UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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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.
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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.
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There were
Agile Therapeutics, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2023
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SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes statements that are, or may be deemed, “forward-looking statements.” In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,” “designed,” “could,” “might,” “will,” “should,” “approximately” or, in each case, their negative or other variations thereon or comparable terminology, although not all forward-looking statements contain these words. They appear in a number of places throughout this Quarterly Report on Form 10-Q and include statements regarding our current intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned manufacturing and commercialization of Twirla®, the potential market acceptance and uptake of Twirla®, including the level of reimbursement available from third-party payors, the development of our other potential product candidates, the attractiveness of our business to potential investors or business partners, the strength and breadth of our intellectual property, our planned clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for our potential product candidates, the legal and regulatory landscape impacting our business, the degree of clinical utility of our products, particularly in specific patient populations, expectations regarding clinical trial data, our results of operations, financial condition, liquidity, prospects, growth and strategies, the length of time that we will be able to continue to fund our operating expenses and capital expenditures, our expected financing needs and sources of financing, the industry in which we operate and the trends that may affect the industry or us.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics, and healthcare, regulatory and scientific developments and depend on the economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.
Some of the factors that we believe could cause actual results to differ from those anticipated or predicted include:
● | our available cash and our ability to obtain additional funding to fund our business plan without delay and to continue as a going concern; |
● | our ability to successfully maintain and enhance the commercialization of and increase the uptake for Twirla, our only approved product; |
● | the rate and degree of market acceptance of Twirla by physicians, patients, clinics, institutions, third-party payors and others in the healthcare community; |
● | the size and growth of the markets for Twirla and our ability to serve those markets; |
● | shortages of key materials in the supply chain implicating the manufacture and distribution of Twirla; |
● | regulatory and legislative developments in the United States and foreign countries, which could include, among other things, a government shutdown or limiting access to prescription contraceptives; |
● | the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; |
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● | the growth in demand for Twirla and our ability to manage the levels of Twirla inventory, which could result in our having to write off inventory and our inability to meet the minimum requirements under our supply agreement with Corium Innovations, Inc. (“Corium”); |
● | our ability to timely obtain from our third-party manufacturer, Corium, sufficient quantities or quality of Twirla or other materials required for a clinical trial or other tests and studies; |
● | the ability of Corium to produce commercial supply in quantities and quality sufficient to satisfy market demand for Twirla; |
● | the performance and financial condition of Corium or any of the suppliers; |
● | our ability to design and successfully complete a post-marketing long-term, prospective observational safety study comparing risks for venous thromboembolism, or VTE, and arterial thromboembolism, or ATE, in new users of Twirla to new users of oral combined hormonal contraceptives, or CHCs, and new users of Xulane in U.S. women of reproductive age using CHCs and the outcomes of our discussions with the United States Food and Drug Administration, or FDA, regarding the results of our post-marketing commitment, or PMC, to assess the residual drug content of Twirla after use; |
● | our ability to maintain regulatory approval of Twirla and the labeling under any approval we obtain; |
● | our ability to obtain and maintain intellectual property protection for Twirla and our product candidates; |
● | the success and timing of our clinical trials or other studies, including post-marketing studies for Twirla; |
● | development of unexpected safety or efficacy concerns related to Twirla; |
● | our ability to continue to develop and maintain successful sales and marketing capabilities, including our ability to maintain an effective sales force or failure to build-out and implement an effective health care compliance program; |
● | our ability to come into compliance with the listing requirements of the Nasdaq Capital Market; |
● | our ability to retain key employees and recruit the additional personnel we will need to support our commercialization plan for Twirla; and |
● | our ability to successfully implement our strategy. |
Any forward-looking statements that we make in this Quarterly Report on Form 10-Q speak only as of the date of such statement, and we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q. You should also read carefully the factors described in the “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission on March 23, 2023 to better understand significant risks and uncertainties inherent in our business and underlying any forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, any such inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard any of these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all.
This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys, and studies are reliable, we have not independently verified such data.
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We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Twirla® is one of our trademarks used in this Form 10-Q. This Form 10-Q also includes trademarks, tradenames, and service marks that are the property of other organizations. Solely for convenience, our trademarks and tradenames referred to in this Form 10-Q may appear without the ® symbol, but those 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 and tradenames.
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Agile Therapeutics, Inc.
Part I — Financial Information
ITEM 1. Financial Statements
Agile Therapeutics, Inc.
Balance Sheets
(Unaudited)
(in thousands, except par value and share data)
June 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net | | | ||||
Inventory, net | | | ||||
Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Right of use asset | | | ||||
Other non-current assets |
| |
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Total assets | $ | | $ | | ||
Liabilities and stockholders’ deficit | ||||||
Current liabilities: | ||||||
Long-term debt, current portion | $ | $ | ||||
Notes payable, current portion | — | |||||
Accounts payable | | | ||||
Accrued expenses |
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Lease liability, current portion |
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Total current liabilities |
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Lease liabilities, long-term | | | ||||
Warrant liability | | | ||||
Total liabilities | | | ||||
Commitments and contingencies (Note 10) | ||||||
Stockholders’ deficit | ||||||
Preferred stock, $ | ||||||
Common stock, $ |
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Additional paid-in capital |
| |
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Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ deficit |
| ( |
| ( | ||
Total liabilities and stockholders’ deficit | $ | | $ | |
See accompanying notes to unaudited financial statements.
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Agile Therapeutics, Inc.
Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except per share and share data)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Revenues, net | $ | | $ | | $ | | $ | | ||||
Cost of product revenues | | | | | ||||||||
Gross profit | | ( | | | ||||||||
Operating expenses: | ||||||||||||
Research and development | $ | | $ | | $ | | $ | | ||||
Selling and marketing | | | | | ||||||||
General and administrative |
| |
| |
| |
| | ||||
Total operating expenses |
| |
| |
| |
| | ||||
Loss from operations |
| ( |
| ( |
| ( |
| ( | ||||
Other income (expense) | ||||||||||||
Interest income |
| |
| |
| |
| | ||||
Interest expense | ( | ( | ( | ( | ||||||||
Unrealized gain on warrant liability | | | | | ||||||||
Total other income, net | | | | | ||||||||
Loss before benefit from income taxes | ( | ( | ( | ( | ||||||||
Benefit from income taxes | — | — | — | | ||||||||
Net loss and comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net loss per share (basic and diluted) | ( | ( | ( | ( | ||||||||
Weighted-average common shares (basic and diluted) |
| | |
| | |
See accompanying notes to unaudited financial statements.
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Agile Therapeutics, Inc.
Statements of Changes in Stockholders’ Deficit
(Unaudited)
(in thousands, except share data)
Preferred Stock | Common Stock | Additional | Accumulated | Total | |||||||||||||||||||
Number of | Number of | Paid-in | Other Comprehensive | Accumulated | Stockholders' | ||||||||||||||||||
| Shares |
| Amount | Shares |
| Amount |
| Capital |
| Income | Deficit |
| Deficit | ||||||||||
Balance December 31, 2022 | — | $ | — | | $ | — | $ | | $ | — | $ | ( | $ | ( | |||||||||
Share-based compensation - stock options and RSUs | — | — | — | — | | — | — | | |||||||||||||||
Issuance of common stock pursuant to at-the market stock sales, net of expenses | — | — | | — | | — | — | | |||||||||||||||
Net loss | — | — | — | — | — | — | ( | ( | |||||||||||||||
Balance March 31, 2023 | — | $ | — | | $ | — | $ | | $ | — | $ | ( | $ | ( | |||||||||
Share-based compensation - stock options and RSUs | — | — | — | — | | — | — | | |||||||||||||||
Fractional shares retired as a result of reverse split | — | — | — | — | ( | — | — | ( | |||||||||||||||
Issuance of common stock pursuant to at-the market stock sales, net of expenses | — | — | | — | | — | — | | |||||||||||||||
Issuance of common stock in public offering, net of offering costs | — | — | | — | — | — | — | — | |||||||||||||||
Exercise of pre-funded warrants | — | — | | — | — | — | — | — | |||||||||||||||
Vesting of RSUs | — | — | | — | — | — | — | — | |||||||||||||||
Net loss | — | — | — | — | — | — | ( | ( | |||||||||||||||
Balance June 30, 2023 | — | $ | — | | $ | — | $ | | $ | — | $ | ( | $ | ( |
See accompanying notes to unaudited financial statements.
On April 10, 2023, the Company effectuated a -for-fifty reverse stock split of its outstanding shares of common stock (the “Reverse Stock Split”). The Reverse Stock Split reduces the Company’s shares of outstanding common stock, stock options, RSU’s, and warrants to buy shares of the Company’s common stock. Fractional shares of common stock that would have otherwise resulted from the Reverse Stock Split were rounded down to the nearest whole share, and cash in lieu payments were made to stockholders. All share and per share data for all periods presented in the accompanying financial statements and the related disclosures have been adjusted retrospectively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.
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Agile Therapeutics, Inc.
Statements of Changes in Stockholders' Equity (Deficit)
(Unaudited)
(in thousands, except share data)
Preferred Stock | Common Stock | Additional | Accumulated | Total | |||||||||||||||||||
Number of | Number of | Paid-in | Other Comprehensive | Accumulated | Stockholders' | ||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount | Capital | Income | Deficit | Deficit | ||||||||||||
Balance December 31, 2021 | — | $ | — | | $ | — | $ | | $ | — | $ | ( | $ | | |||||||||
Share-based compensation - stock options and RSUs | — | — | — | — | | — | — | | |||||||||||||||
Issuance of common stock pursuant to at-the market stock sales, net of expenses | — | — | | — | | — | — | | |||||||||||||||
Issuance of series A and B convertible preferred stock in a registered direct offering (Note 8) | | — | — | — | — | — | — | — | |||||||||||||||
Conversion of series A convertible preferred stock | — | | — | — | — | — | — | ||||||||||||||||
Vesting of RSUs | ( | — | | — | — | — | — | — | |||||||||||||||
Net loss | — | — | — | — | — | — | ( | ( | |||||||||||||||
Balance March 31, 2022 | | — | | $ | — | $ | | $ | — | $ | ( | $ | ( | ||||||||||
Share-based compensation - stock options and RSUs | — | $ | — | — | — | | — | — | | ||||||||||||||
Issuance of common stock pursuant to at-the market stock sales, net of expenses | — | — | | — | | — | — | | |||||||||||||||
Conversion of series B convertible preferred stock | ( | — | | — | — | — | — | — | |||||||||||||||
Vesting of RSUs | — | — | | — | — | — | — | — | |||||||||||||||
Unrealized net gain on marketable securities | — | — | — | — | — | — | — | — | |||||||||||||||
Net loss | — | — | — | — | — | — | ( | ( | |||||||||||||||
Balance June 30, 2022 | — | $ | — | $ | | $ | — | $ | | $ | — | $ | ( | $ | |
See accompanying notes to unaudited financial statements.
