<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1999
REGISTRATION NO. 333-74367
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WOMEN FIRST HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2834 13-3919601
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
12220 EL CAMINO REAL, SUITE 400
SAN DIEGO, CALIFORNIA 92130
(619) 509-1171
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID F. HALE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
WOMEN FIRST HEALTHCARE, INC.
12220 EL CAMINO REAL, SUITE 400
SAN DIEGO, CALIFORNIA 92130
(619) 509-1171
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
SCOTT N. WOLFE, ESQ. GREGORY C. SMITH, ESQ.
BARRY M. CLARKSON, ESQ. MELANIE D. VINSON, ESQ.
ROBERT E. BURWELL, ESQ. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
LATHAM & WATKINS 525 UNIVERSITY AVENUE, SUITE 220
701 "B" STREET, SUITE 2100 PALO ALTO, CALIFORNIA 94301
SAN DIEGO, CALIFORNIA 92101 (650) 470-4500
(619) 236-1234
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value...... 5,175,000 $12.00 $62,100,000 $17,264
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 675,000 shares subject to the Underwriters' option to cover
over-allotments.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(3) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
PROSPECTUS
4,500,000 SHARES
WOMENFIRST
WOMEN FIRST HEALTHCARE, INC.
Common Stock
-------------------------
This is an initial public offering of 4,500,000 shares of common stock, par
value $.001 per share, of Women First HealthCare, Inc. We are selling all of the
shares of common stock offered under this prospectus.
No public market currently exists for our shares. It is currently estimated that
the initial public offering price will be between $10.00 and $12.00 per share.
We have applied to have our common stock approved for listing on the Nasdaq
National Market under the symbol "WFHC."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
--------- ------
<S> <C> <C>
Public offering price................................... $ $
Underwriting discounts and commissions.................. $ $
Proceeds, before expenses............................... $ $
</TABLE>
-------------------------
The underwriters may, under certain circumstances, purchase up to an additional
675,000 shares of common stock from us at the initial public offering price less
the underwriting discount, solely to cover over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on or about , 1999.
Allen & Company Logo NEEDHAM & COMPANY, INC.
The date of this prospectus is , 1999.
<PAGE> 3
EDGAR DESCRIPTION OF INSIDE COVER
The inside front cover includes both text and photographs. The pictures on the
inside front cover include four photographs of midlife women surrounding the
Women First HealthCare symbol. The women are engaged in various activities,
including (describing from the left corner and moving clockwise): (i) engaging
in a conversation with a physician, (ii) riding a bicycle, (iii) smiling at the
camera dressed in casual attire, and (iv) smiling at the camera dressed in
business apparel.
We are a Delaware corporation with executive offices located at 12220 El
Camino Real, Suite 400, San Diego, California 92130, and our telephone number is
(619) 509-1171. We maintain an Internet site at WWW.WOMENFIRST.COM and our
subsidiary, As We Change, LLC, maintains an Internet site at WWW.ASWECHANGE.COM.
The reference to either of our Internet addresses does not constitute
incorporation by reference of the information contained at the sites. In this
prospectus, "Women First HealthCare" and "Women First," refer to Women First
HealthCare, Inc. and its subsidiaries (but not the underwriters listed in this
prospectus), including the businesses acquired by us, unless the context
otherwise requires. "As We Change" refers to As We Change, LLC, our wholly owned
subsidiary, or its predecessor MenoMorphosis, LLC, as the context requires.
Women First HealthCare(TM), Women First(TM), Women First Pharmacy
Services(TM), As We Change(R), Midlife Healthline(TM), A Better Way(TM), RENEWAL
a time for you(TM), IntegraVie(TM), ViAmor(TM), My Generation, My Choice(TM) and
SafeStart(TM) are trademarks of Women First. Pravachol(R) is a registered
trademark of E.R. Squibb & Sons. Ortho-Est(R) and Ortho Tri-Cyclen(R) are
registered trademarks of Johnson & Johnson. Element 38(TM) is a trademark of
Creative Beauty Innovations, Inc. and is used pursuant to a license. This
prospectus also includes references to additional trademarks of Women First and
companies other than Women First.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the risk factors and consolidated financial
statements and notes to those statements appearing elsewhere in this prospectus.
Except as otherwise indicated, all information in this prospectus assumes that
the underwriters will not exercise their over-allotment option and reflects the
automatic conversion of all outstanding shares of our preferred stock into
common stock upon the consummation of this offering.
WOMEN FIRST HEALTHCARE
Women First HealthCare is a specialty health care company dedicated to
improving the health of midlife women. The U.S. Census Bureau estimates that the
number of midlife women (ages 35-69) will grow from approximately 57 million in
1998 to approximately 67 million in the year 2010. Studies have shown that the
long-term health care needs of women change significantly after menopause. Based
on our market research and our continuing interaction with midlife women, we
believe that the health needs of these women are not being met.
Our mission is to help midlife women make informed choices about their
physical and emotional health and to provide pharmaceutical products, self-care
products, educational programs and support systems to help these women improve
the quality of their lives. We market pharmaceutical products primarily through
our growing dedicated sales force, currently totaling 82 people. This sales
force markets directly to approximately 18,000 OB/GYNs in the United States as
well as the nurse practitioners and physician assistants focused on women's
health. We market our self-care products primarily through direct-to-consumer
marketing programs and the Internet. We recently launched WOMENFIRST.COM, our
website, to provide comprehensive health care and lifestyle information and
online shopping, targeted at the needs of midlife women.
The pharmaceutical products we currently offer are:
- Ortho-Est(R), an oral estrogen product used in hormonal replacement
therapy, that we offer under a distribution agreement,
- Pravachol(R), a leading cholesterol-lowering drug, that we offer under a
co-promotion agreement, and
- Compounded hormonal replacement therapy products that we distribute
through our national home delivery pharmacy, Women First Pharmacy
Services.
The pharmaceutical products we are planning to offer are:
- Ortho Tri-Cyclen(R), a leading oral contraceptive that we plan to
co-promote, and
- an oral combination estrogen and progestin hormonal replacement therapy
product that we plan to co-promote upon product launch, pending FDA
approval.
Our self-care products include RENEWAL a time for you(TM), a program with
Dr. Deepak Chopra, a noted author and physician, offering women practical
approaches to achieve a sense of well-being at midlife. We are also developing a
line of Women First(TM) nutritional products with the Tufts University School of
Nutrition Science and Policy. Additionally, our self-care products include the
IntegraVie(TM) line of skin care products, the ViAmor(TM) vaginal
3
<PAGE> 5
moisturizer, educational products and a broad array of lifestyle, nutritional,
herbal and other products we sell through our national mail-order catalog, As We
Change(R), and our Internet retailer, ASWECHANGE.COM. We also plan to sell the
Women First(TM) self-care products through our Internet site, WOMENFIRST.COM.
INDUSTRY TRENDS AND STRATEGY
We believe that the markets for pharmaceutical and self-care products for
midlife women are changing. By responding to these trends, we believe that we
can become a premier marketer of health care products for midlife women and can
establish Women First as a widely recognized source of pharmaceutical and
self-care products targeted at this group of women.
- The expanding roles of OB/GYNs and the nurse practitioners and physicians
assistants focused on women's health create a market opportunity for us.
We are leveraging this opportunity by developing a dedicated sales force
targeting these clinicians. We will use this platform to promote our
hormonal replacement therapy, oral contraceptive and cholesterol-lowering
pharmaceutical products, thereby enhancing these clinicians' abilities to
retain patients into midlife. We also anticipate using our sales force to
promote pharmaceutical products that address other midlife conditions
such as hypertension, osteoporosis, depression and incontinence.
- The increasing focus on the conditions and diseases that affect midlife
has lead to the development of new products. Concurrently, industry
consolidation and cost containment pressures have resulted in increasing
opportunities for product licensing, acquisition and co-promotion. These
trends have allowed us to obtain rights to market and sell a variety of
pharmaceutical and self-care products that address women's midlife health
needs. We plan to expand the range of products we offer midlife women by
licensing and co-promoting products we can market and sell through our
sales organization and distribution channels. We will also seek to
acquire products that complement the product lines we currently offer.
- There is a significant and growing population of midlife women. Our
research indicates that these women are dissatisfied with their health
care. We believe that as women and their clinicians become more informed,
they will be more likely to use or recommend pharmaceutical or self-care
products that address women's needs in midlife. We are developing a
comprehensive educational program to enhance awareness about the
conditions affecting midlife women and the treatment options that are
available.
- We believe that women are seeking an on-line forum where they can find
credible information and purchase products that address their individual
needs. We have designed our Internet site, WOMENFIRST.COM, to contain
significant educational content as well as online e-commerce for our
consumer products. Because of the significant educational content we have
placed on WOMENFIRST.COM, we believe the site will be an attractive web
link. We have entered into agreements with iVillage, Inc. to develop
educational content on midlife women's health for ivillage.com and to
link the iVillage Internet site with WOMENFIRST.COM and ASWECHANGE.COM.
We are an early stage company with a history of losses. We have had a
limited operating history on which to base an evaluation of our business and
prospects. Early stage companies such as ours frequently encounter problems,
delays and expenses. For a discussion of various factors that may adversely
affect us, see "Risk Factors."
4
<PAGE> 6
THE OFFERING
COMMON STOCK OFFERED BY US...... 4,500,000 shares
COMMON STOCK TO BE OUTSTANDING
AFTER THIS OFFERING............. 16,574,322 shares
USE OF PROCEEDS................. We expect to use the net proceeds of this
offering for increased sales and marketing
efforts, obtaining rights to additional
products, acquiring companies, working
capital and other general corporate
purposes. We intend to use approximately
$8.0 million to repay principal and interest
on the $7.5 million principal amount of
short-term notes we issued in a private
placement in March 1999. See "How We Intend
to Use the Proceeds from the Offering."
DIVIDEND POLICY................. We intend to retain all future earnings to
fund the development and growth of our
business. Therefore, we do not anticipate
paying cash dividends on our common stock.
See "Dividend Policy."
RISK FACTORS.................... This offering involves a high degree of
risk. See "Risk Factors" beginning on page 7
for a discussion of factors you should
carefully consider before deciding to invest
in shares of our common stock.
The total number of shares offered by us would increase by up to 675,000
shares if the underwriters exercise the option to purchase additional shares of
common stock granted to them in connection with this offering to cover
over-allotments.
The information above is based on the number of shares outstanding as of
April 30, 1999. This information excludes:
- 2,114,235 shares of common stock issuable upon the exercise of options we
have granted under the Women First HealthCare Long-Term Incentive Plan
and the Women First Incentive Stock Plan at a weighted average exercise
price of $1.47 per share,
- 480,372 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $5.46 per share,
- 60,756 shares of common stock issuable upon the exercise of warrants
issued in conjunction with a private placement of short-term notes in
March 1999 (for a discussion of the exercise price of these warrants, see
"Description of Capital Stock -- Warrants"),
- 163,200 shares of common stock issuable upon the exercise of options
available for grant under the Women First HealthCare Long-Term Incentive
Plan, and
- up to 54,900 shares of common stock which we may be required to issue in
April 2000 pursuant to an earn-out based on the 1999 operating results of
As We Change, LLC.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS
NOVEMBER 1, 1996 ENDED
(INCEPTION) YEARS ENDED DECEMBER 31, MARCH 31,
THROUGH ------------------------- ------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue.................... $ -- $ -- $ 4,834 $ -- $ 4,303
Costs and expenses............. -- 1,766 14,611 750 10,659
---------- ---------- ---------- ---------- -----------
Loss from operations........... -- (1,766) (9,777) (750) (6,356)
Interest income, net........... -- 39 395 119 18
---------- ---------- ---------- ---------- -----------
Net loss....................... $ -- $ (1,727) $ (9,382) $ (631) $ (6,338)
Accretion of beneficial
conversion feature related
to convertible preferred
stock....................... -- -- -- -- (3,362)
---------- ---------- ---------- ---------- -----------
Net loss available to common
stockholders................ $ -- $ (1,727) $ (9,382) $ (631) $ (9,700)
========== ========== ========== ========== ===========
Net loss per share (basic and
diluted).................... $ -- $ (0.23) $ (1.22) $ (0.08) $ (1.26)
========== ========== ========== ========== ===========
Weighted average shares used in
computing net loss per share
(basic and diluted)......... 6,806,353 7,551,484 7,685,993 7,685,993 7,685,993
========== ========== ========== ========== ===========
Pro forma net loss per share
(basic and diluted)......... $ (0.95) $ (0.83)
========== ===========
Pro forma weighted average
shares used in computing net
loss per share (basic and
diluted).................... 9,904,834 11,638,176
========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1999
---------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- -----------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 9,048 $ 53,933
Working capital........................................... 2,702 47,587
Total assets.............................................. 18,257 63,142
Short-term notes payable.................................. 5,294 5,294
Short-term notes payable to related parties............... 1,929 1,929
Total stockholders' equity................................ 8,146 53,031
</TABLE>
The pro forma net loss per share and pro forma weighted average shares give
effect to the conversion of 1,650,000 and 2,200,000 shares of our Series A
Preferred Stock at December 31, 1998 and March 31, 1999, respectively, and
594,000 shares of our Series B Convertible Preferred Stock issued and deemed to
have been issued at December 31, 1998 and March 31, 1999, into 3,381,831 and
4,388,329 shares of our common stock at December 31, 1998 and March 31, 1999,
respectively, upon the consummation of this offering. Pro forma weighted average
shares were determined based upon the original date of issuance. The Pro Forma
As Adjusted column gives effect to the conversion of all shares of Series A
Preferred Stock and Series B Convertible Preferred Stock into 4,388,329 shares
of our common stock upon the consummation of this offering. The Pro Forma As
Adjusted column also gives effect to this offering of common stock at an assumed
initial public offering price of $11.00 per share and our receipt of $44.9
million in estimated net proceeds.
6
<PAGE> 8
RISK FACTORS
Any investment in our common stock involves a high degree of risk. This
section describes some, but not all, of the risk factors involved in purchasing
our common stock. You should consider the following factors and the other
information in this prospectus carefully before deciding to purchase shares of
our common stock.
WE HAVE RECENTLY STARTED OPERATIONS AND HAVE EXPERIENCED LOSSES SINCE OUR
INCEPTION. OUR BUSINESS MUST EXPAND FOR US TO ATTAIN PROFITABILITY.
We are an early stage company with a history of losses. Through December
31, 1998, we have generated only $4.8 million in net revenues. We have incurred
significant losses since we were founded in November 1996, we have an
accumulated deficit of $9.4 million through December 31, 1998, and we expect to
incur losses in the future. We may not successfully complete the transition to
successful operations or profitability. Early stage companies such as ours
frequently encounter problems, delays and expenses. These include, but are not
limited to, unanticipated problems and additional costs related to marketing,
competition and product acquisitions and development. These problems may be
beyond our control, and in any event, could adversely affect our results of
operations. See "Selected Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
WE HAVE A BROAD BUSINESS MODEL THAT WILL REQUIRE THE DEVELOPMENT OF MANY
DIFFERENT AREAS. IF WE FAIL TO IMPLEMENT ANY OF THE KEY ELEMENTS OF OUR BUSINESS
PLAN, OUR BUSINESS MAY NOT SUCCEED.
We have embarked on an ambitious plan to provide products, educational
programs and support systems to women to help them make better decisions
regarding their health care in midlife. There is a limited market awareness of
our company and the products and services we offer. To be successful, we must
continue to develop, coordinate and balance various elements of our business.
Among other things, we must:
- generate market demand for the products we offer, prepare and disseminate
information about midlife women's health care and establish the Women
First(TM) brand,
- convince OB/GYNs and the nurse practitioners and physician assistants
focused on women's health to prescribe and recommend the products we
offer,
- maintain and obtain rights to market and distribute products and
integrate them into our business, and
- augment sales and marketing and manage different distribution channels
for the products we offer.
If we fail to implement any of these key elements of our business plan, our
business may not succeed.
MANY OF OUR PRODUCT AGREEMENTS REQUIRE US TO MAKE MINIMUM PAYMENTS OR MAKE A
MINIMUM NUMBER OF SALES CALLS. IF OUR SALES OF THESE PRODUCTS DO NOT EXCEED THE
COSTS OF THESE MINIMUMS, OUR MARKETING AND DISTRIBUTION OF THESE PRODUCTS WILL
NOT BE PROFITABLE AND OUR RESULTS OF OPERATIONS WILL BE HARMED.
We have acquired the right to market and sell many of the products we offer
through license or co-promotion agreements with third parties. Some of these
agreements require us to make minimum payments or make a minimum number of sales
calls regardless of our actual
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sales of product covered by the agreement. The minimum payments we are required
to make or our costs of making the minimum number of sales calls under these
agreements may exceed our sales of the products to which these minimum payments
or minimum sales calls relate, and, as a result, our marketing and distribution
of some or all of these products may not be profitable. In particular, our
distribution agreement for the Ortho-Est(R) oral estrogen product requires us to
make minimum aggregate payments of $40.1 million to Ortho-McNeil Pharmaceutical,
Inc. over the remaining nine-year period of the contract, regardless of the
actual sales performance of this product. Under this agreement, we are required
to make minimum payments of $6.6 million during 1999. The minimum payments in
future years decrease annually based on a ten-year forecast that was determined
at the time the contract was executed.
Our co-promotion agreement with Ortho-McNeil Pharmaceutical, Inc. relating
to the Ortho Tri-Cyclen(R) oral contraceptive product and a new oral combination
estrogen and progestin hormonal replacement therapy (HRT) product requires us to
make a significant number of sales calls each year during the term of the
agreement, with the number increasing significantly after the launch of the new
HRT product. Ortho-McNeil will not be required to make the minimum payments to
us that are contemplated by the co-promotion agreement with respect to the Ortho
Tri-Cyclen(R) product if we fail to make a specified portion of the required
sales calls for that product or if the growth in Ortho-McNeil's market share for
oral contraceptives among the clinicians we call on does not exceed the growth
in Ortho-McNeil's market share among a control group of clinicians. Ortho-McNeil
also may reduce the payments otherwise required to be paid to us under the
agreement with respect to the new oral HRT product if we do not make a specified
portion of the minimum number of sales calls for that product.
In addition, the pharmacy management agreement with Health Script, a wholly
owned division of Dura Pharmaceuticals, Inc., requires us to pay a minimum
monthly management fee of $22,800 during the two-year term of the agreement. We
are also obligated to pay future development fees of $625,000 to CHPNC, LLC
prior to September 25, 2000 for the development of the Benefit:Risk Assessment
Model. Our failure to generate sales exceeding the specified minimum payments or
the costs of the minimum sales calls could have a material adverse effect on our
business and could give the other party the right to terminate or modify the
contract. For more information concerning our agreements containing minimum
payment and minimum sales call obligations, see "Business -- Licensing and
Co-Promotion Agreements."
MANY OF OUR PRODUCT AGREEMENTS MAY BE TERMINATED IF WE FAIL TO MAKE MINIMUM
PURCHASES, MAKE A MINIMUM NUMBER OF SALES CALLS OR FOR OTHER REASONS. THIS COULD
FORCE US TO DISCONTINUE SALES OF KEY PRODUCTS AND COULD HARM OUR RESULTS OF
OPERATIONS.
Our contracts relating to the products we offer contain various provisions
that allow the other party to terminate the contract, which, if exercised, could
force us to discontinue sales of the product and could have a material adverse
effect on our business. Our co-promotion agreement with Bristol-Myers Squibb
U.S. Pharmaceuticals Group relating to the cholesterol-lowering drug
Pravachol(R) provides that Bristol-Myers Squibb may terminate the agreement in
the event that Pravachol(R) prescriptions written in the United States by
designated OB/GYNs and the nurse practitioners and physician assistants in their
offices do not exceed specified minimum prescription amounts. These specified
minimum amounts increase quarterly in the first year and yearly from year to
year thereafter. Bristol-Myers Squibb may terminate the agreement in the event
that prescriptions for Pravachol(R) written by the clinicians covered by the
agreement do not exceed these minimum amounts for two consecutive quarters or
the yearly prescription forecasts for one year. September 30, 1999 is the end of
the first two
8
<PAGE> 10
consecutive quarter period under the agreement. These minimum amounts require us
to achieve a significant increase over the number of prescriptions for this
product currently written by the clinicians designated by the agreement and
substantially exceed the baseline amounts used for purposes of calculating the
performance fee under the contract. Furthermore, the co-promotion agreement with
Bristol-Myers Squibb contains a provision that allows Bristol-Myers Squibb to
terminate the agreement upon a change of control of Women First. As a result, we
could lose our rights to market and sell Pravachol(R) if we fail to meet our
minimum performance obligations or if we are acquired.
Our co-promotion agreement with Ortho-McNeil Pharmaceutical, Inc. allows
Ortho-McNeil to terminate the contract if we fail to make a specified portion of
the required sales calls for three consecutive quarters. Ortho-McNeil also may
terminate the agreement if there is a change of control of Women First or if
either Edward F. Calesa, the Chairman of the Board, or David F. Hale, our
President and Chief Executive Officer, is no longer associated with Women First
(other than as a result of death or disability). In addition, the co-promotion
agreement covers a new oral hormonal replacement therapy (HRT) product which has
not yet been approved by the FDA. If the new HRT product has not been approved
by the FDA or the product has not been launched prior to October 1, 2000, either
party may terminate the agreement.
Our seven-year agreement with BioFilm for the ViAmor(TM) vaginal
moisturizer and our ten-year agreement with Price Invena ApS for the
SafeStart(TM) umbilical cord clamp/cutter also require us to make specified
minimum purchases. If we do not make the specified minimum purchases of the
ViAmor(TM) product, the agreement provides that BioFilm's exclusive remedy is
termination of the contract and $25,000 in liquidated damages. Under the
agreement for the SafeStart(TM) product, our failure to achieve a certain level
of purchases will result in our exclusive distribution rights becoming
non-exclusive.
In addition, our contract with Ortho-McNeil Pharmaceutical, Inc. relating
to the Ortho-Est(R) oral estrogen product allows Ortho-McNeil to terminate the
contract (1) upon one year's notice so long as Ortho-McNeil provides us with a
one-year supply of the Ortho-Est(R) product and uses reasonable commercial
efforts to transfer the manufacturing and distribution rights to the product to
us or (2) immediately if the cost of FDA revalidation, should it become
necessary, exceeds $3 million. Most of our contracts permit termination by the
other party if we breach our obligations, including our minimum payment
commitments, under the contracts or enter bankruptcy. For more information about
how our product agreements may be terminated, see "Business -- Licensing and
Co-Promotion Agreements."
IF MIDLIFE WOMEN DO NOT USE AND THEIR CLINICIANS DO NOT RECOMMEND THE PRODUCTS
WE OFFER, WE WILL CONTINUE TO EXPERIENCE SIGNIFICANT LOSSES.
The products we license, acquire or co-promote may not achieve market
acceptance. The market acceptance of these products will depend on, among other
factors:
- their advantages over existing competing products,
- their perceived efficacy and safety,
- the actual or perceived side effect profile of hormonal replacement
therapies, and
- the reimbursement policies of the government and third-party payors.
Our model assumes that our marketing programs and the growth in our target
market will result in increased demand for the products we offer. If our
marketing programs do not succeed in generating a substantial increase in demand
for our products, we will be unable to realize our operating objectives. In
addition, our business model seeks to build on the expanding roles of OB/GYNs
and the nurse practitioners and physician assistants focused on women's health,
and
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our marketing efforts are concentrated on this group. If the clinicians we
target do not recommend and prescribe the products we offer or if midlife women
do not regularly use these products, we will continue to experience significant
losses and our business will be adversely affected. Moreover, if we fail to
develop the market-wide brand identity for Women First that we are seeking, our
business will be adversely affected.
ANY FAILURE BY US TO OBTAIN RIGHTS TO ADDITIONAL PRODUCTS OR TO ACQUIRE
COMPANIES AND SUCCESSFULLY INTEGRATE THEM WILL LIMIT OUR GROWTH AND MAY HARM OUR
BUSINESS.
We plan to obtain rights to additional products through license,
co-promotion or acquisition agreements and may acquire companies that complement
our business. Our failure to obtain rights to market products or to acquire
products or companies on acceptable terms or to integrate these products or
companies into our organization could harm our business. We may not be able to
identify appropriate licensing, co-promotion or acquisition candidates in the
future. Even if we identify an appropriate candidate, competition for it may be
intense. We may not be able to successfully negotiate the terms of a license,
co-promotion or acquisition agreement on commercially acceptable terms. The
negotiation of agreements to obtain rights to additional products or to acquire
companies could divert our management's time and resources from our existing
business. Moreover, we may be unable to finance an acquisition or integrate a
new product or company into our existing business. If we use shares of our
common stock as consideration for one or more significant acquisitions, our
stockholders could suffer significant dilution of their ownership interests.
OUR QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY AND MAY
FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS.
Our quarterly operating results may fluctuate significantly based on
factors such as:
- changes in the acceptance or availability of the products we offer,
- the timing of new product offerings, acquisitions or other significant
events by us or our competitors,
- regulatory approvals and legislative changes affecting the products we
offer or those of our competitors,
- the productivity of our sales force,
- the timing of expenditures for the expansion of our operations, and
- general economic and market conditions and conditions specific to the
health care industry.
Due to our short operating history and the difficulty of predicting demand
for the products we offer, we are unable to accurately forecast our revenues. In
addition, we plan to obtain rights to additional products and fund additional
sales and marketing and general and administrative activities, all of which
would increase our operating expenses. Accordingly, we may experience
significant, unanticipated quarterly losses. Because of these factors, our
operating results in one or more future quarters may fail to meet the
expectations of securities analysts or investors, which could have a material
adverse effect on our stock price. For a further discussion of expenditures and
other factors that could affect our results of operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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THE HEALTH CARE INDUSTRY AND THE MARKETS FOR THE PRODUCTS WE OFFER ARE VERY
COMPETITIVE. WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, ESPECIALLY AGAINST
ESTABLISHED INDUSTRY COMPETITORS WITH SIGNIFICANTLY GREATER FINANCIAL RESOURCES.
The health care industry is highly competitive. Most of our competitors and
those of our collaborative partners are large well-known pharmaceutical, life
science and health care companies that have considerably greater financial,
sales, marketing and technical resources than we have. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. In addition, competitors may elect to devote substantial
resources to marketing their products to midlife women and may choose to develop
educational and information programs like those we have developed to support
their marketing efforts. Our business, financial condition and results of
operations could be materially and adversely affected by any one or more of such
developments.
The pharmaceutical products we offer face significant competition. The
Ortho-Est(R) oral estrogen product, which has experienced declining sales and
market share and currently represents less than 1% of the market share of
estrogen replacement products sold in the U.S., competes with the Premarin(R)
oral estrogen product and the Prempro(R) and Premphase(R) combination oral
estrogen and progestin products, all of which are marketed by Wyeth-Ayerst
Laboratories, Inc. The Ortho-Est(R) product also competes with several other
estrogen products, including branded and generic products, taken orally and
through transdermal patches and creams, as well as non-hormonal replacement
therapy products marketed by Merek & Co., Inc. and Eli Lilly & Company. The
Ortho Tri-Cyclen(R) product competes with other oral contraceptive products
marketed by Wyeth-Ayerst, Warner-Lambert Company, Organon Inc., Berlex
Laboratories and Pharmacia & Upjohn Company. Ortho Tri-Cyclen(R) also competes
with other forms of contraception including contraceptive implants, progestin
injections, intrauterine devices, spermicides, diaphragms, cervical caps, female
condoms, emergency contraception and sterilization. The new oral combination
hormonal replacement therapy product covered by our co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc., if approved and launched, will compete
primarily with Prempro(R) and Premphase(R) combination oral estrogen and
progestin products and a combination estrogen and progestin patch manufactured
by Noven Pharmaceuticals, Inc. and marketed by Rhone-Poulenc Rorer. The new oral
HRT product will also compete with oral estrogen and transdermal estrogen
products as well as oral progestin products. The Pravachol(R) brand competes
with other cholesterol-lowering products marketed by Merck, Warner-Lambert
Company/Pfizer, Inc., Novartis Pharmaceuticals Corporation and Bayer
Corporation. In addition, micronized progesterone and other hormonal replacement
therapy products compounded by Women First Pharmacy Services compete with
compounded hormonal replacement therapy products distributed by regional and
national pharmacies. In 1998, Solvay Pharmaceuticals, Inc. received FDA approval
to market an oral capsule containing micronized progesterone developed and
manufactured by Schering Plough Corporation. Products compounded by Women First
Pharmacy Services may also compete with FDA approved pharmaceutical products.
Competition for the self-care products we offer also is significant. The
ViAmor(TM) vaginal moisturizer competes against a number of well-known brands of
vaginal moisturizers and lubricants. The IntegraVie(TM) line of skin care
products faces competition from products from other cosmetics and dermatological
companies. As We Change, LLC competes with a number of catalog companies and
Internet retailers focusing on self-care products. Our educational products will
compete with products that have been developed by medical professionals and
non-professionals alike. Our Internet site, WOMENFIRST.COM, competes with other
Internet sites focused on women's health as well as sites focused on health in
general. Our failure to adequately respond to the competitive challenges faced
by the products we offer could have a material adverse effect on our business,
financial condition and results of operations.
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IF WE DO NOT SUCCESSFULLY MANAGE ANY GROWTH WE EXPERIENCE, WE MAY EXPERIENCE
INCREASED EXPENSES WITHOUT CORRESPONDING REVENUE INCREASES.
Our business plan will, if implemented, result in rapid expansion of our
operations. This expansion may place a significant strain on our management,
financial and other resources. It also will require us to increase expenditures
before we generate corresponding revenues. Our ability to manage future growth,
should it occur, will depend upon our ability to identify, attract, motivate,
train and retain highly skilled managerial, financial, business development,
sales and marketing and other personnel. Competition for these employees is
intense. Moreover, the addition of products or businesses will require our
management to integrate and manage new operations and an increasing number of
employees and could require us to expand into new areas such as pharmaceutical
development. We may not be able to implement successfully and maintain our
operational and financial systems or otherwise adapt to growth. Any failure to
manage growth, if attained, would have a material adverse effect on our
business.
WE MAY NOT BE ABLE TO OBTAIN REIMBURSEMENT FOR THE PHARMACEUTICAL PRODUCTS WE
OFFER. ANY FAILURE TO OBTAIN REIMBURSEMENT COULD REQUIRE US TO DISCONTINUE SALES
OF A PARTICULAR PRODUCT AND COULD HARM OUR RESULTS OF OPERATIONS.
Our ability to market new and existing pharmaceutical products depends in
part on whether health care payors, including government authorities, private
health insurers, health maintenance organizations and managed care
organizations, will provide sufficient reimbursement for the products we offer.
Third-party payors are increasingly challenging the prices of pharmaceutical
products and demanding data to justify the inclusion of new or existing products
in their formularies. Significant uncertainty exists regarding the reimbursement
status of pharmaceutical products, and we cannot predict whether additional
legislation or regulation affecting third-party coverage and reimbursement will
be enacted in the future, or what effect such legislation or regulation would
have on our business. Reimbursement may not be available for the products we
offer and reimbursement granted may not be maintained. In particular, sales of
the Ortho-Est(R) oral estrogen product may be adversely affected by formularies
that require substitution of generics on prescriptions written for the
Ortho-Est(R) product unless the physician indicates "dispense as written" on the
prescription. Additionally, sales through Women First Pharmacy Services may be
limited by pharmacy benefit management groups that restrict participation in
their networks. Moreover, limits on reimbursement available from third-party
payors may reduce the demand for, or adversely affect the price of, the products
we offer. The unavailability or inadequacy of third-party reimbursement for the
products we offer would have a material adverse effect on our results of
operations.
WE DO NOT CURRENTLY CONDUCT PHARMACEUTICAL RESEARCH AND DEVELOPMENT. THIS MAY
LIMIT THE RANGE OF PRODUCTS WE OFFER.
We do not presently conduct our own pharmaceutical research and development
programs. In addition, we do not presently anticipate conducting our own
discovery research for pharmaceutical products. However, we may obtain rights to
develop and market a product in clinical development. If that occurs, we intend
to rely on third parties to perform the development work. We may not be able to
obtain arrangements for development by third parties on commercially reasonable
terms, if at all, and this may limit the range of products we are able to market
and distribute.
TECHNOLOGICAL CHANGE COULD RENDER THE PHARMACEUTICAL PRODUCTS WE OFFER OBSOLETE.
The pharmaceutical products that we market and distribute could be rendered
obsolete or uneconomical by the development of new drugs or devices to treat the
conditions that they
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address. Technological advances affecting costs of production or marketing also
could adversely affect our ability to sell products. In addition, our own
licensing, acquisition, co-promotion or development of additional products could
adversely affect the demand for the products we currently offer if the new
product has the same or similar indications as one or more of the products we
currently offer.
WE ARE DEPENDENT ON SINGLE SOURCES OF SUPPLY FOR ALL OF THE PRODUCTS WE OFFER.
IF ONE OF OUR SUPPLIERS FAILS TO SUPPLY ADEQUATE AMOUNTS OF A PRODUCT WE OFFER,
OUR SALES MAY SUFFER AND WE COULD BE REQUIRED TO ABANDON A PRODUCT LINE.
We are dependent on single sources of supply for all of the products we
offer. With respect to these products, we cannot guarantee that these third
parties will be able to provide adequate supplies of products in a timely
fashion. We also face the risk that one of our suppliers could become insolvent,
declare bankruptcy, lose its production facilities in a disaster, be unable to
comply with applicable government regulations or lose the governmental permits
necessary to manufacture the products it supplies to us. If we are unable to
renew or extend an agreement with a third-party supplier, if an existing
agreement is terminated or if a third-party supplier otherwise cannot meet our
needs for a product, we may not be able to obtain an alternative source of
supply in a timely manner or at all. In these circumstances, we may be unable to
continue to market products as planned and could be required to abandon or
divest ourselves of a product line on terms which would materially adversely
affect us.
WE MAY BE EXPOSED TO PRODUCT AND PROFESSIONAL LIABILITY CLAIMS NOT COVERED BY
INSURANCE THAT WOULD HARM OUR BUSINESS.
We may be exposed to product or professional liability claims. Although we
believe that we currently carry and intend to maintain appropriate product and
professional liability insurance, we cannot guarantee that this insurance will
be sufficient to cover all possible liabilities. A successful suit against us
could have an adverse effect on our business and financial condition if the
amounts involved are material.
WE ARE UNCERTAIN OF OUR ABILITY TO OBTAIN ADDITIONAL FINANCING FOR OUR FUTURE
CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, WE MAY NOT BE
ABLE TO CONTINUE TO OPERATE OUR BUSINESS.
We will require significant amounts of additional capital to achieve our
goals. We believe that the net proceeds from the offering, together with
existing cash balances, will be sufficient to meet our working capital, capital
expenditure requirements and minimum purchase commitments through the end of the
year 2000. Our future capital requirements will depend on many factors
including:
- the costs of our sales and marketing activities and our education
programs for clinicians and women,
- competing product and market developments,
- the costs of acquiring or developing new products,
- the costs of expanding our operations, and
- our ability to generate positive cash flow from our sales.
Additional funding may not be available on acceptable terms, if at all. If
adequate funds are not available, we may be required to curtail significantly or
defer one or more of our marketing or educational programs or to limit or
postpone obtaining new products through license,
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acquisition or co-promotion agreements. If we raise additional funds through the
issuance of equity securities, the percentage ownership of our then-current
stockholders may be reduced and such equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock. If
we raise additional funds through the issuance of debt securities, these new
securities would have certain rights, preferences and privileges senior to those
of the holders of our common stock, and the terms of these debt securities could
impose restrictions on our operations. For a further discussion of expenditures
and other factors that could affect our need for future capital, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
OUR MANAGEMENT WILL HAVE SUBSTANTIAL DISCRETION OVER THE USE OF THE NET PROCEEDS
OF THE OFFERING AND MAY NOT APPLY THEM EFFECTIVELY.
We expect to use the net proceeds of the offering for increased sales and
marketing efforts, obtaining rights to additional products, acquiring
businesses, working capital and other general corporate purposes. We also intend
to use approximately $8.0 million to repay principal and interest on the $7.5
million principal amount of short-term notes we issued in a private placement in
March 1999. Nevertheless, management will have significant flexibility in
applying the net proceeds of the offering. The failure of our management to
apply these funds effectively would have a material adverse effect on our
business.
OUR INABILITY TO OBTAIN NEW PROPRIETARY RIGHTS OR TO PROTECT AND RETAIN OUR
EXISTING RIGHTS COULD IMPAIR OUR COMPETITIVE POSITION AND ADVERSELY AFFECT OUR
SALES.
