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| ● | refuse to approve pending applications or supplements to applications filed by us; |
| ● | suspend or impose restrictions on operations, including costly new manufacturing requirements; |
| ● | seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall; or |
| ● | exclude us from providing our products to those participating in government |
The occurrence of any of the foregoing events or penalties may force us to expend significant amounts of time and money and may significantly inhibit our ability to bring to market or continue to market our products and generate revenue. Similar regulations apply in foreign jurisdictions.
The commercial success of our existing products and our hormone therapy drug candidates that we develop, if approved in the future, will depend upon gaining and retaining significant market acceptance of these products among physicians and payors.
Physicians may not prescribe our products, including any of our hormone therapy drug candidates, if approved by the appropriate regulatory authorities for marketing and sale, which would prevent us from generating revenue or becoming profitable. Market acceptance of our products, including our hormone therapy drug candidates, by physicians, patients, and payors, will depend on a number of factors, many of which are beyond our control, including the following:
Even if the medical community accepts that our products are safe and efficacious for their approved indications, physicians may not immediately be receptive to the use or may be slow to adopt our products as an accepted treatment for the symptoms for which they are intended. We cannot assure you that any labeling approved by the FDA will permit us to promote our products as being superior to competing products. If our products, including, in particular our hormone therapy drug candidates, if approved, do not achieve an adequate level of acceptance by physicians and payors, we may not generate sufficient or any revenue from these products and we may not become profitable. In addition, our efforts to educate the medical community and third-party payors on the benefits of our products may require significant resources and may never be successful.
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Our products including our hormone therapy drug candidates if approved, face significant competition from branded and generic products, and our operating results will suffer if we fail to compete effectively.
Development and awareness of our brand will depend largely upon our success in increasing our customer base.consumer base and maintaining adequate pricing through our exclusivities. The pharmaceutical and dietary supplement and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. Our products including any hormone therapy drug candidates that are approved, face intense competition, including from major multinational pharmaceutical and dietary supplement companies, established biotechnology companies, specialty pharmaceutical, and generic drug companies. A new non-hormonal product, Brisdelle, produced by Noven Pharmaceuticals, was approved by the FDA for treatment of VMS in June 2013. Many of these companies have greater financial and other resources, such as larger research and development staffs and more experienced marketing and manufacturing organizations. As a result, these companies may obtain regulatory approval more rapidly and may be more effective in selling and marketing their products. They also may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the products that we sell or develop obsolete. As a result, our competitors may succeed in commercializing products before we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. If we are unable to economically promote or maintain our brand, our business, results of operations and financial condition could be severely harmed. In addition, our efforts to provide an alternative to the non-FDA-approved compound bioidentical market for estradiol and progesterone products sold by compounding pharmacies may not be successful. Finally, loss of exclusivity may provide opportunity for competing products, particularly generics, to erode pricing and siphon off our consumers.
CoverageOn February 20, 2020, we received the Notice Letter regarding an ANDA submitted to the FDA by Teva. The ANDA seeks approval from the FDA to commercially manufacture, use, or sell a generic version of the 4 mcg and reimbursement may10 mcg doses of IMVEXXY. In the Notice Letter, Teva alleges that IMVEXXY Patents listed in the FDA’s Orange Book that claim compositions and methods of IMVEXXY are invalid, unenforceable, and/or will not be availableinfringed by Teva’s commercial manufacture, use, or sale of its proposed generic drug product. The IMVEXXY Patents identified in the Notice Letter expire in 2032 or 2033. We are currently reviewing the Notice Letter and intend to vigorously enforce our intellectual property rights relating to IMVEXXY. Under the Hatch-Waxman Act, we have 45 days from receipt of the Notice Letter to initiate a patent infringement lawsuit against Teva. Such a lawsuit would automatically preclude the FDA from approving Teva’s ANDA until the earlier of 30 months or entry of a district court decision finding the IMVEXXY Patents invalid, unenforceable, or not infringed. We cannot assure you that any patent infringement lawsuit that we may file will prevent the introduction of a generic version of IMVEXXY for our products, which could make it difficult for us to sell our products profitably,any particular length of time, or if available, government mandated rebates may be too highat all. If Teva’s ANDA is approved, and may adversely affecta generic version of IMVEXXY is introduced, our profitability.
Market acceptance and sales of our products, including any hormone therapy drug candidates, will depend on coverage and reimbursement policies and mayIMVEXXY could be affected by health care reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which products they will pay for and establish reimbursement levels. Third-party payors generally do not cover OTC products, and coverage for vitamins and dietary supplements varies. We cannot be sure that coverage and reimbursement will be available for our products, including any hormone therapy drug candidates, if approved, or whether the amount of such coverage and reimbursement, if any, will be sufficient to enable us to successfully compete with other products.
Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and certain others by establishing a new Part D to the Medicare program. However, unlike traditional Medicare—which provides coverage for outpatient drugs—coverage under Part D is provided by private insurers operating under contract with CMS. In addition, this legislation provided authority for limiting the number of certain outpatient drugs that will be covered in any therapeutic class. As a result of this legislation and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These and future cost-reduction initiatives could decrease the coverage and price that we receive for our products from Medicare, if any, including our hormone therapy drug candidates, if approved, and could significantly harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement under Medicare may result in a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the Affordable Care Act or ACA, became law in the United States. The goal of ACA is to reduce the cost of health care and substantially change the way health care is financed by both governmental and private insurers. Among other measures, ACA increased rebates on manufacturers for certain covered drug products reimbursed by state Medicaid programs. While we cannot predict the full effect that the Affordable Care Act will have on federal reimbursement policies in general or on our business specifically, the Act may result in downward pressure on drug reimbursement, which could negatively affect market acceptance of our products.adversely affected. In addition, we cannot predict whether new proposals willwhat additional ANDAs could be madefiled by Teva or adopted, when they may be adopted, or what impact they may have on us if they are adopted. In that regard, Congress has taken the first step in repealing the funding mechanism for certain aspects of the ACA. If the ACA or parts of it are repealed, it is unclear what impact that would have on drug reimbursements or coverage and it is equally unclear what programs, if any, Congress might enactother potential generic competitors requesting approval to replace the repealed portions of the ACA.
The availability ofmarket generic products at lower prices than branded products may also substantially reduce the likelihood of reimbursement for branded products, such as our hormone therapy drug candidates, if approved. We expect to experience pricing pressures in connection with the saleforms of our products, generally duewhich could require us to the trend toward managed health care, the increasing influence of health maintenance organizations,incur significant additional expense and additional legislative proposals. If we fail to successfully secure and maintain adequate coverage and reimbursementresult in distraction for our products or are significantly delayedmanagement team, and if approved, result in doing so, we could have difficulty achieving market acceptancesignificant decreases in the revenue derived from sales of our marketed products and thereby materially harm our business and financial condition, results of operations, and prospects could be harmed.condition.
Failure to obtain regulatory approval outside the U.S. will prevent usour licensees from marketing our drug candidates in non- U.S. markets.
We may attempt to market certain of our drug candidateshormone therapy pharmaceutical products in non-U.S. markets. In order
We have entered into licensing and supply agreements with Knight and Theramex to commercialize IMVEXXY and BIJUVA in non-U.S. markets. To market our drug candidatesthese products in the European Union and many other non-U.S. jurisdictions, weour licensees must obtain separate regulatory approvals. We have had limited interactions with non-U.S. regulatory authorities, the approval procedures vary among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval or clearance. Approval or clearance by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one or more non-U.S. regulatory authorities does not ensure approval by other regulatory authorities in other countries or by the FDA. The non-U.S. regulatory approval process may include all of the risks associated with obtaining FDA approval or clearance. If we pursueFor these non-U.S. regulatory approvals, weour licensees may not obtain them on a timely basis, if at all. If we pursue non-U.S. regulatory approvals, ourOur licensees’ failure to receive necessary non-U.S. regulatory approvals to commercialize our drug candidatesIMVEXXY and BIJUVA in a given market could have a material adverse effect on our business, financial condition, results of operations, and prospects.
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In addition, if we seek andby seeking to obtain approval to market our drug candidatesIMVEXXY and BIJUVA in one or more non-U.S. markets, we and/or our licensees will be subject to rules and regulations in those markets relating to our product.products. In some countries, particularly countries of the European Union, each of which has developed its own rules and regulations, pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of regulatory approval for a drug. To obtain reimbursement or pricing approval in some countries, weour licensees may be required to conduct a clinical trial that compares the cost-effectiveness of our drug candidatespharmaceutical product to other available products. If reimbursement of our drug candidatespharmaceutical product is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, weour licensees may be unable to generate revenues and achieve or sustain profitability with respect to any given market, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Future legislation If our licensees obtain approval to market IMVEXXY or regulations may adversely affect reimbursement from government programs
In addition, other legislative changesBIJUVA in one or more non-U.S. markets, we will have been proposed and adopted sinceadditional pharmacovigilance reporting requirements for our products. To the Affordable Care Act was enacted. More recently,extent that the non-U.S. markets in August 2011, President Obama signed into lawwhich our licensees distribute our products have different pharmacovigilance reporting requirements than the Budget Control Act of 2011, which, among other things, createdU.S., there is a risk that the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reductions, triggering the legislation’s automatic reduction of several government programs. This includes aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The Bipartisan Budget Act of 2015, signed into law on November 2, 2015, increased the rebates that generic drug manufacturers are obligated to pay under the Medicaid program by applying an inflation-based rebate formula to generic drugs that previously only applied to brand name drugs. If we ever obtain regulatory approval and commercialization of anymarketing of our drug candidates, these new laws may resultdrugs in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations. On December 13, 2016, the President signed into law the 21st Century Cures Act, which, among other things,those countries may increase the typesnumber of clinical trial designs that would be acceptable to support an NDA. It is unclear, at this time, how these provisions will be implemented or whether they would have any effect onadverse events reported for our company.products.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug candidates may be. In that regard, and as noted above, Congress has taken the first step in repealing the funding mechanism for certain aspects of the ACA. If the ACA or parts of it are repealed, it is unclear what impact that would have on drug reimbursements or coverage and it is equally unclear what programs, if any, Congress and the Trump Administration might enact and sign into law to replace the repealed portions of the ACA.39
Product liability lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our products.
We face an inherent risk of product liability claims as a result of the marketingcommercial availability of our current products and the clinical testing of our hormone therapy drugpharmaceutical product candidates despite obtaining appropriate informed consents from our clinical trial participants. Additionally, in light of the history of product liability claims related to other hormone replacement therapy products and contraceptives, we will face an even greater risk if we obtain FDA approval and commercializethrough commercialization of our hormone therapy drug candidates in the United States or other additional jurisdictions or if we engage in the clinical testing of proposed new products or commercialize any additional products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing, or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, failures to warn of dangers inherent inassociated with the use of the product, negligence, strict liability, or breaches of warranties. Claims could also be asserted under state consumer fraud and protection acts.statutes. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our existing products or hormone therapy drug candidates, if approved. Even successful defense would require significant financial and management resources.pharmaceutical product candidates. Regardless of the merits or eventual outcome, product liability claims may result in any of the following:
| ● | the inability to commercialize our products or |
| ● | difficulty recruiting subjects for clinical trials or withdrawal of these subjects before a trial is completed; |
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| ● | labeling, marketing, or promotional changes and/or restrictions; |
| ● | product recalls or withdrawals; |
| ● | decreased demand for our products or products that we may develop in the future; |
| ● | loss of revenue; |
| ● | injury to our reputation; |
| ● | initiation of investigations by |
| ● | costs to defend the related litigation; |
| ● | a diversion of management’s time and our resources; |
| ● | substantial monetary awards to trial participants or patients; |
| ● | exhaustion of any available insurance and our capital resources; and |
| ● | a decline in our stock price. |
Although we maintain general liability insurance of up to $10 million in the aggregate and clinical trial liability insurance of $10 million in the aggregate for our hormone therapy drugproducts and product candidates, this insurance may not fully cover potential liabilities. The cost of any product liability litigation or other proceeding, even if resolved in our favor, could be substantial. In addition, our inability to obtain or maintain sufficient insurance coverage at an acceptable cost or to otherwise protect against potential product liability claims could prevent or inhibit the development and commercial production and sale of our products, which could adversely affect our business, financial condition, results of operations, and prospects.
Our business may be affected by unfavorable publicity or lack of consumer acceptance.
We are highly dependent upon consumer acceptance of the safety and quality of our products, as well as similar products distributed by other companies. Consumer acceptance of a product can be significantly influenced by scientific research or findings, national media attention, and other publicity about product use. A product may be received favorably, resulting in high sales associated with that product that may not be sustainable as consumer preferences change. Future scientific research or publicity could be unfavorable to our industry or any of our particular products and may not be consistent with earlier favorable research or publicity. A future research report or publicity that is perceived by our consumers as less than favorable or that may question earlier favorable research or publicity could have a material adverse effect on our ability to generate revenue. Adverse publicity in the form of published scientific research, statements by regulatory authorities or otherwise, whether or not accurate, that associates consumption of our product or any other similar product with illness or other adverse effects, or that questions the benefits of our product or a similar product, or that claims that such products do not have the effect intended could have a material adverse effect on our business, reputation, financial condition, or results of operations.
If we use hazardous materials in a manner that causes injury or violates applicable law, we may be liable for damages.
Our manufacturing and research and development activities involve the controlled use of potentially hazardous substances, including chemical, biological, and radioactive materials. In addition, our operations produce hazardous waste products. Federal, state, and local laws and regulations in the United StatesU.S. govern the use, manufacture, storage, handling, and disposal of hazardous materials. Although we believe that our procedures for use, handling, storing, and disposing of these materials (all of which only occur at third-party sites operated by our contractors) comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. We also cannot predict the impact on our business of new or amended environmental laws or regulations or any changes in the way existing and future laws and regulations are interpreted or enforced. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials, and we may incur liability as a result of any such contamination or injury. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources, and we do not carry liability insurance covering the use of hazardous materials. If we fail to comply with applicable requirements, we could incur substantial costs, including civil or criminal fines and penalties, clean-up costs, or capital expenditures for control equipment or operational changes necessary to achieve or maintain compliance. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, and may adversely affect our business, financial condition, results of operations, and prospects.
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We are subject to extensive and costly government regulation.
The products we currently market, including the vitamins, and the pharmaceutical products we are developing and planning to develop in the future, are subject to extensive and rigorous domestic government regulation, including regulation by the FDA, the Centers for Medicare & Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, including its Office of Inspector General, the U.S. Department of Justice, the Departments of Defense and Veterans Affairs, to the extent our products are paid for directly or indirectly by those departments, state and local governments, and their respective foreign equivalents. The FDA regulates dietary supplements, cosmetics, and drugs under different regulatory schemes. For example, the FDA regulates the processing, formulation, safety, manufacturing, packaging, labeling, and distribution of dietary supplements and cosmetics under its dietary supplement and cosmetic authority, respectively. The FDA also regulates the research, development, pre-clinical and clinical testing, manufacture, safety, effectiveness, record keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of pharmaceutical products under various regulatory provisions. If any drug products we develop are tested or marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not we have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more demanding than corresponding U.S. regulation.
Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling products. Our failure to comply with these regulations could result in, by way of example, significant fines, criminal and civil liability, product seizures, recalls, withdrawals, withdrawals of approvals, and exclusion and debarment from government programs. Any of these actions, including the inability of our hormone therapy drug candidates to obtain and maintain regulatory approval, could have a materially adverse effect on our business, financial condition, results of operations, and prospects.
We are subject to additional federal and state laws and regulations relating to our business, and our failure to comply with those laws could have a material adverse effect on our results of operations and financial conditions.
We are subject to additional health care regulation and enforcement by the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include the following:
Further, the ACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health care fraud statutes. A person or entity can now be found guilty of fraud or false claims under ACA without actual knowledge of the statute or specific intent to violate it. In addition, the ACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the false claims statutes. Possible sanctions for violation of these anti-kickback laws include monetary fines, civil and criminal penalties, exclusion from Medicare, Medicaid and other government programs and forfeiture of amounts collected in violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations, and financial condition.
The ACA also imposes new reporting requirements on device and pharmaceutical manufacturers to make annual public disclosures of payments to certain health care providers and physician ownership of their stock by health care providers. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value, or ownership or investment interests that are not reported. Manufacturers were required to begin data collection on August 1, 2013 and were required to report such data to CMS by March 31, 2014.
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In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians for marketing. Some states, such as California, Massachusetts and Vermont, mandate implementation of corporate compliance programs, along with the tracking and reporting of gifts, compensation, and other remuneration to physicians.
The scope and enforcement of these laws is uncertain and subject to change in the current environment of health care reform, especially in light of the lack of applicable precedent and regulations. We cannot predict the impact on our business of any changes in these laws. Federal or state regulatory authorities may challenge our current or future activities under these laws. Any such challenge could have a material adverse effect on our reputation, business, results of operations, and financial condition. Any state or federal regulatory review of us, regardless of the outcome, would be costly and time-consuming.
If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive pharmaceutical industry depends in large part on our ability to attract and retain highly qualified managerial, scientific, and medical personnel. In order toTo induce valuable employees to remain with us, we have, among other things, provided stock-based compensation that vests over time. The value to employees of stock-based compensation will be significantly affected by movements in our stock price that we cannot control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management, scientific, and medical teams may terminate their employment with us on short notice. We do notAlthough we have employment agreements with a numberseveral of our key employees. As a result,employees, most employees are employed on an at-will basis, which means that any of these employees could leave our employment at any time, with or without notice, and may go to work for a competitor. The loss of the services of any of our executive officers or other key employees could potentially harm our business, operating results, and financial condition. Our success also depends on our ability to continue to attract, retain, and motivate highly skilled scientific and medical personnel.
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Any failure to adequately expand a direct sales force will impede our growth.
We expect to be substantially dependent on a direct sales force to attract new business and to manage customer relationships. We plan to expand our direct sales force and believe that there is significant competition for qualified, productive direct sales personnel with advanced sales skills and technical knowledge. Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training, and retaining sufficient direct sales personnel. New and future hires may not become as productive as expected, and we may be unable to hire sufficient numbers of qualified individuals in the future in the markets in which we do business. If we are unable to hire and develop sufficient numbers of productive sales personnel our business prospects could suffer.
Other pharmaceutical companies with which we compete for qualified personnel may have greater financial and other resources, different risk profiles, and longer histories than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we offer. If we are unable to continue to attract and retain high-quality personnel, our ability to commercialize drug candidates may be limited.
Our success is tied to our distribution channels.
We sell our prescription prenatal vitamin products to wholesale distributors and retail pharmacy distributors. During the year ended December 31, 2016, three2019, four customers each generated more than 10% of our total revenues; revenue generated from these threefour customers combined accounted for approximately 41%73% of our total revenue during the year ended December 31, 2016.2019. Our business would be harmed if any of these customers refused to distribute our products or refused to purchase our products on commercially favorable terms to us.
A failure to maintain optimal inventory levels to meet commercial demand for our products could harm our reputation and subject us to financial losses.
Our ability to maintain optimal inventory levels to meet commercial demand depends on the performance of third-party contract manufacturers. In some instances, our products have unique ingredients used under license arrangements. If our manufacturers are unsuccessful in obtaining raw materials, if we are unable to manufacture and release inventory on a timely and consistent basis, if we fail to maintain an adequate level of product inventory, if inventory is destroyed or damaged, or if our inventory reaches its expiration date, patients might not have access to our products, our reputation and brands could be harmed, and physicians may be less likely to recommend our products in the future, each of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
Delays in clinical trials are common for many reasons, and any such delays could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval or commence or continue product sales.
We may experience delays in future clinical trials for our pharmaceutical product candidates or required post-approval clinical trials for our approved products. Clinical trials might not begin on time; may be interrupted, delayed, suspended, or terminated once commenced; might need to be amended or redesigned; might not enroll enough patients; or might not be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including the following:
| ● | delays in obtaining regulatory approval to commence a trial; |
| ● | imposition of a clinical hold following an inspection of clinical trial operations or trial sites by the FDA, or other regulatory authorities; |
| ● | imposition of a clinical hold because of safety or efficacy concerns by the DSMB, FDA, or IRB, or us; |
| ● | delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites; |
| ● | delays in obtaining required central or local IRB approval for each clinical site; |
| ● | delays in identifying, recruiting, and training suitable clinical investigators; |
| ● | delays in recruiting suitable patients to participate in a trial; |
| ● | delays in having patients’ complete participation in a trial or return for post-treatment follow-up; |
| ● | clinical sites dropping out of a trial to the detriment of enrollment or due to a lack of ability to enroll a certain number of patients in a trial; |
| ● | time required to add new sites; |
| ● | delays in obtaining sufficient supplies of clinical trial materials, including suitable API; or |
| ● | delays resulting from negative or equivocal findings of DSMB for a trial. |
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Any of these delays in completing future clinical trials could increase our costs, slow down our product development and approval process, and jeopardize our ability to commence product sales and generate revenue from our pharmaceutical product candidates, or continue to generate revenue from our approved products subject to post-approval clinical trials for our approved products, subject to the trial.
Clinical trials are lengthy and expensive with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Clinical trials are expensive, can take many years to complete and have highly uncertain outcomes. Failure can occur at any time during the clinical trial process because of inadequate performance of a drug, inadequate adherence by patients or investigators to clinical trial protocols, or other factors. New drugs in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through earlier clinical trials. Several companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials as a result of a lack of efficacy or adverse safety profiles, despite promising results in earlier trials. Our future clinical trials may not be successful or may be more expensive or time-consuming than we currently expect. Before approving a new drug, the FDA generally requires that the safety and efficacy of the drug be demonstrated in two adequate and well-controlled clinical trials. In some situations, the FDA approves drugs based on a single well-controlled clinical trial. If clinical trials for any of our pharmaceutical product candidates fail to demonstrate safety or efficacy to the satisfaction of the FDA, the FDA will not approve those product candidates and we will not be able to commercialize, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
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Future legislation, or the absence of such legislation, regulations, and policies adopted by the FDA or other regulatory authorities may increase the time and cost required for us to conduct and complete clinical trials for our pharmaceutical product candidates.
The FDA has established regulations, guidelines, and policies to govern the drug development and approval process, as have foreign regulatory authorities. Any change in regulatory requirements resulting from the adoption of new legislation, regulations, or policies may require us to amend existing clinical trial protocols or add new clinical trials to comply with these changes. Such amendments to existing protocols or clinical trial applications or the need for new ones, may significantly and adversely affect the cost, timing, and completion of the clinical trials for our pharmaceutical product candidates.
In addition, the FDA’s policies may change and additional government regulations may be issued that could prevent, limit, or delay regulatory approval of our pharmaceutical product candidates, or impose more stringent product labeling and post-marketing testing and other requirements. For example, in the past the FDA has indicated it would regulate prenatal vitamins containing greater than 0.8 mg of folic acid as a drug under the FDCA. More recently the FDA indicated that there is no specified upper limit on the amount of folic acid permitted in a dietary supplement. If the FDA were to seek to regulate products with higher amounts of folic acid as drugs, it may require us to stop selling certain of our dietary supplement products and otherwise adversely affect our business. If we are slow or unable to adapt to any such changes, our business, prospects, and ability to achieve or sustain profitability could be adversely affected.
We may be required to suspend or discontinue clinical trials because of adverse side effects or other safety risks that could preclude approval of our pharmaceutical product candidates.
Clinical trials may be suspended or terminated at any time for many reasons. A clinical trial may be suspended or terminated by us, our collaborators, the FDA, or other regulatory authorities because of a failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, presentation of unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using the investigational drug, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial, or negative or equivocal findings of the DSMB or the IRB for a clinical trial. An IRB may also suspend or terminate our clinical trials for failure to protect patient safety or patient rights. We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe the clinical trials are not being conducted in accordance with applicable regulatory requirements or present an unacceptable safety risk to participants. If we elect or are forced to suspend or terminate any clinical trial of any proposed product that we develop, the commercial prospects of such proposed product will be harmed and our ability to generate product revenue from any of these proposed products will be delayed or eliminated. Any of these occurrences may harm our business, financial condition, results of operations, and prospects significantly.
We rely on third parties to conduct our research and development activities, including our clinical trials, and we may experience delays in obtaining or may be unsuccessful in obtaining regulatory approval for, or in commercializing, our pharmaceutical product candidates if these third parties do not successfully carry out their contractual duties or meet expected deadlines.
We do not have the resources to independently conduct research and development activities. Therefore, we have relied, and plan to continue to rely, on various third-party CROs to conduct our research and development activities and to recruit patients and monitor and manage data for our on-going clinical programs for our pharmaceutical product candidates, as well as for the execution of clinical studies. Although we control only certain aspects of our CROs’ activities, we are ultimately responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We cannot assure you that the CROs will conduct the research properly or in a timely manner, or that the results will be reproducible. We and our CROs are required to comply with the FDA’s Good Clinical Practice, or cGCP, regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces these cGCPs through periodic and pre-approval inspections of trial sponsors, principal investigators, and clinical trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable or invalid, and the FDA may require us to perform additional clinical trials before approving our proposed products. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with cGCPs. In addition, to evaluate the safety and effectiveness compared to placebo of our pharmaceutical product candidates to a statistically significant degree, our clinical trials will require an adequately large number of test subjects. Any clinical trial that a CRO conducts abroad on our behalf is subject to similar regulation. Accordingly, if our CROs fail to comply with these regulations or recruit enough patients, we may be required to repeat clinical trials, which would delay the regulatory approval process.
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In addition, we do not employ the personnel of our CROs, and, except for remedies available to us under our agreements with such organizations, we cannot control whether or not they will devote sufficient time and resources to our on-going clinical and pre-clinical programs. Our CROs may also have relationships with other commercial entities, including one or more of our competitors, for which they may also be conducting clinical studies or other drug development activities, which could impede their ability to devote appropriate time to our clinical programs. If our CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised because of the failure to adhere to our clinical protocols or regulatory requirements, or for other reasons, our clinical trials may be extended, delayed, or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our pharmaceutical product candidates that we seek to develop. As a result, our financial results and the commercial prospects for our pharmaceutical product candidates that we seek to develop could be harmed, our costs could increase, and our ability to generate revenue could be delayed or end.
We typically engage one or more CROs on a project-by-project basis for each study or trial. While we have developed and plan to maintain our relationships with CROs that we have previously engaged, we also expect to enter into agreements with other CROs to obtain additional resources and expertise to accelerate our progress with regard to on-going clinical programs and, specifically, the compilation of clinical trial data for submission with an NDA for each of our pharmaceutical product candidates. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or entering into new relationships with CROs involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially affect our ability to meet our desired clinical development timelines and can increase our costs significantly. Although we try to carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition, results of operations, or prospects.
Our ability to utilize net operating loss carryforwards may be limited.
As of December 31, 2016,2019, we had federal net operating loss carryforwards, or NOLs, of approximately $268.2 million available$620.4 million. Subject to offset future taxable income through 2035. Theseapplicable limitations, these NOLs may be used to offset future taxable income, to the extent we generate any taxable income, and thereby reduce or eliminate our future federal income taxes otherwise payable.
Section 382 of the Internal Revenue Code of 1986, as amended, imposes limitations on a corporation’s ability to utilize NOLs if it experiences an ownership change as defined in Section 382. In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percent over a three-year period. In the event thatIf an ownership change has occurred, or were to occur, utilization of our NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of our stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. We may be found to have experienced an ownership change under Section 382 as a resultbecause of events in the past or the issuance of shares of our common stock in the future. If so, the use of our NOLs, or a portion thereof, against our future taxable income may be subject to an annual limitation under Section 382,382.
On December 22, 2017, the U.S. federal government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act makes broad and complex changes to the U.S. federal tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 34 percent to 21 percent and imposing new restrictions on the use of NOLs. The Tax Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. Management assessed the valuation allowance analyses with respect to our NOLs as affected by various aspects of the Tax Act and determined that a full valuation allowance continues to be appropriate. Furthermore, the Tax Act limits the NOL carryover deduction in a taxable year to the lesser of the NOL carryforward or 80 percent of the taxpayer’s taxable income (before considering any deduction on account of such NOLs), which may result in expiration of a portion of our NOLs before utilization.
Our success depends on how efficiently we respond to changing consumer preferences and demand.
Our success depends, in part, onrestrict our ability to anticipateoffset future taxable income with NOLs and respondincrease our future federal income taxes otherwise payable.
Our business may be impacted by new or changing tax laws or regulations and actions by federal, state, and/or local agencies, or how judicial authorities apply tax laws.
In connection with the products we sell and intend to changing consumer trendssell, we calculate, collect, and preferences. We may not be ableremit various federal, state, and local taxes, surcharges and regulatory fees, or taxes, to respondnumerous federal, state and local governmental authorities. In addition, we incur and pay state and local taxes and fees on purchases of goods and services used in a timelyour business.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or commercially appropriate mannerapplied. In many cases, the application of tax laws (including the recently enacted Tax Act) is uncertain and subject to these changes. Our failure to accurately predict these trends could negativelydiffering interpretations, especially when evaluated against new technologies and services. The impact our inventory levels, sales, and consumer opinion of us as a source for the latest product. The successthis tax reform on holders of our new product offerings depends upon a number of factors, including our ability to achieve the following:common stock is also uncertain and could be adverse.
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If we do not introduce new products, make enhancementshave incorrectly described, disclosed, calculated, assessed, or remitted amounts that were due to existing products,governmental authorities, we could be subject to additional taxes, fines, penalties, or maintain the appropriate inventory levels to meet customers’ demand in a timely manner,other adverse actions, which could materially impact our business, results of operations, and financial condition could be materiallycondition.
Our operations are concentrated in Boca Raton, Florida and adversely affected.
We may initiate product recallsinterruptions affecting us or withdrawals,our suppliers due to natural disasters or may be subject to regulatory enforcement actions that could negatively affect our business.
We may be subject to product recalls, withdrawals, or seizures if any of the products we formulate, manufacture, or sell are believed to cause injury or illness or if we are alleged to have violated governmental regulations in the manufacture, labeling, promotion, sale, or distribution of any of our products. A recall, withdrawal, or seizure of any of our productsother unforeseen events could materially and adversely affect consumer confidenceour operations.
Our current operations are concentrated in Boca Raton, Florida. A hurricane or other disaster or unforeseen event resulting in significant damage to our brandsfacilities could significantly disrupt or curtail or require us to cease our operations. It would be difficult, costly and leadtime-consuming to decreased demand fortransfer resources from one facility to another or to repair or replace our facility if it is significantly damaged. In addition, our insurance may be insufficient to cover all of our losses and may not continue to be available to us on acceptable terms, or at all. In addition, if one of our suppliers, such as Catalent at its manufacturing facility in St. Petersburg, Florida, experiences a similar disaster or unforeseen event, we could face significant delays in obtaining our products. In addition, a recall, withdrawal,Any significant uninsured loss, prolonged or seizure of any ofrepeated disruption to operations or inability to operate, experienced by us or by our products would require significant management attention, would likely result in substantial and unexpected expenditures, andsuppliers, could materially and adversely affect our business, financial condition and results of operations.
Any failure to adequately maintain a sales force will impede our growth.
We are substantially dependent on a sales force – both those directly employed by us and those engaged through our contract sales organization – to attract new business and to manage existing customer relationships. We believe that there is significant competition for qualified, productive direct sales personnel with advanced sales skills and technical knowledge. Our ability to achieve significant growth in revenue in the future will depend, in large part, on our success in recruiting, training, and retaining direct sales personnel. New and future sales personnel may not become as productive as expected, and we may be unable to hire or engage enough qualified individuals in the future in the markets in which we do business. If we are unable to hire, engage and develop enough productive sales personnel or are required to hire or engage more sales personnel than we expect our business prospects could suffer. In addition to utilizing a contract sales organization for part of our sales force, we also utilize this organization for certain sales support functions, such as fleet and sample management. We currently intend to insource at least some of these functions and personnel in the future. If we are unsuccessful in insourcing these functions or personnel, we may face delays or additional costs in commercializing our pharmaceutical products, which could materially and adversely affect our business, financial condition and results of operations.
Other pharmaceutical companies with which we compete for qualified personnel may have greater financial and other resources, different risk profiles, and longer histories than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we offer. If we are unable to continue to attract and retain high-quality personnel, our ability to commercialize IMVEXXY, BIJUVA and ANNOVERA may be limited.
We will need to grow our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.
As of December 31, 2016,2019, we had 159 full time348 employees. As our development and commercialization plans and strategies develop, we expect to expand our employee base for managerial, operational, financial, and other resources and, depending on our commercialization strategy, we may further expand our employee base for sales and marketing, and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate, and integrate additional employees. Also, our management may need to divert a disproportionate amount of its attention away from their day-to-day activities and devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional drugpharmaceutical product candidates. If we are unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to increase revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our hormone therapy drug candidates, if approved,pharmaceutical products and compete effectively will depend, in part, on our ability to effectively manage any future growth in our organization.
We may not be able to maintain effective and efficient information systems or properly safeguard our information systems.
Our operations are dependent on uninterrupted performance of our information systems. Failure to maintain reliable information systems, disruptions in our existing information systems or the implementation of new systems could cause disruptions in our business operations, including violations of patient privacy and confidentiality requirements and other regulatory requirements, increased administrative expenses and other adverse consequences.
In addition, information security risks have generally increased in recent years because of new technologies and the increased activities of perpetrators of cyber-attacks resulting in the theft of protected health, business, or financial information. Despite our layered security controls, experienced computer programmers and hackers may be able to penetrate our information systems and misappropriate or compromise sensitive patient or personnel information or proprietary or confidential information, create system disruptions or cause shutdowns. They also may be able to develop and deploy viruses, worms and other malicious software programs that disable our systems or otherwise exploit any security vulnerabilities. Outside parties may also attempt to fraudulently induce employees to take actions, including the release of confidential or sensitive information or to make fraudulent payments, through illegal electronic spamming, phishing, or other tactics.
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A failure in or breach of our information systems because of cyber-attacks or other tactics could disrupt our business, result in the release or misuse of protected health information, or PHI, confidential or proprietary business information or financial loss, damage our reputation, increase our administrative expenses, and expose us to additional risk of liability to federal or state governments or individuals. Although we believe that we have robust information security procedures and other safeguards in place, as cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures or to investigate and remediate any information security vulnerabilities. Our remediation efforts may not be successful and could result in interruptions, delays or cessation of service and loss of existing or potential patients and disruption of our operations. In addition, breaches of our security measures and the unauthorized dissemination of patient healthcare and other sensitive information, proprietary or confidential information about us or other third-parties could expose such persons’ private information to the risk of financial or medical identity theft or expose us or such persons to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business. Any of these disruptions or breaches of security could have a material adverse effect on our business, financial condition, and results of operations.