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Agile Therapeutics, Inc.
Statements of Cash Flows
(Unaudited)
(in thousands)
Six Months Ended | ||||||
June 30, | ||||||
| 2023 |
| 2022 | |||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
Depreciation |
| |
| | ||
Amortization |
| |
| | ||
Noncash stock-based compensation |
| |
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Noncash amortization of deferred financing costs | | | ||||
Unrealized gain on warrants | ( | ( | ||||
Changes in operating assets and liabilities: |
|
| ||||
Accounts receivable | ( | ( | ||||
Inventory | ( | ( | ||||
Prepaid expenses and other assets | | | ||||
Accounts payable and accrued expenses |
| |
| | ||
Lease liability | ( | ( | ||||
Net cash used in operating activities |
| ( |
| ( | ||
Cash flows from investing activities: | ||||||
Acquisition of property and equipment |
| — |
| ( | ||
Net cash used in investing activities |
| — |
| ( | ||
Cash flows from financing activities: | ||||||
Proceeds from issuance of preferred stock in registered direct offering, net of offering costs | — | | ||||
Proceeds from At-the-Market sales of common stock, net of offering costs | | | ||||
Proceeds from the issuance of common stock in public offering, net of offering costs | | — | ||||
Repayments of long-term debt | ( | ( | ||||
Repayments of note payable | ( | — | ||||
Net cash provided by financing activities | | | ||||
Net decrease in cash and cash equivalents |
| ( |
| ( | ||
Cash and cash equivalents, beginning of period |
| |
| | ||
Cash and cash equivalents, end of period | $ | | $ | | ||
Supplemental disclosure of noncash financing activities | ||||||
Warrants issued in connection with long-term debt | $ | — | $ | — | ||
Warrants issued in connection with preferred stock financing | — | | ||||
Conversion of Series A preferred stock into common stock | — | | ||||
Conversion of Series B preferred stock into common stock | — | | ||||
Supplemental cash flow information | ||||||
Interest paid | $ | | $ | |
See accompanying notes to unaudited financial statements.
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1. Organization and Description of Business
Nature of Operations
Agile Therapeutics, Inc. (“Agile” or the “Company”) was incorporated in Delaware on December 22, 1997. Agile is a women’s healthcare company dedicated to fulfilling the unmet health needs of today’s women. The Company’s activities since inception have consisted principally of raising capital, performing research and development, including development of the Company’s lead product, Twirla®, and more recently commercializing Twirla. The Company is headquartered in Princeton, New Jersey.
The Company’s sole approved product, Twirla, is a once-weekly prescription contraceptive patch that received approval from the U.S. Food and Drug Administration, or FDA, in February 2020 and was commercially launched in early December 2020. Substantially all of the Company’s resources are currently dedicated to commercializing Twirla in the United States. The Company has generated minimal product revenue to date and is subject to a number of risks similar to those of other early stage commercial companies, including, but not limited to, dependence on key individuals, the difficulties and uncertainties inherent in the development of commercially usable products, market acceptance of products, protection of proprietary technology, the potential need to obtain additional capital necessary to fund the development of its products, reliance on a consistent supply chain both for Twirla and in general, macroeconomic factors such as inflation, competition from larger companies, and compliance with FDA and other government regulations. If the Company does not continue to successfully commercialize Twirla, it will be unable to generate recurring product revenue or achieve profitability. The Company has incurred operating losses and negative cash flows from operating activities each year since inception. As of June 30, 2023, the Company had an accumulated deficit of approximately $
● | maintains a sales and marketing infrastructure and contract manufacturing arrangement to support the continued commercialization of Twirla in the United States; |
● | continues to commercialize Twirla and seek increased uptake of Twirla in the United States; |
● | continues to evaluate additional line extensions for Twirla and initiates development of potential product candidates in addition to Twirla; |
● | maintains, leverages, and expands the Company’s intellectual property portfolio; and |
● | maintains operational, financial, and management information systems and personnel, including personnel to support the Company’s product development and future commercialization efforts. |
The Company has financed its operations to date primarily through the issuance and sale of its common stock in both public and private offerings (see Note 8), private placements of its convertible preferred stock, venture loans, and non-dilutive grant funding.
Going Concern
As of June 30, 2023, the Company had cash and cash equivalents of $
The Company has generated losses since inception, used substantial cash in operations, has a working capital deficit at June 30, 2023, and anticipates it will continue to incur net losses for the foreseeable future. The Company’s future success depends on its ability to obtain additional capital and/or implement various strategic alternatives, and there can be no assurance that any financing can be realized by the Company, or if realized, what the terms of any such financing may be, or that any amount that the Company is able to raise will be adequate. Based upon the foregoing, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern through the 12 months following the date on which this Quarterly Report on Form 10-Q is filed.
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The Company continues to analyze various alternatives, including refinancing alternatives, asset sales and mergers and acquisitions. The Company’s future success depends on its ability to raise additional capital as discussed above. The Company cannot be certain that these initiatives, or raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to it or, if available, will be on terms acceptable to the Company. If the Company issues additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of its common stock, and the Company’s current stockholders will experience dilution. If the Company is unable to obtain funds when needed or on acceptable terms, the Company then may be unable to continue the commercialization of Twirla, and may also be required to cut operating costs, and forego future development and other opportunities.
The unaudited financial statements as of June 30, 2023 have been prepared under the assumption that the Company will continue as a going concern for the next 12 months. The Company’s ability to continue as a going concern is dependent upon its uncertain ability to obtain additional capital, reduce expenditures and/or execute on its business plan and successfully commercialize Twirla. The unaudited financial statements as of June 30, 2023 do not include any adjustments that might result from the outcome of this uncertainty. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on the financial statements.
Basis of Presentation
The accompanying unaudited interim financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Quarterly Reports on Form 10-Q. Accordingly, certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been condensed or omitted pursuant to such rules and regulations. These interim financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 23, 2023.
In the opinion of management, the unaudited interim financial statements reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of the financial information for the interim periods presented. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the operating results for the full fiscal year or any future period.
The accompanying unaudited financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. The Company has incurred recurring losses and negative cash flows from operations. If the Company encounters unforeseen factors that impact the Company’s current business plan or its ability to generate revenue from the commercialization of Twirla, the Company believes it has the ability to revise its commercial plans, including curtailing sales and marketing spending, to allow it to continue to fund its operations.
2. Summary of Significant Accounting Policies
The Company’s complete listing of significant accounting policies is described in Note 2 to the Company’s audited financial statements as of December 31, 2022 included in its Annual Report on Form 10-K filed with the SEC on March 23, 2023.
Use of Estimates
The preparation of the Company’s financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company bases its estimates and judgments on historical experience and various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s balance sheets and the amounts of revenue and expenses reported for each of the periods presented are affected by estimates and assumptions, which are used for, but not limited to, revenue recognition, costs of product revenues,
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inventory reserves, the accounting for common stock warrants, stock-based compensation, and accounting for research and development costs. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
Risks and Uncertainties
While Twirla has been approved by the FDA, other potential product candidates developed by the Company will require approval from the FDA prior to commercial sales. There can be no assurance that the Company’s other product candidates will receive the required approval. If the Company is denied approval or such approval is delayed, or is unable to obtain the necessary financing to complete development and approval, there could be a material adverse impact on the Company’s financial condition and results of operations.
It should be noted that the possibility of continued public health threats could adversely affect the Company’s ongoing or planned business operations. For example, the coronavirus (“COVID-19”) pandemic previously resulted in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, access restrictions, restrictions on public gatherings, and stay at home orders. The most significant impacts to the Company’s business were encountered by sales representatives promoting Twirla in the field, as some offices limited opportunities for face-to-face interactions with healthcare providers. Re-implementation of COVID-19 restrictions, if necessary in the future, may disrupt the Company’s business and/or could adversely affect the Company’s commercialization plans and results. The Company cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if the Company or any of the third parties with whom the Company engages, including personnel at third-party manufacturing facilities and other third parties with whom the Company conducts business, were to experience shutdowns or other business disruptions, the Company’s ability to conduct its business in the manner and on the timeline presently planned could be materially and adversely impacted. Another shutdown necessitating work in a completely remote environment could result in delays to its business activities and commercialization plan. The Company will continue to closely monitor events as they develop, and plan for alternative and mitigating measures that can be implemented if needed.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with an original maturity of three months or less when purchased to be cash equivalents. All cash and cash equivalents are held in United States financial institutions. Cash and cash equivalents include money market funds that invest primarily in commercial paper and U.S. government and U.S. government agency obligations.
The Company maintains balances with financial institutions in excess of the Federal Deposit Insurance Corporation limit.
Trade Accounts Receivable and Allowances
Trade accounts receivable are amounts owed to the Company by its customers for product that has been delivered. The trade accounts receivable are recorded at the invoice amount, less prompt pay and other discounts, chargebacks, and an allowance for credit losses, if any. The allowance for credit losses represents the Company’s estimate of losses over the life of the receivables. The Company evaluates forward-looking economic factors and uses professional judgment to determine the allowance for credit losses. The credit loss reserves are reviewed and adjusted periodically. Credit loss reserves were not material as of June 30, 2023 and December 31, 2022.
