txmd-10q_20220331.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2022

or

 

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

 

For the transition period from _______________ to _______________

Commission File Number: 001-00100

 

 

THERAPEUTICSMD, INC.

(Exact name of Registrant as specified in its Charter)

 

Nevada

87-0233535

(State or other jurisdiction

(I.R.S. Employer Identification No.)

of incorporation or organization)

 

 

 

951 Yamato Road, Suite 220

 

Boca Raton, Florida

33431

(Address of principal executive offices)

(Zip Code)

 

561-961-1900

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Trading

 

Title of Each Class

symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

TXMD

The Nasdaq Stock Market LLC

 

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

Indicate by check mark whether the registrant has submitted electronically 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). Yes No

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:

 

Large Accelerated Filer

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 No

As of May 10, 2022, there were 8,668,558 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 


 

Table of Contents

 

Part I – Financial Information

Page

Item. 1.

Financial statements (unaudited)

 

 

Consolidated Balance Sheets

1

 

Consolidated Statements of Operations

2

 

Consolidated Statements of Stockholders’ Deficit

3

 

Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Consolidated Financial Statements

5

Item 2.

Management's discussion and analysis of financial condition and results of operations

16

Item 3.

Quantitative and qualitative disclosures about market risk

22

Item 4.

Controls and procedures

22

Part II – Other Information

 

Item 1.

Legal proceedings

23

Item 1A.

Risk factors

23

Item 2.

Unregistered sales of equity securities and use of proceeds

23

Item 3.

Defaults upon senior securities

23

Item 4.

Mine safety disclosures

23

Item 5.

Other information

23

Item 6.

Exhibits

24

Signatures

25

 

 

 


 

 

Part I – Financial Information

Item 1.

Financial statements

TherapeuticsMD, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited - in thousands, except per share data)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets:

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

30,384

 

 

$

65,122

 

Accounts receivable, net of allowance for credit losses

   of $1,334 as of March 31, 2022 and December 31, 2021

 

 

35,413

 

 

 

36,176

 

Inventory

 

 

8,967

 

 

 

7,622

 

Prepaid and other current assets

 

 

9,660

 

 

 

10,548

 

Total current assets

 

 

84,424

 

 

 

119,468

 

Fixed assets, net

 

 

1,082

 

 

 

1,199

 

License rights and other intangible assets, net

 

 

39,547

 

 

 

40,318

 

Right of use assets

 

 

8,075

 

 

 

8,234

 

Other non-current assets

 

 

253

 

 

 

253

 

Total assets

 

$

133,381

 

 

$

169,472

 

Liabilities and stockholders' deficit:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current maturities of debt

 

$

202,857

 

 

$

188,269

 

Accounts payable

 

 

20,753

 

 

 

20,318

 

Accrued expenses and other current liabilities

 

 

41,225

 

 

 

44,304

 

Total current liabilities

 

 

264,835

 

 

 

252,891

 

Operating lease liabilities

 

 

7,897

 

 

 

8,063

 

Other non-current liabilities

 

 

1,229

 

 

 

2,139

 

Total liabilities

 

 

273,961

 

 

 

263,093

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders' deficit:

 

 

 

 

 

 

 

 

Preferred stock, par value $0.001; 10,000 shares authorized, none issued

 

 

 

 

 

 

Common stock, par value $0.001; 12,000 shares authorized, 8,669 and 8,598 (each)

   adjusted for the 50-for-1 reverse stock split) issued and outstanding

   as of March 31, 2022 and December 31, 2021, respectively

 

 

9

 

 

 

9

 

Additional paid-in capital

 

 

959,792

 

 

 

957,730

 

Accumulated deficit

 

 

(1,100,381

)

 

 

(1,051,360

)

Total stockholders' deficit

 

 

(140,580

)

 

 

(93,621

)

Total liabilities and stockholders' deficit

 

$

133,381

 

 

$

169,472

 

 

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

1


 

TherapeuticsMD, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited - in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue, net:

 

 

 

 

 

 

 

 

Product

 

$

18,914

 

 

$

19,632

 

License and service

 

 

419

 

 

 

