TherapeuticsMD's Business Model Affirms Additional Dilution Is Practically Certain In FY2020

Jan. 09, 2020 9:34 AM ETTherapeuticsMD, Inc. (TXMD)100 Comments5 Likes

Summary

  • TXMD's EV is off ~43% from September peaks due to an ~11% dilution enacted in October. Subsequent press release noting cash runway into FY2021 is not consistent with operational/expense infrastructure & responsible liquidity management.
  • Annualized Q32019 operating expenses were north of $200MMM. TXMD spent $100MM in non-payroll SG&A expenses the last year versus a $3MM Annovera Q42019 commercial launch revenue target & Bijuva disappointment.
  • FY2020 and FY2021 TXMD revenue estimates continue to fall. Not 1 insider has purchased stock since falling 20%+ from last financing suggesting internal confidence is low.
  • Should FY2020 revenues equal $107MM (the average analyst estimate), gross margins of 87.5%, and operating expenses average approximate Q32019 actuals would lead TXMD to still burn over $440,000 per business day in 2020.
  • Simple cash flow analysis concludes another dilutive event is certain should TXMD not secure "more than $50MM" in committed non-dilutive financing, "blow away" revenue forecasts and/or drastically lower operating expenses.

Our analysis concludes TXMD's operating cash burn, total and non-payroll related SG&A spending and seemingly unending dilution uncertainty has lead to continued share price losses. Our analysis concludes dilution is certain again in 2020 after TXMD lost a $50MM non-dilutive lender commitment which, remarkably, was presented as a win for the Company. Even worse, our analysis concludes TXMD may have to dilute as soon as March/April 2020 if they do not secure the 1 remaining $50MM tranche of non-dilutive debt from TSSP (TXMD's lender).

TXMD's CEO also warned investors that the company would need to raise additional capital well before TXMD's loss of the second $50MM tranche from TSSP (the tranche due should the FDA have designated Annovera a new method of birth control by 12/31/2019) in the Q3 earnings call (beginning 23 minutes 41 seconds when TXMD's CEO avoided answering a direct question from the second analyst caller named Sudan Loganthan, on for Louise Chen from Cantor Fitzgerald) about TXMD's cash runway. Our analysis concludes that for Q4 2019 TXMD likely burned $60MM of the $77MM raised in Q42019 unless revenues are much higher than $13MM expected (at an 85% margin), operating expenses were dramatically reduced from Q32019 actuals of ~$52MM and/or TXMD did not make the $20MM payment to the Population Council (discussed below). Therefore TXMD might end Q42019 with only ~$17MM more liquidity than when it started (even technically $33MM in lower liquidity if one were to include the loss of a $50MM commitment investors hoped would be extended) while Bijuva productivity dramatically disappoints investors.

Today TXMD's share price is almost half what it was in September 2019 (one month before the unannounced financing). Considering the overwhelming evidence TXMD will dilute shareholders again absent dramatic changes, our analysis concludes shareholders should consider requesting TXMD's BOD seek alternate strategies to enhance shareholder value or face additional losses.

The following is an overview of TXMD's share price over the last 4 years:

TXMD's share price at the time this article was submitted (1/7/2020) has continued to drift even lower to $2.26 per share.

Company Background

TXMD is a women's health care company founded in 2008 that, after years of clinical development & regulatory submissions, owns or has a license to sell 3 products recently approved by the FDA that each offer compelling if not overwhelming clinical, convenience, financial and, most important, safety value propositions versus current like therapies. All 3 products have been made commercially available within the last 6 quarters. TXMD's first commercial product, Imvexxy, was launched at commercial scale 18 months ago. TXMD's second product Bijuva, was "soft-launched" last April then allegedly launched at "commercial scale" just weeks ago. TXMD's third product Annovera is/was supposed to be launched at commercial scale in January 2020. All products compete in multi-billion dollar markets. Eight third party analysts as well as the author concur TXMD product revenues will grow exponentially in FY2020 from approximately $30MM in FY2019 ($30MM in 2019 revenues exclude one-time license revenue of ~$15MM). 2 of TXMD's 3 products are hormone replacement therapies that not only offer compelling clinical and safety value propositions but are in drastic shortages outside of the United States (read here). For example, chronic HRT shortages in the UK have women there desperate to the point of practically rioting for action by UK regulators.