Trade accounts receivable are aged based on the contractual payment terms. When the collectability of an invoice is no longer probable, the Company will create a reserve for that specific receivable. If a receivable is determined to be uncollectible, it is charged against the general credit loss reserve or the reserve for the specific receivable, if one exists.
Fair Value of Financial Instruments
In accordance with Accounting Standards Codification (“ASC”) 825, Financial Instruments, disclosures of fair value information about financial instruments are required, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. Cash and cash equivalents (see Note 3) and the Company’s warrant liability (see Note 3) are carried at fair value. The warrant liability is measured at fair value in accordance with ASC 815.
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Other financial instruments, including accounts receivable, accounts payable and accrued liabilities, are carried at cost, which approximates fair value given their short-term nature.
Inventory
Inventory is valued utilizing the weighted average costing method. The Company records an inventory reserve for losses associated with dated, expired, excess or obsolete items. This reserve is based on management’s current knowledge with respect to inventory levels, planned production and sales volume assumptions. As of June 30, 2023 and December 31, 2022, inventory reserves approximated $
Long-Lived Assets
In accordance with ASC 360, Property, Plant and Equipment, the Company’s policy is to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management does not believe the carrying values of any long-lived assets are impaired as of June 30, 2023.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expense consists primarily of costs related to personnel, including salaries and other personnel-related expenses, expenses related to manufacturing, clinical trial expenses, consulting fees, and support services used in drug development. All research and development costs are charged to operations as incurred in accordance with ASC 730, Research and Development.
In certain circumstances, the Company is required to make advance payments to vendors for goods or services that will be received in the future for use in research and development activities. In such circumstances, the advance payments are deferred and are expensed when the activity has been performed or when the goods have been received.
Advertising Costs
The Company has elected to expense advertising costs when incurred. Advertising costs totaled
Deferred Financing Costs
Costs directly attributable to the Company’s senior secured term loan (see Note 7) are deferred and reported as a reduction of the related term loan. These costs represent legal fees and other costs related to the term loan and are being amortized utilizing the straight-line method over the term of the loan. Amortization of deferred financing costs charged to interest expense was approximately $
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to credit risk consist principally of cash, cash equivalents, and accounts receivable. The Company invests its cash and cash equivalents in interest-bearing accounts in United States financial institutions, the balances of which exceed federally insured limits. The Company mitigates credit risk by limiting the investment type and maturity to securities that preserve capital, maintain liquidity, and have a high credit quality. The Company has not recognized any losses from credit risks on such accounts. The Company has
Major customers of the Company are defined as those constituting greater than 10% of its total revenue. In the three months ended June 30, 2023, the Company had sales to
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10% of its total revenue. These customers had sales of $
Revenue Recognition
The Company recognizes revenue from the sale of its product, Twirla, in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606). The provisions of ASC 606 require the following steps to determine revenue recognition: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
In accordance with ASC 606, the Company recognizes revenue at the point in time when its performance obligation is satisfied by transferring control of the promised goods or services to a customer. In accordance with the Company’s contracts with customers, control of the product is transferred upon the conveyance of title, which occurs when the product is sold to and received by a customer. The Company’s customers are located in the United States and consist primarily of wholesale distributors. Trade accounts receivable due to the Company from contracts with its customers are stated separately in the balance sheet, net of various allowances as described in the Trade Accounts Receivable and Allowance policy.
The amount of revenue recognized by the Company is equal to the amount of consideration that is expected to be received from the sale of product to its customers. Revenue is only recognized when it is probable that a significant reversal will not occur in future periods. To determine whether a significant reversal will occur in future periods, the Company assesses both the likelihood and magnitude of any such potential reversal of revenue.
Twirla is sold to customers at the wholesale acquisition cost (“WAC”). However, the Company records product revenue, net of reserves for applicable variable consideration. These types of variable consideration items reduce revenue and include the following:
● | Distribution services fees; |
● | Prompt pay and other discounts; |
● | Product returns; |
● | Chargebacks; |
● | Rebates; and |
● | Co-payment assistance. |
An estimate for each variable consideration item is made and is recorded in conjunction with the revenue being recognized. Generally, if the estimated amount is payable to a customer, it is recorded as a reduction to accounts receivable. If the estimated amount is payable to an entity other than a customer, it is recorded as a current liability. An estimated amount of variable consideration may differ from the actual amount. At each balance sheet date, these provisions are analyzed, and adjustments are made if necessary. Any adjustments made to these provisions would affect net product revenue and earnings in the current period.
In accordance with ASC 606, the Company must make significant judgments to determine the estimate for certain variable consideration. For example, the Company must estimate the percentage of end-users that will obtain the product through public insurance such as Medicaid or through private commercial insurance. To determine these estimates, the Company relied on industry standard data and trend analysis since historical sales data was not available as Twirla was launched in December 2020. As historical data continues to become available, the Company will incorporate that data into its estimates of variable consideration.
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The specific considerations that the Company uses in estimating these amounts related to variable considerations are as follows:
Distribution services fees – The Company pays distribution service fees to its wholesale distributors. These fees are a contractually fixed percentage of WAC and are calculated at the time of sale based on the purchase amount. The Company records these fees as contra trade accounts receivable on the balance sheet.
Prompt pay and other discounts – The Company incentivizes its customers to pay their invoices on time through prompt pay discounts. These discounts are an industry standard practice and the Company offers a prompt pay discount to each wholesale distributor customer. The specific prompt pay terms vary by customer and are contractually fixed. Prompt pay discounts are typically taken by the Company’s customers, so an estimate of the discount is recorded at the time of sale based on the WAC. Prompt pay discount estimates are recorded as contra trade accounts receivable on the balance sheet.
The Company may also give other discounts to its customers to incentivize purchases and promote customer loyalty. The terms of such discounts may vary by customer. These discounts reduce gross product revenue at the time the revenue is recorded.
Product returns – Customers have the right to return product that is within six months or less of the labeled expiration date or that is past the expiration date by no more than twelve months. Twirla was commercially launched in December 2020 and with limited historical sales data, an estimate for product returns as of June 30, 2023 was made based on industry standard data and trend analysis. Estimated product returns are recorded as other current liabilities in accrued expenses on the balance sheet.
Chargebacks – Certain covered entities and government entities will be able to purchase the product at a price discounted below WAC. The difference between the government or covered entity purchase price and the wholesale distributor purchase price of WAC will be charged back to the Company. The Company estimates the amount in chargebacks based on the expected number of claims and related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Estimated chargebacks are recorded as contra trade accounts receivable on the balance sheet.
Rebates – The Company will be subject to mandatory discount obligations under the Medicaid and Tricare programs. The rebate amounts for these programs are determined by statutory requirements or contractual arrangements. Rebates are owed after the product has been dispensed to an end user and the Company has been invoiced. Rebates for Medicaid and Tricare are typically invoiced in arrears. The Company estimates the amount in rebates based on the expected number of claims and related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Rebate estimates are recorded as other current liabilities in accrued expenses on the balance sheet.
Co-payment assistance – The Company offers a co-payment assistance program to commercially insured patients whose insurance requires a co-payment to be made when filling their prescription. This is a voluntary program that is intended to provide financial assistance to patients meeting certain eligibility requirements. The Company estimates the amount of co-payment assistance based on the expected number of claims and related cost that is associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Co-payment assistance estimates are recorded as other current liabilities in accrued expenses on the balance sheet.
Provisions for the revenue reserves described above totaled $
Warrants
The Company accounts for its warrants to purchase common stock in accordance with ASC 480, Distinguishing Liabilities from Equity.
In connection with entering into a senior secured term loan facility in February 2020 (the “Perceptive Credit Agreement”), the Company issued warrants to purchase
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Credit Holdings III, L.P. (“Perceptive”). In connection with an amendment to that facility in February 2021, the Company issued warrants to purchase
In connection with an underwritten public offering completed in October 2021, the Company issued warrants to purchase
In connection with a registered direct offering completed in March 2022, the Company issued warrants to purchase
In connection with a letter agreement and waiver entered into with an investor on April 2022, the Company issued warrants to purchase
In connection with a public offering completed in July 2022, the Company issued warrants to purchase
In connection with a public offering completed in May 2023, the Company issued warrants to purchase
Income Taxes
The Company accounts for deferred taxes using the asset and liability method as specified by ASC 740, Income Taxes. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and the tax basis of assets and liabilities, operating losses and tax credit carryforwards. Deferred income taxes are measured using the enacted tax rates and laws that are anticipated to be in effect when the differences are expected to reverse. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any tax benefits which are not expected to be realized. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted.
The Company has adopted the authoritative guidance on accounting for and disclosure of uncertainty in tax positions which prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. The Company has
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Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. The Company grants stock options for a fixed number of shares to employees and non-employees with an exercise price equal to no less than the fair value of the shares at grant date. Compensation cost is recognized for all share-based payments granted and is based on the grant-date fair value estimated using the weighted-average assumption of the Black-Scholes option pricing model based on key assumptions such as stock price, expected volatility and expected term. The Company elects to account for forfeitures when they occur. The equity instrument is not considered to be issued until the instrument vests. As a result, compensation cost is recognized over the requisite service period with an offsetting credit to additional paid-in capital.
The Company also awards restricted stock units (“RSUs”) to employees and its board of directors. RSUs are generally subject to forfeiture if employment terminates prior to the completion of the vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding plus the effect of dilutive potential common shares outstanding during the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, common stock warrants, unvested RSUs and stock options are considered to be potentially dilutive securities but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive, and therefore, basic and diluted net loss per share were the same for all periods presented.
