TXMD - TherapeuticsMD: Looking To Annovera To Save The Day

• TherapeuticsMD's birth control ring saw year-over-year growth of almost 100% in Q2.
• Although costs came down significantly, TXMD continued to report an operating loss.
• Management believes a resolution to its recent inventory headwinds along with government support will drive increases in ANNOVERA prescribers.

TherapeuticsMD Overview

We wrote about TherapeuticsMD, Inc. ( TXMD ) in April and July of last year when we discussed the company's forward-looking earnings potential as well as its possibilities of regaining the stock's $1.20 level at the time. Just over 12 months since our most previous commentary, shares of TherapeuticsMD are now trading above $9.

But, don't let that fool you that TherapeuticsMD's fortunes have changed for the better here. Not long after our July article last year, shares lost the $1 mark and kept on declining rapidly towards the $0 mark until a 1 for 50 reverse stock split in May of this year finally forced a bottom in the stock. Therefore, in essence, TherapeuticsMD's current share price of approximately $9.50 per share equates to an old share price (what our 2021 articles were based on) of a mere $0.19 per share. So, in essence, the 20%+ rally after the announcement of the company's second-quarter earnings this week pales in significance to what shareholders have lost in this play.

This should never be forgotten, although over time, especially if TherapeuticsMD rallies from present levels, its adjusted (Pre-Split) May 2022 lows of close to $0.05 per share will not be of interest to the players participating in an upward move.

More Capital Needed

The question now becomes whether TherapeuticsMD's higher share price can attract investors over a sustained period. Obviously, if shares can push themselves northward into double-digit territory, this may bring new participators into the equation. Rubric Capital Management has started the ball rolling, so to speak, with the purchase of an added $470k worth of stock apart from its reported $15 million equity investment in TherapeuticsMD. This buys TXMD more time with respect to getting its financials in order, which also will be aided by the spanning out of debt maturities with specialty lender - "Sixth Street." The rush both to maintain as well as raise cash ignited once more in TXMD after the recent buyout attempt from EW Healthcare finally fell on its knees.

ANNOVERA Growth

Suffice it to say, it continues to be all about the income statement for TherapeuticsMD to see if improving profitability can continue to attract capital. Despite all the shenanigans in recent times, shares still only trade with a sales multiple of 0.98 compared to a sector median closer to the 5 mark. Furthermore, the company's recent second-quarter numbers demonstrated that all hopes remained pinned on ANNOVERA. The birth control product reported sales of $18.3 million (91% year-over-year increase) and made up 64% of the quarterly take ($28.6 million) which grew by over 24% over the same period of 12 months prior. So, despite the potential of other products such as IMVEXXY & BIJUVA, ANNOVERA is by far TXMD's largest offering and is growing the fastest, which means it has the greatest opportunity of impacting the income statement in a positive manner.

As we can see below, the number of prescribers actually re-accelerated in the second quarter, adding on well over 200 names in Q2. It will be interesting to see if prescriber growth can continue to accelerate, especially now that the inventory headwind has been rectified as a result of the FDA application approval.

Management was quick to point out the encouraging trends on the income statement with respect to growing sales and reducing costs. Operating costs shrank by $11.4 million and revenues as mentioned earlier increased by 24%. In the company's second quarter. Nevertheless, when we ignore the percentage improvements in trends in both costs and sales for a moment, Q2 operating costs of $42.7 million still overshadowed TXMD's gross profit of $23.8 million by some distance. Although gross margin hit 83.2% in Q2, operating profit still came in negative at -$18.8 million. This EBIT number (and more importantly its trend) is the number to watch in upcoming quarters as it demonstrates how the value of TXMD will change for better or worse. The share price should move off this number, all things remaining equal. This was especially evident in Q2 when the one-off gain as a result of vitaCare ($140+ million) positively affected the actual net profit bottom-line number, but the market was well aware of this deal many months in advance.

Conclusion

Therefore, to sum up, strong near-term demand for ANNOVERA should both keep creditors at bay as well as continue to attract capital for TherapeuticsMD. Furthermore, if the company's cost-cutting initiatives can continue to bear fruit, that decisive EBIT number may indeed improve significantly in quarters to come. There is no doubt that ANNOVERA will continue to benefit from government policy regarding the protection of reproductive healthcare access. We will find out in upcoming quarters if the spike in ANNOVERA sales was indeed demand-related and not anything otherwise in Q2. We look forward to continued coverage.

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