Our failure to comply with foreign data protection laws and regulations could lead to government enforcement actions and significant penalties against us, and adversely impact our operating results.
European Union member states and other foreign jurisdictions, including Switzerland, have adopted data protection laws and regulations which impose significant compliance obligations. Moreover, the collection and use of personal health data in the European Union, which was formerly governed by the provisions of the European Union Data Protection Directive, was replaced with the European Union General Data Protection Regulation, or the GDPR, in May 2018. The GDPR, which is wide-ranging in scope, imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third party processors in connection with the processing of personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the U.S., provides an enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the non-compliant company, whichever is greater. The recent implementation of the GDPR has increased our responsibility and liability in relation to personal data that we process, including in clinical trials, and we may in the future be required to put in place additional mechanisms to ensure compliance with the GDPR, which could divert management's attention and increase our cost of doing business. In addition, new regulation or legislative actions regarding data privacy and security (together with applicable industry standards) may increase our costs of doing business. In this regard, we expect that there will continue to be new proposed laws, regulations and industry standards relating to privacy and data protection in the U.S., the European Union and other jurisdictions, and we cannot determine the impact such future laws, regulations and standards may have on our business.
Our employees and business partners may not appropriately secure and protect confidential information in their possession.
Each of our employees and business partners is responsible for the security of the information in our systems or under our control and to ensure that private and financial information is kept confidential. Should an employee or business partner not follow appropriate security measures, including those related to cyber threats or attacks or other tactics, as well as our privacy and security policies and procedures, the improper release of personal information, including PHI, or confidential business or financial information, or misappropriation of assets could result. The release of such information or misappropriation of assets could have a material adverse effect on our business, financial condition, and results of operations.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with federal and state health carehealthcare fraud and abuse laws and regulations, to report financial information or data accurately, or to disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the health carehealthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course ofduring clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
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Risks Related to our Intellectual Property
Another party could develop hormone therapycompeting pharmaceutical products and obtain FDA regulatory exclusivity in the United StatesU.S. before we do, potentially preventing our ability to commercialize our hormone therapy drug candidatespharmaceutical products and other products in development.
We plan to seek to obtain market exclusivity for our hormone therapy drug candidatespharmaceutical products and any other drugpharmaceutical product candidates we develop in the future. To the extent that patent protection is not available or has expired, FDA marketing exclusivity may be the only available form of exclusivity available for these proposed products. Marketing exclusivityThese FDA exclusivities can delay the submission or the approval of certain marketingdrug applications. Potentially competitive products may also be seeking marketing exclusivityFDA exclusivities and may be in various stages of development, including some more advanced than us. We cannot predict with certainty the timing of FDA approval or whether FDA approval will be granted, nor can we predict with certainty the timing of FDA approval for competing products or whether such approval will be granted. It is possible that competing products may obtain FDA approval with marketing exclusivityexclusivities before we do, which could delay our ability to submit a marketingan application or obtain necessary regulatory approvals, result in lost market opportunities with respect to our hormone therapy drugpharmaceutical product candidates, and materially adversely affect our business, financial condition, and results of operations.
If our efforts to protect the proprietary nature of the intellectual property covering our hormone therapy drug candidatespharmaceutical products and other products are not adequate, we may not be able to compete effectively in our market.
Our commercial success will depend in part on our ability to obtain additional patents and protect our existing patent positions as well as our ability to maintain adequate protection of other intellectual property for our hormone therapy drug candidatespharmaceutical products and other products. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability. The patent positions of pharmaceutical companies are highly uncertain. The legal principles applicable to patents are in transition due to changing court precedent and legislative action, and we cannot be certain that the historical legal standards surrounding questions of validity will continue to be applied or that current defenses relating to issued patents in these fields will be sufficient in the future. Changes in patent laws in the United States,U.S., such as the America Invents Act of 2011, may affect the scope, strength, and enforceability of our patent rights or the nature of proceedings that may be brought by us related to our patent rights. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States,U.S., and we may encounter significant problems in protecting our proprietary rights in these countries. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets.
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These risks include the possibility of the following:
| ● | the patent applications that we have filed may fail to result in issued patents in the |
| ● | patents issued or licensed to us or our partners may be challenged or discovered to have been issued on the basis of insufficient, incomplete, or incorrect information, and thus held to be invalid or unenforceable; |
| ● | the scope of any patent protection may be too narrow to exclude competitors from developing or designing around these patents; |
| ● | we or our licensors were not the first to make the inventions covered by each of our issued patents and pending patent applications; |
| ● | we or our licensors may not have been the first inventors to invent or file patent applications for these technologies in the |
| ● | we may fail to comply with procedural, documentary, fee payment, and other similar provisions during the patent application process, which can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights; |
| ● | future |
| ● | others may claim rights or ownership |
| ● | delays in development, testing, clinical trials, and regulatory review may reduce the period |
| ● | we may fail to timely apply for patents on our technologies or products. |
While we apply for patents covering our technologies and products, as we deem appropriate, many third parties may already have filed patent applications or have received patents in our areas of product development. These entities’ applications, patents, and other intellectual property rights may conflict with patent applications to which we have rights and could prevent us from obtaining patents or could call into question the validity of any of our patents, if issued, or could otherwise adversely affect our ability to develop, manufacture, or commercialize our hormone therapy drug candidates.pharmaceutical products. In addition, if third parties file patent applications in the technologies that also claim technology to which we have rights, we may have to participate in interference, derivation, or other proceedings with the USPTO or foreign patent regulatory authorities to determine our rights in the technologies, which may be time-consuming and expensive. Moreover, issued patents may be challenged in the courts or in post-grant proceedings at the USPTO, or in similar proceedings in foreign countries. These proceedings may result in loss of patent claims or adverse changes to the scope of the claims.
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If we, our licensors, or our strategic partners fail to obtain and maintain patent protection for our products, or our proprietary technologies and their uses, companies may be dissuaded from collaborating with us. In such event, our ability to commercialize our hormone therapy drug candidates or future drug candidates, if approved,pharmaceutical products may be threatened, we could lose our competitive advantage, and the competition we face could increase, all of which could adversely affect our business, financial condition, results of operations, and prospects.
In addition, mechanisms exist in much of the world permitting some form of challenge by generic drug marketers to our patents prior to,before, or immediately following, the expiration of any regulatory exclusivity, and generic companies are increasingly employing aggressive strategies, such as “at risk” launches to challenge relevant patent rights.rights.On February 20, 2020, we received the Notice Letter regarding an ANDA submitted to the FDA by Teva. The ANDA seeks approval from the FDA to commercially manufacture, use, or sell a generic version of the 4 mcg and 10 mcg doses of IMVEXXY. In the Notice Letter, Teva alleges that IMVEXXY Patents listed in the FDA’s Orange Book that claim compositions and methods of IMVEXXY are invalid, unenforceable, and/or will not be infringed by Teva’s commercial manufacture, use, or sale of its proposed generic drug product. The IMVEXXY Patents identified in the Notice Letter expire in 2032 or 2033. We are currently reviewing the Notice Letter and intend to vigorously enforce our intellectual property rights relating to IMVEXXY. Under the Hatch-Waxman Act, we have 45 days from receipt of the Notice Letter to initiate a patent infringement lawsuit against Teva. Such a lawsuit would automatically preclude the FDA from approving Teva’s ANDA until the earlier of 30 months or entry of a district court decision finding the IMVEXXY Patents invalid, unenforceable, or not infringed. We cannot assure you that any patent infringement lawsuit that we may file will prevent the introduction of a generic version of IMVEXXY for any particular length of time, or at all. If Teva’s ANDA is approved, and a generic version of IMVEXXY is introduced, our sales of IMVEXXY could be adversely affected. In addition, we cannot predict what additional ANDAs could be filed by Teva or other potential generic competitors requesting approval to market generic forms of our products, which could require us to incur significant additional expense and result in distraction for our management team, and if approved, result in significant decreases in the revenue derived from sales of our marketed products and thereby materially harm our business and financial condition.
Our business also may rely on unpatented proprietary technology, know-how, and trade secrets. If the confidentiality of this intellectual property is breached, it could adversely impact our business.
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If we are sued for infringing intellectual property rights of third parties, litigation will be costly and time consuming and could prevent or delay us from developing or commercializing our drugpharmaceutical product candidates.
Our commercial success depends, in part, on our not infringing the patents and proprietary rights of other parties and not breaching any collaboration or other agreements we have entered into with regard to our technologies and products. We are aware of numerous third-party U.S. and non-U.S. issued patents and pending applications that exist in the technical areas of hormone therapy,our pharmaceutical products, including compounds, formulations, treatment methods, and synthetic processes, which may be applied towards the synthesis of hormones.hormones, for example. Patent applications are confidential when filed and remain confidential until publication, approximately 18 months after initial filing, while some patent applications remain unpublished until issuance. As such, there may be other third-party patents and pending applications of which we are currently unaware with claims directed towards composition of matter, formulations, methods of manufacture, or methods for treatment related to the use or manufacture of our products or drugproduct candidates. Therefore, we cannot ever know with certainty the nature or existence of every third-party patent filing. We cannot provide assurances that we or our partners will be free to manufacture or market our drugproduct candidates as planned or that we or our licensors’ and partners’ patents will not be opposed or litigated by third parties. If any third-party patent was held by a court of competent jurisdiction to cover aspects of our materials, formulations, methods of manufacture, or methods of treatment related to the use or manufacture of any of our drugproduct candidates, the holders of any such patent may be able to block our ability to develop and commercialize the applicable drugproduct candidate unless we obtained a license or until such patent expires or is finally determined to be held invalid or unenforceable. There can be no assurances that we will be able to obtain a license to such patent on favorable terms or at all. Failure to obtain such license may have a material adverse effect on our business.
There is a substantial amount of litigation involving intellectual property in the pharmaceutical industry generally. If a third party asserts that we infringe its patents or other proprietary rights, we could face a number ofmany risks that could adversely affect our business, financial condition, results of operations, and prospects, including the following:
| ● | infringement and other intellectual property claims, which would be costly and time-consuming to defend, whether or not we are ultimately successful, which in turn could delay the regulatory approval process, consume our capital, and divert management’s attention from our business; |
| ● | substantial damages for past infringement, which we may have to pay if a court determines that our products or technologies infringe a competitor’s patent or other proprietary rights; |
| ● | a court prohibiting us from selling or licensing our technologies or future products unless the third party licenses its patents or other proprietary rights to us on commercially reasonable terms, which it is not required to do; |
| ● | if a license is available from a third party, we may have to pay substantial royalties or lump sum payments or grant cross licenses to our patents or other proprietary rights to obtain that license; or |
| ● | redesigning our products so they do not infringe, which may not be possible or may require substantial monetary expenditures and time. |
We are party from time to timetime-to-time to legal proceedings relating to our intellectual property, and third parties in the future may file claims asserting that our technologies, processes, or products infringe on their intellectual property. We cannot predict whether third parties will assert these claims against us or our strategic partners or against the licensors of technology licensed to us, or whether those claims will harm our business. In addition, the outcome of intellectual property litigation is subject to uncertainties that cannot be adequately quantified in advance. If we or our partners were to face infringement claims or challenges by third parties relating to our drugpharmaceutical product candidates, an adverse outcome could subject us to significant liabilities to such third parties, and force us or our partners to curtail or cease the development of some or all of our drugpharmaceutical product candidates, which could adversely affect our business, financial condition, results of operations, and prospects.
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We have submitted, and intend to submit, NDAs for our hormone therapy drug candidates, assuming that the clinical data justify submission, under Section 505(b)(2), which was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. Section 505(b)(2) permits the filing of an NDA when at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its Section 505(b)(2) NDA with respect to any patents for the approved product on which the application relies that are listed in the FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. Specifically, the applicant must certify for each listed patent that (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (iv) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or unenforceable is known as a Paragraph IV certification.
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If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the referenced NDA for the previously approved product and relevant patent holders within 20 days after the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA for 30 months beginning on the date the patent holder receives notice, or until a court deems the patent unenforceable, invalid or not infringed, whichever is earlier. The court also has the ability to shorten or lengthen the 30 month period if either party is found not to be reasonably cooperating in expediting the litigation. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its product only to be subject to significant delay and patent litigation before its product may be commercialized. Alternatively, if the NDA or relevant patent holder does not file a patent infringement lawsuit within the specified 45 day period, the FDA may approve the Section 505(b)(2) application at any time.
If we cannot certify that all of the patents listed in the Orange Book for the approved products referenced in the NDAs for each of our hormone therapy drug candidates have expired, we will be compelled to include a Paragraph IV certification in the NDA for such drug candidate. Our inability to certify that all of the patents listed in the FDA’s Orange Book for approved products referenced in the NDAs for each of our hormone therapy drug candidates could have significant adverse effects on the timing for obtaining approval of our hormone therapy drug candidates.
We may be required to file lawsuits or take other actions to protect or enforce our patents or the patents of our licensors, which could be expensive and time-consuming.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, including with respect to Teva's ANDA and Notice Letter, which can be expensive and time-consuming. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally.
In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents, or those of our licensors, do not cover the technology in question or on other grounds. An adverse result in any litigation or defense proceedings could put one or more of our patents, or those of our licensors, at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications, or those of our licensors, at risk of not issuing. Moreover, we may not be able to prevent, alone or with our licensors, misappropriation of our proprietary rights, particularly in countries in which the laws may not protect those rights as fully as in the United StatesU.S. or in those countries in which we do not file national phase patent applications. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, if securities analysts or investors perceive public announcements of the results of hearings, motions, or other interim proceedings or developments to be negative, the price of our common stock could be adversely affected. The occurrence of any of the above could adversely affect our business, financial condition, results of operations, and prospects.
If we are unable to protect the confidentiality of certain information, the value of our products and technology could be materially adversely affected.
We also rely on trade secrets, know-how, and continuing technological advancement to develop and maintain our competitive position. To protect this competitive position, we regularly enter into confidentiality and proprietary information agreements with third parties, including employees, independent contractors, suppliers, and collaborators. We cannot, however, ensure that these protective arrangements will be honored by third parties, and we may not have adequate remedies if these arrangements are breached. In addition, enforcement of claims that a third party has illegally obtained and is using trade secrets, know-how, or technological advancements is expensive, time-consuming, and uncertain. Non-U.S. courts are sometimes less willing than U.S. courts to protect this information. Moreover, our trade secrets, know-how, and technological advancements may otherwise become known or be independently developed by competitors in a manner providing us with no practical recourse against the competing parties. If any such events were to occur, they could adversely affect our business, financial condition, results of operations, and prospects.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers or of other third parties with whom we have obligations of confidentiality.
As is common in the pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Such claims may lead to material costs for us, or an inability to protect or use valuable intellectual property rights, which could adversely affect our business, financial condition, results of operations, and prospects.
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Risks Related to Ownership of Our Common Stock
The market price of our common stock may be highly volatile, and you could lose all or part of your investment.
The trading price of our common stock on NYSE MKTNasdaq is likely to be volatile. This volatility may prevent you from being able to sell your shares at or above the price you paid for your shares. Our stock price could be subject to wide fluctuations in response to a variety of factors, which include the following:
| ● | ||
| changes in laws or regulations applicable to our products or proposed products, including clinical trial requirements for approvals; |
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| ● | unanticipated serious safety concerns related to the use of our |
| ● | a decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial; |
| ● | adverse results or delays in clinical trials; |
| ● | the inability to obtain adequate |
| ● | adverse regulatory decisions; |
| ● | the introduction of new products or technologies offered by us or our competitors; |
| ● | the effectiveness of our or our |
| ● | ||
| the perception of the pharmaceutical industry by the public, legislatures, regulators, and the investment community; |
| ● | disputes or other developments relating to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies; |
| ● | the inability to effectively manage our growth; |
| ● | actual or anticipated variations in quarterly operating results; |
| ● | the failure to meet or exceed the estimates and projections of the investment community; |
| ● | the overall performance of the U.S. equity markets and general political and economic conditions; |
| ● | announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors; |
| ● | additions or departures of key scientific or management personnel; |
| ● | adverse market reaction to any indebtedness we may incur or securities we may issue in the future; |
| ● | sales of our common stock by us or our stockholders in the future; |
| ● | significant lawsuits, including patent or stockholder litigation; |
| ● | changes in the market valuations of similar companies; |
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| ● | the trading volume of our common stock; |
| ● | increases in our common stock available for sale upon expiration of lock-up agreements; |
| ● | effects of natural or man-made catastrophic events or other business interruptions; and |
| ● | other events or factors, many of which are beyond our control. |
In addition, the stock market in general and the stock of biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of December 31, 2016,2019, our executive officers, directors, holders of 5% or more of our stock, and their affiliates beneficially owned approximately 73%51% of our common stock, on an as converted basis.inclusive of vested options and warrants to acquire shares of our common stock. These stockholders may be able to determine the outcome of all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
If we fail to maintain proper internal controls, our ability to produce accurate financial statements or comply with applicable regulations could be impaired.
Pursuant to Section 404 of the Sarbanes-Oxley Act, our management is required annually to deliver a report that assesses the effectiveness of our internal control over financial reporting and our independent registered public accounting firm is required annually to deliver an attestation report on the effectiveness of our internal control over financial reporting. If we are unable to maintain effective internal control over financial reporting or if our independent auditors are unwilling or unable to provide us with an attestation report on the effectiveness of internal control over financial reporting for future periods as required by Section 404 of the Sarbanes-Oxley Act, we may not be able to produce accurate financial statements, and investors may therefore lose confidence in our operating results, our stock price could decline and we may be subject to litigation or regulatory enforcement actions.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which might cause our stock price and trading volume to decline.
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Future sales and issuances of equity securities, convertible securities or other securities could result in additional dilution of the percentage ownership of holders of our common stock.
Our stockholders may experience dilution upon future equity issuances, including convertible debt or equity securities we may issue in the future, the exercise of stock options to purchase common stock granted to our employees, consultants and directors, including options to purchase common stock granted under our stock option and equity incentive plans or the issuance of common stock in settlement of previously issued awards under our stock option and equity incentive plans that may vest in the future.
We expect that additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell equity securities, convertible securities or other securities in one or more transactions at prices and in a manner we determine from time to time. If we sell equity securities, convertible securities or other securities current investors may be materially diluted by subsequent sales. We may also need our stockholders to authorize the issuance of additional shares of common stock under our articles of incorporation if we do not have sufficient authorized shares to raise such additional capital or issue future awards under our stock option and equity incentive plans. New investors could also gain rights, preferences and privileges senior to those of holders of our existing equity securities.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain any future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the terms of the Financing Agreement preclude us from paying dividends, and any future debt agreements may also preclude us from paying dividends. Any return to stockholders will be limited to the valuecapital appreciation, if any, of their stock.
Some provisions of our charter documents and Nevada law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our articles of incorporation and bylaws, as well as certain provisions of Nevada law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if an acquisition would benefit our stockholders, and could also make it more difficult to remove our current management. These provisions in our articles of incorporation and bylaws include the following:
| ● | authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; |
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| ● | prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates; and |
| ● | advance notice provisions in connection with stockholder proposals that may prevent or hinder any attempt by our stockholders to bring business to be considered by our stockholders at a meeting or replace our board of directors. |
In addition, we are subject to Nevada’s Combination with Interested Stockholders statute (Nevada Revised Statute Sections 78.411 - 78.444), which prohibits an “interested stockholder” from entering into a “combination” with a company, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10% or more of the corporation’s capital stock entitled to vote.
| Item | Unresolved Staff Comments |
None.
| Item 2. | Properties |
OurIn October 2018, we entered into a lease for new corporate headquarters is locatedheadquarter offices in Boca Raton, Florida, whereFlorida. The lease includes 56,212 rentable square feet, or the full premises, of which the lease on 7,561 square feet commenced in 2018 and the lease on the remaining 48,651 square feet commenced in August 2019, or the full premises commencement date. The lease will expire 11 years after the full premises commencement date, unless terminated earlier in accordance with the terms of the lease. We have the option to extend the term of the lease for two additional consecutive periods of five years. The extension option is not included in the determination of the lease term as it is not reasonably certain to be exercised. The term of the lease includes escalating rent and free rent periods. We are also responsible for certain other operating costs under the lease, including electricity and utility expenses. In June 2019, we entered into an agreement with the same lessors to lease 33,124additional 6,536 square feet of administrative office space in the same location, pursuant to a non-cancelable operatingan addendum to such lease, that commenced on July 1, 2013 and was subsequently amended on February 18, 2015, April 26, 2016 and October 4, 2016which is expected to lease additional administrative space. The lease expires on October 31, 2021. The primary functions performed at this location are executive, administrative, accounting, treasury, marketing, and human resources. We believe that our current facility is in good working order and is capablecommence as soon as the first quarter of supporting our operations for the foreseeable future.2020.
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| Item 3. | Legal Proceedings |
From time to time, we are involved in litigation and proceedings in the ordinary course of our business. We are not currently involved in any legal proceeding that we believe would have a material effect on our business or financial condition.
| Item 4. | Mine Safety Disclosures |
Not applicable.
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| Item 5. | Market for |
Market Information on Common Stock
Since April 23, 2013,October 9, 2017, our common stock has been listed on the NYSE MKTNasdaq Global Select Market of the Nasdaq Stock Market LLC under the symbol “TXMD.” PriorFrom April 23, 2013 to October 6, 2017, our common stock was listed on the NYSE American under the symbol “TXMD.” Before that time, our common stock was quoted on the OTCQB. The following table sets forth for the periods indicated the high and low sales prices
As of our common stock on the NYSE MKT.
| High | Low | |||||||
| 2016 | ||||||||
| Fourth Quarter | $ | 7.48 | $ | 4.39 | ||||
| Third Quarter | $ | 8.72 | $ | 6.18 | ||||
| Second Quarter | $ | 9.29 | $ | 6.20 | ||||
| First Quarter | $ | 10.17 | $ | 5.69 | ||||
| 2015 | ||||||||
| Fourth Quarter | $ | 11.26 | $ | 5.18 | ||||
| Third Quarter | $ | 8.83 | $ | 5.29 | ||||
| Second Quarter | $ | 8.60 | $ | 5.63 | ||||
| First Quarter | $ | 6.75 | $ | 4.00 |
On February 21, 2017,3, 2020, there were approximately 231192 record holders and as of January 30, 2017, there were approximately 22,73525,445 beneficial owners of our common stock.
Dividends
Historically, we have not paid dividends on our common stock, and we currently do not intend to pay any dividends on our common stock in the foreseeable future. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations, and capital requirements as well as other factors deemed relevant by our board of directors. In addition, the Credit Agreement contains covenants that limit our ability to pay dividends or make other distributions on our common stock.
Performance Graph
The following line graph compares cumulative total shareholderstockholder return for the five years ended December 31, 20162019 for (i) our common stock; (ii) NASDAQNasdaq Pharmaceutical Index; and (iii) NASDAQNasdaq Stock Market.Market (U.S. companies). The graph assumes $100 invested on December 31, 20112014 and includes reinvestment of dividends. Measurement points are at December 31, 2014 and the last trading day of the fiscal years ended December 31, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, and 2016.2019. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
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The following line graph compares cumulative total shareholderstockholder return for the period beginning when our common stock became listed on the NYSE MKT exchange (April 23, 2013) andfive years ended December 31, 20162019 for (i) our common stock; (ii) NASDAQNasdaq Pharmaceutical Index; and (iii) NASDAQNasdaq Stock Market.Market (U.S. companies). The graph assumes $100 invested on April 23, 2013December 31, 2014 and includes reinvestment of dividends. Measurement points are April 23, 2013December 31, 2014 and the last trading day of the fiscal years ended December 31, 2019, 2018, 2017, 2016, 2015, 2014 and 20132015 and each of the following quarters ended therein beginning with the quarter ended June 30, 2013.therein. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
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The performance graphs shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section. The performance graphs will not be deemed incorporated by reference into any filing of our company under the Exchange Act or the Securities Act of 1933, as amended, or the Securities Act.
Recent Sales of Unregistered Equity Securities
During the year ended December 31, 2019, warrants to purchase an aggregate of 1,250,000 shares of our common stock that were previously issued to an outside service provider were exercised pursuant to the warrants’ cashless exercise provisions, which resulted in 471,184 shares of our common stock being issued. The shares of common stock were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
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| Item 6. | Selected Financial Data |
The following table sets forth selected consolidated financial and other data as of and for the periods indicated. You should read the following information together with the more detailed information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this Annual Report. The consolidated statements of operations for the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017 and the consolidated balance sheet data as of December 31, 20162019 and 20152018 are derived from our audited consolidated financial statements included in this Annual Report. The consolidated statements of operations for the years ended December 31, 20132016 and 2012,2015, and the consolidated balance sheet data as of December 31, 2014, 2013,2017, 2016, and 2012,2015 are derived from our audited consolidated financial statements not included in this Annual Report.
THERAPEUTICSMD, INC. AND SUBSIDIARIES
(in thousands, except per share data)
| Year Ended December 31, | ||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||
| Consolidated Statements of Operations Data: | ||||||||||||||||||||
| Revenue, net | $ | 19,356 | $ | 20,143 | $ | 15,026 | $ | 8,776 | $ | 3,818 | ||||||||||
| Cost of goods sold | 4,185 | 4,506 | 3,672 | 1,960 | 1,348 | |||||||||||||||
| Gross profit | 15,171 | 15,637 | 11,354 | 6,816 | 2,470 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales, general, and administration | 51,348 | 28,721 | 22,124 | 19,015 | 14,070 | |||||||||||||||
| Research and development | 53,943 | 72,043 | 43,219 | 13,551 | 4,492 | |||||||||||||||
| Depreciation and amortization | 133 | 63 | 52 | 58 | 56 | |||||||||||||||
| Total operating expense | 105,424 | 100,827 | 65,395 | 32,624 | 18,618 | |||||||||||||||
| Operating loss | (90,253) | (85,190 | ) | (54,041 | ) | (25,808 | ) | (16,148 | ) | |||||||||||
| Other income (expense), net | 378 | 113 | (176 | ) | (2,611 | ) | (18,972 | ) | ||||||||||||
| Net loss | $ | (89,875 | ) | $ | (85,077 | ) | $ | (54,217 | ) | $ | (28,419 | ) | $ | (35,120 | ) | |||||
| Net loss per share, basic and diluted | $ | (0.46 | ) | $ | (0.49 | ) | $ | (0.36 | ) | $ | (0.22 | ) | $ | (0.38 | ) | |||||
Weighted average number of common shares outstanding, basic and diluted | 196,088 | 173,174 | 149,727 | 127,570 | 91,630 | |||||||||||||||
| Consolidated Balance Sheet Data (at end of period) | ||||||||||||||||||||
| Total assets | $ | 142,472 | $ | 73,729 | $ | 59,079 | $ | 62,016 | $ | 5,926 | ||||||||||
| Total liabilities | $ | 14,983 | $ | 10,666 | $ | 10,690 | $ | 7,318 | $ | 7,359 | ||||||||||
| Total stockholders’ equity (deficit) | $ | 127,489 | $ | 63,063 | $ | 48,389 | $ | 54,698 | $ | (1,433 | ) | |||||||||
| Other Data: | ||||||||||||||||||||
| Capital expenditures (for the period) | $ | 1,241 | $ | 584 | $ | 617 | $ | 480 | $ | 273 | ||||||||||
| Working capital (at the end of period) | $ | 124,428 | $ | 60,014 | $ | 45,545 | $ | 52,085 | $ | 1,015 | ||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| Consolidated Statements of Operations Data | 2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
| Product revenue, net | $ | 34,141 | $ | 16,099 | $ | 16,778 | $ | 19,356 | $ | 20,143 | ||||||||||
| License revenue | 15,506 | — | — | — | — | |||||||||||||||
| Cost of goods sold | 6,335 | 2,737 | 2,637 | 4,185 | 4,506 | |||||||||||||||
| Gross profit | 43,312 | 13,362 | 14,141 | 15,171 | 15,637 | |||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Sales, general, and administration | 174,113 | 115,989 | 57,703 | 51,348 | 28,721 | |||||||||||||||
| Research and development | 19,792 | 27,299 | 33,853 | 53,943 | 72,043 | |||||||||||||||
| Depreciation and amortization | 613 | 294 | 213 | 133 | 63 | |||||||||||||||
| Total operating expense | 194,518 | 143,582 | 91,769 | 105,424 | 100,827 | |||||||||||||||
| Operating loss | (151,206 | ) | (130,220 | ) | (77,628 | ) | (90,253 | ) | (85,190 | ) | ||||||||||
| Other (expense) income, net | (24,939 | ) | (2,397 | ) | 703 | 378 | 113 | |||||||||||||
| Net loss | $ | (176,145 | ) | $ | (132,617 | )) | $ | (76,925 | ) | $ | (89,875 | ) | $ | (85,077 | ) | |||||
| Net loss per share, basic and diluted | $ | (0.72 | ) | $ | (0.59 | ) | $ | (0.37 | ) | $ | (0.46 | ) | $ | (0.49 | ) | |||||
| Weighted average number of common shares outstanding, basic and diluted | 246,353 | 225,026 | 205,523 | 196,088 | 173,174 | |||||||||||||||
Consolidated Balance Sheet Date (at end of period) | ||||||||||||||||||||
| Total assets | $ | 265,986 | $ | 211,984 | $ | 143,230 | $ | 142,472 | $ | 73,729 | ||||||||||
| Total liabilities | $ | 256,785 | $ | 114,460 | $ | 13,321 | $ | 14,983 | $ | 10,666 | ||||||||||
| Total stockholders’ equity | $ | 9,201 | $ | 97,524 | $ | 129,909 | $ | 127,489 | $ | 63,063 | ||||||||||
| Other Data: | ||||||||||||||||||||
| Capital expenditures (for the period) | $ | 3,892 | $ | 1,322 | $ | 827 | $ | 1,241 | $ | 584 | ||||||||||
| Working capital (at the end of the period) | $ | 155,411 | $ | 145,700 | $ | 126,233 | $ | 124,428 | $ | 60,014 | ||||||||||
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
You should read the following discussion and analysis in conjunction with the information set forth under “Selected Consolidated Financial and Other Data” and our consolidated financial statements and the notes to those financial statements included elsewhere in this Annual Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. See “Statement Regarding Forward-Looking Information.” Our actual results may differ materially from those contained in or implied by any forward-looking statements as a result of various factors, including, but not limited to, the risks and uncertainties described under “Risk Factors” elsewhere in this Annual Report.
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Company Overview
We areTherapeuticsMD is a women’s health carehealthcare company focused onwith a mission of creating and commercializing innovative products targeted exclusivelyto 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. Currently, we are focused on pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of ourOur solutions range from a patient-controlled, long-lasting contraceptive to advanced hormone therapy pharmaceutical products. Our drug candidates thatWe also have completed clinical trials are designed to alleviate the symptomsa portfolio of and reduce the health risks resulting from menopause-related hormone deficiencies, including hot flashes, osteoporosis and vaginal discomfort. We are developing these hormone therapy drug candidates, which contain estradiol and progesterone alone or in combination, with the aim of demonstrating clinical efficacy at lower doses, thereby enabling an enhanced side effect profile compared with competing products. With our SYMBODA™ technology, we are developing advanced hormone therapy pharmaceutical products to enable delivery of bio-identical hormones through a variety of dosage forms and administration routes. In addition, we manufacture and distribute branded and generic prescription prenatal vitamins as well as over-the-counter, or OTC, iron supplements.under the vitaMedMD and BocaGreenMD brands that furthers our women’s healthcare focus.
ResearchOur portfolio of products focused on women’s health allows us to efficiently leverage our sales and Development – Overview
We have obtainedmarketing plan to grow our recently approved products. During 2018, the FDA acceptance of our IND applications to conduct clinical trials for five of our proposed hormone therapy drug products: TX-001HR, our oral combination of progesterone and estradiol; TX-002HR, our oral progesterone alone; TX-003HR, our oral estradiol alone; and TX-004HR, our applicator-free vaginal estradiol softgel with estradiol alone and TX-006HR our combination estradiol and progesterone product in a topical cream form. Our IND for TX-003HR is currently inactive.
We have obtained U.S. Food and Drug Administration, or FDA, acceptanceapproval of our Investigational New Drug, or IND, applicationsdrugs has transitioned our company from predominately focused on conducting research and development to conduct clinical trialsone focused on commercializing our drugs.
| ● | 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 expect the full commercial launch of ANNOVERA in the first quarter of 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. |
Product Portfolio
We are focused on activities necessary for fivecommercialization of IMVEXXY, BIJUVA and ANNOVERA. We continue to manufacture and distribute our prescription prenatal vitamin product lines, consisting of branded prenatal vitamins under vitaMedMD and authorized generic formulations of some of our hormone therapy drug candidates. prescription prenatal vitamin products under BocaGreenMD. All of our prenatal vitamins are gluten-, sugar-, and lactose-free. A prenatal vitamin option that is both vegan and kosher is also available for women with special dietary needs. We believe our product attributes result in greater consumer acceptance and satisfaction than competitive products while offering the highest quality and patented ingredients.
BIJUVA
In December 2016, we announced positive top-line results fromOctober 2018, the recently completedFDA approved BIJUVA (estradiol and progesterone) capsules, 1 mg/100 mg, the REPLENISH Trial, our phase 3 clinical trial of TX-001HR, our bio-identicalfirst and only FDA-approved bioidentical hormone therapy combination of 17ß- estradiol and progesterone in a single, oral softgel drug candidate,capsule for the treatment of moderate to severe vasomotor symptoms,moderate-to-severe VMS (commonly known as hot flashes or VMS,flushes) due to menopause in post-menopausal women with an intacta uterus. In December 2015, we completedThe estrogen and progesterone in BIJUVA have the REJOICE Trial, our phase 3 clinical of TX-004HR, our applicator-free vaginal estradiol softgel drug candidate forsame chemical and molecular structure as the treatment of moderate to severe dyspareunia (vaginal pain during sexual intercourse),hormones that are naturally produced in a symptom of vulvar and vaginal atrophy, or VVA,woman’s body. We launched BIJUVA in post-menopausal womenApril 2019.
