Item 7. Management’s discussion and
analysis of financial condition and results of operations
You should read the following discussion and
analysis in conjunction with the information set forth under our consolidated financial statements and the notes to those financial statements
included elsewhere in this 2023 10-K 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 2023 10-K Report.
Certain amounts in the Management’s discussion
and analysis of financial condition and results of operations may not add due to rounding, and all percentages have been calculated using
unrounded amounts.
Business overview
TherapeuticsMD was previously 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. In December 2022, we changed our business to become a pharmaceutical royalty company, currently receiving
royalties on products licensed to pharmaceutical organizations that possess commercial capabilities in relevant territories. On December
30, 2022 (the “Closing Date”), we completed a transaction (the “Mayne Transaction”) with Mayne Pharma LLC, a
Delaware limited liability company (“Mayne Pharma”) and subsidiary of Mayne Pharma Group Limited, an Australian public company,
in which we and our subsidiaries (i) granted Mayne Pharma an exclusive license to commercialize our IMVEXXY, BIJUVA and prescription
prenatal vitamin products sold under the BocaGreenMD and vitaMedMD brands (collectively, the “Licensed Products”) in the
United States and its possessions and territories, (ii) assigned to Mayne Pharma our exclusive license to commercialize ANNOVERA®
(together with the Licensed Products, collectively, the “Products”) in the United States and its possessions and territories,
and (iii) sold certain other assets to Mayne Pharma in connection therewith.
In a License Agreement, dated December 4, 2022,
between TherapeuticsMD and Mayne Pharma (the “Mayne License Agreement”), we granted Mayne Pharma, on the Closing Date, (i)
an exclusive, sublicensable, perpetual, irrevocable license to research, develop, register, manufacture, have manufactured, market, sell,
use, and commercialize the Licensed Products in the United States and its possessions and territories and (ii) an exclusive, sublicensable,
perpetual, irrevocable license to manufacture, have manufactured, import and have imported the Licensed Products outside the United States
for commercialization in the United States and its possessions and territories.
33
Under the Mayne License Agreement, Mayne
Pharma will pay us one-time milestone payments of each of (i) $5.0 million if aggregate net sales of all Products in the United
States during a calendar year reach $100.0 million, (ii) $10.0 million if aggregate net sales of all Products in the United States
during a calendar year reach $200.0 million and (iii) $15.0 million if aggregate net sales of all Products in the United States
during a calendar year reach $300.0 million. Further, Mayne Pharma will pay us royalties on net sales of all Products in the United
States at a royalty rate of 8.0% on the first $80.0 million in annual net sales and 7.5% on annual net sales above $80.0 million,
subject to certain adjustments, for a period of 20 years following the Closing Date. The royalty rate will decrease to 2.0% on a
Product-by-Product basis upon the earlier to occur of (i) the expiration or revocation of the last patent covering a Product and
(ii) a generic version of a Product launching in the United States. Mayne Pharma will pay us minimum annual royalties of $3.0
million per year for 12 years, adjusted for inflation at an annual rate of 3%, subject to certain further adjustments, including as
described below. Upon the expiry of the 20-year royalty term, the licenses granted to Mayne Pharma under the Mayne License Agreement
will become a fully paid-up and royalty free license for the Licensed Products.
Under the Transaction Agreement, dated December
4, 2022, between TherapeuticsMD and Mayne Pharma (the “Transaction Agreement”), we sold to Mayne Pharma, at closing, certain
assets for Mayne Pharma to commercialize the Products in the United States, including, with the Population Council’s consent, our
exclusive license from the Population Council to commercialize ANNOVERA (the “Transferred Assets”).
The total consideration from Mayne Pharma
to TherapeuticsMD for the purchase of the Transferred Assets under the Transaction Agreement and the grant of the licenses under the
Mayne License Agreement was (i) a cash payment of $140.0 million at closing, (ii) a cash payment of approximately $12.1 million
at closing for the acquisition of net working capital as determined in accordance with the Transaction Agreement and subject to
certain adjustments, (iii) a cash payment of approximately $1.0 million at closing for prepaid royalties in connection with the
Mayne License Agreement Amendment (as defined below) and (iv) the right to receive the contingent consideration set forth in the
Mayne License Agreement, as amended. The acquisition of net working capital was determined in accordance with the Transaction
Agreement and included significant estimates which could change materially for a period of up to two years following the Closing
Date.
On the Closing Date, TherapeuticsMD and Mayne Pharma entered into Amendment
No. 1 to the Mayne License Agreement (the “Mayne License Agreement Amendment”). Pursuant to the Mayne License Agreement Amendment,
Mayne Pharma agreed to pay us approximately $1.0 million in prepaid royalties on the Closing Date. The prepaid royalties reduced the first
four quarterly payments that would have otherwise been payable pursuant to the Mayne License Agreement by an amount equal to $257 thousand
per quarterly royalty payment plus interest calculated at 19% per annum accruing from the Closing Date until the date such quarterly royalty
payment was paid to us. We and Mayne Pharma settled the $1.5 million of consideration due to Mayne for the assumed obligations under a
long-term services agreement (see the section entitled “vitaCare divestiture” below for a discussion of the long-term services
agreement), including our minimum payment obligations thereunder. As the parties agreed, during the second quarter of 2023, Mayne Parma
held back our royalty payment of $0.6 million and we funded an additional $0.9 million in August 2023 to settle the original $1.5 million
payable.
