UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
or
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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.
(Exact Name of Registrant as Specified in Its Charter)
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| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
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| (Address of Principal Executive Offices) | (Zip Code) | ||
(Registrant’s telephone number, including area code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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):
| Accelerated filer ☐ | ||
| Non-accelerated filer ☐ | 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 ☐
The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of August 3, 2020 was .
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| June 30, 2020 | December 31, 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Inventory, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Fixed assets, net | ||||||||
| Other Assets: | ||||||||
| License rights, net | ||||||||
| Intangible assets, net | ||||||||
| Right of use assets | ||||||||
| Other assets | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Long-term debt | ||||||||
| Operating lease liability | ||||||||
| Other long-term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies - See Note 15 | ||||||||
| Stockholders' (Deficit) Equity: | ||||||||
| Preferred stock - par value $; shares authorized; shares issued and outstanding | ||||||||
| Common stock - par value $; and shares authorized: and issued and outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' (deficit) equity | ( | ) | ||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
3
THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Product revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales, general, and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ||||||||||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Miscellaneous income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per share, basic and diluted: | ||||||||||||||||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding, basic and diluted | ||||||||||||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
4
THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
| Additional | ||||||||||||||||||||
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2018 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Shares issued for exercise of options and warrants, net | — | |||||||||||||||||||
| Share-based compensation | — | — | — | |||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||
| Balance, March 31, 2019 | ( | ) | ||||||||||||||||||
| Share-based compensation | — | — | — | |||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||
| Balance, June 30, 2019 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Shares issued for exercise of options, net | — | |||||||||||||||||||
| Issuance of shares from release of restricted stock | ( | ) | — | — | ||||||||||||||||
| Share-based compensation | — | — | — | |||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||
| Balance, March 31, 2020 | ( | ) | ( | ) | ||||||||||||||||
| Shares issued for exercise of options, net | — | |||||||||||||||||||
| Issuance of shares from release of restricted stock | ( | ) | — | |||||||||||||||||
| Share-based compensation | — | — | — | |||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
5
THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation of fixed assets | ||||||||
| Amortization of intangible assets | ||||||||
| Write off of patent and trademark costs | ||||||||
| Operating lease impairment | ||||||||
| Non-cash operating lease expense | ||||||||
| (Recovery of) provision for doubtful accounts | ( | ) | ||||||
| Inventory obsolesence reserve | ||||||||
| Loss on extinguishment of debt | ||||||||
| Share-based compensation | ||||||||
| Amortization of deferred financing fees | ||||||||
| Amortization of license fee | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Other current assets | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Patent costs | ( | ) | ( | ) | ||||
| Purchase of fixed assets | ( | ) | ( | ) | ||||
| Security deposit | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from exercise of options and warrants | ||||||||
| Repayment of the Credit Agreement | ( | ) | ||||||
| Proceeds from the Financing Agreement | ||||||||
| Payment of deferred financing fees | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | $ | $ | ||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
6
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY
TherapeuticsMD,
Inc., a Nevada corporation, or TherapeuticsMD or the Company, has
Nature of Business
We are a women’s healthcare company with a mission of creating and commercializing innovative products to support the lifespan of women from pregnancy prevention through menopause. At TherapeuticsMD, we combine entrepreneurial spirit, clinical expertise, and business leadership to develop and commercialize health solutions that enable new standards of care for women. Our solutions range from a patient-controlled, long-lasting contraceptive to advanced hormone therapy pharmaceutical products. We also manufacture and distribute branded and generic prescription prenatal vitamins under the vitaMedMD and BocaGreenMD brands. Our portfolio of products focused on women’s health allows us to efficiently leverage our sales and marketing plan to grow our recently approved products. During 2018, the U.S. Food and Drug Administration, or FDA, approval of our pharmaceutical products has transitioned our company from predominately focused on conducting research and development to one focused on commercializing our pharmaceutical products. In July 2018, we launched our 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. In April 2019, we launched our FDA-approved product BIJUVA (estradiol and progesterone) capsules, our hormone therapy combination of bio-identical 17ß-estradiol and bio-identical progesterone in a single, oral softgel capsule, for the treatment of moderate-to-severe vasomotor symptoms, or VMS, due to menopause in women with a uterus. In October 2019, we began a test and learn market introduction for our FDA-approved product ANNOVERA (segesterone acetate and ethinyl estradiol vaginal system), the first and only patient-controlled, procedure-free, reversible prescription contraceptive option for women. Although we expected to commence the full commercial launch of ANNOVERA in the first quarter of 2020, as a result of the uncertainty surrounding the COVID-19 pandemic, we paused the commercial launch of ANNOVERA and deferred sales and marketing initiatives into subsequent quarters as the pandemic began to negatively affect our revenue growth. We resumed the launch of ANNOVERA on July 1, 2020. On July 30, 2018, we entered into an exclusive license agreement, or the Population Council License Agreement, with the Population Council, Inc., or the Population Council, to commercialize ANNOVERA in the U.S. In addition, on July 30, 2018, we entered into a license and supply agreement, or the Knight License Agreement, with Knight Therapeutics Inc., or Knight, pursuant to which we granted Knight an exclusive license to commercialize IMVEXXY and BIJUVA in Canada and Israel. On June 6, 2019, we entered into an exclusive license and supply agreement, or the Theramex License Agreement, with Theramex HQ UK Limited, or Theramex, to commercialize BIJUVA and IMVEXXY outside of the U.S., excluding Canada and Israel, or the Theramex Territory.
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, 2019, as filed with the Securities and Exchange Commission, or the SEC, from which we derived the accompanying consolidated balance sheet as of December 31, 2019. 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.
Risks and Uncertainties
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. We continue to provide an uninterrupted supply of our portfolio of products for patients. We have sufficient inventory of finished product to meet anticipated demand through at least the early fourth quarter of 2020. Additionally, we currently do not foresee any interruption in our ability to continue to manufacture additional product to be used beyond this period and have sufficient active pharmaceutical ingredients on hand for the continued manufacture of our products.
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Since the early phase of the COVID-19 pandemic, we have been using substantial virtual options to ensure business continuity. Our VitaCare Prescription Services patient model assists patients in obtaining easy and convenient access to their prescriptions for products at a retail pharmacy of their choice, including via home delivery retail pharmacy options. We have also partnered with independent community pharmacies and multiple third-party online pharmacies and telemedicine providers that focus on contraception or menopause to ensure patients have real-time access to both diagnosis and treatment. We continue to support prescribers’ needs with samples and product materials through our sales force. If access is restricted, we currently have mailing options in place for these materials. We also have business continuity plans and infrastructure in place that allows for virtual detailing.
As part of our response to the COVID-19 pandemic, we implemented measures to reduce marketing expenses for 2020. We also implemented cost saving measures, which included negotiating lower fees or suspending services from third party vendors; implementing a company-wide hiring freeze; delaying or cancelling non-critical information technology projects; and eliminating travel, entertainment, meeting, and event expenses. These savings can be extended further throughout 2020 or expanded depending on the impact of the COVID-19 pandemic.
As a result of the COVID-19 pandemic, our second quarter 2020 product revenues were reduced, which impacted our results of operations. As of the date of issuance of these consolidated financial statements, the future extent to which the COVID-19 pandemic may materially impact our financial condition, liquidity, or results of operations remains uncertain. We are continuing to assess the effect the COVID-19 pandemic on our operations by monitoring the spread of COVID-19 and the various actions implemented to combat the virus throughout the world.
While we currently believe that our COVID-19 contingency plan has the ability to mitigate the effect of the COVID-19 pandemic on our business, the severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the duration of “social distancing” orders, the ability of our sales force to access healthcare providers to promote our products, increases in unemployment, which could reduce access to commercial health insurance for our patients, thus limiting payer coverage for our products, and the impact of the pandemic on our global supply chain, all of which are uncertain. Our future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions, uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges that we may face.
Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe that our current cash reserves and the recent steps we have taken to reduce our operating expenses will help us manage our business through the pandemic. We have reviewed numerous potential scenarios in connection with the impact of COVID-19 on our business and, based on our analysis, we believe that our existing cash reserves, our currently anticipated operating cash flows, and proceeds from potential future financings, if available to us, will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months from the date of this Quarterly Report on Form 10-Q. However, if the successful commercialization of IMVEXXY, BIJUVA, or ANNOVERA is delayed, or the impact of the COVID-19 pandemic on our business is worse than we anticipate, our existing cash reserves and proceeds from potential future financings, if available to us, may be insufficient to satisfy our liquidity requirements until we are able to successfully commercialize IMVEXXY, BIJUVA, and ANNOVERA. If our available cash is insufficient to satisfy our liquidity requirements, we may curtail our sales, marketing, and other commercialization efforts and we may seek to sell additional equity or debt securities. Our ability to sell equity securities will be limited by market conditions. Our ability to sell debt securities or obtain additional debt financing is restricted pursuant to the Financing Agreement. To the extent that we raise additional capital through the sale of equity or convertible debt securities, to the extent permitted under the Financing Agreement, the ownership interests of our existing stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, certain of which are restricted under the Financing Agreement, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or proposed products, if permitted under the Financing Agreement. Additionally, we may have to grant licenses on terms that may not be favorable to us.
Recently Issued Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or ASU, 2018-13 which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to Accounting Standards Codification, or ASC, 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The new guidance is effective for all entities for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. We adopted this standard on January 1, 2020, and the adoption did not have a material effect on our disclosures.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected based on historical experience, current conditions, and reasonable supportable forecasts. The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted no sooner than the first quarter of 2019. A modified retrospective approach is required for all investments, except debt securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a prospective transition approach and should be applied either prospectively or retrospectively depending on the nature of the disclosure. The adoption of ASU 2016-13 requires expanded quantitative and qualitative disclosures about the Company’s expected credit losses. Effective January 1, 2020, we adopted ASU 2016-13 under a modified retrospective approach for all financial assets measured at amortized cost. There was no adjustment recorded for the cumulative effect of adopting ASU 2016-13. The adoption expanded disclosures about our credit losses.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, and are not expected to, have a material effect on our results of operations or financial position.
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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 chargebacks and provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information, reasonable supportable forecasts and existing economic conditions and we record an allowance that presents the net amount expected to be collected. We evaluate trade accounts receivable for delinquency. 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. Our exposure to credit losses may increase if our customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors. Although we have historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables in the future.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash, accounts receivable, accounts payable, 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. The carrying amount for long-term debt as of June 30, 2020 (as disclosed in Note 9) approximates fair value based on market activity for other debt instruments with similar characteristics and comparable risk (Level 2).
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 ASC 820, Fair Value Measurements, or ASC 820. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). Assets and liabilities recorded in the consolidated balance sheet at fair value are categorized based on a hierarchy of inputs, as follows:
| Level 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 assets or liabilities. |
At
June 30, 2020 and 2019, we had
The
fair value of indefinite-lived assets is measured on a non-recurring basis using significant unobservable inputs (Level 3) in
connection with any required impairment test. There was
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. 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 and in 2019 we started using only our own stock price in the volatility calculation. Our calculation of estimated volatility is based on historical stock prices over a period equal to the expected term of the awards. On January 1, 2020, we began calculating the expected term of our stock-based awards, which represents the period that the stock-based awards are expected to be outstanding. Prior to January 1, 2020, the average expected life of options was 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. The assumptions used in calculating the fair value of stock-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. We recognize the compensation expense for 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. On January 1, 2019, we adopted ASU 2018-07 which simplified the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expanded the scope of ASC 718 to include share-based payments granted to non-employees in exchange for goods or services used or consumed in an entity’s own operations and superseded the guidance in ASC 505-50. Prior to January 1, 2019, equity instruments issued to non-employees were recorded on a fair value basis, as required by ASC 505, Equity - Based Payments to Non-Employees.
9
We grant performance-based stock units and restricted stock units for shares of common stock, par value $ per share, or Common Stock, to employees. We value our restricted stock units and our performance-based stock units by reference to our stock price on the date of grant. We recognize compensation expense for restricted stock units based on a straight-line basis over the requisite service period of the entire award. We recognize performance-based restricted stock as compensation expense based on the most likely probability of attaining the prescribed performance and over the requisite service period beginning at its grant date and through the date the restricted stock vests. The number of target shares that vest are determined based on the level of attainment of the targets. If a minimum level of performance is attained for the awards, restricted stock is issued based on the level of attainment.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, or 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.
Prescription Products
As of June 30, 2020, our products consisted primarily of prescription vitamins and our FDA-approved products: IMVEXXY, which we began selling during the third quarter of 2018, BIJUVA, which we began selling in the second quarter of 2019, and ANNOVERA, which we started selling in the third quarter of 2019. As a result of the uncertainty surrounding the COVID-19 pandemic, we paused the commercial launch of ANNOVERA in the first quarter of 2020 and deferred sales and marketing initiatives into subsequent quarters. We resumed the launch of ANNOVERA on July 1, 2020.
We sell our name brand and generic prescription products primarily through wholesale distributors and retail pharmacies. 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 pharmacies, 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. Based on our contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. We disclose receivables from contracts with customers separately in the statement of financial position. 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. These estimates are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). 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. The estimated amount of variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. 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. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our original estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such changes in estimates become known.
10
We
accept returns of unsalable prescription products sold through wholesale distributors within a return period of
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. Rebate and coupon estimates and distributor fees are recorded in other current liabilities on the consolidated balance sheet. We estimate chargebacks based on number of units sold during the period taking into account prices stated in contracts and our historical experience. Estimates related to distributors fees, rebates, coupons and returns are disclosed in Note 8. We provide invoice discounts to our customers for prompt payment. Estimates relating to invoice discounts and chargebacks are deducted from gross product revenues at the time the revenues are recognized.
As part of commercial launches for our FDA-approved prescription products, we introduced a co-pay assistance program for eligible enrolled patients whose out of pocket costs are reduced to a more affordable price. This allows patients to access the product at a reasonable cost and is in line with our responsible pricing approach. We reimburse pharmacies for this discount through third-party vendors. The variable consideration is estimated based on contract prices, the estimated percentage of patients that will utilize the copay assistance, the average assistance paid, the estimated levels of inventory in the distribution channel and the current level of prescriptions covered by patients’ insurance. Payers may change coverage levels for our prescription products positively or negatively, at any time up to the time that we have formally contracted coverage with the payer. As such, the net transaction price of our prescription products is susceptible to such changes in coverage levels, which are outside the influence of the Company. As a result, we constrain variable consideration for our prescription products to an amount that will not result in a significant revenue reversal in future periods. Our ability to estimate the net transaction price for our prescription products is constrained by our estimates of the amount to be paid for the co-pay assistance program which is directly related to the level of prescriptions paid for by insurance. As such, we record an accrual to reduce gross sales for the estimated co-pay and other patient assistance based on currently available third-party data and our internal analyses. We re-evaluate variable consideration each reporting period.
License Revenue
License arrangements may consist of non-refundable upfront license fees, exclusive licensed rights to patented or patent pending technology, and various performance or sales milestones and future product royalty payments. Some of these arrangements may include multiple performance obligations. Non-refundable up-front fees that are not contingent on any future performance by us, and do not require continuing involvement on our part, are recognized as revenue when the right to use functional IP is transferred to the customer.