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Following meetings with vaginal linings that do not receive enough estrogen. On July 7, 2016,the FDA, we submitted a New Drug Application, or NDA, efficacy supplement for all three dosesthe 0.5/100 mg dose of TX-004HRBIJUVA 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 were evaluated in the REJOICE Trial. In the fourth quartera combination of 2016 we submitted an IND for TX-006HR, our combinationbio-identical estradiol and bio-identical progesterone drug candidateused in a topical cream form,continuous combined daily fashion demonstrated safety and intendefficacy data to commence phase 1support FDA-approval. We do not anticipate that the FDA will require any new clinical trials in connection with our submission of this drug candidate in 2017. In July 2014, we suspended enrollment in the SPRY Trial, our phase 3 clinical trialNDA efficacy supplement, however, there is no assurance that will be the case. If accepted for TX-002HR, our oral progesterone alone drug candidate, and, in October 2014, we stopped the trial in order to update the phase 3 protocol based on discussions with the FDA. We have currently suspended further development of this drug candidate to prioritize our leading drug candidates. We have no current plans to conduct clinical trials for TX-003HR, our oral estradiol alone drug candidate, and the IND for this drug candidate is currently inactive.
TX-001HR
TX-001HR is our bio-identical hormone therapy combination of 17ß- estradiol and progesterone in a single, oral softgel drug candidate for the treatment of moderate to severe VMS due to menopause, including hot flashes, night sweats and sleep disturbances in post-menopausal women with an intact uterus. The hormone therapy drug candidate is bioidentical to – or having the same chemical and molecular structure as - the hormones that naturally occur in a woman’s body, namely estradiol and progesterone, and is being studied as a continuous-combined regimen, in which the combination of estrogen and progesterone are taken together in one product daily. If approvedreview by the FDA, we believe this would represent the first time a combination product of estradiol and progesterone bioidentical to the estradiol and progesterone produced by the ovaries would be approved for use in a single combined product.
On September 5, 2013, we began enrollment in the REPLENISH Trial, a multicenter, double-blind, placebo-controlled, phase 3 clinical trial of TX-001HR in postmenopausal women with an intact uterus. The trial was designed to evaluate the efficacy of TX-001HR for the treatment of moderate to severe VMS due to menopause and the endometrial safety of TX-001HR. Patients were assigned to one of five arms, four active and one placebo, and received study medication for 12 months. The primary endpoint for the reduction of endometrial hyperplasia was an incidence of endometrial hyperplasia of less than 1% at 12 months, as determined by endometrial biopsy. The primary endpoint for the treatment of moderate to severe VMS was the mean change of frequency and severity of moderate to severe VMS at weeks four and 12 compared to placebo, as measured by the number and severity of hot flashes. Only subjects experiencing a minimum daily frequency of seven moderate to severe hot flashes at screening were included in the VMS analysis, while all subjects were included in the endometrial hyperplasia analysis. The secondary endpoints included reduction in sleep disturbances and improvement in quality of life measures, night sweats and vaginal dryness, measured at 12 weeks, six months and 12 months. The trial evaluated 1,835 patients between 40 and 65 years old at 111 sites. On December 5, 2016, we announced positive topline data for the REPLENISH Trial.
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The REPLENISH Trial evaluated four doses of TX-001HR and placebo; the doses studied were:
The REPLENISH Trial results demonstrated:
● TX-001HR estradiol 1 mg/progesterone 100 mg and TX-001HR estradiol 0.5 mg/progesterone 100 mg both achieved all four of the co-primary efficacy endpoints and the primary safety endpoint.
● TX-001HR estradiol 1 mg/progesterone 100 mg and TX-001HR estradiol 0.5 mg/progesterone 100 mg both demonstrated a statistically significant and clinically meaningful reduction from baseline in both the frequency and severity of hot flashes compared to placebo.
● TX-001HR estradiol 0.5 mg/progesterone 50 mg and TX-001HR estradiol 0.25 mg/progesterone 50 mg were not statistically significant at all of the co-primary efficacy endpoints. The estradiol 0.25 mg/progesterone 50 mg dose was included in the clinical trial as a non-effective dose to meet the recommendation of the FDA guidance to identify the lowest effective dose.
● The incidence of consensus endometrial hyperplasia or malignancy was 0 percent across all four TX-001HR doses, meeting the recommendations established by the U.S. Food and Drug Agency’s (FDA) draft guidance.
As outlined in the FDA guidance, the co-primary efficacy endpoints in the REPLENISH Trial were the change from baseline in the number and severity of hot flashes at weeks four and 12 as compared to placebo. The primary safety endpoint was the incidence of endometrial hyperplasia with up to 12 months of treatment. General safety was also evaluated.
The results of the REPLENISH Trial are summarized in the table below (p-values of < 0.05 meet FDA guidance and support evidence of efficacy):
| Replenish Trial Co-Primary Efficacy Endpoints: Mean Change in Frequency and Severity of Hot Flashes Per Week Versus Placebo at Weeks 4 and 12, VMS-MITT Population | |||||
| Estradiol/Progesterone | 1 mg/100 mg | 0.5 mg/100 mg | 0.5 mg/50 mg | 0.25 mg/50 mg | Placebo |
| (n = 141) | (n = 149) | (n = 147) | (n = 154) | (n = 135) | |
| Frequency | |||||
| Week 4 P-value versus placebo | <0.001 | 0.013 | 0.141 | 0.001 | — |
| Week 12 P-value versus placebo | <0.001 | <0.001 | 0.002 | <0.001 | — |
Severity | |||||
| Week 4 P-value versus placebo | 0.031 | 0.005 | 0.401 | 0.100 | — |
| Week 12 P-value versus placebo | <0.001 | <0.001 | 0.018 | 0.096 | — |
| Replenish Trial Primary Safety Endpoint: Incidence of Consensus Endometrial Hyperplasia or Malignancy up to 12 months, Endometrial Safety PopulationŦ | |||||
| Endometrial Hyperplasia | 0% (0/280) | 0% (0/303) | 0% (0/306) | 0% (0/274) | 0% (0/92) |
MITT = Modified intent to treat
ŦPer FDA, consensus hyperplasia refers to the concurrence of two of the three pathologists be accepted as the final diagnosis
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We anticipate that we will submit an NDA for TX-001HR to the FDA in the third quarter of 2017. Assumingexpect that the NDA is accepted 60 days thereafter and an FDA review period of ten months from the receipt date to theefficacy supplement will be reviewed, under current Prescription Drug User Fee Act or PDUFA, date for a non-new molecular entity, the NDA for TX-001HR could be approvedtimeline goals, within ten months of receipt by the FDA.
IMVEXXY
In May 2018, the FDA as soon asapproved the first half4-μg and 10-μg doses of 2018.
TX-002HR
TX-002HR is a natural progesterone formulationIMVEXXY (estradiol vaginal inserts) for the treatment of secondary amenorrhea without the potentially allergenic component of peanut oil. The hormone therapy drug candidate is bioidentical to – or having the same chemical and molecular structure as - the hormones that naturally occur in a woman’s body. We believe it will be similarly effective to traditional treatments, but may demonstrate efficacy at lower dosages. In January 2014, we began recruitment of patients in the SPRY Trial, a phase 3 clinical trial designed to measure the safety and effectiveness of TX-002HR in the treatment of secondary amenorrhea. During the first two quarters of 2014, the SPRY Trial encountered enrollment challenges because of Institutional Review Board, or IRB, approved clinical trial protocols and FDA inclusion and exclusion criteria. In July 2014, we suspended enrollment and in October 2014 we stopped the SPRY Trial in order to update the phase 3 protocol based on discussionsmoderate-to-severe dyspareunia (vaginal pain associated with the FDA. We are considering updating the phase 3 protocol to, among other things, target only those women with secondary amenorrhea due to polycystic ovarian syndrome and to amend the primary endpoint of the trial. We believe that the updated phase 3 protocol, if proposed by us and approved by the FDA, would allow us to mitigate the enrollment challenges in, and shorten the duration of, the SPRY Trial. However, there can be no assurance that the FDA will approve the updated phase 3 protocol if we propose it. We have currently suspended further development of this drug candidate to prioritize our leading drug candidates.
TX-003HR
TX-003HR is a natural estradiol formulation. This hormone therapy drug candidate is bioidentical to the hormones that naturally occur in a woman’s body. We currently do not have plans to further develop this hormone therapy drug candidate and our IND for TX-003HR is currently inactive.
TX-004HR
TX-004HR is our applicator-free vaginal estradiol softgel drug candidate for the treatment of moderate to severe dyspareunia, a symptom of VVA in post-menopausal women with vaginal linings that do not receive enough estrogen. We believe that our drug candidate will be at least as effective as the traditional treatments for VVA because of an early onset of action with less systemic exposure, inferring a greater probability of dose administration to the target tissue, and it will have an added advantage of being a simple, easier to use dosage form versus traditional VVA treatments. TX-004HR features our SYMBODATM technology. This allows for the production of cohesive, stable formulations and provides content uniformity and accuracy of dosing strengths for TX-004HR. We initiated the REJOICE Trial, a randomized, multicenter, double-blind, placebo-controlled phase 3 clinical trial during the third quarter of 2014 to assess the safety and efficacy of three doses — 25 mcg, 10 mcg and 4 mcg (compared to placebo) — of TX-004HR for the treatment of moderate to severe dyspareunia, or painful intercourse, assexual activity), a symptom of VVA, due to menopause.
On December 7, 2015, we announced positive top-line results from The 4-μg formulation of IMVEXXY represents the REJOICE Trial. The pre-specified four co-primary efficacy endpoints were the changes from baseline to week 12 versus placebo in the percentagelowest FDA-approved dose of vaginal superficial cells, percentage of vaginal parabasal cells, vaginal pHestradiol available. IMVEXXY 10-μg became available for commercial distribution in July 2018 and severity of participants’ self-reported moderate to severe dyspareunia as the most bothersome symptom of VVA. The trial enrolled 764 postmenopausal women (40 to 75 years old) experiencing moderate to severe dyspareunia at approximately 89 sites across the United States and Canada. Trial participantsboth doses were randomized to receive either TX-004HR at 25 mcg (n=190), 10 mcg (n=191), or 4 mcg (n=191) doses or placebo (n=192) for a total of 12 weeks, all administered once daily for two weeks and then twice weekly (approximately three to four days apart) for ten weeks.commercially available by September 2018.
The following table sets forth the statistical significance of the REJOICE Trial results for the four pre-specified co-primary efficacy endpoints, based on mean changes from baseline to week 12 compared to placebo. Based on our ogoing analyses of the REJOICE Trial data, statistical significance of the results for the co-primary endpoint of severity of participants’ self-reported moderate to severe dyspareunia as the most bothersome symptom of VVA has improved for all three doses from the results originally reported.
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The 25 mcg dose of TX-004HR demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo across all four co-primary endpoints. The 10 mcg dose of TX-004HR demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo across all four co-primary endpoints. The 4 mcg dose of TX-004HR also demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo for the endpoints of vaginal superficial cells, vaginal parabasal cells, and vaginal pH; the change from baseline compared to placebo in the severity of dyspareunia was statistically significant at the p = 0.0149 level. The FDA has previously indicated to us that in order to approve the drug based on a single trial, the trial would need to show statistical significance at the 0.01 level or lower for each endpoint, and that a trial that is merely statistically significant at a higher level may not provide sufficient evidence to support an NDA filing or approval of a drug candidate where the NDA relies on a single clinical trial.
Statistical improvement over placebo was also observed for all three doses at the first assessment at week two and sustained through week 12 (see table below).
Vaginal dryness was a prespecified key secondary endpoint. The 25 mcg and 10 mcg doses of TX-004HR demonstrated highly statistically significant results at the p < 0.0001 level compared to placebo for the endpoint of vaginal dryness. The 4 mcg dose of TX-004HR demonstrated statistically significant results at the p = 0.0014 level compared to placebo (see table below).
The pharmacokinetic data for all three doses demonstrated negligible to very low systemic absorption of 17 beta estradiol, estrone and estrone conjugated, supporting the previous Phase 1 trial data. TX-004HR was well tolerated, and there were no clinically significant differences compared to placebo-treated participants with respect to adverse events. There were no drug-related serious adverse events reported.
We submitted the NDA for TX-004HR with the FDA on July 7, 2016. The FDA determined that the NDA is sufficiently complete to permit a substantive review and accepted the NDA for filing. The PDUFA target action date for the completionAs part of the FDA’s review is May 7, 2017. The NDA submission was supported byapproval of IMVEXXY, we have committed to conduct a post-approval observational study to evaluate the complete TX-004HR clinical program, including positive results of the phase 3 REJOICE Trial. The NDA submission included all three doses of TX-004HR (4 mcg, 10 mcg and 25 mcg) that were evaluated in the REJOICE Trial. If approved, the 4 mcg formulation would represent a lower effective dose than the currently available VVA therapies approved by the FDA.
On November 10, 2015, the FDA held a scientific workshop on labeling “lower” dose estrogen-alone products for symptoms of VVA to provide an opportunity for the FDA to obtain input from experts on several topics related to the product label of lower dose estrogen-alone products approved solely for the treatment of moderate to severe symptoms of VVA due to menopause. According to the FDA, lower-dose estrogen products means products that contain less than the 0.625 mg of conjugated estrogens used in the WHI study and estradiol products containing 0.0375 mg and below. Discussion topics at the workshop included the relevance of the boxed warnings based on data from the WHI to the lower dose estrogen-alone products; certain members in the scientific/medical community have questioned whether the boxed warnings section in the labeling, which is currently required to be included on all estrogen products, is applicable in whole or in part to these lower-dose estrogen products. The boxed warnings include: (1) an increased risk of endometrial cancer in post-menopausal women with a uterus who usesuse a low-dose vaginal estrogen unopposed estrogens, (2) estrogen therapyby a progestogen. In connection with or without progestins should not be used for the prevention of cardiovascular disease or dementia, (3) an increased risk of stroke and deep vein thrombosis (DVT) in women treated with estrogen-alone, (4) an increased risk of probable dementia in postmenopausal women 65 years of age and older treated with estrogen-alone, (5) an increased risk of invasive breast cancer in women treated with estrogen plus progestin, and (6)observational study, we are required to use the lowest effective dose for the shortest duration. It is unknown at this time what, if any, changesprovide progress reports to the FDA may proposeon an annual basis. The development of this method is underway, and we do not believe that the costs will be material. In addition, the FDA asked for post-approval information with respect to certain characteristics related to the boxed warningsproduct’s specifications, which we submitted to FDA in November 2018.
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. ANNOVERA was classified by the FDA as an 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 SA and EE. EE is an approved active ingredient in many marketed hormonal contraceptive products. Segesterone acetate, an NCE, is a potent progestin and ANNOVERA is the only product with segesterone acetate. Segesterone acetate also does not bind to the androgen or estrogen receptors and has no glucocorticoid effects 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, or OCs, 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 $20,000,000, 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 lower dose estrogen-alonean annual basis. The Population Council has agreed to perform and pay the costs and expenses associated with two post-approval studies required by the FDA for ANNOVERA.
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In October 2019, we began a “test and learn” market introduction phase of launch for ANNOVERA, with 36 of our existing sales representatives currently promoting ANNOVERA in addition to our other products, and our 23 regional sales managers and 12 compounding key account managers, or KAMs, introducing ANNOVERA to top targeted healthcare practitioners outside of these 36 territories. A full-scale launch of ANNOVERA is expected in the first quarter of 2020.
License Agreement with the Population Council
Under the terms of the Population Council License Agreement, we paid the Population Council a milestone payment of $20,000,000 within 30 days following approval by the FDA of the NDA for symptomsANNOVERA. The first commercial batch of VVA or whether such label changes would be applicableANNOVERA was released during the third quarter of 2019 and we paid the Population Council $20,000,000 as a result of the commercial batch release. The Population Council is eligible to TX-004HR, if approved.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, 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 | % | ||
AsThe annual royalty rate will be reduced to 50% of December 31, 2016, we had 17 issued patents, which included 13 utilitythe 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.
Unless earlier terminated, the Population Council License Agreement will remain in effect until the later of the expiration of the last-to-expire of the Population Council’s U.S. patents that relateare licensed to us, or the date following such expiration that follows a continuous period of six months during which we and our combination progesteroneaffiliates have not made a commercial sale of ANNOVERA in the U.S. The Population Council License Agreement may also be terminated for certain breach and estradiol formulations,bankruptcy-related events and by us on 180 days prior notice to the Population Council.
As part of the Population Council License Agreement, we have the exclusive right to negotiate co-development and U.S. marketing rights for two utility patentother investigational vaginal contraceptive systems in development by the Population Council.
License Agreement with Knight
In July 2018, we entered into the Knight License Agreement with Knight pursuant to which we granted Knight an exclusive license to commercialize IMVEXXY and BIJUVA in Canada and Israel. Pursuant to the terms of the Knight License Agreement, Knight will pay us a milestone fee upon the first regulatory approval in Canada of each of IMVEXXY and BIJUVA, sales milestone fees based upon certain aggregate annual sales in Canada and Israel of each of IMVEXXY and BIJUVA and royalties based on aggregate annual sales of each of IMVEXXY and BIJUVA in Canada and Israel. In October 2019 and November 2019, Knight’s New Drug Submissions for Joyesta (IMVEXXY) and BIJUVA, respectively, were accepted for review by Health Canada. Knight will be responsible for all regulatory and commercial activities in Canada and Israel related to IMVEXXY and BIJUVA. We may terminate the Knight License Agreement if Knight does not submit all regulatory applications, submissions and/or registrations required for regulatory approval to use and commercialize IMVEXXY and BIJUVA in Canada within certain specified time periods. We also may terminate the Knight License Agreement if Knight challenges our patents. Either party may terminate the Knight License Agreement for any material breach by the other party that relatesis not cured within certain specified time periods or if the other party files for bankruptcy or other related matters.
License Agreement with Theramex
In June 2019, we entered into the Theramex License Agreement with Theramex pursuant to TX-004HR, which establishwe granted Theramex an important intellectual property foundationexclusive, perpetual license to commercialize BIJUVA and IMVEXXY for TX-004HR, one utility patenthuman use outside of the Theramex Territory. Pursuant to the terms of the Theramex License Agreement, Theramex paid us an upfront fee of EUR 14 million in cash. We are also eligible to receive up to an additional EUR 29.5 million in cash milestone payments, comprised of (i) an aggregate of EUR 2 million in regulatory milestone payments based on regulatory approvals for each of BIJUVA and IMVEXXY in certain specified markets and (ii) an aggregate of EUR 27.5 million in sales milestone payments to be paid in escalating tranches based on Theramex first attaining certain aggregate annual net sales milestones in the Theramex Territory ranging from EUR 25 million to EUR 100 million. We are also entitled to receive quarterly royalty payments based on net sales of BIJUVA and IMVEXXY in the Theramex Territory. Theramex has agreed to submit all regulatory applications, submissions and/or registrations required for regulatory approval to use and commercialize BIJUVA and IMVEXXY in certain specified markets within certain specified time periods and we may terminate the Theramex License Agreement if Theramex does not submit certain of such regulatory applications, submissions and/or registrations. We may also terminate the Theramex License Agreement if Theramex challenges our patents. Either party may terminate the Theramex License Agreement for any material breach by the other party that relatesis not cured within certain specified time periods or if the other party files for bankruptcy or other related matters. Theramex may sublicense its rights to commercialize BIJUVA and IMVEXXY in the Theramex Territory, except for certain specified markets. Pursuant to the terms of the Theramex License Agreement, we agreed to supply, or cause to be supplied, BIJUVA and IMVEXXY to Theramex. We and Theramex have agreed to form a pipeline transdermal patch technology,joint product committee responsible for advising and one utility patent that relates to our OPERA® information technology platform.overseeing activities under the Theramex License Agreement.
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Research and Development Expenses
A significant portion of our historical operating expenses to date have been incurred in research and development activities. Research and development expenses relate primarily to the discovery and development of our drug products. Our business model is dependent upon our company continuing to conduct a significant amount of research and development. Until one of our drug products receives IND approval from the FDA, products costs are listed as “Other research and development” costs in the table below.candidates. Our research and development expenses consist primarily of expenses incurred under agreements with contract research organizations, or CROs, investigative sites, and consultants that conduct our clinical trials and a substantial portion of our preclinical studies; employee-related expenses, which include salaries and benefits, and non-cash share-based compensation; the cost of developing our chemistry, manufacturing, and controls capabilities, and acquiring clinical trial materials; and costs associated with other research activities and regulatory approvals.
We make payments to the CROs based on agreed upon terms that may include payments in advance of a study starting date. Nonrefundable advance payments for goods and services that will be used in future Other research and development activities are expensed whencosts listed below consist of costs incurred with respect to drug candidates that have not received Investigational New Drug Application approval from the activity has been performed or when the goods have been received rather than when the payment is made. Advance payments to be expensed in future research and development activities were $228,933 and $1,138,073, at December 31, 2016 and December 31, 2015, respectively.FDA.
The following table indicates our research and development expense by project for the periods indicated (in thousands):indicated:
| Years Ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| (000s) | ||||||||||||
| TX-001HR | $ | 31,857 | $ | 33,227 | $ | 26,123 | ||||||
| TX-002HR | — | 23 | 1,443 | |||||||||
| TX-004HR | 9,248 | 19,574 | 3,984 | |||||||||
| Other research and development | 12,838 | 19,219 | 11,669 | |||||||||
| Total research and development | $ | 53,943 | $ | 72,043 | $ | 43,219 | ||||||
| Years Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| (000s) | ||||||||||||
| TX 001-HR (BIJUVA) | $ | 3,848 | $ | 11,790 | $ | 19,381 | ||||||
| TX 004-HR (IMVEXXY) | 2,522 | 4,890 | 8,043 | |||||||||
| ANNOVERA | 2,637 | — | — | |||||||||
| Other research and development | 10,785 | 10,619 | 6,429 | |||||||||
| Total | $ | 19,792 | $ | 27,299 | $ | 33,853 | ||||||
Research and development expenditures will continue to be incurred as we continue development of our drug candidates and advance the development of our proprietary pipeline of novel drug candidates. We expect to incur ongoing research and development costs as we develop our drug pipeline, continue stability testing and validation on our drug candidates, prepare regulatory submissions and work with regulatory authorities on existing submissions.
During the year ended December 31, 2016 and since the project’s inception in February 2013, we have incurred approximately $31,857,000 and $96,016,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.
During the year ended December 31, 2016 and since the project’s inception in April 2013, we have incurred approximately $0 and $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.
During the year ended December 31, 2016 and since the project’s inception in August 2014, we have incurred approximately $9,248,000 and $32,806,000, respectively, in research and development costs with respect to TX-004HR, our vaginal estradiol softgel drug candidate.
The costs of clinical trials may vary significantly over the life of a project owing to factors that include, but are not limited to, the following: per patient trial costs; the number of patients that participate in the trials; the number of sites included in the trials; the length of time each patient is enrolled in the trial; the number of doses that patients receive; the drop-out or discontinuation rates of patients; the amount of time required to recruit patients for the trial; the duration of patient follow-up; and the efficacy and safety profile of the drug candidate. We base our expenses related to clinical trials on estimates that are based on our experience and estimates from CROs and other third parties. Research and development expenditures for the drug candidates will continue after the trial completes for on-going stability and laboratory testing, regulatory submission and response work.
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Results of Operations
Comparison of Years Ended December 31, 2016, 2015,2019, 2018, and 2014:2017:
Year ended December 31, 20162019 compared with year ended December 31, 20152018
| Years Ended December 31, | ||||||||||||
| 2019 | 2018 | Change | ||||||||||
| (000s) | ||||||||||||
| Product revenue, net | $ | 34,141 | $ | 16,099 | $ | 18,042 | ||||||
| License revenue | 15,506 | — | 15,506 | |||||||||
| Cost of goods sold | 6,335 | 2,737 | 3,598 | |||||||||
| Operating expenses | 194,518 | 143,582 | 50,936 | |||||||||
| Operating loss | (151,206 | ) | (130,220 | ) | (20,986 | ) | ||||||
| Other (expense) income, net | (24,939 | ) | (2,397 | ) | (22,542 | ) | ||||||
| Net loss | $ | (176,145 | ) | $ | (132,617 | ) | $ | (43,528 | ) | |||
| Years Ended December 31, | ||||||||||||
| 2016 | 2015 | Change | ||||||||||
| (000s) | ||||||||||||
| Revenue | $ | 19,356 | $ | 20,143 | $ | (787) | ||||||
| Cost of goods sold | 4,185 | 4,506 | (321) | |||||||||
| Operating expenses | 105,424 | 100,827 | 4,597 | |||||||||
| Operating loss | (90,253 | ) | (85,190 | ) | (5,063 | ) | ||||||
| Other income | 378 | 113 | 265 | |||||||||
| Net loss | $ | (89,875 | ) | $ | (85,077 | ) | $ | (4,798 | ) | |||
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Revenue
RevenueProduct revenue is recorded net of sales discounts, chargebacks, wholesaler fees, customer rebates, coupons and estimated returns. RevenueProduct revenue for the year ended December 31, 2016 decreased by2019 increased approximately $787,000,$18,042,000, or 4%112%, to approximately $19,356,000,$34,141,000, compared with approximately $20,143,000$16,099,000 for the year ended December 31, 2015. This decrease was2018. Product revenue increased primarily attributabledue to an increase in sales of approximately $15,194,000 of IMVEXXY in the current period, partially offset by a decrease in the average netprenatal vitamin sales of approximately $5,155,000. Product revenue per unit of our products primarily related to higher estimates related to discounts and returns in 2016, and the reversal of the deferred revenue balance in the first quarter of 2015 related to products sold through wholesale distributors until the right of return no longer existed, partially offset by an increase in the number of units sold.
Cost of Goods Sold
Cost of goods sold decreased by approximately $321,000, or 7%, to approximately $4,185,000 for the year ended December 31, 2016,2019 also included sales of BIJUVA of approximately $1,836,000 and sales of ANNOVERA of approximately $6,167,000. The revenue decrease related to our prenatal vitamins was primarily affected by lower number of units sold as compared withto the prior year period. We launched IMVEXXY in the third quarter of 2018 and BIJUVA in the second quarter of 2019. We started selling ANNOVERA in the third quarter of 2019 and we expect the full commercial launch of ANNOVERA in the first quarter of 2020. Since the launches, revenues related to IMVEXXY and BIJUVA have been greatly affected by the co-pay assistance programs that we introduced to launch these products, which allow eligible enrolled patients to access the products at a reasonable cost regardless of insurance coverage. We expect our product revenue to improve as commercial and Medicare payer coverage increases, and plans complete the process needed to adjudicate IMVEXXY, BIJUVA and ANNOVERA prescriptions at pharmacies. In addition to our product revenue, during the year ended December 31, 2019, we recognized license revenue of approximately $4,506,000$15,506,000 from the upfront fee, which was a non-refundable payment, paid to us by Theramex under the terms of the Theramex License Agreement, which we recognized at the point in time when Theramex was able to use and benefit from the license, which was when the knowledge transfer of regulatory documents occurred.
Cost of Goods Sold
Cost of goods sold increased by approximately $3,598,000, or 131%, to approximately $6,335,000 for the year ended December 31, 2015 primarily related to lower distribution costs and more favorable product mix of our products sold, partially offset by the reversal of the deferred balance in the first quarter of 2015 related to products sold through wholesale distributors until the right of return no longer existed. Our gross margins of 78%2019, compared with approximately $2,737,000 for the year ended December 31, 2016 remained unchanged from2018, primarily related to product costs attributable to our prescription pharmaceutical products, as well as royalty fees of $308,328 and the amortization of our license fee of $778,692 related to ANNOVERA. Our gross margin related to our prescription pharmaceutical products was 81% for the year ended December 31, 2015.2019 as compared to 83% for the year ended December 31, 2018. The change in our gross margin is primarily related to the change in product mix between the two periods.
Operating Expenses
Our principal operating costs included the following items as a percentage of total operating expenses.
| Years Ended December 31, | Years Ended December 31, | |||||||||||||||
| 2016 | 2015 | 2019 | 2018 | |||||||||||||
| Sales and marketing costs, excluding human resource costs | 45 | % | 43 | % | ||||||||||||
| Human resource related costs | 23 | % | 15 | % | 28 | % | 25 | % | ||||||||
| Sales and marketing costs, excluding human resource costs | 12 | % | 6 | % | ||||||||||||
| Product research and development costs | 51 | % | 71 | % | 10 | % | 19 | % | ||||||||
| Professional fees and consulting costs | 5 | % | 4 | % | 7 | % | 5 | % | ||||||||
| Other operating expenses | 9 | % | 4 | % | 10 | % | 8 | % | ||||||||
Operating expenses increased by approximately $4,597,000,$50,936,000, or 5%35%, to approximately $105,424,000$194,518,000 for the year ended December 31, 2016,2019, compared with approximately $100,827,000$143,582,000 for the year ended December 31, 2015,2018, as a result of the following items:
| Years Ended December 31, | ||||||||||||
| 2016 | 2015 | Change | ||||||||||
| (000s) | ||||||||||||
| Research and development costs | $ | 53,943 | $ | 72,043 | $ | (18,100 | ) | |||||
| Human resource related costs | 24,599 | 14,966 | 9,633 | |||||||||
| Sales and marketing, excluding human resource costs | 12,753 | 5,920 | 6,833 | |||||||||
| Professional and consulting costs | 5,301 | 3,649 | 1,652 | |||||||||
| Other operating expenses | 8,828 | 4,249 | 4,579 | |||||||||
| Total operating expenses | $ | 105,424 | $ | 100,827 | $ | 4,597 | ||||||
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| Years Ended December 31, | ||||||||||||
| 2019 | 2018 | Change | ||||||||||
| (000s) | ||||||||||||
| Sales and marketing, excluding human resources costs | $ | 86,459 | $ | 61,845 | $ | 24,614 | ||||||
| Human resources related costs | 54,120 | 35,003 | 19,117 | |||||||||
| Research and development costs | 19,792 | 27,299 | (7,507 | ) | ||||||||
| Professional and consulting costs | 13,913 | 7,661 | 6,252 | |||||||||
| Other operating expenses | 20,234 | 11,774 | 8,460 | |||||||||
| Total operating expenses | $ | 194,518 | $ | 143,582 | $ | 50,936 | ||||||
ResearchSales and developmentmarketing costs increased by approximately $24,614,000 or 40%, to approximately $86,459,000 for the year ended December 31, 2016 decreased by2019, compared with approximately $18,100,000, or 25%, to approximately $53,943,000,$61,845,000 for the year ended December 31, 2018, primarily as a result of a decreaseincreased expenses associated with sales and marketing efforts to support launch and commercialization of our pharmaceutical products, including an increase of $7.4 million related to advertising expenses related to our pharmaceutical products, an increase of $6.5 million in consulting projects including costs for outsourced sales personnel and their related expenses, an increase of $6.0 million in marketing initiatives related to the launch of our pharmaceutical products as well as an increase in costs related to our phase 3 clinical trials of TX-001HRphysician education, conferences and TX-004HR, partially offset by scale-up and manufacturing activities for our phase 3 clinical trials of TX-001HR and TX-004HR and coststravel expenses related to regulatory submissionproduct commercialization. We expect sales and marketing expenses to continue to increase as we continue to support the commercialization of our pharmaceutical products.
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Human resource related costs, including salaries and benefits increased by approximately $19,117,000, or 55%, to TX-004HR. Research and developments costs duringapproximately $54,120,000 for the year ended December 31, 2016 included the following research and development projects:
During2019, compared with approximately $35,003,000 for the year ended December 31, 20162018, primarily as a result of an increase of approximately $16,844,000 primarily due to higher employee count which increased from 241 in 2018 to 348 in 2019 primarily in sales, marketing and sinceregulatory areas to support commercialization of our pharmaceutical products and an increase in non-cash compensation expense included in this category of approximately $2,273,000 related to employee stock option amortization during 2019 as compared to 2018.
Research and development costs decreased by approximately $7,507,000, or 27%, to approximately $19,792,000 for the year ended December 31, 2019, compared with approximately $27,299,000 for the year ended December 31, 2018. Research and development costs include costs related to manufacturing validation and early development trials, as well as salaries, wages, non-cash compensation and benefits of personnel involved in research and development activities. Research and development costs decreased primarily as a result of certain employees and activities that were previously classified as research and development being transferred into operations as they began to support commercial and launch efforts after the FDA approvals of IMVEXXY and BIJUVA.
● Since the project’s inception in February 2013, we have incurred approximately $31,857,000 and $96,016,000, respectively,$131,035,000 in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.BIJUVA.
During the year ended December 31, 2016 and since the project’s inception in April 2013, we have incurred approximately $0 and $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.
During the year ended December 31, 2016 and since● Since the project’s inception in August 2014, we have incurred approximately $9,248,000 and $32,806,000, respectively,$48,261,000 in research and development costs with respect to TX-004HR, our vaginal estradiol softgel drug candidate.IMVEXXY.
For a discussion of the nature of efforts and steps necessary to complete these projects, see “Item 1. Business — Research and Development.” For a discussion of the risks and uncertainties associated with completing development of our products, see “Item 1A. Risk Factors — Risks Related to Our Business.” For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see “— Liquidity and Capital Resources.” For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see “Item 1. Business — Our Hormone Therapy Drug Candidates,” “Item 1. Business — Products in Development” and “Item 1. Business — Pharmaceutical Regulation.” Future milestones, including NDA submission dates, are not easily determinable as such milestones are dependent on various factors related to our clinical trials, including the timing of ongoing patient recruitment efforts to find eligible subjects for the applicable trials.
Human resource relatedProfessional and consulting costs including salaries and benefits, increased by approximately $9,633,000,$6,252,000, or 64%82%, to approximately $24,599,000 for the year ended December 31, 2016,2019, to approximately $13,913,000 compared with approximately $14,966,000$7,661,000 for the year December 31, 2018, primarily as a result of increased medical safety consulting fees to support commercialization of our pharmaceutical products.
All other costs increased by approximately $8,460,000, or 72%, to approximately $20,234,000 for the year ended December 31, 2015,2019, compared with approximately $11,774,000 for the year ended December 31, 2018, as a result of increased contract labor, dues and subscriptions, information technology, travel, insurance and other office expenses primarily to support commercialization of our new drugs.
Operating Loss
As a result of the foregoing, our operating loss increased approximately $20,986,000, or 16%, to approximately $151,206,000 for the year ended December 31, 2019, compared with approximately $130,220,000 for the year ended December 31, 2018, primarily as a result of an increase of approximately $3,492,000 in personnel costs in sales, marketing and regulatory areastotal operating expenses to support commercialization of our hormone therapy drug candidatespharmaceutical products, partially offset by increased total net revenue.
We anticipate that we will continue to have operating losses for the near future until we successfully commercialize IMVEXXY, BIJUVA and ANNOVERA, although there is no assurance that any commercialization of IMVEXXY, BIJUVA and ANNOVERA will be successful.
Other (Expense) Income, net
Other non-operating (expense) income, net changed by approximately $22,542,000, or 940%, to an increase in non-cash compensation expense included in this category of approximately $6,141,000 related to employee stock option amortization during 2016 as compared to 2015.