TXMD has licensed its 2 owned products, Imvexxy and Bijuva, to be sold globally via Knight Therapeutics in Canada & Israel and Theramex in the rest of the world. Our analysis will exclude any contribution from overseas as overseas sales contributions (while potentially substantial) are years away.

TXMD was recently forced to raise ~$77MM, allegedly due to circumstances beyond its control, by selling nearly 30 million shares of its 1 class common stock (outstanding) at $2.75/share in a 10/24/2019 secondary offering that diluted shareholders approximately 11%. Since the financing TXMD continues to trade lower (at times below $2.20/share). However, 6 weeks before the 10/24/2019 offering TXMD traded as high as $4.30/share (intra-day) resulting in an enterprise valuation at the time of approximately $1.16Billion (pre-Bijuva disappointment). Also at this time, popular investor type websites like Yahoo Finance were posting pro-TXMD investment articles including a piece about TXMD being one of three commercial biotechs whose share price could triple in 2020 from ~$4/share at the time. Today (January 7, 2019) TXMD's enterprise valuation at ~$2.40 per share stands at $688MM for a net decline of approximately 43% from the pre-financing peak.

TXMD Enterprise Valuations

Since the 10/24/2019 financing, TXMD's underlying business model and long term outlook appear to have only improved as non-sales productivity related commercial accomplishments continued to mount and business model uncertainties continued to lapse without adverse consequence. With the possible exception around Bijuva insurance coverage in the short term, financing/dilution in the 6-9 month term and manufacturing capacity of 1 product, there a few material uncertainties remaining in TXMD's business model (to be crystal clear business execution risks are higher than ever as sales have disappointed investors). There were two minor balance sheet related risks but the $77MM equity raise was anticipated to abate them (the 2 minor balance sheet related risks...though based on the 20%+ losses in TXMD's share price since the 10/24/2019 financing it appears not). Taking these data points by themselves (and more important assuming traders & TXMD insiders are unaware of material adverse changes to TXMD's business to which the general investing public is not), it is only logical to conclude that the drop in TXMD's share price is overdone. Patient investors should therefore consider taking advantage of TXMD's recent share price decline as there are, without a doubt, considerable values in TXMD's product suite and business model with a competent and experienced marketing & sales organization.

TXMD's 3 FDA approved products will eventually generate ~90% gross margins once commercial insurance coverage is fully in place. TXMD also sells $8 - $12MM/year worth of legacy vitamin products that have minimal strategic value to TXMD moving forward. For purposes of this analysis we will completely ignore the contribution of these legacy vitamin products that produced historical gross margins of ~80/85% except for cash flow forecasting purposes. Lastly, there are no regulatory nor clinical related uncertainties with the FDA pending on any TXMD product on the market outside of 1 submission for a new dosage of Bijuva.

Operating Expenses and Cash Burn Issues

Our analysis below, sourced from TXMD respective FY201810K and 10Q's, notes:

1. TXMD's operating cash burn (operating revenues minus operating expenses) was greater than $163MM for the preceeding 12 months (Q42018 through Q32019) excluding a one-time or non-recurring fee of $15MM.

2. TXMD's cash related operating expenses exceeded $52MM for Q32019 which approximates $208MM+ annualized.

3. TXMD spent just under $100MM in annual non-payroll related SG&A expenses for the most recent 4 quarters ending 9/30/2019.

These are calculated as follows:

SOURCES: TXMD FY2019 10K, Q12019 10Q, Q22019 10Q and Q32019 10Q

As a perspective, if FY2020 average analyst revenue estimates are right at $107MM, gross margin averages 87.5% (higher than recent averages) and quarterly expenses are flat from Q32019 actuals of $52.2MM, TXMD will still burn a projected $443,000 per business day in FY2020 (an astonishing amount considering it's been 18 months since its first commercial shipment) calculated as follows:

TXMD maintains 10 executives with the word "Officer" (or more senior) in their job titles. The author suggests the reader review TXMD's Leadership page on their website for more information about each executive's commercial experience. Also, of the 10 employees with the word "Officer" or better in their job titles, only 3 (or maybe 4) appear commercially focused. Our analysis concludes 10 Officers for a company TXMD's size appears excessive. The following is an overview of what TXMD presents as its executive team:

Analysis of Low ROI:

