TherapeuticsMD, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2022

or

For the transition period from _______________ to _______________

Commission File Number: 001-00100

THERAPEUTICSMD, INC.

(Exact name of Registrant as specified in its Charter)

561-961-1900

(Registrant’s telephone number, including area code)

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

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of November 11, 2022, there were 9,467,104 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

Table of Contents

Part I – Financial Information

TherapeuticsMD, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited - in thousands, except per share data)

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

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TherapeuticsMD, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited - in thousands, except per share data)

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

2

TherapeuticsMD, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(Unaudited - in thousands)

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

3

TherapeuticsMD, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited - in thousands)

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

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TherapeuticsMD, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

General

TherapeuticsMD, Inc., a Nevada corporation (the “Company”) and its consolidated subsidiaries are referred to collectively in this Quarterly Report on Form 10-Q (“10-Q Report”) as “TherapeuticsMD,” “we,” “our” and “us.” This 10-Q Report includes our trademarks, trade names and service marks, such as TherapeuticsMD^®, vitaMedMD^®, BocaGreenMD^®, IMVEXXY^®, BIJUVA^® and ANNOVERA^®, which are protected under applicable intellectual property laws and are the property of, or licensed to, the Company. Solely for convenience, trademarks, trade names and service marks referred to in this 10-Q Report may appear without the ^®, ^TM or ^SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply a relationship with, or endorsement or sponsorship of us by, these other parties.

We are a women’s healthcare company with a mission of creating and commercializing innovative products to support the lifespan of women from pregnancy prevention through menopause. At TherapeuticsMD, we combine entrepreneurial spirit, clinical expertise, and business leadership to develop and commercialize health solutions that enable new standards of care for women. Our solutions range from a patient-controlled, long-lasting contraceptive to advanced hormone therapy pharmaceutical products. We also have a portfolio of branded and generic prescription prenatal vitamins under the vitaMedMD and BocaGreenMD brands. Our portfolio of products focused on women’s health allows us to efficiently leverage our sales and marketing plan to grow our recently approved products.

vitaCare Divestiture

On April 14, 2022, we completed the divestiture of vitaCare Prescription Services, Inc. (“vitaCare”) with the sale of all of vitaCare’s issued and outstanding capital stock (the “vitaCare Divestiture”). We received net proceeds of $142.6 million, net of transaction costs of $7.2 million, and we recognized a gain on sale of business of $143.4 million. Included in the net proceeds amount was $11.3 million of customary holdbacks as provided in the stock purchase agreement (the “Purchase Agreement”), which is recorded as restricted cash in the consolidated balance sheets. The restricted cash is held by an escrow agent and will be released to us in April 2023 upon a joint written direction from the buyer and us being delivered to the escrow agent to disburse to us an amount equal to the amount of escrow funds less any amounts subject to a claim notice in accordance with the terms set forth in the Purchase Agreement. Any amounts subject to a claim notice in accordance with the terms set forth in the Purchase Agreement shall be retained by the escrow agent until each such claim subject thereto is resolved. Additionally, we may receive up to an additional $7.0 million in earn-out consideration, contingent upon vitaCare’s financial performance through 2023 as determined in accordance with the terms of the Purchase Agreement. We will record the contingent consideration at the settlement amount when the consideration is realized or realizable.

The Purchase Agreement contains customary representations and warranties, covenants, and indemnities of the parties thereto. In addition, upon closing of the vitaCare Divestiture, (i) we entered into a long-term services agreement with vitaCare to continue utilization of the vitaCare platform with respect to our products, and (ii) we entered into a transition services agreement with vitaCare for us to provide certain transition services to vitaCare for up to 12 months following the closing. Under the long-term services agreement, we are required to pay to vitaCare a minimum service fee for each respective annual contract year. Our estimated minimum service fee commitments for vitaCare are as follows: $2.0 million for the period from October 1, 2022 to December 31, 2022, $10.7 million for 2023, $13.4 million for 2024, $15.4 million for 2025, $16.2 million for 2026, and $5.5 million for the period from January 1, 2027 to April 14, 2027.

