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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 September 30, 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)
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<S> <C>
DELAWARE 13-3919601
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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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 November 7, 2000, 17,505,173 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
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ITEM 1 - FINANCIAL STATEMENTS (Unaudited) PAGE
----
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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....................................... 8
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................................... 15
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS................................. 16
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................... 16
ITEM 5 - OTHER INFORMATION ........................................................ 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.......................................... 23
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,201,253 $ 32,719,263
Accounts receivable, net 298,124 1,916,174
Inventory 1,270,838 1,459,733
Receivable from related party 6,286,998 682,484
Prepaid expenses and other current assets 1,158,748 649,926
------------ ------------
Total current assets 20,215,961 37,427,580
Property and equipment, net 1,136,162 1,035,240
Intangible assets, net 3,392,250 3,745,110
Other assets 1,147,542 1,439,629
------------ ------------
Total assets $ 25,891,915 $ 43,647,559
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,848,986 $ 2,481,581
Payable to related party 1,557,947 482,321
Accrued salaries and employee benefits 1,135,934 1,972,889
Other accrued liabilities 3,206,701 1,991,439
------------ ------------
Total current liabilities 9,749,568 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; 17,496,394 shares issued
and outstanding at September 30, 2000, and 17,596,195 shares issued, 54,900 shares to
be issued, and 17,255,878 shares outstanding at December 31, 1999 17,496 17,310
Treasury stock (99,660) (99,660)
Additional paid-in capital 80,632,683 80,761,285
Deferred compensation (320,711) (1,080,135)
Accumulated deficit (64,087,461) (42,879,471)
------------ ------------
Total stockholders' equity 16,142,347 36,719,329
------------ ------------
Total liabilities and stockholders' equity $ 25,891,915 $ 43,647,559
============ ============
</TABLE>
See accompanying notes.
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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue $ 1,934,393 $ 4,888,032 $ 11,003,621 $ 14,255,586
Net revenue with related party 5,415,034 1,167,000 9,691,373 1,167,000
------------ ------------ ------------ ------------
7,349,427 6,055,032 20,694,994 15,422,586
Costs and expenses:
Cost of sales (including purchases from
related party of $1,962,049 and
$5,689,209 for the three and nine months
ended September 30, 2000) 3,000,059 3,332,036 9,417,972 9,576,807
Marketing and sales 5,678,223 6,875,105 26,472,101 17,176,086
General and administrative 1,435,930 2,887,816 5,819,614 7,865,957
Research and development 86,657 634,685 475,014 1,261,356
Write-down of assets and other charges -- 1,638,616 -- 1,638,616
Restructuring charges -- -- 734,665 --
------------ ------------ ------------ ------------
Total costs and expenses 10,200,869 15,368,258 42,919,366 37,518,822
------------ ------------ ------------ ------------
Loss from operations (2,851,442) (9,313,226) (22,224,372) (22,096,236)
Interest income (expense), net 305,926 312,933 1,016,382 162,186
------------ ------------ ------------ ------------
Net loss (2,545,516) (9,000,293) (21,207,990) (21,934,050)
Accretion of beneficial conversion feature
related to convertible preferred stock -- -- -- (3,361,710)
------------ ------------ ------------ ------------
Net loss available to common stockholders $ (2,545,516) $ (9,000,293) $(21,207,990) $(25,295,760)
============ ============ ============ ============
Net loss per share (basic and diluted) $ (0.15) $ (0.53) $ (1.22) $ (2.31)
============ ============ ============ ============
Weighted average shares used in computing
net loss per share (basic and diluted) 17,492,279 17,112,993 17,448,032 10,960,531
============ ============ ============ ============
</TABLE>
See accompanying notes.