Sales and marketing costs increased approximately $6,833,000$24,939,000 for the year ended December 31, 2016,2019 compared with an expense of approximately $2,397,000 for 2018, primarily as a result of a one-time charge of $10.1 million in loss on extinguishment of debt and increased interest expense related to our Financing Agreement that we recorded in 2019 as compared to 2018.
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Net Loss
Because of the net effects of the foregoing, net loss increased approximately $43,528,000, or 115%33%, to approximately $12,753,000, compared with approximately $5,920,000$176,145,000 for the year ended December 31, 2015,2019, compared with approximately $132,617,000 for the year ended December 31, 2018. Net loss per share of common stock, basic and diluted, was ($0.72) for the year ended December 31, 2019, compared with ($0.59) per share of common stock for the year ended December 31, 2018.
Year ended December 31, 2018 compared with year ended December 31, 2017
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | Change | ||||||||||
| (000s) | ||||||||||||
| Product revenue, net | $ | 16,099 | $ | 16,778 | $ | (679 | ) | |||||
| Cost of goods sold | 2,737 | 2,637 | 100 | |||||||||
| Operating expenses | 143,582 | 91,769 | 51,813 | |||||||||
| Operating loss | (130,220 | ) | (77,628 | ) | (52,592 | ) | ||||||
| Other (expense) income | (2,397 | ) | 703 | (3,100 | ) | |||||||
| Net loss | $ | (132,617 | ) | $ | (76,925 | ) | $ | (55,692 | ) | |||
Revenue
Product revenue is recorded net of sales discounts, chargebacks, wholesaler fees, customer rebates, coupons, and estimated returns. Product revenue for the year ended December 31, 2018 decreased by approximately $679,000, or 4%, to approximately $16,099,000, compared with approximately $16,778,000 for the year ended December 31, 2017. Product revenue decreased primarily due to a decrease in prenatal vitamin sales of approximately $1,737,000 partially offset by sales of IMVEXXY of approximately $1,058,000. The product revenue decrease related to our prenatal vitamins was primarily affected by lower number of units sold and higher utilization of coupons offered to customers during the year ended December 31, 2018 as compared to the prior year. We launched sales of IMVEXXY in the third quarter of 2018. During this launch period, product revenue related to our newly approved drug were greatly affected by the co-pay assistance program that we introduced to launch IMVEXXY, which allowed patients to access the product at a reasonable cost regardless of insurance coverage. We expect our product revenue related to IMVEXXY to improve as commercial payer coverage for IMVEXXY increases.
Cost of Goods Sold
Cost of goods sold increased by approximately $100,000, or 4%, to approximately $2,737,000 for the year ended December 31, 2018, compared with approximately $2,637,000 for the year ended December 31, 2017 primarily related to product costs attributable to IMVEXXY, partially offset by lower royalty fees attributable to prenatal vitamins, and lower shipping costs. Our gross margin was 83% for the year ended December 31, 2018 as compared to 84% for the year ended December 31, 2017. The decrease in gross margin percentage was primarily attributable to higher utilization of coupons/co-pay assistance offered in 2018 as compared with 2017.
Operating Expenses
Our principal operating costs included the following items as a percentage of total operating expenses.
| Years Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| Sales and marketing costs, excluding human resource costs | 43 | % | 22 | % | ||||
| Human resource related costs | 25 | % | 27 | % | ||||
| Product research and development costs | 19 | % | 37 | % | ||||
| Professional fees and consulting costs | 5 | % | 6 | % | ||||
| Other operating expenses | 8 | % | 8 | % | ||||
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Operating expenses increased by approximately $51,813,000, or 56%, to approximately $143,582,000 for the year ended December 31, 2018, compared with approximately $91,769,000 for the year ended December 31, 2017, as a result of the following items:
| Years Ended December 31, | ||||||||||||
| 2018 | 2017 | Change | ||||||||||
| (000s) | ||||||||||||
| Sales and marketing, excluding human resources costs | $ | 61,845 | $ | 19,614 | $ | 42,231 | ||||||
| Human resources related costs | 35,003 | 24,720 | 10,283 | |||||||||
| Research and development costs | 27,299 | 33,853 | (6,554 | ) | ||||||||
| Professional and consulting costs | 7,661 | 5,859 | 1,802 | |||||||||
| Other operating expenses | 11,774 | 7,723 | 4,051 | |||||||||
| Total operating expenses | $ | 143,582 | $ | 91,769 | $ | 51,813 | ||||||
Sales and marketing costs increased by approximately $42,231,000, or 215%, to approximately $61,845,000 for the year ended December 31, 2018, compared with approximately $19,614,000 for the year ended December 31, 2017, primarily as a result of increased expenses associated with sales and marketing efforts to support launch and commercialization of IMVEXXY and BIJUVA, including costs related to outsourced sales personnel and their related expenses, physician education and product samples, advertising, and travel expenses related to product commercialization. We expect sales and marketing expenses to continue to increase as we continue the launch of BIJUVA, prepare for the launch of ANNOVERA, and continue to support our growing business and commercialization of our hormone therapy drug candidates coupled with an increase in employee incentives.products.
ProfessionalHuman resource related costs, including salaries and consulting costsbenefits increased by approximately $1,652,000$10,283,000, or 42%, to approximately $35,003,000 for the year ended December 31, 2016, or 45%, to approximately $5,301,0002018, compared with approximately $3,649,000 for the year December 31, 2015, primarily as a result of increased legal, consulting, accounting expenses.
All other costs increased approximately $4,579,000, or 108%, to approximately $8,828,000$24,720,000 for the year ended December 31, 2016, compared with approximately $4,249,000 for the year ended December 31, 2015,2017, primarily as a result of a write-off of accounts receivable balancesan increase of approximately $2,200,000, increased insurance, rent, information technology and other office expenses.
Operating Loss
As a result of the foregoing, our operating loss increased approximately $5,063,000, or 6%, to approximately $90,253,000 for the year ended December 31, 2016, compared with approximately $85,190,000 for the year ended December 31, 2015, primarily as a result of increased$7,975,000 in personnel costs in sales, marketing and marketing expensesregulatory areas to support commercialization of our hormone therapy drug candidates, coupled with a write-off of accounts receivable balances mentioned abovenew drugs and an increase in non-cash compensation expense professional fees and other operating expensesincluded in this category of approximately $2,308,000 related to employee stock option amortization during 2018 as well a decrease in revenue, partially offset by a decrease in researchcompared to 2017.
Research and development costs.
As a result of the continued development of our hormone therapy drug candidates, we anticipate that we will continue to have operating losses for the near future until our hormone therapy drug candidates are approved by the FDA and brought to market, although there is no assurance that we will attain such approvals or that any marketing of our hormone therapy drug candidates, if approved, will be successful.
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Other Income
Other non-operating income increasedcosts decreased by approximately $265,000,$6,554,000, or 235%19%, to approximately $378,000$27,299,000 for the year ended December 31, 20162018, compared with approximately $113,000 for the comparable period in 2015, primarily as a result of increased interest income.
Net Loss
As a result of the net effects of the foregoing, net loss increased approximately $4,798,000, or 6%, to approximately $89,875,000$33,853,000 for the year ended December 31, 2016, compared with approximately $85,077,000 for the year ended December 31, 2015. Net loss per share of common stock, basic and diluted, was ($0.46) for the year ended December 31, 2016, compared with ($0.49) per share of common stock for the year ended December 31, 2015.
Year ended December 31, 2015 compared with year ended December 31, 2014
| Years Ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| (000s) | ||||||||||||
| Revenue | $ | 20,143 | $ | 15,026 | $ | 5,117 | ||||||
| Cost of goods sold | 4,506 | 3,672 | 834 | |||||||||
| Operating expenses | 100,827 | 65,395 | 35,432 | |||||||||
| Operating loss | (85,190 | ) | (54,041 | ) | (31,149 | ) | ||||||
| Financing Costs | — | (260 | ) | 260 | ||||||||
| Other income | 113 | 84 | 29 | |||||||||
| Net loss | $ | (85,077 | ) | $ | (54,217 | ) | $ | (30,860 | ) | |||
Revenue
Revenue for year ended December 31, 2015 increased by approximately $5,117,000, or 34%, to approximately $20,143,000, compared with approximately $15,026,000 for the year ended December 31, 2014. Of this $5,117,000 increase, approximately $2,437,000, or 48%, was attributable to an increase in the average sales price of our existing products, and approximately $2,680,000, or 52%, was attributable to the number of units sold during the year ended December 31, 2015.
Cost of Goods Sold
Cost of goods sold increased by approximately $834,000, or 23%, to approximately $4,506,000 for the year ended December 31, 2015, compared with approximately $3,672,000 for the year ended December 31, 2014. Our gross margins increased to approximately 78% for the year ended December 31, 2015, compared to approximately 76% for the year ended December 31, 2014. The gross margin change was2017, primarily attributable to favorable change in product mix partially offset by increased distribution costs.
Operating Expenses
Our principal operating costs included the following items as a percentage of total operating expenses.
| Years Ended December 31, | ||||||||
| 2015 | 2014 | |||||||
| Human resource related costs | 15 | % | 16 | % | ||||
| Sales and marketing costs, excluding human resource costs | 6 | % | 9 | % | ||||
| Product research and development costs | 71 | % | 66 | % | ||||
| Professional fees and consulting costs | 4 | % | 4 | % | ||||
| Other operating expenses | 4 | % | 5 | % | ||||
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Operating expenses increased by approximately $35,432,000, or 54%, to approximately $100,827,000 for the year ended December 31, 2015, compared with approximately $65,395,000 for year ended December 31, 2014, as a result of the following items:
| Years Ended December 31, | ||||||||||||
| 2015 | 2014 | Change | ||||||||||
| (000s) | ||||||||||||
| Research and development costs | $ | 72,043 | $ | 43,219 | $ | 28,824 | ||||||
| Human resource related costs | 14,966 | 10,870 | 4,096 | |||||||||
| Sales and marketing, excluding human resource costs | 5,920 | 5,717 | 203 | |||||||||
| Professional and consulting costs | 3,649 | 2,368 | 1,281 | |||||||||
| Other operating expenses | 4,249 | 3,221 | 1,028 | |||||||||
| Total operating expenses | $ | 100,827 | $ | 65,395 | $ | 35,432 | ||||||
Researchcompletion of the REPLENISH Trial for BIJUVA and development costs for the year ended December 31, 2015 increasedFDA approval of IMVEXXY and BIJUVA, partially offset by approximately $28,824,000, or 67%, to approximately $72,043,000, primarily as a result of an increase in scale-up and manufacturing activities for BIJUVA before FDA approval as well as increased pre-clinical work to support our phase 3 clinical trialsproduct pipeline. Research and development costs in 2017 included approximately $2,400,000 in NDA submission fees related to BIJUVA and a write-off of TX-001HR and TX-004HR.approximately $1,000,000 of prepaid manufacturing costs. Research and developments costs during the year ended December 31, 20152018 included the following research and development projects:
During the year ended December 31, 20152018 and since the project’s inception in February 2013, we have incurred approximately $33,227,000$11,790,000 and $64,159,000,$127,187,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.BIJUVA.
During the year ended December 31, 20152018 and since the project’s inception in April 2013, we have incurred approximately $23,000$0 and $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.
During the year ended December 31, 20152018 and since the project’s inception in August 2014, we have incurred approximately $19,574,000$4,890,000 and $23,558,000,$45,739,000, respectively, in research and development costs with respect to TX-004HR, our vaginal estradiol softgel drug candidate.IMVEXXY.
For a discussion of the nature of efforts and steps necessary to complete these projects, see “Item 1. Business — Research and Development.” For a discussion of the risks and uncertainties associated with completing development of our products, see “Item 1A. Risk Factors — Risks Related to Our Business.” For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see “— Liquidity and Capital Resources.” For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see “Item 1. Business — Our Hormone Therapy Drug Candidates,” “Item 1. Business — Products in Development” and “Item 1. Business — Pharmaceutical Regulation.” Future milestones, including NDA submission dates, are not easily determinable as such milestones are dependent on various factors related to our clinical trials, including the timing of ongoing patient recruitment efforts to find eligible subjects for the applicable trials.
Human resource relatedProfessional and consulting costs including salaries and benefits, increased by approximately $4,096,000,$1,802,000, or 38%31%, to approximately $14,966,000, compared with approximately $10,870,000 for the year ended December 31, 2014,2018, to approximately $7,661,000 compared with approximately $5,859,000 for the year December 31, 2017, primarily as a result of an increase in salaryincreased legal, consulting and wages and related cost of $2,617,000 associated with additional employees required for our clinical trials and by an increase in amortization of non-cash compensation totaling approximately $1,479,000 related to employee stock options issued during 2015 as compared to 2014.recruiting fees.
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Sales and marketing
All other costs increased by approximately $203,000$4,051,000, or 52%, to approximately $11,774,000 for the year ended December 31, 2015, or 4%, to approximately $5,920,000,2018, compared with approximately $5,717,000$7,723,000 for the year ended December 31, 2014, primarily2017, as a result of increased employee incentives partially offset by decreased marketing expenses.information technology, travel, allowance for bad debt expense, insurance and other office expenses primarily to support commercialization of our new drugs.
Professional and consulting costs increased approximately $1,281,000 for the year ended December 31, 2015, or 54%, to approximately $3,649,000 compared with approximately $2,368,000 for the year December 31, 2014, as a result of additional costs incurred for legal, consulting, accounting and board of director fees.
All other costs increased approximately $1,028,000 for the year ended December 31, 2015, or 32%, to approximately $4,249,000, compared with approximately $3,221,000 for the year ended December 31, 2014, primarily as a result of increased insurance, rent and office expenses.
Operating Loss
As a result of the foregoing, our operating loss increased approximately $31,149,000$52,592,000, or 68%, to approximately $130,220,000 for the year ended December 31, 2015, or 58%, to2018, compared with approximately $85,190,000$77,628,000 for the year ended December 31, 2015, compared with approximately $54,041,000 for the year ended December 31, 2014,2017, primarily as a result of increased personnel costs, sales and marketing expenses to support commercialization of IMVEXXY and BIJUVA, including costs related to outsourced sales personnel and their related expenses, professional fees and other operating expenses, as well a decrease in revenue, partially offset by a decrease in research and development costs associated with our continued development of our hormone therapy drug candidates, partially offset by increased revenue from sales of our prenatal vitamin products.costs.
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As a result of the continued development of our hormone therapy drug candidates, weWe anticipate that we will continue to have operating losses for the near future until our hormone therapy drug candidates are approved by the FDAwe successfully commercialize IMVEXXY, BIJUVA and brought to market,ANNOVERA, although there is no assurance that we will attain such approvals or that any marketingcommercialization of our hormone therapy drug candidates, if approved,IMVEXXY and BIJUVA and ANNOVERA will be successful.
Financing CostsOther (Expense) Income
Financing costs decreasedOther non-operating income changed by approximately $260,000,$3,100,000, or 100%441%, during the year ended December 31, 2015, fromto an expense of approximately $260,000$2,397,000 for the year ended December 31, 2014,2018 compared with an income of approximately $703,000 for 2017, primarily as a result of a decreaseincreased interest expense related to our term loan that we obtained in amortization costs associated with warrants.2018 partially offset by increased interest income in 2018 as compared to 2017.
Net Loss
As a resultBecause of the net effects of the foregoing, net loss increased approximately $30,860,000,$55,692,000, or 57%72%, to approximately $85,077,000$132,617,000 for the year ended December 31, 2015,2018, compared with approximately $54,217,000$76,925,000 for the year ended December 31, 2014.2017. Net loss per share of common stock, basic and diluted, was ($0.49)0.59) for the year ended December 31, 2015,2018, compared with ($0.36)0.37) per share of common stock for the year ended December 31, 2014.2017.
Liquidity and Capital Resources
We have funded our operations primarily through public offerings of our common stock and private placements of equity and debt securities. For the three yearthree-year period ending December 31, 2016,2019, we received approximately $269,000,000$236,000,000 in net proceeds from the issuance of shares of our common stock. As of December 31, 2016,2019, we had a cash balance of approximately $131,500,000,$160,830,000, however, changing circumstances may cause us to consume funds significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control.
On January 6, 2016,October 29, 2019, we entered into an underwriting agreement with Goldman, Sachs & Co. and Cowen and Company, LLC, as the representatives of the several underwriters, or the Underwriters, relating toclosed an underwritten public offering of 15,151,51529,900,000 shares of our common stock at a price to the public offering price of $8.25$2.75 per share. Under the termsshare, inclusive of the underwriting agreement, we granted the Underwriters a 30-dayunderwriters’ option to purchase up to an aggregate of 2,272,727 additional shares of our common stock, which option was exercised in full. TheWe received net proceeds to us from the offering wereof approximately $134,864,000,$77.0 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed
On June 6, 2019, we entered into the Theramex License Agreement with Theramex, a leading, global specialty pharmaceutical company dedicated to women’s health, to commercialize BIJUVA and IMVEXXY for human use outside of the U.S., except for Canada and Israel, or the Theramex Territory. Under the terms of the Theramex License Agreement, Theramex paid us EUR 14 million in cash as an upfront fee on January 12, 2016.
SubsequentAugust 5, 2019. Within thirty days of signing the Theramex License Agreement, we provided Theramex the regulatory materials and clinical data that were necessary for Theramex to December 31, 2016, certain individuals exercised warrantsobtain marketing authorizations and other applicable regulatory approvals for commercializing BIJUVA and IMVEXXY. We recognized the revenue related to purchase 1,800,000 shares of our common stock for approximately $2,436,000 in cash.
Asthe upfront fee, which was a result of developments in the pharmaceutical industry that negatively affected independent pharmacies, including such pharmacies’ reliance on third party payors, in 2016, we identified thatnonrefundable payment, periods for our retail pharmacy distributors were becoming longer than in prior years. As a result, during the third quarter of 2016, we centralized2019, at a point in time when Theramex was able to use and benefit from the distribution channellicense which was when the knowledge transfer of regulatory documents occurred. We are eligible to receive additional milestone payments comprised of (i) up to an aggregate of EUR 2 million in regulatory milestone payments based on regulatory approvals for bothBIJUVA and IMVEXXY in certain specified markets and (ii) up to an aggregate of EUR 27.5 million in sales milestone payments to be paid in escalating tranches based on Theramex first attaining certain aggregate annual net sales milestones of BIJUVA and IMVEXXY in the Theramex Territory ranging from EUR 25 million to EUR 100 million. We are also entitled to receive quarterly royalty payments on net sales of BIJUVA and IMVEXXY in the Theramex Territory. Theramex will be responsible for all regulatory and commercial activities for BIJUVA and IMVEXXY in the Theramex Territory. Theramex may sublicense its rights to commercialize BIJUVA and IMVEXXY in the Theramex Territory, except for certain specified markets. We may terminate the Theramex License Agreement if Theramex does not submit all regulatory applications, submissions and/or registrations required for regulatory approval to use and commercialize BIJUVA and IMVEXXY within certain specified time periods. We also may terminate the Theramex License Agreement if Theramex challenges our retail pharmacy distributors and wholesale distributors, in order to facilitate sales to a broader population of retail pharmacies and minimize business risk exposure topatents. Either party may terminate the Theramex License Agreement for any one retail pharmacy. Duringmaterial breach by the third quarter of 2016,other party that is not cured within certain specified time periods or if the other party files for bankruptcy or other related matters.
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On April 24, 2019, we entered into new distribution agreementsa Financing Agreement, as amended on December 27, 2019, 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 retail pharmacy distributorssubsidiaries party thereto from time to effectuate this centralizationtime as guarantors, which were effective September 1, 2016.
Duringprovides us with a $300,000,000 first lien secured term loan credit facility, or the thirdFacility. The Facility provides for availability to us in three tranches: (i) $200,000,000 was drawn upon entering into the Financing Agreement; (ii) $50,000,000 was drawn on February 18, 2020; and (iii) $50,000,000 will be available to us in the Administrative Agent’s sole and absolute discretion either contemporaneously with the delivery of our financial statements for the fiscal quarter ending June 30, 2020 or at such earlier date as the Administrative Agent shall have consented to. Borrowings under the Facility accrue interest at either (i) 3-month LIBOR plus 7.75%, subject to a LIBOR floor of 2016, we wrote-off accounts receivable balances2.70% or (ii) the prime rate plus 6.75%, subject to a prime rate floor of $2,200,000 related to two retail pharmacy distributors. Both pharmacies are relatively small owner-managed pharmacies and share a similar5.20% as selected by us. Interest on amounts borrowed under the Facility is payable quarterly. The outstanding principal amount of collection risk. Among the factors that contributed to our decision to write-off these balances were our inability to collectFacility is payable in four equal quarterly installments beginning on June 30, 2023, with the outstanding balances and the lack of a continuing communication and business relationship with these parties following the centralizationFacility maturing on March 31, 2024. A portion of the distribution channel for bothinitial tranche of borrowing under the Facility in the amount of approximately $81,661,000 was used to repay all amounts outstanding under our retail pharmacy distributors and wholesale distributors, effective September 1, 2016.
Forprior financing agreement with MidCap Financial Trust, or the fiscal year ended December 31, 2016, our days sales outstanding, or DSO, was 92 days compared to 50 days for the year ended December 31, 2015. The increase in our DSO as of December 31, 2016 was primarily asMidCap Agreement. As a result of new distribution agreements with our retail pharmacy distributors which were effective September 1, 2016 and had longer payment terms. We anticipate that our DSO will fluctuate in the future based upon a variety of factors, including longer payment terms associated with the centralizationtermination of the distribution channel for bothMidCap Agreement, we recorded $10,057,632 in loss on extinguishment of debt in our retail pharmacy distributors and wholesale distributors, as compared to the terms previously provided to our retail pharmacy distributors, changes in the healthcare industry and specific terms that may be extended in connection with the launch of our hormone therapy drug candidates, if approved.unaudited consolidated financial statements.
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We believe that our existing cash and availability under the Facility will allow us to fund our operating plan through at least the next 12 months from the date of this annual report.Annual Report. However, if the commercialization of our hormone therapy drug candidatesIMVEXXY, BIJUVA, or ANNOVERA is delayed, our existing cash and availability under the Facility, if we are able to access such funds, may be insufficient to satisfy our liquidity requirements until we are able to commercialize our hormone therapy drug candidates.IMVEXXY, BIJUVA and ANNOVERA and we may not be able to access funds under the Facility. If our available cash is insufficient to satisfy our liquidity requirements, we may curtail our sales, marketing and other pre-commercializationcommercialization efforts and we may seek to sell additional equity or debt securities. Our ability to sell equity securities will be limited by the authorized shares that we have available to issue. Our ability to sell debt securities or obtain a credit facility. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt making capital expenditures, or declaring dividends.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 shareholdersstockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders.stockholders. If we 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.products, if permitted under the Financing Agreement. Additionally, we may have to grant licenses on terms that may not be favorable to us.
Our net days sales outstanding, or net DSO, is calculated by dividing gross accounts receivable less the reserve for doubtful accounts, chargebacks and payment discounts divided by the average daily net revenues during the fourth quarter of 2019. We also disclose gross DSO, which includes the calculation of gross accounts receivable divided by the average daily gross revenues to distributors during the fourth quarter of 2019. For the quarter ended December 31, 2019, our gross DSO was 55 days compared to 77 days for the quarter ended December 31, 2018 and our net DSO was 141 days for the quarter ended December 31, 2019 compared to 200 days for the quarter ended December 31, 2018. Our DSO decreased primarily due to more favorable arrangements with customers that we entered into in the second quarter of 2019. We anticipate that our DSO will fluctuate in the future based upon a variety of factors, including longer payment terms associated with the launch of IMVEXXY, BIJUVA and ANNOVERA and changes in the healthcare industry.
We need substantial amounts of cash to complete the clinical development oflaunch and commercializecommercialization of our hormone therapy drug candidates.and contraceptive drugs. The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
Summary of (Uses) and Sources of Cash
| Years Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Net cash used in operating activities | $ | (165,697,595 | ) | $ | (106,811,781 | ) | $ | (76,155,614 | ) | |||
| Net cash used in investing activities | $ | (23,912,694 | ) | $ | (21,497,857 | ) | $ | (827,108 | ) | |||
| Net cash provided by financing activities | $ | 188,826,925 | $ | 162,787,087 | $ | 72,584,249 | ||||||
| Year Ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Net cash flows used in operating activities | $ | (69,142,333 | ) | $ | (79,044,119 | ) | $ | (45,520,996 | ) | |||
| Net cash flows used in investing activities | $ | (1,255,456 | ) | $ | (584,361 | ) | $ | (606,756 | ) | |||
| Net cash flows provided by financing activities | $ | 137,225,535 | $ | 92,973,228 | $ | 43,298,099 | ||||||
Operating Activities
The principal use of cash in operating activities for the year ended December 31, 20162019 was to fund our current expenses primarily related to supporting clinical development,commercialization activities for IMVEXXY, BIJUVA and ANNOVERA, sales, marketing, scale-up and manufacturing activities and future commercial activities,clinical development, adjusted for non-cash items. The decreaseincrease of approximately $9,900,000$58,886,000 in cash used in operating activities for the year ended December 31, 20162019 in comparison to the year ended December 31, 20152018 was due primarily to an increase in our net loss adjusted for non-cash compensation expense andcoupled with changes in the components of working capital.capital which were primarily due to the launch and commercialization of our pharmaceutical products.
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The principal use of cash in operating activities for the year ended December 31, 2018 was to fund our current expenses primarily related to supporting commercialization activities for IMVEXXY, BIJUVA and ANNOVERA, sales, marketing, scale-up and manufacturing activities and clinical development, adjusted for non-cash items. The increase of approximately $33,500,000$30,656,000 in cash used in operating activities for the year ended December 31, 20152018 in comparison to the year ended December 31, 20142017 was due primarily to research and development, sales, general and administrative costs. These were partially offset by an approximately $5,100,000 increase in sales.our net loss and non-cash compensation expense coupled with changes in the components of working capital.
Investing Activities
TheDuring the year ended December 31, 2019, we paid $20,000,000 to the Population Council in connection with the commercial batch release of ANNOVERA, based on the Population Council License Agreement. In addition, an increase of approximately $671,000in spending on fixed assets, patents and trademarks resulted in an increase in cash used in investing activities for the year ended December 31, 20162019 compared with the same period in 2018.
During the year ended December 31, 2015 was primarily due2018, we paid $20,000,000 to the Population Council, upon FDA approval of ANNOVERA, based on the Population Council License Agreement. In addition, an increase in patent costsspending on patents and thetrademarks resulted in an increase in costs relating to purchase of fixed assets.
The decrease of approximately $22,000 in cash used in investing activities for the year ended December 31, 20152018 compared with the year ended December 31, 2014 was due to a decreasesame period in patent costs partially offset by the increase in costs relating to purchase of fixed assets.2017.
Financing Activities
Financing activities represent the principal source of our cash flow. Our financing activities for the year ended December 31, 20162019 provided net cash of approximately $137,226,000.$188,827,000. The cash provided by financing activities during the year ended December 31, 20162019 included approximately $134,864,000$77,031,000 in proceeds from the sale of our common stock and approximately $2,362,000$109,000 in proceeds from the exercise of options and warrants.
On January 6, 2016, we entered into an underwriting agreementas well as funding from our Financing Agreement of approximately $200,000,000 partially offset by the payment of financing fees of approximately $6,652,000 in connection with the Underwriters relating toFinancing Agreement and the repayment of the MidCap Agreement of $81,661,000.
On October 29, 2019, we closed an underwritten public offering of 15,151,51529,900,000 shares of our common stock at a price to the public offering price of $8.25$2.75 per share. Under the termsshare, inclusive of the underwriting agreement, we granted the Underwriters a 30-dayunderwriters’ option to purchase up to an aggregate of 2,272,727 additional shares of common stock, which option was exercised in full. We received net proceeds from the offering of approximately $77.0 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Our financing activities for the year ended December 31, 2018 provided net cash of approximately $162,787,000. The cash provided by financing activities during the year ended December 31, 2018 included approximately $89,908,000 in proceeds from the sale of our common stock and approximately $1,666,000 in proceeds from the exercise of options, as well as funding from the MidCap Agreement of approximately $75,000,000, partially offset by the payment of financing fees of approximately $3,787,000 in connection with the MidCap Agreement.
On August 6, 2018, we closed an underwritten public offering of 14,656,862 shares of our common stock at a price to the public of $5.10 per share, inclusive of the underwriters’ option to purchase additional shares of common stock. The net proceeds to us from the offering were approximately $134,864,000,$69,908,000, after deducting the underwriting discountsdiscount and commissions and other estimated offering expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of our common stock.
Our financing activities forIn connection with the year ended December 31, 2015 provided net cash of approximately $92,973,000. The cash provided by financing activities included approximately $91,375,000 in proceeds from sale of our common stock and approximately $1,598,000 in proceeds from the exercise of options and warrants.
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On July 9, 2015, weKnight License Agreement, Knight entered into an underwritinga subscription agreement with Stifel, Nicolaus & Company, Incorporated and Guggenheim Securities, LLC, as the representatives of the several underwriters, or the Stifel Underwriters, relatingus pursuant to an underwritten public offering of 3,846,154which Knight purchased 3,921,568 shares of our common stock at a public offering priceconcurrently with the closing of $7.80 per share. Under the terms of the underwriting agreement, we granted the Stifel Underwriters a 30-day option to purchase up to an aggregate of 576,923 additional shares of our common stock, which option was exercised in full. The net proceeds to us from the offering were approximately $32,257,000, after deducting underwriting discounts and commissions and other estimated offering expense payable by us. The offering closed on July 15, 2015 and we issued 4,423,077 shares of our common stock.
On February 10, 2015, we entered into an underwriting agreement, or the Cowen Agreement, with Cowen and Company, LLC, as the representative of the several underwriters, or the Cowen Underwriters, relating to an underwritten public offering of 13,580,246 shares of our common stock at a public offering price of $4.05$5.10 per share. Under the terms of the Cowen Agreement, we granted the Cowen Underwriters a 30-day option to purchase up to an aggregate of 2,037,036 additional shares of our common stock, which option was exercised in full. The netshare, for proceeds to us from the offering were approximately $59,118,000, after deducting underwriting discounts and commissions and other estimated offering expense payable by us. The offering closed February 17, 2015 and we issued 15,617,282 shares of our common stock.$20,000,000.
Our financing activities for the year ended December 31, 2014 provided net cash of approximately $43,298,000. The cash provided by financing activities included approximately $42,771,000 in proceeds from sale of our common stock and approximately $527,000 in proceeds from the exercise of options and warrants.
On July 29, 2014, we entered into an underwriting agreement relating to the issuance and sale by us of 8,565,310 shares of our common stock. Under the terms of the underwriting agreement, we granted the underwriters a 30-day option to purchase up to an additional 1,284,796 shares of our common stock, which was exercised in full on July 30, 2014. The offering closed on August 4, 2014. The net proceeds to us from this offering were approximately $42,771,000, after deducting underwriting discounts and commissions and other offering expenses payable by us.
Critical Accounting Policies and New Accounting Pronouncements
Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. We consider an accounting estimate to be critical ifif:
| ● | it requires assumptions to be made that were uncertain at the time the estimate was made, and |
| ● | changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition. |
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We base our estimates and judgments on our experience, our current knowledge, our beliefs of what could occur in the future, our observation of trends in the industry, information provided by our customers, and information available from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following accounting policies and estimates as those that we believe are most critical to our financial condition and results of operations and that require our most subjective and complex judgments in estimating the effect of inherent uncertainties: share-based compensation expense and income taxes.
Revenue RecognitionRecognition. . We recognize revenue on arrangements in accordance with ASC 605, 606, Revenue Recognition. Wefrom Contracts with Customers, or ASC 606. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which we determine revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which we expect to be entitled in exchange for those goods or services. ASC 606 requires us to apply the following steps: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue only when, or as, we satisfy the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability is reasonably assured.performance obligation.
Our OTC and prescription prenatal vitamin products are generally variations of the same product with slight modifications in formulation and marketing. The primary difference between our OTC and prescription prenatal vitamin products is the source of payment. Purchasers of our OTC prenatal vitamin products pay for the product directly while purchasers of our prescription prenatal vitamin products pay for the product primarily via third-party payers. Both OTC and prescription prenatal vitamin products share the same marketing support team utilizing similar marketing techniques. As of January 1, 2017, we decided to focus on sellingDecember 31, 2019, our products consisted primarily of prescription vitamins and ceased manufacturingour FDA-approved products: IMVEXXY, which we began selling during the third quarter of 2018 and distributing our OTC product lines, except for Iron 21/7,BIJUVA, which sales have declined steadily over time resultingwe began selling in immaterial sales.
OTC Products
the second quarter of 2019. We generate OTC revenue from product sales primarily to retail consumers. We recognize revenue from product sales upon shipment, whenstarted selling ANNOVERA in the rightsthird quarter of ownership and risk of loss have passed to the consumer. We include outbound shipping and handling fees, if any, in revenues, net, and bill them upon shipment. We include shipping expenses in cost of goods sold. A majority of our OTC customers pay for our products with credit cards,2019 and we usually receiveexpect the cash settlementfull commercial launch of ANNOVERA in two to three banking days. Credit card sales minimize accounts receivable balances relative to OTC sales. We provide an unconditional 30-day money-back return policy under which we accept product returns from our retail and eCommerce OTC customers. We recognize revenue from OTC sales, netthe first quarter of estimated returns and sales discounts. As of January 1, 2017, we decided to focus on selling our prescription vitamins and ceased manufacturing and distributing our OTC product lines, except for Iron 21/7, which sales have declined steadily over time resulting in immaterial sales.
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Prescription Products
2020. We sell our name brand and generic prescription products primarily through wholesale distributors and retail pharmacy distributors.pharmacies. We recognize revenue from prescription product sales, net of sales discounts, chargebacks, wholesaler fees, customer rebates and estimated returns.
Revenuehave one performance obligation related to prescription products sold through wholesale distributors, which is recognized when the prescription products are shipped to the distributorstransfer promised goods to a customer, and the control of the products passestwo performance obligations related to each distributor. We accept returns of unsalable prescription 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 distributors withinacquisition cost 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 return period of six months priorcurrent liability (if the amount is payable to and upa party other than a customer). In order to 12 months following product expiration. Our prescription products currently have a shelf life of 24 months fromdetermine the date of manufacture. Prior to January 1, 2015,transaction price, we deferred the recognition of revenue on prescription products sold through wholesale distributors until the right of return no longer existed as, prior to that date, we could not reasonably estimate the amount of future returns. Asvariable consideration at the outset of January 1, 2015, we began estimatingthe contract either utilizing the expected value or most likely amount method, depending on the facts and reserving for returns based on historical return rates, while recording actual product returns against this reserve as received.
