UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from______ to ______
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
N/A
(Former name or former address, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| OTCQB |
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller
reporting company | ||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s common stock, $ par value per share, outstanding as of November 8, 2024 was .
Table of Contents
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (Quarterly Report), contains forward-looking statements that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements, other than statements of historical facts, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. Words such as, but not limited to, “anticipate,” “aim,” “believe,” “contemplate,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “suggest,” “strategy,” “target,” “will,” “would,” and similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.
These forward-looking statements include, among other things, statements about:
| ● | our ability to maintain compliance with listing standards of the OTCQB® Venture Market to maintain the listing of our shares thereon; | |
| ● | our ability to continue as a going concern; | |
| ● | the Notice of Default and cancellation of Forbearance Agreement received by FuturePak, LLC and any potential legal action(s) against the Company and its assets that could be taken; | |
| ● | the requirement to change the name of Phexxi | |
| ● | the consummation of the transactions contemplated by the Amended and Restated Merger Agreement, as amended, and documents related thereto; | |
| ● | the Support Agreements related to the transactions contemplated under the Amended and Restated Merger Agreements as amended; | |
| ● | our ability to successfully integrate and commercialize SOLOSEC® (secnidazole) 2g oral granules (SOLOSEC); | |
| ● | our ability to remediate the material weaknesses in our internal controls and procedures identified by management; | |
| ● | our ability to obtain necessary approvals of any corporate action(s) needing stockholder, FINRA, or other approvals; | |
| ● | our ability to file Annual and Quarterly Reports on a timely basis; | |
| ● | our ability to raise additional capital to fund our operations if and as needed; | |
| ● | our ability to achieve and sustain profitability; | |
| ● | our estimates regarding our future performance including, without limitation, any estimates of potential future revenues; | |
| ● | estimates regarding market size; | |
| ● | our estimates regarding expenses, revenues, financial performance and capital requirements, including the length of time our capital resources will sustain our operations; | |
| ● | our ability to comply with the provisions and requirements of our debt arrangements, to avoid future defaults pursuant to our debt arrangements and to pay amounts owed, including any amounts that may be accelerated, pursuant to our debt arrangements; | |
| ● | estimates regarding health care providers’ (HCPs) recommendations of Phexxi® (lactic acid, citric acid, and potassium bitartrate) vaginal gel (Phexxi) to patients; | |
| ● | estimates regarding HCPs recommendations of SOLOSEC to patients suffering from the sexually transmitted infections (STIs) for which it is indicated; | |
| ● | the rate and degree of market acceptance of our products; | |
| ● | our ability to successfully commercialize and distribute our products and continue to develop our sales and marketing capabilities, particularly after any product rebrand; | |
| ● | our estimates regarding the timing and cost of a product rebrand; | |
| ● | our estimates regarding the effectiveness of our marketing campaigns; | |
| ● | our strategic plans for our business, including the commercialization of our products; | |
| ● | the potential for changes to current regulatory mandates requiring health insurance plans to cover U.S. Food and Drug Administration (FDA)-cleared or -approved contraceptive products or STI treatments without cost sharing; | |
| ● | our ability to obtain or maintain third-party payer coverage and adequate reimbursement, and our reliance on the willingness of patients to pay out-of-pocket for our products absent full or partial third-party payer reimbursement; | |
| ● | our ability to protect and defend our intellectual property position and our reliance on third party licensors; | |
| ● | our ability to obtain additional patent protection for our products; | |
| ● | our dependence on third parties for the manufacture of our products; | |
| ● | our ability to expand our organization to accommodate potential growth; and | |
| ● | our ability to retain and attract key personnel. |
| 1 |
Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements, to differ. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. All forward-looking statements are qualified in their entirety by this cautionary statement. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should read this Quarterly Report and the documents that we have filed as exhibits to this Quarterly Report and incorporated by reference herein completely and with the understanding that our actual results may be materially different from the plans, intentions and expectations disclosed in the forward-looking statements we make. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.
This Quarterly Report contains estimates and other statistical data made by independent parties and by the Company relating to market size and growth and other data about its industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates.
Our first commercial product, Phexxi, was approved by the FDA on May 22, 2020, for the prevention of pregnancy. Phexxi is the first and only non-hormonal prescription contraceptive gel. Women use it when they have sex, applying Phexxi 0-60 minutes prior to intercourse. Because Phexxi is hormone-free and non-systemic, it is not associated with side effects of hormonal contraceptive methods such as depression, weight gain, headaches, loss of libido, mood swings and irritability. Taking hormones may not be right for some women, especially those with certain medical conditions, including clotting disorders, hormone-sensitive cancers, diabetes or a BMI over 30, as well as women who are breast feeding, and / or smoke. More than 23.3 million women in the U.S. do not want to get pregnant and will not use a hormonal contraceptive.
We have delivered Phexxi net sales growth in each consecutive year since it was launched in September 2020. Key growth drivers for 2024 include expanded use of Phexxi in women who take oral birth control pills in conjunction with GLP-1 prescription medications like Ozempic, Mounjaro, and Zepbound for weight loss. These drugs may make oral birth control pills less effective at certain points in the dosing schedule. Per the USPI, prescribers are counselled to “advise patients using oral contraceptives to switch to a non-oral contraceptive method or add a barrier method” to prevent unintended pregnancy during these times.
Outside the U.S., the Company’s strategy is to commercialize Phexxi in global markets through commercial partnerships and/or license agreements. Phexxi was approved in Nigeria on October 6, 2022, as Femidence™ by the National Agency for Food and Drug Administration and Control. Phexxi has been submitted for approval in Mexico, Ethiopia and Ghana. In July 2024, we licensed commercial rights to Phexxi in the Middle East to Pharma 1 Drug Store, LLC, an emerging Emirati health care company (Pharma 1). Pharma 1 intends to file for regulatory approval of Phexxi in the United Arab Emirates (UAE) in the fourth quarter of 2024.
In July 2024 we acquired global rights to SOLOSEC. This FDA-approved single-dose oral antimicrobial agent provides a complete course of therapy for the treatment of two common sexual health infections – bacterial vaginosis (BV) and trichomoniasis (Trich). The SOLOSEC acquisition aligns with and advances our mission to improve access to innovative and differentiated options that impact women’s daily lives. We expect commercialization of SOLOSEC will benefit from our commercial infrastructure and strong physician relationships.
Unless the context requires otherwise, references in this Quarterly Report to “Evofem,” “Company,” “we,” “us” and “our” refer to Evofem Biosciences, Inc. and its subsidiaries.
This Quarterly Report includes our trademarks, trade names and service marks, including “Phexxi®”, “Femidence™” and “SOLOSEC®”, which are protected under applicable intellectual property laws and are the property of Evofem Biosciences, Inc. or its subsidiaries. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply a relationship with, or endorsement or sponsorship of us by, these other parties.
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value and share data)
| As of | ||||||||
| September 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Trade accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Intangible asset, net (Note 7) | ||||||||
| Other noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, convertible and redeemable preferred stock and stockholders’ deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Notes - carried at fair value (Note 4) | ||||||||
| Convertible notes - Adjuvant (Note 4) | ||||||||
| Short term debt | ||||||||
| Accrued expenses | ||||||||
| Accrued compensation | ||||||||
| Operating lease liabilities - current | ||||||||
| Derivative liabilities | ||||||||
| Contingent liabilities – current (Note 7) | ||||||||
| Other current liabilities | ||||||||
| Other current liabilities - related party | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities- noncurrent | ||||||||
| Contingent liabilities – noncurrent (Note 7) | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Convertible and redeemable preferred stock, $ par value, senior to common stock | ||||||||
| Series E-1 and F-1 convertible preferred stock, and shares authorized; and shares of E-1 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively; and shares of F-1 issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding as of September 30, 2024 and December 31, 2023 | ||||||||
| Common Stock, $ par value; shares authorized; and shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities, convertible and redeemable preferred stock and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements (unaudited).
| 3 |
EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Product sales, net | $ | $ | $ | $ | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Amortization of intangible asset | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on issuance of financial instruments | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain (loss) on debt extinguishment, net | ( | ) | ||||||||||||||
| Change in fair value of financial instruments | ||||||||||||||||
| Total other income, net | ||||||||||||||||
| Income (loss) before income tax | ( | ) | ( | ) | ||||||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Convertible preferred stock deemed dividends | ( | ) | ( | ) | ||||||||||||
| Net income (loss) attributable to common stockholders | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net income (loss) per share attributable to common stockholders: | ||||||||||||||||
| Basic (Note 2) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted (Note 2) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted-average shares used to compute net income (loss) per share attributable to common shareholders: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 4 |
EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Change in fair value of financial instruments attributed to credit risk change (Note 4) | ( | ) | ( | ) | ( | ) | ||||||||||
| Reclassification adjustment related to debt extinguishment | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 5 |
EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE AND REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(Unaudited)
(In thousands, except share data)
| Series E-1 Convertible and Redeemable Preferred Stock | Series F-1 Convertible and Redeemable Preferred Stock | Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Capital | Income (Loss) | Deficit | Deficit | |||||||||||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon noncash exercise of purchase rights | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of notes | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Change in fair value of financial instruments attributed to credit risk change (Note 4) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Series E-1 Shares dividends | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Issuance of common stock upon noncash exercise of purchase rights | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of notes | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Change in fair value of financial instruments attributed to credit risk change (Note 4) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Series E-1 Shares dividends | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | |||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Issuance of common stock upon noncash exercise of purchase rights | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||
| Extinguishment of Baker Notes (Note 4) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Change in fair value of financial instruments attributed to credit risk change (Note 4) | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Series E-1 Shares dividends | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of Series F-1 Shares to Aditxt (Related Party) | - | - | ||||||||||||||||||||||||||||||||||||||
Allocation of reinstatement proceeds (Related Party) | - | - | - | |||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Series E-1 Convertible and Redeemable Preferred Stock | Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Deficit | Deficit | |||||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Issuance of common stock upon cash exercise of warrants | - | |||||||||||||||||||||||||||||||
| Issuance of common stock upon noncash exercise of Purchase Rights (Note 4) | - | |||||||||||||||||||||||||||||||
| Issuance of SSNs (Note 4) | - | - | ||||||||||||||||||||||||||||||
| Change in fair value of financial instruments attributed to credit risk change (Note 4) | - | - | ||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Issuance of common stock upon cash exercise of warrants | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon noncash exercise of Purchase Rights (Note 4) | ||||||||||||||||||||||||||||||||
| Noncash reclassification of liability-classified derivatives to equity | - | |||||||||||||||||||||||||||||||
| Issuance of SSNs (Note 4) | - | |||||||||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||||||||||
| Change in fair value of financial instruments attributed to credit risk change (Note 4) | - | |||||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Issuance of common stock upon cash exercise of warrants | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon noncash exercise of Purchase Rights (Note 4) | - | |||||||||||||||||||||||||||||||
| Issuance of common stock upon conversion of note | - | |||||||||||||||||||||||||||||||
| Issuance of series E-1 convertible and redeemable preferred stock upon exchange of notes (Note 8) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Issuance of SSNs (Note 4) | - | - | ||||||||||||||||||||||||||||||
| Issuance of additional purchase rights due to price reset (Note 4) | - | - | ||||||||||||||||||||||||||||||
| Down round feature adjustment to financial instruments (Note 6) | - | - | ( | ) | ||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||
| Extinguishment of Baker Notes (Note 4) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Change in fair value of financial instruments attributed to credit risk change (Note 4) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
| 6 |
EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash, cash equivalents and restricted cash used in operating activities: | ||||||||
| Loss on issuance of financial instruments | ||||||||
| Gain on debt extinguishment | ( | ) | ( | ) | ||||
| Change in fair value of financial instruments | ( | ) | ( | ) | ||||
| Inventory write-down for excess & obsolescence | ||||||||
| Loss on contingent liability | ||||||||
| Stock-based compensation | ||||||||
| Depreciation | ||||||||
| Amortization of intangible asset | ||||||||
| Noncash interest expense | ||||||||
| Noncash right-of-use asset amortization | ||||||||
| Net gain on lease termination | ( | ) | ||||||
| Net loss on disposal of property and equipment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Trade accounts receivable | ( | ) | ||||||
| Inventories | ||||||||
| Prepaid and other assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses and other liabilities | ||||||||
| Accrued compensation | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash and restricted cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Payments related to asset acquisition | ( | ) | ||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash and restricted cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock - exercise of warrants | ||||||||
| Borrowings under term notes | ||||||||
| Proceeds from issuance of preferred stock - Related Party | ||||||||
| Proceeds from reinstatement of Merger Agreement - Related Party | ||||||||
| Payments under term notes | ( | ) | ( | ) | ||||
| Net cash and restricted cash provided by financing activities | ||||||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Exchange of convertible notes to Series E-1 convertible preferred stock | ||||||||
| Borrowings under term notes included in prepaid and other current assets | ||||||||
| Net change in contingent consideration liabilities | ||||||||
| Allocation of reinstatement proceeds - Related Party | ||||||||
| Issuance of common stock upon exercise of purchase rights | ||||||||
| Series E-1 shares deemed dividends | ||||||||
Right-of-use assets obtained for lease liabilities (fleet lease renewals) | ||||||||
| Acquisition related amounts included in accounts payable and accrued expenses | ||||||||
| Issuance of common stock upon conversion of notes | ||||||||
| Issuance of common stock upon exercise of warrants | ||||||||
| Purchases of property and equipment included in accounts payable and accrued expenses | ||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
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EVOFEM BIOSCIENCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Basis of Presentation
Description of Business
Evofem is a San Diego-based biopharmaceutical company focused on commercializing innovative products to address unmet needs in women’s sexual and reproductive health.
The
Company’s first commercial product, Phexxi® (lactic acid, citric acid, and potassium bitartrate) vaginal gel (Phexxi), was
approved by the U.S. Food and Drug Administration (FDA) on May 22, 2020. It is the first and only FDA-approved, hormone-free,
woman-controlled, on-demand prescription contraceptive gel. The Company commercially launched Phexxi in September 2020 and has grown
net sales in each successive year. Phexxi net product sales were $
On December 11, 2023, the Company entered into an Agreement and Plan of Merger, as amended, (the Merger Agreement) with Aditxt, Inc., a Delaware corporation (Aditxt) and Adifem, Inc. (f/k/a Adicure, Inc.), a Delaware corporation and a wholly-owned Subsidiary of Aditxt (Merger Sub), respectively, (collectively, the Parties), pursuant to which, and on the terms and subject to the conditions thereof, the Merger Sub is expected to merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Aditxt (the Merger). The Parties entered into an amended and restated Merger Agreement (the A&R Merger Agreement) in July 2024 and subsequently amended the A&R Merger Agreement in August, September, and October 2024. The parties are working towards a closing in 2025.
On July 14, 2024, the Company acquired global rights to SOLOSEC® (secnidazole) 2g oral granules. This FDA-approved single-dose oral antimicrobial agent provides a complete course of therapy for the treatment of two common sexual health infections – bacterial vaginosis (BV) and trichomoniasis. This acquisition aligns with and advances the Company’s mission to commercialize innovative and differentiated products for women’s sexual and reproductive health. The Transferred Assets, as defined in the SOLOSEC Asset Purchase Agreement, included all registered intellectual property related to SOLOSEC (SOLOSEC IP) as well as assorted SOLOSEC related documentation and contracts. The Company accounted for this acquisition as an asset acquisition, pursuant to which the Company recorded contingent liabilities for the fair value of future sales-based payments and an intangible asset for the fair value of the SOLOSEC IP plus certain transaction costs; see Note 6 – Fair Value of Financial Instruments and Note 7 – Commitments and Contingencies for more detailed information about the asset acquisition accounting and fair value methodology.
Basis of Presentation and Principles of Consolidation
The Company prepared the unaudited interim condensed consolidated financial statements included in this Quarterly Report in accordance with accounting principles generally accepted (GAAP) in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC) related to quarterly reports on Form 10-Q.
The Company’s financial statements are presented on a consolidated basis, which include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim condensed consolidated financial statements do not include all information and disclosures required by GAAP for annual audited financial statements and should be read in conjunction with the Company’s condensed consolidated financial statements and notes thereto for the year ended December 31, 2023 included in its Annual Report on Form 10-K as filed with the SEC on March 27, 2024 (the 2023 Audited Financial Statements).
The unaudited interim condensed consolidated financial statements included in this report have been prepared on the same basis as the Company’s audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations, cash flows, and statements of convertible and redeemable preferred stock and stockholders’ deficit for the periods presented. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results expected for the full year. The condensed consolidated balance sheet as of December 31, 2023 was derived from the 2023 Audited Financial Statements.
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Risks, Uncertainties and Going Concern
Any disruptions in the commercialization of Phexxi or SOLOSEC and/or their supply chains could have a material adverse effect on the Company’s business, results of operations and financial condition.
The condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities, in the normal course of business, and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.
The
Company’s principal operations are related to the commercialization of Phexxi and SOLOSEC, following its acquisition in July
2024. Additional activities have included raising capital, identifying alternative manufacturing to lower Phexxi cost of goods sold
(COGS), seeking ex-U.S. licensing partners to add non-dilutive capital to the balance sheet, seeking product
in-licensing/acquisition opportunities to expand and diversify the U.S. revenue stream, and establishing and maintaining a corporate
infrastructure to support a commercial product. The Company has incurred operating losses and negative cash flows from operating
activities since inception. As of September 30, 2024, the Company had a working capital deficit of $
Since October 3, 2022, the Company’s common stock has traded on the OTC Venture Market (the OTCQB) of the OTC Markets Group, Inc. (the OTC), a centralized electronic quotation service for over-the-counter securities, under the symbol “EVFM.” The OTCQB imposes, among other requirements, a minimum $ per share bid price requirement (the Bid Price Requirement) for continued inclusion on the OTCQB. The closing bid price for the Company’s common stock must remain at or above $ per share to comply with the Bid Price Requirement for continued listing. The Company received a written notice (the OTC Notice), dated August 28, 2024, from the OTC notifying the Company that, because the closing bid price for the Company’s common stock was below $ per share for 30 consecutive trading days, the Company was not in compliance with the minimum closing bid price requirement for continued listing on OTCQB as set forth in the OTCQB listing standards, section 2.3 (the Minimum Bid Price Requirement). The OTC Notice had no immediate effect on the listing of the Company’s common stock on OTCQB. In accordance with OTCQB Listing Standards, Section 4.1 the Company had a compliance period of 90 days, or until November 26, 2024, to regain compliance with the Minimum Bid Price Requirement. On November 8, 2024, the OTC notified the Company that the Company’s closing bid price was equal to or greater than $ for the preceding ten consecutive days and therefore the Company had regained compliance with the OTCQB listing standards and the matter is rectified as of November 7, 2024. As of November 8, 2024, the closing bid price was $.