The following table sets forth the outstanding potentially dilutive securities that have been excluded from the calculation of diluted net loss per share for the three and six months ended June 30, 2023 and 2022, respectively, because to do so would be anti-dilutive (in common equivalent shares):
June 30, |
| ||||
| 2023 |
| 2022 |
| |
Common stock warrants |
| |
| | |
Unvested restricted stock units |
| |
| | |
Common stock options | | | |||
Total |
| |
| |
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on its consolidated financial statements or disclosures.
The Company did not adopt any new accounting pronouncements during the six months ended June 30, 2023 that had a material effect on its financial statements.
3. Fair Value Measurements
ASC 820, Fair Value Measurements and Disclosures, describes the fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the
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use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● | Level 1 — Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets consist of cash and cash equivalents. The Company has no Level 1 liabilities. |
● | Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities. The Company has no Level 2 assets or liabilities. |
● | Level 3 — Unobservable inputs that are supported by little or no market data and which require internal development of assumptions about how market participants price the fair value of the assets or liabilities. The Company has no Level 3 assets. Level 3 liabilities consist of warrant liability. |
The following table sets forth the Company’s financial instruments measured at fair value by level within the fair value hierarchy as of June 30, 2023 and December 31, 2022 (in thousands):
| Level 1 |
| Level 2 |
| Level 3 | ||||
June 30, 2023 | |||||||||
Assets: | |||||||||
Cash and cash equivalents | $ | | $ | — | $ | — | |||
Total assets at fair value | $ | | $ | — | $ | — | |||
Liabilities: | |||||||||
Warrant Liability | $ | — | $ | — | $ | | |||
Total assets at fair value | $ | — | $ | — | $ | |
| Level 1 |
| Level 2 |
| Level 3 | ||||
December 31, 2022 | |||||||||
Assets: | |||||||||
Cash and cash equivalents | $ | | $ | — | $ | — | |||
Total assets at fair value | $ | | $ | — | $ | — | |||
Liabilities: | |||||||||
Warrant Liability | $ | — | $ | — | $ | | |||
Total assets at fair value | $ | — | $ | — | $ | |
The significant assumptions used in preparing the option pricing model for valuing the Company’s warrants as of June 30, 2023 include (i) volatility
The following is a roll forward of the fair value of Level 3 warrants:
Beginning balance at December 31, 2022 |
| $ | |
Warrants issued | | ||
Change in fair value |
| ( | |
Ending Balance June 30, 2023 | $ | |
There were
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4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
June 30, | December 31, | ||||||
| 2023 |
| 2022 |
| |||
Prepaid insurance | $ | | $ | | |||
Other |
| |
| | |||
Total prepaid expenses and other current assets | $ | | $ | |
5. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
June 30, | December 31, | ||||||
| 2023 |
| 2022 |
| |||
Gross to net accruals | $ | | $ | | |||
Accrued compensation | | | |||||
Accrued professional fees and other |
| |
| | |||
Total accrued liabilities | $ | | $ | |
6. Leases
The Company has
The lease does not provide an implicit rate, therefore the Company used its incremental borrowing rate as the discount rate when measuring the operating lease liability. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease.
Operating lease expense was $
Future minimum lease payments under non-cancellable leases as of June 30, 2023 were as follows (in thousands):
2023 | $ | ||
2024 | |||
2025 |
| ||
Total | $ | ||
Less: Interest |
| ( | |
Present value of lease liability | $ | |
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7. Credit Agreement and Guaranty
On February 10, 2020, the Company entered into a Credit Agreement and Guaranty with Perceptive Credit Holdings III, LP (“Perceptive”) for a senior secured term loan credit facility of up to $
The facility will mature on February 10, 2024 (“Maturity Date”). Pursuant to the Perceptive Agreement, beginning August 31, 2022, the Company began making monthly principal payments in an amount equal to $
Borrowings under the Perceptive Credit Agreement will accrue interest at an annual rate equal to the London Interbank Offered Rate for one-month deposits (“LIBOR”) plus
The Company may prepay any outstanding loans in whole or in part. Any such prepayment of the loans is subject to a prepayment premium of
All of the Company’s obligations under the Perceptive Credit Agreement are secured by a first-priority lien and security interest in substantially all of the Company’s tangible and intangible assets, including intellectual property. The Perceptive Credit Agreement contains certain representations and warranties, affirmative covenants, negative covenants and conditions that are customary for similar financings. The negative covenants restrict or limit the ability of the Company to, among other things and subject to certain exceptions contained in the Perceptive Credit Agreement, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes, such as mergers or acquisitions, or changes to the Company’s business activities; make certain investments or restricted payments (each as defined in the Perceptive Credit Agreement); change its fiscal year; pay dividends; repay other certain indebtedness; engage in certain affiliate transactions; or enter into, amend or terminate any other agreements that have the impact of restricting the Company’s ability to make loan repayments under the Perceptive Credit Agreement. In addition, the Company must (i) at all times prior to the Maturity Date maintain a minimum cash balance of $
In connection with the Perceptive Credit Agreement, the Company issued to Perceptive
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Perceptive a warrant to purchase
As a result of the public offering of the Company’s common stock completed in October 2021 (see Note 8), the antidilution provision of the Perceptive Warrants was triggered, resulting in a reduction of the strike price for the Perceptive Warrants. Warrants to purchase
As a result of the registered direct offering completed in March 2022 (see Note 8), the anti-dilution provision of the Perceptive Warrants was again triggered resulting in a further reduction of the strike price for the Perceptive Warrants. Warrants to purchase
As a result of the public offering of the Company’s common stock completed in July 2022 (see Note 8), the antidilution provision of the Perceptive Warrants was again triggered resulting in a reduction of the strike price for the Perceptive Warrants. Warrants to purchase
As a result of the public offering of the Company’s common stock completed in May 2023 (see Note 8), the antidilution provision of the Perceptive Warrants was again triggered resulting in a reduction of the strike price for the Perceptive Warrants. Warrants to purchase
The Company allocated the proceeds of $
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| June 30, | December 31, | ||||
2023 | 2022 | |||||
Notes payable |
| $ | | $ | | |
Debt issuance costs | ( | ( | ||||
Warrant discount | ( | ( | ||||
Total debt | $ | | $ | | ||
Less, current portion | | | ||||
Long-term debt, less current portion | $ | — | $ | — |
The fair value of the warrants and the debt issue costs are being amortized utilizing the effective interest method over the term of the loan. The Company recorded interest expense for the amortization of the fair value of the warrants and debt issue costs of $
8. Stockholders’ Deficit
On January 7, 2022, the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of shares of common stock authorized for issuance from
Reverse Stock Split
On April 10, 2023, the Company filed with the Secretary of State of the State of Delaware a certificate of amendment, or the Certificate of Amendment, to the Company’s Amended and Restated Certificate of Incorporation, which became effective on April 10, 2023. The Certificate of Amendment implemented a -for-50 reverse stock split of the Company’s common stock. On the effective date of April 10, 2023, the number of the Company’s issued and outstanding shares of common stock was decreased from
Shelf Registration Statement
On October 2, 2020, the Company filed a universal shelf registration statement with the SEC for the issuance of common stock, preferred stock, warrants, rights, debt securities and units up to an aggregate amount of $
Public Offerings
In October 2021, the Company completed a public offering of
In July, 2022, the Company completed a best efforts public offering (the “2022 Offering”) in which the Company raised net proceeds of $
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date of issuance, and the Series A-2 warrants are exercisable immediately and will expire
In May 2023, the Company completed a best efforts public offering of an aggregate of
The Company has accounted for the warrants as liabilities, while the pre-funded warrants are classified as a component of permanent equity within additional paid-in capital because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. The Company also determined that the pre-funded warrants should be included in the determination of basic earnings per share in accordance with ASC 260, Earnings per Share.
ATM Sales Agreement
In March 2021, the Company entered into a common stock sales agreement (the “Sales Agreement”) under which the Company may sell up to an aggregate of $
On January 10, 2022, the Company filed a prospectus supplement to its 2020 Shelf Registration Statement registering an at-the-market offering program (the “2022 ATM”) the Company entered into for the sale of up to $
On April 27, 2022, the Company entered into a new at-the-market offering program (the “April 2022 ATM Agreement”) with H.C. Wainwright LLC and Co. (the “Sales Agent”) under which the Company is authorized to sell up to an aggregate of $
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Registered Direct Offering
On March 14, 2022, the Company filed a prospectus supplement to its 2020 Shelf Registration Statement registering a direct offering (the “2022 Preferred Stock Offering”) of
On March 15, 2022,
On April 25, 2022, the Company entered into a letter agreement and waiver (the “Letter Agreement”) with Armistice Capital Master Fund Ltd. (“Armistice”), pursuant to which Armistice consented to the Company entering into and effecting an at-the-market (“ATM”) offering facility. On March 14, 2022, the Company entered into the 2022 Preferred Stock Offering with Armistice, under which agreement, the Company was restricted from entering into and effecting an ATM offering facility until the
Stock-Based Compensation Expense
Stock-based compensation expense was allocated as follows (in thousands):
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2023 |
| 2022 | 2023 |
| 2022 |
| ||||||
Cost of goods sold | $ | $ | | $ | | $ | | ||||||
Research and development | | | | ||||||||||
Selling and marketing | | | | ||||||||||
General and administrative |
|
| |
| |
| | ||||||
Total | $ | $ | $ | | $ |
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9. Income Taxes
Sale of New Jersey Net Operating Losses
The Company has participated in the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) sponsored by The New Jersey Economic Development Authority. The Program enables approved biotechnology companies with unused NOLs and unused research and development credits to sell these tax benefits for at least
10. Commitments and Contingencies
The Company has several firm purchase commitments, primarily related to the manufacture and supply of Twirla and the supply of a field force of sales representatives to provide certain detailing services, sales operation services, compliance services, and training services. Future firm purchase commitments under these agreements, the last of which ends in 2033, total $
In April 2020, the Company entered into a manufacturing and commercialization agreement with Corium (the “Corium Agreement”). Under the Corium Agreement, the Company has a requirement to order quarterly minimum volumes of approximately $
The Company records a provision for contingent losses when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Company's operations or its financial position. As of June 30, 2023, the Company has not recorded a provision for any contingent losses.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Dollars in the text and in tabular format are presented in thousands, except per share data, or as otherwise indicated.