234

 

Total revenue, net

 

 

19,333

 

 

 

19,866

 

Cost of goods sold

 

 

4,860

 

 

 

4,687

 

Total gross profit

 

 

14,473

 

 

 

15,179

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

18,895

 

 

 

24,024

 

General and administrative

 

 

20,407

 

 

 

18,383

 

Research and development

 

 

1,400

 

 

 

2,050

 

Total operating expenses

 

 

40,702

 

 

 

44,457

 

Loss from operations

 

 

(26,229

)

 

 

(29,278

)

Other expense:

 

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

 

(8,380

)

 

 

 

Interest expense and other financing costs

 

 

(14,412

)

 

 

(10,227

)

Other income, net

 

 

 

 

 

122

 

Total other expense, net

 

 

(22,792

)

 

 

(10,105

)

Loss before income taxes

 

 

(49,021

)

 

 

(39,383

)

Provision for income taxes

 

 

 

 

 

 

Net loss

 

$

(49,021

)

 

$

(39,383

)

Loss per common share, basic and diluted

 

$

(5.69

)

 

$

(5.67

)

Weighted average common shares, basic and diluted

 

 

8,614

 

 

 

6,945

 

Comprehensive loss:

 

 

 

 

 

 

 

 

Net loss

 

$

(49,021

)

 

$

(39,383

)

Other comprehensive income

 

 

 

 

 

 

Comprehensive loss

 

$

(49,021

)

 

$

(39,383

)

 

 

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

2


 

TherapeuticsMD, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(Unaudited - in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance, January 1, 2022

 

 

8,598

 

 

$

9

 

 

$

957,730

 

 

$

(1,051,360

)

 

$

(93,621

)

Shares issued for vested restricted stock units

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

2,062

 

 

 

 

 

 

2,062

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(49,021

)

 

 

(49,021

)

Balance, March 31, 2022

 

 

8,669

 

 

$

9

 

 

$

959,792

 

 

$

(1,100,381

)

 

$

(140,580

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2021

 

 

5,996

 

 

$

6

 

 

$

754,938

 

 

$

(878,945

)

 

$

(124,001

)

Shares issued for sale of common stock, net of cost

 

 

1,857

 

 

 

2

 

 

 

150,897

 

 

 

 

 

 

150,899

 

Shares issued for exercise of warrants, net of cashless exercises

 

 

10

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

Shares issued for vested restricted stock units

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

2,957

 

 

 

 

 

 

2,957

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(39,383

)

 

 

(39,383

)

Balance, March 31, 2021

 

 

7,864

 

 

$

8

 

 

$

908,842

 

 

$

(918,328

)

 

$

(9,478

)

 

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

3


 

TherapeuticsMD, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited - in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(49,021

)

 

$

(39,383

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,100

 

 

 

1,019

 

Charges to provision for doubtful accounts

 

 

274

 

 

 

230

 

Inventory charge

 

 

73

 

 

 

502

 

Debt financing fees

 

 

9,048

 

 

 

1,272

 

Loss on extinguishment of debt

 

 

8,380

 

 

 

 

Share-based compensation

 

 

2,062

 

 

 

2,957

 

Other

 

 

(7

)

 

 

216

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

489

 

 

 

(1,567

)

Inventory

 

 

(1,418

)

 

 

145

 

Prepaid and other current assets

 

 

888

 

 

 

(817

)

Accounts payable

 

 

435

 

 

 

(10,758

)

Accrued expenses and other current liabilities

 

 

(1,829

)

 

 

7,804

 

Total adjustments

 

 

19,495

 

 

 

1,003

 

Net cash used in operating activities

 

 

(29,526

)

 

 

(38,380

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Payment of patent related costs

 

 

(170

)

 

 

(375

)

Purchase of fixed assets

 

 

(42

)

 

 

(63

)

Net cash used in investing activities

 

 

(212

)

 

 

(438

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock, net of costs

 

 

 

 

 

150,899

 

Proceeds from exercise of options and warrants

 

 

 

 

 

50

 

Repayments of debt

 

 

(5,000

)

 

 

(50,000

)