DATA POINTS FOR ROI Analysis

  • Prior 12 month cash related expenses: $182MM (see above)
  • Q32019 cash operating expenses of $52MM annualized: $208MM
  • Prior 12 month operating cash burn: $163MM (see above)
  • Q42019 FDA product revenue target: $11MM (TXMD Investor Presentation page 4)
  • Q42019 Annovera revenue target: $3MM
  • Q42019 total FDA product revenue target: $11MM
  • Average FY2020 professional analyst revenue target: $107MM (Seeking Alpha and Yahoo Finance)
  • FY2020 estimated cash burn: $115MM (noted above ROI)

As noted TXMD spent $182MM the last 12 months in operating expenses, burned $163MM over the period and is on track to spend $208MM (should expenses stay flat) on operating expenses in 2020 based on actual Q32019 expenses annualized. In FY2020 TXMD will burn $115MM if revenue estimates of $107MM are accurate and expenses increase only marginally as noted above. TXMD will burn almost a collective $300MM between 2019 & 2020 versus a $3MM Q42019 Annovera revenue target, $11MM Q42019 FDA product revenue target and a $107MM FY2020 total revenue target (the FY2020 target includes the legacy vitamins). We lack the data to estimate ROI longer term but common sense suggests it is at least 5 years before TXMD recovers its investments. Annovera's market exclusivity period expires 8/2023 and Imvexxy's/Bijuva's patents expire in 2032. This is one reason why it is a common strategy for BODs and CEOs, who consider maximizing shareholder value their primary obligation, to sell or partner once becoming a commercial enterprise.

Cash and Cash/Liquidity Forecasts

As of 9/30/2019, TXMD had $155MM in cash & cash equivalents per its Q32019 10Q. TXMD closed an unanticipated 10/24/2019 financing that resulted in net proceeds of $77MM. Hence, for cash flow forecasting purposes TXMD, in substance, started Q42019 with a net $232MM in cash. TXMD's lender, "TSSP", committed another $50MM tranche in non-dilutive financing should TXMD's Q42019 FDA product revenues exceed $11MM. TXMD has told investors several times in Q42019, as late as 12/18/2019's investor presentation, that TXMD was on track to exceeding the $11MM target entitling TXMD to the remaining $50MM tranche from TSSP in Q1 2020 (SOURCE: TXMD December 18, 2019 Investor Presentation page 4).

TXMD's Q3 2019 earnings press release then noted TXMD had enough liquidity to take TXMD to "beyond FY2020." Our cash flow analysis below concludes this statement may be technically accurate but as a practical matter misleading because TXMD has an obligation not to allow its cash & liquidity balances to get too low. Our analysis below shows, if 3rd party revenue estimates are correct and expenses grow only slightly, TXMD will seek another financing by the end of Q3 2020 (assuming TXMD secures the remaining $50MM tranche of non-dilutive debt from TSSP in Q1 2020). Should TXMD not secure the $50MM tranche of non-dilutive debt from TSSP in Q1 2020, then another financing is certain as early as March/April 2020 (and if so soon as then perhaps as low as $1.something per share as the slide in share price would likely accelerate with a Q42019 revenue miss). When TXMD provides its own FY2020 revenue estimates, investors will be able to model the approximate date of the next dilutive event with more clarity. It is possible TXMD provides revenue guidance considerably lower or higher than the average of 8 professional analysts. TXMD provided FY2019 guidance on 2/20/2019 which suggests TXMD will do so around the same time in 2020.

The imminent questions facing TXMD's share price & valuation in 2020 are:

1. Will TXMD generate at least $11MM in Q42019 FDA product revenues? The consequences for missing $11MM are so dire they cannot be over-emphasized. Should TXMD not do $11MM in Q42019 FDA product revenues, TXMD is not entitled to a $50MM tranche of non-dilutive debt from TSSP (SOURCE: TXMD December investor presentation) and will need to raise additional capital (most likely dilutive) by April 2020 at the latest at depressed, if not suppressed, prices. Even worse, TXMD's CEO has continually assured investors throughout Q42019, even as recently as 12/18/2019, that $11MM in Q42019 FDA product revenue was essentially in the bank. Missing the $11MM milestone after such continual assurances will erase, perhaps permanently, any remaining credibility TXMD's CEO has with investors and/or likely Wall Street at large.

