<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file number: 0-26487
WOMEN FIRST HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3919601
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12220 EL CAMINO REAL, SUITE 400, SAN DIEGO, CALIFORNIA 92130
(Address of principal executive offices)
Registrant's telephone number, including area code: (858) 509-1171
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of April 30, 2000, 17,413,497 shares of common stock, par value $.001
per share, were outstanding.
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995 which provides a "safe harbor" for these types of statements. To the extent
statements in this Quarterly Report involve, without limitation, the Company's
expectations for growth, estimates of future revenue, expenses, profit, cash
flow, balance sheet items or any other guidance on future periods, these
statements are forward-looking statements. These risks and uncertainties include
those identified in Item 5 below under the heading "Factors that May Affect
Future Performance" and other risks identified from time to time in the
Company's filings with the Securities and Exchange Commission, press releases
and other communications. The Company assumes no obligation to update
forward-looking statements.
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WOMEN FIRST HEALTHCARE, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ITEM 1 - FINANCIAL STATEMENTS (Unaudited)
Consolidated Balance Sheets........................................... 1
Consolidated Statements of Operations................................. 2
Consolidated Statements of Cash Flows................................. 3
Notes to Consolidated Financial Statements............................ 4
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................. 7
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...................................................... 12
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS......................... 13
ITEM 5 - OTHER INFORMATION ................................................ 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.................................. 20
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,034,080 $ 32,719,263
Accounts receivable, net 2,734,529 1,916,174
Inventory 1,592,772 1,459,733
Receivable from related party 2,026,768 682,484
Prepaid expenses and other current assets 1,121,965 649,926
------------ ------------
Total current assets 31,510,114 37,427,580
Property and equipment, net 1,019,393 1,035,240
Intangible assets, net 3,621,231 3,745,110
Other assets 1,359,750 1,439,629
------------ ------------
Total assets $ 37,510,488 $ 43,647,559
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,969,484 $ 2,481,581
Payable to related party 1,586,880 482,321
Accrued salaries and employee benefits 2,148,256 1,972,889
Other accrued liabilities 1,832,895 1,991,439
------------ ------------
Total current liabilities 8,537,515 6,928,230
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized -- --
Common stock, $.001 par value; 40,000,000 shares authorized;
17,744,291 shares issued, 54,900, shares to be issued, and
17,403,974 shares outstanding at March 31, 2000 and
17,596,195 shares issued, 54,900 shares to be issued,
and 17,255,878 shares outstanding at December 31, 1999 17,457 17,310
Treasury stock (99,660) (99,660)
Additional paid-in capital 80,784,158 80,761,285
Deferred compensation (851,097) (1,080,135)
Accumulated deficit (50,877,885) (42,879,471)
------------ ------------
Total stockholders' equity 28,972,973 36,719,329
------------ ------------
Total liabilities and stockholders' equity $ 37,510,488 $ 43,647,559
============ ============
</TABLE>
See accompanying notes.
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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net revenue $ 4,559,159 $ 4,302,691
Net revenue with related party 2,960,009 --
------------ ------------
7,519,168 4,302,691
Costs and expenses:
Cost of sales (including purchases from
related party of $932,573 and
$1,793,274 for the three months ended
March 31, 2000 and March 31, 1999) 2,325,711 2,782,853
Marketing and sales 10,915,823 4,985,739
General and administrative 2,390,542 2,599,085
Research and development 269,282 291,540
------------ ------------
Total costs and expenses 15,901,358 10,659,217
------------ ------------
Loss from operations (8,382,190) (6,356,526)
Interest income, net 383,776 18,307
------------ ------------
Net loss (7,998,414) (6,338,219)
Accretion of beneficial conversion feature
related to convertible preferred stock -- (3,361,710)
------------ ------------
Net loss available to common stockholders $ (7,998,414) $ (9,699,929)
============ ============
Net loss per share (basic and diluted) $ (0.46) $ (1.26)
============ ============
Weighted average shares used in computing
net loss per share (basic and diluted) 17,371,465 7,685,993
============ ============
</TABLE>
See accompanying notes.
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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (7,998,414) $ (6,338,219)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization 143,988 36,525
Amortization of intangibles 125,045 119,629
Amortization of deferred compensation 129,238 487,902
Amortization of warrants issued with debt -- 7,608
Changes in operating assets and liabilities (1,158,432) (891,745)
------------ ------------
Net cash used in operating activities (8,758,575) (6,578,300)
INVESTING ACTIVITIES:
Purchases of property and equipment (46,481) (116,013)
Acquisition of subsidiary -- (1,059,897)
Acquisition of licenses and other assets, net (2,947) (412,432)
------------ ------------
Net cash used in investing activities (49,428) (1,588,342)
FINANCING ACTIVITIES:
Issuance of Series A preferred stock -- 5,286,218
Issuance of common stock 122,820 --
Issuance of short-term notes payable to related parties -- 2,000,000
Issuance of short-term notes payable -- 5,490,000
------------ ------------
Net cash provided by financing activities 122,820 12,776,218
------------ ------------
Net increase (decrease) in cash and cash equivalents (8,685,183) 4,609,576
Cash and cash equivalents at beginning of the period 32,719,263 4,438,445
------------ ------------
Cash and cash equivalents at end of the period $ 24,034,080 $ 9,048,021
============ ============
</TABLE>
See accompanying notes.
3
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WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements of Women First HealthCare,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2000. These
financial statements should be read in conjunction with the financial statements
and notes thereto, together with Management's Discussion and Analysis of
Financial Condition and Results of Operations, contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
Principles of Consolidation and Reporting
The consolidated financial statements presented herein include the financial
statements of Women First HealthCare, Inc. and the actual results of As We
Change, LLC. In 1999, the financial statements also included the results of
Women First Pharmacy Services, Inc. As of December 31, 1999, all operations of
Women First Pharmacy Services, Inc. had ceased. All significant intercompany
transactions and balances have been eliminated in consolidation. 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. The Company's
management approach is to review the operating results of the business as one
operating segment which is a specialty health care company.
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.
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 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.
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Contract and other revenue under the Company's co-promotion agreements are
recognized when realized and earned based upon work performed or upon completion
of certain performance requirements of the contracts.
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 and warrants, 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.
2. INVENTORY
Inventory consists of the following components:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Pharmaceutical products $ 908,973 $ 837,462
Self-care products 683,799 622,271
---------- ----------
Total inventory $1,592,772 $1,459,733
========== ==========
</TABLE>
3. STOCK OPTIONS
In March 2000, the Board of Directors ratified and adopted the 1999
Non-Qualified Stock Option Plan of Women First HealthCare, Inc., and approved
the reservation of 250,000 shares for issuance under this Plan. The
Non-Qualified Plan provides for the grant of non-statutory stock options to
eligible key employees and independent consultants of the Company. The exercise
price of the options may be no less than 85% of the fair market value on the
date of grant, and the maximum term of the options granted is ten years. Also in
March 2000, the Board of Directors approved an increase of 700,000 in the number
of shares reserved for issuance under the Women First HealthCare, Inc. 1998
Long-Term Incentive Plan to 2,949,985 shares, which is subject to stockholder
approval.
4. CO-PROMOTION AGREEMENTS
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's assistants associated with 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 31,
2002. Bristol-Myers Squibb may terminate the agreement early upon failure of the
Company to meet certain minimums. As of March 31, 2000, the Company had not
achieved the minimum amounts required to receive compensation under the
agreement. Under an amendment effective April 1, 2000, Bristol-Myers Squibb and
the Company restructured the agreement to reduce the baseline amounts, which
should improve the Company's ability to achieve revenue from its sales efforts.