Payment of debt financing fees

 

 

 

 

 

(5,000

)

Net cash (used in) provided by financing activities

 

 

(5,000

)

 

 

95,949

 

Net (decrease) increase in cash

 

 

(34,738

)

 

 

57,131

 

Cash, beginning of period

 

 

65,122

 

 

 

80,486

 

Cash, end of period

 

$

30,384

 

 

$

137,617

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

5,364

 

 

$

8,955

 

Supplemental disclosure of noncash financing activities:

 

 

 

 

 

 

 

 

Paid in kind ("PIK") debt financing fees with corresponding increase in debt

 

$

30,000

 

 

$

 

 

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


4


 

TherapeuticsMD, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

 

1.

Business, basis of presentation, new accounting standards and summary of significant accounting policies

General

TherapeuticsMD, Inc., a Nevada corporation (the “Company”) and its consolidated subsidiaries are referred to collectively in this Quarterly Report on Form 10-Q (“10-Q Report”) as “TherapeuticsMD,” “we,” “our” and “us.” This 10-Q Report includes our trademarks, trade names and service marks, such as TherapeuticsMD®, vitaMedMD®, BocaGreenMD®, IMVEXXY®, BIJUVA® and ANNOVERA®, which are protected under applicable intellectual property laws and are the property of, or licensed to, the Company. Solely for convenience, trademarks, trade names and service marks referred to in this 10-Q Report may appear without the ®, TM 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.

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 have a portfolio of 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.

vitaCare Divestiture

On April 14, 2022, we completed the divestiture of vitaCare Prescription Services, Inc. (“vitaCare”) with the sale of all of vitaCare’s issued and outstanding capital stock (the “vitaCare Divestiture”). We received a cash payment of $150.0 million, subject to adjustment as provided in the stock purchase agreement (the “Purchase Agreement”) and customary holdbacks. Additionally, we may receive up to an additional $7.0 million in earn-out consideration, contingent upon vitaCare’s financial performance through 2023 as determined in accordance with the terms of the Purchase Agreement.

The Purchase Agreement contains customary representations and warranties, covenants and indemnities of the parties thereto. In addition, upon closing of the vitaCare divestiture, (i) we entered into a long-term services agreement with vitaCare to continue utilization of the vitaCare platform with respect to our products, and (ii) we and vitaCare entered into a transition services agreement for us to provide certain transition services to vitaCare for up to 12 months following the closing. Under the long-term services agreement, we are required to pay to vitaCare a minimum service fee for each respective annual contract year. Our estimated minimum service fee commitments for vitaCare are as follows: $5.2 million for the period from April 15, 2022 to December 31, 2022, $10.7 million for 2023, $13.4 million for 2024, $15.4 million for 2025, $16.2 million for 2026, and $5.5 million for the period from January 1, 2027 to April 14, 2027.

COVID-19

With multiple variant strains of the SARS-Cov-2 virus and the COVID-19 disease that it causes (collectively, “COVID-19”) still circulating, we continue to be subject to risks and uncertainties in connection with the COVID-19 pandemic. The extent of the future impact of the COVID-19 pandemic on our business continues to be highly uncertain and difficult to predict. The ultimate global recovery from the pandemic will be dependent on, among other things, actions taken by governments and businesses to contain and combat the virus, including any variant strains, the speed and effectiveness of vaccine production and global distribution, as well as how quickly, and to what extent, normal economic and operating conditions can resume on a sustainable basis globally.

Since the early phase of the COVID-19 pandemic, we have been using substantial virtual options to ensure business continuity. We have also partnered with independent community pharmacies and multiple third-party online pharmacies and telemedicine providers that focus on contraception or menopause which provide patients 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 have mailing options in place for these materials. We also have business continuity plans and infrastructure in place that allows for live virtual e-detailing of our products.

5


 

As part of our response to the COVID-19 pandemic, we implemented measures to reduce marketing expenses and implemented cost saving measures, which included negotiating lower fees or suspending services from third-party vendors; implementing a company-wide hiring restriction; delaying or cancelling non-critical information technology projects; and eliminating non-essential travel, entertainment, meeting, and event expenses. In addition, we implemented a significant cost savings initiative that was designed to reduce our annual operating costs in 2022, and we reduced the operating costs of the vitaCare business with the completion of the vitaCare Divestiture on April 14, 2022. See above for additional information regarding the vitaCare Divestiture.