COVID-19

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

Since the early phase of the COVID-19 pandemic, we have been using substantial virtual options to ensure business continuity. We have also partnered with independent community pharmacies and multiple third-party online pharmacies and telemedicine providers that focus on contraception or menopause which provide patients real-time access to both diagnosis and treatment. We continue to support prescribers’ needs with samples and product materials through our sales force. If access is restricted, we have mailing options in place for these materials. We also have business continuity plans and infrastructure in place that allows for live virtual e-detailing of our products.

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

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

While we currently believe that our COVID-19 contingency plan has the ability to mitigate many of the negative effects of the COVID-19 pandemic on our business, the severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the duration of “social distancing” orders, the ability of our sales force to access healthcare providers to promote our products, increases in unemployment, which could reduce access to commercial health insurance for our patients, thus limiting payer coverage for our products, and the impact of the pandemic on our global supply chain, all of which remain uncertain. Our future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions, uncertain demand, and the impact of any initiatives or programs that we may undertake to address financial and operations challenges that we may face.

Going concern

We incurred a loss from operations of $65.8 million and interest expense and other financing costs of $30.9 million during the nine months ended September 30, 2022, and as of that date, our current liabilities exceeded our current assets by $86.6 million and our total liabilities exceeded our total assets by $48.3 million. We will need to raise additional capital to repay the entire principal balance of the Financing Agreement, dated as of April 24, 2019, as amended (the “Financing Agreement”), with Sixth Street Specialty Lending, Inc., as administrative agent (the “Administrative Agent” or “Sixth Street”), various lenders from time to time party thereto (the “Lenders”), and certain of our subsidiaries party thereto from time to time as guarantors, and to provide additional liquidity to fund our losses until our operations become cash flow positive.

On July 29, 2022, we closed on a private placement offering with Rubric Capital Management LP (the “Preferred Stock Investor”), pursuant to which we issued and sold (i) 15,000 shares of the Company’s newly-designated Series A Preferred Stock, par value $0.001 per share (“Preferred Stock”) and (ii) 565,000 shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), and we received aggregate gross proceeds of $15.0 million, before expenses. On September 30, 2022, we closed on an additional private placement offering with the Preferred Stock Investor, pursuant to which we issued and sold 7,000 shares of the Company’s Preferred Stock for an aggregate offering price of $7.0 million. In addition, in lieu of issuing, selling and delivering 263,666 shares of Common Stock to the Preferred Stock Investor, we agreed to pay the Preferred Stock Investor, on the later of (i) the maturity date of the Preferred Stock of December 31, 2022, which shall be automatically extended, on a day-for-day basis, to the extent the maturity date under the Financing Agreement is extended, but by no more than a total of 60 days without the consent of the holders representing at least 66 2/3% of the outstanding shares of Preferred Stock (the “Preferred Stock Maturity Date”) or (ii) the date our obligations under the Financing Agreement are paid in full, a make-whole payment equal to 263,666 multiplied by the closing price of our Common Stock on the principal securities exchange or securities market on which the Common Stock is then traded, on the day prior to the date of payment of the make-whole payment. See Note 10, Mandatory Redeemable Preferred Stock and Stockholders’ Deficit for additional information regarding the financing with the Preferred Stock Investor.

On July 29, 2022, we entered into Amendment No. 16 to the Financing Agreement pursuant to which the maturity date of the Financing Agreement was extended to September 30, 2022, with the option to further extend the maturity date to October 31, 2022, and November 30, 2022, in each case if we receive not less than $7.0 million in cash proceeds from an equity issuance, which, if preferred equity, is on substantially the same terms as the Preferred Stock.  

In connection with the closing of the private placement offering with the Preferred Stock Investor on September 30, 2022, and in accordance with Amendment No. 16 to the Financing Agreement, on September 30, 2022, we issued warrants (“Lender Warrants”) to the Lenders to purchase an aggregate of 125,000 shares of Common Stock and the maturity date of the Financing Agreement was extended to October 31, 2022. The Lender Warrants have an exercise price of $0.01 per share of Common Stock, subject to certain adjustment as provided therein, and an expiration date of September 30, 2032. The Lender Warrants may also be exercised via cashless exercise pursuant to the terms thereof.