The amendment, however, changed the group of physicians to which the Company may
co-promote the Pravachol(R) product by eliminating primary care physicians
designated as OB/GYNs by Bristol-Myers Squibb from the definition of Covered
Physicians. In addition, the amendment also reduced from 24 months to 12 months
the amount of time Bristol-Myers Squibb has to make the residual compensation
payment contemplated by the agreement.
5
<PAGE> 9
On May 27, 1999, the Company entered into a co-promotion agreement with
Ortho-McNeil Pharmaceutical, Inc. ("Ortho-McNeil") a subsidiary of Johnson &
Johnson, a principal stockholder of the Company, pursuant to which the Company
agreed to co-promote ORTHO TRI-CYCLEN(R), a leading oral contraceptive, and
ORTHO-PREFEST(TM), a new oral combination hormonal replacement therapy (HRT)
product, which received approval by the FDA in October 1999. Effective as of
March 31, 2000, Women First and Ortho-McNeil agreed that Women First would
discontinue the co-promotion of ORTHO TRI-CYCLEN(R) to focus more of the
Company's selling efforts on the launch of ORTHO-PREFEST(TM). Under an amendment
effective March 31, 2000, ORTHO TRI-CYCLEN(R) was discontinued from the
co-promotion agreement, and Ortho-McNeil agreed to compensate Women First $1.5
million for its sales efforts through the first quarter of 2000 with respect to
ORTHO TRI-CYCLEN(R). This payment was recognized as related party revenue in the
first quarter 2000. In addition, Ortho-McNeil agreed to compensate Women First
$500,000 for agreeing to add a provision to the agreement which prohibits the
Company from marketing, promoting, selling or distributing any prescription
contraceptive product or prescription hormonal replacement therapy product other
than the Ortho-Est(R) and ORTHO-PREFEST(TM) products 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. This amount
will be recognized as related party income on a straight-line basis over the
remaining term of the agreement. There will not be any write-offs related to the
discontinued product.
Women First will continue to co-promote the ORTHO-PREFEST(TM) oral
combination HRT product. Ortho-McNeil will compensate the Company for sales of
ORTHO-PREFEST(TM) 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.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report. This
discussion may contain forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed below in "Item 5:
Other Information - Factors That May Affect Future Performance" as well as those
discussed in "Item 1: Business - Risks and Uncertainties" in our Annual Report
on Form 10-K for the year ended December 31, 1999. We undertake no obligation to
release publicly the results of any revisions to these forward-looking
statements or to reflect events or circumstances arising after the date hereof.
OVERVIEW
Women First HealthCare is a specialty health care company dedicated to
improving the health and well-being 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 and our direct-to-consumer marketing
programs through our catalog operation and the Internet.
In March 1999, we entered into a co-promotion agreement with Bristol-Myers
Squibb U.S. Pharmaceuticals Group relating to the Pravachol(R)
cholesterol-lowering drug, and in May 1999, we entered into a co-promotion
agreement with Ortho-McNeil Pharmaceutical, Inc. relating to the ORTHO
TRI-CYCLEN(R) oral contraceptive product and ORTHO-PREFEST(TM), a new oral
combination hormonal replacement therapy (HRT) product. We began selling and
distributing the Esclim(TM) estradiol transdermal system in November 1999.
Our product co-promotion agreements with Bristol-Myers Squibb and
Ortho-McNeil require us to achieve minimum performance levels to receive
compensation or to prevent contract termination. Through March 31, 2000, we did
not meet the minimum performance levels required to receive compensation under
the co-promotion agreement with Bristol-Myers Squibb relating to the
Pravachol(R) cholesterol-lowering drug. In addition, Bristol-Myers Squibb has
the right to terminate the agreement upon sixty days' prior written notice in
the event we do not exceed certain minimum performance levels for two
consecutive quarters or the yearly prescription minimums for one year. Under an
amendment effective April 1, 2000, Bristol-Myers Squibb and Women First
restructured the agreement to reduce the baseline amounts, which should improve
our ability to achieve revenues from our sales efforts. Through March 31, 2000,
we offered ORTHO TRI-CYCLEN(R), a leading oral contraceptive, under the
co-promotion agreement with Ortho-McNeil. Effective as of March 31, 2000, Women
First and Ortho-McNeil agreed that Women First would discontinue the
co-promotion of ORTHO TRI-CYCLEN(R) to focus our selling efforts on the launch
of ORTHO-PREFEST(TM). Under an amendment effective March 31, 2000, ORTHO
TRI-CYCLEN(R) was discontinued from the co-promotion agreement, and Ortho-McNeil
agreed to compensate Women First $1.5 million for our sales efforts made through
the first quarter of 2000 with respect to ORTHO TRI-CYCLEN(R). We recognized
this payment as related party revenue in the first quarter 2000. In addition,
Ortho McNeil agreed to compensate Women First $500,000 for our agreement to add
a provision to the agreement which prohibits us from marketing, promoting,
selling or distributing any prescription contraceptive product or prescription
hormonal replacement therapy product other than the Ortho-Est(R) and
ORTHO-PREFEST(TM) products and other than an estrogen patch product
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(subject to specified restrictions) during the term of the agreement and the
three months following the expiration of the term. We will recognize this amount
as related party income on a straight-line basis over the remaining term of the
agreement.
We have incurred significant losses since we were founded in November 1996.
We had an accumulated deficit of $50.9 million as of March 31, 2000, 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.
RESULTS OF OPERATIONS
Net Revenue. For the three months ended March 31, 2000, total net revenue
was $7.5 million compared to $4.3 million for the same period in 1999. Revenue
for the three months ended March 31, 2000 was derived primarily from
pharmaceutical product sales of $2.0 million from the Ortho-Est(R)oral estrogen
product and the Esclim(TM) estradiol transdermal system, and sales from our
subsidiary As We Change, LLC, a national mail-order catalog and Internet
retailer of $2.3 million. In addition, we recorded related party revenue of $1.5
million for work performed under our agreement with Ortho-McNeil to develop an
educational program with an independent provider of continuing medical education
programs regarding HRT and the application of hormonal management to clinical
situations and our co-promotion of the ORTHO-PREFEST(TM) oral combination HRT
product which was launched at the end of January 2000, and $1.5 million for our
sales efforts related to the ORTHO TRI-CYCLEN(R) oral contraceptive product
through March 31, 2000 pursuant to the amendment to the co-promotion agreement
with Ortho-McNeil. For the three months ended March 31, 1999, revenue was
derived primarily from sales of the Ortho-Est(R) oral estrogen pharmaceutical
product of $2.4 million and sales from As We Change of $1.6 million.
Costs and Expenses. Costs and expenses increased $5.2 million to $15.9
million for the three months ended March 31, 2000 from $10.7 million for the
three months ended March 31, 1999. The increase in costs and expenses was due
primarily to the expansion of our direct field sales.
Cost of sales was $2.3 million, or 31.0% of net revenue, for the three
months ended March 31, 2000 as compared to $2.8 million, or 64.7% of net
revenue, for the same period in 1999. Cost of sales consists primarily of the
amounts we pay for products under supply agreements. The decrease in costs as a
percentage of net revenue was primarily due to differences in the revenue mix
for the first quarter of 2000 as compared to the same period in 1999.
Marketing and sales expense was $10.9 million for the three months ended
March 31, 2000 compared to $5.0 million for the three months ended March 31,
1999. The increase in these expenditures was primarily due to our expansion of
the sales organization to 150 sales territories for the launch of the
ORTHO-PREFEST(TM) oral combination HRT product. In addition, this increase
reflects increased costs associated with our education programs focused on
hormone replacement therapy, catalog production, market research, product
literature and professional samples.
General and administrative expense decreased $208,000 to $2.4 million for
the three months ended March 31, 2000 from $2.6 million for the three months
ended March 31, 1999. The decrease in these expenses was primarily due to
decreases in recruiting, relocation and vacation costs.
