THERAPEUTICSMD, INC. You should read the following discussion and analysis in conjunction with the information set forth under "Selected Financial Data" and our consolidated financial statements and the notes to those financial statements included elsewhere in this Annual Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. See "Statement Regarding Forward-Looking Information." Our actual results may differ materially from those contained in or implied by any forward-looking statements as a result of various factors, including, but not limited to, the risks and uncertainties described under "Risk Factors" elsewhere in this Annual Report. Company OverviewTherapeuticsMD is a women's healthcare company with a mission of creating and commercializing innovative products to support the lifespan of women from pregnancy prevention through menopause. AtTherapeuticsMD , we combine entrepreneurial spirit, clinical expertise, and business leadership to develop and commercialize health solutions that enable new standards of care for women. Our solutions range from a patient-controlled, long-lasting contraceptive to advanced hormone therapy pharmaceutical products. We also have a portfolio of branded and generic prescription prenatal vitamins under the vitaMedMD and BocaGreenMD brands that furthers our women's healthcare focus. Our portfolio of products focused on women's health allows us to efficiently leverage our sales and marketing plan to grow our recently approved products. During 2018, theU.S. Food and Drug Administration , or FDA, approval of our drugs has transitioned our company from predominately focused on conducting research and development to one focused on commercializing our drugs.
? In
inserts) for the treatment of moderate-to-severe dyspareunia (vaginal pain
associated with sexual activity), a symptom of vulvar and vaginal atrophy, or
VVA, due to menopause, which was approved by the FDA in
? In
progesterone) capsules, our hormone therapy combination of bio-identical
17ß-estradiol and bio-identical progesterone in a single, oral softgel capsule,
for the treatment of moderate-to-severe vasomotor symptoms, or VMS, due to
menopause in women with a uterus, which was approved by the FDA in October
2018.
? In
FDA-approved product ANNOVERA (segesterone acetate and ethinyl estradiol
vaginal system), the first and only annual patient-controlled, procedure-free,
reversible prescription contraceptive option for women, which was approved by
the FDA in
License Agreement, with the
Council. We paused the planned full commercial launch of ANNOVERA in
due to the impact of the COVID-19 pandemic and resumed this initiative in July
2020.
We have also entered into license agreements with strategic partners to
commercialize IMVEXXY and BIJUVA outside of the
? In
license to commercialize IMVEXXY and BIJUVA in
received the first regulatory approval in
third quarter of 2020.
? In
Theramex License Agreement, with
leading, global specialty pharmaceutical company dedicated to women's health,
to commercialize IMVEXXY and BIJUVA outside of the
Israel . Product Portfolio We are focused on activities necessary for commercialization of IMVEXXY, BIJUVA and ANNOVERA. We continue to manufacture and distribute our prescription prenatal vitamin product lines, consisting of branded prenatal vitamins under vitaMedMD and authorized generic formulations of some of our prescription prenatal vitamin products under BocaGreenMD. All of our prenatal vitamins are gluten-, sugar-, and lactose-free. A prenatal vitamin option that is both vegan and kosher is also available for women with special dietary needs. We believe our product attributes result in greater consumer acceptance and satisfaction than competitive products while offering the highest quality and patented ingredients. BIJUVA InOctober 2018 , the FDA approved BIJUVA (estradiol and progesterone) capsules, 1 mg/100 mg, the first and only FDA-approved bioidentical hormone therapy combination of estradiol and progesterone in a single, oral capsule for the treatment of moderate-to-severe VMS (commonly known as hot flashes or flushes) due to menopause in women with a uterus. The estrogen and progesterone in BIJUVA have the same chemical and molecular structure as the hormones that are naturally produced in a woman's body. We launched BIJUVA inApril 2019 . 58
In lateJanuary 2020 , we submitted a New Drug Application, or NDA, efficacy supplement for the 0.5/100 mg dose of BIJUVA to the FDA for review and potential approval. The NDA efficacy supplement used existing data from our Phase 3 REPLENISH trial for BIJUVA, for which we announced results inDecember 2016 , together with additional information and analyses. InNovember 2020 , we withdrew the NDA efficacy supplement. We currently intend to file a Formal Dispute Resolution Request, or FDRR, with the FDA that disputes theFDA's requirement that the efficacy supplement meet approval standard that have not been required of other approved drugs in BIJUVA's therapeutic class. There can be no assurance that we will prevail with respect to the FDRR, if filed, or that the 0.5/100 mg dose of BIJUVA will be approved. IMVEXXY InMay 2018 , the FDA approved the 4-?g and 10-?g doses of IMVEXXY (estradiol vaginal inserts) for the treatment of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of VVA, due to menopause. The 4-?g formulation of IMVEXXY represents the lowest FDA-approved dose of vaginal estradiol available. IMVEXXY 10-?g became available for commercial distribution inJuly 2018 and both doses were commercially available bySeptember 2018 . IMVEXXY is a small, digitally inserted, softgel vaginal insert that dissolves when inserted into the vagina. It is administered mess-free, without the need for an applicator, and can be used any time of day. IMVEXXY provides a mechanism of action and dosing that is comfortable for patients, with no patient education required for dose application or applicators. IMVEXXY demonstrated efficacy as early as two weeks (secondary endpoint) and maintained efficacy through week 12 in clinical studies, with no increase in systemic hormone levels beyond the normal postmenopausal range (the clinical relevance of systemic absorption rates for vaginal estrogen therapies is not known). As part of theFDA's approval of IMVEXXY, we have committed to conduct a post-approval observational study to evaluate the risk of endometrial cancer in post-menopausal women with a uterus who use a low-dose vaginal estrogen unopposed by a progestogen. In connection with the observational study, we are required to provide progress reports to the FDA on an annual basis. The development of this method is underway, and we do not believe that the costs will be material. ANNOVERA InJuly 2018 , we entered into an exclusive license agreement with thePopulation Council to commercialize in theU.S. ANNOVERA (segesterone acetate and ethinyl estradiol vaginal system), the first and only annual patient-controlled, procedure-free, reversible prescription contraceptive that can prevent pregnancy for up to a total of 13 cycles (one year), which was approved by the FDA inAugust 2018 . ANNOVERA was classified by the FDA as an NCE and thus has five years of regulatory exclusivity under theDrug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Act. ANNOVERA is a one-year ring-shaped contraceptive vaginal system, or CVS. ANNOVERA, which is made with a silicone elastomer, contains segesterone acetate, a 19-nor progesterone derivative also known as SA and EE. EE is an approved active ingredient in many marketed hormonal contraceptive products. Segesterone acetate, an NCE, is a potent progestin and ANNOVERA is the only product with segesterone acetate. Segesterone acetate also does not bind to the androgen or estrogen receptors and has no glucocorticoid effects at contraceptive doses. SA has been evaluated in 51 clinical studies across these delivery systems with more than 26,794 cycles of exposure. ANNOVERA can be inserted and removed by the woman herself without the aid of a healthcare provider and, unlike oral contraceptives, or OCs, ANNOVERA does not require daily administration to obtain the contraceptive effect. After 21 days of use, the woman removes ANNOVERA for seven days, thereby providing a regular bleeding pattern (i.e., withdrawal/scheduled bleeding). The same CVS is then re-inserted for additional 21/7-days in/out, for up to a total of 13 cycles
(one year). ANNOVERA releases daily vaginal doses of both active ingredients (SA and EE). The claimed release rate of 150 ?g/day SA and 13/day ?g EE is supported by the calculated average release rate from an ex vivo analysis of ANNOVERA used for 13 cycles and is also supported by data from 13 cycles of in vitro release. As part of the approval of ANNOVERA, the FDA has required a post-approval observational study be performed to measure the risk of venous thromboembolism. In accordance with the post-marketing requirements, the full protocol for the study was submitted to the FDA inAugust 2019 . We have agreed to perform and pay the costs and expenses associated with this post-approval study, provided that if the costs and expenses associated with such post-approval study exceed$20,000,000 , half of such excess will offset against royalties or other payments owed by us to thePopulation Council under the Population Council License Agreement. Given the observational nature of the study, we do not believe that the costs of the study will be material on an annual basis.The Population Council has agreed to perform and pay the costs and expenses associated with two post-approval studies required by the FDA for ANNOVERA. 59 InOctober 2019 , we began a "test and learn" market introduction phase of launch for ANNOVERA, with 36 of our existing sales representatives currently promoting ANNOVERA in addition to our other products, and our 23 regional sales managers and 12 compounding key account managers, or KAMs, introducing ANNOVERA to top targeted healthcare practitioners outside of these 36 territories. We paused the planned full commercial launch of ANNOVERA inMarch 2020 due to the impact of the COVID-19 pandemic and resumed this initiative inJuly 2020 . We believe that the strong initial commercial net revenue per unit of ANNOVERA and commercial insurance adoption provide us with an opportunity to deploy additional financial resources to maximize ANNOVERA's consumer-focused commercialization strategy and leverage the ability of doctor/patient choice of contraceptive to override insurance company formularies when necessary. As part of this strategy, we are pursuing distribution opportunities for ANNOVERA to provide women with additional access to ANNOVERA, particularly during the COVID-19 pandemic, with multiple direct-to-consumer contraceptive platforms that extend the reach of our products.