The full impact of the COVID-19 pandemic continues to evolve. As of the date of issuance of these consolidated financial statements, the future extent to which the COVID-19 pandemic may continue to materially impact our financial condition, liquidity, or results of operations remains uncertain. We are continuing to assess the effect of the COVID-19 pandemic on our operations by monitoring the spread of COVID-19 and the various actions implemented to combat the pandemic throughout the world. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.

While we currently believe that our COVID-19 contingency plan has the ability to mitigate many of the negative effects 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 remain 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.

Going concern

We incurred a net loss of $49.0 million during the three months ended March 31, 2022, and as of that date, our current liabilities exceeded our current assets by $180.4 million and our total liabilities exceeded our total assets by $140.6 million. We will need to raise additional capital to repay the entire principal balance of the Financing Agreement, dated as of April 24, 2019, as amended (the “Financing Agreement”), with Sixth Street Specialty Lending, Inc., as administrative agent (the “Administrative Agent” or “Sixth Street”), various lenders from time to time party thereto, and certain of our subsidiaries party thereto from time to time as guarantors, which matures on June 1, 2022, and to provide additional liquidity to fund our losses until our operations become cash flow positive. To address our capital needs, we are pursuing various equity and debt financing and other alternatives, including, but not limited to, the sale of vitaCare which was completed on April 14, 2022. The equity financing alternatives may include the private placement of equity, equity-linked, or other similar instruments or obligations with one or more investors, lenders, or other institutional counterparties or an underwritten public equity or equity-linked securities offering. Our ability to sell equity securities may be limited by market conditions, including the market price of our common stock and the potential delisting of our common stock from the Nasdaq Global Select Market, and our available authorized shares. To the extent that we raise additional capital through the sale of such securities, 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 are not successful in obtaining additional financing, we could be forced to discontinue or curtail our business operations, sell assets at unfavorable prices, or merge, consolidate, or combine with a company with greater financial resources in a transaction that might be unfavorable to us. Along with considering additional financings, we have reviewed numerous potential scenarios in connection with steps that we may take to reduce our operating expenses.

If we are unsuccessful with future financings and if the successful commercialization of ANNOVERA, IMVEXXY, or BIJUVA is delayed, or the continued impact of the COVID-19 pandemic or issues in our supply chains related to our third-party contract manufacturers on our business is worse than we anticipate, our existing cash reserves would be insufficient to repay the entire principal balance of the Financing Agreement or satisfy our liquidity needs. See Note 3, Inventory for additional information regarding risks associated with our contract manufacturers, particularly for ANNOVERA. The presence of these projected factors in conjunction with the uncertainty of the capital markets raises substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of these financial statements.

The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

6


 

Common stock reverse stock split

On May 6, 2022, we completed a reverse stock split of our common stock. As a result, shares of our common stock outstanding was split at a ratio of 50-for-1 (the “Reverse Stock Split”) with any fractional shares resulting from the Reserve Stock Split rounded up to the next whole share of common stock. The number of authorized shares of common stock was also correspondingly reduced from 600.0 million shares to 12.0 million shares to give effect to the Reverse Stock Split. Additionally, all rights to receive shares of common stock under outstanding warrants, options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) were adjusted to give effect of the reverse stock split. Furthermore, remaining shares of common stock available for future issuance under share-based payment award plans and employee stock purchase plan were adjusted to give effect of the reverse stock split. Pursuant to Section 78.209 of the Nevada Revised Statutes, the approval of our stockholders was not required for our Board of Directors to effectuate the Reverse Stock Split.

In this 10-Q Report, all historical number of shares of common stock and per share data have been adjusted to give effect to the Reverse Stock Split. Additionally, since the common stock par value was unchanged, historical amounts for common stock and additional paid-in capital have been adjusted to give effect to the Reverse Stock Split.

A.