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Research and development expense was $269,000 for the three months ended
March 31, 2000 compared to $292,000 in the comparable period in 1999. Research
and development expense consists primarily of salaries and regulatory costs
associated with our product applications.
Loss from Operations. For the reasons discussed above, the loss from
operations increased $2.1 million to $8.4 million for the three months ended
March 31, 2000 from $6.4 million for the three months ended March 31, 1999.
Interest Income, net. Interest income, net increased $366,000 to $384,000
for the three months ended March 31, 2000 from $18,000 for the three months
ended March 31, 1999. Interest income, net consists primarily of earnings on our
cash and cash equivalents. The increase in interest income, net for the three
months ended March 31, 2000 compared to the prior year was primarily due to
increased average cash balances.
Accretion of Beneficial Conversion Feature Related to Convertible Preferred
Stock. In 1999, we recognized a $3.4 million charge relating to the increase in
the net loss available to common stockholders equal to the intrinsic value of
the beneficial conversion feature of the Series A preferred stock we 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.
FACTORS AFFECTING RESULTS OF OPERATIONS
We incurred operating losses of $30.8 million in the year ended December 31,
1999 and $8.4 million in the three months ended March 31, 2000. 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
($5.4 million for 2000, 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/or 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,
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- changes in the competitive environment that could cause us to change our
pricing or marketing strategy, and
- 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 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, 2000, our working capital totaled $23.0 million compared to
$30.5 million at December 31, 1999. Cash and cash equivalents were $24.0 million
at March 31, 2000 compared to $32.7 million at December 31, 1999.
Our primary source of liquidity has been proceeds from private placements of
our equity securities and the initial public offering of common stock. In
January and May 1998, we issued 1,050,000 shares of Series A Preferred Stock
(equivalent to 1,921,500 shares of common stock) and warrants and 50,000 shares
of Series A Preferred Stock (equivalent to 91,500 shares of common stock) and
warrants for net proceeds of $10.0 million and $453,000, respectively. In
October 1998, we 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. 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 addition, 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. In August 1999, the Company repaid $7.2 million
representing all principal outstanding plus accrued interest on the short-term
notes issued in March 1999, with the exception of $250,000 in principal, which
was repaid in October 1999.
On July 1, 1999, we completed our initial public offering of 4,500,000
shares of our common stock, providing us with proceeds, net of underwriting fees
and offering expenses, of approximately $44.5 million. All shares of convertible
preferred stock outstanding on June 28, 1999 automatically converted into
4,388,329 shares of common stock upon the sale of common stock in the offering.
In July 1999, the underwriters exercised in full their over-allotment option,
and we issued an additional 675,000 shares of common stock providing us with net
proceeds of approximately $6.9 million.
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 $8.8 million for the three months
ended March 31, 2000 and was $6.6 million for the same period in 1999. Net cash
used in investing activities was $49,000 for the three months ended March 31,
2000 and was $1.6 million for the same period in 1999, consisting of net capital
expenditures and the deferred cash payment for the acquisition of As We Change,
LLC in 1999. Net cash provided by financing activities was $123,000 for the
three months ended March 31, 2000 and was $12.8 million for the same period in
1999, primarily consisting of the net proceeds from the issuance
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of equity securities and in 1999, the issuance of short-term notes and warrants.
For the three-month period ended March 31, 2000, we made net capital
expenditures of $49,000 primarily for computer equipment. We made net capital
expenditures of $528,000 during the three months ended March 31, 1999, primarily
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 you(TM), a program that we developed in conjunction
with Dr. Deepak Chopra. While we intend to continue pursuing the potential
addition of a product or the acquisition of a product line, we currently have no
firm commitments. In July 1999, we entered into a distribution and license
agreement with Laboratoires Fournier S.A. under which we have the exclusive
right (subject to exceptions) to market, use, distribute and sell the Esclim(TM)
estradiol transdermal system in various dosages in the United States and Puerto
Rico. The agreement requires us to pay Fournier a non-refundable license fee of
$1.45 million payable over a two-year period, of which $750,000 was paid in 1999
and $700,000 will be paid subject to sales objectives being reached in 2000 and
2001.
We have experienced a substantial increase in our expenditures since our
inception consistent with growth, primarily in the expansion of our sales
organization and in our operations and internal staffing. Our co-promotion
agreement with Ortho-McNeil required us to expand our field sales organization
to at least 100 representatives in 1999 and requires us to commit at least 150
sales representatives to co-promote ORTHO-PREFEST(TM) under the agreement in
each of 2000, 2001 and 2002. We expect that our operating expenses will continue
to increase as we obtain rights to market and distribute additional products and
we 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 $5.4 million for 2000 and
decreases annually over the remaining eight-year term of the contract for an
aggregate commitment of $33.4 million.
We believe that based on our current performance and present plans, our
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. Thereafter, if cash generated by operations is insufficient to
satisfy our liquidity requirements, we may need to sell additional equity or
debt securities or obtain credit facilities. We currently do not have any lines
of credit. The sale of additional equity or convertible debt securities may
result in additional dilution to our stockholders. We cannot give any assurances
that we will be able to raise any such capital on terms acceptable to Women
First or at all. The extent of our needs for additional liquidity 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 operations.
YEAR 2000 COMPLIANCE
In late 1999, we completed our remediation and testing of systems. As a
result of our planning and implementation efforts, we experienced no significant
disruptions in mission critical information technology and non-information
technology systems and believe those systems successfully responded to the Year
2000 date change. Expenditures required to make us Year 2000 compliant were not
material to our consolidated financial position or results of operations. We are
not aware of any material problems resulting from Year 2000 issues, either with
our products, our internal systems, or the products and
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services of third parties. We will continue to monitor our mission critical
computer applications and those of our suppliers and vendors throughout the year
2000 to ensure that any latent Year 2000 matters that may arise are addressed
promptly.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our distribution and license agreement with Laboratoires Fournier S.A.
requires us to pay for the purchase of the Esclim(TM) estradiol transdermal
product in European euros. As a result, our operating results for this product
are exposed to changes in exchange rates between the U.S. dollar and the
European euro.
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PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1999, Women First filed a registration statement under the
Securities Act of 1933 to sell up to 4.5 million shares of common stock in its
Initial Public Offering ("IPO"). The effective date of the registration
statement was June 28, 1999, under Commission File No. 333-74367. The offering
was managed by Allen & Company Incorporated and Needham & Company, Inc. and
closed on July 1, 1999 after Women First sold an aggregate of 4.5 million shares
of common stock at an initial public offering price per share of $11.00. On July
21, 1999, Women First sold an additional 675,000 shares of common stock at an
initial public offering price per share of $11.00 upon the underwriters'
exercise in full of their over-allotment option. The IPO, including the
underwriters' exercise of their over-allotment option, resulted in gross
proceeds to us of $56.9 million, $4.0 million of which was applied toward the
underwriting discount. Other expenses related to the offering totaled
approximately $1.5 million. Our net proceeds totaled $51.4 million, all of which
were deposited into our accounts in July 1999. Since the completion of our
offering in July 1999, the net offering proceeds have been applied to
approximately $7.5 million to repay short-term notes issued in March 1999,
$750,000 to develop and acquire rights to additional products, $457,000 to
purchase machinery, equipment and leasehold improvements, and $23.1 million for
working capital and other general corporate purposes. John Simon, a Director of
Women First, is a managing director with Allen & Company Incorporated.
ITEM 5. OTHER INFORMATION
FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
The following information sets forth factors that could cause our actual
results to differ materially from those contained in forward looking statements
we have made in this Quarterly Report and those we may make from time to time.
For a more detailed discussion of the factors that could cause actual results to
differ, see "Item 1: Business - Risks and Uncertainties" in our Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
We have incurred significant losses since we were founded in November 1996.