2. How quickly can TXMD grow revenues? The average 3rd party analyst TXMD FY2020 revenue estimate is now only $107MM per Seeking Alpha and Yahoo Finance (one year ago the average FY2020 revenue estimate was north of $250MM). If TXMD continues to spend over $50MM per quarter on operating expenses, and, assuming a 90% gross margin, simple math affirms TXMD will need to generate over $55MM in revenues per quarter, or $220MM per year, just to break even from a cash perspective. The average 3rd party FY2021, again FY2021, revenue estimate is $260MM. One FY2021 revenue estimate is almost ~$400MM, that our analysis concludes based on sales to date, is now impossible because TXMD has since told investors Bijuva's commercial launch will take longer than thought. Should TXMD continue to not meet its own targets, revenues will potentially still not be high enough to break even in 2021 (especially if operating expenses continue to rise). Simply put, TXMD will have to grow revenues dramatically faster than professional analysts predict (or dramatically reduce expenses) or else TXMD will be unable to break even until FY2022. This may result in serial dilution.

3. Can TXMD control excessive and rising SG&A spending? At some point in Q22019, TXMD's CEO suggested SG&A expenses at the time (approximately $35MM/quarter) could adequately "scale" the company. The TXMD's CEO statement did not define how high or far TXMD's infrastructure could scale the Company. Unfortunately, TXMD's SG&A expenses have since continued to rise exceeding $45MM by Q32019. Should expenses continue to rise TXMD's "break even" revenue target will continue to increase.

4. Can TXMD's CEO regain credibility with investors and Wall Street at large? There were 9 instances over the last 8 months where TXMD's CEO made certain statements that either were not delivered, disappointed investors and/or were otherwise commercially outrageous (such as suggesting TXMD had $332MM in potential equivalent liquidity as of 10/1/2019, positioning the loss of a $50MM non-dilutive lender commitment as a win for TXMD and/or suggesting TXMD's share price, after years of losses, will "definitely work itself out" as if by magic). TXMD's CEO (and therefore TXMD's BOD by association) credibility issues may or may not explain why TXMD's trades at much lower forward looking revenue multiples than peers. If the low share price is not due to TXMD credibility issues than our analysis concludes the professional investment community may still not believe 3rd party professional analyst revenue forecasts. In such a case if the analysts are right and revenue targets are overstated then dilution will come even sooner. TXMD's CEO CV as noted on the Leadership section on TXMD's website shows no business education whatsoever and no practical experience running a commercial company (nor building a company-wide performance based sales culture).

On December 18, 2019 TXMD issued an 8K assuring investors TXMD was "on track" to doing at least $11MM in Q42019 FDA product revenues. At the same time TXMD has told investors TXMD is NOT ABLE to track nor report actual quarter to date Annovera sales. This glaring inconsistency, perhaps coupled with the CEO's credibility issues, may have been the reason the share price did not rise on what should have otherwise been perceived as good news.

5. Will TXMD's share price grow proportionally as revenues grow? Even the most pessimistic 3rd party FY2020 revenue estimate forecasts exponential revenue growth from FY2019. TXMD trades at about 6 times the average forward looking (FY2020) revenue estimate where peers as noted by Seeking Alpha trade at much higher multiples (see table below). Other commercial biotechs, with lower 5 year CAGR forecasts than TXMD, trade as high as 20 times FY2020 revenue estimates. Hence even if TXMD continues to trade at only 6 times its forward looking revenue estimate, TXMD should eventually move up to a $1.4Billion valuation (very roughly double today's valuation) one year from now should average FY2021 revenue estimate hold at $260MM.

Even TXMD's CEO did not dispute additional capital will be necessary well before TXMD lost a $50MM non-dilutive commitment from TSSP. Hence a higher TXMD valuation will likely not transform to a proportional share price gain. Share price gains would depend on the extent of additional dilution of current shareholders.

Our analysis concludes shareholders should request TXMD present their internal analysis that concludes shareholder value is maximized by allowing the company to continue to run itself versus an outright sale of TXMD right now. Based on the author's experience with other public companies, even the simple assurance that TXMD will explore other strategies to enhance shareholder value in 2020 (if the share price continues below say $2.50/share indefinitely) would likely send the share price soaring.

The following is a list of TXMD peers per Seeking Alpha. The peers circled appear to be the more appropriate for comparing revenue multiples because market caps and enterprise values are closer to TXMD.

Table reflecting peer multiples:

Our analysis concludes a pool of only 2 peers is not conclusive. However, as noted above our analysis also considered other commercial biotechs, with lower 5 year forecasted revenue CAGRs, trade at higher multiples (some as high as 20 times FY2020 forecasted revenues.