Management’s plans to meet its cash flow needs in the next 12 months include generating recurring product revenue from Phexxi and SOLOSEC, restructuring its current payables, and obtaining additional funding through means such as the issuance of preferred stock to Aditxt as was done under the A&R Merger Agreement, as amended, non-dilutive financings, or through collaborations or partnerships with other companies, including license agreements for Phexxi and/or SOLOSEC in the U.S. or foreign markets, or other potential business combinations.
The Company anticipates it will continue to incur net losses for the foreseeable future. According to management estimates, liquidity resources as of September 30, 2024 were not sufficient to maintain the Company’s cash flow needs for the twelve months from the date of issuance of these condensed consolidated financial statements.
If the Company is not able to obtain the required funding through a significant increase in revenue, equity or debt financings, license agreements for Phexxi and/or SOLOSEC, or other means, or is unable to obtain funding on terms favorable to the Company, or if there is another event of default affecting the notes payable, or if the Company is enjoined from using the Phexxi mark, there will be a material adverse effect on commercialization operations and the Company’s ability to execute its strategic development plan for future growth. If the Company cannot successfully raise additional funding and implement its strategic development plan, the Company may be forced to make further reductions in spending, including spending in connection with its commercialization activities, extend payment terms with suppliers, liquidate assets where possible at a potentially lower amount than as recorded in the condensed consolidated financial statements, suspend or curtail planned operations, or cease operations entirely. Any of these could materially and adversely affect the Company’s liquidity, financial condition and business prospects, and the Company would not be able to continue as a going concern. The Company has concluded that these circumstances and the uncertainties associated with the Company’s ability to obtain additional equity or debt financing on terms that are favorable to the Company, or at all, and otherwise succeed in its future operations raise substantial doubt about the Company’s ability to continue as a going concern.
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2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the notes thereto.
Significant estimates affecting amounts reported or disclosed in the condensed consolidated financial statements include, but are not limited to: the assumptions used in measuring the revenue gross-to-net variable consideration items; the trade accounts receivable credit loss reserve estimate; the assumptions used in estimating the fair value of convertible notes, preferred stock, warrants, purchase rights issued, asset acquisition intangible asset, and contingent liabilities; the assumptions used in the valuation of inventory; the useful lives of property and equipment; the recoverability of long-lived assets; and the valuation of deferred tax assets. These assumptions are more fully described in Note 3 – Revenue, Note 4 – Debt, Note 6 - Fair Value of Financial Instruments, Note 7 - Commitments and Contingencies, and Note 9 - Stock-based Compensation. The Company bases its estimates on historical experience and market-specific or other relevant assumptions that it believes to be reasonable under the circumstances and adjusts when facts and circumstances dictate. The estimates are the basis for making judgments about the carrying values of assets, liabilities and recorded expenses that are not readily apparent from other sources. As future events and their effects cannot be determined with precision, actual results may materially differ from those estimates or assumptions.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer of the Company, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. Deposits in the Company’s checking, time deposit and investment accounts are maintained in federally insured financial institutions and are subject to federally insured limits or limits set by Securities Investor Protection Corporation. The Company invests in funds through a major U.S. bank and is exposed to credit risk in the event of default to the extent of amounts recorded on the condensed consolidated balance sheets.
The Company has not experienced any losses in such accounts and believes it is not exposed to significant concentrations of credit risk on its cash, cash equivalents and restricted cash balances on amounts in excess of federally insured limits due to the financial position of the depository institutions in which these deposits are held.
The Company is also subject to credit risk related to its trade accounts receivable from product sales. Its customers are located in the U.S. and consist of wholesale distributors, retail pharmacies, and mail-order specialty pharmacies. The Company extends credit to its customers in the normal course of business after evaluating their overall financial condition and evaluates the collectability of its accounts receivable by periodically reviewing the age of the receivables, the financial condition of its customers, and its past collection experience. Historically, the Company has not experienced any credit losses. As of September 30, 2024, based on the evaluation of these factors the Company did not record a reserve for expected credit loss.
Products are distributed primarily through three major distributors and mail-order pharmacies, who receive service fees calculated as a percentage of the gross sales, and a fee-per-unit shipped, respectively. These entities are not obligated to purchase any set number of units and distribute products on demand as orders are received.
For
the three and nine months ended September 30, 2024, the Company’s three largest customers combined made up approximately
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Significant Accounting Policies
There have been no changes to the significant accounting policies that were described in Note 2 – Summary of Significant Accounting Policies of the 2023 Audited Financial Statements in the Company’s Annual Report, other than the addition of policies on intangibles and contingent liabilities due to the SOLOSEC asset acquisition; see below.
Intangible Assets
Finite lived intangible assets, including the SOLOSEC IP acquired as part of the SOLOSEC asset acquisition as described further in Note 6 – Fair Value of Financial Instruments and Note 7 – Commitments and Contingencies, are amortized on a straight-line basis over their estimated useful lives. Intangible assets are typically only recognized when an asset is acquired as part of a business combination or asset acquisition and the initial value is based on the fair value of the asset as determined by a third-party valuation. In the case of intangible assets acquired through an asset acquisition, the initial value includes the fair value of the intangible plus any direct acquisition related expenses. For intangible assets acquired in an asset acquisition with contingent liabilities as part of the consideration, the Company will adjust the carrying value of the intangible assets as part of the quarterly adjustment to bring the contingent consideration to fair value. Additionally, the Company reviews the carrying amount of its amortizing intangible assets for possible impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When testing for impairment, the Company compares the undiscounted cash flows of the asset or asset group to its carrying value. If the estimated undiscounted cash flows exceed the carrying value, no impairment is recorded. If the undiscounted cash flows do not exceed the carrying value, an impairment is recorded to bring the carrying value of the asset down to its fair value.
Cash, Cash Equivalents and Restricted Cash
Cash
and cash equivalents consist of readily available cash in checking accounts and money market funds. Restricted cash consists of cash
held in monthly time deposit accounts and letters of credit as described in Note 7- Commitments and Contingencies. During the nine months
ended September 30, 2023, the letters of credit of $
Additionally,
the remaining funds of the $
For the nine months ended September 30, 2024 and 2023, the Company’s cash, cash equivalents, and restricted cash reported within the condensed consolidated statements of cash flows include restricted cash only.
Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. The net income (loss) available to common stockholders is adjusted for amounts in accumulated deficit related to the deemed dividends triggered for certain financial instruments. Such adjustment was immaterial and $ million in the three and nine months ended September 30, 2024, respectively and zero in each of the three and nine months ended September 30, 2023. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares and potentially dilutive securities outstanding for the period determined using the treasury-stock and if-converted methods. For purposes of the diluted net loss per share calculation, potentially dilutive securities are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive; therefore, basic and diluted net loss per share were the same for the three and nine months ended September 30, 2024. Potentially dilutive securities excluded from the calculation of diluted net loss per share are summarized in the table below. Common shares were calculated for the convertible preferred stock and the convertible debt using the if-converted method.
| Three
and Nine months ended September 30, | ||||
| 2024 | ||||
| Options to purchase common stock | ||||
| Warrants to purchase common stock | ||||
| Purchase rights to purchase common stock | ||||
| Convertible debt | ||||
| Series E-1 and F-1 preferred stock | ||||
| Total (1) | ||||
| (1) | The potentially dilutive securities in the table above include all potentially dilutive securities that are not included in the diluted EPS as per U.S. GAAP, whereas the total common stock reserved for future issuance in Note 8 – Convertible and Redeemable Preferred Stock and Stockholders’ Deficit includes the shares that must legally be reserved based on the applicable instruments’ agreements. |
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| Three months ended September 30, | Nine months ended September 30, | |||||||
| 2023 | 2023 | |||||||
| Numerator: | ||||||||
| Net income attributable to common stockholders | $ | $ | ||||||
| Adjustments: | ||||||||
| Change in fair value of purchase rights | ||||||||
| Noncash interest expense on convertible debt, net of tax | ||||||||
| Net loss attributable to common stockholders | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average shares used to compute net loss attributable to common stockholder, basic | ||||||||
| Add: | ||||||||
| Pro forma adjustments to reflect assumed conversion of convertible debt | ||||||||
| Pro forma adjustments to reflect assumed exercise of outstanding warrants and purchase rights | ||||||||
| Pro forma adjustments to reflect the assumed conversion of Series E-1 Convertible Preferred Shares | ||||||||
| Weighted average shares used to compute net loss attributable to common stockholder, diluted | ||||||||
| Net loss per share attributable to common stockholders, diluted | $ | $ | ||||||
Recently Adopted Accounting Pronouncements
No significant new standards were adopted during the nine months ended September 30, 2024.
Recently Issued Accounting Pronouncements — Not Yet Adopted
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standards setting bodies that are adopted as of the specified effective date.
In October 2023, the FASB issued ASU No. 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, designed to clarify or improve disclosure and presentation requirements on a variety of topics and align the requirements in the FASB Accounting Standards Codification (ASC) with the SEC regulations. This guidance is effective for the Company no later than June 30, 2027. The Company will adopt ASU No. 2023-06 by complying with the various disclosure requirements but does not expect the requirements to have a material impact on the consolidated financial statements.
In November 2023, the FASB issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures, designed to improve financial reporting by requiring disclosure of incremental segment information to enable investors to develop more decision-useful financial analyses. ASU No. 2023-07 will be effective for the Company beginning with the annual filing for the period ended December 31, 2024 and will require retroactive application to comparison periods presented. For Companies that have only one reportable segment (such as the Company), all the requirements of ASU No. 2023-07 will be required to be disclosed regarding the one reportable segment. The Company is still evaluating the impact of ASU No. 2023-07 on the consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures addressing income tax disclosures, requiring entities to annually disclose specific categories in the rate reconciliation and provide additional information for certain reconciling items and categories. ASU No. 2023-09 will be effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company will adopt ASU No. 2023-09 by adding the required disclosures for the December 31, 2024 Annual Report.
The Company does not believe the impact of any other recently issued standards and any issued but not yet effective standards will have a material impact on its condensed consolidated financial statements upon adoption.
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3. Revenue
The Company recognizes revenue from the sale of Phexxi and SOLOSEC 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 when its performance obligation is satisfied by transferring control of the product 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 U.S. and consist of wholesale distributors, retail pharmacies, and mail-order specialty pharmacies. Payment terms typically range from 31 to 66 days, include prompt pay discounts, and vary by customer. Trade accounts receivable due to the Company from contracts with its customers are stated separately in the condensed consolidated balance sheets, net of various allowances as described in the Trade Accounts Receivable policy in Note 2 – Summary of Significant Accounting Policies to the 2023 Audited Financial Statements.
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 products to its customers. Revenue is only recognized when the performance obligation is satisfied. 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.
Products are sold to customers at the wholesale acquisition cost (WAC) or, in some cases, at a discount to WAC. However, the Company records product revenue net of reserves for applicable variable consideration. These types of variable consideration reduce revenue and include the following:
| ● | Distribution services fees | |
| ● | Prompt pay and other discounts | |
| ● | Product returns | |
| ● | Chargebacks | |
| ● | Rebates | |
| ● | Patient support programs, including our co-pay programs |
An estimate for variable consideration is made with each sale and is recorded in conjunction with the revenue being recognized. To calculate the variable consideration, the Company uses the expected value method and the estimated amounts are recorded as a reduction to accounts receivable or as a current liability based on the nature of the allowance and the terms of the related arrangements. 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 also affect net product revenue and earnings.
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, versus private commercial insurance. To determine these estimates, the Company relies on historical sales data showing the amount of various end-user consumer types, inventory reports from the wholesale distributors and mail-order specialty pharmacies, and other relevant data reports.
The specific considerations that the Company uses in estimating these amounts related to variable consideration are as follows:
Distribution services fees – The Company pays distribution service fees to its wholesale distributors and mail-order specialty pharmacies. These fees are a contractually fixed percentage of WAC and are calculated at the time of sale based on the purchase amount. The Company considers these fees to be separate from the customer’s purchase of the product and, therefore, they are recorded in other current liabilities on the condensed consolidated balance sheets.
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 and retail pharmacy 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 purchase amount. Prompt pay discount estimates are recorded as contra trade accounts receivable on the condensed consolidated balance sheets.
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 recognized.
Chargebacks – Certain government entities and covered entities (e.g., Veterans Administration, 340B covered entities, group purchasing organizations) are able to purchase products 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 of each chargeback channel based on the expected number of claims in each channel and related chargeback 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 condensed consolidated balance sheets.
Rebates – The Company is 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 of 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 on the condensed consolidated balance sheets.
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Patient support programs – The Company voluntarily offers a co-pay program to provide financial assistance to patients meeting certain eligibility requirements. The Company estimates the amount of financial assistance for these programs based on the expected number of claims and related cost associated with the revenue being recognized for product that remains in the distribution channel at the end of each reporting period. Patient support programs estimates are recorded as other current liabilities on the condensed consolidated balance sheets.
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. Phexxi was commercially launched in September 2020 with a 30-month shelf life. The shelf life increased to 48 months in June 2022. SOLOSEC has a shelf life of 60 months. The Company uses historical sales and return data to estimate future product returns. Product return estimates are recorded as other current liabilities on the condensed consolidated balance sheets.
The
variable considerations discussed above were recorded in the condensed consolidated balance sheets and consisted of $
4. Debt
Baker Notes (temporarily owned by Aditxt from December 11, 2023 through February 26, 2024 and owned by Future Pak, LLC since July 23, 2024)
On
April 23, 2020, the Company entered into a Securities Purchase and Security Agreement (the Baker Bros. Purchase Agreement) with certain
affiliates of Baker Bros. Advisors LP, as purchasers (the Baker Purchasers), and Baker Bros. Advisors LP, as designated agent, pursuant
to which the Company agreed to issue and sell to the Baker Purchasers (i) convertible senior secured promissory notes (the Baker Notes)
in an aggregate principal amount of up to $
The
Baker Notes have a term, with no pre-payment ability during the first three years. Interest on the unpaid principal balance
of the Baker Notes (the Baker Outstanding Balance) accrues at
The
Baker Notes were callable by the Company on
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On
November 20, 2021, the Company entered into the first amendment to the Baker Bros. Purchase Agreement (the First Baker Amendment), in
which each Baker Purchaser had the right to convert all or any portion of the Baker Notes into common stock at a conversion price equal
to the lesser of (a) $
The
First Baker Amendment extended, effective upon the Company’s achievement of the Financing Threshold, the affirmative covenant
to achieve $
On
March 21, 2022, the Company entered into the second amendment to the Baker Bros. Purchase Agreement (the Second Baker Amendment), which
granted each Baker Purchaser the right to convert all or any portion of the Baker Notes into common stock at a conversion price equal
to the lesser of (a) $
On
September 15, 2022, the Company entered into the third amendment to the Baker Bros. Purchase Agreement (the Third Baker Amendment), pursuant
to which the conversion price was amended to $
On
December 19, 2022, the Company entered into the First Amendment to the Forbearance Agreement (the Amendment) effective as of December
15, 2022 to amend certain provisions of the Forbearance Agreement dated September 15, 2022. The Amendment revised the Forbearance Agreement
to (i) amend the Fifth Recital Clause to clarify that the Purchasers consent to any additional indebtedness pari passu, but not
senior to that of the Purchasers, in an amount not to exceed $
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On
March 7, 2023, Baker Bros. Advisors, LP (the Designated Agent) provided a Notice of Event of Default and Reservation of Rights (the Notice
of Default) relating to the Baker Bros. Purchase Agreement. The Notice of Default claimed that the Company failed to maintain the “Required
Reserve Amount” as required by the Third Baker Amendment. The Designated Agent, at the direction of the Baker Purchasers, accelerated
repayment of the outstanding balance payable. As a result, approximately $
On September 8, 2023, the Company entered into the Fourth Amendment to the Baker Bros. Purchase Agreement (the Fourth Baker Amendment) with the Baker Purchasers. The Fourth Amendment amends certain provisions within the Baker Bros. Purchase Agreement including:
| (i) | the rescission of the Notice of Default delivered to the Company on March 7, 2023 and waiver of the Events of Default named therein; | |
| (ii) | the waiver of any and all other Events of Default existing as of the Fourth Amendment date; | |
| (iii) | the removal of the conversion feature into shares of Company common stock, including the removal of any requirement to reserve shares of common stock for conversion of the Baker Notes as well as any registration rights related thereto; | |
| (iv) | the clarification that for the sole purpose of enabling ex-U.S. license agreements for such assets, any Patents, Trademarks or Copyrights acquired after the Effective Date shall be excluded from the definition of Collateral; and, | |
| (v) | the
removal of the requirement for the Company to achieve $ |
The
outstanding balance of the Baker Notes will continue to accrue interest at
The
Company paid the required $
| Quarterly global net revenue | Quarterly cash payment | |
| ≤ $5.0 million | ||
| >$5.0 million and ≤ $7.0 million | 4% on the net revenue over $5.0 million | |
| Greater than $7.0 million | 4% on the net revenue over $5.0 million and up to $7.0 million; 5% on net revenue over $7.0 million |
The cash payments were payable beginning in the fourth quarter of 2023 and have been timely paid.
Regardless
of the percentage paid, the quarterly cash payment amounts, along with the $
The Fourth Amendment also granted the Company the ability to repurchase the principal amount and accrued and unpaid interest of the Baker Notes for up to a five-year period for the one-time Repurchase Price designated below:
| Date of Notes’ Repurchase | Repurchase Price | |
| On or prior to September 8, 2024 | $ | |
| September 9, 2024-September 8, 2025 | $ | |
| September 9, 2025-September 8, 2026 | $ | |
| September 9, 2026-September 8, 2027 | $ | |
| September 9, 2027-September 8, 2028 | $ |
| 16 |
The Company evaluated whether any of the Embedded Features required bifurcation as a separate component. The Company elected the fair value option (FVO) under ASC 825, Financial Instruments (ASC 825), as the Baker Notes are qualified financial instruments and are, in whole, classified as liabilities. Under the FVO, the Company recognized the debt instrument at fair value, inclusive of the Embedded Features, with changes in fair value related to changes in the Company’s credit risk being recognized as a component of accumulated other comprehensive loss in the condensed consolidated balance sheets. All other changes in fair value were recognized in the condensed consolidated statements of operations.