We believe that the patents, trademarks, copyrights and other proprietary
rights that we own or license, or that we will own or license in the future,
will continue to be important to our success and competitive position. If we
fail to maintain our existing rights or cannot acquire additional rights in the
future, our competitive position may be harmed. Due to the length of time and
expense associated with bringing new pharmaceutical products to market, there
are benefits associated with acquiring or licensing products that are protected
by existing patents or for which patent protection can be obtained. While some
products we offer, such as the Pravachol(R) cholesterol-lowering drug, the
SafeStart(TM) umbilical cord clamp/cutter and the IntegraVie(TM) line of skin
care products, incorporate patented technology, most of the products we sell are
not protected by patents. We have applied for registration of a number of key
trademarks and intend to introduce new trademarks, service marks and brand
names. We intend to take the actions that we believe are necessary to protect
our proprietary rights, but we may not be successful in doing so on commercially
reasonable terms, if at all. In addition, parties that license their proprietary
rights to us may face challenges to their patents and other proprietary rights
and may not prevail in any litigation regarding those rights. Moreover, our
trademarks and the products we offer may conflict with or infringe upon the
proprietary rights of third parties. If any such conflicts or infringements
should arise, we would have to defend ourselves against such challenges. We also
may have to obtain a license to use those proprietary rights or possibly cease
using those rights altogether. Any of these events could harm our business. For
more information concerning our existing proprietary rights, see "Business --
Intellectual Property."
MUCH OF OUR BUSINESS IS SUBJECT TO REGULATION. REGULATORY BODIES COULD IMPAIR OR
ELIMINATE OUR ABILITY TO CONDUCT PORTIONS OF OUR BUSINESS.
Many of our activities are subject to extensive regulation by one or more
federal, state or local agencies. These regulatory bodies have the power to
restrict or eliminate many of our business activities, and to seek civil and
criminal penalties for noncompliance with applicable laws and regulations. For
example, products compounded by Women First Pharmacy Services
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will be subject to legislation containing, among other elements, provisions
restricting the advertising of compounded products and strictly limiting the
compounding of pharmaceuticals. The FDA also has proposed a limit of 20% on
interstate shipments of compounded drugs with respect to total prescriptions
dispensed and a 5% limit on interstate shipments of any one compounded
pharmaceutical product by a given pharmacy. Changes in existing laws and
regulations could adversely affect our business. For further discussion of these
regulatory matters, see "Business -- Government Regulation."
OUR FAILURE TO RETAIN THE PRINCIPAL MEMBERS OF OUR MANAGEMENT TEAM OR TO HIRE
ADDITIONAL QUALIFIED EMPLOYEES WOULD ADVERSELY AFFECT OUR ABILITY TO IMPLEMENT
OUR BUSINESS PLAN.
Our success depends upon the retention of the principal members of our
management, technical and marketing staff, particularly Edward F. Calesa, the
Chairman of the Board, and David F. Hale, our President and Chief Executive
Officer. The loss of the services of Mr. Calesa, Mr. Hale or other key members
of our management team might significantly delay or prevent the achievement of
our development and strategic objectives. Our co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc. relating to the Ortho Tri-Cyclen(R) oral
contraceptive and a new oral combination hormonal replacement therapy product
contains a provision that would allow Ortho-McNeil to terminate the agreement if
either Mr. Calesa or Mr. Hale is no longer associated with Women First (except
as a result of their death or disability). We have entered into employment
contracts with Mr. Calesa and Mr. Hale. We are the beneficiary of a life
insurance policy on the life of Mr. Calesa in the amount of $2.0 million. We do
not have life insurance policies on the lives of any other members of our
management team. Our success also depends on our ability to attract additional
qualified employees. Companies in the pharmaceutical and health care industries
compete intensely for qualified personnel. We have agreed not to solicit sales
representatives from Johnson & Johnson or any of its subsidiaries or from any
contractor of Ortho-McNeil Pharmaceutical, Inc. that provides a sales force that
calls on physicians. Our inability to retain our existing personnel or to hire
additional qualified employees would have a material adverse effect on our
company.
OUR MANAGEMENT AND EXISTING STOCKHOLDERS WILL RETAIN SUBSTANTIAL CONTROL OVER
OUR VOTING STOCK AND CAN MAKE DECISIONS THAT COULD ADVERSELY AFFECT OUR BUSINESS
AND OUR STOCK PRICE.
Upon completion of this offering, Edward F. Calesa and his family members
will jointly own 42.9% of our common stock. Johnson & Johnson Development
Corporation, a subsidiary of Johnson & Johnson, will own approximately 11.1% of
our common stock. Johnson & Johnson Development Corporation's percentage
beneficial ownership of our common stock would be greater than 11.1% following
the offering if it purchases the shares reserved for it in this offering. At the
request of Women First, the underwriters in this offering have reserved for sale
to Johnson & Johnson Development Corporation at the initial public offering
price that number of shares of common stock equal to $3,000,000 divided by the
initial public offering price. For more information regarding the shares
reserved for purchase by Johnson & Johnson Development Corporation, see "Certain
Transactions" and "Underwriting." Our present directors, executive officers and
principal stockholders as a group will beneficially own approximately 57.0% of
the outstanding common stock. Accordingly, if all or certain of such
stockholders were to act together, they would be able to exercise significant
influence over or control the election of our Board of Directors, the management
and policies of Women First and the outcome of certain corporate transactions or
other matters submitted to our stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets. For a
discussion of prior transactions involving our principal stockholders, see
"Certain Transactions."
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Management and our existing stockholders, acting together, will be able to
prevent or effect a change in control of Women First and will be able to amend
certain provisions of our certificate of incorporation and bylaws at any time.
The interests of management and our existing stockholders may conflict with the
interests of our other holders of common stock, and this concentration of
ownership may discourage others from initiating potential merger, takeover or
other change in control transactions.
OUR BUSINESS MAY BE INTERRUPTED BY YEAR 2000 PROBLEMS IF OUR VENDORS, CUSTOMERS
OR PAYORS ARE UNABLE TO CONVERT THEIR SYSTEMS OR IF ANY OF OUR INTERNAL SYSTEMS
ARE NOT COMPLIANT.
The Year 2000 issue results from computer programs having been written
using two digits rather than four to define the applicable year. Computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. If any
of our internal systems are affected by a Year 2000 problem, we may experience a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. In addition, we cannot predict
the extent to which the Year 2000 issue will affect our vendors, customers or
payors and other parties that provide us with significant products and services,
or the extent to which we would be vulnerable if these parties fail to resolve
any Year 2000 issues on a timely basis. Any failure on the part of these parties
to achieve Year 2000 compliance on a timely basis could materially adversely
affect us. For example, a system failure on the part of our key suppliers or
customers could result in our failing to receive adequate supplies of products
or our being unable to process sales.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect us. We could be subject to
litigation due to computer systems or product failure, including as a result of
equipment shutdown or failure to properly date business records. We cannot
reasonably estimate at this time the amount of potential liability and lost
revenue that could result from Year 2000 issues. For more information concerning
Year 2000 issues that could affect our business, see "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Year 2000
Compliance."
THE PUBLIC MARKET FOR OUR COMMON STOCK MAY BE VOLATILE, AND THE PRICE OF OUR
STOCK MAY FLUCTUATE FOR REASONS UNRELATED TO OUR OPERATING PERFORMANCE.
There has been no prior public market for our common stock, and we do not
know whether investor interest in Women First will lead to the development of an
active trading market. We will determine the initial public offering price for
the shares of common stock through our negotiations with the underwriters. You
may not be able to sell your shares at or above the initial public offering
price. The market prices and trading volumes for securities of emerging
companies, like Women First, historically have been highly volatile and have
experienced significant fluctuations both related and unrelated to the operating
performance of those companies. The price of the common stock after the offering
may fluctuate widely, depending on many factors, including factors that may
cause our quarterly operating results to fluctuate as well as market
expectations and other factors beyond our control. In the past, following
periods of volatility in the market price of a company's securities, class
action litigation has often been instituted against that company by some of its
stockholders. This type of litigation, if instituted against us, could result in
substantial costs and a diversion of our management's attention and resources,
which could materially and adversely affect our results of operations and
financial condition.
SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY IMPAIR OUR STOCK
PRICE.
Sales of substantial numbers of shares of our common stock, or the
perception that such sales could occur, could adversely affect the market price
of our common stock and make it
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more difficult for us to raise funds through equity offerings in the future. A
substantial number of outstanding shares of common stock and shares of common
stock issuable upon exercise of outstanding stock options will become available
for resale in the public market at prescribed times. Upon completion of this
offering, we will have 16,574,322 shares of common stock outstanding. The
4,500,000 shares sold in the offering will be freely tradable under the
Securities Act of 1933, as amended, unless held by our "affiliates" as defined
in Rule 144 under the Securities Act. Of the 12,074,322 shares of common stock
outstanding as of April 30, 1999, 9,698,993 will be eligible for sale under Rule
144 under the Securities Act, subject to volume and other limitations, upon the
expiration of 180-day lock-up agreements described below. As of April 30, 1999,
we had 2,277,435 shares of common stock reserved for issuance upon the exercise
of stock options granted or available for grant under the Women First HealthCare
Long-Term Incentive Plan and 541,128 shares reserved for issuance upon exercise
of outstanding warrants. Some of our stockholders have rights that entitle them
to register their common stock under the Securities Act at our expense. In
addition, we intend to register the shares of Common Stock reserved for issuance
under the Women First Long-Term Incentive Plan after this offering.
All of our currently outstanding shares of stock, all shares issuable upon
the conversion or exercise of outstanding shares of preferred stock and warrants
and the shares of stock issuable upon exercise of options held by Women First's
directors and officers are subject to lock-up agreements with the underwriters
pursuant to which the current directors, officers and stockholders of Women
First have agreed not to offer, sell, contract to sell or otherwise dispose of,
or enter into any hedging transactions with respect to, any common stock or
securities convertible into or exchangeable for common stock for a period of 180
days after the date of the underwriting agreement. Allen & Company Incorporated
may in its sole discretion and at any time without notice release all or any
portion of such securities subject to the lock-up agreements. The underwriters
do not presently intend to grant permission to sell any securities subject to
the lock-up agreements.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF OUR COMPANY AT A PREMIUM PRICE.
Provisions of the Amended and Restated Certificate of Incorporation and
Amended and Restated Bylaws that we intend to adopt prior to the closing of the
offering may make it difficult for a third party to acquire us and could
discourage a third party from attempting to acquire us at a premium price. These
include provisions classifying our board of directors, prohibiting stockholder
action by written consent and requiring advance notice for nomination of
directors and stockholders' proposals. In addition, Section 203 of the Delaware
General Corporation Law also imposes restrictions on mergers and other business
combinations between us and any holders of 15% or more of our common stock.
Moreover, our new certificate of incorporation will allow our board of directors
to issue, without further stockholder approval, preferred stock that could have
the effect of delaying, deferring or preventing a change in control. The
issuance of preferred stock also could adversely affect the voting power of the
holders of our common stock, including the loss of voting control to others. The
provisions of our proposed new certificate of incorporation and bylaws, as well
as certain provisions of Delaware law, may have the effect of discouraging or
preventing an acquisition, or disposition of, our business. Some of our key
contracts contain provisions that would allow the other party to the agreement
to terminate the agreement upon a change of control. These provisions also may
diminish the opportunities for a stockholder to participate in certain tender
offers, including tender offers at prices above the then-current fair market
value of our common stock. See "Description of Capital Stock -- Preferred Stock"
and "-- Certificate of Incorporation, Bylaw and Statutory Provisions Affecting
Stockholders" for a more detailed discussion of these anti-takeover provisions.
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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS
Some of the matters discussed under the captions "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus include
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, including, among
other things,
- implementing our business strategy,
- obtaining and expanding market acceptance of the products we offer,
- obtaining the rights to market and distribute additional products,
- meeting our minimum purchase requirements under key contracts, and
- competing in the pharmaceutical and self-care products markets for women
in midlife.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "potential," "continue," "expects,"
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions. These statements are based on our current beliefs, expectations and
assumptions and are subject to a number of risks and uncertainties. Actual
results and events may vary significantly from those discussed in the
forward-looking statements. These forward-looking statements are made as of the
date of this prospectus, and we assume no obligation to update them or to
explain the reasons why actual results may differ. In light of these
assumptions, risks and uncertainties, the forward-looking events discussed in
this prospectus might not occur.
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HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
We estimate that we will receive net proceeds of approximately $44.9
million from this offering based upon an assumed offering price per share of
$11.00 and the deduction of the underwriting discount and commissions and
estimated offering expenses. We estimate that we will receive net proceeds of
$51.8 million if the underwriters' over-allotment option is exercised in full.
We expect to use the net proceeds of the offering for:
- increased sales and marketing efforts,
- obtaining rights to additional products,
- acquiring companies, and
- working capital and other general corporate purposes.
We also intend to use approximately $8.0 million to repay principal and
interest on the $7.5 million principal amount of short-term notes we issued in a
private placement in March 1999. These notes bear interest at a rate of 9% per
annum and mature on March 1, 2000. Pending these uses, we intend to invest the
net proceeds of this offering in investment-grade, interest bearing securities.
We believe that the net proceeds from this offering, together with existing cash
balances, will be sufficient to meet our working capital, capital expenditure
requirements and minimum purchase commitments through the end of the year 2000.
For more information about our uses of proceeds of this offering, see "Risk
Factors -- Our management will have substantial discretion over the use of the
net proceeds of the offering and may not apply them effectively" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
We presently anticipate that we will retain all of our future earnings to
finance the development and expansion of our business and provide working
capital. Therefore, we do not anticipate paying any cash dividends on our common
stock. We have not paid any dividends on our common stock in the past.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization and cash and cash
equivalents of Women First as of March 31, 1999. The Actual column sets forth
information on an actual basis as of March 31, 1999. The Pro Forma column gives
effect to the conversion of all shares of Series A Preferred Stock and Series B
Convertible Preferred Stock into 4,388,329 shares of common stock upon the
closing of this offering. The Pro Forma As Adjusted column gives further effect
to the issuance of 4,500,000 shares of common stock at an assumed initial public
offering price of $11.00 per share and the receipt of the estimated net proceeds
from this offering of $44.9 million as if it had occurred as of March 31, 1999.
You should read this table in conjunction with our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents............................... $ 9,048 $ 9,048 $ 53,933
Short-term notes payable................................ 5,294 5,294 5,294
Short-term notes payable to related parties............. 1,929 1,929 1,929
Stockholders' equity:
Series A Preferred Stock, $.01 par value; 2,200,000
shares authorized; 2,200,000 shares issued and
outstanding at March 31, 1999...................... 22 -- --
Series B Convertible Preferred Stock, $.01 par value;
690,000 shares authorized; 550,000 shares issued
and outstanding and 44,000 shares to be issued at
March 31, 1999..................................... 6 -- --
Common stock, $.001 par value, 40,000,000 shares
authorized; 8,026,310 shares issued and 7,685,993
shares outstanding at March 31, 1999 (12,414,639
shares issued and 12,074,322 shares outstanding pro
forma; 16,914,639 shares issued and 16,574,322
shares outstanding pro forma as adjusted).......... 8 12 17
Treasury stock.......................................... (100) (100) (100)
Additional paid-in capital.............................. 28,748 28,772 73,652
Deferred compensation................................... (1,455) (1,455) (1,455)
Accumulated deficit..................................... (19,083) (19,083) (19,083)
-------- -------- --------
Total stockholders' equity......................... 8,146 8,146 53,031
-------- -------- --------
Total capitalization.......................... $ 15,369 $ 15,369 $ 60,254
======== ======== ========
</TABLE>
The information regarding our outstanding common stock excludes (1)
2,084,254 shares of common stock issuable upon the exercise of options
outstanding as of March 31, 1999 under the Women First HealthCare Long-Term
Incentive Plan and the Women First Incentive Stock Plan at a weighted average
exercise price of $1.32 per share; (2) 541,128 shares of common stock issuable
upon the exercise of warrants outstanding as of March 31, 1999; (3) 193,181
additional shares of common stock issuable upon the exercise of options
available for issuance under the Women First HealthCare Long-Term Incentive
Plan; (4) up to 54,900 shares of common stock which we may be required to issue
pursuant to an earn-out based on the 1999 operating results of As We Change,
LLC; and (5) up to 675,000 shares issuable to new investors if the underwriters'
over-allotment option is exercised in full.
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<PAGE> 22
DILUTION
The pro forma net tangible book value of Women First as of March 31, 1999
was $4.3 million or $0.36 per share after giving effect to the conversion of all
shares of preferred stock into 4,388,329 shares of common stock upon
consummation of this offering. Pro forma net tangible book value per share
represents the amount of total tangible assets of Women First reduced by the
amount of its total liabilities, divided by the total pro forma number of shares
of common stock outstanding. The pro forma as adjusted net tangible book value
of Women First as of March 31, 1999 would have been $49.2 million, or $2.97 per
share of common stock, after giving effect to the sale of 4,500,000 million
shares of common stock at an assumed initial public offering price of $11.00 per
share (after deducting estimated underwriting discounts and other estimated
expenses of this offering). This represents an immediate increase in pro forma
net tangible book value of $2.61 per share to existing stockholders and an
immediate dilution of $8.03 per share to new investors. The following table
illustrates the per share dilution in pro forma net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
------
Pro forma net tangible book value per share as of March 31,
1999...................................................... $ 0.36
------
Increase per share attributable to new investors............ 2.61
------
Pro forma as adjusted net tangible book value per share
after the offering........................................ 2.97
------
Dilution per share to new investors......................... $ 8.03
------
</TABLE>
The following table summarizes as of March 31, 1999 on a pro forma basis
(after giving effect to the conversion of all outstanding shares of preferred
stock into 4,388,329 shares of common stock upon the consummation of the
offering) the differences in total consideration paid and the average price per
share paid by existing stockholders and new investors, at an assumed initial
public offering price of $11.00 per share, with respect to the number of shares
of common stock purchased from Women First.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE PAID
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 12,074,322 72.9% $25,690,731 34.2% $ 2.13
New investors............................. 4,500,000 27.1 49,500,000 65.8 $11.00
----------- ----- ----------- -----
Total........................... 16,574,322 100.0% $75,190,731 100.0%
----------- ----- ----------- -----
</TABLE>
If the underwriters' over-allotment option is exercised in full, Women
First will issue an additional 675,000 shares to new investors, representing
3.9% of the total of 17,249,322 shares outstanding, and the total consideration
from new investors will be $56,925,000, representing 68.9% of the total of
$82,615,731 consideration paid for all shares outstanding, at an assumed initial
public offering price of $11.00 per share.
The information presented above with respect to existing stockholders
excludes (1) 2,084,254 shares of common stock issuable upon the exercise of
options outstanding as of March 31, 1999 under the Women First HealthCare
Long-Term Incentive Plan and the Women First Incentive Stock Plan at a weighted
average exercise price of $1.32 per share; (2) 541,128 shares of common stock
issuable upon the exercise of outstanding warrants (3) 193,181 shares of common
stock issuable upon the exercise of options available for issuance under the
Women First HealthCare Long-Term Incentive Plan; and (4) up to 54,900 shares of
common stock which we may be required to issue pursuant to an earn-out based on
1999 operating results of As We Change, LLC.
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
We derived the information below from our consolidated financial statements
audited by Ernst & Young LLP, independent auditors, for the period from November
1, 1996 (inception) through December 31, 1996 and for the years ended December
31, 1997 and December 31, 1998. The consolidated statement of operations data
for the three months ended March 31, 1998 and 1999 and the consolidated balance
sheet data as of March 31, 1999 have been derived from our unaudited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, which management considers necessary for a fair presentation of the
financial data for these periods and as of March 31, 1999. The selected
consolidated financial information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," contained in
this prospectus. We accounted for the acquisition of As We Change, LLC using the
purchase method of accounting. Accordingly, our Consolidated Statement of
Operations Data reflect the results of operations for this business since we
acquired it on October 21, 1998. Historical financial statements and pro forma
financial information for As We Change, LLC are included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1, 1996 YEARS ENDED THREE MONTHS
(INCEPTION) DECEMBER 31, ENDED MARCH 31,
THROUGH ----------------------- ------------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net revenue...................... $ -- $ -- $ 4,834 $ -- $ 4,303
Costs and expenses
Cost of sales.................. -- -- 2,648 -- 2,783
Marketing and sales............ -- 791 5,478 318 4,986
General and administrative..... -- 975 5,912 432 2,599
Research and development....... -- -- 573 -- 291
---------- ---------- ---------- ---------- -----------
Total costs and expenses... -- 1,766 14,611 750 10,659
---------- ---------- ---------- ---------- -----------
Loss from operations............. -- (1,766) (9,777) (750) (6,356)
Interest income, net............. -- 39 395 119 18
---------- ---------- ---------- ---------- -----------
Net loss......................... -- (1,727) (9,382) (631) (6,338)
Accretion of beneficial
conversion feature related to
convertible preferred stock.... -- -- -- -- (3,362)
---------- ---------- ---------- ---------- -----------
Net loss available to common
stockholders................... $ -- $ (1,727) $ (9,382) $ (631) (9,700)
========== ========== ========== ========== ===========
Net loss per share (basic and
diluted)....................... $ -- $ (0.23) $ (1.22) $ (0.08) $ (1.26)
========== ========== ========== ========== ===========
Weighted average shares used in
computing net loss per share
(basic and diluted)............ 6,806,353 7,551,484 7,685,993 7,685,993 7,685,993
========== ========== ========== ========== ===========
Pro forma net loss per share
(basic and diluted)............ $ (0.95) $ (0.83)
========== ===========
Pro forma weighted average shares
used in computing net loss per
share (basic and diluted)...... 9,904,834 11,638,176
========== ===========
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
MARCH 31, 1999
AT DECEMBER 31, ------------------------
------------------------------------------- PRO FORMA
1996 1997 1998 ACTUAL AS ADJUSTED
----------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........ $ 1,000 $ 567 $ 4,438 $ 9,048 $53,933
Working capital.................. 967 394 3,364 2,702 47,587
Total assets..................... 1,033 776 12,504 18,257 63,142
Short-term notes payable......... -- -- -- 5,294 5,294
Short-term notes payable to
related parties................ -- -- -- 1,929 1,929
Total stockholders' equity....... 1,000 531 8,436 8,146 53,031
</TABLE>
The pro forma net loss per share and the pro forma weighted average shares
give effect to the conversion of 1,650,000 and 2,200,000 shares of our Series A
Preferred Stock at December 31, 1998 and March 31, 1999, respectively, and
594,000 shares of our Series B Convertible Preferred Stock issued and deemed to
have been issued at December 31, 1998 and March 31, 1999 into 3,381,831 and
4,388,329 shares of our common stock upon the consummation of this offering. Pro
forma weighted average shares were determined based upon the original date of
issuance. The Pro Forma As Adjusted column gives effect to the conversion of all
shares of Series A Preferred Stock and Series B Convertible Preferred Stock into
4,388,329 shares of our common stock upon the consummation of this offering. The
Pro Forma As Adjusted column also gives effect to this offering of common stock
at an assumed initial public offering price of $11.00 per share and our receipt
of $44.9 million in estimated net proceeds.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of Women First's financial condition
and results of operations should be read in conjunction with "Selected
Consolidated Financial Information" and the consolidated financial statements
and notes thereto included elsewhere in this prospectus.
OVERVIEW
Women First HealthCare is a specialty health care company dedicated to
improving the health of midlife women. Our mission is to help midlife women make
informed choices about their physical and emotional health and to provide
pharmaceutical products, self-care products, educational programs and support
systems to help midlife women improve the quality of their lives. We market
these products in the United States through a number of channels including our
dedicated sales force, our direct-to-consumer marketing programs and the
Internet.
RESULTS OF OPERATIONS
We were engaged in development stage operations from November 1, 1996 (the
date of our inception) through December 31, 1997 and did not earn any revenue
during this period. Operations during this period consisted primarily of
formulating a marketing plan, conducting market research, developing strategic
relationships, acquiring equipment, performing administrative functions and
raising capital. In January 1998, we began to implement our plans for growth by
actively recruiting management, staff and sales personnel, consummating
distribution agreements, launching products and implementing previously planned
educational programs and support systems. We began selling and distributing the
Ortho-Est(R) oral estrogen product in July 1998 and acquired As We Change, LLC
on October 21, 1998. As a result, we believe the operating results for the year
ended December 31, 1998 are not comparable to the operating results for the year
ended December 31, 1997.
We have incurred significant losses since we were founded in November 1996.
We had an accumulated deficit of $9.4 million as of December 31, 1998, and we
expect to incur losses at least through the end of 2000. We believe that due to
our limited operating history we are unable to accurately predict our future
results of operations. Accordingly, our operating results should not be relied
upon as an indication of future performance. We review the operating results of
our business as a specialty health care company with one operating segment.
The results of operations include the results of our operations since our
inception and the actual results of operations of As We Change, LLC from its
acquisition date on October 21, 1998 in accordance with the purchase method of
accounting.
During the year ended December 31, 1998 and the quarter ended March 31,
1999, we recorded aggregate deferred compensation of $728,000 and $1.3 million,
respectively, in connection with the grant of stock options at exercise prices
less than the deemed fair value on the grant date. We are amortizing deferred
compensation over the vesting period of the related options which is generally
four years. For more information relating to these grants and related expenses,
see Note 7 of the Notes to Consolidated Financial Statements.
24
<PAGE> 26
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net Revenue. For the three months ended March 31, 1999, total net revenue
was $4.3 million, which was derived primarily from sales of the Ortho-Est(R)
oral estrogen pharmaceutical product of $2.4 million and sales from our
subsidiary As We Change, LLC, a national mail-order catalog and Internet
retailer of $1.6 million. We were in the development stage during 1997 and 1996
and recorded no revenue through March 31, 1998.
Costs and Expenses. Costs and expenses increased $9.9 million to $10.7
million for the three months ended March 31, 1999 from $750,000 for the three
months ended March 31, 1998. The increase in costs and expenses was due
primarily to the growth in commercial operations in the three months ended March
31, 1999 compared to limited development stage operations in the three months
ended March 31, 1998. In connection with the grant of certain stock options to
employees and consultants during 1999 and 1998, we recorded $488,000 in
compensation expense for the three months ended March 31, 1999 and $10,000 for
the three months ended March 31, 1998.
Cost of sales was $2.8 million, or 64.7% of net revenue, for the three
months ended March 31, 1999 as compared to none for the same period in 1998.
Cost of sales consists primarily of the amounts we pay for products under supply
agreements.
Marketing and sales expense increased $4.7 million to $5.0 million for the
three months ended March 31, 1999 from $318,000 for the three months ended March
31, 1998 primarily due to increases in the number of employees and the
corresponding increased salary expense resulting from the establishment of a
direct sales organization, the acquisition of As We Change, LLC, costs
associated with the Distinguished Professor Conference, a component of the
clinician education program, held in January 1999, increased travel and business
entertainment expense and increased expenses for market research, product
literature and professional samples.
General and administrative expenses increased $2.2 million to $2.6 million
for the three months ended March 31, 1999 from $432,000 for the three months
ended March 31, 1998 primarily due to increases in the number of employees and
the increased salary and employee benefits expense, increased management
incentive bonus expense, increased professional fees and increased depreciation
and amortization expense from capital expenditures and the purchase of
intangible assets associated with the acquisition of As We Change, LLC.
Research and development expense was $291,000 for the three months ended
March 31, 1999 compared to none in the comparable period in 1998. Research and
development expense consists primarily of salaries and payments for contracted
development programs. During the three months ended March 31, 1999, we commenced
testing of the patient health questionnaire and software product, the
"Benefit:Risk Assessment Model," and capitalized $137,000 associated with the
product. The contract for the "Benefit:Risk Assessment Model" requires us to pay
an additional $313,000 in 1999 and $175,000 in 2000 for the development programs
for the model.
Loss from Operations. For the reasons discussed above, the loss from
operations increased $5.6 million to $6.4 million for the three months ended
March 31, 1999 from $750,000 for the three months ended March 31, 1998.
Interest Income, net. Interest income, net decreased $101,000 to $18,000
for the three months ended March 31, 1999 due primarily to reduced cash balances
in the three months ended March 31, 1999 as compared to the three months ended
March 31, 1998 and the interest expense on short-term notes issued in March
1999.
25
<PAGE> 27
Accretion of beneficial conversion feature related to convertible preferred
stock. A $3.4 million charge for the three months ended March 31, 1999 has been
recognized as an increase of the net loss available to common stockholders equal
to the intrinsic value of the beneficial conversion feature of the Series A
Preferred Stock issued in February 1999. The intrinsic value in these shares of
Series A preferred stock represents the difference between the conversion price
of the Series A preferred stock issued in February 1999 and the fair value of
our common stock at the time of issuance.
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD FROM NOVEMBER 1, 1996
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
Net Revenue. For 1998, total net revenue was $4.8 million, which was
derived primarily from sales of the Ortho-Est(R) oral estrogen pharmaceutical
product beginning in July 1998 of $3.7 million and sales from our subsidiary As
We Change, LLC, a national mail-order catalog and Internet retailer, beginning
October 21, 1998 of $899,000. We were in the development stage during 1997 and
1996 and recorded no revenue through March 31, 1998.
Costs and Expenses. Costs and expenses increased $12.8 million to $14.6
million for 1998 from $1.8 million for 1997. The increase in costs and expenses
was due primarily to the establishment of commercial operations in 1998 compared
to limited development stage operations in 1997. In connection with the grant of
certain stock options to employees during 1998, we recorded $112,000 in
compensation expense. We did not report costs and expenses during the period
from inception through December 31, 1996.
Cost of sales was $2.6 million for 1998 as compared to none for 1997. We
began to incur expenses related to sales of the Ortho-Est(R) oral estrogen
product in July 1998. We do not manufacture the products we offer. Accordingly,
our cost of sales reflects amounts we pay for products under supply agreements.
Marketing and sales expense increased $4.7 million to $5.5 million for 1998
from $791,000 for 1997 primarily due to increases in the number of employees and
the corresponding increased salary expense resulting from the establishment of a
direct sales organization, increased outside services for market research,
recruiting, consulting and other professional fees, increased travel and
business entertainment, and the acquisition of As We Change, LLC in October
1998.
General and administrative expenses increased $4.9 million to $5.9 million
for 1998 from $975,000 for 1997 primarily due to increases in the number of
employees and the corresponding increased salary expense, the adoption of a
management incentive bonus plan, increased outside services for consulting and
other professional fees, increased occupancy costs due to the establishment of
the corporate office in San Diego, increased travel and business entertainment,
and increased depreciation and amortization expense from increased capital
expenditures and the purchase of intangible assets associated with the
acquisition of As We Change, LLC.
Our research and development expense consists primarily of salaries and
payments for contracted development programs. Research and development expense
was $573,000 for 1998 compared to none in 1997. In 1998, we made payments of
$275,000 for the contracted development of a patient health questionnaire and
software product, the "Benefit:Risk Assessment Model."
Loss from Operations. For the reasons discussed above, loss from operations
increased $8.0 million to $9.8 million for 1998 from $1.8 million for 1997. We
did not report an operating profit or loss for the period from inception through
December 31, 1996.
26
<PAGE> 28
Interest Income, net. Interest income increased $356,000 to $395,000 for
1998 from $39,000 for 1997 primarily due to interest income earned on the
investment of unused cash proceeds from the issuance of Series A Preferred
Stock. We did not earn any interest income during the period from inception
through December 31, 1996.
Income Taxes. We have incurred approximately $7.8 million of net operating
losses in 1998 for both federal and California tax purposes that are available
to be carried forward, subject to certain change of control limitations. The
federal and California tax loss carryforwards will begin to expire in 2018 and
2003, respectively, unless previously utilized. Upon the issuance of shares of
common stock contemplated in the initial public offering, we would be limited to
approximately $6.7 million of net operating loss carryforwards per year for
federal and state tax purposes. We have recognized a valuation allowance for the
deferred tax asset because we are uncertain of our ability to utilize these
losses in the future, and we have determined that it is more likely than not
that we will not generate taxable income sufficient to recover the deferred tax
assets. For 1997, we were an S Corporation for federal and state income taxes.
Accordingly, all losses for 1997 were passed through to the stockholders and we
did not record a provision for taxes.
FACTORS AFFECTING RESULTS OF OPERATIONS
We incurred operating losses of $1.8 million in the year ended December 31,
1997 and $9.8 million in the year ended December 31, 1998. Due to our short
operating history, our revenues have varied and are difficult to forecast on a
quarterly or annual basis. However, many of our expenses are fixed, especially
in the short term. In particular, we are obligated to make significant minimum
payments under some of our agreements, including an annual minimum purchase
($6.6 million for 1999 and decreasing annually for the balance of the contract)
for the Ortho-Est(R) oral estrogen product. In addition, we are an early stage
company and have experienced significant increases in operating expenses
associated with obtaining rights to market and distribute additional products
and the expansion of our sales and marketing and general and administrative
activities, and we expect that these increases will continue in the future. As a
result of this variability in revenues and increased expenses, our results of
operations have varied during our short operating history and we expect that
they will continue to fluctuate significantly in the future. In addition, other
factors may cause fluctuations in our revenues and results of operations,
including the following:
- the success of our sales force in distributing and co-promoting our
current product line and changes in market acceptance of those products,
- our ability to introduce new products through co-promotion or
distribution agreements or otherwise,
- legislative changes that affect our products and the way we market them
and our ability to comply with new or existing regulations,
- the amount and timing of expenditures for the expansion of our
operations,
- changes in the competitive environment that could cause us to change our
pricing or marketing strategy,
- changes in the economic and market environment generally or in the health
care industry.
To the extent our revenues do not increase in line with our expenses, we
may be unable to reduce spending commitments in a timely manner to compensate
for any unexpected revenue shortfall and may experience significant
unanticipated losses. As a result of these factors, our
27
<PAGE> 29
operating results in one or more future periods may fail to meet the
expectations of securities analysts or investors. Failure to meet these
expectations could have a material adverse effect on our stock price.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, our working capital totaled $2.7 million compared to
$3.4 million at December 31, 1998. Cash equivalents were $9.0 million at March
31, 1999 compared to $4.4 million at December 31, 1998.
At December 31, 1998, our working capital totaled $3.4 million compared to
$394,000 and $967,000 at December 31, 1997 and 1996, respectively. Cash and cash
equivalents were $4.4 million at December 31, 1998 compared to $567,000 at
December 31, 1997 and $1.0 million at December 31, 1996.
Our primary source of liquidity has been proceeds from private placements
of our equity securities. In January and May 1998, we entered into agreements to
sell an aggregate of 2,200,000 shares of Series A Preferred Stock (equivalent to
4,026,000 shares of common stock), together with warrants to some of the
investors, at a price of $10.00 per share. We issued 1,050,000 shares of Series
A Preferred Stock (equivalent to 1,921,500 shares of common stock) and warrants
immediately upon signing the January agreement and 50,000 shares of Series A
Preferred Stock (equivalent to 91,500 shares of common stock) and warrants
immediately upon signing the May agreement for net proceeds of $10.0 million and
$453,000, respectively, with the balance of the shares issuable upon the
achievement of certain operational milestones.
In October 1998, we successfully completed the initial milestone events and
issued 550,000 shares of Series A Preferred Stock (equivalent to 1,006,500
shares of common stock) and warrants for additional net proceeds of $5.3
million. During January 1999, we reached the subsequent milestone event, and in
February 1999, we issued an additional 550,000 shares of Series A Preferred
Stock (equivalent to 1,006,500 shares of common stock) and warrants for
additional net proceeds of $5.3 million.
In March 1999, we issued $7.5 million of short-term notes and warrants to
purchase 60,756 shares of common stock in a private placement for net proceeds
of $7.5 million. The notes bear interest at 9% per year, payable quarterly, and
mature on March 1, 2000. We may prepay the notes at any time without penalty.
For a discussion of these warrants, including their exercise price, see
"Description of Capital Stock -- Warrants."
In addition to operating expenses, our primary use of funds has been and
will continue to be to fund capital expenditures, to obtain the rights to market
and distribute products and to acquire companies.
Net cash used in operating activities was $6.6 million for the three months
ended March 31, 1999 and was $387,000 for the same period in 1998. Net cash used
in investing activities was $1.6 million for the three months ended March 31,
1999 and was $409,000 for the same period in 1998, consisting of the deferred
cash payment for the acquisition of As We Change, LLC in 1999 and net capital
expenditures. Net cash provided by financing activities was $12.8 million for
the three months ended March 31, 1999 and was $10.0 million for the same period
in 1998, primarily consisting of the net proceeds from the issuance of equity
securities and, in 1999, the issuance of short-term notes payable.
During the first quarter of 1999, we made net capital expenditures of
$528,000 for computer equipment, development of our Internet site and
acquisition of licenses and other assets including production of the
Benefit:Risk Assessment Model and RENEWAL a time for
28
<PAGE> 30
you(TM), a program that we are developing in conjunction with Dr. Deepak Chopra.
We anticipate making net capital expenditures of approximately $12.3 million for
the full year 1999. As of March 31, 1999, we have made firm commitments of
approximately $500,000 for remaining 1999 capital expenditures primarily for our
Internet site and the Benefit:Risk Assessment Model. We made capital
expenditures of $194,000 during the three months ended March 31, 1998, primarily
for furniture and fixtures and equipment.
Net cash used in operating activities for the years ended December 31, 1998
and 1997 was $9.0 million and $1.5 million, respectively. Net cash used in
investing activities for the years ended December 31, 1998 and 1997 was $2.8
million and $158,000, respectively, consisting of capital expenditures and, in
1998, the acquisition of As We Change, LLC. Net cash provided by financing
activities for the years ended December 31, 1998 and 1997 was $15.7 million and
$1.3 million, respectively, primarily consisting of the net proceeds from the
issuance of equity securities.
During the year ended December 31, 1998, we made capital expenditures of
$749,000 for furniture and fixtures, leasehold improvements, equipment and
licenses. We made capital expenditures of $158,000 during the year ended
December 31, 1997 which consisted primarily of expenditures on computers, other
equipment and licenses.