We have an accumulated deficit of $50.9 million through March 31, 2000, and we
expect to incur losses at least through the end of 2000. Through March 31, 2000,
we have generated only $34.9 million in net revenues. We may not successfully
complete the transition to successful operations or profitability. Early stage
companies such as ours frequently encounter problems, delays and expenses
including, but 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 "Item 2: Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We have embarked on an ambitious plan to provide pharmaceutical and
self-care products, educational programs and support systems to clinicians and
the midlife women they care for. 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. If
we fail to implement any of the key elements of our business plan, our business
may not succeed.
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Many of our product agreements require us to make minimum payments or make a
minimum number of sales calls regardless of our actual sales of product covered
by the agreement. If our sales of these products do not exceed the costs of
these minimum payments or we do not make the minimum calls, our marketing and
distribution of these products will not be profitable and our results of
operations will be harmed. In addition, 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 have a material adverse effect on our business. Most of our
contracts permit termination by the other party if we breach our obligations,
including our minimum payment commitments, under the contracts, experience a
change of control or enter bankruptcy.
Our co-promotion agreement with Ortho-McNeil relating to the
ORTHO-PREFEST(TM) oral combination hormonal replacement therapy (HRT) product,
requires us to make a significant number of sales calls each year during the
term of the agreement. In addition, the agreement required us to expand our
field sales organization to at least 100 representatives in 1999 and requires us
to commit at least 150 sales representatives to co-promote ORTHO-PREFEST(TM) in
each of 2000, 2001 and 2002. Ortho-McNeil also may reduce the payments otherwise
required to be paid to us under the agreement with respect to the
ORTHO-PREFEST(TM) product if we do not make a specified portion of the minimum
number of sales calls for that product. In addition, the agreement 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, the
President and Chief Executive Officer, is no longer associated with Women First
(other than as a result of death or disability).
Our copromotion 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 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. These minimum amounts require us to achieve a significant increase
over the number of prescriptions for this product historically 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.
As of March 31, 2000, the end of the first year under the agreement, we had not
achieved the minimum amounts required to receive compensation under the
agreement. Under an amendment effective April 1, 2000, Bristol-Myers Squibb and
Women First restructured the agreement to reduce the baseline amounts, which
should improve our ability to achieve revenue from our sales efforts. The
amendment, however, changed the group of physicians to which we may co-promote
the Pravachol(R) product by eliminating primary care physicians designated as
OB/GYNS by Bristol-Myers Squibb from the definition of Covered Physicians.
In July 1999, we entered into a distribution and license agreement with
Laboratories Fournier S.A. under which we have been granted the exclusive right
(subject to exceptions) to market, distribute and sell the Esclim(TM) estradiol
transdermal system in various dosages in the United States and Puerto Rico. The
agreement requires us to pay Fournier a non-refundable license fee of $1.45
million payable over a two-year period, of which $750,000 was paid in 1999. The
remaining $700,000 of this fee is subject to sales objectives being reached in
2000 and 2001. Fournier may terminate the agreement if we fail to achieve
certain minimum sales levels or if we fail to make certain minimum sales calls.
Our distribution agreement for the Ortho-Est(R)oral estrogen product
requires us to make minimum aggregate payments of $33.4 million to Ortho-McNeil
over the remaining eight-year period of the
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contract, regardless of the actual sales performance of this product. Under this
agreement, we are required to make minimum payments of $5.4 million during 2000.
The minimum payments in future years decrease annually based on a ten-year
forecast that was determined at the time the contract was executed. In addition,
this agreement 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)oral estrogen 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.
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 believe that our 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. 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, 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 may 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.
If midlife women do not use and their clinicians do not recommend the
products we offer, we will continue to experience significant losses. 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 business 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's assistants focused on women's
health, and 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 on acceptable terms 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. 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
and 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
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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,
which could cause the price of our stock to decline significantly. Quarterly
operating results may fluctuate significantly based on factors such as:
- whether we achieve the minimum performance levels to receive compensation
under our agreement with Bristol-Myers Squibb,
- whether we achieve the specified sales calls to receive compensation
under our agreements with Ortho-McNeil and Laboratoires Fournier,
- 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. For
example, we only recently began co-promoting the cholesterol-lowering drug
Pravachol(R) and the ORTHO-PREFEST(TM) oral combination HRT product and
marketing and distributing the Esclim(TM) estradiol transdermal system.
Accordingly, we have little basis to estimate our revenues from these products.
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. As a result, 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.
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, sales,
marketing and technical resources. 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.
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.
The pharmaceutical products we offer face significant competition.
ORTHO-PREFEST(TM), the new oral combination HRT product, Ortho-Est(R), the oral
estrogen product, and the Esclim(TM) estradiol transdermal system compete in the
hormone replacement therapy market. The primary competition in this market is
Wyeth-Ayerst Pharmaceuticals, Inc., a division of American Home Products, which
markets Premarin(R), an oral estrogen product, and Prempro(R) and Premphase(R),
combination oral estrogen and progestin products. The HRT products we market
also compete with HRT products marketed by Parke-Davis, a Warner-Lambert
Division, Solvay Pharmaceuticals, Inc., Duramed Pharmaceuticals, Inc.,
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and others, as well as generic HRT products. The HRT products we market also
compete with non-hormonal replacement therapy products marketed by Merck & Co.,
Inc. and Eli Lilly & Company. In addition, the Esclim(TM) estradiol transdermal
system competes with estrogen-only patch products marketed by Berlex
Laboratories, Watson Laboratories, Inc., and Novogyne Pharmaceuticals and
combination estrogen/progestin patch products marketed by Rhone-Poulenc Rorer
Pharmaceuticals, Inc. The Pravachol(R) product competes with other
cholesterol-lowering products marketed by Merck & Co., Inc., Warner-Lambert
Company, Pfizer, Inc., Novartis Pharmaceuticals Corporation and Bayer
Corporation. Each of these competitors has substantially greater marketing,
sales and financial resources than we do.
Competition for the self-care products we offer is significant. As We
Change, LLC competes with a number of catalog companies and Internet retailers
focusing on self-care products. Transitions for Women(R) offers a range of
nutritional and herbal products for midlife women and Self Care(R), Well &
Good(TM), Feel Good(TM), Solutions(R), Intelihealth HealthyHome(TM) and
Harmony(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, such as
cbs.medscape.com, nlm.nih.gov/medlineplus, healthfinder.gov, reutershealth.com,
drkoop.com, and webmd.com.
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.
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. 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. 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.
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.
Any failure to obtain reimbursement could require us to discontinue sales of a
particular product and could harm our results of operations. In particular,
sales of the Ortho-Est(R)oral estrogen product and the Esclim(TM) estradiol
transdermal system may be adversely affected by formularies that require
substitution of generics on prescriptions written for these products unless the
physician indicates "dispense as written" on the prescription.
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 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.
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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 in a timely fashion, our sales may suffer and we could be required to
abandon a product line. 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. 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.
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 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.
Much of our business is subject to 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. Changes in
existing laws and regulations could adversely affect our business.
Our failure to retain the principal members of our management team,
particularly Edward F. Calesa, the Chairman of the Board, and David F. Hale, the
President and Chief Executive Officer, or to hire additional qualified employees
would adversely affect our ability to implement our business plan. We are the
beneficiary of life insurance policies on the lives of Mr. Calesa and Mr. Hale
in the amount of $2.0 million each. We do not have life insurance policies on
the lives of any other members of our management team.
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. As of April 30, 2000, Edward F. Calesa and Randi
C. Crawford jointly own approximately 36.5% of our common stock. Ms. Crawford is
Mr. Calesa's daughter. Johnson & Johnson Development Corporation, a subsidiary
of Johnson & Johnson, owns approximately 12.1% of our common stock. Our present
directors, executive officers and principal stockholders as a group beneficially
own approximately 59.9% 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
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matters submitted to our stockholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets.
