Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this in this Quarterly
Report on Form 10-Q and our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission, or the SEC, on March 24, 2022. This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Forward-looking
statements are based on our management’s beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “goal,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” “hope” and similar expressions intended to identify forward-looking statements and reflect our beliefs and opinions on the relevant subject. Our
actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q. The
forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. These statements are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q, and while we
believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all
potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
Overview
We are a biomedical company focused on transforming women’s healthcare by developing novel solutions and next-generation advancements providing significant clinical impact to address severely underserved areas. Our
mission is to provide women worldwide with superior minimally-invasive, non-surgical product technologies, accessible in the office, improving patient care and overall health economics. We are a woman-founded and led company with an
expansive, internally created intellectual property portfolio with over 150 patents globally, in-house chemistry, manufacturing, and controls (CMC) and device manufacturing capabilities and proven ability to develop and commercialize
products. Our suite of products and product candidates address what we believe are multi-billion dollar global market segments in which there has been little advancement for many years, helping women avoid pharmaceutical solutions, implants
and surgery that can be expensive and expose women to harm. With an initial focus in the area of reproductive health, our two lead product candidates offer solutions for two ends of the spectrum: FemBloc for permanent birth control and
FemaSeed as an artificial insemination infertility treatment.
Clinical Update
On October 20, 2022, we announced an updated study design for our FemaSeed pivotal trial, which will now focus on couples experiencing male factor infertility. This update reflects a revised strategy to address this
underserved population experiencing infertility with a goal of facilitating accelerated enrollment. The FemaSeed LOCAL de novo clinical trial is a prospective multi-center, unblinded study (NCT04968847) requiring evaluation of up to 214 women
undergoing 214 FemaSeed cycles due to male factor infertility. The primary endpoints of the study are to determine the effectiveness (pregnancy rate) and safety over a period of seven weeks post-FemaSeed procedure. Study enrollment is
expected to be completed in 2023. FemaSeed features intrauterine directional delivery that deposits sperm locally and directly to the fallopian tube where conception occurs. As the first and only approach, presenting significant advantages
over existing artificial insemination solutions, it is intended to become a first-line treatment for infertility.
About Male Factor Infertility
Of all infertility cases, approximately 40–50% is reportedly due to male factor infertility, which represents a dramatic increase in prevalence over the past 40 years. Sperm counts worldwide have declined by over 50%
between 1973 and 2011, with an increasing proportion of men having sperm counts below the threshold to be deemed sub-fertile or infertile. Assisted forms of reproductive treatment such as in-vitro fertilization (“IVF”) or intracytoplasmic sperm
injection (“ICSI”) are both effective first-line treatments but are associated with significant costs (approximately $30,000), are often not covered by health insurance and may pose clinical risks.
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table shows our results of operations for the three months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
% Change
|
|
Sales
|
|
$
|
347,456
|
|
|
|
269,581
|
|
|
|
77,875
|
|
|
|
28.9
|
%
|
Cost of sales
|
|
|
131,451
|
|
|
|
105,403
|
|
|
|
26,048
|
|
|
|
24.7
|
%
|
Gross margin
|
|
|
216,005
|
|
|
|
164,178
|
|
|
|
51,827
|
|
|
|
31.6
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,648,160
|
|
|
|
1,140,577
|
|
|
|
507,583
|
|
|
|
44.5
|
%
|
Sales and marketing
|
|
|
90,374
|
|
|
|
43,284
|
|
|
|
47,090
|
|
|
|
108.8
|
%
|
General and administrative
|
|
|
1,395,063
|
|
|
|
1,087,363
|
|
|
|
307,700
|
|
|
|
28.3
|
%
|
Depreciation and amortization
|
|
|
139,597
|
|
|
|
144,399
|
|
|
|
(4,802
|
)
|
|
|
-3.3
|
%
|
Total operating expenses
|
|
|
3,273,194
|
|
|
|
2,415,623
|
|
|
|
857,571
|
|
|
|
35.5
|
%
|
Loss from operations
|
|
|
(3,057,189
|
)
|
|
|
(2,251,445
|
)
|
|
|
(805,744
|
)
|
|
|
35.8
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
80,373
|
|
|
|
1,649
|
|
|
|
78,724
|
|
|
|
4774.0
|
%
|
Interest expense
|
|
|
(6,005
|
)
|
|
|
(7,055
|
)
|
|
|
1,050
|
|
|
|
-14.9
|
%
|
Other expense
|
|
|
(22
|
)
|
|
|
(2,850
|
)
|
|
|
2,828
|
|
|
|
-99.2
|
%
|
Other income (expense), net
|
|
|
74,346
|
|
|
|
(8,256
|
)
|
|
|
82,602
|
|
|
|
-1000.5
|
%
|
Net loss
|
|
$
|
(2,982,843
|
)
|
|
|
(2,259,701
|
)
|
|
|
(723,142
|
)
|
|
|
32.0
|
%
|
Sales
Sales increased by $77,875, or 28.9%, to $347,456 for the three months ended September 30, 2022 compared to $269,581 for the three months ended September 30, 2021 due to strong U.S. sales of FemVue. U.S. sales
increased by $78,106, or 36.9%, for the three months ended September 30, 2022 compared to the same period last year, and
U.S. units of FemVue sold increased by 38.9% for the three months ended September 30, 2022
compared to the same period last year. International sales largely remained the same and were $57,814 and $58,045 for the three months ended September 30, 2022 and 2021, respectively.