Due
to the execution of the Fourth Baker Amendment, the Company reviewed the Baker Notes in accordance with ASC 470, Debt (ASC 470).
Because the Baker Notes were recorded under the FVO, the Fourth Amendment was outside the scope of ASC 470-60 and as such did not
qualify as a troubled debt restructuring (TDR). The Baker Notes were evaluated in accordance with ASC 470 and were determined to have
failed certain qualitative factors to qualify as a modification and, therefore, were accounted for as an extinguishment. The Company
removed the fair value of the old Baker Notes of $
As part of the consideration for the Merger, on December 11, 2023, the Baker Purchasers signed an agreement to assign the Baker Notes to Aditxt (the December Assignment Agreement). Upon execution of the December Assignment Agreement, Aditxt assumed all terms under the Baker Notes, with Aditxt becoming the new senior secured debtholder of the Company, governed by the requirements under the Fourth Baker Amendment. The Baker Notes were re-assigned back to the Baker Purchasers on February 26, 2024 (the February Assignment Agreement).
Due
to the execution of the February Assignment Agreement, the Company reviewed the Baker Notes in accordance with ASC 470. The Baker Notes,
having been effectively terminated, were extinguished on February 26, 2024, resulting in removing the fair value of the old Baker Notes
of $
On
July 23, 2024, the Company consented to the transfer of ownership of the senior secured notes from Baker Brothers Life Sciences,
667, L.P., and Baker Bros. Advisors, LP, each a Delaware limited partnership (collectively, Baker) to Future Pak, LLC, a Michigan
limited liability company (the Assignee). The terms of the senior secured notes were not changed in connection with the assignment
from Baker to the Assignee. Due to the July 2024 assignment, the Company reviewed the Baker Notes in accordance with ASC 470. The
Baker Notes, having been effectively terminated, were extinguished on July 23, 2024, resulting in removing the fair value of the old
Baker Notes of $
The
Company did not repurchase the Baker Notes prior to September 8, 2024 for a repurchase price of $
On September 27, 2024, the Assignee, as agent for the Purchasers (in such capacity, the Designated Agent) provided a Notice of Event of Default and Reservation of Rights (the September 2024 Notice of Default) relating to the Securities Purchase and Security Agreement dated April 23, 2020, as amended, by and among the Company, Designated Agent, as certain guarantors and the purchasers (each a Purchaser and collectively Purchasers). The September 2024 Notice of Default claims that by entering into arrangements to repay certain existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the SPA.
According to the Notice of Default, the Designated Agent has accelerated repayment of the outstanding principal balance owed by the Company under the Securities Purchase Agreement. If all Purchasers exercise the Section 5.7 Option (as defined below), the repurchase price would be equal to the total outstanding balance, including principal and accrued interest. Pursuant to Section 5.7(b) of the SPA, upon the occurrence of an Event of Default, each Purchaser may elect, at its option, to require the Company to repurchase the Note held by such Purchaser (or any portion thereof) at a repurchase price equal to two times the sum of the outstanding principal balance and all accrued and unpaid interest thereon, due within three business days after such Purchaser delivers a notice of such election (the Section 5.7 Option).
On October 27, 2024, the Designated Agent sent an amended and supplemented notice to the Initial Notice of Default (the Amended Notice of Default) which adds new claims of default based on the Company’s current repayment agreements of existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the Baker Bros. Purchase Agreement, as amended. Furthermore, the Amended Notice stated that, because the events of default described in the Amended Notice of Default are not the certain prior events of default listed in the Forbearance Agreement (Specified Defaults), the Designated Agent and the holders of the senior secured promissory notes described in the SPA thereby provided notice to the Company that the Forbearance Agreement is terminated as of October 27, 2024.
On November 8, 2024,
The Company strongly disagrees with the Designated Agent’s claim that an Event of Default has occurred. The Company intends to vigorously contest any attempt by the Designated Agent and the Purchasers to exercise their default rights and remedies under the SPA.
Adjuvant Notes
On
October 14, 2020, the Company entered into a Securities Purchase Agreement (the Adjuvant Purchase Agreement) with Adjuvant Global Health
Technology Fund, L.P., and Adjuvant Global Health Technology Fund DE, L.P. (together, the Adjuvant Purchasers), pursuant to which the
Company sold unsecured convertible promissory notes (the Adjuvant Notes) in aggregate principal amount of $
The
Adjuvant Notes have a term and, in connection with certain Company change of control transactions, the Adjuvant Notes may be
prepaid at the option of the Company or will become payable on the date of the consummation of a change of control transaction at the
option of the Adjuvant Purchasers. The Adjuvant Notes accrue interest at
| 17 |
Interest expense for the Adjuvant Notes consists of the following, and is included in other expense, net on the condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Coupon interest | $ | $ | $ | $ | ||||||||||||
| Amortization of issuance costs | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The
Adjuvant Notes are convertible, subject to customary
On
April 4, 2022, the Company entered into the first amendment to the Adjuvant Purchase Agreement (the Adjuvant Amendment). The Adjuvant
Amendment extended the affirmative covenant to achieve $
The Adjuvant Notes contain various customary affirmative and negative covenants agreed to by the Company. On September 12, 2022, the Company was in default of the Adjuvant Notes due to the default with the Baker Notes under the cross-default provision. On September 15, 2022, the Company entered into a Forbearance Agreement (the Adjuvant Forbearance Agreement) with the Adjuvant Purchasers, pursuant to which the Adjuvant Purchasers agreed to forbear from exercising any of their rights and remedies during the Forbearance Period as defined in therein, but solely with respect to the specified events of default provided under the Adjuvant Forbearance Agreement.
On
September 15, 2022, the Company also entered into the second amendment to the Adjuvant Purchase Agreement (the Second Adjuvant Amendment),
pursuant to which the conversion price per share was reduced to $
| 18 |
The
Adjuvant Notes are accounted for in accordance with authoritative guidance for convertible debt instruments and are classified as current
liabilities in the condensed consolidated balance sheets. The aggregate proceeds of $
The Company was in default of the Adjuvant Notes as of September 30, 2023, due to the failure to meet the cumulative net sales requirement. However, Adjuvant forbore such default in October 2023 and therefore the Company is no longer in default.
As
of September 30, 2024, the Adjuvant Notes are recorded in the condensed consolidated balance sheet as short-term convertible notes payable
with a total balance of $
Term Notes
December 2022 and February, March, April, July, August, and September 2023 Notes (SSNs)
The
Company entered into eight Securities Purchase Agreements (SPAs) between December 2022 and September 2023 with certain investors.
Each of the agreements was materially similar. The variable details of each SPA, such as the principal amount of each note offering,
net proceeds, and maturity date, are outlined in the table below. Pursuant to each SPA, the Company agreed to sell in a registered
direct offering (i) unsecured
The
SSNs’ interest rates are subject to increase to
The Company evaluated the SSNs in accordance with ASC 480 and determined that the Notes were all liability instruments at issuance. The applicable SSNs were then evaluated in accordance with the requirements of ASC 825 and the Company concluded that they were not precluded from electing the fair value option for the applicable SSNs.
| 19 |
The Company also evaluated the Warrants in accordance with ASC 480 and determined that the Warrants issued before the Reverse Stock Split in May 2023 were required to be recorded as liabilities at fair value in the Company’s condensed consolidated balance sheets. The applicable SSNs were marked-to-market at each reporting date with changes in fair value recognized in the condensed consolidated statement of operations, unless the change is concluded to be related to changes in the Company’s credit rating, in which case the change was recognized as a component of accumulated other comprehensive loss in the condensed consolidated balance sheets. As a result of the Reverse Stock Split, the Company had sufficient shares available for issuance to cover the potential exercises; therefore, the Warrants that were previously classified as liabilities were marked-to-market and reclassified to equity in May 2023. For the Warrants issued after the Reverse Stock Split, the Company determined they were required to be recorded in equity.
On
December 21, 2023, warrants to purchase up to
Summary of SSNs and Warrants at Issuance (December 2022 to September 2023):
| Conversion Price | ||||||||||||||||||||||||||||||||||||||||||
| Notes | Principal At Issuance (in Thousands) | Net Proceeds Before Issuance Costs (in Thousands) | Common Warrants | Preferred Shares | Maturity Date | At Issuance | At 9/30/2023 | At 12/31/2023 | At 3/31/2024 | At 6/30/2024 | At 9/30/2024 | |||||||||||||||||||||||||||||||
| December 2022 Notes | $ | $ | - Series D | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| February 2023 Notes(1) | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| March 2023 Notes | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| March 2023 Notes(2) | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| April 2023 Notes | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| July 2023 Notes | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| August 2023 Notes | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| September 2023 Notes(3) | - | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Total Offerings | $ | $ | ||||||||||||||||||||||||||||||||||||||||
| (1) | |
| (2) | |
| (3) |
Short-term Debt
Insurance Premium Finance Agreement
In
June 2024, the Company entered into an insurance premium finance agreement with First Insurance Funding (FIF) to finance a portion of
its current policy year’s Directors and Officers (D&O) and general insurance policies. The total amount financed was $
| 20 |
5. Balance Sheet Details
Inventories
Inventories consist of the following (in thousands) for the period indicated:
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials (1) | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods (1)(2) | ||||||||
| Total | $ | $ | ||||||
| (1) | |
| (2) |
Prepaid and Other Current Assets
Prepaid and other current assets consist of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Insurance | $ | $ | ||||||
| Research & development | ||||||||
| Short-term deposits | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
| Useful Life | September 30, 2024 | December 31, 2023 | ||||||||||
| Research equipment | $ | $ | ||||||||||
| Computer equipment and software | ||||||||||||
| Construction in-process | - | |||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||||
| Total, net | $ | $ | ||||||||||
Depreciation
expense for property and equipment was immaterial in both the three and nine months ended September 30, 2024. Depreciation expense
for property and equipment was immaterial and $
Intangible Asset, Net
Intangible asset, net, consists of the following (in thousands):
| Useful Life | September 30, 2024 | December 31, 2023 | ||||||||
| Intellectual property | $ | $ | ||||||||
| Less: accumulated amortization | ( | ) | ||||||||
| Total, net | $ | $ | ||||||||
The
intangible asset relates entirely to the asset acquired with the SOLOSEC asset acquisition and as described further in Note
7 – Commitments and Contingencies, the useful life is based on the SOLOSEC IP patent expiration. Additional acquired
intellectual property could have a different useful life. Amortization expense was $
| 21 |
Accrued Expenses
Accrued expenses consist of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Clinical trial related costs | $ | $ | ||||||
| Accrued royalty | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
6. Fair Value of Financial Instruments
Fair Value of Financial Liabilities
The following tables summarize the Company’s convertible debt instruments as of September 30, 2024 and December 31, 2023, respectively (in thousands):
| Fair Value | ||||||||||||||||||||||
| As of September 30, 2024 | Principal Amount | Unamortized Issuance Costs | Accrued Interest | Net Carrying Amount | Amount | Leveling | ||||||||||||||||
| Baker Notes(1)(2) | $ | $ | $ | $ | $ | Level 3 | ||||||||||||||||
| Adjuvant Notes(3) | N/A | N/A | ||||||||||||||||||||
| December 2022 Notes(1) | Level 3 | |||||||||||||||||||||
| February 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| March 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| April 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| July 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| August 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| September 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| Totals | $ | $ | $ | $ | $ | N/A | ||||||||||||||||
| Fair Value | ||||||||||||||||||||||
| As of December 31, 2023 | Principal Amount | Unamortized Issuance Costs | Accrued Interest | Net Carrying Amount | Amount | Leveling | ||||||||||||||||
| Baker Notes(1)(2) | $ | $ | $ | $ | $ | Level 3 | ||||||||||||||||
| Adjuvant Notes(3) | ( | ) | N/A | N/A | ||||||||||||||||||
| December 2022 Notes(1) | Level 3 | |||||||||||||||||||||
| February 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| March 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| April 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| July 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| August 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| September 2023 Notes (1) | Level 3 | |||||||||||||||||||||
| Totals | $ | $ | ( | ) | $ | $ | $ | N/A | ||||||||||||||
| (1) |
| (2) |
| (3) |
| 22 |
The following tables summarize the Company’s derivative liabilities as of September 30, 2024 and December 31, 2023 as discussed in Note 8 – Convertible and Redeemable Preferred Stock and Stockholders’ Deficit (in thousands):
| Fair Value | ||||||||||||
| September 30, 2024 | December 31, 2023 | Leveling | ||||||||||
| Purchase rights | $ | $ | Level 3 | |||||||||
| Total derivative liabilities | $ | $ | ||||||||||
Change in Fair Value of Level 3 Financial Liabilities
The following table summarizes the changes in Level 3 financial liabilities related to Baker Notes and SSNs measured at fair value on a recurring basis for the three and nine months ended September 30, 2024 (in thousands):
| Baker Notes (Assigned to Future Pak; Note 4) | Total SSNs (Note 4) | Total | ||||||||||
| Balance at June 30, 2024 | $ | $ | $ | |||||||||
| Balance at issuance | ||||||||||||
| Extinguishment/conversion | ( | ) | ( | ) | ||||||||
| Payments | ( | ) | ( | ) | ||||||||
| Change in fair value presented in the condensed consolidated statements of comprehensive income (loss) | ( | ) | ||||||||||
| Balance at September 30, 2024 | $ | $ | $ | |||||||||
Baker Notes (Assigned to Future Pak; Note 4) | Total SSNs (Note 4) | Total | ||||||||||
| Balance at December 31, 2023 | $ | $ | $ | |||||||||
| Balance at issuance | ||||||||||||
| Extinguishment/conversion | ( | ) | ( | ) | ( | ) | ||||||
| Payments | ( | ) | ( | ) | ||||||||
| Change in fair value presented in the condensed consolidated statements of comprehensive income (loss) | ( | ) | ||||||||||
| Balance at September 30, 2024 | $ | $ | $ | |||||||||
The following table summarizes the changes in Level 3 financial liabilities related to Baker Notes and SSNs measured at fair value on a recurring basis for the three and nine months ended September 30, 2023 (in thousands):
| Baker Notes | Total SSNs (Note 4) | Total | ||||||||||
| Balance at June 30, 2023 | $ | $ | $ | |||||||||
| Balance at issuance | ||||||||||||
| Debt repayment | ( | ) | ( | ) | ||||||||
| Extinguishment | ( | ) | - | ( | ) | |||||||
| Change in fair value presented in the condensed consolidated statements of comprehensive income (loss) | ||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | |||||||||
| Baker Notes | Total SSNs (Note 4) | Total | ||||||||||
| Balance at December 31, 2022 | $ | $ | $ | |||||||||
| Balance at issuance | ||||||||||||
| Debt repayment | ( | ) | ( | ) | ||||||||
| Extinguishment | ( | ) | ( | ) | ||||||||
| Change in fair value presented in the condensed consolidated statements of comprehensive income (loss) | ( | ) | ( | ) | ||||||||
| Balance at September 30, 2023 | $ | $ | $ | |||||||||
| 23 |
The following table summarizes the changes in Level 3 financial liabilities related to derivative liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2024 (in thousands):
| Purchase Rights | Derivative Liabilities Total | |||||||
| Balance at June 30, 2024 | $ | $ | ||||||
| Exercises | ( | ) | ( | ) | ||||
| Change in fair value presented in the condensed consolidated statements of operations | ( | ) | ( | ) | ||||
| Balance at September 30, 2024 | $ | $ | ||||||
| Purchase Rights | Derivative Liabilities Total | |||||||
| Balance at December 31, 2023 | $ | $ | ||||||
| Balance at issuance | ||||||||
| Exercises | ( | ) | ( | ) | ||||
| Change in fair value presented in the condensed consolidated statements of operations | ( | ) | ( | ) | ||||
| Balance at September 30, 2024 | $ | $ | ||||||
The following tables summarize the changes in Level 3 financial liabilities related to derivative liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2023 (in thousands). There was no such activity for the three months ended September 30, 2023.
| April and June 2020 Baker Warrants | May 2022 Public Offering Common Warrants | June 2022 Baker Warrants | December 2022 Warrants | February and March 2023 Warrants | Purchase Rights | Derivative Liabilities Total | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Balance at issuance | ||||||||||||||||||||||||||||
| Exercises | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Change in fair value presented in the condensed consolidated statements of operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Reclassified to equity | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| 24 |
Valuation Methodology
From the third quarter of 2022 through the second quarter of 2023, the fair value of the Baker Notes issued, as described in Note 4 – Debt, and subsequent changes in fair value recorded at each reporting date, was determined by estimating the fair value of the Market Value of Invested Capital (MVIC) of the Company. This was estimated using forms of the cost and market approaches. In the Cost approach, an adjusted net asset value method was used to determine the net recoverable value of the Company, including an estimate of the fair of the Company’s intellectual property. The estimated fair value of the Company’s intellectual property was valued using a relief from royalty method which required management to make significant estimates and assumptions related to forecasts of future revenue, and the selection of the royalty and discount rates. The guideline public company method served as another valuation indicator. In this form of the Market approach, comparable market revenue multiples were selected and applied to the Company’s forward revenue forecast to ultimately derive a MVIC indication. If the resulting fair value from these approaches was not estimated as greater than the contractual payout, the fair value of the Baker Notes became only the Company MVIC available for distribution to this first lien note holder.
Starting
in the third quarter of 2023, the fair value of the Baker Notes is determined using a Monte Carlo simulation-based model. The Monte Carlo
simulation was used to take into account several embedded features and factors, including the exercise of the repurchase right, the Company’s
future revenues, meeting certain debt covenants, the maturity term of the note and dissolution. For the dissolution scenario, the cost
approach, an adjusted net asset value method was used to determine the net recoverable value of the Company, including an estimate of
the fair value of the Company’s intellectual property. The estimated fair value of the Company’s intellectual property was
valued using a relief from royalty method which required management to make significant estimates and assumptions related to forecasts
of future revenue, and the selection of the royalty (
The fair value of the Baker Notes is subject to uncertainty due to the assumptions that are used in the Monte Carlo simulation-based model. These factors include but are not limited to the Company’s future revenue, and the probability and timing of the exercise of the repurchase right. The fair value of the Baker Notes is sensitive to these estimated inputs made by management that are used in the calculation.
