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 31and 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. For additional context with which to understand our financial condition and results of operations, see the audited consolidated financial statements and accompanying notes contained therein as of December 31, 2021and 2020 (2021 Audited Financial Statements) in the Company's Annual Report on Form 10-K as filed with the SECon March 10, 2022(2021 Annual Report). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Item 1A of Part I of the 2021 Annual Report and Item 1A of Part II of this Quarterly Report and our Quarterly Reports on Form 10-Q as filed with the SECon May 10, 2022and August 12, 2022. Unless otherwise defined in this section, the defined terms in this section have the meanings set forth in the 2021 Audited Financial Statements.
Our common shares was suspended from the Nasdaq Capital Market due to noncompliance with the Nasdaq's minimum bid price requirement. On
October 27, 2022, Nasdaq Stock Market, LLCfiled a Notification of Removal From Listing and Registration under 12(b) of the Securities Exchange Act of 1934, and as such, our common stock was formally delisted from Nasdaq. The delisting of our shares from Nasdaq makes our shares of common stock less liquid and makes it more difficult for us to raise funds when and as needed to fund our operations.
Our common stock, par value
Venture Market (the OTCQB) of the OTC Markets Group, Inc., a centralized
electronic quotation service for over-the-counter securities, effective
October 11, 2022we announced that the Phase 3 EVOGUARD clinical trial evaluating EVO100 for the prevention of chlamydia and gonorrhea infection in women did not achieve its endpoints. Due to financial resources, we discontinued further investment in this clinical program. On November 1, 2022, our Board of Directors approved a reduction in workforce (RIF) intended to conserve our current cash resources; we reduced our workforce by 39 employees. We expect annualized future cost savings from the RIF to be approximately $9.2 million, which we intend to use to support our operations. We estimate we will incur aggregate pre-tax charges of approximately $0.6 millionin connection with the RIF, primarily consisting of notice period and severance payments, employee benefits and related costs. We expect the RIF will be substantially complete by the end of 2022 and expect that these one-time charges will be predominantly incurred in the fourth quarter of 2022. On December 16, 2022, we filed a Certificate of Designation (the Certificate of Designation) creating a Series D Non-Convertible Preferred Stock, par value $0.0001per share (the Series D Preferred Shares). An aggregate of 70 shares has been authorized, they are not convertible into shares of Common Stock, have limited voting rights equal to 1% of the total voting power of the then-outstanding shares of Common Stock entitled to voter per shares, are not entitled to dividends, and are required to be redeemed by us, once our shareholders have approved a reverse split, as described in the Certificate of Designation. On December 19, 2022, the Company entered into the First Amendment to Forbearance Agreement (the Amendment) effective as of December 15, 2022(the Amendment Effective Date) with the Guarantors identified on the signature pages thereto (the Guarantors and, together with the Company being collectively referred to as the Loan Parties), the 667, L.P. and Baker Brothers Life Sciences, L.P.(the Consenting Purchasers) and Baker Bros. Advisors LP, as agent and collateral agent for the Purchasers (in such capacity the Designated Agent), to amend certain provisions of the of the Forbearance Agreement dated September 15, 2022(the Forbearance Agreement). The Amendment revises the Forbearance Agreement to (i) amend the Fifth Recital Clause to clarify that the Purchasers consent to any additional indebtedness pari passu, but nor senior to that of the Purchases, in an amount not to exceed $5,000,000, and (ii) strike and entirely replace Section 4 to clarify the terms of the Purchasers' consent to Interim Financing (as defined therein). On December 20, 2022, the Company entered into a securities purchase agreement (SPA), with certain investors (the Investors) providing for the sale and issuance of senior secured convertible notes due in the aggregate original principal amount of $2,307,692,31(the Notes), warrants to purchase an aggregate 46,153,847 shares of common stock (Warrants) and an aggregate 70 shares of Series D Preferred Stock (the Preferred Shares) (collectively, the Offering). The Offering closed on December 21, 2022with net proceeds to the Company from the Offering, after deducting offering expenses of approximately $1,250,000. 34 -------------------------------------------------------------------------------- Table of Contents Overview We are a San Diego-based commercial-stage biopharmaceutical company committed to developing and commercializing innovative products to address unmet needs in women's sexual and reproductive health. Our first commercial product, Phexxi, was approved by the FDA on May 22, 2020and is the first and only FDA-approved, hormone-free, woman-controlled, on-demand prescription contraceptive gel for women. We commercially launched Phexxi in September, 2020 in the United States. We intend to commercialize Phexxi in global markets through partnerships or licensing agreements.