License Agreement with the
InJuly 2018 , we entered into the Population Council License Agreement to commercialize ANNOVERA in theU.S. We began selling ANNOVERA in a "test and learn" market introduction in the third quarter of 2019. As a result of the uncertainty surrounding the COVID-19 pandemic, we paused the commercial launch of ANNOVERA in the first quarter of 2020 and deferred sales and marketing initiatives into subsequent quarters. We resumed the launch of ANNOVERA in
July 2020 . Under the terms of the Population Council License Agreement, we paid thePopulation Council a milestone payment of$20,000,000 within 30 days following approval by the FDA of the NDA for ANNOVERA. The first commercial batch of ANNOVERA was released during the third quarter of 2019 and we paid thePopulation Council a second milestone payment of$20,000,000 as a result of the commercial batch release.The Population Council is eligible to receive additional milestone payments and royalties from commercial sales of ANNOVERA, as detailed below. We assumed responsibility for marketing expenses related to the commercialization of ANNOVERA. We are required to pay thePopulation Council additional milestone payments of$40 million upon cumulative net sales of ANNOVERA in theU.S. by us and our affiliated and permitted sublicensees of each of$200 million ,$400 million and$1.0 billion .
In addition, we are required to pay the
AnnualNet Sales Royalty Rate Less than or equal to$50.0 million 5 % Greater than$50.0 million and less than or equal to$150.0 million 10 % Greater than$150.0 million 15 % The annual royalty rate will be reduced to 50% of the initial rate during the six-month period beginning on the date of the first arms-length commercial sale of a generic equivalent of ANNOVERA that is launched by a third party in theU.S. , and thereafter will be reduced to 20% of the initial rate.The Population Council has agreed to perform and pay the costs and expenses associated with two post-approval studies required by the FDA for ANNOVERA and we have agreed to perform and pay the costs and expenses associated with a post-approval study required by the FDA to measure risk for venous thromboembolism, provided that if the costs and expenses associated with such post-approval study exceed$20 million , half of such excess will be offset against royalties or other payments owed by us to thePopulation Council under the Population Council License Agreement. We and thePopulation Council formed a joint product committee responsible for overseeing activities under the Population Council License Agreement. We are responsible for all aspects of promotion, product positioning, pricing, education programs, publications, sales messages and any additional desired clinical studies for the one-year vaginal contraceptive system, subject to oversight and decisions made by the joint product committee. Unless earlier terminated, the Population Council License Agreement will remain in effect until the later of the expiration of the last-to-expire of thePopulation Council's U.S. patents that are licensed to us, or the date following such expiration that follows a continuous period of six months during which we and our affiliates have not made a commercial sale of ANNOVERA in theU.S. The Population Council License Agreement may also be terminated for certain breach and bankruptcy-related events and by us on 180 days prior notice to thePopulation Council . 60
As part of the Population Council License Agreement, we have the exclusive right to negotiate co-development andU.S. marketing rights for two other investigational vaginal contraceptive systems in development by thePopulation Council .
License Agreement with Knight
InJuly 2018 , we entered into a license and supply agreement, or the Knight License Agreement, with Knight pursuant to which we granted Knight an exclusive license to commercialize IMVEXXY and BIJUVA inCanada andIsrael . Pursuant to the terms of the Knight License Agreement, Knight paid us$2,000,000 in milestone fees upon the first regulatory approval inCanada for IMVEXXY and BIJUVA in the third quarter of 2020, and is required to pay us sales milestone fees based upon certain aggregate annual sales inCanada andIsrael of each of IMVEXXY and BIJUVA and royalties based on aggregate annual sales of each of IMVEXXY and BIJUVA inCanada andIsrael . We may terminate the Knight License Agreement if Knight does not submit all regulatory applications, submissions and/or registrations required for regulatory approval to use and commercialize IMVEXXY and BIJUVA inCanada within certain specified time periods. We also may terminate the Knight License Agreement if Knight challenges our patents. Either party may terminate the Knight License Agreement for any material breach by the other party that is not cured within certain specified time periods or if the other party files for bankruptcy or other related matters. As part of the Knight License Agreement, Knight is prohibited from exporting IMVEXXY and BIJUVA tothe United States .
License Agreement with Theramex
InJune 2019 , we entered into the Theramex License Agreement with Theramex to commercialize BIJUVA and IMVEXXY in the Theramex Territory. Under the terms of the Theramex License Agreement, Theramex paid usEUR 14 million , or$15,506,400 , in cash as an upfront fee inAugust 2019 . Within thirty days of signing the Theramex License Agreement, we provided Theramex the regulatory materials and clinical data that were necessary for Theramex to obtain marketing authorizations and other applicable regulatory approvals for commercializing BIJUVA and IMVEXXY. We recognized the revenue related to the upfront fee, which was a non-refundable payment, during the third quarter of 2019, at a point in time when Theramex was able to use and benefit from the license which was when the knowledge transfer of regulatory documents occurred. We are eligible to receive additional milestone payments comprised of (i) up to an aggregate ofEUR 2 million in regulatory milestone payments based on regulatory approvals for BIJUVA and IMVEXXY in certain specified markets and (ii) up to an aggregate ofEUR 27.5 million in sales milestone payments to be paid in escalating tranches based on Theramex first attaining certain aggregate annual net sales milestones of BIJUVA and IMVEXXY in the Theramex Territory ranging fromEUR 25 million toEUR 100 million . We are also entitled to receive quarterly royalty payments at a rate of 5% on net sales of BIJUVA and IMVEXXY in the Theramex Territory. Theramex is responsible for all regulatory and commercial activities for BIJUVA and IMVEXXY in the Theramex Territory. Theramex may sublicense its rights to commercialize BIJUVA and IMVEXXY in the Theramex Territory, except for certain specified markets. We may terminate the Theramex License Agreement if Theramex does not submit all regulatory applications, submissions and/or registrations required for regulatory approval to use and commercialize BIJUVA and IMVEXXY within certain specified time periods. We also may terminate the Theramex License Agreement if Theramex challenges our patents. Either party may terminate the Theramex License Agreement for any material breach by the other party that is not cured within certain specified time periods or if the other party files for bankruptcy or other related matters.