Overview
We are a women’s healthcare company dedicated to fulfilling the unmet health needs of today’s women. We are committed to innovating in women’s healthcare where there continues to be unmet needs – not only in contraception – but also in other meaningful women’s health therapeutic areas. We are focused on our advancement as a commercial company and the growth of our first and only product, Twirla, a once-weekly prescription combination hormonal contraceptive patch.
Twirla, which was approved in February 2020 and launched in early December 2020, is a once-weekly prescription combination hormonal contraceptive patch. It exposes patients to an estrogen dose consistent with commonly prescribed combined hormonal contraceptives, or CHCs, and is lower than the estrogen dose found in other marketed contraceptive patches. We believe there is a market need for a contraceptive patch that is designed to deliver hormonal exposure equivalent to 30 mcg of estrogen and 120 mcg of progestin in a convenient once-weekly dosage form that may support compliance in a noninvasive fashion. Twirla leverages our proprietary transdermal patch technology called Skinfusion®. Skinfusion is designed to allow drug delivery through the skin while promoting patch adhesion and patient comfort and wearability, which may help support compliance.
We are focused on our advancement as a commercial company. During 2023, we plan to continue implementing our commercialization plan for Twirla, with the goal of establishing a growing position in the hormonal contraceptive market. In addition to growing Twirla, we also plan to continue pursuing opportunities to broaden our portfolio to address areas of unmet medical need in women’s health.
Our Strategy
Our near-term goal is to establish a growing franchise in the multi-billion dollar U.S. hormonal contraceptive market built on approval of Twirla in the United States. Our resources are currently focused on the commercialization of Twirla. We also expect to continue exploring possible expansion through business development activities, such as acquiring access to new products through in-licensing, co-promotion or other collaborative arrangements.
Our current priorities are as follows:
● | Continue to manage our available cash and obtain financing to fund our business plan without delay; |
● | Continue to implement our commercialization plans for Twirla to increase uptake of Twirla in the United States, through targeted digital direct to consumer advertising in key markets, growing our telemedicine presence through new partnerships and our existing partnership with Nurx®, and driving growth in the non-retail channel through our collaboration with Afaxys, which provides us access to some of the largest Planned Parenthood organizations in the country; |
● | Continue to expand access to Twirla through multiple business channels including retail and specialty pharmacies, telemedicine, government contracting, and non-retail channels, including public health centers, through our relationship with Afaxys; |
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● | Expand coverage and reimbursement for Twirla in the United States from private and public third-party payors; |
● | Maintain and manage the supply chain for Twirla to support increased commercialization of Twirla across the United States and working through as much existing and future inventory as possible prior to product becoming short-dated; |
● | Reduce our operating loss and continue to progress towards generating positive cash flows; |
● | Evaluate the advancement of our existing pipeline and its possible expansion through business development activities; and |
● | Continue to implement our obligations related to our post-marketing commitment and the post-marketing requirement studies of Twirla. |
It should be noted that the possibility of continued public health threats could adversely affect our ongoing or planned business operations. For example, the coronavirus (“COVID-19”) pandemic previously resulted in federal, state and local governments and private entities mandating various restrictions, including travel restrictions, access restrictions, restrictions on public gatherings, and stay at home orders. The most significant impacts to our business were encountered by sales representatives promoting Twirla in the field, as some offices limited opportunities for face-to-face interactions with healthcare providers. Re-implementation of COVID-19 restrictions, if necessary in the future, may disrupt our business and/or could adversely affect our commercialization plans and results. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including personnel at third-party manufacturing facilities and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timeline presently planned could be materially and adversely impacted. Another shutdown necessitating work in a completely remote environment could result in delays to our business activities and commercialization plan. We will continue to closely monitor events as they develop, and plan for alternative and mitigating measures that we can implement if needed.
Financial Overview
Since our inception in 1997 through 2022, we generated minimal revenue and have never been profitable. Through June 30, 2023, we had an accumulated deficit of $417.9 million. Our net loss was $3.8 million and $5.2 million for the three months ended June 30, 2023 and 2022, respectively and $9.2 million and $15.6 million for the six months ended June 30, 2023 and 2022, respectively. We expect to continue to incur significant operating losses for the foreseeable future as we commercialize Twirla. We have financed our operations primarily through the public offerings of equity securities, convertible preferred stock, term loans and sale of our New Jersey net operating losses. As of June 30, 2023, we had approximately $2.8 million in cash and cash equivalents.
Moving forward, we plan to continue to monitor our cash and cash equivalents balances in an effort to ensure we have adequate liquidity to fund our operations. If we encounter unforeseen factors that impact our current business plan or our ability to generate revenue from the commercialization of Twirla, we believe we have the ability to revise our commercial plans, including curtailing sales and marketing spending, to allow us to continue to fund our operations using existing cash and cash equivalents.
As we develop as a commercial company, we anticipate that our operating expenses will be primarily focused on commercialization activities for Twirla. We also expect a portion of our operating expenses in the future will be related to research and development as we design and conduct our long-term, prospective observational safety study for Twirla, which is a post marketing requirement from the FDA, and evaluate the development of our pipeline. As of June 30, 2023, we have significantly reduced our operating expenses through several measures, including optimizing our sales force, reducing reliance on third-party service providers, reducing our advertising spend, and reorganizing our executive leadership team and general personnel. We are committed to continuing to explore ways to reduce expenses in a manner that allows us to simultaneously focus efforts and available resources on the commercialization, uptake and growth of Twirla. Our ability to reduce our operating loss and begin to generate positive cash flow from operations depends on the continued success in commercializing Twirla and maintaining discipline over our operating expenses. We continue to explore business development opportunities to
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commercialize a second product, and to do so in a way that we believe would contribute to our ability to reduce our operating losses and reduce our time to achieving positive cash flow from operations.
Going Concern
As of June 30, 2023, we had cash and cash equivalents of $2.8 million. We closely monitor our cash and cash equivalents and expect that our current cash will support operations through September 2023.
We have generated losses since inception, used substantial cash in operations, and anticipate we will continue to incur net losses for the foreseeable future. Our future success depends on our ability to obtain additional capital and/or implement various strategic alternatives, and there can be no assurance that any financing can be realized by us, or if realized, what the terms of any such financing may be, or that any amount that we are able to raise will be adequate. If we are unable to raise capital when needed or on acceptable terms, we then will be unable to continue the commercialization of Twirla, be required to cut operating costs, and forego future development and other opportunities. Based upon the foregoing, management has concluded that there is substantial doubt about our ability to continue as a going concern through the 12 months following the date on which this Quarterly Report on Form 10-Q is filed.
We continue to analyze various alternatives, including refinancing alternatives, potential asset sales, and mergers and acquisitions. We cannot be certain that these initiatives or raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, whether through the issuance of equity or convertible debt securities, or any combination thereof, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current stockholders will experience dilution. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates, including Twirla, or grant licenses on terms that may not be favorable to us. If we are unable to obtain funds when needed or on acceptable terms, we then may be unable to continue the commercialization of Twirla and may also be required to further cut operating costs, forego future development and other opportunities, and may need to seek bankruptcy protection.
The unaudited financial statements as of June 30, 2023 have been prepared under the assumption that we will continue as a going concern for the next 12 months. Our ability to continue as a going concern is dependent upon our uncertain ability to obtain additional capital, reduce expenditures, and/or execute on our business plan and continue the commercial growth of Twirla. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We do not own any manufacturing facilities and rely on our contract manufacturer, Corium, for all aspects of the manufacturing of Twirla. We will need to continue to invest in the manufacturing process for Twirla, and incur significant expenses, in order to be capable of supplying projected commercial quantities of Twirla. We have incurred significant expenses in order to create an infrastructure to support the commercialization of Twirla, including sales, marketing, distribution, medical affairs, and compliance functions. We will need to generate significant revenue to achieve profitability, and we may never do so.
Financial Operations Overview
Revenue
To date, we have generated minimal revenue from product sales. In the future, in addition to revenue from product sales, we may generate revenue from license fees, milestone payments or royalties from the sale of products developed using our intellectual property. Our ability to generate revenue and become profitable depends on our ability to successfully commercialize Twirla and any product candidates that we may advance in the future. If we fail to successfully commercialize Twirla, or any other product candidates we advance in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, could be adversely affected.
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For the three months ended June 30, 2023 and 2022, net sales totaled $5.5 million and $2.1 million, respectively, representing the sale of 61,770 units and 21,552 units, respectively. For the six months ended June 30, 2023 and 2022, net sales totaled $9.3 million and $3.9 million, respectively, representing the sale of 105,216 units and 38,370 units, respectively.
Cost of Product Revenues
Cost of product revenues include direct and indirect costs related to the manufacturing of Twirla sold, including packaging services, freight, obsolescence, and allocation of overhead costs that are primarily fixed such as depreciation, salaries and benefits, and insurance. We expect these relatively fixed costs to become less significant as a percentage of sales with anticipated volume increases.
For the three months ended June 30, 2023 and 2022, cost of product revenues totaled $2.3 million and $2.2 million, respectively. For the six months ended June 30, 2023 and 2022, cost of product revenues totaled $4.3 million and $3.8 million, respectively.
Research and Development Expenses
Since our inception and through approval of Twirla by the FDA in February 2020, we focused our resources on our research and development activities. Research and development expenses consist primarily of costs incurred for the development of Twirla and other current and future potential product candidates, and include:
● | expenses incurred under agreements with contract research organizations, or CROs, and investigative sites that conduct our clinical trials and preclinical studies; |
● | employee-related expenses, including salaries, benefits, travel and stock-based compensation expenses; |
● | the cost of acquiring, developing, and manufacturing clinical trial materials, including the supply of our potential product candidates; and |
● | costs associated with research, development, and regulatory activities. |
Research and development costs are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by our third-party vendors.