Phexxi as a Contraceptive; Commercial Strategies
Our sales force promotes Phexxi directly to obstetrician/gynecologists and their affiliated health professionals, who collectively write the majority of prescriptions for contraceptive products. As of
September 30, 2022, our sales force consisted of 50 sales representatives and 6 business managers, supported by a self-guided virtual health care provider (HCP) learning platform. After the RIF, as discussed below, our sales force consists of 20 sales representatives and 3 business managers. Additionally, we offer women direct access to Phexxi via our telehealth platform. Using the 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, 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 United Statesas well as certain identified target HCP segments. Our target audience includes the approximately 23 million women who are not using hormonal contraception and the approximately 18.8 million women who are using a prescription contraceptive, some of whom, particularly pill users, may be ready to move to an FDA-approved, non-invasive hormone-free contraceptive. In addition to marketing and product awareness campaigns, our commercial strategy includes payer outreach and execution of our consumer digital and media strategy.
According to our market research since Phexxi’s commercial launch, HCPs indicate
they would recommend Phexxi to approximately:
•47% of patients experiencing side effects from current contraception;
•37% of patients using non-hormonal prescription contraception;
•36% of patients seeking pregnancy prevention; and
•19% of patients using hormonal prescription contraception.
Additional research into the demographics of more than 5,000 women who are using Phexxi revealed that 79% of Phexxi users are between 18 to 34 years of age. Among the subset of Phexxi users for whom prior contraceptive data is available (n=2,512), 80% of women who had recently started Phexxi were not on any method of prescription contraception. Another 20% switched to Phexxi from either oral contraceptives, hormonal rings or patches. In
February 2021, we launched a direct-to-consumer advertising campaign, known as "Get Phexxi," designed to increase awareness and educate women on the benefits of Phexxi. The campaign highlighted some of the struggles women face when choosing among the many available methods of contraception, including the lack of control with condoms, daily use of the pill, and abstinence required for cycle tracking. In September 2021, we launched a national brand ambassador campaign featuring Emmy Award-winning celebrity Annie Murphy, designed to broaden awareness and drive uptake of Phexxi. This award-winning campaign, known as "House Rules," has significantly raised our target audience awareness of Phexxi. To date, the House Rules campaign has grown brand awareness by 45% and garnered 42 million video views and over 33,000 telehealth exits. More importantly, it has also helped drive significant increases in new HCPs recommending and prescribing Phexxi. Over the course of 2021, ex-factory units grew quarter over quarter, with the most significant growth in the fourth quarter following "House Rules;" Phexxi units shipped increased 73% as compared to the prior quarter, propelled by a 56% increase in new patients starting Phexxi and a 111% increase in refills as compared to the prior quarter. The first quarter of 2022 reflected anticipated softness in Phexxi prescription and dispensed unit growth due to the annual reset of patient healthcare deductibles, which impacted most contraceptive brands, as well as from adjustments to Evofem's patient support programs in January 2022intended to increase the profit margin on Phexxi units dispensed and support continued net product sales growth. As forecasted, Phexxi total prescriptions and dispensed units rebounded in March 2022and continued to grow in the second and third quarters of 2022. Approved claims for Phexxi have increased throughout 2022, and currently 71% of Phexxi claims are being approved, up from a low of 55% at launch in September 2020. In the second quarter of 2022, we successfully negotiated an agreement with one of the nation's largest pharmacy benefit managers (PBMs) to ensure most women covered by this plan can fill their Phexxi prescription. The agreement took effect on July 1, 2022and is representative of approximately 48 million lives. 35
Table of Contents
We continue working to increase the number of lives covered and to gain a
preferred formulary position for Phexxi. Currently Phexxi has coverage for
approximately 60% of
Department of Veterans Affairs: Our December 2020contract award from the U.S. Department of Veterans Affairscovers approximately 13.7 million commercial lives.
approximately 68 million members, including approximately 16.8 million women 19
to 49 years of age gaining access to Phexxi on
participation in the Medicaid National Drug Rebate Program.
