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EX-32.1 - SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - TherapeuticsMD, Inc.ex32-1.htm
EX-32.2 - SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER - TherapeuticsMD, Inc.ex32-2.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - TherapeuticsMD, Inc.ex31-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - TherapeuticsMD, Inc.ex31-1.htm
EX-10.1 - THIRD AMENDMENT TO LEASE - TherapeuticsMD, Inc.ex10-1.htm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

  

For the quarterly period ended September 30, 2016

 

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

 

For the transition period from________ to ___________

 

Commission File No. 001-00100

 

  THERAPEUTICSMD, INC.  
(Exact Name of Registrant as Specified in Its Charter)

 

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

 

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

       

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

 

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

 

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

 

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

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

 

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

 

The number of shares outstanding of the registrant’s common stock, par value $0.001 per share, as of October 31, 2016 was 196,580,212.

 

 
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES
INDEX
         
        Page
PART I - FINANCIAL INFORMATION    
         
  Item. 1 Financial Statements    
         
    Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015   3
         
    Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 (Unaudited) and 2015 (Unaudited)   4
         
    Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 (Unaudited) and 2015 (Unaudited)   5
         
    Notes to Consolidated Financial Statements   6
         
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   20
         
  Item 3. Quantitative and Qualitative Disclosures about Market Risk   32
         
  Item 4. Controls and Procedures   32
         
Part II - OTHER INFORMATION   33
         
  Item 1. Legal Proceedings   33
         
  Item 1A. Risk Factors   33
         
  Item 6. Exhibits   33

 

  2  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES 

CONSOLIDATED BALANCE SHEETS

 

    September 30, 2016     December 31, 2015  
    (Unaudited)    
         
ASSETS  
Current Assets:                
Cash   $ 147,534,065     $ 64,706,355  
Accounts receivable, net of allowance for doubtful accounts of $113,034 and $81,910, respectively     5,033,298       3,049,715  
Inventory     843,398       690,153  
Other current assets     2,693,475       2,233,897  
Total current assets     156,104,236       70,680,120  
                 
Fixed assets, net     460,546       198,592  
                 
Other Assets:                
Intangible assets, net     2,118,378       1,615,251  
Prepaid expense           1,109,883  
Security deposit     139,036       125,000  
Total other assets     2,257,414       2,850,134  
Total assets   $ 158,822,196     $ 73,728,846  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current Liabilities:                
Accounts payable   $ 4,224,419     $ 3,126,174  
Other current liabilities     8,243,421       7,539,526  
Total current liabilities     12,467,840       10,665,700  
Total liabilities     12,467,840       10,665,700  
                 
Commitments and Contingencies - See Note 15                
                 
Stockholders’ Equity:                
Preferred stock - par value $0.001; 10,000,000 shares authorized; no shares issued and outstanding            
Common stock - par value $0.001; 350,000,000 shares authorized; 196,580,212 and 177,928,041 issued and outstanding, respectively     196,580       177,928  
 Additional paid in capital     433,023,801       282,712,078  
 Accumulated deficit     (286,866,025 )     (219,826,860 )
Total stockholders’ equity     146,354,356       63,063,146  
Total liabilities and stockholders’ equity   $ 158,822,196     $ 73,728,846  

 

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

 

  3  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2016     2015     2016     2015  
                 
Revenues, net   $ 5,535,685     $ 5,190,175     $ 14,869,023     $ 14,513,158  
                                 
Cost of goods sold     1,237,446       1,193,965       3,475,997       3,270,695  
Gross profit     4,298,239       3,996,210       11,393,026       11,242,463  
                                 
Operating expenses:                                
Sales, general, and administration     14,721,710       7,060,944       35,019,268       20,089,998  
Research and development     14,664,123       16,421,753       43,602,333       58,789,302  
Depreciation and amortization     40,460       16,548       84,319       44,400  
Total operating expense     29,426,293       23,499,245       78,705,920       78,923,700  
                                 
Operating loss     (25,128,054 )     (19,503,035 )     (67,312,894 )     (67,681,237 )
                                 
Other income:                                
Miscellaneous income     109,942       27,630       265,879       71,728  
Accreted interest     2,451       2,760       7,850       15,162  
Total other income     112,393       30,390       273,729       86,890  
                                 
Loss before taxes     (25,015,661 )     (19,472,645 )     (67,039,165 )     (67,594,347 )
                                 
Provision for income taxes                        
                                 
Net loss   $ (25,015,661 )   $ (19,472,645 )   $ (67,039,165 )   $ (67,594,347 )
                                 
Net loss per share, basic and diluted   $ (0.13 )   $ (0.11 )   $ (0.34 )   $ (0.39 )
                                 
Weighted average number of common shares outstanding, basic and diluted     196,502,327       177,206,168       195,912,173       171,589,595  

 

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

 

  4  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

    Nine Months Ended  
    September 30, 2016     September 30, 2015  
         
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (67,039,165 )   $ (67,594,347 )
Adjustments to reconcile net loss to net cash flows used in operating activities:                
Depreciation of fixed assets     45,759       22,104  
Amortization of intangible assets     38,560       22,296  
Provision for doubtful accounts     2,261,568       37,163  
Share-based compensation     13,385,215       4,740,906  
Changes in operating assets and liabilities:                
Accounts receivable     (4,245,151 )     (1,549,532 )
Inventory     (153,245 )     312,054  
Other current assets     379,930       (621,923 )
Other assets           (15,162 )
Accounts payable     1,098,245       (1,025,504 )
Deferred revenue           (522,613 )
Other current liabilities     703,895       2,546,138  
Other long-term liabilities           1,213,874  
Net cash used in operating activities     (53,524,389 )     (62,434,546 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Patent costs     (541,686 )     (117,992 )
Purchase of fixed assets     (307,714 )     (15,559 )
Payment of security deposit     (14,036 )      
Net cash used in investing activities     (863,436 )     (133,551 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sale of common stock, net of costs     134,863,475       91,374,649  
Proceeds from exercise of warrants     1,373,000       366,000  
Proceeds from exercise of options     979,060       589,829  
Net cash provided by financing activities     137,215,535       92,330,478  
                 
Increase in cash     82,827,710       29,762,381  
Cash, beginning of period     64,706,355       51,361,607  
Cash, end of period   $ 147,534,065     $ 81,123,988  

 

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

 

  5  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – THE COMPANY

 

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

 

Nature of Business

 

We are a women’s health care product company focused on developing and commercializing products targeted exclusively for women. As of the date of these unaudited consolidated financial statements, we are focused on conducting the clinical trials and pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of our advanced hormone therapy pharmaceutical products. The drug candidates used in our 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 equivalent clinical efficacy at lower doses, thereby enabling an enhanced side effect profile compared with competing products. Our drug candidates are developed using our SYMBODA technology 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, vitamins.

 

NOTE 2 – BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

Interim Financial Statements

 

The accompanying unaudited interim consolidated financial statements of TherapeuticsMD, Inc., which include our wholly owned subsidiaries, should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission, or the SEC, from which we derived the accompanying consolidated balance sheet as of December 31, 2015. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, since they are interim statements, the accompanying unaudited interim consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of our management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year or any other interim period in the future.

 

Recently Issued Accounting Pronouncements

 

In August 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

  6  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any annual or 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. If 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. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

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 RIM will continue to use existing impairment models. The new guidance does not change the calculation 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 measures of “market.” The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this guidance, if any, on our consolidated financial statements and disclosures.