Cost of sales and gross margin percentage
Cost of sales increased by $26,048, or 24.7%, to $131,451 for the three months ended September 30, 2022 compared to $105,403 for the three months ended September 30, 2021 which was largely due to our increase in
U.S. FemVue sales. Gross margin percentage was 62.2% for the three months ended September 30, 2022 compared to 60.9% for the three months ended September 30, 2021, representing a 1.3% change in our gross margin due to certain improvements we
have started implementing in order to improve our manufacturing processes.
Research and development
The following table summarizes our R&D expenses incurred during the periods presented:
|
|
Three Months Ended September 30,
|
|
|
|
2022
|
|
|
|
2021*
|
|
Compensation and related personnel costs
|
|
$
|
771,979
|
|
|
|
643,007
|
|
Clinical-related costs
|
|
|
628,046
|
|
|
|
279,285
|
|
Material and development costs
|
|
|
145,692
|
|
|
|
148,435
|
|
Professional and outside consultant costs
|
|
|
87,012
|
|
|
|
57,595
|
|
Other costs
|
|
|
15,431
|
|
|
|
12,255
|
|
Total research and development expenses
|
|
$
|
1,648,160
|
|
|
|
1,140,577
|
|
* Prior period amounts have been reclassified to confirm with current year presentation.
R&D expenses increased by $507,583, or 44.5%, to $1,648,160 for the three months ended September 30, 2022 compared to $1,140,577 for the three months ended September 30, 2021. The net increase of $507,583
consists of an increase of $128,972 in compensation and related personnel costs primarily due to an increase in headcount, an increase of $348,761 in clinical-related costs, and a net increase of $29,850 in all other costs, all to mainly
support our clinical trials.
Sales and marketing
Sales and marketing expenses increased by $47,090, or 108.8%, to $90,374 for the three months ended September 30, 2022 compared to $43,284 for the three months ended September 30, 2021. This increase was largely due
to an increase in compensation and related personnel costs due to an increase in headcount.
General and administrative
General and administrative expenses increased by $307,700, or 28.3%, to $1,395,063 for the three months ended September 30, 2022 compared to $1,087,363 for the three months ended September 30, 2021. The net increase
was largely due to an increase in salaries and related personnel costs, an increase in facility and other allocated overhead costs, and an increase in professional costs for legal and accounting.
Depreciation and amortization
Depreciation and amortization expenses decreased by $4,802, or 3.3%, to $139,597 for the three months ended September 30, 2022 compared to $144,399 for the three months ended September 30, 2021 mainly due to
reduction of amortization expense associated with the Company’s intangible assets.
Other income (expense)
Other income, net increased by $82,602, or 1,000.5%, to $74,346 for the three months ended September 30, 2022 compared to $(8,256) for the three months ended September 30, 2021 mainly due to interest income earned
on our money market accounts.