Priorcircumstances relative to September 1, 2016, wethe 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 revenue related to prescription products sold through retail pharmacy distributorswill not occur when the product was dispensed byuncertainty associated with the retail pharmacy distributor, atvariable 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 point allwould affect net product revenue and discounts related to such product were known or determinable and there was no right of return with respect to such product. On September 1, 2016, we centralized the distribution channel for both our retail pharmacy distributors and wholesale distributors, in order to facilitate sales to a broader population of retail pharmacies and mitigate exposure to any one retail pharmacy. Beginning on September 1, 2016, all of our prescription products are distributed under the wholesale distributor model described above.
We offer various rebate programs in an effort to maintain a competitive position in the marketplace and to promote sales and customer loyalty. The consumer rebate program is designed to enable the end user to submit a coupon to us. If the coupon qualifies, we send a rebate check to the end user. We estimate the allowance for consumer rebates that we have offered based on our experience and industry averages, which is reviewed, and adjusted if necessary, on a quarterly basis. We record distributor fees based on amounts stated in contracts and estimate chargebacks based on the number of units sold each period.
Research and Development Expense. Research and development, or R&D, expenses include internal R&D activities, services of external CROs costs of their clinical research sites, manufacturing, scale-up and validation costs, and other activities. Internal R&D activity expenses include laboratory supplies, salaries, benefits, and non-cash share-based compensation expenses. CRO activity expenses include preclinical laboratory experiments and clinical trial studies. Other activity expenses include regulatory consulting and legal fees and costs. The activities undertaken by our regulatory consultants that were classified as R&D expenses include assisting, consulting with, and advising our in-house staff with respect to various FDA submission processes, clinical trial processes, and scientific writing matters, including preparing protocols and FDA submissions. Legal activities that were classified as R&D expenses related to designing experiments to generate data for patents and to further the formulation development process for our pipeline technologies. Outside legal counsel also provided professional research and advice regarding R&D, patents and regulatory matters. These consulting and legal expenses were direct costs associated with preparing, reviewing, and undertaking work for our clinical trials and investigative drugs. We charge internal R&D activities and other activity expenses to operations as incurred. We make payments to CROs based on agreed-upon terms, which may include payments in advance of a study starting date. We expense nonrefundable advance payments for goods and services that will be used in future R&D activities when the activity has been performed or when the goods have been received rather than when the payment is made. We review and accrue CRO expenses and clinical trial study expenses based on services performed and rely on estimates of those costs applicable to the completion stage of a study as provided by CROs. Estimated accrued CRO costs are subject to revisions as such studies progress to completion. We charge revisions expenseearnings in the period such changes in which the facts that give rise to the revisionestimates become known.
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Share-Based Compensation.We measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements may include options, restricted stock, restricted stock units, performance-based awards, and share appreciation rights, and employee share purchase plans. As such, compensation cost is measured on the date of grant at fair value.rights. We amortize such compensation amounts, if any, over the 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. Before January 1, 2017, the expected volatility of share options was estimated based on a historical volatility analysis of peer entities whose stock prices were publicly available that were similar to our company with respect to industry, stage of life cycle, market capitalization, and financial leverage. On January 1, 2017, we began using our own stock price in our volatility calculation along with two other peer entities whose stock prices were publicly available that were similar to our company. Our calculation of estimated volatility is based on historical stock prices over a period equal to the expected term of the awards. The average expected life of warrants is based on the contractual terms of the awards. The average expected life of options is based on the contractual terms of the stock option using the simplified method. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. Calculating share-based compensation expense requires the input of highly subjective judgment and assumptions, including forfeiture rates, estimates of expected life of the share-based award, stock price volatility and risk-free interest rates. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.
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Equity instruments (“instruments”) issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC 505, Equity - Based Payments to Non-Employees, or ASC 505. ASC 505 defines the measurement date and recognition period for such instruments. In general, the measurement date is when either (a) a performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The estimated expense is recognized each period based on the current fair value of the award. As a result, the amount of expense related to awards to non-employees can fluctuate significantly during the period from the date of the grant through the final measurement date. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in ASC 505.
We recognize the compensation expense for all share-based compensation granted, net of estimated forfeitures, based on the grant date fair value estimated in accordance with ASC 718. We generally recognize the compensation expense on a straight-line basis over the employee’s requisite service period. We estimateEffective January 1, 2017, we account for forfeitures when they occur. On January 1, 2019, we adopted ASU 2018-07 which simplified the forfeiture rate basedaccounting for share-based payments to nonemployees 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 nonemployees 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 our historical experience of forfeitures. If our actual forfeiture rate is materially different from our estimate, share-based compensation expense could be significantly different from what we have recorded in the current period.a fair value basis, as required by ASC 505, Equity - Based Payments to Non-Employees.
We believe that these assumptions are “critical accounting estimates” because significant changes in the assumptions used to develop the estimates materially affect key financial measures including net (loss)/income.
Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. We determine provisionaccount for income taxes usingunder the asset and liability approach to account for income taxes.method. We record current liability for the estimated taxes payable for the current year. We recordrecognize deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferredbasis. We measure deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in effect for the years in which the timingrelated temporary differences are expected to be recovered or settled. TheWe recognize the effect on deferred tax assets and liabilities of changesa change in tax rates or tax lawswhen the rate change is recognized in the provision for income taxes in the period that includes the enactment date.enacted. Valuation allowances are established, when necessary,recorded to reduce deferred tax assets to the amount more-likely-than-notthat will more likely than not be realized.
In accordance with ASC 740, Income Taxes, we recognize the effect of uncertain income tax positions only if the positions are more likely than not of being sustained in an audit, based on the technical merits of the position. We measure recognized uncertain income tax positions using the largest amount that has a likelihood of being realized that is greater than 50%. Changes in recognition or measurement are reflected in the period in which those changes in judgment occur. We recognize both interest and penalties related to uncertain tax positions as part of the income tax provision. At December 31, 2019 and 2018, we had no tax positions relating to open tax returns that were considered to be realized. Changes in valuation allowances will flow throughuncertain. Our tax returns are subject to review by the statement of operations unless relatedInternal Revenue Service three years after they are filed. Our U.S. federal and state tax returns since 2011, which was the first year we generated net operating losses, remain open to deferred tax assets that expire unutilized or are modified through translation, in which case both the deferred tax asset and related valuation allowance are similarly adjusted.examination.
The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. In the ordinary course of our business, there are transactions and calculations for which the ultimate tax determination is uncertain. In spite of our belief that we have appropriate support for all the positions taken on our tax returns, we acknowledge that certain positions may be successfully challenged by the taxing authorities. We determine the tax benefits more likely than not to be recognized with respect to uncertain tax positions. Although we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and inherent uncertainty; therefore, our assessments can involve both a series of complex judgments about future events and rely on estimates and assumptions. Although we believe these estimates and assumptions are reasonable, the final determination could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities.
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On December 22, 2017, the U.S. federal government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act makes broad and complex changes to the U.S. federal tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 34 percent to 21 percent, effective January 1, 2018. As the result of our initial analysis of the impact of the Tax Act, we recorded a provisional amount of net tax expense of $46.7 million in 2017 related to the remeasurement of our deferred tax balances and other effects. We completed our accounting for the income tax effects of the Tax Act in 2018, and no material adjustments were required to the provisional amounts initially recorded.
Segment Reporting. We are managed and operated as one business, which is focused on creating and commercializing products targeted exclusively for women. Our business operations are managed by a single management team that reports to the President of our president.Company. We do not operate separate lines of business with respect to any of our products and we do not prepare discrete financial information with respect to separate products. All product sales are derived from sales in the United States. Accordingly, we view our business as one reportable operating segment.
New Accounting Pronouncements
. In August 2016,2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.
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In March 2016, the FASB, issued Accounting Standards Update, or ASU, 2016-09, Compensation – Stock Compensation: Improvements2018-13, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to Employee Share-Based Payment Accounting. Thisdisclose 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 simplifies several aspectsis 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 do not expect that the adoption of this standard will have a material effect on our disclosures.
In June 2018, the FASB issued ASU 2018-07 to simplify the accounting for employee share-based payment transactions for both public and nonpublic entities, includingpayments to nonemployees by aligning it with the accounting for income taxes, forfeitures,share-based payments to employees, with certain exceptions. The new guidance expands the scope of ASC 718 to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and statutory tax withholding requirements, as well as classificationsupersedes the guidance in the statement of cash flows.ASC 505-50. The guidance is effective for public business entities for fiscal yearsin annual periods beginning after December 15, 2016,2018, and interim periods within those fiscal years.annual periods. Early adoption is permitted, including in any annual oran interim period for which financial statements have not been issued, or made available for issuance, but all of the guidance must be adopted in the same period. Ifnot before an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period.ASC 606. We will adopt the various amendments in ASU 2016-09 in our consolidated financial statements for the quarterly period ending March 31, 2017 with an effective date ofadopted this standard on January 1, 2017. We do not expect2019 and the adoption of these amendments tothis standard did not have a material effect on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires lessees to record most leases on their balance sheets but recognizewhile recognizing expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard iswas effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. EarlyIn July 2018, the FASB amended the new leases standard and issued ASU 2018-11, Leases, (Topic 842): Targeted Improvements to give entities another option for transition and to provide lessors with a practical expedient. We adopted ASU 2016-02 on January 1, 2019 utilizing the alternative transition method allowed for under ASU 2018-11 and we recorded a $3.8 million right of use asset and a $4.1 million liability related to adoption is permitted for all entities. We areof this standard. In addition, upon commencement of additional lease space in the processthird quarter of analyzing the quantitative impact2019 (as disclosed in Note 13), we recorded an additional $7.4 million right of this guidance on our results of operationsuse asset and financial position. While we are continuing to assess all potential impacts of the standard, we currently believe, the impact of this standard will be primarilyan additional $7.2 million liability related to the accounting for our operating lease.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), simplifying the Measurement of Inventory. This guidance requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market (LOCOM). The guidance applies only to inventories for which cost is determined by methods other than last-in first-out (LIFO) or the retail inventory method (RIM). Entities that use LIFO or RIMnew lease space. Comparative financial information was not adjusted and will continue to usebe reported under ASC 840. We also elected the transition relief package of practical expedients and as a result we did not assess (1) whether existing impairment models. The new guidance doesor expired contracts contain leases, (2) lease classification for any existing or expired leases, and (3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less. We elected not changeto separate lease components from non-lease components for our specified asset classes. Additionally, the calculationadoption of net realizable value that entities are required to calculate when applying existing LOCOM guidance. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Under the new guidance, however, entities will no longer need to calculate other measuresstandard resulted in increased disclosure requirements in our quarterly and annual filings.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of “market.” The guidance is effective for public business entities for fiscal years beginning after December 15, 2016,Certified Public Accountants and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2015-11 in the fourth quarter of 2016. The adoption of this ASUSEC did not, and are not expected to, have a material effect on our consolidatedresults of operations or financial statements and disclosures.position.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We adopted ASU 2014-15 in the fourth quarter of 2016. The adoption of this ASU did not have a material effect on our consolidated financial statements and disclosures.
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under previous guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligations. In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. Early adoption is permitted after December 15, 2016, and the standard is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU 2016-08), accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10), narrow-scope improvements and practical expedients (ASU 2016-12) and technical corrections and improvements to topic 606 (ASU 2016-20) in its new revenue standard. We have performed a preliminary review of the requirements of the new revenue standard and are monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance. We have reviewed customer contracts and applied the five-step model of the new standard to our contracts as well as compared the results to our current accounting practices. At this point of our analysis, we do not believe that the adoption of this standard will have a material effect on our financial statements but will potentially expand our disclosures related to contracts with customers.
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Off-Balance Sheet Arrangements
As of December 31, 2016, 2015,2019, 2018, and 2014,2017, we had no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect 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.
In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions, which, in our judgment, are normal and customary for companies in our industry sector. These agreements are typically with business partners, clinical sites, and suppliers. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to our drugs or drug candidates, use of such drugs or drug candidates, or other actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is sometimes unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, we have no liabilities recorded for these provisions as of December 31, 2016, 2015,2019, 2018, and 2014.2017.
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In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims, environmental actions or the actions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by GAAP, an estimate is made of the loss and the appropriate accounting entries are reflected in our financial statements.
Effects of Inflation
For each of the fiscal years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, our business and operations have not been materially affected by inflation.
Contractual Obligations
A summary of contractual obligations as of December 31, 20162019 is as follows:
| Payments Due by Period | ||||||||||||||||||||
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||
| Operating lease obligations | $ | 15,684,456 | $ | 1,566,617 | $ | 3,460,843 | $ | 2,620,065 | $ | 8,036,931 | ||||||||||
| Debt payments (1) | 200,000,000 | — | — | 200,000,000 | — | |||||||||||||||
| Interest payment (2) | 80,929,444 | 20,900,000 | 41,800,000 | 18,229,444 | — | |||||||||||||||
| Purchase commitments (3) | 34,671,190 | 6,700,603 | 9,643,326 | 13,204,246 | 5,123,015 | |||||||||||||||
| Total | $ | 331,285,090 | $ | 29,167,220 | $ | 54,904,169 | $ | 234,053,755 | $ | 13,159,946 | ||||||||||
| Payments Due By Period | ||||||||||||
| Total | Less than 1 Year | 1-3 Years | 4-5 Years | |||||||||
| Operating Lease Obligations | $ | 4,928,002 | $ | 864,827 | $ | 3,128,862 | $ | 934,313 | ||||
| (1) | The outstanding principal amount of the Financing Agreement is payable in four equal quarterly installments beginning on June 30, 2023, with the Financing Agreement maturing on March 31, 2024. |
| (2) | Interest calculation is based on interest rates in place on December 31, 2019. |
| (3) | Includes manufacturing purchase commitments described below. The amounts presented here represent our estimates of the minimum required payments under our agreements. |
Intellectual Property Licenses
We have license agreements with third parties that provide for minimum royalty, license, and exclusivity 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 6, 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 or softgels after the first contract year. If the minimum order quantities of specific products are not met, we are required to pay Catalent 50% of the difference between the total amount we would have paid to Catalent if the minimum requirement had been fulfilled and the sum of all purchases of our products from Catalent during the contract year. In addition, we have a manufacturing and supply agreement whereby we are required to purchase a minimum number of units of ANNOVERA during a contract year. As of December 31, 2019, we have met our minimum purchase commitments with our manufacturers related to fiscal year 2019.
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.
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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.
Seasonality
The specialty pharmaceutical industry component of women’s health is not subject to seasonal sales fluctuation.fluctuation, however, we anticipate that high deductible and annual prescription copay resets under commercial insurance plans at the beginning of the calendar year will affect our first quarter net revenue.
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| Item | Quantitative and Qualitative Disclosures |
We had a cash balance of $131,500,000approximately $160,830,000 as of December 31, 2016. 2019. We hold certain portions of our cash balances in overnight money market placements all of which are fully available to us to support our cash flow requirements. The primary objective of our investment policy is to preserve principal and maintain proper liquidity to meet operating needs. needs. Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment. investment. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. rates. To minimize this risk, we intend to maintain aan investment portfolio that may include cash, cash equivalents and investment securities available-for-sale in a variety of securities which may include money market funds, government and non-government debt securities and commercial paper, all with various maturity dates. dates. Due to the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our portfolio.
As of April 24, 2019, we repaid all amounts outstanding under the MidCap Agreement and became subject to market risk in connection with borrowings under the Financing Agreement. Amounts borrowed under the Financing Agreement will accrue interest at either (i) 3-month LIBOR plus 7.75%, subject to a LIBOR floor of 2.70% or (ii) the prime rate plus 6.75%, subject to a prime rate floor of 5.20%. Considering the total outstanding principal balance under the Financing Agreement of approximately $200,000,000 at December 31, 2019, a 1.0% change in interest rates would result in an impact to income before income taxes of approximately $2,000,000 per year.
| Item 8. | Financial Statements and Supplementary Data |
Reference is made to the financial statements, the notes thereto, and the reports thereon, commencing on page F-1 of this Annual Report, which financial statements, notes, and reports are incorporated herein by reference.
| Item 9. |
None.
| Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2016,2019, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. Further, internal controls may become inadequate as a resultbecause of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.
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Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:
| ● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| ● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| ● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016.2019. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on management’s assessment, we believe that our internal controls over financial reporting were effective as of December 31, 2016.2019.
The effectiveness of our internal control over financial reporting as of December 31, 20162019 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their Report of Independent Registered Certified Public Accounting Firm on Internal Control Over Financial Reporting as of December 31, 2016,2019, which appears below.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Stockholders
TherapeuticsMD, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of TherapeuticsMD, Inc. (a Nevada Corporation)corporation) and subsidiaries (the “Company”) as of December 31, 2016,2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019, and our report dated February 24, 2020 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual reportReport on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2016, and our report dated February 28, 2017 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
February 28, 201724, 2020
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| Item 9B. | Other Information |
None.On February 20, 2020, following its fourth quarter 2019 earnings call, TherapeuticsMD received a Paragraph IV certification notice letter (the “Notice Letter”), regarding an Abbreviated New Drug Application (“ANDA”) submitted to the U.S. Food and Drug Administration (the “FDA”) by Teva Pharmaceuticals USA, Inc. (“Teva”). The ANDA seeks approval from the FDA to commercially manufacture, use, or sell a generic version of the 4 mcg and 10 mcg doses of IMVEXXY® (estradiol vaginal inserts). In the Notice Letter, Teva alleges that TherapeuticsMD patents listed in the FDA’s Orange Book that claim compositions and methods of IMVEXXY (the “IMVEXXY Patents”) are invalid, unenforceable, and/or will not be infringed by Teva’s commercial manufacture, use, or sale of its proposed generic drug product. The IMVEXXY Patents identified in the Notice Letter expire in 2032 or 2033.
TherapeuticsMD is currently reviewing the Notice Letter and intends to vigorously enforce its intellectual property rights relating to IMVEXXY. Under the Hatch-Waxman Act, TherapeuticsMD has 45 days from receipt of the Notice Letter to initiate a patent infringement lawsuit against Teva. Such a lawsuit would automatically preclude the FDA from approving Teva’s ANDA until the earlier of 30 months or entry of a district court decision finding the IMVEXXY Patents invalid, unenforceable, or not infringed.
| Item 10. | Directors, Executive Officers, and Corporate Governance |
The information required by this Item relating to our directors and corporate governance is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 20172020 Annual Meeting of Stockholders.
| Item 11. | Executive Compensation |
The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 20172020 Annual Meeting of Stockholders.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 20172020 Annual Meeting of Stockholders.
| Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this Item is incorporated herein by reference to the definitive Proxy Statements to be filed pursuant to Regulation 14A of the Exchange Act for our 20172020 Annual Meeting of Stockholders.
| Item 14. | Principal Accounting Fees and Services |
The information required by this Item is incorporated herein by reference to the definitive Proxy StatementStatements to be filed pursuant to Regulation 14A of the Exchange Act for our 20172020 Annual Meeting of Stockholders.
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| Item 15. | Exhibits and Financial Statement Schedules |
| (a) | Financial Statements and Financial Statements Schedules |
| (1) | Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of this Annual Report. | |
| (2) | No financial statement schedules are included because such schedules are not applicable, are not required, or because required information is included in the consolidated financial statements or notes thereto. | |
| Exhibits |
| Date | Description | ||||
| 2.1 | July 6, 2009 | Agreement and Plan of Reorganization among Croff Enterprises, Inc., AMHN Acquisition Corp., America’s Minority Health Network, Inc., and the Major Shareholders(1) | |||
| 2.2 | June 11, 2010 | Agreement and Plan of Reorganization among AMHN, Inc., SHN Acquisition Corp., Spectrum Health Network, Inc., and the Sole Shareholder of Spectrum Health Network, Inc.(2) | |||
| 2.3 | October 25, 2007 | Croff Enterprises, Inc. Plan of Corporate Division and Reorganization(3) | |||
| 2.4 | July 18, 2011 | Agreement and Plan of Merger among VitaMedMD, LLC, AMHN, Inc., and VitaMed Acquisition, LLC(4) | |||
| 3.1 | July 20, 2010 | Articles of Conversion of AMHN, Inc. filed in the State of Nevada(5) | |||
| 3.2 | July 20, 2010 | Articles of Incorporation of AMHN, Inc. filed in the State of Nevada(5) | |||
| 3.3 | n/a | Composite Amended and Restated Articles of Incorporation of the Company, as amended(6) | |||
| 3.4 | n/a | Bylaws of AMHN, Inc.(7) | |||
| 3.5 | December 17, 2015 | First Amendment to Bylaws of the Company(8) | |||
| 4.1 | n/a | Form of Certificate of Common Stock(9) | |||
| n/a | Description of Securities of the Company | ||||
| 10.1 | n/a | Form of Common Stock Purchase Warrant (10) | |||
| n/a | Form of Non-Qualified Stock Option Agreement (10) | ||||
| n/a | TherapeuticsMD, Inc. 2019 Stock Incentive Plan (11) | ||||
| 10.4* | n/a | Amended and Restated 2012 Stock Incentive Plan | |||
| n/a | 2009 Long Term Incentive Compensation Plan, as amended | ||||
| October 23, 2011 | Common Stock Purchase Warrant to Lang Naturals, Inc. | ||||
| February 24, 2012 | Form of Common Stock Purchase Warrant(15) | ||||
| 10.8*** | April | ||||
| 10.9*** | |||||
| 10.10* | |||||
| November 8, 2012 | Form of Employment Agreement(19) | ||||
| January 31, 2013 | Common Stock Purchase Warrant, issued to Plato & Associates, LLC(20) | ||||
| May 8, 2013 | Agreement to Forfeit Non-Qualified Stock Options between the Company and Robert G. Finizio | ||||
| Lease by and between | |||||
| 10.17** | July 30, 2018 | Population Council License Agreement by and between TherapeuticsMD, Inc. and The Population Council, Inc. (21) | |||
| 10.18† | |||||
| December 17, 2015 | Employment Agreement between the Company and Brian Bernick(8) | ||||
| December 17, 2015 | Employment Agreement between the Company and Michael Donegan(8) | ||||
| December 17, 2015 | Employment Agreement between the Company and | ||||
| June 6, 2019 | License and Supply Agreement, by and between TherapeuticsMD, Inc. and Theramex HQ UK Limited (18) | ||||
| 21.1† | February | Subsidiaries of the Company | |||
| 23.1† | February | Consent of Grant Thornton LLP | |||
| February |
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| Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended | |||||
| 31.2† | February | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended | |||
| 32.1†† | February | Certification pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
| 32.2†† | February | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||
| 101.INS† | n/a | XBRL Instance Document – the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document | |||
| 101.SCH† | n/a | XBRL Taxonomy Extension Schema Document | |||
| 101.CAL† | n/a | XBRL Taxonomy Extension Calculation Linkbase Document | |||
| 101.DEF† | n/a | XBRL Taxonomy Extension Definition Linkbase Instance Document | |||
| 101.LAB† | n/a | XBRL Taxonomy Extension Label Linkbase Instance Document | |||
| 101.PRE† | n/a | XBRL Taxonomy Extension Presentation Linkbase Instance Document | |||
| 104† | n/a | Cover Page Interactive Data File (formatted as Inline XBRL and Contained in Exhibit 101) |
| * | Indicates a contract with management or compensatory plan or arrangement. |
| *** | Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10). The omitted information is not material and would likely cause competitive harm to the Company if publicly disclosed. |
| † | Filed herewith. |
| †† | Furnished herewith. |
| (1) | Filed as an exhibit to Form 8-K filed with the Commission on July 10, 2009 and incorporated herein by reference (SEC File No. 000-16731). |
| (2) | Filed as an exhibit to Form 8-K filed with the Commission on June 14, 2010 and incorporated herein by reference (SEC File No. 000-16731). |
| (3) | Filed as an exhibit to Form 10-K for the year ended December 31, 2007 filed with the Commission on May 1, 2008 and incorporated herein by reference (SEC File No. 000-16731). |
| (4) | Filed as an exhibit to Form 8-K filed with the Commission on July 21, 2011 and incorporated herein by reference (SEC File No. 000-16731). |
| (5) | Filed as an exhibit to Form 10-Q for the quarter ended June 30, 2010 filed with the Commission on August 3, 2010 and incorporated herein by reference (SEC File No. 000-16731). |
| (6) | Filed as an exhibit to Form 10-Q for the quarter ended June 30, 2015 filed with the Commission on August 7, 2015 and incorporated herein by reference (SEC File No. 001-00100). |
| (7) | Filed as an exhibit to Definitive 14C Information Statement filed with the Commission on June 29, 2010 and incorporated herein by reference (SEC File No. 000-16731). |
| (8) | Filed as an exhibit to Form 8-K filed with the Commission on December 22, 2015 and incorporated herein by reference (SEC File No. 001-00100). |
| (9) | Filed as an exhibit to Form S-3 filed with the Commission on January 25, 2013 and incorporated hereby by reference (SEC File No. 333-186189). |
| (10) | Filed as an exhibit to Form 8-K filed with the Commission on October 11, 2011 and incorporated herein by reference (SEC File No. 000-16731). |
| (11) | Filed as an exhibit to Form S-8 filed with the Commission on June 21, 2019 and incorporated herein by reference (SEC File No. 333-232268). |
| Filed as an exhibit to Form 8-K filed with the Commission on August 22, 2013 and incorporated herein by reference (SEC File No. 001-00100). | |
| Filed as an exhibit to Registration Statement on Form S-8 filed with the Commission on October 15, 2013 and incorporated herein by reference (SEC File No. 333-191730). | |
| Filed as an exhibit to Form 8-K filed with the Commission on October 24, 2011 and incorporated herein by reference (SEC File No. 000-16731). | |
| (15) | Filed as an exhibit to Form 8-K filed with the Commission on February 24, 2012 and incorporated herein by reference (SEC File No. 000-16731). |
| (16) | Filed as an exhibit to Form 10-Q for the quarter ended June 30, |
| (17) | Filed as an exhibit to Form 10-K for the year ended December 31, |
| (18) | Filed as an exhibit to Form |
| (19) | Filed as an exhibit to Form 10-Q for the quarter ended September 30, 2012 filed with the Commission on November 13, 2012 and incorporated herein by reference (SEC File No. 000-16731). |
| (20) | Filed as an exhibit to Form 8-K filed with the Commission on February 6, 2013 and incorporated herein by reference (SEC File No. 000-16731). |
| (21) | Filed as an exhibit to Form 10-Q for the quarter ended September 30, 2018 filed with the Commission on November 8, 2018 and incorporated herein by reference (SEC File No. 001-00100). |
| (22) | Filed as an exhibit to Form 10-Q for the quarter ended March 31, 2013 filed with the Commission on May 10, 2013 and incorporated herein by reference (SEC File No. 001-00100). |
69
| Filed as an exhibit to Form 10-Q for the quarter ended | |
| Item 16. | Form 10-K Summary |
None.
70 75
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: February | THERAPEUTICSMD, INC. |
| /s/ Robert G. Finizio | |
| Robert G. Finizio | |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
| Signature | Capacity | Date | ||||||||||
| /s/ Robert G. Finizio | Chief Executive Officer, Director (Principal Executive Officer) | February | ||||||||||
| Robert G. Finizio | ||||||||||||
| /s/ John C.K. Milligan, IV | President, Secretary, Director | February | ||||||||||
| John C.K. Milligan, IV | ||||||||||||
| /s/ Daniel A. Cartwright | Chief Financial Officer, Treasurer (Principal Financial and Accounting Officer) | February | ||||||||||
| Daniel A. Cartwright | ||||||||||||
| /s/ Tommy G. Thompson | Chairman | February | ||||||||||
| Tommy G. Thompson | ||||||||||||
| /s/ Brian Bernick | Director | February | ||||||||||
| Brian Bernick | ||||||||||||
| /s/ Jane F. Barlow | Director | February 24, 2020 | ||||||||||
| Jane F. Barlow | ||||||||||||
| /s/ J. Martin Carroll | Director | February | ||||||||||
| J. Martin Carroll | ||||||||||||
| /s/ Cooper C. Collins | Director | February | ||||||||||
| Cooper C. Collins | ||||||||||||
| /s/ Robert V. LaPenta, Jr. | Director | February | ||||||||||
| Robert V. LaPenta, Jr | ||||||||||||
| /s/ Jules Musing | Director | February | ||||||||||
| Jules Musing | ||||||||||||
| /s/ Angus C. Russell | Director | February | ||||||||||
| Angus C. Russell | ||||||||||||
| /s/ Nicholas Segal | Director | February | ||||||||||
| Nicholas Segal | ||||||||||||
71
| 76 |
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Shareholders
TherapeuticsMD, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of TherapeuticsMD, Inc. (a Nevada Corporation)corporation) and subsidiaries (the “Company”) as of December 31, 20162019 and 2015, and2018, the related consolidated statements of operations, stockholdersstockholders’ equity, and cash flows for each of the twothree years in the period ended December 31, 20162019, and 2015. the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 24, 2020 expressed an unqualified opinion.
Change in accounting principle
As discussed in Note 13 to the consolidated financial statements, the Company has changed its method of accounting for leases due to the adoption of Accounting Standard Update No. 2016-02 “Leases (Topic 842).”
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
InThe critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Calculation of variable consideration related to sales deductions
As described further in Note 2 to the consolidated financial statements, referredthe transaction price of the Company’s revenue contracts is variable as it is calculated net of estimated product returns, chargebacks, rebates, coupons, discounts and wholesaler fees (collectively “sales deductions”). We identified the calculation of variable consideration related to above present fairly, in allsales deductions as a critical audit matter.
The principal consideration for our determination that the calculation of variable consideration related to sales deductions is a critical audit matter is that auditing the estimation of variable consideration requires significant judgement and the amounts are material respects,to the financial positionstatements taken as a whole. These estimates require the consideration of TherapeuticsMD, Inc. and subsidiarieskey assumptions such as expected return rates, estimated levels of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two yearsinventory in the period ended December 31, 2016distribution channel, expected coupon utilization, and 2015 in conformity with accounting principles generally accepted inexpected insurance coverage levels, all of which have estimation uncertainty.
Our audit procedures related to testing the United Statescalculation of America.variable consideration related to sales deductions included the following, among others:
| • | We tested the design and operating effectiveness of controls relating to management’s calculation and review of variable consideration related to sales deductions by verifying management’s controls over the completeness of the input data, mathematical accuracy of the calculations and evaluating the reasonableness of key assumptions used in the calculations. |
| • | We tested management’s estimates by performing one of the following procedures based on the sales deduction being tested, (1) developing independent expectations to corroborate the reasonableness of management’s estimate, (2) testing management’s process to develop the estimate, or (3) reviewing subsequent events or transactions. Our procedures included reviewing subsequent data to estimate levels of inventory in the distribution channel for which coupons would be redeemed and subsequent information related to coupon and rebate settlements. We used historical sales and return data in developing our independent expectations and testing management’s process. We tested the completeness and accuracy of the historical sales and return data used in the calculations by agreeing total sales to accounting records and tracing a sample of individual sale transactions to supporting audit evidence, such as purchase orders, shipping documents and invoices. We also evaluated the average assistance paid in the co-pay assistance program by testing a sample of transactions settled during the year to source documentation. |
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 28, 2017 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2015.
Fort Lauderdale, Florida
February 24, 2020
Fort Lauderdale, Florida
February 28, 2017
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of TherapeuticsMD, Inc.
We have audited the consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations of TherapeuticsMD, Inc. and its cash flows for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
/s/Rosenberg Rich Baker Berman & Company
Somerset, New Jersey
March 12, 2015
F-3
| F-2 |
THERAPEUTICSMD, INC. AND SUBSIDIARIES
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 131,534,101 | $ | 64,706,355 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $376,374 and $81,910, respectively | 4,500,699 | 3,049,715 | ||||||
| Inventory | 1,076,321 | 690,153 | ||||||
| Other current assets | 2,299,052 | 2,233,897 | ||||||
| Total current assets | 139,410,173 | 70,680,120 | ||||||
| Fixed assets, net | 516,839 | 198,592 | ||||||
| Other Assets: | ||||||||
| Intangible assets, net | 2,405,972 | 1,615,251 | ||||||
| Security deposit | 139,036 | 125,000 | ||||||
| Prepaid expense | — | 1,109,883 | ||||||
| Total other assets | 2,545,008 | 2,850,134 | ||||||
| Total assets | $ | 142,472,020 | $ | 73,728,846 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 7,358,514 | $ | 3,126,174 | ||||
| Other current liabilities | 7,624,085 | 7,539,526 | ||||||
| Total current liabilities | 14,982,599 | 10,665,700 | ||||||
| Commitments and Contingencies - See Note 13 | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock - par value $0.001; 10,000,000 shares authorized; no shares issued and outstanding | — | — | ||||||
| Common stock - par value $0.001; 350,000,000 shares authorized: 196,688,222 and 177,928,041 issued and outstanding, respectively | 196,688 | 177,928 | ||||||
| Additional paid-in capital | 436,995,052 | 282,712,078 | ||||||
| Accumulated deficit | (309,702,319 | ) | (219,826,860 | ) | ||||
| Total stockholders’ equity | 127,489,421 | 63,063,146 | ||||||
| Total liabilities and stockholders’ equity | $ | 142,472,020 | $ | 73,728,846 | ||||
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 160,829,713 | $ | 161,613,077 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $904,040 and $596,602, respectively | 24,395,958 | 11,063,821 | ||||||
| Inventory | 11,860,716 | 3,267,670 | ||||||
| Other current assets | 11,329,793 | 10,834,693 | ||||||
| Total current assets | 208,416,180 | 186,779,261 | ||||||
| Fixed assets, net | 2,507,775 | 472,683 | ||||||
| Other Assets: | ||||||||
| License rights, net | 39,221,308 | 20,000,000 | ||||||
| Intangible assets, net | 5,258,211 | 4,092,679 | ||||||
| Right of use asset | 10,109,154 | — | ||||||
| Other assets | 473,009 | 639,301 | ||||||
| Total other assets | 55,061,682 | 24,731,980 | ||||||
| Total assets | $ | 265,985,637 | $ | 211,983,924 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 19,181,212 | $ | 22,743,841 | ||||
| Other current liabilities | 33,823,613 | 18,334,948 | ||||||
| Total current liabilities | 53,004,825 | 41,078,789 | ||||||
| Long-Term Liabilities: | ||||||||
| Long-term debt | 194,634,643 | 73,381,014 | ||||||
| Operating lease liability | 9,145,049 | — | ||||||
| Total liabilities | 256,784,517 | 114,459,803 | ||||||
| Commitments and Contingencies - See Note 13 | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock - par value $; shares authorized; shares issued and outstanding | — | — | ||||||
| Common stock - par value $; shares authorized: and issued and outstanding, respectively | 271,177 | 240,463 | ||||||
| Additional paid-in capital | 704,351,222 | 616,559,938 | ||||||
| Accumulated deficit | (695,421,279 | ) | (519,276,280 | ) | ||||
| Total stockholders’ equity | 9,201,120 | 97,524,121 | ||||||
| Total liabilities and stockholders’ equity | $ | 265,985,637 | $ | 211,983,924 | ||||
The accompanying footnotes are an integral part of these consolidated financial statements.