Research and Development Expenses
A significant portion of our historical operating expenses have been incurred in
research and development activities. Research and development expenses relate
primarily to the development, support and maintenance of our drug candidates.
Our research and development expenses consist primarily of expenses incurred
under agreements with contract research organizations, or CROs, and consultants
that conduct our clinical and preclinical studies; employee-related expenses,
which include salaries and benefits, and non-cash share-based compensation; the
cost of developing our chemistry, manufacturing, and controls capabilities, and
costs associated with other research activities and regulatory approvals. Other
research and development costs listed below consist of costs incurred with
respect to drug candidates that have not received Investigational New Drug
Application approval from the FDA.
The following table indicates our research and development expense by project
for the periods indicated:
Years Ended December 31,
2020 2019 2018
(000s)
TX 001-HR (BIJUVA) $ 2,085 $ 3,848 $ 11,790
TX 004-HR (IMVEXXY) 1,311 2,522 4,890
ANNOVERA 1,990 2,637 -
Other research and development 5,046 10,785 10,619
Total $ 10,432 $ 19,792 $ 27,299
61
Research and development expenditures have been reduced as we refocused our resources towards the commercialization of our approved pharmaceutical products. We will continue to deploy limited resources as we develop our drug pipeline, continue stability testing and validation on our pharmaceutical products, develop and validate secondary manufacturers, prepare regulatory submissions and work with regulatory authorities on existing submissions. The costs of clinical trials may vary significantly over the life of a project owing to a variety of factors. We base our expenses related to clinical trials on estimates that are based on our experience and estimates from CROs and other third parties. Research and development expenditures for the drug candidates will continue after the trial completes for on-going stability and laboratory testing, regulatory submission and response work. Results of Operations
Comparison of Years Ended
Year ended
Years Ended December 31,
2020 2019 Change
(000s)
Product revenue, net $ 62,872 $ 34,141 $ 28,731
License revenue 2,000 15,506 (13,506 )
Cost of goods sold 15,975 6,335 9,640
Operating expenses 204,438 194,518 9,920
Operating loss (155,541 ) (151,206 ) (4,335 )
Other expense, net (27,983 ) (24,939 ) (3,044 )
Net loss $ (183,524 ) $ (176,145 ) $ (7,379 )
Revenue
Product revenue is recorded net of sales discounts, chargebacks, wholesaler fees, customer rebates, coupons and estimated returns. We launched IMVEXXY in the third quarter of 2018 and BIJUVA in the second quarter of 2019. We started selling ANNOVERA in the third quarter of 2019. We paused the planned full commercial launch of ANNOVERA inMarch 2020 due to the impact of the COVID-19 pandemic and resumed this initiative onJuly 1, 2020 . Product revenue for the year endedDecember 31, 2020 increased approximately$28,731,000 , or 84%, to approximately$62,872,000 , compared with approximately$34,141,000 for the year endedDecember 31, 2019 . Despite slower than anticipated growth of our product revenue due to the impact of the COVID-19 pandemic, product revenue increased primarily due to continued ramping of sales of IMVEXXY, BIJUVA and ANNOVERA during the year endedDecember 31, 2020 , as compared to the prior period, partially offset by a decrease in prenatal vitamins sales. Sales of IMVEXXY increased approximately$10,887,000 as compared to the prior year and sales of BIJUVA increased approximately$4,517,000 as compared to the prior year due to a higher number of units sold and increased net product revenue per unit. Sales of ANNOVERA increased approximately$13,445,000 as compared to the prior year primarily due to a higher number of units sold, partially offset by slightly lower net revenue per unit. In addition, during the year endedDecember 31, 2020 , our prenatal vitamin sales decreased approximately$118,000 due to decreased number of units sold partially offset by an increased net product revenue per unit as compared to the prior year. In addition to our product revenue, during the year endedDecember 31, 2020 , we recognized aggregate license revenue of$2,000,000 from two non-refundable milestone payments from Knight under the terms of the Knight License Agreement, which we recognized at the point in time upon the first regulatory approvals inCanada of each of IMVEXXY and BIJUVA. During the year endedDecember 31, 2019 , we recognized license revenue of approximately$15,506,000 from the upfront fee, which was a non-refundable payment, payable to us by Theramex under the terms of the Theramex License Agreement, which we recognized at the point in time when Theramex was able to use and benefit from the license, which was when the knowledge transfer of regulatory documents occurred. During the launches of IMVEXXY and BIJUVA we introduced co-pay assistance programs which allow eligible enrolled patients to access the products at a reasonable cost regardless of insurance coverage. We expect that our product revenue will improve in the long term as commercial and Medicare payer coverage increases, and plans complete the process needed to adjudicate IMVEXXY, BIJUVA, and ANNOVERA prescriptions at pharmacies. Cost of Goods Sold Cost of goods sold increased approximately$9,640,000 , or 152%, to approximately$15,975,000 for the year endedDecember 31, 2020 , compared with approximately$6,335,000 for the year endedDecember 31, 2019 . This increase is attributable to a 84% increase in product revenue as compared to the prior year, an increase in royalty fees of approximately$672,000 , and an increase in amortization of our license fee related to ANNOVERA of approximately$2,246,000 as well as an increase of$4,085,000 inventory charge, primarily related to BIJUVA, as compared to the prior year. Our gross margin related to prescription products was approximately 75% and 81% for the years endedDecember 31, 2020 and 2019, respectively. The change in our gross margin between the two periods is primarily related to the change in product mix and its related costs including inventory charge, amortization of license fee and royalty fees described above. 62 Operating Expenses Our principal operating costs included the following items as a percentage of total operating expenses. Years EndedDecember 31, 2020 2019
Sales and marketing costs, excluding human resource costs 44 % 45 % Human resource related costs
33 % 28 %
Product research and development costs 5 % 10 %
Professional fees and consulting costs 6 % 7 % Other operating expenses 12 % 10 % Operating expenses increased by approximately$9,920,000 , or 5%, to approximately$204,438,000 for the year endedDecember 31, 2020 , compared with approximately$194,518,000 for the year endedDecember 31, 2019 , as a result of the following items: Years Ended December 31, 2020 2019 Change (000s)
Sales and marketing, excluding human resources costs
66,969 54,120 12,849
Research and development costs 10,432 19,792 (9,360 )
Professional and consulting costs 13,260 13,913 (653 )
Other operating expenses 24,491 20,234 4,257
Total operating expenses $ 204,438 $ 194,518 $ 9,920
Sales and marketing costs, excluding human resources costs, for the year ended
December 31, 2020 increased by approximately $2,827,000 , or 3%, to approximately
$89,286,000 , compared with approximately $86,459,000 for the year ended December
31, 2019 . This increase was primarily due to higher expenses associated with
advertising efforts to support the significant initiative related to the launch
of ANNOVERA in March 2020 , which was subsequently paused as a result of the
COVID-19 pandemic and relaunched in July 2020 , as well as continuing to support
the commercialization of BIJUVA and IMVEXXY, which was partially offset by cost
cutting initiatives put in place at the beginning of the COVID-19 pandemic,
including reducing consulting and agency fees. In addition, we recorded product
samples expense of approximately $7,100,000 , during the year ended December 31,
2020 , primarily related to BIJUVA. Sales and marketing costs, excluding human
resources costs, also increased as compared to the prior year as a result of
higher sales incentives due to the increase in product revenue, which was
partially offset by lower physician education, training and travel expenses
caused by restrictions on in-person speaker programs due to the COVID-19
pandemic. In addition, during the third quarter of 2020, we onboarded our
outsourced sales personnel which decreased sales and marketing costs, excluding
human resources costs.