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 our common stock 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 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 more difficult for us to raise funds through
equity offerings in the future. As of April 30, 2000, we had 17,413,497 shares
of common stock outstanding. All of these shares are eligible for sale in the
public market. An additional 2,705,949 shares of common stock are issuable upon
the exercise of outstanding options and warrants, although a significant number
of our outstanding options are subject to vesting.
We have implemented anti-takeover provisions that could prevent an
acquisition of our company at a premium price. Provisions of our Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws 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 certificate of incorporation allows 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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1* First Amendment to Co-promotion Agreement dated as of
March 31, 2000 between Women First HealthCare, Inc. and
Ortho-McNeil Pharmaceutical, Inc.
10.2* Amendment No. 1 to the Copromotion Agreement dated as of
May 11, 2000 between Women First HealthCare, Inc. and
Bristol-Myers Squibb U.S. Pharmaceuticals Group
27.1 Financial Data Schedule
* Women First is seeking confidential treatment with respect to portions of
this exhibit.
(b) No reports on Form 8-K were filed during the three-month period
ended March 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly causes this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Women First HealthCare, Inc.
Date: May 15, 2000 By: /s/ DAVID F. HALE
-------------------------------------------
David F. Hale
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 By: /s/ ANTHONY P. MARIS
-------------------------------------------
Anthony P. Maris
Vice President, Interim Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
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Certain material (indicated by an asterisk) has been omitted from this document
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.
EXHIBIT 10.1
FIRST AMENDMENT TO CO-PROMOTION AGREEMENT
THIS FIRST AMENDMENT TO THE CO-PROMOTION AGREEMENT dated May 27, 1999,
by and between ORTHO-MCNEIL PHARMACEUTICAL, INC., a Delaware corporation
("ORTHO"), and WOMEN FIRST HEALTHCARE, INC., a Delaware corporation ("WFHC")
hereinafter ("CO-PROMOTION AGREEMENT") is made as of March 31, 2000.
RECITALS
WHEREAS, ORTHO and WFHC entered into a CO-PROMOTION AGREEMENT to
Co-Promote certain Products which are identified in the CO-PROMOTION AGREEMENT
as ORTHO-PREFEST(TM), ORTHO TRI-CYCLEN(R), and ***.
WHEREAS, the parties have decided to restructure the CO-PROMOTION
AGREEMENT so as to eliminate from the CO-PROMOTION AGREEMENT the right of WFHC
to Co-Promote ORTHO Oral Contraceptive Products, particularly ORTHO
TRI-CYCLEN(R) and ***.
WHEREAS, ORTHO and WFHC wish to continue the Co-Promotion of
ORTHO-PREFEST(TM) pursuant to the terms of the CO-PROMOTION AGREEMENT as amended
herein.
NOW, THEREFORE, in consideration of the covenants and promises contained
in this Agreement, ORTHO and WFHC agree as follows:
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 2
AMENDED TERMS AND CONDITIONS
1. For the purposes of this Amendment, the defined terms in the CO-PROMOTION
AGREEMENT shall have the same meaning when used herein.
2. In the CO-PROMOTION AGREEMENT, all provisions relating to the Oral
Contraceptive Products ORTHO TRI-CYCLEN(R) and *** including but
not limited to WFHC's rights and obligations to co-promote such Products shall
be eliminated from the CO-PROMOTION AGREEMENT. This also includes any
compensation provisions relating to such Products. Accordingly, the definition
of Product is amended to mean ORTHO-PREFEST(TM). Notwithstanding the foregoing,
or any other provision of this Amendment to the contrary, each party's
obligations under Article 10 of the CO-PROMOTION AGREEMENT shall remain in full
force and effect with respect to ORTHO TRI-CYCLEN(R) AND ***.
3. While it is understood and agreed that pursuant to the terms of the
CO-PROMOTION AGREEMENT, prior to this amendment thereto, WFHC is not entitled to
any compensation for the Details made in connection with ORTHO TRI-CYCLEN(R),
the parties pursuant to this Amendment have agreed to compensation for the
actual Details for ORTHO TRI-CYCLEN(R) made for the third and fourth calendar
quarters of 1999 and the first calendar quarter of 2000. The agreed upon
compensation for such Details is one million five hundred thousand dollars
($1,500,000) payable prior to May 15, 2000. Compensation for Co-Promotion of
ORTHO-PREFEST(TM) shall remain as recited in the CO-PROMOTION AGREEMENT.
4. Paragraph 2.3 (a) in the CO-PROMOTION AGREEMENT is deleted in its entirety
and replaced with the following new paragraph 2.3(a):
"2.3 (a) WFHC shall not market, promote, distribute or sell any
Contraceptive Product or HRT Product indicated and approved for human
consumption in the Territory, other than ORTHO-EST(R) and
ORTHO-PREFEST(TM) during the Term
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 3
and for a period of three months thereafter; provided, however, that
WFHC may promote an estrogen only patch product or another product that
is other than a Contraceptive Product or HRT Product through the WFHC
Sales Force *** during a Detail if such product(s) is defined in the
call plan for its sales representatives and such call plan is not
changed more than four times per year. WFHC may, however, promote such
estrogen patch product or any Contraceptive Product through a Sales
Force that is independent from the WFHC Sales Force at anytime and in
any position it so desires. Notwithstanding the foregoing, the three
month period after the Term shall not exist if the Term is shortened as
a result of termination under Section 13.4(a) (i), (ii) and (iv), and
(b), (i) and (ii) and Section 13.5 in the event of termination by WFHC
as a result of ORTHO's breach."
5. In consideration for the restrictions recited in Section 4 of this Amendment
regarding the promotion of Contraceptive and HRT Products, ORTHO agrees to pay
WFHC five hundred thousand dollars ($500,000) payable prior to May 15, 2000.
6. Paragraph 4.3(b) in the CO-PROMOTION AGREEMENT is deleted in its entirety and
replaced with the following new paragraph 4.3(b):
"4.3(b)Assuming 150 representatives, the number of Details for 2000
shall be ***, with *** Details required during the first calendar
quarter of 2000 and *** Details required during each of the second
through fourth calendar quarters of 2000; and the number of Details for
2001 through 2002 shall be ***."
7. Paragraph 4.3 (c) in the CO-PROMOTION AGREEMENT is deleted in its entirety
and replaced with the following new paragraph 4.3 (c):
" 4.3. (c) On each Detail, WFHC agrees to present the Sales Message on
ORTHO-PREFEST(TM) in the *** to the Prescribing
Physicians and present no
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 4
more than *** other products on any single call in the ***."
8. All other terms of the CO-PROMOTION AGREEMENT shall remain as is to the
extent they apply solely toward the co-promotion of ORTHO-PREFEST(TM).
9. ORTHO may distribute only such quantities of promotional materials for ORTHO
TRI-CYCLEN(R) which bear WFHC's Trademarks and logos as ORTHO has in stock as of
the date of this Amendment.
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 5
IN WITNESS WHEREOF, the Parties have caused this Amendment to be
executed by their respective duly authorized officers or representatives as of
the day and year first written above.
ORTHO-MCNEIL WOMEN FIRST HEALTHCARE, INC.
PHARMACEUTICAL, INC.
By: /S/ ROBERT G. SAVAGE By: /s/ DAVID F. HALE
----------------------------- ---------------------------------
President President
Date: MAY 8, 2000 Date: MAY 3, 2000
--------------------------- -------------------------------
<PAGE> 1
Certain material (indicated by an asterisk) has been omitted from this document
pursuant to a request for confidential treatment. The omitted material has been
filed separately with the Securities and Exchange Commission.