 

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 do not expect the adoption of ASU 2014-15 to 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) as well as accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10) and narrow-scope improvements and practical expedients (ASU 2016-12) in its new revenue standard. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

  7  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

At September 30, 2016 and December 31, 2015, we had no assets or liabilities that were valued at fair value on a recurring basis. The fair value of indefinite-lived assets or long-lived assets is measured on a non-recurring basis using significant unobservable inputs (Level 3) in connection with our impairment test. There was no impairment of intangible assets or long-lived assets during the three and nine months ended September 30, 2016 and 2015.

 

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. The revenue that is generated by us from major customers is all generated from sales of our prescription prenatal vitamin products which is disclosed in Note 14. There are no major customers for our OTC prenatal vitamin or other products.

 

  8  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Over-the-Counter Products

 

We generate OTC revenue from product sales primarily to retail consumers. We recognize revenue from product sales upon shipment, when the rights of ownership and risk of loss have passed to the consumer. We include outbound shipping and handling fees in revenues, net, and bill them upon shipment. We include shipping expenses in cost of goods sold. A majority of our OTC customers pay for our products with credit cards, and we usually receive the cash settlement in two to three banking days. Credit card sales minimize accounts receivable balances relative to OTC sales. We provide an unconditional 30-day money-back return policy under which we accept product returns from our retail and eCommerce OTC customers. We recognize revenue from OTC sales, net of estimated returns, sales discounts, and eCommerce fees.

 

Prescription Products

 

We sell our name brand and generic prescription products primarily through drug wholesalers and retail pharmacies. We recognize revenue from prescription product sales, net of sales discounts, chargebacks, and customer rebates. We accept returns of unsalable prescription products from customers within a return period of six months prior to and up to 12 months following product expiration. Our prescription products currently have a shelf life of 24 months from the date of manufacture. We estimate returns based on historical return rates and recorded actual product returns against this reserve as received. 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.

 

Share-Based Compensation

 

We measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include options, restricted stock, restricted stock units, performance-based awards, share appreciation rights, and employee share purchase plans. As such, compensation cost is measured on the date of grant at fair value. We amortize such compensation amounts, if any, over the requisite 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. 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 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.

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

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.

 

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 $244,335 at September 30, 2016, all of which was included in other current assets on the accompanying consolidated balance sheets. Advance payments to be expensed in future research and development 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 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 expense in the period in which the facts that give rise to the revision become known.

 

Segment Reporting

 

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

 

NOTE 4 – INVENTORY

 

Inventory consists of the following:

 

    September 30,
2016
    December 31,
2015
 
Finished product   $ 816,400     $ 661,167  
Raw material     26,998       28,986  
     TOTAL INVENTORY   $ 843,398     $ 690,153  

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – OTHER CURRENT ASSETS

 

Other current assets consist of the following:

 

    September 30,
2016
    December 31,
2015
 
Prepaid insurance   $ 842,020     $ 695,421  
Prepaid manufacturing costs     988,835        
Prepaid consulting     193,347       334,822  
Other prepaid costs     318,407       369,812  
Prepaid vendor deposits     299,878       159,489  
Prepaid research and development costs     50,988       674,353  
     TOTAL OTHER CURRENT ASSETS   $ 2,693,475     $ 2,233,897  

 

NOTE 6 – FIXED ASSETS, NET

 

Fixed assets consist of the following:

 

    September 30,
2016
    December 31,
2015
 
Accounting system   $ 296,746     $ 149,699  
Equipment     164,013       132,150  
Computer hardware     80,211        
Furniture and fixtures     80,158       69,454  
Leasehold improvements     37,888        
      659,016       351,303  
Accumulated depreciation     (198,470 )     (152,711 )
     TOTAL FIXED ASSETS, NET   $ 460,546     $ 198,592  

 

Depreciation expense for the three months ended September 30, 2016 and 2015 was $26,543 and $7,856, respectively, and $45,759 and $22,104 for the nine months ended September 30, 2016 and 2015, respectively, which was included in operating expenses in the accompanying consolidated financial statements.

 

NOTE 7 – PREPAID EXPENSE

 

Prepaid expense consists of the following:

 

    September 30,
2016
    December 31,
2015
 
Prepaid manufacturing costs   $     $ 980,985  
Prepaid research and development costs           128,898  
     TOTAL PREPAID EXPENSE   $     $ 1,109,883  

 

  11  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 – INTANGIBLE ASSETS, NET

 

The following table sets forth the gross carrying amount and accumulated amortization of our intangible assets as of September 30, 2016 and December 31, 2015:

 

    September 30, 2016  
    Gross
Carrying
Amount
    Accumulated
Amortization
    Net
Amount
    Weighted-
Average
Remaining
Amortization
Period (yrs.)
 
Amortizing intangible assets:                                
OPERA® software patent   $ 31,951     $ (5,991 )   $ 25,960       13  
Development costs of corporate website     91,743       (91,743 )           n/a  
Approved hormone therapy drug candidate patents     959,059       (86,907 )     872,152       16.25  
Hormone therapy drug candidate patents (pending)     1,037,829             1,037,829       n/a  
Non-amortizing intangible assets:                                
Multiple trademarks     182,437             182,437       indefinite  
TOTAL   $ 2,303,019     $ (184,641 )   $ 2,118,378          

 

    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-amortizing intangible assets:                                
Multiple trademarks     157,721             157,721       indefinite  
TOTAL   $ 1,761,332     $ (146,081 )   $ 1,615,251          

 

  12  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED 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. As of September 30, 2016, the remaining life related to OPERA® patent was approximately 13 years and the remaining life related to the approved hormone therapy drug candidate patents was approximately 16 years.

 

In addition to numerous pending patent applications, as of September 30, 2016, we had 17 issued patents, including:

 

13 utility patents that relate to our combination progesterone and estradiol product candidates, which are owned by us and are U.S. jurisdiction patents with expiration dates in 2032.  We have pending patent applications with respect to certain of these patents in Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea;
two utility patents that relate to TX-004HR, our applicator-free vaginal estradiol softgel product candidate, which establish an important intellectual property foundation for TX-004HR, which are owned by us and are U.S. jurisdiction patents with expiration dates in 2033 and 2032.  We have pending patent applications with respect to certain of these patents in Argentina, Australia, Brazil, Canada, Europe, Israel, Japan, Mexico, Russia, South Africa, and South Korea;
one utility patent that relates to a pipeline transdermal patch technology, which is owned by us and is a U.S. jurisdiction patent with an expiration date in 2032.  We have pending patent applications with respect to this technology in Australia, Brazil, Canada, Europe, Mexico, Japan, and South Africa; and
one utility patent that relates to our OPERA® information technology platform, which is owned by us and is a U.S. jurisdiction patent with an expiration date in 2029.