11
Disaggregation of revenue
The following table provides information about disaggregated revenue by product mix for the three and six months ended June 30, 2020 and 2019:
| Three
Months Ended June 30, | Six
Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Prescription vitamins | $ | $ | $ | $ | ||||||||||||
| IMVEXXY | ||||||||||||||||
| BIJUVA | ||||||||||||||||
| ANNOVERA | — | — | ||||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
License Agreement with the Population Council
On July 30, 2018, we entered into the Population Council License Agreement to commercialize ANNOVERA in the U.S. We began selling ANNOVERA in a “test and learn” market introduction in the third quarter of 2019. As a result of the uncertainty surrounding the COVID-19 pandemic, we paused the commercial launch of ANNOVERA in the first quarter of 2020 and deferred sales and marketing initiatives into subsequent quarters.
Under
the terms of the Population Council License Agreement, we paid the Population Council a milestone payment of $
The
Population Council is also eligible to receive milestone payments and royalties from commercial sales of ANNOVERA. We are responsible
for marketing expenses related to the commercialization of ANNOVERA. In addition, we are required to pay the Population Council,
on a quarterly basis, step-based royalty payments based on annual net sales of ANNOVERA in the U.S. by the Company and its affiliates
and permitted licensees as follows: (i) if annual net sales are less than or equal to $
Cost of Sales
Cost of sales includes the cost of inventory, manufacturing, manufacturing overhead and supply chain costs, and product shipping and handling costs. The Population Council License Agreement requires payment of royalties based on the sale of future products. Such royalties are recorded as a component of cost of sales. Additionally, the amortization of license fees or milestone payments related to licensed products are classified as components of cost of sales to the extent such payments become due in the future.
12
Inventory Obsolescence Reserve
We
evaluate inventory quarterly and records an allowance for obsolescence primarily associated with materials that are not
currently or likely to be used in production in the near future. As of June 30, 2020 and December 31, 2019 , we recorded an
inventory obsolescence reserve primarily related to BIJUVA, of $
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 executive leadership team that is chaired by the Chief Executive Officer of our Company, who oversees all operations. 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.
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 other 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 FDA submission processes, clinical trial processes, and scientific writing matters, including preparing protocols and FDA submissions. These consulting 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 to expenses in the period in which the facts that give rise to the revision become known.
NOTE 4 – INVENTORY, NET
Inventory, net consists of the following:
| June
30, 2020 | December
31, 2019 | |||||||
| Finished products | $ | $ | ||||||
| Work in process | ||||||||
| Raw materials | ||||||||
| TOTAL INVENTORY, NET | $ | $ | ||||||
NOTE 5 – OTHER CURRENT ASSETS
Other current assets consist of the following:
| June
30, 2020 | December
31, 2019 | |||||||
| Prepaid sales and marketing costs | $ | $ | ||||||
| Debt financing fees on undrawn tranches (Note 9) | ||||||||
| Prepaid insurance | ||||||||
| Prepaid manufacturing | ||||||||
| Other prepaid costs | ||||||||
| TOTAL OTHER CURRENT ASSETS | $ | $ | ||||||
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NOTE 6 – FIXED ASSETS, NET
Fixed assets, net consist of the following:
| June
30, 2020 | December
31, 2019 | |||||||
| Accounting system | $ | $ | ||||||
| Equipment | ||||||||
| Furniture and fixtures | ||||||||
| Computer hardware | ||||||||
| Leasehold improvements | ||||||||
| TOTAL FIXED ASSETS | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| TOTAL FIXED ASSETS, NET | $ | $ | ||||||
Depreciation
expense for the three months ended June 30, 2020 and 2019 was $
NOTE 7 – INTANGIBLE ASSETS, NET
The following table sets forth the gross carrying amount, accumulated amortization and net carrying amount of our intangible assets as of June 30, 2020 and December 31, 2019:
| June 30, 2020 | ||||||||||||||||
| Gross
Carrying Amount | Accumulated Amortization | Net
Amount | Weighted-
Average Remaining Amortization Period (yrs.) | |||||||||||||
| Amortizable intangible assets: | ||||||||||||||||
| Approved hormone therapy drug candidate patents | $ | $ | ( | ) | $ | |||||||||||
| Hormone therapy drug candidate patents (pending) | — | n/a | ||||||||||||||
| Non-amortizable intangible assets: | ||||||||||||||||
| Multiple trademarks | — | indefinite | ||||||||||||||
| TOTAL | $ | $ | ( | ) | $ | |||||||||||
| December 31, 2019 | ||||||||||||||||
| Gross
Carrying Amount | Accumulated
Amortization | Net
Amount | Weighted-
Average Remaining Amortization Period (yrs.) | |||||||||||||
| Amortizable intangible assets: | ||||||||||||||||
| Approved hormone therapy drug candidate patents | $ | $ | ( | ) | $ | |||||||||||
| Hormone therapy drug candidate patents (pending) | — | n/a | ||||||||||||||
| Non-amortizable intangible assets: | ||||||||||||||||
| Multiple trademarks | — | indefinite | ||||||||||||||
| TOTAL | $ | $ | ( | ) | $ | |||||||||||
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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
As
of June 30, 2020, we had
| ● |
| ● |
| ● |
| ● |
| ● |
| ● |
| ● |
Amortization
expense was $
Estimated amortization expense, based on current patent cost being amortized, for the next five years is as follows:
| Year
Ending December 31, | Estimated
Amortization | ||||
| 2020 (6 months) | $ | ||||
| 2021 | $ | ||||
| 2022 | $ | ||||
| 2023 | $ | ||||
| 2024 | $ | ||||
15
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
| June
30, 2020 | December
31, 2019 | |||||||
| Accrued payroll, bonuses and commission costs | $ | $ | ||||||
| Allowance for coupons and returns | ||||||||
| Accrued sales and marketing costs | ||||||||
| Accrued compensated absences | ||||||||
| Allowance for wholesale distributor fees | ||||||||
| Accrued legal and accounting expense | ||||||||
| Accrued research and development | ||||||||
| Operating lease liability | ||||||||
| Accrued rebates | ||||||||
| Other accrued expenses | ||||||||
| TOTAL OTHER CURRENT LIABILITIES | $ | $ | ||||||
NOTE 9 – DEBT
On
April 24, 2019, we entered into a Financing Agreement, as amended, or the Financing Agreement, with TPG Specialty Lending,
Inc., as administrative agent, or the Administrative Agent, various lenders from time to time party thereto, and certain of
our subsidiaries party thereto from time to time as guarantors, which provides us with up to a $
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), as amended. The Credit Agreement provided a secured term loan facility in an aggregate principal amount of up to
$
16
On
April 24, 2019, we terminated the Credit Agreement. A portion of the initial tranche of borrowing under the Financing Agreement
in the amount of approximately $
As
of June 30, 2020, we had $
As of June 30, 2020 and December 31, 2019, the carrying value of our debt consisted of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Financing Agreement | $ | $ | ||||||
| Debt discount and financing fees | ( | ) | ( | ) | ||||
| TOTAL LONG-TERM DEBT | $ | $ | ||||||
On
April 27, 2020, we received a loan pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”), as administered by the U.S. Small Business Administration. The loan in the principal
amount of $
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, warrants and restricted stock units 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.
| June 30, 2020 | June 30, 2019 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Performance stock units | — | |||||||
| Restricted stock units | ||||||||
17
NOTE 11 – STOCKHOLDERS’ EQUITY
Preferred Stock
At June 30, 2020, we had shares of preferred stock, par value $ per share, authorized for issuance, of which shares were issued or outstanding.
Common Stock
At June 30, 2020, we had shares of Common Stock authorized for issuance, of which shares of Common Stock were issued and outstanding.
