txmd-10q_063018.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

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

 

For the quarterly period ended June 30, 2018

 

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

 

For the transition period from________ to ___________

 

Commission File No. 001-001000

 

THERAPEUTICSMD, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

 

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

 

N/A

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

 

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

 

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

 

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

 

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

 

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

 

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

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of July 23, 2018 was 216,834,059.

 

   
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

INDEX

 

    Page
PART I – FINANCIAL INFORMATION    
         
  Item. 1 Financial Statements   2
         
    Consolidated Balance Sheets as of June 30, 2018 (Unaudited) and December 31, 2017   2
         
    Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2018 (Unaudited) and 2017 (Unaudited)   3
         
    Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 (Unaudited) and 2017 (Unaudited)   4
         
    Notes to Consolidated Financial Statements   5
         
  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   21
         
  Item 3. Quantitative and Qualitative Disclosures about Market Risks   33
         
  Item 4. Controls and Procedures   33
         
PART II – OTHER INFORMATION    
         
  Item 1. Legal Proceedings   34
         
  Item 1A. Risk Factors   34
         
  Item 6. Exhibits   34
         
  SIGNATURES     35

 

  1  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

    June 30,
2018
  December 31,
2017
    (Unaudited)    
         
ASSETS
Current Assets:        
Cash   $ 154,386,930     $ 127,135,628  
Accounts receivable, net of allowance for doubtful accounts of $418,604 and $380,580, respectively     5,625,987       4,328,802  
Inventory     1,880,577       1,485,358  
Other current assets     5,203,734       6,604,284  
Total current assets     167,097,228       139,554,072  
                 
Fixed assets, net     403,574       437,055  
                 
Other Assets:                
Intangible assets, net     3,488,401       3,099,747  
Prepaid expenses-long term     759,229       —    
Security deposit     150,522       139,036  
Total other assets     4,398,152       3,238,783  
Total assets   $ 171,898,954     $ 143,229,910  
                 
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:                
Accounts payable   $ 11,427,160     $ 4,097,600  
Accrued expenses and other current liabilities     9,785,210       9,223,595  
Total current liabilities     21,212,370       13,321,195  
                 
Long-term Liabilities:                
Long-term debt     73,141,311       —    
Total long-term liabilities     73,141,311       —    
Total liabilities     94,353,681       13,321,195  
                 
Commitments and Contingencies - See Note 15                
                 
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:                
216,834,059 and 216,429,642 issued and outstanding, respectively     216,834       216,430  
Additional paid-in capital     521,608,436       516,351,405  
Accumulated deficit     (444,279,997 )     (386,659,120 )
Total stockholders' equity     77,545,273       129,908,715  
Total liabilities and stockholders' equity   $ 171,898,954     $ 143,229,910  

 

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

 

  2  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three Months Ended   Six Months Ended
    June 30,   June 30,
    2018   2017   2018   2017
Revenues, net   $ 3,763,010     $ 4,250,433     $ 7,536,402     $ 8,235,897  
                                 
Cost of goods sold     454,161       681,725       1,087,784       1,341,360  
Gross profit     3,308,849       3,568,708       6,448,618       6,894,537  
                                 
Operating expenses:                                
Sales, general, and administration     29,466,770       14,628,927       50,224,007       31,466,544  
Research and development     6,798,380       8,716,395       13,837,677       16,441,235  
Depreciation and amortization     65,603       53,189       125,224       102,888  
Total operating expense     36,330,753       23,398,511       64,186,908       48,010,667  
                                 
Operating loss     (33,021,904 )     (19,829,803 )     (57,738,290 )     (41,116,130 )
                                 
Other income (expense):                                
Miscellaneous income     334,238       149,054       648,795       275,022  
Accreted interest     —         3,832       —         7,699  
Interest expense     (531,382 )     —         (531,382 )     —    
Total other (expense) income     (197,144 )     152,886       117,413       282,721  
                                 
Loss before taxes     (33,219,048 )     (19,676,917 )     (57,620,877 )     (40,833,409 )
                                 
Provision for income taxes     —         —         —         —    
                                 
Net loss   $ (33,219,048 )   $ (19,676,917 )   $ (57,620,877 )   $ (40,833,409 )
                                 
Net loss per share, basic and diluted   $ (0.15 )   $ (0.10 )   $ (0.27 )   $ (0.20 )
                                 
Weighted average number of common  shares outstanding     216,640,186       203,384,610       216,583,067       200,602,778  

 

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

 

  3  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six Months Ended
    June 30,
2018
  June 30,
2017
         
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss   $ (57,620,877 )   $ (40,833,409 )
Adjustments to reconcile net loss to net cash flows used in operating activities:                
Depreciation of fixed assets     79,201       69,000  
Amortization of intangible assets     46,023       33,888  
Provision for (recovery of)  doubtful accounts     38,024       (18,106 )
Share-based compensation     4,128,440       3,051,357  
Amortization of deferred financing costs     30,155       —    
Changes in operating assets and liabilities:                
Accounts receivable     (1,335,209 )     1,122,386  
Inventory     (395,219 )     (337,694 )
Other current assets     2,539,394       (58,601 )
Accounts payable     7,329,560       749,520  
Accrued interest     501,227       —    
Accrued expenses and other current liabilities     60,388       (2,443,867 )
Net cash used in operating activities     (44,598,893 )     (38,665,526 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Patent costs     (434,677 )     (367,602 )
Purchase of fixed assets     (45,720 )     (35,849 )
Payment of security deposit     (11,486 )     —    
Net cash used in investing activities     (491,883 )     (403,451 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from term loan     75,000,000       —    
Payment of deferred financing fees     (3,786,918 )     —    
Proceeds from exercise of options     1,128,996       212,360  
Proceeds from exercise of warrants     —         3,798,999  
Net cash provided by financing activities     72,342,078       4,011,359  
                 
Increase (decrease) in cash     27,251,302       (35,057,618 )
Cash, beginning of period     127,135,628       131,534,101  
Cash, end of period   $ 154,386,930     $ 96,476,483  

 

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

 

  4  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 – THE COMPANY

 

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

 

Nature of Business

 

We are a women’s health care company focused on creating and commercializing products targeted exclusively for women. Currently, we are focused on commercializing our recently U.S. Food and Drug Administration, or FDA, approved product, IMVEXXY™ (estradiol vaginal inserts) for the treatment of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of vulvar and vaginal atrophy, or VVA, due to menopause, and pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization 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 menopausal women with an intact uterus. The new drug application, or NDA, for TX-001HR has a Prescription Drug User Fee Act target action date for the completion of the FDA’s review of October 28, 2018. IMVEXXY™ and TX-001HR 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. With our SYMBODA™ technology, we are developing advanced hormone therapy pharmaceutical products to enable delivery of bio-identical hormones through a variety of dosage forms and administration routes. In addition, we manufacture and distribute branded and generic prescription prenatal vitamins.

 

NOTE 2 – BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

Interim Financial Statements

 

The accompanying unaudited interim consolidated financial statements of TherapeuticsMD, Inc., which include our wholly owned subsidiaries, should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission, or the SEC, from which we derived the accompanying consolidated balance sheet as of December 31, 2017. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP , for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying unaudited interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year or any other interim period in the future.

 

Recently Issued Accounting Pronouncements

 

In June 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of Accounting Standards Codification, or ASC, 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASC 606. We are currently evaluating the effect of this guidance on our consolidated financial statements and disclosures.

 

  5  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED 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-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 adopted this standard under the modified retrospective method to all contracts not completed as of January 1, 2018 and the adoption did not have a material effect on our financial statements but we expanded our disclosures related to contracts with customers in Note 3.

 

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

 

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

 

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

 

At June 30, 2018 and 2017, we had no assets or liabilities that were valued at fair value on a recurring basis.

 

The fair value of indefinite-lived assets or long-lived assets is measured on a non-recurring basis using significant unobservable inputs (Level 3) in connection with the Company’s impairment test. There was no impairment of intangible assets or long-lived assets during the three and six months ended June 30, 2018 and 2017.

 

  6  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The carrying amounts for the Term Loan (as discussed in Note 9) approximate fair value based on market activity for other debt instruments with similar characteristics and comparable risk.

 

Trade Accounts Receivable and Allowance for Doubtful Accounts

 

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

 

Inventories

 

Inventories are valued at the lower of cost or net realizable value. Inventories related to packaged vitamins, nutritional products and supplements and raw materials are valued using the average-cost method and inventories related to our progesterone and estradiol products are valued using first in first out method. We review our inventory for excess or obsolete inventory and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. Obsolescence may occur due to product expiring or product improvements rendering previous versions obsolete.

 

Pre-Launch Inventory

 

Inventory costs associated with product candidates that have not yet received regulatory approval are capitalized if we believe there is probable future commercial use and future economic benefit. If the probability of future commercial use and future economic benefit cannot be reasonably determined, then pre-launch inventory costs associated with such product candidates are expensed as research and development expenses during the period the costs are incurred. We have no capitalized pre-launch inventory as of June 30, 2018 and 2017.

 

Revenue Recognition

 

We adopted Accounting Standards Codification, or ASC, 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. ASC 606 states that a contract is considered “completed” if all (or substantially all) of the revenue was recognized in accordance with revenue guidance that was in effect before the date of initial application. Because all (or substantially all) of the revenue related to sales of our products has been recognized under ASC 605 prior to the date of initial application of the new standard, the contracts are considered completed under the ASC 606. Based on our evaluation of ASC 606, we concluded that a cumulative adjustment was not necessary upon implementation of ASC 606 on January 1, 2018.

 

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, we satisfy the performance obligation.

 

  7  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Prescription Products

 

As of June 30, 2018, we have not recognized any revenue related to our recently approved product: IMVEXXY™.

 

We sell our name brand and generic prescription products primarily through wholesale distributors and retail pharmacy distributors. We have one performance obligation related to prescription products sold through wholesale distributors which is to transfer promised goods to a customer and two performance obligations related to products sold through retail pharmacy distributors, which are to: (1) transfer promised goods and (2) provide customer service for an immaterial fee. We treat shipping as a fulfillment activity rather than as a separate obligation. We recognize prescription revenue only when we satisfy performance obligations by transferring a promised good or service to a customer. A good or service is considered to be transferred when the customer receives the goods or service or obtains control. Control refers to the customer’s ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset. All of our performance obligations, and associated revenue, are transferred to customers at a point in time. Payment for goods or services sold by us is typically due between 30 and 60 days after an invoice is sent to the customer.

 

The transaction price of a contract is the amount of consideration which we expect to be entitled to in exchange for transferring promised goods or services to a customer. Prescription products are sold at fixed wholesale acquisition cost, or WAC, determined based on our list price. However, the total transaction price is variable as it is calculated net of estimated product returns, chargebacks, rebates, coupons, discounts and wholesaler fees. In order to determine the transaction price, we estimate the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract or each variable consideration. We include amounts of variable consideration in a contract’s transaction price only to the extent that we have a relatively high level of confidence that the amounts will not be subject to significant reversals, that is, downward adjustments to revenue recognized for satisfied performance obligations. In determining amounts of variable consideration to include in a contract’s transaction price, we rely on our historical experience and other evidence that supports our qualitative assessment of whether revenue would be subject to a significant reversal. We consider all the facts and circumstances associated with both the risk of a revenue reversal arising from an uncertain future event and the magnitude of the reversal if that uncertain event were to occur. When determining if variable consideration should be constrained, we consider whether there are factors outside our control that could result in a significant reversal of revenue. In making these assessments, we consider the likelihood and magnitude of a potential reversal of revenue. These estimates are re-assessed each reporting period as required.

 

We accept returns 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 24 months from the date of manufacture. We recognize the amount of expected returns as a refund liability, representing the obligation to return the customer’s consideration. Since our returns primarily consist of expired and short dated products that will not be resold, we do not record a return asset for the right to recover the goods returned by the customer at the time of the initial sale (when recognition of revenue is deferred due to the anticipated return). Return estimates are recorded in the other current liabilities on the consolidated balance sheet.

 

We offer various rebate and discount 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. Estimates relating to these rebates and coupons are deducted from gross product revenues at the time the revenues are recognized. We record distributor fees based on amounts stated in contracts. Rebates estimates are recorded in accrued expenses and coupon estimates and distributor fees are recorded in the other current liabilities on the consolidated balance sheet. We estimate chargebacks based on prices stated in contracts based the number of units sold each period. We provide invoice discounts to our customers for prompt payment. We deduct invoice discounts and chargebacks from our gross product revenues at the time such discounts are earned by customers.

 

  8  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

OTC Products

 

Our OTC and prescription prenatal vitamin products are generally variations of the same product with slight modifications in formulation and marketing. As of January 1, 2017, we decided to focus on selling our prescription vitamins and ceased manufacturing and distributing our OTC product lines, except for Iron 21/7 which we ceased manufacturing in October 2017. We generate OTC revenue from product sales primarily to retail consumers. We recognize revenue from product sales upon shipment, when the rights of ownership and risk of loss have passed to the consumer. We include outbound shipping and handling fees, if any, in revenues, net, and bill them upon shipment. We include shipping expenses in cost of goods sold. A majority of our OTC customers pay for our products with credit cards, and we usually receive the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to OTC sales. We provide an unconditional 30-day money-back return policy under which we accept product returns from our retail and eCommerce OTC customers. We recognize revenue from OTC sales, net of estimated returns and sales discounts.

 

Disaggregation of revenue

 

We sell our name brand and generic prescription products primarily through wholesale distributors and retail pharmacy distributors which accounted for all sales during 2018 and the vast majority of sales during 2017. As of January 1, 2017, we decided to focus on selling our prescription vitamins and ceased manufacturing and distributing our OTC product lines, except for Iron 21/7 which we ceased manufacturing in October 2017. The sales of Iron 21/7 during the three months ended June 30, 2018 and 2017 were approximately $0 and $12,000, respectively, and $0 and $20,000 for the six months ended June 30, 2018 and 2017, respectively.

 

Contract assets and contract liabilities

 

Based on our contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. Accordingly, our contracts do not give rise to contract assets or liabilities under ASC 606. Accounts receivable are recorded when the right to consideration becomes unconditional. We disclose receivables from contracts with customers separately in the statement of financial position. Estimates related to cash discounts and chargebacks are included in net accounts receivable. Estimates related to distributors fees, rebates, coupons and returns are disclosed in Note 8.

 

Share-Based Compensation

 

We measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include options, restricted stock, restricted stock units, performance-based awards, share appreciation rights, and employee share purchase plans. 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 expected life of the stock-based awards, the estimated stock price volatility, the risk-free interest rate, and the expected dividend yield. The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the instrument. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the term of the award. Prior to January 1, 2017, the expected volatility of share options was estimated based on a historical volatility analysis of peer entities whose stock prices were publicly available that were similar to the Company with respect to industry, stage of life cycle, market capitalization, and financial leverage. On January 1, 2017, we began using our own stock price in our volatility calculation along with the 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 is based on the contractual terms of the stock option using the simplified method. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. Calculating share-based compensation expense requires the input of highly subjective judgment and assumptions, including forfeiture rates, estimates of expected life of the share-based award, stock price volatility and risk-free interest rates. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.

 

  9  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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. Effective January 1, 2017, we account for forfeitures when they occur.

 

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, scale-up and validation costs, and other activities. Internal R&D activity expenses include laboratory supplies, salaries, benefits, and non-cash share-based compensation expenses. CRO activity expenses include preclinical laboratory experiments and clinical trial studies. Other activity expenses include regulatory consulting and legal fees and costs. The activities undertaken by our regulatory consultants that were classified as R&D expenses include assisting, consulting with, and advising our in-house staff with respect to various U.S. Food and Drug Administration, or the FDA, submission processes, clinical trial processes, and scientific writing matters, including preparing protocols and FDA submissions. Legal activities that were classified as R&D expenses 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 expense in the period in which the facts that give rise to the revision become known.

 

Segment Reporting

 

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

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 4 – INVENTORY

 

Inventory consists of the following:

 

    June 30,
2018
  December 31,
2017
Finished product   $ 1,652,700     $ 1,485,358  
Work in process     227,877       —    
     TOTAL INVENTORY   $ 1,880,577     $ 1,485,358  

 

NOTE 5 – OTHER CURRENT ASSETS

 

Other current assets consist of the following:

    June 30,
2018
  December 31,
2017
Prepaid sales and marketing costs   $ 2,646,988     $ 5,335,936  
Debt financing fees     1,138,844       —    
Prepaid insurance     535,446       680,243  
Other prepaid costs     846,889       523,694  
Prepaid vendor deposits     35,567       64,411  
     TOTAL OTHER CURRENT ASSETS   $ 5,203,734     $ 6,604,284  

 

NOTE 6 – FIXED ASSETS, NET

 

Fixed assets, net consist of the following:

    June 30,
2018
  December 31,
2017
Accounting system   $ 301,096     $ 301,096  
Equipment     319,257       273,536  
Furniture and fixtures     116,542       116,542  
Computer hardware     80,211       80,211  
Leasehold improvements     37,888       37,888  
      854,994       809,273  
Accumulated depreciation     (451,420 )     (372,218 )
     TOTAL FIXED ASSETS, NET   $ 403,574     $ 437,055  

 

Depreciation expense for the three months ended June 30, 2018 and 2017 was $40,777 and $35,400, respectively, and $79,201 and $69,000 for the six months ended June 30, 2018 and 2017, respectively.

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 7 – INTANGIBLE ASSETS

 

The following tables sets forth the gross carrying amount, accumulated amortization and net carrying amount of our intangible assets as of June 30, 2018 and December 31, 2017:

 

    June 30, 2018
    Gross Carrying Amount   Accumulated Amortization   Net
Amount
  Weighted- Average
Remaining Amortization Period (yrs.)
Amortizable intangible assets:                
OPERA® software patent   $ 31,951     $ (9,486 )   $ 22,465       11.25  
Development costs of corporate website     91,743       (91,743 )     —         n/a  
Approved hormone therapy drug candidate patents     1,662,562       (216,934 )     1,445,628       14.5  
Hormone therapy drug candidate patents (pending)     1,769,681       —         1,769,681       n/a  
Non-amortizable intangible assets:                                
Multiple trademarks     250,627       —         250,627       indefinite  
Total   $ 3,806,564     $ (318,163 )   $ 3,488,401          

 

 

    December 31, 2017
    Gross Carrying Amount   Accumulated Amortization   Net
Amount
  Weighted- Average
Remaining Amortization Period (yrs.)
Amortizable intangible assets:                
OPERA® software patent   $ 31,951     $ (8,487 )   $ 23,464       11.75  
Development costs of corporate website     91,743       (91,743 )     —         n/a  
Approved hormone therapy drug candidate patents     1,293,614       (171,911 )     1,121,703       15  
Hormone therapy drug candidate patents (pending)     1,721,305       —         1,721,305       n/a  
Non-amortizable intangible assets:                                
Multiple trademarks     233,275       —         233,275       indefinite  
Total   $ 3,371,888     $ (272,141 )   $ 3,099,747          

 

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 three and six months ended June 30, 2018 and year ended December 31, 2017, there was no impairment recognized related to intangible assets.

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

We have numerous pending foreign and domestic patent applications. As of June 30, 2018, we had 20 issued foreign patents and 19 issued domestic, or U.S., patents including:

 

  13 domestic utility patents that relate to our combination progesterone and estradiol product candidates, which are owned by us. These domestic utility patents will expire in 2032. In addition, we have pending patent applications with respect to our combination progesterone and estradiol product candidates in the U.S., Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea;
  Three domestic patents that relate to Imvexxy®, our applicator-free vaginal estradiol softgel product. These patents establish an important intellectual property foundation for Imvexxy® and are owned by us. These domestic patents will expire in 2032 or 2033. In addition, we have pending patent applications related to Imvexxy® in the U.S., Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea;
  One domestic utility patent that relates to our pipeline transdermal patch technology, which is owned by us. The domestic utility patent will expire in 2032. We have pending patent applications with respect to this technology in the U.S., Australia, Brazil, Canada, Europe, Mexico, Japan, and South Africa; and
  One utility patent that relates to our OPERA® information-technology platform, which is owned by us and is a domestic patent that will expire in 2029.
  One domestic utility patent that relates to TX-009HR, our progesterone and estradiol product candidate, which is owned by us and will expire in 2037.   

 

Amortization expense was $24,826 and $17,789 for the three months ended June 30, 2018 and 2017, respectively and $46,023 and $33,888 for the six months ended June 30, 2018 and 2017, 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
  2018(6 months)     $ 49,652  
  2019     $ 99,304  
  2020     $ 99,304  
  2021     $ 99,304  
  2022     $ 99,304  
  Thereafter     $ 1,021,225  

 

NOTE 8 – OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

    June 30,
2018
  December 31,
2017
Accrued payroll, bonuses and commission costs   $ 2,825,316     $ 4,240,379  
Allowance for coupons and returns     1,802,125       1,432,846  
Accrued sales and marketing costs     1,412,570       420,162  
Accrued compensated absences     1,039,684       945,457  
Accrued legal and accounting expense     688,012       600,350  
Accrued research and development     492,577       366,933  
Accrued interest     501,227       —    
Accrued rent     383,110       327,099  
Other accrued expenses     234,937       525,999  
Accrued rebates     207,018       76,917  
Allowance for wholesale distributor fees     198,634       172,973  
Accrued royalties     —         114,480  
     TOTAL OTHER CURRENT LIABILITIES   $ 9,785,210     $ 9,223,595  

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 9 – DEBT

 

On May 1, 2018, we entered into a Credit and Security Agreement, or the Credit Agreement, with MidCap Financial Trust, or MidCap, as agent, or Agent, and as lender, and the additional lenders party thereto from time to time (together with MidCap as a lender, the Lenders).

 

The Credit Agreement provides a secured term loan facility in an aggregate principal amount of up to $200,000,000, or the Term Loan. Under the terms of the Credit Agreement, the Term Loan will be made in three separate tranches, each, a Tranche, with each Tranche to be made available to us, at our option, upon our achievement of certain milestones. The first Tranche of $75,000,000, or Tranche 1, was drawn by us on June 7, 2018, following approval by the FDA of the NDA for our TX-004HR drug candidate. The second Tranche of $75,000,000, or Tranche 2, may be drawn by us on or before May 31, 2019, provided that we satisfy certain conditions described in the Credit Agreement, including (i) that Tranche 1 has been drawn, (ii) the approval by the FDA of the NDA for our TX001HR drug candidate and (iii) we have consummated our first commercial sale in the United States of TX-001HR. The third Tranche of $50,000,000, or Tranche 3, may be drawn by us on or before December 31, 2019, provided that we satisfy certain conditions described in the Credit Agreement, including that (i) Tranche 2 has been drawn and (ii) we have generated at least $75,000,000 of consolidated net revenue attributable to commercial sales of TX-001HR and TX-004HR during the twelve-month period ending immediately prior to the funding of Tranche 3.

 

Amounts borrowed under the Term Loan bear interest at a rate equal to the sum of (i) one-month LIBOR (subject to a LIBOR floor of 1.50%) plus (ii) 7.75% per annum. Interest on amounts borrowed under the Term Loan is due and payable monthly in arrears. Principal on each Tranche is payable in 36 equal monthly installments beginning May 1, 2020 until paid in full on May 1, 2023, or the Maturity Date. However, if we generate at least $95,000,000 of consolidated net revenue attributable to commercial sales of TX-001HR and TX-004HR by December 31, 2019, we may extend the interest-only period by an additional 12 months to May 1, 2021. Interest expense related to this Term Loan for the three and six months ending June 30, 2018 was $501,227.

 

The Term Loan may be prepaid, in whole or in part, subject to a prepayment fee on the amount being prepaid (or required to be prepaid, if such amount is greater) of (i) 4.0% for the first year following the Tranche 1 funding date, (ii) 3.0% for the second year following the Tranche 1 funding date and (iii) 2.0% thereafter. Upon repayment of the Term Loan at the Maturity Date or prepayment on any earlier date, we will be required to pay a termination payment based on the principal amount paid or prepaid. In connection with the execution of the Credit Agreement, we paid the Agent, for the benefit of all Lenders, an origination fee equal to 1.00% of the maximum potential amount of the Term Loan. We are also required to pay the Agent an annual administration fee of 0.25% based on the amounts borrowed under the Term Loan, in addition to other fees and expenses.

 

Our obligations under the Credit Agreement are secured, subject to customary permitted liens and other agreed upon exceptions, by a first priority perfected security interest in all of our existing and after-acquired assets. Our obligations under the Credit Agreement are guaranteed by each of our future direct and indirect subsidiaries (other than certain non-U.S. subsidiaries of ours and certain U.S. subsidiaries substantially all of whose assets consist of equity interests in non-U.S. subsidiaries, subject to certain exceptions). The Credit Agreement contains customary restrictions and covenants. Among other requirements, we must (i) maintain a minimum cash balance of $50,000,000 and (ii) achieve certain minimum consolidated net revenue amounts attributable to commercial sales of our products. As of June 30, 2018, we were in compliance with the covenants under the Credit Agreement. 

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

The Credit Agreement also contains customary covenants that limit, among other things, our ability to (i) incur indebtedness, (ii) incur liens on our property, (iii) pay dividends or make other distributions, (iv) sell our assets, (v) make certain loans or investments, (vi) merge or consolidate, (vii) voluntarily repay or prepay certain permitted indebtedness and (viii) enter into transactions with affiliates, in each case subject to certain exceptions. The Credit Agreement contains customary representations and warranties and events of default relating to, among other things, payment defaults, breaches of covenants, the occurrence of any fact, event or circumstance that could reasonably be expected to result in a Material Adverse Effect (as defined in the Credit Agreement), delisting of the our common stock, par value $0.001 per share, or Common Stock, bankruptcy and insolvency, cross defaults with certain material indebtedness and certain material contracts, judgments and inaccuracies of representations and warranties. Upon or after an event of default, the agent and the Lenders may declare all or a portion of our obligations under the Credit Agreement to be immediately due and payable and exercise other rights and remedies provided for under the Credit Agreement.

 

As of June 30, 2018, we had $75,000,000 in borrowings outstanding under the Term Loan, which are classified as long-term debt in the accompanying unaudited consolidated financial statements. We incurred $3,786,918 in debt issuance costs related to the Term Loan. Debt financing fees related to the entire Term Loan have been allocated pro rata between the funded and unfunded portions of each tranche. Allocated debt financing fees related to Tranche 1 of $1,888,844 have been reclassified to debt discount and are accreted to interest expense using the effective interest method. Debt financing fees associated with unfunded tranches are deferred as assets until Tranche 1 and Tranche 2 milestones have been met. Deferred financing fees related to Tranche 1 are included in Other current assets and deferred financing fees related to Tranche 2 are included in Prepaid expenses - long term in the accompanying unaudited consolidated financial statements. During the three and six months ended June 30, 2018, we amortized $30,155 of debt issuance costs related to Tranche 1 as interest expense in our accompanying unaudited consolidated financial statements. The overall effective interest rate was 10.6% as of June 30, 2018. As of June 30, 2018, the carrying value of debt consists of the following:

 

   

June 30,
2018

Term Loan   $ 75,000,000  
Debt discount and financing fees     (1,858,689 )
     Total long-term debt   $ 73,141,311  

 

NOTE 10 – 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 outstanding during the period. We compute diluted EPS based on the weighted-average number of shares of our Common Stock outstanding plus all potentially dilutive shares of our Common Stock outstanding during the period. Such potentially dilutive shares of our 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.

 

    Three and six months ended
    June 30,
2018
  June 30,
2017
Stock options     25,210,899       23,402,100  
Warrants     3,007,571       3,115,905  
      28,218,470       26,518,005  

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 11 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

At June 30, 2018, 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 June 30, 2018, we had 350,000,000 shares of Common Stock authorized for issuance, of which 216,834,059 shares of Common Stock were issued and outstanding.

 

Issuances During the Three and Six Months Ended June 30, 2018

 

During the three months ended June 30, 2018, certain individuals exercised stock options to purchase 249,785 shares of Common Stock for $1,084,939 in cash. During the six months ended June 30, 2018, certain individuals exercised stock options to purchase 394,576 shares of Common Stock for $1,128,996 in cash. Also, during the six months ended June 30, 2018, stock options to purchase 10,000 shares of Common Stock were exercised pursuant to the options’ cashless exercise provisions, wherein 9,841 shares of Common Stock were issued.

 

Issuances During the Three and Six Months Ended June 30, 2017

 

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

 

Warrants to Purchase Common Stock

 

As of June 30, 2018, we had warrants outstanding to purchase an aggregate of 3,007,571 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 $2.78 per share.