As part of the transformation that included the Mayne License Agreement,
historical results of commercial operations for all periods prior to the Closing Date have been reflected as discontinued operations in
our consolidated financial statements. Assets and liabilities associated with the commercial business are classified as assets and liabilities
of discontinued operations in our consolidated balance sheets. Additional disclosures regarding discontinued operations are provided in
Note 2 of our consolidated financial statements.
The Company also has license agreements with
strategic partners to commercialize IMVEXXY and BIJUVA outside of the U.S.
In connection with our transformation into a
pharmaceutical royalty company, the termination of our executive management team (except for Mr. Marlan Walker, our former General Counsel
and current Chief Executive Officer) and all other employees was completed by December 31, 2022. Severance obligations for all employees
other than executive officers were paid in full in January 2023 and severance obligations for terminated executive officers were paid
in accordance with their employment agreements and separation agreements as previously disclosed. As of December 31, 2023,
we employed one full-time employee primarily engaged in an executive position.
We have engaged external consultants who support our relationship with
current partners and assist with certain financial, legal, and regulatory matters and the continued wind-down of our historical business
operations. On August 15, 2023, we entered into a master services agreement with JZ Advisory Group, pursuant to which Joseph Ziegler would
serve as our Principal Financial and Accounting Officer. On August 17, 2023 Michael C. Donegan notified us of his decision to resign from
the positions of Principal Financial and Accounting Officer of our Company effective as of August 17, 2023. Mr. Ziegler succeeded Mr.
Donegan as Principal Financial and Accounting Officer as of the date of Mr. Donegan’s resignation.
34
vitaCare divestiture
On April 14, 2022, we completed the divestiture of vitaCare Prescription
Services, Inc. (“vitaCare”) with the sale of all 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 between us and GoodRx, Inc. (the “Purchase Agreement”), which was recorded as restricted
cash in the consolidated balance sheets until the cash was released to us. The restricted cash was held by an escrow agent and was released
to us in March 2023. 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, however we do not believe this
earnout will be realized. 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. Our commitments under a long-term services agreement related to vitaCare were transferred
to Mayne Pharma as part of the Mayne Transaction. In addition, under the Mayne License Agreement Amendment, we owed Mayne Pharma $1.5
million payable from one royalty payment. During the second quarter of 2023, Mayne Pharma held back our royalty payment of $0.6 million
and we funded an additional $0.9 million in August 2023 to settle the original $1.5 million payable.
The pre-divesture operations
of vitaCare were reclassified to discontinued operations in December 2022 when we transitioned to becoming a royalty company and licensed
our products to Mayne Pharma.
Portfolio of our licensed products
In December 2022, we changed our business to
become a pharmaceutical royalty company, currently receiving royalties on products licensed to pharmaceutical organizations that possess
commercial capabilities in the relevant territories. On December 30, 2022, we granted an exclusive license to commercialize IMVEXXY,
BIJUVA, and prescription prenatal vitamin products sold under the BocaGreenMD and vitaMedMD brands and assigning our exclusive license
to commercialize ANNOVERA to Mayne Pharma.
IMVEXXY (estradiol vaginal inserts), 4-μg
and 10-μg
This pharmaceutical product is for the treatment
of moderate-to-severe dyspareunia (vaginal pain associated with sexual activity), a symptom of vulvar and vaginal atrophy due to menopause.
As part of the FDA’s approval of IMVEXXY, we 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.
On December 30, 2022, we granted an exclusive
license to commercialize IMVEXXY in the United States and its possessions and territories to Mayne Pharma. We also have entered into
licensing agreements with third parties to market and sell IMVEXXY outside of the U.S. We entered into the Knight License Agreement,
with Knight pursuant to which, we granted Knight an exclusive license to commercialize IMVEXXY in Canada and Israel. We entered into
the Theramex License Agreement with Theramex HQ UK Limited (“Theramex”) pursuant to which we granted Theramex an exclusive
license to commercialize IMVEXXY for human use outside of the U.S., except for Canada and Israel. As of December 31, 2023, no IMVEXXY
sales had been made through the Theramex and Knight licensing agreements.
The FDA has also asked the sponsors of other
vaginal estrogen products to participate in the observational study. In connection with the observational study, we would have been required
to provide progress reports to the FDA on an annual basis. The obligation to conduct this study was transferred to Mayne Pharma as part
of the Mayne License Agreement.
BIJUVA (estradiol and progesterone) capsules,
1 mg/100 mg
This pharmaceutical product is 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 vasomotor symptoms (commonly known as hot flashes or flushes) due to menopause in women with a uterus.