 

Amortization expense was $13,917 and $8,692 for the three months ended September 30, 2016 and 2015, respectively and $38,560 and $22,296 for the nine months ended September 30, 2016 and 2015, respectively. Estimated amortization expense for the next five years is as follows:

 

Year Ending December 31,     Estimated
Amortization
 
2016 (3 months)     $ 13,917  
2017     $ 55,668  
2018     $ 55,668  
2019     $ 55,668  
2020     $ 55,668  

 

  13  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

NOTE 9 – OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

    September 30, 
2016
    December 31,
2015
 
Accrued clinical trial costs   $ 3,778,784     $ 3,725,377  
Accrued payroll, bonuses and commission costs     1,622,333       2,108,143  
Accrued compensated absences     772,958       562,096  
Accrued legal and accounting expense     377,172       210,309  
Accrued sales and marketing costs     617,961        
Other accrued expenses     231,037       546,264  
Allowance for wholesale distributor fees     100,434       32,659  
Accrued royalties     27,495       46,851  
Allowance for coupons and returns     564,864       224,300  
Accrued rent     150,383       83,527  
     TOTAL OTHER CURRENT LIABILITIES   $ 8,243,421     $ 7,539,526  

 

NOTE 10 – NET LOSS PER SHARE

 

We calculate basic and diluted net loss per share allocable to common stockholders using the weighted-average number of shares of common stock, par value $0.001 per share, or Common Stock outstanding during the period, less any shares subject to repurchase or forfeiture. There were no shares of our Common Stock outstanding subject to repurchase or forfeiture for the three and nine months ended September 30, 2016 and 2015.

 

Since we are in a net loss position, we have excluded outstanding stock options, all of which are subject to forfeiture, as well as warrants for the purchase of our Common Stock from our calculation of diluted net loss per share. The table below presents potentially dilutive securities that could affect our calculation of diluted net loss per share allocable to common stockholders for the periods presented.

 

    Three and Nine months ended,  
    2016     2015  
Stock options     20,705,923       17,414,242  
Warrants     12,060,571       12,722,431  
     TOTAL     32,766,494       30,136,673  

 

NOTE 11 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

At September 30, 2016, we had 10,000,000 shares of Preferred Stock, par value $0.001, authorized for issuance, of which no shares of Preferred Stock were issued or outstanding.

 

Common Stock

 

At September 30, 2016, we had 350,000,000 shares of Common Stock authorized, of which 196,580,212 shares of Common Stock were issued and outstanding.

 

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THERAPEUTICSMD, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

On January 6, 2016, we entered into an underwriting agreement with Goldman Sachs & Co. and Cowen and Company, LLC, as the representatives of the several underwriters, or the Underwriters, relating to an underwritten public offering of 15,151,515 shares of our Common Stock at a public offering price of $8.25 per share. Under the terms of the underwriting agreement, we granted the Underwriters a 30-day option to purchase up to an aggregate of 2,272,727 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $134.9 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of our Common Stock.

 

On July 9, 2015, we entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated and Guggenheim 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 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, after deducting underwriting discounts and commissions and other estimated offering expenses 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 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 to us 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.

 

Exercises During 2016

 

During the three months ended September 30, 2016, certain individuals exercised stock options to purchase 127,109 shares of Common Stock. Stock options to purchase shares of Common Stock were exercised as follows: (i) 10,000 options for $1,018 in cash and (ii) 117,109 options, pursuant to the stock options’ cashless provision, wherein 78,017 shares of Common Stock were issued. During the nine months ended September 30, 2016, certain individuals exercised stock options to purchase 544,277 shares of Common Stock. Stock options to purchase shares of Common Stock were exercised as follows: (i) 427,168 options for $979,060 in cash and (ii) 117,109 options, pursuant to the stock options’ cashless provision, wherein 78,017 shares of Common Stock were issued.

 

Exercises During 2015

 

During the three months ended September 30, 2015, certain individuals exercised stock options to purchase 95,000 shares of Common Stock for $98,478 in cash. During the nine months ended September 30, 2015, certain individuals exercised stock options to purchase 472,867 shares of Common Stock for $589,829 in cash.

 

Warrants to Purchase Common Stock

 

As of September 30, 2016, we had warrants outstanding to purchase an aggregate of 12,060,571 shares of Common Stock with a weighted-average contractual remaining life of 1.3 years, and exercise prices ranging from $0.24 to $8.20 per share, resulting in a weighted average exercise price of $2.08 per share.

 

The valuation methodology used to determine the fair value of our warrants is the Black-Scholes-Merton valuation model, or the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions, including volatility of the stock price, the risk-free interest rate and the term of the warrant.

 

  15  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

During the three months ended September 30, 2016 and 2015, we did not issue any warrants. During the nine months ended September 30, 2016, we granted warrants to purchase 245,000 shares of Common Stock to outside consultants at a weighted average exercise price of $7.90 per share. The weighted average grant date fair value of these warrants was $4.78 per share. The fair value for these warrants was determined by using the Black-Scholes Model on the date of the grant using a term of five years; volatility of 74.10%-74.15%; risk free rate of 1.04%-1.28%; and dividend yield of 0%. These warrants vest and have expiration dates as follows: warrants to purchase 75,000 shares of Common Stock vested on April 21, 2016 and have an expiration date of April 21, 2021, warrants to purchase 50,000 shares of Common Stock vest ratably over a 24-month period and have an expiration date of April 21, 2021, and warrants to purchase 120,000 shares of Common Stock vest ratable over a 12-month period and have an expiration date of January 21, 2021. During the nine months ended September 30, 2015, we granted warrants to purchase 50,000 shares of Common Stock to an outside consultant at an exercise price of $6.35 and the expiration date of April 6, 2020. We recorded share-based compensation expense related to these warrants totaling $137,161 and $42,266 for the three months ended September 30, 2016 and 2015, respectively, and $820,751 and $86,008 for the nine months ended September 30, 2016 and 2015, respectively, in the accompanying consolidated financial statements.

 

In May 2013, we entered into a consulting agreement to develop drug platforms to be used in our hormone replacement drug candidates. As consideration under the agreement, we agreed to issue the consultant a warrant to purchase 850,000 shares of our Common Stock at $2.01 per share that has vested or will vest as follows:

 

1. Warrants to purchase 283,333 shares were earned on May 11, 2013 upon acceptance of an Investigational New Drug application by FDA for an estradiol-based drug candidate in a softgel vaginal capsule for the treatment of VVA; however, pursuant to the terms of the agreement, the shares did not vest until June 30, 2013;
2. Warrants to purchase 283,333 shares vested on June 30, 2013. The fair value of $462,196 for these shares was determined by using the Black-Scholes Model on the date of the vesting using a term of five years; a volatility of 45.84%; risk free rate of 1.41%; and a dividend yield of 0%. During the three months ended September 30, 2016 and 2015, we recorded share-based compensation expense of $0 and $38,517, respectively, related to these warrants and during the nine months ended September 30, 2016 and 2015, we recorded $77,026 and $115,551, respectively, related to these warrants in the accompanying consolidated financial statements. As of June 30, 2016, the fair value of these warrants has been fully amortized;
3. Warrants to purchase 283,334 shares will vest upon the receipt by us of any final FDA approval of a drug candidate which the warrant holder helped us design. It is anticipated that this event will not occur before March 31, 2017.

 

In addition, during both the three months ended September 30, 2016 and 2015, we recorded share-based compensation expense of $64,449 and during both the nine months ended September 30, 2016 and 2015, we recorded share-based compensation expense of $193,347 related to warrants issued in 2012 for services in support of our drug development efforts. As of September 30, 2016, unamortized costs associated with warrants issued to the same holder in 2012 and 2013 totaled approximately $193,347 and will be recognized over a period of nine months.

