||||
Professional fees for legal, accounting and consulting | 4,062 | 3,615 | 447 | |||||||||
Other operating expenses | 5,614 | 6,384 | (770 | ) | ||||||||
Total operating expenses | $ | 66,559 | $ | 78,706 | $ | (12,147 | ) |
Research and development costs for the nine months ended September 30, 2017 decreased by approximately $20,724,000, or 48%, to approximately $22,878,000, compared with $43,602,000 for the nine months ended September 30, 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 the REPLENISH Trial for TX-001HR, our combination estradiol and progesterone drug candidate. Research and developments costs during the nine months ended September 30, 2017 included the following research and development projects.
During the nine months ended September 30, 2017 and the period from February 2013 (project inception) through September 30, 2017, we have incurred approximately $11,971,000 and $107,987,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.
During the nine months ended September 30, 2017 and the period April 2013 (project inception) through September 30, 2017, we have incurred approximately $0 and $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.
During the nine months ended September 30, 2017 and the period from August 2014 (project inception) through September 30, 2017, we have incurred approximately $6,292,000 and $39,098,000, 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 — 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 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,” 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, scale-up and manufacturing activities.
Human resource costs, including salaries, benefits and taxes, for the nine months ended September 30, 2017 increased by approximately $106,000, or less than 1%, to approximately $17,415,000, compared with approximately $17,309,000 for the nine months ended September 30, 2016, primarily as a result of an increase of approximately $4,636,000 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 $4,530,000 in non-cash compensation expense included in this category related to employee stock option amortization.
Sales and marketing costs for the nine months ended September 30, 2017 increased by approximately $8,794,000, or 113%, to approximately $16,590,000, compared with approximately $7,796,000 for the nine months ended September 30, 2016, primarily as a result of increased expenses in the first half of 2017 associated with sales and marketing efforts to support commercialization of our hormone therapy drug candidates, which were curtailed in the third quarter of 2017 due to the status of the NDA for TX-004HR, higher costs related to outsourced sales personnel and their related expenses which started in the fourth quarter of 2016, together with an increase in employee incentives.
Professional fees for the nine months ended September 30, 2017 increased by approximately $447,000, or 12%, to approximately $4,062,000, compared with approximately $3,615,000 for the nine months ended September 30, 2016, primarily as a result of increased legal and other professional expenses, partially offset by a decrease in consulting expenses.
Other operating expense for the nine months ended September 30, 2017 decreased by approximately $770,000, or 12%, to approximately $5,614,000, compared with approximately $6,384,000 for the nine months ended September 30, 2016, as a result of a decrease in bad debt expense as well as decreased investor relations expenses, partially offset by increased rent, information technology and other office expenses.
Operating Loss
As a result of the foregoing, our operating loss decreased approximately $11,365,000, or 17%, to approximately $55,948,000 for the nine months ended September 30, 2017, compared with approximately $67,313,000 for the nine months ended September 30, 2016, primarily as a result of decreased research and development costs and other operating expenses, partially offset by increased personnel costs, sales and marketing expenses to support commercialization of our hormone therapy drug candidates, higher costs related to outsourced sales personnel and their related expenses and professional fees 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 $176,000, or 64%, to approximately $450,000 for the nine months ended September 30, 2017, compared with approximately $274,000 for the comparable period in 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 $11,541,000, or 17%, to approximately $55,498,000 for the nine months ended September 30, 2017, compared with approximately $67,039,000 for the nine months ended September 30, 2016. Net loss per share of Common Stock, basic and diluted, was ($0.27) for the nine months ended September 30, 2017, compared with ($0.34) for the nine months ended September 30, 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. Since 2014, we received approximately $337,582,000 in net proceeds from the issuance of shares of Common Stock. As of September 30, 2017, we had cash and cash equivalents totaling approximately $148,293,000, 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.
On September 25, 2017, we entered into an underwriting agreement with J.P. Morgan Securities LLC relating to an underwritten public offering of 12,400,000 shares of our Common Stockat a price of $5.55 per share. The net proceeds to us from the offering were approximately $68,573,000, after deducting estimated offering expenses payable by us. The offering closed on September 28, 2017 and we issued 12,400,000 shares of our Common Stock. We intend to use a majority of the net proceeds from this offering to fund pre-commercialization and commercialization activities for our TX-004HR and TX-001HR drug candidates. We currently intend to fund the remainder of our pre-commercialization and commercialization expenses for our TX-004HR and TX-001HR drug candidates through debt financing and are currently engaged in discussions to secure debt financing commitments during the fourth quarter of 2017. If we are successful in obtaining these commitments, we currently anticipate we would begin to draw on them following approval of either TX-004HR or TX-001HR.