F-3
F-4
THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Revenues, net | $ | 19,356,450 | $ | 20,142,898 | $ | 15,026,219 | ||||||
| Cost of goods sold | 4,185,708 | 4,506,673 | 3,671,803 | |||||||||
| Gross profit | 15,170,742 | 15,636,225 | 11,354,416 | |||||||||
| Operating expenses: | ||||||||||||
| Sales, general, and administrative | 51,348,414 | 28,721,236 | 22,124,072 | |||||||||
| Research and development | 53,943,477 | 72,042,774 | 43,218,938 | |||||||||
| Depreciation and amortization | 132,451 | 62,400 | 52,467 | |||||||||
| Total operating expenses | 105,424,342 | 100,826,410 | 65,395,477 | |||||||||
| Operating loss | (90,253,600 | ) | (85,190,185 | ) | (54,041,061 | ) | ||||||
| Other income and (expense) | ||||||||||||
| Miscellaneous income | 367,317 | 95,719 | 46,569 | |||||||||
| Accreted interest | 10,824 | 17,442 | 37,309 | |||||||||
| Financing costs | — | — | (260,027 | ) | ||||||||
| Total other income (expense) | 378,141 | 113,161 | (176,149 | ) | ||||||||
| Loss before income taxes | (89,875,459 | ) | (85,077,024 | ) | (54,217,210 | ) | ||||||
| Provision for income taxes | — | — | — | |||||||||
| Net loss | $ | (89,875,459 | ) | $ | (85,077,024 | ) | $ | (54,217,210 | ) | |||
| Loss per share, basic and diluted: | ||||||||||||
| Net loss per share, basic and diluted | $ | (0.46 | ) | $ | (0.49 | ) | $ | (0.36 | ) | |||
| Weighted average number of common shares outstanding, basic and diluted | 196,088,196 | 173,174,229 | 149,727,228 | |||||||||
| Year Ended December 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| Product revenues, net | $ | 34,140,537 | $ | 16,099,460 | $ | 16,777,713 | ||||||
| License revenue | 15,506,400 | — | — | |||||||||
| Total revenue, net | 49,646,937 | 16,099,460 | 16,777,713 | |||||||||
| Cost of goods sold | 6,334,585 | 2,737,652 | 2,636,943 | |||||||||
| Gross profit | 43,312,352 | 13,361,808 | 14,140,770 | |||||||||
| Operating expenses: | ||||||||||||
| Sales, general, and administrative | 174,112,612 | 115,988,954 | 57,703,370 | |||||||||
| Research and development | 19,792,212 | 27,299,138 | 33,852,993 | |||||||||
| Depreciation and amortization | 612,786 | 293,886 | 213,117 | |||||||||
| Total operating expenses | 194,517,610 | 143,581,978 | 91,769,480 | |||||||||
| Operating loss | (151,205,258 | ) | (130,220,170 | ) | (77,628,710 | ) | ||||||
| Other (expense) income | ||||||||||||
| Loss on extinguishment of debt | (10,057,632 | ) | — | — | ||||||||
| Miscellaneous income | 2,500,106 | 2,280,844 | 695,631 | |||||||||
| Interest expense | (17,382,215 | ) | (4,677,834 | ) | — | |||||||
| Accreted interest | — | — | 7,699 | |||||||||
| Total other (expense) income | (24,939,741 | ) | (2,396,990 | ) | 703,330 | |||||||
| Loss before income taxes | (176,144,999 | ) | (132,617,160 | ) | (76,925,380 | ) | ||||||
| Provision for income taxes | — | — | — | |||||||||
| Net loss | $ | (176,144,999 | ) | $ | (132,617,160 | ) | $ | (76,925,380 | ) | |||
| Loss per share, basic and diluted: | ||||||||||||
| Net loss per share, basic and diluted | $ | (0.72 | ) | $ | (0.59 | ) | $ | (0.37 | ) | |||
| Weighted average number of common shares outstanding, basic and diluted | 246,353,318 | 225,026,300 | 205,523,288 | |||||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
F-4
F-5
THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016, 20152019, 2018 AND 2014
| Common Stock | Additional Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, January 1, 2014 | 144,976,757 | 144,977 | 135,086,056 | (80,532,626 | ) | 54,698,407 | ||||||||||||||
| Shares issued in offerings, net of cost | 9,850,106 | 9,850 | 42,761,503 | — | 42,771,353 | |||||||||||||||
| Shares issued for exercise of options, net | 854,573 | 855 | 344,891 | — | 345,746 | |||||||||||||||
| Shares issued for exercise of warrants, net | 365,583 | 365 | 180,635 | — | 181,000 | |||||||||||||||
| Shares issued for exercise of restricted stock units | 50,000 | 50 | (50 | ) | — | — | ||||||||||||||
| Share-based compensation | — | — | 4,609,811 | — | 4,609,811 | |||||||||||||||
| Net loss | — | — | — | (54,217,210 | ) | (54,217,210 | ) | |||||||||||||
| Balance, December 31, 2014 | 156,097,019 | 156,097 | 182,982,846 | (134,749,836 | ) | 48,389,107 | ||||||||||||||
| Shares issued in offerings, net of cost | 20,040,359 | 20,040 | 91,354,609 | — | 91,374,649 | |||||||||||||||
| Shares issued for exercise of options, net | 612,981 | 613 | 1,231,966 | — | 1,232,579 | |||||||||||||||
| Shares issued for exercise of warrants, net | 1,177,682 | 1,178 | 364,822 | — | 366,000 | |||||||||||||||
| Share-based compensation | — | — | 6,777,835 | — | 6,777,835 | |||||||||||||||
| Net loss | — | — | — | (85,077,024 | ) | (85,077,024 | ) | |||||||||||||
| Balance, December 31, 2015 | 177,928,041 | 177,928 | 282,712,078 | (219,826,860 | ) | 63,063,146 | ||||||||||||||
| Shares issued in offerings, net of cost | 17,424,242 | 17,424 | 134,846,051 | — | 134,863,475 | |||||||||||||||
| Shares issued for exercise of warrants, net | 722,744 | 723 | 1,372,277 | — | 1,373,000 | |||||||||||||||
| Shares issued for exercise of options, net | 613,195 | 613 | 988,447 | — | 989,060 | |||||||||||||||
| Share-based compensation | — | — | 17,076,199 | — | 17,076,199 | |||||||||||||||
| Net loss | — | — | — | (89,875,459 | ) | (89,875,459 | ) | |||||||||||||
| Balance, December 31, 2016 | 196,688,222 | $ | 196,688 | $ | 436,995,052 | $ | (309,702,319 | ) | $ | 127,489,421 | ||||||||||
2017
| Common Stock | Additional Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, January 1, 2017 | 196,688,222 | $ | 196,688 | $ | 436,995,052 | $ | (309,702,319 | ) | $127,489,421 | |||||||||||
| Shares issued in offerings, net of cost | 12,400,000 | 12,400 | 68,560,235 | — | 68,572,635 | |||||||||||||||
| Shares issued for exercise of options, net | 102,546 | 103 | 212,512 | — | 212,615 | |||||||||||||||
| Shares issued for exercise of warrants, net | 7,238,874 | 7,239 | 3,791,760 | — | 3,798,999 | |||||||||||||||
| Share-based compensation | — | — | 6,760,425 | — | 6,760,425 | |||||||||||||||
| Adoption of ASU 2016-09 | — | — | 31,421 | (31,421 | ) | — | ||||||||||||||
| Net loss | — | — | — | (76,925,380 | ) | (76,925,380 | ) | |||||||||||||
| Balance, December 31, 2017 | 216,429,642 | 216,430 | 516,351,405 | (386,659,120 | ) | 129,908,715 | ||||||||||||||
| Shares issued in offerings, net of cost | 18,578,430 | 18,578 | 89,889,219 | — | 89,907,797 | |||||||||||||||
| Shares issued for exercise of options, net | 5,454,367 | 5,455 | 1,660,753 | — | 1,666,208 | |||||||||||||||
| Share-based compensation | — | — | 8,658,561 | — | 8,658,561 | |||||||||||||||
| Net loss | — | — | — | (132,617,160 | ) | (132,617,160 | ) | |||||||||||||
| Balance, December 31, 2018 | 240,462,439 | 240,463 | 616,559,938 | (519,276,280 | ) | 97,524,121 | ||||||||||||||
| Shares issued in offerings, net of cost | 29,900,000 | 29,900 | 77,001,358 | — | 77,031,258 | |||||||||||||||
| Shares issued for exercise of options and warrants, net | 814,637 | 814 | 107,842 | — | 108,656 | |||||||||||||||
| Share-based compensation | — | 10,682,084 | — | 10,682,084 | ||||||||||||||||
| Net loss | — | — | — | (176,144,999 | ) | (176,144,999 | ) | |||||||||||||
| Balance, December 31, 2019 | 271,177,076 | $ | 271,177 | $ | 704,351,222 | $ | (695,421,279 | ) | $ | 9,201,120 | ||||||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
F-5
F-6
THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December, 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net loss | $ | (89,875,459 | ) | $ | (85,077,024 | ) | $ | (54,217,210 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation | 77,906 | 29,959 | 28,987 | |||||||||
| Amortization of intangible assets | 54,545 | 32,441 | 23,480 | |||||||||
| Provision for (recovery of) doubtful accounts | 2,524,909 | 22,157 | (5,436 | ) | ||||||||
| Share-based compensation | 17,411,021 | 7,189,699 | 4,970,312 | |||||||||
| Amortization of deferred financing costs | — | — | 260,027 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (3,975,893 | ) | (917,656 | ) | (458,028 | ) | ||||||
| Inventory | (386,168 | ) | 491,960 | (138,495 | ) | |||||||
| Other current assets | 709,907 | (773,532 | ) | 680,281 | ||||||||
| Other assets | — | (17,442 | ) | (37,309 | ) | |||||||
| Accounts payable | 4,232,340 | (3,200,955 | ) | 4,212,912 | ||||||||
| Deferred revenue | — | (522,613 | ) | (1,079,967 | ) | |||||||
| Other current liabilities | 84,559 | 3,698,887 | 239,450 | |||||||||
| Net cash used in operating activities | (69,142,333 | ) | (79,044,119 | ) | (45,520,996 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Patent costs | (845,266 | ) | (419,104 | ) | (586,480 | ) | ||||||
| Purchase of fixed assets | (396,154 | ) | (165,257 | ) | (30,962 | ) | ||||||
| (Payment) refund of security deposit | (14,036 | ) | — | 10,686 | ||||||||
| Net cash used in investing activities | (1,255,456 | ) | (584,361 | ) | (606,756 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds from sale of common stock, net of costs | 134,863,475 | 91,374,649 | 42,771,353 | |||||||||
| Proceeds from exercise of options | 989,060 | 1,232,579 | 345,746 | |||||||||
| Proceeds from exercise of warrants | 1,373,000 | 366,000 | 181,000 | |||||||||
| Net cash provided by financing activities | 137,225,535 | 92,973,228 | 43,298,099 | |||||||||
| Increase (decrease) in cash | 66,827,746 | 13,344,748 | (2,829,653 | ) | ||||||||
| Cash, beginning of period | 64,706,355 | 51,361,607 | 54,191,260 | |||||||||
| Cash, end of period | $ | 131,534,101 | $ | 64,706,355 | $ | 51,361,607 | ||||||
| Year Ended December, 31, | ||||||||||||
| 2019 | 2018 | 2017 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
| Net loss | $ | (176,144,999 | ) | $ | (132,617,160 | ) | $ | (76,925,380 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation of fixed assets | 415,193 | 181,412 | 141,601 | |||||||||
| Amortization of intangible assets | 197,593 | 112,474 | 71,516 | |||||||||
| Write off of patent and trademark cost | 78,864 | — | — | |||||||||
| Non-cash operating lease expense | 1,062,318 | — | — | |||||||||
| Provision for doubtful accounts | 307,438 | 216,022 | 4,206 | |||||||||
| Loss of extinguishment of debt | 10,057,632 | — | — | |||||||||
| Share-based compensation | 10,693,662 | 8,661,967 | 6,889,323 | |||||||||
| Amortization of intellectual property license fee | 778,692 | — | — | |||||||||
| Amortization of deferred financing costs | 856,302 | 269,859 | — | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (13,639,575 | ) | (6,951,041 | ) | 167,691 | |||||||
| Inventory | (8,593,046 | ) | (1,782,312 | ) | (409,037 | ) | ||||||
| Other assets | (1,880,048 | ) | (2,657,190 | ) | (4,434,130 | ) | ||||||
| Accounts payable | (3,562,629 | ) | 18,646,241 | (3,260,914 | ) | |||||||
| Accrued expenses and other liabilities | 13,675,008 | 9,107,947 | 1,599,510 | |||||||||
| Net cash used in operating activities | (165,697,595 | ) | (106,811,781 | ) | (76,155,614 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Payment for intellectual property license | (20,000,000 | ) | (20,000,000 | ) | — | |||||||
| Patent costs | (1,441,989 | ) | (1,105,407 | ) | (765,291 | ) | ||||||
| Purchase of fixed assets | (2,450,285 | ) | (217,040 | ) | (61,817 | ) | ||||||
| Payment of security deposit | (20,420 | ) | (175,410 | ) | — | |||||||
| Net cash used in investing activities | (23,912,694 | ) | (21,497,857 | ) | (827,108 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds from exercise of options and warrants | 108,656 | 1,666,208 | 4,011,614 | |||||||||
| Proceeds from sale of common stock, net of costs | 77,031,258 | 89,907,797 | 68,572,635 | |||||||||
| Proceeds from Financing Agreement | 200,000,000 | — | — | |||||||||
| Proceeds from Credit Agreement | — | 75,000,000 | — | |||||||||
| Payment of deferred financing fees | (6,652,270 | ) | (3,786,918 | ) | — | |||||||
| Repayment of Credit Agreement | (81,660,719 | ) | — | — | ||||||||
| Net cash provided by financing activities | 188,826,925 | 162,787,087 | 72,584,249 | |||||||||
| (Decrease) increase in cash | (783,364 | ) | 34,477,449 | (4,398,473 | ) | |||||||
| Cash, beginning of period | 161,613,077 | 127,135,628 | 131,534,101 | |||||||||
| Cash, end of period | $ | 160,829,713 | $ | 161,613,077 | $ | 127,135,628 | ||||||
| Supplemental disclosure of cash flow information | ||||||||||||
| Interest paid | $ | 17,787,903 | $ | 1,890,166 | $ | — | ||||||
The accompanying footnotes are an integral part of these consolidated financial statements.
F-6
F-7
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY
TherapeuticsMD, Inc., a Nevada corporation, or TherapeuticsMD or the Company, has three3 wholly owned subsidiaries, vitaMedMD, LLC, a Delaware limited liability company, or VitaMed; BocaGreenMD, Inc., a Nevada corporation, or BocaGreen; and VitaCare Prescription Services, Inc., a Florida corporation, or VitaCare. Unless the context otherwise requires, TherapeuticsMD, VitaMed, BocaGreen, and VitaCare collectively are sometimes referred to as “our company,” “we,” “our,” or “us.” TherapeuticsMD ®, vitaMedMD ®, BocaGreenMD ®, IMVEXXY ® and BIJUVA ® are registered trademarks of our company and ANNOVERA™ is a licensed trademark of our company.
Nature of Business
We are a women’s health carehealthcare company focused onwith a mission of creating and commercializing innovative products targeted exclusivelyto 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. Currently, we are focused on pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of ourOur solutions range from a patient-controlled, long-lasting contraceptive to advanced hormone therapy pharmaceutical products. Our drug candidates that have completed clinical trials are designed to alleviate the symptoms of and reduce the health risks resulting from menopause-related hormone deficiencies, including hot flashes, osteoporosis and vaginal discomfort. We are developing these hormone therapy drug candidates, which contain estradiol and progesterone alone or in combination, with the aim of demonstrating clinical efficacy at lower doses, thereby enabling an enhanced side effect profile compared with competing products. With our SYMBODA™ technology, we are developing advanced hormone therapy pharmaceutical products to enable delivery of bio-identical hormones through a variety of dosage forms and administration routes. In addition, wealso manufacture and distribute branded and generic prescription prenatal vitamins as well as over-the-counter,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 OTC, iron supplements.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. We expect the full commercial launch of ANNOVERA in the first quarter of 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 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of our company and our wholly owned subsidiaries, VitaMed, BocaGreen and VitaCare. All intercompany balances and transactions have been eliminated in consolidation.
Cash
We maintain cash at financial institutions that at times may exceed the Federal Deposit Insurance Corporation, (the “FDIC”)or the FDIC, insured limits of $250,000$250,000 per bank. We have never experienced any losses related to these funds.
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are customer obligations due under normal trade terms. We review accounts receivable for uncollectible accounts and credit card charge-backschargebacks and provide an allowance for doubtful accounts, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. We considerevaluate trade accounts receivable past due foraged more than 90 days to be delinquent.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. At December 31, 2016, two2019, four different customers represented 28%36%, 21%, 16% and 20%, respectively,11% of our gross accounts receivable. At December 31, 2015,2018, three different customers represented 27%42%, 30%,24% and 14%, respectively,13% of our gross accounts receivable.
F-8
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSInventories
During the third quarter of 2016, we wrote-off accounts receivable balances of $2.2 million related to two retail pharmacy distributors. Both pharmacies are relatively small owner-managed pharmacies and share a similar amount of collection risk. Among the factors that contributed to our decision to write-off these balances were our inability to collect the outstanding balances and the lack of a continuing communication and business relationship with these parties following the centralization of the distribution channel for both our retail pharmacy distributors and wholesale distributors, effective September 1, 2016.
Inventories
Inventories represent pharmaceutical products, packaged vitamins nutritional products and supplements and raw materials which are valued at the lower of cost or net realizable valuevalue. Our pharmaceutical products are valued using first in first out method and our vitamins are valued using the average-cost method. Any costs of manufacturing the prescription products associated with the deferred revenue (as discussed in Revenue Recognition) prior to January 1, 2015, were recorded as deferred costs and included in inventory, until such time as the related deferred revenue was recognized. We review our inventory for excess or obsolete inventory and write-down obsolete or otherwise unmarketable inventory to its estimated net realizable value. Obsolescence may occur due to product expiring or product improvements rendering previous versions obsolete.
Pre-Launch Inventory
InventoryPre-launch inventory costs associated with product candidates that have not yet received regulatory approval are capitalized if we believe there is probable future commercial use and future economic benefit. If the probability of future commercial use and future economic benefit cannot be reasonably determined, then pre-launch inventory costs associated with such product candidates are expensed as research and development expenses during the period the costs are incurred. We have not capitalized any pre-launch inventory to date.
Fixed Assets
Fixed Assets
We state fixed assets at cost, net of accumulated depreciation. We charge maintenance costs, which do not significantly extend the useful lives of the respective assets, and repair costs to operating expenses as incurred. We compute depreciation using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. Leasehold improvements are depreciated over the shorter of their useful life or the term of the lease.
We capitalize software and software development costs incurred to create and acquire computer software for internal use, principally related to software coding and application development. We begin to capitalize software development costs when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs include only external direct costs and services utilized in developing or obtaining computer software. Capitalized software costs are amortized on a straight-line basis when placed into service over the estimated useful life, generally five to seven years.
Intangible Assets
Patents and Trademarks
We have adopted the provisions of Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 350, Intangibles - Goodwill and Other, or ASC 350. Capitalized patent costs, net of accumulated amortization, include outside legal costs incurred for patent applications. In accordance with ASC 350, once a patent is granted, we amortize the capitalized patent costs over the remaining life of the patent using the straight-line method. If the patent is not granted, we write-off any capitalized patent costs at that time. As of December 31, 2016,2019, we had 1729 issued domestic, or U.S., patents and 30 issued foreign patents (See Note 7)6). We capitalize external costs, consisting primarily of legal costs, related to securing our trademarks. Trademarks are perpetual and are not amortized. We review intangible assets for impairment annually or when events or circumstances indicate that their carrying amount may not be recoverable.
F-9
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-Lived Assets
We review the carrying values of fixed assets and long-lived intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. Such events or circumstances may include, among others, the following:
● | significant declines in an asset’s market price; |
● | significant deterioration in an asset’s physical condition; |
● | significant changes in the nature or extent of an asset’s use or operation; |
● | significant adverse changes in the business climate that could impact an asset’s value, including adverse actions or assessments by regulators; |
● | accumulation of costs significantly in excess of original expectations related to the acquisition or construction of an asset; |
● | current-period operating or cash flow losses combined with a history of such losses or a forecast that demonstrates continuing losses associated with an asset’s use; and |
● | expectations that it is more likely than not that an asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. |
If impairment indicators are present, we determine whether an impairment loss should be recognized by testing the applicable asset or asset group’s carrying value for recoverability. This test requires long-lived assets to be grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, the determination of which requires judgment. We estimate the undiscounted future cash flows expected to be generated from the use and eventual disposal of the assets and compare that estimate to the respective carrying values in order to determine if such carrying values are recoverable. This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived from the eventual disposal of the assets to be held and used. In our assessments, we also consider changes in asset utilization, including, if applicable, the temporary idling of capacity and the expected timing for placing this capacity back into production. If the carrying value of the assets is not recoverable, then we record a loss for the difference between the assets’ fair value and respective carrying values. We determine the fair value of the assets using an “income approach” based upon a forecast of all the expected discounted future net cash flows associated with the subject assets. Some of the more significant estimates and assumptions include market size and growth, market share, projected selling prices, manufacturing cost, and discount rate. We base estimates upon historical experience, our commercial relationships, market conditions, and available external information about future trends. We believe our current assumptions and estimates are reasonable and appropriate. Unanticipated events and changes in market conditions, however, could affect such estimates, resulting in the need for an impairment charge in future periods. There was no impairment of long-lived assets to be held and used during the years ended December 31, 2016, 2015,2019, 2018, and 2014.2017.
We perform impairment tests for intangible assets with indefinite useful lives annually, in the fourth quarter, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of an intangible asset below its carrying value. The impairment test for assets with indefinite lives consists of a comparison of the fair value of the asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. There was no impairment
We also evaluate the remaining useful life of indefinite lived intangible assets duringsubject to amortization on a periodic basis to determine whether events and circumstances would indicate impairment or warrant a revision to the years ended December 31, 2016, 2015, and 2014.
F-10
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSremaining useful life. If the estimate of an intangible asset’s remaining useful life is changed, we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.
Fair Value of Financial Instruments
Our financial instruments consist primarily of cash, accounts receivable, accounts payable, accrued expenses and accrued expenses.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 December 31, 2019 and 2018 (as disclosed in Note 8), 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. 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 |
At December 31, 20162019 and 2015,2018, we had no assets or liabilities that were valued at fair value on a recurring basis.
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. During the year ended December 31, 2019, we wrote off $78,864 in costs related to trademarks and patents, including the net carrying amount of our OPERA software patent. There was no impairment of intangible assets during the years ended December 31, 2016, 2015,2018, and 2014.2017.
Income Taxes
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates when the rate change is enacted. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
In accordance with ASC 740, Income Taxes, we recognize the effect of uncertain income tax positions only if the positions are more likely than not of being sustained in an audit, based on the technical merits of the position. We measure recognized uncertain income tax positions using the largest amount that has a likelihood of being realized that is greater than 50%. Changes in recognition or measurement are reflected in the period in which those changes in judgment occur.
F-11
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We recognize both interest and penalties related to uncertain tax positions as part of the income tax provision. At December 31, 20162019 and 2015,2018, we had no tax positions relating to open tax returns that were considered to be uncertain.
Our U.S. federal and state tax returns are subjectsince 2011, which was the first year we generated net operating losses, remain open to review by the Internal Revenue Service three years after they are filed. Currently, years filed after 2013 are subject to review.examination.
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.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. The expectedOn January 1, 2017, we began using our own stock price in our volatility of share options was estimated based on a historical volatility analysis ofcalculation 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 Company with respect to industry, stage of life cycle, market capitalization, and financial leverage.volatility calculation. Our calculation of estimated volatility is based on historical stock prices over a period equal to the expected term of the awards as we have insufficient historical information regarding our stock options to provide a basis for estimate.awards. The average expected life of options is based on the contractual terms of the stock option using the simplified method. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. Calculating share-based compensation expense requires the input of highly subjective judgment and assumptions, including forfeiture rates, estimates of expected life of the share-based award, stock price volatility and risk-free interest rates. The assumptions used in calculating the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future.
Equity instruments (“instruments”) issued to non-employees are recorded on the basis of the fair value of the instruments, as required by ASC 505, Equity - Based Payments to Non-Employees, or ASC 505. ASC 505 defines the measurement date and recognition period for such instruments. In general, the measurement date is when either (a) a performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The estimated expense is recognized each period based on the current fair value of the award. As a result, the amount of expense related to awards to non-employees can fluctuate significantly during the period from the date of the grant through the final measurement date. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in ASC 505.
We recognize the compensation expense for all share-based compensation granted net of estimated forfeitures, based on the grant date fair value estimated in accordance with ASC 718. We generally recognize the compensation expense on a straight-line basis over the employee’s requisite service period. We estimate the forfeiture rate based on our historical experience of forfeitures. If our actual forfeiture rate is materially different from our estimate, share-based compensation expense could be significantly different from what we have recorded in the current period.
F-12
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
We recognize revenue on arrangements in accordance with ASC 605, Revenue Recognition. We recognize revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability is reasonably assured.
Our OTC and prescription prenatal vitamin products are generally variations of the same product with slight modifications in formulation and marketing. The primary difference between our OTC and prescription prenatal vitamin products is the source of payment. Purchasers of our OTC prenatal vitamin products pay for the product directly while purchasers of our prescription prenatal vitamin products pay for the product primarily via third-party payers. Both OTC and prescription prenatal vitamin products share the same marketing support team utilizing similar marketing techniques. As ofEffective January 1, 2017, we ceased manufacturingaccount 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 distributing our OTC product lines, exceptsuperseded 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.
Revenue Recognition
We adopted ASC 606, Revenue from Contracts with Customers, or ASC 606, on January 1, 2018 using the modified retrospective method for Iron 21/7, which have declined steadily over time resultingall contracts not completed as of the date of adoption. ASC 606 states that a contract is considered “completed” if all (or substantially all) of the revenue was recognized in immaterial sales. Theaccordance with revenue guidance that is generated by us from major customers iswas in effect before the date of initial application. Because all generated from(or substantially all) of the revenue related to sales of our prescription prenatal vitamin products was recognized under ASC 605 prior to the date of initial application of the new standard, the contracts were considered completed under ASC 606. Based on our evaluation of ASC 606, we concluded that a cumulative adjustment was not necessary upon implementation of ASC 606 on January 1, 2018. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which is disclosedwe expect to be entitled to receive in Note 13. There are no majorexchange 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 our OTC prenatal vitaminthose goods or other products.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
Over-the-Counter Products
We generate OTC revenue from product sales primarily to retail consumers. We recognize revenue from product sales upon shipment, when the rightsAs of ownership and risk of loss have passed to the consumer. We include outbound shipping and handling fees, if any, in revenues, net, and bill them upon shipment. We include shipping expenses in cost of goods sold. A majority of our OTC customers pay forDecember 31, 2019, our products with credit cards,consisted primarily of prescription vitamins and our FDA-approved products: IMVEXXY, which we began selling during the third quarter of 2018, and BIJUVA, which we began selling in the second quarter of 2019. We started selling ANNOVERA in the third quarter of 2019 and we usually receiveexpect the cash settlementfull commercial launch of ANNOVERA in two to three banking days. Credit card sales minimize accounts receivable balances relative to OTC sales. We provide an unconditional 30-day money-back return policy under which we accept product returns from our retail and eCommerce OTC customers. We recognize revenue from OTC sales, netthe first quarter of estimated returns and sales discounts. As of January 1, 2017, we ceased manufacturing and distributing our OTC product lines, except for Iron 21/7, which have declined steadily over time resulting in immaterial sales.
Prescription Products
2020. We sell our name brand and generic prescription products primarily through wholesale distributors and retail pharmacy distributors.pharmacies. We recognize revenue from prescription product sales, net of sales discounts, chargebacks, wholesaler fees, customer rebates and estimated returns.
Revenuehave one performance obligation related to prescription products sold through wholesale distributors, which is recognizedto 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 prescriptioncustomer 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 shippedsold 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 distributorscustomer) 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 controlmagnitude of the products passesreversal if that uncertain event were to each distributor. 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.
We accept returns of unsalable prescription products sold through wholesale distributors within a return period of six months prior to and up to 12 months following product expiration. Our prescription productsvitamins and IMVEXXY currently have a shelf life of 24 months from the date of manufacture and BIJUVA and ANNOVERA currently have a shelf life of 18 months from the date of manufacture. PriorWe do not allow product returns for prescription products that have been dispensed to January 1, 2015, we deferreda patient. We estimate the recognitionamount of our product sales that may be returned by our customers and record this estimate as a reduction of revenue on prescriptionin the period the related product revenue is recognized. Where historical rates of return exist, we use history as a basis to establish a returns reserve for products sold through wholesale distributors untilshipped to wholesalers. For our newly launched products, for which the right of return no longer existed as, priorexists but for which we currently do not have history of product returns, we estimate returns based on available industry data, our own sales information and our visibility into the inventory remaining in the distribution channel. At the end of each reporting period, we may decide to that date, we could not reasonably estimateconstrain revenue for product returns based on information from various sources, including channel inventory levels and dating and sell-through data, the expiration dates of products currently being shipped, price changes of competitive products and any introductions of generic products. We recognize the amount of future returns. Asexpected returns as a refund liability, representing the obligation to return the customer’s consideration. Since our returns primarily consist of January 1, 2015,expired and short dated products that will not be resold, we began estimatingdo not record a return asset for the right to recover the goods returned by the customer at the time of the initial sale (when recognition of revenue is deferred due to the anticipated return). Return estimates are recorded in accrued expenses and reserving for returns basedother current liabilities on historical return rates, while recording actual product returns against this reserve as received.
F-13
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSthe consolidated balance sheet.
Prior to September 1, 2016, we recognized revenue related to prescription products sold through retail pharmacy distributors when the product was dispensed by the retail pharmacy distributor, at which point all revenue and discounts related to such product were known or determinable and there was no right of return with respect to such product. On September 1, 2016, we centralized the distribution channel for both our retail pharmacy distributors and wholesale distributors, in order to facilitate sales to a broader population of retail pharmacies and mitigate exposure to any one retail pharmacy. Beginning on September 1, 2016, all of our prescription products are distributed under the wholesale distributor model described above.
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. The consumer rebate program is designed to enable the end user to submit a coupon to us. If the coupon qualifies, we send a rebate check to the end user. We estimate the allowance for consumer rebates and coupons that we have offered based on our experience and industry averages, which is reviewed, and adjusted if necessary, on a quarterly basis. 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 contractscontracts. Rebate and coupon estimates and distributor fees are recorded in accrued expenses and other current liabilities on the consolidated balance sheet. We estimate chargebacks based on the number of units sold each period.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 7. 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. We consider certain payments as consideration paid to the customer and reflect such payments as a reduction of the transaction price as we do not receive a distinct good or service related to these payments. 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.
License Agreement with Knight Therapeutics Inc.
On July 30, 2018, we entered into the Knight License Agreement with Knight pursuant to which we granted Knight an exclusive license to commercialize IMVEXXY and BIJUVA in Canada and Israel. Pursuant to the terms of the Knight License Agreement, Knight will pay us a milestone fee upon first regulatory approval in Canada of each of IMVEXXY and BIJUVA, sales milestone fees based upon certain aggregate annual sales in Canada and Israel of each of IMVEXXY and BIJUVA and royalties based on aggregate annual sales of each of IMVEXXY and BIJUVA in Canada and Israel. Knight will be responsible for all regulatory and commercial activities in Canada and Israel related to IMVEXXY and BIJUVA. We may terminate the Knight License Agreement if Knight does not submit all regulatory applications, submissions and/or registrations required for regulatory approval to use and commercialize IMVEXXY and BIJUVA in Canada and Israel within certain specified time periods. We also may terminate the Knight License Agreement if Knight challenges our patents. Either party may terminate the Knight License Agreement for any material breach by the other party that is not cured within certain specified time periods or if the other party files for bankruptcy or other related matters. In connection with the Knight License Agreement, Knight entered into a subscription agreement with us, pursuant to which Knight purchased shares of our Common Stock concurrent with the closing of the underwritten public offering of Common Stock on August 6, 2018 at a price of $, for proceeds of $20,000,000.
License Agreement with Theramex
On June 6, 2019, we entered into the Theramex License Agreement with Theramex to commercialize BIJUVA and IMVEXXY in the Theramex Territory. Under the terms of the Theramex License Agreement, Theramex paid us EUR 14 million, or $15,506,400, in cash as an upfront fee on August 5, 2019. Within thirty days of signing the Theramex License Agreement, we provided Theramex the regulatory materials and clinical data that were necessary for Theramex to obtain marketing authorizations and other applicable regulatory approvals for commercializing BIJUVA and IMVEXXY. We recognized the revenue related to the upfront fee, which was a non-refundable payment, during the third quarter of 2019, at a point in time when Theramex was able to use and benefit from the license which was when the knowledge transfer of regulatory documents occurred. We are eligible to receive additional milestone payments comprised of (i) up to an aggregate of EUR 2 million in regulatory milestone payments based on regulatory approvals for BIJUVA and IMVEXXY in certain specified markets and (ii) up to an aggregate of EUR 27.5 million in sales milestone payments to be paid in escalating tranches based on Theramex first attaining certain aggregate annual net sales milestones of BIJUVA and IMVEXXY in the Theramex Territory ranging from EUR 25 million to EUR 100 million. We are also entitled to receive quarterly royalty payments at a rate of 5% on net sales of BIJUVA and IMVEXXY in the Theramex Territory. Theramex is responsible for all regulatory and commercial activities for BIJUVA and IMVEXXY in the Theramex Territory. Theramex may sublicense its rights to commercialize BIJUVA and IMVEXXY in the Theramex Territory, except for certain specified markets. We may terminate the Theramex License Agreement if Theramex does not submit all regulatory applications, submissions and/or registrations required for regulatory approval to use and commercialize BIJUVA and IMVEXXY within certain specified time periods. We also may terminate the Theramex License Agreement if Theramex challenges our patents. Either party may terminate the Theramex License Agreement for any material breach by the other party that is not cured within certain specified time periods or if the other party files for bankruptcy or other related matters.