 

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, dividend rate and the term of the warrant. During the six months ended June 30, 2018, we granted warrants to purchase 175,000 shares of Common Stock to outside consultants at an exercise price of $5.16. The fair value for these warrants was determined by using the Black-Scholes Model on the date of the grant using a term of 5 years; volatility of 62.1%; risk free rate of 2.36%; and dividend yield of 0%. The grant date fair value of the warrants was $2.79 per share. The warrants vest ratably over a 12-month period and have an expiration date of March 15, 2023. During the six months ended June 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 vest ratably over a 12-month period and have an expiration date of March 15, 2022.

 

During the three months ended June 30, 2018 and 2017, we recorded $164,840 and $69,089, respectively, and during the six months ended June 30, 2018 and 2017, we recorded $256,315 and $115,774, respectively, as share based compensation expense in the accompanying consolidated financial statements related to warrants. As of June 30, 2018, total unrecognized estimated compensation expense related to the unvested portion of these warrants was approximately $345,000 which is expected to be recognized over a weighted-average period of 0.7 years.

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 VVA. In connection with the agreement, SCI agreed to forfeit its rights to receive warrants to purchase 833,000 shares of our 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 our Common Stock at $2.01 per share that has vested or will vest, as applicable, as follows:

 

1. 283,333 shares were earned on May 11, 2013 upon acceptance of an Investigational New Drug application by the FDA for an estradiol-based drug candidate in a softgel vaginal capsule for the treatment of VVA; however, pursuant to the terms of the consulting agreement, the shares did not vest until June 30, 2013. The fair value of $405,066 for the shares vested on June 30, 2013 was determined by using the Black-Scholes Model on the date of vesting using a term of 5 years; a volatility of 45.89%; risk free rate of 1.12%; and a dividend yield of 0%. We recorded the entire $405,066 as non-cash compensation as of June 30, 2013. These shares were exercised in 2017.

 

2. 283,333 shares vested on June 30, 2013. The fair value of $462,196 for these shares was determined by using the Black-Scholes Model on the date of vesting using a term of 5 years; a volatility of 45.84%; risk free rate of 1.41%; and a dividend yield of 0%. As of June 30, 2016, this warrant was fully amortized. These shares were exercised in 2017; and

 

3. 283,334 shares were going to vest upon the receipt by us, prior to the warrant expiration date of April 30, 2018, of any final FDA approval of a drug candidate that SCI helped us design. Since the receipt of such approval did not occur before warrant’s expiration date, the warrant expired on April 30, 2018.

 

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 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 June 30, 2018 and 2017, we recorded $0 and $64,449, respectively, and during the six months ended June 30, 2018 and 2017, we recorded $0 and $128,898, respectively, as non-cash compensation with respect to these warrants in the accompanying consolidated financial statements. This warrant was fully exercised, of which 800,000 shares were exercised in 2017 and 500,000 shares were exercised in 2016. As of June 30, 2018, the SCI warrants issued in 2013 and 2012 were fully amortized.

 

During the three months ended June 30, 2018, no warrants were exercised. During the three months ended June 30, 2017, certain individuals exercised warrants to purchase 666,666 shares of Common Stock for $1,338,999 in cash. In addition, during the three months ended June 30, 2017, certain individuals exercised warrants to purchase 6,590,000 shares of Common Stock pursuant to the warrants’ cashless exercise provisions, wherein 4,762,208 shares of Common Stock were issued. During the six months ended June 30, 2018, no warrants were exercised. During the six months ended June 30, 2017, certain individuals exercised warrants to purchase 2,476,666 shares of Common Stock for $3,798,999 in cash. In addition, during the three months ended June 30, 2017, certain individuals exercised warrants to purchase 6,590,000 shares of Common Stock pursuant to the warrants’ cashless exercise provisions, wherein 4,762,208 shares of Common Stock were issued.

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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 of Common Stock 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 June 30, 2018, there were non-qualified stock options to purchase 18,932,425 shares of Common Stock outstanding under the 2009 Plan. As of June 30, 2018, there were 1,578,787 shares of Common Stock available to be issued under 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 June 30, 2018, there were non-qualified stock options to purchase 6,278,474 shares of Common Stock outstanding under the 2012 Plan. As of June 30, 2018, there were 3,473,333 shares of Common Stock available to be issued under 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 six months ended June 30, 2018 and 2017 are set forth in the table below.

 

    Six Months
Ended
June 30,
2018
  Six Months
Ended
June 30,
2017
Risk-free interest rate     2.38-2.63%       1.84-2.01%  
Volatility     61.82-64.04%       61.56-63.95%  
Term (in years)     5.1-6.25       5.5-6.25  
Dividend yield     0.00 %     0.00 %

 

  18  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

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, 2017     23,365,225     $ 3.78       5.13     $ 64,664,821  
Granted     2,315,500     $ 5.26                  
Exercised     (404,576 )   $ 2.79             $ 1,386,827  
Expired/Forfeited     (62,250 )   $ 7.61                  
Balance at June 30, 2018     25,210,899     $ 3.92       5.16     $ 69,013,547  
Vested and Exercisable at                                
June 30, 2018     20,565,025     $ 3.46       4.30     $ 66,096,342  
Unvested at June 30, 2018     4,645,874     $ 5.98       8.96     $ 2,917,204  

 

At June 30, 2018, 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 $3.15 and $3.82 during the six months ended June 30, 2018 and 2017, respectively. Share-based compensation expense for options recognized in our results of operations for the three months ended June 30, 2018 and 2017 ($2,212,241 and $1,505,625, respectively) and for the six months ended June 30, 2018 and 2017 ($3,872,125 and $2,806,685, respectively) is based on vested awards. At June 30, 2018, total unrecognized estimated compensation expense related to unvested options granted prior to that date was approximately $13,817,000 which may be adjusted for future forfeitures. This cost is expected to be recognized over a weighted-average period of 2.4 years. No tax benefit was realized due to a continued pattern of operating losses.

 

NOTE 12 – INCOME TAXES

 

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We do not expect to pay any significant federal or state income tax for 2018 as a result of (i) the losses recorded during the six months ended June 30, 2018, (ii) additional losses expected for the remainder of 2018, and/or (iii) net operating loss carry forwards from prior years. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is "more likely than not" that some component or all of the benefits of deferred tax assets will not be realized. As of June 30, 2018, we maintain a full valuation allowance for all deferred tax assets. Based on these requirements, no provision or benefit for income taxes has been recorded. There were no recorded unrecognized tax benefits at the end of the reporting period.

 

NOTE 13 – RELATED PARTIES

 

In July 2015, J. Martin Carroll, a director of our company, was appointed to the board of directors of Catalent, Inc. From time to time, we have entered into agreements with Catalent, Inc. and its affiliates, or Catalent, in the normal course of business. Agreements with Catalent have been reviewed by independent directors of our company or a committee consisting of independent directors of our company since July 2015. During the three months ended June 30, 2018 and 2017, we were billed by Catalent approximately $1,266,000 and $1,754,000, respectively, for manufacturing activities related to our clinical trials, scale-up, registration batches, stability and validation testing. During the six months ended June 30, 2018 and 2017, we were billed by Catalent approximately $2,040,000 and $2,460,000, respectively, for manufacturing activities related to our clinical trials, scale-up, registration batches, stability and validation testing. As of June 30, 2018 and December 31, 2017, there were amounts due to Catalent of approximately $751,000 and $523,000, respectively.

 

  19  
 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 14 – BUSINESS CONCENTRATIONS

 

We purchase our products from several suppliers with approximately 100% of our purchases supplied from one vendor for both the six months ended June 30, 2018 and 2017.

 

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. During the six months ended June 30, 2018, four customers each generated more than 10% of our total revenues. During the six months ended June 30, 2017, five customers each generated more than 10% of our total revenues. Revenue generated from four major customers combined accounted for approximately 71% of our recognized revenue for the six months ended June 30, 2018 and revenue generated from five major customers combined accounted for approximately 70% of our recognized revenue for the six months ended June 30, 2017.

 

During the six months ended June 30, 2018, PI Services generated approximately $981,000 of our revenue, Pillpack, Inc. generated approximately $2,088,000 of our revenue, AmerisourceBergen generated approximately $1,283,000 of our revenue and Cardinal Health generated approximately $971,000 of our revenue. During the six months ended June 30, 2017, Pharmacy Innovations TX generated approximately $834,000 of our revenue, Pharmacy Innovations PA generated approximately $1,863,000 of our revenue, AmerisourceBergen generated approximately $1,053,000 of our revenue, Cardinal Health generated approximately $1,119,000 of our revenue and McKesson Corporation generated approximately $907,000 of our revenue.

 

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.

 

NOTE 15 – 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 June 30, 2018 and 2017 was approximately $257,000 and $265,000, respectively. The rental expense related to our current lease during both the six months ended June 30, 2018 and 2017 was $515,000.

 

As of June 30, 2018, future minimum rental payments on non-cancelable operating leases are as follows:

 

Years Ending December 31,    
2018 (6 months)   $ 499,831  
2019     1,094,116  
2020     1,113,069  
2021     943,127  
2022     —    
Total minimum lease payments   $ 3,650,143  

 

  20  
 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

The following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read together with our consolidated financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission, or the SEC, on February 23, 2018, or the Annual Report, including the audited financial statements and notes included therein. The reported results will not necessarily reflect future results of operations or financial condition.

 

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

 

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

 

Overview

 

We are a women’s health care company focused on creating and commercializing products targeted exclusively for women. Currently, we are focused on commercializing our recently U.S. Food and Drug Administration, or FDA, approved product, IMVEXXY™ (estradiol vaginal inserts) for the treatment of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of vulvar and vaginal atrophy, or VVA, due to menopause, and pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization 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 menopausal women with an intact uterus. The new drug application, or NDA, for TX-001HR has a Prescription Drug User Fee Act target action date for the completion of the FDA’s review of October 28, 2018. IMVEXXY™ and TX-001HR 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. With our SYMBODA™ technology, we are developing advanced hormone therapy pharmaceutical products to enable delivery of bio-identical hormones through a variety of dosage forms and administration routes. In addition, we manufacture and distribute branded and generic prescription prenatal vitamins.

 

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

 

  21  
 

 

Research and Development

 

We have submitted two NDAs to the FDA. In December 2017, we submitted our NDA for 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 menopausal women with an intact uterus. The Prescription Drug User Fee Act, or PDUFA, target action date for our TX-001HR drug candidate is October 28, 2018.  In November 2017, we re-submitted our NDA for TX-004HR, our applicator-free vaginal estradiol softgel drug candidate for the treatment of moderate to severe dyspareunia (vaginal pain during sexual intercourse), a symptom of vulvar and vaginal atrophy, or VVA, in menopausal women with vaginal linings that do not receive enough estrogen. On May 30, 2018, we announced that the FDA had approved the 4 mcg and 10 mcg doses of TX-004HR: IMVEXXY TM (estradiol vaginal inserts) for the treatment of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of VVA, due to menopause. The 4-mcg formulation of TX-004HR represents the lowest FDA-approved dose of vaginal estradiol available. We intend to leverage and grow our current marketing and sales organization to commercialize our advanced hormone therapy drug candidates in the United States assuming the successful completion of the FDA regulatory process. We believe that our national sales force has developed strong relationships in the OB/GYN market to sell our current prescription prenatal vitamin products and that by delivering additional products through the same sales channel we can leverage our already deployed assets.

 

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 for 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 menopausal 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:

 

  17ß-estradiol 1 mg/progesterone 100 mg (n = 416)

 

  17ß-estradiol 0.5 mg/progesterone 100 mg (n = 423)

 

  17ß-estradiol 0.5 mg/progesterone 50 mg (n = 421)

 

  17ß-estradiol 0.25 mg/progesterone 50 mg (n = 424)

 

  Placebo (n = 151)

 

  22  
 

 

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

  23  
 

 

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

 

We submitted the NDA for TX-001HR to the FDA on December 28, 2017. In March 2018, the FDA, in its 74-day letter, stated that the application was sufficiently complete to permit a substantive review and that, as of the date of the letter, the FDA had not identified any potential review issues. The FDA noted that the filing review was only a preliminary evaluation of the application and was not indicative of deficiencies that may be identified during the FDA’s review. The PDUFA target action date for the completion of the FDA's review is October 28, 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. In July 2014, we suspended enrollment and in October 2014 we stopped the SPRY Trial, our phase 3 clinical trial for TX-002HR, to update the phase 3 protocol based on discussions with the FDA. Our Investigational New Drug Application, or IND, related to TX-002HR is currently in inactive status. We have currently suspended further development of this drug candidate to prioritize our leading drug candidates. 

 

TX-003HR

 

TX-003HR is a natural estradiol formulation. This hormone therapy drug candidate is bioidentical to the hormones that naturally occur in a woman’s body. We currently do not have plans to further develop this hormone therapy drug candidate. Our IND related to TX-003HR is currently inactive.

 

TX-004HR:  IMVEXXY™

 

On May 30, 2018, we announced that the FDA had approved the 4 mcg and 10 mcg doses of IMVEXXY(estradiol vaginal inserts) for the treatment of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of VVA, due to menopause.  The 4-mcg formulation of IMVEXXY™  represents the lowest FDA-approved dose of vaginal estradiol available.  IMVEXXYbecame available for commercial distribution in late July 2018.  We anticipate that IMVEXXY™  will be widely commercially available in August 2018. 

 

As part of the FDA's approval of IMVEXXY™, we have 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, such as IMVEXXY™.  In connection with the observational study, we will be required to provide progress reports to the FDA on an annual basis.

 

As of June 30, 2018, we had 20 issued foreign patents and 19 issued domestic or, U.S., patents, which included 13 domestic utility patents that relate to our combination progesterone and estradiol formulations, three domestic utility patents that relate to IMVEXXY™, which establish an important intellectual property foundation for IMVEXXY™, one domestic utility patent that relates to a pipeline transdermal patch technology, one domestic utility patent that relates to our OPERA® information technology platform and one domestic utility patent that relates to TX-009HR, our progesterone and estradiol drug candidate.

 

 

  24  
 

 

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 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.

 

The following table indicates our research and development expense by project/category for the periods indicated:

 

    Three Months Ended
June 30,
  Six Months Ended
June 30,
    2018   2017   2018   2017
    (000s)   (000s)
TX 001-HR   $ 2,062     $ 5,377     $ 5,415     $ 8,905  
TX 002-HR     —         —         —         —    
TX 004-HR     1,758       2,767       3,158       4,712  
Other research and development     2,979       572       5,265       2,824  
Total   $ 6,799     $ 8,716     $ 13,838     $ 16,441  

 

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 June 30, 2018 compared with three months ended June 30, 2017

 

    Three Months Ended
June 30,
   
    2018   2017   Change
    (000s)
Revenues, net   $ 3,763     $ 4,250     $ (487 )
Cost of goods sold     454       682       (228 )
Operating expenses     36,331       23,398       12,933  
     Operating loss     (33,022 )     (19,830 )     (13,192 )
Other (expense) income, net     (197 )     153       (350 )
Net loss   $ (33,219 )   $ (19,677 )   $ (13,542 )

 

Revenues and Cost of Goods Sold

 

Revenues for the three months ended June 30, 2018 decreased approximately $487,000, or 11%, to approximately $3,763,000, compared with approximately $4,250,000 for the three months ended June 30, 2017. This decrease was primarily attributable to a decrease in the average net revenue per unit of our products, which was primarily related to higher estimates related to offered discounts in 2018, partially offset by an increase in the number of units sold. Cost of goods sold decreased approximately $228,000 or 33%, to approximately $454,000 for the three months ended June 30, 2018, compared with approximately $682,000 for the three months ended June 30, 2017. Our gross margin was approximately 88% and 84% for the three-month periods ended June 30, 2018 and 2017, respectively.

 

  25  
 

Operating Expenses

 

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

 

    Three Months Ended
June 30,
    2018   2017
Research and development costs     18.7 %     37.2 %
Human resource related costs, including salaries, benefits and taxes     21.9 %     24.7 %
Sales and marketing costs, excluding human resource costs     45.8 %     24.5 %
Professional fees for legal, accounting and consulting     5.4 %     5.1 %
Other operating expenses     8.2 %     8.5 %

 

Operating expenses increased by approximately $12,933,000, or 55%, to approximately $36,331,000 for the three months ended June 30, 2018, from approximately $23,398,000 for the three months ended June 30, 2017 as a result of the following items:

 

    Three Months Ended
June 30,
   
    2018   2017   Change
    (000s)
Research and development costs   $ 6,799     $ 8,716     $ (1,917 )
Human resources related costs including salaries, benefits and taxes     7,968       5,785       2,183  
Sales and marketing, excluding human resources costs     16,623       5,729       10,894  
Professional fees for legal, accounting and consulting     1,966       1,184       782  
Other operating expenses     2,975       1,984       991  
Total operating expenses   $ 36,331     $ 23,398     $ 12,933  

 

Research and development costs for the three months ended June 30, 2018 decreased by approximately $1,917,000, or 22%, to approximately $6,799,000, compared with $8,716,000 for the three months ended June 30, 2017. 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, and FDA approval of IMVEXXYTM, our applicator-free vaginal estradiol softgel drug. Research and developments costs during the three months ended June 30, 2018 included the following research and development projects.

 

During the three months ended June 30, 2018 and the period from February 2013 (project inception) through June 30, 2018, we have incurred approximately $2,062,000 and $120,812,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.

 

During the three months ended June 30, 2018 and the period April 2013 (project inception) through June 30, 2018, 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 June 30, 2018 and the period from August 2014 (project inception) through June 30, 2018, we have incurred approximately $2,979,000 and $44,007,000, respectively, in research and development costs with respect to IMVEXXYTM, our applicator-free vaginal estradiol softgel drug.

 

  26  
 

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.

 

Sales and marketing costs for the three months ended June 30, 2018 increased by approximately $10,894,000, or 190%, to approximately $16,623,000, compared with approximately $5,729,000 for the three months ended June 30, 2017, primarily as a result of increased expenses associated with sales and marketing efforts to support launch and commercialization of IMVEXXYTM and our pre-commercialization expenses for our TX-001HR drug candidate, including costs related to outsourced sales personnel and their related expenses. We expect sales and marketing expenses to continue to increase as we continue to support commercialization of our products and drug candidates.

 

Other operating expense for the three months ended June 30, 2018 increased by approximately $991,000, or 50%, to approximately $2,975,000, compared with approximately $1,984,000 for the three months ended June 30, 2017, as a result of increased information technology, travel and other office expenses.

 

Human resource costs, including salaries, benefits and taxes, for the three months ended June 30, 2018 increased by approximately $2,183,000, or 38%, to approximately $7,968,000, compared with approximately $5,785,000 for the three months ended June 30, 2017, primarily as a result of an increase of approximately $1,375,000 in personnel costs in sales, marketing and regulatory areas to support commercialization of IMVEXXYTM, pre-commercialization expenses for our TX-001HR drug candidate and an increase of approximately $808,000 in non-cash compensation expense included in this category related to employee stock based compensation during 2018 as compared to 2017.

 

Professional fees for the three months ended June 30, 2018 increased by approximately $782,000, or 66%, to approximately $1,966,000, compared with approximately $1,184,000 for the three months ended June 30, 2017, primarily as a result of increased legal expenses.

 

Operating Loss

 

As a result of the foregoing, our operating loss increased approximately $13,192,000, or 67%, to approximately $33,022,000 for the three months ended June 30, 2018, compared with approximately $19,830,000 for the three months ended June 30, 2017, primarily as a result of increased personnel costs, sales and marketing expenses to support commercialization of IMVEXXYTM and pre-commercialization expenses for our TX-001HR drug candidate, including costs related to outsourced sales personnel and their related expenses, professional fees and other operating expenses, as well a decrease in revenue, partially offset by a decrease in research and development costs.

 

As a result of the continued development of our hormone therapy drug candidates and IMVEXXYTM, we anticipate that we will continue to have operating losses for the near future until we successfully commercialize IMVEXXYTM, and receive approval from the FDA for, and successfully commercialize, our TX-001HR drug candidate, although there is no assurance that we will attain such approval or that any commercialization of IMVEXXYTM and TX-001HR, if approved, will be successful.

 

  27  
 

Other (expense) income, net

 

Other non-operating (expense) income, net decreased by approximately $350,000, or 229%, to other expense, net of approximately $197,000 for the three months ended June 30, 2018, compared with other income, net of approximately $153,000 for the comparable period in 2017, primarily as a result of increased interest expense related to our Term Loan, partially offset by increased interest income.

 

Net Loss

 

As a result of the net effects of the foregoing, net loss increased approximately $13,542,000, or 69%, to approximately $33,219,000 for the three months ended June 30, 2018, compared with approximately $19,677,000 for the three months ended June 30, 2017. Net loss per share of Common Stock, basic and diluted, was ($0.15) for the three months ended June 30, 2018 and ($0.10) for the three months ended June 30, 2017.

 

Six months ended June 30, 2018 compared with six months ended June 30, 2017

 

    Six Months Ended
June 30,
   
    2018   2017   Change
    (000s)
Revenues, net   $ 7,536     $ 8,236     $ (700 )
Cost of goods sold     1,088       1,341       (253 )
Operating expenses     64,186       48,011       16,175  
     Operating loss     (57,738 )     (41,116 )     (16,622 )
Other income, net     117       283       (166 )
Net loss   $ (57,621 )   $ (40,833 )   $ (16,788 )

 

Revenues and Cost of Goods Sold

 

Revenues for the six months ended June 30, 2018 decreased approximately $700,000, or 8%, to approximately $7,536,000, compared with approximately $8,236,000 for the six months ended June 30, 2017. This decrease was primarily attributable to a decrease in the average net revenue per unit of our products, which was primarily related to higher estimates related to offered discounts in 2018, partially offset by an increase in the number of units sold. Cost of goods sold decreased approximately $253,000, or 19%, to approximately $1,088,000 for the six months ended June 30, 2018, compared with approximately $1,341,000 for the six months ended June 30, 2017. Our gross margin was approximately 86% and 84% for the six-month periods ended June 30, 2018 and 2017, respectively.

 

Operating Expenses

 

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

 

    Six Months Ended
June 30,
    2018   2017
Research and development costs     21.6 %     34.2 %
Human resource related costs, including salaries, benefits and taxes     22.4 %     23.9 %
Sales and marketing costs, excluding human resource costs     42.2 %     28.0 %
Professional fees for legal, accounting and consulting     5.9 %     5.8 %
Other operating expenses     7.9 %     8.1 %

 

  28  
 

Operating expenses increased by approximately $16,175,000, or 34%, to approximately $64,186,000 for the six months ended June 30, 2018, from approximately $48,011,000 for the six months ended June 30, 2017 as a result of the following items:

 

 

    Six Months Ended
June 30,
   
    2018   2017   Change
    (000s)
Research and development costs   $ 13,838     $ 16,441     $ (2,603 )
Human resources related costs including salaries, benefits and taxes     14,385       11,449       2,936  
Sales and marketing, excluding human resources costs     27,118       13,428       13,690  
Professional fees for legal, accounting and consulting     3,761       2,790       971  
Other operating expenses     5,084       3,903       1,181  
Total operating expenses   $ 64,186     $ 48,011     $ 16,175  

 

Research and development costs for the six months ended June 30, 2018 decreased by approximately $2,603,000, or 16%, to approximately $13,838,000, compared with $16,441,000 for the six months ended June 30, 2017. 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, and FDA approval of IMVEXXYTM, our applicator-free vaginal estradiol softgel drug. Research and developments costs during the six months ended June 30, 2018 included the following research and development projects.

 

During the six months ended June 30, 2018 and the period from February 2013 (project inception) through June 30, 2018, we have incurred approximately $5,415,000 and $120,812,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.

 

During the six months ended June 30, 2018 and the period April 2013 (project inception) through June 30, 2018, 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 six months ended June 30, 2018 and the period from August 2014 (project inception) through June 30, 2018, we have incurred approximately $3,158,000 and $44,007,000, respectively, in research and development costs with respect to IMVEXXYTM, our applicator-free vaginal estradiol softgel drug.

 

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.

 

  29  
 

Sales and marketing costs for the six months ended June 30, 2018 increased by approximately $13,690,000, or 102%, to approximately $27,118,000, compared with approximately $13,428,000 for the six months ended June 30, 2017, primarily as a result of increased expenses associated with sales and marketing efforts to support launch and commercialization of IMVEXXYTM and pre-commercialization expenses for our TX-001HR drug candidate, including costs related to outsourced sales personnel and their related expenses. We expect sales and marketing expenses to continue to increase as we continue to support commercialization of our products and drug candidates.

 

Other operating expense for the six months ended June 30, 2018 increased by approximately $1,181,000, or 30%, to approximately $5,084,000, compared with approximately $3,903,000 for the six months ended June 30, 2017, as a result of increased information technology and other office expenses, insurance, licensing and exchange fees partially offset by decreased investor relations expenses.

 

Human resource costs, including salaries, benefits and taxes, for the six months ended June 30, 2018 increased by approximately $2,936,000, or 26%, to approximately $14,385,000, compared with approximately $11,449,000 for the six months ended June 30, 2017, primarily as a result of an increase of approximately $1,704,000 in personnel costs in sales, marketing and regulatory areas to support commercialization of IMVEXXYTM, pre-commercialization expenses for our TX-001HR drug candidate and an increase of approximately $1,232,000 in non-cash compensation expense included in this category related to employee stock based compensation during 2018 as compared to 2017.

 

Professional fees for the six months ended June 30, 2018 increased by approximately $971,000, or 35%, to approximately $3,761,000, compared with approximately $2,790,000 for the six months ended June 30, 2017, primarily as a result of increased legal expenses.

 

Operating Loss

 

As a result of the foregoing, our operating loss increased approximately $16,622,000, or 40%, to approximately $57,738,000 for the six months ended June 30, 2018, compared with approximately $41,116,000 for the six months ended June 30, 2017, primarily as a result of increased personnel costs, sales and marketing expenses to support launch and commercialization of  IMVEXXYTM, pre-commercialization expenses for our TX-001HR drug candidate, including costs related to outsourced sales personnel and their related expenses, professional fees and other operating expenses, as well a decrease in revenue, partially offset by a decrease in research and development costs.

 

As a result of the continued development of our hormone therapy drug candidates and IMVEXXYTM, we anticipate that we will continue to have operating losses for the near future until we successfully commercialize IMVEXXYTM, and receive approval from the FDA for, and successfully commercialize, our TX-001HR drug candidate, although there is no assurance that we will attain such approval or that any commercialization of IMVEXXYTM or TX-001HR, if approved, will be successful. 

 

Other Income, Net

 

Other non-operating income, net decreased by approximately $166,000, or 59%, to approximately $117,000 for the six months ended June 30, 2018 compared with approximately $283,000 for the comparable period in 2017, primarily as a result of an increase in interest expense on our Term Loan, partially offset by increased interest income.

 

Net Loss

 

As a result of the net effects of the foregoing, net loss increased approximately $16,788,000, or 41%, to approximately $57,621,000 for the six months ended June 30, 2018, compared with approximately $40,833,000 for the six months ended June 30, 2017. Net loss per share of Common Stock, basic and diluted, was ($0.27) for the six months ended June 30, 2018 and ($0.20) for the six months ended June 30, 2017.

 

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Liquidity and Capital Resources

 

We have funded our operations primarily through public offerings of our Common Stock and private placements of equity and debt securities. For the year ended December 31, 2017, we received approximately $68,573,000 in net proceeds from the issuance of shares of our Common Stock. As of June 30, 2018, we had cash totaling approximately $154,387,000, 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. We currently intend to fund the next phase of our commercialization expenses for our recently approved IMVEXXYTM and pre-commercialization expenses for our TX-001HR drug candidate through funds available under our Term Loan.

 

On May 1, 2018, we entered into a Credit and Security Agreement, or the Credit Agreement, by and among us and our subsidiaries party thereto from time to time, each as a borrower, MidCap Financial Trust, as an agent and as lender, and the additional lenders party thereto from time to time, which provides a secured term loan facility in an aggregate principal amount of up to $200,000,000, or the Term Loan.  Under the terms of the Credit Agreement, the Term Loan will be made in three separate tranches, each, a Tranche, with each Tranche to be made available to us, at our option, upon our achievement of certain milestones. The first Tranche of $75,000,000, or Tranche 1, was drawn by us on June 7, 2018, following approval by FDA of the NDA for IMVEXXYTM.. We intend to use the proceeds from the first draw down to support the commercial launch of IMVEXXYTM. The second Tranche of $75,000,000, or Tranche 2, may be drawn by us on or before May 31, 2019, provided that we satisfy certain conditions described in the Credit Agreement, including (i) that Tranche 1 has been drawn, (ii) the approval by the FDA of the NDA for our TX-001HR drug candidate and (iii) we have consummated our first commercial sale in the United States of TX-001HR. The third Tranche of $50,000,000, or Tranche 3, may be drawn by us on or before December 31, 2019, provided that we satisfy certain conditions described in the Credit Agreement, including that (i) Tranche 2 has been drawn and (ii) we have generated at least $75,000,000 of consolidated net revenue attributable to commercial sales of TX-001HR and TX-004HR during the twelve-month period ending immediately prior to the funding of Tranche 3.