 

During the three months ended September 30, 2016, no warrants were exercised and during the three months ended September 30, 2015, certain individuals and an entity exercised warrants to purchase 310,000 shares of Common Stock pursuant to the warrants’ cashless exercise provisions, wherein 232,197 shares of Common Stock were issued. During the nine months ended September 30, 2016, certain individuals exercised warrants to purchase 722,744 shares of our Common Stock for $1,373,000 in cash and during the nine months ended September 30, 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 232,197 shares of Common Stock were issued.

 

  16  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

Options to Purchase Common Stock

 

In 2009, we adopted the 2009 Long Term Incentive Compensation Plan, or the 2009 Plan, to provide financial incentives to employees, directors, advisers, and consultants of our company who are able to contribute towards the creation of or who have created stockholder value by providing them stock options and other stock and cash incentives, or the Awards. The Awards available under the 2009 Plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance units, and other stock or cash awards as described in the 2009 Plan. There are 25,000,000 shares authorized for issuance thereunder. During the nine months ended September 30, 2016, we granted 557,500 non-qualified stock options under the 2009 Plan. As of September 30, 2016, there were non-qualified stock options to purchase 17,837,449 shares of Common Stock outstanding and stock options to purchase 3,122,069 shares of Common Stock available to be issued under 2009 Plan.

 

In 2012, we adopted the 2012 Stock Incentive Plan, or the 2012 Plan, a non-qualified plan that was amended in August 2013. The 2012 Plan was designed to serve as an incentive for retaining qualified and competent key employees, officers, directors, and certain consultants and advisors of our company. There are 10,000,000 shares of Common Stock authorized for issuance thereunder. As of September 30, 2016, there were non-qualified stock options to purchase 2,868,474 shares of Common Stock outstanding and stock options to purchase 7,050,000 shares of Common Stock available to be issued under 2012 Plan.

 

The valuation methodology used to determine the fair value of stock options is the Black-Scholes Model. The Black-Scholes Model requires the use of a number of assumptions including volatility of the stock price, the risk-free interest rate, and the expected life of the stock options. The assumptions used in the Black-Scholes Model for options granted during the nine months ended September 30, 2016 and 2015 are set forth in the table below.

 

    Nine Months Ended September 30,  
    2016     2015  
Risk-free interest rate     1.13-1.70 %     1.47-1.54 %
Volatility     70.26-71.22 %     58.77-62.94 %
Term (in years)     6.00-6.25       5.27-6.25
Dividend yield     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 expected term. Estimated volatility is a measure of the amount by which the price of our Common Stock is expected to fluctuate each year during the term of an award. Our 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 awards. We used the historical volatility of our peer entities due to the lack of sufficient historical data on our stock price. The expected term is based on the contractual terms of the stock option using the simplified method.

 

  17  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

A summary of activity under the 2009 and 2012 Plans and related information follows:

 

    Number of
Shares
Underlying
Stock
Options
    Weighted
Average
Exercise
Price
    Weighted 
Average 
Remaining 
Contractual
Life in Years
    Aggregate
Intrinsic
Value
 
Balance at December 31, 2015     20,725,325     $ 3.28       6.5     $ 146,864,184  
   Granted     557,500     $ 7.37                  
   Exercised     (544,277 )   $ 2.27           $ 3,100,742  
   Expired/Forfeited     (32,625 )   $ 6.22                  
Balance at September 30, 2016     20,705,923     $ 3.42       5.8     $ 77,940,710  
Vested and Exercisable at September 30, 2016     17,336,805     $ 2.69       5.2     $ 75,393,944  
Unvested at September 30, 2016     3,369,118     $ 7.17       8.8     $ 2,546,766  

 

At September 30, 2016, our outstanding stock options had exercise prices ranging from $0.10 to $8.92 per share. The weighted average grant date fair value per share of options granted was $4.70 and $3.49 during the nine months ended September 30, 2016 and 2015, respectively. Share-based compensation expense for options recognized in our results of operations is based on vested awards. Share-based compensation expense related to options for the three months ended September 30, 2016 and 2015 was $3,982,759 and $1,626,862, respectively, and $12,294,089 and $4,328,964, for the nine months ended September 30, 2016 and 2015, respectively. We estimate forfeitures at the time of grant and revise the forfeiture rate in subsequent periods if actual forfeitures differ from the estimates. At September 30, 2016, total unrecognized estimated compensation expense related to unvested options granted prior to that date was approximately $10,225,000 which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period of 2.11 years. No tax benefit was realized due to a continued pattern of operating losses.

 

NOTE 12 – INCOME TAXES

 

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We do not expect to pay any significant federal or state income tax for 2016 as a result of (i) the losses recorded during the nine months ended September 30, 2016, (ii) additional losses expected for the remainder of 2016, and/or (iii) net operating loss carry forwards from prior years. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As of September 30, 2016, we maintain a full valuation allowance for all deferred tax assets. Based on these requirements, no provision or benefit for income taxes has been recorded. There were no recorded unrecognized tax benefits at the end of the reporting period.

 

NOTE 13 – RELATED PARTIES

 

In July 2015, J. Martin Carroll, a director of our Company, was appointed to the board of directors of Catalent, Inc. From time to time, we have entered into agreements with Catalent, Inc. and its affiliates, (“Catalent”), in the normal course of business. Agreements with Catalent have been reviewed by independent directors of our Company or a committee consisting of independent directors of our Company since July 2015. During the three and nine months ended September 30, 2016, the amounts billed by Catalent were $828,062 and $2,906,838, respectively for manufacturing activities related to our clinical trials. As of September 30, 2016, there were amounts due to Catalent of $208,233.

 

  18  
 

 

THERAPEUTICSMD, INC. AND SUBSIDIARIES 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 

 

NOTE 14 - BUSINESS CONCENTRATIONS

 

We purchase our products from several suppliers with approximately 97% and 54% of our purchases supplied from one vendor for the nine months ended September 30, 2016 and 2015, respectively.

 

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. Revenue generated from major customers accounted for approximately 60% of our recognized revenue for the nine months ended September 30, 2016 and revenue generated from major customers accounted for approximately 90% of our recognized revenue for the nine months ended September 30, 2015. Customers that generated more than 10% of our sales are designated as customers “A”, “B”, “C” and “D”. During the nine months ended September 30, 2016, four customers each generated more than 10% of our total revenues and during the nine months ended September 30, 2015, two customers each generated more than 10% of our total revenues. During the nine months ended September 30, 2016, customers A, B, C and D generated approximately $2,247,000, $1,890,000, $2,683,000 and $2,113,000, in revenues, respectively. During the nine months ended September 30, 2015, customers A and B generated approximately $6,930,000 and $3,005,000, in revenues, respectively. During the three months ended September 30, 2016, we centralized our distribution channel for both our retail pharmacies and wholesale partners. We also wrote off accounts receivable balances of approximately $2,200,000 related to two former customers mentioned above due to our inability to collect the outstanding balances.

 

NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

We lease administrative office space in Boca Raton, Florida pursuant to a non-cancelable operating lease that commenced on July 1, 2013 and originally provided for a 63-month term. On February 18, 2015, we entered into an agreement with the same lessors to lease additional administrative office space in the same location, pursuant to an addendum to such lease. In addition, on April 26, 2016, we entered into 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.

 

The rental expense related to our lease during the three months ended September 30, 2016 and 2015 was approximately $182,000 and $119,000, respectively. The rental expense related to our lease during the nine months ended September 30, 2016 and 2015 was approximately $482,000 and $328,000, respectively.