EXHIBIT 10.2
COPROMOTION AGREEMENT
This Agreement ("Amendment No. 1") is made by and between
BRISTOL-MYERS SQUIBB U.S. PHARMACEUTICALS GROUP, a division of E.R. SQUIBB &
SONS, INC., a Delaware corporation, having a place of business at 777 Scudders
Mill Road, Plainsboro, New Jersey 08536 ("BMS"), and WOMEN FIRST HEALTHCARE,
INC., a Delaware corporation, maintaining its principal business offices at
12220 El Camino Real, Suite 400 San Diego, California 92130 ("WFHC").
W I T N E S S E T H:
WHEREAS, effective March 1, 1999, BMS and WFHC entered into a
copromotion agreement for BMS' product Pravachol(R) under which WFHC would
promote such product to OB/GYNs in the United States (said agreement, referred
to herein as the "Copromotion Agreement"); and
WHEREAS, the parties desire to amend such Copromotion Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. The third "WHEREAS" clause and the definition of "Covered Physician" are
amended to delete the following phrase:
"and to those primary care physicians whose primary practices are
in the field of OB/GYN medical care and who are designated as an OB/GYN
on BMS' internal tracking databases"
2. In Sections 7(c) and 8(c), the reference to "Section 6(d)" therein shall
be changed to "Section 7(d)".
3. Articles 11, 12 and 13 of the Copromotion Agreement are revised to read
as set forth in Attachment 1 to this Amendment No. 1.
4. Exhibit A to the Copromotion Agreement is revised in its entirety to read
as set forth in Attachment 2 to this Amendment No. 1.
5. The following is added to the end of the second paragraph of Section 8(a):
"Upon request, WFHC will review with BMS WFHC's procedures for Product
samples accountability and control and will incorporate any reasonable
recommendations made by BMS to improve accountability and control.
Further, WFHC will provide BMS with a monthly electronic report, within
forty-five (45) days after the close of an Agreement Quarter, setting
forth ME number, Territory number, and the date of disbursement and
sample units disbursed (by strength) in such preceding month. WFHC agrees
that Product samples distributed by its Sales Force in any Agreement
Quarter (out of the Product samples provided to it for an Agreement Year)
shall be in such quantities as correspond in all material respects with
the distribution of Baseline Quarterly Prescriptions (as compared to the
Baseline Agreement Year Prescriptions) for such Agreement
1
<PAGE> 2
Year."
6. Except where otherwise specifically defined herein, any capitalized terms
used in this Amendment No. 1 shall have the meaning ascribed to such term
in the Copromotion Agreement.
7. The effective date of the amendments set forth in paragraphs 1, 2 and 3 of
this Amendment No. 1 shall be effective as of April 1, 2000. The effective
date of the amendment set forth in paragraph 4 of this Amendment No. 1
shall be effective as of April 1, 1999.
8. BMS represents and warrants to WFHC that (i) the execution, delivery and
performance of this Amendment No. 1 by BMS does not conflict with, or
constitute a breach of or under, any order, judgment, agreement or
instrument to which BMS is a party; and (ii) the execution, delivery and
performance of this Agreement by BMS does not require the consent of any
person or the authorization of (by notice or otherwise) any governmental
or regulatory authority. WFHC represents and warrants to BMS that (i) the
execution, delivery and performance of this Agreement by WFHC does not
conflict with, or constitute a breach of or under, any order, judgment,
agreement or instrument to which WFHC is a party; and (ii) the execution,
delivery and performance of this Agreement by WFHC does not require the
consent of any person or the authorization of (by notice or otherwise) any
governmental or regulatory authority.
9. Except as herein modified, the parties confirm that the Copromotion
Agreement remains in full force and effect.
******************
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
in multiple counterparts through their duly authorized representatives.
BRISTOL-MYERS SQUIBB U.S. WOMEN FIRST HEALTHCARE, INC.
PHARMACEUTICALS GROUP
By: /s/ KRISTINE PETERSON 5-11-00 By: /s/ DAVID F. HALE
------------------------------------ --------------------------------
Name: Kristine Peterson Name: David Hale
Title: Senior Vice-President Title: President
Metabolics Diseases Marketing
2
<PAGE> 3
ATTACHMENT 1 to AMENDMENT NO. 1
The parties agree to replace Articles 11, 12 and 13 of the Copromotion
Agreement with the following:
"11. COPROMOTION COMPENSATION.
(a) As compensation for services rendered by WFHC during the
Copromotion Term and its agreements hereunder, BMS shall pay to WFHC a fee
("Performance Fee") with respect to each Agreement Quarter during the term
hereof *** of those Net Sales Attributable to Covered
Physicians that are in excess of the Baseline Quarterly Sales Attributable to
Covered Physicians for such Agreement Quarter.
(b) For purposes of this Agreement:
"Average Selling Price per Prescription" means, for any Agreement Quarter,
the Total Net Sales of the Product in the Territory for the applicable period
from prescriptions written by all physicians of all specialties and practices,
divided by the total number of retail (TRX) and mail order prescriptions (TRX)
for the Product that are written or ordered in such applicable period by Covered
and Non-Covered Physicians. The number of retail (TRX) prescriptions shall be
determined by the National Prescriptions Audit Plus: Prescriber Specialty Report
as issued by IMS America. The number of mail order prescriptions for a given
Agreement Quarter shall be deemed equal to *** of the number of retail
prescriptions determined for such Agreement Quarter (with the Average Selling
Price for mail order prescriptions to be adjusted (i.e., trued up) to be
equivalent with the number of tablets per prescription on a retail basis).
"Baseline Quarterly Sales Attributable to Covered Physicians" for each
Agreement Quarter shall mean the product of: (i) the Baseline Quarterly
Prescriptions for such Agreement Quarter, multiplied by (ii) the Average
Selling Price per Prescription for such Agreement Quarter.
"Baseline Agreement Year Prescriptions" for an Agreement Year means:
(i) For the first Agreement Year, *** Covered Physician Prescriptions.
(ii) For the second Agreement Year, *** Covered Physician Prescriptions.
(iii) For the third Agreement Year, the sum of (1) *** Covered Physician
Prescriptions, plus (2) a number that is the product of (A) ***
Covered Physician Prescriptions ***
3
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 4
"Baseline Quarterly Prescriptions" shall mean:
(i) For the first Agreement Year,
- *** Covered Physician Prescriptions for 3/1/99-6/30/99;
- *** Covered Physician Prescriptions for 7/1/99-9/30/99;
- *** Covered Physician Prescriptions for 10/1/99-12/31/99;
- *** Covered Physician Prescriptions for 1/1/00-3/31/00.
(ii) For the second Agreement Year,
- *** Covered Physician Prescriptions for 4/1/00-6/30/00;
- *** Covered Physician Prescriptions for 7/1/00-9/30/00;
- *** Covered Physician Prescriptions for 10/1/00-12/31/00;
- *** Covered Physician Prescriptions for 1/1/01-3/31/01.
(iii) For each Agreement Quarter in the third Agreement Year, one-fourth of
the Baseline Agreement Year Prescriptions for the Third Agreement
Year.
"Covered Physician Prescriptions" shall equal the sum of the number of
retail prescriptions (TRX) for the Product that are written or ordered by
Covered Physicians as determined by the National Prescriptions Audit Plus:
Prescriber Specialty Report as issued by IMS America, plus the number of mail
order prescriptions for the Product. The number of mail order prescriptions for
a given Agreement Quarter shall be deemed equal to *** of the number of retail
prescriptions determined for such Agreement Quarter (with the Average Selling
Price for mail order prescriptions to be adjusted (i.e., trued up) to be
equivalent with the number of tablets per prescription on a retail basis).
"Net Sales Attributable to Covered Physicians" means, for any Agreement
Quarter, a number equal to the product of (i) the number of Covered Physician
Prescriptions for the applicable period, multiplied by (ii) the Average Selling
Price per Prescription for such applicable period.