During the nine months ended September 30, 2017, certain individuals exercised warrants to purchase 2,476,666 shares of Common Stock for $3,798,999 in cash. During the nine months ended September 30, 2017, certain individuals exercised stock options to purchase 102,546 shares of Common Stock for $212,615 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 new distribution agreements with our retail pharmacy distributors to effectuate this centralization which were effective September 1, 2016.
For the three months ended September 30, 2017, our days sales outstanding, or DSO, was 91 days compared to 92 days for the year ended December 31, 2016. We anticipate that our DSO will fluctuate in the future 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 the terms previously provided to our retail pharmacy distributors, changes in the healthcare industry and specific terms that may be extendedprepaid royalties in connection with the launchMayne License Agreement Amendment and (iv) the right to receive the contingent consideration set forth in the Mayne License Agreement, as amended.
On the Closing Date, we repaid all obligations under the Financing Agreement, dated as of April 24, 2019, as amended, with Sixth Street Specialty Lending, Inc., as administrative agent, the various lenders from time-to-time party thereto, and certain of our hormone therapy drug candidates, if approved.subsidiaries party thereto from time to time as guarantors (the “Financing Agreement”) and the Financing Agreement was terminated.
Following the transaction with Mayne Pharma, we changed our business to become a royalty company, currently receiving royalties on products licensed to pharmaceutical organizations that possess commercial capabilities in the relevant territories. We believe that our existing cash will allow usmay need to raise additional capital to provide additional liquidity to fund our operating plan through at leastoperations until we become cash flow positive. To address our capital needs, we are pursuing various equity and debt financing and other alternatives. The equity financing alternatives may include the next 12 months fromprivate placement of equity, equity-linked, or other similar instruments or obligations with one or more investors, lenders, or other institutional counterparties or an underwritten public equity or equity-linked securities offering.
Our ability to sell equity securities may be limited by market conditions, including the date of this quarterly report. However, if the commercializationmarket price 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. Ifcommon stock and 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. authorized shares.
To the extent that we raise additional capital through the sale of equity or convertible debtsuch securities, the ownership interests of our existing shareholdersstockholders 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.stockholders. If we raiseare not successful in obtaining additional funds through collaborations, strategic alliances,financing, we could be forced to discontinue or curtail our business operations, sell assets at unfavorable prices, or merge, consolidate, or combine with a company with greater financial resources in a transaction that might be unfavorable to us.
On May 1, 2023, we entered into a Subscription Agreement (the “Subscription Agreement”) with Rubric Capital Management LP (“Rubric”), pursuant to which we agreed to sell to Rubric, or one or more of its affiliates, up to an aggregate of 5,000,000 shares of our common stock, par value $0.001 per share (our “Common Stock”), from time to time during the term of the Subscription Agreement in separate draw-downs at the election of the Company. On June 29, 2023, we issued and sold 312,525 shares of Common Stock at a price per share equal to $3.6797 pursuant to the Subscription Agreement. We received gross proceeds of $1.15 million from the draw down, before expenses. The Common Stock issued pursuant to the Subscription Agreement was sold and issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 5-06 of Regulation D promulgated under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws.
If Mayne Pharma’s sales of IMVEXXY, BIJUVA, or ANNOVERA are delayed, if the net working capital settlement with Mayne Pharma under the Transaction Agreement is greater than our current estimates if we are unsuccessful with future financings or if the continued impact of the COVID-19 pandemic on us or the third parties we rely on is worse than we anticipate, our existing cash reserves may be insufficient to satisfy our liquidity requirements. The potential impact of these factors in conjunction with the uncertainty of the capital markets raises substantial doubt about our ability to continue as a going concern for the next twelve months from the issuance of these financial statements.
The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
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Portfolio of our royalty-bearing products
In December 2022, we changed our business to become a pharmaceutical royalty company, currently receiving royalties on products licensed to pharmaceutical organizations that possess commercial capabilities in the relevant territories. On December 30, 2022, we granted an exclusive license to commercialize IMVEXXY, BIJUVA, and prescription prenatal vitamin products sold under the BocaGreenMD and vitaMedMD brands and assigning our exclusive license to commercialize ANNOVERA to Mayne Pharma.
IMVEXXY (estradiol vaginal inserts), 4-µg and 10-µg
This pharmaceutical product is for the treatment of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of vulvar and vaginal atrophy due to menopause. As part of the FDA’s approval of IMVEXXY, we committed to conduct a post-approval observational study to evaluate the risk of endometrial cancer in post-menopausal women with a uterus who use a low-dose vaginal estrogen unopposed by a progestogen.