 

As of September 30, 2016, future minimum rental payments are as follows:

 

Years Ending December 31,    
2016 (3 months)   $ 152,278  
2017     600,236  
2018     673,236  
2019     810,234  
2020     824,268  
Thereafter     698,421  
Total minimum lease payments   $ 3,758,673  

  

NOTE 16 – SUBSEQUENT EVENTS

 

On October 4, 2016, we entered into an agreement to lease additional administrative office space in Boca Raton, Florida, pursuant to an addendum to our existing non-cancelable operating lease. This addendum is effective beginning November 1, 2016.

 

  19  
 

 

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

 

General

 

The following discussion and analysis provides information that we believe to be relevant to an assessment and understanding of our results of operations and financial condition for the periods described. This discussion should be read together with our consolidated financial statements and the notes to the financial statements, which are included in this Quarterly Report on Form 10-Q. This information should also be read in conjunction with the information contained in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission, or the Commission or the SEC, on February 26, 2016, or the Annual Report, including the audited financial statements and notes included therein. The reported results will not necessarily reflect future results of operations or financial condition.

 

In addition, this Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies as well as statements, other than historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. These statements are often characterized by terminology such as “believes,” “hopes,” “may,” “anticipates,” “should,” “intends,” “plans,” “will,” “expects,” “estimates,” “projects,” “positioned,” “strategy” and similar expressions and are based on assumptions and assessments made in light of management’s experience and perception of historical trends, current conditions, expected future developments and other factors believed to be appropriate. Forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the sections titled “Risk Factors” in our Annual Report, and include the following: our ability to maintain or increase sales of our products; our ability to develop and commercialize our hormone therapy drug candidates and obtain additional financing necessary therefor; whether the U.S. Food and Drug Administration, or FDA, will approve our new drug application for our TX-004HR product candidate and whether any such approval will occur by the Prescription Drug User Fee Act, or PDUFA, date; the length, cost and uncertain results of our clinical trials; the potential of adverse side effects or other safety risks that could preclude the approval of our hormone therapy drug candidates; our reliance on third parties to conduct our clinical trials, research and development and manufacturing; the availability of reimbursement from government authorities and health insurance companies for our products; the impact of product liability lawsuits; and the influence of extensive and costly government regulation.

 

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

 

Overview

 

We are a women’s health care company focused on developing and commercializing products targeted exclusively for women. Currently, we are focused on conducting the clinical trials and pursuing the regulatory approvals and pre-commercialization activities necessary for commercialization of advanced hormone therapy pharmaceutical products. The current drug candidates used in our 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. Our drug candidates are developed using our SYMBODATM technology 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, vitamins.

 

  20  
 

 

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

 

Research and Development

 

We have obtained the FDA acceptance of our Investigational New Drug, or IND, applications to conduct clinical trials for four of our hormone therapy drug candidates: 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.

 

In December 2015, we completed a phase 3 clinical trial of TX-004HR and we are currently conducting a phase 3 clinical trial for TX-001HR. In July 2014, we suspended enrollment in the phase 3 clinical trial for TX-002HR and, in October 2014, we stopped the trial and are considering whether to update the phase 3 protocol based on discussions with the FDA. We have no current plans to conduct clinical trials for TX-003HR.

 

TX-001HR, our combination estradiol and progesterone drug candidate, is undergoing clinical trials for the treatment of moderate to severe vasomotor symptoms due to menopause, including hot flashes, night sweats, sleep disturbances, and vaginal discomfort for post-menopausal women with an intact uterus. The hormone therapy drug candidate is chemically identical to the hormones that naturally occur in a woman’s body, namely estradiol and progesterone, and is being studied as a continuous combined regimen, in which the combination of estrogen and progesterone are taken together in one product daily. If approved by the FDA, we believe this would represent the first time a combination product of estradiol and progesterone bioidentical to – or having the same chemical and molecular structure as – 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 study of TX-001HR in postmenopausal women with an intact uterus. The study is designed to evaluate the efficacy of TX-001HR for the treatment of moderate to severe vasomotor symptoms due to menopause and the endometrial safety of TX-001HR. Patients are assigned to one of five arms, four active and one placebo, and receive study medication for 12 months. The primary endpoint for the reduction of endometrial hyperplasia is 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 vasomotor symptoms is the mean change of frequency and severity of moderate to severe vasomotor symptoms at weeks four and 12 compared to placebo, as measured by the number and severity of hot flushes. Only subjects experiencing a minimum daily frequency of seven moderate to severe hot flushes at screening are included in the vasomotor symptoms analysis, while all subjects are included in the endometrial hyperplasia analysis. The secondary endpoints include 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 is designed to enroll approximately 1,750 patients at approximately 100 sites. We completed enrollment in the REPLENISH Trial in October 2015 and we currently anticipate that results of the trial will be reported late in the fourth quarter of 2016. Based on such timeline and assuming a successful trial, we would anticipate a New Drug Application, or NDA, for TX-001HR to be submitted as soon as the first half of 2017 and potentially accepted 60 days thereafter, and assuming an FDA review period of ten months from the receipt date to the PDUFA date for a non-new molecular entity, the NDA for TX-001HR could be approved by the FDA as soon as the first half of 2018. As of November 3, 2016, virtually all patients have exited the REPLENISH Trial and the incidence of consensus endometrial hyperplasia among the three pathologists for these patients is less than 1%.

 

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TX-002HR is a natural progesterone formulation for the treatment of secondary amenorrhea without the potentially allergenic component of peanut oil. The hormone therapy drug candidate is bioidentical to – or having the same chemical and molecular structure as – the hormones that naturally occur in a woman’s body. We believe it will be similarly effective to traditional treatments, but may demonstrate efficacy at lower dosages. In January 2014, we began recruitment of patients in the SPRY Trial, a phase 3 clinical trial designed to measure the safety and effectiveness of TX-002HR in the treatment of secondary amenorrhea. During the first two quarters of 2014, the SPRY Trial encountered enrollment challenges because of Institutional Review Board approved clinical trial protocols and FDA inclusion and exclusion criteria. In July 2014, we suspended enrollment and in October 2014 we stopped the SPRY Trial in order to update the phase 3 protocol based on discussions with the FDA. 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.

 

TX-004HR is a vaginal estradiol softgel drug candidate for the treatment of vulvar and vaginal atrophy, or VVA, in post-menopausal women with vaginal linings that do not receive enough estrogen. We believe that our drug candidate will be at least as effective as the traditional treatments for VVA because of an early onset of action with less systemic exposure, inferring a greater probability of dose administration to the target tissue, and it will have an added advantage of being a simple, easier to use dosage form versus traditional VVA treatments. TX-004HR features our SYMBODATM technology. This allows for the production of cohesive, stable formulations and provides content uniformity and accuracy of dosing strengths for TX-004HR. We initiated the REJOICE Trial, a randomized, multicenter, double-blind, placebo-controlled phase 3 clinical trial during the third quarter of 2014 to assess the safety and efficacy of three doses – 25 mcg, 10 mcg and 4 mcg (compared to placebo) – of TX-004HR for the treatment of moderate to severe dyspareunia, or painful intercourse, as a symptom of VVA due to menopause.