SSNs
The
fair values of the SSNs issued, as described in Note 4 – Debt, were determined using the methods
described above in Valuation Methodology using the residual value of the Company after the fair value of the Baker Notes. The
quarterly valuation adjustments for the three and nine months ended September 30, 2024 were respectively recorded as a $
Purchase Rights
The Adjuvant Purchase Rights and the May Note Purchase Rights (collectively Purchase Rights) are recorded as derivative liabilities in the condensed consolidated balance sheets. The Purchase Rights are valued using an OPM, like a Black-Scholes Methodology, with changes in the fair value being recorded in the condensed consolidated statements of operations. The assumptions used in the OPM are considered level 3 assumptions and include, but are not limited to, the market value of invested capital, the cumulative equity value of the Company as a proxy for the exercise price and the expected term the Purchase Rights will be held prior to exercise and a risk-free interest rate.
Warrants
Warrants previously classified as liabilities were reclassified as equity instruments during the second quarter of 2023 as a result of the Reverse Stock Split. The Company will continue to re-evaluate the classification of its warrants at the close of each reporting period to determine their proper balance sheet classification. The warrants are valued using an OPM based on the applicable assumptions, which include the exercise price of the warrants, time to expiration, expected volatility of our peer group, risk-free interest rate, and expected dividends. The assumptions used in the OPM are considered level 3 assumptions and include, but are not limited to, the market value of invested capital, the cumulative equity value of the Company as a proxy for the exercise price, the expected term the warrants will be held prior to exercise, a risk-free interest rate, and probability of change of control event. Additionally, because the warrants are re-priced under certain provisions in the agreements, at each re-pricing event the Company must value the warrants using a Black-Scholes model immediately prior to and immediately following the re-pricing event. The incremental fair value is recorded as an increase to accumulated deficit and additional paid-in-capital, in accordance with ASC 470.
| 25 |
SOLOSEC Asset Acquisition Intangible Asset and Contingent Liabilities
The
total consideration for the SOLOSEC asset acquisition included an up-front payment (paid at closing), sales-based payments to be
paid over the next 15 years (the Earnout Term) in each year in which SOLOSEC adjusted net revenue is over a specified threshold, a
$
The fair value of the total consideration, including cash paid and future sales-based payments, is determined using a Monte Carlo simulation model, which assumes the Company’s revenue follows a geometric Brownian motion. Using specific revenue factors, including expected growth, risk adjustments, and revenue volatility, future revenues were simulated through the Earnout Term to assess whether sales-based payments would be triggered in each relevant period, as stipulated by the SOLOSEC Asset Purchase Agreement. The average output of the Monte Carlo simulations for each period provides the expected payment value, which is then discounted to its present value to derive the fair value of future sales-based payments and recorded as contingent liabilities. The discount rate is based on (i) the risk-free rate, plus (ii) a credit spread reflecting the Company’s interest-bearing debt, (iii) an additional spread to account for credit migration as of the valuation date, and (iv) a further incremental spread to reflect that the contingent liabilities is subordinated obligations relative to the Company’s other debt obligations.
The fair value of the SOLOSEC contingent liabilities is subject to uncertainty due to the assumptions made by management that are used in the Monte Carlo simulation-based model. These factors include the estimated future SOLOSEC net revenue, the risk-neutral revenue calculation and simulation assumptions, payment timing, and the discount rate.
The fair value of the SOLOSEC contingent liabilities will be updated at each reporting period using the methodology described above. Any changes to the fair value will be recorded as an adjustment to the carrying value of both the contingent liabilities and the SOLOSEC IP intangible asset as per ASC 323, Investments – Equity Method and Joint Ventures (ASC 323). Periodic intangible amortization will also be updated based on the new fair value of the SOLOSEC IP.
7. Commitments and Contingencies
Asset Acquisition and Contingent Liabilities
SOLOSEC
The Company
reviewed the SOLOSEC acquisition in accordance with ASC 805, Business Combinations (ASC 805), including applying the screen
test, and determined that it was out of scope of the ASC 805 because the acquired asset did not constitute a business or nonprofit
activity. In accordance with ASC 805, the Company engaged a third-party valuation specialist to provide a fair value for the SOLOSEC
IP as well as for the total consideration. Per the valuation, the fair value of the SOLOSEC IP exceeded 90% of the total
consideration, which indicates that the screen test failed. Further, the Company did not acquire any substantive processes, which indicates that the acquisition
is an asset acquisition rather than a business combination. The Company recorded the fair value of the future sales-based payments
as contingent liabilities in accordance with ASC 450, Contingencies (ASC 450) and the fair value of the total consideration
plus the transaction costs as an intangible asset in accordance with ASC 350, Intangibles (ASC 350). The total
intangible asset will be amortized over the expected remaining useful life of the assets, which is
Per
the Transition Services Agreement (TSA) entered into in conjunction with the SOLOSEC asset acquisition, the Company is committed to
purchasing finished goods inventory from the seller through a transition period ending in November 2026 at a pre-defined unit price.
The total expected commitment is approximately $
The Company is
also obligated to pay a quarterly royalty in amounts equal to a certain percentage of the SOLOSEC net revenue, beginning July 14,
2024. There are
Operating Leases
Fleet Lease
In
December 2019, the Company and Enterprise FM Trust (the Lessor) entered into a Master Equity Lease Agreement whereby the Company leases
vehicles to be delivered by the Lessor from time to time with various monthly costs depending on whether the vehicles are delivered for
a term of
In
September 2022, the Company extended the lease term of the vehicles with a term of
2020 Lease and the First Amendment
On
October 3, 2019, the Company entered into an office lease for approximately
On
April 14, 2020, the Company entered into the first amendment to the 2020 Lease for an additional
On
March 20, 2023, the Company received a notice of default from its landlord for failing to timely pay March 2023 rent, resulting in a
breach under the agreement. As a result, the Company’s letter of credit in the amount of $
| 26 |
2022 Sublease
On
May 27, 2022, the Company entered into a sublease agreement with AMN Healthcare, Inc. (AMN), pursuant to which the Company agreed to
sublease
Supplemental Financial Statement Information
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| Lease Cost (in thousands) | Classification | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease expense | Research and development | $ | $ | $ | $ | |||||||||||||
| Operating lease expense | Selling and marketing | |||||||||||||||||
| Operating lease expense | General and administrative | |||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||
| Lease Term and Discount Rate | September 30, 2024 | December 31, 2023 | ||||||
| Weighted Average Remaining Lease Term (in years) | ||||||||
| Weighted Average Discount Rate | % | % | ||||||
| Maturity of Operating Lease Liabilities (in thousands) | September 30, 2024 | |||
| Remainder of 2024 (3 months) | $ | |||
| Year ending December 31, 2025 | ||||
| Year ending December 31, 2026 | ||||
| Total lease payments | ||||
| Less imputed interest | ( |
) | ||
| Total | $ | |||
| Nine Months Ended September 30, | ||||||||
| Other information (in thousands) | 2024 | 2023 | ||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash outflows in operating leases | $ | $ | ||||||
Other Contractual Commitments
In
November 2019, the Company entered into a supply and manufacturing agreement with a third-party to manufacture Phexxi, with
potential to manufacture other product candidates, in accordance with all applicable current good manufacturing practice
regulations. There were approximately $
| 27 |
Contingencies
From time to time the Company may be involved in various lawsuits, legal proceedings, or claims that arise in the ordinary course of business. As of September 30, 2024, there were no other claims or actions pending against the Company which management believes have a probable, or a reasonably possible, probability of an unfavorable outcome other than the TherapeuticsMD dispute as described below.
During the nine months ended September 30, 2023, the Company settled a portion of its trade payables with numerous
vendors, which resulted in a $
On
December 14, 2020, a trademark dispute captioned TherapeuticsMD, Inc. v Evofem Biosciences, Inc., was filed in the U.S. District Court
for the Southern District of Florida against the Company, alleging trademark infringement of certain trademarks owned by TherapeuticsMD
under federal and state law (Case No. 9:20-cv-82296). On July 18, 2022, the Company settled the lawsuit with TherapeuticsMD, with certain
requirements which were required to be performed by July 2024 (the Settlement Timeline), including changing the name of Phexxi. The Company
failed to meet the terms of the settlement agreement by the Settlement Timeline. As a result, the Company is currently working with TherapeuticsMD
on resolution of this issue. In accordance with ASC 450, the Company has accrued $
As of November 13, 2024, the Company has received five letters from purported Company stockholders demanding that the Company’s board of directors take action on behalf of the Company to remedy allegations regarding the Company’s disclosures to shareholders with respect to various alleged omissions of material information in its preliminary proxy statement filed September 23, 2024 relating to the Amended and Restated Merger Agreement, as amended, and one demand made under Section 220 of the DGCL for books and records related to the transaction and disclosures in the proxy statement. The Company believes all such demands are without merit.
On
September 27, 2024, Future Pak, LLC, a Michigan limited liability company, as agent for the Purchasers (in such capacity, the Designated
Agent) provided a Notice of Event of Default and Reservation of Rights (the Notice of Default) relating to the Securities Purchase and
Security Agreement dated April 23, 2020, as amended (SPA), by and among the Company, Designated Agent, as certain guarantors and the
purchasers (each a Purchaser and collectively Purchasers). The Notice of Default claims that by entering into arrangements
to repay certain existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default
has occurred under Section 9.1(e) of the SPA. According to the Notice of Default, the Designated Agent has accelerated repayment of the
outstanding principal balance owed by the Company under the Securities Purchase Agreement. If all Purchasers exercise the Section 5.7
Option (as defined below), the repurchase price would be equal to approximately $
On October 27, 2024, the Designated Agent sent an amended and supplemented notice to the Notice of Default which adds additional claims of default based on the Company’s current repayment agreements of existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the Securities Purchase and Security Agreement dated April 23, 2020, as amended. Furthermore, the Amended Notice stated that, because the events of default described in the Amended Notice of Default are not the certain prior events of default listed in the Forbearance Agreement (the Specified Defaults), the Designated Agent and the holders of the senior secured promissory notes described in the SPA thereby provided notice to the Company that the Forbearance Agreement is terminated as of October 27, 2024. The Company strongly disagrees with the Designated Agent’s claim that any Event of Default has occurred. The Company intends to vigorously contest any attempt by the Designated Agent and the Purchasers to exercise their default rights and remedies under the SPA.
On
November 8, 2024,
Intellectual Property Rights
In
2014, the Company entered into an amended and restated license agreement (the Rush License Agreement) with Rush University Medical Center
(Rush University) pursuant to which Rush University granted the Company an exclusive, worldwide license of certain patents and know-how
related to its multipurpose vaginal pH modulator technology. For the U.S. patent that the Company licensed from Rush University, multiple
Orders Granting Interim Extension (OGIEs) have been received from the United States Patent and Trademark Office (USPTO), currently extending
the expiration of this patent to March 2025. Pursuant to the Rush License Agreement, the Company is obligated to pay Rush University
an earned royalty based upon a percentage of net sales in the range of mid-single digits until the expiration of this patent. In September
2020, the Company entered into the first amendment to the Rush License Agreement, pursuant to which the Company is also obligated to
pay a minimum annual royalty amount of $
8. Convertible and Redeemable Preferred Stock and Stockholders’ Deficit
Warrants
In
April and June 2020, pursuant to the Baker Bros. Purchase Agreement, as discussed in Note 4 – Debt, the Company
issued warrants to purchase up to
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In
May 2022, the Company completed an underwritten public offering (the May 2022 Public Offering) which included the issuance of common
warrants to purchase
In
June 2022, as required by the Second Baker Amendment, the Company issued the June 2022 Baker Warrants to purchase up to
In
February, March, April, July, August, and September 2023, pursuant to the SSNs as discussed in Note 4 – Debt,
the Company issued warrants to purchase up to
On December 21, 2023, warrants to purchase up to shares of the Company’s common stock were exchanged for shares of the Company’s Series F-1 Shares.
As
of September 30, 2024, warrants to purchase up to
| Type of Warrants | Underlying common stock to be Purchased | Exercise Price | Issue Date | Exercise Period | ||||||||
| Common Warrants | $ | May 24, 2018 | ||||||||||
| Common Warrants | $ | April 11, 2019 | ||||||||||
| Common Warrants | $ | June 10, 2019 | ||||||||||
| Common Warrants | $ | April 24, 2020 | ||||||||||
| Common Warrants | $ | June 9, 2020 | ||||||||||
| Common Warrants | $ | January 13, 2022 | ||||||||||
| Common Warrants | $ | March 1, 2022 | ||||||||||
| Common Warrants | $ | May 4, 2022 | ||||||||||
| Common Warrants | $ | May 24, 2022 | ||||||||||
| Common Warrants | $ | June 28, 2022 | ||||||||||
| Common Warrants | $ | December 21, 2022 | ||||||||||
| Common Warrants | $ | February 17, 2023 | ||||||||||
| Common Warrants | $ | March 20, 2023 | ||||||||||
| Common Warrants | $ | April 5, 2023 | ||||||||||
| Common Warrants | $ | July 3, 2023 | ||||||||||
| Common Warrants | $ | August 4, 2023 | ||||||||||
| Common Warrants | $ | September 27, 2023 | ||||||||||
| Prefunded Common Warrants | $ | September 27, 2023 | ||||||||||
| Total | ||||||||||||
Preferred Stock
Effective December 15, 2021, the Company amended and restated its certificate of incorporation, under which the Company is currently authorized to issue up to shares of total preferred stock, including the authorized convertible and redeemable preferred stock designated for Series B-1 and B-2, Series C, Series E-1, and Series F-1, and nonconvertible and redeemable preferred stock (Series D), par value $ per share.
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Convertible and Redeemable Preferred Stock
On
August 7, 2023, the Company filed a Certificate of Designation of Series E-1 Convertible Preferred Stock (E-1 Certificate of Designation),
par value $ per share (the Series E-1 Shares). An aggregate of shares was authorized. The Series E-1 Shares are convertible
into shares of common stock at a conversion price of $
On
August 7, 2023, certain investors party to the December 2022 Notes and the February 2023 Notes exchanged $
On
December 11, 2023, the Company filed a Certificate of Designation of Series F-1 Convertible Preferred Stock (F-1 Certificate of Designation),
par value $ per share (the Series F-1 Shares). An aggregate of shares was authorized. The Series F-1 Shares are convertible
into shares of common stock at a conversion price of $
On
December 21, 2023, the Company issued a total of Series F-1 Shares to certain investors, including 613 shares exchanged for warrants
to purchase up to
During the third quarter of 2024, as part of the funding requirement by Aditxt pursuant to the A&R Merger Agreement, the Company issued a total of Series F-1 Shares to Aditxt for an aggregate purchase price of approximately $million. These shares were recorded at fair value with the variance between the immaterial fair value and the $ million cash received being recorded as additional paid-in-capital in the condensed consolidated balance sheet as of September 30, 2024. As discussed in Note 10 - Subsequent events, subsequent to September 30, 2024, the Company issued a total of Series F-1 Shares to Aditxt for an aggregate purchase price of $ million.
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Nonconvertible and Redeemable Preferred Stock
On
December 16, 2022, the Company filed a Certificate of Designation of Series D Non-Convertible Preferred Stock (the D Certificate of Designation),
par value $ per share (the Series D Preferred Shares). An aggregate of shares was authorized; these shares were not convertible
into shares of common stock, had limited voting rights equal to
Common Stock
Effective September 14, 2023, the Company further amended its amended and restated certificate of incorporation to increase the number of authorized shares of common stock to shares.
Purchase Rights
On September 15, 2022, the Company entered into certain exchange agreements with the Adjuvant Purchasers and the May 2022 Notes Purchasers to exchange, upon request, the Purchase Rights for an aggregate of shares of the Company’s common stock. The number of right shares for each Purchase Right was initially fixed at issuance, but subject to certain customary adjustments for certain dilutive Company equity issuances until the second anniversary of issuance. These Purchase Rights expire on June 28, 2027. Refer to Note 6 – Fair Value of Financial Instruments for the accounting treatment of the Purchase Rights.
In
2023, the Company signed an additional agreement with the holders of the Purchase Rights which fixed the total aggregate value of the
Purchase Rights at $
In
connection with the issuance of the SSNs, during the three and nine months ended September 30, 2024, the number of outstanding
Purchase Rights increased by
During the three and nine months ended September 30, 2024, the Company issued and shares of common stock upon the exercise of certain Purchase Rights, respectively. During the three and nine months ended September 30, 2023, the Company issued and shares of common stock upon the exercise of certain Purchase Rights, respectively. As of September 30, 2024, Purchase Rights of shares of the Company’s common stock remained outstanding.
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance is as follows in common equivalent shares as of September 30, 2024:
| Common stock issuable upon the exercise of stock options outstanding | ||||
| Common stock issuable upon the exercise of common stock warrants | ||||
| Common stock available for future issuance under the 2019 ESPP | ||||
| Common stock available for future issuance under the Amended and Restated 2014 Plan | ||||
| Common stock available for future issuance under the Amended Inducement Plan | ||||
| Common stock reserved for the exercise of purchase rights | ||||
| Common stock reserved for the conversion of convertible notes | ||||
| Common stock reserved for the conversion of series E-1 preferred stock | ||||
| Total common stock reserved for future issuance (1) |
| (1) |
Equity Incentive Plans
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Stock Options
There were stock options granted during the three or nine months ended September 30, 2024 or 2023. As of September 30, 2024, unrecognized stock-based compensation expense for employee stock options was approximately $ million, which the Company expects to recognize over a weighted-average remaining period of years, assuming all unvested options become fully vested.
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Employee Stock Purchase Plan
The
purchase price under the 2019 ESPP is % of the lesser of the fair market value of the common stock on the first or the last business
day of an offering period. The maximum number of shares of common stock that may be purchased by any participant during an offering period
is equal to $
Restricted Stock Awards
There were no shares of performance-based RSAs granted to the Company’s executive management team in any period presented.
For performance-based RSAs, (i) the fair value of the award is determined on the grant date; (ii) the Company assesses the probability of achieving each individual milestone associated with the award using reasonable assumptions based on the Company’s operation performance towards each milestone; (iii) the fair value of the shares subject to the milestone is expensed over the implicit service period commencing once management believes the performance criteria is probable of being met; and (iv) the Company reassesses the probability of achieving each individual milestone at each reporting date, and any change in estimate is accounted for through a cumulative adjustment in the period when the change in estimate occurs. Non-performance based RSAs are valued at the fair value on the grant date and the associated expenses will be recognized over the vesting period.