Human resources costs, including salaries, benefits and taxes, for the year endedDecember 31, 2020 increased by approximately$12,849,000 , or 24%, to approximately$66,969,000 , compared with approximately$54,120,000 for the year endedDecember 31, 2019 , as a result of an increase of approximately$11,964,000 primarily related to higher employee count which increased from 348 in 2019 to 400 in 2020 mostly in sales, marketing and regulatory areas to support commercialization of our pharmaceutical products which included onboarding our outsourced sales personnel and an increase of approximately$885,000 in non-cash compensation expense included in this category related to employee stock-based compensation during 2020 as compared to 2019, partially offset by cost cutting measures implemented due to the COVID-19 pandemic. Product research and development costs for the year endedDecember 31, 2020 decreased by approximately$9,360,000 , or 47%, to approximately$10,432,000 , compared with approximately$19,792,000 for the year endedDecember 31, 2019 . Product research and development costs include costs related to manufacturing validation and early development trials, as well as salaries, wages, non-cash compensation, and benefits of personnel involved in research and development activities. Product research and development expenditures have been reduced as we refocused our resources towards the commercialization of our approved pharmaceutical products. We continue to deploy limited resources as we develop our drug pipeline, continue stability testing and validation on our pharmaceutical products, develop and validate secondary manufacturers, prepare regulatory submissions and work with regulatory authorities on existing submissions. 63
? Since the project's inception in
? Since the project's inception in
For a discussion of the nature of efforts and steps necessary to complete these projects, see "Item 1. Business - Research and Development." For a discussion of the risks and uncertainties associated with completing development of our products, see "Item 1A. Risk Factors - Risks Related to Our Business." For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see "- Liquidity and Capital Resources." For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see "Item 1. Business - Pharmaceutical Regulation." Future milestones, including NDA submission dates, are not easily determinable as such milestones are dependent on various factors related to our clinical trials, including the timing of ongoing patient recruitment efforts to find eligible subjects for the applicable trials.
Professional fees and consulting costs for the year ended
All other operating expenses for the year endedDecember 31, 2020 increased by approximately$4,257,000 , or 21%, to approximately$24,491,000 , compared with approximately$20,234,000 for the year endedDecember 31, 2019 , primarily as a result of increased insurance, dues and subscriptions, rent, depreciation and amortization expenses, and write off of intangible assets and patents, partially offset by lower other office and travel expenses due to travel restrictions caused by the COVID-19 pandemic. Operating Loss As a result of the foregoing, our operating loss increased approximately$4,335,000 , or 3%, to approximately$155,541,000 for the year endedDecember 31, 2020 , compared with approximately$151,206,000 for the year endedDecember 31, 2019 , primarily as a result of an increase in total operating expenses to support commercialization and launch efforts related to our pharmaceutical products, a decrease in our license revenue as well as write off of inventory and product samples due to the COVID-19 pandemic, as described above, partially offset by increased total net product revenue.
We anticipate that we will continue to have operating losses for the near future until we successfully commercialize IMVEXXY, BIJUVA, and ANNOVERA, although there is no assurance that any commercialization of IMVEXXY, BIJUVA, and ANNOVERA will be successful.
Other expense, net
Other non-operating expense, net increased by approximately$3,044,000 , or 12%, to an expense of approximately$27,983,000 for the year endedDecember 31, 2020 , compared with an expense of approximately$24,939,000 for the year endedDecember 31, 2019 , primarily as a result of increased interest expense related to our Financing Agreement partially offset by the loss on extinguishment of debt of$10,058,000 incurred during the year endedDecember 31, 2019 . For more information regarding our Financing Agreement, see "Liquidity and Capital Resources" below. Net Loss Because of the net effects of the foregoing, net loss increased by approximately$7,379,000 , or 4%, to approximately$183,524,000 for the year endedDecember 31, 2020 , compared with approximately$176,145,000 for the year endedDecember 31, 2019 . Net loss per share of Common Stock, basic and diluted, was ($0.67 ) and ($0.72 ) for the years endedDecember 31, 2020 and 2019, respectively. 64
Year ended
Years Ended December 31,
2019 2018 Change
(000s)
Product revenue, net $ 34,141 $ 16,099 $ 18,042
License revenue 15,506 - 15,506
Cost of goods sold 6,335 2,737 3,598
Operating expenses 194,518 143,582 50,936
Operating loss (151,206 ) (130,220 ) (20,986 )
Other expense, net (24,939 ) (2,397 ) (22,542 )
Net loss $ (176,145 ) $ (132,617 ) $ (43,528 )
Revenue
Product revenue is recorded net of sales discounts, chargebacks, wholesaler fees, customer rebates, coupons and estimated returns. Product revenue for the year endedDecember 31, 2019 increased approximately$18,042,000 , or 112%, to approximately$34,141,000 , compared with approximately$16,099,000 for the year endedDecember 31, 2018 . Product revenue increased primarily due to an increase in sales of approximately$15,194,000 of IMVEXXY in the current period, partially offset by a decrease in prenatal vitamin sales of approximately$5,155,000 . Product revenue for the year endedDecember 31, 2019 also included sales of BIJUVA of approximately$1,836,000 and sales of ANNOVERA of approximately$6,167,000 . The revenue decrease related to our prenatal vitamins was primarily affected by lower number of units sold as compared to the prior year period. We launched IMVEXXY in the third quarter of 2018 and BIJUVA in the second quarter of 2019. We started selling ANNOVERA in the third quarter of 2019. Since the launches, revenues related to IMVEXXY and BIJUVA have been greatly affected by the co-pay assistance programs that we introduced to launch these products, which allow eligible enrolled patients to access the products at a reasonable cost regardless of insurance coverage. We expect our product revenue to improve as commercial and Medicare payer coverage increases, and plans complete the process needed to adjudicate IMVEXXY, BIJUVA and ANNOVERA prescriptions at pharmacies. In addition to our product revenue, during the year endedDecember 31, 2019 , we recognized license revenue of approximately$15,506,000 from the upfront fee, which was a non-refundable payment, paid to us by Theramex under the terms of the Theramex License Agreement, which we recognized at the point in time when Theramex was able to use and benefit from the license, which was when the knowledge transfer of regulatory documents
occurred. Cost of Goods Sold Cost of goods sold increased by approximately$3,598,000 , or 131%, to approximately$6,335,000 for the year endedDecember 31, 2019 , compared with approximately$2,737,000 for the year endedDecember 31, 2018 , primarily related to product costs attributable to our prescription pharmaceutical products, as well as royalty fees of$308,328 and the amortization of our license fee of$778,692 related to ANNOVERA. Our gross margin related to our prescription pharmaceutical products was 81% for the year endedDecember 31, 2019 as compared to 83% for the year endedDecember 31, 2018 . The change in our gross margin is primarily related to the change in product mix between the two periods. Operating Expenses Our principal operating costs included the following items as a percentage of total operating expenses. Years EndedDecember 31, 2019 2018
Sales and marketing costs, excluding human resource costs 45 % 43 % Human resource related costs
28 % 25 %
Product research and development costs 10 % 19 %
Professional fees and consulting costs 7 %
5 %
Other operating expenses 10 % 8 %
65
Operating expenses increased by approximately $50,936,000 , or 35%, to
approximately $194,518,000 for the year ended December 31, 2019 , compared with
approximately $143,582,000 for the year ended December 31, 2018 , as a result of
the following items:
Years Ended
December 31,
2019 2018 Change
(000s)
Sales and marketing, excluding
human resources costs $ 86,459 $ 61,845 $ 24,614
Human resources related costs 54,120 35,003 19,117
Research and development costs 19,792 27,299 (7,507) Professional and consulting costs 13,913 7,661 6,252 Other operating expenses 20,234 11,774 8,460 Total operating expenses$ 194,518 $ 143,582 $ 50,936