Issuances During the Three and Six Months ended June 30, 2020
During
the three months ended June 30, 2020, stock options to purchase an aggregate of shares of Common Stock were exercised
for $
Issuances During the Three and Six Months ended June 30, 2019
During
the three months ended June 30, 2019, no options to purchase shares of Common Stock were exercised. During the six months
ended June 30, 2019, stock options to purchase an aggregate of
shares of Common Stock were exercised for $
Warrants to Purchase Common Stock
As
of June 30, 2020, we had warrants outstanding to purchase an aggregate of
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 yield and the term of the warrant.
During the six months ended June 30, 2020, no warrants were granted. During the six months ended June 30, 2019, we granted warrants to purchase an aggregate of shares of Common Stock to outside consultants at an exercise price of $. 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 %; risk free rate of %; and dividend yield of %. The grant date fair value of the warrants was $ per share. The warrants vested ratably over a -month period and have an expiration date of February 12, 2024.
During the six months ended June 30, 2020, no warrants were exercised. During the six months ended June 30, 2019, warrants to purchase an aggregate of shares of Common Stock were exercised pursuant to the warrants’ cashless exercise provisions, wherein an aggregate of shares of Common Stock were issued.
We recorded share-based compensation expense related to warrants previously issued of $ and $ for the three months ended June 30, 2020 and 2019, respectively, and $ and $ for the six months ended June 30, 2020 and 2019, respectively, in the accompanying consolidated financial statements. At June 30, 2020, there was no unrecognized compensation expense remaining related to unvested warrants.
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. As of June 30, 2020, there were non-qualified stock options to purchase an aggregate of shares of Common Stock outstanding under the 2009 Plan. Effective upon our adoption of the TherapeuticsMD, Inc. 2019 Stock Incentive Plan, or the 2019 Plan, on June 20, 2019, no future awards may be made under the 2009 Plan.
18
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. As of June 30, 2020, there were non-qualified stock options to purchase an aggregate of shares of Common Stock outstanding and an aggregate of restricted stock units under the 2012 Plan. Effective upon our adoption of the 2019 Plan, no future awards may be made under the 2012 Plan.
On June 20, 2019, we adopted the 2019 Plan 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 2019 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 2019 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.
As of June 30, 2020, there were shares of Common Stock available for issuance under the 2019 Plan, consisting of (i) new shares, (ii) unallocated shares previously available for issuance under the 2012 Plan that were not then subject to outstanding “Awards” (as defined in the 2012 Plan), and (iii) unallocated shares previously available for issuance under the 2009 Plan that were not then subject to outstanding “Awards” (as defined in the 2009 Plan). Any shares subject to outstanding options or other equity “Awards” under the 2019 Plan, the 2012 Plan and the 2009 Plan that are forfeited, expire or otherwise terminate without issuance of the underlying shares, or if any such Award is settled for cash or otherwise does not result in the issuance of all or a portion of the shares subject to such Award (other than shares tendered or withheld in connection with the exercise of an Award or the satisfaction of withholding tax liabilities), the shares to which those Awards were subject, shall, to the extent of such forfeiture, expiration, termination, cash settlement or non-issuance, again be available for delivery with respect to Awards under the 2019 Plan. As of June 30, 2020, there were non-qualified stock options to purchase an aggregate of shares of Common Stock outstanding under the 2019 Plan and an aggregate of restricted stock units and performance stock units outstanding under the 2019 Plan.
| June 30, 2020 | June 30, 2019 | |||||||
| Weighted average grant date fair value | $ | $ | ||||||
| Risk-free interest rate | -% | -% | ||||||
| Volatility | 63.53-67.92% | 61.25-% | ||||||
| Term (in years) | - | - | ||||||
| Dividend yield | % | % | ||||||
| Number
of Shares Under Options | Weighted
Average Exercise Price | Weighted
Average Remaining Contractual Life in Years | Aggregate
Intrinsic Value | |||||||||||||
| Balance at December 31, 2019 | $ | $ | ||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | $ | ||||||||||||
| Expired | ( | ) | $ | |||||||||||||
| Cancelled/Forfeited | ( | ) | $ | |||||||||||||
| Balance at June 30, 2020 | $ | $ | ||||||||||||||
| Vested and Exercisable at June 30, 2020 | $ | $ | ||||||||||||||
| Unvested at June 30, 2020 | $ | $ | ||||||||||||||
At June 30, 2020, our outstanding options had exercise prices ranging from $ to $ per share. Share-based compensation expense related to options recognized in our results of operations for the three months ended June 30, 2020 and 2019 was $ and $, respectively, and for the six months ended June 30, 2020 and 2019 was $ and $, respectively, and it is based on awards vested. At June 30, 2020, total unrecognized estimated compensation expense related to unvested options was approximately $, which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period of years. No tax benefit was realized due to a continued pattern of operating losses.
19
Restricted Stock
Restricted stock units granted under our 2009, 2012 and 2019 Plans entitle the holder to receive, at the end of vesting period, a specified number of shares of our Common Stock. Share-based compensation expense is measured by the market value of our Common Stock on the day of the grant. The shares vest ratably over the period specified in the grant. There is no partial vesting and any unvested portion is forfeited.
Performance stock units will vest if certain performance targets are achieved. If minimum performance thresholds are achieved, each award will convert into Common Stock at a defined ratio depending on the degree of achievement of the performance target designated by each individual award. If minimum performance thresholds are not achieved, then no shares will be issued. We recognize performance-based restricted stock as compensation expense based on the most likely probability of attaining the prescribed performance and over the requisite service period beginning at its grant date and through the date the restricted stock vests. The expected levels of achievement are reassessed over the requisite service periods and, to the extent that the expected levels of achievement change, stock-based compensation is adjusted and recorded on the consolidated statements of income and the remaining unrecognized stock-based compensation is recognized over the remaining requisite service period.
During
the three and six months ended June 30, 2020 we recorded $
| Restricted Stock Units | Performance Stock Units | ||||||||||||||||
Number
of | Weighted
Average Grant Date Fair Value | Number
of | Weighted
Average Grant Date Fair Value | ||||||||||||||
| Balance at December 31, 2019 | $ | — | $ | — | |||||||||||||
| Granted | $ | $ | |||||||||||||||
| Vested/Released | ( | ) | $ | ( | ) | $ | |||||||||||
| Forfeited | ( | ) | $ | ( | ) | $ | |||||||||||
| Balance at June 30, 2020 | $ | * | $ | ||||||||||||||
* The number of performance stock units (PSUs) represents the base number of PSUs that may vest. The actual number of PSUs that will vest will be between zero and two times the base number of PSUs depending on the Company’s achievement of break-even quarterly EBITDA.
Employee Stock Purchase Plan
On June 18, 2020, our stockholders approved the TherapeuticsMD, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”), which reserved shares of Common Stock for purchase. The ESPP permits eligible employee participants to purchase Common Stock at a price per share which is equal to % of the lesser of (a) the fair market value of the shares on the offering date of the offering period or (b) the fair market value of the shares on the purchase date.
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 2020 as a result of (i) the losses recorded during the six months ended June 30, 2020, (ii) additional losses expected for the remainder of 2020, 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, 2020, 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.