On December 30, 2022, we granted an exclusive license to commercialize IMVEXXY in the United States and its possessions and territories to Mayne Pharma. We also have entered into licensing arrangementsagreements with third parties to market and sell IMVEXXY outside of the U.S. We entered into the Knight License Agreement, with Knight pursuant to which, we maygranted Knight an exclusive license to commercialize IMVEXXY in Canada and Israel. We entered into the Theramex License Agreement with Theramex HQ UK Limited (“Theramex”) pursuant to which we granted Theramex an exclusive license to commercialize IMVEXXY for human use outside of the U.S., except for Canada and Israel. As of September 30, 2023, no IMVEXXY sales had been made through the Theramex and Knight licensing agreements.
The FDA has also asked the sponsors of other vaginal estrogen products to participate in the observational study. In connection with the observational study, we would have been required to relinquish valuable rightsprovide progress reports to the FDA on an annual basis. The obligation to conduct this study was transferred to Mayne Pharma as part of the Mayne License Agreement.
BIJUVA (estradiol and progesterone) capsules, 1 mg/100 mg
This pharmaceutical product is the first and only FDA approved bioidentical hormone therapy combination of estradiol and progesterone in a single, oral capsule for the treatment of moderate-to-severe vasomotor symptoms (commonly known as hot flashes or flushes) due to menopause in women with a uterus.
On December 30, 2022, we granted an exclusive license to commercialize BIJUVA in the United States and its possessions and territories to Mayne Pharma. We also have entered into the Knight License Agreement with Knight pursuant to which we granted Knight an exclusive license to commercialize BIJUVA in Canada and Israel. We have entered into the Theramex License Agreement with Theramex pursuant to which we granted Theramex an exclusive license to commercialize BIJUVA for human use outside of the U.S., except for Canada and Israel.
ANNOVERA (segesterone acetate (“SA”) and ethinyl estradiol (“EE”) vaginal system)
On December 30, 2022, we assigned our exclusive license to commercialize ANNOVERA to Mayne Pharma. This pharmaceutical product is a one-year ring-shaped contraceptive vaginal system (“CVS”) and the first and only patient-controlled, procedure-free, reversible prescription contraceptive that can prevent pregnancy for up to a total of 13 cycles (one year). ANNOVERA is commercially sold in the U.S. pursuant to the terms of the Population Council License Agreement. As part of the approval of ANNOVERA, the FDA has required a post-approval observational study be performed to measure the risk of venous thromboembolism. We agreed to perform and pay the costs and expenses associated with this post-approval study, provided that if the costs and expenses associated with such post-approval study exceed $20.0 million, half of such excess will offset against royalties or other payments owed by us under the Population Council License Agreement. In August 2021, we filed a supplemental New Drug Application (“NDA”) with the FDA to modify the testing specifications for ANNOVERA to allow increased consistency of supply of ANNOVERA. In May 2022, the FDA approved the supplemental NDA for ANNOVERA. Our obligations to perform the post-approval study have been transferred to Mayne Pharma as part of the Mayne License Agreement.
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Prenatal vitamin products
On December 30, 2022, we granted an exclusive license to commercialize, in the United States and its possessions and territories, our prescription prenatal vitamin product lines under our vitaMedMD brand name and authorized generic formulations of some of our prescription prenatal vitamin products under our BocaGreenMD Prenatal name to Mayne Pharma.
Results of operations
Three months ended September 30, 2023 compared with three months ended September 30, 2022
In December 2022, we granted an exclusive license to commercialize our IMVEXXY, BIJUVA, and prescription prenatal vitamin products and assigned our exclusive license to commercialize ANNOVERA to Mayne Pharma, which resulted in a business shift that had a major effect on our operations and financial results.
As part of the transformation that included the Mayne License Agreement, historical results of commercial operations have been reflected as discontinued operations in our condensed consolidated financial statements for all periods prior to the Closing Date. Assets and liabilities associated with the commercial business are classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets. Additional disclosures regarding discontinued operations are provided in Note 2 to the condensed consolidated financial statements included in this Quarterly Report.
The discussion below, and the revenues and expenses discussed below, are based on and relate 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.continuing operations.
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 results of our operations (in thousands):
Three months ended September 30, | ||||||||
2023 | 2022 | |||||||
Revenue: | ||||||||
License and service revenue | $ | (53 | ) | $ | 354 | |||
Cost of revenue | — | 354 | ||||||
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Gross profit | (53 | ) | — | |||||
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Operating expenses: | ||||||||
Selling, general and administrative | 1,590 | 14,246 | ||||||
Depreciation and amortization | 130 | 273 | ||||||
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Total operating expenses | 1,720 | 14,519 | ||||||
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Loss from operations | (1,773 | ) | (14,519 | ) | ||||
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Other income (expense): | ||||||||
Interest expense and other financing costs | (20 | ) | — | |||||
Miscellaneous income (expense) | 359 | (112 | ) | |||||
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Total other income (expense), net | 339 | (112 | ) | |||||
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Loss from continuing operations before income taxes | (1,434 | ) | (14,631 | ) | ||||
Provision for income taxes | — | — | ||||||
Net loss from continuing operations | (1,434 | ) | (14,631 | ) | ||||
Loss from discontinued operations, net of income taxes | (1,944 | ) | (14,334 | ) | ||||
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Net loss | $ | (3,378 | ) | $ | (28,965 | ) | ||
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Revenue. As part of our transformation and the Mayne License Agreement, historical results of commercial operations have been reflected as discontinued operations in the condensed consolidated financial statements for all periods presented.