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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2000 1999
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OPERATING ACTIVITIES
Net loss $(21,207,990) $(21,934,050)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 506,890 567,237
Amortization of intangibles 375,468 359,078
Amortization of deferred compensation 471,045 941,738
Amortization of warrants issued with debt -- 274,617
Write-down of assets and other charges -- 1,638,616
Changes in operating assets and liabilities (1,485,053) 1,159,224
------------ ------------
Net cash used in operating activities (21,339,640) (16,993,540)
INVESTING ACTIVITIES
Purchases of property and equipment (308,237) (370,667)
Acquisition of subsidiary -- (1,059,897)
Refund of deposits 106,346 --
Acquisition of licenses and other assets, net (136,442) (1,815,970)
------------ ------------
Net cash used in investing activities (338,333) (3,246,534)
FINANCING ACTIVITIES
Issuance of Series A preferred stock -- 5,286,218
Issuance of common stock 159,963 51,407,045
Issuance of short-term notes payable to related parties -- 2,000,000
Issuance of short-term notes payable -- 5,490,000
Repayment of short-term notes payable to related parties -- (2,000,000)
Repayment of short-term notes payable -- (5,240,000)
------------ ------------
Net cash provided by financing activities 159,963 56,943,263
------------ ------------
Net increase (decrease) in cash and cash equivalents (21,518,010) 36,703,189
Cash and cash equivalents at beginning of the period 32,719,263 4,438,445
------------ ------------
Cash and cash equivalents at end of the period $ 11,201,253 $ 41,141,634
============ ============
</TABLE>
See accompanying notes.
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WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 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 and the nine-month periods ended September 30, 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 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. Effective June
27, 2000, management announced a restructuring of Company activities into three
separate and distinct operating divisions: pharmaceutical, consumer, and
corporate marketing. Management plans to view and report operating results for
these separate divisions in accordance with SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." See Note 5 for a discussion
of charges related to the restructuring.
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. The Company will accept for credit or exchange
pharmaceutical products that have become unusable due to passage of expiration
date, drug recall, or discontinuance by the Company. Revenues are reduced for
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estimated returns, chargebacks, rebates and early payment discounts. In the
third quarter 2000 the Company established a provision of $1 million for
estimated returns of dated Esclim(TM) product.
Contract and other revenue under the Company's co-promotion agreements
are recognized based upon work performed or upon completion of certain
performance requirements of the contracts.
Net Loss Per Share
Basic and diluted net loss per share are calculated by dividing the net
loss available to common stockholders by the weighted average number of common
shares outstanding for the period. Common stock equivalent shares, composed of
shares of common stock issuable upon the exercise of stock options and warrants,
are not included in the diluted net loss per share as this would reduce the net
loss per share.
2. INVENTORY
Inventory consists of the following components:
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<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
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Pharmaceutical products $ 755,936 $ 837,462
Self-care products 514,902 622,271
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Total inventory $1,270,838 $1,459,733
========== ==========
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The Company recorded a lower of cost or market reserve for
pharmaceutical products of $0.5 million in the three month period ended
September 30, 2000 in accordance with generally accepted accounting principles.
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 was approved by stockholders
at the Company's Annual Meeting on September 12, 2000.
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4. PRODUCT RELATED AGREEMENTS
Ortho-McNeil Pharmaceuticals, Inc.
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 and was launched in
January 2000.
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 to the co-promotion agreement, ORTHO TRI-CYCLEN(R) was removed 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 March 2000. In addition, Ortho-McNeil agreed to compensate Women
First $0.5 million for agreeing to add a limited non-compete provision to the
agreement to expire three months following contract termination. This amount is
being recognized on a straight-line basis over the remaining term of the
agreement, which has been revised to expire December 31, 2000.
Effective September 30, 2000, the Company and Ortho-McNeil revised their
co-promotion agreement for ORTHO-PREFEST(TM). Under terms of the revised
co-promotion agreement, the Company will continue to co-promote ORTHO-PREFEST
(TM) through December 31, 2000. Compensation under the revised agreement will be
based on the number of sales calls made by the Company's sales force during 2000
plus a royalty based on sales of ORTHO-PREFEST(TM). The Company has recorded
revenue of $5.1 million as related party income in the three month period ended
September 30, 2000 for work performed from January through September 2000 as
compensation under the revised agreement.