Sales and marketing costs increased by approximately$24,614,000 or 40%, to approximately$86,459,000 for the year endedDecember 31, 2019 , compared with approximately$61,845,000 for the year endedDecember 31, 2018 , primarily as a result of increased expenses associated with sales and marketing efforts to support launch and commercialization of our pharmaceutical products, including an increase of$7.4 million related to advertising expenses related to our pharmaceutical products, an increase of$6.5 million in consulting projects including costs for outsourced sales personnel and their related expenses, an increase of$6.0 million in marketing initiatives related to the launch of our pharmaceutical products as well as an increase in costs related to physician education, conferences and travel expenses related to product commercialization. Human resource related costs, including salaries and benefits increased by approximately$19,117,000 , or 55%, to approximately$54,120,000 for the year endedDecember 31, 2019 , compared with approximately$35,003,000 for the year endedDecember 31, 2018 , primarily as a result of an increase of approximately$16,844,000 primarily due to higher employee count which increased from 241 in 2018 to 348 in 2019 primarily in sales, marketing and regulatory areas to support commercialization of our pharmaceutical products and an increase in non-cash compensation expense included in this category of approximately$2,273,000 related to employee stock option amortization during 2019 as compared to 2018. Research and development costs decreased by approximately$7,507,000 , or 27%, to approximately$19,792,000 for the year endedDecember 31, 2019 , compared with approximately$27,299,000 for the year endedDecember 31, 2018 . Research and development costs include costs related to manufacturing validation and early development trials, as well as salaries, wages, non-cash compensation and benefits of personnel involved in research and development activities. Research and development costs decreased primarily as a result of certain employees and activities that were previously classified as research and development being transferred into operations as they began to support commercial and launch efforts after the FDA approvals of IMVEXXY and BIJUVA.
? Since the project's inception in
? Since the project's inception in
For a discussion of the nature of efforts and steps necessary to complete these projects, see "Item 1. Business - Research and Development." For a discussion of the risks and uncertainties associated with completing development of our products, see "Item 1A. Risk Factors - Risks Related to Our Business." For a discussion of the extent and nature of additional resources that we may need to obtain if our current liquidity is not expected to be sufficient to complete these projects, see "- Liquidity and Capital Resources." For a discussion as to whether a future milestone such as completion of a development phase, date of filing an NDA with a regulatory agency or approval from a regulatory agency can be reliably determined, see "Item 1. Business - Pharmaceutical Regulation." Future milestones, including NDA submission dates, are not easily determinable as such milestones are dependent on various factors related to our clinical trials, including the timing of ongoing patient recruitment efforts to find eligible subjects for the applicable trials. Professional and consulting costs increased by approximately$6,252,000 , or 82%, for the year endedDecember 31, 2019 , to approximately$13,913,000 compared with approximately$7,661,000 for the yearDecember 31, 2018 , primarily as a result of increased medical safety consulting fees to support commercialization of
our pharmaceutical products. All other costs increased by approximately$8,460,000 , or 72%, to approximately$20,234,000 for the year endedDecember 31, 2019 , compared with approximately$11,774,000 for the year endedDecember 31, 2018 , as a result of increased contract labor, dues and subscriptions, information technology, travel, insurance and other office expenses primarily to support commercialization
of
our new drugs.
66
Operating Loss
As a result of the foregoing, our operating loss increased approximately
$20,986,000 , or 16%, to approximately $151,206,000 for the year ended December
31, 2019 , compared with approximately $130,220,000 for the year ended December
31, 2018 , primarily as a result of an increase in total operating expenses to
support commercialization of our pharmaceutical products, partially offsetby increased total net revenue. Other expense, net Other non-operating expense, net changed by approximately$22,542,000 , or 940%, to an expense of approximately$24,939,000 for the year endedDecember 31, 2019 compared with an expense of approximately$2,397,000 for 2018, primarily as a result of a one-time charge of approximately$10,058,000 in loss on extinguishment of debt and increased interest expense related to our Financing Agreement that we recorded in 2019 as compared to 2018. Net Loss Because of the net effects of the foregoing, net loss increased approximately$43,528,000 , or 33%, to approximately$176,145,000 for the year endedDecember 31, 2019 , compared with approximately$132,617,000 for the year endedDecember 31, 2018 . Net loss per share of common stock, basic and diluted, was ($0.72 ) for the year endedDecember 31, 2019 , compared with ($0.59 ) per share of common stock for the year endedDecember 31, 2018 .
Liquidity and Capital Resources
We have funded our operations primarily through public offerings of our common stock and private placements of equity and debt securities. For the three-year period endedDecember 31, 2020 , we received approximately$198,642,000 in net proceeds from the issuance of shares of our common stock, par value$0.001 per share, or Common Stock. As ofDecember 31, 2020 , we had a cash balance of approximately$80,486,000 . Subsequent toDecember 31, 2020 , we received approximately$47,300,000 in net proceeds from sales of our Common Stock in January andFebruary 2021 pursuant to a Controlled Equity OfferingSM Sales Agreement, or the Sales Agreement, withCantor Fitzgerald & Co. , orCantor Fitzgerald , and approximately$97,100,000 in net proceeds from sales of our Common Stock pursuant to an underwritten public offering of our common stock inFebruary 2021 , each as described below. OnNovember 10, 2020 , we entered into an underwriting agreement withCantor Fitzgerald relating to an underwritten public offering of 23,437,500 shares of our Common Stock. We granted to the underwriter an option, exercisable for a period of 30 days, to purchase up to 3,515,625 additional shares of Common Stock, which was exercised in full. The net proceeds the offering were approximately$31,703,000 , after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The offering closed onNovember 13, 2020 . OnNovember 27, 2020 , we entered into the Sales Agreement withCantor Fitzgerald relating to shares of our Common Stock. In accordance with the terms of the sales agreement, in January andFebruary 2021 we offered and sold an aggregate of 28,600,689 shares of our Common Stock having an aggregate offering price of$50 million , resulting in estimated net proceeds to us of approximately$47.3 million . Sales of our Common Stock under the Sales Agreement were made in sales deemed to be "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, or the Securities Act.Cantor Fitzgerald was entitled to compensation at a fixed commission rate of 3.0% of the aggregate gross sales price per share sold. OnFebruary 11, 2021 , we entered into an underwriting agreement withCantor Fitzgerald , as underwriter, relating to an underwritten public offering of 59,459,460 shares of our Common Stock. Pursuant to the underwriting agreement, we granted to the underwriter an option, exercisable for a period of 30 days, to purchase up to 8,918,919 additional shares of Common Stock. The net proceeds to us from the offering, excluding any proceeds that may be received from the exercise of the underwriter's option to purchase additional shares, were approximately$97.1 million , after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The offering closed onFebruary 16, 2021 . OnApril 24, 2019 , we entered into a Financing Agreement, as amended, or the Financing Agreement, with Sixth Street Specialty Lending, Inc., as administrative agent, or the Administrative Agent, various lenders from time to time party thereto, and certain of our subsidiaries party thereto from time to time as guarantors, which provided us with up to a$300,000,000 first lien secured term loan credit facility, or the Facility. The Facility provided for fund availability in multiple tranches:$200,000,000 was drawn upon entering into the Financing Agreement while an additional$50,000,000 was drawn onFebruary 18, 2020 . An additional$50,000,000 was previously available to us in the Administrative Agent's sole and absolute discretion either contemporaneously with the delivery of our financial statements for the quarter endedJune 30, 2020 or at such earlier date as the Administrative Agent may have consented to. Subsequent to the pause in the full launch of ANNOVERA caused by the COVID-19 pandemic, the undrawn$50,000,000 tranche under the Financing Agreement is
no longer available.