Historically, research and development activities were central to our business model and to date, our research and development expenses have been related primarily to the development of Twirla. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis, as the majority of our past and planned expenses have been and will be in support of Twirla. Our research and development expenses have reduced significantly over the past three years.
For the three months ended June 30, 2023 and 2022, our research and development expenses were approximately $0.7 million and $0.9 million, respectively. For the six months ended June 30, 2023 and 2022, our research and development expenses were approximately $1.5 million and $2.1 million, respectively. The following table summarizes our research and development expenses by functional area.
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
(In thousands) | (In thousands) | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Clinical development | $ | 35 | $ | 354 | $ | 78 | $ | 802 | ||||
Regulatory |
| 119 |
| 126 |
| 232 |
| 259 | ||||
Personnel related |
| 468 |
| 285 |
| 988 |
| 858 | ||||
Stock-based compensation |
| 81 |
| 91 |
| 168 |
| 194 | ||||
Total research and development expenses | $ | 703 | $ | 856 | $ | 1,466 | $ | 2,113 |
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It is difficult to determine with any certainty the exact duration and completion costs of any of our future clinical trials of Twirla or our current and future potential product candidates we may advance. It is also difficult to determine if, when, or to what extent we will generate revenue from the commercialization and sale of Twirla or our potential product candidates that obtain regulatory approval.
Future research and development costs incurred for our potential product candidates and required post-marketing studies will depend on a variety of factors, including the uncertainties of future clinical trials and preclinical studies, the rate of subject enrollment, access to additional capital, and significant and changing government regulation. For the foreseeable future, we expect the current public health crisis to have a negative effect on the conduct of clinical trials. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the U.S. Food and Drug Administration (“FDA”) or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in enrollment in any of our clinical trials, or experience issues with our manufacturing capabilities, we could be required to expend significant additional financial resources and time with respect to the development of that product candidate. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, coupled with an assessment of each product candidate’s commercial potential. Substantially all of our resources are currently dedicated to continuing to commercialize Twirla.
Selling and Marketing Expenses
Selling and marketing expenses consist principally of the cost of salaries and related costs for personnel in sales and marketing, our contract sales force, brand building, advocacy, market research and consulting. Selling and marketing expenses are expensed as incurred.
For the three months ended June 30, 2023 and 2022, our selling and marketing expenses totaled approximately $4.6 million and $7.4 million, respectively. For the six months ended June 30, 2023 and 2022, our selling and marketing expenses totaled approximately $9.2 million and $18.0 million, respectively. Our commercial launch of Twirla in the United States utilized a contract sales force. We anticipate that our selling and marketing expenses will continue to be significant as our commercialization efforts continue.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance and administrative functions including payroll taxes and health insurance, stock-based compensation and travel expenses. Other general and administrative expenses include facility-related costs, insurance and professional fees for legal, patent review, consulting, and accounting services. General and administrative expenses are expensed as incurred.
For the three months ended June 30, 2023 and 2022, our general and administrative expenses totaled approximately $3.0 million and $3.0 million, respectively. For the six months ended June 30, 2023 and 2022, our general and administrative expenses totaled approximately $6.1 million and $7.0 million, respectively. We anticipate that our general and administrative expenses will stabilize in the future.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and related disclosures. On an ongoing basis, our actual results may differ significantly from our estimates.
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There have been no material changes to our critical accounting policies and estimates from the information discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K, as filed with the SEC on March 23, 2023.
Results of Operations
Comparison of the Three Months Ended June 30, 2023 and 2022
Three Months Ended |
|
| |||||||
June 30, | |||||||||
(In thousands) | |||||||||
| 2023 |
| 2022 |
| Change | ||||
Revenues, net | $ | 5,503 | $ | 2,126 | $ | 3,377 | |||
Cost of product revenues | 2,307 | 2,231 | 76 | ||||||
Gross profit | 3,196 | (105) | 3,301 | ||||||
Operating expenses: |
|
|
|
|
|
| |||
Research and development | $ | 703 | $ | 856 | $ | (153) | |||
Selling and marketing | 4,570 | 7,411 | (2,841) | ||||||
General and administrative |
| 3,049 |
| 3,026 |
| 23 | |||
Total operating expenses |
| 8,322 |
| 11,293 |
| (2,971) | |||
Loss from operations | $ | (5,126) | $ | (11,398) | 6,272 | ||||
Other income (expense) |
|
|
|
|
|
| |||
Interest income |
| 15 |
| 2 |
| 13 | |||
Interest expense |
| (372) |
| (823) |
| 451 | |||
Unrealized gain on warrant liability | 1,674 | 7,051 | (5,377) | ||||||
Total other income, net |
| 1,317 |
| 6,230 |
| (4,913) | |||
Loss before benefit from income taxes |
| (3,809) |
| (5,168) |
| 1,359 | |||
Benefit from income taxes |
| — |
| — |
| — | |||
Net loss | $ | (3,809) | $ | (5,168) | $ | 1,359 |
Revenues. Revenue, net increased by $3.4 million or 159% from $2.1 million for the three months ended June 30, 2022 to $5.5 million for the three months ended June 30, 2023. Unit sales increased by 40,218 units, or 187%, from 21,552 units for the three months ended June 30, 2022, to 61,770 units for the three months ended June 30, 2023. The decrease in the percentage of growth between dollars and units pertains to increased price discounts offered to the non-retail sales channel. Revenue, net consists of sales of Twirla and reflects the shipment of Twirla to specialty distributors, net of estimates for applicable variable consideration, which consist primarily of wholesale distribution fees, prompt pay and other discounts, rebates, chargebacks, product returns, and co-pay assistance programs.
Cost of product revenues. Cost of product revenues were consistent at $2.3 million and $2.2 million for the three month periods ended June 30, 2023 and 2022, respectively, and consists of direct and indirect costs related to the manufacturing of Twirla sold, including third-party manufacturing costs, packaging services, freight, and allocations of overhead costs that are primarily fixed such as salaries, benefits, and insurance.
Research and development expenses. Research and development expenses decreased by $0.2 million, or 18%, from $0.9 million for the three months ended June 30, 2022 to $0.7 million for the three months ended June 30, 2023. This decrease in research and development expenses was primarily due to a decrease in clinical development expenses for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. This decrease reflects a reduction in spending related to our pipeline evaluation and development, a decrease in personnel costs and decreased consulting expense.
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Selling and marketing expenses. Selling and marketing expenses decreased by $2.8 million, or 38%, from $7.4 million for the three months ended June 30, 2022 to $4.6 million for the three months ended June 30, 2023. This decrease in selling and marketing expenses is due to reduced spending on marketing initiatives and the optimization of our contract sales force.
General and administrative expenses. General and administrative expenses were consistent at approximately $3.0 million for each of the three month periods ended June 30, 2023 and 2022, respectively.
Interest income. Interest income comprises interest earned on cash and cash equivalents.
Interest expense. Interest expense is attributable to our term loan with Perceptive and includes the amortization of the discount associated with allocating value to the common stock warrants issued to Perceptive and the amortization of the deferred financing costs associated with the term loan. Interest expense decreased by $0.5 million for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 due to the reduction in the principal amount outstanding on the loan.
Unrealized gain on warrant liability. Unrealized gain on warrant liability reflects the non-cash changes in the estimated fair value of the warrant liability.
Comparison of the Six Months Ended June 30, 2023 and 2022
Six Months Ended |
|
| |||||||
June 30, | |||||||||
(In thousands) | |||||||||
2023 |
| 2022 |
| Change | |||||
Revenues, net | $ | 9,316 | $ | 3,887 | $ | 5,429 | |||
Cost of product revenues | 4,310 | 3,758 | 552 | ||||||
Gross profit | 5,006 | 129 | 4,877 | ||||||
Operating expenses: |
|
|
|
|
| ||||
Research and development | $ | 1,466 | $ | 2,113 | $ | (647) | |||
Selling and marketing | 9,240 | 17,964 | (8,724) | ||||||
General and administrative |
| 6,133 |
| 7,023 |
| (890) | |||
Total operating expenses |
| 16,839 |
| 27,100 |
| (10,261) | |||
Loss from operations | $ | (11,833) | $ | (26,971) | 15,138 | ||||
Other income (expense) |
|
|
|
|
|
| |||
Interest income |
| 48 |
| 3 |
| 45 | |||
Interest expense |
| (773) |
| (1,695) |
| 922 | |||
Unrealized gain on warrant liability | 3,361 | 8,435 | (5,074) | ||||||
Total other income (expense), net |
| 2,636 |
| 6,743 |
| (4,107) | |||
Loss before benefit from income taxes |
| (9,197) |
| (20,228) |
| 11,031 | |||
Benefit from income taxes |
| — |
| 4,675 |
| (4,675) | |||
Net loss | $ | (9,197) | $ | (15,553) | $ | 6,356 |
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Revenues. Revenue, net increased by $5.4 million or 140% from $3.8 million for the six months ended June 30, 2022 to $9.3 million for the six months ended June 30, 2023. Unit sales increased by 66,846 units, or 174%, from 38,370 units for the six months ended June 30, 2022, to 105,216 units for the six months ended June 30, 2023. The decrease in the percentage of growth between dollars and units pertains to increased price discounts offered to the non-retail sales channel. Revenue, net consists of sales of Twirla and reflects the shipment of Twirla to specialty distributors, net of estimates for applicable variable consideration, which consist primarily of wholesale distribution fees, prompt pay and other discounts, rebates, chargebacks, product returns, and co-pay assistance programs.
Cost of product revenues. Cost of product revenues increased by $0.5 million or 15% from $3.8 million for the six months ended June 30, 2022 to $4.3 million for the six months ended June 30, 2023, and consists of direct and indirect costs related to the manufacturing of Twirla sold, including third-party manufacturing costs, packaging services, freight, and allocations of overhead costs that are primarily fixed such as salaries, benefits, and insurance.