Also effective September 30, 2000, the Company terminated its
distribution agreement with Ortho-McNeil for ORTHO-EST(R) and entered into an
asset transfer and supply agreement. Under the asset transfer and supply
agreement, the Company will permanently acquire all rights to ORTHO-EST(R)
effective January 1, 2001. The new agreement establishes a new transfer price
mechanism effective January 1, 2001 for product supply and no longer obligates
the Company to make $28 million in aggregate payments through 2007 to
Ortho-McNeil.
Bristol-Meyers Squibb
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 physician education and product samples. 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.
Under an amendment effective April 1, 2000, Bristol-Myers Squibb and the
Company restructured the agreement to reduce the baseline amounts. The amendment
changed the group of physicians to which the Company may co-promote the
Pravachol(R) product by eliminating primary care physicians designated
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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.
Prior to the three-month period ended September 30, 2000, the Company
had recorded revenue of $0.1 million under this agreement. The Company recorded
no revenue under this arrangement for the three month period ended September 30,
2000. The Company has been unable to modify the agreement to improve its revenue
opportunities and therefore may not continue to promote Pravachol(R).
Laboratoires Fournier S.A.
In July 1999, the Company entered into a distribution and license
agreement with Laboratoires Fournier S.A. under which Women First has 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 Company began selling and distributing the Esclim(TM)
estradiol transdermal system in November 1999. The agreement requires the
Company to pay Fournier a non-refundable license fee of $1.45 million payable
over a two-year period, of which $0.75 million was paid in 1999, $0.35 million
was scheduled for payment in November 2000, and $0.35 million was scheduled for
payment in November 2001. The Company and Laboratories Fournier have agreed to
revise the contract to provide for reduced royalty pricing, to support managed
care and group purchasing organization business, to maintain sample costs and to
delay the November 2000 milestone payment for one year subject to the Company
implementing a Phase IV study.
5. RESTRUCTURING CHARGES
The Company recorded restructuring charges of $0.7 million during the
three-month period ended June 30, 2000 in accordance with EIFT 94-3: "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity." The objective of the restructuring is to increase effectiveness and
efficiency by restructuring the Company into three operating divisions. The
charges include costs pertaining to the termination or resignation of
approximately 65 management and sales employees ($695,000) and other estimated
costs ($40,000). No additional charges were incurred in the three month period
ended September 30, 2000, and all payments relating to the restructuring have
been made as of September 30, 2000.
6. WRITE-DOWN OF ASSETS AND OTHER CHARGES
In the third quarter of 1999, the Company recognized a write-down of
assets and other charges amounting to $1.6 million consisting primarily of
inventory write-downs and other costs associated with the closure of the
Company's pharmacy operations and the Company's decision to discontinue certain
consumer product activities.
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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, Inc. is a specialty pharmaceutical 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 catalogue operation and the
Internet.
In July 1998, we entered into a distribution agreement with Ortho-McNeil
Pharmaceuticals, Inc. for ORTHO-EST(R), an oral estropipate product, that the
Company markets and distributes exclusively. The distribution agreement required
us to make minimum aggregate payments totaling $47.5 million to Ortho-McNeil
over the life of the contract regardless of the actual sales performance of the
product. This agreement was terminated effective September 30, 2000 and a new
agreement, ORTHO-EST(R) Asset Transfer & Supply Agreement, was entered into with
Ortho-McNeil. Under terms of the new agreement, Ortho-McNeil has agreed to
transfer to the Company all of its rights, title and interest in ORTHO-EST(R)
effective January 1, 2001. The new agreement reduces the minimum payment in 2000
from $5.4 million to $4.7 million. No further payments are required under the
new agreement. The Company will continue to buy product from Ortho-McNeil but at
more favorable prices than previously paid that represent Ortho-McNeil's fully
burdened cost until a replacement manufacturer is identified.