Results of Operations
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table shows our results of operations for the nine months ended September 30, 2022 and 2021:
|
|
Nine Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
2022
|
|
|
2021
|
|
|
Change
|
|
|
% Change
|
|
Sales
|
|
$
|
971,974
|
|
|
|
925,362
|
|
|
|
46,612
|
|
|
|
5.0
|
%
|
Cost of sales
|
|
|
356,479
|
|
|
|
306,072
|
|
|
|
50,407
|
|
|
|
16.5
|
%
|
Gross margin
|
|
|
615,495
|
|
|
|
619,290
|
|
|
|
(3,795
|
)
|
|
|
-0.6
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
4,542,147
|
|
|
|
3,030,467
|
|
|
|
1,511,680
|
|
|
|
49.9
|
%
|
Sales and marketing
|
|
|
222,414
|
|
|
|
87,931
|
|
|
|
134,483
|
|
|
|
152.9
|
%
|
General and administrative
|
|
|
4,024,356
|
|
|
|
3,030,749
|
|
|
|
993,607
|
|
|
|
32.8
|
%
|
Depreciation and amortization
|
|
|
426,480
|
|
|
|
449,211
|
|
|
|
(22,731
|
)
|
|
|
-5.1
|
%
|
Total operating expenses
|
|
|
9,215,397
|
|
|
|
6,598,358
|
|
|
|
2,617,039
|
|
|
|
39.7
|
%
|
Loss from operations
|
|
|
(8,599,902
|
)
|
|
|
(5,979,068
|
)
|
|
|
(2,620,834
|
)
|
|
|
43.8
|
%
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
109,572
|
|
|
|
1,957
|
|
|
|
107,615
|
|
|
|
5499.0
|
%
|
Other income
|
|
|
—
|
|
|
|
821,515
|
|
|
|
(821,515
|
)
|
|
|
-100.0
|
%
|
Interest expense
|
|
|
(9,622
|
)
|
|
|
(14,546
|
)
|
|
|
4,924
|
|
|
|
-33.9
|
%
|
Other expense
|
|
|
(22
|
)
|
|
|
(2,850
|
)
|
|
|
2,828
|
|
|
|
-99.2
|
%
|
Other income, net
|
|
|
99,928
|
|
|
|
806,076
|
|
|
|
(706,148
|
)
|
|
|
-87.6
|
%
|
Net loss
|
|
$
|
(8,499,974
|
)
|
|
|
(5,172,992
|
)
|
|
|
(3,326,982
|
)
|
|
|
64.3
|
%
|
Sales
Sales increased by $46,612, or 5.0%, to $971,974 for the nine months ended September 30, 2022 compared to $925,362 for the nine months ended September 30, 2021. The $46,612 net increase was largely attributable to
the increase in U.S. FemVue sales of $104,830 for the nine months ended September 30, 2022 compared to the same period last year. This amount was offset by the decrease of $58,218 in international sales for the nine months ended September 30,
2022 compared to the same period last year. U.S. units of FemVue sold increased by 13.8% for the nine months ended September 30, 2022 compared to the same period last year. International sales decreased by 33.4% and were $115,859 and
$174,077 for the nine months ended September 30, 2022 and 2021, respectively.
Cost of sales and gross margin percentage
Cost of sales increased by $50,407, or 16.5%, to $356,479 for the nine months ended September 30, 2022 compared to $306,072 for the nine months ended September 30, 2021. The increase in cost of sales was mainly due
to net increase in sales and increased production personnel labor and overhead costs applied to our cost of sales for the nine months ended September 30, 2022 compared to the same period last year. Gross margin percentage was 63.3% for the
nine months ended September 30, 2022 compared to 66.9% for the nine months ended September 30, 2021. We expect to see improvement in our gross margin in the future as we are investing in equipment and tooling which will enable us to reduce
labor in certain manufacturing processes and reduce material costs as well.
Research and development
The following table summarizes our R&D expenses incurred during the periods presented:
|
|
Nine Months Ended September 30,
|
|
|
|
2022
|
|
|
|
2021*
|
|
Compensation and related personnel costs
|
|
$
|
2,327,063
|
|
|
|
1,967,702
|
|
Clinical-related costs
|
|
|
1,449,074
|
|
|
|
596,143
|
|
Material and development costs
|
|
|
452,669
|
|
|
|
349,825
|
|
Professional and outside consultant costs
|
|
|
272,368
|
|
|
|
88,479
|
|
Other costs
|
|
|
40,973
|
|
|
|
28,318
|
|
Total research and development expenses
|
|
$
|
4,542,147
|
|
|
|
3,030,467
|
|
* Prior period amounts have been reclassified to confirm with current year presentation.