20
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, 2020 and 2019, we were billed by Catalent approximately $
In April 2020, Karen L. Ling, Executive Vice President and Chief
Human Resources Officer of American International Group, Inc., or AIG, was appointed to our board of directors. From time to time,
we have entered into agreements with AIG in the normal course of business. Agreements with AIG have been reviewed by independent
directors of our Company, or a committee consisting of independent directors of our Company, since April 2020. During the three
and six months ended June 30, 2020, we were billed by AIG approximately $
NOTE 14 – BUSINESS CONCENTRATIONS
We
purchase our prescription products from several suppliers with approximately
We
sell our prescription 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, 2020,
During
the six months ended June 30, 2020, Pillpack, Inc. accounted for approximately $
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating Leases
We adopted ASC 842 effective January 1, 2019. Substantially all our operating lease right-of-use assets and operating lease liabilities represent leases for office space used to conduct our business. Upon adoption, we recognized a right-of-use asset and a lease liability for all leases that have commenced as of January 1, 2019. The right-of-use assets represent the right to use the leased asset for the lease term. The lease liabilities represent the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using our secured incremental borrowing rate for the same term as the underlying lease because the rates are not implicit in the leases. Some of our leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement. Additional payments based on the change in an index or rate, or payments based on a change in our portion of the operating expenses are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability.
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
In
October 2018, we entered into a lease for new corporate offices in Boca Raton, Florida. The lease includes
21
Supplemental lease information: | June
30, 2020 | December
31, 2019 | ||||||
| Right-of-use asset | $ | $ | ||||||
| Short-term operating lease liability (included in Other current liabilities) | $ | $ | ||||||
| Long-term operating lease liability | $ | $ | ||||||
| Weighted average remaining term | ||||||||
| Weighted average discount rate | % | % | ||||||
Supplemental cash flow information for the six months ended | June
30, 2020 | June
30, 2019 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities for operating lease | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease obligation | $ | $ | ||||||
The following table reconciles the undiscounted cash flows for all operating leases at June 30, 2020 to the operating lease liabilities recorded on the balance sheet:
| Years Ended December 31, | |||||
| 2020 (6 months) | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total undiscounted lease payments | |||||
| Less: imputed interest | ( | ) | |||
| Present value of lease payments | $ |
During
the three and six months ended June 30, 2020, operating lease expense related to our real estate leases was approximately $
Intellectual Property Licenses
The Population Council License Agreement provides for future milestone payments to be paid by us for access to certain technologies. In addition, we pay royalties as a percent of revenue as described in Note 7, Intangible Assets, to these consolidated financial statements.
Purchase Commitments
We
have manufacturing and supply agreements whereby we are required to purchase from Catalent a minimum number of softgels during
the first contract year and a higher number of softgels after the first contract year. If the minimum order quantities of specific
products are not met, we are required to pay Catalent
22
Legal Proceedings
From time to time, we are involved in litigation and proceedings in the ordinary course of business. We are not currently involved in any legal proceeding that we believe would have a material effect on our consolidated financial condition, results of operations, or cash flows.
Off-Balance Sheet Arrangements
As of June 30, 2020 and 2019, we had no off-balance sheet arrangements that have had or are reasonably likely to have current or future effects on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Employment Agreements
We have entered into employment agreements with certain of our executives that provide for compensation and certain other benefits. Under certain circumstances, including a change in control, some of these agreements provide for severance or other payments, if those circumstances occur during the term of the employment agreement.
NOTE 16 – SUBSEQUENT EVENTS
On August 5, 2020, we entered into Amendment No. 5 to the
Financing Agreement (the “Amendment”) with the Administrative Agent, various lenders from time to time party
thereto, and certain of our subsidiaries party thereto from time to time as guarantors. The Amendment adjusts the covenant in
the Financing Agreement regarding our achievement of minimum consolidated net revenue attributable to commercial sales of our
IMVEXXY, BIJUVA and ANNOVERA products to reflect the impact of COVID-19 on our business. The covenant is effective beginning
with the fiscal quarter ending December 31, 2020. In connection with the Amendment and in lieu of a cash amendment fee, we
issued to the Administrative Agent and the lenders under the Financing Agreement warrants to purchase an aggregate of
approximately
23
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 unaudited 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, 2019 filed with the Securities and Exchange Commission, or the SEC, on February 24, 2020, or our 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, except as required by law or by the rules and regulations of the SEC. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. Important 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: the effects of the COVID-19 pandemic; our ability to maintain or increase sales of our approved products; our ability to successfully commercialize IMVEXXY®, BIJUVA®, and ANNOVERA® and obtain additional financing necessary therefor; our commercialization, marketing and manufacturing capabilities and strategy for our approved products; the size of markets and the potential market opportunity for which our products are approved and our ability to penetrate such markets; the rate and degree of market acceptance of our products; the willingness of healthcare providers to prescribe and patients to use our products; our ability to obtain additional financing when needed; our competitive position and the success of competing products that are or become available for the indications that we are pursuing; our intellectual property position; whether we will be able to comply with the covenants and conditions under our term loan facility, the length, cost and uncertain results of our clinical trials, the potential of adverse side effects or other safety risks that could adversely affect the commercialization of our current or future approved products or preclude the approval of our future drug candidates; whether the U.S. Food and Drug Administration (FDA) will approve the efficacy supplement for the lower dose of BIJUVA; our ability to protect our intellectual property, including with respect to the Paragraph IV notice letters we received regarding IMVEXXY and BIJUVA; the length, cost and uncertain results of future clinical trials; our reliance on third parties to conduct our manufacturing, research and development and clinical trials; the ability of our licensees to commercialize and distribute our products; the ability of our marketing contractors to market ANNOVERA; the availability of reimbursement from government authorities and health insurance companies for our products; the impact of product liability lawsuits; the influence of extensive and costly government regulation; the volatility of the trading price of our common stock; and the concentration of power in our stock ownership.
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.
This Quarterly Report on Form 10-Q includes our trademarks, trade names and service marks, such as vitaMedMD®, BocaGreenMD®, IMVEXXY®, BIJUVA® and ANNOVERA® which are protected under applicable intellectual property laws and are the property of, or licensed to, our company. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report on Form 10-Q may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
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Overview
TherapeuticsMD is a women’s healthcare company with a mission of creating and commercializing innovative products to support the lifespan of women from pregnancy prevention through menopause. At TherapeuticsMD, we combine entrepreneurial spirit, clinical expertise, and business leadership to develop and commercialize health solutions that enable new standards of care for women. Our solutions range from a patient-controlled, long-lasting contraceptive to advanced hormone therapy pharmaceutical products. We also have a portfolio of branded and generic prescription prenatal vitamins under the vitaMedMD and BocaGreenMD brands that furthers our women’s healthcare focus.
Our portfolio of products focused on women’s health allows us to efficiently leverage our sales and marketing plans to grow our recently approved products. During 2018, the U.S. Food and Drug Administration, or FDA, approval of our pharmaceutical products has transitioned our company from predominately focused on conducting research and development to one focused on commercializing our pharmaceutical products.
| ● | In July 2018, we launched our 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, which was approved by the FDA in May 2018. |
| ● | In April 2019, we launched our FDA-approved product, BIJUVA (estradiol and progesterone) capsules, our hormone therapy combination of bio-identical 17ß-estradiol and bio-identical progesterone in a single, oral softgel capsule, for the treatment of moderate-to-severe vasomotor symptoms, or VMS, due to menopause in women with a uterus, which was approved by the FDA in October 2018. |
| ● | In October 2019, we began a “test and learn” market introduction for our FDA-approved product ANNOVERA (segesterone acetate and ethinyl estradiol vaginal system), the first and only patient-controlled, procedure-free, reversible prescription contraceptive option for women, which was approved by the FDA in August 2018 and which we have licensed for commercialization in the U.S. pursuant to an exclusive license agreement, or the Population Council License Agreement, with the Population Council, Inc., or the Population Council. We paused the planned full commercial launch of ANNOVERA in March 2020 due to the impact of the COVID-19 pandemic and resumed this initiative on July 1, 2020. |
We have also entered into license agreements with strategic partners to commercialize IMVEXXY and BIJUVA outside of the U.S.
| ● | In July 2018, we entered into a license and supply agreement with Knight Therapeutics Inc., or Knight, pursuant to which we granted Knight an exclusive license to commercialize IMVEXXY and BIJUVA in Canada and Israel. |
| ● | In June 2019, we entered into an exclusive license and supply agreement, or the Theramex License Agreement, with Theramex HQ UK Limited, or Theramex, a leading, global specialty pharmaceutical company dedicated to women’s health, to commercialize BIJUVA and IMVEXXY outside of the U.S., excluding Canada and Israel. |
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 as well as various product websites. 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.