In March 1999, we entered into a co-promotion agreement with
Bristol-Myers Squibb U.S. Pharmaceuticals Group relating to Pravachol(R), a
cholesterol-lowering drug. This agreement requires us to achieve minimum
performance levels to receive compensation or to prevent contract termination.
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. In addition, we are required to use commercially
reasonable efforts to promote the product, and Bristol-Myers Squibb may
terminate the agreement upon 30 days notice following any breach by us of the
agreement. Under an amendment effective April 1, 2000, Bristol-Myers Squibb and
Women First restructured the agreement to reduce the baseline amounts. For the
six month period through June 30, 2000, the Company recorded revenue of $0.1
million. We have not booked any revenue under this arrangement for the three
month period ended September 30, 2000. We have been unable to modify the
agreement to improve our revenue opportunities and therefore we may not continue
to promote Pravachol(R).
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In May 1999, we entered into a co-promotion agreement with Ortho-McNeil
Pharmaceutical, Inc. relating to ORTHO TRI-CYCLEN(R), an oral contraceptive
product, and ORTHO-PREFEST(TM), a new oral combination hormonal replacement
therapy (HRT) product. An amendment effective as of March 31, 2000, discontinued
the co-promotion agreement of ORTHO TRI-CYCLEN(R) to focus our selling efforts
on the launch of ORTHO-PREFEST(TM). Under the amendment 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 $0.5 million for our agreement to add a limited
non-compete provision to the agreement to expire three months following contract
termination. This amount is being recognized as related party income on a
straight-line basis over the remaining term of the agreement. Effective
September 30, 2000 the co-promotion agreement was revised to terminate on
December 31, 2000. The revision requires Ortho-McNeil to compensate Women First
for sales calls made during 2000 plus a royalty on sales of ORTHO-PREFEST(TM).
The Company has recorded revenue of $5.1 million under this arrangement for the
third quarter 2000 for work performed from January through September 2000. In
addition, the Company's Trialogue division received a contract to provide a
medical education program in support of ORTHO-PREFEST(TM). We expect to
recognize revenue and expense under this program in the fourth quarter 2000.
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. We
began selling and distributing the Esclim(TM) estradiol transdermal system in
November 1999. The agreement requires us to pay Fournier a non-refundable
license fee of $1.45 million payable over a two-year period, of which $0.75
million was paid in 1999, $0.35 million was scheduled for payment in November
2000, and $0.35 million was scheduled for payment in November 2001. The Company
and Laboratories Fournier have agreed to revise the contract to provide for
reduced royalty pricing, to support managed care and group purchasing
organization business, to maintain sample costs and to delay the November 2000
milestone payment for one year subject to the Company implementing a Phase IV
study.
In June 2000, we announced our reorganization into three distinct
operating divisions: pharmaceutical, consumer, and corporate marketing. The
pharmaceutical division will be responsible for marketing and sales of
prescription products and the Daily Difference dietary supplement products. The
consumer division will be responsible for marketing and sales of self-care
products. The corporate marketing division, now called Trialogue, will be
responsible for providing access to our network of opinion leaders and
practicing clinicians through strategic marketing programs for sale to major
pharmaceutical companies. Also as part of the restructuring, we announced the
reduction of our sales force by approximately 50% to 75 field sales territories
through which we will maintain primary national coverage.
We have incurred significant losses since we were founded in November
1996. We had an accumulated deficit of $64.0 million as of September 30, 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.
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RESULTS OF OPERATIONS
Net Revenue. For the three and nine months ended September 30, 2000,
total net revenue was $7.4 million and $20.7 million, respectively, as compared
to $6.1 million and $15.4 million for the same periods in 1999.