 

During the six months ended June 30, 2018, certain individuals exercised options to purchase 394,576 shares of Common Stock for $1,128,996.

 

For the six months ended June 30, 2018, our days sales outstanding, or DSO, was 136 days compared to 97 days for the year ended December 31, 2017. The increase in our DSO as of June 30, 2018 was partially related to extended terms given to our customers in connection with the launch of IMVEXXYTM, which resulted in later timing of payments received from our customers subsequent to June 30, 2018, in addition to increased coupons and discounts during the second quarter which lowered our net revenues. 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, as compared to the terms previously provided to our retail pharmacy distributors, changes in the healthcare industry and specific terms that may be extended in connection with the launch of our hormone therapy drug candidates, if approved.

 

We believe that our existing cash and availability under the Term Loan will allow us to fund our operating plan through at least the next 12 months from the date of this quarterly report. However, if the commercialization of our hormone therapy drug candidates is delayed, our existing cash may be insufficient to satisfy our liquidity requirements until we are able to commercialize our hormone therapy drug candidates and we may not be able to access funds under the Term Loan. If our available cash is insufficient to satisfy our liquidity requirements, we may curtail our sales, marketing and other pre-commercialization efforts and we may seek to sell additional equity or debt securities. Our ability to obtain additional debt financing is restricted pursuant to the Credit Agreement. To the extent that we raise additional capital through the sale of equity or convertible debt securities, to the extent permitted under the Credit Agreement, the ownership interests of our existing shareholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, certain of which are restricted under the Credit Agreement, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or proposed products, if permitted under the Credit Agreement. Additionally, we may have to grant licenses on terms that may not be favorable to us.

 

  31  
 

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

 

Summary of (Uses) and Sources of Cash

 

    Six Months Ended
June 30,
    2018   2017
    (000s)
Net cash used in operating activities   $ (44,599 )   $ (38,666 )
Net cash used in investing activities   $ (492 )   $ (403 )
Net cash provided by financing activities   $ 72,342     $ 4,011  

 

Operating Activities

 

The principal use of cash in operating activities for the six months ended June 30, 2018 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 $5,933,000 in cash used in operating activities for the six months ended June 30, 2018 compared with the comparable period in the prior year was due primarily to an increase in our net loss and non-cash compensation expense coupled with changes in the components of working capital.

 

Investing Activities

 

An increase in spending on patent and trademarks resulted in an increase in cash used in investing activities for the six months ended June 30, 2018 compared with the same period in 2017.

 

Financing Activities

 

Financing activities represent the principal source of our cash flow. Our financing activities for the six months ended June 30, 2018 provided net cash of approximately $72,342,000 which consisted of the net funding from our Term Loan (approximately $71,213,000) and the exercise of options (approximately $1,129,000). The cash provided by financing activities during the six months ended June 30, 2017 included approximately $4,011,000 in proceeds from the exercise of options and warrants.

 

New Accounting Pronouncements

 

In June 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2018-07 to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of Accounting Standards Codification, or ASC, 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASC 606. We are currently evaluating the effect of this guidance on our consolidated financial statements and disclosures.

 

In February 2016 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.

 

  32  
 

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 adopted this standard under the modified retrospective method to all contracts not completed as of January 1, 2018 and the adoption did not have a material effect on our financial statements but we expanded our disclosures related to contracts with customers in Note 3 to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. To minimize this risk, we intend to maintain an investment portfolio that may include cash, cash equivalents and investment securities available-for-sale in a variety of securities which may include money market funds, government and non-government debt securities and commercial paper, all with various maturity dates.  Due to the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.

 

We are also subject to market risk in connection with borrowings under our Term Loan.  Amounts borrowed under our Term Loan bear interest at a rate equal to the sum of (i) one month LIBOR (subject to a LIBOR floor of 1.50%) plus (ii) 7.75% per annum.  At June 30, 2018, the outstanding principal balance on our Term Loan, net of issuance costs, was approximately $73,141,000. Considering the total outstanding balance of approximately $75,000,000, as of June 30, 2018, a 1.0% change in interest rates would result in an impact to income before income taxes of approximately $750,000 per year.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

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

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Changes in Internal Controls

 

During the three months ended June 30, 2018, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

  33  
 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We have been informed by the staff (“Staff”) of the Securities and Exchange Commission (the “SEC”) that the Staff is conducting a formal investigation concerning whether certain of our communications during 2017 regarding TX-004HR may have violated Regulation FD.  We are cooperating with the Staff in connection with the investigation.  Any determination that our actions violated Regulation FD could result in penalties or other remedies being imposed.  While we believe that any such penalties and other remedies  would be immaterial from a financial perspective, no assurance can be made about the ultimate outcome of the investigation, and there can be no assurance that any such penalties and remedies would not have a material adverse effect on our business.

 

From time to time, we are involved in litigation and proceedings in the ordinary course of our business. We are not currently involved in any legal proceeding that we believe would have a material effect on our business or financial condition.

 

Item 1A. Risk Factors

 

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

 

Item 6. Exhibits

 

 

Exhibit

 

Date

 

Description

  10.1+   April 20, 2016   Softgel Commercial Supply Agreement, by and between TherapeuticsMD, Inc. and Catalent Pharma Solutions, LLC.
  10.2+   May 1, 2018   Credit and Security Agreement, by and among TherapeuticsMD, Inc., as borrower, its subsidiaries party thereto from time to time, each as a borrower, MidCap Financial Trust, as agent and as lender, and the additional lenders party thereto from time to time.
  10.3*   May 9, 2018   Fourth Amendment to Lease between the Company and 6800 Broken Sound, LLC.
  31.1*   July 30, 2018   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
  31.2*   July 30, 2018   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
  32.1*   July 30, 2018   Section 1350 Certification of Chief Executive Officer
  32.2*   July 30, 2018   Section 1350 Certification of Chief Financial Officer
  101.INS*   n/a   XBRL Instance Document
  101.SCH*   n/a   XBRL Taxonomy Extension Schema Document
  101.CAL*   n/a   XBRL Taxonomy Extension Calculation Linkbase Document
  101.DEF*   n/a   XBRL Taxonomy Extension Definition Linkbase Instance Document
  101.LAB*   n/a   XBRL Taxonomy Extension Label Linkbase Instance Document
  101.PRE*   n/a   XBRL Taxonomy Extension Presentation Linkbase Instance Document

____________________________

* Filed herewith.

+ Certain confidential material contained in the document has been omitted and filed separately with the Securities and Exchange Commission.  Confidential treatment has been requested with respect to this omitted information.

  34  
 

SIGNATURES

 

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

DATE: July 30, 2018

 

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

 

 

  35  

 

TherapeuticsMD, Inc. - 10-Q

 

Exhibit 10.1

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. 

 

EXECUTION VERSION

 

SOFTGEL COMMERCIAL SUPPLY AGREEMENT

(Estradiol softgel capsules)

 

This Softgel Commercial Supply Agreement (“Agreement”) is made as of this 20th day of April, 2016 (“Effective Date”), by and between TherapeuticsMD, Inc., a Nevada corporation, with a place of business at 6800 Broken Sound Parkway NW, Third Floor, Boca Raton, Florida 33487 (“Client”), and Catalent Pharma Solutions, LLC, a Delaware limited liability company, having a place of business at 14 Schoolhouse Road, Somerset, New Jersey 08873 (“Catalent”).

 

RECITALS

A.       

Client is a company that develops, markets and sells pharmaceutical products;

B.       

Catalent is a leading provider of advanced technologies, and development, manufacturing and packaging services for pharmaceutical, biotechnology and consumer healthcare companies;

C.       

Client and Catalent have entered into the Master Development and Clinical Supply Agreement dated as of December 4, 2015 (the “Development Agreement”); and

D.       

Client desires to engage Catalent to provide certain services to Client in connection with the processing of Client’s Product, and Catalent desires to provide such services, all pursuant to the terms and conditions set forth in this Agreement.

THEREFORE, in consideration of the mutual covenants, terms and conditions set forth below, the parties agree as follows:

ARTICLE 1

DEFINITIONS

The following terms have the following meanings in this Agreement:

1.1       

Acknowledgement” has the meaning set forth in Section 4.3.

1.2       

Affiliate(s)” means, with respect to Client or any third party, any corporation, firm, partnership or other entity that controls, is controlled by or is under common control with such entity; and with respect to Catalent, Catalent Pharma Solutions, Inc. and any corporation, firm, partnership or other entity controlled by it. For the purposes of this definition, “control” means the ownership of at least 50% of the voting share capital of an entity or any other comparable equity or ownership interest or possession of the right to control the management and policies of such entity.

1.3       

Agreement” has the meaning set forth in the introductory paragraph, and includes all its Attachments and other appendices agreed to by the parties (all of which are incorporated herein by reference) and any amendments to any of the foregoing made as provided herein or therein.

  

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

1.4       

API” means the generic compound Estradiol, as further described in the Specifications that has been released by Client and provided to Catalent, along with a certificate of analysis, as provided in this Agreement.

1.5       

Applicable Laws” means, with respect to Client, all laws, ordinances, rules and regulations of each jurisdiction in which API or Product is produced, marketed, distributed, used or sold; and with respect to Catalent, all laws, treaties, or ordinances, rules, regulations, cGMP, guidances, interpretations, authorizations, judgments, directives, injunctions, or orders of any court of any international, national, regional, local, or other governmental body, agency, authority, or court, or arbitrator, that has jurisdiction over the location where Catalent performs services under this Agreement (and applicable cGMP), including, but not limited to, the Federal Food, Drug and Cosmetic Act and Good Laboratory Practices, in each of the foregoing cases as in effect from time-to-time.

1.6       

Batch” means a defined quantity of Product that has been or is being Processed in accordance with the Specifications.

1.7       

Catalent” has the meaning set forth in the introductory paragraph, or any successor or permitted assign. Catalent shall have the right to cause any of its Affiliates, upon prior written notice to and approval from Client, to perform any of its obligations hereunder, and Client upon its prior approval of the use of the Affiliate, shall accept such performance as if it were performance by Catalent, but Catalent shall remain jointly and severally liable for the performance by any of its Affiliates under this Agreement.

1.8       

Catalent Defective Processing” has the meaning set forth in Section 5.2.

1.9       

Catalent Indemnitees” has the meaning set forth in Section 13.2.

1.10       

Catalent IP” has the meaning set forth in the Development Agreement.

1.11       

cGMP” means current Good Manufacturing Practices promulgated by the Regulatory Authorities in the jurisdictions included in Applicable Laws (as applicable to Client and Catalent respectively). In the United States, this includes 21 C.F.R. Parts 210 and 211, as amended together with pertinent guidelines and guidance documents; in the European Union, this includes 2003/94/EEC Directive (as supplemented by Volume 4 of EudraLex published by the European Commission), as amended, if and as implemented in the relevant constituent country, together with pertinent guidelines and guidance documents, in Japan (this includes the guidelines of good manufacturing control and quality control based on the requirements of the Pharmaceutical Affairs law of Japan as implemented in April of 2005), and in Canada (including the Food and Drugs Act, pertinent rules and regulations promulgated by Health Canada including Part C, Division 2 of the Food and Drugs Regulations and the Good Manufacturing Practices (GMP) Guidelines – 2009 Edition, Version 2).

1.12       

Client” has the meaning set forth in the introductory paragraph, or any successor or permitted assign.

1.13       

Client Indemnitees” has the meaning set forth in Section 13.1.

1.14       

Client IP” has the meaning set forth in the Development Agreement.

1.15       

Client-supplied Materials” means any materials to be supplied by or on behalf of Client to Catalent for Processing, as provided in Attachment A, including API and reference standards.

1.16       

Commencement Date” means the date of first commercial sale by Client following approval by a Regulatory Authority of Catalent as a manufacturer of the Product. Client shall notify Catalent in writing promptly following such first commercial sale.

1.17       

Confidential Information” has the meaning set forth in Section 10.1.

1.18       

Contract Year” means each consecutive 12 month period beginning on the Commencement Date or anniversary thereof, as applicable.

 2 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

1.19       

Defective Product” has the meaning set forth in Section 5.2.

1.20       

Development Agreement” has the meaning set forth in Recital C.

1.21       

Development Batch” has the meaning set forth in the Development Agreement.

1.22       

Discloser” has the meaning set forth in Section 10.1.

1.23       

Effective Date” has the meaning set forth in the introductory paragraph.

1.24       

Exception Notice” has the meaning set forth in Section 5.2.

1.25       

Facility” means Catalent’s facility located in St. Petersburg, Florida or Morrisville, North Carolina; or such other facility as agreed by the parties in writing.

1.26       

Firm Commitment” has the meaning set forth in Section 4.2.

1.27       

Generic Product” has the meaning set forth in Section 11.5.

1.28       

Invention” has the meaning set forth in Article 11.

1.29       

Losses” has the meaning set forth in Section 13.1.

1.30       

Marks” means trademarks, trade names, service marks, logos and symbols.

1.31       

Minimum Requirement” has the meaning set forth in Section 4.1.

1.32       

Process” or “Processing” means the compounding, filling, encapsulating, producing, testing and bulk packaging (but not secondary or retail packaging) of Client-supplied Materials and Raw Materials into Product by Catalent, in accordance with the Specifications and under the terms of this Agreement.

1.33       

Processing Date” means the day on which the first step of physical Processing is scheduled to occur, as identified in an Acknowledgement.

1.34       

Process Know-How” means all know-how provided by Client to Catalent and, subject to the exclusions in the next sentence, certain know-how to the extent it relates to the processing, manufacture, quality control, formulation, filling, finishing, testing and packaging of a Product, whether in bulk or final form, and regardless of container, including, without limitation, analytical tests methods for in-process and final Product, copies of manufacturing records, formulation recipes, designs and drawings (limited to ink print design, and capsule color, shape, and design), and formulae, used in the delivery of Processing for a Product to the extent it is in the possession, or under the control, of Catalent, its Affiliates and their respective subcontractors; “Process Know-How” does not include any of the following: (i) Catalent IP, and (ii) the proprietary process information contained in the drug master file, including without limitation, the gelatin master batch record, the gelatin conversion section of the master batch record, the encapsulation set up page, and processing aids (lubricants and wash solution).

 3 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

1.35       

Process Know-How Transfer” means the commercially reasonable efforts of the parties undertaken pursuant to the Process Know-How Transfer Plan to transfer copies of all Process Know-How (together with relevant books and records) and the “Standards” (defined below) in Catalent’s possession, to Client as set forth in greater detail in the Process Know-How Transfer Plan. Catalent shall only be obligated to use its commercially reasonable efforts in the implementation of the Process Know-How Transfer Plan, and in no case shall Catalent personnel visit the site of Client or any third party manufacturer of softgels, as the case may be. For the avoidance of doubt, the foregoing prohibition shall not be construed as a basis for Catalent refusing to assist in the transfer of analytical methods to an independent laboratory, including a visit by Catalent personnel to such site to assist in method transfer, if, and only as, reasonably necessary, and at Client’s cost and expense. As used herein “Standards” means data, information, or samples of validated or Catalent manufactured or partially manufactured Product or other indicia measured at various points during Processing, to the extent Catalent possesses such data, information, or samples. “Standards” does not include any of the following: (i) Catalent IP, and (ii) the proprietary process information contained in the drug master file, including without limitation, the gelatin master batch record, the gelatin conversion section of the master batch record, the encapsulation set up page, and processing aids (lubricants and wash solution).

1.36       

Process Know-How Transfer Plan” means that plan addressing orderly Process Know-How Transfer, to be prepared in writing and reasonably agreed to by the parties within the sixty (60) day period following notice from Client to Catalent of its intention to commence Process Know-How Transfer.

1.37

Product” means the bulk pharmaceutical product containing the API, as more specifically described in the Specifications.

1.38       

Product Maintenance Services” has the meaning set forth in Section 2.2.

1.39       

Purchase Order” has the meaning set forth in Section 4.3.

1.40       

Quality Agreement” has the meaning set forth in Section 9.6.

1.41       

Raw Materials” means all raw materials, supplies, components and packaging necessary to manufacture and ship Product in accordance with the Specifications, but excluding Client-supplied Materials.

1.42       

Recall” has the meaning set forth in Section 9.5.

1.43       

Recipient” has the meaning set forth in Section 10.1.

1.44       

Regulatory Approval” means any approvals, permits, product and/or establishment licenses, registrations or authorizations, including approvals pursuant to U.S. Investigational New Drug Applications, New Drug Applications and Abbreviated New Drug Applications, as applicable, of any Regulatory Authorities that are necessary or advisable in connection with the development, manufacture, testing, use, storage, exportation, importation, transport, promotion, marketing, distribution or sale of API or Product in the Territory.

1.45       

Regulatory Authority” means the international, federal, state or local governmental or regulatory bodies, agencies, departments, bureaus, courts or other entities in the Territory that are responsible for (A) the regulation (including pricing) of any aspect of pharmaceutical or medicinal products intended for human use including, but not limited to, their manufacture, handling and storage, or (B) health, safety or environmental matters generally. In the United States, this includes the United States Food and Drug Administration.

1.46       

Representatives” of an entity mean such entity’s duly-authorized officers, directors, employees, agents, accountants, attorneys or other professional advisors.

1.47       

Review Period” has the meaning set forth in Section 5.2.

1.48       

Rolling Forecast” has the meaning set forth in Section 4.2.

 4 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

1.49       

Sample” has the meaning set forth in Section 5.1.

1.50       

Softgel Technology” means Catalent’s proprietary technology, whether or not patented or patentable, for the manufacture of softgels for various uses, including the oral administration of pharmaceutically active ingredients (including health and nutritional substances). The Softgel Technology includes proprietary know how relating to (A) the development of fill and shell formulations, (B) the design and use of the encapsulation process to enhance stability, solubility, bioavailability and manufacturability of active ingredient chemical entities in softgels, (C) the selection and preparation of solvents, vehicles, excipients, surfactants, stabilizers, gelatin and gelatin substitutes, plasticizers and other components of the liquid fill and the shell and (D) certain encapsulation, drying and related manufacturing techniques and machinery for making experimental, clinical, or commercial quantities of softgels. For clarity, Softgel Technology does not encompass any technology or information provided by Client to Catalent, including, but not limited to, the formulation of the Product.

1.51       

Specifications” means the procedures, requirements, standards, quality control testing and other data and the scope of services as set forth in Attachment A, as modified from time to time in accordance with Article 8.

1.52       

Term” has the meaning set forth in Section 16.1.

1.53       

Territory” means the United States of America, and any other country that the parties agree in writing to add to this definition of Territory in an amendment to this Agreement, except shall not include countries that are targeted by the comprehensive sanctions, restrictions or embargoes administered by the United Nations, European Union, United Kingdom, or the United States. Catalent shall not be obliged to Process Products for sale in any of such countries if it is prevented from doing so, or would be required to obtain or apply for special permission to do so, due to any restrictions (such as embargoes) imposed on it by any governmental authorities, including without limitation, those imposed by the U.S. Office of Foreign Asset Control.

1.54       

Unit Pricing” has the meaning set forth in Section 7.1(A).

1.55       

Vendor” has the meaning set forth in Section 3.2(B).

ARTICLE 2

PROCESSING & RELATED SERVICES

2.1       

Supply and Purchase of Product. Catalent shall Process Product in accordance with the Specifications, Applicable Laws and the terms and conditions of this Agreement.

2.2       

Product Maintenance Services. Client will receive the following product maintenance services (the “Product Maintenance Services”): one annual audit (as further described in Section 9.5); regulatory audits (as further described in Section 9.4); one annual Product review (within the meaning of 21 CFR § 221.180); drug master file updates for the Territory, if applicable; access to document library over and above the Quality Agreement, including additional copies of Batch paperwork or other Batch documentation; assistance in preparing Regulatory Approvals; Product document and sample storage relating to cGMP requirements; vendor re-qualification; and maintenance, updates and storage of master batch records and audit reports. For avoidance of doubt, the following services and items are not included in Product Maintenance Services: technology transfer; analytical work; stability; and process rework.

2.3       

Other Related Services. Catalent shall provide such Product-related services, other than Processing or Product Maintenance Services, as agreed to in writing by the parties from time to time. Such writing shall include the scope and fees for any such services and be appended to this Agreement. The terms and conditions of this Agreement shall govern and apply to such services.

2.4       

Validation Services. Catalent shall Process validation Batches and perform validation services at prices to be agreed in writing between the parties.

 5 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

ARTICLE 3

MATERIALS

3.1       

Client-supplied Materials.

A.       

Client shall supply to Catalent for Processing, at Client’s cost, all Client-supplied Materials, in quantities sufficient to meet Client’s requirements for Product. Client shall deliver such items and associated certificates of analysis to the Facility no later than 60 days (but not earlier than 90 days, unless agreed to by the Parties or accepted by Catalent) before the Processing Date. Client’s failure to fulfill the foregoing obligations in this Section 3.1 shall not by itself give rise to a cause of action in Catalent or a right by it to terminate this Agreement. Client shall be responsible at its expense for securing any necessary DEA, export or import, similar clearances, permits or certifications required in respect of such supply. Catalent shall use such items solely for Processing. Prior to delivery of any such items, Client shall provide to Catalent a copy of all associated material safety data sheets, safe handling instructions and health and environmental information and any Regulatory certifications or authorizations that may be required under Applicable Laws relating to the API and Product, and shall promptly provide any updates thereto.

B.       

Following receipt of Client-supplied Materials, Catalent shall inspect such items employing such measures as are set forth in the Specifications. Catalent will receive, handle, store and use all Client-supplied Materials in compliance with all Applicable Laws and labeled storage requirements, or lacking labeled storage requirement, the written instructions of Client, as agreed to by Catalent, such agreement not to be unreasonably withheld. Unless otherwise expressly required by the Specifications, Catalent shall have no obligation to test such items to confirm that they meet the associated specifications or certificate of analysis or otherwise; but in the event that Catalent detects a nonconformity with Specifications, Catalent shall give Client prompt notice of such nonconformity. Catalent shall not be liable for any defects in Client-supplied Materials, or in Product resulting from defective Client-supplied Materials, unless Catalent failed to properly perform the foregoing obligations. Catalent shall follow Client’s reasonable written instructions in respect of return or disposal of defective Client-supplied Materials, at Client’s cost.

C.       

Client shall retain title to Client-supplied Materials at all times and shall bear the risk of loss thereof, except for losses to the extent due to the negligent acts or omissions of Catalent or Catalent’s failure to follow storage and handling requirements or mutually agreed to written instructions of Client, in each case, subject to Article 14.

3.2       

Raw Materials.

A.       

Catalent shall be responsible for procuring, inspecting and releasing adequate Raw Materials as necessary to meet the Firm Commitment, unless otherwise agreed to by the parties in writing. Catalent shall not be liable for any delay in delivery of Product if (i) Catalent is unable to obtain, in a timely manner, a particular Raw Material necessary for Processing and (ii) Catalent placed orders for such Raw Materials promptly following receipt of Client’s Firm Commitment. In the event that any Raw Material becomes subject to purchase lead time beyond the Firm Commitment time frame, the parties will negotiate in good faith an appropriate amendment to this Agreement, including Section 4.2.

B.       

In certain instances, Client may require a specific supplier, manufacturer or vendor (“Vendor”) to be used for Raw Material. In such an event occurring after the Effective Date, (i) such Vendor will be identified in the Specifications and (ii) the Raw Materials from such Vendor shall be deemed Client-supplied Materials for purposes of this Agreement. If the cost of the Raw Material from any such Vendor is greater than Catalent’s costs for the same raw material of equal quality from other vendors, Catalent shall add the difference between Catalent’s cost of the Raw Material and the Vendor’s cost of the Raw Material to the Unit Pricing. Client will be responsible for all costs associated with qualification of any Vendor specifically required to be used upon written instruction from Client, which Vendor has not been previously qualified by Catalent.

C.       

In the event of (i) a Specification change for any reason, (ii) obsolescence of any Raw Material or (iii) termination or expiration of this Agreement, Client shall bear the cost of any unused Raw Materials (including packaging), so long as Catalent purchased such Raw Materials in quantities consistent with Client’s most recent Firm Commitment and the vendor’s minimum purchase obligations. Such Raw Material shall be the property of Client upon payment therefor.

 6 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

3.3       

Artwork and Labeling. Client shall provide or approve, prior to the procurement of applicable Raw Material, all artwork, advertising and labeling information necessary for Processing, if any. Such artwork, advertising and labeling information is and shall remain the exclusive property of Client, and Client shall be solely responsible for the content thereof. Such artwork, advertising and labeling information or any reproduction thereof may not be used by Catalent in any manner other than performing its obligations hereunder.

ARTICLE 4

MINIMUM COMMITMENT, PURCHASE ORDERS & FORECASTS

4.1       

Minimum Requirement. During each Contract Year, Client shall purchase the minimum number of units of Product set forth on Attachment B (“Minimum Requirement”). If Client does not purchase such Minimum Requirement during any Contract Year, then within [***] days after the end of such Contract Year, Client shall pay Catalent [***] of difference between (A) the total amount Client would have paid to Catalent if the Minimum Requirement had been fulfilled for the Product and (B) the sum of all purchases of Product from Catalent during such Contract Year. For the avoidance of doubt, validation Batches which are commercialized by Client shall count towards satisfaction of the Minimum Requirement in the first Contract Year.

4.2       

Forecast. On or before the [***] of each calendar month, beginning at least [***] prior to the anticipated Commencement Date, Client shall furnish to Catalent a written [***] rolling forecast of the quantities of Product that Client intends to order from Catalent during such period (“Rolling Forecast”); provided, that the quantities forecasted to be purchased in any rolling [***] period commencing on the [***] of the Commencement Date shall not be less than [***] of the Minimum Requirement for the relevant Contract Year. The first [***] of each such Rolling Forecast shall constitute a binding order for the quantities of Product specified therein (“Firm Commitment”) and the following [***] of the Rolling Forecast shall be non-binding, good faith estimates.

4.3       

Purchase Orders.

A.       

From time to time as provided in this Section 4.3(A), Client shall submit to Catalent a binding, non-cancelable purchase order for Product specifying the number of Batches to be Processed, the Batch size (to the extent the Specifications permit Batches of different sizes) and the requested delivery date for each Batch (“Purchase Order”); provided, that no Purchase Order may be for less than [***]. Concurrently with the submission of each Rolling Forecast, Client shall submit a Purchase Order for the Firm Commitment. Purchase Orders for quantities of Product in excess of the Firm Commitment shall be submitted by Client at least [***] days in advance of the delivery date requested in the Purchase Order.

B.       

Promptly following receipt of a Purchase Order, Catalent shall issue a written acknowledgement (“Acknowledgement”) that it accepts or rejects such Purchase Order. Each acceptance Acknowledgement shall either confirm the delivery date set forth in the Purchase Order or set forth a reasonable alternative delivery date, and shall include the Processing Date. Catalent may reject any Purchase Order in excess of the Firm Commitment or otherwise not given in accordance with this Agreement; provided, however, Catalent shall accept any Purchase Order that meets the requirements of this Agreement if Client is not in arrears in paying amounts due and payable under this Agreement.

C.       

Notwithstanding Section 4.3(B), Catalent shall use commercially reasonable efforts to supply Client with quantities of Product which are up to [***] in excess of the quantities specified in the Firm Commitment, subject to Catalent’s other supply commitments and manufacturing, packaging and equipment capacity.

D.       

In the event of a conflict between the terms of any Purchase Order or Acknowledgement and this Agreement, the terms of this Agreement shall control.

4.4       

Catalent’s Cancellation of Purchase Orders. Notwithstanding Section 4.5, Catalent reserves the right to cancel all, or any part of, a Purchase Order upon written notice to Client, and Catalent shall have no further obligations or liability with respect to such Purchase Order, if Client refuses or fails to timely supply conforming Client-supplied Materials in accordance with Section 3.1. Any such cancellation of Purchase Orders shall not constitute a breach of this Agreement by Catalent nor shall it absolve Client of its obligation in respect of the Minimum Requirement. Catalent shall use reasonable efforts to re-schedule Processing reflected on such Purchase Order promptly after conforming Client-supplied Materials are delivered to Catalent.

 7 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

4.5       

Client’s Modification or Cancellation of Purchase Orders.