Research and development expenses. Research and development expenses decreased by $0.6 million, or 31%, from $2.1 million for the six months ended June 30, 2022 to $1.5 million for the six months ended June 30, 2023. This decrease in research and development expenses was primarily due to a decrease in clinical development expenses of $0.5 million for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. This decrease reflects a reduction in spending related to our pipeline evaluation and development.
Selling and marketing expenses. Selling and marketing expenses decreased by $8.7 million, or 49%, from $18.0 million for the six months ended June 30, 2022 to $9.2 million for the six months ended June 30, 2023. This decrease in selling and marketing expenses is due to reduced spending on marketing initiatives and the optimization of our contract sales force.
General and administrative expenses. General and administrative expenses decreased by $0.9 million, or 13%, from $7.0 million for the six months ended June 30, 2022 to $6.1 million for the six months ended June 30, 2023. This decrease in general and administrative expense was primarily due to lower personnel-related costs due to lower headcount.
Interest income. Interest income comprises interest earned on cash and cash equivalents.
Interest expense. Interest expense is attributable to our term loan with Perceptive and includes the amortization of the discount associated with allocating value to the common stock warrants issued to Perceptive and the amortization of the deferred financing costs associated with the term loan. Interest expense decreased by $0.9 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 due to the reduction in the principal amount outstanding on the loan.
Unrealized gain on warrant liability. Unrealized gain on warrant liability reflects the non-cash changes in the estimated fair value of the warrant liability.
Benefit from income taxes. Benefit from income taxes represents $4.7 million received under the State of New Jersey’s Technology Business Tax Certificate Transfer Program sponsored by The New Jersey Economic Development Authority during the six months ended June 30, 2022.
Liquidity and Capital Resources
At June 30, 2023, we had cash and cash equivalents totaling $2.8 million. We invest our cash equivalents in short-term highly liquid, interest-bearing investment-grade and government securities in order to preserve principal.
The following table sets forth the primary sources and uses of cash for the periods indicated:
Six Months Ended June 30, | |||||||
(In thousands) | |||||||
| 2023 |
| 2022 |
| |||
Net cash used in operating activities | $ | (10,114) | $ | (17,685) | |||
Net cash used in investing activities |
| — |
| (133) | |||
Net cash provided by financing activities |
| 7,653 |
| 11,702 | |||
Net decrease in cash and cash equivalents | $ | (2,461) | $ | (6,116) |
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Operating Activities
Net cash used in operating activities was $10.1 million for the six months ended June 30, 2023 and consisted primarily of a net loss of $9.2 million offset by a $3.4 million unrealized gain on warrants, non-cash stock-based compensation expense of $1.0 million, $0.8 million of other non-cash charges, primarily interest expense, and $0.7 million of positive working capital changes, primarily an increase in accounts payable and accrued expenses and a decrease in deposits. Net cash used in operating activities was $17.7 million for the six months ended June 30, 2022 and consisted primarily of a net loss of $15.5 million, offset by a $8.4 million unrealized gain on warrants, non-cash stock-based compensation expense of $1.4 million, depreciation expense of $1.1 million, $0.9 million of other non-cash charges, primarily interest expense, and $2.9 million of positive working capital changes, primarily a $3.6 million increase in accounts payable and accrued expenses.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2023 was zero. Net cash used in investing activities for the six months ended June 30, 2022 was $0.1 million and consisted of acquisitions of equipment.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2023 was $8.1 million, which consists of net proceeds of $6.5 million from a public offering of common stock and prefunded warrants, $1.7 million from the sale of 178,040 shares of our common stock through an at-the-market, or ATM, sales program partially offset by $0.5 million of principal payments on our debt. Net cash provided by financing activities for the six months ended June 30, 2022 was $11.7 million, which consists of net proceeds of $4.1 million from the sale of preferred stock in a registered offering and proceeds of $12.6 million from the sale of 8,713,125 shares of our common stock through an at-the-market, or ATM sales program, partially offset by a principal payment of short-term debt of $5.0 million.
Funding Requirements and Other Liquidity Matters
We closely monitor our cash and cash equivalents balances, in an effort to ensure we have adequate liquidity to fund the operations of the Company. If unforeseen factors impact our current business plan or our ability to generate revenue from the commercialization of Twirla, we believe we have the ability to revise our commercial plans, including curtailing sales and marketing spending, to allow us to continue to fund our operations. In addition, on October 2, 2020 we filed a universal shelf registration statement with the SEC for the issuance of common stock, preferred stock, warrants, rights, debt securities and units up to an aggregate amount of $200.0 million (the “2020 Shelf Registration Statement”). On October 14, 2020, the 2020 Shelf Registration Statement was declared effective by the SEC.
On January 10, 2022, we filed a prospectus supplement to our 2020 Shelf Registration Statement registering the 2022 ATM we entered into for the sale of up to $50.0 million of shares of our common stock. During the three months ended March 31, 2022, we sold and issued 512 shares of common stock resulting in net proceeds of $0.3 million. On April 26, 2022, we terminated the 2022 ATM Agreement.
On March 13, 2022, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with a single healthcare-focused institutional investor (the “Purchaser”), pursuant to which we issued, in a registered direct offering (the “2022 Preferred Stock Offering”), 2,425 shares of Series A convertible preferred stock (the “Series A Preferred Stock”) and 2,425 shares of Series B convertible preferred stock (the “Series B Preferred Stock”) and Series A warrants (the “Series A Warrants”) to purchase up to an aggregate of 12,125 shares of the common stock of the Company (the “Common Stock”) and Series B warrants (the “Series B Warrants”) to purchase up to an aggregate of 12,125 shares of Common Stock. Each share of Series A Preferred Stock and Series B Preferred Stock has a stated value of $1,000 per share and a conversion price of $400.00 per share. The shares of preferred stock issued in the offering are convertible into an aggregate of 12,125 shares of Common Stock. The Series A Warrants have an exercise price of $520 per share, will become exercisable six months following the date of issuance, and will expire 5 years following the initial exercise date. The Series B Warrants have an exercise price of $520 per share, will become exercisable six months following the date of issuance, and will expire one and one-half years following the initial exercise date. The Purchase Agreement contains customary representations and warranties and agreements of the Company and the Purchaser and customary indemnification rights and obligations of the parties.
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The 2022 Preferred Stock Offering closed on March 14, 2022 and total net proceeds were approximately $4.3 million.
On April 25, 2022, we entered into a Letter Agreement with the Purchaser, pursuant to which the Purchasers consented to us entering into and effecting an ATM offering facility. Pursuant to the Letter Agreement, we issued to the Purchaser the New Warrant, on the same terms and conditions as the Series A Warrants, provided that such New Warrant shall be exercisable into 4,243 warrant shares, subject to adjustment thereunder. The Series A Warrants have an exercise price of $520 per share, will become exercisable six months after the date of the Letter Agreement, and will expire 5 years following the initial exercise date.
On April 27, 2022, we entered into the April 2022 ATM Agreement under which we are authorized to sell up to an aggregate of $12.8 million in gross proceeds through the sale of shares of common stock from time to time in the April 2022 ATM. We agreed to pay a commission of up to 3% of the gross proceeds of any common stock sold under this agreement. Through September 30, 2022, we issued and sold a total of 173,750 shares of common stock under the April 2022 ATM Agreement, representing the entire capacity of the April 2022 ATM, resulting in net proceeds of approximately $12.2 million. On August 22, 2022, we increased the April 2022 ATM (“August 2022 ATM”). As increased, we were eligible to offer and sell, from time to time through the Sales Agent, shares of our common stock having an aggregate offering price of up to $75.0 million. During the year ended December 31, 2022, we issued and sold 78,852 shares of common stock under the August 2022 ATM resulting in net proceeds to us of approximately $0.9 million. During the six months ended June 30, 2023, we issued and sold 150,862 shares resulting in net proceeds of approximately $1.7 million. On April 12, 2023, we filed a prospectus supplement to our registration statement on Form S-3 for the August 2022 ATM verifying that we were then eligible to sell up to $4.5 million worth of shares through our ATM.
On July 6, 2022, we completed a best-efforts public offering (the “Offering”) in which we raised net proceeds of $22.0 million through the sale of 382,966 shares of common stock and 150,366 pre-funded warrants (“Series B pre-funded warrants”) to purchase 150,366 shares of common stock. Both the sales of shares of common stock and pre-funded warrants were accompanied by Series A-1 and Series A-2 warrants (together the “Series A warrants”) to purchase shares of common stock. The Series A-1 warrants are exercisable immediately and will expire five years from the date of issuance, and the Series A-2 warrants are exercisable immediately and will expire thirteen months from the date of issuance. H.C. Wainwright acted as the exclusive placement agent in connection with the Offering and, as compensation, received a cash fee of 7% of the aggregate proceeds raised in the Offering. We also issued to certain designees of H.C. Wainwright warrants to purchase up to 26,666 shares of commons stock with an exercise price of $56.25 per share.
On May 25, 2023 we completed a best efforts public offering (the “ May 2023 Offering”) in which we raised net proceeds of $6.5 million through the sale of 1,896,286 shares of common stock (or pre-funded warrants in lieu thereof). Both the sales of shares of common stock and pre-funded warrants were accompanied by Series C-1 and Series C-2 warrants (together the “Series C warrants”) to purchase shares of common stock. The Series C-1 warrants are exercisable immediately and will expire five years from the date of issuance, and the Series C-2 warrants are exercisable immediately and will expire eighteen months from the date of issuance. H.C. Wainwright acted as the exclusive placement agent in connection with the Offering and, as compensation, received a cash fee of 7% of the aggregate proceeds raised in the Offering. We also issued to certain designees of H.C. Wainwright warrants to purchase up to 94,814 shares of commons stock with an exercise price of $4.9439 per share (the “Placement Agent Warrants”). The Placement Agent Warrants expire on the fifth anniversary from the date of the commencement of sales in the May 2023 Offering
We believe we may have the potential to access additional capital through the 2022 ATM, selling additional debt or equity securities or obtaining a line of credit or other loan as required.