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On October 28, 2022, we closed on an additional private placement offering with the Preferred Stock Investor, pursuant to which we issued and sold 7,000 shares of the Company’s Preferred Stock for an aggregate offering price of $7.0 million. In addition, in lieu of issuing, selling and delivering 263,666 shares of Common Stock to the Preferred Stock Investor, we agreed to pay the Preferred Stock Investor, on the later of (i) the Preferred Stock Maturity Date or (ii) the date our obligations under the Financing Agreement are paid in full, a make-whole payment equal to 263,666 multiplied by the closing price of our Common Stock on the principal securities exchange or securities market on which the Common Stock is then traded, on the day prior to the date of payment of the make-whole payment.

 In connection with the closing of the private placement offering with the Preferred Stock Investor on October 28, 2022, and in accordance with Amendment No. 16 to the Financing Agreement, on October 28, 2022, we issued Lender Warrants to purchase an aggregate of 125,000 shares of Common Stock, pursuant to a subscription agreement and the maturity date of the Financing Agreement was extended to November 30, 2022. See Note 16, Subsequent Events for additional information regarding amendments to the Financing Agreement.

To address our capital needs, we are pursuing various equity and debt refinancing and other strategic alternatives, including the possibility that we will file for Chapter 11 protection if our equity and debt refinancing or other strategic alternatives fail prior to the maturity date of our Financing Agreement. The equity financing alternatives may include the private placement of equity, equity-linked, or other similar instruments or obligations with one or more investors, lenders, or other institutional counterparties or an underwritten public equity or equity-linked securities offering. Our ability to sell equity securities may be limited by market conditions, including the market price of our common stock, and our available authorized shares. To the extent that we raise additional capital through the sale of such securities, the ownership interests of our existing stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. If we are not successful in obtaining additional financing, we could be forced to discontinue or curtail our business operations, sell assets at unfavorable prices, or merge, consolidate, or combine with a company with greater financial resources in a transaction that might be unfavorable to us. Along with considering additional financings and other strategic alternatives, we have reviewed numerous potential scenarios in connection with steps that we may take to reduce our operating expenses.

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

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

Common stock reverse stock split

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

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

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

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

Adoption of new accounting standards

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

Accounting standards issued but not yet adopted

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

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

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

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

Restricted Cash

Restricted cash is comprised of escrowed funds deposited with a bank relating to the vitaCare Divestiture.

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported consolidated balance sheets and consolidated statements of cash flows. An adjustment has been made to the consolidated statements of operations for the three and nine months ended September 30, 2021 to reclassify vitaCare service revenue.

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

Our inventory consisted of the following (in thousands):

We recorded no inventory charges for the three months ended September 30, 2022 and $0.1 million for the nine months ended September 30, 2022, and $0.6 million and $1.1 million for the three and nine months ended September 30, 2021, respectively.

We rely on third parties to manufacture our finished products, and we have entered into long-term supply agreements for the manufacture of ANNOVERA, IMVEXXY, and BIJUVA. We do not have a long-term supply agreement for the manufacture of our prescription vitamins. Additionally, we do not have long-term contracts for the supply of all the active pharmaceutical ingredients (“API”) used in ANNOVERA and BIJUVA. If any suppliers of raw materials or API or any of our third-party contract manufacturers experience any difficulties, do not comply with the terms of an agreement between us, or do not devote sufficient time, energy, and care to providing our manufacturing needs, we could experience additional interruptions in the supply of our products, which may have a material adverse impact on our revenue, results of operations and financial position.

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

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

We recorded depreciation expense of $0.2 million for the three months ended September 30, 2022 and 2021, and $0.5 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

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

We recorded amortization expense related to the exclusive license rights agreement with Population Council of $0.8 million for the three months ended September 30, 2022 and 2021, and $2.3 million for the nine months ended September 30, 2022 and 2021. We recorded amortization expense related to patents of $0.1 million for the three months ended September 30, 2022 and 2021, and $0.4 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively.