Revenue for the three months ended September 30, 2000 was derived from
the pharmaceutical division ($5.3 million), consumer division ($1.8 million) and
consumer marketing division, now called Trialogue ($0.3). For the same period in
1999, pharmaceutical, consumer and Trialogue revenue equaled $3.0 million, $1.7
million and $1.4 million respectively. Pharmaceutical revenue was impacted by
the June 2000 restructuring which reduced the sales force almost by half and by
$1.0 million provided for estimated returns of potentially dated Esclim(TM).
Consumer revenue was unchanged from the prior year period.
Revenue for the nine months ended September 30, 2000 was comprised of
pharmaceutical revenues of $10.9 million, consumer division revenues of $6.5
million and Trialogue revenues of $3.3 million. For the 1999 period revenues
totaled $8.8 million, $4.8 million and $1.8 million, respectively.
Pharmaceutical revenues were negatively impacted by June 2000 restructuring
which resulted in an almost 50% reduction in the sales force and by the $1.0
million provision discussed above. Consumer revenues have grown 34% over the
prior year period as a result of continued expansion in the distribution of the
catalogue. Trialogue revenues relate primarily to an education program for
hormone replacement therapy begun in the third quarter 1999. A major portion of
this program was completed in 2000.
Revenues from ORTHO-EST(R) are down 65% from the prior year's three
month period and down 53% from the prior year's nine month period as a result of
our sales and marketing focus shifting to ORTHO-TRI-CYCLEN(R), Pravachol(R), and
ORTHO-PREFEST(TM) in 2000. We revised the co-promotion agreement in March 2000
to discontinue our efforts on behalf of ORTHO-TRI-CYCLEN(R) to focus on
ORTHO-PREFEST(TM). As noted above, we may not continue to promote Pravachol(R)
because of inadequate revenue opportunities. Because of the revenue potential
under the September 2000 contract revision, we continue to focus our sales
efforts on the co-promotion of ORTHO-PREFEST(TM). At the expiration of the
co-promotion agreement on December 31, 2000 our sales force will be primarily
engaged in promoting ORTHO-EST(R) and Esclim(TM). We established a reserve of
$1.0 million for the estimated return of potentially dated, low dosage
Esclim(TM) due to insufficient demand. The reserve has created negative sales
for the quarter and year to date. Both ORTHO-EST(R) and Esclim(TM) are promotion
sensitive products and we expect revenues to improve in 2001.
Included in the above amounts are related party revenue of $5.4 million
and $9.7 million, respectively, for the three and nine months ended September
30, 2000. Related party revenue consists of work performed under our agreement
with Ortho-McNeil to develop educational programs with an independent provider
of continuing medical education programs and sales call made on behalf of
ORTHO-PREFEST(TM) under terms of the revised co-promotion agreement.
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Costs and Expenses. Costs and expenses decreased $5.2 million to $10.2
million for the three months ended September 30, 2000 from $15.4 million for the
equivalent prior period. Costs and expenses increased $5.4 million to $42.9
million for the nine months ended September 30, 2000 from $37.5 million for the
prior year period. The decrease in costs for the three month periods is the
result of the cost reduction activities undertaken as part of our restructuring
in June 2000. The increase in costs and expenses for the nine month period
reflects the continued build up of infrastructure and sales force in accordance
with terms of the original co-promotion agreement.
Cost of sales was $3.0 million, or 40.8% of total net revenue, for the
three months ended September 30, 2000 as compared to $3.3 million, or 55.0% of
total net revenue, for the same period in 1999. Cost of sales was $9.4 million,
or 45.5% of total net revenue, for the nine months ended September 30, 2000 as
compared to $9.6 million, or 62.1% of total net revenue, for the same period in
1999. Cost of sales consists primarily of amounts we pay to suppliers for
products plus inventory valuation adjustments. Increases and decreases in cost
of sales are primarily due to differences in the revenue mix in these periods
and inventory adjustments and are therefore not directly comparable from one
period to another. We recorded a lower of cost or market reserve for
pharmaceutical products of $0.5 million in the three month period ended
September 30, 2000 in accordance with generally accepted accounting principles.