License and service revenue. We recorded $(0.1) million in license revenue for the third quarter of 2023, primarily from the Mayne License Agreement, offset by adjustments described below in the third quarter of 2023, compared to $0.4 million in sales to another licensee for the third quarter of 2022.
We report royalty revenue in excess of the contractual minimums each quarter totaling approximately $0.1 million in the third quarter of 2023. Royalties reported as license revenue for intellectual property licensed by us totaled approximately $(0.1) million and royalties reported as other income for intellectual property we sold totaled approximately $0.1 million in the third quarter of 2023.
We are reporting license revenue of ($0.1) million in the third quarter of 2023 due to product sales adjustments reported by our licensed partners amounting to ($0.2) million. Additionally, a portion of this adjustment is due to reallocations of license revenue to other income (expense). On a quarterly basis, we reallocate royalty revenue proportionately between operating revenue for the amounts related to our licensed intellectual property and other income for royalties related to intellectual property we sold.
Operating expenses. Total operating expenses for the third quarter of 2023 were $1.7 million, a decrease of $12.8 million, or 88.2%, compared to the third quarter of 2022. This decrease was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business with limited infrastructure.
Selling, general and administrative. Selling, general and administrative expenses were $1.6 million for the third quarter of 2023, a decrease of $12.7 million, or 88.8%, compared to the third quarter of 2022. This decrease was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business.
Depreciation & amortization. Depreciation and amortization expense was $0.1 million for the third quarter of 2023, a decrease of $0.1 million, or 52.4%, compared to the third quarter of 2022. This decrease was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business.
Loss from operations. In the third quarter of 2023, we had a loss from operations of $1.8 million, as compared to a loss from operations of $14.5 million for the third quarter of 2022. This change was primarily due to the transition of our business from a manufacturing and commercialization business to a royalty-based business and the associated decrease in expenses.
Other income (expense), net. During the third quarter of 2023, we had other income of $0.3 million compared to other expense of $0.1 million in the third quarter of 2022. This change was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business. Royalties reported as other income for intellectual property we sold totaled approximately $0.1 million in the third quarter of 2023.
Provision for income taxes. During the third quarter of 2023 and 2022, we recorded no provision for income taxes for continuing operations.
Net loss from continuing operations. For the third quarter of 2023, we had a net loss of $1.4 million, or $0.13 per basic and diluted common share, compared to a loss of $14.6 million, or $1.58 per basic and diluted common share, for the third quarter of 2022.
Discontinued Operations - Revenues from discontinued operations were $(0.8) million for the third quarter of 2023, a decrease of $21.4 million as compared to the third quarter of 2022. Operating expenses from discontinued operations were $0.0 million in the third quarter of 2023, a decrease of $23.4 million, as compared to the third quarter of 2022. Net income (loss) from discontinued operations for the third quarter of 2023 was $1.9 million, a decrease of $12.4 million as compared to the third quarter of 2022.
For additional information, see Note 2 - Discontinued Operations, in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
Results of operations
Nine months ended September 30, 2023 compared with nine months ended September 30, 2022
In December 2022, we granted an exclusive license to commercialize our IMVEXXY, BIJUVA, and prescription prenatal vitamin products and assigned our exclusive license to commercialize ANNOVERA to Mayne Pharma, which resulted in a business shift that had a major effect on our operations and financial results.
25
As part of the transformation that included the Mayne License Agreement, historical results of commercial operations have been reflected as discontinued operations in our condensed consolidated financial statements for all periods prior to the Closing Date. Assets and liabilities associated with the commercial business are classified as assets and liabilities of discontinued operations in our condensed consolidated balance sheets. Additional disclosures regarding discontinued operations are provided in Note 2 to the condensed consolidated financial statements included in this Quarterly Report.
The discussion below, and the revenues and expenses discussed below, are based on and relate to our continuing operations.