On December 30, 2022, we granted an exclusive
license to commercialize BIJUVA in the United States and its possessions and territories to Mayne Pharma. We also have entered into the
Knight License Agreement with Knight pursuant to which we granted Knight an exclusive license to commercialize BIJUVA in Canada and Israel.
We have entered into the Theramex License Agreement with Theramex pursuant to which we granted Theramex an exclusive license to commercialize
BIJUVA for human use outside of the U.S., except for Canada and Israel.
ANNOVERA (segesterone acetate (“SA”)
and ethinyl estradiol (“EE”) vaginal system)
On December 30, 2022, we assigned our exclusive
license to commercialize ANNOVERA to Mayne Pharma. This pharmaceutical product is a one-year ring-shaped contraceptive vaginal system
(“CVS”) and the first and only patient-controlled, procedure-free, reversible prescription contraceptive that can prevent
pregnancy for up to a total of 13 cycles (one year). ANNOVERA is commercially sold in the U.S. pursuant to the terms of the Population
Council License Agreement. 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. We 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 $20.0 million, half of such excess
will offset against royalties or other payments owed by us under the Population Council License Agreement. In August 2021, we filed a
supplemental New Drug Application (“NDA”) with the FDA to modify the testing specifications for ANNOVERA to allow increased
consistency of supply of ANNOVERA. In May 2022, the FDA approved the supplemental NDA for ANNOVERA. Our obligations to perform the post-approval
study have been transferred to Mayne Pharma as part of the Mayne License Agreement.
35
Prenatal vitamin products
On December 30, 2022, we granted an exclusive
license to commercialize, in the United States and its possessions and territories, our prescription prenatal vitamin product lines under
our vitaMedMD brand name and authorized generic formulations of some of our prescription prenatal vitamin products under our BocaGreenMD
Prenatal name to Mayne Pharma.
Results of operations
In December 2022, we granted an exclusive license
to commercialize our IMVEXXY, BIJUVA, and prescription prenatal vitamin products and assigned our exclusive license to commercialize
ANNOVERA to Mayne Pharma, which resulted in a business shift that had a major effect on our operations and financial results.
As part of the transformation that included the Mayne License Agreement,
historical results of commercial operations have been reflected as discontinued operations in the Company’s consolidated financial
statements for all periods prior to the Closing Date. Assets and liabilities associated with the commercial business are classified as
assets and liabilities of discontinued operations in the Company’s consolidated balance sheets. Additional disclosures regarding
discontinued operations are provided in Note 2 to the consolidated financial statements included in this 2023 10-K Report.
The following table sets forth the results of
our operations (in thousands):
Years ended December 31,
Revenue, net:
Cost of revenue — 1,397
Operating expenses:
Selling, general and administrative 8,903 56,710
Depreciation & amortization 922 1,193
Restructuring — 9,472
Income (loss) from operations (8,523 ) 1,191
Other income (expense):
Miscellaneous income (expense) 781 (117 )
Total other income (loss), net 781 (117 )
Income (loss) from continuing operations before income taxes (7,742 ) 1,074
Benefit (provision) for income taxes 43 —
Net income (loss) from continuing operations (7,699 ) 1,074
Income (loss) from discontinued operations, net of income taxes (2,579 ) 110,923
Revenue. As part of our transformation
and the Mayne License Agreement, historical results of commercial operations have been reflected as discontinued operations in the Company’s
consolidated financial statements for all periods presented.
We recorded $1.3 million in license revenue during the year ended December
31, 2023 primarily from the Mayne License Agreement, a decrease of $68.7 million, compared to $70.0 million in license revenue recorded
for the allocation of the initial upfront payment and guaranteed minimum royalties from the Mayne License Agreement during the year ended
December 31, 2022.
36
Gross profit. Our gross profit for 2023 was $1.3 million, a decrease
of $67.3 million, compared to $68.6 million for 2022. This decrease in our gross profit was primarily a result of the license revenue
related to the initial upfront payment and guaranteed minimums from the Mayne Transaction that was recognized during the year ended December
31, 2022.
Operating expenses. Total operating expenses for 2023 were $9.8
million, a decrease of $57.6 million, compared to the $67.4 million we had for 2022. Total operating expenses decreased primarily due
to lower general and administrative expenses due to the transition of our business from a manufacturing and commercialization business
to a royalty- based business with limited infrastructure.
Income (loss) from operations. For 2023, we had a loss from operations
of $8.5 million, a decrease of $9.7 million, compared to income from operations of $1.2 million for 2022. This change was primarily attributable
to the transition of our business from a manufacturing and commercialization business to a royalty-based business and the revenue related
to the allocation of the initial upfront payment and guaranteed minimum royalties from the Mayne License Agreement during the year ended
December 31, 2022.
Other income (expense), net. In 2023, we had other income of
$0.8 million, an increase of $0.9 million, compared to other expense of $0.1 million in 2022. Other income (expense), net represents interest
income from bank accounts as well the present value of the minimum royalty receivables recorded compared to actual minimum royalties received
and other miscellaneous items. The year ended December 31, 2023 also includes $0.5 million in other income pertaining to royalty sales
of ANNOVERA.