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Impact of COVID-19 on our Business
Our business has been, and we anticipate that it will continue to be, impacted by the coronavirus (COVID-19) pandemic. During the second quarter of 2020, all of our products were affected by the COVID-19 pandemic, primarily due to our sales force having limited access to healthcare professionals and our patients deferring visits to healthcare professionals. In particular, we paused the full commercial launch of ANNOVERA in March 2020 as we deferred sales and marketing initiatives. As live interactions resumed toward the latter portion of the second quarter of 2020 when healthcare professional offices opened, we resumed the full launch of ANNOVERA on July 1, 2020.
At this time, the extent of the impact of the COVID-19 pandemic on our business is highly uncertain and difficult to predict. We developed a comprehensive COVID-19 contingency plan designed to preserve the value of our investments in our sales and marketing infrastructure, protect our balance sheet during this period of market disruption, and meet the needs of our patients and prescribers. This contingency plan was designed to be implemented in stages as we continue to evaluate the length of time that COVID-19 may impact our business, which is intended to allow us to conserve our financial resources during the COVID-19 pandemic and re-scale our sales and marketing activity when conditions warrant.
Our COVID-19 contingency plan is designed to support our strategy of driving revenues by prioritizing ANNOVERA as the lead product, IMVEXXY in the second position and BIJUVA in the third position. As part of this plan, we reduced our marketing focus on BIJUVA so that we can prioritize driving our revenue growth for ANNOVERA and IMVEXXY. Our COVID-19 contingency plan includes containing costs and cutting spending, preparing for a potential longer-term impact throughout the year, leveraging vitaCare to continue to meet the needs of our patients and prescribers, and ensuring continued availability of our products to patients.
Cost Containment and Spending Cuts
The COVID-19 pandemic accelerated our focus on reducing our operating expenses. During the second quarter of 2020, we deferred consumer and healthcare practitioner, or HCP, marketing spend for ANNOVERA and IMVEXXY and initiated other measures to reduce our operating expenses. As live interactions resumed toward the latter portion of the second quarter of 2020 when healthcare professional offices opened, we resumed the full commercial launch of ANNOVERA on July 1, 2020 and currently intend to launch the initial consumer marketing campaign for IMVEXXY in August 2020.
We plan to further reduce quarterly operating expenses for the third and fourth quarters of 2020. These cost cuts and reductions included permanent cost savings that had been identified by management, as well as the interim cessation of certain spending that may be restarted in future quarters. These cost cuts included:
| ● | Negotiating lower fees or suspending services from third party vendors; |
| ● | Implementing certain hiring restrictions; |
| ● | Delaying or cancelling non-critical information technology projects; |
| ● | Eliminating travel, entertainment, meeting, and event expenses; and |
| ● | Reducing the size of our sales force and eliminating certain staff positions. |
We anticipate that these savings can be extended further throughout 2020 or expanded depending on the impact of the COVID-19 pandemic.
Employees and Sales Force
Our sales force continues to function utilizing digital engagement tools and tactics and virtual detailing to remain engaged with prescribers and distribution channels and supplement live interactions, which began to pick up as the second quarter progressed and physician offices opened.
| ● | We have enhanced the ability of our sales force to support healthcare providers remotely, including the sales forces’ ability to continue to provide HCPs with access to patient product samples, product marketing information, and information regarding patient affordability programs and support services. |
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| ● | Our sales force is in regular interaction with healthcare providers, including conducting “virtual” lunch and learn programs with providers. |
| ● | Our sales force also continues product training, including sharing best practices, in advance of our anticipated future sales and marketing ramp. |
Remote Pharmacy and At-Home Delivery Options
As of the date of this Quarterly Report on Form 10-Q, we are providing continued access to our products for patients.
| ● | Our products have broad distribution at all major retail pharmacy chains across the country. |
| ● | Our vitaCare patient model assists patients in obtaining easy and convenient access to their prescriptions for products at a retail pharmacy of their choice, including via home delivery retail pharmacy options. We anticipate that home delivery pharmacy options will be attractive to patients during the COVID-19 pandemic. |
| ● | We anticipate that vitaCare will support continued patient access to our products during the COVID-19 pandemic and will help sustain the strong refill trends for our products given vitaCare’s broad use by our patients. |
| ● | We have also engaged with independent community pharmacies and multiple third-party online pharmacies and telemedicine providers that focus on contraception or menopause to help ensure patients have real-time access to both diagnosis and treatment. |
Supply of Products
As of the date of this Quarterly Report on Form 10-Q, we do not anticipate a shortage of our products due to the COVID-19 pandemic.
| ● | We currently have sufficient inventory of finished product in our contracted warehouses to meet anticipated demand through at least the fourth quarter of 2020. |
| ● | We currently do not foresee any interruption in our contract manufacturers’ abilities to continue to manufacture additional product to be used. Our contract manufacturers have sufficient active pharmaceutical ingredients on hand for the continued manufacture of our products and there is currently no interruption in the supply chain for the active pharmaceutical ingredients for our products. |
| ● | We currently have uninterrupted wholesale and retail distribution of our products and are actively working to ensure that there continues to be an adequate supply of our products at pharmacies for sales to patients. |
While we currently believe that our COVID-19 contingency plan has the ability to mitigate the effect of the COVID-19 pandemic on our business, the severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the duration of “stay at home,” quarantine or “social distancing” orders, the ability of our sales force to access healthcare providers to promote our products, increases in unemployment, which could reduce access to commercial health insurance for our patients, thus limiting payer coverage for our products, and the impact of the pandemic on our global supply chain, all of which are uncertain and cannot be predicted. Our future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions, uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges that we may face.
Our business may also be affected by negative impacts of the COVID-19 pandemic on capital markets and economies worldwide, and it is possible that the pandemic could cause a local and/or global economic recession. While policymakers globally have responded with fiscal policy actions to support the healthcare industry and economy as a whole, the magnitude and overall effectiveness of these actions remains uncertain.
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Our Products
IMVEXXY
In May 2018, the FDA approved the 4-μg and 10-μg 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-μg formulation of IMVEXXY represents the lowest FDA-approved dose of vaginal estradiol available. IMVEXXY 10-μg became available for commercial distribution in July 2018 and both doses were commercially available in September 2018.
IMVEXXY is a small, digitally inserted, softgel vaginal insert that dissolves completely. It is administered mess-free, without the need for an applicator, and can be used any time of day. IMVEXXY provides a mechanism of action and dosing that are familiar and comfortable for patients, with no patient education required for dose application or applicators. IMVEXXY demonstrated efficacy as early as two weeks (secondary endpoint) and maintained efficacy through week 12 in clinical studies, with no increase in systemic hormone levels beyond the normal postmenopausal range (the clinical relevance of systemic absorption rates for vaginal estrogen therapies is not known).
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. The FDA has also asked the sponsors of other vaginal estrogen products to participate in the observational study. In connection with the observational study, we will be required to provide progress reports to the FDA on an annual basis. The development of this method is underway, and we do not believe that the costs will be material on an annual basis. In addition, the FDA asked for post-approval information with respect to certain characteristics related to the product’s specifications, which we submitted to the FDA.