A.       

Client may modify the delivery date or quantity of Product in a Purchase Order only by submitting a written change order to Catalent at least [***] business days in advance of the earliest Processing Date covered by such change order. Such change order shall be effective and binding against Catalent only upon the written approval of Catalent, and notwithstanding the foregoing, Client shall remain responsible for the Firm Commitment.

B.       

Notwithstanding any amounts due to Catalent under Section 4.4 or Section 4.1, if Client fails to place Purchase Orders sufficient to satisfy the Firm Commitment, Client shall pay to Catalent the Unit Pricing for all Units that would have been Processed if Client has placed Purchase Orders sufficient to satisfy the Firm Commitment and Catalent shall Process and deliver such quantity of Product as if Purchase Orders sufficient to satisfy the Firm Commitment had been placed.

C.       

Neither changes to nor postponement of any Batch of Product, nor the payment of the fees described in this Section 4.5, will reduce or in any way effect Client’s Minimum Requirement obligations set forth in Section 4.1; provided, however, any payment pursuant to this Section 4.5 shall be applied towards the Minimum Requirement.

4.6       

Unplanned Delay or Elimination of Processing. Catalent shall use commercially reasonable efforts to meet the Purchase Orders, subject to the terms and conditions of this Agreement. Catalent shall provide Client with as much advance notice as practicable if Catalent determines that any Processing will be delayed or eliminated for any reason. Any delay in Processing by Catalent in excess of [***], but less than [***], days shall result in a proportional reduction of the Minimum Requirement pertaining to the then-current Contract Year, based on the actual number of days of delay until normal, orderly Processing re-commences. Any delay in Processing subsisting for a continuous period of [***] days, or the elimination of Processing representing in excess of [***] of the Minimum Requirement for the Contract Year in which the relevant Purchase Orders were submitted shall result in an elimination of the Minimum Requirement for the balance of such Contract Year, so long as such delay or elimination was not attributable to an act or omission of Client.

4.7       

Observation of Processing. In addition to Client’s audit right pursuant to Section 9.4, Client may send up to 2 Representatives to the Facility to observe Processing for a maximum of 10 days per Contract Year (unless otherwise agreed by Catalent in writing), upon at least 10 business days’ prior notice, at reasonable times during regular business hours. The foregoing limitations shall not apply to time spent by Client Representatives on site at the Facility to participate in or witness research and development activities or to witness Processing of validation Batches of Product. Such Representatives shall abide by all Catalent safety rules and other applicable employee policies and procedures, and Client shall be responsible for such compliance. Client shall indemnify and hold harmless Catalent for any action, omission or other activity of such Representatives while on Catalent’s premises. Client’s Representatives who are not employees of Client shall be required to sign Catalent’s standard visitor confidentiality agreement prior to being allowed access to the Facility.

ARTICLE 5

TESTING; RELEASE

5.1       

Batch Release. After Catalent completes Processing of a Batch, Catalent shall also provide Client or its designee with Catalent’s certificate of analysis and certificate of compliance for such Batch. Issuance of a certificate of analysis and a certificate of compliance by Catalent constitutes release of the Batch by Catalent to Client. Client shall be responsible for final release of Product to the market.

 8 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

5.2       

Testing; Rejection. No later than [***] days after receipt of the Batch (“Review Period”), Client or its designee shall notify Catalent whether the Batch conforms to Specifications. Upon receipt of notice from Client that a Batch meets Specifications, or upon failure of Client to respond by the end of the Review Period, the Batch shall be deemed accepted by Client and Client shall have no right to reject such Batch other than for defects which existed at the time of delivery and were not discovered or discoverable in the exercise of reasonable care (“Latent Defects”). For the avoidance of doubt, (i) Batches failing to meet Specifications at the time of delivery due to Latent Defects may be rejected, if at all, only upon notice to Catalent within [***] days following the date on which such Latent Defect was discovered or should have been discovered in the exercise of reasonable care and (ii) in no event may Client reject Product after such Product’s expiration date. If Client or its designee timely notifies Catalent in writing (an “Exception Notice”) that a Batch does not conform to the Specifications or otherwise does not meet the warranty set forth in Section 12.1(A), whether due to a Latent Defect or otherwise (“Defective Product”), and provides a sample of the alleged Defective Product, Catalent shall conduct an appropriate investigation in its discretion to determine whether or not it agrees with Client that Product is Defective Product and to determine the cause of any nonconformity. If Catalent agrees that Product is Defective Product and determines that the cause of nonconformity is attributable to Catalent’s failure to perform the Processing in accordance with the Specifications (“Catalent Defective Processing”), then Section 5.4 shall apply. For avoidance of doubt, where the cause of nonconformity cannot be determined or assigned, it shall be deemed not Catalent Defective Processing.

5.3       

Discrepant Results. If the parties disagree as to whether Product is Defective Product and/or whether the cause of the nonconformity is Catalent Defective Processing, and this is not resolved within 30 days of the Exception Notice date, the parties shall cause a mutually acceptable independent third party to review records, test data and to perform comparative tests and/or analyses on samples of the alleged Defective Product and its components, including Client-supplied Materials. The independent party’s results as to whether or not Product is Defective Product and the cause of any nonconformity shall be final and binding. Unless otherwise agreed to by the parties in writing, the costs associated with such testing and review shall be borne by Catalent if Product is Defective Product attributable to Catalent Defective Processing, and by Client in all other circumstances. Client will be apprised in writing of all Defective Product investigations executed by Catalent on Client’s materials/products, including Product and Client-supplied Materials, as well as final investigation outcome and conclusion(s).

5.4       

Defective Processing. Catalent shall, at Client’s option, either (A) replace at its cost another Batch of Product (as a replacement for any Batch of Defective Product attributable to Catalent Defective Processing) using Client-supplied Materials provided at Client’s cost or (B) credit any payments made by Client for such Batch. THE OBLIGATION OF CATALENT TO REPLACE CATALENT DEFECTIVE PROCESSING IN ACCORDANCE WITH THE SPECIFICATIONS OR CREDIT PAYMENTS MADE BY CLIENT FOR DEFECTIVE PRODUCT ATTRIBUTABLE TO CATALENT DEFECTIVE PROCESSING SHALL BE CLIENT’S SOLE AND EXCLUSIVE REMEDY UNDER THIS AGREEMENT FOR DEFECTIVE PRODUCT AND IS IN LIEU OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED.

ARTICLE 6

DELIVERY

6.1       

Delivery. Catalent shall deliver Product ExWorks (Incoterms 2010) at the Facility promptly following Catalent’s release of Product; provided, however, Catalent shall be responsible for loading the Product on the carrier’s vehicle using due care. Catalent shall segregate and store all Product until tender of delivery. Title to Product shall transfer to Client upon such delivery. Client shall qualify at least 2 carriers to ship Product and then designate the priority of such qualified carriers to Catalent.

6.2       

Storage Fees. If Client fails to take delivery of any Product on any scheduled delivery date, Catalent shall store such Product until otherwise instructed by Client and Client shall be invoiced on the first day of each month following such scheduled delivery for reasonable administration and storage costs ([***] per pallet per month). Client will have at least [***] days after being notified that Product is released to take delivery, and Catalent will provide reasonable notification of the scheduled dates when Product is expected to be released. Such items shall be stored in compliance with requirements set forth in the Specification, or if no such storage Specification exists for such item, Catalent shall store such items using due care taking into account the identity of such item.

6.3       

Subcontracting. Catalent may utilize third parties to provide any part of the Processing only with the prior written approval of Client, provided that the foregoing will not apply to generally available goods and services or to subcontracting to Catalent Affiliates. If Client approves a subcontractor, then Catalent shall enter a written agreement with such subcontractor that enables Catalent to comply with its obligations under this Agreement and places such subcontractors under obligations of confidentiality, non-use and intellectual property ownership no less burdensome than those set forth herein and applicable to Catalent.  Catalent will oversee all services performed by any subcontractor, and will be responsible for such services as if such services were performed by Catalent. Catalent shall remain liable for the performance of its subcontractors under this Agreement. The use of subcontractors shall not relieve Catalent of any responsibility under this Agreement.

 9 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

ARTICLE 7

PAYMENTS

7.1

Fees. In consideration for Catalent performing services hereunder:

A.       

Client shall pay Catalent the unit pricing for Product set forth on Attachment B (“Unit Pricing”). Catalent shall submit an invoice to Client for such fees upon tender of delivery of Product as provided in Section 6.1.

B.       

Client shall pay Catalent the annual fees for Product Maintenance Services set forth on Attachment B. Catalent shall submit an invoice to Client for such fees upon the Effective Date and upon each anniversary of the Effective Date during the Term.

C.       

Other Fees. Client shall pay Catalent for all other fees and expenses of Catalent owing in accordance with the terms of this Agreement, including pursuant to Sections 2.3, 4.1, 6.2 and 16.3. Catalent shall submit an invoice to Client for such fees as and when appropriate.

7.2       

Unit Pricing Increase. The Unit Pricing shall be adjusted on an annual basis, effective on each July 1st (with the first price adjustment to be effective on July 1, 2017), upon 60 days’ prior written notice from Catalent to Client, to reflect increases in labor, utilities and overhead and shall be in an amount equal to the change in the Producer Price Index (“PPI”), "Pharmaceutical Preparation Manufacturing” (Series ID: PCU325412325412), not seasonally adjusted, as published by the U.S. Department of Labor, Bureau of Labor Statistics. The initial base period for comparison shall be the twelve (12) month period ending on the date most closely preceding July 1, 2017, but which allows enough time for Catalent to provide to Client the notice required by this Section 7.2. In addition, price increases for raw materials, and components shall be passed through to Client. For the avoidance of doubt, no such annual increase shall exceed [***] in the aggregate for the PPI and raw materials and component costs.

7.3       

Payment Terms. Payment of all Catalent invoices shall be due 30 days after the date of invoice. No invoice shall be issued to Client for Processing until the Batch so Processed has been delivered to Client pursuant to Section 6.1. Client shall make payment in U.S. dollars, and otherwise as directed in the applicable invoice. If any payment is not received by Catalent by its due date, then Catalent may, in addition to any other remedies available at equity or in law, charge interest on the outstanding sum from the due date (both before and after any judgment) at 1.5% per month until paid in full (or, if less, the maximum amount permitted by Applicable Laws).

7.4       

Advance Payment. Notwithstanding any other provision of this Agreement, if at any time Catalent reasonably determines that Client’s credit has materially eroded as compared to its status as of the Effective Date, and Client is in arrears in paying amounts due under this Agreement, Catalent may require payment in advance before performing any further services or making any further shipment of Product. If Client shall fail, within a reasonable time, to make such payment in advance, or if Client shall fail to make any payment when due, Catalent shall have the right, at its option, to suspend any further performance hereunder until such default is corrected, without thereby releasing Client from its obligations under this Agreement.

 10 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

7.5       

Taxes. All taxes, duties and other amounts assessed (excluding tax based on net income and franchise taxes) on Client-supplied Materials, services or Product prior to or upon provision or sale to Catalent or Client, as the case may be, are the responsibility of Client, and Client shall reimburse Catalent for all such taxes, duties or other expenses paid by Catalent or such sums will be added to invoices directed at Client, where applicable.

7.6       

Client and Third Party Expenses. Except as may be expressly covered by Product Maintenance Service fees, Client shall be responsible for 100% of its own and all third-party expenses associated with the development, Regulatory Approvals and commercialization of Product, including regulatory filings and post-approval marketing studies. The preceding sentence shall not be construed in derogation of Catalent’s obligations pursuant to Section 9.2 herein.

7.7       

Development Batches. Development Batches produced after the Effective Date shall be deemed to have been produced under the Development Agreement. Client will be responsible for the cost of such Development Batches, including those necessary to support the validation portion of Client’s submissions for Regulatory Approvals, which fail to meet the Specifications as set forth in Section 4.1 of the Development Agreement. Catalent and Client shall cooperate in good faith to resolve any problems causing the out-of-Specification Batch.

ARTICLE 8

CHANGES TO SPECIFICATIONS

8.1       

All Specifications and any changes thereto agreed to by the parties from time to time shall be in writing, dated and signed by the parties. No change in the Specifications shall be implemented by Catalent, whether requested by Client or requested or required by any Regulatory Authority, until the parties have agreed in writing to such change, the implementation date of such change, and any increase or decrease in costs, expenses or fees associated with such change (including any change to Unit Pricing). Catalent shall respond promptly to any request made by Client for a change in the Specifications, and both parties shall use commercially reasonable, good faith efforts to agree to the terms of such change in a timely manner. As soon as possible after a request is made for any change in Specifications, Catalent shall notify Client of the costs associated with such change and shall provide such supporting documentation as Client may reasonably require. Client shall pay all costs associated with such agreed upon changes. If there is a conflict between the terms of this Agreement and the terms of the Specifications, this Agreement shall control. Catalent reserves the right to postpone effecting changes to the Specifications until such time as the parties agree to and execute the required written amendment.

ARTICLE 9

RECORDS; REGULATORY MATTERS

9.1       

Recordkeeping. Catalent shall maintain complete and accurate Batch, laboratory data, reports and other technical records relating to Processing in accordance with Catalent standard operating procedures. Such information shall be maintained for a period of at least 2 years from the relevant finished Product expiration date or longer if required under Applicable Laws or the Quality Agreement. Catalent will retain samples required by cGMP and such samples shall be stored at the Facility pursuant to Catalent’s standard operating procedures. Prior to the destruction of any such Product specific items, Catalent shall notify Client of the impending destruction and provide Client a reasonable opportunity to receive any or all such items.

 11 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

9.2       

Regulatory Compliance. Catalent shall obtain and maintain, at its cost and expense, all permits and licenses with respect to general Facility operations required by any Regulatory Authority in the jurisdiction in which Catalent Processes Product. Client shall obtain and maintain, at its cost and expense, all other Regulatory Approvals, authorizations and certificates, including those necessary for Catalent to commence Processing. Client shall reimburse Catalent for any payments Catalent is required to make to any Regulatory Authority pursuant to Applicable Laws resulting from Catalent’s formulation, development, manufacturing, processing, filling, packaging, storing or testing of Client’s Product or Client-supplied Materials at the Facility (including without limitation any payments or fees Catalent is required to make pursuant to the Generic Drug User Fee Amendments of 2012 (“GDUFA”) and pursuant to Applicable Laws similar to GDUFA; provided, however, that on a Facility by Facility basis, in the event Catalent’s Facility is referenced in a third party(ies) regulatory filing, the pertinent fee shall be apportioned and reduced accordingly between the third party(ies) and Client for each year thereafter (e.g., in the event that Catalent is required to pay such fee as a result of Client and a single third party, Client shall only be obligated to reimburse Catalent for [***]% of such fee payment). Catalent and Client hereby acknowledge that as of the Effective Date, GDUFA does not apply to the Product or its Processing. Upon reasonable written request, Client shall provide Catalent with a copy of applicable Regulatory Approvals required to distribute, market and sell Product in the Territory. If Client is unable to provide such information, Catalent shall have no obligation to deliver Product to Client, notwithstanding anything to the contrary in this Agreement. During the Term, Catalent will assist Client with all regulatory matters relating to Processing and review the Common Technical Document pertaining to the Product and make such corrections as are necessary to accurately reflect the Product, in each case at Client’s request and reasonable expense; provided, however, Catalent shall review and correct such documents as they relate to Catalent activities at no charge to Client. In addition, Catalent will maintain at Catalent’s expense, the relevant Drug Master File, including any updates thereto, and shall provide a letter authorizing Client to reference Catalent Drug Master Files on file with the FDA and other regulatory authorities in connection with the pursuit of Regulatory Approval for the Product. The parties intend and commit to cooperate to allow each party to satisfy its obligations under Applicable Laws relating to Processing under this Agreement.

9.3

Regulatory Communications.

A.       

Each party may communicate with any governmental agency, including, but not limited to, governmental agencies responsible for granting regulatory approval for the Products, regarding such Products if in the opinion of that party’s counsel, such communication is necessary to comply with the terms of this Agreement or the requirements of any Applicable Law; provided, however, that unless in the reasonable opinion of its counsel there is a legal prohibition against doing so, such party will permit the other party to review and take part in any communications with the applicable agency, and to receive copies of all such communications from that agency.

B.       

Catalent will notify Client promptly if Catalent receives any warning letters from or on behalf of a governmental agency directly related to the Product or systems utilized in Processing the Product including, without limitation, any Form FDA-483. Catalent will provide Client copies of any written communication from a governmental agency relating to a Client Product within three (3) business days of its receipt.

C.       

Catalent will promptly notify Client upon receipt of a notice from a Regulatory Authority for an inspection of any Facility where the Processing is being performed due to an issue related to the Product or a system used in the performance of such services, or, in the event of an unannounced inspection, Catalent will provide such prior notice as is possible and permissible. If not prohibited by the Regulatory Authority, Client will have the right to be present during such audit or inspection and any wrap-up meeting with such Regulatory Authority as it applies to the Product. If Catalent receives any request by a Regulatory Authority with respect to the Product, including, but not limited to, a notice of deficiency or FDA-483 that requires a written response regarding Client-supplied Materials, project, or protocol, Catalent will provide a copy to Client of the deficiency notice within forty-eight (48) hours of Catalent’s receipt of the notice. Catalent will provide Client a draft of the response prior to the response being submitted to the Regulatory Authority so as to provide Client with reasonable time to review and comment on the response, which comments Catalent, in good faith, will consider incorporating into the response.

 12 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

9.4       

Governmental Inspections and Requests. Catalent shall promptly advise Client if an authorized agent of any Regulatory Authority notifies Catalent that it intends to or does visit a Facility or any other site for the purpose of reviewing the Processing or testing. Upon request, Catalent shall provide Client with a copy of any report issued by such Regulatory Authority received by Catalent following such visit, redacted as appropriate to protect any confidential information of Catalent and Catalent’s other customers. Client acknowledges that it may not direct the manner in which Catalent fulfills its obligations to permit inspection by and to communicate with Regulatory Authorities, but such acknowledgement shall not be construed to vitiate Catalent’s obligations to Client pursuant to this Agreement. Client shall reimburse Catalent for all reasonable and documented costs, at a rate of [***] per hour, associated with inspections by Regulatory Authorities specifically concerning the Product, such as the pre-approval inspection. Client will not be required to pay costs to mitigate any deficiencies cited in a Form 483 or Catalent’s Facility deficiencies. Such documentation will include a description of the activities and time expended for such inspections.

9.5       

Client Facility Audits. During the Term, Client’s Representatives shall be granted access upon at least 10 business days’ prior notice, at reasonable times during regular business hours, to (A) the portion of the Facility where Catalent performs Processing, (B) relevant personnel involved in Processing and (C) Processing records described in Section 9.2, in each case solely for the purpose of verifying that Catalent is Processing in accordance with cGMPs, Applicable Laws, the Specifications and the Product master Batch records. Client may not conduct an audit under this Section more than once during any 12 month period; provided, that additional inspections may be conducted by or on behalf of Client as deemed appropriate by Client in the event there is a material quality or compliance issue concerning Product or its Processing or to measure remediation following an audit by either Client or a Regulatory Authority that resulted in a finding of deficiency. Client’s Quality Assurance Manager will arrange Client audits with Catalent Quality Management. Audits shall be designed to minimize disruption of operations at the Facility. Client’s Representatives who are not employees of Client shall be required to sign Catalent’s standard visitor confidentiality agreement prior to being allowed access to the Facility. Such Representatives shall comply with the Facility’s rules and regulations which are made known in advance to Client. Client shall indemnify and hold harmless Catalent for any action or activity of such Representatives while on Catalent’s premises.

9.6       

Recall. If a Regulatory Authority orders or requires the recall of any Product supplied hereunder or if either Catalent or Client believes a recall, field alert, Product withdrawal or field correction (“Recall”) may be necessary with respect to any Product supplied under this Agreement, the party receiving the notice from the Regulatory Authority or that holds such belief shall promptly notify the other party in writing. With respect to any Recall, Catalent shall provide all necessary cooperation and assistance to Client.  Client shall provide Catalent with an advance copy of any proposed submission to a Regulatory Authority in respect of any Recall, and shall consider in good faith any comments from Catalent.  The cost of any Recall shall be borne by Client, and Client shall reimburse Catalent for expenses incurred in connection with any Recall, in each case except to the extent such Recall is caused by Catalent’s breach of its Processing obligations under this Agreement or Catalent’s violation of Applicable Laws, then such cost shall be borne by Catalent in proportion to Catalent’s contribution to the cause of the Recall.  For purposes hereof, such Catalent cost shall be limited to reasonable, actual and documented administrative costs incurred by Client for such Recall and if applicable, replacement of the Product subject to Recall both in accordance with Article 5. 

9.7       

Quality Agreement. Within 6 months after the Effective Date, and in any event prior to the first Processing of Product hereunder, the parties shall negotiate in good faith and enter into a quality agreement on Catalent’s standard template or such other template agreed to by the parties (the “Quality Agreement”). The Quality Agreement shall in no way determine liability or financial responsibility of the parties for the responsibilities set forth therein. In the event of a conflict between any of the provisions of this Agreement and the Quality Agreement with respect to quality-related activities, including compliance with cGMP, the provisions of the Quality Agreement shall govern. In the event of a conflict between any of the provisions of this Agreement and the Quality Agreement with respect to any commercial matters, including allocation of risk, liability and financial responsibility, the provisions of this Agreement shall govern.

 13 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

ARTICLE 10

CONFIDENTIALITY AND NON-USE

10.1       

Definition. As used in this Agreement, the term “Confidential Information” includes all information furnished by or on behalf of Catalent or Client, their respective Affiliates or any of its or their respective Representatives (the “Discloser”), to the other party (the “Recipient”), its Affiliates or any of its or their respective Representatives, whether furnished before, on or after the Effective Date and furnished in any form, including written, verbal, visual, electronic or in any other media or manner and information acquired by observation or otherwise during any site visit at the other party’s facility. Confidential Information includes all proprietary technologies, know-how, trade secrets, discoveries, inventions and any other intellectual property (whether or not patented), analyses, data, regulatory submission Information, compilations, business or technical information, strategies, or plan, samples, and other materials prepared or possessed by either party, their respective Affiliates, or any of its or their respective Representatives, containing or based in whole or in part on any information furnished by the Discloser, its Affiliates or any of its or their respective Representatives. Confidential Information also includes the existence of this Agreement and its terms. The manufacturing process parameters which are being provided to Catalent from Client, the Specifications and data resulting from performance of this Agreement by Catalent shall be considered Client’s Confidential Information. Items and information for which ownership has been allocated to Client under the Development Agreement shall be deemed to be the Confidential Information of Client under this Agreement.

10.2       

Exclusions. Notwithstanding Section 10.1, Confidential Information does not include information that (A) is or becomes generally available to the public or within the industry to which such information relates other than as a result of a breach of this Agreement, (B) is already known by the Recipient at the time of disclosure as evidenced by the Recipient’s written records created in the ordinary course of business, (C) becomes available to the Recipient on a non-confidential basis from a source that is entitled to disclose it on a non-confidential basis or (D) was or is independently developed by or for the Recipient without reference to the Confidential Information of the Discloser as evidenced by the Recipient’s contemporaneously created written records.

10.3       

Mutual Obligation. The Recipient agrees that it will not use the Discloser’s Confidential Information except in connection with the performance of its obligations or the exercise of its rights under this Agreement, and will not disclose, without the prior written consent of the Discloser, Confidential Information of the Discloser to any third party, except that the Recipient may disclose the Discloser’s Confidential Information to any of its Affiliates and its or their respective Representatives and subcontractors for which consent has been given pursuant to Section 6.3 and who have obligations of confidentiality and non-use at least as rigorous as those terms herein, in each case, that (A) need to know such Confidential Information for the purpose of performing under this Agreement, (B) are advised of the contents of this Article and (C) are bound to the Recipient by obligations of confidentiality at least as restrictive as the terms of this Article. Each party shall be responsible for any breach of this Article by its Affiliates or any of its or their respective Representatives or any person receiving Confidential Information directly or indirectly from or through the Recipient.

10.4       

Permitted Disclosure. The Recipient may disclose the Discloser’s Confidential Information to the extent required by law or regulation; provided, that prior to making any such legally required disclosure, the Recipient shall give the Discloser as much prior notice of the requirement for and contents of such disclosure as is practicable under the circumstances. Any such disclosure, however, shall not relieve the Recipient of its obligations contained herein.

10.5       

No Implied License. Except as expressly set forth in Section 10.1, the Recipient will obtain no right of any kind or license under any Confidential Information of the Discloser, including any patent application or patent, by reason of this Agreement. All Confidential Information will remain the sole property of the Discloser, subject to Article 11.

10.6       

Return of Confidential Information. Upon expiration or termination of this Agreement, the Recipient will (and will cause its Affiliates and its and their respective Representatives to) cease its use and, upon written request, within 30 days either return or destroy (and certify as to such destruction) all Confidential Information of the Discloser, including any copies thereof, except for a single copy which may be retained for the sole purpose of ensuring compliance with its continuing obligations under this Agreement.

 14 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

10.7       

Survival. The obligations of this Article will terminate with respect to items of Confidential Information upon the entry thereof into general knowledge in the public domain, other than due to breach of this Agreement by the Recipient thereof or by a person receiving such Confidential Information from or through the Recipient, but in no event earlier than five (5) years from the expiration or earlier termination of this Agreement.

10.8       

Reverse Engineering. Unless otherwise consented to by the Discloser in writing or provided for in a separate agreement between the parties, the Recipient will not analyze for chemical composition any samples or materials that are the Confidential Information of Discloser, nor to allow or cause any such samples or materials that are the Confidential Information of Discloser to be released to third parties for analysis; provided, however, (i) this Section 10.8 shall not be construed to prevent Client from testing Product or items related to Product itself or through third parties, as it sees fit in its sole and absolute discretion; and (ii) this Section 10.8 shall not be construed to prevent Catalent from analyzing for chemical composition samples or materials that are commercially available or from developing or manufacturing products containing Estradiol, including Generic Products so long as Catalent does not utilize Client’s Confidential Information to do so.

ARTICLE 11

INTELLECTUAL PROPERTY

11.1       

The parties hereby acknowledge that it is neither their intention nor the purpose of this Agreement to engage in inventive steps in the conception, reduction to practice or development of intellectual property. Nevertheless, in the event, and to the extent, that intellectual property is conceived, reduced to practice, developed or otherwise created by or on behalf of either or both of the parties in connection with this Agreement, the ownership of such intellectual property shall be subject to the terms and conditions of Sections 7.1 and 7.2 of the Development Agreement, as if such intellectual property was conceived, reduced to practice or developed pursuant to the Development Agreement.

11.2       

Transfer. Following notice given by Client to Catalent, Catalent will provide reasonable assistance to effect the timely and orderly transfer of the Process Know-How, and pertinent books and records (or copies thereof, as the case may be) pursuant to the Process Know-How Transfer Plan to Client pursuant to this Section 11.2 and the Process Know-How Transfer Plan whether to establish a second source during the term of this Agreement or at or about the time of termination or expiration of this Agreement. Catalent shall only be obligated to use its commercially reasonable efforts in the implementation of the Process Know-How Transfer Plan, and in no case shall Catalent personnel visit the site of Client or any third party manufacturer of softgels, as the case may be. For the avoidance of doubt, the foregoing prohibition shall not be construed as a basis for Catalent refusing to assist in the transfer of analytical methods to an independent laboratory, including a visit by Catalent personnel to such site to assist in method transfer, if, and only as, reasonably necessary, and at Client’s cost and expense.

11.3       

Books and Records. Where any document, or books and records contain Process Know-How together with other information of Catalent, its Affiliates or their respective subcontractors, or other Catalent customers, Catalent shall only be required to provide to Client a copy of that portion of that document or books and records that discloses the Process Know-How that pertains to the Product. When transferred to Client, such copies will be the property of Client. Catalent may retain the original books and records and any documents required by Applicable Laws to be retained by Catalent, which disclose the Process Know-How. After completion of performance of the Process Know-How Transfer Plan, before destroying any documents, or books and records which contain material disclosures of Process Know-How that have not been previously been provided to Client (whether in the same form or some other form), Catalent will notify Client of such intended destruction and provide Client with thirty (30) days to notify Catalent in writing whether Client wishes to obtain the same to the extent it is entitled to under this Agreement, in which case Catalent will deliver the requested document or books and records (or copies of all or a portion thereof, as the case may be) to Client at Client’s sole cost and expense.