As of September 30, 2024, there was unrecognized noncash stock-based compensation expense related to unvested RSAs.
10. Subsequent Events
Notes Conversions
Subsequent
to September 30, 2024, common shares were issued for conversion of $
Notice of Default and Termination of Forbearance Agreement
On September 27, 2024, Future Pak, LLC, a Michigan limited liability company, as agent for the Purchasers (in such capacity, the Designated Agent) provided a Notice of Event of Default and Reservation of Rights (the Notice of Default) relating to the Securities Purchase and Security Agreement dated April 23, 2020, as amended (SPA), by and among the Company, Designated Agent, as certain guarantors and the purchasers (each a “Purchaser” and collectively Purchasers). The Notice of Default claims that by entering into arrangements to repay certain existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the SPA.
According
to the Notice of Default, the Designated Agent has accelerated repayment of the outstanding principal balance owed by the Company under
the Securities Purchase Agreement. If all Purchasers exercise the Section 5.7 Option (as defined below), the repurchase price would be
equal to approximately $
On October 27, 2024, the Designated Agent sent an amended and supplemented notice to the Notice of Default which adds additional claims of default based on the Company’s current repayment agreements of existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the Securities Purchase and Security Agreement dated April 23, 2020, as amended. Furthermore, the Amended Notice stated that, because the events of default described in the Amended Notice of Default are not the certain prior events of default listed in the Forbearance Agreement (the Specified Defaults), the Designated Agent and the holders of the senior secured promissory notes described in the SPA thereby provided notice to the Company that the Forbearance Agreement is terminated as of October 27, 2024.
Subsequently, on November 8, 2024,
The Company strongly disagrees with the Designated Agent’s claim that any Event of Default has occurred. The Company intends to vigorously contest any attempt by the Designated Agent and the Purchasers to exercise their default rights and remedies under the SPA.
Third Amendment to the A&R Merger Agreement and F-1 Issuance
On October 2, 2024, the Company, Aditxt and Merger Sub entered into the third amendment to the A&R Merger Agreement (the Third Amendment), to (i) change the date of the Third Parent Equity Investment Date (as defined in the A&R Merger Agreement) from September 30, 2024 to October 2, 2024, (ii) change the Third Parent Equity Investment from shares of Series F-1 Preferred Shares to shares of Series F-1 Preferred Shares, and (iii) amend the Fourth Parent Equity Investment (as defined in the A&R Merger Agreement) from shares of Series F-1 Preferred Shares to . Pursuant to the Third Amendment to the A&R Merger Agreement, Aditxt purchased an aggregate of shares of Series F-1 Preferred Shares for an aggregate $million subsequent to September 30, 2024.
Support Agreements
Between October 28 and October 31, 2024, the Company entered into support agreements (each a Support Agreement) with some of its investors (the Investors and each an Investor) pursuant to which the Investors agreed (i) to vote all Subject Shares (as defined in the Support Agreement) that an Investor is entitled to vote at the time any vote to approve and adopt the A&R Merger Agreement and the Merger at any meeting of the stockholders of the Company, and at any adjournment thereof, at which the A&R Merger Agreement is submitted for consideration and vote of the stockholders of the Company, and (ii) that he or it will not vote any Subject Shares in favor of, and will vote such Subject Shares against the approval of, any Company Acquisition Proposal (as defined in the Support Agreement). Each Investor also revoked any and all previous proxies granted with respect to the Subject Shares. The Investors agreed that all shares of Company Capital Stock (as defined in the Support Agreement) that each Investor purchases, acquires the right to vote, or otherwise acquires beneficial ownership of, after the execution of the Support Agreement and prior to the Expiration Date (as defined below) shall be subject to the terms and conditions of the Support Agreement.
Furthermore, the Investors agreed not to sell or transfer any of such Subject Shares until: (a) the A&R Merger Agreement shall have been terminated for any reason; (b) the Merger shall become effective in accordance with the terms and provisions of the A&R Merger Agreement; (c) the acquisition by Aditxt of all Subject Shares of the Investors, whether pursuant to the Merger or otherwise; (d) any amendment, change or waiver to the A&R Merger Agreement as in effect on the date hereof, without each Investor’s consent, that (1) decreases the amount, or changes the form or timing (except with respect to extensions of time of the offer in accordance with the terms of the A&R Merger Agreement) of consideration payable to the Investors pursuant to the terms of the A&R Merger Agreement as in effect on the date hereof or (2) materially and adversely affects such Investor; or (e) is agreed to in writing by Aditxt and each Investor (collectively the Expiration date).
The Investors own collectively an aggregate of shares of Company preferred stock, shares of common stock issuable upon the conversion of convertible notes, shares of common stock issuable upon exercise of warrants, and shares of Company common stock issuable upon any other instrument convertible into Company common stock.
Employment Agreements
On November 8, 2024, the company entered into amended and restated employment agreements with Ms. Pelletier and Ms. Zhang. If Ms. Pelletier is terminated other than for cause or Ms. Pelletier resigns for good reason, then pursuant to her amended employment agreement, the Company will pay and provide to Ms. Pelletier: (i) an amount equal to her target bonus for the year in which the termination occurs and (ii) an amount equal to thirty-six months of her then-current base salary in a lump sum. If Ms. Zhang is terminated other than for cause or Ms. Zhang resigns for good reason, then pursuant to her amended employment agreement, the Company will pay and provide to Ms. Zhang: (i) an amount equal to her target bonus (such bonus percentage was updated to 75%) for the year in which the termination occurs and (ii) an amount equal to twenty-four months of her then-current base salary in a lump sum. The employment agreement is further described under Item 5 of this Quarterly Report on form 10-Q.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The terms “we,” “us,” “our,” “Evofem” or the “Company” refer collectively to Evofem Biosciences, Inc. and its wholly-owned subsidiaries, unless otherwise stated. All information presented in this quarterly report on Form 10-Q (Quarterly Report) is based on our fiscal year. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. Some of the information contained in this discussion and analysis is 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 the “Risk Factors” section of this Quarterly Report, 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.
Overview
We are a San Diego-based commercial-stage biopharmaceutical company with a strong focus on innovation in women’s health. Our first commercial product, Phexxi, was approved by the FDA on May 22, 2020. Phexxi is the first and only non-hormonal prescription contraceptive gel. It is locally acting, with no systemic activity, and used on-demand by women only when they have sex. Because Phexxi is a non-hormonal contraceptive, it is not associated with side effects of exogenous hormone use like depression, weight gain, headaches, loss of libido, mood swings and irritability. Taking hormones may not be right for some women, especially those with certain medical conditions, including clotting disorders hormone-sensitive cancer, diabetes or a BMI over 30, or those who are breast feeding or smoke. More than 23.3 million women in the U.S. will not use a hormonal contraceptive.
Evofem has delivered Phexxi net sales growth in each consecutive year since it was launched in Sept 2020. Key growth drivers for 2024 include expanded use of Phexxi in women who take oral birth control pills in conjunction with GLP-1 prescription medications like Ozempic, Mounjaro and Zepbound for weight loss. These drugs may make oral birth control pills less effective at certain points in the dosing schedule. Per the USPI, prescribers are instructed to “advise patients using oral contraceptives to switch to a non-oral contraceptive method or add a barrier method” to prevent unintended pregnancy during these times.
Outside the U.S., Phexxi was approved in Nigeria on October 6, 2022, as Femidence™ by the National Agency for Food and Drug Administration and Control. To-date, Phexxi has been submitted for approval in Mexico, Ethiopia and Ghana. We intend to commercialize Phexxi in all other global markets through partnerships or licensing agreements.
We halted clinical development of our investigational product candidates in October 2022 to focus resources on growing sales of Phexxi for the prevention of pregnancy.
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On July 17, 2024, we licensed exclusive commercial rights to Phexxi in the Middle East to Pharma 1 Drug Store, an emerging Emirati health care company. The licensed territory includes the United Arab Emirates (UAE), Kuwait, Saudi Arabia, Qatar and certain other countries in the region. Pharma 1 is responsible for obtaining and maintaining any regulatory approvals required to market and sell Phexxi, and will handle all aspects of distribution, sales and marketing, pharmacovigilance and all other commercial functions in these countries. Evofem will supply Phexxi to Pharma 1 at cost-plus. Pharma 1 is expected to file for regulatory approval of Phexxi in the UAE in the fourth quarter of 2024 and is contractually obligated to launch within 60 days of approval.
In July 2024 we acquired global rights to SOLOSEC. This FDA-approved single-dose oral antimicrobial agent provides a complete course of therapy for the treatment of two common sexual health infections – bacterial vaginosis (BV) and trichomoniasis. The SOLOSEC acquisition aligns with and advances our mission to improve access to innovative and differentiated options that impact women’s daily lives. We expect commercialization of SOLOSEC will benefit from our commercial infrastructure and strong physician relationships.
Recent Developments
On October 30, 2024 Evofem paid its outstanding balance, including interest and penalties, to the FDA for its Fiscal Year 2023, 2024 and 2025 Prescription Drug User Fee Act (PDUFA) invoices for Phexxi and the 2025 PDUFA invoice for SOLOSEC.
Notice of Default and Termination of Forbearance Agreement
On September 27, 2024, Future Pak, LLC, a Michigan limited liability company, as agent for the Purchasers (in such capacity, the Designated Agent) provided a Notice of Event of Default and Reservation of Rights (the Notice of Default) relating to the Securities Purchase and Security Agreement dated April 23, 2020, as amended (SPA), by and among the Company, Designated Agent, as certain guarantors and the purchasers (each a “Purchaser” and collectively Purchasers). The Notice of Default claims that by entering into arrangements to repay certain existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the SPA.
According to the Notice of Default, the Designated Agent has accelerated repayment of the outstanding principal balance owed by the Company under the Securities Purchase Agreement. If all Purchasers exercise the Section 5.7 Option (as defined below), the repurchase price would be equal to approximately $106.8 million. Pursuant to Section 5.7(b) of the SPA, upon the occurrence of an Event of Default, each Purchaser may elect, at its option, to require the Company to repurchase the Note held by such Purchaser (or any portion thereof) at a repurchase price equal to two times the sum of the outstanding principal balance and all accrued and unpaid interest thereon, due within three business days after such Purchaser delivers a notice of such election (the Section 5.7 Option).
Subsequently, on October 27, 2024, the Designated Agent sent an amended and supplemented notice to the Notice of Default which adds additional claims of default based on the Company’s current repayment agreements of existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the Securities Purchase and Security Agreement dated April 23, 2020, as amended. Furthermore, the Amended Notice stated that, because the events of default described in the Amended Notice of Default are not the certain prior events of default listed in the Forbearance Agreement (the Specified Defaults), the Designated Agent and the holders of the senior secured promissory notes described in the SPA thereby provided notice to the Company that the Forbearance Agreement is terminated as of October 27, 2024.
The Company strongly disagrees with the Designated Agent’s claim that any Event of Default has occurred. The Company intends to vigorously contest any attempt by the Designated Agent and the Purchasers to exercise their default rights and remedies under the SPA.
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Support Agreements
Between October 28 and October 31, 2024, the Company entered into support agreements (each a Support Agreement) with some of its investors (the Investors and each an Investor) pursuant to which the Investors agreed (i) to vote all Subject Shares (as defined in the Support Agreement) that an Investor is entitled to vote at the time any vote to approve and adopt the A&R Merger Agreement and the Merger at any meeting of the stockholders of the Company, and at any adjournment thereof, at which the A&R Merger Agreement is submitted for consideration and vote of the stockholders of the Company, and (ii) that he or it will not vote any Subject Shares in favor of, and will vote such Subject Shares against the approval of, any Company Acquisition Proposal (as defined in the Support Agreement). Each Investor also revoked any and all previous proxies granted with respect to the Subject Shares. The Investors agreed that all shares of Company Capital Stock (as defined in the Support Agreement) that each Investor purchases, acquires the right to vote, or otherwise acquires beneficial ownership of, after the execution of the Support Agreement and prior to the Expiration Date (as defined below) shall be subject to the terms and conditions of the Support Agreement.
Furthermore, the Investors agreed not to sell or transfer any of such Subject Shares until: (a) the A&R Merger Agreement shall have been terminated for any reason; (b) the Merger shall become effective in accordance with the terms and provisions of the A&R Merger Agreement; (c) the acquisition by Aditxt of all Subject Shares of the Investors, whether pursuant to the Merger or otherwise; (d) any amendment, change or waiver to the A&R Merger Agreement as in effect on the date hereof, without each Investor’s consent, that (1) decreases the amount, or changes the form or timing (except with respect to extensions of time of the offer in accordance with the terms of the A&R Merger Agreement) of consideration payable to the Investors pursuant to the terms of the A&R Merger Agreement as in effect on the date hereof or (2) materially and adversely affects such Investor; or (e) is agreed to in writing by Aditxt and each Investor (collectively the Expiration date).
The Investors own collectively an aggregate of 1,468 shares of Company preferred stock, 364,539,337 shares of common stock issuable upon the conversion of convertible notes, 9,549,716 shares of common stock issuable upon exercise of warrants, and 788,983,896 shares of Company common stock issuable upon any other instrument convertible into Company common stock.
Issuance of Series F-1 Preferred Shares to Aditxt
In October 2024, the Company received $2.7 million, in aggregate, from the sale of Series F-1 preferred stock to Aditxt, Inc. under the A&R Merger Agreement, as discussed in detail below.
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Aditxt Merger
On December 11, 2023, the Company entered into an Agreement and Plan of Merger, as amended, (the Merger Agreement) with Aditxt, Inc., a Delaware corporation (Aditxt), Adifem, Inc., a Delaware corporation and wholly-owned Subsidiary of Aditxt (Merger Sub), pursuant to which, and on the terms and subject to the conditions thereof, Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Aditxt (the Merger).
On July 12, 2024, the Company, the Merger Sub and Aditxt entered into the Amended and Restated Merger Agreement (the A&R Merger Agreement) which amends and restates in its entirety the Agreement and Plan of Merger (as amended January 10, 2024, January 30, 2024, February 29, 2024, and May 2, 2024 (collectively, the Original Merger Agreement)). Except as described below, the terms and provisions of the A&R Merger Agreement are consistent with the terms and provision of the Original Merger Agreement.
| ● | As consideration for the Merger, Parent will (i) pay $1.8 million less an amount equal to the product of (x) the number of Dissenting Shares represented by Company Common Stock and (y) the Common Exchange Ratio (as defined in the A&R Merger Agreement) (the Common Consideration) | |
| ● | Each share of the Company’s Series E-1 Preferred Stock, par value $0.0001 (the Series E-1), issued and outstanding as of the Effective Time (as defined in the A&R Merger Agreement) shall automatically be converted into the right to receive from Aditxt one share Parent Preferred Stock (the Preferred Merger Consideration) |
At the Effective Time of the Merger:
| (i) | The Company Convertible Note Holders will enter into an Exchange Agreement, pursuant to which these Note Holders exchange the value of their then-outstanding Company Convertible Notes and purchase rights for an aggregate of not more than 88,161 shares of Parent Preferred Stock. | |
| (ii) | Each stock option of the Company (the Options), that was outstanding and unexercised immediately prior to the Effective Time will be cancelled without the right to receive any consideration. | |
| (iii) | all shares of Company Common Stock or Company Preferred Stock held by Parent or Merger Sub or by any wholly-owned Subsidiary thereof, shall be automatically cancelled and retired and shall cease to exist and no consideration shall be delivered or deliverable in exchange therefore; |
Further, Aditxt agreed to, on or prior to: (a) July 12, 2024, purchase 500 shares of the Company’s Series F-1 Preferred Shares for an aggregate purchase price of $0.5 million (the July Purchase) (b) August 9, 2024, purchase an additional 500 shares of F-1 Preferred Shares for an aggregate purchase price of $0.5 million (the August Purchase), (c) the earlier of August 30, 2024 or within five business days of the closing of a public offering by Aditxt resulting in aggregate net proceeds to Aditxt of no less than $20.0 million, purchase an additional 2,000 shares of F-1 Preferred Shares for an aggregate purchase price of $2.0 million (the Third Parent Equity Investment); and (d) September 30, 2024, purchase an additional 1,000 shares of F-1 Preferred Stock at an aggregate purchase price of $1.0 million (the Fourth Parent Equity Investment). The July Purchase and subsequent August Purchase of 500 shares of the Company’s Series F-1 Preferred Shares in each respective purchase were completed as scheduled.
On August 16, 2024, the Company, Aditxt and Merger Sub entered into the first amendment to the A&R Merger Agreement (the First Amendment), to change the funding date for the Third Parent Equity Investment Date (as defined in the A&R Merger Agreement) from August 30, 2024 to the earlier of (i) September 6, 2024 or (ii) within five (5) business days of the closing of a public offering by Parent resulting in aggregate net proceeds to Parent of no less than $20.0 million.
On September 6, 2024, the Company, Aditxt and Merger Sub entered into the second amendment to the A&R Merger Agreement (the Second Amendment), to (i) change the date of the Third Parent Equity Investment Date and Fourth Parent Equity Investment Date (as defined in the A&R Merger Agreement) from September 6, 2024 and September 30, 2024 to September 30, 2024 and October 31, 2024, respectively and (ii) to change the required consummation date to November 29, 2024.
On October 2, 2024, the Company, Aditxt and Merger Sub entered into the third amendment to the A&R Merger Agreement (the Third Amendment), to (i) change the date of the Third Parent Equity Investment Date (as defined in the A&R Merger Agreement) from September 30, 2024 to October 2, 2024, (ii) change the Third Parent Equity Investment from 1,500 shares of Series F-1 Preferred Shares to 720 shares of Series F-1 Preferred Shares, and (iii) amend the Fourth Parent Equity Investment (as defined in the A&R Merger Agreement) from 1,500 shares of Series F-1 Preferred Shares to 2,280. The Third and Fourth Parent Equity Investments were timely completed on October 2 and October 28, 2024, respectively.
The companies are working toward closing in 2025. The accompanying condensed consolidated financial statements in this Quarterly Report do not reflect the potential impact of the A&R Merger Agreement.
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The A&R Merger Agreement, as amended, is subject to certain closing conditioned and contains customary representations, warranties and covenants and indemnifications provisions.