In October 1998, we acquired all of the outstanding membership interests in
As We Change, LLC. Total acquisition costs were $4.4 million, consisting of $1.8
million cash paid at acquisition date, $1.1 million deferred payment made March
31, 1999, 594,000 shares of Series B Preferred Stock (equivalent to 362,329
shares of common stock) and $107,000 of acquisition related expenses. We issued
a total of 44,000 of these shares (equivalent to 26,835 shares of common stock)
in April 1999 pursuant to an earn-out based on 1998 operating results of As We
Change, LLC. We may be required to issue up to an additional 54,900 shares of
common stock in April 2000 based on the 1999 operating results of As We Change,
LLC.
Certain of our product co-promotion agreements require us to achieve
minimum performance levels to receive compensation or to prevent contract
termination. Because we only recently signed our co-promotion agreement with
respect to the Pravachol(R) cholesterol-lowering pharmaceutical product, we do
not have sufficient information to quantify the likelihood that we will meet the
minimum prescription levels in 1999.
We have experienced a substantial increase in our expenditures since our
inception consistent with growth in our operations and staffing, and anticipate
that this growth will continue for the next several years. Our co-promotion
agreement with Ortho-McNeil Pharmaceutical, Inc. requires us to expand our field
sales force to at least 100 representatives in 1999 and to further significantly
expand our sales force following FDA approval of the new oral combination
estrogen and progestin hormonal replacement therapy product covered by the
agreement. We expect that our operating expenses will continue to increase as we
obtain rights to market and distribute additional products and to expand our
sales and marketing activities and our educational programs for clinicians and
women.
We also are obligated to make significant minimum payments under certain of
our agreements with our collaborative partners. The minimum purchase commitment
for the Ortho-Est(R) oral estrogen product is $6.6 million for 1999 and
decreases annually over the remaining nine-year term of the contract for an
aggregate commitment of $40.1 million. We are also obligated to make additional
payments of $1.0 million for 1999 and approximately $380,000 thereafter under
other agreements. Additional payments may be necessary under our pharmacy
management and self-care product agreements. For more information regarding our
minimum payment and minimum purchase obligations under our product agreements,
see "Business -- Licensing and Co-Promotion Agreements."
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We believe that based on our current performance and present plans, the
proceeds from this offering, together with existing cash balances, will be
sufficient to fund our operations, make planned capital expenditures and meet
our minimum purchase commitments through the end of fiscal 2000. Our ability to
fund our operations, to make planned capital expenditures and to meet our
minimum purchase commitments will depend on our future operating performance,
which is itself dependent on a number of factors, many of which we cannot
control, including prevailing economic conditions, availability of other sources
of liquidity, and financial, business, regulatory and other factors affecting
our business and operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 requires that all components of comprehensive income, including
net income, be reported in financial statements in the period in which they are
recognized. SFAS is effective for fiscal years beginning after December 15,
1997. This statement had no effect on our reported net losses.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 replaces SFAS 14,
Financial Reporting for Segments of a Business Enterprise and changes the way
companies report segment information. SFAS 131 is effective for fiscal years
beginning after December 15, 1997 and has been adopted by us for the year ending
December 31, 1998.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting for the Costs of Start-up
Activities (SOP 98-5). This standard requires companies to expense the cost of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 although earlier
adoption is encouraged. We adopted the provisions of this SOP for the year ended
December 31, 1998. The adoption of SOP 98-5 did not have a material impact on
our results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to affect us because we currently do not hold any
derivative instruments or conduct any hedging activities.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs having been written
using two digits rather than four to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. A system failure on the part of our key suppliers or customers could
result in our failing to receive adequate supplies of products or our being
unable to process sales.
Our plan to resolve the Year 2000 issue involves the following phases:
assessment, remediation, and confirmation through testing. To date, we have
completed our preliminary assessment of all internal systems and equipment that
could be significantly affected by the
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Year 2000. We have completed approximately half of the remediation phase and
commenced activities in the testing and readiness confirmation phases.
Our assessment indicated that most of our internal management information
systems and other significant equipment will correctly utilize dates beyond
December 31, 1999 ("Year 2000 ready"). The few components of our computing
infrastructure that remain to be upgraded will be addressed during the first
quarter of 1999 and will require minimal, if any, costs. We expect completion of
the testing phase for all significant internal systems by the end of the second
quarter 1999.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
Our electronic transactions with suppliers or customers currently are not
significant. Our electronic transactions with financial institutions have been
assessed, and we expect to confirm their Year 2000 readiness through testing
during the third quarter of 1999.
We have queried our significant suppliers that do not share information
systems with us. To date, we have received assurances from our major vendors
that they are or will be Year 2000 ready prior to December 31, 1999 and we are
not aware of suppliers with a Year 2000 issue that would materially impact our
results of operations, liquidity or capital resources. We have begun questioning
customers and payors to assess their Year 2000 readiness. However, we have no
means of ensuring that our vendors, suppliers, customers or payors will be Year
2000 ready. The inability of suppliers, customers and payors to complete their
Year 2000 resolution process in a timely fashion could have a material adverse
effect on us.
Year 2000 Remediation Costs
We will utilize both internal and, if necessary, external resources to
reprogram or replace, test and implement our internal systems and equipment for
Year 2000 modifications. Expenditures required to make us Year 2000 compliant
will be expensed as incurred and are not expected to be material to our
consolidated financial position or results of operations. Actual costs incurred
to date have not been material.
Contingency Plans
We have developed certain contingency plans to address failure of
remediation activities as applied to internal management information systems and
other significant equipment and the failure of our key suppliers to be Year 2000
ready. We have prioritized our critical suppliers and are developing plans to
provide for the continuance of product availability through accelerated
purchasing if we cannot obtain adequate assurances regarding a specific entity's
ability to become ready for the Year 2000. We also have considered the
implementation of manual order processing and fulfillment systems should the
electronic systems fail.
Risk to Us
We believe we have an effective program in place to test and confirm Year
2000 readiness in a timely manner. Based on our assessment, we do not believe
that our internal operations are subject to material exposure to Year 2000
issues. As noted above, however, we have not yet completed the final phases of
the Year 2000 program. In the event that our internal systems are not Year 2000
ready, or our suppliers or customers are not Year 2000 ready, we may be
temporarily unable to sell products in our current distribution channels or use
our financial systems to operate finance and accounting functions. As a result,
we may experience a material
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loss of revenues that would adversely affect our results of operations. We
consider this sort of interruption to be the most reasonably likely unfavorable
result of any failure by us or the third parties upon whom we rely to become
Year 2000 ready.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect us. We could be subject to
litigation due to computer systems or product failure, including as a result of
equipment shutdown or failure to properly date business records. We cannot
reasonably estimate at this time the amount of potential liability and lost
revenue that could result from Year 2000 issues.
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BUSINESS
OVERVIEW
Women First HealthCare, Inc. is a specialty health care company dedicated
to improving the health of midlife women. The U.S. Census Bureau estimates that
the number of midlife women (ages 35-69) will grow from approximately 57 million
in 1998 to approximately 67 million in the year 2010. Every day during this
period, approximately 4,000 to 5,000 women will enter menopause. Studies have
shown that the long-term health care needs of women change significantly after
menopause. Our mission is to help midlife women make informed choices about
their physical and emotional health and to provide pharmaceutical products,
self-care products, educational programs and support systems to help these women
improve the quality of their lives. We market these products in the United
States through a number of channels including our dedicated sales force, our
direct-to-consumer marketing programs and our Internet sites, WOMENFIRST.COM and
ASWECHANGE.COM.
Based on our market research and our continuing interaction with midlife
women, we believe that the health needs of these women are not being met. We
believe that the products, support systems and educational programs we offer
will address many of these unmet needs.
The products we offer fall within two main categories, pharmaceutical
products and self-care products. The pharmaceutical products we offer include
Ortho-Est(R), an oral estrogen product used in hormonal replacement therapy that
we distribute pursuant to an agreement with Ortho-McNeil Pharmaceutical, Inc.,
Pravachol(R), a leading cholesterol-lowering drug that we co-promote with
Bristol-Myers Squibb U.S. Pharmaceuticals Group, and compounded micronized
progesterone and other compounded hormonal replacement therapy products that we
distribute through our national home delivery pharmacy, Women First Pharmacy
Services. We recently entered into a co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. under which we agreed to co-promote Ortho Tri-Cyclen(R), a
leading oral contraceptive, and a new oral combination estrogen and progestin
hormonal replacement therapy product that we plan to offer upon product launch,
pending approval by the FDA. We intend to obtain rights to additional
pharmaceutical products through license, acquisition and co-promotion
agreements.
Our self-care products include RENEWAL a time for you(TM), a program with
Dr. Deepak Chopra, a noted author and physician, offering women practical
approaches to achieve a sense of well-being at midlife. We are also developing a
line of Women First(TM) nutritional products with the Tufts University School of
Nutrition Science and Policy. Additionally, our self-care products include the
IntegraVie(TM) line of skin care products, the ViAmor(TM) vaginal moisturizer,
educational products and a broad array of lifestyle, nutritional, herbal and
other products we sell through our national mail-order catalog, As We Change(R),
and our Internet retailer, ASWECHANGE.COM. We also plan to sell Women First(TM)
self-care products through our Internet site, WOMENFIRST.COM.
INDUSTRY TRENDS
We believe that the markets for pharmaceutical and self-care products for
midlife women are changing because of the following trends:
- a significant and expanding population of midlife women as the "baby
boom" generation ages,
- recognition of the dissatisfaction among midlife women about their health
care,
- an increasing awareness of the conditions and diseases that affect
midlife women and the development of new products to address them,
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- the expanding roles of OB/GYNs and the nurse practitioners and physician
assistants focused on women's health, and
- increasing opportunities for product licensing, acquisition, co-promotion
and development by specialty pharmaceutical companies.
A significant and expanding population of midlife women
According to the U.S. Census Bureau, there are approximately 57 million
women in the United States between the ages of 35 and 69. That number is
expected to grow to 67 million women by the year 2010. Every day during this
period, approximately 4,000 to 5,000 women will enter menopause. IMS Health
reports that U.S. pharmaceutical sales were approximately $74.1 billion for
1998, and that approximately 58.0% of prescription drugs are used by women.
Furthermore, Medical Data International, Inc., an independent market research
company, estimates that the market for women's health products in the menopause
category totalled approximately $2.5 billion in 1998 and is expected to increase
by an average of 16.9% each year to approximately $4.6 billion in 2002.
Recognition of the dissatisfaction among midlife women about their health care
We have conducted market research through an independent research company
with 400 women between the ages of 45 and 55 to determine their satisfaction
with current treatment approaches and alternatives. We also have held
discussions with practicing physicians and other specialists in women's health
care. Our research indicates that these women want menopause to be treated as a
condition rather than a disease and are seeking a source of credible and
comprehensive information about midlife health. We also found that midlife women
want choice and individualized solutions that address their changing physical
and emotional requirements. Our research and the research of third parties
further suggests that:
- most women are not proactive in their health care needs in midlife,
- approximately 20-30% of midlife women do not fill their prescriptions for
hormonal replacement therapy (HRT),
- approximately 20% of women discontinue using HRT within nine months of
initiation, and
- most women feel that physicians do not spend sufficient time with them
and approximately 40% switch physicians because of a perceived lack of
time and sympathy on the part of the physician.
Increasing focus on conditions and diseases that affect midlife women and the
development of new products to address them
As women transition through menopause, their bodies begin to reduce the
production of the steroid hormones, estrogen and progesterone. Studies have
shown that with the significant loss of estrogen and progesterone production
after menopause, the long-term health care needs of women change significantly.
Among other things, women experience changes in their cardiovascular, skeletal,
neurologic, urologic and reproductive systems and may experience changes in
their sexual and emotional needs. According to the American Heart Association,
coronary heart disease is the single largest killer of American women. In 1996
in the United States, all cardiovascular diseases combined claimed the lives of
approximately 506,000 women compared to approximately 453,000 men. The American
Heart Association also estimated that approximately 52 million women had
cholesterol levels of 200 mg/dL or higher in 1996. In
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addition, the Association of Professors of Gynecology and Obstetrics estimates
that 25 million women have, or are at a high risk of developing, osteoporosis.
Notwithstanding the high rate of incidence of these conditions among midlife
women, researchers at the National Center on Women and Aging at Brandeis
University found that nearly 60% of the women they surveyed between the ages of
45 and 75 were unaware of significant health risks such as heart disease.
Studies have shown that HRT alleviates the symptoms commonly associated with
menopause and may reduce the risk of cardiovascular disease and osteoporosis. We
expect that the market for HRT will grow as the number of midlife women
increases and the benefits of HRT relative to its side effects become better
understood by women and their clinicians.
The expanding roles of OB/GYNs and nurse practitioners and physician
assistants focused on women's health
We believe women typically seek treatment for the symptoms of menopause
from OB/GYNs. In addition, approximately 54% of midlife women now utilize their
OB/GYN as their primary health care provider. We believe this number will
continue to grow as a result of the enactment of new laws in a number of states,
including California, that require health maintenance organizations to permit
women to see OB/GYNs without a referral from their primary care physicians. In
addition, nurse practitioners and physician assistants are assuming broader
roles in the treatment of midlife women and can now prescribe medications in a
growing number of states. Notwithstanding the large number of women who use
OB/GYNs as primary care physicians, we believe that OB/GYNs typically have not
prescribed pharmaceutical products outside of their traditional practice area,
such as pharmaceutical products that treat high cholesterol, hypertension,
depression and incontinence. As their roles expand, we believe OB/GYNs and the
nurse practitioners and physician assistants focused on women's health will
increasingly prescribe products that address the full range of diseases and
conditions that affect midlife women. We also believe that these clinicians
increasingly will be called upon to recommend nonprescription self-care products
to their patients, such as nutritional supplements and skin-care products.
Increasing opportunities for product licensing, acquisition, co-promotion and
development by specialty pharmaceutical companies
Industry consolidation and cost containment pressures from government and
managed care companies have increased the minimum revenues that an individual
product must generate to justify active marketing and promotion by large
pharmaceutical companies. Large pharmaceutical companies are focusing on current
or new drugs with perceived high-volume sales potential, drugs that address
global market opportunities and drugs that fit within core therapeutic or
marketing priorities. As a result, major pharmaceutical companies increasingly
have sought to divest non-strategic product lines or to license or co-promote
products with specialty pharmaceutical companies with focused sales and
marketing channels.
STRATEGY
We believe that by responding to the current industry trends, we can become
a premier marketer of health care products for midlife women and can establish
Women First as a widely recognized source of pharmaceutical and self-care
products targeted at this group of women. To achieve this goal, we intend to:
- LEVERAGE THE EXPANDING ROLE OF OB/GYNS AS PRIMARY CARE PHYSICIANS. We
believe that the expanding roles of OB/GYNs and the nurse practitioners
and physician assistants focused on women's health create a market
opportunity for us. We intend to leverage this opportunity by providing
an educational platform to increase these clinicians'
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knowledge of the diagnosis and treatment of conditions and diseases
affecting midlife women. In addition, we intend to use this platform to
promote hormonal replacement therapy, oral contraceptive and
cholesterol-lowering pharmaceutical products. We also anticipate using it
to promote pharmaceutical products that address other conditions and
diseases often affecting women later in life, such as hypertension,
osteoporosis, depression and incontinence. Furthermore, we believe that
these clinicians increasingly will be called upon to recommend
nonprescription self-care products to their patients, such as nutritional
supplements and skin-care products.
- ENHANCE SALES THROUGH FOCUSED MARKETING EFFORTS. We intend to reach our
target market of 57 million midlife women through our sales and marketing
program to OB/GYN practices and our direct-to-consumer marketing program.
We employ 82 sales representatives and expect to increase the number to
approximately 100 during 1999. We intend to hire additional sales
representatives as warranted by the growth of our business. Our sales
force markets our products throughout the United States, with an emphasis
on OB/GYNs and the nurse practitioners and physician assistants focused
on women's health. We market our self-care products to midlife women
through a comprehensive direct-to-consumer marketing program that
includes the As We Change(R) catalog and the ASWECHANGE.COM Internet site
and the WOMENFIRST.COM Internet site. We enhance our sales and marketing
efforts through our Midlife Healthline(TM) toll-free telephone service
staffed with nursing professionals, counseling through Women First
Pharmacy Services and our educational products.
- BECOME A PRIMARY SOURCE FOR WOMEN'S HEALTH CARE EDUCATION. We believe
that as women and clinicians become more informed, they will be more
likely to use or recommend pharmaceutical and self-care products that
address women's needs in midlife. Accordingly, we seek to provide
credible and comprehensive information to women and their clinicians. To
help us achieve this goal, we have organized a Health Advisory Board
comprised of a group of pre-eminent clinicians and scientists with
expertise in women's health to develop the content for a
multi-dimensional educational program called Gateway to Midlife
Health -- A Better Way(TM). Through an unrestricted grant from Women
First, the Mount Sinai School of Medicine and the Women's Health Care
Education Foundation has developed and sponsored the clinician education
portion of the program in cooperation with the University of Southern
California School of Medicine. We believe that our educational program
will enhance awareness of Women First(TM) among women and their
clinicians.
- ESTABLISH "WOMENFIRST.COM" AS A COMPREHENSIVE INTERNET SITE FOR MIDLIFE
WOMEN. We believe that midlife women are actively seeking an on-line
forum where they can interact with others with similar health care
concerns, find credible and comprehensive information and purchase
products related to their particular needs. We have desgined the
WOMENFIRST.COM site as an on-line community for midlife women. This
Internet site contains extensive educational information for women and
will contain professional materials for the clinicians who care for them.
We have designed the site to be interactive and to provide access to
members of our Health Advisory Board through question and answer sessions
and information on upcoming educational events across the country. We are
developing chat rooms for women to discuss midlife health issues. We
believe that the WOMENFIRST.COM site is an effective platform to market
the products we offer and, in the future, to promote the products of
other companies that are targeted at midlife women.
- SEEK PRODUCT CO-MARKETING AND PRODUCT ACQUISITION OPPORTUNITIES. We plan
to expand the range of products we offer midlife women by obtaining
rights to market and sell branded pharmaceutical and self-care products
to these women. We will focus on
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products that are not being actively marketed to OB/GYNs or the nurse
practitioners and physician assistants focused on women's health, that
complement the product lines we currently offer or that we can distribute
on an exclusive basis. We continue to engage in discussions with major
pharmaceutical companies to license, acquire or co-promote pharmaceutical
products that have been approved by the FDA or pharmaceutical products in
the late stages of clinical development.
Our business model is relatively new and still evolving. See "Risk
Factors -- We have a broad business model that will require the development of
many different areas. If we fail to implement any of the key elements of our
business plan, our business may not succeed."
PRODUCTS
Pharmaceutical Products and Medical Devices
The pharmaceutical products we currently offer include the Pravachol(R)
cholesterol-lowering pharmaceutical product, the Ortho-Est(R) hormonal
replacement therapy product, and compounded hormonal replacement therapy
products, including micronized progesterone, available through Women First
Pharmacy Services. We recently agreed to co-promote Ortho Tri-Cyclen(R), a
leading oral contraceptive, and a new oral combination estrogen and progestin
hormonal replacement therapy product, which is pending approval by the FDA.
Pravachol(R). Pravachol(R) (pravastatin sodium), an HMG-CoA reductase
inhibitor or "statin," is available in three dosage strengths of 10 mg, 20 mg
and 40 mg. Pravachol(R) has been shown to reduce the risk of a first heart
attack and coronary heart disease, as well as the risk of future heart surgery
to clear blocked arteries, in patients with high cholesterol without clinical
evidence of coronary heart disease. It also has been shown to reduce the risk of
recurrent heart attacks, stroke and mini-stroke as well as the risk of heart
surgery to clear blocked arteries in patients with prior heart attacks and
normal cholesterol (less than 240mg/dL). The Pravachol(R) product has been shown
to reduce these risks by lowering total cholesterol and low density lipoprotein
(LDL), while increasing high density lipoprotein (HDL). We obtained the right to
market the Pravachol(R) product to designated OB/GYNs and the nurse
practitioners and physician assistants associated with OB/GYN practices pursuant
to a co-promotion agreement with Bristol-Myers Squibb.
Frost & Sullivan projects that the U.S. market for cholesterol-lowering
drugs will grow at a compound annual growth rate of approximately 17.9% to $10.7
billion in 2002. According to IMS Health, the U.S. market for statins was
approximately $4.6 billion in 1998, which represented over 90% of the total
market for cholesterol-lowering drugs. IMS Health also reported that the
Pravachol(R) product achieved U.S. sales of approximately $900 million in 1998,
representing a market share of approximately 19%. Although approximately 54% of
women utilize OB/GYNs as their primary care physicians, less than 1% of the
prescriptions for cholesterol-lowering medications were written by OB/GYNs.
Through our relationship with Bristol-Myers Squibb, we plan to address this
significant market opportunity for the Pravachol(R) brand.
Ortho-Est(R). Ortho-Est(R) (estropipate), a soybean-derived estrogen
product, is available on the market in the United States in two strengths,
.625mg and 1.25mg. The Ortho-Est(R) product replenishes declining estrogen
levels in midlife women with estrone, the principal type of estrogen that the
body makes following menopause. We obtained the rights to distribute and sell
the Ortho-Est(R) product pursuant to an exclusive distribution agreement with
Ortho-McNeil Pharmaceutical, Inc., a subsidiary of Johnson & Johnson. Women
First distributes the Ortho-Est(R) product through wholesale and retail
channels. Purchases by two of Women First's customers for the Ortho-Est(R)
product, McKesson HBOC, Inc. and Eckerd Corporation, each comprised more than
10% of Women First's total sales in 1998.
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New HRT Product. We obtained the right to market a new oral combination
estrogen and progestin hormonal replacement therapy (HRT) product to designated
OB/GYNs, primary care physicians and nurse practitioners focused on women's
health care in the United States and Puerto Rico pursuant to a co-promotion
agreement with Ortho-McNeil Pharmaceutical, Inc. The product is the subject of a
new drug application filing currently under review by the FDA. Physicians
generally prescribe a progestin along with estrogen to reduce the risk of
endometrial cancer in women with an intact uterus.
Studies have shown that HRT alleviates the symptoms commonly associated
with menopause and may reduce the risk of cardiovascular disease and
osteoporosis. However, some women experience side effects associated with HRT
including bloating, weight gain, breast tenderness, headaches, nausea and
breakthrough bleeding. In addition, women may discontinue using HRT due to a
perceived risk of breast cancer. On balance, the Health Advisory Board believes
that most midlife women would benefit from long-term usage of HRT with
appropriate monitoring. However, according to the National Institutes of Health,
only 15% of midlife women currently use HRT. According to IMS Health,
pharmaceutical sales for HRT were approximately $1.7 billion and the oral
estrogen segment of this market was approximately $1.0 billion in 1998.
According to Medical Data International, Inc., the market for hormonal
replacement therapy products is expected to grow by an average of 14.3% each
year and is expected to reach approximately $2.9 billion in 2002.
Ortho Tri-Cyclen(R). Ortho Tri-Cyclen(R) is an oral contraceptive for the
prevention of pregnancy in women. The product is available in two regimens, a 21
day regimen and a 28 day regimen. Ortho Tri-Cyclen(R) 21 is supplied with 21
pills containing 0.35mg ethinyl estradiol and norgestimate in three
concentrations, 0.180mg, 0.215mg and 0.250mg. Ortho Tri-Cyclen(R) 28 is supplied
with the 21 active pills and seven pills with inert ingredients. We obtained the
right to market Ortho Tri-Cyclen(R) to designated OB/GYNs, primary care
physicians and nurse practitioners focused on women's health care in the United
States and Puerto Rico pursuant to a co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. In addition to preventing pregnancy, use of combination
oral contraceptives may provide other benefits to women, including more regular
menstrual cycles, lighter blood flow during menstruation and less frequent
menstrual pain, all of which can occur during the period preceding menopause.
According to IMS Health, oral contraceptive sales were $1.6 billion in 1998.
Micronized Progesterone. Micronized progesterone is a natural progesterone
that is readily absorbed by the body. We compound micronized progesterone and
other hormonal therapy products in capsule, cream and suppository formulations
at Women First Pharmacy Services. Physicians may prescribe a progestin or
natural micronized progesterone for use in conjunction with an estrogen product
in women who have an intact uterus to reduce the risk of endometrial cancer.
According to IMS Health, the retail market for progestins, including
progesterone products, was approximately $212.5 million in 1998. Products which
combine a progestin and estrogen also are available and, according to IMS
Health, pharmaceutical sales for these products represented approximately $438
million in 1998.
SafeStart(TM). SafeStart(TM) is a device that clamps and cuts the umbilical
cord of newborns. We obtained rights to distribute the product through an
exclusive distributorship agreement with Price Invena ApS of Denmark. We
received FDA clearance to sell the product in the United States in August 1998
and began commercialization in the first quarter of 1999.
Self-Care Products
We offer a variety of self-care products to midlife women through our
subsidiary As We Change, LLC, a national mail order catalog and Internet
retailer directed at midlife women, and through our Internet site,
WOMENFIRST.COM. The As We Change catalog offers women a
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range of more than 100 products designed to meet their needs at midlife. Our
self-care products are described below.
Nutritional Products. We are working with the Tufts University School of
Nutrition Science and Policy to develop a line of Women First(TM) nutritional
products uniquely formulated to address the specific needs of midlife women. We
anticipate that these products will include a daily nutritional supplement
coupled with specialized nutritional formulations to address specific health
concerns of midlife women. To assist women in their selection of nutritional
supplements, we also are creating a program to individualize nutritional
recommendations to women based on factors such as family history, lifestyle and
physical characteristics. We plan to offer this program to women through their
clinicians as well as through WOMENFIRST.COM.
We entered into a development and license agreement with the Tufts
University in April 1999. All of the products developed in conjunction with
Tufts University will be co-branded with Women First(TM) to carry the name of
the Tufts University School of Nutrition Science and Policy on the product label
to acknowledge Tufts' participation in the formulation of the products. We
believe that the use of the Tufts name will help to differentiate our branded
products in this category. We anticipate that these products will be available
during the fourth quarter of 1999. According to Packaged Facts, the market for
nutritional products is a large and growing market, exceeding $5 billion in
annual sales in the United States in 1998.
RENEWAL a time for you(TM). We have developed this product in conjunction
with Dr. Deepak Chopra based on his research in mind/body connectivity. Dr.
Chopra has sold over 10 million books and numerous audio and video tapes and has
achieved worldwide recognition in his field. We believe the RENEWAL product will
offer women practical approaches to achieve a sense of well-being in midlife.
The product consists of a videotape, audio tape and booklet. Our market research
indicated that women are concerned with emotional, social and psychological
issues at midlife that are not being adequately addressed. We expect to launch
this product in the second quarter of 1999. We intend to collaborate with Dr.
Chopra in the development of additional products.
IntegraVie(TM). The IntegraVie(TM) line of skin care products is our first
product line formulated specifically for midlife skin. The IntegraVie(TM)
products are based on patented technology developed by Cosmederm Technologies,
Inc. for topical formulations of strontium, sold under the trademark element
38(TM). The element 38(TM) compound inhibits skin irritation. It enables the
addition to topical skin care products of highly effective amounts of hydroxy
and lactic acids that reduce the visible signs of aging, with a substantial
reduction of the characteristic skin irritation associated with the use of those
acids. We obtained a non-exclusive license to use this technology from Cosmederm
Technologies, Inc. in December 1998 and an exclusive license to the element
38(TM) trademark from Creative Beauty Innovations, Inc. in January 1999.
ViAmor(TM). The ViAmor(TM) vaginal moisturizer is a clear, water-soluble
gel that is non-staining, non-irritating, non-toxic and odorless. The product is
designed for use by midlife women, many of whom have vaginal dryness due to the
decline of estrogen levels and, as a result, experience painful sexual
intercourse. We signed a private label agreement in May 1998 with BioFilm, Inc.
that permits us to distribute and sell this vaginal moisturizer.
Exercise Video. The Strong Women Stay Young exercise video is based on the
best-selling book of the same title by Dr. Miriam Nelson, a highly respected
expert on women's health issues. Dr. Nelson's book is based on research
published in December 1994 in the Journal of the American Medical Association
and has sold over 300,000 copies. This research showed that weight-bearing
exercises reduced the incidence of fractures associated with
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osteoporosis. We have the exclusive right to develop and distribute the video,
which we began selling in 1998.
Membership Program. Beginning in the third quarter of 1999, we plan to
market a membership program for midlife women. We developed the program in
response to our market research that indicated that women want credible
information about their health care and choice and individualization in product
solutions. For an annual fee, women will receive access to a broad array of
educational and lifestyle products developed by Women First and access to
special programs that we intend to offer periodically on the WOMENFIRST.COM
Internet site. We will include the My Generation, My Choice(TM) subscription
newsletter to provide a credible source of practical, ongoing information on
health care for midlife women. In addition, members will be able to receive
discounts for products purchased through the As We Change(R) catalog. We
anticipate that the membership program will provide us with a vehicle for
building communication and loyalty within our customer base and establish Women
First as a widely recognized source of pharmaceutical and self-care products.
Benefit:Risk Assessment Model. In September 1998, we entered into an
exclusive licensing arrangement with CHPNC, LLC, pursuant to which we have the
exclusive right to manufacture, market and sell the product entitled the
"Benefit:Risk Assessment Model." We will fund the development of this product, a
patient health questionnaire and software program that assesses a woman's risk
for developing heart disease, breast cancer and osteoporosis. This product is
based on Dr. Nananda Col's research that was published in the Journal of the
American Medical Association in April 1997 and that she incorporated in her book
entitled A Woman Doctor's Guide to Hormone Therapy -- How to Choose What's Right
for You.
Some of the products we offer face specific challenges, and our ability to
succeed is dependent on whether we can overcome these challenges. In addition,
we must achieve specified minimum requirements in order to maintain some of our
product agreements. See "Risk Factors -- Many of our product agreements require
us to make minimum payments or make a minimum number of sales calls. If our
sales of these products do not exceed the cost of these minimums, our marketing
and distribution of these products will not be profitable and our results of
operations will be harmed"; "-- Many of our product agreements may be terminated
if we fail to make minimum purchases, make a minimum number of sales calls or
for other reasons. This could force us to discontinue sales of key products and
could harm our results of operations" and "-- If midlife women do not use and
their clinicians do not recommend the products we offer, we will continue to
experience significant losses."
MARKETING AND SALES
Sales Force. In August 1998, there were approximately 29,000 board
certified OB/GYNs in the United States, and the membership of the American
College of Obstetricians and Gynecologists has grown to approximately 37,000
physicians specializing in obstetric/ gynecologic care. We have recruited and
trained a direct field sales force of 82 sales representatives to market to
these practices, and we anticipate the expansion of this sales force to 100
sales representatives during 1999. Our co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. requires us to expand our field sales force to at least 100
representatives in 1999 and to further significantly expand our sales force
following FDA approval of the new oral combination hormonal replacement therapy
(HRT) product. We intend to hire additional sales representatives as warranted
by the growth of our business. To optimize our sales efforts, we have
prioritized OB/GYNs based on the frequency with which they prescribe hormonal
replacement therapy products. We estimate that our current sales organization
can effectively market on a prioritized basis to approximately 18,000 OB/GYNs
and the primary care physicians, nurse practitioners and physician assistants
focused on women's health. We have also hired a staff to support the field sales
force, including customer service representatives,
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sales trainers and sales and contract administrators. Our Pravachol(R)
co-promotion agreement provides that Bristol-Myers Squibb will support our
marketing and sales activities through participation in sales force training,
jointly developing marketing strategies and promotional plans and planning
market research. Our co-promotion agreement with Ortho-McNeil also provides that
Ortho-McNeil will support our marketing and sales activities for the Ortho Tri-
Cyclen(R) oral contraceptive and the new oral HRT product covered by the
agreement by providing sales training, supplying product samples and promotional
materials, jointly developing marketing strategies and promotional plans with us
and planning educational programs.
Internet Strategy. We are implementing an "e-commerce" initiative through
our Internet site, WOMENFIRST.COM, which we launched in May 1999. Through this
site, we provide extensive educational information for women and intend to
provide professional materials for the clinicians who care for them. This site
is intended to be interactive and to provide access to members of our Health
Advisory Board through question and answer sessions and information on upcoming
educational events across the country. We are developing chat rooms for women to
discuss midlife health issues with each other. In addition, we have designed the
site to allow women to shop online for our consumer products and to link to the
ASWECHANGE.COM Internet site. Subject to the outcome of current regulatory
proposals that seek to regulate pharmacies, we also intend to provide online
pharmacy services through Women First Pharmacy Services on the WOMENFIRST.COM
Internet site.
Because of the significant educational content we have placed on the
WOMENFIRST.COM Internet site, we believe that the site will be an attractive web
link. We have entered into an agreement with iVillage Inc. to provide
educational information on midlife health issues in a Women First designated
area on ivillage.com and to link the iVillage site to WOMENFIRST.COM. In
addition, iVillage has agreed to host four online events related to midlife
health, including at least one event with Deepak Chopra, M.D. Our subsidiary As
We Change, LLC, also has entered into an agreement with iVillage Inc. under
which iVillage has established links on ivillage.com to the ASWECHANGE.COM
Internet site. There were approximately 2.7 million individual visitors to
ivillage.com in October 1998, the majority of whom were women.
Women First Pharmacy Services. We established Women First Pharmacy Services
to provide a personalized, confidential and convenient way for women to fill
their prescriptions. The pharmacy began operations in December 1998. Women First
Pharmacy Services specializes in women's health and provides a full range of
prescription products as well as compounded hormonal therapy products and other
services. Women First Pharmacy Services enables us to:
- provide individualized hormonal replacement therapy products to midlife
women including micronized progesterone, estrogen and androgens,
- supplement the physician's care with a patient-focused counseling program
to assist women with questions about their medications, and
- provide follow-up with patients relating to the acceptance of hormonal
replacement therapy and other products.
We market our pharmacy services to physicians, health plans and providers
through our national sales organization and directly to women through our
toll-free number (1-877 2WOMEN1) and direct mail. We also intend to market these
services through the WOMENFIRST.COM Internet site and community outreach
meetings. We entered into a two-year contract with Health Script, a pharmacy
management company, to oversee certain operations of, and provide other services
for, Women First Pharmacy Services.
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As We Change. In October 1998, we acquired As We Change, LLC, a national
mail order catalog and Internet retailer directed at midlife women. As We
Change, LLC offers a broad array of self-care products including nutritional,
herbal, beauty, exercise, wellness and personal care products. As We Change, LLC
has generated more than 100,000 orders and currently has an in-house database of
nearly 110,000 customers and catalog requesters. We have launched a number of
products through the As We Change(R) catalog and the ASWECHANGE.COM Internet
site, including the IntegraVie(TM) line of skin care products, the Strong Women
Stay Young video and the ViAmor(TM) vaginal moisturizer. We will continue to
utilize the catalog and Internet site as vehicles to market directly to
consumers and to promote Women First(TM) products to the As We Change(R)
customer base.
EDUCATIONAL AND SUPPORT PROGRAMS
Women First Midlife Healthline(TM). Our market research indicates that
women want more time with their clinicians and other health care providers. In
today's managed care environment, clinicians can only spend a limited amount of
time with each patient. Our Women First Midlife Healthline(TM) is staffed by
trained nursing professionals who can provide help, support, advice and answers
to many of the key questions and issues facing midlife women. The nurses are
trained to counsel women on the treatment options available to them and to
assist patients with the treatments prescribed by their clinicians. In addition,
we anticipate that our Women First Midlife Healthline(TM) toll-free telephone
service will become an important vehicle for communicating to women about the
products and services we offer.
The Women First Clinician Education Program. Our Health Advisory Board has
developed the content for a midlife health education program entitled "Gateway
to Midlife Health -- A Better Way," to educate OB/GYNs, and the primary care
physicians, nurse practitioners and physician assistants focused on women's
health with the goal of improving the diagnosis and treatment of midlife
conditions and diseases. Through an unrestricted grant from Women First, the
Mount Sinai School of Medicine and the Women's Health Care Education Foundation
has developed and sponsored the clinician education portion of the program in
cooperation with the University of Southern California School of Medicine.
Our Health Advisory Board developed a Consensus Report containing its core
beliefs and clinical judgments regarding the health of midlife women that was
mailed to more than 30,000 OB/GYNs and the primary care physicians, nurse
practitioners and physician assistants focused on women's health. In addition,
the Health Advisory Board held a Distinguished Professor Conference in January
1999 that was attended by more than 90 OB/GYNs and nurse practitioners
recognized as leaders in their fields. The conference generated content for a
monograph and videotape that was disseminated to 30,000 clinicians across the
country. This video monograph describes the Health Advisory Board's position on
clinical issues affecting women in midlife. The conference content is being used
to create a slide/lecture program to serve as the basis of a Distinguished
Professor Lecture Series. We expect to hold a number of these conferences with
OB/GYNs and the primary care physicians, nurse practitioners and physician
assistants focused on women's health in 1999. The Health Advisory Board is
developing "Case & Comment" newsletters to be distributed to clinicians. Each
newsletter will present cases in the management of midlife women's health and
include commentary by experts on the key facets of the case and its management.