 15 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

11.4       

Client Marks. Catalent will not use Client’s Marks without prior written authorization from Client. The Marks are, and will remain, Client’s sole and exclusive property, and Catalent has not acquired, and will not acquire (by operation of law, this Agreement, or otherwise), any right, title, or interest in any of Client’s Marks other than as explicitly provided in writing by Client. Any and all goodwill and rights that arise under trademark and copyright law, and all other intellectual property rights that arise in favor of Client’s Marks as a result of this Agreement or otherwise, will inure to the sole and exclusive benefit of Client. Subject to the next sentence, during the Term of this Agreement, Catalent will not attack, dispute, or challenge Client’s right, title, and interest in and to Client’s Marks or assist others in so doing. Catalent reserves the right to attack, dispute, or challenge Client’s right, title, and interest in and/or to Client’s Marks or assist others in so doing, if Catalent believes in good faith that Client’s Mark infringes a Mark owned by or licensed to Catalent or one of its Affiliates.

11.5       

Analytical Methods. Catalent, in the development of analytical methods for a Generic Product, whether on its own behalf or on behalf of a third party, shall not use the services of any person, whether an employee or contractors, in the development of such methods, who either (i) provided analytical method development services on behalf of Catalent under this Agreement or the Development Agreement, or (ii) has such intimate knowledge of the Client’s analytical methods or the manner in which such methods were developed that such persons participation in the development of the analytical method for a Generic Product could reasonably be determined to materially accelerate the development of such methods for the Generic Product.  “Generic Product” shall mean [***].

 

ARTICLE 12

REPRESENTATIONS AND WARRANTIES AND COMPLIANCE

12.1       

Catalent. Catalent represents, warrants and undertakes to Client that:

A.       

at the time of delivery by Catalent as provided in Section 6.1, Product shall have been Processed in accordance with this Agreement and with Applicable Laws and in conformance with the Specifications and shall not be adulterated, misbranded or mislabeled within the meaning of Applicable Laws; provided, that Catalent shall not be liable for defects attributable to Client-supplied Materials (including artwork, advertising and labeling);

B.       

all personnel, employees, and agents of Catalent and its Affiliates and their respective subcontractors who perform services, are and will continue to be qualified and to have sufficient technical expertise to perform Catalent’s obligations under this Agreement;

C.       

Catalent has the full power and authority to execute and deliver this Agreement and perform its covenants, duties, and obligations described in this Agreement, and once executed, this Agreement will be a valid, legal, and binding obligation upon Catalent;

D.       

Catalent is not now, nor will it be, a party to any agreement which would prevent Catalent from fulfilling its obligations under this Agreement, and that during the Term of this Agreement will not enter into any agreement with any other party that would in any way prevent Catalent from performing its obligations under this Agreement;

E.       

Catalent will maintain all records and reports as required under this Agreement, and as required to comply with Applicable Laws;

F.       

Catalent will not in the performance of its obligations under this Agreement use the services of any person debarred or suspended (or subject to debarment or suspension) under 21 U.S.C. §335(a) or (b) or otherwise disqualified by Applicable Law;

 16 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

G.       

(i) Catalent is not nor has it ever been, and (ii) Catalent has not used, and will not use, the services of any person excluded, debarred, suspended, or otherwise ineligible to participate in the Federal health care programs or in Federal procurement or non-procurement programs, and has not used, and will not use, the services of any person listed on the HHS/OIG List of Excluded Individuals/Entities (http://www.oig.hhs.gov), the GSA’s List of Parties Excluded from Federal Programs (http://www.epls.gov), or the FDA Debarment List (http://www.fda.gov/ora/compliance_ref/debar/default.htm), as amended or replaced from time to time, in connection with any of the services performed under this Agreement. Catalent further certifies that it, and any other person or entity used by Catalent in performing any of the services under this Agreement, has not been convicted of a criminal offense that falls within the ambit of 42 U.S.C. §1320a-7(a). Catalent agrees to notify Client promptly in the event Catalent, or any person used by Catalent in connection with this Agreement, ever becomes excluded, debarred, suspended, or otherwise ineligible to participate in Federal health care programs or in Federal procurement or non-procurement programs. This certification applies to Catalent and its respective officers, agents, and employees as well as subcontractors performing on behalf of Catalent under this Agreement;

H.       

Catalent has all necessary authority to use the Catalent technology utilized with the Product and as contemplated by this Agreement; there are no patents owned by others related to the Catalent IP utilized with the Product that would be infringed or misused by Catalent’s performance of the Agreement; and, to its knowledge, no trade secrets or other proprietary rights of others related to the Catalent IP utilized with the Product that would be infringed or misused by Catalent’s performance of this Agreement;

I.       

Catalent will not release any Batch of Product if the required certificates of conformance indicate that Product does not comply with the Specifications; and

J.       

no transactions or dealings under this Agreement shall be conducted with or for an individual or entity that is designated as the target of any sanctions, restrictions or embargoes administered by the United Nations, European Union, United Kingdom, or the United States. 

12.2       

Client. Client represents, warrants and undertakes to Catalent that:

A.       

all Client-supplied Materials shall have been produced in accordance with Applicable Laws, shall comply with all applicable specifications, including the Specifications, shall not be adulterated, misbranded or mislabeled within the meaning of Applicable Laws, and shall have been provided in accordance with the terms and conditions of this Agreement;

B.       

the content of all artwork provided to Catalent shall comply with all Applicable Laws;

C.       

all Product delivered to Client by Catalent shall be held, used and disposed of by or on behalf of the Client in accordance with all Applicable Laws, and Client will otherwise comply with all laws, rules, regulations and guidelines applicable to Client’s performance under this Agreement;

D.       

Client will not release any Batch of Product if the required certificates of conformance indicate that Product does not comply with the Specifications or if Client does not hold all necessary Regulatory Approvals to market and sell the Product;

E.       

Client has all necessary authority to use and to permit Catalent to use pursuant to this Agreement all intellectual property related to Product or Client-supplied Materials (including artwork), and the Processing by Catalent of the foregoing, including any copyrights, trademarks, trade secrets, patents, inventions and developments; to Client’s knowledge there are no patents owned by others related to the Client IP utilized with the Product that would be infringed or misused by Client’s performance of the Agreement; and, to its knowledge, no trade secrets or other proprietary rights of others related to the Client IP utilized with the Product that would be infringed or misused by Client’s performance of this Agreement;

 17 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

F.       

To Client’s knowledge the services to be performed by Catalent under this Agreement will not violate or infringe upon any trademark, tradename, copyright, patent, trade secret, or other intellectual property or other right held by any person or entity; provided that Client makes no representation with respect to the Catalent IP;

G.       

Client has all authorizations and permits required to deliver API (or have delivered) to Catalent’s Facility;

H.       

Client has the full power and authority to execute and deliver this Agreement and perform its covenants, duties, and obligations described in this Agreement, and once executed, this Agreement will be a valid, legal, and binding obligation upon Client; and

I.       

no transactions or dealings under this Agreement shall be conducted with or for an individual or entity that is designated as the target of any sanctions, restrictions or embargoes administered by the United Nations, European Union, United Kingdom, or the United States. 

12.3       

Limitations. THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE ARE THE SOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES MADE BY EACH PARTY TO THE OTHER PARTY, AND NEITHER PARTY MAKES ANY OTHER REPRESENTATIONS, WARRANTIES OR GUARANTEES OF ANY KIND WHATSOEVER, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.

12.4

Compliance with Anti-Corruption Laws.

Each party agrees that, in the performance of its obligations under this Agreement, it will not: (i) provide or promise to provide, directly or indirectly, any unlawful contribution, gift, entertainment, or other unlawful payment to any foreign or domestic government employee relating to political activity; (ii) take any action, directly or indirectly, that violates Foreign Corrupt Practices Act (“FCPA”), or any other applicable anti-corruption law of any foreign jurisdiction, including, without limitation, “use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value” to any “foreign official” (as is defined in the FCPA), any foreign political party or official thereof, or any candidate for foreign political office, to influence their acts or decisions in their official capacity, to induce them to do or omit from doing any act in violation of their lawful duty, or to secure any improper advantage in order to assist in obtaining business, or retaining business, or directing business to any person; and (iii) make or propose to make any bribe, payoff, influence payment, kickback, unlawful rebate, or other similar unlawful payment of any nature, including to healthcare providers or those employed by any governmental institutions. 

ARTICLE 13

INDEMNIFICATION

13.1       

Indemnification by Catalent. Catalent shall indemnify, defend and hold harmless Client, its Affiliates, and their respective shareholders, directors, officers and employees (“Client Indemnitees”) from and against any and all suits, claims, losses, demands, liabilities, damages, costs and expenses (including reasonable attorneys’ fees and reasonable investigative costs) in connection with any suit, demand or action brought by any third party (“Losses”) directly or indirectly arising out of or resulting from (a) any breach of its representations, warranties or obligations set forth in this Agreement; (b) any negligence or willful misconduct by Catalent, its Affiliates, subcontractors, employees or agents; (c) any misrepresentation made by Catalent in this Agreement; (d) a violation of, or non-compliance with any Applicable Law by Catalent, its Affiliates, subcontractors, employees or agents in the performance of this Agreement; or (e) the infringement or alleged infringement of any trade secrets, copyrights, trademarks, trade names, or other proprietary or contractual rights of any third party arising from Catalent’s performance of services under this Agreement (except to the extent arising from the making or using of Client-supplied Materials, Client Confidential Information, or API), in each case of clauses (a) through (e) above, except to the extent that Client is obligated to indemnify any of the Catalent Indemnitees pursuant to Section 13.2 for such events.

 18 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

13.2       

Indemnification by Client. Client shall indemnify, defend and hold harmless Catalent, its Affiliates, and their respective shareholders, directors, officers and employees (“Catalent Indemnitees”) from and against any and all Losses directly or indirectly arising out of or resulting from (a) any manufacture (other than due to negligence by or on behalf of Catalent), packaging (other than due to negligence by or on behalf of Catalent), promotion, distribution, sale or use of or exposure to the Product or Client-supplied Materials, including API and including product liability or strict liability, other than claims by Catalent employees arising from their handling of Client-supplied Materials in performing the services under this Agreement; provided, however, Client delivered to Catalent all known material information regarding such risks of handling or such information was otherwise in the public domain; (b) any negligence or willful misconduct of Client, its Affiliates, subcontractors, employees or agents, (c) any breach of its representations, warranties or obligations set forth in this Agreement; (d) the content of Client’s instructions to the extent they are followed by Catalent and violate Applicable Laws; (e) the conduct of any clinical trials utilizing Product or API; (f) Client’s exercise of control over the Processing, to the extent that Client’s instructions or directions violate Applicable Laws, (g) any actual or alleged infringement or violation of any third party patent, trade secret, copyright, trademark or other proprietary right by the use, as authorized, of intellectual property or other information provided by Client to Catalent, including Client-supplied Material; in each case of clauses (a) through (g) above, except to the extent that Catalent is obligated to indemnify any of the Client Indemnitees pursuant to Section 13.1 for such events.

13.3       

Indemnification Procedures. All indemnification obligations in this Agreement are conditioned upon the indemnified party (a) promptly notifying the indemnifying party of any claim or liability of which the indemnified party becomes aware (including a copy of any related complaint, summons, notice or other instrument); provided, that failure to provide such notice within a reasonable period of time shall not relieve the indemnifying party of any of its obligations hereunder except to the extent the indemnifying party is prejudiced by such failure, (b) allowing the indemnifying party to conduct and control the defense of any such claim or liability and any related settlement negotiations (at the indemnifying party’s expense), (C) cooperating with the indemnifying party in the defense of any such claim or liability and any related settlement negotiations (at the indemnifying party’s expense) and (D) not compromising or settling any claim or liability without prior written consent of the indemnifying party.

ARTICLE 14

LIMITATIONS OF LIABILITY

14.1       

CATALENT’S LIABILITY UNDER THIS AGREEMENT FOR ANY AND ALL CLAIMS FOR LOST, DAMAGED OR DESTROYED CLIENT-SUPPLIED MATERIALS, WHETHER OR NOT SUCH CLIENT SUPPLIED MATERIALS ARE USED IN THE SERVICES OR INCORPORATED INTO PRODUCT, CAUSED BY CATALENT’S NEGLIGENCE OR BREACH SHALL NOT EXCEED [***] PER INCIDENT.

14.2       

CATALENT’S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL IN NO EVENT EXCEED THE TOTAL FEES PAID BY CLIENT TO CATALENT OR INVOICED BY CATALENT UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTHS PRECEDING RELEASE OF THE BATCH OR SERVICES GIVING RISE TO THE CLAIM. DURING THE FIRST CONTRACT YEAR, SUCH LIMITATION SHALL BE THE GREATER OF (I) TOTAL FEES PAID BY CLIENT TO CATALENT OR INVOICED BY CATALENT FROM THE COMMENCEMENT DATE, OR (II) [***]. THE FOREGOING LIMITATION SHALL NOT BE DEEMED TO LIMIT CATALENT’S LIABILITY UNDER SECTION 13.1 (INDEMNIFICATION) WITH RESPECT TO AMOUNTS PAID BY CLIENT TO THIRD PARTIES FOR BODILY INJURY.

14.3       

NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OR LOSS OF REVENUES, PROFITS OR DATA ARISING OUT OF PERFORMANCE UNDER THIS AGREEMENT, WHETHER IN CONTRACT OR IN TORT, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 19 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

ARTICLE 15

INSURANCE

15.1       

Each of Catalent and Client shall, at its own cost and expense, obtain and maintain in full force and effect during the Term the following: (A) Commercial General Liability Insurance with a per-occurrence limit of not less than $[***]; (B) Products and Completed Operations Liability Insurance with a per-occurrence limit of not less than $[***]; (C) Workers’ Compensation Insurance with statutory limits and Employers Liability Insurance with limits of not less than $[***] per accident; and (D) All Risk Property Insurance, including transit coverage, in an amount equal to the full replacement value of its property while in, or in transit to, a Catalent facility as required under this Agreement. Each party may self-insure all or any portion of the required insurance as long as, together with its Affiliates, its US GAAP net worth is greater than $[***] million or its annual EBITDA (earnings before interest, taxes, depreciation and amortization) is greater than $[***] million. If any of the required policies of insurance are written on a claims made basis, such policies shall be maintained throughout the Term and for a period of at least [***] years thereafter. Each required insurance policy, other than self-insurance, shall be obtained from an insurance carrier with an A.M. Best rating of at least A- VII. To secure the performance of its obligations under this Agreement, Client will at all times during the Term of this Agreement, maintain commercial general liability insurance providing coverage of no less than $[***] per occurrence, professional liability insurance providing coverage of no less than $[***] per occurrence, errors and omissions insurance providing coverage of no less than $[***] per occurrence and Workers’ Compensation Insurance with statutory amounts and Employers Liability Insurance with limits of not less than $[***] per accident; and Auto Liability insurance for owned, hired and non-owned vehicles in a minimum amount of $[***] combined single limit. If requested by the other party, the party will furnish certificates of insurance evidencing such coverages or the original of the insurance policies. No such policies required hereunder will be cancelable or subject to reduction of coverage or other modification except after [***] days’ prior written notice to the other party.

ARTICLE 16

TERM AND TERMINATION

16.1       

Term. This Agreement shall commence on the Effective Date and shall continue until the end of the seventh Contract Year, unless earlier terminated in accordance with Section 16.2 (as may be extended in accordance with this Section, the “Term”). The Term shall automatically be extended for successive 2-year periods unless and until one party gives the other party at least 12 months’ prior written notice of its desire to terminate as of the end of the then-current Term.

16.2       

Termination. This Agreement may be terminated immediately without further action:

A.       

by either party if the other party files a petition in bankruptcy, or enters into an agreement with its creditors, or applies for or consents to the appointment of a receiver, administrative receiver, trustee or administrator, or makes an assignment for the benefit of creditors, or suffers or permits the entry of any order adjudicating it to be bankrupt or insolvent and such order is not discharged within 30 days, or takes any equivalent or similar action in consequence of debt in any jurisdiction; or

B.       

by either party if the other party materially breaches any of the provisions of this Agreement and such breach is not cured within 60 days after the giving of written notice requiring the breach to be remedied; provided, that in the case of a failure of Client to make payments in accordance with the terms of this Agreement, Catalent may terminate this Agreement if such payment breach is not cured within 30 days of receipt of notice of non-payment from Catalent.

C.       

By Client upon one hundred eighty (180) days prior written notice to Catalent in the event Client ceases pursuit of Regulatory Approval for, or to offer for sale or to sell, Product, due to material regulatory, patient health, or intellectual property issues.

 20 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

16.3       

Effect of Termination. Expiration or termination of this Agreement shall be without prejudice to any rights or obligations that accrued to the benefit of either party prior to such expiration or termination. In the event of a termination of this Agreement:

A.       

Catalent shall promptly return to Client, at Client’s expense and direction, any remaining inventory of Product or Client-supplied Materials; provided, that all outstanding invoices have been paid in full;

B.       

Client shall pay Catalent all invoiced amounts outstanding hereunder, plus, upon receipt of invoice therefor, for any (i) Product that has been shipped pursuant to Purchase Orders but not yet invoiced, (ii) Product Processed pursuant to Purchase Orders that has been completed but not yet shipped, and (iii) in the event that this Agreement is terminated for any reason other than by Client pursuant to Section 16.2(A) or (B), or by Catalent pursuant to Section 16.2(C), all Product in process of being Processed pursuant to Purchase Orders (or, alternatively, Client may instruct Catalent to complete such work in process, and the resulting completed Product shall be governed by clause (ii)); and

C.       

in the event that this Agreement is terminated for any reason other than by Client pursuant to Section 16.2(A) or (B), or by Catalent pursuant to Section 16.2(C), Client shall pay Catalent for all costs and expenses incurred, and all noncancellable commitments made, in connection with Catalent’s performance of this Agreement, so long as such costs, expenses or commitments were made by Catalent consistent with Client’s most recent Firm Commitment and the vendor’s minimum purchase obligations.

16.4       

Survival. The rights and obligations of the parties shall continue under Articles 11 (Intellectual Property), 13 (Indemnification), 14 (Limitations of Liability), 17 (Notice), 18 (Miscellaneous); under Articles 10 (Confidentiality and Non-Use) and 15 (Insurance), in each case to the extent expressly stated therein; and under Sections 7.3 (Payment Terms), 7.5 (Taxes), 7.6 (Client and Third Party Expenses), 9.1 (Recordkeeping), 9.6 (Recall), 12.3 (Limitations on Warranties), 16.3 (Effect of Termination) and 16.4 (Survival), in each case in accordance with their respective terms if applicable, notwithstanding expiration or termination of this Agreement.

ARTICLE 17

NOTICE

All notices and other communications hereunder shall be in writing and shall be deemed given: (A) when delivered personally or by hand; (B) when delivered by facsimile transmission (receipt verified); (C) when received or refused, if sent by registered or certified mail (return receipt requested), postage prepaid; or (D) when delivered, if sent by express courier service; in each case to the parties at the following addresses (or at such other address for a party as shall be specified by like notice; provided, that notices of a change of address shall be effective only upon receipt thereof):

 

To Client: TherapeuticsMD, Inc.
  6800 Broken Sound Parkway NW, Third Floor
  Boca Raton, Florida 33487
  Attn:  President
With a copy to: Chief Legal Counsel at the above address
   
To Catalent: Catalent Pharma Solutions, LLC
  2725 Scherer Drive N.
  St. Petersburg, FL 33716
  Attn: President, Softgel
   
With a copy to: Catalent Pharma Solutions
  14 Schoolhouse Road
  Somerset, NJ  08873
  Attn: General Counsel (Legal Department)
  Facsimile: +1 (732) 537-6491

 

 21 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

ARTICLE 18

MISCELLANEOUS

18.1       

Entire Agreement; Amendments. This Agreement, together with the Quality Agreement, constitutes the entire understanding between the parties, and supersedes any contracts, agreements or understandings (oral or written) of the parties, with respect to the subject matter hereof. For the avoidance of doubt, this Agreement does not supersede any existing generally applicable confidentiality agreement between the parties as it relates to time periods prior to the date hereof or to business dealings not covered by this Agreement. No term of this Agreement may be amended except upon written agreement of both parties, unless otherwise expressly provided in this Agreement.

18.2       

Captions; Certain Conventions. The captions in this Agreement are for convenience only and are not to be interpreted or construed as a substantive part of this Agreement. Unless otherwise expressly provided herein or the context of this Agreement otherwise requires, (A) words of any gender include each other gender, (B) words such as “herein”, “hereof”, and “hereunder” refer to this Agreement as a whole and not merely to the particular provision in which such words appear, (C) words using the singular shall include the plural, and vice versa, (D) the words “include(s)” and “including” shall be deemed to be followed by the phrase “but not limited to”, “without limitation” or words of similar import, (E) the word “or” shall be deemed to include the word “and” (e.g., “and/or”) and (F) references to “Article,” “Section,” “subsection,” “clause” or other subdivision, or to an Attachment or other appendix, without reference to a document are to the specified provision or Attachment of this Agreement. This Agreement shall be construed as if it were drafted jointly by the parties.

18.3       

Further Assurances. The parties agree to execute, acknowledge and deliver such further instruments and to take all such other incidental acts as may be reasonably necessary or appropriate to carry out the purpose and intent of this Agreement.

18.4       

No Waiver. Failure by either party to insist upon strict compliance with any term of this Agreement in any one or more instances will not be deemed to be a waiver of its rights to insist upon such strict compliance with respect to any subsequent failure.

18.5       

Severability. If any term of this Agreement is declared invalid or unenforceable by a court or other body of competent jurisdiction, the remaining terms of this Agreement will continue in full force and effect.

18.6       

Independent Contractors. The relationship of the parties is that of independent contractors, and neither party will incur any debts or make any commitments for the other party except to the extent expressly provided in this Agreement. Nothing in this Agreement is intended to create or will be construed as creating between the parties the relationship of joint ventures, co-partners, employer/employee or principal and agent. Neither party shall have any responsibility for the hiring, termination or compensation of the other party’s employees or contractors or for any employee benefits of any such employee or contractor.

18.7       

Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the parties, their successors and permitted assigns. Neither party may assign this Agreement, in whole or in part, without the prior written consent of the other party, except that either party may, without the other party’s consent (but subject to prior written notice), assign this Agreement in its entirety to an Affiliate or to a successor to substantially all of the business or assets of the assigning party or the assigning party’s business unit responsible for performance under this Agreement.

18.8       

No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person or entity other than the parties named herein and their respective successors and permitted assigns.

18.9       

Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware, USA, excluding its conflicts of law provisions. The United Nations Convention on Contracts for the International Sale of Goods shall not apply to this Agreement.

 22 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

18.10       

Dispute Resolution. Any dispute that arises between the parties in connection with this Agreement shall first be presented to the senior executives of the parties for consideration and resolution. If such executives cannot reach a resolution of the dispute within a reasonable time, then the parties may seek remedies in a court of law.

18.11       

Prevailing Party. In any dispute resolution proceeding between the parties in connection with this Agreement, the prevailing party may be entitled to recover its reasonable attorney’s fees and costs in such proceeding from the other party.

18.12       

Publicity. Neither party will make any press release or other public disclosure regarding this Agreement or the transactions contemplated hereby without the other party’s express prior written consent, except as required under Applicable Laws, by any governmental agency or by the rules of any stock exchange on which the securities of the disclosing party are listed, in which case the party required to make the press release or public disclosure shall use commercially reasonable efforts to obtain the approval of the other party as to the form, nature and extent of the press release or public disclosure prior to issuing the press release or making the public disclosure.

18.13       

Right to Dispose and Settle. If Catalent requests in writing from Client direction with respect to disposal of any inventories of Product, Client-supplied Materials, equipment, samples or other items belonging to Client and is unable to obtain a response from Client within a reasonable time period after making reasonable efforts to do so, Catalent shall be entitled in its sole discretion to (A) dispose of all such items and (B) set-off any and all amounts due to Catalent or any of its Affiliates from Client against any credits Client may hold with Catalent or any of its Affiliates.

18.14       

Force Majeure. Except as to payments required under this Agreement, neither party shall be liable in damages for, nor shall this Agreement be terminable or cancelable by reason of, any delay or default in such party’s performance hereunder if such default or delay is caused by events beyond such party’s reasonable control, including acts of God, law or regulation or other action or failure to act of any government or agency thereof, war or insurrection, civil commotion, destruction of production facilities or materials by earthquake, fire, flood or weather, labor disturbances, epidemic or failure of suppliers, vendors, public utilities or common carriers; provided, that the party seeking relief under this Section shall immediately notify the other party of such cause(s) beyond such party’s reasonable control. The party that may invoke this Section shall use commercially reasonable efforts to reinstate its ongoing obligations to the other party as soon as practicable. If the cause(s) shall continue unabated for 180 days, then both parties shall meet to discuss and negotiate in good faith what modifications to this Agreement should result from such cause(s).

18.15       

Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed an original but all of which together will constitute one and the same instrument. Any photocopy, facsimile or electronic reproduction of the executed Agreement shall constitute an original.

[Signature page follows]

 23 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

IN WITNESS WHEREOF, the parties have caused their respective duly authorized Representatives to execute this Agreement effective as of the Effective Date.

CATALENT PHARMA SOLUTIONS, LLC THERAPEUTICSMD, INC.

 

By: /s/Aris Gennadios   By: /s/ Robert Finizio
     
Name: Aris Gennadios, Ph.D.   Name:  Robert Finizio
     
Title: President Softget Technology   Title:  CEO

 

 

 

Signature Page to Softgel Commercial Supply Agreement

 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

ATTACHMENT A

 

SPECIFICATIONS

 

 

I.        Client-supplied Materials (and associated specifications)

 

API

 

Test Acceptance Criteria Analytical Method
Appearance [***] [***]
Identification A (IR) [***] [***]
Identification B (UV) [***] [***]
Melting range [***] [***]
Specific rotation [***] [***]
Water [***] [***]

Assay (HPLC)

 

[***] [***]

Microbial limits

 

Total aerobic microbial count (TAMC):

 

 

[***]

[***]
Total combined yeasts and mold count (TYMC): [***]
Escherichia in 1 g [***]

Related substances (HPLC):

 

Estrone (Ph.Eur.A)

 

[***]

[***]
17α-estradiol (Ph.Eur.B) [***]
Δ9(11)-estradiol (Ph.Eur.D) [***]

 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

Test Acceptance Criteria Analytical Method
4-Cl-estradiol [***]  
Individual unspecified impurity [***]
Total impurities [***]

Residual Solvents (GC):

 

Benzene

[***]

[***]1

 

Dichloromethane [***]
Ethanol [***]
Ethyl acetate [***]
Methanol [***]
Pyridine [***]
Tetrachloroethylene [***]
Acetic acid [***]

 

Particle size by laser diffraction

 

[***] [***]2

1 [***]

2 [***]

[***]

HPLC = high performance liquid chromatography

UV = ultraviolet

IR = infrared

GC = gas chromatograph

Ph. Eur. or EP = European Pharmacopeia

USP = United States Pharmacopeia

cfu = colony forming unit

ppm = parts per million

 

 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

II.       

Product Specifications

 

DRAFT SPECIFICATIONS – final to be agreed to in writing by the parties after execution of this Agreement.