The consummation of the Merger is conditioned upon, among other things: (i) the Company Shareholder approval shall having been obtained in accordance with applicable Law; (ii) no governmental entity having jurisdiction over any party shall have issue any order, decree, ruling injunction or other action that is in effect restraining the Merger; (iii) a voting agreement shall have been executed and delivered by the parties thereto; (iv) all Company preferred stock shall have been converted to Company common stock except for the Unconverted Company Preferred Stock (as defined by the A&R Merger Agreement); (v) the Company shall have received agreements from all of the holders of the Company’s warrants, duly executed, containing waivers with respect to any fundamental transaction, change in control or other similar rights that such warrant holders may have under any such Company warrants and exchange such Company warrants as they hold for an aggregate of not more than 930,336 shares of Parent Preferred Stock (as defined in the A&R Merger Agreement); (vi) the Company shall have cashed out any other warrant holder who has not provided a warrant holder agreement, provided, however, that the aggregate amount of such cash out for any and all other warrant holders who have not provided a warrant holder agreement shall not exceed $0.15 million; (vii) the Company shall have obtained waivers from holders of Company convertible notes of the original principal amount thereof with respect to any fundamental transaction rights such Company convertible note holders may have under any such Company convertible notes, including any right to vote, consent or otherwise approve or veto any of the transaction contemplated by this A&R Merger Agreement; (viii) Aditxt shall have received sufficient financing to satisfy its payment obligations under the A&R Merger Agreement; (ix) the requisite stockholder approval shall have been obtained by Aditxt at a special meeting of its stockholders to approve the Parent Stock Issuance (as defined in the A&R Merger Agreement); (x) Aditxt shall have received a compliance certificate from the Company certifying Company complied with all reps and warranties in the A&R Merger Agreement; (xi) Aditxt shall have received waivers from the parties to the agreements listed in Section 7.2(f) of the A&R Merger Agreement Parent Disclosure Letter of the issuance of securities in a “Variable Rate Transaction” (as such term in defined in such agreements); (xii) Parent shall have received a certificate certifying that no interest in the Company is a U.S. real property interest, as required under U.S. treasury regulation section 1.897-2(h) and 1.1445-3(c); (xiii) Aditxt shall have paid, in full, the Repurchase Price, as defined in the Fourth Amendment to the Securities Purchase and Security Agreement dated as of September 8, 2023, by and among the Company, Baker Brothers Life Sciences, L.P., 667, L.P. and Bakers Bros. Advisors LP, which was assigned to Future Pak in 2024; (xv) there shall be no more than 4,141,434 dissenting shares that are Company common stock or 98 dissenting shares that are Company preferred stock; (xiv) Company shall have received from Aditxt a compliance certificate certifying that Parent has complied with all representations and warranties; and (xv) that Aditxt shall be incompliance with stockholders’ equity requirements in Nasdaq listing rule 5550(b)(1).
On September 23, 2024, the Company filed a preliminary proxy statement with the SEC. Subject to certain exceptions, the Company’s Board of Directors will recommend that the A&R Merger Agreement be adopted by the Company’s stockholders at a special meeting of the Company’s stockholders (the Company Board Recommendation). However, subject to the satisfaction of certain terms and conditions, the Company and the Board are permitted to take certain actions which may, as more fully described in the A&R Merger Agreement, include changing the Company Board Recommendation and entering into a definitive agreement with respect to a Company Change of Recommendation (as defined in the A&R Merger Agreement) if the Company Board or any committee thereof determines in good faith, after consultation with the Company’s outside legal and financial advisors and after taking into account relevant legal, financial, regulatory, estimated timing of consummation and other aspects of such proposal that the Company Board considers in good faith and the Person or group making such proposal, would, if consummated in accordance with its terms, result in a transaction more favorable to the Company Shareholders than the Merger. If the Company has a Company Change of Recommendation, the Company must provide Aditxt with a ten (10) calendar day written notice thereof and negotiate with Aditxt in good faith to provide a competing offer.
In connection with the Merger Agreement, Aditxt, the Company and the holders (the Holders) of certain senior indebtedness of Evofem (the Notes) entered into an Assignment Agreement dated December 11, 2023 (the December Assignment Agreement), pursuant to which the Holders assigned the Notes to Aditxt in consideration for the issuance by Aditxt of (i) an aggregate principal amount of $5.0 million in secured notes of Aditxt due on January 2, 2024 (the January 2024 Secured Notes), (ii) an aggregate principal amount of $8.0 million in secured notes of Aditxt due on September 30, 2024 (the September 2024 Secured Notes), (iii) an aggregate principal amount of $5.0 million in ten-year unsecured notes (the Unsecured Notes), and (iv) payment of $0.2 million in respect of net sales of Phexxi in respect of the calendar quarter ended September 30, 2023.
On February 26, 2024, Aditxt and the Holders entered into an Assignment Agreement (the February Assignment Agreement), pursuant to which the Company consented to the assignment of all remaining amounts due under the Notes from Aditxt back to the Holders.
On February 29, 2024, as part of the Third Amendment, Aditxt agreed to have, as a condition of closing, that the outstanding balance, plus all accrued and unpaid interest thereon, in an amount not to exceed the Repurchase Price, shall have been paid in full. The A&R Merger Agreement, as amended, entered into on July 12, 2024, maintains the same condition to closing. As discussed above, the A&R Merger Agreement was amended on August 16, 2024, September 6, 2024, and October 2, 2024; none of the amendments updated this closing condition.
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Phexxi as a Contraceptive; Commercial Strategies
In September 2020, we commercially launched Phexxi in the United States. Our sales force promotes Phexxi directly to obstetrician/gynecologists and their affiliated health professionals, who collectively write the majority of prescriptions for contraceptive products. Our sales force comprises approximately 16 regional sales representatives, two business directors and an SVP of Commercial Operations, supported by a self-guided virtual health care provider (HCP) learning platform. Additionally, we offer women direct access to Phexxi via a telehealth platform. Using this platform, women can directly meet with an HCP to determine their eligibility for a Phexxi prescription and, if eligible, have the prescription written by the HCP, then filled and mailed directly to them by a third-party pharmacy.
Our comprehensive commercial strategy for Phexxi includes marketing and product awareness campaigns targeting women of reproductive potential in the U.S., including the approximately 23.3 million women who are not using hormonal contraception and the approximately 20.0 million women who are using a prescription contraceptive, some of whom, particularly oral birth control pill users, may be ready to move to an FDA-approved, non-invasive, non-systemic hormone-free contraceptive, as well as certain identified target HCP segments. In addition to marketing and product awareness campaigns, our commercial strategy includes payer outreach and execution of our consumer digital and media strategy.
Key growth drivers for 2024 include expanded use of Phexxi in women who take oral birth control pills in conjunction with GLP-1 prescription medications like Ozempic, Mounjaro and Zepbound for weight loss. These drugs may make oral birth control pills less effective at certain points in the dosing schedule. Per the USPI, prescribers are instructed to “advise patients using oral contraceptives to switch to a non-oral contraceptive method or add a barrier method” to prevent unintended pregnancy during these times.
We continue working to increase the number of lives covered and to gain a preferred formulary position for Phexxi. We gained approximately 17.7 million unrestricted lives (people whose plans cover Phexxi with no PA required) in the past two years, a 5% increase in unrestricted coverage for Phexxi from January 2022 (47%) to November 2023 (53%).
Payer wins in 2024 include the removal of the Prior Authorization requirement for Phexxi by the Washington State Health Care Authority effective January 1, 2024, and, as a result of the Company’s successful renegotiation, a 7.4% reduction in the rebate paid by the Company to Medi-Cal on Phexxi prescriptions dispensed to Medi-Cal members. The approval rate was over 80% for all of 2024 to-date.
In the second quarter of 2022, we successfully negotiated a contract with one of the largest pharmacy benefit managers (PBMs) in the nation, which added Phexxi to its formulary with no restrictions for most women covered by the plan. The agreement was retroactive and took effect January 1, 2022 and is representative of approximately 46 million lives.
An additional 13.7 million lives are covered under our December 2020 contract award from the U.S. Department of Veterans Affairs.
We also participate in government programs, including the 340B and the Medicaid Drug Rebate Program. As a result of our participation in the Medicaid National Drug Rebate Program, the U.S. Medicaid population gained access to Phexxi on January 1, 2021. As of May 2024, Medicaid provides health coverage to approximately 73.9 million members; nearly two-thirds of adult women enrolled in Medicaid are in their reproductive years (19-44). Additionally, we recently began participating in a 340B Group Purchasing Organization (GPO) that serves safety-net clinics throughout the US. This GPO has over 6,500 members, which expands our reach among safety-net providers.
Approximately 83% of commercial and Medicaid Phexxi prescriptions are being approved by payers.
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Phexxi is classified in the databases and pricing compendia of Medi-Span and First Databank, two major drug information databases that payers can consult for pricing and product information, as the first and only “Vaginal pH Modulator.”
Effective as of January 1, 2023, most insurers and PBMs must provide coverage, with no out-of-pocket costs (e.g. $0 copay) to the subscriber or dependent, for FDA-approved contraceptive products, like Phexxi, prescribed by healthcare providers.
As a result, to comply with these Guidelines, payers are increasingly covering Phexxi by:
| – | Adding Phexxi to formulary (commercial insurers) or preferred drug list (Medicaid) | |
| – | Removing the requirement for a Prior Authorization letter from the HCP (commercial insurers) | |
| – | Moving Phexxi to $0 copay (commercial insurers) |
In 2022, Evofem developed and introduced a new contraceptive educational chart for patients and HCPs that details high-level information about birth control methods currently available to women in the U.S., including the vaginal pH modulator. This new contraceptive educational tool has been extremely well received and has had a positive impact with HCPs and patients alike.
SOLOSEC
In July 2024, we expanded our commercial portfolio by acquiring global rights to SOLOSEC® (secnidazole) 2g oral granules, a single-dose oral antimicrobial agent that provides a complete course of therapy with just one dost for the treatment of two common sexual health infections. SOLOSEC is FDA-approved for the treatment of two sexual health diseases: bacterial vaginosis (BV), a common vaginal infection, in females 12 years of age and older, and Trichomonas vaginalis, a common sexually transmitted infection (STI), in people 12 years of age and older. SOLOSEC has the same call point as Phexxi, enabling us to leverage our commercial infrastructure and strong physician relationships.
Bacterial Vaginosis
Bacterial vaginosis (BV) affects an estimated 21 million women in the U.S., approximately 29% of the U.S. population, making it the most common vaginal condition in women ages 15-44. It results from an overgrowth of bacteria, which upsets the balance of the natural vaginal microbiome and can lead to symptoms including odor and discharge. Of interest, BV raises the pH of the vagina, making it a more friendly environment for trichomoniasis and other STIs; approximately 20% of BV patients also have trichomoniasis.
If left untreated, BV can have serious health consequences. Untreated or improperly treated BV is associated with increased risk of infection with STIs like HPV, herpes, trichomoniasis, chlamydia, gonorrhea and HIV, as well as transmission of STIs to a partner. Additional risks include developing pelvic inflammatory disease (PID), which can threaten a women’s fertility, and complications with gynecological surgery.
Research has shown that as many as 50% of patients with BV do not adhere to a full course of metronidazole treatment (500mg BID x 7d) 14 doses. 58% of women who do not complete therapy will have a recurrence within one year. Noncompliance to a multiple-day metronidazole regimen is a contributing factor to persistent BV.
In clinical trials, SOLOSEC demonstrated clinically and statistically significant efficacy in the treatment of BV with just one dose. The clinical cure rate was 77%, and 68% of patients treated with SOLOSEC did not require any additional treatment for BV. Guidelines for the American College of Obstetricians and Gynecologists (ACOG) in 2020 and the U.S. Centers for Disease Control (CDC) in 2021 each include single dose SOLOSEC for the treatment of BV.
Trichomoniasis
Trichomoniasis (Trich) is the most common non-viral STI in the world. It is caused by a parasite called Trichomonas vaginalis and affects both women and men. All sexual partners of an infected person must be treated to prevent reinfection with the parasite. In 2018, there were an estimated 6.9 million new T. vaginalis infections in the U.S. According to the CDC, the U.S. prevalence of T. vaginalis is 2.1% among females and 0.5% among males, with the highest rates among Black females (9.6%) and Black males (3.6%). A study of STD clinic attendees in Birmingham, Alabama, identified a prevalence of 27% among women and 9.8% among men. Approximately 70% of women with trichomoniasis are also infected with the bacteria that cause BV.
In clinical trials, a single dose of SOLOSEC demonstrated a cure rate of 92.2% for Trich in women, while reported cure rates in males range from 91.7%-100%.
SOLOSEC’s one-and-done dosing and the resulting high level of compliance is believed to be a significant differentiator. Non-compliance to a multi-day metronidazole regimen is a contributing factor to persistent Trich or BV; and ACOG and the CDC no longer recommend single dose metronidazole to treat Trich in women.
Our Pipeline
While Evofem’s pipeline includes multiple candidates that are designed to address critical unmet needs in women’s health, the Company halted all clinical development in October 2022 due to financial constraints.
EVO100 for STI Prevention
EVO100 vaginal gel was in development for the prevention of urogenital chlamydia and gonorrhea in women. Chlamydia and gonorrhea are among the many bacterial and viral pathogens that require a higher pH environment to thrive. The CDC reported that infections with these two sexually transmitted pathogens cost the U.S. healthcare system $1.0 billion, in aggregate direct and indirect costs. There are no FDA-approved drugs to prevent these sexually transmitted diseases (STIs). The FDA granted EVO100 Fast Track Designation for the prevention of chlamydia and gonorrhea, and designated EVO100 a Qualified Infectious Disease Product (QIDP) for the prevention of infection these pathogens.
The Phase 2B/3 trial (AMPREVENCE) achieved its primary and secondary endpoints, demonstrating statistically significant and clinically meaningful reductions in chlamydia and gonorrhea infections of 50% and 78%, respectively, in women receiving EVO100 vs. placebo. Based on these highly positive clinical outcomes we initiated a Phase 3 clinical trial (EVOGUARD) to evaluate EVO100 for these potential indications in 2020. On October 11, 2022, we reported that EVOGUARD did not meet its primary efficacy endpoint. We and our advisors believe the public health response to the COVID pandemic caused changes in clinical site operations and subject behavior and actions, including deviations from following the clinical study protocol requirements related to STI acquisition, detection, and prevention, which contributed to this outcome.
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EVO200 Vaginal Gel for Recurrent Bacterial Vaginosis
Our investigational candidate for the reduction of recurrent bacterial vaginosis (BV), EVO200 vaginal gel, uses the same proprietary vaginal pH modulator platform as Phexxi. In a Phase 1 dose-finding trial for this indication, the highest dose formulation of the study drug demonstrated reduced vaginal pH for up to seven days following a single administration. The FDA has designed EVO200 as a Qualified Infectious Disease Product (QIDP) for this indication, which provides several important potential advantages including, but not limited to, longer market exclusivity.
MPT Vaginal Gel for HIV Prevention
In December 2021, we launched a collaboration with Orion Biotechnology Canada Ltd. (Orion) to evaluate the compatibility and stability of Orion’s novel CCR5 antagonist, OB-002, in Phexxi with the goal of developing a Multipurpose Prevention Technology (MPT) product candidate for indications including the prevention of HIV in women. Assuming positive preclinical results, Evofem and Orion may seek government and philanthropic funding for subsequent clinical trials of any resulting MPT vaginal gel product candidate.
Thin Film Project
In February 2020, we contracted with the University of South Australia to develop a vaginally applied thin film as a second-generation vaginal pH modulator product. The lead thin film candidates have been selected, and stability data has been generated with positive results. Next steps are to optimize the lead candidates and identify funding to proceed.
Financial Operations Overview
Net Product Sales
We recognize revenue once units shipped from our third-party logistics warehouse arrive at our customers, which consist of wholesale distributors, retail pharmacies, telehealth companies, and mail-order specialty pharmacies. We have recognized net product sales in the U.S. since the commercial launch of Phexxi in September 2020. Gross revenues, as discussed in Note 3 - Revenue, are adjusted for variable consideration, including our patient support programs.
Operating Expenses
Cost of Goods Sold
Inventory costs include all purchased materials, direct labor and manufacturing overhead. In addition, we are obligated to pay quarterly royalty payments pursuant to our license agreement with Rush University, in amounts equal to a single-digit percentage of the gross amounts we receive on a quarterly basis, less certain deductions incurred in the quarter based on a sliding scale. We are also obligated to pay a minimum annual royalty amount of $0.1 million to the extent these earned royalties do not equal or exceed $0.1 million in a given year. Such royalty costs, included in cost of goods sold, were $0.2 million and $0.6 million for the three and nine months ended September 30, 2024, respectively, and $0.2 million and $0.4 million for the three and nine months ended September 30, 2023, respectively.
We are also obligated to pay quarterly royalty payments under the SOLOSEC Asset Purchase Agreement dated July 14, 2024 based on a percentage of SOLOSEC net revenues. There are no minimum quarterly or annual royalty amounts. Such royalty costs were immaterial for the three and nine months ended September 30, 2024.
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Research and Development Expenses
Our research and development expenses primarily consist of costs associated with the continuous improvements related to Phexxi. These expenses include:
| ● | improvements of manufacturing and analytical efficiency; | |
| ● | on-going product characterization and process optimization; | |
| ● | alternative raw material evaluation to secure an uninterrupted supply chain and reduce cost of goods sold; | |
| ● | employee-related expenses, including salaries, benefits, travel and noncash stock-based compensation expense; and | |
| ● | facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and research and other supplies. |
We expense internal and third-party research and development expenses as incurred. The following table summarizes research and development expenses by product candidate (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Allocated third-party development expenses: | ||||||||||||||||
| EVO100 for prevention of chlamydia/gonorrhea - Phase 3 (EVOGUARD) | $ | - | $ | - | $ | - | $ | (93 | ) | |||||||
| Total allocated third-party development expenses | - | - | - | (93 | ) | |||||||||||
| Unallocated internal research and development expenses: | ||||||||||||||||
| Noncash stock-based compensation expenses | 6 | 29 | 31 | 99 | ||||||||||||
| Payroll related expenses | 62 | 315 | 593 | 949 | ||||||||||||
| Outside services costs | 214 | 167 | 371 | 237 | ||||||||||||
| Other | 50 | 103 | 201 | 364 | ||||||||||||
| Total unallocated internal research and development expenses | 332 | 614 | 1,196 | 1,649 | ||||||||||||
| Total research and development expenses | $ | 332 | $ | 614 | $ | 1,196 | $ | 1,556 | ||||||||
Selling and Marketing Expenses
Our selling and marketing expenses consist primarily of product commercialization costs, the Phexxi telehealth platform, training, salaries, benefits, travel, noncash stock-based compensation expense and other related costs for our employees and consultants.