•Pharmacy Benefits Manager: As mentioned above, we successfully negotiated a contract with one of the largest PBMs in the nation, which added Phexxi to its formulary with no restrictions for most women covered by the plan. The agreement took effect
July 1, 2022.
Approximately 18 million commercial lives have access to Phexxi at no
out-of-pocket cost. This is due in part to one of the largest plans in
Coverage for and access to, Phexxi is expected to further increase as additional insurers and PBMs comply with the
January 2022guidance regarding access to contraception in the U.Sfrom the Health Resources and Services Administration(HRSA) and the U.S. Department of Labor. The new guidance specifies that most insurers and PBMs must provide coverage, with no out-of-pocket costs to women, for FDA-approved contraceptive products, like Phexxi, prescribed by healthcare providers. Compliance with the January 2022guidance is expected on or before January 1, 2023. 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." In July 2022, we developed and introduced a new educational chart that provides high-level information about birth control methods that are currently available to women in the United States, adding new categories including vaginal pH modulator. It is intended to replace a long-outdated chart that is still in use at many obstetrics and gynecology offices, thereby better supporting healthcare providers in their contraceptive counseling.
EVO100 for the Prevention of Chlamydia and Gonorrhea
Based on positive and statistically significant top-line results of our Phase 2B/3 AMPREVENCE trial, in
October 2020we initiated the Phase 3 EVOGUARD clinical trial to evaluate EVO100 for the prevention of urogenital chlamydia and gonorrhea infections in women. This randomized, placebo-controlled clinical trial enrolled 1,903 women with a prior chlamydia or gonorrhea infection who were at risk for future infection. On October 11, 2022, we reported that EVOGUARD did not meet its primary efficacy endpoint. The Company believes COVID-19 related changes in clinical site operations, subject behavior and actions including deviations from following the clinical study protocol requirements related to STI acquisition, detection, and prevention contributed to this outcome. The product safety profile was consistent with what has been observed in prior clinical trials, and only two women (0.1%) in the study discontinued due to adverse events. Due to financial constraints, we discontinued investment in this clinical program.
Multipurpose Prevention Technology Vaginal Gel for HIV Prevention
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 human immunodeficiency virus (HIV) in women. This collaboration is focused on determining compatibility and stability of OB-002 in Phexxi. Evofem and Orion expect to seek government and philanthropic funding for subsequent development of the MPT product candidate.
Financial Operations Overview
Net Product Sales
Our revenue recognition is based on unit shipments from our third-party logistics warehouse to our customers, which consist of wholesale distributors, retail pharmacies, and a mail-order specialty pharmacy. We have recognized net product sales in
the United Statessince the commercial launch of Phexxi in September 2020. We intend to out-license commercialization rights for Phexxi to one or more pharmaceutical companies or other qualified potential partners for countries or regions outside of the United States. We are currently in discussion with potential partners for various geographies. We cannot forecast when or if these arrangements will be secured, the structure or potential amount of revenues from these arrangements, whether upfront, milestone-related or related to future Phexxi sales (assuming approval of Phexxi for commercial sale outside of the United States), or to what degree these arrangements would affect our development plans, future revenues and overall capital requirements. 36 -------------------------------------------------------------------------------- Table of Contents In October 2021, we submitted the registration for our hormone-free contraceptive vaginal gel to the Mexican Regulatory Agency Comisión Federal para la Protección contra Riesgos Sanitarios. In addition to submitting for registration in Mexico, we have also submitted marketing applications for Phexxi under the trademark Femidence™ in Nigeria, Ethiopia, and Ghana. These were the first of several strategic regulatory submissions planned under Evofem's 2020 Global Health Agreement with Adjuvant Capital. In October 2022, Phexxi was approved in Nigeria, where the product will be potentially marketed under the brand name Femidence™. This is the first regulatory approval for the contraceptive vaginal gel outside the U.S.