 

On December 7, 2015, we announced positive top-line results from the REJOICE Trial. The pre-specified four co-primary efficacy endpoints were the changes from baseline to week 12 versus placebo in the percentage of vaginal superficial cells, percentage of vaginal parabasal cells, vaginal pH 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 participants 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. 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. Vaginal dryness was a pre-specified key secondary endpoint. The 25 mcg and 10 mcg doses of TX-004HR demonstrated highly statistically significant results at the p < 0.0001 level compared to 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. 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.

 

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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 completion of the FDA’s review is May 7, 2017. The NDA submission was supported by the complete TX-004HR clinical program, including positive results of the recently completed 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.

 

As of September 30, 2016, we had 17 issued patents, which included 13 utility patents that relate to our combination progesterone and estradiol formulations, two utility patents that relate to TX-004HR, which establish an important intellectual property foundation for TX-004HR, one utility patent that relates to a pipeline transdermal patch technology, and one utility patent that relates to our OPERA® information technology platform.

 

Research and Development Expenses

 

A significant portion of our operating expenses to date have been incurred in research and development activities. Research and development expenses relate primarily to the discovery and development of our drug candidates. Our business model is dependent upon our company continuing to conduct a significant amount of research and development. Our research and development expenses consist primarily of expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies; employee-related expenses, which include salaries and benefits, and non-cash share-based compensation; the cost of developing our chemistry, manufacturing and controls capabilities, and acquiring clinical trial materials; and costs associated with other research activities and regulatory approvals. Other research and development costs listed below consist of costs incurred with respect to drug candidates that have not received IND approval from the FDA.

 

We make payments to the CROs based on agreed upon terms that may include payments in advance of a study starting date. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Advance payments to be expensed in future research and development activities are capitalized, and were $244,335 at September 30, 2016, all of which was included in other current assets on the accompanying consolidated balance sheets. Advance payments to be expensed in future research and development 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.

 

The following table indicates our research and development expense by project/category for the periods indicated (in 000s):

 

    Three months ended
September 30,
    Nine months ended
September 30,
 
    2016     2015     2016     2015  
TX-001HR   $ 7,751     $ 8,175     $ 25,101     $ 27,504  
TX-002HR           6             18  
TX-004HR     2,611       4,581       7,724       18,242  
Other research and development     4,302       3,660       10,777       13,025  
    $ 14,664     $ 16,422     $ 43,602     $ 58,789  

 

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Research and development expenditures will continue to be significant as we continue development of our drug candidates and advance the development of our proprietary pipeline of novel drug candidates. We expect to incur significant research and development costs as we develop our drug pipeline, complete the ongoing clinical trials of our drug candidates, conduct our planned phase 3 clinical trials, subject to receiving input from regulatory authorities, and prepare regulatory submissions.

 

The costs of clinical trials may vary significantly over the life of a project owing to factors that include but are not limited to the following: per patient trial costs, the number of patients that participate in the trials; the number of sites included in the trials; the length of time each patient is enrolled in the trial; the number of doses that patients receive; the drop-out or discontinuation rates of patients; the amount of time required to recruit patients for the trial, the duration of patient follow-up; and the efficacy and safety profile of the drug candidate. We base our estimated expenses related to clinical trials on estimates that are based on our experience and estimates from CROs and other third parties.

 

Results of Operations

 

Three months ended September 30, 2016 compared with three months ended September 30, 2015

 

    Three Months Ended
September 30,
       
    2016     2015     Change  
    (000s)      
Revenues, net   $ 5,536     $ 5,190     $ 346  
Cost of goods sold     1,237       1,194       43  
Operating expenses     29,427       23,499       5,928  
     Operating loss     (25,128 )     (19,503 )     (5,625 )
Other income     113       31       82  
Net loss   $ (25,015 )   $ (19,472 )   $ (5,543 )

 

Revenues and Cost of Goods Sold

 

Revenues for the three months ended September 30, 2016 increased approximately $346,000, or 7%, to approximately $5,536,000, compared with approximately $5,190,000 for the three months ended September 30, 2015. This increase was primarily attributable to an increase in the number of units sold partially offset by a decrease in the average net sales price of our products. Cost of goods sold increased approximately $43,000 or 4%, to approximately $1,237,000 for the three months ended September 30, 2016, compared with approximately $1,194,000 for the three months ended September 30, 2015. Our gross margins increased to 78% for the three months ended September 30, 2016 compared to 77% for the three months ended September 30, 2015. The gross margin change was primarily attributable to a shift in product mix from the prior period.

 

Operating Expenses

 

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

 

    Three Months Ended
September 30,
 
    2016     2015  
Research and development costs     49.8 %     69.9 %
Human resource costs, including salaries, benefits and taxes     20.3 %     14.7 %
Sales and marketing costs, excluding human resource costs     14.3 %     6.2 %
Professional fees for legal, accounting and consulting     4.9 %     4.8 %
Other operating expenses     10.7 %     4.4 %

 

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Operating expenses increased by approximately $5,928,000, or 25%, to approximately $29,427,000 for the three months ended September 30, 2016, from approximately $23,499,000 for the three months ended September 30, 2015 as a result of the following items:

 

      (000s)
Decrease in research and development costs   $ (1,758 )
Increase in human resource costs, including salaries, benefits and taxes     2,500  
Increase in other operating expenses     2,112  
Increase in sales and marketing, excluding human resource costs     2,753  
Increase in professional fees for legal, accounting and consulting     321  
    $ 5,928  

 

Research and development costs for the three months ended September 30, 2016 decreased by approximately $1,758,000, or 11%, to approximately $14,664,000, compared with approximately $16,422,000 for the three months ended September 30, 2015. Research and development costs include costs related to clinical trials as well as salaries, wages, non-cash compensation and benefits of personnel involved in research and development activities. Research and development costs decreased as a result of the completion of patient enrollment in the REPLENISH Trial for TX-001HR, our combination estradiol and progesterone drug candidate, which were partially offset by an increase in scale up and pre-production manufacturing activities to support clinical trials and NDA approval. Research and developments costs during the three months ended September 30, 2016 included the following research and development projects.

 

During the three months ending September 30, 2016 and the period from February 2013 (project inception) through September 30, 2016, we have incurred approximately $7,751,000 and $89,260,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.

 

During the three months ended September 30, 2016 and the period from April 2013 (project inception) through September 30, 2016, we have incurred $0 and approximately $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.

 

During the three months ended September 30, 2016 and the period from August 2014 (project inception) through September 30, 2016, we have incurred approximately $2,611,000 and $31,282,000, respectively, in research and development costs with respect to TX-004HR, our applicator-free vaginal estradiol softgel drug candidate.

 

For a discussion of the nature of efforts and steps necessary to complete these projects, see “Item 1. Business — Research and Development” in our Annual Report and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Research and Development” above. For a discussion of the risks and uncertainties associated with completing development of our products, see “Item 1A. Risk Factors — Risks Related to Our Business” in our Annual Report. For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see “Liquidity and Capital Resources” below. For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see “Item 1. Business — Our Hormone Therapy Drug Candidates,” “Item 1. Business — Products in Development” and “Item 1. Business — Pharmaceutical Regulation” in our Annual Report. 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 costs, including salaries, benefits and taxes, for the three months ended September 30, 2016 increased by approximately $2,500,000, or 72%, to approximately $5,965,000, compared with approximately $3,465,000 for the three months ended September 30, 2015, primarily as a result of an increase of approximately $1,156,000 in personnel costs in the sales, marketing and regulatory areas to support commercialization of our hormone therapy drug candidates and an increase of approximately $1,344,000 in non-cash compensation related to stock awards.