Marketing and sales expense was $5.7 million for the three months ended
September 30, 2000 compared to $6.9 million for the three months ended September
30, 1999. Marketing and sales expense was $26.5 million for the nine months
ended September 30, 2000 compared to $17.2 million for the prior year period.
The decrease in the three month period was the result of cost reduction
activities undertaken as part of our restructuring in June 2000. The increase in
the nine month period was primarily due to the expansion of our sales
organization to 150 territories for the launch of ORTHO-PREFEST(TM), pursuant
to the co-promotion agreement with Ortho-McNeil. In addition, this increase
reflects increased costs associated with education programs focused on hormone
replacement therapy, catalog production, market research, product literature and
professional samples. In connection with our reorganization, we reduced the size
of our sales force.
General and administrative expense decreased $1.5 million to $1.4
million for the three months ended September 30, 2000 from $2.9 million for the
three months ended September 30, 1999. General and administrative expense
decreased $2.1 million to $5.8 million for the nine months ended September 30,
2000 from $7.9 million for the prior nine month period. The decrease in these
expenses was primarily due to decreases in employee related costs related to our
restructuring in June 2000.
Research and development expense was $0.1 million and $0.5 million for
the three month and nine month periods ended September 30, 2000 compared to $0.6
million and $1.3 million, respectively in the comparable periods in 1999.
Research and development expense consists primarily of salaries and regulatory
costs associated with our product applications.
We recorded restructuring charges of $0.7 million during the second
quarter 2000. These charges reflect our efforts to increase effectiveness and
efficiency by restructuring Women First into three operating divisions. The
charges primarily pertain to the termination or resignation of approximately 65
management and sales employees. No further charges were incurred in the third
quarter 2000 and all payments have been made as of September 30, 2000.
In the third quarter of 1999, the Company recognized a write-down of
assets and other charges amounting to $1.6 million consisting primarily of
inventory write-downs and other costs associated with
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the closure of the Company's pharmacy operations and the Company's decision to
discontinue certain consumer product activities.
Loss from Operations. The loss from operations decreased $6.4 million to
$2.9 million for the three months ended September 30, 2000 from $9.3 million for
the same three months of 1999. Factors contributing to the decreased loss
include increased revenue attributable to our sales calls on behalf of
ORTHO-PREFEST and a reduction in costs and expenses resulting from cost
reduction activities undertaken as part of our restructuring in June 2000. The
loss from operations increased $0.1 million to $22.2 million for the nine months
ended September 30, 2000 from $22.1 million from the year earlier period.
Interest Income (Expense), net. Interest income, net was $0.3 million
for the three months ended September 30, 2000, unchanged from the prior year
period. Interest income, net increased $0.8 million to $1.0 million for the nine
months ended September 30, 2000 from $0.2 million for the same period in 1999.
Interest income, net consists primarily of earnings on our cash and cash
equivalents netted against interest expense on short-term borrowings.