OnAugust 5, 2020 , we and our subsidiaries entered into Amendment No. 5 to the Financing Agreement, or Amendment No. 5, with the Administrative Agent and the lenders party thereto, pursuant to which we modified the minimum consolidated net product revenue requirements attributable to commercial sales of our IMVEXXY, BIJUVA, and ANNOVERA products, which requirements are effective beginning with the fiscal quarter endingDecember 31, 2020 . In lieu of a cash amendment fee, to induce the lenders to enter into Amendment No. 5, onAugust 5, 2020 , we issued warrants, or the Lender Warrants, to the lenders under the Financing Agreement to purchase an aggregate of 4,752,116 shares of Common Stock, pursuant to a subscription agreement among the parties, or the Subscription Agreement. The Warrants have an exercise price of$1.58 per share of Common Stock and an expiration date ofAugust 5, 2030 . The Warrants may also be exercised via cashless exercise pursuant to the terms thereof. No registration rights were issued pursuant to the Warrants or Subscription Agreement. OnNovember 8, 2020 , in connection with entering into Amendment No. 6 to the Financing Agreement, or Amendment No. 6, we amended the Lender Warrants to provide for an adjustment to the exercise price if we conducted certain dilutive issuances prior toDecember 31, 2020 , or if the volume-weighted average price of our Common Stock for the fifteen trading days endingDecember 31, 2020 was lower than the then-current exercise price. The issuance of the shares of Common Stock in ourNovember 2020 underwritten public offering at a price per share equal to$1.1856 triggered the automatic reduction in the exercise price of the Lender Warrants from$1.58 to$1.1856 . OnJanuary 13, 2021 , in connection with entering into Amendment No. 7 to the Financing Agreement, or Amendment No. 7, the Lender Warrants were further amended to provide for an additional adjustment to the exercise price if we conduct certain dilutive issuances prior toMarch 31, 2021 . In connection with entering into Amendment No. 7, we paid the Administrative Agent an amendment fee of$5.0 million . 67
As of the filing date of this Annual Report on Form 10-K, our cash balance was above the required balance by the Financing Agreement. Based on our current projections, and recent equity financing, we anticipate that we will remain in compliance with the minimum cash balance covenant for the next twelve months from the issuance of these financial statements. In addition, we have reviewed numerous potential scenarios in connection with the impact of COVID-19 pandemic on our business and we believe that our existing cash reserves are sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months from the issuance of these financial statements. However, if we are unsuccessful with the commercialization of IMVEXXY, BIJUVA, or ANNOVERA, if such commercialization is delayed, or if the continued impact of the COVID-19 pandemic on our business is worse than we anticipate, among other circumstances, we may consume funds significantly faster than we currently anticipate and our existing cash reserves would be insufficient to maintain compliance with the Financing Agreement covenants or satisfy our liquidity requirements until we are able to successfully commercialize IMVEXXY, BIJUVA, and ANNOVERA. The Financing Agreement requires us to maintain certain minimum quarterly product net revenue requirements and several other restrictive covenants. OnMarch 1, 2021 , we entered into Amendment No. 8, pursuant to which, among other amendments, the minimum quarterly product net revenue requirements attributable to commercial sales of IMVEXXY, BIJUVA, and ANNOVERA were revised to (i)$17.0 million ,$20.0 million ,$23.0 million , and$26.5 million for the first, second, third, and fourth quarters of 2021, respectively, (ii)$30.0 million ,$35.0 million ,$40.0 million and$45.0 million for the first, second, third, and fourth quarters of 2022, respectively, (iii)$50.0 million ,$55.0 million ,$60.0 million and$65.5 million for the first, second, third, and fourth quarters of 2023, and (iv)$70.0 million for the first quarter of 2024. In connection with entering into Amendment No. 8, we repaid$15.0 million in principal under the Financing Agreement on such date and agreed to repay an additional$35.0 million in principal by no later thanMarch 31, 2021 , in each case plus a 5.0% prepayment fee. Additionally, we have agreed to make quarterly repayments under the Financing Agreement commencing with the fiscal quarter endingMarch 31, 2022 . See Note 8 - Debt for information regarding our debt maturity. These and other terms in the Financing Agreement have to be monitored closely for compliance and could restrict our ability to grow our business or enter into transactions that we believe would be beneficial to our business. If we are unable to maintain the minimum unrestricted cash balance, achieve any of the total minimum net revenue requirements or otherwise comply with any other covenant of the Financing Agreement, all or a portion of our obligations under the Financing Agreement may be declared immediately due and payable, which would have an adverse effect on our business, results of operations and financial condition. Our net days sales outstanding, or net DSO, is calculated by dividing gross accounts receivable less the reserve for doubtful accounts, chargebacks and payment discounts by the average daily net product revenue during the quarter. We also disclose gross DSO, which includes the calculation of gross accounts receivable divided by the average daily gross product revenue to distributors during the quarter. For the three months endedDecember 31, 2020 , our gross DSO was 61 days compared to 55 days for the three months endedDecember 31, 2019 and our net DSO was 132 days for the three months endedDecember 31, 2020 compared to 141 days for the three months endedDecember 31, 2019 . We anticipate that our DSO will fluctuate in the future based upon a variety of factors, including longer payment terms associated with the launches of IMVEXXY, BIJUVA, and ANNOVERA and changes in the healthcare industry. Our exposure to credit losses may increase if our customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the COVID-19 pandemic, or other customer-specific factors. Although we have historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of trade receivables in the future. We need substantial amounts of cash to complete the launch and commercialization of our hormone therapy and contraceptive drugs. The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
Summary of (Uses) and Sources of Cash
Years Ended December 31,
2020 2019 2018
Net cash used in operating activities $ (159,470,335 ) $ (165,697,595 ) $ (106,811,781 )
Net cash used in investing activities $ (1,597,907 ) $
(23,912,694 )
68
Operating Activities
The principal use of cash in operating activities for the year ended December
31, 2020 and 2019 was to fund our current expenses primarily related to
supporting commercialization activities for IMVEXXY, BIJUVA and ANNOVERA, sales,
marketing, scale-up and manufacturing activities and clinical development,
adjusted for non-cash items. The decrease of approximately $6,227,000 in cash
used in operating activities for the year ended December 31, 2020 in comparison
to the year ended December 31, 2019 was primarily due to changes in the
components of working capital partially offset by an increase in non-cash items
and an increase in our net loss.