R&D expenses increased by $1,511,680, or 49.9%, to $4,542,147 for the nine months ended September 30, 2022 compared to $3,030,467 for the nine months ended September 30, 2021. The net increase of $1,511,680
largely consists of an increase of $359,361 in compensation and related personnel costs primarily due to an increase in headcount, an increase of $852,931 in clinical-related costs, an increase of $102,844 in material and development costs
and an increase of $183,889 in professional and outside consultant costs, all to mainly support our clinical trials.
Sales and marketing
Sales and marketing expenses increased by $134,483, or 152.9%, to $222,414 for the nine months ended September 30, 2022 compared to $87,931 for the nine months ended September 30, 2021. This increase was largely due
to an increase in compensation and related personnel costs due to an increase in headcount and additional marketing costs mainly associated with our FemVue social media campaign earlier this year.
General and administrative
General and administrative expenses increased by $993,607, or 32.8%, to $4,024,356 for the nine months ended September 30, 2022 compared to $3,030,749 for the nine months ended September 30, 2021. The increase was
largely due to various additional costs associated with being a public company including an increase in salaries and related personnel and an increase in facility and other allocated overhead costs mainly for additional directors and officers
insurance.
Depreciation and amortization
Depreciation and amortization expenses decreased by $22,731, or 5.1%, to $426,480 for the nine months ended September 30, 2022 compared to $449,211 for the nine months ended September 30, 2021 due to reduction of
depreciation expense associated with the Company’s fixed assets and amortization expense associated with the Company’s intangible assets.
Other income (expense)
Other income, net decreased by $706,148, or 87.6%, to $99,928 for the nine months ended September 30, 2022 compared to $806,076 for the nine months ended September 30, 2021 mainly due to the Small Business
Administration approval of our Paychex Protection Program loan forgiveness in September 2021.
Liquidity and Capital Resources
Sources of liquidity
Since our inception through September 30, 2022, our operations have been financed primarily by net proceeds from the sale of our common stock and convertible preferred stock, indebtedness and, to a lesser extent,
product revenue. As of September 30, 2022, we had $16,005,650 of cash and cash equivalents and an accumulated deficit of $91,240,309.
On June 22, 2021, we closed on our IPO in which we issued and sold 2,650,000 shares of our authorized common stock. Net proceeds received, after deducting underwriting discounts, commissions, and legal
expenses, were $31,613,500.
On July 1, 2022, we entered into an Equity Distribution Agreement (the “Equity Distribution Agreement”) with Piper Sandler & Co. (“Piper Sandler” or the “Sales Agent”) and filed a related Prospectus
establishing an “at-the-market” facility, pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $8,800,000 from time to time through the Sales Agent pursuant to the Prospectus. As of
September 30, 2022, no shares had been sold under the Equity Distribution Agreement.
Funding requirements
Based on our current operating plan, our current cash and cash equivalents are expected to be sufficient to fund our ongoing operations at least 12 months from the date of filing these financial statements. Our
estimate as to how long we expect the net proceeds from this offering, together with our existing cash and cash equivalents, to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use
our available capital resources sooner than we currently expect. Changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek
additional funds sooner than planned.
Our cash and cash equivalents as of September 30, 2022 will not be sufficient to fund all of our product candidates through regulatory approval, and we anticipate needing to raise additional capital to complete the development and
commercialization of our product candidates.
However, we can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds will be available to us, that
such additional financing will be sufficient to meet our needs or be on terms acceptable to us. This risk may increase if economic and market conditions deteriorate. If we are unable to obtain additional financing when needed, we may need to
terminate, significantly modify, or delay the development of our product candidates, or we may need to obtain funds through collaborations or otherwise on terms that may require us to relinquish rights to our technologies or product candidates
that we might otherwise seek to develop or commercialize independently. If we are unable to raise adequate additional capital as and when required in the future, we could be forced to cease development activities and terminate our operations,
and you could experience a complete loss of your investment.