Benefit (provision) for income taxes. In 2023, the Company recognized
an immaterial benefit for income taxes from continuing operations, while no provision for income taxes was recognized in 2022 from continuing
operations.
Net income (loss) from continuing operations. For 2023, we had net
loss from continuing operations of $7.7 million, or $0.74 per basic and diluted common share, a decrease of $8.8 million, compared to
net income from continuing operations of $1.1 million, or $0.12 per basic and $0.11 per diluted common share, for 2022.
Discontinued Operations — For 2023 revenues from discontinued
operations were $(0.8) million, a decrease of $81.5 million, as compared to $80.7 million in 2022. Revenue in 2023 reflected adjustments
to earnings under the Mayne Agreement. In 2023, operating expenses from discontinued operations were $0.5 million, a decrease of $97.1
million, compared to $97.6 million in 2022. For 2023, net loss from discontinued operations was $2.6 million, a decrease of $113.5 million,
compared to net income from discontinued operations of $110.9 million for 2022.
For additional information, see Note 2 – Discontinued
Operations, in the notes to the consolidated financial statements appearing elsewhere in this 2023 10-K Report.
Liquidity and capital resources
Our primary use of cash is to fund our continuing
operations. We have funded our operations primarily through public offerings of our common stock and private placements of equity and
debt securities, the divestiture of our former subsidiary vitaCare, and the transactions with Mayne Pharma. As of December 31, 2023,
we had cash and cash equivalents totaling $4.3 million. We maintain cash at financial institutions that at times may exceed the Federal
Deposit Insurance Corporation insured limits of $0.25 million per bank. We have never experienced any losses related to these funds.
vitaCare Divestiture
On April 14, 2022, we completed the vitaCare
Divestiture. 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, however we do not believe this earnout will be realized.
We utilized $120.0 million of net proceeds from the vitaCare Divestiture to make a prepayment of the loans under the Financing Agreement.
Mayne Pharma License Agreement
On December 30, 2022, we granted Mayne Pharma (i) an exclusive, sublicensable,
perpetual, irrevocable license to research, develop, register, manufacture, have manufactured, market, sell, use, and commercialize the
Licensed Products in the United States and its possessions and territories and (ii) an exclusive, sublicensable, perpetual, irrevocable
license to manufacture, have manufactured, import and have imported the Licensed Products outside the United States for commercialization
in the United States and its possessions and territories. The total consideration from Mayne Pharma to us under the Mayne License Agreement
consisted of (i) a cash payment of $140.0 million at closing, (ii) a cash payment of approximately $12.1 million at closing for the acquisition
of net working capital as determined in accordance with the Transaction Agreement, and subject to certain adjustments,
(iii) a cash payment of approximately $1.0 million at closing for prepaid royalties in connection with the Mayne License Agreement Amendment
and (iv) the right to receive the contingent consideration set forth in the Mayne License Agreement, as amended.
37
Pursuant to the Mayne License
Agreement, Mayne Pharma will pay us one-time, milestone payments of each of (i) $5.0 million if aggregate net sales of all Products in
the United States during a calendar year reach $100.0 million, (ii) $10.0 million if aggregate net sales of all Products in the United
States during a calendar year reach $200.0 million and (iii) $15.0 million if aggregate net sales of all Products in the United States
during a calendar year reach $300.0 million. Further, Mayne Pharma will pay us royalties on net sales of all Products in the United States
at a royalty rate of 8.0% on the first $80 million in annual net sales and 7.5% on annual net sales above $80.0 million, subject to certain
adjustments, for a period of 20 years following the Closing Date. The royalty rate will decrease to 2.0% on a Product-by-Product basis
upon the earlier to occur of (i) the expiration or revocation of the last patent covering a Product and (ii) a generic version of a Product
launching in the United States. Mayne Pharma will pay us minimum annual royalties of $3.0 million per year for 12 years, adjusted for
inflation at an annual rate of 3%, subject to certain further adjustments, including as described below. Upon the expiry of the 20-year
royalty term, the licenses granted to Mayne Pharma under the Mayne License Agreement will become a fully paid-up and royalty free license
for the Licensed Products.
Mayne Pharma paid us approximately $12.1 million at closing on the Closing Date for the acquisition of net working capital, subject to certain adjustments as determined in accordance with the Transaction
Agreement. While the Transaction Agreement calls for much of the net working capital to be trued-up shortly after the Closing Date in
2023, for a period of one year following the Closing Date in the case of payer rebates and wholesale distributor fees and two years
following the Closing Date in the case for allowance for returns, net working capital amounts will be adjusted to arrive at final net
working capital under the Transaction Agreement.
In September 2023, we revised certain accrual estimates including increasing
our working capital adjustment accrual from $3.5 million to $5.5 million for amounts anticipated to be owed under the Transaction Agreement.
In December 2023, we made a $5.5 million payment to Mayne Pharma to settle certain working capital amounts that were required to be trued-up
shortly after the Closing Date, excluding the allowance for returns, allowance for payer rebates, and allowance for wholesale distributor
fees.