The following table sets forth the results of our operations (in thousands):
Nine months ended September 30, | ||||||||
2023 | 2022 | |||||||
Revenue: | ||||||||
License and service revenue | $ | 800 | $ | 1,397 | ||||
Cost of revenue | — | 1,397 | ||||||
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Gross profit | 800 | — | ||||||
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Operating expenses: | ||||||||
Selling, general and administrative | 7,427 | 46,367 | ||||||
Depreciation and amortization | 285 | 884 | ||||||
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Total operating expenses | 7,712 | 47,251 | ||||||
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Loss from operations | (6,912 | ) | (47,251 | ) | ||||
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Other income (expense): | ||||||||
Interest expense and other financing costs | (115 | ) | — | |||||
Miscellaneous income (expense) | 869 | (128 | ) | |||||
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Total other income (expense), net | 754 | (128 | ) | |||||
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Loss from continuing operations before income taxes | (6,158 | ) | (47,379 | ) | ||||
Provision for income taxes | — | — | ||||||
Net loss from continuing operations | (6,158 | ) | (47,379 | ) | ||||
Income (loss) from discontinued operations, net of income taxes | (3,237 | ) | 81,674 | |||||
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Net income (loss) | $ | (9,395 | ) | $ | 34,295 | |||
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Revenue. As part of our transformation and the Mayne License Agreement, historical results of commercial operations have been reflected as discontinued operations in the condensed consolidated financial statements for all periods presented.
License and service revenue. We recorded $0.8 million in license revenue for the first nine months of 2023, primarily from the Mayne License Agreement partially offset by adjustments described below, compared to $1.4 million in sales to another licensee during the first nine months of 2022.
We report royalty revenue in excess of the contractual minimums each quarter totaling approximately $1.0 million year-to-date. Royalties reported as license revenue for intellectual property licensed by us totaled approximately $0.5 million and royalties reported as other income for intellectual property we sold totaled approximately $0.5 million year-to-date. On a quarterly basis, we reallocate royalty revenue proportionately between operating revenue for the amounts related to our licensed intellectual property and other income for royalties related to intellectual property we sold.
Operating expenses. Total operating expenses for the first nine months of 2023 were $7.7 million, a decrease of $39.5 million, or 83.7%, compared to the first nine months of 2022. This decrease was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business with limited infrastructure.
26
Selling, general and administrative. Selling, general and administrative expenses were $7.4 million for the first nine months of 2023, a decrease of $38.9 million, or 84.0%, compared to the first nine months of 2022. This decrease was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business.
Depreciation & amortization. Depreciation and amortization expenses were $0.3 million for the first nine months of 2023, a decrease of $0.6 million, or 67.8%, compared to the first nine months of 2022. This decrease was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business.
Loss from operations. For the first nine months of 2023, we had a loss from operations of $6.9 million, as compared to a loss from operations of $47.3 million, for the first nine months of 2022. This change was primarily due to the transition of our business from a manufacturing and commercialization business to a royalty-based business and the associated decrease in expenses.
Other income (expense), net. During the first nine months of 2023 we had other income of $0.8 million as compared to a other expense of $0.1 million during the first nine months of 2022. This increase was due to the transition of our business from a manufacturing and commercialization business to a royalty-based business. Other income represents interest income from banks accounts as well the present value of the minimum royalty receivables recorded compared to actual minimum royalties received and other miscellaneous items.
Provision for income taxes. During the first nine months of 2023 and 2022, we recorded no provision for income taxes for continuing operations.
Net loss from continuing operations. For the first nine months of 2023, we had a net loss of $6.2 million, or $0.60 per basic and diluted common share, compared to a loss of $47.4 million, or $5.34 per basic and diluted common share, for the first nine months of 2022.
Discontinued Operations - Revenues from discontinued operations were $(0.8) million for the first nine months of 2023, a decrease of $68.2 million as compared to the first nine months of 2022. Operating expenses from discontinued operations were $0.3 million for the first nine months of 2023, a decrease of $73.7 million, as compared to the first nine months of 2022. Net loss from discontinued operations for the first nine months of 2023 was $3.2 million, a decrease of $84.9 million as compared to the first nine months of 2022.
For additional information, see Note 2 - Discontinued Operations, in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
Liquidity and capital resources
Our primary sources and usesuse of cash is to fund our continued operations. We have funded our operations primarily through public offerings of our common stock and private placements of equity and debt securities, the divestiture of our former subsidiary vitaCare, and the transactions with Mayne Pharma. As of September 30, 2023, we had cash and cash equivalents totaling $10.2 million. We maintain cash at financial institutions that at times may exceed the Federal Deposit Insurance Corporation insured limits of $0.25 million per bank. We have never experienced any losses related to these funds.
vitaCare Divestiture
On April 14, 2022, we completed the vitaCare Divestiture. We may receive up to an additional $7.0 million in earn-out consideration, contingent upon vitaCare’s financial performance through 2023 as determined in accordance with the terms of the Purchase Agreement, however we do not believe this earnout will be realized. We utilized $120.0 million of net proceeds from the vitaCare Divestiture to make a prepayment of the loans under the Financing Agreement.