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

We expense advertising costs when incurred, which amounted to $4.8  million and $14.6 million for the three months ended September 30, 2022 and 2021, respectively, and $12.6 million and $34.4 million for the nine months ended September 30, 2022 and 2021, respectively.

Our debt consisted of the following (in thousands):

Financing agreement

As of September 30, 2022, the stated interest rate under the Financing Agreement was 10.45%. In March 2022, we entered into Amendment No. 9 to the Financing Agreement (“Amendment No. 9”) pursuant to which, among other amendments, (i) the lenders

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waived various Company breaches of the Financing Agreement, including breaches of the $60.0 million minimum cash covenant and the minimum net revenue covenants for the fourth quarter of 2021; (ii) the Company and the lenders agreed to a reduced minimum cash covenant and to the removal of the minimum net revenue covenant for the first quarter of 2022; (iii) the lenders waived the existing $60.0 million prepayment penalty under the Financing Agreement and the Company agreed to pay a paid in kind (“PIK”) amendment financing fee of $30.0 million, which fee was added to the principal amount of the loans under the Financing Agreement, $16.0 million of which fee was waivable in certain conditions; (iv) the maturity date of the Financing Agreement was amended to June 1, 2022; and (v) the Company agreed to pay to the Lenders as a prepayment of the loans under the Financing Agreement the first $120.0 million of net proceeds from the vitaCare Divestiture and all net proceeds of the vitaCare Divestiture in excess of $135.0 million. Amendment No. 9 was accounted for as an extinguishment of debt modification in accordance with U.S. GAAP. Accordingly, in March 2022, we recorded an $8.4 million loss on extinguishment of debt, which represented the unamortized deferred financing fees, net of previously accrued prepayment fees. Additionally, the Amendment No. 9 PIK financing fee was recorded as deferred financing fees and was amortized over the remaining term of the Financing Agreement. In April 2022, we utilized $120.0 million of net proceeds from the vitaCare Divestiture to make a prepayment of the loans under the Financing Agreement under the terms of Amendment No. 9. Additionally, with the prepayment on the debt, $16.0 million of the PIK financing fee was waived in accordance with Amendment No. 9.

In May 2022, we entered into Amendment No. 10 to the Financing Agreement (“Amendment No. 10”) pursuant to which, among other amendments, (i) interest payments under the Financing Agreement were paused, such that interest on each term loan shall be payable in cash and in arrears (a) upon any prepayment of that term loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid and (b) on the maturity date, (ii) the minimum cash covenant was set at $10.0 million, (iii) the maturity date of the Financing Agreement was amended to July 13, 2022, (iv) the termination of the Company’s merger agreement with an affiliate of EW Healthcare Partners was added as an event of default, and (v) we agreed to a PIK financing fee of $1.8 million, which fee was added to the principal amount of the loans under the Financing Agreement. Amendment No. 10 was accounted for as a debt amendment in accordance with U.S. GAAP. Accordingly, in May 2022, the Amendment No. 10 PIK financing fee was recorded as deferred financing fees and was amortized over the remaining term of the Financing Agreement.

Also in May 2022, we entered into Amendment No. 11 (“Amendment No. 11”) to the Financing Agreement. Amendment No. 11 contains amendments to the Financing Agreement that would have gone into effect upon the satisfaction of certain conditions on or before July 13, 2022 (the “Amendment Effective Date”), including (i) the consummation of the merger with an affiliate of EW Healthcare Partners (the “Merger”), (ii) the payment in cash of (a) all accrued and unpaid interest under the Financing Agreement through and including the Amendment Effective Date and (b) all fees, costs, expenses and taxes then payable pursuant to Section 2.7 or 10.2 of the Financing Agreement, and (iii) the delivery to the administrative agent of certain customary documents with respect to the pledge of 100% of the capital stock of the Company. Since the consummation of the Merger did not occur, Amendment No. 11 never became effective.