Disaggregation of revenue
The following table provides information about disaggregated revenue by product mix for the years ended December 31, 2019, 2018, and 2017:
|
|
|
|
|
|
| ||||||
|
| For the Years Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Prescription vitamins |
| $ | 9,885,493 |
|
| $ | 15,041,259 |
|
| $ | 16,744,831 |
|
IMVEXXY |
|
| 16,252,045 |
|
|
| 1,058,201 |
|
|
| — |
|
BIJUVA |
|
| 1,836,443 |
|
|
| — |
|
|
| — |
|
ANNOVERA |
|
| 6,166,556 |
|
|
| — |
|
|
| — |
|
License revenue |
|
| 15,506,400 |
|
|
| — |
|
|
| — |
|
OTC products |
|
| — |
|
|
| — |
|
|
| 32,882 |
|
Net revenue |
| $ | 49,646,937 |
|
| $ | 16,099,460 |
|
| $ | 16,777,713 |
|
Shipping and Handling Costs
We expense all shipping and handling costs as incurred. We include these costs in cost of goods sold on the accompanying consolidated financial statements.
Segment Reporting
We are managed and operated as one1 business, which is focused on creating and commercializing products targeted exclusively for women. Our business operations are managed by a single management team that reports to the President of our Company.company. We do not operate separate lines of business with respect to any of our products and we do not prepare discrete financial information with respect to separate products. All product sales are derived from sales in the United States. Accordingly, we view our business as one reportable operating segment.
Cost of Sales
ShippingCost of sales includes the cost of inventory, manufacturing, manufacturing overhead and Handling Costs
We expense allsupply chain costs, and product shipping and handling costscosts. The Population Council License Agreement requires payment of royalties based on the sale of future products. Such royalties are recorded as incurred. We include these costs ina component of cost of goods sold onsales. Additionally, the accompanying consolidated financial statements.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.
Advertising Costs
We expense advertising costs when incurred. Advertising costs were $752,611, $792,574,$9,045,571, $1,682,746 and $698,871$448,288 during the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, respectively.
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. Advance payments to be expensed in future research and development activities are capitalized, and were $228,933 at December 31, 2016, all of which was included in other current assets on the accompanying consolidated balance sheets. Advance payments to be expensed in future R&D activities were $1,138,073 at December 31, 2015, of which $1,009,175 was included in other current assets and $128,898 was included in long term prepaid expense on the accompanying consolidated balance sheets. CRO activity expenses include preclinical laboratory experiments and clinical trial studies. Other activity expenses include regulatory consulting and legal fees andother 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. Legal activities that were classified as R&D expenses related to designing experiments to generate data for patents and to further the formulation development process for our pipeline technologies. Outside legal counsel also provided professional research and advice regarding R&D, patents and regulatory matters. These consulting and legal expenses were direct costs associated with preparing, reviewing, and undertaking work for our clinical trials and investigative drugs. We charge internal R&D activities and other activity expenses to operations as incurred. We make payments to CROs based on agreed-upon terms, which may include payments in advance of a study starting date. We expense nonrefundable advance payments for goods and services that will be used in future R&D activities when the activity has been performed or when the goods have been received rather than when the payment is made. We review and accrue CRO expenses and clinical trial study expenses based on services performed and rely on estimates of those costs applicable to the completion stage of a study as provided by CROs. Estimated accrued CRO costs are subject to revisions as such studies progress to completion. We charge revisions expenseto expenses in the period in which the facts that give rise to the revision become known.
F-14
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We calculate earnings per share, or EPS, in accordance with ASC 260, Earnings Per Share, which requires the computation and disclosure of two EPS amounts: basic and diluted. We compute basic EPS based on the weighted-average number of shares of common stock, par value $0.001 per share, or Common Stock, outstanding during the period. We compute diluted EPS based on the weighted-average number of shares of 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 warrantsrestricted stock awards 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.
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|
| |||||||||||||||||||
| As of December 31, |
| As of December 31, |
| |||||||||||||||||||||
| 2016 | 2015 | 2014 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
| Stock options | 21,767,854 | 20,725,325 | 16,792,443 |
|
|
|
|
|
|
|
|
| ||||||||||||
| Warrants | 12,060,071 | 12,722,431 | 13,927,916 |
|
|
|
|
|
|
|
|
| ||||||||||||
Restricted stock awards |
|
|
|
|
|
|
|
| — |
| ||||||||||||||
| 33,827,925 | 33,447,756 | 30,720,359 |
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Subsequent to December 31, 2016, certain individuals exercised warrants to purchase 1,800,000 shares of our Common Stock for approximately $2,436,000 in cash. See Note 15 - Subsequent Events for more details.
Concentration of Credit Risk and other Risks and Uncertainties
Financial instruments that potentially expose us to concentrations of credit risk consist primarily of cash and trade accounts receivable. Cash is on deposit with financial institutions in the United States and these deposits generally exceed the amount of insurance provided by the FDIC. The Company hasWe have not experienced any historical losses on itsour deposits of cash.
Concentration of credit risk with respect to our trade accounts receivable from our customers is primarily limited to drug wholesalers and retail pharmacy distributors. Credit is extended to our customers based on an evaluation of a customer’s financial condition, and collateral is not required.
F-15
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates, including those related to contingencies, on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, 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.
Recently Issued Accounting Pronouncements
In August 2016,2018, the FASB issued Accounting Standards Update, or ASU, 2016-15, Statement2018-13, 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 ASC 820 as part of Cash Flows (Topic 230). ASU 2016-15 is intendedits broader disclosure framework project, which aims to reduceimprove the diversityeffectiveness of disclosures in practice regarding how certain transactions are classified within the statementnotes to financial statements by focusing on requirements that clearly communicate the most important information to users of cash flows. ASU 2016-15the financial statements. The new guidance is effective for public businessall entities for annual periodsfiscal years beginning after December 15, 2017, including2019 and for interim periods within those fiscal years. Early adoptionAn entity is permitted with retrospective application.to early adopt either the entire standard or only the provisions that eliminate or modify requirements. We are currently evaluatingdo not expect that the impactadoption of this guidancestandard will have a material effect on our consolidated financial statements and disclosures.
In March 2016,June 2018, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements2018-07 to Employee Share-Based Payment Accounting. This guidance simplifies several aspects ofsimplify the accounting for employee share-based payment transactions for both public and nonpublic entities, includingpayments to non-employees by aligning it with the accounting for income taxes, forfeitures,share-based payments to employees, with certain exceptions. The new guidance expands 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 statutory tax withholding requirements, as well as classificationsupersedes the guidance in the statement of cash flows.ASC 505-50. The guidance is effective for public business entities for fiscal yearsin annual periods beginning after December 15, 2016,2018, and interim periods within those fiscal years.annual periods. Early adoption is permitted, including in any annual oran interim period for which financial statements have not been issued, or made available for issuance, but all of the guidance must be adopted in the same period. Ifnot before an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period.ASC 606. We will adopt the various amendments in ASU 2016-09 in our consolidated financial statements for the quarterly period ending March 31, 2017 with an effective date ofadopted this standard on January 1, 2017. We do not expect2019 and the adoption of these amendments tothis standard did not have a material effect on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires lessees to record most leases on their balance sheets but recognizewhile recognizing expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard iswas effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. EarlyIn July 2018, the FASB amended the new leases standard and issued ASU 2018-11, Leases, (Topic 842): Targeted Improvements to give entities another option for transition and to provide lessors with a practical expedient. We adopted ASU 2016-02 on January 1, 2019 utilizing the alternative transition method allowed for under ASU 2018-11 and we recorded a $3.8 million right of use asset and a $4.1 million liability related to adoption is permitted for all entities. We areof this standard. In addition, upon commencement of additional leased space in the processthird quarter of analyzing the quantitative impact2019 (as disclosed in Note 13), we recorded an additional $7.4 million right of this guidance on our results of operationsuse asset and financial position. While we are continuing to assess all potential impacts of the standard, we currently believe, the impact of this standard will be primarilyan additional $7.2 million liability related to the accounting for our operating lease.
F-16
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), simplifying the Measurement of Inventory. This guidance requires entities to measure inventory at the lower of cost or net realizable value rather than at the lower of cost or market (LOCOM). The guidance applies only to inventories for which cost is determined by methods other than last-in first-out (LIFO) or the retail inventory method (RIM). Entities that use LIFO or RIMnew leased space. Comparative financial information was not adjusted and will continue to usebe reported under ASC 840. We also elected the transition relief package of practical expedients and as a result we did not assess (1) whether existing impairment models. The new guidance doesor expired contracts contain leases, (2) lease classification for any existing or expired leases, and (3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less. We elected not changeto separate lease components from non-lease components for our specified asset classes. Additionally, the calculationadoption of net realizable value that entities are required to calculate when applying existing LOCOM guidance. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Under the new guidance, however, entities will no longer need to calculate other measuresstandard resulted in increased disclosure requirements in our quarterly and annual filings.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of “market.” The guidance is effective for public business entities for fiscal years beginning after December 15, 2016,Certified Public Accountants and interim periods within those fiscal years. Early adoption is permitted. We adopted ASU 2015-11 in the fourth quarter of 2016. The adoption of this ASUSEC did not, and are not expected to, have a material effect on our consolidatedresults of operations or financial statements and disclosures.position.
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, disclose that fact. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We adopted ASU 2014-15 in the fourth quarter of 2016. The adoption of this ASU did not have a material effect on our consolidated financial statements and disclosures.
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under previous guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligations. In July 2015, the FASB approved the proposal to defer the effective date of ASU 2014-09 standard by one year. Early adoption is permitted after December 15, 2016, and the standard is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods therein. In 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations (ASU 2016-08), accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10), narrow-scope improvements and practical expedients (ASU 2016-12) and technical corrections and improvements to topic 606 (ASU 2016-20) in its new revenue standard. We have performed a preliminary review of the requirements of the new revenue standard and are monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance. We have reviewed customer contracts and applied the five-step model of the new standard to our contracts as well as compared the results to our current accounting practices. At this point of our analysis, we do not believe that the adoption of this standard will have a material effect on our financial statements but will potentially expand our disclosures related to contracts with customers.
F-17
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – INVENTORY
Inventory consists of the following:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Finished product | $ | 1,062,285 | $ | 661,167 | ||||
| Raw material | 14,036 | 28,986 | ||||||
| TOTAL INVENTORY | $ | 1,076,321 | $ | 690,153 | ||||
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|
|
|
| ||||
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Finished products |
| $ | 4,976,910 |
|
| $ | 2,908,958 |
|
Work in process |
|
| 1,182,059 |
|
|
| 339,312 |
|
Raw materials |
|
| 5,701,747 |
|
|
| 19,400 |
|
TOTAL INVENTORY |
| $ | 11,860,716 |
|
| $ | 3,267,670 |
|
NOTE 4 – OTHER CURRENT ASSETS
Other current assets consist of the following:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Prepaid insurance | $ | 628,039 | $ | 695,421 | ||||
| Prepaid manufacturing costs | 991,809 | — | ||||||
| Prepaid consulting | 128,898 | 334,822 | ||||||
| Other prepaid costs | 405,960 | 369,812 | ||||||
| Prepaid vendor deposits | 44,311 | 159,489 | ||||||
| Prepaid research and development costs | 100,035 | 674,353 | ||||||
| TOTAL OTHER CURRENT ASSETS | $ | 2,299,052 | $ | 2,233,897 | ||||
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|
|
|
| ||||
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Prepaid sales and marketing costs |
| $ | 1,583,698 |
|
| $ | 5,148,789 |
|
Debt financing fees on undrawn tranches (Note 8) |
|
| 550,757 |
|
|
| 1,898,074 |
|
Prepaid insurance |
|
| 1,812,135 |
|
|
| 790,465 |
|
Prepaid manufacturing |
|
| 2,595,721 |
|
|
| — |
|
Other prepaid costs |
|
| 4,787,482 |
|
|
| 2,997,365 |
|
TOTAL OTHER CURRENT ASSETS |
| $ | 11,329,793 |
|
| $ | 10,834,693 |
|
NOTE 5 – FIXED ASSETS, NET
Fixed assets, net consist of the following:
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| ||||||||||||
| December 31, |
| December 31, |
| |||||||||||||
| 2016 | 2015 |
| 2019 |
|
| 2018 |
| |||||||||
| Accounting system | $ | 301,096 | $ | 149,699 |
| $ | 301,096 |
|
| $ | 301,096 |
| ||||
| Equipment | 215,182 | 132,150 |
|
| 1,619,646 |
|
|
| 490,576 |
| ||||||
Furniture and fixtures |
|
| 1,406,858 |
|
|
| 116,542 |
| ||||||||
| Computer hardware | 80,211 | — |
|
| 80,211 |
|
|
| 80,211 |
| ||||||
| Furniture and fixtures | 113,079 | 69,454 | ||||||||||||||
| Leasehold improvements | 37,888 | — |
|
| 68,788 |
|
|
| 37,888 |
| ||||||
| 747,456 | 351,303 | |||||||||||||||
TOTAL FIXED ASSETS |
|
| 3,476,599 |
|
|
| 1,026,313 |
| ||||||||
| Accumulated depreciation | (230,617 | ) | (152,711 | ) |
|
| (968,824 | ) |
|
| (553,630 | ) | ||||
| TOTAL FIXED ASSETS, NET | $ | 516,839 | $ | 198,592 |
| $ | 2,507,775 |
|
| $ | 472,683 |
| ||||
Depreciation expense for the years ended December 31, 2016, 2015,2019, 2018, and 20142017 was $77,906, $29,959,$415,193, $181,412, and $28,987,$141,601, respectively.
NOTE 6 –PREPAID EXPENSE
Prepaid expense consists of the following:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Prepaid manufacturing costs | $ | — | $ | 980,985 | ||||
| Prepaid research and development costs | 128,898 | |||||||
| TOTAL PREPAID EXPENSE | $ | — | $ | 1,109,883 | ||||
F-18
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 76 – INTANGIBLE ASSETS, NET
The following table sets forth the gross carrying amount, accumulated amortization and net carrying amount of our intangible assets as of December 31, 20162019 and 2015:2018:
| December 31, 2016 | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Amount | Weighted- Average Remaining Amortization Period (yrs.) | |||||||||||||
| Amortizing intangible assets: | ||||||||||||||||
| OPERA® software patent | $ | 31,951 | $ | (6,490 | ) | $ | 25,461 | 12.75 | ||||||||
| Development costs of corporate website | 91,743 | (91,743 | ) | — | n/a | |||||||||||
| Approved hormone therapy drug candidate patents | 1,093,452 | (102,393 | ) | 991,059 | 16 | |||||||||||
| Hormone therapy drug candidate patents (pending) | 1,203,987 | — | 1,203,987 | n/a | ||||||||||||
| Non-amortizing intangible assets: | ||||||||||||||||
| Multiple trademarks | 185,465 | — | 185,465 | indefinite | ||||||||||||
| TOTAL | $ | 2,606,598 | $ | (200,626 | ) | $ | 2,405,972 | |||||||||
| December 31, 2019 |
| ||||||||||||||
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Weighted- |
| |||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved hormone |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
therapy drug |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
candidate patents |
| $ | 3,463,082 |
|
| $ | (478,983 | ) |
| $ | 2,984,099 |
|
|
| 13 |
|
Hormone therapy drug |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
candidate patents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(pending) |
|
| 1,979,299 |
|
|
| — |
|
|
| 1,979,299 |
|
|
| n/a |
|
Non-amortizable intangible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple trademarks |
|
| 294,813 |
|
|
| — |
|
|
| 294,813 |
|
|
| indefinite |
|
TOTAL |
| $ | 5,737,194 |
|
| $ | (478,983 | ) |
| $ | 5,258,211 |
|
|
|
|
|
| December 31, 2018 |
| ||||||||||||||
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net |
|
| Weighted- Average |
| |||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERA software patent |
| $ | 31,951 |
|
| $ | (10,484 | ) |
| $ | 21,467 |
|
|
| 10.75 |
|
Development costs of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
corporate website |
|
| 91,743 |
|
|
| (91,743 | ) |
|
| — |
|
|
| n/a |
|
Approved hormone |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
therapy drug |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
candidate patents |
|
| 2,234,129 |
|
|
| (282,485 | ) |
|
| 1,951,644 |
|
|
| 14 |
|
Hormone therapy drug |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
candidate patents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(pending) |
|
| 1,855,279 |
|
|
| — |
|
|
| 1,855,279 |
|
|
| n/a |
|
Non-amortizable intangible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multiple trademarks |
|
| 264,289 |
|
|
| — |
|
|
| 264,289 |
|
|
| indefinite |
|
TOTAL |
| $ | 4,477,391 |
|
| $ | (384,712 | ) |
| $ | 4,092,679 |
|
|
|
|
|
| December 31, 2015 | ||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Amount | Weighted- Average Remaining Amortization Period (yrs.) | |||||||||||||
| Amortizing intangible assets: | ||||||||||||||||
| OPERA® software patent | $ | 31,951 | $ | (4,493 | ) | $ | 27,458 | 13.75 | ||||||||
| Development costs of corporate website | 91,743 | (91,743 | ) | — | n/a | |||||||||||
| Approved hormone therapy drug candidate patents | 705,752 | (49,845 | ) | 655,907 | 17 | |||||||||||
| Hormone therapy drug candidate patents (pending) | 774,165 | — | 774,165 | n/a | ||||||||||||
| Non-amortizable intangible assets: | ||||||||||||||||
| Multiple trademarks for vitamins/supplements | 157,721 | — | 157,721 | indefinite | ||||||||||||
| Total | $ | 1,761,332 | $ | (146,081 | ) | $ | 1,615,251 | |||||||||
F-19
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We capitalize external costs, consisting primarily of legal costs, related to securing our patents and trademarks. Once a patent is granted, we amortize the approved hormone therapy drug candidate patents using the straight-line method over the estimated useful life of approximately 20 years, which is the life of intellectual property patents. If the patent is not granted, we write-off any capitalized patent costs at that time. Trademarks are perpetual and are not amortized. During the yearsyear ended December 31, 2016 and 2015, there was no impairment recognized2019, we wrote off $78,864 in costs related to intangible assets.trademarks and patents, including the net carrying amount of the OPERA patent.
In addition to numerous pending patent applications, asAs of December 31, 2016,2019, we had 1729 issued domestic patents and 30 issued foreign patents, including:
● | 12 domestic patents and 6 foreign patents that relate to |
● | NaN domestic patents (5utility and 1 design) and 13 foreign patents (3 utility and 10 design) that relate to IMVEXXY. These patents establish an important intellectual property foundation for IMVEXXY and are |
● | NaN domestic utility patent that relates to our topical-cream candidates, which is owned by us. The domestic patent will expire in 2035. We have pending patent applications with respect to |
● | NaN domestic utility patent and 7 foreign patents that relate to |
● | NaN domestic utility patents that relate to TX-009HR, a progesterone and estradiol product candidate, which are owned by us and will expire in 2037. We have pending patent applications with respect to TX-009HR in the U.S., Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, New Zealand, Russia, South Africa, and South Korea. |
● | NaN domestic and 4 foreign patents that relate to formulations containing progesterone, which are owned by us. The domestic patents will expire between 2032 and 2036. The foreign patents will expire no earlier than 2033. In addition, we have pending patent applications with respect formulations containing progesterone in the U.S., Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea; |
● |
NaN domestic utility patent that relates to our OPERA |
Amortization expense was $54,545, $32,441$197,593, $112,474, and $23,480$71,516 for the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, respectively.
Estimated amortization expense, based on current patent cost being amortized, for the next five years is as follows:
| Year Ending December 31, | Estimated Amortization | |||||
| 2017 | $ | 63,938 | ||||
| 2018 | $ | 63,938 | ||||
| 2019 | $ | 63,938 | ||||
| 2020 | $ | 63,938 | ||||
| 2021 | $ | 63,938 | ||||
| Thereafter | $ | 696,830 | ||||
F-20
Year Ending |
| Estimated |
2020 |
| $229,546 |
2021 |
| $229,546 |
2022 |
| $229,546 |
2023 |
| $229,546 |
2024 |
| $229,546 |
|
|
|
THERAPEUTICSMD, INC. AND SUBSIDIARIESLicense Agreement with the Population Council
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 30, 2018, we entered into the Population Council License Agreement to commercialize ANNOVERA in the U.S. ANNOVERA became commercially available in the third quarter of 2019 and we expect the full commercial launch of ANNOVERA in the first quarter of 2020.
Under the terms of the Population Council License Agreement, we paid the Population Council a milestone payment of $20,000,000 within 30 days following the approval by the FDA of the new drug application, or NDA, for ANNOVERA and $20,000,000 within 30 days following the first commercial batch release of ANNOVERA. Both milestone payments of $20,000,000 were recorded as license rights in the consolidated balance sheets. We started amortizing the license rights in the third quarter of 2019 once ANNOVERA became commercially available for use. The cost is amortized over the remaining useful life over which the license rights will contribute directly or indirectly to our cash flows, which is estimated to be the remaining patent life of the product, which expires in December 2032. The cost is amortized using the straight-line method as the pattern of economic benefit cannot be reliably determined. During the year ended December 31, 2019, we recorded $778,692 in amortization expense related to the license fee which was recorded as a component of cost of sales.
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 $50,000,000, a royalty of 5% of net sales; (ii) for annual net sales greater than $50,000,000 and less than or equal to $150,000,000, a royalty of 10% of such net sales; and (iii) for net sales greater than $150,000,000, a royalty of 15% of such net sales. 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 the one-year vaginal contraceptive system that is launched by a third party in the U.S., and thereafter will be reduced to 20% of the initial rate. We are required to pay the Population Council 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 billion. The Population Council has agreed to perform and pay the costs and expenses associated with four post-approval studies required by the FDA for ANNOVERA and we have agreed to perform and pay the costs and expenses associated with a post approval study required by the FDA to measure risk for venous thromboembolism, provided that if the costs and expenses associated with such post-approval study exceed $20,000,000, half of such excess will be offset against royalties or other payments owed by us to the Population Council under the Population Council License Agreement. We and the Population Council have agreed to form a joint product committee responsible for overseeing activities under the Population Council License Agreement. We will be responsible for all aspects of promotion, product positioning, pricing, education programs, publications, sales messages and any additional desired clinical studies for the one-year vaginal contraceptive system, subject to oversight and decisions made by the joint product committee. The Population Council License Agreement includes exclusive rights for us to negotiate co-development of two other investigational vaginal contraceptive systems in development by the Population Council.
NOTE 87 – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
| December 31, |
|
|
|
| ||||||||||||
| 2016 | 2015 |
| December 31, |
| ||||||||||||
| Accrued clinical trial costs | $ | 1,281,080 | $ | 3,725,377 | ||||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||
| Accrued payroll, bonuses and commission costs | 3,531,440 | 2,108,143 |
| $ | 8,040,278 |
|
| $ | 6,854,002 |
| ||||||
Allowance for coupons and returns |
|
| 10,316,298 |
|
|
| 5,294,120 |
| ||||||||
Accrued sales and marketing costs |
|
| 3,285,662 |
|
|
| 2,288,028 |
| ||||||||
| Accrued compensated absences | 665,561 | 562,096 |
|
| 1,463,878 |
|
|
| 1,178,110 |
| ||||||
Allowance for wholesale distributor fees |
|
| 2,347,122 |
|
|
| 792,891 |
| ||||||||
| Accrued legal and accounting expense | 176,518 | 210,309 |
|
| 422,336 |
|
|
| 385,824 |
| ||||||
| Accrued sales and marketing costs | 665,773 | — | ||||||||||||||
Accrued research and development |
|
| 1,049,603 |
|
|
| 388,675 |
| ||||||||
Accrued rent |
|
| — |
|
|
| 365,155 |
| ||||||||
Operating lease liability |
|
| 1,501,539 |
|
|
| — |
| ||||||||
Accrued rebates |
|
| 3,916,672 |
|
|
| 412,570 |
| ||||||||
| Other accrued expenses | 224,865 | 546,264 |
|
| 1,480,225 |
|
|
| 375,573 |
| ||||||
| Allowance for wholesale distributor fees | 76,510 | 32,659 | ||||||||||||||
| Accrued royalties | 26,507 | 46,851 | ||||||||||||||
| Allowance for coupons and returns | 794,816 | 224,300 | ||||||||||||||
| Accrued rent | 181,015 | 83,527 | ||||||||||||||
| TOTAL OTHER CURRENT LIABILITIES | $ | 7,624,085 | $ | 7,539,526 |
| $ | 33,823,613 |
|
| $ | 18,334,948 |
| ||||
NOTE 8 – DEBT
On April 24, 2019, we entered into a Financing Agreement, as amended on December 27, 2019, 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 a $300,000,000 first lien secured term loan credit facility, or the Facility. The Facility provides for availability to us in three tranches: (i) $200,000,000 was drawn upon entering into the Financing Agreement; (ii) $50,000,000 will be available to us in the Administrative Agent’s sole and absolute discretion either contemporaneously with the delivery of our financial statements for the fiscal quarter ending June 30, 2020 or at such earlier date as the Administrative Agent shall have consented to; and (iii) $50,000,000 was drawn on February 18, 2020 following our achievement of more than $11,000,000 in net revenues from IMVEXXY, BIJUVA and ANNOVERA for the fourth quarter of 2019. Borrowings under the Facility accrue interest at either (i) 3-month LIBOR plus 7.75%, subject to a LIBOR floor of 2.70% or (ii) the prime rate plus 6.75%, subject to a prime rate floor of 5.2% as selected by us. Interest on amounts borrowed under the Facility is payable quarterly. The outstanding principal amount of the Facility is payable in 4 equal quarterly installments beginning on June 30, 2023, with the Facility maturing on March 31, 2024. We have the right to prepay borrowings under the Facility in whole or in part at any time, subject to a prepayment fee on the principal amount being prepaid of (i) 30.0% for the first two years following the initial funding date of the applicable borrowing, (ii) 5.0% for the third year following the initial funding date of the applicable borrowing, (iii) 3.0% for the fourth year following the initial funding date of the applicable borrowing and (iv) 1.0% for the fifth year following the initial funding date of the applicable borrowing but prior to March 31, 2024. In connection with the initial borrowing under the Facility, we paid, for the benefit of the lenders, a facility fee equal to 2.5% of the initial amount borrowed and will be required to pay such a facility fee in connection with any subsequent borrowings under the Facility. We are also required to pay the Administrative Agent and the lenders an annual administrative fee in addition to other fees and expenses. The Financing Agreement contains customary mandatory prepayments, restrictions and covenants applicable to us that are customary for financings of this type. Among other requirements, we are required to (i) maintain a minimum unrestricted cash balance of $50,000,000, which will increase to $60,000,000 if we draw either the second or third tranche of the Facility, and (ii) achieve certain minimum consolidated net revenue amounts attributable to commercial sales of our IMVEXXY, BIJUVA and ANNOVERA products beginning with the fiscal quarter ending December 31, 2020. The Financing Agreement also includes other representations, warranties, indemnities and events of default that are customary for financings of this type, including an event of default relating to a change of control of the Company. Upon or after an event of default, the Administrative Agent and the lenders may declare all or a portion of our obligations under the Financing Agreement to be immediately due and payable and exercise other rights and remedies provided for under the Financing Agreement. The obligations of our company and its subsidiaries under the Financing Agreement are secured, subject to customary permitted liens and other agreed upon exceptions, by a first priority perfected security interest in all existing and after acquired assets of our company and its subsidiaries. The obligations under the Financing Agreement will be guaranteed by each of our future direct and indirect subsidiaries, subject to certain exceptions.
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 $200,000,000, or the Term Loan. Under the terms of the Credit Agreement, the Term Loan was available to be made in 3 separate tranches, with each tranche to be made available to us, at our option, upon our achievement of certain milestones. Amounts borrowed under the Term Loan bore interest at a rate equal to the sum of (i) one-month LIBOR (subject to a LIBOR floor of 1.50%) plus (ii) 7.75% per annum.
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 $81,661,000 was used to repay all amounts outstanding under the Credit Agreement, which included a prepayment fee of 4%, a repayment fee of 4% and other fees and expenses payable to the lenders under the Credit Agreement. As a result of the termination of the Credit Agreement, we recorded $10,057,632 in loss on extinguishment of debt in the accompanying consolidated financial statements. Interest on amounts borrowed under the Term Loan was due and payable monthly in arrears. Interest expense for the year ending December 31, 2019 related to the Credit Agreement was $1,816,747. During the year ended December 31, 2019, and prior to the repayment of the Credit Agreement, we amortized $120,146 of deferred financing fees as interest expense in our accompanying consolidated financial statements and during the year ended December 31, 2018, we amortized $269,859, of debt issuance costs as interest expense in our accompanying consolidated financial statements.
As of December 31, 2019, we had $200,000,000 in borrowings outstanding under the Financing Agreement, which are classified as long-term debt in the accompanying consolidated financial statements. During the year ended December 31, 2019, we incurred $6,652,270 in deferred financing fees related to the Financing Agreement. Deferred financing fees related to the entire Financing Agreement have been allocated pro rata between the funded and unfunded portions of each tranche. Allocated deferred financing fees related to the first tranche of borrowings of $6,101,513 have been reflected as a debt discount and are accreted to interest expense using the effective interest method. Deferred financing fees associated with unfunded tranches were deferred as assets until the respective tranche has been drawn. As of December 31, 2019, deferred financing fees related to the unfunded tranches were included in other current assets in the accompanying consolidated financial statements. During the year ended December 31, 2019, we amortized $736,156 of deferred financing fees related to the first tranche as interest expense in the accompanying consolidated financial statements. Interest on amounts borrowed under the Financing Agreement is due and payable quarterly in arrears. Interest expense for the year ended December 31, 2019 was $14,709,166. The overall effective interest rate under the Financing Agreement was approximately 11% as of December 31, 2019.
As of December 31, 2019 and 2018, the carrying value of our debt consisted of the following:
|
|
|
|
| ||||
|
| As of December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Financing Agreement |
| $ | 200,000,000 |
|
| $ | — |
|
Credit Agreement |
|
| — |
|
|
| 75,000,000 |
|
Debt discount and financing fees |
|
| (5,365,357 | ) |
|
| (1,618,986 | ) |
TOTAL LONG-TERM DEBT |
| $ | 194,634,643 |
|
| $ | 73,381,014 |
|
NOTE 9 – STOCKHOLDERS’ EQUITY
Preferred Stock
At December 31, 2016,2019, we had shares of preferred stock,Preferred Stock, par value $0.001,$, authorized for issuance, of which no shares of preferred stockPreferred Stock were issued or outstanding.
Common Stock
At December 31, 2016,2019, we had shares of Common Stock authorized for issuance, of which 196,688,222 shares of our Common Stock were issued and outstanding.
Issuances During 20162019
On January 6, 2016,October 24, 2019, we entered into an underwriting agreement with Goldman Sachs & Co. and Cowen and Company,J.P. Morgan Securities LLC, as the representativesrepresentative of the several underwriters, or the Underwriters, relating to an underwritten public offering of 15,151,515 shares of our Common Stock at a public offering price of $8.25$ per share. Under the terms of the underwriting agreement, weWe granted the Underwritersunderwriters an option, exercisable for a 30-day optionperiod of 30 days, to purchase up to an aggregate of 2,272,727 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $134.9 million,$77,031,000, after deducting the underwriting discountsdiscount and commissions and other estimated offering expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of our Common Stock.October 29, 2019.
During the year ended December 31, 2016,2019, certain individuals exercised stock options to purchase 525,362an aggregate of shares of Common Stock for $989,060$108,656 in cash. Also, during the same period,year ended December 31, 2019, stock options to purchase 127,109an aggregate of 12,097 shares of Common Stock were exercised pursuant to the options’ cashless exercise provisions, which resulted in shares of Common Stock being issued.
Issuances During 2018
On August 1, 2018, we entered into an underwriting agreement with Goldman Sachs & Co. LLC, as representative of the underwriters, relating to an underwritten public offering of shares of our Common Stock at a price of $ per share. We granted the underwriters an option, exercisable for a period of 30 days, to purchase up to additional shares of Common Stock. On August 2, 2018, the underwriters exercised the option in full. The net proceeds to us from the offering, including the exercise of the option to purchase additional shares, were approximately $69,908,000, after deducting the underwriting discount and offering expenses payable by us. The offering closed on August 6, 2018. In connection with the Knight License Agreement, on August 6, 2018, Knight entered into a subscription agreement with us, pursuant to which Knight purchased of shares of our Common Stock concurrently with the closing of the underwritten public offering of Common Stock at a price of $, for proceeds to us of $20,000,000.
During the year ended December 31, 2018, certain individuals exercised stock options to purchase an aggregate of shares of Common Stock for $1,666,208 in cash. Also, during the year ended December 31, 2018, stock options to purchase an aggregate of 10,000 shares of Common Stock were exercised pursuant to the options’ cashless exercise provisions, wherein 87,833 shares of Common Stock were issued.
F-21
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Issuances During 20152017
On July 9, 2015,September 25, 2017, we entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated and GuggenheimJ.P. Morgan Securities LLC as the representatives of the several underwriters, or the Stifel Underwriters, relating to an underwritten public offering of 3,846,154 shares of our Common Stock at a public offering price of $7.80$ per share. Under the terms of the underwriting agreement, we granted the Stifel Underwriters a 30-day option to purchase up to an aggregate of 576,923 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $32.2 million,$68,573,000, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on July 15, 2015September 28, 2017 and we issued 4,423,077 shares of our Common Stock.
On February 10, 2015, we entered into an underwriting agreement, or the Cowen Agreement, with Cowen and Company, LLC, as the representative of the several underwriters, or the Cowen Underwriters, relating to an underwritten public offering of 13,580,246 shares of Common Stock, at a public offering price of $4.05 per share. Under the terms of the Cowen Agreement, we granted the Cowen Underwriters a 30-day option to purchase up to an aggregate of 2,037,036 additional shares of Common Stock, which option was exercised in full. The net proceeds from the offering were approximately $59.1 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on February 17, 2015 and we issued 15,617,282 shares of our Common Stock.
During the year ended December 31, 2015,2017, certain individuals exercised stock options to purchase 612,867an aggregate of shares of Common Stock for $1,232,579$212,615 in cash. Also during the same period, stock options to purchase 417 shares of Common Stock were exercised pursuant to the options’ cashless exercise provisions, wherein 114 shares of Common Stock were issued.