Unending Dilution Uncertainty

It's important to understand why another dilution in 2020 is almost certain should the average FY2020 revenue estimate of $107MM be more or less accurate and operating expenses rise only marginally. As noted TXMD started Q42019 with $232MM cash and a likely $50MM non-dilutive tranche of debt from TSSP.

TXMD may not allow their liquidity to become too low (this would be grossly irresponsible should the share price, for example, collapse to less than $1 due to an unrelated catastrophic event like a war with Iran). The only open question is what the lowest cash balance TXMD will responsibly allow before diluting shareholders again. Of course it will depend on facts & circumstances at the time but a commercially reasonable directional assumption would be TXMD’s restricted cash requirements per the TSSP loan obligation ($50MM now or $60MM if the additional $50MM tranche is earned) plus ~4 months operating expenses ($60 - $70MM) for a total of $110MM to $130MM. In TXMD's first investor presentation (page 10) after the 10/24/2019 financing, TXMD gave us a hint of their perspective with the slide below. It is the author's opinion (not a fact) that this was a strong hint of what point TXMD perceives as the lowest responsible liquidity before diluting shareholders again.

For purposes of this analysis, we will assume once TXMD’s cash balance gets to approximately $120MM TXMD will seek another potentially dilutive financing (remember it was $155MM just 3 months ago). We will also show TXMD in Q42019 will burn at least $60MM of the $77MM raised 10/24/2019 should expenses just stay flat at $50MM (but much more if operating expenses continue to increase). Again and only to be clear our analysis concludes TXMD will burn approximately $60MM of the $77MM raised in Q42019 should total revenues approximate $13MM at an 83% margin, non-COGS operating expenses total more than $50MM again and if TXMD paid the Population Council $20MM as owed (a non-recurring obligation). We then need to determine exactly when will TXMD hit the $120MM cash balance. It is first important to re-iterate TXMD’s FDA products all produce gross margins of 90% or more once fully adjudicated (the author encourages readers to review TXMD investor presentation around insurance adjudication for themselves).

Since TXMD has yet to produce material revenues we are unable to assess how much SG&A expenses will increase proportionally to sales in the future (i.e. does TXMD incur 10% in incremental SG&A expense for every incremental dollar in sales or for every 1,000 prescriptions…is it 20%?...is it 35%?...we do not know). For now we shall assume TXMD’s CEO knew the business well enough when TXMD's CEO suggested SG&A expenses at the time (~$35MM in Q1 2019) could adequately scale the company.

Now that we can provide commercially reasonable estimates of:

  1. TXMD forecasted expenses using most recent actuals as a guide. We can/should assume commercially reasonable increases to recent actual operating expenses.
  2. TXMD revenue forecasts for Q4 2019 using the low end of TXMD’s guidance ($13MM in total including vitamin sales). For FY2020 we will use the average revenue estimate of professional estimates…or $117MM (at the time this analysis was initially prepared). The author would remind readers the average revenue forecast is now $107MM.
  3. TXMD gross margin estimates of approximately 90%.
  4. 2 possible assumed available cash/liquidity balances (one assumes TXMD gets the $50MM tranche from TSSP ($10MM of which is restricted) for doing $11MM in Q42019 FDA product revenues and a second assuming TXMD does not get an additional $50MM tranche from TSSP. We now know TXMD has no commitment from its lender for any additional non-dilutive loans (of course this may change).
  5. TXMD minimum cash balance requirements noted above. Again we’ll use $120MM.

With these basic/directional assumptions we are able to forecast TXMD cash balances as follows:

To reiterate, without immediate changes TXMD’s liquidity situation is potentially serious and imminent (imminent meaning within less than 1 year). Hence our analysis concludes it is almost certain TXMD will seek additional financing in Q2 2020 if TXMD does not get the 1 remaining tranche of $50MM debt from TSSP in Q12020 (or in the latter half of FY2020 if TXMD does get the 1 remaining $50MM tranche from TSSP in Q1 2020) unless TXMD is able to do a mix of the following:

  1. Drastically reduce operating expenses from recent actuals. Since we have no visibility into TXMD’s expenses we are unable to assess the disruption to TXMD’s business by doing so.
  2. Grow revenues materially faster/higher than what the average of 8 professional analysts predict in FY 2020 ($117MM for the purposes of the cash flow analysis above but really now $107MM today). The author should note that TXMD will likely provide its FY2020 revenue guidance in late February 2020 (FY2019 revenue guidance was provided on 2/20/2019).
  3. Obtain non-dilutive, or minimally dilutive, subordinated debt or a PIPE (that does not spook investors).
  4. One way or another is able to restructure its loan agreement with its current lender (perhaps by waiving the prepayment penalty allowing a new lender to take out TXMD's current lender).