On July 13, 2022, we entered into Amendment No. 12 to the Financing Agreement pursuant to which the maturity date of the Financing Agreement was extended to July 24, 2022, and we agreed to pay the Lenders a PIK amendment fee in the amount of $1.2 million. On July 24, 2022, we entered into Amendment No. 13 to the Financing Agreement pursuant to which the maturity date of the Financing Agreement was extended to July 27, 2022, we agreed to pay the Lenders a payment of accrued and unpaid interest of $2.9 million, and we agreed to retain Jeffrey Varsalone from G2 Capital Advisors as our chief restructuring officer. On July 27, 2022, we entered into Amendment No. 14 to the Financing Agreement pursuant to which the maturity date of the Financing Agreement was extended to July 28, 2022. On July 28, 2022, we entered into Amendment No. 15 to the Financing Agreement pursuant to which the maturity date of the Financing Agreement was extended to July 29, 2022.

On July 29, 2022, we entered into Amendment No. 16 to the Financing Agreement pursuant to which the maturity date of the Financing Agreement was extended to September 30, 2022, with the option for us to further extend the maturity date to October 31, 2022, and November 30, 2022, in each case if we receive not less than $7.0 million in cash proceeds from an equity issuance, which, if preferred equity, is on substantially the same terms as the Preferred Stock. In lieu of a cash amendment fee, to induce the Lenders to enter into Amendment No. 16, on July 29, 2022, we issued Lender Warrants to purchase an aggregate of 185,000 shares of Common Stock, pursuant to a subscription agreement by and among the Company and the Lenders (the “July Lender Subscription Agreement”). The Lender Warrants to purchase 185,000 shares of our Common Stock issued pursuant to the July Lender Subscription Agreement have an exercise price of $0.01 per warrant, subject to certain adjustment as provided therein, and an expiration date of July 29, 2032, and may be exercised via cashless exercise pursuant to the terms thereof. These Lender Warrants were initially valued at $1.2 million based on the market price of our Common Stock on July 29, 2022 and entirely expensed as financing costs during three and nine months ended September 30, 2022.

In connection with the closing of a private placement offering with the Preferred Stock Investor on September 30, 2022, and in accordance with Amendment No. 16 to the Financing Agreement, on September 30, 2022, we issued Lender Warrants to purchase an aggregate of 125,000 shares of Common Stock, pursuant to a subscription agreement by and among the Company and the Lenders (the “September Lender Subscription Agreement”), and the maturity date of the Financing Agreement was extended to October 31, 2022.

Subsequent to September 30, 2022, the maturity date was extended to November 30, 2022 in connection with an additional private placement, See Note 16, Subsequent Events. The Lender Warrants to purchase 125,000 shares of our Common Stock issued pursuant to

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the September Lender Subscriptions Agreement have an exercise price of $0.01 per warrant, subject to certain adjustment as provided therein, and an expiration date of September 30, 2032, and may be exercised via cashless exercise pursuant to the terms thereof. See Note 10, Mandatory Redeemable Preferred Stock and Stockholders’ Deficit for additional information regarding the equity financing with the Preferred Stock Investor. These Lender Warrants were initially valued at $0.8 million based on the market price of our Common Stock on September 30, 2022 and recorded as deferred financing fees, which will be amortized until the maturity of the Financing Agreement.

Based on the structure of the Lender Warrants, they are recorded as Lender Warrants derivative liability in the consolidated balance sheets and their carrying amounts are marked to market based on our Common Stock’s closing price at measurement date, which is considered Level 1 under the fair value hierarchy. As of September 30, 2022, the fair value of our Lender Warrants derivative liability was $2.1 million, and we recorded fair value loss on the Lender Warrants derivative liability of $0.1 million for three and nine months ended September 30, 2022.

Additionally, in September 2022, we and the Lenders agreed to PIK interest of $2.5 million related to the outstanding debt balance, which was entirely expensed as interest expense during three and nine months ended September 30, 2022.