The Women First Consumer Education Program. We have developed a booklet
called "A Better Way(TM) to Midlife Health -- Your Personal Guide" that provides
information to women about midlife health issues including menopause. Each
booklet includes a journal section where women can record their symptoms and
personal health data to improve their interaction with their clinician. In
addition, we plan to conduct periodic "A Better Way to Midlife Health" community
meetings that provide a woman-to-woman forum for discussions of key issues
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surrounding midlife health and menopause. We plan to extend the reach of the
program into local communities using a peer-to-peer learning/sharing approach
and through the WOMENFIRST.COM Internet site.
MANUFACTURING AND LOGISTICS
We do not plan to establish manufacturing capability. We will source the
products we offer through manufacturing agreements with third-party
manufacturers. The third-party manufacturers will be responsible for receipt and
storage of raw materials, production, packaging, labeling and shipping of
finished goods. We currently have arrangements with OMJ Pharmaceuticals, Inc., a
division of Johnson & Johnson, for the supply of the Ortho-Est(R) oral estrogen
product, BioFilm, Inc. for the supply of the ViAmor(TM) vaginal moisturizer and
Price Invena for the supply of the SafeStart(TM) umbilical cord clamp/cutter.
Bristol-Myers Squibb is responsible for the supply of the Pravachol(R) product
in all distribution channels. Ortho-McNeil Pharmaceutical, Inc. is responsible
for the supply of the Ortho Tri-Cyclen(R) product and the new oral hormonal
replacement therapy product in all distribution channels. For more information
about our sources of supply, see "Risk Factors -- We are dependent on single
sources of supply for all of the products we offer. If one of our suppliers
fails to supply adequate amounts of a product we offer, our sales may suffer and
we could be required to abandon a product line."
Initially, we intend to engage independent companies specializing in the
distribution of pharmaceutical and medical products to pharmacies and hospitals
to provide physical distribution and logistics management for the pharmaceutical
and medical device products we distribute. Livingston Healthcare Services, Inc.
currently provides these services.
COMPETITION
The health care industry is highly competitive. Most of our competitors and
those of our collaborative partners are large well-known pharmaceutical, life
science and health care companies that have considerably greater financial,
sales, marketing and technical resources than we have. Additionally, these
competitors have research and development capabilities that may allow them to
develop new or improved products that may compete with product lines we market
and distribute. The pharmaceutical industry is characterized by continuous
product development and technological change. The pharmaceuticals we market and
distribute could be rendered obsolete or uneconomical by pharmaceuticals
developed by competitors, technological advances affecting the cost of
production, or marketing or pricing action by one or more competitors. In
addition, competitors may elect to devote substantial resources to marketing
their products to midlife women and may choose to develop educational and
information programs like those we have developed to support their marketing
efforts. Our business, financial condition and results of operations could be
materially and adversely affected by any one or more of such developments.
Pharmaceutical Products
The pharmaceutical products we offer face significant competition. The
Ortho-Est(R) oral estrogen product, which represents less than 1% of the U.S.
market for hormonal replacement therapy products (with 1998 U.S. sales of $10
million), competes with the Premarin(R) oral estrogen product and Prempro(R) and
Premphase(R) combination oral estrogen and progestin products, all of which are
produced by Wyeth-Ayerst Laboratories, Inc. The Ortho-Est(R) brand also competes
with several other estrogen replacement products including generics taken orally
and through transdermal patches and creams, as well as non-hormonal replacement
therapy products marketed by Merck & Co., Inc. and Eli Lilly & Company. The
Ortho Tri-Cyclen(R) product competes with other oral contraceptive products
marketed by Wyeth-Ayerst, Warner-
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Lambert Company, Organon Inc., Berlex Laboratories and Pharmacia & Upjohn
Company. Ortho Tri-Cyclen(R) also competes with other forms of contraception
including contraceptive implants, progestin injections, intrauterine devices,
spermicides, diaphragms, cervical caps, female condoms, emergency contraception
and sterilization. The new oral combination hormonal replacement therapy (HRT)
product covered by our co-promotion agreement with Ortho-McNeil Pharmaceutical,
Inc., if approved and launched, will compete primarily with Prempro(R) and
Premphase(R) combination oral estrogen and progestin products and a combination
estrogen and progestin patch manufactured by Noven Pharmaceuticals, Inc. and
marketed by Rhone-Poulenc Rorer. The new oral HRT product will also compete with
oral estrogen and transdermal estrogen products as well as oral progestin
products. The Pravachol(R) brand competes with other cholesterol-lowering
products marketed by Merck, Warner-Lambert Company/Pfizer, Inc., Novartis
Pharmaceuticals Corporation and Bayer Corporation. In addition, micronized
progesterone and other hormonal replacement therapy products compounded by Women
First Pharmacy Services compete with compounded hormonal replacement therapy
products distributed by regional and national pharmacies. In 1998, Solvay
Pharmaceuticals, Inc. received FDA approval to market an oral capsule containing
micronized progestrone developed and manufactured by Schering Plough
Corporation. Products compounded by Women First Pharmacy Services may also
compete with FDA-approved pharmaceuticals. Each of these competitors has
substantially greater marketing, sales and financial resources than we do.
Self-Care Products
Competition for the other products we offer also is significant. The
ViAmor(TM) vaginal moisturizer competes against a number of well-known brands of
vaginal moisturizers and lubricants. The IntegraVie(TM) line of skin care
products faces competition from products from leading cosmetics and
dermatological companies. As We Change, LLC competes with a number of catalog
companies and Internet retailers focusing on self-care products. Transitions for
Health(TM) offers a wide range of nutritional and herbal products for midlife
women and Self Care(R), Well & Good(TM), Feel Good(TM), Solutions(R) and
HealthyHome(TM) promote general lifestyle and personal care products.
Our educational products will compete with products that have been
developed by medical professionals and non-professionals alike. Our Internet
site, WOMENFIRST.COM, will compete with other Internet sites focused on women's
health as well as sites focused on health care issues in general.
LICENSING AND CO-PROMOTION AGREEMENTS
Ortho-Est(R). We obtained the rights to distribute and sell the
Ortho-Est(R) product in the United States and Puerto Rico pursuant to an
exclusive distribution agreement dated as of July 1, 1998 with Ortho-McNeil
Pharmaceutical, Inc., a subsidiary of Johnson & Johnson. The agreement requires
us to make minimum aggregate payments of $40.1 million to Ortho-McNeil over the
remaining nine-year term of the agreement, regardless of the actual sales
performance of the Ortho-Est(R) product. The minimum payments in future years
decrease annually based on a 10-year forecast that was determined at the time
the contract was executed. We are required to make a minimum payment of $6.6
million during 1999. If our annual purchases of the Ortho-Est(R) product exceed
our minimum payments, we are entitled to the amount of this excess less
specified royalties and manufacturing costs. Ortho-McNeil may terminate the
distribution agreement (1) upon one year's notice so long as Ortho-McNeil
provides us with a one-year supply of the Ortho-Est(R) product and uses
reasonable commercial efforts to transfer to us the manufacturing and
distribution rights to the product, (2) if the cost of FDA revalidation, should
it be necessary, exceeds $3 million, or (3) for other specified reasons.
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Pravachol(R). We obtained the right to co-promote the Pravachol(R) product
in the United States to OB/GYNs, primary care physicians designated as OB/GYNs
by Bristol-Myers Squibb U.S. Pharmaceuticals Group, and nurse practitioners and
physician assistants associated with OB/GYN practices, pursuant to a three-year
co-promotional agreement effective March 1, 1999 with Bristol-Myers Squibb.
Under the agreement, we are responsible for the costs incurred by both parties
in approved promotions of the product to the clinicians covered by the agreement
(less a specified credit) and for the training of our sales force relating to
the Pravachol(R) product. Bristol-Myers Squibb is responsible for the
manufacture, shipping, distribution and warehousing of the product as well as
billing and collection services. Bristol-Myers Squibb has agreed to pay
specified costs associated with product samples and education of the clinicians
covered by the agreement.
Bristol-Myers Squibb compensates us with a performance fee paid quarterly
based upon the number of prescriptions written by the clinicians covered by the
agreement above an applicable baseline number. During the first year, the
quarterly baseline amount increases each quarter. During the second and third
years, the baseline amounts increase by a percentage which reflects growth in
prescriptions for pravastatin in the United States over the prior year. Our
compensation is calculated based on a percentage of net sales from prescriptions
in excess of the applicable baseline amount as adjusted to reflect previous
payments. In addition, we are entitled to receive a residual compensation
payment during the 24-month period following the expiration of the agreement as
long as Bristol-Myers Squibb does not terminate the agreement due to our breach
of or failure to perform our obligations under the agreement.
In the event that Pravachol(R) prescriptions written in the United States
by the clinicians covered by the agreement do not exceed specified minimum
prescription amounts that increase quarterly in the first year and yearly from
year to year thereafter, Bristol-Myers Squibb may terminate the agreement. The
minimum amounts require us to achieve a significant increase over the number of
prescriptions for this product currently written by the clinicians covered by
the agreement and substantially exceed the baseline amounts used for purposes of
calculating the performance fee. Bristol-Myers Squibbs' termination rights arise
upon either our failure to meet certain prescription forecasts for two
consecutive quarters or the yearly prescription forecasts for one year.
Moreover, if we experience a change in control, Bristol-Myers Squibb may
terminate the agreement. A change in control includes: (1) the sale of any
securities which transfers over 50% of our assets relating to the product to any
person, (2) any person who is involved in the sale, licensing or distribution of
drug products, nutritional agents and drug products becoming the beneficial
owner of 20% of the combined voting power of Women First, or (3) any person
becoming the beneficial owner of 50% of the combined voting power of Women
First. The agreement may also be terminated for other specified reasons.
Ortho Tri-Cyclen(R) and a New Oral HRT Product. We obtained the right to
co-promote the Ortho Tri-Cyclen(R) product and a new oral combination estrogen
and progestin hormonal replacement therapy (HRT) product in the United States
and Puerto Rico to designated physicians and nurse practitioners in the field of
women's health care pursuant to a co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. effective July 1, 1999 and continuing through December 31,
2002 unless earlier terminated. We may extend this agreement for one additional
year provided minimum sales goals are met.
The agreement requires Ortho-McNeil to compensate us for sales of Ortho
Tri-Cyclen(R) with a performance fee based on the value of Ortho-McNeil's net
increase in its market share of oral contraceptive products for the
prescriptions written by the clinicians called on by us over the increase, if
any, in Ortho-McNeil's market share for oral contraceptive products for the
prescriptions written by the clinicians who are not called on by us. The
agreement also calls for Women First to receive minimum payments commencing in
2000 if minimum performance goals are met. Ortho-McNeil will not be required to
make the minimum payments contemplated by the agreement with respect to the
Ortho Tri-Cyclen(R) product if we fail to make a specified portion of the
required sales calls for that product or if the growth in Ortho-
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McNeil's market share for oral contraceptives among the clinicians called on by
us does not exceed the growth in Ortho-McNeil's market share among a control
group of clinicians. The agreement gives Ortho-McNeil the right, in its sole
discretion, to replace Ortho Tri-Cyclen(R) with another oral contraceptive if
Ortho-McNeil is giving the new oral contraceptive sufficient prominence in its
own sales efforts. The same compensation and minimum performance goals under the
agreement would apply to the new oral contraceptive. Ortho-McNeil will
compensate us for sales of the new oral HRT product upon approval by the FDA, if
obtained, and product launch through a compensation arrangement based on the net
sales of the product from prescriptions written by the clinicians who are called
on by us. Ortho-McNeil also may reduce the payments otherwise required to be
paid to us under the agreement with respect to the new oral HRT product if we do
not make a specified portion of the minimum number of sales calls for that
product.
Under the co-promotion agreement, we are responsible for our costs in
promoting the products covered by the agreement and our out-of-pocket expenses
in training our sales force, except for the costs of certain promotional
materials, training materials and expenses and product samples which will be
provided by Ortho-McNeil. Ortho-McNeil is responsible for the manufacture,
labeling, distribution and selling of the products. The agreement prohibits us
from marketing, promoting, selling or distributing any prescription
contraceptive or prescription hormonal replacement therapy product other than
the Ortho Tri-Cyclen(R) and Ortho-Est(R) products and the new oral HRT product
and other than an estrogen patch product (subject to specified restrictions)
during the term of the agreement and the three months following the expiration
of the term. The agreement expressly permits Ortho McNeil to enter into a co-
promotion agreement with a third party with respect to the new oral HRT product
but not with respect to Ortho Tri-Cyclen(R).
The co-promotion agreement requires us to make a specified number of sales
calls each year. The agreement also allows Ortho-McNeil to terminate the
agreement in the event at least a specified portion of the minimum sales calls
are not made for three consecutive quarters. The agreement also may be
terminated by either party on a product by product basis if any product covered
by the agreement loses regulatory approval, and either party may terminate the
agreement in its entirety if the new oral HRT product is not approved by the FDA
for sale in the United States or the product has not been launched by October 1,
2000. In addition, the agreement also may be terminated in the event that there
is a change in control of Women First or if Edward F. Calesa or David F. Hale is
no longer associated with Women First (other than as a result of death or
disability). A change in control includes the acquisition by a third party
unaffiliated with Women First of (1) a majority of our stock or the right to
vote a majority of our stock or (2) sufficient stock to elect a majority of our
Board of Directors or (3) the power to designate a majority of our Board of
Directors. The agreement also may be terminated for other specified reasons.
Health Script. In September 1998, we entered into a two-year pharmacy
management agreement with Health Script, a wholly owned division of Dura
Pharmaceuticals, Inc., to oversee certain operations of our subsidiary Women
First Pharmacy Services, Inc. Under the terms of the agreement, Health Script is
responsible for certain pharmacy management and compounding services,
third-party reimbursement, billing and collections. As compensation for its
services, we must pay Health Script a monthly fee ranging from $22,800 to
$288,600 based on the volume of orders in any given month, up to a designated
maximum number of orders, as well as supplemental prescription fees and
compounding fees that apply once certain minimum orders are exceeded. We must
also pay distribution fees and billing and collection fees based on the volume
of orders in any given month.
Dr. Deepak Chopra. In January 1999, we entered into an agreement with
Infinite Possibilities Media LLC for the development of a product entitled
RENEWAL a time for you(TM). Infinite Possibilities has agreed to provide the
services of Dr. Deepak Chopra for the
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development of this product. In addition, the agreement provides that during the
ten-year agreement term, we will work with Dr. Chopra and Infinite Possibilities
in developing additional products for midlife women. Under the agreement, we are
solely responsible for development costs and the production and packaging costs
of the product, as well as similar costs under any additional products the
parties establish during the term. Infinite Possibilities has granted us a
non-exclusive worldwide license to utilize trademarks owned or controlled by
Infinite Possibilities or Dr. Chopra that relate to the marketing and sale of
the RENEWAL product and any additional products developed with Dr. Chopra.
Further, in consideration of the license granted, we must pay Infinite
Possibilities a percentage of the profits based on a formula set forth in the
agreement with respect to each product. In the event that we do not sell any
product in the United States by December 31, 2000, Infinite Possibilities may,
as its sole remedy, terminate the agreement.
Benefit:Risk Assessment Model. In September 1998 we entered into a
twelve-year license agreement with CHPNC, LLC to develop a patient health
questionnaire and software program related to hormonal replacement therapy based
upon the book A Woman Doctor's Guide to Hormone Therapy -- How to Choose What's
Right for You. Under the agreement, we are obligated to pay over the first two
years of the agreement a development fee in the amount of $900,000, of which we
paid $275,000 in 1998. The development fee is payable to CHPNC regardless of
whether or not the product is released for sale to the public. In addition,
commencing in the third year of the contract, we must make minimum royalty
payments over the remaining term of the contract, which commence at $100,000 and
which increase by an additional $100,000 for each two-year period thereafter.
This license is subject to becoming non-exclusive in the event of certain
defaults and also contains a non-competition provision which prohibits us from
manufacturing, promoting, publishing or selling any product directly competitive
with the Benefit:Risk Assessment Model.
iVillage. In May 1999, we entered into a one-year agreement with iVillage
Inc. to develop educational content for ivillage.com. The agreement provides
that iVillage will create a Women First area on ivillage.com and that we will
provide articles on midlife health topics for this area. We have agreed to
provide iVillage with two feature articles each month and iVillage will promote
at least one of these articles as a lead editorial in the "Better Health"
section of ivillage.com. In addition, iVillage has agreed to host four online
events on midlife health, including at least one with Dr. Deepak Chopra. We
intend to provide contacts, leads and cross promotion for these online events.
The agreement also stipulates that the Women First area in ivillage.com
will link to WOMENFIRST.COM and that WOMENFIRST.COM will include a prominent
link to the iVillage "Better Health" section of ivillage.com. Further, iVillage
has agreed to integrate Women First throughout the iVillage "Better Health"
section in appropriate categories and areas, including the integration of the
Women First name in the navigation bar of the iVillage "Better Health" section.
We will not provide educational materials to certain competitors of
iVillage, and iVillage will have the right of first refusal to participate in
Internet conferences that we develop. In addition, iVillage has agreed to
exclude certain competitors of ours from advertising within the Women First area
of ivillage.com. We have been granted a right of first refusal to market
products related to midlife health in the Women First area of the ivillage.com
site. There are no financial terms to the agreement.
SafeStart(TM). We obtained the exclusive right to distribute SafeStart(TM),
an umbilical cord clamp/cutter, in the United States and Canada through a
ten-year agreement with Price Invena ApS effective July 15, 1998. Our exclusive
distribution rights expand to Mexico, Central America and South America if we
reach our minimum purchase requirements. We are
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obligated to purchase $256,000 of the product through December 31, 1999 and $1.3
million per year for the remainder of the contract, subject in each case to
volume discounts. If we do not purchase the minimum amount, Price Invena may
increase the next year's minimum by the shortfall. If we fail to meet our
minimum by more than 50% for two consecutive years, then Price Invena may make
our distribution rights non-exclusive. The agreement also grants us a right of
first refusal with respect to the distribution in the United States and Canada
(and additional countries where we have obtained distribution rights, if
applicable) of any new products developed by Price Invena.
ViAmor(TM). In May 1998, we signed a seven-year agreement with BioFilm,
Inc. to distribute and sell a private-label formulation of a vaginal moisturizer
which we sell under the name ViAmor(TM). The agreement provides that we must
purchase a minimum of $1 million worth of 35 ml tubes and applicators of the
ViAmor(TM) product each calendar year. In the event that we do not meet our
yearly minimum purchase requirements, the agreement provides that BioFilm may
exercise its exclusive remedy of termination and may demand $25,000 in
liquidated damages. In addition, in the event the contract is terminated, we
would be required to pay for all outstanding orders placed under the agreement
and the amounts contemplated by our binding three-month forecasts.
Tufts University. In April 1999, we entered into a development and license
agreement with Tufts University to formulate nutritional or herbal products for
midlife women. The agreement requires Tufts to develop general formulations for
midlife women as well as specific formulations to address the needs of women who
are at risk for particular diseases or conditions. The agreement also provides
that Tufts will create a program to individualize nutritional recommendations to
women and their clinicians. In addition, the agreement also grants us the right
to acknowledge the participation of the Tufts University School of Nutrition
Science and Policy in the development of the products and to use its name in
connection with labeling, promotion, marketing and sale of the nutritional
products. Tufts may revoke our right to use the Tufts name if Tufts determines
that our actions have adversely affected or may adversely affect Tufts'
reputation.
Under the agreement, we are required to pay a fee to Tufts, payable in four
installments over five months, that covers all of Tufts' internal and external
expenses incurred in connection with the project. We are also solely responsible
for the manufacturing, marketing and sale of the products. Further, we must pay
a license fee equal to a certain percentage of net sales of each product
developed under this agreement for fifteen years or the term of the patent, if
any, whichever is greater. The license fee will be reduced if Tufts revokes our
right to use its name without cause or if Tufts develops and licenses
nutritional products that compete with our products.
The minimum payments we are required to make under these and other
agreements may exceed our sales of the products to which these minimum payments
relate, and our failure to achieve specified minimum sales could be a violation
of these agreements. See "Risk Factors -- Many of our product agreements require
us to make minimum payments. If our sales of these products do not exceed these
minimums, our marketing and distribution of these products will not be
profitable and our results of operations will be harmed," and "-- Many of our
product agreements may be terminated if we fail to make minimum purchases or for
other reasons. This could force us to discontinue sales of key products and
could harm our results of operations."
INTELLECTUAL PROPERTY
We regard the protection of patents, copyrights, trademarks, and other
proprietary rights that we own or license as material to our success and
competitive position. We rely on a
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combination of laws and contractual restrictions such as confidentiality
agreements to establish and protect our proprietary rights. Laws and contractual
restrictions, however, may not be sufficient to prevent misappropriation of our
technology or deter others from independently developing products that are
substantially equivalent or superior.
Patents. Due to the length of time and expense associated with bringing new
pharmaceutical products to market, we recognize the considerable benefits
associated with acquiring or licensing products that are protected by existing
patents or for which patent protection can be obtained. However, we do not
currently own any issued patents or have any pending patent applications. Some
of the products that we offer incorporate patented technology owned by others,
including the Pravachol(R) product, the IntegraVie(TM) line of skin-care
products and the SafeStart(TM) umbilical cord clamp/cutter, but most of our
products are not protected by patents.
Copyrights. We have applied for copyright registration for the Women First
HealthCare logo. The copyrights to the product being developed with Dr. Deepak
Chopra, entitled RENEWAL a time for you(TM), will be owned jointly by us and
Infinite Possibilities Media LLC. We will also own all the copyrights in the
Strong Women Stay Young video. Copyrights for the content of the WOMENFIRST.COM
Internet site that we created with SF Interactive will be assigned to us.
Trademarks and Domain Names. Our subsidiary, As We Change, LLC, owns the
registered U.S. trademark As We Change(R). In addition, we have applied for U.S.
trademark registrations for a number of key trademarks, including Women First
HealthCare(TM), Women First(TM) and A Better Way(TM). We have a non-exclusive
worldwide license to use the trademarks owned by Dr. Chopra in connection with
the products that we develop with Infinite Possibilities. Some of our
distribution agreements also include rights to use the manufacturer's
trademarks, such as the Ortho-Est(R), Ortho Tri-Cyclen(R) and Pravachol(R)
tradenames during the term of these agreements. We intend to introduce new
trademarks, service marks and brand names and to maintain registrations on
trademarks that remain valuable to the business. We have no trademark,
registrations or applications pending outside the United States.
We currently hold the Internet domain names "WOMENFIRSTHEALTHCARE.COM" and
"WOMENFIRST.COM," and our subsidiary, As We Change, LLC, holds the Internet
domain name "ASWECHANGE.COM." Under current domain name registration practices,
no one else can obtain an identical domain name, but can obtain a similar name,
or the identical name with a different suffix such as ".net" or ".org" or with a
country designation such as ".jp" for Japan. The relationship between
regulations governing domain names and the laws protecting trademarks and
similar proprietary rights is evolving. Domain names are regulated by Internet
regulatory bodies while trademarks are enforceable under local law. In addition,
the regulation of domain names in the United States and in foreign countries is
subject to change. There are plans to establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. As a result, we may not acquire or be able to maintain our domain
names in all of the countries in which we conduct business, and we could be
unable to prevent third parties from acquiring domain names that infringe or
otherwise decrease the value of our domain names or trademarks.
While we intend to take the actions that we believe are necessary to
protect our proprietary rights, we may not be successful in doing so. In
addition, we may be dependent on the owners of the proprietary rights we license
to protect those rights. In addition, we and our licensors may face challenges
to the validity and enforceability of proprietary rights and may not prevail in
any litigation regarding those rights.
We are also subject to the risk of adverse claims and litigation alleging
infringement of the proprietary rights of others. While we are not currently
involved in any such claims, there can
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be no assurance against future infringement claims by third parties. The
resolution of any such infringement claims may result in protracted and costly
litigation, regardless of the merits of such claims. Moreover, it may require us
to obtain a license to use those proprietary rights or possibly to cease using
those rights altogether. Any of these events could have a material adverse
effect on our business, financial condition and results of operations.
GOVERNMENT REGULATION
The manufacturing, processing, formulation, clinical investigation,
packaging, labeling, storage, promotion, distribution and advertising of the
products we offer are subject to extensive regulation by one or more federal
agencies including the FDA, DEA, Environmental Protection Agency, Federal Trade
Commission, Occupational Safety and Health Administration, Consumer Product
Safety Commission, the United States Customs Service, and the United States
Postal Service. These activities are also regulated by various agencies of the
states and localities in which our products are sold. For both currently
marketed and future products, failure to comply with applicable regulatory
requirements could limit or prevent our ability to market and distribute such
products, and would harm our business.
Pharmaceuticals. All pharmaceutical firms, including manufacturers from
whom we license or for whom we distribute products, are subject to regulation by
the FDA. Any restriction or prohibition applicable to sales of products we
market could materially adversely affect our business.
We market new prescription drug products. New prescription drugs must be
approved by the FDA before they may be marketed, except for those prescription
drugs for which the FDA is not requiring applications because of "grandfather
status" under 1938 legislation, "grandfather status" under 1962 legislation or
for other reasons. The FDA has the authority to revoke existing approvals, or to
review the status of currently exempt pharmaceuticals and require application
and approval, of prescription drugs if new information reveals that they are not
safe or effective. The FDA also regulates the promotion, including advertising,
of prescription drugs.
We market over-the-counter drug products. Over-the-counter drugs are
affected by the establishment of FDA monographs, a regulatory system arising
under 1962 legislation. FDA monographs effectively exempt from FDA approval
over-the-counter drugs that are produced and labeled in accordance with the
standards set forth in FDA regulations. The rulemaking process to establish or
revise an FDA monograph allows a 12-month grace period to make appropriate
formulation or label changes following publication of the final monograph. The
FTC regulates advertising of over-the-counter drug products.
Drug products must be manufactured, packaged, and labeled in accordance
with their approvals and in conformity with standards known as current Good
Manufacturing Practices and other requirements. Drug manufacturing facilities
must be registered with and approved by FDA and must list with the FDA the drug
products they intend to distribute. The manufacturer is subject to inspections
by the FDA and periodic inspections by other regulatory agencies. The FDA has
extensive enforcement powers over the activities of pharmaceutical
manufacturers, including authority to seize and prohibit the sale of unapproved
or non-complying products, and to halt manufacturing operations that are not in
compliance with current Good Manufacturing Practices. Also, the FDA regulates
the distribution of samples of drugs. Both FDA and DEA may impose criminal
penalties arising from non-compliance with applicable regulations.
We do not currently conduct pharmaceutical research and development. If we
obtain rights to develop and market a pharmaceutical product, we will. Prior to
any commercial sale or shipment of a new drug, the FDA generally requires each
of the following steps and possibly
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others to be conducted: (1) preclinical testing, including laboratory and
usually animal tests; (2) the submission to the FDA of an Investigational New
Drug Application which must become effective before human clinical trials may
commence; (3) adequate and well-controlled human clinical trials to establish
safety and efficacy; (4) the submission to the FDA of a New Drug Application;
and (5) FDA approval of the New Drug Application. This process generally takes a
number of years and may also require post-marketing testing and surveillance to
monitor for adverse effects, which can involve significant additional expense.
In addition, an abbreviated application process is available for generic drugs.
For newer generic drugs, there can be no assurances that the FDA will approve a
particular application.
Medical Devices. We market and obtain approvals for medical device
products. All medical device firms, including manufacturers from whom we license
or whose products we distribute, are subject to regulation by the FDA. The FDA
controls when medical devices may enter the market, and can require their
withdrawal from the market, restrict their marketing and recall or seize
products.
In addition to obtaining FDA approval or clearance to market a medical
device, each device manufacturing facility must be registered with the FDA.
Facilities and quality systems are subject to regular inspections by the FDA for
compliance with FDA's Quality System Regulations. As is the case with drugs,
failure to comply with applicable regulatory requirements after obtaining
approval may result in the suspension of regulatory approval, as well as civil
and criminal sanctions. Any restriction or prohibition applicable to sales of
products we market could materially adversely affect our business.
Dietary Supplements. The manufacturing and production of dietary
supplements historically has been subject to less intensive regulation than
pharmaceutical products. Under the Dietary Supplement Health & Education Act of
1994, the FDA may exercise authority over the labeling and sales of dietary
supplements. In addition, the United States Postal Service regulates claims with
respect to products sold or marketed through the mail and the FTC regulates
dietary supplement advertising.
The FDA and other federal authorities are reviewing alternative approaches
to assure the safety of vitamins, minerals, herbals and other products sold as
dietary supplements. Increased regulatory oversight could subject us and other
manufacturers and distributors of dietary supplements to increased production
and compliance costs and possibly require capital expenditures. Future
regulation affecting dietary supplements could result in a recall or
discontinuance of certain products.
Pharmacy Regulations. Our business plan includes the operation of a
pharmacy, Women First Pharmacy Services, through which we dispense drug
products, including compounded drug products, to patients who have doctors'
prescriptions. Women First Pharmacy Services is subject to state and federal
regulation, including regulation by state pharmacy boards. These sources of
regulation may restrict or prohibit us from advertising or otherwise promoting
or selling compounded pharmaceuticals. In addition, pharmacies are subject to
regulation by other federal and state agencies with respect to reimbursements
for prescription drug benefits provided to individuals covered primarily by
publicly funded programs.
The 1997 Food and Drug Administration Modernization Act contains provisions
restricting the advertising, promotion, and sale of compounded products. This
new law includes, among other elements, a strict limit on the compounding of
drugs that are essentially copies of FDA-approved drug products, and a proposed
restriction on the amount of compounded drugs that can be shipped in interstate
commerce by a given pharmacy. Based on this legislation, the FDA or a state
Board of Pharmacy could seek to force us to discontinue compounding and selling
the micronized progesterone product and other products compounded by Women First
Pharmacy Services if they are found to be essentially copies of FDA-approved
drugs.
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Prometrium(R) is an FDA-approved drug containing micronized progesterone sold by
Solvay Pharmaceuticals, Inc. In addition, because of the proposed limit on
interstate shipments of more than 20% of the total amount of drugs dispensed by
a pharmacy or more than 5% of any one compounded pharmaceutical product, we may
need to acquire pharmacy distribution services in other states in order to
maintain or expand our current distribution of micronized progesterone and other
compounded products. Some of the new law's restrictions have been challenged in
litigation to which we are not a party, and the FDA has not yet finalized all of
the rules and regulations implementing the new law. We cannot predict the
eventual resolution of these matters, but they may have a material adverse
effect on our business.
Cosmetics Regulations. We market cosmetic products. The FDA regulates the
labeling on cosmetic products and does not require cosmetics to be approved
before products are released to the marketplace. The FDA does not have the
authority to require manufacturers to register their cosmetic establishments,
file data on ingredients, or report cosmetic-related injuries. The FDA maintains
a voluntary data collection program, however, and companies wishing to
participate in the program may do so. The FDA may inspect cosmetics
manufacturing facilities, collect samples for examination, and take action to
remove adulterated and misbranded cosmetics from the market.
EMPLOYEES
As of April 30, 1999, we employed 141 full-time people, of whom 104 were
employed in sales and marketing, three were employed in research and
development, seven were employed in education and program development and 27
were employed in administration. None of our employees are represented by a
labor union, and we consider our relations with our employees to be good. Our
ability to achieve our financial and operational objectives depends in large
part upon the continued service of our senior management and key personnel and
our continuing ability to attract and retain highly qualified managerial
personnel. Competition for such qualified personnel in the pharmaceutical and
health care industry is intense.
FACILITIES
We are headquartered in facilities consisting of approximately 16,800
square feet in San Diego, California, pursuant to a lease expiring in August
2003. As We Change, LLC is headquartered in facilities consisting of
approximately 6,000 square feet in San Diego, California, pursuant to a lease
expiring in July 2000.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings.
SEASONALITY
Catalog sales are typically higher in the fourth calendar quarter due to
larger catalog circulation, merchandising improvements during the year, and some
increase in consumer buying surrounding the holiday season. We anticipate this
trend will continue.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of Women First:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward F. Calesa.................... 57 Chairman of the Board
David F. Hale....................... 50 President, Chief Executive Officer and
Director
Debra P. Crawford................... 41 Vice President, Chief Financial Officer,
Treasurer and Secretary
Susan E. Dube....................... 51 Vice President, Strategic Planning and
Acquisitions
Jeffrey W. Raser.................... 38 Vice President, Professional Sales and
Marketing
Randi C. Crawford................... 30 Vice President, Educational Program
Development
Wendy S. Johnson.................... 47 Vice President, Business Development
Robert L. Jones..................... 54 Vice President, Human Resources and
Administration
Jeanne-Marie Varga.................. 46 Vice President, Regulatory Affairs and
Quality Systems
Lauren J. Essex..................... 37 Vice President, Marketing Self-Care Products
Nancy J. Casey...................... 47 Vice President, Public Relations
Julie G. Martin..................... 43 Vice President, Catalog Operations
Dale F. Steele...................... 52 Vice President, Catalog Operations
Charlotte Beers..................... 61 Director
Meredith A. Brokaw.................. 58 Director
Gary V. Parlin(2)................... 57 Director
Richard L. Rubin(1)(2).............. 70 Director
John Simon(1)....................... 56 Director
</TABLE>
- -------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Edward F. Calesa co-founded Women First in November 1996 and has served as
a Director since that time. Mr. Calesa has served as Chairman of the Board of
Directors since December 1996. Mr. Calesa has an extensive background in
innovative health care marketing. In 1971, he founded and served as Chairman of
the Board of Health Learning Systems Inc. During his tenure at Health Learning
Systems, Mr. Calesa developed working relationships with many academic medical
specialists and medical organizations, including the National Institutes of
Health, National Board of Medical Examiners, Educational Testing Services,
Washington Business Group on Health, and Voluntary Hospitals of America and
numerous pharmaceutical companies. Mr. Calesa sold Health Learning Systems in
December 1988 to WPP Group, plc. From January 1989 to November 1996, Mr. Calesa
served as General Partner of an investment partnership, Calesa Associates. Mr.
Calesa received an M.B.A. in marketing from Fairleigh Dickinson University and a
B.A. in economics from Columbia College.
David F. Hale joined Women First as President and Chief Executive Officer
in January 1998 and has served as a Director since that time. Mr. Hale served
from May 1987 to November 1997 as President and CEO of Gensia Inc., which became
Gensia Sicor Inc., and as Chairman of that company from May 1991 to November
1997. From 1986 to 1987, Mr. Hale was President and CEO of Hybritech, Inc., a
division of Eli Lilly & Company. He joined Hybritech, Inc. in 1982 as Senior
Vice President of Marketing and Business Development, became Executive Vice
President and Chief Operating Officer in 1982 and became President in
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1983. From 1981 to 1982, Mr. Hale was Vice President and General Manager of BBL
Microbiology Systems, a division of Becton, Dickinson and Company, and from 1980
to 1981 he was Vice President, Sales & Marketing. From 1971 to 1980, he held
various marketing management positions with Ortho Pharmaceutical Corporation, a
division of Johnson & Johnson, including Director of Marketing of the Ortho
Dermatological Division and Director of Product Management for Ortho
Pharmaceutical Corporation. Mr. Hale also serves on the Board of Directors of
Gensia Sicor, Dura Pharmaceuticals, Inc., Collateral Therapeutics, Inc. and LMA
North America. Mr. Hale received a B.A. in biology from Jacksonville State
University.
Debra P. Crawford joined Women First in July 1998 as Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary and was appointed Secretary
in March 1999. From March 1997 to August 1998, Ms. Crawford was self-employed
and provided financial consulting services in the capacity of acting chief
financial officer or as a corporate development financial consultant. Ms.
Crawford was Chief Financial Officer, Vice President, Finance and
Administration, Treasurer and Secretary of IVAC Medical Systems, Inc. from
January 1995 to December 1996 and Chief Financial Officer, Vice President,
Finance and Administration and Treasurer of IVAC Holdings, Inc. from January
1996 to December 1996. Ms. Crawford served as Vice President, Finance and
Administration, Treasurer and Assistant Secretary of IVAC Corporation from May
1994 to December 1994. From May 1992 to May 1994, Ms. Crawford was Director of
Finance and Manufacturing Controller of Advanced Cardiovascular Systems, Inc.
Ms. Crawford is a CPA and holds a B.S. in business administration with an
emphasis in accounting from San Diego State University.
Susan E. Dube joined Women First in July 1998 as Vice President, Strategic
Planning & Acquisitions. From October 1997 until she joined Women First, Ms.
Dube was Senior Vice President, Strategy & Corporate Development for Imagyn
Medical Technologies, Inc. From January 1996 to September 1997, Ms. Dube served
as Vice President, Marketing and Business Development and Vice President,
Business Development at Imagyn Medical, Inc. From August 1995 to December 1995,
Ms. Dube served as a consultant for LifeScience Economics, Inc. during which
time she consulted for Imagyn Medical, Inc. Ms. Dube also served as President
and Chief Executive Officer of BioInterventions, Inc. from June 1994 to August
1995. From August 1993 to April 1994, she served as an independent consultant to
a number of health care companies. From May 1991 to August 1993, she was
Executive Vice President and Chief Operating Officer of Adeza Biomedical, Inc.