Basis of presentation

We prepared the consolidated financial statements included in this 10-Q Report following the requirements of the United States (“U.S.”) Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements can be condensed or omitted. However, except as disclosed herein, there has been no material change in the information disclosed in the notes included in our 2021 Annual Report on Form 10-K ("2021 10-K Report").

Revenues, expenses, assets, liabilities, and equities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be representative of those for the full year. In our opinion, all adjustments necessary for a fair statement of the financial statements, which are of a normal and recurring nature, have been made for the interim periods reported. The information included in this 10-Q Report should be read in conjunction with the consolidated financial statements and accompanying notes included in our 2021 10-K Report. Certain amounts in the consolidated financial statements and accompanying notes may not add due to rounding, and all percentages have been calculated using unrounded amounts.

B.

New accounting standards

Adoption of new accounting standards

New accounting standards or accounting standards updates were assessed and determined to be either not applicable or did not have a material impact on the Company’s consolidated financial statements or processes.

Accounting standards issued but not yet adopted

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and Scope. In March 2020 and January 2021, Accounting Standards Update (“ASU”) 2020-04 and ASU 2021-01 were issued, respectively. These ASUs provide optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as London Interbank Offered Rate (LIBOR). These ASUs include practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. These ASUs were effective upon issuance and may be applied prospectively to contract modifications made or evaluated on or before December 31, 2022. Our debt agreements currently include the use of alternate rates when LIBOR is not available. We do not expect the change from LIBOR to an alternate rate will have a material impact to our financial statements and, to the extent we enter into modifications of agreements that are impacted by the LIBOR phase-out, we will apply such guidance to those contract modifications.

Other recently issued accounting standards not yet adopted by us are not expected, upon adoption, to have a material impact on the Company’s consolidated financial statements or processes.

7


 

C.

Estimates and assumptions

The preparation of consolidated financial statements in conformity to U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We evaluate our estimated assumptions based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ, at times in material amounts, from these estimates under different assumptions or conditions.

D.

Significant accounting policies

The significant accounting policies we use for quarterly financial reporting are disclosed in Note 1, Business, basis of presentation, new accounting standards and summary of significant accounting policies of the accompanying notes to the consolidated financial statements included in our 2021 10-K Report, and in the section below.

2.

Accounts receivable

The following sets forth activities in our allowance for credit losses (in thousands):

Balance as of January 1, 2022

 

$

1,334

 

Charges to provision for credit losses

 

 

274

 

Write-off of uncollectible receivables

 

 

(274

)

Balance as of March 31, 2022

 

$

1,334

 

 

3.

Inventory

Our inventory consisted of the following (in thousands):

 

 

March 31, 2022

 

 

December 31, 2021

 

Raw materials

 

$

4,394

 

 

$

3,042

 

Work in process

 

 

1,231

 

 

 

1,642

 

Finished products

 

 

3,342

 

 

 

2,938

 

Inventory

 

$

8,967

 

 

$

7,622

 

 

We recorded inventory charges of $0.1 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively.

We rely on third parties to manufacture our finished products, and we have entered into long-term supply agreements for the manufacture of ANNOVERA, IMVEXXY, and BIJUVA. We do not have a long-term supply agreement for the manufacture of our prescription vitamins. Additionally, we do not have long-term contracts for the supply of all the active pharmaceutical ingredients (“API”) used in ANNOVERA and BIJUVA.