Debt covenants

The Financing Agreement contains customary restrictions and covenants applicable to us that are customary for financings of this type. Among other requirements, we are required to maintain a minimum unrestricted cash balance. As defined in Amendment No. 10, the minimum unrestricted cash balance was set at $10.0 million. Our unrestricted cash balance was above the minimum unrestricted cash balance covenant at all times through November 14, 2022, the filing date of this 10-Q Report. 

Interest and financing costs

Interest expense and other financing costs consisted of the following (in thousands):

Minimum purchase commitments

We have manufacturing and supply agreements whereby we are required to purchase from Catalent, Inc. (“Catalent”) a minimum number of units of BIJUVA and IMVEXXY softgels during each respective annual contract year. The annual contract period for BIJUVA and IMVEXXY ends each April and July, respectively. If the minimum order quantities of BIJUVA or IMVEXXY are not met, we are required to pay a minimum commitment fee equal to 50% or 60%, respectively, of the difference between the total amount we would have paid if the minimum requirement had been fulfilled and the total amount of purchases of BIJUVA or IMVEXXY during each product’s respective contract year. Additionally, with another third-party manufacturer, we have a manufacturing and supply agreement, renewable annually, whereby we are required to purchase a minimum number of units of ANNOVERA during a contract year. The annual contract period for ANNOVERA ends each August. If the minimum order quantities of ANNOVERA are not met, we are required to pay a minimum commitment fee equal to the difference between the total amount we would have paid if the minimum requirement had been fulfilled and the total amount of purchases of ANNOVERA during the contract year.

Furthermore, in connection with the vitaCare Divestiture, we entered into a long-term services agreement with vitaCare to continue utilization of the vitaCare platform with respect to our products. Under the long-term services agreement, we are required to pay to vitaCare a minimum service fee for each respective annual contract year. The annual contract period for vitaCare services ends each April.

For each of the three annual contract years ending in 2022 for BIJUVA, IMVEXXY and ANNOVERA, we have met our minimum purchase number of units in all material respects. For annual contract years ending in 2023 and thereafter for BIJUVA, IMVEXXY, ANNOVERA, and vitaCare Services, we will continue to evaluate whether we will be able to meet each annual contract year’s respective minimum purchase commitment and will record a liability for estimated minimum commitment fees if we believe that we will not be able to reasonably meet the minimum purchase commitment. We believe that minimum commitment fees that we may pay in 2022 and 2023, if any, will not have a material impact to our financial position and operating results.

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Legal proceedings

In February 2020, we received a Paragraph IV certification notice letter (the “IMVEXXY Notice Letter”) regarding an Abbreviated New Drug Application (“ANDA”) submitted to the FDA by Teva Pharmaceuticals USA, Inc. (“Teva”). The ANDA seeks approval from the FDA to commercially manufacture, use, or sell a generic version of the 4 mcg and 10 mcg doses of IMVEXXY. In the IMVEXXY Notice Letter, Teva alleges that TherapeuticsMD patents listed in the FDA’s Orange Book that claim compositions and methods of IMVEXXY (the “IMVEXXY Patents”) are invalid, unenforceable, and/or will not be infringed by Teva’s commercial manufacture, use, or sale of its proposed generic drug product. The IMVEXXY Patents identified in the IMVEXXY Notice Letter expire in 2032 or 2033. In April 2020, we filed a complaint for patent infringement against Teva in the United States District Court for the District of New Jersey arising from Teva’s ANDA filing with the FDA. We are seeking, among other relief, an order that the effective date of any FDA approval of Teva’s ANDA would be a date no earlier than the expiration of the IMVEXXY Patents and equitable relief enjoining Teva from infringing the IMVEXXY Patents. Teva has filed its answer and counterclaim to the complaint, alleging that the IMVEXXY Patents are invalid and not infringed. In July 2021, following a proposal by Teva, the District Court entered an order temporarily staying all proceedings in the IMVEXXY litigation, which order was filed under seal. In September 2021, the District Court made available a public version of the order following the parties’ agreement to a consent motion to redact information Teva contended was confidential. The order provides that the statutory stay that prevents the FDA from granting final approval of the ANDA for 30 months from the date of the IMVEXXY Notice Letter will be extended for the number of days that the stay of the IMVEXXY litigation is in place. The length of the stay of the IMVEXXY litigation is dependent on further action by Teva. As of September 30, 2022, for the IMVEXXY Paragraph IV legal proceeding, we have incurred and recorded legal costs amounting to $2.3 million in prepaid expenses and other current assets since we believe that we will successfully prevail in this legal proceeding. Upon the successful conclusion of the legal proceeding, the related capitalized legal costs will be reclassified to patents, in license rights and other intangible assets, net, in the accompanying consolidated balance sheets, and such costs will be amortized over the remaining useful life of the patents. If we are unsuccessful in this legal proceeding, then the related capitalized legal costs for this legal preceding and any unamortized IMVEXXY patent costs that were previously capitalized will be immediately expensed in the period in which we become aware of an unsuccessful legal proceeding.