FACTORS AFFECTING RESULTS OF OPERATIONS
We incurred operating losses of $30.8 million in the year ended December
31, 1999 and $22.2 million in the nine months ended September 30, 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 addition, we are an early stage company
that has incurred significant operating expenses associated with obtaining
rights to market and distribute products, the expansion of our sales and
marketing efforts and general and administrative activities. In June 2000 we
took steps to reduce expenses by eliminating certain corporate overhead and, in
recognition of lower than expected revenues, reduced our sales force by almost
50%. We expect continued variability in revenues as we realign our product mix
as a result of ending our co-promotion of ORTHO-PREFEST. We have succeeded in
stopping the growth of operating expenses and have actually experienced a
decline in the three-month period ended September 30, 2000. Because of these
factors, our results of operations have varied during our short operating
history and we expect that they will continue to fluctuate, perhaps
significantly, in the future. In addition, other factors may cause fluctuations
in our revenues and results of operations, including the following:
- the success or failure of our sales force in distributing and/or
co-promoting our current product line and changes in market
acceptance of those products,
- our success or failure in executing under our asset transfer and
supply agreement and co-promotion agreements,
- our ability to acquire new products,
- 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,
- the timing and growth of our consumer division,
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- changes in the competitive environment that could cause us to
change our pricing or marketing strategy,
- the effects our limited capital and needs for additional capital
may have on our ability to meet the objectives we have set for
our business, 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 investors. If we are
unable to convince the investment community of the profit potential of our
business model, our stock price will remain depressed. This, in turn, may cause
our common stock to be delisted by the Nasdaq National Market. We were notified
by Nasdaq on September 20, 2000 that we are in violation of Rule 4450(a)(5)
because our common stock failed to maintain a minimum bid price of $1.00 for 30
consecutive trading days. We need to demonstrate compliance with this Rule by
December 19, 2000. From September 20, 2000 through November 7, 2000, our stock
has closed above $1.00 for a period in excess of ten consecutive trading days.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $11.2 million at September 30, 2000
compared to $18.2 million at June 30, 2000 and $32.7 million at December 31,
1999. At September 30, 2000, our working capital totaled $10.5 million compared
to $12.7 million at June 30, 2000 and $30.5 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. Between January 1998 and February 1999 we issued 2,200,000 shares of
Series A Preferred Stock (equivalent to 4,026,000 shares of common stock) and
warrants for net proceeds of $21.1 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 $0.25 million 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.
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Net cash used in operating activities was $21.3 million for the nine
months ended September 30, 2000 and was $17.0 million for the same period in
1999. Net cash used in investing activities was $0.3 million for the nine months
ended September 30, 2000 and was $3.2 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 $0.2 million for the nine months ended September 30, 2000 and was
$56.9 million for the same period in 1999, primarily consisting of the net
proceeds from the issuance of equity securities, short-term notes and warrants.
For the nine months ended September 30, 2000, we made net capital
expenditures of $0.4 million primarily for computer equipment and web site
development. We made net capital expenditures of $0.4 million during the nine
months ended September 30, 1999, primarily for computer equipment, development
of our Internet site and acquisition of licenses and other assets.
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 $0.75 million was paid in 1999,
and $0.7 million will be paid in 2001 under terms of the pending contract
revision discussed above.
From inception through June 30, 2000 we experienced a substantial
increase in our expenditures, 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 commit at least 150 sales
representatives to co-promote ORTHO-PREFEST(TM) under the agreement in each of
2000, 2001 and 2002. As noted above, this agreement has been revised effective
September 30, 2000 and we are no longer required to maintain a minimum number of
sales representatives. Accordingly, expenditures in this area have been reduced
significantly.
We were also obligated to make significant minimum payments to
Ortho-McNeil under our distribution agreement for ORTHO-EST(R). That agreement
has also been revised. Our minimum purchase commitment for ORTHO-EST(R) is $4.7
million in 2000 and nothing thereafter.
Although we expect our existing cash balances and our revenues to be
sufficient to meet our working capital needs through year end 2001, we may need
additional financing in 2001 to fund our operations, acquire new products, make
planned capital expenditures and meet our minimum purchase commitments. Certain
activities may be curtailed to conserve existing cash balances. 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 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.
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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, $0.75
million to develop and acquire rights to additional products, $0.7 million to
purchase machinery, equipment and leasehold improvements, and $35.8 million for
working capital and other general corporate purposes. John Simon, a former
Director of Women First, is a managing director with Allen & Company
Incorporated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting on September 12, 2000.
(b) Richard Rubin received 15,070,014 votes and was elected as a
Director of the Company at this meeting. Total votes withheld
from Rubin were 135,869. Nathan Kase, Anthony Maris, Edward
Calesa, David Hale and Gary Parlin are Directors of the Company
whose terms continue after the Annual Meeting.