BIJUVA
In October 2018, the FDA approved BIJUVA (estradiol and progesterone) capsules, 1 mg/100 mg, the first and only FDA-approved bioidentical hormone therapy combination of estradiol and progesterone in a single, oral capsule for the treatment of moderate-to-severe VMS (commonly known as hot flashes or flushes), due to menopause in women with a uterus. The estrogen and progesterone in BIJUVA have the same molecular structure as the hormones that are naturally produced in a woman’s body. We launched BIJUVA in April 2019.
BIJUVA offers the convenience of a single-capsule combination of two hormones (estradiol and progesterone), which may improve a user’s compliance. The estradiol and progesterone in BIJUVA are plant-based, not animal-sourced, and contain no peanut allergens. BIJUVA provides a sustained steady state of estradiol which reduced the frequency and severity of hot flashes in clinical studies with no demonstrated impact on a patient’s weight or blood pressure. Additionally, through clinical trials BIJUVA has demonstrated endometrial safety and greater than 90% amenorrhea rates, while providing no clinically meaningful changes in mammograms.
We submitted a New Drug Application, or NDA, efficacy supplement for the 0.5/100 mg dose of BIJUVA to the FDA in late January 2020 for review and potential approval. The NDA efficacy supplement uses existing data from our Phase 3 REPLENISH trial for BIJUVA, for which we announced results in December 2016, together with additional information and analyses. The REPLENISH trial was the first time that a combination of bio-identical estradiol and bio-identical progesterone used in a continuous combined daily fashion demonstrated safety and efficacy data to support FDA-approval, when the 1/100 mg dose of BJIUVA was approved. We do not anticipate that the FDA will require any new clinical trials in connection with our submission of the NDA efficacy supplement, however, there is no assurance that will be the case. The NDA efficacy supplement has been accepted for review by the FDA and has a Prescription Drug User Fee Act target action date for the completion of the FDA’s review of November 16, 2020. Despite the FDA’s acceptance of the NDA efficacy supplement and previous approval of the 1/100 mg dose of BJIUVA, there can be no assurance that the 0.5/100 mg dose of BIJUVA will be approved.
With the approval of BIJUVA, the FDA required a post-approval commitment to further develop and validate our in-vitro dissolution method to show how BIJUVA is released from the capsule in an in-vitro setting for quality control assessments. The development of this method and validation were completed and submitted to the FDA as required in our approval.
Our hormone therapy pharmaceutical products are characterized by safety and efficacy profiles that can be consistently manufactured to target specifications. This provides an alternative to the non-FDA approved compounded bio-identical market. We believe that our FDA-approved pharmaceutical products offer advantages in terms of demonstrated safety and efficacy, consistency in the hormone dose, lower patient cost due to the increased likelihood of insurance coverage and improved access as a result of availability from major retail pharmacy chains rather than custom order or formulation by individual compounders.
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ANNOVERA
In July 2018, we entered into an exclusive license agreement with the Population Council to commercialize in the U.S. ANNOVERA (segesterone acetate and ethinyl estradiol vaginal system), the first and only patient-controlled, procedure-free, reversible prescription contraceptive that can prevent pregnancy for up to a total of 13 cycles (one year), which was approved by the FDA in August 2018. In October 2019, we began a “test and learn” market introduction phase of launch for ANNOVERA. We paused the planned full commercial launch of ANNOVERA in March 2020 due to the impact of the COVID-19 pandemic and resumed this initiative on July 1, 2020.
ANNOVERA was classified by the FDA as a “new chemical entity,” or NCE, and thus has five years of regulatory exclusivity under the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. ANNOVERA is a one-year ring-shaped contraceptive vaginal system, or CVS. ANNOVERA, which is made with a silicone elastomer, contains segesterone acetate, a 19-nor progesterone derivative also known as Nestorone®, or SA, and ethinyl estradiol, or EE. EE is an approved active ingredient in many marketed hormonal contraceptive products. Segesterone acetate, an NCE, is a potent progestin that, based on pharmacological studies in animals and in vitro, does not bind to the androgen or estrogen receptors and has no glucocorticoid activity at contraceptive doses. SA has been evaluated in 51 clinical studies across these delivery systems with more than 26,794 cycles of exposure.
ANNOVERA can be inserted and removed by the woman herself without the aid of a healthcare provider and, unlike oral contraceptives, ANNOVERA does not require daily administration to obtain the contraceptive effect. After 21 days of use, the woman removes ANNOVERA for seven days, thereby providing a regular bleeding pattern (i.e., withdrawal/scheduled bleeding). The same CVS is then re-inserted for additional 21/7-days in/out, for up to a total of 13 cycles (one year). ANNOVERA releases daily vaginal doses of both active ingredients (SA and EE). The claimed release rate of 150 μg/day SA and 13/day μg EE is supported by the calculated average release rate from an ex vivo analysis of ANNOVERA used for 13 cycles and is also supported by data from 13 cycles of in vitro release.
As part of the approval of ANNOVERA, the FDA has required a post-approval observational study be performed to measure the risk of venous thromboembolism. In accordance with the post-marketing requirements, the full protocol for the study was submitted to the FDA in August 2019. We have agreed to perform and pay the costs and expenses associated with this post-approval study, provided that if the costs and expenses associated with such post-approval study exceed $20 million, half of such excess will offset against royalties or other payments owed by us to the Population Council under the Population Council License Agreement. Given the observational nature of the study, we do not believe that the costs of the study will be material on an annual basis.
We believe that ANNOVERA will compete across all the contraception options for women with focus on those women seeking a long-lasting option without a procedure.
For patients, ANNOVERA provides a single long-lasting reversible birth control product that does not require a procedure at the doctor’s office for insertion or removal, empowering women to be in complete control of their fertility and menstruation with a 21/7 regimen. We believe that ANNOVERA is a unique alternative for women who have previously chosen other forms of birth control. These include nulliparous women (or women who have never given birth), women who are considering an IUD but would rather not have a procedure, women who are between pregnancies but desire protection without a long-term commitment, and women who are not satisfied with oral options due to the daily usage or potential side effects.
We believe that the strong initial commercial net revenue per unit of ANNOVERA and commercial insurance adoption provide us with an opportunity to deploy additional financial resources to maximize ANNOVERA’s consumer-focused commercialization strategy and leverage the ability of doctor/patient choice of contraceptive to override insurance company formularies when necessary. As part of this strategy, we are pursuing distribution opportunities for ANNOVERA to provide women with additional access to ANNOVERA, particularly during the COVID-19 pandemic, with multiple direct-to-consumer contraceptive platforms that extend the reach of our products. However, as a result of the COVID-19 pandemic, we have deferred a significant portion of our planned 2020 marketing spend for ANNOVERA.
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Commercialization Model
We are commercializing the products in our portfolio through a common model focused on the belief that providing good experiences for both HCPs and patients will drive profitability for TherapeuticsMD. Given that our portfolio focus is exclusively in women’s health, we believe that each new product launch will allow us to further leverage our existing infrastructure and build out our reputation as the premier women’s health organization in the U.S. Below is more detail on our commercialization model:
HCP Education - Initially, we focus on the high writing and high potential HCPs in each territory to gain a full understanding of their prescribing behavior and practices. Our focus is on driving initial prescriptions of these writers for each new product launch and utilizing the time to also pull through on our portfolio of existing products. Once regular writing is established with the initial group of HCPs, we expand our reach to a larger set of HCPs writing in the category. We educate HCPs on our products primarily with our field sales organization supplemented by non-personal promotion. Our sales force currently targets approximately 130 territories, which includes the most significant part of the addressable markets across our product portfolio. As of June 30, 2020, at least 18,500 HCPs had written at least one prescription of IMVEXXY and at least 5,800 HCPs had written at least one prescription of BIJUVA, the majority of which are also IMVEXXY writers demonstrating the value of portfolio and focus. In addition, as of June 30, 2020, approximately 2,000 HCPs had written at least one prescription of ANNOVERA. In addition to our sales organization, we leverage non-personal promotion (multi-channel advertising) to targets and non-targets that drive awareness, education, and action. These efforts allow for pull through of the sales organization efforts and identification of new targets that have interest in writing prescriptions for one or more of our products. We believe this will drive increased prescribing for our products and lift the overall writing universe and our products top of mind in the HCP community.