 

 

Estradiol 4 µg

 

Test Method Limits
Appearance [***] [***]
Estradiol Assay (4 µg/capsule) [***] [***]
Related Compounds (Tested at RTP) [***] [***]
[***]
[***]
[***]
[***]
Dissolution [***] [***]
[***]
[***]
[***]
Moisture Content [***] [***]
Total Aerobic Plate Count [***] [***]
Total Combined Yeast and Mold [***] [***]
P. aeruginosa [***] [***]
S. aureus [***] [***]
Candida albicans [***] [***]

  

 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

Estradiol 10 µg

 

Test Method Limits
Appearance [***] [***]
Estradiol Assay (10 µg/capsule) [***] [***]
Related Compounds (Tested at RTP) [***] [***]
[***]
[***]
[***]
[***]
Dissolution [***] [***]
[***]
[***]
[***]
Moisture Content [***] [***]
Total Aerobic Plate Count [***] [***]
Total Combined Yeast and Mold [***] [***]
P. aeruginosa [***] [***]
S. aureus [***] [***]
Candida albicans [***] [***]

 

 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

Estradiol 25 µg

 

Test Method Limits
Appearance [***] [***]
Estradiol Assay (25 µg/capsule) [***] [***]
Related Compounds (Tested at RTP) [***] [***]
[***]
[***]
[***]
[***]
Dissolution [***] [***]
[***]
[***]
[***]
Moisture Content [***] [***]
Total Aerobic Plate Count [***] [***]
Total Combined Yeast and Mold [***] [***]
P. aeruginosa [***] [***]
S. aureus [***] [***]
Candida albicans [***] [***]

 

 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

EXECUTION VERSION

 

ATTACHMENT B

 

UNIT PRICING, FEES AND MINIMUM REQUIREMENT

 

UNIT PRICING-  Theoretical Batch Size of [***] softgels per strength
Any Volume- Lot size to be phased out after first Contract Year based on validation of larger batch size
Product Unit Strength Initial Unit Price
Softgel Ovule Estradiol 25 mcg $[***]
Softgel Ovule Estradiol 10 mcg $[***]
Softgel Ovule Estradiol 4 mcg $[***]

 

 

UNIT PRICING-  Theoretical Batch Size of 1,200,000 softgels per strength
Tier 1 Volume: [***] Total Softgels Shipped in Calendar Year
Product Unit Strength Initial Unit Price
Softgel Ovule Estradiol 25 mcg $[***]
Softgel Ovule Estradiol 10 mcg $[***]
Softgel Ovule Estradiol 4 mcg $[***]
Tier 2 Volume: Over [***] Total Softgels Shipped in Calendar Year
Product Unit Strength Initial Unit Price For All Incremental Volume Over [***]
Softgel Ovule Estradiol 25 mcg $[***]
Softgel Ovule Estradiol 10 mcg $[***]
Softgel Ovule Estradiol 4 mcg $[***]

 

* One unit is [***] softgel capsules. Prices include full API release testing, cost of Processed softgels, Product full release testing and bulk packaging. Prices do not include cost of API, tooling or other Product-specific capital items, artwork, shipping, insurance or duty. Prices also do not include any testing, retesting or testing supplies other than as expressly set forth in the Specifications. Prices are based on certain assumptions as to manufacturing processes, storage conditions, etc. Accordingly, prices are subject to adjustment in the event any such assumptions are subject to revision in connection with the validation of the Product. The foregoing prices are for the United States only. Prices will be adjusted for the Processing of Product for use in other jurisdictions based upon actual differences in cost resulting from the intended use of Product in countries other than the United States.

 

MINIMUM REQUIREMENT
Contract Year Product Minimum Requirement*
[***] Across all three strengths [***] Softgels
[***] Across all three strengths [***] Softgels
[***] Across all three strengths [***] Softgels
[***] Across all three strengths [***] Softgels
[***] Across all three strengths [***] Softgels
[***] Across all three strengths [***] Softgels

 

*Softgels shipped per Contract Year qualify towards the Minimum Requirement.

 

 

ADDITIONAL FEES
Type of Fee Amount Payable
Product Maintenance Fee $[***] for the first strength; $[***] for each additional strength

[***]

 

 

Hormone Suite Occupancy Fee Waived based on minimum volume guarantees N/A

 

 

 

 

 

 

 

TherapeuticsMD, Inc. - 10-Q

 

Exhibit 10.2

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Execution Version

CREDIT AND SECURITY AGREEMENT

dated as of May 1, 2018

by and among

THERAPEUTICSMD, INC.,

ITS SUBSIDIARIES FROM TIME TO TIME PARTY HERETO,

each as Borrower, and collectively as Borrowers,

and

MIDCAP FINANCIAL TRUST,

as Agent and as a Lender,

and

THE ADDITIONAL LENDERS

FROM TIME TO TIME PARTY HERETO

 

 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

Table of Contents

    Page
ARTICLE 1 - DEFINITIONS 1
Section 1.1 Certain Defined Terms 1
Section 1.2 Accounting Terms and Determinations 29
Section 1.3 Other Definitional and Interpretive Provisions 30
Section 1.4 Settlement and Funding Mechanics 30
Section 1.5 Time is of the Essence 30
Section 1.6 Time of Day 30
ARTICLE 2 - LOANS 30
Section 2.1 Loans 30
Section 2.2 Interest, Interest Calculations and Certain Fees 34
Section 2.3 Notes 36
Section 2.4 Reserved 36
Section 2.5 Reserved 36
Section 2.6 General Provisions Regarding Payment; Loan Account 36
Section 2.7 Maximum Interest 36
Section 2.8 Taxes; Capital Adequacy; Mitigation Obligations 37
Section 2.9 Appointment of Borrower Representative 41
Section 2.10 Joint and Several Liability; Rights of Contribution; Subordination and Subrogation 42
Section 2.11 Termination; Restriction on Termination 44
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES 45
Section 3.1 Existence and Power 45
Section 3.2 Organization and Governmental Authorization; No Contravention 45
Section 3.3 Binding Effect 45
Section 3.4 Capitalization 45
Section 3.5 Financial Information 46
Section 3.6 Litigation 46
Section 3.7 Ownership of Property 46
Section 3.8 No Default 46
Section 3.9 Labor Matters 46
Section 3.10 Regulated Entities 47
Section 3.11 Margin Regulations 47
Section 3.12 Compliance With Laws; Anti-Terrorism Laws 47
Section 3.13 Taxes 47
Section 3.14 Compliance with ERISA 48
Section 3.15 Brokers 48
Section 3.16 Reserved 48
Section 3.17 Material Contracts 49
Section 3.18 Compliance with Environmental Requirements; No Hazardous Materials 49
Section 3.19 Intellectual Property and License Agreements 49
Section 3.20 Solvency 49
Section 3.21 Full Disclosure 50

 

 i 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 3.22 Subsidiaries 50
Section 3.23 Regulatory Matters 50
ARTICLE 4 - AFFIRMATIVE COVENANTS 51
Section 4.1 Financial Statements and Other Reports 51
Section 4.2 Payment and Performance of Obligations 55
Section 4.3 Maintenance of Existence 55
Section 4.4 Maintenance of Property; Insurance 55
Section 4.5 Compliance with Laws and Material Contracts 56
Section 4.6 Inspection of Property, Books and Records 57
Section 4.7 Use of Proceeds 57
Section 4.8 Reserved 57
Section 4.9 Reserved 57
Section 4.10 Hazardous Materials; Remediation. 57
Section 4.11 Further Assurances 58
Section 4.12 Reserved 59
Section 4.13 Power of Attorney 59
Section 4.14 Intellectual Property and Licensing. 59
Section 4.15 Regulatory Covenants 60
ARTICLE 5 - NEGATIVE COVENANTS 61
Section 5.1 Debt; Contingent Obligations 61
Section 5.2 Liens 61
Section 5.3 Distributions 61
Section 5.4 Restrictive Agreements 61
Section 5.5 Payments and Modifications of Subordinated Debt 61
Section 5.6 Consolidations, Mergers and Sales of Assets; Change in Control 62
Section 5.7 Purchase of Assets, Investments 62
Section 5.8 Transactions with Affiliates 63
Section 5.9 Modification of Organizational Documents 63
Section 5.10 Modification of Certain Agreements 63
Section 5.11 Conduct of Business 63
Section 5.12 Excluded Foreign Subsidiaries. 64
Section 5.13 Limitation on Sale and Leaseback Transactions 64
Section 5.14 Deposit Accounts and Securities Accounts; Payroll and Benefits Accounts 64
Section 5.15 Compliance with Anti-Terrorism Laws 64
Section 5.16 Change in Accounting 65
Section 5.17 Investment Company Act 65
ARTICLE 6 - FINANCIAL COVENANTS 65
Section 6.1 Minimum Net Revenue 65
Section 6.2 Minimum Liquidity 66
Section 6.3 Evidence of Compliance 66
ARTICLE 7 - CONDITIONS 66
Section 7.1 Conditions to Closing 66
Section 7.2 Conditions to Each Loan 67

 

 

 ii 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 7.3 Searches 67
Section 7.4 Post-Closing Requirements 68
ARTICLE 8 – RESERVED 68
ARTICLE 9 - SECURITY AGREEMENT 68
Section 9.1 Generally 68
Section 9.2 Representations and Warranties and Covenants Relating to Collateral 68
ARTICLE 10 - EVENTS OF DEFAULT 72
Section 10.1 Events of Default 72
Section 10.2 Acceleration and Suspension or Termination of Term Loan Commitment 75
Section 10.3 UCC Remedies 75
Section 10.4 Reserved 77
Section 10.5 Default Rate of Interest 77
Section 10.6 Setoff Rights 77
Section 10.7 Application of Proceeds 77
Section 10.8 Waivers 78
Section 10.9 Injunctive Relief 80
Section 10.10 Marshalling; Payments Set Aside 80
ARTICLE 11 - AGENT 80
Section 11.1 Appointment and Authorization 80
Section 11.2 Agent and Affiliates 80
Section 11.3 Action by Agent 81
Section 11.4 Consultation with Experts 81
Section 11.5 Liability of Agent 81
Section 11.6 Indemnification 81
Section 11.7 Right to Request and Act on Instructions 82
Section 11.8 Credit Decision 82
Section 11.9 Collateral Matters 82
Section 11.10 Agency for Perfection 82
Section 11.11 Notice of Default 83
Section 11.12 Assignment by Agent; Resignation of Agent; Successor Agent 83
Section 11.13 Payment and Sharing of Payment 84
Section 11.14 Right to Perform, Preserve and Protect 85
Section 11.15 Additional Titled Agents 85
Section 11.16 Amendments and Waivers 85
Section 11.17 Assignments and Participations 86
Section 11.18 Funding and Settlement Provisions Applicable When Non-Funding Lenders Exist 89
ARTICLE 12 - MISCELLANEOUS 89
Section 12.1 Survival 89
Section 12.2 No Waivers 90
Section 12.3 Notices. 90
Section 12.4 Severability 91
Section 12.5 Headings 91

 

 iii 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 12.6 Confidentiality 91
Section 12.7 Waiver of Consequential and Other Damages 92
Section 12.8 GOVERNING LAW; SUBMISSION TO JURISDICTION 92
Section 12.9 WAIVER OF JURY TRIAL 92
Section 12.10 Publication; Advertisement 93
Section 12.11 Counterparts; Integration 93
Section 12.12 No Strict Construction 93
Section 12.13 Lender Approvals 93
Section 12.14 Expenses; Indemnity 94
Section 12.15 Reserved 95
Section 12.16 Reinstatement 95
Section 12.17 Successors and Assigns 95
Section 12.18 USA PATRIOT Act Notification 96
Section 12.19 Acknowledgement and Consent to Bail-In of EEA Financial Institutions 96

 

 iv 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

CREDIT AND SECURITY AGREEMENT

This CREDIT AND SECURITY AGREEMENT (as the same may be amended, supplemented, restated or otherwise modified from time to time, the “Agreement”) is dated as of May 1, 2018 by and among therapeuticsmd, INC., a Nevada corporation (“TherapeuticsMD”), each of its direct and indirect Subsidiaries set forth on the signature pages hereto and any additional borrower that may hereafter be added to this Agreement (individually as a “Borrower”, and collectively with any entities that become party hereto as Borrower and each of their successors and permitted assigns, the “Borrowers”), MIDCAP FINANCIAL TRUST, a Delaware statutory trust, individually as a Lender, and as Agent, and the financial institutions or other entities from time to time parties hereto, each as a Lender.

RECITALS

Borrowers have requested that Lenders make available to Borrowers the financing facilities as described herein. Lenders are willing to extend such credit to Borrowers under the terms and conditions herein set forth.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrowers, Lenders and Agent agree as follows:

Article 1 - DEFINITIONS

Section 1.1           Certain Defined Terms. The following terms have the following meanings:

Acceleration Event” means the occurrence of an Event of Default (a) in respect of which Agent has declared all or any portion of the Obligations to be immediately due and payable pursuant to Section 10.2 and/or (b) pursuant to either Section 10.1(e) and/or Section 10.1(f).

Account Debtor” means “account debtor”, as defined in Article 9 of the UCC, and any other obligor in respect of an Account.

Accounts” means, collectively, (a) any right to payment of a monetary obligation, whether or not earned by performance, (b) without duplication, any “account” (as defined in the UCC), any accounts receivable (whether in the form of payments for services rendered or goods sold, rents, license fees or otherwise), any “health-care-insurance receivables” (as defined in the UCC), any “payment intangibles” (as defined in the UCC) and all other rights to payment and/or reimbursement of every kind and description, whether or not earned by performance, (c) all accounts, “general intangibles” (as defined in the UCC), Intellectual Property, rights, remedies, Guarantees, “supporting obligations” (as defined in the UCC), “letter-of-credit rights” (as defined in the UCC) and security interests in respect of the foregoing, all rights of enforcement and collection, all books and records evidencing or related to the foregoing, and all rights under the Financing Documents in respect of the foregoing, (d) all information and data compiled or derived by any Borrower or to which any Borrower is entitled in respect of or related to the foregoing, and (e) all proceeds of any of the foregoing.

   

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Additional Titled Agents” has the meaning set forth in Section 11.15.

Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business, business line or product line, division or other unit operation of any Person, (b) the acquisition of in excess of fifty percent (50%) of the Equity Interests of any Person or otherwise causing any Person to become a Subsidiary of a Borrower, (c) a merger or consolidation or any other combination with another Person (other than a Credit Party permitted under Section 5.6(a)), or (d) the acquisition (including through licensing that requires an upfront payment) of any material Product from any other Person.

Affiliate” means, with respect to any Person, (a) any Person that directly or indirectly controls such Person, (b) any Person which is controlled by or is under common control with such controlling Person, and (c) each of such Person’s (other than, with respect to any Lender, any Lender’s) executive officers or directors (or Persons functioning in substantially similar roles) and the spouses, parents, descendants and siblings of such executive officers, directors or other Persons. As used in this definition, the term “control” of a Person means the possession, directly or indirectly, of the power to vote more than (i) in the case of Agent or any Lender, ten percent (10%) or (ii) in the case of any Credit Party or Subsidiary thereof, thirty percent (30%), of any class of voting securities of such Person or to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

Agent” means MCF, in its capacity as administrative agent for itself and for Lenders hereunder, as such capacity is established in, and subject to the provisions of, Article 11, and the successors and assigns of MCF in such capacity.

Anti-Terrorism Laws” means any Laws relating to terrorism or money laundering, including, without limitation, Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by OFAC.

Applicable Margin” means seven and three quarters percent (7.75%).

Approved Fund” means any (a) investment company, fund, trust, securitization vehicle or conduit that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business, or (b) any Person (other than a natural person) which temporarily warehouses loans for any Lender or any entity described in the preceding clause (a) and that, with respect to each of the preceding clauses (a) and (b), is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender, or (iii) a Person (other than a natural person) or an Affiliate of a Person (other than a natural person) that administers or manages a Lender.

Asset Disposition” means any sale, lease, license, transfer, assignment or other consensual disposition by any Credit Party or any Subsidiary thereof of any asset.

Assignment Agreement” means an assignment agreement in form and substance acceptable to Agent.

 2 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as the same may be amended, modified or supplemented from time to time, and any successor statute thereto.

Base LIBOR Rate” means, for each Interest Period, the rate per annum, determined by Agent in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/100%), to be the rate at which Dollar deposits (for delivery on the first day of such Interest Period) in the amount of $1,000,000 are offered to major banks in the London interbank market on or about 11:00 a.m. (London time) two (2) Business Days prior to the commencement of such Interest Period, for a term comparable to such Interest Period, which determination shall be conclusive in the absence of manifest error; provided, however, if timely, adequate and reasonable means do not exist for ascertaining such rate and the circumstances giving rise to the Agent’s inability to ascertain LIBOR are unlikely to be temporary as determined in Agent’s reasonable discretion, then Agent may, upon prior written notice to Borrower Representative, choose, in consultation with Borrower, a reasonably comparable index or source together with corresponding adjustments to “Applicable Margin” or scale factor or floor to such index that Agent, in its reasonable discretion, has determined is necessary to preserve the current all-in yield (including interest rate margins, any interest rate floors, original issue discount and upfront fees, but without regard to future fluctuations of such alternative index, it being acknowledged and agreed that neither Agent nor any Lender shall have any liability whatsoever from such future fluctuations) to use as the basis for Base LIBOR Rate.

Base Rate” means a per annum rate of interest equal to the greater of (a) one and one half percent (1.50%) per annum and (b) the rate of interest announced, from time to time, within Wells Fargo Bank, National Association (“Wells Fargo”) at its principal office in San Francisco as its “prime rate,” with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate; provided, however, that Agent may, upon prior written notice to Borrower, choose a reasonably comparable index or source used by Agent in its other credit facilities for similarly situated borrowers to use as the basis for the Base Rate.

Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

Blocked Person” means any Person: (a) listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list or is named as a “listed person” or “listed entity” on other lists made under any Anti-Terrorism Law.

Borrower” and “Borrowers” has the meaning set forth in the introductory paragraph hereto.

 3 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Borrower Representative” means TherapeuticsMD, in its capacity as Borrower Representative pursuant to the provisions of Section 2.9, or any successor Borrower Representative selected by Borrowers and approved by Agent.

Borrower Unrestricted Cash” means unrestricted cash and Cash Equivalents of the Borrowers that (a) are subject to Agent’s first priority perfected lien and held in the name of a Borrower in a Deposit Account or Securities Account that is subject to a Deposit Account Control Agreement or Securities Account Control Agreement, as applicable, in favor of Agent at a bank or financial institution located in the United States, (b) is not subject to any Lien (other than a Lien in favor of Agent or Permitted Liens), and (c) are not funds for the payment of a drawn or committed but unpaid draft, ACH or EFT transaction.

Business Day” means any day except a Saturday, Sunday or other day on which either the Nasdaq Stock Market is closed, or on which commercial banks in Washington, DC and New York City are authorized by law to close.

Capital Lease” of any Person means any lease of any property by such Person as lessee which would, in accordance with GAAP, be required to be accounted for as a capital lease on the balance sheet of such Person.

Cash Equivalents” means any Investment in (a) securities issued or directly and fully guaranteed or insured by the US or any agency or instrumentality thereof (provided that the full faith and credit of the US is pledged in support thereof) having maturities of not more than one (1) year from the date of acquisition by such Person, (b) Dollar-denominated time deposits and certificates of deposit with a duration of not more than one (1) year issued or accepted by any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any State thereof or, the District of Columbia having capital, surplus and undivided profits aggregating in excess of $500,000,000, (c) repurchase obligations with a term of not more than ninety (90) days for underlying securities of the types described in subsection (a) above entered into with any bank meeting the qualifications specified in subsection (b) above, (d) commercial paper issued by any issuer rated at least A-1 by Standard & Poor’s Corporation or at least P-1 by Moody’s Investors Service, Inc., and in each case maturing not more than one (1) year after the date of acquisition by such Person or (e) money market or mutual fund which invests only in the foregoing types of Investments, has portfolio assets in excess of $500,000,000, complies with the criteria set forth in Securities and Exchange Commission Rule 2a-7 under the Investment Company Act, and has the highest rating obtainable from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc.

CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.A. § 9601 et seq., as the same may be amended from time to time.

Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof) of Equity Interests representing more than fifty percent (50%) of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of TherapeuticsMD or (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the TherapeuticsMD by persons who were neither (i) nominated by the board of directors of the TherapeuticsMD nor (ii) appointed by the directors so nominated.

Closing Date” means the date of this Agreement.

 4 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Code” means the Internal Revenue Code of 1986, as amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

Collateral” means all property, now existing or hereafter acquired, mortgaged or pledged to, or purported to be subjected to a Lien in favor of, Agent, for the benefit of Agent and Lenders, pursuant to this Agreement and the Security Documents, including, without limitation, all of the property described in Schedule 9.1 hereto; provided that, the Collateral shall not, at any time, include any “Excluded Property”.

Commitment Annex” means Annex A to this Agreement.

Competitor” means, at any time of determination, any Person engaged in the same or substantially the same business as the Borrower and the other Credit Parties and such business accounts for ten percent (10%) or more of the revenue or net income of such Person at the time of such determination.

Compliance Certificate” means a certificate, duly executed by a Responsible Officer of Borrower Representative, appropriately completed and substantially in the form of Exhibit A hereto.

Consolidated Subsidiary” means, at any date, any Subsidiary the accounts of which would be consolidated with those of “parent” Borrower (or any other Person, as the context may require hereunder) in its consolidated financial statements if such statements were prepared as of such date.

Contingent Obligation” means, with respect to any Person, any direct or indirect liability of such Person: (a) with respect to any Debt of another Person (a “Third Party Obligation”) if the purpose or intent of such Person incurring such liability, or the effect thereof, is to provide assurance to the obligee of such Third Party Obligation that such Third Party Obligation will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Third Party Obligation will be protected, in whole or in part, against loss with respect thereto; (b) with respect to any undrawn portion of any letter of credit issued for the account of such Person or as to which such Person is otherwise liable for the reimbursement of any drawing; (c) under any Swap Contract, to the extent not yet due and payable; (d) to make take-or-pay or similar payments if required regardless of nonperformance by any other party or parties to an agreement; or (e) for any obligations of another Person pursuant to any Guarantee or pursuant to any agreement to purchase, repurchase or otherwise acquire any obligation or any property constituting security therefor, to provide funds for the payment or discharge of such obligation or to preserve the solvency, financial condition or level of income of another Person. The amount of any Contingent Obligation shall be equal to the amount of the obligation so Guaranteed or otherwise supported or, if not a fixed and determinable amount, the maximum amount so Guaranteed or otherwise supported.

Controlled Group” means all members of a group of corporations and all members of a group of trades or businesses (whether or not incorporated) under common control which, together with the Credit Parties, are treated as a single employer under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA and, solely for purposes of Section 412 and 436 of the Code, Section 414(m) or (o) of the Code.

Correction” means repair, modification, adjustment, relabeling, destruction or inspection (including patient monitoring) of a Product without its physical removal to some other location.

Credit Exposure” means, at any time, any portion of the Term Loan Commitments and/or any other Obligations that remains outstanding; provided, however, that no Credit Exposure shall be deemed to exist solely due to the existence of contingent indemnification liability, absent the assertion of a claim, or the known existence of a claim reasonably likely to be asserted, with respect thereto.

 5 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Credit Party” means each Borrower and each Guarantor; and “Credit Parties” means all such Persons, collectively.

DEA” means the Drug Enforcement Administration of the United States of America, any comparable state or local Governmental Authority, any comparable Governmental Authority in any non-United States jurisdiction, and any successor agency of any of the foregoing.

Debt” of a Person means at any date, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the Ordinary Course of Business and not more than 60 days past due unless subject to a Permitted Contest, (d) all Capital Leases of such Person, (e) all non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, banker’s acceptance or similar instrument, (f) all equity securities of such Person subject to repurchase or redemption other than at the sole option of such Person, (g) all obligations secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (h) “earnouts”, purchase price adjustments, profit sharing arrangements, deferred purchase money amounts and similar payment obligations or continuing obligations of any nature of such Person arising out of purchase and sale contracts, (i) all Debt of others Guaranteed by such Person, and (j) off-balance sheet liabilities and/or Pension Plan or Multiemployer Pension Plan liabilities of such Person. Without duplication of any of the foregoing, Debt of Borrowers shall include any and all Loans.

Default” means any condition or event which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.

Defaulted Lender” means, so long as such failure shall remain in existence and uncured, any Lender which shall have failed to make any Loan or other credit accommodation, disbursement, settlement or reimbursement required pursuant to the terms of any Financing Document.

Defined Period” means for any given calendar month or date of determination, the twelve (12) month period ending on the last day of such calendar month or if such date of determination is not the last day of a calendar month, the twelve (12) month period immediately preceding any such date of determination.

Deposit Account” means a “deposit account” (as defined in Article 9 of the UCC), an investment account, or other account in which funds are held or invested for credit to or for the benefit of any Borrower.

Deposit Account Control Agreement” means an agreement, in form and substance reasonably satisfactory to Agent, among Agent, any Borrower and each financial institution in which such Borrower maintains a Deposit Account, which agreement provides that (a) such financial institution shall comply with instructions originated by Agent directing disposition of the funds in such Deposit Account without further consent by the applicable Borrower, and (b) such financial institution shall agree that it shall have no Lien on, or right of setoff or recoupment against, such Deposit Account or the contents thereof, other than in respect of usual and customary service fees and returned items, and containing such other terms and conditions as Agent may reasonably require.

 6 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Disqualified Stock” means, with respect to any Person, any Equity Interest in such Person that, within less than 91 days after the Termination Date, either by its terms (or by the terms of any security or other equity interests into which it is convertible or for which it is exchangeable) or upon the happening of any event or condition, (a) matures or is mandatorily redeemable (other than solely for Permitted Debt or other equity interests in such Person or of TherapeuticsMD that do not constitute Disqualified Stock and cash in lieu of fractional shares of such equity interests), pursuant to a sinking fund obligation or otherwise, (b) is redeemable at the option of the holder thereof, in whole or in part (other than solely for Permitted Debt or other Equity Interests in such Person or of TherapeuticsMD that do not constitute Disqualified Stock and cash in lieu of fractional shares of such equity interests), (c) provides for the scheduled payments of dividends or distributions in cash, or (d) is or becomes convertible into or exchangeable for Debt (other than Permitted Debt) or any other Equity Interests that would constitute Disqualified Stock.

Distribution” means as to any Person (a) any dividend or other distribution (whether in cash, securities or other property) on any Equity Interest in such Person (except those payable solely in its Equity Interests of the same class or in common Equity Interests), (b) any payment by such Person on account of (i) the purchase, redemption, retirement, defeasance, surrender, cancellation, termination or acquisition of any Equity Interests in such Person or any claim respecting the purchase or sale of any Equity Interest in such Person, or (ii) any option, warrant or other right to acquire any Equity Interests in such Person, (c)  any lease or rental payments to an Affiliate or Subsidiary of a Borrower, or (d) repayments of or debt service on loans or other indebtedness held by an Affiliate of any Subsidiary of a Borrower unless permitted under and made pursuant to a Subordination Agreement applicable to such loans or other indebtedness.

Dollars” or “$” means the lawful currency of the United States of America.

Drug Application” means a New Drug Application (NDA) or an Abbreviated New Drug Application (ANDA) for any Product, as appropriate, as those terms are defined in section 505 of the FDCA.

EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, and (d) any other Person (other than a natural person) approved by (1) Agent, and (2) the Borrower Representative, but only if and to the extent that: (A) no Event of Default has occurred and is continuing and (B) such proposed assignment would result in the then-existing Lenders, their Affiliates and Approved Funds holding less than fifty one percent (51%) of the Term Loans and outstanding Term Loan Commitment Amounts;  provided, however, that notwithstanding the foregoing, (x) so long as no Event of Default has occurred and is continuing, “Eligible Assignee” shall not include (i) any Borrower or any of a Borrower’s Subsidiaries, or (ii) any Competitor, and (y) no proposed assignee intending to assume any unfunded portion of the Term Loan Commitment shall be an Eligible Assignee unless such proposed assignee either already holds a portion of such Term Loan Commitment, or has been approved as an Eligible Assignee by Agent. Notwithstanding the foregoing, Borrowers shall be deemed to have approved any prospective assignee for purposes of clause (d)(2) above unless Agent shall have received Borrowers’ objection thereto in writing within five (5) Business Days after Borrowers’ receipt of notice of such proposed assignment.

 7 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Equity Interests” means any and all shares, interests, participations or other equivalents (however designated) of equity interests of a corporation, membership interests in a limited liability company, partnership interests in a partnership, and any and all similar ownership interests in any Person, and any and all warrants, rights or options to purchase any of the foregoing.

Environmental Laws” means any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other governmental directives or requirements, as well as common law, pertaining to the environment, natural resources, pollution, health (including any environmental clean-up statutes and all regulations adopted by any local, state, federal or other Governmental Authority, and any statute, ordinance, code, order, decree, law rule or regulation all of which pertain to or impose liability or standards of conduct concerning medical waste or medical products, equipment or supplies), safety or clean-up that apply to any Borrower and relate to Hazardous Materials, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. § 9601 et seq.), the Resource Conservation and Recovery Act of 1976 (42 U.S.C. § 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. § 5101 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. § 11001 et seq.), the Occupational Safety and Health Act (29 U.S.C. § 651 et seq.), the Residential Lead-Based Paint Hazard Reduction Act (42 U.S.C. § 4851 et seq.), any analogous state or local laws, any amendments thereto, and the regulations promulgated pursuant to said laws, together with all amendments from time to time to any of the foregoing and judicial interpretations thereof.

ERISA” means the Employee Retirement Income Security Act of 1974, as the same may be amended, modified or supplemented from time to time, and any successor statute thereto, and any and all rules or regulations promulgated from time to time thereunder.

ERISA Plan” means any “employee benefit plan”, as such term is defined in Section 3(3) of ERISA (other than a Multiemployer Pension Plan), which any Credit Party or any Subsidiary maintains, sponsors or contributes to, or, in the case of an employee benefit plan which is subject to Section 412 of the Code or Title IV of ERISA (other than a Multiemployer Pension Plan), to which any Credit Party or any Subsidiary has any liability, including on account of any member of the Controlled Group, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.