The increase of approximately $58,886,000 in cash used in operating activities
for the year ended December 31, 2019 in comparison to the year ended December
31, 2018 was primarily due to an increase in our net loss coupled with changes
in the components of working capital which were primarily due to the launch and
commercialization of our pharmaceutical products.
Investing Activities
During the year ended December 31, 2020 , a decrease in spending on fixed assets,
patents and trademarks resulted in a decrease in cash used in investing
activities for the year ended December 31, 2020 compared with the same period in
2019. In addition, during the year ended December 31, 2019 , we paid $20,000,000
to the Population Council in connection with the commercial batch release of
ANNOVERA, based on the Population Council License Agreement.
During the year ended December 31, 2019 , we paid $20,000,000 to the Population
Council in connection with the commercial batch release of ANNOVERA, based on
the Population Council License Agreement. In addition, an increase in spending
on fixed assets, patents and trademarks resulted in an increase in cash used in
investing activities for the year ended December 31, 2019 compared with thesame period in 2018. Financing Activities
Financing activities currently represent the principal source of our cash flow.
Our financing activities for the year endedDecember 31, 2020 provided net cash of approximately$80,724,000 which consisted of the funding from our Financing Agreement of$50,000,000 , approximately$31,703,000 in proceeds from the sale of our common stock and the exercise of options to purchase common stock of approximately$271,000 , partially offset by the payment of deferred financing fees of$1,250,000 .
On
Our financing activities for the year endedDecember 31, 2019 provided net cash of approximately$188,827,000 . The cash provided by financing activities during the year endedDecember 31, 2019 included approximately$77,031,000 in proceeds from the sale of our common stock and approximately$109,000 in proceeds from the exercise of options as well as funding from our Financing Agreement of approximately$200,000,000 partially offset by the payment of financing fees of approximately$6,652,000 in connection with the Financing Agreement and the repayment of the MidCap Agreement of$81,661,000 . OnOctober 29, 2019 , we closed an underwritten public offering of 29,900,000 shares of our common stock at a price to the public of$2.75 per share, inclusive of the underwriters' option to purchase additional shares of common stock, which option was exercised in full. We received net proceeds from the offering of approximately$77,031,000 , after deducting underwriting discounts and commissions and offering expenses paid by us.
Critical Accounting Policies and New Accounting Pronouncements
Critical Accounting Policies The preparation of financial statements in accordance with accounting principles generally accepted inthe United States , or GAAP, requires us to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. We consider an accounting estimate to be critical if:
? it requires assumptions to be made that were uncertain at the time the estimate
was made, and
69
? changes in the estimate or different estimates that could have been selected
could have a material impact on our results of operations or financial condition. We base our estimates and judgments on our experience, our current knowledge, our beliefs of what could occur in the future, our observation of trends in the industry, information provided by our customers, and information available from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following accounting policies and estimates as those that we believe are most critical to our financial condition and results of operations and that require our most subjective and complex judgments in estimating the effect of inherent uncertainties: share-based compensation expense and income taxes. Revenue Recognition. As ofDecember 31, 2020 , our products consisted primarily of prescription vitamins and our FDA-approved products: IMVEXXY, which we began selling during the third quarter of 2018, BIJUVA, which we began selling in the second quarter of 2019, and ANNOVERA, which we began selling in the third quarter of 2019. As a result of the uncertainty surrounding the COVID-19 pandemic, we paused the commercial launch of ANNOVERA in the first quarter of 2020 and deferred sales and marketing initiatives into subsequent quarters. We resumed the launch of ANNOVERA inJuly 2020 . We sell our name brand and generic prescription products primarily through wholesale distributors and retail pharmacies. We have one performance obligation related to prescription products sold through wholesale distributors, which is to transfer promised goods to a distributor, and two performance obligations related to products sold through retail pharmacies, which are to: (1) transfer promised goods and (2) provide customer service for an immaterial fee. We treat shipping as a fulfillment activity rather than as a separate obligation. We recognize prescription product revenue only when we satisfy performance obligations by transferring a promised good or service to a customer. A good or service is considered to be transferred when the customer receives the goods or service or obtains control. Control refers to the customer's ability to direct the use of, and obtain substantially all of the remaining benefits from, an asset. Based on our contracts, we invoice customers once our performance obligations have been satisfied, at which point payment is unconditional. We disclose receivables from contracts with customers separately in the statement of financial position. Payment for goods or services sold by us is typically due between 30 and 60 days after an invoice is sent to the customer. The transaction price of a contract is the amount of consideration which we expect to be entitled to in exchange for transferring promised goods or services to a customer. Prescription products are sold at fixed wholesale acquisition cost, or WAC, determined based on our list price. However, the total transaction price is variable as it is calculated net of estimated product returns, chargebacks, rebates, coupons, discounts and wholesaler fees. These estimates are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). In order to determine the transaction price, we estimate the amount of variable consideration at the outset of the contract either utilizing the expected value or most likely amount method, depending on the facts and circumstances relative to the contract or each variable consideration. The estimated amount of variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative product revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In determining amounts of variable consideration to include in a contract's transaction price, we rely on our historical experience and other evidence that supports our qualitative assessment of whether product revenue would be subject to a significant reversal. We consider all the facts and circumstances associated with both the risk of a product revenue reversal arising from an uncertain future event and the magnitude of the reversal if that uncertain event were to occur. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our original estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such changes in estimates become known. Share-Based Compensation. We measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include options, restricted stock, restricted stock units, performance-based awards, share appreciation rights, and employee share purchase plans. We amortize such compensation amounts, if any, over the respective service periods of the award. We use the Black-Scholes-Merton option pricing model, or the Black-Scholes Model, an acceptable model in accordance with ASC 718, Compensation-Stock Compensation, to value options. Option valuation models require the input of assumptions, including the expected life of the stock-based awards, the estimated stock price volatility, the risk-free interest rate, and the expected dividend yield. The risk-free interest rate assumption is based upon observed interest rates on zero couponU.S. Treasury bonds whose maturity period is appropriate for the term of the instrument. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate each year during the term of the award. OnJanuary 1, 2017 , we began using our own stock price in our volatility calculation along with the other peer entities whose stock prices were publicly available that were similar to our company and in 2019 we started using only our own stock price in the volatility calculation. Our calculation of estimated volatility is based on historical stock prices over a period equal to the expected term of the awards. OnJanuary 1, 2020 , we began calculating the expected term of our stock-based awards, which represents the period that the stock-based awards are expected to be outstanding. Prior toJanuary 1, 2020 , the average expected life of options was based on the contractual terms of the stock option using the simplified method. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. We recognize the compensation expense for share-based compensation granted based on the grant date fair value estimated in accordance with ASC 718. We generally recognize the compensation expense on a straight-line basis over the employee's requisite service period. EffectiveJanuary 1, 2017 , we account for forfeitures when they occur. OnJanuary 1, 2019 , we adopted ASU 2018-07 which simplified the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expanded the scope of ASC 718 to include share-based payments granted to non-employees in exchange for goods or services used or consumed in an entity's own operations and superseded the guidance in ASC 505-50. Prior toJanuary 1, 2019 , equity instruments issued to non-employees were recorded on a fair value basis, as required by ASC 505, Equity - Based Payments to Non-Employees. 70 We grant performance-based stock units and restricted stock units for shares of common stock to employees. We value our restricted stock units and our performance-based stock units by reference to our stock price on the date of grant. We recognize compensation expense for restricted stock units based on a straight-line basis over the requisite service period of the entire award. We recognize performance-based restricted stock as compensation expense based on the most likely probability of attaining the prescribed performance and over the requisite service period beginning at its grant date and through the date the restricted stock vests. The number of target shares that vest are determined based on the level of attainment of the targets. If a minimum level of performance is attained for the awards, restricted stock is issued based on