One of our third-party contract manufacturers that manufactures ANNOVERA has recently experienced an increase in difficulties with manufacturing of ANNOVERA, which has resulted in intermittent supply interruptions of ANNOVERA for commercial distribution. The challenges are multifactorial and include variability in raw material supply and normal manufacturing variation due to a semi-manual process. This has recently resulted in challenges to supply ANNOVERA at a rate that meets the projected demand for ANNOVERA. To mitigate the manufacturing challenges, in August 2021, we filed a supplemental New Drug Application (“NDA”) with the FDA to modify the testing specifications for ANNOVERA to allow increased consistency of supply of ANNOVERA. In December 2021, FDA determined that it could not approve the supplemental NDA without additional information. In its complete response letter (“CRL”), the FDA provided recommendations and requested additional information that could support approval of revisions to certain testing specifications. In January 2022, we responded to the CRL, and provided additional information to the FDA and modified the request to revise the manufacturing testing limits based on the FDA feedback. We expect a response from the FDA by the end of second quarter of 2022. We have continued to manufacture and supply ANNOVERA under the existing specifications as well as (i) ramping up manufacturing sufficient to better meet second quarter of 2022 demands notwithstanding existing challenges, (ii) added resources to increase production volumes, (iii) increasing yield per manufacturing batch, and (iv) increasing production capacity to better meet product demands to realize revenue potential, including reducing dependency on labor resources, increasing efficiency in manufacturing and testing, and automating some of the processes. In the meantime, our third-party contract manufacturer may not be able to supply us with sufficient ANNOVERA to adequately supply the market, which would have an adverse effect on our business,

8


 

results of operations and financial condition. Additionally, we may incur increased write-offs of ANNOVERA products manufactured in 2022 that do not meet existing specifications.

We have also experienced a greater than expected amount of raw materials for ANNOVERA being out of specification. If any of our third-party contract manufacturers or any suppliers of raw materials or API experience further difficulties, do not comply with the terms of an agreement between us, or do not devote sufficient time, energy, and care to providing our manufacturing needs, or if the manufacturing specification modifications that we have requested are not approved by the FDA, we could experience additional interruptions in the supply of our products, which may have a material adverse impact on our revenue, results of operations and financial position.

4.

Prepaid and other current assets

Our prepaid and other current assets consisted of the following (in thousands):

 

 

March 31, 2022

 

 

December 31, 2021

 

Insurance

 

$

1,644

 

 

$

2,731

 

Paragraph IV legal proceeding costs

 

 

2,304

 

 

 

2,304

 

Other

 

 

5,712

 

 

 

5,513

 

Prepaid and other current assets

 

$

9,660

 

 

$

10,548

 

 

5.

Fixed assets

Our fixed assets, net consisted of the following (in thousands):

 

 

March 31, 2022

 

 

December 31, 2021

 

Furniture and fixtures

 

$

1,407

 

 

$

1,407

 

Computer and office equipment

 

 

1,897

 

 

 

1,855

 

Computer software

 

 

375

 

 

 

375

 

Leasehold improvements

 

 

80

 

 

 

80

 

Fixed assets

 

 

3,759

 

 

 

3,717

 

Less: accumulated depreciation and amortization

 

 

2,677

 

 

 

2,518

 

Fixed assets, net

 

$

1,082

 

 

$

1,199

 

We recorded depreciation expense of $0.2 million for the three months ended March 31, 2022 and 2021.

6.

Licensed rights and other intangible assets

The following provides information about our license rights and other intangible assets, net (in thousands):

 

 

March 31, 2022

 

 

December 31, 2021

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

 

 

 

 

 

Amount

 

 

Amortization

 

 

Net

 

 

Amount

 

 

Amortization

 

 

Net

 

Licensed rights and intangible assets

   subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

License rights

 

$

40,000

 

 

$

7,580

 

 

$

32,420

 

 

$

40,000

 

 

$

6,826

 

 

$

33,174

 

Hormone therapy drug patents

 

 

6,117

 

 

 

1,229

 

 

 

4,888

 

 

 

5,834

 

 

 

1,042

 

 

 

4,792

 

Hormone therapy drug patents applied

   and pending approval

 

 

1,907

 

 

 

 

 

 

1,907

 

 

 

2,020

 

 

 

 

 

 

2,020

 

License rights and other intangible assets

   subject to amortization

 

 

48,024

 

 

 

8,809

 

 

 

39,215

 

 

 

47,854

 

 

 

7,868

 

 

 

39,986

 

Intangible assets not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks/trade name rights

 

 

332

 

 

 

 

 

 

332

 

 

 

332

 

 

 

 

 

 

332

 

License rights and other intangible assets, net

 

$

48,356

 

 

$

8,809

 

 

$

39,547

 

 

$

48,186

 

 

$

7,868

 

 

$

40,318

 

 

We recorded amortization expense related to the exclusive license rights agreement with Population Council of $0.8 million for the three months ended March 31, 2022 and 2021. We recorded amortization expense related to patents of $0.2 million and $0.1 million for the three months ended March 31, 2022 and 2021, respectively.