Event of Default” has the meaning set forth in Section 10.1.

Excluded Accounts” means Deposit Accounts of a Credit Party or any Subsidiary (a) into which there is deposited no funds other than those intended solely to cover wages and payroll for employees of a Credit Party for a period of service no longer than two weeks at any time (and related contributions to be made on behalf of such employees to health and benefit plans) plus balances for outstanding checks for wages and payroll from prior periods; (b) constituting employee withholding accounts and contain only funds deducted from pay otherwise due to employees for services rendered to be applied toward the tax obligations of such employees; (c) owned by Excluded Foreign Subsidiaries and maintained outside of the United States; and (d) other than the accounts set forth in the preceding clauses (a)-(c), accounts of Credit Parties in which there is not maintained at any point in time funds on deposit greater than $500,000 in the aggregate for all such accounts.

 8 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Excluded Foreign Subsidiary” means each direct and indirect Subsidiary of a Borrower (i)(a) that is a “controlled foreign corporation” as defined in Section 957 of the Code, (b) that is a direct or indirect Subsidiary of a “controlled foreign corporation” as defined in Section 957 of the Code, or (c) substantially all of the assets of which are equity or debt interests in one or more “controlled foreign corporations” as defined in Section 957 of the Code, and in each case, either (x) the pledge of all of the capital stock of such Subsidiary as Collateral or (y) the guaranteeing by such Subsidiary of the Obligations, could, in the good faith judgment of Borrowers, reasonably be expected to result in material adverse tax consequences to the Credit Parties; and (ii) designated as an Excluded Foreign Subsidiary by Borrowers or Agent, provided, that after giving effect to such designation, the aggregate gross revenues attributable to all Excluded Foreign Subsidiary in the aggregate for the most recently ended fiscal year of Borrowers does not exceed ten percent (10%) of the aggregate consolidated gross revenues for Borrowers and their Consolidated Subsidiaries for such fiscal year.

Excluded Property” means:

(a)             any lease, license, contract, permit, letter of credit, instrument, or agreement to which a Credit Party is a party or any of its rights or interests thereunder if and to the extent that the grant of a security interest thereon shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of any Credit Party therein or (ii) result in a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, permit, agreement or other property right;

(b)             governmental licenses, state or local franchises, charters and authorizations and any other property and assets to the extent that Agent may not validly possess a security interest therein under applicable Law (including, without limitation, rules and regulations of any Governmental Authority or agency) or the pledge or creation of a security interest in which would require governmental consent, approval, license or authorization;

(c)             any “intent-to-use” trademark or service mark application for which an amendment to allege use or statement of use has not been filed under 15 U.S.C. § 1051(c) or 15 U.S.C. § 1051(d), respectively, or if filed, has not been deemed in conformance with 15 U.S.C. § 1051(a) or examined and accepted, respectively by the United States Patent and Trademark Office;

(d)             more than 65% the voting capital stock of any Excluded Foreign Subsidiary; provided that immediately upon any amendment of the Code that would allow the pledge of a greater percentage of such voting stock without material adverse tax consequences to such Borrower, “Collateral” shall automatically and without further action required by, and without notice to, any Person include such greater percentage of voting stock of such Excluded Foreign Subsidiary from that time forward;

 9 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

provided that (x) any such limitation described in the foregoing clauses (a) and (b) on the security interests granted hereunder shall apply only to the extent that any such prohibition could not be rendered ineffective pursuant to the UCC or any other applicable Law (including Sections 9-406, 9-407 and 9-408 of the UCC) or principles of equity, (y) in the event of the termination or elimination of any such prohibition or the requirement for any consent contained in such contract, agreement, permit, lease or license or in any applicable Law, to the extent sufficient to permit any such item to become Collateral hereunder, or upon the granting of any such consent, or waiving or terminating any requirement for such consent, a security interest in such contract, agreement, permit, lease, license, franchise, authorization or asset shall be automatically and simultaneously granted hereunder and shall be included as Collateral hereunder, and (z) all rights to payment of money due or to become due pursuant to, and all rights to the proceeds from the sale of, any such Excluded Property shall be and at all times remain subject to the security interests created by this Agreement (unless such proceeds would independently constitute Excluded Property).

Excluded Taxes” means any of the following Taxes imposed on or with respect to Agent, any Lender or any other recipient of any payment to be made by or on behalf of any obligation of Credit Parties hereunder or the Obligations or required to be withheld or deducted from a payment to Agent, such Lender or such recipient (including any interest and penalties thereon): (a) Taxes to the extent imposed on or measured by Agent’s, any Lender’s or such recipient’s net income (however denominated), branch profits Taxes, and franchise Taxes and similar Taxes, in each case, (i) imposed by the jurisdiction (or any political subdivision thereof) under which Agent, such Lender or such recipient is organized, has its principal office or conducts business with respect to entering into any of the Financing Documents or taking any action thereunder or (ii) that are Other Connection Taxes; (b) in the case of a Lender, United States withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in the Loans pursuant to a Law in effect on the date on which (i) such Lender becomes a party to this Agreement other than as a result of an assignment requested by a Credit Party under the terms hereof or (ii) such Lender changes its lending office for funding its Loan, except in each case to the extent that, pursuant to Section 2.8, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender acquired the applicable interest in a Loan or Term Loan Commitment or to such Lender immediately before it changed its lending office; (c) Taxes attributable to any Agent’s, Lender’s or other recipient’s failure to comply with Section 2.8(c); and (d) any U.S. federal withholding taxes imposed under FATCA.

FATCA” means Sections 1471 through 1474 of the Code as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future U.S. Treasury regulations or official interpretations thereof and any agreement entered into pursuant to the implementation of Section 1471(b)(1) of the Code, and any intergovernmental agreement between the United States Internal Revenue Service, the U.S. Government and any governmental or taxation authority under any other jurisdiction which agreement’s principal purposes deals with the implementation of such sections of the Code.

FDA” means the Food and Drug Administration of the United States of America and any successor agency of any of the foregoing.

FDCA” means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C. Section 301 et seq., and all regulations promulgated thereunder.

Federal Funds Rate” means, for any day, the rate of interest per annum (rounded upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided, however, that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day, and (b) if no such rate is so published on such next preceding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Agent on such day on such transactions as determined by Agent.

 10 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Fee Letter” means each agreement between Agent and Borrower relating to fees payable to Agent, in connection with this Agreement.

Financing Documents” means this Agreement, any Notes, the Security Documents, each Fee Letter, each subordination or intercreditor agreement pursuant to which any Debt and/or any Liens securing such Debt is subordinated to all or any portion of the Obligations and all other documents, instruments and agreements related to the Obligations and heretofore executed, executed concurrently herewith or executed at any time and from time to time hereafter, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time.

Foreign Lender” has the meaning set forth in Section 2.8(c)(i).

GAAP” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the United States accounting profession), which are applicable to the circumstances as of the date of determination.

General Intangible” means any “general intangible” as defined in Article 9 of the UCC, and any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas or other minerals before extraction, but including payment intangibles and software.

Good Manufacturing Practices” means current good manufacturing practices, including as set forth in 21 C.F.R. Parts 210 and 211, and analogous requirements and standards set forth by a Governmental Authority in any applicable non-United States jurisdiction.

Governmental Authority” means any nation or government, any state, local or other political subdivision thereof, and any agency, department or Person exercising executive, legislative, judicial, regulatory or administrative functions of any of the foregoing, whether domestic or foreign.

Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise), or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided, however, that the term Guarantee shall not include endorsements for collection or deposit in the Ordinary Course of Business. The term “Guarantee” used as a verb has a corresponding meaning.

 11 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Guarantor” means any Credit Party that has executed or delivered, or shall in the future execute or deliver, any Guarantee of any portion of the Obligations in accordance with Section 4.11(d) or as otherwise approved by Agent.

Hazardous Materials” means petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials; polychlorinated biphenyls and compounds containing them; lead and lead-based paint; asbestos or asbestos-containing materials; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which is prohibited by any Environmental Laws; toxic mold, any substance that requires special handling; and any other material or substance now or in the future defined as a “hazardous substance,” “hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” “pollutant” or other words of similar import within the meaning of any Environmental Law, including: (a) any “hazardous substance” defined as such in (or for purposes of) CERCLA, or any so-called “superfund” or “super lien” Law, including the judicial interpretation thereof; (b) any “pollutant or contaminant” as defined in 42 U.S.C.A. § 9601(33); (c) any material now defined as “hazardous waste” pursuant to 40 C.F.R. Part 260; (d) any petroleum or petroleum by-products, including crude oil or any fraction thereof; (e) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (f) any “hazardous chemical” as defined pursuant to 29 C.F.R. Part 1910; (g) any toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls (“PCB’s”), flammable explosives, radioactive materials, infectious substances, materials containing lead-based paint or raw materials which include hazardous constituents); and (h) any other toxic substance or contaminant that is subject to any Environmental Laws or other past or present requirement of any Governmental Authority.

Hazardous Materials Contamination” means contamination (whether now existing or hereafter occurring) of the improvements, buildings, facilities, personalty, soil, groundwater, air or other elements on or of the relevant property by Hazardous Materials, or any derivatives thereof, or on or of any other property as a result of Hazardous Materials, or any derivatives thereof, generated on, emanating from or disposed of in connection with the relevant property.

Healthcare Laws” means all applicable Laws relating to the procurement, development, provision, clinical and non-clinical testing, evaluation or investigation, product approval or clearance, manufacture, production, analysis, distribution, dispensing, importation, exportation, use, handling, quality, reimbursement, reporting, sale, marketing, labeling, advertising, or promotion of any drug, biologic, medical device, dietary supplement or other product (including, without limitation, any ingredient or component of, or accessory to, the foregoing products) subject to regulation under the FDCA, the Public Health Service Act (42 U.S.C. §§ 201 et seq.), or the Controlled Substances Act (21 U.S.C. §§ 801 et seq.); including but not limited to all applicable Laws concerning fraud and abuse, including the Federal Anti-Kickback Statute (42 U.S.C. § 1320a- 7b(b)), the federal Physician Self-Referral Law (42 U.S.C. § 1395nn), and the federal Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a); and the federal False Claims Act (31 U.S.C. §§ 3729 et seq.); all applicable Laws governing health benefits programs sponsored by a Governmental Authority, including Medicare and Medicaid ; the Federal Trade Commission Act (15 U.S.C. §§ 41 et seq.) and other applicable consumer protection Laws; all applicable Laws governing the collection, dissemination, use, privacy, transfer, security, and confidentiality of medical records and personal information; any analogous state, local or foreign Laws; all Laws pursuant to which Permits are issued; all regulations and legally binding guidance or rules promulgated thereunder; and in each case, as the same may be amended from time to time.

HHS” has the meaning set forth in Section 4.1(i)(v).

 12 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of Borrowers or any other Credit Party under any Financing Documents and (b) to the extent not otherwise described in (a), Other Taxes.

Instrument” means “instrument”, as defined in Article 9 of the UCC.

Intellectual Property” means all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, trade names, service marks, mask works, rights of use of any name, domain names, or any other similar rights, any applications therefor, whether registered or not, know-how, operating manuals, trade secret rights, clinical and non-clinical data, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing.

Interest Period” means any period commencing on the first day of a calendar month and ending on the last day of such calendar month.

Inventory” means “inventory” as defined in Article 9 of the UCC.

Investment” means, with respect to any Person, directly or indirectly, (a) to purchase or acquire any stock or stock equivalents, or any obligations or other securities of, or any interest in, any Person, including the establishment or creation of a Subsidiary, (b) to make or commit to make any Acquisition or (c) make or purchase any advance, loan, extension of credit or capital contribution to, or any other investment in, any Person. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect thereto.

Investment Company Act” means the Investment Company Act of 1940, as amended.

IRS” has the meaning set forth in Section 2.8(c)(i).

Laws” means any and all federal, state, provincial, territorial, local and foreign statutes, laws, judicial or administrative decisions, regulations, ordinances, rules, judgments, orders, decrees, codes, injunctions, governmental agreements and governmental restrictions enacted, issued or promulgated by, or entered into with, a Governmental Authority, whether now or hereafter in effect, which are applicable to any Credit Party in any particular circumstance. “Laws” includes, without limitation, Healthcare Laws and Environmental Laws.

Lender” means each of (a) MCF, in its capacity as a lender hereunder, (b) each other Person party hereto in its capacity as a lender hereunder, (c) each other Person that becomes a party hereto as Lender pursuant to Section 11.17, and (d) the respective successors of all of the foregoing, and “Lenders” means all of the foregoing.

LIBOR Rate” means, for each Loan, a per annum rate of interest equal to the greater of (a) one and one-half percent (1.50%) and (b) the rate determined by Agent (rounded upwards, if necessary, to the next 1/100th%) by dividing (i) the Base LIBOR Rate for the Interest Period, by (ii) the sum of one minus the daily average during such Interest Period of the aggregate maximum reserve requirement (expressed as a decimal) then imposed under Regulation D of the Board of Governors of the Federal Reserve System (or any successor thereto) for “Eurocurrency Liabilities” (as defined therein).

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, in respect of such asset. For the purposes of this Agreement and the other Financing Documents, any Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset.

Litigation” means any action, suit or proceeding before any court, mediator, arbitrator or Governmental Authority.

Loan Account” has the meaning set forth in Section 2.6(b).

Loan(s)” means the Term Loan and each and every advance under the Term Loan. All references herein to the “making” of a Loan or words of similar import mean, with respect to the Term Loan, the making of any advance in respect of a Term Loan.

Market Withdrawal” means a Person’s Removal or Correction of a distributed product which involves a minor violation that would not be subject to legal action by the FDA (or any applicable and comparable state or local Governmental Authority, any applicable and comparable Governmental Authority in any applicable non-United States jurisdiction), or which involves no violation, such as routine stock rotation practices or routine equipment adjustments and repairs.

Material Adverse Effect” means with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the condition (financial or otherwise), operations, business, or properties of the Credit Parties (taken as a whole), (b) the rights and remedies of Agent or Lenders under any Financing Document, or the ability of any Credit Party to perform any of its obligations under any Financing Document to which it is a party, (c) the legality, validity or enforceability of any Financing Document, (d) the existence, perfection or priority of any security interest granted in any Financing Document (other than solely as a result of any action or inaction of Agent or Lenders provided that such action or inaction is not caused by a Credit Party’s failure to comply with the terms of the Financing Documents), or (e) the prospect of repayment of any material portion of the Obligations.

Material Contracts” means (a) the Operative Documents, (b) the agreements listed on Schedule 3.17, and (c) each agreement or contract to which a Credit Party or its Subsidiaries is a party the termination of which could reasonably be expected to result in a Material Adverse Effect.

Material Intangible Assets” means all of (a) Borrower’s Intellectual Property and (b) license or sublicense agreements or other agreements with respect to rights in Intellectual Property, in each case that are material to the condition (financial or other), business or operations of Borrower, as reasonably determined by Agent.

Maturity Date” means May 1, 2023.

Maximum Lawful Rate” has the meaning set forth in Section 2.7.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

MCF” means MidCap Financial Trust, a Delaware statutory trust, and its successors and assigns.

Medicaid” means, collectively, the healthcare assistance program established by Title XIX of the Social Security Act (42 U.S.C. §§ 1396 et seq.) and any statutes succeeding thereto, all state statutes and plans for medical assistance enacted in connection with such program, and all laws, rules, regulations, manuals, orders, guidelines or requirements (whether or not having the force of Law) pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

Medicare” means, collectively, the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. §§ 1395 et seq.) and any statutes succeeding thereto, and all laws, rules, regulations, manuals, orders or guidelines (whether or not having the force of Law) pertaining to such program, in each case as the same may be amended, supplemented or otherwise modified from time to time.

Monthly Cash Burn Amount” means, with respect to Credit Parties, an amount equal to Credit Parties’ change in cash and Cash Equivalents, without giving effect to any increase resulting from contributions or proceeds of financings, for either (a) the immediately preceding six (6) month period as determined as of the last day of the month immediately preceding the proposed consummation of any applicable Permitted Acquisition and based upon the financial statements delivered to Agent in accordance with this Agreement for such period or (b) the immediately succeeding six (6) month period based upon the Transaction Projections, using whichever calculation as between clause (a) and clause (b) demonstrates a higher burn rate (or, in other words, more cash used), in either case, divided by six (6).

Multiemployer Pension Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Credit Party or any Subsidiary has any liability, including on account of any member of the Controlled Group.

Net Revenue” means, for any period, (a) the consolidated gross revenues of Borrowers and their Subsidiaries generated solely through the commercial sale of Products by Borrowers and their Subsidiaries during such period, less, without duplication, (b)(i) trade, quantity and cash discounts allowed by Borrowers, (ii) discounts, refunds, rebates, charge backs, retroactive price adjustments and any other allowances which effectively reduce net selling price, (iii) product returns and allowances, (iv) allowances for shipping or other distribution expenses, (iv) set-offs and counterclaims, and (v) any other similar and customary deductions used by Borrower in determining net revenues, all, in respect of (a) and (b), as determined in accordance with GAAP and in the Ordinary Course of Business.

Notes” has the meaning set forth in Section 2.3.

Notice of Borrowing” means a notice of a Responsible Officer of Borrower Representative, appropriately completed and substantially in the form of Exhibit B hereto.

Obligations” means all obligations, liabilities and indebtedness (monetary (including, without limitation, the payment of interest and other amounts arising after the commencement of any case with respect to any Credit Party under the Bankruptcy Code or any similar statute which would accrue and become due but for the commencement of such case, whether or not such amounts are allowed or allowable in whole or in part in such case) or otherwise) of each Credit Party under this Agreement or any other Financing Document, in each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due.

 15 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

OFAC” means the U.S. Department of Treasury Office of Foreign Assets Control.

OFAC Lists” means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.

Operative Documents” means the Financing Documents and Subordinated Debt Documents.

Ordinary Course of Business” means, in respect of any transaction involving any Credit Party, the ordinary course of business of such Credit Party, as conducted by such Credit Party in accordance with past practices.

Organizational Documents” means, with respect to any Person other than a natural person, the documents by which such Person was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of such Person (such as by-laws, a partnership agreement or an operating agreement, joint venture agreement, limited liability company agreement or members agreement), including any and all shareholder agreements or voting agreements relating to the capital stock or other Equity Interests of such Person.

Other Connection Taxes” means taxes imposed as a result of a present or former connection between Agent or any Lender and the jurisdiction imposing such tax (other than connections arising from Agent or such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, engaged in any other transaction pursuant to or enforced any Financing Document, or sold or assigned an interest in any Loans or any Financing Document).

Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Financing Document, except any such taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.8(i)).

Participant Register” has the meaning set forth in Section 11.17(a)(iii).

Payment Account” means the account specified on the signature pages hereof into which all payments by or on behalf of each Borrower to Agent under the Financing Documents shall be made, or such other account as Agent shall from time to time specify by notice to Borrower Representative.

Payment Notification” means a written notification substantially in the form of Exhibit C hereto.

PBGC” means the Pension Benefit Guaranty Corporation and any Person succeeding to any or all of its functions under ERISA.

Pension Plan” means any ERISA Plan that is subject to Section 412 of the Code or Title IV of ERISA, which for the avoidance of doubt shall not include a Multiemployer Pension Plan.

 16 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Permit” means all licenses, certificates, accreditations, product clearances or approvals, provider numbers or provider authorizations, supplier numbers, marketing authorizations, drug or device authorizations and approvals, other authorizations, franchises, qualifications, accreditations, registrations, permits, consents and approvals of a Credit Party issued or required under Laws applicable to the business of Borrowers or any of their Subsidiaries or necessary in the testing, development, manufacturing, importing, exporting, possession, ownership, warehousing, marketing, promoting, sale, labeling, furnishing, distribution or delivery of goods or services under Laws applicable to the business of Borrower or any of its Subsidiaries. Without limiting the generality of the foregoing, “Permit” includes any Regulatory Required Permit.

“Permitted Acquisition” means any Acquisition by a Borrower, in each case, to the extent that each of the following conditions shall have been satisfied:

(a)the Borrower Representative shall have delivered to Agent at least ten (10) Business Days (or such shorter period as may be agreed by Agent) prior to the closing of the proposed Acquisition: (i) a description of the proposed Acquisition; and (ii) copies of the current versions of the respective agreements, documents or instruments pursuant to which such Acquisition is to be consummated (and as soon as available, final drafts thereof), any schedules to such agreements, documents or instruments and all other material ancillary agreements, instruments and documents to be executed or delivered in connection therewith;
(b)the Credit Parties (including any new Subsidiary to the extent required by Section 4.11) shall execute and deliver the agreements, instruments and other documents to the extent required by the terms of this Agreement, including, without limitation, Section 4.11 hereof, including such agreements, instruments and other documents necessary to ensure that Agent receives a first priority perfected Lien in all entities and assets acquired in connection with the proposed Acquisition to the extent required by this Agreement;
(c)if the Acquisition is an equity purchase, the target and its Subsidiaries must have as its jurisdiction of formation a state within the United States and if the Acquisition is an asset purchase or a merger, not less than 85% of the fair market value of all of the assets so acquired shall be located within the United States (or, in the case of any Intellectual Property so acquired, registered or otherwise located in the United States);
(d)at the time of such Acquisition and after giving effect thereto, no Default or Event of Default has occurred and is continuing;
(e)the assets acquired in such Acquisition are for use in the same lines of business as the Credit Parties are currently engaged or a line of business reasonably related thereto;
(f)such Acquisition shall not be hostile and, if applicable, shall have been approved by the board of directors (or other similar body) and/or the stockholders or other equity holders of any Person being acquired in such Acquisition;
(g)all transactions in connection with such Acquisition shall be consummated in accordance with applicable Law;
(h)no Debt or Liens are assumed or created (other than Permitted Liens and Permitted Debt) in connection with such Acquisition;

 17 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

 

(i)Agent shall have received a certificate of a Responsible Officer of the Borrower Representative demonstrating, on a pro forma basis after giving effect to the consummation of such Acquisition, that Credit Parties are in compliance with the financial covenants set forth in Article 6 hereof;
(j)the sum of all cash amounts paid or payable in connection with all Permitted Acquisitions (including all Debt, liabilities and Contingent Obligations (in each case to the extent otherwise permitted hereunder) incurred or assumed and the maximum amount of any earn-out or comparable payment obligation in connection therewith, regardless of when due or payable and whether or not reflected on a consolidated balance sheet of Borrowers) shall not exceed $10,000,000 in the aggregate for any calendar year or $50,000,000 in the aggregate during the term of this Agreement; provided that the foregoing shall not prohibit or limit any Equity Interests of TherapeuticsMD (other than Disqualified Stock) issued by a Borrower as consideration; and
(k)Agent has received, prior to the consummation of such proposed Acquisition, updated financial projections, in form and substance reasonably satisfactory to Agent, for the immediately succeeding twelve (12) months following the proposed consummation of the Acquisition beginning with the month during which the Acquisition is to be consummated (the “Transaction Projections”) and such other evidence as Agent may reasonably request demonstrating that Credit Parties have, immediately before and immediately after giving effect to the consummation of such Acquisition, an aggregate amount of Borrower Unrestricted Cash equal to or greater than the sum of the (i) positive value of the product of (x) twelve (12) multiplied by (y) the Monthly Cash Burn Amount, as determined as of the last day of the month immediately preceding such Acquisition and (ii) $50,000,000.

Permitted Asset Dispositions” means the following Asset Dispositions:

(a)dispositions of Inventory in the Ordinary Course of Business and not pursuant to any bulk sale;
(b)dispositions of furniture, fixtures and equipment in the Ordinary Course of Business that is obsolete, worn out, damaged, replaced, is no longer used or useful, unmerchantable or unsaleable, in each case, in the Ordinary Course of Business;
(c)so long as no Default or Event of Default exists or would result from such Asset Disposition (i) Asset Dispositions among the Borrowers, and (ii) Asset Dispositions among Excluded Foreign Subsidiaries;
(d)Permitted Licenses; provided that at the time such Permitted License is entered into, no Default or Event of Default exists or would result from such Asset Disposition;
(e)the abandonment in the Ordinary Course of Business of Intellectual Property (other than Material Intangible Assets) that is no longer used or useful to Borrowers or their Subsidiaries;
(f)sales, forgiveness or discounting, on a non-recourse basis and in the Ordinary Course of Business, of past due Accounts in connection with the collection or compromise thereof or the settlement of delinquent Accounts or in connection with the bankruptcy or reorganization of suppliers or customers in accordance with the applicable terms of this Agreement; and

 18 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

 

(g)other dispositions approved by Agent from time to time in its sole discretion.

Permitted Contest” means a contest maintained in good faith by appropriate proceedings promptly instituted and diligently conducted and with respect to which such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; provided that compliance with the obligation that is the subject of such contest is effectively stayed during such challenge.

Permitted Contingent Obligations” means

(a)Contingent Obligations arising in respect of the Debt under the Financing Documents;
(b)Contingent Obligations resulting from endorsements for collection or deposit in the Ordinary Course of Business;
(c)Contingent Obligations outstanding on the date of this Agreement and set forth on Schedule 5.1 including extension and renewals thereof which (i) do not increase the amount of such Contingent Obligations (other than an interest rate increase to then prevailing market levels), (ii) do not impose materially more restrictive or adverse terms on the Credit Parties as compared to the terms of the Contingent Obligations being renewed or extended, (iii) are not secured by any assets other than the assets securing the Contingent Obligations being extended or renewed, or (iv) do not have obligors who are different from the obligors of the Contingent Obligations being extended or renewed;
(d)Contingent Obligations incurred in the Ordinary Course of Business with respect to surety and appeal bonds, performance bonds and other similar obligations not to exceed $1,000,000 in the aggregate at any time outstanding;
(e)Contingent Obligations arising under indemnification obligations contained in commercial agreements entered in the ordinary course of business, including those with title insurers to cause such title insurers to issue to Agent mortgagee title insurance policies;
(f)Contingent Obligations arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions of personal property assets permitted under Section 5.6;
(g)Contingent Obligations arising with respect to customary indemnification obligations, adjustment of purchase price, or similar obligations of any Credit Party, to the extent such Contingent Obligations arise in connection with a Permitted Acquisition;
(h)so long as there exists no Event of Default both immediately before and immediately after giving effect to any such transaction, Contingent Obligations existing or arising under any Swap Contract, provided, however, that such obligations are (or were) entered into by Borrower or an Affiliate in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person and not for purposes of speculation; and
(i)other Contingent Obligations not to exceed $500,000 in the aggregate at any time outstanding.

 19 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Permitted Debt” means:

(a)Borrowers’ and its Subsidiaries’ Debt to Agent and each Lender under this Agreement and the other Financing Documents;
(b)Debt incurred as a result of endorsing negotiable instruments received in the Ordinary Course of Business;
(c)purchase money Debt or Capital Lease obligations not to exceed $1,000,000 in the aggregate at any time (whether in the form of a loan or a lease) used solely to acquire equipment used in the Ordinary Course of Business and secured only by such equipment and accessions thereto and proceeds thereof;
(d)Debt existing on the date of this Agreement and described on Schedule 5.1 and any refinancing, extensions or renewals thereof, provided that the refinanced, extended, or renewed Debt shall not (i) have an aggregate outstanding principal amount in excess of the aggregate principal amount of the Debt being refinanced, extended or renewed, and any accrued interest, reasonable fees and reasonable out-of-pocket costs related thereto, (ii) impose materially more restrictive or adverse terms on any Credit Party or any Subsidiary as compared to the terms of the Debt being refinanced, extended or renewed (other than an interest rate increase to then prevailing market levels), (iii) be secured by any assets other than the assets securing the Debt being refinanced, extended or renewed, or (iv) have additional obligors from the obligors of the Debt being refinanced, extended or renewed;
(e)so long as there exists no Event of Default both immediately before and immediately after giving effect to any such transaction, Debt existing or arising under any Swap Contract, provided, however, that such obligations are (or were) entered into by Borrower or an Affiliate in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person and not for purposes of speculation;
(f)Debt in the form of insurance premiums not to exceed $1,000,000 in the aggregate at any time outstanding owed to any Person providing property, casualty, liability, or other insurance to Borrowers, financed through the applicable insurance company so long as the amount of such Debt is not in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of, such insurance for the policy year in which such Debt is incurred and such Debt is outstanding only during such policy year;
(g)Subordinated Debt;
(h)unsecured Debt in respect of (i) credit cards, credit card processing services, debit cards, stored value cards, purchase cards (including so-called “procurement cards” or “P-cards”) or other similar cash management services, in each case, incurred in the Ordinary Course of Business and to the extent such Debt is unsecured and does not exceed $2,500,000 in the aggregate at any time outstanding, and (ii) netting services or overdraft protections and similar arrangements in connection with Deposit Accounts, in each case solely to the extent incurred in the Ordinary Course of Business;

 20 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

 

(i)Debt in respect of performance, surety or appeal bonds, workers’ compensation claims, self-insurance obligations and bankers acceptances issued for the account of any Credit Party or any Subsidiary, in each case, provided in the Ordinary Course of Business, and not to exceed $1,000,000 in the aggregate at any time outstanding, but excluding (in each case) Debt incurred through the borrowing of money;
(j)without duplication, any Debt of any Borrower or any Subsidiary that constitutes a Permitted Contingent Obligation;
(k)Debt consisting of unsecured intercompany loans and advances incurred by (i) any Borrower or Guarantor owing to any other Borrower or Guarantor, (ii) any Excluded Foreign Subsidiary owing to any other Excluded Foreign Subsidiary, (iii) any Borrower or Guarantor owing to any Excluded Foreign Subsidiary, or (iv) any Excluded Foreign Subsidiary owing to any Borrower or any Guarantor so long as such Debt constitutes a Permitted Investment of the applicable Credit Party pursuant to clause (l) of the definition of Permitted Investments; provided, however, that upon the request of Agent at any time, any such Debt shall be evidenced by promissory notes having terms reasonably satisfactory to Agent, the sole originally executed counterparts of which shall be pledged and delivered to Agent, for the benefit of Agent and Lenders, as security for the Obligations; and
(l)unsecured Debt not to exceed $1,000,000 in the aggregate at any time outstanding.