the level of attainment. Income Taxes. We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be recovered or settled. We recognize the effect on deferred tax assets and liabilities of a change in tax rates when the rate change is enacted. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized. In accordance with ASC 740, Income Taxes, we recognize the effect of uncertain income tax positions only if the positions are more likely than not of being sustained in an audit, based on the technical merits of the position. We measure recognized uncertain income tax positions using the largest amount that has a likelihood of being realized that is greater than 50%. Changes in recognition or measurement are reflected in the period in which those changes in judgment occur. We recognize both interest and penalties related to uncertain tax positions as part of the income tax provision. AtDecember 31, 2020 and 2019, we had no tax positions relating to open tax returns that were considered to be uncertain. Our tax returns are subject to review by the Internal Revenue Service three years after they are filed. OurU.S. federal and state tax returns since 2011, which was the first year we generated net operating losses, remain open to examination. The determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. In the ordinary course of our business, there are transactions and calculations for which the ultimate tax determination is uncertain. In spite of our belief that we have appropriate support for all the positions taken on our tax returns, we acknowledge that certain positions may be successfully challenged by the taxing authorities. We determine the tax benefits more likely than not to be recognized with respect to uncertain tax positions. Although we believe our recorded tax assets and liabilities are reasonable, tax laws and regulations are subject to interpretation and inherent uncertainty; therefore, our assessments can involve both a series of complex judgments about future events and rely on estimates and assumptions. Although we believe these estimates and assumptions are reasonable, the final determination could be materially different than that which is reflected in our provision for income taxes and recorded tax assets and liabilities. Segment Reporting. We are managed and operated as one business, which is focused on creating and commercializing products targeted exclusively for women. Our business operations are managed by a single executive leadership team that is chaired by the Chief Executive Officer of our Company, who oversees all operations. We do not operate separate lines of business with respect to any of our products and we do not prepare discrete financial information with respect to separate products. All product sales are derived from sales inthe United States . Accordingly, we view our business as one reportable operating segment. 71 New Accounting Pronouncements. InMarch 2020 , theFinancial Accounting Standards Board , or the FASB, issued Accounting Standards Update, or ASU, 2020-04: Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as London Interbank Offered Rate (LIBOR). This ASU includes practical expedients for contract modifications due to reference rate reform. Generally, contract modifications related to reference rate reform may be considered an event that does not require remeasurement or reassessment of a previous accounting determination at the modification date. This ASU is effectiveMarch 12, 2020 throughDecember 31, 2022 . Our Financing Agreement currently include the use of alternate rates when LIBOR is not available. We do not expect the change from LIBOR to an alternate rate will have a material impact on our financial statements and, to the extent we enter into modifications of agreements that are impacted by the LIBOR phase-out, we will apply such guidance to those contract modifications. InAugust 2018 , the FASB issued ASU 2018-13 which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information and modifies some disclosure requirements. The FASB developed the amendments to Accounting Standards Codification, or ASC, 820 as part of its broader disclosure framework project, which aims to improve the effectiveness of disclosures in the notes to financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. The new guidance is effective for all entities for fiscal years beginning afterDecember 15, 2019 and for interim periods within those fiscal years. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. We adopted this standard onJanuary 1, 2020 , and the adoption did not have a material effect on our disclosures. InJune 2016 , the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. The amendments in this update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected based on historical experience, current conditions, and reasonable supportable forecasts. The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019 , with early adoption permitted no sooner than the first quarter of 2019. A modified retrospective approach is required for all investments, except debt securities for which an other-than-temporary impairment had been recognized prior to the effective date, which will require a prospective transition approach and should be applied either prospectively or retrospectively depending on the nature of the disclosure. The adoption of ASU 2016-13 requires expanded quantitative and qualitative disclosures about the Company's expected credit losses. EffectiveJanuary 1, 2020 , we adopted ASU 2016-13 under a modified retrospective approach for all financial assets measured at amortized cost. There was no adjustment recorded for the cumulative effect of adopting ASU 2016-13. The adoption expanded disclosures about our credit losses.
Other recent accounting pronouncements issued by the FASB (including its
Off-Balance Sheet Arrangements
As ofDecember 31, 2020 , 2019, and 2018, we had no off-balance sheet arrangements that have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions, which, in our judgment, are normal and customary for companies in our industry sector. These agreements are typically with business partners, clinical sites, and suppliers. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to our drugs or drug candidates, use of such drugs or drug candidates, or other actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is sometimes unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, we have no liabilities recorded for these provisions as ofDecember 31, 2020 , 2019, and 2018. In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims, environmental actions or the actions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by GAAP, an estimate is made of the loss and the appropriate accounting entries are reflected in
our financial statements. Effects of Inflation
For each of the fiscal years ended
72
Contractual Obligations
A summary of contractual obligations as of
Payments Due by Period
Less than
Total 1 Year 2-3
Years 4-5 Years More than 5 Years
Operating lease obligations
- 187,500,000 62,500,000 -
Interest payments (2) 76,034,635 26,487,847 47,913,975 1,632,813 -
Purchase obligations (3) 32,923,559 4,984,374 5,141,093 7,133,647 15,664,445
Total $ 374,573,612 $ 33,806,803 $ 243,411,500 $ 74,256,452 $ 23,098,857 (1) Reflects amounts payable under the Financing Agreement as of
2020, which provided for the outstanding principal amount to be paid in four
equal quarterly installments beginning on
Agreement maturing on
the Financing Agreement, entered into on
quarterly repayments under the Financing Agreement commencing with the fiscal
quarter ending
our debt maturity.
(2) Interest calculation is based on interest rates in place on
2020.
(3) Includes manufacturing purchase commitments described below. The amounts
presented here represent our estimates of the minimum required payments under
our agreements.
Intellectual Property Licenses
We have license agreements with third parties that provide for minimum royalty, license, and exclusivity payments to be paid by us for access to certain technologies. In addition, we pay royalties as a percent of revenue as described in Note 6, Intangible Assets, to these consolidated financial statements. Purchase Commitments We have manufacturing and supply agreements whereby we are required to purchase from Catalent a minimum number of softgels during the first contract year and a higher number or softgels after the first contract year. If the minimum order quantities of specific products are not met, we are required to pay Catalent 50% of the difference between the total amount we would have paid to Catalent if the minimum requirement had been fulfilled and the sum of all purchases of our products from Catalent during the contract year. In addition, we have a manufacturing and supply agreement whereby we are required to purchase a minimum number of units of ANNOVERA during a contract year. As ofDecember 31, 2020 , we have met our minimum purchase commitments with our manufacturers related to
fiscal year 2020. Legal Proceedings
See Item 3 "Legal Proceedings" for more information.
Employment Agreements We have entered into employment agreements with certain of our executives that provide for compensation and certain other benefits. Under certain circumstances, including a change in control, some of these agreements provide for severance or other payments, if those circumstances occur during the term of the employment agreement. Seasonality The specialty pharmaceutical industry component of women's health is not subject to seasonal sales fluctuation, however, we anticipate that high deductible and annual prescription copay resets under commercial insurance plans at the beginning of the calendar year will affect our first quarter net revenue.
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