Before getting to TXMD's product suite to assess the likelihood of TXMD materially beating the average 2020 revenue estimate, it is important to consider it is just as likely TXMD's BOD and CEO will seek to sell TXMD in the near future. TXMD's CEO (and co-founder) sold his last company named Care Fusion just 4 years after it was founded. However, it is important to remember before TXMD can be sold it is the author's experience TXMD will need to demonstrate to a buyer the following for all 3 products:

1. The products actually sell and the sales cycle works (user feedback is reasonable...the kinks in order & fulfillment have been worked out...and payments to TXMD are more or less being remitted to terms).

2. Products can reliably and consistently be manufactured at commercial scale. We do not know this for certain for Annovera yet...we should by February 2020.

3. Commercial and Medicare Part D insurance are fully in place and adjudicating (in other words the products have insurance coverage for ~90% of its target user/patient population). On October 1, 2019 TXMD's CEO twice said TXMD expected commercial insurance coverage for 5 of the last large insurers for Bijuva was "4 to 6 weeks" away. As of TXMD's latest investor presentation (12 weeks later), these appear still open.

4. There are no quality related issues, adverse events nor FDA recalls (somewhat a subset of #1 & #2 above).

It is the author's experience that an acquirer is going to want to be certain TXMD's basic business systems are in place so the buyer can focus solely on growing the business (versus dealing with manufacturing problems or open insurance issues). This was not the case before the 10/24/2019 financing. TXMD's CEO admitted TXMD was struggling with manufacturing for 1 of its potential Blockbuster products Annovera. The author has worked in life sciences for 30+ years and personally managed literally dozens of technology transfers. Manufacturing systems are time consuming and onerous but fortunately always solvable with resources. Since TXMD has made 7,500 Annovera available commercially in Q42019, it is very likely the FDA has approved Annovera's production/manufacturing plant (the 7,500 units are likely "validation units" that may be sold commercially). TXMD has told investors it can expect commercial Annovera units to "come off the line" (meaning finished Annovera units come out of TXMD's contract manufacturing organization) at commercial scale beginning in February 2020. Put simply, come February 2020 there should be no more Annovera manufacturing related uncertainty.

Lastly, TXMD's CEO assured investors (twice) at the Cantor Healthcare Conference on 10/1/2019 that commercial insurance coverage for Bijuva from the last 5 large commercial insurers was "4 to 6 weeks" away. Again TXMD's CEO said so twice. On December 18, 2019 TXMD issued an updated investor presentation that noted Bijuva commercial insurance coverage was still open. Should TXMD continue to struggle to obtain commercial insurance coverage for its products, it will likely to result in additional reductions in TXMD revenue estimates.

Likelihood of Beating Revenue Estimates

Readers are encouraged to read the author's 7/2019 article reviewing TXMD's product's value propositions (and countless others that believe TXMD's brands are the most innovative new HRT therapies in decades). Our analysis continues to conclude TXMD's products offer compelling, if not overwhelming, clinical, financial, convenience and (most important) safety value propositions versus competing therapies. All TXMD products should materially out-compete peers via a world class marketing & sales organization in multi-billion dollar markets. TXMD, the author and professional analysts conclude peak potential product revenues are well over $1.0Billion via world class marketing & sales organizations. Investors are essentially betting TXMD's CEO, as noted with no business education and no significant prior experience running a public nor private commercial enterprise (SOURCE: CEO Robert Finizio CV on TXMD Leadership page), can build a world class marketing & sales organization in record time from scratch from a pool of employees in the Greater Miami business community (not generally considered a haven for commercial biotechs like Boston, NYC/NJ nor San Francisco).