In February 2024, the Company received Mayne Pharma’s
calculation of allowance for payer rebates and wholesale distributor fees which differed significantly from the Company’s
estimate of the allowances. The Company believes its estimated allowances for payer rebates and wholesale distributor fees are
reasonable and intends to resolve this matter through the process outlined in the Transaction Agreement. Given the recent receipt of
Mayne Pharma’s allowance calculation and the nature of the estimates involved, the outcome of this matter is uncertain at this
point. As a result, the Company cannot reasonably estimate a range of loss, and accordingly, the Company has not accrued any
additional liability associated with Mayne Pharma’s allowance calculation for payer rebates and wholesale distributor
fees.
As of December 31, 2023, the Company believes no additional accrual
is required for amounts that may be owed for the allowance for returns. The Company has not recorded any contingent gains or receivables
for any such allowances. Management continues to monitor the unresolved and pending net working capital items as changes to estimated
amounts owed or amounts due from Mayne Pharma that may be material.
Subscription Agreement with Rubric Capital
Management LP
On May 1, 2023, we entered into the Subscription
Agreement with Rubric, pursuant to which we agreed to sell to Rubric, or one or more of its affiliates, up to an aggregate of 5,000,000
shares of Common Stock, from time to time during the term of the Subscription Agreement in separate draw downs at our election, at a
purchase price of the five-day volume-weighted average price of our common stock at the time of the sale of such shares, at an aggregate
purchase price of up to $5,000,000 (collectively, the “Private Placement”).
The initial draw down occurred on June 29, 2023 consisting of a sale of
312,525 shares of Common Stock at a price per share equal to $3.6797. We received gross proceeds of $1.15 million from the drawdown, before
expenses. On November 15, 2023 Rubric drew down an additional 877,192 shares of Common Stock at a price per share equal to $2.2761. We
received gross proceeds of $2.0 million from the drawdown, before expenses.
Going concern
On the Closing Date of the
Mayne Transaction, we repaid all obligations under the Financing Agreement, dated as of April 24, 2019, as amended, with Sixth Street
Specialty Lending, Inc., as administrative agent, the various lenders from time-to-time party thereto, and certain of our subsidiaries
party thereto from time to time as guarantors (the “Financing Agreement”) and the Financing Agreement was terminated.
38
Following the transaction with Mayne
Pharma, our primary source of revenue is from royalties on products licensed to pharmaceutical organizations that possess commercial
capabilities in the relevant territories. We may need to raise additional capital to provide additional liquidity to fund our
operations until we become cash flow positive. To address our capital needs, we may pursue various equity and debt financing and
other alternatives. 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.
On May 1, 2023, we entered into a
Subscription Agreement (the “Subscription Agreement”) with Rubric Capital Management LP (“Rubric”), pursuant
to which we agreed to sell to Rubric, or one or more of its affiliates, up to an aggregate of 5,000,000 shares of our common stock,
par value $0.001 per share (our “Common Stock”), from time to time during the term of the Subscription Agreement at a
purchase price of the five-day volume-weighted average price of the Common Stock at the time of the sale of such shares of Common
Stock, at an aggregate purchase price of up to $5,000,000. On June 29, 2023, we issued and sold 312,525 shares of Common Stock at a
price per share equal to $3.6797 pursuant to the Subscription Agreement. We received gross proceeds of $1.15 million from the draw
down, before expenses. On November 15, 2023 Rubric drew down an additional 877,192 shares of Common Stock at a price per share equal
to $2.2761. We received gross proceeds of $2.0 million from the drawdown, before expenses.
In February 2024, the Company received Mayne Pharma’s
calculation of allowance for payer rebates and wholesale distributor fees pursuant to the Transaction Agreement which differed
significantly from the Company’s estimate of the allowances. The Company believes its estimated allowances for payer rebates
and wholesale distributor fees are reasonable and intends to resolve this matter through the process outlined in the Transaction
Agreement. Given the recent receipt of Mayne Pharma’s allowance calculation and the nature of the estimates involved, the
outcome of this matter is uncertain at this point. As a result, the Company cannot reasonably estimate a range of loss, and
accordingly, the Company has not accrued any additional liability associated with Mayne Pharma’s allowance calculation for
payer rebates and wholesale distributor fees.
As of December 31, 2023, the Company believes no additional accrual
is required for amounts that may be owed for the allowance for returns under the Transaction Agreement. The Company has not recorded any
contingent gains or receivables for any such allowances. Management continues to monitor the unresolved and pending net working capital
items as changes to estimated amounts owed or amounts due from Mayne Pharma may be material.
If Mayne Pharma’s sales of Licensed
Products grow more slowly than expected or decline, if the net working capital settlement with Mayne Pharma under the Transaction
Agreement is greater than our current estimates, if we are unsuccessful with future financings or the supply chains related to the
third-party contract manufacturers are worse than we anticipate, our existing cash reserves may be insufficient to satisfy our
liquidity requirements. The potential impact of these factors in conjunction with the uncertainty of the capital markets raises
substantial doubt about our 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 we are unable to continue as a going concern.