We expect to continue to incur significant operating expenses for the foreseeable future in connection with our ongoing activities as we:
• | maintain a sales and marketing infrastructure and contract manufacturing arrangement to support the continued commercialization of Twirla in the United States; |
• | continue to commercialize Twirla and seek increased uptake of Twirla in the United States; |
36
• | continue to evaluate additional line extensions for Twirla and initiate development of potential product candidates in addition to Twirla; |
• | maintain, leverage and expand our intellectual property portfolio; and |
• | maintain operational, financial and management information systems and personnel, including personnel to support our product development and future commercialization efforts. |
We may also need to raise additional funds if we need to change components of our commercial plan or if we encounter any unforeseen events that affect our current business plan, or we may choose to raise additional funds to provide us with additional working capital. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional capital when needed or on attractive terms or are unable to enter into strategic collaborations, we then may be unable to successfully commercialize Twirla and may also be required to further cut operating costs, forego future development and other opportunities or even terminate our operations, which may involve seeking bankruptcy protection. Because of the numerous risks and uncertainties associated with such developments, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the commercialization of Twirla. Our future capital requirements will depend on many factors, including:
• | the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for Twirla; |
• | the revenue received from commercial sales of Twirla; |
• | the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and |
• | the costs associated with any potential business or product acquisitions, strategic collaborations, licensing agreements or other arrangements that we may establish. |
We do not have any committed external source of funds. Until such time, if ever, as we can generate substantial cash flows from product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements.
Contractual Obligations and Commitments
In April 2020, we entered into a Manufacturing and Commercialization Agreement (the “Corium Agreement) with Corium Innovations, Inc., (“Corium”) which replaced our previous development agreement. Pursuant to the Corium Agreement, Corium will manufacture and supply all of our product requirements for Twirla at certain specified rates. Under the terms of the Corium Agreement, Corium is to be the exclusive supplier of Twirla for ten years. The Corium Agreement included a quarterly minimum purchase commitment and a fixed price per unit for two years from December 2020, the date of the first commercial batch purchase order invoice, depending on annual purchase volume. During 2021, we did not meet all of our minimum quantity purchases from Corium, and as a result, paid penalties as required by our agreement with Corium. On July 25, 2022 we, along with Corium, amended the Corium Agreement to restructure the minimums applicable to the purchase of manufactured Twirla and to extend the term of the Corium Agreement until December 31, 2033. The Corium Agreement terminates automatically on December 31, 2033, but may be terminated for any reason upon the written mutual agreement of both parties; provided, however, that the parties must confer in good faith regarding possible mutual termination. In the event of such termination, we may still affect purchase orders after the notice of termination is given and until the time any such termination becomes effective. As of June 30, 2023, the minimum amount committed totals $229.3 million.
In April 2020, we entered into a project agreement with inVentiv Commercial Services, LLC, or inVentiv, a Syneos Health Group Company, which we refer to as the Syneos Agreement, under our Master Services Agreement with inVentiv. Pursuant to the Syneos Agreement, inVentiv, through its affiliate Syneos Selling Solutions, will provide a field force of sales representatives to provide certain detailing services, sales operation services, compliance services, and training services with respect to Twirla to us in exchange for an up-front implementation fee and a fixed monthly fee. Effective February 1, 2022, we entered into an amendment to the Syneos Agreement that extended the term until August 23, 2024. At that time, the Syneos Agreement will terminate automatically
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unless extended upon the mutual written agreement of the parties. We may terminate the Syneos Agreement for any reason upon timely written notice without incurring a termination fee. As of June 30, 2023, the minimum amount committed totals $2.4 million.
Our operating lease commitment relates to our lease of office space in Princeton, New Jersey. The lease for this space commenced in December 2021, and the minimum payments over the remaining 21-month term totals $0.7 million as of June 30, 2023.
Recent Accounting Pronouncements
See Note 2 to our financial statements that discusses new accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to market risks in the ordinary course of our business. Market risk is the risk of change in fair value of a financial instrument due to changes in interest rates, equity prices, financing, exchange rates or other factors. These market risks are principally limited to interest rate fluctuations.
We had cash and cash equivalents of $2.8 million and $5.2 million at June 30, 2023 and December 31, 2022, respectively, consisting primarily of funds in cash and money market accounts. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10.0% increase in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.
Our results of operations and cash flows are subject to fluctuations due to changes in interest rates. We do not believe that we are materially exposed to changes in interest rates. We do not currently use interest rate derivative instruments to manage exposure to interest rate changes. We estimate that a 1% unfavorable change in interest rates would not have a material effect on interest expense for the six months ended June 30, 2023.
Inflation Risk
Inflation generally affects us by increasing our cost of labor and pricing of contracts and agreements. We do not believe that inflation had a material effect on our business, financial condition, or results of operations during the six months ended June 30, 2023.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective, at the reasonable assurance level, in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act 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. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2022, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective to ensure that the
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information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, due to the material weakness in our internal control over financial reporting described below.
Management has concluded that there is a material weakness in the review procedures related to complex securities including the determination of liability versus equity treatment of certain warrants. Management has concluded that there is a material weakness in the design and operating effectiveness of the Company’s review procedures related to complex securities. The reviewer had insufficient resources supporting the assessment of the complex securities accounting model and the review procedures were not performed at a level of precision to prevent or detect a material misstatement on a timely basis in the normal course of the review. Based on this assessment, management believes that our internal control over financial reporting was not effective as of December 31, 2022.
Changes to Internal Control Over Financial Reporting
Aside from the June 21, 2023 appointment of a Senior Vice President, Chief Financial Officer and Treasurer of the Company, effective August 16, 2023, which was previously disclosed, there have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation Plan for Material Weakness
Management has actively initiated remediation efforts to address the material weakness. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We plan to further improve this process by enhancing access to accounting literature and identification of third-party accounting professionals with whom to consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
Part II: Other Information
Item 1. Legal Proceedings.
We are not currently subject to any material legal proceedings.
Item 1A. Risk Factors.
The following risk factor should be considered in addition to our risk factors previously reported in our Annual Report on Form 10-K for the year ended December 31, 2022.
We are not in compliance with the Nasdaq continued listing requirements. If we are unable to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock could be delisted, which could affect our common stock's market price and liquidity and reduce our ability to raise capital.
On March 27, 2023, we received a deficiency letter from Nasdaq notifying us that we are not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(b)(1) requires companies listed on the Nasdaq Capital Market to maintain stockholders’ equity of at least $2,500,000 (the “Stockholders’ Equity Requirement”). Our Annual Report on Form 10-K for the fourth quarter and year ended December 31, 2022 reported stockholders’ equity of $(5,545,000), which is below the Stockholders’ Equity Requirement for continued listing on the Nasdaq Capital Market. As of the date of this filing, the Company does not have a market value of listed securities of $35 million, or net income from continued operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years, the alternative quantitative standards for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq rules, we were provided 45 calendar days from the receipt of the Nasdaq notification, or until May 11, 2023, to submit a plan to regain compliance (the “Compliance Plan”). We submitted that plan on May 11, 2023. If the Compliance Plan is acceptable to Nasdaq, they may grant an extension of 180 calendar days from the date of the Nasdaq notification to regain compliance with the Stockholders’ Equity Requirement.
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On June 2, 2023, we received a letter (the “Extension Notice”) from Nasdaq notifying us that we had been granted an additional 180-day period, or until September 25, 2023, to regain compliance with Nasdaq Listing Rule 5550(b)(1). Pursuant to the Extension Notice, we must demonstrate compliance with Nasdaq Listing Rule 5550(b)(1) on or before September 25, 2023, by furnishing to the Securities and Exchange Commission (the “SEC”) and Nasdaq certain information and representations on a Current Report on Form 8-K, among other obligations. If, after submitting this information to the SEC and Nasdaq as described in the Extension Notice, we fail to evidence compliance with Nasdaq Listing Rule 5550(b)(1) upon filing our Form 10-Q for the quarter ended September 30, 2023, we may be subject to delisting from Nasdaq.
In the event we fail to regain compliance, Nasdaq will issue a delisting notice, at which time we would have the right to a hearing before an independent panel. The hearing request would halt any suspension or delisting action pending the conclusion of the hearing process and the expiration of any additional extension period granted by the panel following the hearing.
We intend to monitor our stockholders’ equity and, if appropriate, consider further available options to regain compliance with the Stockholders’ Equity Requirement. There can be no assurance that we will regain compliance or otherwise maintain compliance with any of the other listing requirements.
If our securities are delisted, it could be more difficult to buy or sell our securities and to obtain accurate quotations, and the price of our securities could suffer a material decline. Delisting could also impair the liquidity of our common stock and could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in potential loss of confidence by investors, employees, and fewer business development opportunities.
Item 5. Other Information
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits.
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which is incorporated herein by reference.
Exhibit Index
Exhibit | ||
Number |
| Description of Document |
3.1 | ||
4.1 | ||
4.2 | ||
4.3 | ||
4.4 | ||
4.5 | ||
4.6 | ||
4.7 | ||
4.8 | ||
4.9 | ||
4.10 | ||
10.1 | ||
10.2 | ||
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10.3* | ||
31.1 | ||
31.2 | ||
32.1** | ||
32.2** | ||
101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023 formatted in Inline Extensible Business Reporting Language (XBRL): (i) Balance Sheets, (ii) Statements of Operations, (iii) Statements of Stockholders’ Equity (Deficit), (v) Statements of Cash Flows, and (vi) the Notes to Financial Statements. | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Indicates management contract or compensatory plan or arrangement.
** The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates them by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 9, 2023 | Agile Therapeutics, Inc. | |
By: | /s/ Alfred Altomari | |
Alfred Altomari | ||
President and Chief Executive Officer | ||
Date: August 9, 2023 | ||
By: | /s/ Jason Butch | |
Jason Butch | ||
Vice President and Chief Accounting Officer |
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