 

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Other operating expense for the three months ended September 30, 2016 increased by approximately $2,112,000, or 204%, to approximately $3,146,000, compared with approximately $1,034,000 for the three months ended September 30, 2015, primarily as a result of a write-off of accounts receivable balances of approximately $2,200,000 related to former customers due to our inability to collect the outstanding balances, and increased data, computer and insurance expenses, partially offset by lower investor relations and other miscellaneous expenses.

 

Sales and marketing costs for the three months ended September 30, 2016 increased by approximately $2,753,000, or 190%, to approximately $4,201,000, compared with approximately $1,448,000 for the three months ended September 30, 2015, primarily as a result of increased expenses associated with sales and marketing efforts to support commercialization of our hormone therapy drug candidates coupled with an increase in commission expense.

 

Professional fees for the three months ended September 30, 2016 increased by approximately $321,000, or 28%, to approximately $1,450,000, compared with approximately $1,129,000 for the three months ended September 30, 2015, primarily as a result of increased legal expense.

 

Operating Loss

 

As a result of the foregoing, our operating loss increased approximately $5,625,000, or 29%, to approximately $25,128,000 for the three months ended September 30, 2016, compared with approximately $19,503,000 for the three months ended September 30, 2015, primarily as a result of increased personnel, sales and marketing expenses to support commercialization of our hormone therapy drug candidates, higher stock-based compensation expenses, coupled with a write-off of accounts receivable balances mentioned above and an increase in professional fees and other operating expenses. This was partially offset by a decrease in research and development expenses and an increase in our revenue. As a result of the continued development of our hormone therapy drug candidates, we anticipate that we will continue to have operating losses for the near future until our hormone therapy drug candidates are approved by the FDA and brought to market, although there is no assurance that we will attain such approvals or that any marketing of our hormone therapy drug candidates, if approved, will be successful.

 

Other Income

 

Other non-operating income increased by approximately $82,000, or 265%, to approximately $113,000 for the three months ended September 30, 2016 compared with approximately $31,000 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 $5,543,000, or 28%, to approximately $25,015,000 for the three months ended September 30, 2016, compared with approximately $19,472,000 for the three months ended September 30, 2015. Net loss per share of Common Stock, basic and diluted, was ($0.13) for the three months ended September 30, 2016, compared with ($0.11) per share of Common Stock for the three months ended September 30, 2015.

 

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Nine months ended September 30, 2016 compared with nine months ended September 30, 2015

 

    Nine Months Ended
September 30,
       
    2016     2015     Change  
          (000s)          
Revenues, net   $ 14,869     $ 14,513     $ 356  
Cost of goods sold     3,476       3,271       205  
Operating expenses     78,706       78,923       (217 )
     Operating loss     (67,313 )     (67,681 )     (368 )
Other income     274       87       187  
Net loss   $ (67,039 )   $ (67,594 )   $ 555  

 

Revenues and Cost of Goods Sold

 

Revenues for the nine months ended September 30, 2016 increased approximately $356,000, or 2%, to approximately $14,869,000, compared with approximately $14,513,000 for the nine months ended September 30, 2015. This increase was primarily attributable to an increase in the number of units sold partially offset by a decrease in the average net sales price of our products. Cost of goods sold increased approximately $205,000, or 6%, to approximately $3,476,000 for the nine months ended September 30, 2016, compared with approximately $3,271,000 for the nine months ended September 30, 2015. Our gross margins of 77% for the nine months ended September 30, 2016 remained unchanged from the nine months ended September 30, 2015.

 

Operating Expenses

 

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

 

    Nine Months Ended
September 30,
 
    2016     2015  
Research and development costs     55.4 %     74.5 %
Human resource costs, including salaries, benefits and taxes     22.0 %     12.2 %
Sales and marketing costs, excluding human resource costs     9.9 %     5.6 %
Professional fees for legal, accounting and consulting     4.6 %     3.9 %
Other operating expenses     8.1 %     3.8 %

 

Operating expenses decreased by approximately $217,000, or 0.3%, to approximately $78,706,000 for the nine months ended September 30, 2016, from approximately $78,923,000 for the nine months ended September 30, 2015 as a result of the following items:

 

      (000s)
Decrease in research and development costs   $ (15,187 )
Increase in human resource costs, including salaries, benefits and taxes     7,665  
Increase in other operating expenses     3,349  
Increase in sales and marketing, excluding human resource costs     3,413  
Increase in professional fees for legal, accounting and consulting     543  
    $ (217 )

 

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Research and development costs for the nine months ended September 30, 2016 decreased by approximately $15,187,000, or 26%, to approximately $43,602,000, compared with approximately $58,789,000 for the nine months ended September 30, 2015. Research and development costs include costs related to clinical trials as well as salaries, wages, non-cash compensation and benefits of personnel involved in research and development activities. Research and development costs decreased as a result of the completion of patient enrollment in the REPLENISH Trial for TX-001HR, our combination estradiol and progesterone drug candidate, which were partially offset by an increase in scale up and pre-production manufacturing activities to support clinical trials and NDA approval. Research and developments costs during the nine months ended September 30, 2016 included the following research and development projects.

 

During the nine months ending September 30, 2016 and the period from February 2013 (project inception) through September 30, 2016, we have incurred approximately $25,101,000 and $89,260,000, respectively, in research and development costs with respect to TX-001HR, our combination estradiol and progesterone drug candidate.

 

During the nine months ended September 30, 2016 and the period from April 2013 (project inception) through September 30, 2016, we have incurred $0 and approximately $2,525,000, respectively, in research and development costs with respect to TX-002HR, our progesterone only drug candidate.

 

During the nine months ended September 30, 2016 and the period from August 2014 (project inception) through September 30, 2016, we have incurred approximately $7,724,000 and $31,282,000, respectively, in research and development costs with respect to TX-004HR, our applicator-free vaginal estradiol softgel drug candidate.

 

For a discussion of the nature of efforts and steps necessary to complete these projects, see “Item 1. Business — Research and Development” in our Annual Report and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Research and Development” above. For a discussion of the risks and uncertainties associated with completing development of our products, see “Item 1A. Risk Factors — Risks Related to Our Business” in our Annual Report. For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see “Liquidity and Capital Resources” below. For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see “Item 1. Business — Our Hormone Therapy Drug Candidates,” “Item 1. Business — Products in Development” and “Item 1. Business — Pharmaceutical Regulation” in our Annual Report. 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 costs, including salaries, benefits and taxes, for the nine months ended September 30, 2016 increased by approximately $7,665,000, or 79%, to approximately $17,309,000, compared with approximately $9,644,000 for the nine months ended September 30, 2015, primarily as a result of an increase of approximately $2,401,000 in personnel costs in sales, marketing and regulatory areas to support commercialization of our hormone therapy drug candidates and an increase of approximately $5,264,000 in non-cash compensation related to stock awards.

 

Other operating expense for the nine months ended September 30, 2016 increased by approximately $3,349,000, or 110%, to approximately $6,384,000, compared with approximately $3,035,000 for the nine months ended September 30, 2015, primarily as a result of a write-off of accounts receivable balances of approximately $2,200,000 related to former customers due to our inability to collect the outstanding balances, and higher investor relations, insurance, rent and other office expenses.