Cost of Goods Sold
Inventory costs include all purchased materials, direct labor and manufacturing
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 $100,000to the extent these earned royalties do not equal or exceed $100,000in any given year. A minimum annual royalty amount of $100,000was first required for the annual period commencing on January 1, 2021. These royalty costs were $0.2 millionand $0.1 millionfor the three months ended September 30, 2022and 2021, respectively, and $0.7 millionand $0.2 millionfor the nine months ended September 30, 2022and 2021, respectively, and was included in the costs of goods sold in the condensed consolidated financial statements.
Research and Development Expenses
Our research and development expenses primarily consist of costs associated with the recently reported EVOGUARD trial and costs associated with the continuous improvements related to Phexxi commercialization efforts. These expenses include: •external development expenses incurred under arrangements with third parties, such as fees paid to clinical research organizations (CROs) relating to our clinical trials, costs of acquiring and evaluating clinical trial data such as investigator grants, patient screening fees, laboratory work and statistical compilation and analysis, and fees paid to consultants; •costs to acquire, develop and manufacture clinical trial materials, including fees paid to contract manufacturers; •costs related to compliance with drug development regulatory requirements; •continuous improvements of manufacturing and analytical efficiency; •ongoing product characterization and process optimization; •back-up contract manufacturing organization's evaluation to support future commercial forecast and reduce cost of goods sold; •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. 37
Table of Contents
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, 2022 2021 2022 2021
Allocated third-party development expenses:
EVO100 for prevention of chlamydia/gonorrhea- Phase
Total allocated third-party development expenses
2,811 6,890 16,553 17,078 Unallocated internal research and development expenses: Noncash stock-based compensation expenses 150 160 491 1,122 Payroll related expenses 607 1,048 3,269 3,988 Outside services costs 408 275 1,199 1,291 Other 1,231 328 1,830 991
Total unallocated internal research and development
2,396 1,811 6,789 7,392 Total research and development expenses $ 5,207
Costs for our clinical development programs and clinical trials in general are very difficult to predict and may vary significantly between clinical trials and over the life of a program owing to the following: •the phase of development of the product candidate; •the number of patients participating in the trial; •per patient trial costs; •the number of sites included in the trial; •the length of time and level of marketing required to enroll eligible patients; •the number of doses patients receive; •potential additional safety monitoring or other trials requested by regulatory agencies; and •the efficacy and safety profile of the product candidate. We anticipate that we will determine which programs and/or product candidates to pursue, if any, as well as the most appropriate funding allocations for each program and/or product candidate, on an ongoing basis in response to the outcomes of pre-clinical and clinical trials, regulatory developments, and our ongoing assessments of the commercial potential of each program and/or product candidate.
We expect research and development expenses to decrease slightly in 2022
compared to 2021 primarily due to the completion of EVOGUARD in the third
quarter of 2022. As previously noted, we have discontinued this program and
therefore expect a significant reduction in clinical trial expense in 2023.
Additionally, going forward, we expect an annualized costs saving of
Selling and Marketing Expenses
Our selling and marketing expenses consist primarily of Phexxi commercialization costs, including direct to consumer (DTC) and HCP advertising, the Phexxi telehealth platform, our sample program, 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, we expect our selling and marketing expenses to decrease significantly in 2022 compared to 2021 due to reductions in media and marketing activities related to ongoing Phexxi promotional strategies and the 2022 RIF. Going forward, we expect an annualized costs saving of
$6.3 millionin our selling and marketing expenses from the 2022 RIF.
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. 38 -------------------------------------------------------------------------------- Table of Contents We expect our general and administrative expenses to increase in 2022 compared to 2021 primarily due to increased general legal expenses and recruiting and financing related fees. Going forward, we expect an annualized costs saving of
$0.5 millionin our general and administrative expense from the 2022 RIF.
Other Income (Expense)
Other income (expense) consists primarily of interest expense, loss on issuance 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.