In connection with our overall cost reduction strategy, our selling and marketing expenses decreased significantly in 2023 and are expected to stabilize slightly below 2023 levels in the current year, with a slight increase due to the expenses associated with the addition of SOLOSEC to our commercial offering.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits, travel, business development expenses, investor and public relations expenses, noncash stock-based compensation, and other related costs for our employees and consultants performing executive, administrative, finance, legal and human resource functions. Other general and administrative expenses include facility-related costs not otherwise included in research and development or selling and marketing, and professional fees for accounting, auditing, tax and legal fees, and other costs associated with obtaining and maintaining our patent portfolio.
Other Income (Expense)
Other income (expense) consists primarily of interest expense and the change in fair value of financial instruments issued in various capital raise transactions. The change in fair value of financial instruments was recognized as a result of mark-to-market adjustments for those financial instruments. Additionally, other income (expense) also includes a gain (loss) on debt modification or extinguishment in the current period and loss on issuance of financial instruments in each of the presented periods.
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Results of Operations
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 (in thousands):
Net Product Sales
| Three Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Product sales, net | $ | 4,496 | $ | 5,112 | $ | (616 | ) | (12 | )% | |||||||
The lower product sales, net in the current year quarter, was primarily due to lower unit sales, partially offset by the increased WAC and slight decrease in variable considerations.
Cost of Goods Sold
| Three Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Cost of goods sold | $ | 869 | $ | 1,889 | $ | (1,020 | ) | (54 | )% | |||||||
The decrease in cost of goods sold in the current year quarter was due to the lower product sales and absence of re-packaging costs in the current year quarter. The units sold in the 2023 quarter had to be re-packaged to reflect the extended shelf life approved by the FDA in June 2022; this added costs to re-worked units that were sold in the prior year quarter.
Research and Development Expenses
| Three Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Research and development | $ | 332 | $ | 614 | $ | (282 | ) | (46 | )% | |||||||
The decrease in research and development expenses was primarily due to a decrease of $0.3 million in personnel costs due to lower headcount.
Selling and Marketing Expenses
| Three Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Selling and marketing | $ | 2,382 | $ | 2,985 | $ | (603 | ) | (20 | )% | |||||||
The decrease in selling and marketing expenses was primarily due to a $0.7 million decrease in business development, partially offset by an increase of $0.1 million outside services.
General and Administrative Expenses
| Three Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| General and administrative | $ | 3,052 | $ | 3,176 | $ | (124 | ) | (4 | )% | |||||||
The decrease in general and administrative expenses was primarily due to a $0.8 million reduction in legal fees and a $0.2 million decrease in outside services, which were partially offset by the contingent liability of $0.8 million recognized in conjunction with the potential settlement with TherapeuticsMD.
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Total other income, net
| Three Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Total other income, net | $ | 67 | $ | 69,568 | $ | (69,501 | ) | (100 | )% | |||||||
Total other income, net, for the three months ended September 30, 2024 primarily included a $0.8 million gain on the change in fair value of financial instruments, partially offset by $0.6 million in interest expense related to the Adjuvant Note and loss on the debt extinguishment of $0.1 million.
Total other income, net, for the three months ended September 30, 2023 primarily included a $75.3 million gain related to the Baker Fourth Amendment, which was treated as a debt extinguishment, offset in part by a $5.3 million loss on the quarterly valuation of the senior subordinated convertible notes and purchase rights and warrant modifications, and $0.5 million of interest expense related to the Adjuvant Note.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 (in thousands):
Net Product Sales
| Nine Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Product sales, net | $ | 12,259 | $ | 13,379 | $ | (1,120 | ) | (8 | )% | |||||||
The decrease in product sales, net, was primarily due to the impact of the timing of price increases on sales volumes to our customers. Wholesalers typically purchase larger volumes of product ahead of a price increase, pause purchasing until that product has been used to fill consumer demand, then resume purchasing again. Sales volume in the first quarter of 2024 was low due to the January 2024 price increase, where sales volume in the first quarter of 2023 was high, after a very small fourth quarter of 2022 due to the October 2022 price increase.
Cost of Goods Sold
| Nine Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Cost of goods sold | $ | 2,322 | $ | 5,558 | $ | (3,236 | ) | (58 | )% | |||||||
The decrease in cost of goods sold was partially due to the decrease in sales in the current period as compared to the same period in the prior year. Additionally, the units sold in the prior year had been re-packaged to reflect the extended shelf life approved by the FDA in June 2022; this added costs to re-worked units that were sold in the prior year, whereas the units sold in the current year did not need to be re-packaged. Finally, there was a $1.1 million inventory excess and obsolescence reserve recorded in the 2023 period that was not repeated in the current year.
Research and Development Expenses
| Nine Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Research and development | $ | 1,196 | $ | 1,556 | $ | (360 | ) | (23 | )% | |||||||
The decrease in research and development expenses was primarily due to a decrease of approximately $0.4 million in personnel costs and a decrease of approximately $0.3 million in clinical and facilities costs, which was partially offset by an increase in outside services costs of $0.4 million.
Selling and Marketing Expenses
| Nine Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Selling and marketing | $ | 6,970 | $ | 9,036 | $ | (2,066 | ) | (23 | )% | |||||||
The decrease in selling and marketing expenses was primarily due to a $1.0 million decrease in marketing and DTC promotion costs, including media agency fees, a $0.9 million decrease in personnel costs due to reduced headcount and lower noncash stock-based compensation, and a $0.6 million decrease in facilities costs. The decreases were partially offset by an increase of $0.4 million in outside services and other costs.
General and Administrative Expenses
| Nine Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| General and administrative | $ | 8,143 | $ | 11,696 | $ | (3,553 | ) | (30 | )% | |||||||
The decrease in general and administrative expenses was primarily due to a $3.5 million decrease in facilities and outside services costs and a $1.2 million decrease in professional services fees related to legal and finance partially offset by an increase of $0.3 million in personnel costs and the $0.8 million contingent liability recognized in conjunction with the potential settlement with TherapeuticsMD.
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Total other income (expense), net
| Nine Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Total other income, net | $ | 850 | $ | 69,577 | $ | (68,727 | ) | (99 | )% | |||||||
Total other income, net, for the nine months ended September 30, 2024 primarily included a $4.9 million gain on the change in fair value of financial instruments and a gain of $1.0 million related to the Baker Notes extinguishment. The gains were offset by a $3.3 million loss on the issuance of financial instruments related to the anti-dilution adjustment for the purchase rights and $1.7 million interest expense related to the Adjuvant Note.
Total other income, net, for the nine months ended September 30, 2023 primarily included a $75.3 million gain related to the Baker Fourth Amendment, which was treated as a debt extinguishment offset in part by a $4.3 million loss on the quarterly valuation of the senior subordinated convertible notes and $1.5 million of interest expense related to the Adjuvant Note.
Liquidity and Capital Resources
Overview
As of September 30, 2024, we had a working capital deficit of $67.7 million and an accumulated deficit of $894.6 million. We have financed our operations to date primarily through the issuance of preferred stock, common stock, warrants and convertible and term notes; cash received from private placement transactions; and, to a lesser extent, product sales. As of September 30, 2024, we had approximately $0.7 million in cash and cash equivalents comprised entirely of restricted cash available for use as prescribed in the Adjuvant Notes (as defined in Note 4 - Debt). Our cash, cash equivalents and restricted cash include amounts held in checking accounts. Management believes that the Company’s cash and cash equivalents as of September 30, 2024 are insufficient to fund operations for at least the next 12 months from the date on which this Quarterly Report on Form 10-Q is filed with the SEC.
We have incurred losses and negative cash flows from operating activities since inception. In 2023, we focused on further improving and increasing Phexxi access and delivered our third consecutive year of Phexxi net sales growth. We have restructured many of our trade payables with extended terms and implemented measures to better align our cost structure with projected revenues. In 2024, we have continued to focus on top-line growth while maintaining a lean operating structure. We will continue to explore opportunities for organic growth, entry into new markets, and expansion of our product offering beyond Phexxi and SOLOSEC.
As of September 30, 2024, the Company’s significant commitments include the Baker Notes and Adjuvant Notes, as described in Note 4 - Debt and fleet leases, Rush University royalty, and SOLOSEC royalty, as described in Note 7 - Commitments and Contingencies. Management’s plans to meet the Company’s cash flow needs in the next 12 months include generating revenue from the sale of Phexxi and SOLOSEC, further restructuring of its current payables, and obtaining additional funding through means such as the issuance of its capital stock, non-dilutive financings, or through collaborations or partnerships with other companies, including license agreements for Phexxi and/or SOLOSEC in the U.S. or foreign markets, or other potential business combinations (including the Merger, as defined in Note 1 – Description of Business and Basis of Presentation).
If the Company is not able to obtain the required funding through a significant increase in revenue, equity or debt financings, license agreements for Phexxi in the U.S. or foreign markets, or other means, is enjoined from selling under the Phexxi mark, or is unable to obtain funding on terms favorable to the Company, there will be a material adverse effect on commercialization and development operations and the Company’s ability to execute its strategic development plan for future growth. If the Company cannot successfully raise additional funding and implement its strategic development plan, the Company may be forced to make further reductions in spending, including spending in connection with its commercialization activities, extend payment terms with suppliers, liquidate assets where possible at a potentially lower amount than as recorded in the condensed consolidated financial statements, suspend or curtail planned operations, or cease operations entirely. Any of these could materially and adversely affect the Company’s liquidity, financial condition and business prospects, and the Company would not be able to continue as a going concern. The Company has concluded that these circumstances and the uncertainties associated with the Company’s ability to obtain additional equity or debt financing on terms that are favorable to the Company, or at all, and otherwise succeed in its future operations raise substantial doubt about the Company’s ability to continue as a going concern.
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If we are unable to continue as a going concern, we may have to liquidate our assets and, in doing so, we may receive less than the value at which those assets are carried on our condensed consolidated financial statements. Any of these developments would materially and adversely affect the price of our stock and the value of an investment in our stock. As a result, our condensed consolidated financial statements include explanatory disclosures expressing substantial doubt about our ability to continue as a going concern.
The opinion of our independent registered public accounting firms on our audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Future reports on our consolidated financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Our unaudited condensed consolidated financial statements as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 included in this Quarterly Report do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue our operations.
Debt Financings
As described in Note 4 - Debt, we entered into an insurance premium financing agreement with FIF, which resulted in a financing inflow of $0.4 million in the statement of cash flows in the first three quarters of 2024. Additionally, we received gross proceeds of approximately $5.3 million, before issuance costs, from the sale of notes and warrants in seven registered direct offerings in the first three quarters of 2023.
Summary Statements of Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods set forth below (in thousands):
| Nine Months Ended September 30, | 2024 vs. 2023 | |||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Net cash and restricted cash used in operating activities | $ | (1,477 | ) | $ | (8,798 | ) | $ | 7,321 | 83 | % | ||||||
| Net cash and restricted cash used in investing activities | (523 | ) | (4 | ) | (519 | ) | (12975 | )% | ||||||||
| Net cash and restricted provided by financing activities | 2,142 | 4,436 | (2,294 | ) | (52 | )% | ||||||||||
| Net change in cash and restricted cash | $ | 142 | $ | (4,366 | ) | $ | 4,508 | (103 | )% | |||||||
Cash Flows from Operating Activities. During the nine months ended September 30, 2024 and 2023, the primary use of cash, cash equivalents and restricted cash was to fund the commercialization and manufacturing of Phexxi and to support general and administrative operations.
Cash Flows from Investing Activities. During the nine months ended September 30, 2024, the primary use of cash, cash equivalents and restricted cash was the acquisition of the SOLOSEC asset.
Cash Flows from Financing Activities. During the nine months ended September 30, 2024, the primary source of cash, cash equivalents, and restricted cash was from the $1.0 million received from Aditxt in order to reinstate the Merger Agreement as described above as well as the $1.3 million in Series F-1 Preferred Stock purchased by Aditxt, and the finance agreement with First Insurance Funding for $0.4 million. These inflows were offset by $0.4 million payments under the Baker Notes and short-term debt. During the nine months ended September 30, 2023, the primary source of cash, cash equivalents and restricted cash was the sale of senior subordinate convertible notes and warrants for proceeds of approximately $5.3 million, in aggregate, before debt issuance costs, which was offset by the $1.0 million upfront payment required under the Baker Fourth Amendment.
Operating and Capital Expenditure Requirements
Our specific future operating and capital expense requirements are difficult to forecast. However, we can anticipate the general types of expenses and areas in which they might occur. In 2024, while we expect to maintain a lean operating structure at approximately the same level as 2023, should resources become available we may increase marketing spend to drive further sales growth.
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Contractual Obligations and Commitments
Operating Leases
Operating lease right-of-use assets and lease liabilities were $0.1 million each on both September 30, 2024 and December 31, 2023. See Note 7- Commitments and Contingencies for more detailed discussions on leases and financial statements information under ASC 842, Leases.
Other Contractual Commitments
As described in Note 7 - Commitments and Contingencies, in November 2019, the Company entered into a supply and manufacturing agreement with a third-party to manufacture Phexxi, with potential to manufacture other product candidates, in accordance with all applicable current good manufacturing practice regulations. There were approximately $0.8 million and $1.0 million in purchases under the supply and manufacturing agreement for the three and nine months ended September 30, 2024, respectively, and no such purchases during the three and nine months ended September 30, 2023.
As described in Note 7 - Commitments and Contingencies, the Company also has commitments related to the SOLOSEC asset acquisition including a commitment to purchase inventory from the seller through November 2026 at a pre-defined unit price. The Company is also obligated to pay contingent liabilities and quarterly royalties based on SOLOSEC net revenue over the Earnout Term as described in Note 7 - Commitments and Contingencies.
Intellectual Property Rights
As described in Note 7 - Commitments and Contingencies, royalty costs owed to Rush University pursuant to the Rush License Agreement were $0.2 million and $0.6 million for the three and nine months ended September 30, 2024, respectively, and $0.2 million and $0.4 million for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024 and December 31, 2023, approximately $1.7 million and $1.1 million were included in accrued expenses in the condensed consolidated balance sheets and will be paid via the agreed upon payment plan.
Other Matters
Recently Issued Accounting Pronouncements
For information with respect to recent accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to our condensed consolidated financial statements appearing in Part I, Item 1 of this Quarterly Report.
Critical Accounting Policies
There have not been any material changes to the critical accounting policies disclosed in our Form 10-K for the year ended December 31, 2023 other than the new policies on intangibles and contingent liabilities as described in Note 2 - Summary of Significant Accounting Policies.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (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 a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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As described in our Annual Report on Form 10-K for the year ended December 31, 2023, we identified material weaknesses in our internal control over financial reporting. As a result of these material weaknesses, our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have concluded that our disclosure controls and procedures are not effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act is recorded, processed, summarized and reported as and when required.
Notwithstanding the conclusion by our CEO and CFO that our Disclosure Controls as of September 30, 2024 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described more fully under Item 9A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, management believes that the condensed consolidated financial statements and related financial information included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows as of the date presented, and for the periods ended on such dates, in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Remediation Activities:
Management continues to evaluate the material weaknesses discussed above and is implementing its remediation plan. However, assurance as to when the remediation efforts will be complete cannot be provided and the material weaknesses cannot be considered remedied until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management cannot assure readers that the measures that have been taken to date, and are continuing to be implemented, will be sufficient to remediate the material weaknesses identified or to avoid potential future material weaknesses.
Changes in Internal Control over Financial Reporting
Except for ongoing remediation activities, there were no changes in our internal control over financial reporting that occurred during our latest fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Controls
Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 7 - Commitments and Contingencies to the unaudited condensed consolidated financial statements in this Form 10-Q for any required disclosure.
Item 1A. Risk Factors
An investment in our common stock is speculative and involves a high degree of risk. You should consider carefully the risks described below, together with the other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to purchase, hold or sell shares of our common stock. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below. See the section titled “Special Note Regarding Forward-Looking Statements.” The risk factors set forth below with an asterisk (*) next to the title contain changes to the description of the risk factors associated with our business previously disclosed in Item 1A of our 2023 Annual Report on Form 10-K for the year ended December 31, 2023.
The Company received two Notice of Defaults (on September 27, 2024 and October 27, 2024) from their largest creditor, Future Pak, LLC , alleging a number of Events of Default, accelerating the Principal due and payable and declaring the termination of the existing Forbearance Agreement.
On September 27, 2024, Future Pak, LLC, a Michigan limited liability company, as agent for the Purchasers (in such capacity, the Designated Agent) provided a Notice of Event of Default and Reservation of Rights (the Notice of Default) relating to the Securities Purchase and Security Agreement dated April 23, 2020, as amended (SPA), by and among the Company, Designated Agent, as certain guarantors and the purchasers (each a Purchaser and collectively Purchasers). The Notice of Default claims that by entering into arrangements to repay certain existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the SPA.
According to the Notice of Default, the Designated Agent has accelerated repayment of the outstanding principal balance owed by the Company under the Securities Purchase Agreement. If all Purchasers exercise the Section 5.7 Option (as defined below), the repurchase price would be equal to approximately $106.8 million. Pursuant to Section 5.7(b) of the SPA, upon the occurrence of an Event of Default, each Purchaser may elect, at its option, to require the Company to repurchase the Note held by such Purchaser (or any portion thereof) at a repurchase price equal to two times the sum of the outstanding principal balance and all accrued and unpaid interest thereon, due within three business days after such Purchaser delivers a notice of such election (the Section 5.7 Option).
On October 27, 2024, the Designated Agent sent an amended and supplemented notice to the Notice of Default which adds additional claims of default based on the Company’s current repayment agreements of existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the Securities Purchase and Security Agreement dated April 23, 2020, as amended. Furthermore, the Amended Notice stated that, because the events of default described in the Amended Notice of Default are not the certain prior events of default listed in the Forbearance Agreement (the Specified Defaults), the Designated Agent and the holders of the senior secured promissory notes described in the SPA thereby provided notice to the Company that the Forbearance Agreement is terminated as of October 27, 2024.