 

Sales and marketing costs for the nine months ended September 30, 2016 increased by approximately $3,413,000, or 78%, to approximately $7,796,000, compared with approximately $4,383,000 for the nine months ended September 30, 2015, primarily as a result of increased expenses associated with sales and marketing efforts to support commercialization of our hormone therapy drug candidates coupled with an increase in commission expense.

 

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Professional fees for the nine months ended September 30, 2016 increased by approximately $543,000, or 18%, to approximately $3,615,000, compared with approximately $3,072,000 for the nine months ended September 30, 2015, primarily as a result of increased legal fees and consulting expenses.

 

Operating Loss

 

As a result of the foregoing, our operating loss decreased approximately $368,000, or 0.5%, to approximately $67,313,000 for the nine months ended September 30, 2016, compared with approximately $67,681,000 for the nine months ended September 30, 2015, primarily as a result of decreased research and development expenses and an increase in our revenue, partially offset by increased stock-based compensation expenses, personnel costs and sales and marketing expenses to support commercialization of our hormone therapy drug candidates coupled with a write-off of accounts receivable balances mentioned above and an increase in professional fees and other operating expenses. As a result of the continued development of our hormone therapy drug candidates, we anticipate that we will continue to have operating losses for the near future until our hormone therapy drug candidates are approved by the FDA and brought to market, although there is no assurance that we will attain such approvals or that any marketing of our hormone therapy drug candidates, if approved, will be successful.

 

Other Income

 

Other non-operating income increased by approximately $187,000, or 215%, to approximately $274,000 for the nine months ended September 30, 2016 compared with approximately $87,000 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 decreased approximately $555,000, or 0.8%, to approximately $67,039,000 for the nine months ended September 30, 2016, compared with approximately $67,594,000 for the nine months ended September 30, 2015. Net loss per share of Common Stock, basic and diluted, was ($0.34) for the nine months ended September 30, 2016, compared with ($0.39) per share of Common Stock for the nine months ended September 30, 2015.

 

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 nine months ended September 30, 2016 and the year ended December 31, 2015, we received approximately $134.9 million and $91.4 million in net proceeds, respectively, from the issuance of shares of our Common Stock. As of September 30, 2016, we had a cash balance of approximately $147.5 million, 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, we entered into an underwriting agreement with Goldman Sachs & Co. and Cowen and Company, LLC, as the representatives of the several underwriters, or the Underwriters, relating to an underwritten public offering of 15,151,515 shares of our Common Stock at a public offering price of $8.25 per share. Under the terms of the underwriting agreement, we granted the Underwriters a 30-day option to purchase up to an aggregate of 2,272,727 additional shares of Common Stock, which option was exercised in full. The net proceeds to us from the offering were approximately $134.9 million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of our Common Stock.

 

On July 9, 2015, we entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated and Guggenheim 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 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, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on July 15, 2015 and we issued 4,423,077 shares of our Common Stock.

 

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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 to us 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.

 

We believe that our existing cash will allow us to fund our operating plan through at least the next 12 months. If our available cash is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our existing shareholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing shareholders. If we raise additional funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or proposed products. Additionally, we may have to grant licenses on terms that may not be favorable to us.

 

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

 

Summary of (Uses) and Sources of Cash

 

    Nine Months Ended
September 30,
 
    2016     2015  
    (000s)  
Net cash used in operating activities   $ (53,524 )   $ (62,434 )
Net cash used in investing activities   $ (863 )   $ (134 )
Net cash provided by financing activities   $ 137,216     $ 92,330  

 

Operating Activities

 

The use of cash in both periods resulted primarily from our net loss adjusted for non-cash charges and changes in components of working capital. The decrease of approximately $8,910,000 in cash used in operating activities for the nine months ended September 30, 2016 compared with the comparable period in the prior year was due primarily to changes in research and development, and sales, general, and administrative costs.

 

Investing Activities

 

An increase in spending on patent and trademarks and fixed assets resulted in an increase in cash used in investing activities for the nine months ended September 30, 2016 compared with the same period in 2015.

 

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Financing Activities

 

Financing activities represent the principal source of our cash flow. Our financing activities for the both the nine months ended September 30, 2016 and 2015 consisted of proceeds from underwritten public offerings of our Common Stock and stock option and warrant exercises.

 

Contractual Obligations

 

On October 4, 2016, we entered into an agreement to lease additional administrative office space in Boca Raton, Florida, pursuant to an addendum to our existing non-cancelable operating lease. This addendum is effective beginning November 1, 2016.

 

We have entered into long-term supply agreements with Catalent Pharma Solutions, LLC for the commercial supply of our TX-001HR and TX-004HR hormone therapy drug candidates. Under the terms of the agreements, we will be obligated to purchase certain minimum annual amounts of each product once we commence commercial sales of such product following regulatory approval of Catalent as a manufacturer of the product. We may terminate the agreement for a particular drug candidate in the event that we cease pursuit of regulatory approval for such drug candidate for certain specified reasons.

 

New Accounting Pronouncements

 

In August 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 is intended to reduce the diversity in practice regarding how certain transactions are classified within the statement of cash flows. ASU 2016-15 is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. This guidance simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any annual or 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. If 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. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

In February 2016, the FASB issued ASU 2016-02, Leases. This guidance requires lessees to record most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted for all entities. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

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 RIM will continue to use existing impairment models. The new guidance does not change the calculation 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 measures of “market.” The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this guidance, if any, on our consolidated financial statements and disclosures.

 

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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 do not expect the adoption of ASU 2014-15 to 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) as well as accounting for licenses of intellectual property and identifying performance obligations (ASU 2016-10) and narrow-scope improvements and practical expedients (ASU 2016-12) in its new revenue standard. We are currently evaluating the impact of this guidance on our consolidated financial statements and disclosures.

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

Our market risk has not changed materially from the interest rate risk disclosed in Item 7A of our Annual Report.

 

Item 4.   Controls and Procedures

 

Disclosure Controls and Procedures

 

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

 

Evaluation of Disclosure Controls and Procedures

 

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

 

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

 

Changes in Internal Controls

 

Effective June 30, 2016, we implemented a new general ledger accounting system. We believe we have taken the necessary steps to maintain appropriate levels of internal control over financial reporting during this period of change and we continuously monitor controls through and around the system to provide reasonable assurance that such controls are effective.

 

During the three months ended September 30, 2016, there were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1.   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 currently believe would have a material adverse effect on our business or financial condition.

 

Item 1A.   Risk Factors

 

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

 

Item 6.   Exhibits

 

  Exhibit   Date   Description
  10.1*   October 4, 2016   Third Amendment to Lease between the Company and 6800 Broken Sound, LLC.
  31.1*   November 4, 2016   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
  31.2*   November 4, 2016   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
  32.1*   November 4, 2016   Section 1350 Certification of Chief Executive Officer
  32.2*   November 4, 2016   Section 1350 Certification of Chief Financial Officer
  101.INS*   n/a   XBRL Instance Document
  101.SCH*   n/a   XBRL Taxonomy Extension Schema Document
  101.CAL*   n/a   XBRL Taxonomy Extension Calculation Linkbase Document

 

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  Exhibit   Date   Description
  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   XBRLTaxonomy Extension Presentation Linkbase Instance Document
           
 

             * Filed herewith.

 

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SIGNATURES

 

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

 

DATE: November 4, 2016

 

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

 

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