BIO-IGNITE - In addition to our sales organization calling on HCPs, we have a Key Account Management, or KAM, team to support our existing BIO-IGNITE pharmacy partners and additional pharmacies that wish to enroll in the BIO-IGNITE program. Additionally, KAM’s are focusing on supporting current prescribers of BIJUVA as well as high decile prescribers of hormone therapy for menopause.
Payer Access - With the ever-changing payer environment, it is critical to maximize breadth of coverage as quickly as possible to not inhibit patient access to product. We do this while working to negotiate the best possible contracts for us. Many commercial payers employ “new-to-market blocks” for newly launched products until the payers have the opportunity to make a coverage decision based upon their internal review of the product. When a product is not covered, the patient is responsible to pay the full price for the medication, which can significantly limit utilization of the product. As we seek to increase the number of lives covered by commercial payers, it is our objective to continue to seek unrestricted coverage. As of June 30, 2020, we have obtained coverage for the majority of commercial payers for IMVEXXY and BIJUVA and continue to seek unrestricted coverage from the remaining commercial insurance plans that we have not yet contracted with to provide affordable access for patients. For IMVEXXY, we achieved unrestricted coverage with the top ten commercial payers of VVA products by commercial payer lives and we continue to sign new agreements with other payers to cover IMVEXXY. In addition, as of June 30, 2020, four of the top eight Medicare Part D payers of VVA products were adjudicating IMVEXXY, with additional decisions for other Medicare Part D payers expected during the second half of 2020. For BIJUVA, through June 30, 2020, we have achieved unrestricted coverage with eight of the top ten commercial payers of VMS products by commercial payer lives and we continue to sign new agreements with payers to cover BIJUVA. Although Medicare is a small percentage of the VMS market, as of June 30, 2020, two of the top six Medicare Part D payers of VMS products were adjudicating BIJUVA.
For ANNOVERA, we believe that its unique characteristics will assist us in pursuing favorable commercial payer coverage, including only one pharmacy fill fee per year and no office visit or procedure fees. We have made substantial progress in achieving unrestricted access to ANNOVERA through commercial payers, including having achieved adjudication with five of the top ten commercial payers by commercial payer lives as of June 30, 2020, and we continue to pursue discussions with several of the country’s largest commercial insurers to further expand coverage. As of June 30, 2020, approximately 66% of the commercial payer market covered ANNOVERA with unrestricted access under pharmacy benefits and approximately 78% covered ANNOVERA with step or prior authorization access.
In February 2020, we entered into an agreement with Afaxys Pharma, LLC, a pharmaceutical company focused on serving women in the public health system, to market ANNOVERA in the U.S. public health sector. As part of the Population Council License Agreement, we have agreed to provide significantly reduced pricing to federally designated Title X family planning clinics serving underrepresented women. We also have agreements to market ANNOVERA to the U.S. Department of Defense, the U.S. Department of Veteran’s Affairs, and in Puerto Rico.
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Supply - We want to ensure our products are available in all classes of trade and delivery systems. We offer our products through traditional chain wholesalers (Cardinal, McKesson and AmerisourceBergen) and independent retail pharmacies, community compounding pharmacies with our BIO-IGNITE program, and online pharmacies. We continue to develop unique opportunities to sell direct to pharmacies to streamline distribution and better control costs.
Patient Affordability Programs - We have affordability and adherence programs in place for patients so that we can support appropriate use of our products by patients. Our co-pay assistance programs allow all patients to access our products at a reasonable cost.
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We continue to support our patient education and affordability program that allows all eligible patients who enroll to receive IMVEXXY and BIJUVA at a reasonable cost. When a product is not covered by a patient’s commercial insurance, the patient is responsible to pay the full price for the medication, which can significantly limit a patient’s ability to pay and subsequent utilization of the product. For IMVEXXY and BIJUVA, enrolled patients pay as little as $35 for a prescription with commercial insurance coverage and pay as little as $50 for a prescription without commercial insurance coverage. For ANNOVERA, for commercially insured patients, we offer patients assistance for as low as $60 for an annual prescription. Many patients will not need a co-pay assistance program for ANNOVERA given the requirements of the ACA at the federal level and similar laws at the state level.
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We continue to dialogue with the FDA regarding the potential inclusion of ANNOVERA as a new class of contraception for women in the FDA’s Birth Control Guide, which would require private health plans to cover ANNOVERA with no patient out-of-pocket costs as part of the ACA. There is no assurance that the FDA will make such a determination and it is possible that other FDA-approved products could also be included in such a new class. The FDA may also find that ANNOVERA fits into the vaginal contraceptive ring class, which it would share with NuvaRing and its generic equivalents, and potentially others. Eight states require insurance coverage of prescription contraception with co-pay regardless of inclusion in the FDA’s Birth Control Guide and 11 states, plus Washington D.C., require coverage of prescription contraception with no co-pay regardless of inclusion in the FDA’s Birth Control Guide.
Patient Adherence - Establishing compliance and adherence programs that make getting on a prescription medication and obtaining prescribed refills easy and convenient for the patient and HCPs is a critical lever in our commercial model. Our focus is on minimizing complications in patients filling their first prescription and engaging with them throughout the life of their treatment to ensure patients stay on and use therapy for the appropriate length of time. We have delivered effective patient engagement programs for all of our products.
Consumer Communication - Another critical level in the commercial model is consumer outreach. Our initial focus is on those patients who are already predisposed to seek treatment, such as those patients new to therapy, and those patients dissatisfied with their current therapy. Next, we are focused on expanding the market by energizing patients who are experiencing bothersome symptoms but who have not been motived to seek treatment. Methods of communication include online and offline media and span branded and unbranded communication to ensure we drive action from awareness of symptoms to desire to speak to an HCP to acquire a prescription.
License Agreements
License Agreement with the Population Council
Under the terms of the Population Council License Agreement, we paid the Population Council a milestone payment of $20 million within 30 days following approval by the FDA of the NDA for ANNOVERA. The first commercial batch of ANNOVERA was released during the third quarter of 2019, and we paid the Population Council a second milestone payment of $20 million as a result of the commercial batch release. The Population Council is eligible to receive additional milestone payments and royalties from commercial sales of ANNOVERA, as detailed below. We assumed responsibility for marketing expenses related to the commercialization of ANNOVERA. We are required to pay the Population Council additional milestone payments of $40 million upon cumulative net sales of ANNOVERA in the U.S. by us and our affiliates and permitted sublicensees of each of $200 million, $400 million and $1.0 billion.
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In addition, we are required to pay the Population Council, on a quarterly basis, step-based royalty payments based on annual net sales of ANNOVERA in the U.S. by us and our affiliates and permitted sublicensees as follows:
| Annual Net Sales | Royalty Rate | |||
| Less than or equal to $50.0 million | 5 | % | ||
| Greater than $50.0 million and less than or equal to $150.0 million | 10 | % | ||
| Greater than $150.0 million | 15 | % | ||
The annual royalty rate will be reduced to 50% of the initial rate during the six-month period beginning on the date of the first arms-length commercial sale of a generic equivalent of ANNOVERA that is launched by a third party in the U.S., and thereafter will be reduced to 20% of the initial rate.