Results of Operations
Three Months Ended
September 30, 2022Compared to Three Months Ended September 30, 2021(in thousands): Net Product Sales Three Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Product sales, net $ 6,371 $ 1,712 $ 4,659272 % The increase in product sales, net, was primarily due to the continued growth in Phexxi ex-factory unit sales from the impact of Phexxi promotional strategies, and gross-to-net improvement initiatives implemented in January 2022.
Cost of Goods Sold
Three Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Cost of goods sold
$ 1,680 $ 955 $ 72576 %
The increase in cost of goods sold was primarily due to the increase in
ex-factory unit sales in the current period versus the same period in the prior
Research and Development Expenses
Three Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Research and development $ 5,207
$ 8,701 $ (3,494)(40) % The decrease in research and development expenses was primarily due to a $4.4 milliondecrease in clinical trial costs associated with EVOGUARD, for which the last patient last visit occurred in July 2022. This decrease was partially offset by a $0.9 millionincrease in facilities costs and a $0.4 millionincrease in outside services associated with regulatory related activities.
Selling and Marketing Expenses
Three Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Selling and marketing $ 11,948
$ 30,468 $ (18,520)(61) % The decrease in selling and marketing expenses was primarily due to a $18.2 milliondecrease in media and marketing costs related to promotional strategies, especially those focused on DTC campaigns, a $0.3 milliondecrease in costs related to the Phexxi sample program, and a $1.2 milliondecrease in payroll and related expenses due to lower headcount. This decrease was partially offset by a $1.7 millionincrease in noncash stock-based compensation. 39 -------------------------------------------------------------------------------- Table of Contents General and Administrative Expenses Three Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change General and administrative $ 6,260 $ 4,957 $ 1,30326 % The increase in general and administrative expenses was primarily due to a $1.6 millionincrease in legal, corporate, and financing related expenses, partially offset by a $0.2 milliondecrease in facilities costs.
Total Other Income (Expense), net
Three Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Total other income (expense), net
$ 108,243 $ (30,692) $ 138,935(453) % Total other income, net, for the three months ended September 30, 2022primarily included a $106.9 millionrecorded gain from the change in fair value of the liability-classified warrants issued in 2022 and a $2.5 milliongain on the partial extinguishment of the Adjuvant debt, partially offset by a $0.8 millionloss from change in fair value of the May 2022Notes due to mark-to market adjustment at the time of the debt extinguishment as part of the September debt restructuring and $0.6 millionin interest expense on Adjuvant Notes. Total other expense, net, for the three months ended September 30, 2021, primarily included $1.2 millionin interest expense related to the convertible senior secured promissory notes issued to Baker Bros. Advisors LP(the Baker Notes) and the unsecured convertible promissory notes issued to each of Adjuvant Global Health Technology Fund, L.P.and Adjuvant Global Health Technology Fund DE, L.P. (the Adjuvant Notes) as described in Note 4- Debt and a $29.5 millionloss from the change in fair value of the Baker Notes as a result of mark-to-market adjustments during the current quarter. Nine Months Ended September 30, 2022Compared to Nine Months Ended September 30, 2021(in thousands): Net Product Sales Nine Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Product sales, net $ 16,656 $ 4,674 $ 11,982256 %
Phexxi was commercially launched in
sales, net, was primarily due to the continued growth in Phexxi ex-factory unit
sales from the impact of Phexxi promotional strategies, and gross-to-net
improvement initiatives implemented in
Cost of Goods Sold Nine Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Cost of goods sold $ 4,031
$ 2,300 $ 1,73175 %
The increase in cost of goods sold was primarily due to the increase in
ex-factory sales in the current period versus the same period in the prior year.
Research and Development Expenses
Nine Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Research and development $ 23,342
$ 24,470 $ (1,128)(5) % The decrease in research and development expenses was primarily due to a $1.3 milliondecrease in clinical trial costs associated with EVOGUARD and a $0.6 milliondecrease in noncash stock-based compensation. This decrease was partially offset by a $0.7 millionincrease in facilities costs and a $0.6 millionincrease in outside services associated with regulatory related activities. 40 -------------------------------------------------------------------------------- Table of Contents Selling and Marketing Expenses Nine Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Selling and marketing $ 36,951 $ 88,230 $ (51,279)(58) % The decrease in selling and marketing expenses was primarily due to a $45.7 millionreduction in media and marketing costs related to promotional strategies, especially those focused on DTC campaigns, a $3.9 milliondecrease in payroll and related expenses due to lower headcount, a $1.2 milliondecrease in costs related to the Phexxi sample program, and a $0.8 milliondecrease in costs for outside services associated with medical affairs, marketing, and market access. This decrease was partially offset by a $0.7 millionincrease in noncash stock-based compensation.