(c) (i) BMS shall, subject to section 11(d) below, pay to WFHC, with
respect to each Agreement Quarter during the term of this Agreement, ***.
(ii) WFHC shall, subject to section 11(d) below, pay to BMS,
with respect to each Agreement Quarter during the term of this Agreement, ***.
(d) (i) Compensation due WFHC under this Article 11 above shall be
4
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 5
calculated and paid within 60 days after the end of each Agreement Quarter
during the Copromotion Term, in accordance with Sections 11(a)-(c) and 12
hereof. Any payments not made when due under Sections 11(a)-(c) bear interest at
the rate of *** per annum (or the highest rate permitted by applicable law,
whichever is the lower) on the unpaid balance from the date due until paid in
full.
(ii) BMS shall endeavor to provide to WFHC the
calculation of any amount due BMS under Section 11(c)(ii) within sixty (60)
days after the end of each Agreement Quarter in accordance with Sections
11(a)-(c) and Article 12 hereof. WFHC shall make the applicable payment due BMS
on the later of the thirtieth (30th) day after receipt of the calculation from
BMS or the sixtieth day (60th) following the end of the Agreement Quarter for
which the calculation was made. Payments not made when due shall bear interest
at the rate of *** per annum (or the highest rate permitted by
applicable law, whichever is the lower) on the unpaid balance from the date due
until paid in full.
(e) In addition to compensation received during the
Copromotion Term, WFHC shall receive residual compensation ("Residual
Compensation") during the twelve (12) month period following expiration or early
termination of the Copromotion Term (the "Residual Period") equal in the
aggregate to *** of the compensation due by BMS to it for the Agreement Year
immediately preceding termination, but only where:
(A) (i) This Agreement has expired in accordance with its terms at
the end of the term provided for hereunder (or such longer
term as this Agreement may be extended by mutual written
consent);
(ii) WFHC has terminated this Agreement prior to expiration in
accordance with section 13(b)(ii) hereof; or
(iii) BMS has terminated this Agreement pursuant to section 13(d)
hereof; and
(B) WFHC complies with its obligations under Sections 3(e), 10, 14, 15,
and 19 hereof.
Termination of this Agreement for any reason other than the above events shall
not trigger any Residual Compensation due WFHC. Such Residual Compensation
payment shall be made by BMS in four (4) equal quarterly installments, each
installment to be made as of the end of each Agreement Quarter in the Residual
Period.
12. PAYMENTS AND REPORTING.
(a) BMS shall furnish WFHC, within 60 days after the end of
each Agreement Quarter, a report setting forth in reasonable detail the
calculation of Net Sales Attributable to Covered Physicians for such Agreement
Quarter, and the calculation of WFHC's compensation under Section 11 with
respect to such period.
(b) All payments to a party under this Agreement shall be
made by wire transfer in immediately available funds in legal currency of the
United States and shall be delivered to the account of such party designated by
it in writing from time to time.
5
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 6
(c) The parties will maintain complete and accurate books and
records in sufficient detail to enable verification of the detail call activity
of WFHC, the Net Sales attributable to Covered Physicians and the basis for
calculating the compensation paid by BMS to WFHC hereunder. Either party may
demand an audit of the other party's relevant books and records in order to
verify the other's reports on the aforesaid matters. Upon reasonable prior
notice to the party to be studied, the independent public accountants of the
other party shall have access to the relevant books and records of the party to
be audited in order to conduct a review or audit thereof. Such access shall be
available during normal business hours not more than once each calendar year
during the Copromotion Term and only until two years after the relevant period
in question. The accountants shall be entitled to report its conclusions and
calculations to the party requesting the audit, except that in no event shall
the accountants disclose the names of customers of either party or the prices,
discounts, rebates, or other terms of sale charged by BMS for the Product.
The party requesting the audit shall bear the full cost of the
performance of any such audit except as hereinafter set forth. If, as a result
of any inspection of the books and records of BMS, it is shown that BMS'
payments to WFHC under this Agreement were less than the amount which should
have been paid, then BMS shall make all payments required to be made to
eliminate any discrepancy revealed by said inspection within 30 days after
WFHC's demand therefor. If, as a result of any inspection of the books and
records of WFHC, it is shown that BMS' reimbursements for costs associated with
Funded Activities to WFHC under this Agreement were more than the amount which
should have been paid, then WFHC shall reimburse BMS for the discrepancy
revealed by said inspection within 30 days after BMS' demand therefor.
Furthermore, if the payments were less than the amount which should have been
paid by an amount in excess of five percent (5%) of the payments actually made
during the period in question, the party responsible for the discrepancy shall
also reimburse the auditing party for its out-of-pocket costs of such
inspection.
13. COPROMOTION TERM AND TERMINATION.
(a) The Copromotion Term shall be for three (3) years and shall
begin effective March 1, 1999 and shall end on March 31, 2002, unless
terminated earlier in accordance with Section 13(b), 13(c) or 13(d) below or
unless extended by the parties' mutual agreement in accordance with Section
13(e) below (the "Copromotion Term").
(b) WFHC may terminate the Copromotion Term:
(i) at any time, without cause, effective as of the end of an Agreement
Year, upon written notice to BMS given not less than sixty (60)
days' prior to the end of such Agreement Year. During such notice
period, WFHC shall continue to fulfill its obligations under this
Agreement; or
(ii) immediately upon written notice of termination given to BMS, if BMS
has breached a material obligation or duty under this Agreement
that is continuing thirty (30) days after WFHC has advised BMS in
writing of the nature of said breach.
(c) BMS may terminate the Copromotion Term upon the occurrence of
any of the following:
6
<PAGE> 7
(i) Upon sixty (60) days' prior written notice to WFHC, if:
(A) Covered Physician Prescriptions for the First Agreement Year do
not exceed *** Covered Physician Prescriptions for such Agreement
Year, or if Covered Physician Prescriptions for the Second
Agreement Year do not exceed *** Covered Physician Prescriptions
for such Agreement Year, or if Covered Physician Prescriptions
for the Third Agreement Year do not exceed *** Covered Physician
Prescriptions for such Agreement Year, or
(B) during the second or third Agreement Years, Aggregate Covered
Physician Prescriptions for each Agreement Quarter ending any two
(2) consecutive Agreement Quarters during either such Agreement
Years do not exceed the sum of the Baseline Quarterly
Prescriptions for such two Agreement Quarters; or
(ii) Upon written notice to WFHC, if BMS has permanently ceased
manufacturing and marketing the Product because of a significant
safety problem related to the Product; or
(iii) BMS may terminate the Copromotion Term immediately upon written
notice of termination given to WFHC, if WFHC has breached a material
obligation or duty under this Agreement that is continuing 30 days
after BMS has advised WFHC in writing of the nature of the breach or
default; or
(iv) BMS may terminate the Copromotion Term immediately upon written
notice of termination given to WFHC, if, if WFHC makes any
inaccurate or misleading statement or public announcement with
respect to the promotion or approved labeling for the Product,
except where such statement or announcement was approved in writing
by BMS in accordance with this Agreement; or
(d) If during the Copromotion Term WFHC experiences a "change in
control", WFHC will promptly notify BMS in writing of same, and BMS shall be
entitled at any time within one hundred twenty (120) days after receipt of such
notification, in the exercise of its sole and absolute discretion, upon 90 days
written notice to WFHC, to terminate the Copromotion Term. For purposes of this
Agreement, the term "change in control" shall mean any sale of voting
securities or sale of assets (whether by sale, merger, consolidation, share
exchange, or otherwise) which, directly or indirectly , (i) transfers over 50%
of the assets of WFHC relating to the Product to any Person other than an
Affiliate of WFHC, or (ii) results in any Person (other than an Affiliate of
WFHC existing as of the Effective Date or a financial institution or venture
capital firm) becoming the beneficial owner, directly or indirectly, of
securities of WFHC representing over: (A) if such Person is a
"Pharmaceutical-related Person" (as defined below), twenty percent (20%) of the
combined voting power of WFHC's then outstanding securities, or (B) if such
Person is not a "Pharmaceutical-related Person", fifty percent (50%) of the
combined voting power of WFHC's then outstanding securities. This termination
right may be exercised by BMS each time there is a change in
7
* Certain material (indicated by an asterisk) has been omitted from this
document pursuant to a request for confidential treatment. The omitted
material has been filed separately with the Securities and Exchange
Commission.