To demonstrate investor disappointment in TXMD sales productivity, Bijuva's growth in Oct. 2019 from Sept. 2019 (calculated below) was anemic (month 6 of Bijuva's commercial launch into 1 of 3 of competing therapeutic markets). Due to insurance considerations, TXMD initially allowed its sales reps to promote Bijuva to only 10 physicians in their respective territories through 9/30/2019. TXMD also took all 200 of its sales reps out of the field for a training in September 2019 at which time TXMD removed the 10 physician cap per sales territory restriction. Bijuva sales rep productivity then fell in October (after a national sales training when enthusiasm should be highest) when 6,500 prescriptions were filled (per TXMD investor presentation page 33) from September when 6,200 prescriptions were filled (per TXMD investor presentation page 6). September has 30 calendar days and a major holiday versus 31 calendar days in October (TXMD's sales reps were out of the field for a week in September as well.) The decline in Bijuva productivity, for the last month TXMD provided data, is therefore measured as follows:

Bijuva sales rep productivity is disappointing because investors expected higher growth (again month 6 of its commercial launch). User feedback on Bijuva has otherwise been overwhelmingly positive...read for yourself here on WebMD. It is interesting to note TXMD has told investors TXMD would no longer provide monthly data after the decline in Bijuva productivity noted above (which the author concurs is likely 100% coincidental). The decline in (or at a minimum disappointing) Bijuva sales rep productivity October v September is a textbook example of why biotech companies more often than not partner or sell out to Big Pharma when transitioning from a pre-commercial biotech to a commercial enterprise. TXMD is spending hundreds of millions of dollars for infrastructure that larger companies have managed for decades. It is possible Symphony, a third party information system that tracks prescription data, is not capturing 100% of December 2019 Bijuva prescriptions that may be being filled by compounding pharmacists (a new channel). However, this phenomenon appears unlikely as TXMD's December investor presentation affirms Symphony data.

A second data point suggesting the value of TXMD's products are maximized with a competent marketing & sales organization can be found in Annovera growth since first soft-launched (for a $1,000+ margin product that is essentially free to the user and after more than 1 full year to plan). Symphony has reported Annovera prescription data for the first 13 weeks of Q42019 in order as 34 (reported the week ending Friday 10/4/2019), 15, 28, 87, 71, 111, 135, 112, 109, 73, 109, 74, 145, 71 (reported the week ending Friday 1/3/2019). To be clear TXMD has advised investors that Symphony is not tracking the complete channel of Annovera dispensaries (meaning Annovera prescription data may be considerably higher than reported by Symphony). It is the author's direct experience it takes at least 6 months for kinks to be worked out of Symphony (to confirm TXMD's perspective). However, it is probably Symphony is tracking a consistent number of dispensaries (i.e. the same X number of dispensaries...and if anything the number of dispensaries tracked grew over the quarter). Whatever limited channel Symphony is tracking (say it is 15 dispensaries for example), after initially surging, Annovera prescriptions appear flat since the end of week 4 or 5 (again only for the dispensaries Symphony is tracking...again say for 15 dispensaries for example). Because TXMD has yet to report Annovera data we will not know for sure until TXMD reports Q42019 performance. Therefore Annovera not growting within the same group of dispensaries tracked is not a confirmed data point.

The average professional analyst revenue estimate for FY2020 was over $250MM as recently as 11 months ago. Today the average estimate is $107MM (down from $117MM 3 weeks ago).

Incidentally, investors can only hope TXMD's internal analysis, when TXMD assured investors TXMD was on track to doing $11MM in Q42019 FDA product revenues, was thorough and correct when TXMD also told investors it was unable to track nor report Annovera sales. To be crystal clear, the author has no reason to believe TXMD will not meet its $11MM Q4019 revenue target (though investors are advised to be cautiously optimistic). It is also quite possible TXMD's share price won't positively react to news of am $11MM FDA product revenue beat until "blessed" by TXMD's auditors due to TXMD credibility suspicions. Obviously, investors hoped TXMD would "blow away" its target before the quarter ended.

Alternate Strategies to Enhance Shareholder Value

Our analysis concludes the primary reason TXMD's products are worth more to a competent marketing and sales organization (i.e. Big Pharma or a National Medical Distributor) is because large companies like these are always looking to buy new products (i.e. revenues) when faced with slow or even declining organic/internal growth. Some Big Pharma (and "not so big" pharma), for example, are so desperate to fill their pipelines because doing so allows them to credibly forecast growth in their own revenues in the years ahead. It is a very common business strategy to "buy growth." A Big Pharma brings considerable more people, customers, relationships, infrastructure, reach, credibility, resources and overall expertise. Considering the overwhelming clinical, financial, convenience and safety advantages TXMD's product suite offers versus competing therapies and the multi-billion dollar sales potential, it is difficult to believe a handful of large companies in women's health would not be interested in the chance to add such high clinical value proposition therapies like TXMD's products to their own portfolios.