General and Administrative Expenses
Nine Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change General and administrative $ 24,404
$ 19,057 $ 5,34728 % The increase in general and administrative expenses was primarily due to a $7.9 millionincrease in legal, corporate, and financing related expenses. This increase was partially offset by a $2.6 milliondecrease in noncash stock-based compensation.
Total Other Income (Expense), net
Nine Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Total other income (expense), net
$ 3,746 $ (24,244) $ 27,990(115) % Total other income, net, for the nine months ended September 30, 2022included a $86.8 millionrecorded gain primarily from the change in fair value of the liability-classified warrants issued in 2022 and a $2.5 milliongain on the partial extinguishment of the Adjuvant debt, partially offset by $72.0 millionrecorded loss on issuance of warrants, primarily from the June 2022Baker Warrants, a $10.3 millionand a $2.0 millionloss from the change in fair value of the Baker Notes and May Notes, respectively, as a result of mark-to-market adjustments, and a $1.6 millionin interest expense related to the Adjuvant Notes. Total other expense, net, for the nine months ended September 30, 2021, primarily included $3.5 millionin interest expense related to the Baker Notes and the Adjuvant Notes as described in Note 4- Debt and a $20.7 millionloss from the change in fair value of the Baker Notes as a result of mark-to-market adjustments in the first half of 2021.
Liquidity and Capital Resources
September 30, 2022, we had a working capital deficit of $84.9 millionand an accumulated deficit of $930.4 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, 2022, we had $7.7 millionin cash and cash equivalents, and $1.0 millionin restricted cash available for use from the Adjuvant Notes (as defined in Note 4- Debt ). Our cash and cash equivalents include amounts held in checking accounts, money market funds, and investments in fixed income debt securities with original maturities of less than three months. We have incurred losses and negative cash flows from operating activities since inception and anticipate that we will continue to incur net losses for the foreseeable future. During the nine months ended September 30, 2022, we received gross proceeds of $10.0 millionfrom the sale of notes and warrants in two registered direct offerings, gross proceeds of $7.4 millionfrom the sale and issuance of common stock pursuant to the Stock Purchase Agreement, net proceeds of $18.1 millionupon the sale and issuance of common stock and warrants from the May 2022Public Offering, and $25.2 millionfrom the exercise of common warrants. As of September 30, 2022, our significant commitments for capital expenditures include our office lease, fleet lease, and supply and manufacturing agreement with our Phexxi manufacturer, as described in Note 7- Commitments and Contingencies , and our agreement with our clinical research organization. The purpose of these commitments is to further the commercialization of Phexxi and manage the EVOGUARD trial. We expect to fund these commitments through debt and equity issuances and, to a lesser extent, product sales, until we reach cash flow breakeven. 41
Table of Contents
We currently expect our liquidity resources as of
December 22, 2022to be sufficient to fund our planned operations into the second half of January 2023. Our operating and capital requirements may differ materially as a result of certain factors, including, but not limited to, those set forth under Item 1A of Part I of the 2021 Annual Report and Item 1A. In particular if our debt holders were to request an acceleration or redemption of amounts owed pursuant to their respective debt arrangements, our existing liquidity resources would be insufficient to fund our ongoing operations and, absent additional funding, we may be required to cease our operations entirely. Our management is currently evaluating different strategies to obtain the required funding for our operations. These strategies may include, but are not limited to: public and private placements of equity and/or debt, licensing and/or collaboration arrangements and strategic alternatives with third parties, or other funding from the government or third parties. Our ability to secure funding is subject to numerous risks and uncertainties, including the impact of the COVID-19 pandemic, geopolitical turmoil related to the ongoing hostilities in Ukraineand economic uncertainty related to rising inflation and disruptions in the global supply chain. As a result, there can be no assurance that these funding efforts will be successful. Our ability to raise additional funds, and the terms on which those funds may be raised, will be dependent, in part, on how successful the commercialization of Phexxi is, the success of our cost