From time to time, we are involved in other litigations and proceedings in the ordinary course of business. We are currently not involved in any other litigations and proceedings that we believe would have a material effect on our consolidated financial condition, results of operations, or cash flows. 

Employment agreements

On September 6, 2022, our Board appointed our current interim co-chief executive officers. The separation of our former chief executive officer (“CEO”) from the Company was a termination without “Good Cause,” as defined in his employment agreement. Accordingly, our former CEO received the separation benefits provided therein, and we recorded executive officer severance expenses of $4.8 million, of which $3.2 million was related to share-based compensation recorded in connection with accelerated vesting of certain share-based payment awards for the former CEO. In connection with our former CEO’s separation from the Company, he ceased to serve as a member of our Board.

Rubric Capital Management LP Subscription Agreements (Sale of Mandatory Redeemable Preferred Stock and Common Stock)

On July 29, 2022, we entered into a Subscription Agreement with the Preferred Stock Investor, pursuant to which we issued and sold, in a private placement offering, (i) 15,000 shares of the Company’s newly issued Preferred Stock, for a purchase price per share of Preferred Stock equal to $822.21 and an aggregate purchase price of $12.3 million, and (ii) 565,000 shares of the Company’s Common Stock, for a purchase price per share of Common Stock equal to $4.72 and an aggregate purchase price of $2.7 million. This offering closed on July 29, 2022, and we received aggregate gross proceeds of $15.0 million, before expenses.

On September 30, 2022, we entered into a Subscription Agreement with the Preferred Stock Investor, pursuant to which we issued and sold, in a private placement offering, 7,000 shares of the Company’s Preferred Stock for an aggregate offering price of $7.0 million. In addition, in lieu of issuing, selling and delivering 263,666 shares of the Company’s Common Stock to the Preferred Stock Investor, we agreed to pay the Preferred Stock Investor, on the later of (i) the Preferred Stock Maturity Date or (ii) the date our obligations under the Financing Agreement are paid in full, a make-whole payment equal to 263,666 multiplied by the closing price of our Common Stock on the principal securities exchange or securities market on which the Common Stock is then traded, on the day prior to the date of payment of the make-whole payment. This offering closed on September 30, 2022, and we received gross proceeds of $7.0 million, before expenses. Based on the structure of the make-whole payment, it is recorded as make-whole payment derivative liability in the consolidated balance sheets and the carrying amounts are marked to market based on our Common Stock’s closing price at measurement date, which is considered Level 1 under the fair value hierarchy. As of September 30, 2022, we had 30,000 and 22,000 shares of  Series A Preferred Stock authorized and outstanding, respectively, at the liquidation preference of $1,333 per share.