Cash Flows
Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021:
|
|
Nine Months Ended September 30,
|
|
|
|
2022
|
|
|
2021
|
|
Net cash used in operating activities
|
|
$
|
(7,864,086
|
)
|
|
|
(5,682,883
|
)
|
Net cash used in investing activities
|
|
|
(313,598
|
)
|
|
|
(188,245
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(599,695
|
)
|
|
|
29,829,211
|
|
Net change in cash and cash equivalents
|
|
$
|
(8,777,379
|
)
|
|
|
23,958,083
|
|
Operating activities
For the nine months ended September 30, 2022, cash used in operating activities was $7,864,086, attributable to a net loss of $8,499,974, a net change in our net operating assets and liabilities of $202,652 and
offset by non-cash charges of $838,540. Non-cash charges largely consisted of $426,480 in depreciation and amortization, $249,972 in right-of-use amortization, and $158,288 in stock-based compensation. The change in our net operating assets
and liabilities was primarily due to an increase in accounts receivables of $98,872, an increase in inventory of $138,666 and a decrease of $290,104 in lease liabilities, which were offset partially by a decrease in other assets of $359,307.
For the nine months ending September 30, 2021, cash used in operating activities was $5,682,883, attributable to a net loss of $5,172,992, a net change in our net operating assets and liabilities of $588,880, and
non-cash charges of $78,989. Net non-cash charges largely consisted of $821,515 in PPP loan forgiveness offset by $163,924 in stock-based compensation, $449,211 in depreciation and amortization, and $284,519 in right-of-use amortization. The
change in our net operating assets and liabilities was primarily due to a net decrease in accounts payable and accrued expenses of $748,173, a decrease of $312,893 in lease liabilities, and offset by a decrease in other assets of $498,878.
Investing activities
For the nine months ended September 30, 2022, cash used in investing activities for the purchase of property and equipment was $313,598 largely for machinery and equipment.
For the nine months ended September 30, 2021, cash used in investing activities for the purchase of property and equipment was $188,245.
Financing activities
For the nine months ended September 30, 2022, cash used in financing activities was $599,695, attributable to repayments on notes payable of $365,926, payments under lease obligations of $17,075, a deferred offering
cost payments of $232,845, and offset by proceeds from the exercise of a stock option of $16,151.
For the nine months ended September 30, 2021, cash provided by financing activities was $29,829,211, attributable to net proceeds from our IPO of $30,034,857, exercise of stock options totaling $112,145, and offset by
repayments on notes payable of $302,343 and payments under lease obligations of $15,448.
Government Regulation
De Novo Classification
Medical device types that the FDA has not previously classified as Class I, II or III are automatically classified into Class III regardless of the level of risk they pose. The Food and Drug Administration
Modernization Act of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class
III Designation,” or the de novo classification procedure. This procedure allows a manufacturer whose novel device is automatically classified into Class III to request de novo classification of its
medical device into Class I or Class II on the basis that the device presents low or moderate risk, and that general controls alone, or general and special controls, provide reasonable assurance of safety and effectiveness for the intended use
and that the probable benefits of the device outweigh the probable risks.
FDA has issued several guidance documents addressing the de novo classification process and the contents of de novo classification requests and, on October 5, 2021, the FDA published a final rule to establish
regulations for the de novo classification process. The regulation defines the requirements for the de novo classification process, including requirements related to the format and content of de novo requests, as well as processes and criteria
for accepting, granting, declining and withdrawing de novo requests.
Under the Food and Drug Administration Safety and Innovation Act (FDASIA) and the final rule, the FDA is required to issue an order classifying the device within 120 days following receipt of the de novo request or
receipt of additional information that results in the de novo request being accepted, but in practice the time for FDA review of de novo classification requests has historically been significantly longer. Under the Food and Drug Administration
Reauthorization Act (FDARA), Congress implemented user fees for de novo classification requests and FDA committed to performance goals for their review.
If the manufacturer seeks de novo classification into Class II, the manufacturer must include, among other information, a draft proposal for special controls that are necessary to provide a reasonable assurance of the
safety and effectiveness of the medical device. In addition, the FDA may decline the de novo classification request if it identifies a legally marketed predicate device or otherwise determines the device has already been classified, or
determines that general controls or general and special controls are insufficient to provide reasonable assurance of safety and effectiveness of the device, among other reasons for declining a de novo request listed in the final rule. Devices
that are classified into class I or class II in response to a de novo classification request may be marketed and used as predicates for future premarket notification 510(k) submissions.