Subsequently, on November 8, 2024, the Designated Agent sent an amended and supplemented notice to the Notices (the Third Amended Notice of Default) which adds new claims of default based on (i) the Company’s failure to maintain a cash position of $1.0 million or greater, as required under Section 5(b) of the Forbearance Agreement (ii) the Company’s failure to deliver financial and operating reports in accordance with the timeline required under the Section 8.1(n) of the Baker Stock Purchase Agreement, and (iii) to clarify the outstanding balance under the notes of the Baker Stock Purchase Agreement plus all accrued and unpaid interest thereon, in the sum of approximately is $107.0 million as opposed to the Repurchase Price as defined in the Fourth Amendment.
As such, the Designated Agent could take significant, adverse action against the Company, its assets and its accounts. There can be no assurances that the Company can cure the Events of Default or otherwise stop or mitigate any adverse actions taken by the Designated Agent.
TherapeuticsMD may take adverse action against the Company and its use of the Phexxi mark.
On December 14, 2020, a trademark dispute captioned TherapeuticsMD, Inc. v Evofem Biosciences, Inc., was filed in the U.S. District Court for the Southern District of Florida against the Company, alleging trademark infringement of certain trademarks owned by TherapeuticsMD under federal and state law (Case No. 9:20-cv-82296). On July 18, 2022, the Company settled the lawsuit with TherapeuticsMD, with certain requirements which were required to be performed by July 2024 (the Settlement Timeline), including changing the name of Phexxi. On July 29, 2024 the Company received a cease and desist letter from TherapeuticsMD, demanding that the Company change the name of Phexxi. The Company is currently finalizing plans to re-brand Phexxi in connection with the settlement reached with TherapeuticsMD in 2022.
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There can be no assurance that we will be able to comply with the continued listing standards of OTCQB.
OTC has certain listing standards that we must meet to maintain our listing on the OTCQB exchange. If we are unable to comply with these continued listing standards, we and our stockholders could face significant material adverse consequences including:
| ● | a limited availability of market quotations for our securities; | |
| ● | reduced liquidity for our securities; | |
| ● | a limited amount of new and analyst coverage; and | |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
As of November 7, 2024, the Company regained compliance with the Minimum Bid Price Requirement of OTCQB, however there can be no guarantee the Company will remain in compliance with such listing requirements in the future.
Our stock price is and may continue to be volatile.
Our Common Stock is currently quoted for public trading on the OTCQB under the symbol “EVFM”. The market price for our common stock is volatile and may fluctuate significantly in response to a number of factors, many of which we cannot control, such as potential irregularity in financial results from quarter to quarter, political developments related to women’s reproductive rights and contraception, the content and tone of media coverage and commentary, or changes in securities analysts’ recommendations, any of which could cause the price of our common stock to fluctuate substantially. Each of these factors, among others, could harm your investment in our securities and could result in your being unable to resell any of our securities that you purchase at a price equal to or above the price you paid.
In addition, the stock market in general and the market for biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to companies operating performance. The market price for our common stock may be influenced by many factors, including:
| ● | the potential delisting of our common stock from OTCQB, should we not comply with listing standards; | |
| ● | failure to timely file future required filings; | |
| ● | the failure to consummate the transactions in the A&R Merger Agreement; | |
| ● | the loss of key personnel; | |
| ● | the results of our efforts to commercialize Phexxi, SOLOSEC, or any other products, particularly in the event of a rebrand; | |
| ● | the results of our efforts to acquire or in-license products; | |
| ● | commencement or termination of any collaboration or licensing arrangement; | |
| ● | disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technology; | |
| ● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures and capital commitments; | |
| ● | additions or departures of key management personnel; | |
| ● | variations in our financial results or those of companies that are perceived to be similar to us; | |
| ● | new products, product candidates or new uses for existing products introduced or announced by our competitors, and the timing of these introductions or announcements; | |
| ● | results of clinical trials of product candidates of our competitors; | |
| ● | general economic and market conditions and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar companies, wars, terrorism and political unrest, outbreak of disease (e.g., the COVID-19 pandemic), boycotts and other business restrictions; | |
| ● | regulatory or legal developments in the US and other countries; | |
| ● | changes in the structure of healthcare payment systems; | |
| ● | conditions or trends in the biotechnology and biopharmaceutical industries; | |
| ● | actual or anticipated changes in earnings estimates, development timelines or recommendations by securities analysts; | |
| ● | announcement or expectation of additional financing efforts and related debt and equity issuances; | |
| ● | sales of common stock by us or our stockholders in the future, as well as the overall trading volume of our common stock; | |
| ● | stockholder activism; | |
| ● | any stockholder derivative actions; and | |
| ● | other factors described in this “Risk Factors” section. |
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Upon being listed on the OTCQB Marketplace on October 10, 2022 the closing sales price started at $21.25, was $0.064 as of December 31, 2023, was $0.0158 as of March 21, 2024 and was $0.0090 as of September 30, 2024. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, following periods of volatility in companies’ stock prices, securities class-action litigation has often been instituted against such companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business and financial condition.
We will need to raise significant additional funds to finance our operations, including the commercialization of Phexxi and SOLOSEC, and to remain a going concern. If we are unable to raise additional capital when needed or on acceptable terms, we may be forced to delay, reduce and/or eliminate one or more of our business initiatives or to cease our operations entirely.*
We have incurred significant losses and negative cash flows since our inception. We believe our existing capital resources as of the filing of this Quarterly Report are sufficient to fund our planned operations into the first half of 2025. Our ability to raise additional funds will depend, in part, on our ability to successfully commercialize Phexxi and SOLOSEC (collectively our Products) in the US. If, for whatever reason, we are unsuccessful in these efforts, it may make any necessary debt, equity or alternative financing more difficult, more costly and more dilutive. Attempting to secure additional financing will divert our management from our day-to-day activities, which may adversely affect our ability to commercialize our Products. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Furthermore, the global credit and financial markets have experienced extreme volatility and disruptions in recent history, particularly for life science companies. If the equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly and more dilutive. If we are unable to raise additional funds when needed or on acceptable terms, we may be unable to continue commercializing Phexxi as a contraceptive or successfully relaunch SOLOSEC as a treatment for bacterial vaginosis or trichomoniasis. In addition, we may be required to delay, scale back or eliminate some or all of our business initiatives or be forced to cease operations entirely. To the extent we raise additional capital through the sale of equity, convertible debt or other securities convertible into equity, the ownership interest of our stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Future debt financings, if available at all, would likely involve agreements with additional covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions, or declaring dividends. If we raise additional funds through strategic collaborations (including, but not limited to closing the Merger Agreement with Aditxt), alternative non-dilutive financing, such as royalty-based financing, or licensing arrangements with third parties, we may have to relinquish valuable rights to Phexxi, SOLOSEC, or future revenue streams or grant licenses on terms that are not favorable to us.
Women’s health has historically been an underfunded sector. Recently, a number of public companies focused in women’s health have failed to achieve expected commercial success and struggled to access sufficient capital. We are solely focused in women’s health and may be unfavorably impacted by weak investor sentiment and a lack of interest in the category. Our ability to access capital and to advance our candidates could be adversely impacted.*
We are solely focused in women’s health, and primarily in the areas of contraception, vaginal health, reproductive health, and sexual health. The sector has historically been underfunded, with only about one percent of healthcare research and innovation in the U.S. invested in female-specific conditions beyond oncology according to market research. The failure of the women’s health sector to receive consistent and committed investment fuels investor sentiment that market opportunities for new products in women’s health are limited. Our stock price and our ability to access additional capital on acceptable terms when needed may be adversely impacted by unfavorable investor perception of market opportunities for women’s health products, and our business, operating results, financial condition and prospects could suffer.
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We face competition from other medical device, biotechnology and biopharmaceutical companies and our operating results will suffer if we are unable to compete effectively.*
The medical device, biotechnology and biopharmaceutical industries, and the women’s health sector, are intensely competitive. Significant competition among various contraceptive products already exists. Existing products have name recognition, are marketed by companies with established commercial infrastructures, and are marketed with greater financial, technical and personnel resources than we have. To compete and gain market share, any new product must demonstrate advantages in efficacy, convenience, tolerability, and/or safety, among other things. In addition, new products developed by others could emerge as competitors to Phexxi. These products could potentially offer an alternative form of non-hormonal contraception that is more convenient, is more effective and/or provides protection over longer periods of time as compared to Phexxi. We also compete with these organizations to recruit management, and sales and marketing personnel. Any failure to attract and retain such personnel could negatively affect our level of expertise and our ability to execute our business plan. We also face competition in connection with identifying and engaging in strategic transactions. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
With respect to SOLOSEC, there are many FDA-approved products for the treatment of bacterial vaginosis, and many are generic. SOLOSEC will compete with those products. Current therapies for the treatment of bacterial vaginosis primarily consist of oral and vaginal formulations of antibiotics delivered as a single dose or through multiple doses over consecutive days. If health care providers do not view the prescribing information for SOLOSEC as compelling compared with other products available for the treatment of bacterial vaginosis, or if competitive products have better insurance coverage or reimbursement levels than SOLOSEC, health care providers may opt to continue to prescribe existing treatments rather than recommend or prescribe SOLOSEC to their patients.
Our potential competitors include large, well-established pharmaceutical companies and specialty pharmaceutical companies who have significantly more resources than Evofem. These companies include Merck & Co., Inc., Organon, Allergan PLC, Pfizer Inc., Bayer AG, Johnson & Johnson, CooperSurgical Inc. and Mylan Inc. Additionally, several generic manufacturers currently market and continue to introduce new generic contraceptives.
Phexxi, SOLOSEC, and any other approved products we promote may not gain sufficient market acceptance among physicians, patients or the medical community, thereby limiting our potential to generate revenue, which will undermine our future growth prospects.*
Even though Phexxi has been approved by the FDA for commercial sale for the prevention of pregnancy, and SOLOSEC has been approved by the FDA for commercial sale for the prevention of BV and trichomoniasis, the degree of market acceptance of any new product by physicians, patients and the medical community will depend on a number of factors, including:
| ● | demonstrated evidence of efficacy and safety and potential advantages compared to competing products; | |
| ● | perceptions by the medical community, physicians, and patients, regarding the safety and effectiveness of the product and the willingness of the target patient population to try it and of physicians to prescribe it; | |
| ● | relative convenience and ease of administration compared to other products approved for the same indication; | |
| ● | the regulatory label requirements for the product, including any potential restrictions on use or precautionary statements; | |
| ● | sufficient third-party insurance coverage and adequate reimbursement; | |
| ● | the terms of any approvals, such as any restrictions on the use of our product together with other medications; | |
| ● | the willingness of wholesalers and pharmacies to stock the products; | |
| ● | the prevalence and severity of any adverse side effects; | |
| ● | the ability to sufficiently educate physicians with respect to the product’s safety and efficacy; and | |
| ● | availability of alternative products and the cost-effectiveness of our product relative to competing products. |
If any approved product that we may license, acquire or sell, including Phexxi, does not provide a benefit over currently available options, that product is unlikely to achieve market acceptance, and we will not generate sufficient revenues to achieve profitability.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None, except as report on Current Reports on Form 8-K filed by the Company on July 17, 2024 and September 20, 2024.
Item 3. Defaults Upon Senior Securities
The Company has received those certain notices of default, as reported on Current Reports on Form 8-K filed by the Company on October 2, 2024 and October 31, 2024.
Furthermore, on November 8, 2024, the Designated Agent sent an amended and supplemented notice to the Notices (the Third Amended Notice of Default) which adds new claims of default based on (i) the Company’s failure to maintain a cash position of $1.0 million or greater, as required under Section 5(b) of the Forbearance Agreement (ii) the Company’s failure to deliver financial and operating reports in accordance with the timeline required under the Section 8.1(n) of the Baker Purchase Agreement, and (iii) to clarify the outstanding balance under the notes of the SPA plus all accrued and unpaid interest thereon, in the sum of approximately is $107.0 million as opposed the Repurchase Price, as defined in the Baker Fourth Amendment.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Saundra Pelletier Employment Agreement
The Company and its Chief Executive Officer, Saundra Pelletier, have entered into a new employee agreement (Pelletier Agreement) to be effective on November 8, 2024 (Pelletier Effective Date). The Pelletier Agreement replaces and supersedes all previous employment agreements.
The term of the Pelletier Agreement shall commence as of the Pelletier Effective Date and continue thereafter, subject to earlier termination in accordance with the terms of the Pelletier Agreement. Pursuant to the terms of the Pelletier Agreement, Ms. Pelletier shall be entitled to:
| ● | receive an annual base salary of $579,828 per annum (subject to annual review and adjustment) (Base Salary). The Board of Directors of the Company (Board) shall review the base salary on annual basis adjust it upward or downward at their sole discretion; |
| ● | receive an annual cash bonus paid out annually if targets are met with a target amount of one hundred percent (100%) of the Base Salary (Annual Performance Bonus) in the year in which the Annual Performance Bonus relates, subject to approval by the Board which may adjust to be greater or less than pre-stated Annual Performance Bonus; | |
| ● | receive equity incentive compensation under the Company’s equity incentive plan, subject to approval by the Board; and |
| ● | be eligible to participate in a number of Company-sponsored benefit plans that may be in effect from time to time. |
Pursuant to the Pelletier Agreement, in the event that Ms. Pelletier is terminated for a reason other than for “Cause,” (as defined in the Pelletier Agreement) “Good Reason,” (as defined in the Pelletier Agreement) or for a Change of Control (as defined in the Pelletier Agreement), Ms. Pelletier, upon signing and returning an effective waiver and release of claims (the Release), shall be entitled to receive: (i) a lump sum payment in an amount equal to thirty-six (36) months in value of her then current Base Salary, less all customary and required taxes and relate deductions, payable in the first payroll following the date on which the Release becomes effective and non-revocable; (ii) a lump sum payment equal to the then target Annual Performance Bonus amount multiplied by 1.0, after deduction of all amounts required to be deducted or withheld under applicable law, payable in the first payroll following the date on which the Release becomes effective and non-revocable; (iii) upon the effective date of the Release, vesting of any unvested equity awards held by Ms. Pelletier shall be accelerated such that 100% of such awards shall become fully vested as of the date of such termination; (iv) that portion of Ms. Pelletier’s Base Salary accrued prior to termination of Ms. Pelletier’s employment with Company that has not yet been paid by the Company; (v) accrued but unused paid time off; (vi) reimbursement for any reasonable out-of-pocket expenses properly incurred by Ms. Pelletier on behalf of the Company prior to any such termination and not yet reimbursed; and (vii) continuation of group health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) at the Company’s expense, until the earlier to occur of: (A) twelve (12) months following the termination date of Ms. Pelletier’s employment, or (B) the date that Ms. Pelletier becomes eligible for medical benefits with another employer.
Ivy Zhang Employment Agreement
The Company and Chief Financial Officer, Ivy Zhang, have entered into a new employee agreement (Zhang Agreement) to be effective on November 8, 2024 (Zhang Effective Date). The term of the Zhang Agreement shall commence as of the Zhang Effective Date and continue thereafter, subject to earlier termination in accordance with the terms of the Zhang Agreement. Pursuant to the terms of the Zhang Agreement, Ms. Zhang will be entitled to receive:
| ● | an annual base salary of $450,000 per annum (subject to annual review and adjustment) (CFO Base Salary). The Board shall review the base salary on annual basis adjust it upward or downward at their sole discretion; |
| ● | an annual cash bonus with the target amount equal to seventy-five percent (75%) of the Base Salary (the “CFO Annual Performance Bonus”) in the year in which the CFO Annual Performance Bonus relates, subject to approval by the Board which may adjust to be greater or less than pre-stated CFO Annual Performance Bonus; | |
| ● | equity incentive compensation under the Company’s equity incentive plan, subject to approval by the Board; and |
| ● | eligibility to participate in a number of Company-sponsored benefit plans that may be in effect from time to time. |
Pursuant to the Zhang Agreement, in the event that the Zhang Agreement is terminated for a reason other than for “Cause,” (as defined in the Zhang Agreement) “Good Reason,” (as defined in the Zhang Agreement) or for a Change of Control (as defined in the Zhang Agreement), Ms. Zhang, upon signing and returning an effective waiver and release of claims (the CFO Release), shall be entitled to receive: (i) a lump sum payment in an amount equal to twenty-four (24) months in value of her then current CFO Base Salary, less all customary and required taxes and related deductions, payable in the first payroll following the date on which the Release becomes effective and non-revocable; (ii) a lump sum payment equal to the then target CFO Annual Performance Bonus amount multiplied by 1.0, after deduction of all mounts required to be deducted or withheld under applicable law, payable in the first payroll following the date on which the CFO Release becomes effective and non-revocable; (iii) upon the effective date of the CFO Release, vesting of any unvested equity awards held by Ms. Zhang shall be accelerated such that 100% of such awards shall become fully vested as of the date of such termination; (iv) that portion of Ms. Zhang’s CFO Base Salary accrued prior to termination of Ms. Zhang’s employment with Company and that has not yet been paid; (v) accrued but unused paid time off; (vi) reimbursement for any reasonable out-of-pocket expenses properly incurred by Ms. Zhang on behalf of the Company prior to any such termination and not yet reimbursed; and (vii) continuation of group health continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) at the Company’s expense, until the earlier to occur of: (A) twelve (12) months following the termination date of Ms. Zhang’s employment, or (B) the date that Ms. Zhang becomes eligible for medical benefits with another employer.
Compliance with OTCQB requirements
On November 8, 2024, the Company received notice from OTCQB notifying the Company that it has regained compliance with the minimum closing bid price requirement for continued listing on OTCQB as set forth in the OTCQB listing standards, section 2.3.
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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.
EXHIBIT INDEX
| * | Furnished herewith. This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing. |
| † | The financial information of Evofem Biosciences, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 filed on November 14, 2024 formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) Parenthetical Data to the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Operations, (iv) the Condensed Consolidated Statements of Convertible and Redeemable Preferred Stock and Stockholders’ Deficit, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements, is furnished electronically herewith. |
| ^^ | Certain exhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplementally a copy of any omitted exhibit or schedule upon request by the SEC. |
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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 hereunto duly authorized.
| EVOFEM BIOSCIENCES, INC. | ||
| Date: November 14, 2024 | By: | /s/ Ivy Zhang |
| Ivy Zhang | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
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