Cash flows
The following table reflects the major categories
of cash flows from continuing operations for each of the periods (in thousands).
Years ended December 31,
Cash flow from continuing operations 2023 2022
Net cash provided by (used in) operating activities $ (23,081 ) $ 9,359
Net cash (used in) investing activities — (355 )
Net cash provided by (used in) financing activities 3,151 (235,206 )
Net cash provided by (used in) discontinued operations (25,060 ) 210,397
Operating Activities from continuing operations. Net cash used
in operating activities in 2023 was $23.1 million, a decrease of $32.4 million, compared to net cash provided by operating activities
of $9.4 million for 2022. This change was due our transition from a manufacturing and commercialization business to a royalty-based business.
Cash outflows in 2023 primarily related to maintaining our operating activities as a royalty company and paying down commercial amounts
accrued for at December 31, 2022.
39
Investing Activities from continuing operations. Net cash used
in investing activities for 2023 was $0.0 million, a decrease of $0.4 million, compared to net cash used in investing activities of
$0.4 million for 2022. This change was due our transition from a manufacturing and commercialization business to a royalty-based
business.
Financing Activities from continuing operations. Net cash provided
by financing activities for 2023 was $3.2 million, a decrease of $238.4 million, compared to net cash used by financing activities of
$235.2 million for 2022. Cash proceeds in 2023 are from stock sales to Rubric Capital Management and cash outflows during 2022 reflect
our paydowns of debt.
Discontinued operations. Net cash used in discontinued operations
for 2023 was $25.1 million, a decrease of $235.5 million, as compared to net cash provided by discontinued operations of $210.4 million
for 2022. This change was due to our transition from a manufacturing and commercialization business to a royalty-based business as well
as proceeds from the divesture of vitaCare of $142.6 million and proceeds from the sale of ANNOVERA of $81.2 million which occurred during
2022.
For additional details, see the consolidated statements of
cash flows included in our consolidated financial statements in this 2023 10-K Report.
Other liquidity measure
Receivable
from Mayne. On December 30, 2022, Mayne Pharma acquired our accounts receivable balance of approximately $29.3 million which is subject
to certain working capital adjustments. As of December 31, 2023, we had a royalty receivable of $3.1 million relating to the short-term
portion of receivable from Mayne Pharma and $18.5 million relating to the long-term portion of royalty receivable which includes royalties
recognized from the Minimum Annual Royalty. See Note 1 Business, basis of presentation, new accounting standards and summary of significant
accounting policies (Revenue Recognition) to the consolidated financial statements included in this 2023 10-K Report.
Contractual obligations, off-balance sheet
arrangements, purchase commitments and employment agreements
Our contractual obligations and off-balance sheet arrangements are
discussed below. For additional information on any of the following and other obligations and arrangements, see “Note 8. Commitments
and Contingencies” to the consolidated financial statements included in this 2023 10-K Report.
In the normal course of business, we may be confronted with issues
or events that may result in 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 U.S. GAAP, an estimate is made of the loss and the appropriate accounting entries are reflected in our
consolidated financial statements.
Commitments
Information regarding commitments is in “Note
8. Commitments and contingencies” to the consolidated financial statements included in this 2023 10-K Report.
Employment agreements
Information regarding employment agreements
is in “Note 8. Commitments and contingencies” to the consolidated financial statements included in this 2023 10-K Report.
Critical accounting policies and estimates
Management’s discussion and analysis of our
financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this 2023 10-K
Report, which has been prepared in accordance with U.S. GAAP (“U.S. GAAP”). The preparation of these financial statements
requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to unbilled
revenue, identifiable intangible assets, certain accrued liabilities, and income taxes. We base our estimates on historical experience
and on other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We have identified the areas described below
as critical to our business operations and the understanding of our results of operations given the uncertainties associated with the
assumptions underlying each estimate. For a detailed discussion on the application of these and other significant accounting policies,
see “Note 1. Basis of presentation, new accounting standards and summary of significant accounting policies” to the consolidated
financial statements included in this 2023 10-K Report.
40
Discontinued Operations
Discontinued operations comprise activities
that were disposed of at the end of the period, represent a separate major line of business that can be clearly distinguished for operational
and financial reporting purposes and represent a business shift having a major effect on the Company’s operations and financial
results according to Accounting Standard Codification (“ASC”) Topic 205, Presentation of Financial Statements. An adjustment
has been made to the consolidated statements of operations for the twelve months ended December 31, 2023 and 2022 to reclassify commercial
activities and vitaCare activities to discontinued operations as the cessation of these operations, in the aggregate, represented a business
shift that will have a major effect on the Company’s operations and financial results. For additional information, see Note 2 –
Discontinued Operations, in the notes to the consolidated financial statements appearing elsewhere in this Report.
Loss contingencies –
Mayne Pharma
In determining whether an accrual for a loss contingency is required,
we first assess the likelihood of occurrence of the future event or events that will confirm the loss. When a loss is probable (the future
event or events are likely to occur) and the amount of the loss can be reasonably estimated, the estimated loss is accrued. If the reasonable
estimate of the loss is a range and an amount within the range appears to be a better estimate than any other amount within the range,
that amount should be accrued. However, if no amount within the range is a better estimate, the minimum amount in the range should be
accrued.