9


 

7.

Accrued expenses and other current liabilities

Other accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

March 31, 2022

 

 

December 31, 2021

 

Payroll and related costs

 

$

10,845

 

 

$

13,764

 

Rebates

 

 

9,810

 

 

 

11,010

 

Sales returns and coupons

 

 

1,252

 

 

 

2,422

 

Selling and marketing

 

 

2,611

 

 

 

2,850

 

Research and development expenses

 

 

2,295

 

 

 

1,995

 

Wholesale distributor fees

 

 

6,352

 

 

 

3,614

 

Professional fees

 

 

2,080

 

 

 

2,571

 

Operating lease liabilities

 

 

1,369

 

 

 

1,361

 

Other accrued expenses and current liabilities

 

 

4,611

 

 

 

4,717

 

Accrued expenses and other current liabilities

 

$

41,225

 

 

$

44,304

 

We expense advertising costs when incurred, which amounted to $1.9 million and $6.2 million for the three months ended March 31, 2022 and 2021, respectively.

8.

Debt

Our debt consisted of the following (in thousands):

 

 

March 31, 2022

 

 

December 31, 2021

 

Financing Agreement

 

$

225,000

 

 

$

200,000

 

Less: deferred financing fees

 

 

22,143

 

 

 

11,731

 

Debt, net

 

$

202,857

 

 

$

188,269

 

Financing agreement

In March 2022, we entered into Amendment No. 9 to the Financing Agreement (“Amendment No. 9”) pursuant to which, among other things, (i) the lenders waived various Company breaches of the Financing Agreement, including breaches of the $60.0 million minimum cash covenant and the minimum net revenue covenants for the fourth quarter of 2021; (ii) the Company and the lenders agreed to reduced minimum cash covenant and to the removal of the minimum net revenue covenant for the first quarter of 2022; (iii) the lenders waived the existing $60.0 million prepayment penalty under the Financing Agreement and the Company agreed to a paid in kind amendment fee of $30.0 million, which fee was added to the principal amount of the loans under the Financing Agreement, $16.0 million of which fee is waivable in certain conditions; (iv) the maturity date of the Financing Agreement was amended to June 1, 2022; and (v) the Company agreed to pay to the Lenders as a prepayment of the loans under the Financing Agreement the first $120.0 million of net proceeds from the vitaCare Divestiture and all net proceeds of the vitaCare Divestiture in excess of $135.0 million.

Amendment No. 9 was accounted for as an extinguishment of debt modification in accordance with U.S. GAAP. Accordingly, in March 2022, we recorded an $8.4 million loss on extinguishment of debt, which represented the unamortized deferred financing fees, net of previously accrued prepayment fees. Additionally, we made a paid in kind (“PIK”) amendment financing fee of $30.0 million, which was added to the principal balance of the Financing Agreement. The PIK amendment financing fee was recorded as deferred financing fees and is being amortized over the remaining term of the Financing Agreement.

As of March 31, 2022, our unamortized deferred financing fees was $22.1 million. On April 14, 2022, we utilized $120.0 million of net proceeds from the vitaCare Divestiture to pay as prepayment on our debt under the terms of Amendment No. 9. Additionally, with the prepayment on the debt, $16.0 million of the PIK financing fee was waived in accordance with Amendment No. 9.

Debt covenants

The Financing Agreement contains customary restrictions and covenants applicable to us that are customary for financings of this type. Among other requirements, we are required to maintain a minimum unrestricted cash balance. Beginning on February 7, 2022 to March 8, 2022, we did not maintain the required unrestricted cash balance of $60.0 million. In connection with Amendment No. 9, the lenders waived this event of default and reduced the required minimum unrestricted cash balance. The minimum unrestricted cash balance is a base amount (the “Base Amount”) minus specified payables, as defined in Amendment No. 9. The Base Amount decreases over the period from March 1, 2022 through May 7, 2022. Our