She was employed as Vice President, Ventures at the Brigham and Women's Hospital
from 1985 to 1991. Ms. Dube holds an M.B.A. from Harvard University and a B.A.
in government from Simmons College.
Jeffrey W. Raser joined Women First in March 1998 as Vice President,
Professional Sales and Marketing. From January 1995 until he joined Women First,
Mr. Raser was Director, Business Operations at Roche Laboratories, Inc. Mr.
Raser held a number of positions at Roche Laboratories, including Director of
Customer Marketing from December 1992 to December 1994, Market Segment Manager,
Director of Managed Care and Entitlement Programs from January 1991 to December
1992 and Senior Regional Manager, State Government Affairs from February 1990 to
January 1991. Mr. Raser worked for Lederle Laboratories as Manager, Marketing
Communications from January 1988 to January 1990 and Regional Manager, State
Government Relations from June 1985 to December 1987. Mr. Raser holds a B.A. in
government from Franklin and Marshall College.
Randi C. Crawford co-founded Women First and served as Vice President,
Marketing Research from February 1997 to February 1998. She served as Secretary
of Women First from January 1997 through March 1998. She assumed the role of
Vice President, Educational Program Development in February 1998 and currently
holds this position. From November 1995 until joining Women First, Ms. Crawford
was a research analyst with Calesa Associates
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specializing in investment opportunities in health care companies. From October
1991 to November 1995, Ms. Crawford worked as a consultant engaging in the
creation and production of children's television programming for Fox Television,
Lifetime Television, DIC Entertainment and Saban Entertainment, Inc. Ms.
Crawford received a B.A. in liberal arts from Villanova University. Ms. Crawford
is the daughter of Mr. Edward F. Calesa and is not related to Debra P. Crawford.
Wendy S. Johnson joined Women First in July 1998 as Vice President,
Business Development. From July 1994 until joining Women First, Ms. Johnson was
Vice President, Corporate Development & Operations at Prizm Pharmaceuticals,
currently Selective Genetics Incorporated. From July 1990 to June 1994, Ms.
Johnson was Vice President, Business Development and Regulatory Affairs with
Cytel Corporation. From June 1988 to June 1990, Ms. Johnson was with Synbiotics
Corporation as Manager, Business Development. She worked for Coralab Research as
International Affairs Administrator from 1986 to 1988. From 1976 to 1986, Ms.
Johnson served as Assistant Director with the Center for Devices and
Radiological Health at the Food and Drug Administration. Ms. Johnson holds an
M.B.A. from Loyola University, an M.S. in clinical microbiology from the
Hahnemann Medical School and a B.S. in microbiology from the University of
Maryland.
Robert L. Jones joined Women First in February 1998 as Vice President,
Human Resources and Administration. From March 1996 until he joined Women First,
Mr. Jones was Vice President, Human Resources and Training with Rally's
Hamburgers, Inc. From June 1995 to March 1996, Mr. Jones was a partner with Dick
Wray and Consultants, Inc. From January 1984 to November 1994, Mr. Jones served
as the Corporate Vice President, Human Resources with Foodmaker, Inc. From 1980
to 1984, Mr. Jones served in a number of positions with General Foods
Corporation including Vice President, Personnel, Theme Restaurant Division from
1980 to 1984 and Personnel Director, Foodservice Products Division from 1982 to
1984. Mr. Jones received an M.A. in personnel administration from Ball State
University and a B.S. in education and speech from Ball State University.
Jeanne-Marie Varga joined Women First in April 1998 as Vice President,
Regulatory Affairs and Quality Systems. Prior to joining Women First, Ms. Varga
served as Vice President, Worldwide Regulatory and Quality with Sanofi
Diagnostics Pasteur, Inc. from March 1992 until May 1997. From April 1987 to
March 1992, Ms. Varga was Director, Quality Assurance and Regulatory Affairs at
Baxter Diagnostics, Inc. From October 1983 to April 1987, she served as Manager,
U.S. Regulatory Affairs with Sorin Biomedica S.p.A. From 1980 to 1983, Ms. Varga
served as Senior Scientific Reviewer with the Center for Devices and
Radiological Health at the Food and Drug Administration. Ms. Varga holds an M.A.
in management and supervision from Central Michigan University and a B.S. in
medical technology from Towson State University.
Lauren J. Essex joined Women First in October 1998 as Vice President,
Marketing Self-Care Products. From November 1996 until joining Women First, Ms.
Essex was Vice President, Marketing with Cosmederm Technologies, Inc. From March
1994 to November 1996, Ms. Essex served as Vice President, Personal Care
Products, Sales and Customer Service with La Costa Products International. From
July 1984 to March 1994, she held a number of brand management positions with
Helene Curtis Industries, Inc., including Brand Manager from April 1991 to March
1994. Ms. Essex holds an M.S. in management from Northwestern University and a
B.A. in psychology and business from University of Rochester.
Nancy J. Casey joined Women First in October 1998 as Vice President,
Catalog Operations and in February 1999 became Vice President, Public Relations.
From August 1995 until October 1998, Ms. Casey was a Co-Chief Executive Officer
of As We Change, LLC and was a co-founder of that company. From June 1985 to
January 1997, Ms. Casey was the owner
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of Nancy Casey Public Relations. Ms. Casey was a Sales Assistant with Dale
Fitzmorris from September 1990 to November 1992. From May 1987 to September
1990, she served as the Director of Public Relations with WestCom Group. Ms.
Casey holds a B.A. in English from San Diego State University.
Julie G. Martin joined Women First in October 1998 as Vice President,
Catalog Operations. From August 1995 until October 1998, Ms. Martin was a
Co-Chief Executive Officer of As We Change, LLC and was a co-founder of that
company. From May 1993 to August 1996, Ms. Martin served as Director of Health
Promotion with The Center for Women's Medicine. From January 1990 to July 1992,
she served as General Manager with Dale Fitzmorris. From 1983 to January 1990,
Ms. Martin owned and managed two sole proprietorships. Ms. Martin holds an M.S.
in exercise physiology from San Diego State University and a B.A. in liberal
arts and sciences from San Diego State University.
Dale F. Steele joined Women First in October 1998 as Vice President,
Catalog Operations. From August 1995 until October 1998, Ms. Steele was a
Co-Chief Executive Officer of As We Change, LLC and was a co-founder of that
company. From September 1994 to August 1996, Ms. Steele served as Corporate
Secretary and Treasurer at M.W. Steele Group, which she co-founded in 1983. From
January 1989 to August 1994, Ms. Steele was owner of Dale Fitzmorris. From 1983
to 1989 she served as the Chief Financial Officer of M.W. Steele Group.
Charlotte Beers has served as a Director of Women First since May 1999. Ms.
Beers has been the Chairman of J. Walter Thompson Worldwide, one of the nation's
top advertising agencies, since March 1999. From March 1997 to March 1999, Ms.
Beers was a private consultant. Ms. Beers was Chairman and Chief Executive
Officer of the Ogilvy & Mather advertising firm from 1992 to March 1997. Prior
to her appointment at Ogilvy & Mather, Ms. Beers was Chairman and CEO of Tatham
RSCG, another top advertising agency, from 1982 to 1990 and Vice-Chairman of its
parent company, Euro RSCG, from 1991 to 1992. In 1989, she became the first
woman to chair the American Association of Advertising Agencies. Ms. Beers
received a B.A. in mathematics from Baylor University.
Meredith A. Brokaw has served as a Director of Women First since March
1998. Ms. Brokaw is a business consultant and author. She was Founder and
President of Penny Whistle Toys, Inc. from 1978 until February 1997 when it was
sold. Ms. Brokaw has written eight books relating to parenting and children's
activities, which are distributed under the Penny Whistle Series label by Simon
and Schuster. Currently, she is a trustee of The Bank Street College of
Education and is on the Board of Trustees of the Educational Broadcasting
Corporation and Conservation International. Ms. Brokaw is also a Director of the
Gannett Co., Inc. Ms. Brokaw holds a B.A. in English and communications from the
University of South Dakota and received an Honorary Doctor of Laws Degree from
St. John's University.
Gary V. Parlin has served as a Director of Women First since January 1998.
Mr. Parlin retired from Johnson & Johnson in July 1997 after 33 years with that
corporation. At retirement, he was a Company Group Chairman and previously had
worldwide responsibility for the Cilag Pharmaceutical Group and Ortho Biotech.
Mr. Parlin joined Ortho Pharmaceutical Corporation in 1964 and held a number of
sales and marketing positions. In 1997, he was promoted to Vice President, Sales
and Marketing and a became a member of the Ortho Pharmaceutical Corporation
Board of Directors at that time. In 1980, Mr. Parlin was appointed Managing
Director of Ortho-Cilag Limited and in 1983 he was named President of Ortho
Pharmaceuticals, Inc. Mr. Parlin was appointed to the Pharmaceutical/Diagnostics
Group Operating Committee in 1985. Mr. Parlin holds a B.S. in business from
California State University, San Jose.
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Richard L. Rubin, Ph.D. has served as a Director of Women First since
November 1996 and held the positions of Vice President from December 1996 to
March 1998, Secretary from December 1996 to January 1997, and Treasurer from
December 1996 to August 1997. Mr. Rubin is President of the Dedalus Foundation,
Chairman of New Dimensions in Education and a Professor of Political Science and
Public Policy at Swarthmore College. Since 1968, Dr. Rubin has served as a
business and investment consultant. From 1963 to 1968, Dr. Rubin was the
Director of Planning & Research for United Merchants & Manufacturers, Inc. In
1957 Dr. Rubin was appointed Chairman and Chief Executive Officer of Dorman
Mills where he served until 1962. Dr. Rubin holds a Ph.D. in political science
from Columbia University and a B.A. in economics from Brown University.
John Simon has served as a Director of Women First since January 1998. Mr.
Simon is a Managing Director of the investment banking firm Allen & Company
Incorporated, where he has been employed for over 20 years. He is on the Board
of Directors of Immune Response Corporation, Neurogen Corporation, Advanced
Technical Products, Inc. and Realty Information Group, Inc. Mr. Simon holds an
M.B.A. and J.D. from Columbia University, a Ph.D. in chemical engineering from
Rice University and a B.S. in chemistry from The College of William & Mary.
CLASSIFIED BOARD OF DIRECTORS
Women First's Amended and Restated Certificate of Incorporation to be
adopted immediately prior to the closing of this offering will provide for a
classified Board of Directors consisting of three classes as nearly equal in
number as possible with the directors in each class serving staggered three-year
terms. As a result, approximately one-third of the Company's Board of Directors
will be elected each year. The terms of the Class I, Class II and Class III
directors will expire initially in 2000, 2001 and 2002, respectively. Meredith
A. Brokaw and Richard L. Rubin will be Class I directors, John Simon and
Charlotte Beers will be Class II directors, and Edward F. Calesa, David F. Hale
and Gary V. Parlin will be Class III directors. At each annual meeting of the
stockholders of Women First, the successors to the class of directors whose term
expires will be elected to hold office for a term expiring at the annual meeting
of stockholders held in the third year following their election.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Women First has established an Audit Committee
and a Compensation Committee.
Audit Committee. The Audit Committee, among other things, recommends
independent certified public accountants, reviews the scope of the audit
examination including fees and staffing, reviews the independence of the
auditors, reviews and approves non-audit services provided by the auditors,
reviews findings and recommendations of auditors and management's response,
reviews the internal audit and control function, and reviews compliance with
Women First's ethical business practices policy. The members of the Audit
Committee are John Simon and Richard L. Rubin.
Compensation Committee. The Compensation Committee determines compensation
for Women First's senior management and administers the Women First Long-Term
Incentive Plan. The members of the Compensation Committee are Gary V. Parlin and
Richard L. Rubin.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Edward F. Calesa, the Chairman of the Board of Women
First, JoAnn Heffernan Heisen, a former Director of Women First, and Gary V.
Parlin, a Director of
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Women First, served on the Compensation Committee of the Board of Directors. Mr.
Calesa is an employee of Women First and receives an annual salary of $350,000
per year. He is a party to an employment agreement with Women First for a term
of four years commencing on January 8, 1998. See "-- Executive Compensation" and
"-- Employment Agreements." In January 1998, Mr. Calesa entered into an
agreement to purchase 75,000 shares of Series A Preferred Stock for $750,000 and
his daughter, Janice Calesa-Sherman, entered into an agreement to purchase an
aggregate of 25,000 shares of Series A Preferred Stock for $250,000. Women First
issued these shares of Series A Preferred Stock at closings in January 1998,
October 1998 and February 1999. Mr. Calesa also purchased $340,000 principal
amount of short-term notes and warrants to purchase 2,758 shares of common stock
in a private placement in March 1999. Ms. Calesa-Sherman purchased $110,000
principal amount of short-term notes and warrants to purchase 892 shares of
common stock in a private placement in March 1999. See "Certain Transactions."
Ms. Heisen is the Vice President, Chief Information Officer and a member of
the executive committee of Johnson & Johnson. Ms. Heisen resigned from the board
of directors of Women First on March 19, 1999. In January 1998, Johnson &
Johnson Development Corporation, a subsidiary of Johnson & Johnson, entered into
an agreement to purchase 900,000 shares of Series A Preferred Stock for $9.0
million. Women First issued these shares of Series A Preferred Stock at closings
in January 1998, October 1998 and February 1999. Johnson & Johnson also
purchased $1.5 million principal amount of short-term notes and warrants to
purchase 12,169 shares of common stock in a private placement in March 1999. In
addition, Women First paid $2.5 million to Ortho-McNeil Pharmaceutical, Inc., a
subsidiary of Johnson & Johnson, during 1998 for the purchase of the
Ortho-Est(R) line of estropipate products. See "Certain Transactions" and
"Business -- Licensing and Co-Promotion Agreements."
Mr. Parlin has a consulting agreement with Women First pursuant to which
Mr. Parlin receives a monthly consulting fee of $5,000. Mr. Parlin purchased
$100,000 principal amount of short-term notes and warrants to purchase 811
shares of common stock in a private placement in March 1999. See "Certain
Transactions."
DIRECTOR COMPENSATION
Women First reimburses directors for their travel expenses incurred in
attending meetings of the Board. Directors currently do not receive any regular
fees for their services as such, although Women First may pay directors' fees in
the future if it believes the payment of such fees is necessary or appropriate
to attract and retain high-quality directors. Mr. Gary V. Parlin, a director of
Women First, currently has a consulting arrangement with Women First pursuant to
which Mr. Parlin receives fees of $5,000 per month. Outside directors of Women
First who are not employees of Women First also are eligible to receive stock
options under the Women First Long-Term Incentive Plan. See "-- Long-Term
Incentive Plan."
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EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of our
President and Chief Executive Officer and our four most highly compensated
executive officers other than the President and Chief Executive Officer who were
serving as executive officers at the end of the last completed fiscal year (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------------ COMPENSATION
OTHER ANNUAL SHARES
NAME AND COMPENSATION UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#)
------------------ ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward F. Calesa................. 1998 $252,308 $ -- $ -- --
Chairman of the
Board
David F. Hale.................... 1998 340,577(1) 75,000 -- 805,200
President and CEO
Jeffrey W. Raser................. 1998 131,423(2) -- -- 45,750
Vice President, Professional
Sales and Marketing
Robert L. Jones.................. 1998 116,827(3) -- 31,362(4) 45,750
Vice President,
Human Resources
and Administration
Anthony P. Maris(5).............. 1998 175,192 -- -- 45,750
Former Vice
President, Finance and
Secretary
</TABLE>
- -------------------------
(1) Mr. Hale joined Women First on January 14, 1998. The amount shown in the
salary column reflects amounts actually paid to Mr. Hale during 1998.
(2) Mr. Raser joined Women First on March 27, 1998. The amount shown in the
salary column reflects amounts actually paid to Mr. Raser during 1998.
(3) Mr. Jones joined Women First on February 23, 1998. The amount shown in the
salary column reflects amounts actually paid to Mr. Jones during 1998.
(4) Includes relocation expenses and related tax gross-ups paid to Mr. Jones of
$31,362 in 1998.
(5) Mr. Maris resigned as Vice President, Finance and Secretary on February 10,
1999. He currently provides part-time consulting services to Women First.
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OPTION GRANTS AND EXERCISES
The following table provides information concerning grants of options to
purchase our common stock made during the fiscal year ended December 31, 1998 to
the Named Executive Officers. No grants of SARs were made during the fiscal year
ended December 31, 1998 to the Named Executive Officers.
The potential realizable values in the table below are based on an
assumption that the price of our common stock will appreciate at the annual rate
shown (compounded annually) from the date of grant until the end of the option
term. Women First has used the assumed public offering price in lieu of the fair
market value on the date of grant in making the potential realizable value
calculations in the table below. These values do not take into account amounts
required to be paid as income taxes under the Internal Revenue Code and any
applicable state laws or option provisions providing for termination of an
option following termination of employment, non-transferability or vesting.
Potential realizable values are calculated based on the requirements promulgated
by the Securities and Exchange Commission and do not reflect our estimate of
future stock price growth of the shares of our common stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS ANNUAL RATES OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTION EMPLOYEES IN PRICE EXPIRATION -----------------------------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SH) DATE 0%($) 5%($) 10%($)
---- ---------- -------------- -------- ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward F. Calesa...... -- -- -- -- -- -- --
David F. Hale......... 805,200 52.20% $0.84 3/30/08 $8,180,832 $13,751,206 $22,296,793
Jeffrey W. Raser...... 45,750 2.97% $0.84 3/30/08 464,820 781,319 1,266,863
Robert L. Jones....... 45,750 2.97% $0.84 3/30/08 464,820 781,319 1,266,863
Anthony P. Maris...... 45,750 2.97% $0.84 3/30/08 464,820 781,319 1,266,863
</TABLE>
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OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information concerning exercises of options to
purchase Women First's common stock in the fiscal year ended December 31, 1998
and unexercised options held as of December 31, 1998 by the Named Executive
Officers. No options were exercised by any of the Named Executive Officers
during fiscal 1998.
Women First calculated the value of unexercised in-the-money options at
December 31, 1998 in the table below by determining the difference between the
assumed initial public offering price of $11.00 and the exercise price of the
options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS HELD AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
EXERCISABLE(#)/ EXERCISABLE($)/
NAME UNEXERCISABLE(#) UNEXERCISABLE($)
---- ---------------------- ---------------------
<S> <C> <C>
Edward F. Calesa........................... -- --
David F. Hale.............................. 283,092/522,108 $2,876,215/$5,304,617
Jeffrey W. Raser........................... --/ 45,750 --/ 464,820
Robert L. Jones............................ --/ 45,750 --/ 464,820
Anthony P. Maris........................... 33,341/ 12,409 338,745/ 126,075
</TABLE>
EMPLOYMENT AGREEMENTS
Women First has employment agreements with Edward F. Calesa, David F. Hale,
Dale F. Steele, Julie G. Martin and Nancy J. Casey.
Edward F. Calesa entered into an employment agreement with Women First for
a term of four years commencing on January 8, 1998. Pursuant to this agreement,
Mr. Calesa is entitled to receive a base annual salary of $150,000, which was
increased by the Compensation Committee of the Board of Directors on July 16,
1998 to $350,000 per year, effective July 1, 1998. At the time of this salary
increase, the Compensation Committee determined that Mr. Calesa was eligible to
receive a special bonus allocation. Pursuant to the agreement, Women First may
immediately terminate the employment agreement for cause or upon the permanent
disability of Mr. Calesa. If Women First terminates the employment agreement for
the permanent disability of Mr. Calesa or if Mr. Calesa terminates for "good
reason," (i.e., a material diminution in Mr. Calesa's duties and
responsibilities), Mr. Calesa will be entitled to receive a severance payment
equal to his base salary for the shorter of one year or the remainder of the
term of the agreement. The agreement also contains a non-competition provision
and other terms and conditions customary to executive employment agreements. See
"Risk Factors -- Our failure to retain the principal members of our management
team or to hire additional qualified employees would adversely affect our
ability to implement our business plan."
David F. Hale entered into an employment agreement with Women First for a
term of five years commencing January 14, 1998. Under the employment agreement,
Mr. Hale is eligible to receive the following cash compensation:
- a base annual salary of $350,000, which is subject to increase upon
annual review by the Compensation Committee of the Board of Directors,
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- a bonus for each fiscal quarter of $25,000 based upon Mr. Hale's and
Women First's performance, and
- an annual bonus in addition to his quarterly bonus based upon his
participation in the Women First HealthCare Management Incentive
Compensation Plan.
Under the employment agreement, Women First agreed to grant Mr. Hale
options to purchase up to 576,450 shares of Women First's common stock at an
exercise price of $0.84 per share. Such options vested 25% upon grant and will
vest 25% per year in equal daily installments over a three-year period.
Furthermore, the employment agreement provides that Mr. Hale has the right and
option to purchase up to an additional 228,750 shares of our common stock, at an
exercise price of $0.84 per share, which will vest over a four-year period in
equal daily installments.
Women First may terminate the agreement with or without cause or in the
event Mr. Hale becomes permanently disabled. If Women First terminates the
agreement for cause, Mr. Hale would be entitled to receive any unpaid portion of
his base salary, any bonus earned but not paid and any insurance benefits. The
employment agreement defines cause as: (1) a willful act by Mr. Hale that
constitutes misconduct or fraud that is injurious to Women First, (2) conviction
of a felony, or (3) an uncured breach of the employment agreement. Mr. Hale,
however, would forfeit any unvested stock rights and stock options upon a
termination for cause. The vested portion of Mr. Hale's stock rights and stock
options may be exercised for a period of one year from termination. If Women
First terminates Mr. Hale without cause or if Mr. Hale terminates for "good
reason," Women First must make a severance payment to Mr. Hale equal to:
- the amount of Mr. Hale's base salary for the longer of 15 months or the
remainder of what would have been the terms of the agreement,
- the quarterly bonus for what would have been the remainder of the term,
- the annual bonus for what would have been the remainder of the term in
the amount equal to the average of the prior annual bonuses (subject to
conditions), and
- life and disability insurance benefits pursuant to any insurance
purchased by Women First for Mr. Hale's benefit.
The employment agreement defines "good reason" as (1) a termination of Mr.
Hale within 90 days after a relocation of his office more than 50 miles from the
San Diego area; (2) the demotion of Mr. Hale or a material reduction in his
authority or responsibility; (3) a reduction in Mr. Hale's total compensation as
an employee of Women First, other than pursuant to a company-wide reduction of
employee compensation; (4) Women First's failure to increase Mr. Hale's total
compensation commensurate with increases in total compensation received by a
majority of the executive-level employees of Women First with duties and
responsibilities substantially comparable to those of Mr. Hale; or (5) Women
First's failure to pay Mr. Hale a bonus commensurate with bonuses (if any)
received by a majority of executive-level employees of Women First with duties
and responsibilities substantially comparable to those of Mr. Hale. Moreover,
Mr. Hale's stock options and other stock rights will immediately vest and become
exercisable in full and may be exercised for one year from termination upon a
termination without cause.
If Mr. Hale's employment is terminated by reason of his death, Mr. Hale's
estate will be entitled to receive:
- the amount of his base salary for one year,
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- the quarterly bonus applicable to the calendar quarter in which his death
occurs and each of the three calendar quarters following such quarter,
- the full prior year's bonus under the Women First HealthCare Management
Incentive Compensation Plan, and
- life insurance benefits pursuant to any life insurance purchased by the
Women First for Mr. Hale's benefit.
The agreement also contains confidentiality and non-compete provisions and
other terms and conditions customary to executive employment agreements. See
"Risk Factors -- Our failure to retain the principal members of our management
team or to hire additional qualified employees would adversely affect our
ability to implement our business plan."
Dale F. Steele, Julie G. Martin and Nancy J. Casey each entered into an
employment agreement with MenoMorphosis, LLC, the predecessor of As We Change,
LLC, for a term of three years commencing on October 21, 1998. Ms. Steele, Ms.
Martin and Ms. Casey entered into such employment agreements in connection with
Women First's acquisition of MenoMorphosis. Under the employment agreements, Ms.
Steele, Ms. Martin and Ms. Casey are each entitled to receive an annual base
salary of $125,000 until December 31, 1999 and then $140,000 per year until the
end of the term. In addition, the agreements provide for the grant to each of
them of employee stock options to purchase 21,350 shares of Women First common
stock at a purchase price of $0.84 per share and entitle Ms. Steele, Ms. Martin
and Ms. Casey to receive all other benefits offered to officers under Women
First's standard company benefits practices and plans. The stock options will
vest over four years with one-fourth of the options becoming exercisable on the
first anniversary of the agreement and the balance of the options vesting
ratably over the next three years on a daily basis. As We Change may terminate
any of the agreements at any time with or without "cause" or in the event Ms.
Steele, Ms. Martin or Ms. Casey, as the case may be, becomes "permanently
disabled". The employment agreement defines "permanently disabled" as (1) one
day after an aggregate 120 days in a 12-month period or (2) one day after a
consecutive 90 day period during which Ms. Steele, Ms. Casey or Ms. Martin is
unable to perform her respective duties. Under the employment agreement, "cause"
is defined as:
- repeated and habitual failure to perform the employee's duties or
obligations,
- engaging in any act that has a substantial and adverse effect on
MenoMorphosis or Women First's interests,
- personal dishonesty, willful misconduct or breach of fiduciary involving
personal benefit,
- the failure in any material respect to perform designated duties and
responsibilities, as determined by Women First's Chief Executive Officer
and Board of Directors,
- willful violation of any law, rule or regulation which materially
adversely affects the employee's ability to discharge her duties or which
has a substantial and adverse effect on MenoMorphosis or Women First's
interest,
- any material breach of the employment agreement, or
- conduct authorizing termination under California Labor Code Section 2924.
If As We Change terminates Ms. Steele's, Ms. Martin's or Ms. Casey's employment
without cause, Ms. Steele, Ms. Martin or Ms. Casey, as the case may be, will be
entitled to receive the unpaid portion of her base salary and other benefits
accrued and earned under her agreement, payable as if her employment had not
been terminated.
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401(k) PLAN
Women First maintains a savings plan qualified under Section 401(a) and
401(k) of the Internal Revenue Code. Generally, all employees of Women First who
are at least 21 years of age are eligible to participate in the 401(k) Plan.
Women First may make discretionary matching contributions of up to 4% of a
participant's compensation to the 401(k) Plan, but Women First does not
currently make any discretionary profit sharing contributions under the 401(k)
Plan.
LONG-TERM INCENTIVE PLAN
Women First has adopted the Women First HealthCare Long-Term Incentive Plan
(the "Plan"). The Plan is intended to assist Women First in attracting and
retaining key employees, directors, and independent consultants of Women First
and its subsidiaries ("Eligible Persons") of outstanding ability and to promote
the identification of their interests with those of the stockholders of Women
First. The Plan permits the award of non-qualified and incentive stock options,
restricted stock, stock appreciation rights, dividend equivalents, stock
payments or performance awards covering 2,277,435 authorized but unissued shares
or treasury shares of common stock, subject to adjustment to reflect events such
as stock dividends, stock splits, recapitalizations, mergers, reorganizations or
consolidations of or by Women First. In no event may the number of awards issued
under the Plan during any 12-month period exceed 15% of Women First's total
outstanding shares of common stock, including shares of common stock issuable
upon conversion of convertible securities. Further, in no event may the number
of awards issued under the Plan to an Eligible Person (as defined in the Plan)
during any 12-month period exceed the initial grant to such Eligible Person plus
awards covering 152,500 shares.
The Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the terms and conditions of the Plan, the Committee has
the authority to select the persons to whom grants are to be made, to designate
the number of shares of common stock to be covered by such grants, to determine
the exercise price of options, and to make all other determinations and to take
all other actions necessary or advisable for the administration of the Plan.
Under the Plan, outside directors are eligible to receive initial one-time
grants of nonqualified stock options for a specified number of shares upon their
appointment to the Board and grants of additional nonqualified stock options
upon the conclusion of each regular annual meeting of Women First's stockholders
for so long as they remain on the Board. The Company's Board of Directors has
the discretion to determine the amount to be granted upon appointment and
annually. Notwithstanding the foregoing, total grants to directors under the
Plan may not exceed 15% of the maximum number of shares available for grant
under the Plan (subject to adjustment). As of April 30, 1999, Women First had
granted options to purchase an aggregate of 88,145 shares of common stock to
outside directors under the Plan.
Under the Plan, the Committee is required to make an appropriate and
proportionate adjustment in the number and kind of shares and the price per
share upon the occurrence of any merger, reorganization, recapitalization or
consolidation of Women First, sale of all or substantially all of Women First's
assets, or a reclassification, stock dividend, stock split, reverse stock split
or other distribution with respect to the shares of common stock underlying
awards under the Plan. In addition, all options, restricted stock, stock
appreciation rights and performance awards become fully vested and exercisable
upon the death or total and permanent disability of the participant or upon a
change-in-control of Women First.
The exercise price of any nonqualified stock option granted under the Plan
may not be less than 85% of the fair market value of the common stock on the
date of grant, and the exercise price of any incentive stock option may not be
less than 100% of the fair market value of the
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<PAGE> 66
common stock on the date of grant. The Plan permits the payment of the option
exercise price to be made in cash, cash equivalents or notes acceptable to the
Committee, by arrangement with a broker acceptable to the Committee to deliver
all or part of the proceeds, as applicable, upon the sale of shares underlying
the stock option, by the delivery of previously held shares of common stock
valued at their fair market value on the date of exercise, or by any combination
of the foregoing. The Committee may modify, accelerate the exercisability of,
extend or assume outstanding options or may accept the cancellation of
outstanding options in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. Under
the Plan, options must vest at a rate of at least 20% per year over five years
from the date of grant. The Committee may permit the holder of any award under
the Plan to satisfy his or her tax withholding obligations by having Women First
withhold all or a portion of any common stock that otherwise would be issued to
such holder, valued at fair market value.
The Plan may be amended in whole or in part or otherwise modified,
suspended or terminated by the Committee, subject to stockholder approval, if
such approval is then required by law, regulation or rule. Options granted under
the Plan are not transferable otherwise than by will, by the laws of descent and
distribution or pursuant to a qualified domestic relations order (as defined in
the Internal Revenue Code of 1986, as amended), and may be exercised during the
optionee's lifetime only by the optionee or, in the event of the optionee's
legal disability, by the optionee's legal representative.
Under the Plan, the Committee also may approve grants to eligible persons
of restricted stock, stock appreciation rights, dividend equivalents, stock
payments or performance awards, subject to the terms and conditions set forth in
the Plan.
As of April 30, 1999, the Committee has granted currently outstanding
options to purchase 2,086,785 shares of common stock under the Plan, at exercise
prices ranging from $0.84 to $11.39. Such options generally vest incrementally
over four years and expire ten years from the date of grant.
INCENTIVE STOCK PLAN
The Women First, Inc. Incentive Stock Plan (the "Incentive Plan") was
adopted by the Board of Directors on May 7, 1997, and approved by the
stockholders of Women First on May 7, 1997, for the benefit of Women First's
employees, directors and consultants. As of April 30, 1999, there were 27,450
shares of common stock subject to incentive stock options outstanding under the
Incentive Plan. All outstanding options under the Incentive Plan have fully
vested. No additional awards will be made under the Incentive Plan because it
was replaced by the Women First Long-Term Incentive Plan on March 31, 1998.
The Incentive Plan is administered by the Board of Directors, although it
may be administered by a committee thereof. The Board or the committee may
interpret the Incentive Plan and, subject to its provisions, may prescribe,
amend and rescind rules and make all other determinations necessary or desirable
for the administration of the Incentive Plan. To the extent an award granted
under the Incentive Plan has not been exercised, the award will terminate
immediately prior to the consummation of a dissolution or liquidation of Women
First. In the event of a merger of Women First with or into another corporation,
or the sale of substantially all of the assets of Women First, the Incentive
Plan requires outstanding options to be assumed or an equivalent option or right
substituted by the successor corporation or a parent or subsidiary of the
successor corporation.
The terms of the Incentive Plan provide that the Board or the committee, as
the case may be, may amend, suspend or terminate the Incentive Plan at any time;
provided, however, that
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certain amendments require approval of the stockholders of Women First. Further,
neither the Board nor the committee may take any action that adversely affects
any rights under outstanding awards without the holder's consent.
MANAGEMENT INCENTIVE COMPENSATION PLAN
Women First has adopted the Women First HealthCare Management Incentive
Compensation Plan (the "MICP") to offer incentive compensation to key employees
by rewarding the achievement of corporate goals and specifically measured
individual goals. The MICP is governed by the Compensation Committee of the
Board of Directors and administered by the President and Chief Executive Officer
of Women First. The Compensation Committee, however, is responsible for
approving any incentive awards to officers of Women First and for determining
and approving any incentive awards to the President and Chief Executive Officer.
Awards under the MICP are based upon the achievement of both individual and
corporate objectives. Prior to the beginning of each plan year, the President
and Chief Executive Officer presents to the Board of Directors the overall
corporate objectives for the coming year, which are subject to the approval of
the Board. All participants in the MICP also develop a list of key individual
objectives, which are submitted for approval by the responsible Vice President
and by the President and Chief Executive Officer. Awards under the MICP are
based upon performance and are calculated under a formula which incorporates
three variables. First, the target award for each participant under the MICP is
based on a specified percentage of the participant's base salary, ranging in
five categories from 50% of salary for the Chief Executive Officer to 20% for
director-level employees. Second, the target award is then split into two sub-
awards corresponding to the participant's individual and corporate objectives,
with the specific weighting to be reviewed annually and revised as appropriate.
The percentage split of the target award ranges from 50% - 50% for the
individual and corporate objectives for director-level employees, to 100% (no
split) of the target award for the Chief Executive Officer based solely upon the
corporate objectives. Third, each component of the award is paid out after
applying performance multipliers, resulting in possible increases or decreases,
based upon the participant's actual level of achievement with respect to the
established performance goals. The performance multipliers range from zero for
unacceptable performance in view of prevailing conditions, to 100% - 125% if the
participant's performance for the year met or exceeded the objectives or was
excellent in view of prevailing conditions. Awards payable to the President and
Chief Executive Officer and to the Vice President, Finance, are subject to the
completion and issuance of Women First's year-end audited financial statements.
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HEALTH ADVISORY BOARD
Women First HealthCare has assembled a distinguished Health Advisory Board
to guide Women First in the development of educational programming and product
selection. The Health Advisory Board has developed a Consensus Report outlining
the Corporate Philosophy and General Principles which form the basis of our
Gateway to Midlife Health -- A Better Way(TM) program. The Health Advisory Board
hopes to influence and redirect the delivery of health care for midlife women
through such recommendations and educational programs. The Health Advisory Board
includes the following nationally recognized experts:
Nathan Kase, M.D. -- Chair
Sarah L. Berga, M.D.
Trudy L. Bush, Ph.D., M.H.S.
Christine K. Cassel, M.D.
Deepak Chopra, M.D.
Judith V. Jordan, Ph.D.
Daniel R. Mishell, Jr., M.D.
Irwin H. Rosenberg, M.D.
Leon Speroff, M.D.
Nathan Kase, M.D. is an internationally recognized expert in the field of
obstetrics, gynecology and reproductive science. He is currently Professor of
Obstetrics, Gynecology and Reproductive Science and Dean Emeritus of the Mount
Sinai School of Medicine. From 1985 to 1997, Dr. Kase was Dean of the Mount
Sinai School of Medicine. In 1989, he was elected President of the Associated
Medical Schools of New York and served until 1991. Dr. Kase's major clinical and
research achievements are focused in reproductive endocrinology. He has authored
over 100 scientific articles and co-authored two textbooks in his field,
Clinical Gynecologic Endocrinology and Infertility and Principles and Practice
of Clinical Gynecology. Dr. Kase received his residency training in obstetrics
and gynecology at the Mount Sinai School of Medicine. Dr. Kase subsequently
joined the faculty of the Yale University School of Medicine, serving for nearly
twenty years, where he rose from instructor to Professor and Chairman of the
Department of Obstetrics and Gynecology. In 1981, he returned to Mount Sinai as
Professor and Chairman of the Department of Obstetrics, Gynecology and
Reproductive Science.
Trudy L. Bush, Ph.D., M.H.S. is a recognized leader in the field of
epidemiology related to women's health care issues. She is Professor of
Epidemiology and Preventive Medicine at the University of Maryland at Baltimore,
and Adjunct Professor of Epidemiology and Gynecology and Obstetrics at The Johns
Hopkins University. Dr. Bush has written and lectured extensively on women's
health issues, including hormonal replacement therapy and heart disease, breast
and ovarian cancers and osteoporosis and aging. She has numerous publications,
and is an author of the report The Postmenopausal Estrogen/Progestin
Interventions (PEPI) Trial. Dr. Bush received her B.S., M.A. and Ph.D. degrees
from Pennsylvania State University and her M.H.S. in Epidemiology from The John
Hopkins University. She is the recipient of the Clinical Achievement Award in
Women's Health, sponsored by The Society for Advancement of Women's Health
Research. She also is a Fellow of the American College of Epidemiology and a
Fellow of the Epidemiology Council of the American Heart Association.