In February 2024, the Company received Mayne Pharma’s
calculation of allowance for payer rebates and wholesale distributor fees which differed significantly from the Company’s
estimate of the allowances. The Company believes its estimated allowances for payer rebates and wholesale distributor fees are
reasonable and intends to resolve this matter through the process outlined in the Transaction Agreement. Given the recent receipt of
Mayne Pharma’s allowance calculation and the nature of the estimates involved, the outcome of this matter is uncertain at this
point. As a result, the Company cannot reasonably estimate a range of loss, and accordingly, the Company has not accrued any
additional liability associated with Mayne Pharma’s allowance calculation for payer rebates and wholesale distributor
fees.
The Company believes no additional accrual is required for amounts
that may be owed for the allowance for returns. The Company has not recorded any contingent gains or receivables for any such allowances.
Management continues to monitor the unresolved and pending net working capital items as changes to estimated amounts owed or amounts due
from Mayne Pharma that may be material.
License revenue
License arrangements may consist of non-refundable
upfront license fees, exclusive licensed rights to patented or patent pending technology, and various performance or sales milestones
and future product royalty payments. Some of these arrangements may include multiple performance obligations. Non-refundable up-front
fees that are not contingent on any future performance by us, and do not require continuing involvement on our part, are recognized as
revenue when the right to use functional intellectual property is transferred to the customer.
41
On December 30, 2022, we closed a License Agreement with Mayne Pharma
pursuant to which we sold to Mayne Pharma the exclusive license rights in our product ANNOVERA and granted an exclusive license in other
products, including IMVEXXY and BIJUVA. Under the terms of the License Agreement, we received $140 million at closing and we are eligible
to receive additional payments in the aggregate of up to an additional $30 million based on the achievement of sales milestones (collectively,
the “Milestone Amounts”). The proceeds at closing were allocated between consideration for the sale of ANNOVERA and the initial
license fee for the Licensed Products, as the sale of ANNOVERA was accounted for under ASC 610-20, Gains and Losses from Derecognition
of Nonfinancial Assets in arriving at the gain on disposal (see Note 2 to the consolidated financial statements included in this 2023
10-K Report), while the license grant of the other products were recognized under the provisions of ASC 606, Revenue from Contracts with
Customers, as a license of functional intellectual asset. The proceeds were allocated among the Licensed Products on the relative net
present value of forecasted future product sales from those products. The Milestone Amounts will be recognized, as applicable, in subsequent
periods based on actual product sales that exceed the respective net sales milestones as such variable consideration is constrained by
the occurrence of the subsequent sales.
Our royalty revenue recognized in 2023 primarily related to royalties
provided for under the Mayne License Agreement based on Mayne Pharma’s sales of the Licensed Products subject to that agreement.
Under the Mayne License Agreement, the Company is entitled to earn royalties on net sales of all of the Licensed Products at a royalty
rate of (i) 8% on the first $80 million of net sales of the Licensed Products and (ii) 7.5% on net sales of all of the Licensed Products
after the first $80 million of net sales. The royalty rate is subject to a 2% reduction upon the earlier to occur of (i) the expiration
or revocation of the last valid claim covering a Licensed Product, and (ii) a generic product launch (a “LOE”). We are entitled
to minimum annual royalties beginning with the year ending December 31, 2023 ($3 million annual minimum) and continuing with 3% annual
increases through the year ending December 31, 2034 (the “Minimum Annual Royalty”). The Minimum Annual Royalty originally
totaled $42.6 million, and this total amount was allocated among the Licensed Products on the relative net present value of forecasted
future product sales from those products. The portion allocated to consideration for the sale of ANNOVERA was attributed towards the gain
on disposal of that asset. For the remaining portion allocated to the license grants for the other products, we determined that the minimum
guarantee underlying the Minimum Annual Royalty should be treated as fixed consideration and recognized under ASC 606 at the point in
time when the license was transferred. Since the Minimum Annual Royalty will be received in annual installments through 2034, we determined
the transaction price allocated under ASC 606 contained a significant financing component, and we therefore determined the initial royalty
revenue and corresponding receivable based on the present value of the allocated Minimum Annual Royalty. The present value was calculated
using a discount rate of 10.45%, based on the credit characteristics of Mayne Pharma and the timing of future payments, and the value
will be accreted to full value through the earlier of January 1, 2034 or a LOE. This royalty receivable is a contract asset as of December
31, 2023, and is further subject to offset by Mayne Pharma.
Royalty revenue earned in excess of the Minimum
Annual Royalty will be recognized under ASC 606, which provides revenue recognition constraints by requiring the recognition of revenue
at the later of the following: 1) when the subsequent sale occurs or 2) when the performance obligation to which some or all of the sales-based
royalty has been allocated has been satisfied (or partially satisfied). We applied the royalty recognition constraint required under
the guidance for sales-based royalties, which requires a sales-based royalty to be recorded no sooner than the underlying sale. Therefore,
royalties on sales of products commercialized by Mayne Pharma will be recognized in the subsequent periods that the Licensed Products
are sold.