27
Mayne Pharma License Agreement
On December 30, 2022, we granted Mayne Pharma (i) an exclusive, sublicensable, perpetual, irrevocable license to research, develop, register, manufacture, have manufactured, market, sell, use, and commercialize the Licensed Products in the United States and its possessions and territories and (ii) an exclusive, sublicensable, perpetual, irrevocable license to manufacture, have manufactured, import and have imported the Licensed Products outside the United States for commercialization in the United States and its possessions and territories. The total consideration from Mayne Pharma to us under the Mayne License Agreement consisted of (i) a cash payment of $140.0 million at closing, (ii) a cash payment of approximately $12.1 million at closing for the acquisition of net working capital as determined in accordance with the transaction agreement dated December 4, 2022, and subject to certain adjustments, (iii) a cash payment of approximately $1.0 million at closing for prepaid royalties in connection with the Mayne License Agreement Amendment and (iv) the right to receive the contingent consideration set forth in the Mayne License Agreement, as amended.
Pursuant to the Mayne License Agreement, Mayne Pharma will pay us one-time, milestone payments of each of (i) $5.0 million if aggregate net sales of all Products in the United States during a calendar year reach $100.0 million, (ii) $10.0 million if aggregate net sales of all Products in the United States during a calendar year reach $200.0 million and (iii) $15.0 million if aggregate net sales of all Products in the United States during a calendar year reach $300.0 million. Further, Mayne Pharma will pay us royalties on net sales of all Products in the United States at a royalty rate of 8.0% on the first $80 million in annual net sales and 7.5% on annual net sales above $80.0 million, subject to certain adjustments, for a period of 20 years following the Closing Date. The royalty rate will decrease to 2.0% on a Product-by-Product basis upon the earlier to occur of (i) the expiration or revocation of the last patent covering a Product and (ii) a generic version of a Product launching in the United States. Mayne Pharma will pay us minimal annual royalties of $3.0 million per year for 12 years, adjusted for inflation at an annual rate of 3%, subject to certain further adjustments, including as described below. Upon the expiry of the 20-year royalty term, the licenses granted to Mayne Pharma under the Mayne License Agreement will become a fully paid-up and royalty free license for the Licensed Products.
During the three months ended September 30, 2023, we revised certain estimates pertaining to contracts we were a party to when we were an operating company. These included an incremental accrual of approximately $2 million for net working capital adjustments related to the Transaction Agreement.
Subscription Agreement with Rubric Capital Management LP
On May 1, 2023, we entered into the Subscription Agreement with Rubric, pursuant to which we agreed to sell to Rubric, or one or more of its affiliates, up to an aggregate of 5,000,000 shares of Common Stock, from time to time during the term of the Subscription Agreement in separate draw downs at our election, at a purchase price of the five-day volume-weighted average price of our common stock at the time of the sale of such shares, at an aggregate purchase price of up to $5,000,000 (collectively, the “Private Placement”).
The initial draw down occurred on June 29, 2023 consisting of a sale of 312,525 shares of Common Stock at a price per share equal to $3.6797. We received gross proceeds of $1.15 million from the drawdown, before expenses.
See “Going Concern” above for further discussion related to our ability to generate and obtain adequate amounts of cash to meet our liquidity needs and our plans for to satisfy our such needs in the short-term and in the long-term.
Cash flows
The following table reflects the major categories of cash flows for each of the periods set forth below:(in thousands).
Summary of (Uses) and Sources of Cash
Nine Months Ended September 30, | ||||||||||||||||
2017 | 2016 | Nine Months Ended September 30, | ||||||||||||||
(000s) | 2023 | 2022 | ||||||||||||||
Net cash used in operating activities | $ | (55,350 | ) | $ | (53,524 | ) | $ | (18,121 | ) | $ | (20,877 | ) | ||||
Net cash used in investing activities | $ | (476 | ) | $ | (863 | ) | — | (281 | ) | |||||||
Net cash provided by financing activities | $ | 72,584 | $ | 137,216 | ||||||||||||
Net cash provided by (used in) financing activities | 1,149 | (123,261 | ) | |||||||||||||
Net cash provided by (used in) discontinued operations | (22,179 | ) | 117,627 | |||||||||||||
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Net (decrease) in cash | $ | (39,151 | ) | $ | (26,792 | ) | ||||||||||
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Operating Activities
The principal use of cash in operating activities for from continuing operations. For the first nine months ended September 30, 2017 was to fund our current expenses primarily related to supporting clinical development, scale-up and manufacturing activities and future commercial activities, adjusted for non-cash items. The increase of approximately $1,826,000 in2023, net cash used in operating activities was $18.1 million, compared to net cash used in operating activities of $20.9 million for the first nine months ended September 30, 2017 compared with the comparable period in the prior yearof 2022. This decrease of $2.8 million or 13.2%, was primarily due primarily to lower non-cash compensation expense coupled with changes in the components of working capital and decreased net loss.