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The Preferred Stock is not convertible into Common Stock and ranks senior to Common Stock, with respect to rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the Preferred Stock has a liquidation preference equal to $1,333 per share. The Preferred Stock will not have any voting rights other than as required by applicable law. The holders of Preferred Stock are entitled to dividends equal to 25% of cash dividends actually paid, if any, on shares of Common Stock, paid pro rata on the outstanding shares of Preferred Stock. If the Company undergoes certain change of control transactions, the holders of Preferred Stock may require the Company to redeem their shares of Preferred Stock at a redemption price per share of Preferred Stock, payable in cash, equal to the liquidation preference of $1,333 per share of Preferred Stock. We also have the option to redeem the shares of Preferred Stock on such terms if the Company undergoes certain change of control transactions. Each holder of the Preferred Stock has the right to cause the Company to redeem all, but not less than all, of their shares of the Preferred Stock upon the occurrence of certain events, including, without limitation, the Company’s failure to comply with any covenants under the Certificate of Designation, Preferences and Rights of Series A Preferred Stock (the “Certificate of Designation”) filed with the Secretary of State of the State of Nevada or if the Company commences a bankruptcy proceeding, subject to certain conditions. Under such circumstances, the Company is required to redeem all, but not less than all, of the holder’s outstanding shares of Preferred Stock at a redemption price per share of Preferred Stock, payable in cash, equal to the liquidation preference of $1,333 per share. The Preferred Stock matures on December 31, 2022, subject to certain extension terms, as set forth in the Certificate of Designation, and the Company is required to redeem the shares on such date at a redemption price per share of Preferred Stock, payable in cash, equal to the liquidation preference of $1,333 per share. Since the Preferred Stock is mandatorily redeemable on December 31, 2022, the Company has classified the Preferred Stock as a current liability in the consolidated balance sheets. In addition, the Company is accreting the Preferred Stock from its fair value on the date of issuance to its redemption value using the effective interest rate method.

Warrants

As of September 30, 2022, the following table summarizes the status of our outstanding and exercisable warrants and related transactions (each adjusted to account for the 50-for-1 reverse stock split) since December 31, 2021 (in thousands, except weighted average exercise price and weighted average remaining contractual life data):

The above table includes an aggregate of Lenders Warrants to purchase 310,000 shares of our Common Stock with an exercise price of $0.01 per warrant that are classified as Lender Warrants derivative liability. See Note 8, Debt, for additional information.

Share-based compensation payment plans

As of September 30, 2022, 598,223 shares of common stock were subject to outstanding awards under our share-based payment award plans and inducement grants (calculated using the base number of PSUs that may vest). If we assume the maximum achievement of performance goals for PSUs, then 663,731 shares of common stock will be subject to outstanding awards under our share-based payment award plans and inducement grants. As of September 30, 2022, 242,015 shares of common stock were available for future grants of share-based payment awards under the TherapeuticsMD, Inc. 2019 Stock Incentive Plan.

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The following table summarizes the status of our outstanding and exercisable options and related transactions (each adjusted to account for the 50-for-1 reverse stock split) since December 31, 2021 (in thousands, except weighted average exercise price and weighted average remaining contractual life data):

The following table summarizes the status of our RSUs and related transactions (each adjusted to account for the 50-for-1 reverse stock split) since December 31, 2021 (in thousands, except weighted average grant date fair value):

The following table summarizes the status of our PSUs and related transactions (each adjusted to account for the 50-for-1 reverse stock split) since December 31, 2021 (in thousands, except weighted average grant date fair value):

Share-based payment compensation cost

Share-based payment compensation cost for PSUs is based on our current assessment of the most likely probability of the Company’s achievement of certain performance goals. In connection with previously granted options, RSUs and PSUs, and shares of common stock issuable under the TherapeuticsMD, Inc. 2020 Employee Stock Purchase Plan (“ESPP”), we recorded share-based payment compensation costs of $4.3 million and $7.3 million for the three months ended September 30, 2022 and 2021, respectively, and $8.6 million and $12.8 million for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, we had $6.1 million of unrecognized share-based payment award compensation cost related to unvested options, RSUs and PSUs as well as shares issuable under the ESPP, which may be adjusted if certain performance targets are achieved and for future changes in forfeitures and is included as additional paid-in capital in the accompanying consolidated balance sheets. No tax benefit was realized due to a continued pattern of net losses. The unrecognized compensation cost as of September 30, 2022 is expected to be recognized as share-based payment award compensation over a weighted average period of 1.8 years as follows (in thousands):

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The following table provides information about disaggregated revenue by product mix and service (in thousands):