Sarah L. Berga, M.D. is an author and a leader in the field of obstetrics
and gynecology. Dr. Berga is currently Associate Professor in the Departments of
Obstetrics, Gynecology, and Reproductive Sciences and Psychiatry at the
University of Pittsburgh School of Medicine. Her practice is located at
Magee-Womens Hospital, where she directs the Center for Complex Menopause and
the Clinical Research Center. She is a recognized authority on stress and
reproductive function. She also has conducted many clinical research studies
related to
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hormonal replacement therapy and menopause and is a co-investigator with the
Women's Health Initiative, the largest randomized prospective trial of hormonal
replacement therapy in menopause initiated and funded by the National Institutes
of Health. She has authored over 75 scientific publications and is
Editor-in-Chief of Current Problems in Obstetrics, Gynecology, and Fertility.
Dr. Berga received her medical degree from the University of Virginia and
completed her residency in Obstetrics and Gynecology through Harvard Medical
School at Massachusetts General Hospital in Boston. She completed her
subspecialty fellowship in reproductive endocrinology at the University of
California, San Diego School of Medicine.
Christine K. Cassel, M.D. is a recognized leader in the field of aging. She
is the Chairman of the Department of Geriatrics and Adult Development of Mount
Sinai Medical Center and Professor of Geriatrics and Medicine. Before joining
Mount Sinai, she held the position of Chief of General Internal Medicine at the
University of Chicago, where she was Professor of Medicine and Public Policy
Studies, Chief of the Section of General Internal Medicine, Director of the
Center for Health Policy Research, and Director of the Robert Wood Johnson
Clinical Scholars Program at the University of Chicago. Dr. Cassel completed her
M.D. at the University of Massachusetts in 1976. She completed a Fellowship in
bioethics at the University of California at San Francisco in 1979, and a
Fellowship in Geriatrics at the University of Oregon and the Portland Oregon
Veterans Medical Center in 1981. She was the first woman President of the
American College of Physicians, the largest medical specialty group in the
United States. She is also the first woman Chairman of the American Board of
Internal Medicine, a member of the Institute of Medicine of the National Academy
of Sciences, and is an advisor to numerous federal agencies and national health
care organizations. She is Editor-in-Chief of Geriatric Medicine, a leading
textbook in the field.
Deepak Chopra, M.D. is widely credited with combining modern medicine with
the wisdom of ancient cultures. Dr. Chopra has authored 25 books with total
sales over ten million copies, and over 30 audio, video and CD-ROM programs. He
has produced a number of television and video programs with the Public
Broadcasting System. In 1995, Dr. Chopra established The Chopra Center for Well
Being in La Jolla, California, where he serves as Educational Director. The
Center offers a wide variety of individual and group programs in mind/body
medicine and personal development, integrating the best of Western medicine and
natural healing traditions to provide a fresh approach to modern health needs.
In 1992, he served on the National Institutes of Heath Ad Hoc Panel on
Alternative Medicine. Formerly Chief of Staff at the Boston Regional Medical
Center, Dr. Chopra also taught at Tufts University and Boston University Schools
of Medicine and built a successful endocrinology practice in Boston.
Judith V. Jordan, Ph.D. is a recognized leader in the field of women's
health. She is the Director of Training at the Stone Center at Wellesley College
in Massachusetts. She is also the founding Scholar of the Jean Baker Miller
Institute. She is an Attending Psychologist at McLean Hospital and Assistant
Professor of Psychology at Harvard Medical School. Dr. Jordan is a recipient of
the Massachusetts Psychology Association's Career Achievement Award for
Outstanding Contributions to the Advancement of Psychology as a Science and a
Profession. Dr. Jordan founded the Women's Studies Program and Women's Treatment
Program at McLean Hospital in Boston and served as its first Director. She works
as a psychotherapist, supervisor, teacher, and consultant and has co-authored
Women's Growth in Connection and edited Women's Growth in Diversity.
Daniel R. Mishell Jr., M.D. is a prominent physician in the field of
obstetrics and gynecology. Dr. Mishell is the Lyle G. McNeile Professor and
Chairman of the Department of Obstetrics and Gynecology at the University of
Southern California School of Medicine, Los Angeles, and Chief of Professional
Services at the Women and Children's Hospital, Los Angeles County and USC
Medical Center. Dr. Mishell is certified by the American Board of
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Obstetrics and Gynecology. He was President of this Board from 1986 to 1990 and
Chairman from 1990 to 1994. He is a member of numerous medical societies
including the Society for Gynecologic Investigation, of which he was President
in 1988, the American College of Obstetrics and Gynecologists, the American
Federation for Clinical Research and the Endocrine Society. Dr. Mishell is the
Editor-in-Chief of Contraception and the Yearbook of Obstetrics and Gynecology
and Women's Health. He is the associate editor of The Journal of Reproductive
Medicine and serves on the editorial boards of other medical journals. He is a
consulting senior scientist for the Population Council's International Committee
for Contraceptive Research. He received the Distinguished Scientist Award from
the Society for Gynecologic Investigation in 1994. Dr. Mishell has authored over
248 scientific papers published in peer reviewed journals and has written 149
textbook chapters including Menopause: Physiology and Pharmacology,
Comprehensive Gynecology, and Management of Common Problems in Obstetrics and
Gynecology, and has edited 33 textbooks including Menopause, Physiology and
Menopause, Comprehensive Gynecology and Management of Common Problems in
Obstetrics and Gynecology. He received his B.A. and his M.D. from Stanford
University.
Irwin H. Rosenberg, M.D. is an internationally recognized leader in
nutrition science who has made important and unique contributions to our
understanding of nutrition metabolism in health and disease. Dr. Rosenberg
serves as Professor of Physiology, Medicine and Nutrition, at Tufts University
School of Medicine and School of Nutrition, as well as Dean for Nutrition
Sciences and Director, Jean Mayer USDA Human Nutrition Research Center on Aging
at Tufts. Prior to joining Tufts, Dr. Rosenberg held faculty positions at
Harvard Medical School and the University of Chicago. He has been a recipient of
numerous awards including the Josiah Macy Faculty Award and the Grace Goldsmith
Award. He was elected to the National Institute of Medicine in 1994, and
received the Bristol-Myers Squibb/Mead Johnson Award for Distinguished
Achievement in Nutrition Research.
Leon Speroff, M.D. is an internationally recognized expert in obstetrics
and gynecology, and hormonal therapy. He is Professor of Obstetrics and
Gynecology, Director of the Women's Health Research Unit, School of Medicine,
Oregon Health Sciences University, Portland, Oregon. He is a Diplomat of the
American Board of Obstetrics and Gynecology and holds a subspecialty
certification in the Division of Reproductive Endocrinology, American Board of
Obstetrics and Gynecology. Dr. Speroff is Editor-in-Chief of Seminars in
Reproductive Endocrinology and OB/GYN Clinical Alert and serves on the editorial
boards of Contemporary OB/GYN, The Endocrinologist, and Primary Care Update for
OB/GYNS. He has authored Clinical Gynecologic Endocrinology and Infertility, A
Clinical Guide for the Care of Older Women, A Clinical Guide for Contraception,
and Clinical Gynecologic Endocrinology and Infertility: Self-Assessment and
Study Guide. He received his B.A. from Denison University and his M.D. degree
from Case Western Reserve University School of Medicine.
CONSULTANTS TO HEALTH ADVISORY BOARD
Women First HealthCare has contracted with a number of distinguished
experts in selected disciplines to provide guidance and counsel to Women First
and its Health Advisory Board. The panel of experts includes:
Claus Christiansen, M.D., Ph.D.
Bruce S. McEwen, Ph.D.
Miriam E. Nelson, Ph.D.
Lawrence G. Smith, M.D.
Nanette Kass Wenger, M.D.
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Claus Christiansen, M.D., Ph.D. is an internationally recognized expert in
the field of osteoporosis, publishing more than 600 scientific articles on the
subject of calcium metabolism. He currently serves as scientific consultant and
member of the Board of the Center for Clinical Basic Research in Balkrup,
Denmark. Dr. Christiansen received his medical degree from the University of
Copenhagen.
Bruce Sherman McEwen, Ph.D. is an expert in the field of neuroendocrinology
and, in particular, the role of estrogen action in the brain. He is currently
Professor and Head of the Harold and Margaret Milliken Hatch Laboratory of
Neuroendocrinology and Faculty Chair, Science Outreach Program at Rockefeller
University. Dr. McEwen has authored over 600 articles in publications and
textbooks, focusing on the effect of adrenal steroids in the brain, the effects
of estrogen on the brain, and stress and its effects on neurological health. He
received his Ph.D. in cell biology from Rockefeller University.
Miriam E. Nelson, Ph.D. is an expert in the field of exercise physiology.
She is author of the national bestseller Strong Women Stay Young and Strong
Women Stay Slim. She is Associate Chief of the Human Physiology Laboratory at
the Jean Mayer USDA Human Nutrition Research Center on Aging, and Assistant
Professor of Nutrition at Tufts University. She earned a Ph.D. in nutrition from
Tufts University, and is a Certified Nutrition Specialist of the American
College of Nutrition.
Lawrence G. Smith, Ph.D. is prominent in the field of clinical decision
making. He is Vice Chairman, Department of Medicine, at Mount Sinai School of
Medicine, which he has held since 1994. Dr. Smith was appointed Horace W.
Goldsmith Professor of Medicine by the Mount Sinai School of Medicine in 1994,
and is Department Director, Internal Medicine Clerkship and Internal Medicine
Subinternship. He received his B.S. degree in physics from Fordham University,
and his M.D. from New York University. He received his post-doctoral training in
internal medicine at Strong Memorial Hospital in Rochester.
Nanette Kass Wenger, M.D. is a leader in the field of cardiology. She is
Professor of Medicine (Cardiology) at Emory University School of Medicine, Chief
of Cardiology and Director of Cardiac Clinics at Grady Memorial Hospital, and a
consultant to the Emory Heart Center. In 1972, Dr. Kass Wenger was named Atlanta
Woman of the Year in Medicine, and in 1976, she was cited in Time magazine's
"Women of the Year" issue for her accomplishments in Cardiac Rehabilitation,
International Medical Teaching. In 1998, she received the Physician of the Year
award from the American Heart Association. Dr. Kass Wenger received her M.D.
from Harvard Medical School.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 30, 1999 regarding
the beneficial ownership of Women First common stock by (a) each person known to
the Board of Directors to own beneficially 5% or more of Women First's common
stock; (b) each director of Women First; (c) the Named Executive Officers; and
(d) all directors and executive officers of Women First as a group. Information
with respect to beneficial ownership has been furnished by each director,
officer or 5% or more stockholder, as the case may be. The address for all
executive officers and directors is c/o Women First HealthCare, Inc., 12220 El
Camino Real, Suite 400, San Diego, California 92130.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes shares of common
stock issuable pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days. Unless otherwise
indicated, the persons or entities identified in this table have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
Percentage ownership calculations before the offering are based on 12,074,322
shares of common stock outstanding and give effect to the automatic conversion
of Series A Preferred Stock and Series B Convertible Preferred Stock upon
consummation of this offering. Percentage ownership calculations after the
offering are based on 16,574,322 shares of common stock outstanding, giving
effect to the issuance of a total of 4,500,000 shares sold in the offering and
the automatic conversion of Series A Preferred Stock and Series B Convertible
Preferred Stock upon consummation of this offering.
<TABLE>
<CAPTION>
PERCENT OWNERSHIP
SHARES --------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OWNED(1) OFFERING OFFERING
---- ------------ ----------- -----------
<S> <C> <C> <C>
Edward F. Calesa................................ 5,283,324 43.8% 31.9%
David F. Hale(2)................................ 455,757 3.6 2.7
Jeffrey W. Raser................................ 14,405 * *
Robert L. Jones................................. 15,407 * *
Anthony P. Maris................................ 45,750 * *
Charlotte Beers................................. -- -- --
Meredith A. Brokaw.............................. 5,042 * *
Gary V. Parlin.................................. 23,910 * *
Richard L. Rubin................................ 183,000 1.5 1.1
John Simon(3)................................... -- -- --
Johnson & Johnson Development Corporation(4).... 1,852,873 15.1 11.1
Randi C. Crawford(5)............................ 1,062,047 8.8 6.4
Jeff E. Calesa(6)............................... 763,121 6.3 4.6
Executive officers and directors as a group
(18 persons)(7)............................... 7,081,162 55.9 41.3
</TABLE>
- -------------------------
* Less than 1%
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(1) The following table indicates those people whose total number of
beneficially owned shares include shares subject to options exercisable
within 60 days of April 30, 1999:
<TABLE>
<CAPTION>
SHARES SUBJECT
TO OPTIONS
--------------
<S> <C>
Edward F. Calesa............................................ --
David F. Hale............................................... 437,457
Jeffrey W. Raser............................................ 14,405
Robert L. Jones............................................. 15,407
Anthony P. Maris............................................ 45,750
Meredith A. Brokaw.......................................... 5,042
Gary V. Parlin.............................................. 23,910
Randi C. Crawford........................................... 27,450
</TABLE>
(2) Includes 18,300 shares held by the David F. & Linda C. Hale Trust, of which
Mr. Hale is a trustee.
(3) Excludes 320,250 shares and 274,499 shares subject to currently exercisable
warrants held by Allen & Company Incorporated and certain of its other
officers and affiliates. Mr. Simon is a Managing Director of Allen & Company
Incorporated, but disclaims beneficial ownership of the shares and warrants
held by Allen & Company Incorporated.
(4) Excludes up to shares that Johnson & Johnson Development
Corporation may purchase in this offering. At the request of Women First,
the underwriters in this offering have reserved for Johnson & Johnson
Development Corporation the number of shares equal to $3,000,000 divided by
the initial public offering price. See "Certain Transactions" and
"Underwriting." The address for Johnson & Johnson Development Corporation is
One Johnson & Johnson Plaza, New Brunswick, NJ 08932. Includes 205,873
shares subject to currently exercisable warrants.
(5) Ms. Crawford is Edward F. Calesa's daughter and Jeff E. Calesa's sister.
(6) Jeff E. Calesa is Edward F. Calesa's son and Randi C. Crawford's brother.
Mr. Calesa's address is c/o Women First HealthCare, Inc., 12220 El Camino
Real, Suite 400, San Diego, CA 92130.
(7) See note (1). Includes 24,179 shares each held by Nancy J. Casey, Julie G.
Martin and Dale F. Steele. Also includes 14,091 shares subject to options
exercisable within 60 days of the date of this table held by Jeanne-Marie
Varga.
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CERTAIN TRANSACTIONS
In January 1998, Women First received commitments from various accredited
individual and institutional investors to purchase an aggregate of 2,100,000
shares of its Series A Preferred Stock for total consideration of $21.0 million.
Women First issued 1,050,000 shares of Series A Preferred Stock (equivalent to
1,921,500 shares of common stock) on January 8, 1998 for $10.5 million. The
investors committed an additional $10.5 million as consideration for the
issuance of the balance of the shares of Series A Preferred Stock upon Women
First's satisfaction of certain milestones. In May 1998, an additional
accredited institutional investor committed to purchase 100,000 shares of Series
A Preferred Stock (equivalent to 183,000 shares of common stock) for $1.0
million. Women First issued 50,000 shares (equivalent to 91,500 shares of common
stock) to that investor in May 1998, with the balance subject to the milestones.
In October 1998, Women First satisfied the first set of milestones and issued
550,000 shares of Series A Preferred Stock (equivalent to 1,006,500 shares of
common stock) for total proceeds of $5.5 million. In January 1999, Women First
satisfied the second set of milestones (as amended) and in February issued
550,000 shares of Series A Preferred Stock (equivalent to 1,006,500 shares of
common stock) for total proceeds of $5.5 million.
In the Series A Preferred Stock private placement, Edward F. Calesa, Women
First's Chairman of the Board, purchased 75,000 shares of Series A Preferred
Stock (equivalent to 137,250 shares of common stock) for $750,000, Janice
Calesa-Sherman, Mr. Calesa's daughter, purchased 25,000 shares of Series A
Preferred Stock (equivalent to 45,750 shares of common stock) for $250,000, a
trust of which David F. Hale, Women First's President and Chief Executive
Officer, is a trustee, purchased 10,000 shares of Series A Preferred Stock
(equivalent to 18,300 shares of common stock) for $100,000, Johnson & Johnson
Development Corporation purchased 900,000 shares of Series A Preferred Stock
(equivalent to 1,647,000 shares of common stock) for $9.0 million, and Allen &
Company Incorporated purchased 100,000 shares of Series A Preferred Stock
(equivalent to 183,000 shares of common stock) for $1.0 million. Women First
also issued warrants to purchase 205,873 shares of common stock, with an
exercise price of $5.46 per share, to Johnson & Johnson Development Corporation
in connection with the private placement. Allen & Company Incorporated received
warrants to purchase an aggregate of 274,499 shares of common stock with an
exercise price of $5.46 per share, and other customary fees and expenses, as
consideration for serving as the placement agent for the private placement. Upon
completion of this offering, Johnson & Johnson Development Corporation, a
subsidiary of Johnson & Johnson, will beneficially own approximately 11.1% of
Women First's outstanding common stock. John Simon, a Director of Women First,
is a managing director with Allen & Company Incorporated.
In July 1998, Women First entered into a 10-year agreement with
Ortho-McNeil Pharmaceutical, Inc., a subsidiary of Johnson & Johnson, for the
purchase and sale of the Ortho-Est(R) line of estropipate products. This
agreement calls for minimum payments for the remaining nine-year term of the
contract, regardless of the actual sales performance of the pharmaceutical
product. These minimum purchases are based on a 10-year forecast determined at
the time the contract was executed. In 1998, Women First paid $2.5 million to
Ortho-McNeil pursuant to the Ortho-Est(R) agreement. In May 1999, Women First
entered into a co-promotion agreement with Ortho-McNeil pursuant to which we
agreed to co-promote Ortho Tri-Cyclen(R), a leading oral contraceptive, and a
new oral hormonal replacement therapy product, which is pending approval by the
FDA. The agreement runs through December 31, 2002 and may be extended by Women
First for one additional year if specified sales goals are met. The agreement
requires Ortho-McNeil to compensate us for sales of the Ortho Tri-Cyclen(R)
product with a performance fee based on the value of Ortho-McNeil's net increase
in its market share of oral contraceptive products for the prescriptions written
by the clinicians called on by Women First over the increase, if any, in
Ortho-McNeil's market share for oral contraceptive products for the
prescriptions written by the clinicians who are not called on by
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Women First. The agreement also calls for Women First to receive minimum
payments specified in the agreement commencing in 2000 if minimum performance
goals are met. Ortho-McNeil will compensate us for sales of the new oral HRT
product upon approval by the FDA, if obtained, and product launch through a
compensation arrangement based on the net sales of the new oral HRT product from
prescriptions written by the clinicians who are called on by Women First. For
more information concerning Women First's agreements with Ortho-McNeil, see
"Business -- Licensing and Co-Promotion Agreements."
Johnson & Johnson Development Corporation purchased in March 1999 $1.5
million principal amount of short-term notes and warrants to purchase 12,169
shares of common stock for $1.5 million. Mr. Calesa purchased $340,000 principal
amount of the short-term notes and warrants to purchase 2,758 shares of common
stock for $340,000. Janice Calesa-Sherman, Mr. Calesa's daughter, purchased
$110,000 principal amount of the short-term notes and warrants to purchase 892
shares of common stock for $110,000. These short-term notes bear interest at a
rate of 9% per annum, payable quarterly. All principal and unpaid interest is
due and payable on March 1, 2000. The notes may be prepaid by Women First
without penalty.
At the request of Women First, the underwriters for this offering have
reserved for sale, at the initial public offering price, a portion of the shares
in this offering for Johnson & Johnson Development Corporation. Johnson &
Johnson Development Corporation has expressed an interest in purchasing
$3,000,000 of common stock in this offering at the initial public offering
price. See "Underwriting."
Gary V. Parlin, a Director of Women First, has a consulting arrangement
with Women First pursuant to which Mr. Parlin receives a monthly consulting fee
of $5,000. Mr. Parlin purchased $100,000 principal amount of the short-term
notes and warrants to purchase 811 shares of common stock for $100,000.
Pursuant to the Purchase Agreement and Agreement Among Members relating to
MenoMorphosis, LLC, the predecessor of As We Change, LLC, Julie G. Martin, Nancy
J. Casey and Dale F. Steele, each a Vice President of Women First, may be
entitled to receive an aggregate of 23,187 shares of common stock in April 2000
pursuant to an earn-out provision in the purchase agreement.
Women First has entered into employment agreements with Edward F. Calesa,
Chairman of the Board, David F. Hale, President and Chief Executive Officer, and
each of Dale F. Steele, Julie G. Martin and Nancy J. Casey, each a Vice
President, have entered into employment agreements with the predecessor to Women
First's wholly owned subsidiary As We Change, LLC. See "Management -- Employment
Agreements."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Women First will have 16,574,322 issued
and outstanding shares of common stock (assuming no exercise of the
underwriters' over-allotment option and reflecting the automatic conversion of
all shares of Series A Preferred Stock and Series B Convertible Preferred Stock
upon consummation of the offering). The 4,500,000 shares sold in the offering
will be freely tradeable without restriction under the Securities Act, except
for any such shares held at any time by an "affiliate" of Women First, as such
term is defined under Rule 144 under the Securities Act. Of the 12,074,322
shares of common stock outstanding as of April 30, 1999, 9,698,993 will be
eligible for sale under Rule 144 under the Securities Act, subject to certain
volume and other limitations upon the expiration of lock-up agreements. All of
the currently outstanding shares of common stock, all shares of stock issuable
upon conversion or exercise of outstanding shares of preferred stock and
warrants and shares of stock issuable upon exercise of options held by Women
First's directors and officers are subject to lock-up agreements between the
underwriters and the current directors, officers and stockholders of Women First
covering the 180-day period commencing on the date of the underwriting
agreement. Allen & Company Incorporated may, in its sole discretion and at any
time without notice, release all or any portion of the shares subject to the
lock-up agreements.
In general, under Rule 144, as currently in effect, a person who has
beneficially owned shares for at least one year, including an affiliate, is
entitled to sell on the open market in brokers' transactions, within any
three-month period, a number of restricted shares that does not exceed the
greater of one percent of the then outstanding shares of Common Stock or the
average weekly trading volume during the four calendar weeks preceding the sale.
Sales under Rule 144 are subject to certain manner of sale limitations, notice
requirements and the availability of current public information about Women
First. Rule 144(k) provides that a person who is not an affiliate and who has
beneficially owned shares for at least two years is entitled to sell such shares
at any time under Rule 144 without regard to the limitations described above. Of
the 12,074,322 shares outstanding as of April 30, 1999, affiliates hold
9,001,879 shares. Of the shares owned by non-affiliates, 303,963 shares have
been held by such non-affiliates in excess of two years.
Any employee, officer, director, advisor or consultant to Women First who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701, which permits
non-affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with Rule 144's holding period restrictions, in each case commencing 90
days after Women First becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934.
As of April 30, 1999, there were outstanding stock options to purchase an
aggregate of 2,114,235 shares of common stock, of which 641,299 are presently
exercisable or exercisable within 60 days. All outstanding stock options are
held by executive officers, outside directors or employees of and consultants to
Women First.
Before this offering, there has been no public market for the common stock.
Women First is unable to estimate the number of shares that may be sold in the
future by its existing stockholders or the effect, if any, that sales of stock
by such stockholders will have on the market price of the common stock
prevailing from time to time. Sales of substantial amounts of common stock by
existing stockholders could adversely affect prevailing market prices.
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DESCRIPTION OF CAPITAL STOCK
Upon the consummation of the offering, the authorized capital stock of
Women First will consist of 40,000,000 shares of common stock, $.001 par value
per share, and 5,000,000 shares of preferred stock, $.001 par value per share.
The following description of the capital stock of Women First does not purport
to be complete and is subject to the provisions of the Fourth Amended and
Restated Certificate of Incorporation and the Second Amended and Restated Bylaws
to be adopted prior to the consummation of the offering. Forms of the new
certificate of incorporation and bylaws are included as exhibits to the
registration statement of which this prospectus is a part.
COMMON STOCK
As of April 30, 1999, Women First had 7,685,993 shares of common stock
outstanding held of record by 12 stockholders. Upon the consummation of this
offering, all outstanding shares of preferred stock will be automatically
converted into common stock, resulting in an increase of 4,388,329 in the number
of outstanding shares of common stock and an increase of 39 in the number of
record holders of Women First common stock. The holders of Women First common
stock are entitled to one vote for each share on all matters voted on by
stockholders, and the holders of such shares possess all voting power, except as
otherwise required by law or provided in any resolution adopted by the board of
directors of Women First regarding any series of preferred stock. Subject to any
preferential or other rights of any outstanding series of Women First preferred
stock that may be designated by the board of directors, the holders of Women
First common stock will be entitled to such dividends as may be declared from
time to time by the board of directors from available funds, and upon
liquidation will be entitled to receive pro rata all assets of Women First
available for distribution to such holders. The common stock has no preemptive,
redemption or conversion rights. The outstanding shares of common stock are, and
the shares offered by Women First in the offering, when issued and paid for,
will be, fully paid and nonassessable. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of preferred stock that Women First may
designate and issue in the future.
PREFERRED STOCK
Upon the consummation of this offering, each currently outstanding share of
preferred stock will be converted into common stock, and these shares of
preferred stock will be automatically retired. After the automatic conversion of
the outstanding preferred stock, the board of directors will be authorized to
provide for the issuance of shares of preferred stock, in one or more series,
and to determine, regarding any series, the terms and rights of such series,
including the following: (1) the designation of such series; (2) the rate, time
of, conditions to and preferences regarding, dividends, and whether such
dividends are cumulative; (3) the voting rights, if any, of shares of such
series; (4) the price, timing and conditions regarding the redemption of shares
of such series and whether a sinking fund should be established for such series;
(5) the rights and preferences of shares of such series in the event of
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of Women First; and (6) the right, if any, to convert or exchange shares of such
series into or for stock or securities of any other series or class.
Women First believes that the availability of the preferred stock will
provide Women First with increased flexibility in structuring possible future
financings and acquisitions, and in meeting other corporate needs which might
arise. Having such authorized shares available for issuance will allow Women
First to issue shares of preferred stock without the expense and
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<PAGE> 78
delay of a special stockholders' meeting. The authorized shares of preferred
stock, as well as shares of Women First common stock, will be available for
issuance without further action by Women First's stockholders, unless action is
required by applicable law, the rules of any stock exchange on which Women First
securities may be listed, any then-existing contractual restrictions or unless
Women First is restricted by the terms of any then-outstanding preferred stock.
Future issuances of preferred stock may have the effect of delaying or
preventing a change in control of Women First. The issuance of preferred stock
could decrease the amount of earnings and assets available for distribution to
the holders of common stock or could adversely affect the rights and powers,
including voting rights, of the holders of the common stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the common stock. Women First currently has no plans to issue any
additional shares of preferred stock.
WARRANTS
Women First has issued two classes of warrants to purchase an aggregate of
541,128 shares of common stock, subject to certain adjustments.
Series A Preferred Stock Financings. Women First issued warrants to
purchase an aggregate of 480,372 shares of common stock to Johnson & Johnson
Development Corporation and Allen & Company Incorporated in connection with
Women First's Series A Preferred Stock financing. Each of the warrants currently
entitles the holder to purchase shares of Women First's common stock (subject to
adjustment) at a purchase price per share equal to the Series A Conversion Price
(currently $5.46 per share, subject to adjustment) in effect at the time of
exercise. These warrants expire on January 8, 2005. These warrants grant the
holders certain registration rights under the Securities Act for the shares of
common stock issuable upon exercise of the warrants.
Short-Term Note Financing Warrants. Women First issued warrants to purchase
an aggregate of 60,756 shares of common stock to the purchasers of short-term
notes in a private placement in March 1999. The warrants will become
exercisable, at the option of the holder, after the first to occur of (1) 180
days following the completion of Women First's initial public offering or (2)
the first anniversary of the issuance of the warrant. Thereafter, the warrants
will continue to be exercisable for a period of five years from the date of
issuance. The exercise price for the warrants will equal (1) the price per share
to the public in Women First's initial public offering less 15%; (2) the price
per share of common stock (or implied price per share of common stock), before
any discounts or commissions, in the next private placement of Women First's
common stock or securities convertible into common stock which results in gross
proceeds to Women First of at least $1,000,000, if Women First does not complete
an initial public offering prior to the completion of the next such private
placement; or (3) $6.00 per share, if an initial public offering or private
placement has not been completed prior to the first anniversary of the date of
issuance. These warrants grant the holders certain registration rights under the
Securities Act for the shares of common stock issuable upon exercise of the
warrants.
CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
The following is a description of provisions of the Delaware General
Corporation Law (DGCL) and the new certificate of incorporation and bylaws to be
adopted upon the consummation of this offering. This summary does not purport to
be complete and is qualified in its entirety by reference to the DGCL and the
new certificate of incorporation and bylaws.
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<PAGE> 79
Women First is subject to the provisions of Section 203 of the DGCL.
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within the past three years did own, 15% of
the corporation's voting stock.
Provisions of the certificate of incorporation and the bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the policies formulated by the board of directors
and the business strategies and policies of Women First as determined by the
board of directors. In addition, these provisions are intended to ensure that
the board of directors will have sufficient time to act in what the board of
directors believes to be in the best interests of Women First and its
stockholders. These provisions also are designed to reduce the vulnerability of
Women First to an unsolicited proposal for a takeover of Women First that does
not contemplate the acquisition of all of its outstanding shares or an
unsolicited proposal for the restructuring or sale of all or part of Women First
at less than fair value. The provisions are also intended to discourage certain
tactics that may be used in proxy fights that could result in less long-term
value to Women First's stockholders.
Classified Board of Directors. The certificate of incorporation provides
for the board of directors to be divided into three classes of directors, with
each class as nearly equal in number as possible, serving staggered three-year
terms. As a result, approximately one-third of the board of directors will be
elected each year. The directors in Class I will be Meredith A. Brokaw and
Richard L. Rubin, whose terms will expire at the 2000 annual meeting of
stockholders. The directors in Class II will be John Simon and Charlotte Beers,
whose terms will expire at the 2001 annual meeting of stockholders. The
directors in Class III will be Edward F. Calesa, David F. Hale and Gary V.
Parlin, whose terms will expire at the 2002 annual meeting of stockholders. The
classified board provision will help to increase the likelihood of continuity
and stability in the policies formulated by the board of directors and the
business strategies and policies of Women First as determined by the board of
directors. The classified board provision could have the effect of discouraging
a third party from making a tender offer or otherwise attempting to obtain
control of Women First. In addition, the classified board provision could delay
stockholders who do not like the policies of the board of directors from
removing a majority of the board of directors for two years.
No Stockholder Action by Written Consent; Special Meetings. The certificate
of incorporation provides that stockholder action can only be taken at an annual
or special meeting of stockholders and prohibits stockholder action by written
consent in lieu of a meeting. The certificate of incorporation also provides
that special meetings of stockholders may be called only by the board of
directors, its chairman, the president or the secretary of Women First.
Stockholders are not permitted to call a special meeting of stockholders or to
require that the board of directors call a special meeting.
Advance Notice Requirements for Stockholder Proposals and Director
Nominees. The bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of Women First. The
stockholder notice procedure provides that only persons who are nominated by, or
at the direction of, the board of directors, or by a stockholder who has given
timely written notice to the secretary of Women First prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
Women First. The stockholder notice procedure also provides that at an annual
meeting only such business may be
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conducted as has been brought before the meeting by, or at the direction of, the
board of directors or by a stockholder who has given timely written notice to
the secretary of Women First of such stockholder's intention to bring such
business before such meeting. Under the stockholder notice procedure, if a
stockholder desires to submit a proposal or nominate persons for election as
directors at an annual meeting, the stockholder must submit written notice to
the secretary not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or if the date of the annual
meeting is not within 30 days before or after such anniversary date, then, to be
timely, notice must be submitted not more than 90 days prior to the annual
meeting and not less than the later of (1) 60 days prior to the annual meeting
and (2) the tenth day after notice of the meeting was mailed or public
announcement of the date of such meeting is first made). In addition, under the
stockholder notice procedure, a stockholder's notice to Women First proposing to
nominate a person for election as a director or relating to the conduct of
business other than the nomination of directors must contain certain specified
information. If the chairman of a stockholders' meeting determines that business
was not properly brought before the meeting in accordance with the stockholder
notice procedure, the business may not be discussed or transacted.
Number of Directors; Removal; Filling Vacancies. The certificate of
incorporation provides that the board of directors will consist of the number of
directors set forth in the bylaws. The board of directors currently consists of
seven directors. Further, the certificate of incorporation authorizes the board
of directors to fill newly created directorships (other than directorships that
are to be filled by holders of preferred stock). Accordingly, this provision
could prevent a stockholder from obtaining majority representation on the board
of directors by permitting the board of directors to enlarge the size of the
board of directors and fill the new directorships with its own nominees. A
director so elected by the board of directors holds office until the next
election of the class for which such director has been chosen and until his or
her successor is elected and qualified.
Indemnification. Women First has included in its certificate of
incorporation and bylaws provisions that (1) eliminate, to the extent permitted
by the DGCL, the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty and (2) indemnify its directors
and officers to the fullest extent permitted by the DGCL, including
circumstances in which indemnification is otherwise discretionary. Women First
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers. Women First also intends to enter into
indemnification agreements with certain officers and directors upon consummation
of the offering.
Bylaws. The certificate of incorporation provides that the bylaws are
subject to adoption, amendment, alteration, repeal or rescission either by (1)
the board of directors or (2) the affirmative vote of the holders of not less
than 66 2/3% of the total voting power of all outstanding securities voting as a
single class. This provision will make it more difficult for stockholders to
make changes in the bylaws by allowing the holders of a minority of the voting
securities to prevent the holders of a majority of voting securities from
amending the bylaws.
Some of the provisions of the certificate of incorporation and bylaws and
the DGCL could discourage or prevent an acquisition of Women First.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Women First common stock is
BankBoston, N.A.
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LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Officers and directors of Women First are covered by certain provisions of
the DGCL, the certificate of incorporation, the bylaws, individual
indemnification agreements with Women First and insurance policies which serve
to limit, and, in certain instances, to indemnify them against, certain
liabilities which they may incur in such capacities. These various provisions
are described below.
Elimination of Liability in Certain Circumstances. In June 1986, Delaware
enacted legislation which authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. This duty of
care requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all significant information
reasonably available to them. Absent the limitations now authorized by such
legislation, directors are accountable to corporations and their stockholders
for monetary damages for conduct constituting negligence or gross negligence in
the exercise of their duty of care. Although the statute does not change
directors' duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. The certificate of
incorporation limits the liability of directors in their capacity as directors
but not in their capacity as officers to Women First or its stockholders to the
fullest extent permitted by such legislation. Specifically, the directors of
Women First will not be personally liable for monetary damages for breach of a
director's fiduciary duty as director, except for liability: (1) for any breach
of the director's duty of loyalty to Women First or its stockholders; (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (3) for unlawful payments of dividends or unlawful
share repurchases or redemptions as provided in Section 174 of the DGCL; or (4)
for any transaction from which the director derived an improper personal
benefit.
Indemnification and Insurance. As a Delaware corporation, Women First has
the power, under specified circumstances generally requiring the director or
officer to act in good faith and in a manner he or she reasonably believes to be
in or not opposed to Women First's best interests, to indemnify its directors
and officers in connection with actions, suits or proceedings brought against
them by a third party or in the name of Women First by reason of the fact that
they were or are such directors or officers, against expenses, judgments, fines
and amounts paid in settlement in connection with any such action, suit or
proceeding. The certificate of incorporation generally provides for mandatory
indemnification of Women First's directors and officers to the full extent
provided by Delaware corporate law. In addition, Women First has entered into
indemnification agreements with its directors and officers which generally
provide for mandatory indemnification under circumstances for which
indemnification would otherwise be discretionary under Delaware law.
Women First intends to purchase and maintain insurance on behalf of any
person who is or was a director or officer of Women First, or is or was serving
at the request of Women First as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not Women First would have the power or obligation to indemnify him
or her against such liability under the provisions of the bylaws.
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UNDERWRITING
The underwriters named below, through their representatives Allen & Company
Incorporated and Needham & Company, Inc., have severally agreed, subject to the
terms and conditions set forth in the underwriting agreement among Women First
and the underwriters, to purchase from Women First the aggregate number of
shares of common stock indicated below opposite their respective names at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Allen & Company Incorporated................................
Needham & Company, Inc. ....................................
---------
Total............................................. 4,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to approval of
certain legal matters by counsel and to various other conditions. If any of the
shares of common stock are purchased by the underwriters pursuant to the
underwriting agreement, all such shares of common stock (other than shares of
common stock covered by the over-allotment option described below) must be
purchased.
Women First has granted an option to the underwriters, exercisable during
the 30-day period after the date of this prospectus, to purchase up to a maximum
of 675,000 additional shares of common stock to cover over-allotments, if any,
at the same price per share as the initial 4,500,000 shares to be purchased by
the underwriters. If the underwriters exercise this option, each of the
underwriters will be severally committed, subject to certain conditions, to
purchase these additional shares in approximately the same proportion as set
forth in the above table. The underwriters may purchase these shares only to
cover over-allotments made in connection with the initial public offering.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Women First. These amounts are
shown assuming both no exercise and full exercise of the underwriters
over-allotment option.