reduction and gross-to-net improvement efforts, the accuracy of our estimates regarding cash needed to fund our operations, our ability to comply with the terms of our debt arrangements, and whether we are able to gain revenue further traction prior to raising additional funds. If we are not able to obtain required additional funding when and as needed, through equity financings or other means, or if we are unable to obtain funding on terms favorable to us, the shortfall in funds raised, or such unfavorable terms, will likely have a material adverse effect on our operations and strategic plan for future growth. If we cannot successfully raise the funding necessary to implement our current strategic plan or as necessary to comply with obligations pursuant to our debt arrangements (including any acceleration of those obligations), we may be forced to make further reductions in spending, suspend or terminate development programs, extend payment terms with suppliers, liquidate assets where possible, suspend or curtail planned programs, and/or cease operations entirely. Any of these developments would materially and adversely affect our financial condition and business prospects and could even cause us to be unable to continue as a going concern. 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 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 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 firm on our audited financial statements as of and for the years ended December 31, 2021and 2020 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Future reports on our 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, 2022and for three and nine months ended September 30, 2022and 2021 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.
2022 Debt and Equity Financings
As described in Note 4- Debt , we received gross proceeds of
$10.0 million, before issuance costs, from the sale of notes and warrants in two registered direct offerings in the first quarter of 2022. These notes were then exchanged for the May 2022Notes during the May 2022Exchange transaction, as defined in Note 4- Debt , which were subsequently exchanged for Purchase Rights during the debt restructuring in September 2022. with a total outstanding balance of $21.8 millionimmediately prior to the restruturing. As described in Note 8- Stockholders' Deficit , we received net proceeds of $18.1 millionupon the sale and issuance of common stock and warrants from an underwritten public offering, gross proceeds of $7.4 millionfrom the sale and issuance of common stock pursuant to the Stock Purchase Agreement, and $25.2 millionfrom the exercise of common warrants.
2021 Equity Financings
As described in Note 8 - Stockholders' Deficit , we received proceeds of
$28.0 million, net of underwriting discounts, from a public offering in March 2021, upon the issuance of 1,142,857 shares of our common stock, and $4.2 million, net of underwriting discounts, from the issuance of 171,428 shares of common stock upon exercise of the underwriters' overallotment option in April 2021. As described in Note 8 - Stockholders' Deficit , we received proceeds of $46.8 million, net of underwriting discounts and fees, from a public offering in May 2021, upon the issuance of 3,333,333 shares of common stock and common warrants to purchase 3,333,333 shares of common stock. We received $2.4 millionand $0.1 million, both net of underwriting discounts, from the issuance of 169,852 shares of common stock and 500,000 common warrants, respectively, upon exercise of the underwriter's overallotment option in May 2021. 42 -------------------------------------------------------------------------------- Table of Contents As described in Note 8 - Stockholders' Deficit , we received proceeds of $9.6 million, net of offering expenses, from a registered direct offering in October 2021, upon the issuance of 5,000 shares of Series B-1 Convertible Preferred Stock and 5,000 shares of Series B-2 Convertible Preferred Stock.
2020 Debt and Equity Financing
As described in Note 4- Debt , we received aggregate gross proceeds of
$25.0 millionupon the first and second closings of convertible senior secured promissory notes pursuant to the Baker Bros. Purchase Agreement during the second quarter of 2020. We also received gross proceeds of $25.0 millionfrom the closing of convertible unsecured promissory notes pursuant to the Adjuvant Purchase Agreement during the fourth quarter of 2020. We received net aggregate proceeds of $103.7 millionin June 2020upon the issuance and sale of 2,113,333 shares of our common stock from our 2020 Public Offering and net aggregate proceeds of $3.8 millionduring the first half of 2020 upon the issuance and sale of 45,110 shares of our common stock pursuant to the "at the market" (ATM) program. The ATM program was terminated in June 2020.
© Edgar Online, source