Issuances During 2014
On July 29, 2014, we entered into an underwriting agreement with Goldman Sachs & Co, or Goldman Sachs, as the representative of the underwriters named therein, or the Goldman Sachs Underwriters, relating to an underwritten public offering of 8,565,310 shares of Common Stock. The price to the public in the offering was $4.67 per share. Under the terms of the underwriting agreement, we granted the Goldman Sachs Underwriters a 30-day option to purchase up to an additional 1,284,796 shares of Common Stock. On July 30, 2014, the Goldman Sachs Underwriters exercised their option to purchase the additional 1,284,796 shares of Common Stock. Net proceeds from this offering were approximately $42.8 million, after deducting underwriting discounts and commissions and other offering expenses. The offering closed on August 4, 2014 and we issued 9,850,106 shares of our Common Stock.
During the year ended December 31, 2014, certain individuals exercised stock options to purchase 860,800 shares of our Common Stock. Stock options to purchase shares of our Common Stock were exercised as follows: (i) 724,193 options for $345,746 in cash and (ii) 136,607 options, pursuant to the stock options’ cashless provision, wherein 130,380 shares of Common Stock were issued. In addition, during 2014, we issued 50,000 shares of Common Stock to an employee upon the vesting of restricted stock units that were granted in December 2013.
F-22
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants to Purchase Common Stock
As of December 31, 2016,2019, we had warrants outstanding to purchase an aggregate of 12,060,0711,832,571 shares of our Common Stock with a weighted-average contractual remaining life of 1.0approximately 1.95 years, and exercise prices ranging from $0.24$0.24 to $8.20$8.20 per share, resulting in a weighted average exercise price of $2.08$2.62 per share.
The valuation methodology used to determine the fair value of our warrants is the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions, including volatility of the stock price, the risk-free interest rate, dividend yield and the term of the warrant.
During the year ended December 31, 2016,2019, we granted warrants to purchase 245,000an aggregate of shares of Common Stock to outside consultants at the weighted average price of $7.90 per share. These warrants vest and have expiration dates as follows: warrants to purchase 75,000 shares of Common Stock vested on April 21, 2016 and have an expiration date of April 21, 2021, warrants to purchase 50,000 shares of Common Stockwhich vest ratably over a 24-month-month period and have an expiration date of April 21, 2021, andFebruary 13, 2024. During the year ended December 31, 2018, we granted warrants to purchase 120,000an aggregate of shares of Common Stock to outside consultants which vest ratableratably over a 12-month-month period and have an expiration date of January 21, 2021.March 15, 2023. During the year ended December 31, 2015,2017, we granted warrants to purchase 50,000an aggregate of shares of Common Stock to an outside consultant at an exercise price of $6.35 vestingconsultants which vest ratably over a -month period withand have an expiration date of April 6, 2020. March 15, 2022.
We recorded share-based compensation expense related to warrants previously issued of $936,974, $139,142$, $, and $36,284$ for the years ended December 31, 2016, 2015,2019, 2018 and 2014,2017, respectively, in the accompanying consolidated financial statements. At December 31, 2019, total unrecognized estimated compensation expense related to unvested warrants was approximately $ which is expected to be recognized over weighted-average period of years.
Summary of our Warrant activity during the year ended December 31, 2016:2019:
| Number of Shares Under Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
| Balance at December 31, 2015 | 12,722,431 | $ | 1.93 | 1.7 | $ | 107,344,752 | ||||||||||
| Granted | 245,000 | $ | 7.90 | |||||||||||||
| Exercised | (722,744 | ) | $ | 1.90 | $ | 3,988,343 | ||||||||||
| Expired | (184,616 | ) | $ | 0.41 | ||||||||||||
| Cancelled/Forfeited | — | |||||||||||||||
| Balance at December 31, 2016 | 12,060,071 | $ | 2.08 | 1.0 | $ | 45,063,867 | ||||||||||
| Vested and Exercisable at December 31, 2016 | 11,733,410 | $ | 2.06 | 1.0 | $ | 43,998,535 | ||||||||||
| Unvested at December 31, 2016 | 326,661 | $ | 2.81 | 1.7 | $ | 1,065,332 | ||||||||||
F-23
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
| Number of Shares Under Warrants |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life in Years |
|
| Aggregate Intrinsic Value |
| ||||
Balance at December 31, 2018 |
|
|
|
| $ | 2.78 |
|
|
|
|
| $ |
| |||
Granted |
|
|
|
| $ | 5.63 |
|
|
|
|
|
|
|
|
| |
Exercised |
|
| ) |
| $ | 3.20 |
|
|
|
|
|
| $ |
| ||
Expired |
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
Cancelled/Forfeited |
|
| — |
|
|
| — |
|
|
|
|
|
|
| — |
|
Balance at December 31, 2019 |
|
|
|
| $ | 2.62 |
|
|
|
|
| $ |
| |||
Vested and Exercisable at December 31, 2019 |
|
|
|
| $ | 2.60 |
|
|
|
|
| $ |
| |||
Unvested at December 31, 2019 |
|
|
|
| $ | 5.63 |
|
|
|
|
|
| — |
| ||
| 2016 | 2015 | 2014 |
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
| Weighted average price | $7.90 | $6.35 | n/a | ||||||||||||||
Weighted average exercise price |
| $ | 5.63 |
|
| $ | 5.16 |
|
| $ | 6.83 |
| |||||
| Weighted average grant date fair value | $4.78 | $3.27 | n/a |
| $ | 3.00 |
|
| $ | 2.79 |
|
| $ | 3.67 |
| ||
| Risk-free interest rate | 1.04-1.28% | 1.02% | n/a |
|
| 2.52 | % |
|
| 2.36 | % |
|
| 1.47 | % | ||
| Volatility | 74.10-74.15% | 60.59% | n/a |
|
| 60.8 | % |
|
| 62.12 | % |
|
| 63.24 | % | ||
| Term (in years) | 5 | 5 | n/a |
|
|
|
|
|
|
|
|
| |||||
| Dividend yield | 0.00% | 0.00% | n/a |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % | ||
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the term of the instrument. The estimated volatility is an average of the historical volatility of the stock prices of our peer entities whose stock prices were publicly available. Our calculation of estimated volatility is based on historical stock prices over a period equal to the term of the instrument as we have insufficient historical information regarding our stock options to provide a basis for estimate. The expected volatility of warrants was estimated based on a historical volatility analysis of peers that were similar to the Company with respect to industry, stage of life cycle, market capitalization, and financial leverage.Warrant exercises
In January 2013, we issued warrants to purchase 1,250,000 shares of our Common Stock in connection with the issuance of a Multiple Advance Revolving Credit Note to Plato and Associates, LLC, or the Plato Warrant. The Plato Warrant has an exercise price of $3.20 per share. The Plato Warrant vested on October 31, 2013 and may be exercised prior to its expiration on January 31, 2019. The Plato Warrant, with a fair value of approximately $1,711,956, was valued on the date of the grant using a term of six years; a volatility of 44.29%; risk free rate of 0.88%; and a dividend yield of 0%. During the yearsyear ended December 31, 2016, 2015, 2014, and 2013, $0, $0, and $260,027, respectively, was recorded as financing costs in connection with the issuance of the Plato Warrant on the accompanying consolidated financial statements.
In May 2013, we entered into a consulting agreement with Sancilio and Company, Inc., or SCI, to develop drug platforms to be used in our hormone replacement drug candidates. These services include support of our efforts to successfully obtain U.S. Food and Drug Administration, or the FDA, approval for our drug candidates, including a vaginal capsule for the treatment of vulvar and vaginal atrophy, or VVA. In connection with the agreement, SCI agreed to forfeit its rights to receive warrants to purchase 833,000 shares of our Common Stock that were to be granted pursuant to the terms of a prior consulting agreement dated May 17, 2012. As consideration under the agreement, we agreed to issue to SCI a warrant to purchase 850,000 shares of our Common Stock at $2.01 per share that has vested or will vest, as applicable, as follows:
F-24
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 2012, we issued2019, warrants to purchase an aggregate of 1,300,000 shares of Common Stock to an unaffiliated entity for services to be rendered over approximately five years beginning in May 2012. The warrants vested upon issuance. Services provided are to include (a) services in support of our drug development efforts, including services in support our ongoing and future drug development and commercialization efforts, regulatory approval efforts, third-party investment and financing efforts, marketing efforts, chemistry, manufacturing and controls efforts, drug launch and post-approval activities, and other intellectual property and know-how transfer associated therewith; (b) services in support of our efforts to successfully obtain New Drug Approval; and (c) other consulting services as mutually agreed upon from time to time in relation to new drug development opportunities. The warrants were valued at $1,532,228 on the date of the issuance using an exercise price of $2.57; a term of five years; a volatility of 44.71%; risk free rate of 0.74%; and a dividend yield of 0%. At December 31, 2016, we had $128,898 reported as prepaid expense-short term associated with these warrants. During the years ended December 31, 2016, 2015, and 2014, we recorded $257,796, $257,796, and $309,165, respectively as non-cash compensation with respect to these warrants in the accompanying consolidated financial statements. The contract will expire upon the commercial manufacture of a drug product. We have determined that the process will take approximately five years.
As of December 31, 2016, unamortized costs associated with the SCI warrants issued in 2013 and 2012 totaled approximately $128,898 and will be recognized over a period of six months.
Warrant exercises
During the year ended December 31, 2016, certain individuals exercised warrants to purchase 722,744 shares of Common Stock for $1,373,000 in cash.
During the year ended December 31, 2015, certain individuals and an entity exercised warrants to purchase 1,255,485 shares of Common Stock as follows: (i) 945,485 shares of Common Stock were issued for $366,000 in cash and (ii) warrants to purchase 310,000 shares of Common Stock were exercised pursuant to the warrants’ cashless exercise provisions, wherein 232,197which resulted in 471,184 shares of Common Stock werebeing issued.
During the year ended December 31, 2014,2018, 0 warrants were exercised.
During the year ended December 31, 2017, certain individuals exercised warrants to purchase 365,583an aggregate of shares of Common Stock for $181,000$3,798,999 in cash.
Subsequent to In addition, during the year ended December 31, 2016,2017, certain individuals exercised warrants to purchase 1,800,000an aggregate of shares of our Common Stock for approximately $2,436,000pursuant to the warrants’ cashless exercise provisions, which resulted in cash.4,762,208 shares of Common Stock being issued.
Options to Purchase Common Stock of the Company
In 2009, we adopted the 2009 Long Term Incentive Compensation Plan, or the 2009 Plan, to provide financial incentives to employees, directors, advisers, and consultants of our company who are able to contribute towards the creation of or who have created stockholder value by providing them stock options and other stock and cash incentives, or the Awards. The Awards available under the 2009 Plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock or cash awards as described in the 2009 Plan. There are 25,000,000 shares authorized for issuance thereunder. Generally, the options vest annually over four years or as determined by our board of directors, upon each option grant. Options may be exercised by paying the price for shares or on a cashless exercise basis after they have vested and prior to the specified expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally ten years from the date the option is issued. As of December 31, 2016,2019, there were non-qualified stock options to purchase 17,899,380an aggregate of shares of Common Stock outstanding under the 2009 Plan. AsEffective upon our adoption of December 31, 2016, there were 2,952,128 shares available tothe TherapeuticsMD, Inc. 2019 Stock Incentive Plan, or the 2019 Plan, on June 20, 2019, no future awards may be issuedmade under the 2009 Plan.
F-25
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2019, there were non-qualified stock options to purchase an aggregate of shares of Common Stock outstanding and an aggregate of restricted stock awards 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 20122019 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 20122019 Plan. Generally, the options vest annually over four years or as determined by our board of directors, upon each option grant. Options may be exercised by paying the price for shares or on a cashless exercise basis after they have vested and prior to the specified expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally ten years from the date the option is issued. There are 10,000,000
As of December 31, 2019, there were shares of Common Stock authorizedavailable for issuance thereunder.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 December 31, 2016,2019, there were non-qualified stock options to purchase 3,868,474 shares of Common Stock outstanding under the 20122019 Plan and restricted stock awards outstanding under the 2019 Plan. As of December 31, 2016, there were 6,050,000 shares available to be issued under 2012 Plan.
The valuation methodology used to determine the fair value of stock options is the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the risk-free interest rate, and the expected life of the stock options.
| 2016 | 2015 | 2014 |
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Weighted average exercise price |
| $ |
|
| $ |
|
| $ |
| ||||||||
Weighted average grant date fair value |
| $ | 1.82 |
|
| $ | 3.24 |
|
| $ | 3.82 |
| |||||
| Risk-free interest rate | 1.13-1.90% | 1.47-1.67% | 0.07-1.77% |
|
| - | % |
|
| - | % |
|
| - | % | ||
| Volatility | 70.26-73.34% | 58.78-62.94% | 68.05-82.29% |
|
| - | % |
|
| - | % |
|
| - | % | ||
| Term (in years) | 5.5-6.25 | 5.27-6.25 | 5-6.25 |
|
| - |
|
|
| - |
|
|
| - |
| ||
| Dividend yield | 0.00% | 0.00% | 0.00% |
|
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % | ||
F-26
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of activity under the 2009, 2012 and 20122019 Plans and related information during the year ended December 31, 20162019 is as follows:
| Number of Shares Under Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value |
| Number of Shares Under Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Life in Years |
|
| Aggregate Intrinsic Value |
| |||||||||||||||||
| Balance at December 31, 2015 | 20,725,325 | $ | 3.28 | 6.5 | $ | 146,864,184 | ||||||||||||||||||||||||||
Balance at December 31, 2018 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||||||||||||||||
| Granted | 1,732,500 | $ | 6.22 |
|
|
|
| $ |
|
|
|
|
|
|
|
|
| |||||||||||||||
| Exercised | (652,471 | ) | $ | 1.91 | $ | 3,828,358 |
|
| ) |
| $ |
|
|
|
|
|
| $ |
| |||||||||||||
| Expired | (5,750 | ) | $ | 4.76 |
|
| ) |
| $ |
|
|
|
|
|
|
|
|
| ||||||||||||||
| Cancelled/Forfeited | (31,750 | ) | $ | 6.38 |
|
| ) |
| $ |
|
|
|
|
|
|
|
|
| ||||||||||||||
| Balance at December 31, 2016 | 21,767,854 | $ | 3.56 | 5.8 | $ | 60,495,730 | ||||||||||||||||||||||||||
| Vested and Exercisable at December 31, 2016 | 18,633,479 | $ | 3.09 | 5.3 | $ | 59,382,849 | ||||||||||||||||||||||||||
| Unvested at December 31, 2016 | 3,134,375 | $ | 6.29 | 9.0 | $ | 1,112,881 | ||||||||||||||||||||||||||
Balance at December 31, 2019 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||||||||||||||||
Vested and Exercisable at December 31, 2019 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||||||||||||||||
Unvested at December 31, 2019 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||||||||||||||||||
At December 31, 2016,2019, our outstanding options had exercise prices ranging from $0.10$ to $8.92$ per share. The weighted average grant date fair value of options granted during the year ended December 31, 2016 was $3.94 per share.
Share-based compensation expense related to options recognized in our results of operations for the years ended December 31, 2016, 2015,2019, 2018, and 20142017 was approximately $16,139,225, $6,621,658,$, $, and $4,393,455,$, respectively, and it is based on awards vested. We estimate forfeitures at the time of grant and revise the forfeiture rate in subsequent periods if actual forfeitures differ from the estimates. At December 31, 2016,2019, total unrecognized estimated compensation expense related to unvested options was approximately $10,669,000,$, which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period of 2.6 years. No tax benefit was realized due to a continued pattern of operating losses.
Restricted Stock
In December 2013, weRestricted stock awards granted a restricted stock unit, or the RSU, under our 2009, 2012 Planand 2019 Plans entitle the holder to an employee for 50,000receive, 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 having aon 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.
On December 13, 2018, we granted an aggregate of restricted stock units to certain executive employees which will vest at the end of the third year. The grant date fair value was $ per unit. At December 31, 2019, of $233,500.those restricted stock units vested due to an employment termination. On July 30, 2019, we granted an aggregate of restricted stock units to certain executive employees which will vest on January 31, 2022. The grant date fair value was $ per unit. During the year ended December 31, 20142019 and 2018, we recorded $180,072 of non-cash$1,628,407 and $73,132, respectively, in share-based compensation expense related to restricted stock units. At December 31, 2019, total unrecognized estimated compensation expense related to unvested restricted stock units 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. At December 31, 2019, we had restricted stock awards outstanding.
Cash-Settled Stock Appreciation Rights (SARs)
On July 1, 2018, we issued cash-settled SARs to certain consultants and employees. The SARs plan year began on July 1, 2018 and ended on or immediately following June 30, 2019. SARs were granted with a grant price equal to the RSUmarket value of a share of our Common Stock on the accompanyingdate of grant. Cash-settled SARs provided for the cash payment of the excess of the fair market value of our Common Stock on June 30, 2019 over the grant price. Cash-settled SARs have no effect on dilutive shares or shares outstanding as any appreciation of our Common Stock over the grant price is paid in cash and not in Common Stock.
Cash settled SARs were recorded in our consolidated financial statements.balance sheets as a liability until the date of exercise. The RSUfair value of each SAR award was issued inestimated using the Black-Scholes valuation model. In accordance with ASC Topic 718, Stock Compensation, the fair value of each SAR award was recalculated at the end of each reporting period and the liability and expense adjusted based on the new fair value and the percent vested. At June 2014.30, 2019, the fair market value of our Common Stock was lower than the grant price of the SARs and, as a result, the recorded liability was reversed and no cash payment was made.
NOTE 10 – INCOME TAXES
For financial reporting purposes, income before taxes includes the following components:
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||
United States |
| $ | (176,144,999 | ) |
| $ | (132,617,160 | ) |
| $ | (76,925,380 | ) |
Total |
| $ | (176,144,999 | ) |
| $ | (132,617,160 | ) |
| $ | (76,925,380 | ) |
For the years ended December 31, 2016, 2015,2019, 2018, and 2014,2017, there was no provision for income taxes, current or deferred.
At December 31, 2016,2019, we had a federal net operating loss carry forward of $268,199,351 available to offset future taxable income through 2036. Theapproximately $620,354,163. Approximately $338,775,332 of the federal carryforwardsnet operating loss carry forward can be carried forward for 20 years and will begin to expire in 2031.
F-27
THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS2031. The remaining $281,578,831 can be carried forward indefinitely.
A reconciliation between taxes computed at the federal statutory rate and the consolidated effective tax rate is as follows:
| 2016 | 2015 | 2014 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
| Federal statutory tax rate | 34.0 | % | 34.0 | % | 34.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 34.0 | % | ||||||
| State tax rate, net of federal tax benefit | 5.4 | % | 4.73 | % | 5.8 | % |
|
| 4.0 | % |
|
| 5.2 | % |
|
| 5.0 | % | ||||||
| Adjustment in valuation allowances | (40.3 | )% | (38.97 | )% | (50.9 | )% |
|
| (22.5 | )% |
|
| (31.2 | )% |
|
| 22.6 | % | ||||||
Excess stock benefits |
|
| 0.2 | % |
|
| 5.3 | % |
|
| — | % | ||||||||||||
Federal income tax rate change |
|
| 0 | % |
|
| — | % |
|
| (60.8 | )% | ||||||||||||
| Permanent and other differences | 0.9 | % | 0.24 | % | 11.1 | % |
|
| (2.7 | )% |
|
| (0.3 | )% |
|
| (0.8 | )% | ||||||
| Provision (benefit) for income taxes | — | % | — | % | — | % |
|
| — |
|
|
| — |
|
|
| — |
| ||||||
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
The components of the net deferred income tax asset as of December 31, 2016, 2015,2019, 2018, and 20142017 are as follows:
| 2016 | 2015 | 2014 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
| Deferred Income Tax Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
| Net operating losses | $ | 111,730,450 | $ | 79,499,633 | $ | 43,091,437 |
| $ | 180,520,709 |
|
| $ | 140,891,764 |
|
| $ | 99,596,321 |
| ||||||
| R&D Credit | 186,347 | 186,347 | — |
|
| 186,347 |
|
|
| 186,347 |
|
|
| 186,347 |
| |||||||||
| Total deferred income tax asset | 111,916,797 | 79,685,980 | 43,091,437 |
|
| 180,707,056 |
|
|
| 141,078,111 |
|
|
| 99,782,668 |
| |||||||||
| Valuation allowance | (111,916,797 | ) | (79,685,980 | ) | (43,091,437 | ) |
|
| (180,707,056 | ) |
|
| (141,078,111 | ) |
|
| (99,782,668 | ) | ||||||
| Deferred income tax assets, net | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||
We believe that it is more likely than not that we will not generate sufficient future taxable income to realize the tax benefits related to the deferred tax assets on our balance sheet and as such, a valuation allowance has been established against the deferred tax assets for the period ended December 31, 2016.2019.
Unrecognized Tax Benefits
As of the period ended December 31, 2016,2019, we have no unrecognized tax benefits.
On December 22, 2017, the U.S. federal government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or the Tax Act. The Tax Act makes broad and complex changes to the U.S. federal tax code, including, but not limited to reducing the U.S. federal corporate tax rate from 34 percent to 21 percent, effective January 1, 2018. As the result of our initial analysis of the impact of the Tax Act, we recorded a provisional amount of net tax expense of $46.7 million in 2017 related to the remeasurement of our deferred tax balances and other effects. We completed our accounting for the income tax effects of the Tax Act in 2018, and no material adjustments were required to the provisional amounts initially recorded.
NOTE 11 – RELATED PARTIES
In July 2015, J. Martin Carroll, a director of our Company,company, was appointed to the board of directors of Catalent, Inc. From time to time, we have entered into agreements with Catalent, Inc. and its affiliates, 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 Companycompany, since July 2015. During the years ended December 31, 20162019, 2018 and 2015, the amounts2017, we were billed by Catalent were approximately $3,647,000$6,101,000, $4,111,000 and $1,266,000,$3,646,000, respectively, for manufacturing activities related to our clinical trials, scale-up, registration batches, stability and validation testing. As of December 31, 20162019 and 20152018, there were amounts due to Catalent of approximately $57,000$35,000 and $4,600,$88,000, respectively.
On February 29, 2012, Cooper C. Collins, who was then president and largest shareholder of Pernix Therapeutics, LLC, or Pernix, was elected to serve on our board of directors. From time to time, In addition, we have entered into agreementsminimum purchase requirements in place with PernixCatalent as disclosed in the normal course of business. All such agreements are reviewed by independent directors of our company or a committee consisting of independent directors of our company. During the year ended December 31, 2015, we entered into a settlement agreement with Pernix according to which Pernix paid us $175,000 in cash for legal fee reimbursement relating to a litigation matter stemming from a licenseNote 13, Commitments and supply agreement, resulting in the elimination of an approximately $46,000 outstanding payable and $250,000 outstanding receivable and the recording of approximately $29,000 in settlement fees on the accompanying consolidated financial statements.Contingencies.
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THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - – BUSINESS CONCENTRATIONS
We purchase our prescription products from several suppliers with approximately 98%24%, 60%27% and 82%35% of our purchases supplied by one3 vendors each, respectively, during the year ended December 31, 2019, 43%, 33% and 24% of our purchases supplied by 3 vendors each, respectively, during the year ended December 31, 2018, and 100% of our purchases supplied by 1 vendor for the yearsyear ended December 31, 2016, 2015 and 2014, respectively.2017.
We sell our prescription prenatal vitamin products to wholesale distributors, specialty pharmacies, specialty distributors, and chain drug stores that generally sell products to retail pharmacies, hospitals, and other institutional customers. During each of the years ended December 31, 2016, 20152019, 2018 and 2014; three, two and four2017, 4 customers each respectively, generatedaccounted for more than 10%10% of our total prescription revenues. Revenue generatedPrescription revenue from three majorthe four customers combined accounted for approximately 41%73%, 76%, and 59% of our prescription revenue duringfor the yearyears ended December 31, 2016. Revenue generated from two major customers combined accounted for approximately 67% of our revenue during the year ended December 31, 2015. Revenue generated from four major customers combined accounted for approximately 75% of our recognized revenue during the year ended December 31, 2014.2019, 2018 and 2017, respectively.
During the year ended December 31, 2016, Woodstock Pharmaceutical and Compounding generated2019, McKesson Corporation accounted for approximately $2,247,000$3,911,000 of our revenue; Medical Center Pharmacy generatedprescription revenue, Pillpack, Inc. accounted for approximately $3,700,000$12,676,000 of our prescription revenue, AmerisourceBergen accounted for approximately $3,927,000 of our prescription revenue and Pharmacy Innovations PA generatedCardinal Health accounted for approximately $2,040,000$4,551,000 of our prescription revenue. During the year ended December 31, 2015, Woodstock Pharmaceutical and Compounding generated2018, McKesson Corporation accounted for approximately $8,848,000$1,610,000 of our prescription revenue, Pillpack, Inc. accounted for approximately $5,075,000 of our prescription revenue, AmerisourceBergen accounted for approximately $3,246,000 of our prescription revenue and Due West Pharmacy generatedCardinal Health accounted for approximately $4,843,000$2,308,000 of our prescription revenue. During the year ended December 31, 2014,2017, AmerisourceBergen generated approximately $1,610,000, McKesson generated approximately $1,587,000, Cardinal generated approximately $1,804,000 and Woodstock Pharmaceutical and Compounding generated approximately $4,054,000 in sales, respectively.
As a result of developments in the pharmaceutical industry that negatively affected independent pharmacies, including such pharmacies’ reliance on third party payors, in 2016, we identified that payment periods for our retail pharmacy distributors were becoming longer than in prior years. As a result, during the third quarter of 2016, we centralized the distribution channel for both our retail pharmacy distributors and wholesale distributors, in order to facilitate sales to a broader population of retail pharmacies and minimize business risk exposure to any one retail pharmacy. During the third quarter of 2016, we entered into new distribution agreements with our retail pharmacy distributors to effectuate this centralization which were effective September 1, 2016.
Prior to January 1, 2015, we deferred the recognition of revenue on prescription products until the right of return no longer existed as prior to that date, we could not reasonably estimate the amount of future returns. Revenue generated by major customers accounted for approximately 97%$2,667,000 of deferredour prescription revenue; McKesson Corporation accounted for approximately $1,959,000 of our prescription revenue; Cardinal Health accounted for approximately $2,559,000 of our prescription revenue and Pharmacy Innovations PA accounted for the year ended December 31, 2014. Asapproximately $2,715,000 of January 1, 2015, we started estimating returns based on historical return rates and recorded actual product returns against this reserve as received. As a result, no deferred revenue was recorded for the years ended December 31, 2016 and 2015.our prescription revenue.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Operating LeaseLeases
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 63-month63-month term. On February 18, 2015, we entered into an agreement with the same lessors to lease additional administrative office space in the same location, pursuant to an addendum to such lease. In addition, on April 26, 2016, we entered into an agreement with the same lessors to lease additional administrative office space in the same location. This agreement was effective beginning May 1, 2016 and extended the original expiration of the lease term to October 31, 2021. On October 4, 2016, we entered into an agreement with the same lessors to lease additional administrative office space in the same location, pursuant to an addendum to such lease. This addendum isbecame effective beginning November 1, 2016.
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THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2018, we entered into a lease for new corporate offices in Boca Raton, Florida. The rentallease includes 56,212 rentable square feet, or the full premises, of which the lease on 7,561 square feet commenced in 2018 and the lease on the remaining 48,651 square feet commenced in August 2019, or the full premises commencement date. The lease will expire 11 years after the full premises commencement date, unless terminated earlier in accordance with the terms of the lease. We have the option to extend the term of the lease for 2 additional consecutive periods of five years. The extension option is not included in the determination of the lease term as it is not reasonably certain to be exercised. The term of the lease includes escalating rent and free rent periods. We are also responsible for certain other operating costs under the lease, including electricity and utility expenses. In June 2019, we entered into an agreement with the same lessors to lease additional 6,536 square feet of administrative office space in the same location, pursuant to an addendum to such lease, which is expected to commence as soon as the first quarter of 2020.
Supplemental lease information at December 31, 2019 |
|
| ||
Right-of-use asset |
| $ | 10,109,154 |
|
Short-term operating lease liability (included in Other current liabilities) |
| $ | 1,501,539 |
|
Long-term operating lease liability |
| $ | 9,145,049 |
|
Weighted average remaining term |
|
| 9 Years |
|
Weighted average discount rate |
|
| 8.25 | % |
Supplemental cash flow information for the year ended |
|
|
| |
Cash paid for amounts included in the measurement of lease liabilities for operating lease |
| $ | 1,164,234 |
|
Right-of-use assets obtained in exchange for lease obligation |
| $ | 11,171,471 |
|
The following table reconciles the undiscounted cash flows for all operating leases at December 31, 2019 to the operating lease liabilities recorded on the balance sheet:
Years Ending December 31, |
|
| ||
2020 |
| $ | 1,566,617 |
|
2021 |
|
| 2,198,541 |
|
2022 |
|
| 1,262,302 |
|
2023 |
|
| 1,293,859 |
|
2024 |
|
| 1,326,206 |
|
Thereafter |
|
| 8,036,931 |
|
Total undiscounted lease payments |
|
| 15,684,456 |
|
Less: imputed interest |
|
| (5,037,868 | ) |
Present value of lease payments |
| $ | 10,646,588 |
|
During the year ended December 31, 2019, operating lease expense related to our currentreal estate leases was $1,558,794, and variable lease expense was insignificant. The rental expense during the years ended December 31, 2016, 20152018 and 20142017 was $709,483, $446,099$1,068,275 and $361,793,$1,029,205, respectively.
Intellectual Property Licenses
The rental expensePopulation 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 6, 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 ended December 31, 2014 was partially offset by rent incomeand a higher number of $41,613. We didsoftgels after the first contract year. If the minimum order quantities of specific products are not sublet any spacemet, we are required to pay Catalent 50% of the difference between the total amount we would have paid to Catalent if the minimum requirement had been fulfilled and the sum of all purchases of our products from Catalent during the contract year. Minimum purchase commitments for Catalent for the next five years ended December 31, 2016are as follows: 2020 – $5,650,853; 2021 – $4,000,035; 2022 – $5,643,291; 2023 – $6,445,301 and 2015.
2024 – $6,758,945. In addition, we have a manufacturing and supply agreement whereby we are required to purchase a minimum number of units of ANNOVERA during a contract year. The minimum purchase commitment for ANNOVERA for 2020 is approximately $1,049,750. As of December 31, 2016, future2019, we have met our minimum rental payments on non-cancelable operating leases are as follows:purchase commitments with our manufacturers related to fiscal year 2019.
| Years Ending December 31, | ||||||
| 2017 | $ | 864,827 | ||||
| 2018 | 942,305 | |||||
| 2019 | 1,083,890 | |||||
| 2020 | 1,102,667 | |||||
| 2021 | 934,313 | |||||
| Total minimum lease payments | $ | 4,928,002 | ||||
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 December 31, 2016, 2015,2019, 2018, and 2014,2017, we had no off-balance sheet arrangements that have had or are reasonably likely to have current or future effecteffects 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.
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THERAPEUTICSMD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal years 20162019 and 20152018 is as follows:
| 2016 Quarters |
| 2019 |
| |||||||||||||||||||||||||||||
| (In thousands, except per share) | 1st | 2nd | 3rd | 4th |
| First |
|
| Second Quarter(1) |
|
| Third |
|
| Fourth Quarter |
| ||||||||||||||||
| Revenues | $ | 4,930 | $ | 4,403 | $ | 5,536 | $ | 4,487 |
| $ | 3,947 |
|
| $ | 6,079 |
|
| $ | 23,719 |
|
| $ | 15,902 |
| ||||||||
| Gross profit | $ | 3,822 | $ | 3,273 | $ | 4,298 | $ | 3,778 |
| $ | 3,184 |
|
| $ | 4,830 |
|
| $ | 22,275 |
|
| $ | 13,023 |
| ||||||||
| Net loss | $ | (20,929 | ) | $ | (21,094 | ) | $ | (25,016 | ) | $ | (22,836 | ) |
| $ | (39,506 | ) |
| $ | (55,237 | ) |
| $ | (31,967 | ) |
| $ | (49,435 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Loss per common share, basic and diluted | $ | (0.11 | ) | $ | (0.11 | ) | $ | (0.13 | ) | $ | (0.12 | ) |
| $ | (0.16 | ) |
| $ | (0.23 | ) |
| $ | (0.13 | ) |
| $ | (0.19 | ) | ||||
| 2015 Quarters |
| 2018 |
| |||||||||||||||||||||||||||||
| (In thousands, except per share) | 1st | 2nd | 3rd | 4th |
| First |
|
| Second Quarter |
|
| Third |
|
| Fourth Quarter |
| ||||||||||||||||
| Revenues | $ | 4,475 | $ | 4,848 | $ | 5,190 | $ | 5,630 |
| $ | 3,773 |
|
| $ | 3,763 |
|
| $ | 3,474 |
|
| $ | 5,089 |
| ||||||||
| Gross profit | $ | 3,431 | $ | 3,815 | $ | 3,996 | $ | 4,395 |
| $ | 3,139 |
|
| $ | 3,309 |
|
| $ | 2,775 |
|
| $ | 4,139 |
| ||||||||
| Net loss | $ | (20,895 | ) | $ | (27,227 | ) | $ | (19,472 | ) | $ | (17,483 | ) |
| $ | (24,402 | ) |
| $ | (33,219 | ) |
| $ | (35,605 | ) |
| $ | (39,391 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Loss per common share, basic and diluted | $ | (0.13 | ) | $ | (0.16 | ) | $ | (0.11 | ) | $ | (0.10 | ) |
| $ | (0.11 | ) |
| $ | (0.15 | ) |
| $ | (0.16 | ) |
| $ | (0.17 | ) | ||||
(1) | During the second quarter of 2019, we recorded $10.1 million in loss on extinguishment of debt related to the repayment of the Credit Agreement. Refer to discussion in Note 8-Debt. |
(2) | During the third quarter of 2019, we recorded $15.5 million in license revenue related to the Theramex License Agreement. Refer to discussion in Note 2-Summary of Significant Accounting Policies. |
NOTE 15 – SUBSEQUENT EVENTS
SubsequentOn February 18, 2020, we received $50,000,000 under the Financing Agreement following our achievement of more than $11,000,000 in net revenues from IMVEXXY, BIJUVA and ANNOVERA for the fourth quarter of 2019 (refer to December 31, 2016, certain individuals exercised warrants to purchase 1,800,000 shares of Common Stock for approximately $2,436,000discussion in cash.Note 8-Debt).
F-27