For additional discussion on revenue, see “J.
Revenue recognition” in Note 1. Basis of presentation, new accounting standards and summary of significant accounting policies
to the consolidated financial statements included in this 2023 10-K Report.
Restructuring Costs.
Our restructuring costs consist primarily of severance, employee termination
costs, contract termination costs, and write off of fixed assets related to restructuring activities.
Recent accounting pronouncements
Information regarding accounting standards issued
or effective in 2023 is included in “Note 1. Basis of Presentation, New Accounting Standards and Significant Accounting Policies”
to the consolidated financial statements.
Item 7A. Quantitative and qualitative disclosures
about market risk
As a “smaller reporting company,”
as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and pursuant to Instruction
6 to Item 201(e) of Regulation S-K, we are not required to provide this information.
Item 8. Financial statements and supplementary
data
Reference is made to the financial statements,
the notes thereto, and the report thereon, commencing on page F-1 of this 2023 10-K Report, which financial statements, notes, and reports
are incorporated herein by reference.
42
Item 9. Change in and disagreements with
accountants on accounting and financial disclosure
None.
Item 9A. Controls and procedures
Evaluation of disclosure controls and procedures
Our management evaluated the effectiveness of
our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as of the end
of the period covered by this 2023 10-K Report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer
concluded that, as of December 31, 2023, our disclosure controls and procedures were effective to ensure that information required to
be disclosed by us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within
the time periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Principal
Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial
reporting
There was no change in our internal control
over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
Inherent limitations on effectiveness of
controls
Our management does not expect that our disclosure
controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or
detected. Further, internal controls may become inadequate because of changes in conditions, or through the deterioration of the degree
of compliance with policies or procedures.
Management’s report on internal control
over financial reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Our
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial
reporting includes those policies and procedures that:
Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2023. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —
Integrated Framework (2013). Management’s assessment included an evaluation of the design of our internal control over
financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on
management’s assessment, we believe that our internal controls over financial reporting were effective as of December 31,
2023.
This 2023 10-K Report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that
permit the Company to provide only management’s report in this 2023 10-K Report.
Item 9B. Other information
Effective March 22, 2024, Tommy G. Thompson resigned as the Company’s
Executive Chairman of the Board and was reappointed as the Company’s Chairman of the Board.
Item 9C. Disclosure regarding foreign jurisdictions
that prevent inspections
None.
43
PART III
Item 10. Directors, executive officers, and
corporate governance
This information will be contained in our definitive proxy statement for
our 2024 Annual Meeting of Stockholders, to be filed with the SEC not later than 120 days after the end of our fiscal year covered by
this report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later
than the end of such 120 day period.
Item 11. Executive compensation
This information will be contained in our definitive proxy statement for
our 2024 Annual Meeting of Stockholders, to be filed with the SEC not later than 120 days after the end of our fiscal year covered by
this report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later
than the end of such 120 day period.
Item 12. Security ownership of certain beneficial
owners and management and related stockholder matters
This information will be contained in our definitive proxy statement for
our 2024 Annual Meeting of Stockholders, to be filed with the SEC not later than 120 days after the end of our fiscal year covered by
this report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later
than the end of such 120 day period.
Item 13. Certain relationships and related
transactions, and director independence
This information will be contained in our definitive proxy statement for
our 2024 Annual Meeting of Stockholders, to be filed with the SEC not later than 120 days after the end of our fiscal year covered by
this report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no later
than the end of such 120 day period.
Item 14. Principal accountant fees and services
This information will be contained in our definitive proxy statement
for our 2024 Annual Meeting of Stockholders, to be filed with the SEC not later than 120 days after the end of our fiscal year covered
by this report, and incorporated herein by reference or, alternatively, by amendment to this Form 10-K under cover of Form 10-K/A no
later than the end of such 120 day period.
44
PART IV
Item 15. Exhibits and financial statement
schedules
(a) Financial statements and financial statements schedules
(b) Exhibits
Exhibit No. Description
3.4 Bylaws of the AMHN, Inc. (8)
3.5 First Amendment to Bylaws of the Company, dated December 17, 2015 (9)
3.6 Second Amendment to Bylaws of the Company, adopted May 27, 2022 (10)
3.7 Third Amendment to Bylaws of the Company, dated July 29, 2022 (11)
3.8 Certificate of Change to Articles of Incorporation of the Company (12)
3.10 Fourth Amendment to Bylaws of the Company, dated June 29, 2023 (13)
4.1 Form of Certificate of Common Stock (14)
4.2 Description of Securities of the Company (15)
10.1 Form of Common Stock Purchase Warrant (16)
10.2* Form of Non-Qualified Stock Option Agreement (16)
10.3* TherapeuticsMD, Inc. 2019 Stock Incentive Plan (17)
10.4* First Amendment to the TherapeuticsMD, Inc. 2019 Stock Incentive Plan (18)