<TABLE>
<CAPTION>
PAID BY WOMEN FIRST
---------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
The underwriters' representatives have advised Women First that the
underwriters propose to offer the common stock to the public on the terms set
forth on the cover page of this prospectus. The underwriters may allow selected
dealers a concession of not more than $ per share, and these dealers may
reallow a concession of not more than $ per share to certain other dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the underwriters' representatives. The common stock is offered
subject to receipt and acceptance by the underwriters, and to various other
conditions, including the right to reject orders in whole or in part.
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<PAGE> 83
The underwriting agreement provides that Women First will indemnify the
underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the underwriters may be required
to make in respect of such liabilities.
The underwriters' representatives have advised Women First that the
underwriters do not expect to confirm sales to any accounts over which they
exercise discretionary authority.
Women First, the holders of its capital stock and warrants, and its
directors and officers holding options to purchase common stock have agreed that
they will not, for a period of 180 days from the date of the underwriting
agreement, without the prior written consent of Allen & Company Incorporated:
- directly or indirectly issue, offer to sell, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of Women First common stock
or any securities convertible into or exchangeable or exercisable for
Women First common stock,
- enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of Women First common stock, whether any such
swap transaction is to be settled by delivery of common stock or other
securities, in cash or otherwise, or
- exercise their rights, as applicable, to require Women First to register
common stock.
The restrictions described in the previous paragraph do not apply to:
- transactions by any person other than Women First relating to shares of
common stock or other securities acquired in open market transactions
after the completion of this offering or certain securities acquired in
the offering, or
- specified transfers and specified issuances by Women First of common
stock and options, provided that the recipients enter into lock-up
agreements similar to those described in the previous paragraph.
Allen & Company Incorporated may in its sole discretion and at any time
without notice release all or any portion of such securities subject to the
lock-up agreements. The underwriters do not presently intend to grant permission
to sell any securities subject to the lock-up agreements.
At the request of Women First, the underwriters have reserved for sale, at
the initial public offering price, up to % of the shares of common stock in
this offering for Women First's directors, officers, employees, stockholders and
business associates. Of these shares, the underwriters have reserved a portion
for Johnson & Johnson Development Corporation, a significant stockholder of
Women First. Johnson & Johnson Development Corporation has expressed an interest
in purchasing $3,000,000 of common stock in this offering at the initial public
offering price. For information regarding Johnson & Johnson Development
Corporation's existing relationship with Women First, see "Certain Transactions"
and "Principal Stockholders." Purchases of the reserved shares would reduce the
number of shares available for sale to the general public. The underwriters will
offer any reserved shares which are not so purchased to the general public on
the same terms as the other shares.
Prior to this offering, there has been no public market for the common
stock of Women First. Consequently, the initial public offering price for the
common stock will be negotiated between Women First and the representatives of
the underwriters. Among the factors to be considered in determining the initial
public offering price of the common stock will be prevailing market and economic
conditions, market valuations of other companies engaged in activities similar
to Women First, estimates of the business potential and prospects of Women
First, the present state of Women First's business operations, Women First's
management and
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other factors deemed relevant. Women First has filed an application with the
Nasdaq National Market for quotation of its common stock under the symbol
"WFHC." However, we cannot assure you that an active or orderly trading market
will develop for the common stock or that the common stock will trade in the
public markets subsequent to the offering at or above the initial public
offering price.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock during and after the offering. Specifically, the underwriters may
over-allot or otherwise create a short position in the common stock for their
own account by selling more shares of common stock than have been sold to them
by Women First. The underwriters may elect to cover any such short position by
purchasing shares of common stock in the open market or by exercising the
over-allotment option granted to the underwriters. In addition, the underwriters
may stabilize or maintain the price of the common stock by bidding for or
purchasing shares of common stock in the open market and may impose penalty
bids, under which selling concessions allowed to syndicate members or other
broker-dealers participating in the offering are reclaimed if shares of common
stock previously distributed in the offering are repurchased in connection with
stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price at a level above that which might
otherwise prevail in the open market. The imposition of a penalty bid may also
affect the price of the common stock to the extent that it discourages resales
of the common stock. No representation is made as to the magnitude or effect of
any such stabilization or other transactions. Such transactions may be effected
on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
John Simon, a Managing Director of Allen & Company Incorporated, is a
Director of Women First. Allen & Company Incorporated has provided investment
banking services to Women First in the past and has received customary
compensation for these services. See "Certain Transactions."
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon
for Women First by Latham & Watkins, San Diego, California. Certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher & Flom LLP, Palo Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial
statements of Women First HealthCare, Inc. at December 31, 1997 and 1998 and for
the period from November 1, 1996 (inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and the financial statements of As We
Change as of December 31, 1996 and 1997 and for the period from February 14,
1996 (inception) to December 31, 1996 and for the year ended December 31, 1997
as set forth in their reports. The financial statements are included in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's reports, given on their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
Women First has filed with the Securities and Exchange Commission in
Washington, D.C., a registration statement on Form S-1 under the Securities Act
with respect to the shares of common stock offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information with respect
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to Women First and the shares offered by this prospectus, reference is made to
the registration statement, including the exhibits and schedules filed
therewith. Statements contained in this prospectus regarding the contents of any
contract or any other document referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the registration statement, as applicable, each
such statement being qualified in all respects by such reference. Copies of the
registration statement (of which this prospectus is a part), together with such
exhibits and schedules, may be obtained upon payment of the fee prescribed by
the Commission or may be examined without charge at the office of the
Commission.
After consummation of the offering, Women First will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will be required to file annual and quarterly
reports, proxy statements and other information with the Commission. The
registration statement, including the exhibits thereto, as well as such reports
and other information filed by Women First with the Commission, can be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission also maintains a site on the World
Wide Web at http://www.sec.gov that contains reports and other information
regarding registrants that file electronically with the Commission.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
WOMEN FIRST HEALTHCARE, INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and at March 31, 1999 (unaudited)......................... F-3
Consolidated Statements of Operations for the period from
November 1, 1996 (inception) through December 31, 1996 and
the years ended December 31, 1997 and 1998, and the three
months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................... F-4
Consolidated Statements of Stockholders' Equity for the
period from November 1, 1996 (inception) through December
31, 1996 and the years ended December 31, 1997 and 1998,
and the three months ended March 31, 1999 (unaudited)..... F-5
Consolidated Statements of Cash Flows for the period from
November 1, 1996 (inception) through December 31, 1996 and
the years ended December 31, 1997 and 1998, and the three
months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................... F-7
Notes to Consolidated Financial Statements.................. F-8
AS WE CHANGE
Report of Independent Auditors.............................. F-22
Balance Sheets as of December 31, 1996 and 1997 and
September 30, 1998 (unaudited)............................ F-23
Statements of Operations for the period from February 14,
1996 (inception) through December 31, 1996 and the year
ended December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................... F-24
Statements of Members' Equity for the period from February
14, 1996 (inception) through December 31, 1996 and the
year ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)............................ F-25
Statements of Cash Flows for the period from February 14,
1996 (inception) through December 31, 1996 and the year
ended December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................... F-26
Notes to Financial Statements............................... F-27
PRO FORMA STATEMENT OF OPERATIONS
Pro Forma Statement of Operations for the year ended
December 31, 1998 (unaudited)............................. F-31
</TABLE>
F-1
<PAGE> 87
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Women First HealthCare, Inc.
We have audited the accompanying consolidated balance sheets of Women First
HealthCare, Inc. as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from November 1, 1996 (inception) through December 31, 1996 and for the years
ended December 31, 1997 and 1998. These financial statements are the
responsibility of Women First's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Women First HealthCare, Inc. at December 31, 1997 and 1998, and the consolidated
results of their operations and their cash flows for the period from November 1,
1996 (inception) through December 31, 1996 and for the years ended December 31,
1997 and 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
San Diego, California
March 11, 1999
F-2
<PAGE> 88
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
----------- ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
(See Note 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 567,300 $ 4,438,445 $ 9,048,021
Accounts receivable, net.................................. -- 1,114,283 888,577
Inventory................................................. -- 1,205,597 1,866,861
Receivable from related party............................. -- 124,570 500,086
Prepaid expenses and other current assets................. 71,251 548,999 509,598
----------- ------------ ------------
Total current assets............................... 638,551 7,431,894 12,813,143
Property and equipment, net................................. 65,609 690,912 771,293
Intangible assets, net...................................... -- 3,922,847 3,803,218
Other assets................................................ 71,910 458,010 869,549
----------- ------------ ------------
Total assets....................................... $ 776,070 $ 12,503,663 $ 18,257,203
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 126,374 $ 1,473,674 $ 1,142,719
Accrued salaries and employee benefits.................... -- 1,307,167 1,001,781
Deferred business acquisition payment..................... -- 1,059,897 --
Other accrued liabilities................................. 118,652 227,415 743,684
Short-term notes payable.................................. -- -- 5,294,291
Short-term notes payable to related parties............... -- -- 1,928,700
----------- ------------ ------------
Total current liabilities.......................... 245,026 4,068,153 10,111,175
Commitments
Stockholders' equity:
Series A convertible preferred stock, $.01 par value;
2,200,000 shares authorized; 1,650,000 and 2,200,000
shares issued and outstanding at December 31, 1998 and
March 31, 1999 (unaudited), respectively; (no shares
issued and outstanding pro forma); preference in
liquidation of $17,440,000 at December 31, 1998 and
$23,360,000 at March 31, 1999........................... -- 16,500 22,000 $ --
Series B convertible preferred stock, $.01 par value;
690,000 shares authorized; 398,540 and 550,000 shares
issued and outstanding and 195,460 and 44,000 shares to
be issued at December 31, 1998 and March 31, 1999
(unaudited), respectively; (no shares issued and
outstanding pro forma); preference in liquidation of
$3,010,000 at December 31, 1998 and $3,069,000 at March
31, 1999................................................ -- 5,940 5,940 --
Common stock, $.01 par value at December 31, 1997 and
December 31, 1998 and $.001 par value at March 31, 1999,
40,000,000 shares authorized; 8,026,310 shares issued
and 7,685,993 shares outstanding at December 31, 1997,
1998 and March 31, 1999 (unaudited), (12,414,639 shares
issued and 12,074,322 shares outstanding pro forma)..... 76,860 76,860 7,686 12,074
Treasury stock............................................ (96,597) (96,597) (99,660) (99,660)
Additional paid-in capital................................ 2,278,215 18,430,788 28,747,831 28,771,383
Deferred compensation..................................... -- (615,598) (1,455,457) (1,455,457)
Accumulated deficit....................................... (1,727,434) (9,382,383) (19,082,312) (19,082,312)
----------- ------------ ------------ ------------
Total stockholders' equity......................... 531,044 8,435,510 8,146,028 $ 8,146,028
----------- ------------ ------------ ------------
Total liabilities and stockholders' equity......... $ 776,070 $ 12,503,663 $ 18,257,203
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 89
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996
(INCEPTION) THREE MONTHS ENDED
THROUGH YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue........................ $ -- $ -- $ 4,834,196 $ -- $ 4,302,691
Costs and expenses:
Cost of sales (including
purchases from related party
of $2,027,889 and $1,793,274
for the year ended December
31, 1998 and three months
ended March 31, 1999)......... -- -- 2,648,114 -- 2,782,853
Marketing and sales.............. -- 790,703 5,478,056 317,985 4,985,739
General and administrative....... -- 975,244 5,912,066 432,321 2,599,085
Research and development......... -- -- 572,688 -- 291,540
---------- ----------- ----------- ---------- -----------
Total costs and
expenses............... -- 1,765,947 14,610,924 750,306 10,659,217
---------- ----------- ----------- ---------- -----------
Loss from operations............... -- (1,765,947) (9,776,728) (750,306) (6,356,526)
Interest income, net............... -- 38,513 394,345 118,818 18,307
---------- ----------- ----------- ---------- -----------
Net loss........................... $ -- (1,727,434) (9,382,383) (631,488) (6,338,219)
Accretion of beneficial conversion
feature related to convertible
preferred stock.................. -- -- -- -- (3,361,710)
---------- ----------- ----------- ---------- -----------
Net loss available to common
stockholders..................... -- $(1,727,434) $(9,382,383) $ (631,488) $(9,699,929)
========== =========== =========== ========== ===========
Net loss per share (basic and
diluted)......................... $ -- $ (0.23) $ (1.22) $ (0.08) $ (1.26)
========== =========== =========== ========== ===========
Weighted average shares used in
computing net loss per share
(basic and diluted).............. 6,806,353 7,551,484 7,685,993 7,685,993 7,685,993
========== =========== =========== ========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 90
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------- -------------------- TREASURY PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
--------- ------- ------- ------ --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash and subscription
receivable.................... -- $ -- -- $ -- 6,806,353 $ 68,063 $ -- $ 1,931,937
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at December 31, 1996...... -- -- -- -- 6,806,353 68,063 -- 1,931,937
Issuance of common stock for
cash.......................... -- -- -- -- 1,219,957 12,200 -- 346,278
Purchase of treasury stock for
cash.......................... -- -- -- -- (340,317) (3,403) (96,597) --
Payment received on subscription
receivable.................... -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- --
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at December 31, 1997...... -- -- -- -- 7,685,993 76,860 (96,597) 2,278,215
Effect of change in tax status
from S Corporation to C
Corporation................... -- -- -- -- -- -- -- (1,727,434)
Issuance of Series A preferred
stock for cash................ 1,650,000 16,500 -- -- -- -- -- 15,725,657
Issuance of Series B preferred
stock in conjunction with
acquisition of subsidiary..... -- -- 398,540 3,985 -- -- -- 956,976
Shares to be issued of Series B
preferred stock in conjunction
with acquisition of
subsidiary.................... -- -- 195,460 1,955 -- -- -- 469,337
Deferred compensation related to
stock options................. -- -- -- -- -- -- -- 728,037
Amortization of deferred
compensation.................. -- -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- -- --
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at December 31, 1998...... 1,650,000 16,500 594,000 5,940 7,685,993 76,860 (96,597) 18,430,788
<CAPTION>
TOTAL
SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Issuance of common stock for
cash and subscription
receivable.................... $(1,000,000) $ -- $ -- $ 1,000,000
----------- ----------- ------------ -----------
Balance at December 31, 1996...... (1,000,000) -- -- 1,000,000
Issuance of common stock for
cash.......................... -- -- -- 358,478
Purchase of treasury stock for
cash.......................... -- -- -- (100,000)
Payment received on subscription
receivable.................... 1,000,000 -- -- 1,000,000
Net loss........................ -- -- (1,727,434) (1,727,434)
----------- ----------- ------------ -----------
Balance at December 31, 1997...... -- -- (1,727,434) 531,044
Effect of change in tax status
from S Corporation to C
Corporation................... -- -- 1,727,434 --
Issuance of Series A preferred
stock for cash................ -- -- -- 15,742,157
Issuance of Series B preferred
stock in conjunction with
acquisition of subsidiary..... -- -- -- 960,961
Shares to be issued of Series B
preferred stock in conjunction
with acquisition of
subsidiary.................... -- -- -- 471,292
Deferred compensation related to
stock options................. -- (728,037) -- --
Amortization of deferred
compensation.................. -- 112,439 -- 112,439
Net loss........................ -- -- (9,382,383) (9,382,383)
----------- ----------- ------------ -----------
Balance at December 31, 1998...... -- (615,598) (9,382,383) 8,435,510
</TABLE>
F-5
<PAGE> 91
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ---------------- -------------------- TREASURY PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
--------- ------- ------- ------ --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998...... 1,650,000 16,500 594,000 5,940 7,685,993 76,860 (96,597) 18,430,788
Issuance of Series A Preferred
Stock for cash (unaudited).... 550,000 5,500 -- -- -- -- -- 5,280,718
Deferred compensation related to
stock options (unaudited)..... -- -- -- -- -- -- -- 1,327,761
Amortization of deferred
compensation (unaudited)...... -- -- -- -- -- -- -- --
Discount on notes payable
related to grant of common
stock warrants (unaudited).... -- -- -- -- -- -- -- 274,617
Change in par value of common
stock from $.01 to $.001
(unaudited)................... -- -- -- -- -- (69,174) (3,063) 72,237
Net loss (unaudited)............ -- -- -- -- -- -- -- --
Accretion of beneficial conversion
feature related to convertible
preferred stock (unaudited)..... -- -- -- -- -- -- -- 3,361,710
--------- ------- ------- ------ --------- -------- -------- -----------
Balance at March 31, 1999
(unaudited)..................... 2,200,000 $22,000 594,000 $5,940 7,685,993 $ 7,686 $(99,660) $28,747,831
========= ======= ======= ====== ========= ======== ======== ===========
<CAPTION>
TOTAL
SUBSCRIPTION DEFERRED ACCUMULATED STOCKHOLDERS'
RECEIVABLE COMPENSATION DEFICIT EQUITY
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998...... -- (615,598) (9,382,383) 8,435,510
Issuance of Series A Preferred
Stock for cash (unaudited).... -- -- -- 5,286,218
Deferred compensation related to
stock options (unaudited)..... -- (1,327,761) -- --
Amortization of deferred
compensation (unaudited)...... -- 487,902 -- 487,902
Discount on notes payable
related to grant of common
stock warrants (unaudited).... -- -- -- 274,617
Change in par value of common
stock from $.01 to $.001
(unaudited)................... -- -- -- --
Net loss (unaudited)............ -- -- (6,338,219) (6,338,219)
Accretion of beneficial conversion
feature related to convertible
preferred stock (unaudited)..... -- -- (3,361,710) --
----------- ----------- ------------ -----------
Balance at March 31, 1999
(unaudited)..................... $ -- $(1,455,457) $(19,082,312) $ 8,146,028
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 92
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 1,
1996 (INCEPTION) YEARS ENDED THREE MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------- -------------------------
1996 1997 1998 1998 1999
---------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss...................................... $ -- $(1,727,434) $(9,382,383) $ (631,488) $(6,338,219)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization............... -- 16,275 161,898 11,595 36,525
Amortization of intangibles................. -- 4,652 79,751 -- 119,629
Amortization of deferred compensation....... -- -- 112,439 10,187 487,902
Amortization of warrants issued with debt... -- -- -- -- 7,608
Changes in operating assets and liabilities,
net of effect of acquisition:
Accounts receivable....................... -- -- (1,113,718) -- 225,706
Inventory................................. -- -- (1,013,306) -- (661,264)
Receivable from related party............. -- -- (124,570) -- (375,516)
Prepaid expenses and other current
assets................................. -- (71,251) (230,513) 66,405 39,401
Accounts payable.......................... -- 126,374 1,135,189 119,705 (330,955)
Accrued salaries and employee benefits.... -- -- 1,262,782 -- (305,386)
Other accrued liabilities................. -- 118,652 71,355 36,350 516,269
---------- ----------- ----------- ---------- -----------
Net cash used in operating activities......... -- (1,532,732) (9,041,076) (387,246) (6,578,300)
INVESTING ACTIVITIES
Purchases of property and equipment........... -- (81,884) (697,068) (194,452) (151,013)
Proceeds from the sale of property and
equipment................................... -- -- -- -- 35,000
Deposit on facilities......................... -- -- (335,000) (214,948) --
Acquisition of subsidiary, net of cash
acquired.................................... -- -- (1,745,802) -- (1,059,897)
Acquisition of licenses and other assets,
net......................................... -- (76,562) (52,066) -- (412,432)
---------- ----------- ----------- ---------- -----------
Net cash used in investing activities......... -- (158,446) (2,829,936) (409,400) (1,588,342)
FINANCING ACTIVITIES
Issuance of Series A preferred stock.......... -- -- 15,742,157 9,989,257 5,286,218
Issuance of common stock...................... 1,000,000 358,478 -- -- --
Issuance of short-term notes payable to
related parties............................. -- -- -- -- 2,000,000
Issuance of short-term notes payable.......... -- -- -- -- 5,490,000
Payment received on subscription receivable... -- 1,000,000 -- -- --
Purchase of treasury stock.................... -- (100,000) -- -- --
---------- ----------- ----------- ---------- -----------
Net cash provided by financing activities..... 1,000,000 1,258,478 15,742,157 9,989,257 12,776,218
---------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash and cash
equivalents................................. 1,000,000 (432,700) 3,871,145 9,192,611 4,609,576
Cash and cash equivalents at beginning of the
period...................................... -- 1,000,000 567,300 567,300 4,438,445
---------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end of the
period...................................... $1,000,000 $ 567,300 $ 4,438,445 $9,759,911 $ 9,048,021
========== =========== =========== ========== ===========
Supplemental schedule of non cash investing
and financing activities:
Issuance of Series B preferred stock in
conjunction with acquisition of
subsidiary.................................. $ -- $ -- $ 1,432,253 $ -- $ --
</TABLE>
See accompanying notes.
F-7
<PAGE> 93
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1998 AND PERTAINING TO MARCH 31, 1999
AND THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Women First HealthCare, Inc. is a specialty health care company dedicated
to improving the health of midlife women. Offices are located in California and
New Jersey. Women First HealthCare, Inc., originally incorporated under the name
Healthy Living for Women, Inc., was incorporated in Delaware on November 1,
1996. Primary operations did not begin until 1997. As We Change, a national
mail-order catalog and Internet retailer, and Women First Pharmacy Services,
Inc., a home delivery pharmacy, are wholly owned subsidiaries of Women First
HealthCare, Inc. As used herein, the "Company" collectively refers to the
consolidated entity of Women First HealthCare, Inc. and its subsidiaries.
Principles of Consolidation
The consolidated financial statements presented herein include the
financial statements of Women First HealthCare, Inc. and the actual results of
As We Change from its purchase acquisition date on October 21, 1998 (note 2) and
the results of Women First Pharmacy Services, Inc. since its incorporation in
September 1998. All significant intercompany transactions and balances have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly-liquid financial instruments purchased
with an original maturity of three months or less to be cash equivalents. Cash
equivalents totaling $4,016,000 at December 31, 1998 consisted primarily of
commercial paper and money market accounts at major financial institutions.
Concentration of Credit Risk
The Company sells its pharmaceutical products primarily to established
distributors and large retailers in the pharmaceutical industry. Credit is
extended based on an evaluation of the customer's financial condition, and
collateral generally is not required. Self-care products and video cassettes are
typically sold to individuals for cash or payment by major credit card. Credit
losses have historically been minimal. The Company is also dependent on single
sources of supply for products it offers for sale and would need to obtain
alternative sources if the supplier cannot meet the Company's needs.
F-8
<PAGE> 94
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory is stated at the lower of cost or market and is determined on a
first-in, first-out basis. Inventory of the exercise video product includes
capitalized production costs which are expensed on a per unit basis as the
videos are sold. The Company periodically reviews inventory for the timely
identification and measurement of obsolete, slow-moving, or otherwise impaired
inventory. The Company accrues for net losses on firm uncancellable purchase
commitments for inventory. No losses have been recorded to date.
Long-lived assets
Property and equipment are stated at cost and are depreciated over the
estimated useful lives of the assets, ranging from three to ten years, using the
straight-line method. Leasehold improvements are stated at cost and amortized
over the shorter of the estimated useful lives of the assets or the lease term.
Costs incurred in connection with the development or purchase of certain
licenses are capitalized and amortized over the estimated useful life of the
license, generally five to ten years.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. An impairment loss would be measured and recognized if the sum
of the expected future undiscounted cash flows is less than the carrying amount
of the asset. If the carrying amount of the asset is determined to be impaired,
an impairment loss to write-down the carrying value of the asset to fair value
would be recognized in the period of impairment. The Company determines fair
value by using quoted market prices when available. When the market price is not
available an estimated fair value will be determined through other valuation
techniques.
Stock Options
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), establishes the use of the fair value
based method of accounting for stock-based compensation arrangements, under
which compensation cost is determined using the fair value of stock-based
compensation determined as of the grant date, and is recognized over the periods
in which the related services are rendered. SFAS 123 also permits companies to
elect to continue using the implicit value accounting method specified in
Accounting Principles Board Opinion No. 25 to account for stock-based
compensation related to option grants to employees. The Company has elected to
retain the implicit value based method for such grants, and has disclosed the
pro forma effect of using the fair value based method to account for its
stock-based compensation. All stock-based compensation related to option grants
to non-employees is valued using the fair value method and expensed in the
period of service.
Revenue Recognition
The Company records sales for its pharmaceutical and self-care products at
time of shipment. Adjustments to its pharmaceutical product sales are made for
estimated sales discounts it offers due to wholesaler chargebacks,
Medicaid-sponsored payor allowance
F-9
<PAGE> 95
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
discounts, and early payment discounts. Adjustments to self-care product sales
include an estimate of returns and allowances. The Company provides for returns
at the time of sale based on estimated merchandise returns.
The Company will accept for credit or exchange pharmaceutical products that
have become unusable due to passage of the expiration date, drug recall, or
discontinuance by the Company. For self-care products, the Company will issue a
full refund for returned products within 60 days of delivery. The Company has
not experienced significant returns of its product.
Contract and other revenue under the Company's development agreements are
recognized when realized and earned or upon completion of certain performance
requirements of the contracts, or when received if amounts are non-refundable
and there are no future performance obligations. In 1998, the Company recognized
$150,000 of contract revenue which is included in net revenue in the
accompanying Statement of Operations.
Catalog Costs
Catalog production expenses are capitalized as incurred and amortized over
the period the catalog generates revenue, generally four months. Catalog
production expenses of $258,000 were recorded in marketing and sales expense in
the accompanying Statement of Operations in 1998.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
The Company provides for income taxes under the asset and liability method
of Statement of Financial Accounting Standards No. 109. Deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amount of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Comprehensive Income
Under Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income," the reporting and display of comprehensive income and its
components is required in the financial statements. For the periods presented in
the accompanying financial statements, the Company has no items for which
comprehensive loss would differ from the reported net loss.
Segment Reporting
Under Statement of Financial Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information," companies are required
to report descriptive and financial information about their operating segments.
The Company's management approach is
F-10
<PAGE> 96
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to review the operating results of the business as one operating segment which
is a specialty health care company.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net loss per share, which would include
additional potential common shares issued related to outstanding options,
warrants and conversion of preferred stock, if dilutive, is unchanged from basic
loss per share due to the Company's net losses making the effect of these common
share equivalents anti-dilutive. Excluded from the determination of net loss per
share are 5,748,975 and 7,013,711 potentially dilutive common shares at December
31, 1998 and March 31, 1999, respectively.
In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 98, the Company determined that there were no nominal issuances of
common stock required to be included in the calculation of basic or diluted loss
per share.
Pro Forma Conversion of Convertible Preferred Stock to Common Stock (Unaudited)
In the event of an initial public offering by the Company with gross
proceeds of at least $20.0 million and certain other criteria as described in
note 7, the Series A Preferred Stock and Series B Convertible Preferred Stock
would convert into Common Stock at a ratio of 1.83 to one for the Series A
Preferred Stock and .61 to one for the Series B Convertible Preferred Stock. The
unaudited pro forma stockholders' equity set forth in the accompanying balance
sheet assumes the conversion of preferred stock into common stock as of March
31, 1999 as if the conversion had occurred on that date.
Initial Public Offering
In order to provide financing to increase its sales and marketing efforts
and for other purposes, the Company has decided to raise equity through an
initial public offering. The Company has filed a registration statement with the
Securities and Exchange Commission.
Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable, accrued
salaries and employee benefits and other accrued liabilities are considered to
be representative of their respective fair values because of the short-term
nature of these financial instruments.
Interim Financial Data
The financial statements for the three months ended March 31, 1998 and 1999
are unaudited. The unaudited financial statements have been prepared on the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary to state fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.
F-11
<PAGE> 97
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The results of operations for the interim period ended March 31, 1999 are
not necessarily indicative of the results which may be reported for any other
interim period or for the year ending December 31, 1999.
2. ACQUISITION OF AS WE CHANGE
On October 21, 1998, the Company acquired all of the outstanding membership
interests in MenoMorphosis, LLC dba As We Change. The acquisition of As We
Change was accounted for as a purchase by the Company. The operations of As We
Change are included in the Company's consolidated financial statements from the
date of acquisition.
A summary of the As We Change acquisition costs and allocation to the
assets acquired and liabilities assumed is as follows:
<TABLE>
<S> <C>
Total acquisition costs:
Cash paid at acquisition date............................. $1,800,000
Deferred payment due March 1999........................... 1,059,897
Issuance of Series B Preferred Stock...................... 1,432,253
Acquisition related expenses.............................. 107,153
----------
$4,399,303
==========
Allocated to assets and liabilities as follows:
Tangible assets acquired.................................. $ 722,037
Tangible liabilities assumed.............................. (325,332)
Intangible assets acquired (note 6)....................... 4,002,598
----------
$4,399,303
==========
</TABLE>
The Series B Preferred Stock was valued at the estimated fair value as
determined by an independent valuation. The acquisition agreement provided for
the shareholders of the preferred stock to be able to defer the receipt of
certain shares of the stock until January 1999. In addition, the agreement
provided for additional shares of Series B Preferred Stock to be issued based
upon 1998 and 1999 operating results, of which 44,000 shares were earned based
on 1998 As We Change net revenue and operating loss. The Company may be required
to issue up to an additional 90,000 shares of Series B Preferred Stock, or
54,900 shares of common stock if a public offering has been effected, based on
1999 As We Change net revenue and operating results. The value of any additional
shares issued will be accounted for in 1999 and would increase goodwill.
The following unaudited pro forma data reflect the combined results of
operations of the Company and As We Change, subject to certain purchase
accounting adjustments, as if the acquisition had occurred at the beginning of
the period:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net product sales.............................. $ 2,679,830 $ 7,281,168
Net loss....................................... $(3,331,930) $(10,177,805)
Net loss per share............................. $ (0.44) $ (1.32)
</TABLE>
F-12
<PAGE> 98
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Trade receivables................................. $1,292,033 $1,316,080
Allowance for doubtful accounts................... (40,000) (77,376)
Allowance for cash discounts, returns and
rebates......................................... (137,750) (350,127)
---------- ----------
$1,114,283 $ 888,577
========== ==========
</TABLE>
The Company charged $220,383 and $299,174 for doubtful accounts, cash
discounts, returns and rebates for the periods ending December 31, 1998 and
March 31, 1999, respectively. Deductions of $42,633 and $49,421 for writeoffs
and discounts taken were made during the respective periods.
4. INVENTORY
Inventory consists of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Pharmaceutical products........................... $ 415,815 $1,094,882
Self-care products................................ 589,138 576,187
Video cassettes................................... 200,644 195,792
---------- ----------
Total Inventory......................... $1,205,597 $1,866,861
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures................... $ 1,802 $409,602 $ 490,600
Office equipment......................... 80,082 379,129 360,071
Leasehold improvements................... -- 122,762 122,762
-------- -------- ---------
81,884 911,493 973,433
Accumulated depreciation................. (16,275) (220,581) (202,140)
-------- -------- ---------
$ 65,609 $690,912 $ 771,293
======== ======== =========
</TABLE>
F-13
<PAGE> 99
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTANGIBLE ASSETS
Intangible asset balances and estimated lives consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trademark.............................. 15 years $1,500,000 $1,500,000
Assembled workforce.................... 10 years 170,000 170,000
Customer list.......................... 3 years 580,000 580,000
Non-compete agreements................. 4 years 280,000 280,000
Goodwill............................... 15 years 1,472,598 1,472,598
-------- ---------- ----------
4,002,598 4,002,598
Accumulated amortization............... (79,751) (199,380)
---------- ----------
$3,922,847 $3,803,218
========== ==========
</TABLE>
The intangible assets resulted from the 1998 acquisition of As We Change as
discussed in note 2.
7. STOCKHOLDERS' EQUITY
Common Stock
In May 1997, the Board of Directors authorized a 5,000 for 1 stock split of
the Company's common stock and changed the par value from $1.00 per share to
$.01 per share. In December 1997, the Board of Directors authorized a 1.85965947
for 1 stock split of the Company's common stock. In June 1998, the Board of
Directors approved a 3 for 1 stock split of the Company's common stock. In March
1999, the Board of Directors approved a .61 for 1 stock split of the Company's
common stock. All share amounts in accompanying consolidated financial
statements have been restated to reflect the effects of these changes as if they
had occurred as of the inception of the Company on November 1, 1996. Also in
March 1999, the Board of Directors authorized a change in the Company's par
value of common stock from $.01 per share to $.001 per share. In 1997, the
Company acquired treasury stock from a terminated employee. No gain or loss was
recorded with respect to this transaction.
Series A Preferred Stock
In January and May 1998, the Company entered into an agreement to sell
2,200,000 shares of its Series A Preferred Stock at $10 per share. In January
1998, the Company issued 1,050,000 shares for net proceeds of $9,989,000. In May
1998, the Company issued an additional 50,000 shares for net proceeds of
$453,000. The Company had the contractual right to issue the remaining shares at
$10 per share upon the attainment of certain operational milestones.
In October 1998, the Company attained the initial set of milestones and
issued 550,000 shares of Series A Preferred Stock for net proceeds of
$5,300,000. In January 1999, the subsequent milestone event was reached and in
February 1999 the Company issued an additional 550,000 shares of Series A
Preferred Stock for net proceeds of $5,300,000.
The Company has recorded a $3.4 million charge to equity for the intrinsic
value of the beneficial conversion feature related to the February 1999 issuance
of Series A Preferred Stock.
F-14
<PAGE> 100
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
The $3.4 million charge has been recognized as an increase of the net loss
available to common stockholders.
As part of the Stock Purchase Agreement, the Company agreed to certain
restrictions including capital expenditure limits, contractual or commitment
limitations, limits on acquisition activity, and restrictions on dividends to
common stockholders. The preferred stockholders are also allowed to elect two
persons to the Company's Board of Directors. The agreement and terms of the
Preferred Stock include certain anti-dilution provisions, rights of first
refusal, and demand and piggyback registration rights, upon certain ownership
changes in the Preferred Stock and Common Stock. The Stockholders' Agreement
includes "tag-along rights," which provide that if a stockholder or group of
stockholders owning common stock representing 20% or more of the total amount of
the Company's common stock proposes to transfer these shares of common stock
(other than pursuant to a public sale), the selling stockholders must notify all
Series A preferred stockholders of the proposed transfer. Each Series A
preferred stockholder then would be entitled to participate in the contemplated
transfer on a pro rata basis. The Stockholders' Agreement also provides for
"drag along rights," which provide that if one or more common stockholders
propose to sell greater than 50 percent of the Company's outstanding common
stock to a third party, the common stockholders may require the Company's
stockholders to sell a pro rata portion of their shares to the same third party
for the same consideration. Each share of Series A Preferred Stock has voting
rights equal to the number of Common Shares to be issued upon conversion.
The Series A Preferred Stock will automatically convert to Common Stock,
currently at a conversion rate of 1.83 shares of common for each share of
preferred, upon a public offering with gross proceeds of at least $20.0 million
and a minimum per share price to the public of $9.50. The restrictions, board
representation rights, anti-dilution provisions and other rights associated with
the Series A Preferred Stock, other than the registration rights, would
terminate upon such an offering and the automatic conversion of the Series A
Preferred Stock. In the event the Company does not complete a qualified public
offering or does not have cumulative 1998 and 1999 revenues of $40.2 million and
does not have aggregate losses of less than $12.2 million the conversion rate is
subject to adjustment, whereby the conversion price is reduced by 43%.
Upon liquidation of the Company and after payment of liabilities, the
Series A Preferred Stock is entitled to a liquidation preference of $10 per
share plus 8% per annum.
In connection with the issuance of the Series A Preferred Stock, the
Company issued certain warrants to purchase an aggregate of 480,372 shares of
Common Stock at $5.46 per share, subject to certain adjustments. The warrants
expire on January 8, 2005. The holders of the warrants are entitled to the same
registration rights with respect to the shares of Common Stock issuable upon
exercise of the warrants as have been granted to the holders of the Series A
Preferred Stock.
Series B Convertible Preferred Stock
In October 1998, the Company amended its certificate of incorporation to
authorize the issuance of up to 690,000 shares of Series B Preferred Stock. Each
share of Series B Preferred
F-15
<PAGE> 101
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
Stock is currently convertible at the option of the stockholder at any time
after the date of issuance into .61 of one share of Common Stock.
Each share of Series B Preferred Stock shall automatically be converted
into Common Stock at the Series B Conversion rate of .61 shares of Common Stock
for each share of Series B Preferred Stock, subject to certain adjustments, upon
the consummation of a public offering of Common Stock with gross proceeds to the
Company of greater than $15.0 million. Each share of Series B Preferred Stock
has voting rights equal to the number of shares to be issued upon conversion.
Upon liquidation of the Company and after payment of liabilities and
liquidation preferences to Series A Preferred stockholders, the Series B
Preferred Stock is entitled to a liquidation preference of $5 per share plus 8%
per annum.
As of December 31, 1998, the Company had issued 398,540 shares of Series B
Preferred Stock in conjunction with the acquisition of As We Change and had
195,460 shares to be issued. The shares to be issued relate to those
stockholders who elected to receive Series B Preferred Stock in 1999, and for
the shares of stock to be issued related to the 1998 earn-out criteria.
Preferred Stock Authorized
The Company has authorized the issuance of 3,190,000 shares of Preferred
Stock of which 2,200,000 have been designated Series A Preferred Stock and
690,000 have been designated Series B Convertible Preferred Stock. A total of
300,000 shares of Preferred Stock are undesignated.