Investing Activities
Aa $41.2 million decrease in spending on patentour net loss from continuing operations following our transition from a manufacturing and trademarks and fixed assets resultedcommercialization business to a royalty-based business, offset by a $38.5 million decrease in a decrease innon-cash expenses as compared to the first nine months of 2022.
Investing Activities from continuing operations. Net cash used in investing activities for the first nine months ended September 30, 2017of 2023 was $0.0 million, compared withto net cash used in investing activities of $0.3 million for the same period in 2016.first nine months of 2022. This change was due our transition from a manufacturing and commercialization business to a royalty-based business.
Financing Activities
Financing activities represent from continuing operations. For the principal sourcefirst nine months of our2023, net cash flow. Ourreceived from financing activities was $1.2 million, compared to net cash used by financing activities of $123.3 million for the first nine months ended September 30, 2017 included approximately $68,573,000 in proceeds fromof 2022, reflecting the sale of Common Stockcommon stock during the first nine months of 2023 and approximately $4,011,000the payments of outstanding long-term debt during the first nine months of 2022.
Net cash used in proceedsdiscontinued operations. Net cash used in operating activities from discontinued operations for the exercisefirst nine months of options2023 was $22.2 million as compared to net cash provided by operating activities of $117.6 million for first nine months of 2022. This change relates primarily to expenses incurred and warrants. Thethe payment of current liabilities associated with our transition from a manufacturing and commercialization business to a royalty-based business. Net cash provided by investing activities from discontinued operations was $0.0 million for the first nine months of 2023 and $0.1 million for the first nine months of 2022. Net cash provided by financing activities duringfrom discontinued operations was $0.0 million for the first nine months endedof 2023 and 2022.
For additional details, see the condensed consolidated statements of cash flows in Item 1, Financial Statements, appearing elsewhere in this 10-Q Report.
Other liquidity measures
Receivable from Mayne. On December 30, 2022, Mayne Pharma acquired our accounts receivable balance of approximately $29.3 million which is subject to certain working capital adjustments. As of September 30, 2016, included approximately $134,864,000 in proceeds2023, we had a royalty receivable of $2.7 million relating to the short-term portion of receivable from Mayne Pharma and $19.1 million relating to the long-term portion of royalty receivable which includes royalties recognized from the saleMinimum Annual Royalty. See Note 1 Business, basis of Common Stockpresentation, new accounting standards and summary of significant accounting policies (Revenue Recognition) to the condensed consolidated financial statements included in this Quarterly Report.
Inventory. On December 30, 2022, Mayne Pharma acquired our inventory balance of approximately $2,352,000$6.6 million, which is subject to certain net working capital adjustments.
Contractual obligations, off-balance sheet arrangements and purchase commitments and employment agreements
Our contractual obligations and off-balance sheet arrangements are set forth below. For additional information on any of the following and other obligations and arrangements, see “Note 7. Commitments and Contingencies” to the condensed consolidated financial statements included in proceeds fromthis 10-Q Report.
In the exerciseordinary course of optionsbusiness, we enter into agreements with third parties that include indemnification provisions, which, in our judgment, are normal and warrants.
Recently Issued Accounting Pronouncementscustomary for companies in our industry sector. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is sometimes unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, we had no liabilities recorded for these provisions as of September 30, 2023 and December 31, 2022.
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In May 2017, the Financial Accounting Standards Board,normal course of business, we may be confronted with issues or FASB, issued an Accounting Standards Update, or ASU,events 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 andmay result in fewer changescontingent liability. These generally relate to lawsuits, claims, environmental actions, or the termsactions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by U.S. GAAP, 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 andestimate 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.
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 do not expect that adoption of this guidance will have a material effect on our 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 aspectsmade of the loss and the appropriate 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. We adopted ASU 2016-09 effective January 1, 2017, electing to account for forfeitures when they occur. The impact from adoption of the provisions related to forfeiture rates wasentries are reflected in our financial statements.
Critical accounting policies and estimates
Management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements included elsewhere in this 10-Q Report, which has been prepared in accordance with U.S. GAAP. We make estimates and assumptions that affect the reported amounts on a modified retrospective basis, resulting in an adjustment of approximately $31,000 to retained earnings. The impact from adoptionour condensed consolidated financial statements and accompanying notes as of the provisions related to excess tax benefits or deficiencies indate of the provision 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 amount equal to the cumulative 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 quartercondensed consolidated financial statements. Adoption of all other changes did not have an impact onThe critical accounting policies and estimates used are disclosed in Item 7 - Critical accounting policies and estimates in our consolidated financial statements.2022 10-K Report.