Conclusion

Our analysis concludes shareholders should also be disappointed with TXMD's ever increasing expenses, cash burn, uncertain and potential serial dilution for the forseeable future at uncertain pricing and continued share price losses. TXMD's poor start going into FY2020 as a commercial enterprise has the potential to permanently adversely impact the perception of the value of TXMD's products as independent brands for shareholders. Our analysis concludes shareholders' are otherwise betting TXMD's CEO, as noted with no business education nor prior experience running a commercial enterprise (nor a public company at that), can grow the business and by extension shareholder value. It is this precise reason it is common for R&D/Clinical biotechs to be either sold or partner with Big Pharma once commercial enterprises. During a time of unprecedented speculation in the stock markets and other asset classes, it is disappointing TXMD's share price continues to decline. Shareholders should be disappointed there does not appear to even be speculation TXMD can succeed on its own (while speculation is otherwise running rampant nationally). Third party valuation tools like E&Y's M&A report suggest TXMD products may fetch 3 to 5 times their peak estimated revenues which could arguably be in the billions of dollars for shareholders especially in a bidding situation and the M&A market is quite active. Our simple analysis of the enormous range of TXMD's potential value (using E&Y's calculator) is, especially in a competitive bidding situation, as follows:

TXMD's BOD and CEO's only responsibility is to maximize TXMD's value for shareholders. The author has learned one large institutional investor will challenge the re-appointment of Mr. Finizio to another year as CEO (a rarity if not unprecedented action in the world of biotechnology) as a catalyst for demanding change. The author has intentionally withheld disclosing the specifics around the 11 statements made by TXMD's CEO within the last 8 months that disappointed investors and, at a minimum, adversely impacted TXMD's credibility as a whole.

To summarize, our analysis concludes TXMD's CEO and BOD should strongly consider seeking alternate strategies to enhancing shareholder value because:

1. Certain additional dilution(s) if revenue estimates for FY2020 and FY2021 or $107MM and $260MM, respectively, are accurate and operating expenses remain consistent with Q32019 actuals (annualized).

2. Poor sales execution as evidenced by the decline in sales productivity in month 6 of a commercial launch of an otherwise product that supposedly offered the largest upside (per TXMD). Annovera's growth also appears anemic within its initial channels Symphony tracks (again this is still inconclusive). Considering the overwhelming clinical, convenience, financial and safety value propositions TXMD's products offer, prescription growth should be accelerating via a competent marketing & sales organization.

3. The fact that TXMD's lender did not extend a previous lending commitment. This is most alarming because it suggests TXMD is not meeting targets provided its lender when the loan was closed in Q22019. Shareholders have every reason to believe that if TXMD was merely meeting the forecasts provided TXMD's lender, or even slightly missing them, TXMD's lender would have extended its commitment. Considering TXMD's lender does not require amounts be paid back until beginning 6/30/2023, how likely is it $250MM is paid back or $300MM?

4. MOST IMPORTANT: The fact that not 1 insider is buying TXMD stock since falling 20%+ from the last financing knowing TXMD is going it alone.

Again, TXMD's only responsibility is to maximize its value for shareholders. Shareholders are advised to hold TXMD's BOD and CEO accountable in FY2020.

Additional Note: In the event TXMD "blows away" revenue estimates (for example the author has heard a rumor one physician alone wrote 300 Annovera prescriptions in Q42019), dramatically lowers expenses from Q32019 actuals (by tens of millions of dollars), finds a way to dramatically increase its share price (via appointing a professional commerclal CEO) and/or otherwise obtains non or minimally dilutive financing, the author's analysis is null and void.

This article was written by

Boston area biotechnology professionals with a collective 100+ years experience in the biotech industry. We are not professional analysts and lack the resources of professional analysts. Our articles will include information that is forward looking. You should never rely on forward-looking statements because facts & circumstances can change dramatically and without notice. In plain English do not take us so seriously.
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Disclosure: I am/we are long TXMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own a considerable number of TXMD shares and convertible shares (options).

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