Stock Options
In March 1998, the Board of Directors approved a Long Term Incentive Plan
under which 1,830,000 shares of Common Stock were reserved for issuance upon
exercise of options granted by the Company. The Long Term Incentive Plan
provides for the grant of incentive and nonstatutory stock options to employees,
directors, and independent consultants of the Company. The exercise price of
incentive stock options must be at least equal to the fair market value on the
date of grant, and the exercise price of nonstatutory stock options may be no
less than 85% of the fair market value on the date of grant. The maximum term of
all options granted is ten years.
F-16
<PAGE> 102
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Granted............................................ 629,586 $ .29
Cancelled.......................................... (306,285) $ .29
--------- ------
Outstanding at December 31, 1997..................... 323,301 $ .29
Granted............................................ 1,805,552 $ .84
Cancelled.......................................... (300,837) $ .30
--------- ------
Outstanding at December 31, 1998..................... 1,828,016 $ .83
Granted............................................ 287,637 $ 4.39
Cancelled.......................................... (31,399) $ .84
--------- ------
Outstanding at March 31, 1999........................ 2,084,254 $ 1.32
========= ======
</TABLE>
In February 1999, the shareholders approved an increase in the number of
shares available in the Long Term Incentive Plan to 2,277,435.
A summary of options outstanding at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS REMAINING LIFE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OF
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE OPTIONS EXERCISABLE
--------------- ----------- ---------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$.29 27,450 8.33 $.29 27,450 $.29
$.84 1,800,566 9.38 $.84 332,787 $.84
--------- ---- ---- ------- ----
1,828,016 9.36 $.83 360,237 $.80
</TABLE>
A summary of options outstanding at March 31, 1999, is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS REMAINING LIFE WEIGHTED AVERAGE OPTIONS EXERCISE PRICE OF
EXERCISE PRICES OUTSTANDING IN YEARS EXERCISE PRICE EXERCISABLE OPTIONS EXERCISABLE
--------------- ----------- ---------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$0.29 27,450 8.09 $0.29 27,450 $0.29
$0.84 1,827,755 9.15 $0.84 516,235 $0.84
$4.81 112,346 9.90 $4.81 -- --
$5.77 116,703 9.94 $5.77 -- --
--------- ---- ----- ------- -----
2,084,254 9.22 $0.74 543,685 $0.81
</TABLE>
Included in the options outstanding at December 31, 1998 and March 31, 1999
are 27,450 options granted under a predecessor plan. No additional options are
available to be granted under the predecessor plan.
Adjusted pro forma information regarding net loss and net loss per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using the "Minimum
Value" method for options pricing with the following assumptions for 1998:
risk-free interest rates of 4.25%; dividend yield of 0%; and a weighted-average
expected life of the options of five years.
F-17
<PAGE> 103
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of the adjusted pro forma disclosures, the estimated fair
value of the options are amortized to expense over the vesting period. The
weighted-average fair value of options granted during 1998 was $.51. The
Company's adjusted pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Adjusted pro forma net loss................................. $(9,437,407)
Adjusted pro forma net loss per share....................... $ (1.23)
</TABLE>
The adjusted pro forma net loss and net loss per share for 1997 were not
materially different than actual 1997 amounts.
Deferred Compensation
Through December 31, 1998, the Company recorded deferred compensation for
the difference between the exercise price of stock options granted and the
deemed fair value for financial statement presentation purposes of the Company's
common stock at the date of grant. The deferred compensation will be amortized
over the vesting period of the related options which is generally four years.
Gross deferred compensation recorded during the year ended December 31, 1998
totaled $728,037 and related amortization expense totaled $112,439 in 1998. From
January 1, 1999 through March 31, 1999, the Company granted options to purchase
287,637 shares at exercise prices of $0.84 to $5.77. The Company has recorded
deferred compensation of $1,327,761 during the first quarter of 1999.
8. RELATED PARTY
In July 1998, the Company signed an exclusive distribution agreement with
Ortho-McNeil Pharmaceutical, Inc. ("Ortho") a subsidiary of Johnson & Johnson, a
principal stockholder of the Company, whereby the Company would market and
distribute throughout the U.S. and Puerto Rico certain pharmaceutical products
to be manufactured by Ortho over a period of ten years with annual renewals
available after that period. The Company makes both fixed and contingent
payments to Ortho for products purchased. In addition, the Company may be
required to make monthly adjustment payments to or may receive payments from
Ortho based on progress toward projected annual purchases. During 1998 and for
the first three months of 1999, $2,028,000 and $1,793,000 was charged to cost of
sales and $170,000 and $152,000 was charged to marketing and sales for
professional samples in the accompanying Statement of Operations for products
purchased from Ortho. The agreement requires minimum payments of $6.6 million,
$5.4 million, $4.3 million, $4.2 million, and $4.0 million during 1999, 2000,
2001, 2002 and 2003, respectively, and $15.6 million thereafter. Ortho may
terminate the agreement on one year's notice so long as Ortho provides the
Company with a one-year supply of product and uses reasonable commercial efforts
to transfer to the Company the manufacturing and distribution rights to the
product or upon other specific events.
F-18
<PAGE> 104
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY (CONTINUED)
Executive officers, directors and principal stockholders purchased an
aggregate of 985,000 shares of Series A Preferred Stock for $9,850,000.
On March 18, 1999, the Company issued to executive officers, directors, or
principal stockholders of the Company an aggregate of $2,000,000 principal
amount of short-term notes and warrants to purchase 16,224 shares of common
stock. See note 11.
9. COMMITMENTS
In September 1998, the Company entered into an agreement whereby the
Company is funding the development of a patient health questionnaire and
software product. The Company recorded $275,000 of research and development
expenses related to this agreement in 1998. The Company is obligated to pay an
additional $625,000 for funding of this research and development over the next
two years. A royalty payment based on future revenues from products utilizing
the scientific research and development was established with minimum annual
royalty payments over the next twelve years, which commence at $100,000 and
increase by an additional $100,000 for each two-year period thereafter.
Leases
The Company leases certain office space and equipment under operating
leases. Lease expense was $131,000 and $476,000 under these leases in 1997 and
1998, respectively.
Minimum future annual obligations for operating leases for years ending
after December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................................... $ 624,000
2000................................................... 603,000
2001................................................... 544,000
2002................................................... 496,000
Thereafter............................................. 274,000
----------
Total minimum lease payments................. $2,541,000
==========
</TABLE>
F-19
<PAGE> 105
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
Significant components of the Company's deferred tax assets are shown
below. A valuation allowance of $3,613,000 has been recognized to offset the
deferred tax assets as realization of such assets is uncertain and management
has determined that it is more likely than not that the Company will not
generate taxable income sufficient to recover the deferred tax assets.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
---- -----------
<S> <C> <C>
Deferred income tax assets
Net operating losses................................ $ -- $ 3,380,000
Amortization and depreciation....................... -- 152,000
Other............................................... -- 81,000
---- -----------
3,613,000
Valuation allowance................................... -- (3,613,000)
---- -----------
$ -- $ --
==== ===========
</TABLE>
Prior to January 1998, the Company had elected to be taxed as an S
corporation for federal and state tax purposes. As such, the losses incurred
during that time passed through to the stockholders on their personal tax
returns and no provision for taxes was recorded by the Company. In January 1998,
the Company elected to be taxed as a C corporation. The Company has incurred
approximately $7,800,000 of net operating losses for 1998 for both federal and
California tax purposes that are available to be carried forward. The federal
and California tax loss carryforwards will begin to expire in 2018 and 2003,
respectively, unless previously utilized. Based on the historical losses
incurred to date and the uncertainty of future profitability, a valuation
allowance of the deferred asset has been recognized by the Company. Pursuant to
Section 382 of the Internal Revenue Code, annual use of the Company's net
operating loss carryforwards may be limited if cumulative changes in ownership
of more than 50% occur during any three year period. Upon the issuance of shares
of common stock contemplated in the initial public offering, the Company would
be limited to approximately $6,700,000 of net operating loss carryforwards per
year for federal and state tax purposes.
11. SUBSEQUENT EVENTS
In March 1999, the Company issued $7.5 million of short-term notes and
warrants to purchase 60,756 shares of common stock in a private placement. The
warrants are exercisable for a period of five years with an exercise price of
the initial public offering price less 15% or the per share price of the next
private placement of in excess of $1,000,000 if a public offering should not
occur prior to the completion of the next private placement or $6.00 per share
if an initial public offering or private placement has not been completed prior
to the first anniversary of the date of issuance. The Company will record a
charge to interest expense of approximately $275,000 to be amortized over the
life of the short-term notes for these warrants. The charge was determined using
the Black-Scholes method using an assumed initial public offering price of
$11.00 per share. The notes are unsecured, bear interest at 9% per annum payable
quarterly and mature on March 1, 2000. The notes may be prepaid at any time
without penalty.
Effective March 1, 1999, the Company obtained the right to co-promote the
cholesterol-lowering drug Pravachol(R) to OB/GYNs, primary care physicians
designated as OB/GYNs by Bristol Myers Squibb, and nurse practitioners and
physician assistants associated with
F-20
<PAGE> 106
WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
OB/GYN practices pursuant to a co-promotion agreement with Bristol-Myers Squibb
U.S. Pharmaceuticals Group. Under the agreement, Bristol-Myers Squibb has agreed
to pay specified costs associated with product samples and physician education.
In addition, as compensation for services rendered the Company will receive a
percentage of net sales in excess of a baseline as set forth in the agreement.
The term of the contract is for a period of three years from March 1, 1999
through March 1, 2002. Bristol-Myers Squibb may terminate the agreement early
upon failure of the Company to meet certain minimums.
On May 27, 1999, the Company entered into a co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc., a related party, pursuant to which the
Company has agreed to co-promote Ortho Tri-Cylen(R), a leading oral
contraceptive, and a new oral combination estrogen and progestin hormonal
replacement therapy (HRT) product, which is pending approval by the FDA.
Ortho-McNeil will compensate the Company for sales of the Ortho Tri-Cylen(R)
product with a performance fee based on certain increases in market share. The
Company will also receive minimum payments specified in the agreement commencing
in 2000 if minimum performance goals are met. Ortho-McNeil will compensate the
Company for sales of the new oral HRT product if the product is approved by the
FDA through a compensation arrangement based on certain net sales of the product
as set forth in the agreement. The agreement runs through December 31, 2002 and
may be extended by the Company for one additional year if minimum sales goals
are met.
F-21
<PAGE> 107
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Advisory Board and Members
As We Change
We have audited the accompanying balance sheets of As We Change as of
December 31, 1996 and 1997, and the related statements of operations, member's
equity, and cash flows for the period from February 14, 1996 (inception) to
December 31, 1996 and for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of As We Change at December 31,
1996 and 1997 and the results of its operations and its cash flows for the
period from February 14, 1996 (inception) to December 31, 1996 and for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
August 31, 1998
F-22
<PAGE> 108
AS WE CHANGE
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998
--------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 254,692 $ 143,558 $ 210,810
Prepaid catalog expenses.................. 73,369 86,544 218,724
Merchandise inventories................... 52,034 122,016 169,144
Other current assets...................... 12,255 46,095 535
--------- ----------- -----------
Total current assets........................ 392,350 398,213 599,213
Furniture, equipment and leasehold
improvements:
Furniture and equipment................... 11,154 157,506 161,959
Leasehold improvements.................... -- 17,593 17,593
--------- ----------- -----------
11,154 175,099 179,552
Accumulated depreciation and
amortization........................... (554) (22,269) (55,503)
--------- ----------- -----------
10,600 152,830 124,049
Deposits and other assets................... 7,833 20,992 70,345
--------- ----------- -----------
Total assets................................ $ 410,783 $ 572,035 $ 793,607
========= =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 53,994 $ 271,633 $ 336,521
Accrued liabilities....................... 15,249 50,491 55,141
Capital lease obligation -- current
portion................................ -- 16,597 18,571
--------- ----------- -----------
Total current liabilities................... 69,243 338,721 410,233
Capital lease obligation, net of current
portion................................... -- 30,764 15,040
Commitments
Members' equity:
Members' units, net of offering costs..... 705,000 1,692,000 2,225,826
Accumulated deficit....................... (363,460) (1,489,450) (1,857,492)
--------- ----------- -----------
Total members' equity....................... 341,540 202,550 368,334
--------- ----------- -----------
Total liabilities and members' equity....... $ 410,783 $ 572,035 $ 793,607
========= =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE> 109
AS WE CHANGE
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14,
1996 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1996 1997 1997 1998
-------------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................ $ 234,964 $ 2,679,830 $ 1,614,951 $2,270,386
Cost of goods sold............... 154,225 1,500,188 1,104,509 1,049,708
--------- ----------- ----------- ----------
Gross profit..................... 80,739 1,179,642 510,442 1,220,678
Selling, general and
administrative expenses........ 444,241 2,307,773 1,700,947 1,593,053
--------- ----------- ----------- ----------
Loss from operations............. (363,502) (1,128,131) (1,190,505) (372,375)
Interest income, net............. 42 2,141 2,026 4,333
--------- ----------- ----------- ----------
Net loss......................... $(363,460) $(1,125,990) $(1,188,479) $ (368,042)
========= =========== =========== ==========
</TABLE>
See accompanying notes.
F-24
<PAGE> 110
AS WE CHANGE
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
MEMBERS' UNITS TOTAL
------------------- ACCUMULATED MEMBERS'
NUMBER AMOUNT DEFICIT EQUITY
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Issuance of units..................... 31 $ 705,000 $ -- $ 705,000
Owner manager units................... 69 -- -- --
Net loss.............................. -- -- (363,460) (363,460)
--- ---------- ----------- -----------
Balance at December 31, 1996............ 100 705,000 (363,460) 341,540
Issuance of units, net of offering
costs.............................. 33 987,000 -- 987,000
Reduction of owner manager units...... (33) -- -- --
Net loss.............................. -- -- (1,125,990) (1,125,990)
--- ---------- ----------- -----------
Balance at December 31, 1997............ 100 1,692,000 (1,489,450) 202,550
Issuance of units (unaudited)......... 16 533,826 -- 533,826
Reduction of owner manager units
(unaudited)........................ (16) -- -- --
Net loss (unaudited).................. -- -- (368,042) (368,042)
--- ---------- ----------- -----------
Balance at September 30, 1998
(unaudited)........................... 100 $2,225,826 $(1,857,492) $ 368,334
=== ========== =========== ===========
</TABLE>
See accompanying notes.
F-25
<PAGE> 111
AS WE CHANGE
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 14,
1996 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
-------------- ------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................ $(363,460) $(1,125,990) $(1,188,479) $(368,042)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... 2,313 23,633 5,121 33,234
Changes in operating assets and
liabilities:
Prepaid catalog costs.......... (73,369) (13,175) (32,172) (132,180)
Merchandise inventories........ (52,034) (69,982) (146,892) (47,128)
Other current assets........... (12,255) (33,840) 11,702 45,560
Deposits and other............. -- (15,077) (79,272) (49,353)
Accounts payable............... 53,994 217,639 534,346 64,888
Accrued liabilities............ 15,249 35,242 26,544 4,650
--------- ----------- ----------- ---------
Net cash used in operating
activities........................ (429,562) (981,550) (869,102) (448,371)
INVESTING ACTIVITIES
Purchases of furniture
and equipment..................... (11,154) (108,945) (95,959) (4,453)
Organization costs.................. (9,592) -- -- --
--------- ----------- ----------- ---------
Net cash used in investing
activities........................ (20,746) (108,945) (95,959) (4,453)
FINANCING ACTIVITIES
Proceeds from issuance of members'
units, net of offering costs...... 705,000 987,000 987,000 533,826
Payments on capital lease
obligation........................ -- (7,639) -- (13,750)
--------- ----------- ----------- ---------
Net cash provided by financing
activities........................ 705,000 979,361 987,000 520,076
--------- ----------- ----------- ---------
Net increase (decrease) in cash and
cash equivalents.................. 254,692 (111,134) 21,939 67,252
Cash and cash equivalents at
beginning of period............... -- 254,692 254,692 143,558
--------- ----------- ----------- ---------
Cash and cash equivalents at end of
period............................ $ 254,692 $ 143,558 $ 276,631 $ 210,810
========= =========== =========== =========
SUPPLEMENTAL INFORMATION
Equipment financed under capital
lease obligation.................. $ -- $ 55,000 $ --
========= =========== =========== =========
</TABLE>
See accompanying notes.
F-26
<PAGE> 112
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
MenoMorphosis, LLC dba As We Change (the "Company") is a California limited
liability company that was formed on February 14, 1996 (inception) and shall
continue until December 31, 2020 or until dissolution in accordance with the
terms of its Limited Liability Company Operating Agreement (the Agreement). The
Company is a national mail-order catalog and Internet retailer geared toward
midlife women. The Company's primary market is the United States.
Interim Financial Information
The financial statements at September 30, 1998 and for the nine-month
periods ended September 30, 1997 and 1998 are unaudited, but include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position and
operating results and cash flows. Results of interim periods are not necessarily
indicative of results for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
related disclosures at the date of the financial statements, and the amounts of
revenues and expenses reported during the period. Actual results could differ
from those estimates.
Revenue Recognition
The Company records revenue at the time of shipment. The Company provides
for returns at the time of sale based upon projected merchandise returns.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when acquired to be cash equivalents.
Prepaid Catalog Expenses
Catalog expenses are capitalized as incurred and amortized over the period
the catalog generates revenue which generally does not exceed four months.
Catalog production expenses of $254,526, $1,329,564, $955,780, and $841,302 were
recorded in the years ended December 31, 1996 and 1997, and the nine months
ended September 30, 1997 and 1998, respectively.
F-27
<PAGE> 113
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Merchandise Inventories
Merchandise inventories consist of products purchased for resale and are
stated at the lower of average cost or market value. Cost is determined on an
average cost basis, which approximates first-in, first-out.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are stated at cost and depreciated over their
estimated useful lives (3 to 5 years) using the straight-line method. Leasehold
improvements are amortized over the term of the lease or their estimated useful
life, whichever is shorter.
Profits, Losses, Distributions and Income Taxes
Profits and losses of the Company and cash distributions are allocated to
the members in accordance with the Agreement. Under federal and California law,
income or loss of limited liability companies is passed through to the separate
tax returns of the members. Accordingly, no provision (benefit) for taxes based
on income or loss is shown in the accompanying financial statements.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. This standard is effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company does not
believe that comprehensive income or loss will be materially different than net
income or loss.
2. COMMITMENTS
The Company leases its office and warehouse under an operating lease which
expires on July 31, 2000. Under the lease, the Company pays taxes, insurance and
maintenance expenses related to the premises. Rent expense totaled $4,750,
$24,372, $17,299, and $19,634 for the period from February 14, 1996 (inception)
through December 31, 1996, the year ended December 31, 1997 and the nine months
ended September 30, 1997 and 1998, respectively.
During 1997, the Company leased certain equipment under a capital lease
obligation. Cost and accumulated depreciation of equipment under capital leases
were $55,000 and $5,900, respectively, at December 31, 1997.
F-28
<PAGE> 114
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
2. COMMITMENTS (CONTINUED)
Future minimum lease payments under operating and capital leases at
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASES
---------------- --------------
<S> <C> <C>
1998............................................ $ 48,228 $21,925
1999............................................ 50,063 21,925
2000............................................ 30,777 12,790
-------- -------
Total minimum lease payments.......... $129,068 56,640
========
Less amount representing interest............... 9,279
-------
Present value of minimum lease payments......... 47,361
Less current portion............................ 16,597
-------
Noncurrent portion.............................. $30,764
=======
</TABLE>
3. MEMBERS' EQUITY
The Company has two classes of members' units, founders units and units. A
total of 1,000 units are authorized. There were 28 owner manager units issued
and outstanding at December 31, 1996 and 1997. Proceeds received from issuance
of founders units amounted to $700,000. The Agreement provides that the initial
capitalization of the Company will be limited to 100 units and that the number
of units owned by owner managers will be reduced by the number of units issued
in subsequent financings.
Each holder of the founders units is entitled to a cumulative preferred
return of 20% of their capital contribution per year. On or before August 1,
1999, the Company may offer to buy back founders units, and the holders of such
units will be given their choice of the following two options: (1) having their
founders units bought back for the original purchase price plus the preferred
return, in which case the holder of the founders units would surrender one-half
of such units and retain one-half of the founders units which would thereafter
have no priority return and would be equal in all respects to other units; or
(2) the holder of the founders units would be paid the preferred return and the
founders units would no longer be founders units but be equal to other units in
all respects thereafter.
When the holders of the founders units have received their cumulative
preferred return, the next distributions shall be paid to unit holders until
they receive the same cumulative percentage return. After the holders of both
classes of units have received the same cumulative percentage return, subsequent
distributions will be made on a pro rata basis.
In connection with the issuance of units in March 1997, a warrant was
granted to purchase .98 units at $30,435 per unit. The warrant expires in March
2002.
F-29
<PAGE> 115
AS WE CHANGE
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION RELATED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
4. SUBSEQUENT EVENT (UNAUDITED)
On October 21, 1998, all outstanding membership interests were acquired by
Women First HealthCare, Inc. for $1,800,000 due upon sale and $1,059,897 due
March 1999, and certain shares of Women First HealthCare, Inc. Series B
Preferred Stock. Additional shares of the Series B Preferred Stock would be
issued based upon the achievement of 1998 and 1999 operating results. All
cumulative preferred return rights were terminated upon the sale.
F-30
<PAGE> 116
WOMEN FIRST HEALTHCARE COMBINED WITH AS WE CHANGE
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
On October 21, 1998, Women First HealthCare, Inc. acquired all of the
outstanding membership interests in As We Change. The acquisition of As We
Change was accounted for as a purchase by Women First HealthCare, Inc. The
operations of As We Change are included in Women First HealthCare, Inc.
consolidated financial statements from the date of acquisition.
The unaudited pro forma statements of operations for the period ending
December 31, 1998 reflects the combined results of operations of Women First
HealthCare, Inc. and As We Change, subject to certain purchase accounting
adjustments, as if the acquisition had occurred at the beginning of the period.
<TABLE>
<CAPTION>
CONSOLIDATED
WOMEN FIRST
HEALTHCARE, INC. AS WE CHANGE
FOR THE YEAR JANUARY 1,
ENDED 1998 THROUGH TOTAL
DECEMBER 31, OCTOBER 20, PRO FORMA COMBINED
1998(2) 1998 ADJUSTMENTS(1) RESULTS
---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenue................... $ 4,834,196 $2,446,972 $ -- $ 7,281,168
Cost and expenses:
Cost of sales............... 2,648,114 1,131,352 -- 3,779,466
Marketing and sales......... 5,478,056 1,360,357 -- 6,838,413
General and
administrative........... 5,912,066 356,600 398,755 6,667,421
Research and development.... 572,688 -- -- 572,688
------------ ---------- --------- ------------
Total costs and expenses...... 14,610,924 2,848,309 398,755 17,857,988
------------ ---------- --------- ------------
Loss from operations.......... (9,776,728) (401,337) (398,755) (10,576,820)
Interest income............... 394,345 4,670 -- 399,015
------------ ---------- --------- ------------
Net loss...................... $ (9,382,383) $ (396,667) $(398,755) $(10,177,805)
============ ========== ========= ============
Pro forma net loss per share
(basic and diluted)......... $ (1.22) $ (1.03)
============ ============
Pro forma weighted average
shares used in computing net
loss per share (basic and
diluted)(3)................. 7,685,993 9,904,834
============ ============
</TABLE>
- -------------------------
(1) Includes the pro forma amortization of intangible assets for the acquisition
of As We Change.
(2) The consolidated statement of operations of Women First HealthCare, Inc.
includes the operations of As We Change subsequent to October 20, 1998.
(3) The pro forma net loss per share and the pro forma weighted average shares
give effect to the conversion of 1,650,000 shares of Series A Convertible
Preferred Stock and 594,000 shares of Series B Convertible Preferred Stock
issued and deemed to have been issued at December 31, 1998 into 3,351,831
shares of common stock upon the consummation of the offering. Pro forma
weighted average shares were determined based upon the original date of
issuance.
F-31
<PAGE> 117
EDGAR DESCRIPTION OF BACK COVER
The back cover includes pictures of midlife women surrounding the Women First
HealthCare symbol. The seven women are engaged in various activities, including
(describing from the left corner and moving clockwise): (i) composing a letter
at the kitchen table, (ii) talking on the telephone, (iii) smiling at the
camera, (iv) meditating on a beach watching the ocean, (v) holding a basket of
flowers, and (vi) walking briskly.
<PAGE> 118
- ------------------------------------------------------
- ------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Cautionary Note on Forward-Looking
Statements.......................... 18
How We Intend to Use the Proceeds from
the Offering........................ 19
Dividend Policy....................... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Information......................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 33
Management............................ 53
Health Advisory Board................. 67
Principal Stockholders................ 71
Certain Transactions.................. 73
Shares Eligible for Future Sale....... 75
Description of Capital Stock.......... 76
Underwriting.......................... 81
Legal Matters......................... 83
Experts............................... 83
Available Information................. 83
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
4,500,000 SHARES
WOMENFIRST
WOMEN FIRST
HEALTHCARE, INC.
Common Stock
-----------------
PROSPECTUS
-----------------
Allen & Company Logo
NEEDHAM & COMPANY, INC.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by Women First in connection with the distribution
of the securities being registered are as set forth in the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee................ $ 17,078
NASD Filing Fee....................................... 5,500
Nasdaq National Market Listing Fee.................... 95,000
*Legal Fees and Expenses............................... **
*Accounting Fees and Expenses.......................... **
*Printing Expenses..................................... **
*Blue Sky Fees and Expenses............................ 10,000
*Registrar and Transfer Agent Fees and Expenses........ **
*Miscellaneous......................................... **
----------
*Total....................................... $1,150,000
==========
</TABLE>
- -------------------------
* Estimated.
** To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Women First's Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware law, as it may be amended from time to time, no
director of Women First shall be liable to Women First or its stockholders for
monetary damages resulting from a breach of fiduciary duty as a director, except
for (i) liability resulting from a breach of the director's duty of loyalty to
Women First and its stockholders, (ii) acts or omissions which are not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) unlawful payment of dividends or unlawful stock repurchases or redemptions
as provided in Section 174 of the Delaware General Corporation Law of (iv) a
transaction from which the director derived an improper personal benefit. While
the Certificate of Incorporation provides directors, officers, employees and
agents with protection from awards for monetary damages for breaches of their
duty of care, it does not eliminate such duty. Accordingly, the Certificate of
Incorporation will have no effect on the availability of equitable remedies such
as an injunction or rescission based on a breach of such person's duty of care.
Women First's Certificate of Incorporation and the Bylaws also provide
mandatory indemnification for the benefit of directors, officers, employees and
agents of Women First to the fullest extent permitted by Delaware law, as
amended from time to time, including most circumstances under which
indemnification otherwise would be discretionary. In addition, Women First has
entered into individual indemnification agreements with each of its directors
and officers providing indemnification benefits. Such indemnification rights
include reimbursement for expenses incurred by such person in advance of the
final disposition of a proceeding in accordance with the applicable provisions
of Delaware law. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling Women First pursuant to the foregoing provisions, Women First has
been informed that in the opinion of the Securities and Exchange omission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable. Women First also will provide directors'
and officers' liability insurance coverage for its directors and officers.
II-1
<PAGE> 120
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since 1996, Women First has issued and sold unregistered securities as
follows:
(1) In January 1998, Women First received commitments from various
accredited individual and institutional investors to purchase an
aggregate of 2,100,000 shares of its Series A Preferred Stock for total
consideration of $21.0 million. Women First issued 1,050,000 shares of
Series A Preferred Stock on January 8, 1998 for $10.5 million. The
investors placed an additional $10.5 million into an escrow account to
be released as consideration for the issuance of the balance of the
shares of Series A Preferred Stock upon Women First's satisfaction of
certain milestones. In May 1998, an additional accredited institutional
investor committed to purchase 100,000 shares of Series A Preferred
Stock for $1.0 million. Women First issued 50,000 shares to that
investor in May 1998 for $500,000, with the balance subject to the
milestones and escrow procedure. In October 1998, Women First satisfied
the first set of milestones and issued 550,000 shares of Series A
Preferred Stock for total proceeds of $5.5 million, which was released
from escrow. In January 1999, Women First satisfied the second set of
milestones and issued 550,000 shares of Series A Preferred Stock for
total proceeds of $5.5 million, which was released from escrow.
(2) Women First issued warrants to purchase an aggregate of 480,372 shares
of common stock, with an exercise price of $5.46 per share, to Allen &
Company Incorporated and to Johnson & Johnson Development Corporation
in connection with Women First's private placement of Series A
Preferred Stock.
(3) In October 1998, Women First issued an aggregate of 550,000 shares of
Series B Convertible Preferred Stock to the holders of the membership
interests in MenoMorphosis, LLC in connection with Women First's
acquisition of MenoMorphosis. In April 1999, Women First issued an
additional 44,000 shares of Series B Convertible Preferred Stock to the
former holders of the membership interests in MenoMorphosis, LLC
pursuant to an earn-out provision in the acquisition agreement.
(4) As of April 30, 1999, Women First has granted currently outstanding
stock options to employees, officers, directors and consultants to
purchase an aggregate of 2,114,235 shares of common stock. For options
to purchase 27,450 shares of common stock, the exercise price is $0.29
per share; for options to purchase 1,824,873 shares of common stock,
the exercise price is $0.84; for options to purchase 112,346 shares of
common stock, the exercise price is $4.81; for options to purchase
121,735 shares of common stock, the exercise price is $5.77; and for
the balance of the options, the exercise price is $11.39.
(5) In March 1999, Women First issued warrants to purchase an aggregate of
60,756 shares of common stock to the purchasers of $7.5 million of
short-term notes in a private placement. The exercise price for the
warrants equals: (a) the price per share to the public in Women First's
initial public offering less 15%; (b) the price per share of common
stock (or implied price per share of common stock), before any
discounts or commissions, in the next private placement of Women
First's common stock or securities convertible into common stock that
results in gross proceeds to Women First of at least $1,000,000, if
Women First does not complete an initial public offering prior to the
completion of the next such private placement; or (c) $6.00 per share,
if an initial public offering or private placement has not been
completed prior to the anniversary of the date of issuance. The notes
bear interest at 9% per year, payable quarterly, and mature on March 1,
2000.
II-2
<PAGE> 121
The sales of the securities listed in paragraphs (1) - (3) and (5) above
were made in reliance upon Section 4(2) and Regulation D of the Securities Act,
which provide exemptions for transactions not involving a public offering. The
purchasers of securities described above represented that they acquired them for
their own account and not with a view to any distribution thereof to the public.
Women First made inquiries of purchasers of securities in these transactions and
obtained representations from such purchasers to establish that such issuances
qualified for an exemption from the registration requirements. The certificates
evidencing the securities bear legends stating that the shares are not to be
offered, sold or transferred other than pursuant to an effective registration
statement under the Securities Act, or an exemption from such registration
requirements. The issuances of the options described in paragraph (4) above were
exempt from registration under the Securities Act pursuant to Rule 701
promulgated thereunder, on the basis that the stock options were issued pursuant
to the terms and conditions provided by Rule 701. Women First did not retain
underwriters in connection with the issuance of any of Women First's currently
outstanding securities.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1(2) Form of Underwriting Agreement.
3.1(1) Third Amended and Restated Certificate of Incorporation.
3.2(1) Form of Fourth Amended and Restated Certificate of
Incorporation.
3.3(1) Amended and Restated Bylaws.
3.4(2) Form of Second Amended and Restated Bylaws.
4.1(2) Form of Specimen Common Stock Certificate.
5.1(2) Opinion of Latham & Watkins.
10.1(1) Employment Agreement dated January 8, 1998 by and between
Women First HealthCare, Inc. and Edward F. Calesa.
10.2(1) Employment Agreement dated January 14, 1998 by and between
Women First HealthCare, Inc. and David F. Hale.
10.3(1) Long-Term Incentive Plan.
10.4(1) Management Incentive Compensation Plan.
10.5(1) Lease Agreement dated April 3, 1998 by and between Women
First HealthCare, Inc. and Prentiss Properties Acquisition
Partners, L.P.
10.6(1) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare, Inc.*
10.7(1) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical, Inc.
and Women First HealthCare, Inc.*
10.8(1) Agreement effective as of March 1, 1999 between
Bristol-Myers Squibb and Women First HealthCare, Inc.*
10.9(1) Agreement dated September 30, 1998 between Women First
Pharmacy Services, Inc. and Health Script.*
10.10(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Julie G. Martin.
10.11(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Dale F. Steele.
10.12(1) Employment Agreement dated as of October 21, 1998 between
MenoMorphosis, LLC and Nancy J. Casey.
10.13(1) Co-Promotion Agreement dated as of May 27, 1999 between
Ortho-McNeil Pharmaceutical, Inc. and Women First
HealthCare, Inc.*
21.1(1) Subsidiaries.
23.1(3) Consent of Ernst & Young LLP.
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1).
</TABLE>
II-3
<PAGE> 122
<TABLE>
<S> <C>
24.1(1) Powers of Attorney.
27.1(1) Financial Data Schedule.
</TABLE>
- -------------------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Filed herewith.
* Women First is seeking confidential treatment with respect to portions of
this exhibit.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required to permit prompt delivery
to each purchase.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 123
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
DIEGO, STATE OF CALIFORNIA, ON JUNE 7, 1999.
WOMEN FIRST HEALTHCARE, INC.
By: /s/ DAVID F. HALE
-----------------------------------
David F. Hale
President and CEO
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY EACH OF THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EDWARD F. CALESA* Chairman of the Board and June 7, 1999
- --------------------------------------------------- Director
Edward F. Calesa
/s/ DAVID F. HALE President and Chief June 7, 1999
- --------------------------------------------------- Executive Officer
David F. Hale (Principal Executive
Officer)
/s/ DEBRA P. CRAWFORD Vice President and Chief June 7, 1999
- --------------------------------------------------- Financial Officer
Debra P. Crawford (Principal Financial
Officer and Principal
Accounting Officer)
/s/ CHARLOTTE BEERS* Director June 7, 1999
- ---------------------------------------------------
Charlotte Beers
/s/ MEREDITH A. BROKAW* Director June 7, 1999
- ---------------------------------------------------
Meredith A. Brokaw
/s/ GARY V. PARLIN* Director June 7, 1999
- ---------------------------------------------------
Gary V. Parlin
/s/ RICHARD L. RUBIN* Director June 7, 1999
- ---------------------------------------------------
Richard L. Rubin
/s/ JOHN SIMON* Director June 7, 1999
- ---------------------------------------------------
John Simon
*By: /s/ DAVID F. HALE
---------------------------------------------
David F. Hale
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 124
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<S> <C> <C>
1.1(2) Form of Underwriting Agreement
3.1(1) Third Amended and Restated Certificate of Incorporation
3.2(1) Form of Fourth Amended and Restated Certificate of
Incorporation
3.3(1) Amended and Restated Bylaws
3.4(2) Form of Second Amended and Restated Bylaws
4.1(2) Form of Specimen Common Stock Certificate
5.1(2) Opinion of Latham & Watkins
10.1(1) Employment Agreement dated January 8, 1998 by and
between Women First HealthCare, Inc. and Edward F.
Calesa
10.2(1) Employment Agreement dated January 14, 1998 by and
between Women First HealthCare, Inc. and David F. Hale
10.3(1) Long-Term Incentive Plan
10.4(1) Management Incentive Compensation Plan
10.5(1) Lease Agreement dated as of April 3, 1998 by and between
Women First HealthCare, Inc. and Prentiss Properties
Acquisition Partners, L.P.
10.6(1) Agreement dated as of July 1, 1998 between Ortho-McNeil
Pharmaceutical Corporation and Women First HealthCare,
Inc.*
10.7(1) Amendment No. 1 to Distribution Agreement dated as of
November 25, 1998 between Ortho-McNeil Pharmaceutical,
Inc. and Women First HealthCare, Inc.*
10.8(1) Agreement effective as of March 1, 1999 between
Bristol-Myers Squibb and Women First HealthCare, Inc.*
10.9(1) Agreement dated September 30, 1998 between Women First
Pharmacy Services, Inc. and Health Script*
10.10(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Julie G. Martin
10.11(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Dale F. Steele
10.12(1) Employment Agreement dated as of October 21, 1998
between MenoMorphosis, LLC and Nancy J. Casey
10.13(1) Co-Promotion Agreement dated as of May 27, 1999 between
Ortho-McNeil Pharmaceutical, Inc. and Women First
HealthCare, Inc.*
21.1(1) Subsidiaries
23.1(3) Consent of Ernst & Young LLP
23.2(2) Consent of Latham & Watkins (included in Exhibit 5.1)
24.1(1) Powers of Attorney.
27.1(1) Financial Data Schedule
</TABLE>
- -------------------------
(1) Previously filed.
(2) To be filed by amendment.
(3) Filed herewith.
* Women First is seeking confidential treatment with respect to portions of
this exhibit.
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Information" and "Experts" and to the use of our report
dated March 11, 1999 with respect to the consolidated financial statements of
Women First HealthCare, Inc. and our report dated August 31, 1998 with respect
to the financial statements of As We Change, in Amendment No. 3 to the
Registration Statement (Form S-1 No. 333-74367) and related Prospectus of Women
First HealthCare, Inc. for the Registration of up to 5,175,000 shares of its
common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
June 5, 1999