Permitted Distributions” means the following Distributions: (a) dividends by any Borrower or Subsidiary of any Borrower or Guarantor to any Borrower or Guarantor; (b) dividends payable solely in common stock; and (c) repurchases of stock of former employees, directors or consultants pursuant to stock purchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided, however, that such repurchase does not exceed $500,000 in the aggregate per fiscal year.

Permitted Investments” means:

(a)Investments shown on Schedule 5.7 and existing on the Closing Date;
(b)Investments in cash and Cash Equivalents;
(c)Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the Ordinary Course of Business;
(d)Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the Ordinary Course of Business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrowers or their Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrowers’ Board of Directors (or other governing body), but the aggregate of all such loans outstanding may not exceed $1,000,000 at any time;
(e)Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the Ordinary Course of Business;

 21 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

 

(f)Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the Ordinary Course of Business, provided, however, that this subpart (f) shall not apply to Investments of Borrowers in any Subsidiary;
(g)Deposit Accounts established in accordance with Section 5.14 and Investments in negotiable instruments deposited or to be deposited for collection in the Ordinary Course of Business;
(h)Investments by any Borrower in any Subsidiary now owned or hereafter created by such Borrower, which Subsidiary is a Borrower or has provided a Guarantee of the Obligations of the Borrowers which Guarantee is secured by a Lien granted by such Subsidiary to Agent in all or substantially all of its property of the type described in Schedule 9.1 hereto and otherwise made in compliance with Section 4.11(d);
(i)deposits required to be made to a landlord in the Ordinary Course of Business to secure or support obligations of any Credit Party or any Subsidiary under a lease of real property;
(j)accounts receivable created, acquired or made and trade credit extended in the Ordinary Course of Business and payable in accordance with customary trade terms;
(k)Investments constituting Permitted Acquisitions;
(l)Investments of cash and Cash Equivalents in an Excluded Foreign Subsidiary but solely to the extent that the aggregate amount of such Investments with respect to all Excluded Foreign Subsidiaries does not, at any time, exceed $250,000 in the aggregate in any twelve (12) month period; provided that in no event shall the aggregate amount of Investments made in any Excluded Foreign Subsidiary exceed the amount necessary to fund the current operating expenses of such Excluded Foreign Subsidiary (taking into account their revenue from other sources);
(m)Investments by any Excluded Foreign Subsidiary in a Credit Party or any other Excluded Foreign Subsidiary; and
(n)so long as no Event of Default exists at the time of such Investment or after giving effect to such Investment, other Investments of cash and Cash Equivalents in an amount not exceeding $1,000,000 in the aggregate.

Permitted License” means (a) any non-exclusive license of patent rights of Borrower or its Subsidiaries so long as all such Permitted Licenses are granted to third parties in the Ordinary Course of Business, do not result in a legal transfer of title to the licensed property, and have been granted in exchange for fair consideration, and (b) any exclusive license of patent rights of Borrower or its Subsidiaries so long as such Permitted Licenses are granted to third parties in the Ordinary Course of Business, do not result in a legal transfer of title to the licensed property, are exclusive solely as to discrete geographical areas outside of the United States, and have been granted in exchange for fair consideration.

 22 

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Permitted Liens” means:

(a)deposits or pledges of cash to secure obligations under workmen’s compensation, social security or similar laws, or under unemployment insurance (but excluding Liens arising under ERISA or, with respect to any Pension Plan or Multiemployer Pension Plan, the Code) pertaining to a Borrower’s or its Subsidiary’s employees, if any;
(b)deposits or pledges of cash to secure bids, tenders, contracts (other than contracts for the payment of money or the deferred purchase price of property or services), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business;
(c)carrier’s, warehousemen’s, mechanic’s, workmen’s, materialmen’s or other like Liens on Collateral, other than any Material Intangible Assets, arising in the Ordinary Course of Business with respect to obligations which are not overdue, or which are being contested pursuant to a Permitted Contest;
(d)Liens for taxes, assessments or other governmental charges not at the time delinquent or the subject of a Permitted Contest;
(e)attachments, appeal bonds, judgments and other similar Liens arising in connection with court proceedings not constituting an Event of Default under Section 10.1(h); provided, that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are the subject of a Permitted Contest;
(f)with respect to real estate, easements, rights of way, restrictions, minor defects or irregularities of title, none of which, individually or in the aggregate, materially interfere with the benefits of the security intended to be provided by the Security Documents, materially affect the value or marketability of the Collateral, impair the use or operation of the Collateral for the use currently being made thereof or impair Borrowers’ ability to pay the Obligations in a timely manner or impair the use of the Collateral or the ordinary conduct of the business of the Borrowers taken as a whole or any Subsidiary and which, in the case of any real estate that is part of the Collateral, are set forth as exceptions to or subordinate matters in the title insurance policy accepted by Agent insuring the lien of the Security Documents;
(g)Liens and encumbrances in favor of Agent under the Financing Documents;
(h)Liens existing on the date hereof and set forth on Schedule 5.2 and any renewals or extensions of such Liens; provided that (i) the Debt secured by such Liens is permitted under clause (d) of the definition Permitted Debt and (ii) any such renewal or extension does not encumber any additional assets or properties of any Credit Party;
(i)any Lien on any equipment securing Debt permitted under subpart (c) of the definition of Permitted Debt, provided, however, that such Lien attaches concurrently with or within twenty (20) days after the acquisition thereof;
(j)purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases or consignments of personal property entered into the Ordinary Course of Business;

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

 

(k)Liens granted in the Ordinary Course of Business on the unearned portion of insurance premiums securing the financing of insurance premiums to the extent the financing is permitted clause (f) of the definition of Permitted Debt;
(l)Liens that are rights of set-off, bankers’ liens or similar non-consensual Liens relating to deposit or securities accounts in favor of banks, other depositary institutions and securities intermediaries arising in the Ordinary Course of Business;
(m)Liens in favor of customs and revenue authorities arising as a matter of Law to secure payment of customs duties in connection with the importation of goods in the Ordinary Course of Business;
(n)To the extent constituting a Lien, the granting of a Permitted License; and
(o)Liens solely on any cash earnest money deposits made by a Borrower or Subsidiary thereof in connection with any letter of intent or purchase agreement with respect to a Permitted Acquisition or other Investment expressly permitted under this Agreement.

Permitted Modifications” means (a) such amendments or other modifications to a Borrower’s or Subsidiary’s Organizational Documents as are required under this Agreement or by applicable Law and fully disclosed to Agent within thirty (30) days after such amendments or modifications have become effective, and (b) such amendments or modifications to a Borrower’s or Subsidiary’s Organizational Documents (other than those involving a change in the name of a Borrower or Subsidiary or involving a reorganization of a Borrower or Subsidiary under the laws of a different jurisdiction) that would not adversely affect the rights and interests of Agent or Lenders and fully disclosed to Agent within thirty (30) days after such amendments or modifications have become effective.

Person” means any natural person, corporation, limited liability company, professional association, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any Governmental Authority.

Prepayment Fee” has the meaning set forth in Section 2.2.

Products” means, from time to time, any products currently manufactured, marketed, promoted, sold, distributed, developed or being developed, or tested or being tested by or on behalf of any Borrower or any of its Subsidiaries, including without limitation, those products set forth on Schedule 4.15 (as updated from time to time in accordance with the terms of this Agreement); provided, that, for the avoidance of doubt, any new Product not disclosed on Schedule 4.15 shall still constitute a “Product” as herein defined.

Pro Rata Share” means (a) with respect to a Lender’s obligation to make advances in respect of a Term Loan and such Lender’s right to receive payments of principal and interest with respect to the Term Loans, the Term Loan Commitment Percentage of such Lender in respect of such Term Loan, and (b) for all other purposes (including, without limitation, the indemnification obligations arising under Section 11.6) with respect to any Lender, the percentage obtained by dividing (i) the Term Loan Commitment Amount of such Lender (or, in the event the Term Loan Commitment shall have been terminated, such Lender’s then outstanding principal advances of such Lender under the Term Loan), by (ii) the sum of the Term Loan Commitment (or, in the event the Term Loan Commitment shall have been terminated, the then outstanding principal advances of such Lenders under the Term Loan) of all Lenders.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Recall” means a Person’s Removal or Correction of a marketed product that the FDA considers to be in violation of the FDCA and other Laws it administers and against which the FDA would initiate legal action.

Registered Intellectual Property” means any patent, registered trademark or servicemark, registered copyright, registered mask work, or any pending application for any of the foregoing.

Regulatory Reporting Event” has the meaning set forth in Section 4.1(i).

Regulatory Required Permit” means any and all Permits issued by the FDA, DEA or any other applicable Governmental Authority, including without limitation approved Drug Applications, necessary for the development, testing, manufacture, import, export, possession, ownership, holding, marketing, promotion, sale, labeling, or distribution, as applicable, of any Product by or on behalf of any applicable Borrower(s) and its Subsidiaries as such activities are being conducted with respect to such Product at such time, including but not limited to any drug listings and drug establishment registrations under 21 U.S.C. Section 360, registrations issued by DEA under 21 U.S.C. Section 823 (if applicable to any Product), and those issued by state Governmental Authorities for the conduct of Borrower’s or any Subsidiary’s business.

Removal” means the physical removal of a product from its point of use to some other location for repair, modification, adjustment, relabeling, destruction, or inspection.

Required Lenders” means, at any time, Lenders holding unfunded Term Loan Commitments (which have not been terminated or expired) and outstanding Term Loans representing more than fifty one percent (51%) of the sum of the total unfunded Term Loan Commitments (which have not been terminated or expired) and outstanding Term Loans as of such date.

Responsible Officer” means any of the Chief Executive Officer, Chief Financial Officer or any other officer of the applicable Borrower acceptable to Agent.

SEC” means the United States Securities and Exchange Commission.

Securities Account” means a “securities account” (as defined in Article 9 of the UCC), an investment account, or other account in which investment property or securities are held or invested for credit to or for the benefit of any Borrower.

Securities Account Control Agreement” means an agreement, in form and substance reasonably satisfactory to Agent, among Agent, any applicable Borrower and each securities intermediary in which such Borrower maintains a Securities Account pursuant to which Agent shall obtain “control” (as defined in Article 9 of the UCC) over such Securities Account.

Security Document” means this Agreement and any other agreement, document or instrument executed concurrently herewith or at any time hereafter pursuant to which one or more Credit Parties or any other Person either (a) Guarantees payment or performance of all or any portion of the Obligations, and/or (b) provides, as security for all or any portion of the Obligations, a Lien on any of its assets in favor of Agent for its own benefit and the benefit of the Lenders, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Solvent” means, with respect to any Person, that such Person (a) owns and will own assets the fair saleable value of which are (i) greater than the total amount of its debts and liabilities (including subordinated and Contingent Obligations), and (ii) greater than the amount that will be required to pay the probable liabilities of its then existing debts as they become absolute and matured considering all financing alternatives and potential asset sales reasonably available to it; (b) has capital that is not unreasonably small in relation to its business as presently conducted or after giving effect to any contemplated transaction; and (c) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due.

Stated Rate” has the meaning set forth in Section 2.7.

Subordinated Debt” means any Debt of Borrowers incurred pursuant to the terms of the Subordinated Debt Documents and with the prior written consent of Agent, all of which documents must be in form and substance reasonably acceptable to Agent. As of the Closing Date, there is no Subordinated Debt.

Subordinated Debt Documents” means any documents evidencing and/or securing Debt governed by a Subordination Agreement, all of which documents must be in form and substance reasonably acceptable to Agent. As of the Closing Date, there are no Subordinated Debt Documents.

Subordination Agreement” means any agreement between Agent and another creditor of Borrowers, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms thereof, pursuant to which the Debt owing from any Borrower(s) and/or the Liens securing such Debt granted by any Borrower(s) to such creditor are subordinated in any way to the Obligations and the Liens created under the Security Documents, the terms and provisions of such Subordination Agreements to have been agreed to by and be acceptable to Agent in the exercise of its sole discretion.

Subsidiary” means, with respect to any Person, (a) any corporation (or any foreign equivalent thereof) of which an aggregate of more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, capital stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of more than fifty percent (50%) of such capital stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company (or any foreign equivalent thereof) in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) or of which any such Person is a general partner or may exercise the powers of a general partner. Unless the context otherwise requires, each reference to a Subsidiary shall be a reference to a Subsidiary of a Borrower.

Swap Contract” means any “swap agreement”, as defined in Section 101 of the Bankruptcy Code, that is obtained by Borrower to provide protection against fluctuations in interest or currency exchange rates, but only if Agent provides its prior written consent to the entry into such “swap agreement”.

Taxesmeans all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Termination Date” means the earlier to occur of (a) the Maturity Date, (b) any date on which Agent accelerates the maturity of the Loans pursuant to Section 10.2, (c) if the Term Loan Tranche 1 Funding Date has not occurred by the Term Loan Tranche 1 Commitment Termination Date, the Term Loan Tranche 1 Commitment Termination Date or (d) the termination date stated in any notice of termination of this Agreement provided by Borrowers in accordance with Section 2.11.

Term Loan” means, collectively, Term Loan Tranche 1, Term Loan Tranche 2 and Term Loan Tranche 3.

Term Loan Commitment Amount” means, with respect to each Lender, the sum of such Lender’s Term Loan Tranche 1 Commitment Amount, Term Loan Tranche 2 Commitment Amount and Term Loan Tranche 3 Commitment Amount.

Term Loan Commitment Percentagemeans, as to any Lender with respect to each of such Lender’s Term Loan Commitments, (a) on the Closing Date with respect to each tranche of the Term Loan, the applicable percentage set forth opposite such Lender’s name on the Commitment Annex under the column “Term Loan Tranche 1 Commitment Percentage,” “Term Loan Tranche 2 Commitment Percentage,” and “Term Loan Tranche 3 Commitment Percentage”, (if such Lender’s name is not so set forth thereon, then, on the Closing Date, such percentage for such Lender shall be deemed to be zero), and (b) on any date following the Closing Date, as applicable to each tranche of Term Loan, the percentage equal to (i) the Term Loan Tranche 1 Commitment of such Lender on such date divided by the aggregate Term Loan Tranche 1 Commitments on such date, (ii) the Term Loan Tranche 2 Commitment of such Lender on such date divided by the aggregate Term Loan Tranche 2 Commitments on such date or (iii) the Term Loan Tranche 3 Commitment of such Lender on such date divided by the aggregate Term Loan Tranche 3 Commitments on such date.

Term Loan Commitments” means the Term Loan Tranche 1 Commitments, Term Loan Tranche 2 Commitments and the Term Loan Tranche 3 Commitments. For the avoidance of doubt, the aggregate Term Loan Commitments of all Lenders on the Closing Date shall be $200,000,000.

Term Loan Tranche 1” has the meaning set forth in Section 2.1(a)(i)(A)

Term Loan Tranche 1 Activation Date” means the date, if any, prior to July 31, 2018, on which the Agent receives documentation and information evidencing, to Agent’s reasonable satisfaction, that the FDA has approved Borrowers’ Drug Application for the testing, manufacturing, marketing and commercial sale in the United States of TX-004HR, in both 4 microgram and 10 microgram doses, for the treatment of moderate to severe dyspareunia, a symptom of vulvar and vaginal atrophy, due to menopause.

Term Loan Tranche 1 Commitment Amount” means, with respect to each Lender, the amount set forth opposite such Lender’s name on Annex A hereto under the caption “Term Loan Tranche 1 Commitment Amount”, as amended from time to time to reflect any permitted and effective assignments and as such amount may be reduced or terminated pursuant to this Agreement.

Term Loan Tranche 1 Commitment Termination Date” means the earlier of (a) the date that is fifteen (15) Business Days following the Term Loan Tranche 1 Activation Date and (b) July 31, 2018.

Term Loan Tranche 1 Commitments” means the sum of each Lender’s Term Loan Tranche 1 Commitment Amount. For the avoidance of doubt, the aggregate Term Loan Tranche 1 Commitments of all Lenders on the Closing Date shall be $75,000,000.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Term Loan Tranche 1 Funding Date” has the meaning set forth in Section 2.1(a)(i)(A).

Term Loan Tranche 2” has the meaning set forth in Section 2.1(a)(i)(B).

Term Loan Tranche 2 Activation Date” means the date, if any, after the Term Loan Tranche 1 Funding Date and prior to the Term Loan Tranche 2 Commitment Termination Date, on which the Agent receives documentation and information evidencing, to Agent’s reasonable satisfaction, both that (a) the FDA has approved Borrowers’ Drug Application for the testing, manufacturing, marketing and commercial sale in the United States of TX-001HR for the treatment of moderate to severe vasomotor symptoms associated with menopause in women with a uterus, and (b) Borrower has, in the ordinary course of business, consummated its first commercial sale in the United States of TX-001HR for the treatment of moderate to severe vasomotor symptoms associated with menopause in women with a uterus (the “TX-001HR First Commercial Sale”).

Term Loan Tranche 2 Commitment Amount” means, with respect to each Lender, the amount set forth opposite such Lender’s name on Annex A hereto under the caption “Term Loan Tranche 2 Commitment Amount”, as amended from time to time to reflect any permitted and effective assignments and as such amount may be reduced or terminated pursuant to this Agreement.

Term Loan Tranche 2 Commitment Termination Date” means (a) if the Term Loan Tranche 1 Funding Date has not occurred by the Term Loan Tranche 1 Commitment Termination Date, the Term Loan Tranche 1 Commitment Termination Date or (b) otherwise, May 31, 2019.

Term Loan Tranche 2 Commitments” means the sum of each Lender’s Term Loan Tranche 2 Commitment Amount. For the avoidance of doubt, the aggregate Term Loan Tranche 2 Commitments of all Lenders on the Closing Date shall be $75,000,000.

Term Loan Tranche 2 Funding Date” has the meaning set forth in Section 2.1(a)(i)(B).

Term Loan Tranche 3” has the meaning set forth in Section 2.1(a)(i)(C).

Term Loan Tranche 3 Activation Date” means the date, if any, following the Term Loan Tranche 2 Funding Date but prior to the Term Loan Tranche 3 Commitment Termination Date on which Agent receives a Compliance Certificate and such other documentation and information as Agent may reasonably request evidencing, to Agent’s reasonable satisfaction, that Borrowers’ consolidated Net Revenue attributable solely to the commercial sale of TX-001HR and TX-004HR for the twelve (12) month period ending on the last day of the month immediately preceding such proposed Term Loan Tranche 3 Funding Date is greater than or equal to $75,000,000.

Term Loan Tranche 3 Commitment Amount” means, with respect to each Lender, the amount set forth opposite such Lender’s name on Annex A hereto under the caption “Term Loan Tranche 3 Commitment Amount”, as amended from time to time to reflect any permitted and effective assignments and as such amount may be reduced or terminated pursuant to this Agreement.

Term Loan Tranche 3 Commitment Termination Date” means the earliest to occur of the following: (a) if the Term Loan Tranche 1 Funding Date has not occurred by the Term Loan Tranche 1 Commitment Termination Date, the Term Loan Tranche 1 Commitment Termination Date; (b) if the Term Loan Tranche 2 Funding Date has not occurred by the Term Loan Tranche 2 Commitment Termination Date, the Term Loan Tranche 2 Commitment Termination Date; and (c) otherwise, December 31, 2019.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Term Loan Tranche 3 Commitments” means the sum of each Lender’s Term Loan Tranche 3 Commitment Amount. For the avoidance of doubt, the aggregate Term Loan Tranche 3 Commitments of all Lenders on the Closing Date shall be $50,000,000.

Term Loan Tranche 3 Funding Date” has the meaning set forth in Section 2.1(a)(i)(C).

TRICARE” means the program administered pursuant to 10 U.S.C. §§ 1071 et seq., Sections 1320a-7 and 1320a-7a of Title 42 of the United States Code and the regulations promulgated pursuant to such statutes.

UCC” means the Uniform Commercial Code of the State of New York or of any other state the laws of which are required to be applied in connection with the perfection of security interests in any Collateral.

United States” means the United States of America.

U.S. Tax Compliance Certificate” has the meaning set forth in Section 2.8(c)(i).

Withholding Agent” means any Borrower or Agent.

Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

Section 1.2           Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder (including, without limitation, determinations made pursuant to the exhibits hereto) shall be made, and all financial statements required to be delivered hereunder shall be prepared on a consolidated basis in accordance with GAAP applied on a basis consistent with the most recent audited consolidated financial statements of each Borrower and its Consolidated Subsidiaries delivered to Agent and each of the Lenders on or prior to the Closing Date. If at any time any change in GAAP would affect the computation of any financial ratio or financial requirement set forth in any Financing Document, and either Borrowers or the Required Lenders shall so request, Agent, the Lenders and Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided, however, that until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrowers shall provide to Agent and the Lenders financial statements and other documents required under this Agreement which include a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Statement of Financial Accounting Standards 159 (or any other Financial Accounting Standard having a similar result or effect) to value any Debt or other liabilities of any Credit Party or any Subsidiary of any Credit Party at “fair value”, as defined therein.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 

Section 1.3          Other Definitional and Interpretive Provisions. References in this Agreement to “Articles”, “Sections”, “Annexes”, “Exhibits”, or “Schedules” shall be to Articles, Sections, Annexes, Exhibits or Schedules of or to this Agreement unless otherwise specifically provided. Any term defined herein may be used in the singular or plural. “Include”, “includes” and “including” shall be deemed to be followed by “without limitation”. Except as otherwise specified or limited herein, references to any Person include the successors and assigns of such Person. References “from” or “through” any date mean, unless otherwise specified, “from and including” or “through and including”, respectively. Unless otherwise specified herein, the settlement of all payments and fundings hereunder between or among the parties hereto shall be made in lawful money of the United States and in immediately available funds. References to any statute or act shall include all related current regulations and all amendments and any successor statutes, acts and regulations. All amounts used for purposes of financial calculations required to be made herein shall be without duplication. References to any statute or act, without additional reference, shall be deemed to refer to federal statutes and acts of the United States. References to any agreement, instrument or document shall include all schedules, exhibits, annexes and other attachments thereto. References to capitalized terms that are not defined herein, but are defined in the UCC, shall have the meanings given them in the UCC. All references herein to times of day shall be references to daylight or standard time, as applicable.

Section 1.4               Settlement and Funding Mechanics. Unless otherwise specified herein, the settlement of all payments and fundings hereunder between or among the parties hereto shall be made in lawful money of the United States and in immediately available funds.

Section 1.5               Time is of the Essence. Time is of the essence in Borrower’s and each other Credit Party’s performance under this Agreement and all other Financing Documents.

Section 1.6                Time of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight savings or standard, as applicable).

Article 2 - LOANS

Section 2.1               Loans.

(a)                Term Loans.

(i)                 Term Loan Amounts.

(A)              On the terms and subject to the conditions set forth herein and in the other Financing Documents, each Lender with a Term Loan Tranche 1 Commitment severally hereby agrees to make to Borrowers a term loan on a Business Day occurring on or after the Term Loan Tranche 1 Activation Date (the “Term Loan Tranche 1 Funding Date”) in an original aggregate principal amount equal to the Term Loan Tranche 1 Commitment (the “Term Loan Tranche 1”). Each such Lender’s obligation to fund the Term Loan Tranche 1 shall be limited to such Lender’s Term Loan Tranche 1 Commitment Percentage, and no Lender shall have any obligation to fund any portion of any Term Loan required to be funded by any other Lender, but not so funded. Unless previously terminated, upon the Term Loan Tranche 1 Commitment Termination Date, the Term Loan Tranche 1 Commitment shall thereupon automatically be terminated and the Term Loan Tranche 1 Commitment Amount of each Lender as of such date shall be reduced by such Lender’s Pro Rata Share of such total reduction in the Term Loan Commitments.

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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE COPY FILED HEREWITH OMITS THE INFORMATION SUBJECT TO THE CONFIDENTIALITY REQUEST. OMISSIONS ARE DESIGNATED AS [***]. A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

(B)              On the terms and subject to the conditions set forth herein and in the other Financing Documents, each Lender with a Term Loan Tranche 2 Commitment severally hereby agrees to make to Borrowers a term loan on a Business Day occurring on or after the Term Loan Tranche 2 Activation Date and prior to the Term Loan Tranche 2 Commitment Termination Date (the “Term Loan Tranche 2 Funding Date”) in an original aggregate principal amount equal to (but not less than) the Term Loan Tranche 2 Commitment (the “Term Loan Tranche 2”). Each such Lender’s obligation to fund the Term Loan Tranche 2 shall be limited to such Lender’s Term Loan Tranche 2 Commitment Percentage, and no Lender shall have any obligation to fund any portion of any Term Loan required to be funded by any other Lender, but not so funded. Unless previously terminated, upon the Term Loan Tranche 2 Commitment Termination Date, the Term Loan Tranche 2 Commitment shall thereupon automatically be terminated and the Term Loan Tranche 2 Commitment Amount of each Lender as of such date shall be reduced by such Lender’s Pro Rata Share of such total reduction in the Term Loan Commitments.

(C)              On the terms and subject to the conditions set forth herein and in the other Financing Documents, each Lender with a Term Loan Tranche 3 Commitment severally hereby agrees to make to Borrowers a term loan on a Business Day occurring on or after the Term Loan Tranche 3 Activation Date and prior to the Term Loan Tranche 3 Commitment Termination Date (the “Term Loan Tranche 3 Funding Date”) in an original aggregate principal amount equal to the Term Loan Tranche 3 Commitment (the “Term Loan Tranche 3”). Each such Lender’s obligation to fund the Term Loan Tranche 3 shall be limited to such Lender’s Term Loan Tranche 3 Commitment Percentage, and no Lender shall have any obligation to fund any portion of any Term Loan required to be funded by any other Lender, but not so funded. Unless previously terminated, upon the Term Loan Tranche 3 Commitment Termination Date, the Term Loan Tranche 3 Commitment shall thereupon automatically be terminated and the Term Loan Tranche 3 Commitment Amount of each Lender as of such date shall be reduced by such Lender’s Pro Rata Share of such total reduction in the Term Loan Commitments.

(ii)               No Borrower shall have any right to reborrow any portion of the Term Loan that is repaid or prepaid from time to time. Each of the Term Loan Tranche 1, Term Loan Tranche 2 and the Term Loan Tranche 3 may be funded in one advance in an aggregate amount not to exceed the Term Loan Tranche 1 Commitment Amount, Term Loan Tranche 2 Commitment Amount and the Term Loan Tranche 3 Commitment Amount, as applicable. Borrowers shall deliver to Agent a Notice of Borrowing with respect to each proposed Term Loan advance, such Notice of Borrowing to be delivered, (i) in the case of a Term Loan Tranche 1 borrowing, no later than 12:00 P.M. (Eastern time) five (5) Business Day (or such shorter period as may be agreed by Agent and the Lenders) prior to such proposed borrowing or (ii) in the case of a Term Loan Tranche 2 or Term Loan Tranche 3 borrowing, no later than noon (Eastern time) ten (10) Business Days (or such shorter period as may be agreed by Agent and the Lenders) prior to such proposed borrowing.

(iii)             Scheduled Repayments; Mandatory Prepayments; Optional Prepayments.

(A)