<PAGE> 8
control, whether or not exercised with respect to an earlier change in control.
Each party shall continue to fulfill its duties hereunder during such 90-day
notice period.
For purposes of this paragraph 13(d) only,
"Person" shall have the meaning used in section 13(d) and 14 (d) of
the Securities Exchange Act of 1934, as amended, and "beneficial
ownership" shall be determined pursuant to Rule 13d-3 under the
Securities Exchange Act of 1934, as amended; and
"Pharmaceutical-related Person" means a Person, or any Affiliate of
such Person, for whom more than fifty percent (50%) of such
Person's gross revenues are derived, as applicable, from (i) the
sale, licensing and/or distribution of drug products (whether
prescription, generic or over-the counter), nutritional agents and
medical devices, and (ii) the provision of drug or device management
services (such as a Pharmaceutical Benefits Management (PBM)
entity).
(e) The Copromotion Term may be extended as the parties may
mutually agree, it being understood that neither party shall be under any
obligation, express or implied, to do so. In order to be binding upon either
party, any such extension, and the terms governing such extension, must be
evidenced by a written agreement executed by duly authorized representatives of
both parties.
(f) Neither the termination nor expiration of the
Copromotion Term shall release or operate to discharge either party from any
liability or obligation that may have accrued prior to such termination or
expiration. Any termination of the Copromotion Term by a party shall not be an
exclusive remedy, but shall be in addition to any legal or equitable remedies
that may be available to the terminating party.
(g) If the Copromotion Term is terminated by either party
prior to the completion of an Agreement Quarter, WFHC shall be entitled to
receive a pro rata portion of the compensation which it would have been
entitled to receive under Section 11 had the Copromotion Term been in effect
for the entire Agreement Quarter (based on the number of days that WFHC was
responsible for marketing the Product to Covered Physicians in the Territory
during such Agreement Quarter).
(h) Upon the termination or expiration of the Copromotion
Term, WFHC shall promptly cease all of its promotion activities pursuant to
this Agreement, discontinue any use of the Trademark, return to BMS all sales
training, promotional, marketing material, BMS call lists and computer files,
and any remaining Product samples (i.e., not already distributed or destroyed
with destruction certified by WFHC) that may have been supplied to WFHC by BMS
under this Agreement. BMS shall be entitled to promote the Product to all
Covered Physicians thereafter without compensation of obligation to WFHC,
except such compensation obligations as may apply as set forth in Section
11(e). It is understood that the names and addresses of any Covered Physicians
to whom WFHC may have made calls are not considered Confidential Information.
(i) Notwithstanding the expiration or termination of the
Copromotion Term, this Agreement shall be deemed to continue and shall not be
deemed terminated in its entirety and of no further force and effect unless and
until neither party has any further obligation to the other party in
8
<PAGE> 9
accordance with the terms hereof."
9
<PAGE> 10
ATTACHMENT 2 TO AMENDMENT NO. 1
Exhibit A of the Copromotion Agreement is replaced with the following:
EXHIBIT A
INITIAL EDUCATIONAL PROGRAM
The Initial Educational Program shall be developed by WFHC and shall
consist of the following elements and timelines:
CARDIOVASCULAR PROGRAM WITH OB/GYNS
TIME AND EVENT SCHEDULE
<TABLE>
<CAPTION>
Event Timing Comment
----- ------ -------
<S> <C> <C>
Distinguished Professors' Conference Jan 8-10, 1999 Attended by 125 of the leadership of
Program: Gateway to Midlife Health-A OB/GYNs. Segment from Dr. Chris Cassel
Better Way. was included on use of statins to lower
cholesterol with pravastatin as choice based on
event reduction.
Distinguished Professor Lecture Series Feb-yr. End 1999 Slide series and script will include section on
Program: Women First HealthCare-A the importance of lowering cholesterol using
Better Way. statins. A minimum of 50 of these lectures
will be held with OB/GYNs across the
country. WFHC will consult with BMS as to
the selection of the venues and lecturers.
Establishment of a Health Advisory Board for Feb-April 1999 Health Advisory Board would include
cardiovascular risk management in women. OB/GYNs and cardiologists who have a focus
Program: Managing Cardiovascular Risk- on cardiovascular disease in women. WFHC
A Better Way. will consult with BMS as to the selection of
the Board members.
Health Advisory Board Meeting November 1999 Development of guidelines for managing
Program: Managing Cardiovascular Risk- cardiovascular risk in women.
A Better Way.
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C>
Publication of monograph and videotape from April 1999 Monograph and Videotape would mailed to
Distinguished Professors' Conference. 25,000 OB/GYNs. Would include section on
Program: Women First HealthCare - A importance of lowering cholesterol using
Better Way. statins from Distinguished Professors'
Conference.
CARDIOVASCULAR PROGRAM WITH OB/GYNS
TIME AND EVENT SCHEDULE (CON'T)
Event Timing Comment
----- ------ -------
Development of pre-test on managing November 1999 Mailed to approximately 25,000 OB/GYNs.
cardiovascular risk in women. Would include detailed answer with
Program: Managing Cardiovascular Risk - references.
A Better Way.
Publication of Consensus Report from Health November 1999 Would include guidelines for the OB/GYNs in
Advisory Board. managing cardiovascular disease.
Program: Managing Cardiovascular Risk -
A Better Way.
Development of Lecture Series Kit which November 1999 Designed to be used to present guidelines in
includes slides, monograph and Consensus Report to OB/GYNs across the
implementation elements. country.
Program: Managing Cardiovascular Risk -
A Better Way.
20 physician meetings July 1999 - March 2000 Use of Lecture Series materials with
Program: Managing Cardiovascular Risk - OB/GYNs. WFHC will consult with BMS as
A Better Way. to venues, timing, and speakers.
Care & Comment Newsletter on Q3 or Q4 1999 Will be mailed to 25,000 OB/GYNs.
cardiovascular disease in midlife women.
Program: Gateway to Midlife Health - A
Better Way.
Women-to-Women Meetings Throughout 1999 Meetings will include information on
Program: Gateway to Midlife Health - cardiovascular risk in women at midlife.
A Better Way.
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C>
Support through WFHC Throughout 1999 Our Call Center nurses will support the doctor
Midlife HealthLine(TM) and patient regarding the use of statins to
Program: Gateway to Midlife Health - lower cholesterol.
A Better Way.
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 24,034,080
<SECURITIES> 0
<RECEIVABLES> 4,761,297
<ALLOWANCES> 121,566
<INVENTORY> 1,592,772
<CURRENT-ASSETS> 31,510,114
<PP&E> 1,544,416
<DEPRECIATION> 525,023
<TOTAL-ASSETS> 37,510,488
<CURRENT-LIABILITIES> 8,537,515
<BONDS> 0
0
0
<COMMON> 14,457
<OTHER-SE> 28,955,516
<TOTAL-LIABILITY-AND-EQUITY> 37,510,488
<SALES> 4,385,927
<TOTAL-REVENUES> 7,519,168
<CGS> 2,325,711
<TOTAL-COSTS> 2,325,711
<OTHER-EXPENSES> 13,575,647
<LOSS-PROVISION> 26,030
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,998,414)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,998,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,998,414)
<EPS-BASIC> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