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 in the process of analyzing the quantitative impact of this guidance on our results of operations and financial position. While we are continuing to assess all potential impacts of the standard, we currently believe the impact of this standard will be primarily related to the accounting for our operating lease.
In May 2014, the FASB 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. This 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 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), accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10), 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 monitoring the activity 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. We are currently in the process of drafting disclosures required by the new standard. At this point of our analysis, we do not believe that the adoption of this standard will have a material effect on our financial statements but will potentially expand our disclosures related to contracts with customers.
Item 3. Quantitative and Qualitative Disclosuresqualitative disclosures about Market Risk
Our market risk has
As a “smaller reporting company,” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and pursuant to Instruction 6 to Item 201(e) of Regulation S-K, we are not changed materially from the interest rate risk disclosed in Item 7A of our Annual Report.required to provide this information.
Item 4. Controls and Proceduresprocedures
Management’s evaluation of disclosure 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,(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 management, including our principal executive officer and principal financial officer, as appropriate, in order to allow timely decisions in connection withregarding required disclosure.
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.10-Q Report. 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 Quarterly10-Q 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 ChiefPrincipal 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.
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Changes in Internal Controlsinternal controls over financial reporting
During the three months endedIn connection with our transformation into a pharmaceutical royalty company, we terminated our executive management team and all other employees. As of September 30, 2017, there were no2023, we employed one full-time employee primarily engaged in an executive position. We have engaged external consultants who support our relationship with current partners and assist with certain financial, legal and regulatory matters and the continued wind-down of our historical commercial business operations. As a result of these changes, inwe have updated our risk assessment and design of internal controlcontrols over financial reporting that have materially affected, or are reasonably likelyalign with reduced transaction volume and reliance on external consultants to materially affect, ourmanage the day-to-day operations of the Company. The Company is and will continue to evaluate changes to processes, information technology systems and other components of internal controlcontrols over financial reporting.reporting as part of its ongoing business transformation activities, and as a result, controls may be periodically changed. The Company believes, however, that it will be able to maintain sufficient controls over its financial reporting throughout this transformation process.
PARTPart II - OTHER INFORMATIONOther Information
Item 1. Legal Proceedingsproceedings
On April 17, 2017, a securities class action lawsuit was filed against our companyFrom time to time, we are involved in litigation and certainproceedings in the ordinary course of our officersbusiness. Other than the legal proceedings disclosed in Note 7, Commitments and directorscontingencies in the U.S. District Court for the Southern District of Florida (Case No. 9:17-cv-80473-RLR)Part I, Item 1, Financial Statements, appearing elsewhere in this 10-Q Report, we are not involved in any legal proceeding that purported to statewe believe would have a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, basedmaterial effect 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). These complaints were both voluntarily dismissed by the lead plaintiffs without prejudice on August 14, 2017.business or financial condition.
Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of the 2022 10-K Report under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. There have been no material changes to theour risk factors previously disclosedsince the 2022 10-K Report.
Item 2. Unregistered sales of equity securities and use of proceeds
None.
Item 3. Defaults upon senior securities
None.
Item 4. Mine safety disclosures
None.
Item 5. Other information
On November 10, 2023, we delivered a drawdown notice (the “Notice”) to Rubric under the terms of the Subscription Agreement. Pursuant to the Notice, we agreed to sell 877,192 shares of Common Stock to Rubric at a price per share of $2.28, for total gross proceeds of approximately $2.0 million. The settlement of the transaction is expected to occur on the third trading day following the delivery of the Notice in our Annual Report.accordance with the terms of the Subscription Agreement.
The Common Stock issued pursuant to the Subscription Agreement will be sold and issued without registration under the Securities Act, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as transactions not involving a public offering and Rule 506 of Regulation D promulgated under the Securities Act as sales to accredited investors, and in reliance on similar exemptions under applicable state laws.
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Exhibit No. | ||||
10.1† | ||||
31.1† | ||||
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) | ||||
31.2† | Certification of | |||
32.1†† | Section 1350 Certification of Chief Executive Officer | |||
32.2†† | Section 1350 Certification of | |||
101† | ||||
104† | Inline XBRL | |||
† | Filed herewith. |
†† | Furnished herewith. |
* Filed herewith.
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SIGNATURES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Companyregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: November 7, 2017
Date: November 14, 2023 | ||||||
TherapeuticsMD, Inc. | ||||||
/s/ Marlan D. Walker | ||||||
Marlan D. Walker | ||||||
Chief Executive Officer (Principal Executive Officer) | ||||||
/s/ Joseph Ziegler | ||||||
Joseph Ziegler | ||||||
Principal Financial and Accounting |
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