(c) The security holders were asked to vote upon a proposal to
approve amendments to the Company's 1998 Long-Term Incentive
Plan which, among other things, increased the number of common
shares available for issuance thereunder from 2,249,985 to
2,949,985. 13,175,782 votes were cast for, 2,018,173 against.
There were 11,928 abstentations. Management submitted the
selection of Ernst & Young as the Company's independent auditors
to the security holders for ratification. 15,019,371 votes were
cast for, 174,184 against. There were 12,328 abstentations.
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
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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 $64.1 million through September 30,
2000, and we expect to incur losses at least through the end of 2000. 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.
Our previous product agreements with Ortho-McNeil required us to make
minimum payments (in the case of ORTHO-EST(R)) or make a minimum number of sales
calls regardless of the actual sales of product covered by the agreement (in the
case of ORTHO-PREFEST). These agreements have been revised in the third quarter
2000. Under the new ORTHO-EST(R) agreement, we have purchased the minimum amount
of inventory required for 2000 and therefore met the minimum payment
requirement. Beginning January 1, 2001 there is no minimum purchase requirement.
Under the revised ORTHO-PREFEST agreement, our compensation for 2000 is based on
actual sales calls. There is no requirement for a minimum number of sales calls.
Both agreements permit termination by the other party if we breach our
obligations under the contracts, experience a change of control or enter
bankruptcy.
Our co-promotion agreement with Bristol-Myers Squibb U.S.
Pharmaceuticals Group relating to the cholesterol-lowering drug Pravachol(R)
provides that Bristol-Myers Squibb may terminate the agreement in the event that
prescriptions written in the United States by OB/GYNs do not exceed specified
minimum amounts. These specified minimum amounts increase quarterly in the first
year and yearly from year to year thereafter. These minimum amounts require us
to exceed a baseline amount to earn a performance fee under the agreement. By
amendment effective April 1, 2000, Bristol-Myers Squibb and Women First
restructured the agreement to reduce the baseline amounts. The amendment reduced
the group of physicians to which we may co-promote Pravachol(R). For the six
month period through June 30, 2000, the Company recorded revenue of $0.1
million. We have not booked any revenue under this arrangement for the three
month period ended September 30, 2000. We have been unable to modify the
agreement to improve our revenue opportunities and therefore we may not continue
to promote Pravachol(R).
In July 1999, we entered into a distribution and license agreement with
Laboratoires 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.
Women First and Fournier have agreed to revise the contract. The original
agreement required us to pay Fournier a non-refundable license fee of $1.45
million payable over a two-year period, of which $0.75 million was paid in 1999,
$0.35 million was scheduled for payment in November 2000, and $0.35 million was
scheduled for payment in November 2001. Both payments are now due in November
2001.
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Fournier retains the right to terminate the agreement if we fail to achieve
certain minimum sales levels or if we fail to make certain minimum sales calls.
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. Although we expect our existing
cash balances and our revenues to be sufficient to meet our working capital
needs through year end 2001, we may need additional financing in 2001 to fund
our operations, acquire new products, make planned capital expenditures and meet
our minimum purchase commitments. 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. We also may need to undertake
further reorganizations or downsizings to preserve capital. 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.
We might not be able to satisfy the requirements of the Nasdaq Stock
Market for continued listing of our common stock on the Nasdaq National Market.
The rules of the Nasdaq Stock Market require that companies listed on the Nasdaq
National Market satisfy certain requirements for listing. On September 20, 2000
we were notified by Nasdaq that our common stock failed to maintain a minimum
bid price of $1.00 for 30 days as required for continued listing. In accordance
with Nasdaq rules, we have until December 19, 2000 to come into compliance with
this rule. If Nasdaq delists the common stock from the National Market, our
stockholders' ability to buy and sell shares of our common stock and our ability
to enter into future equity financing transactions or to effect an acquisition
or merger with other businesses could be adversely affected.
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.
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
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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 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 asset transfer and supply agreement with Ortho-McNeil for
ORTHO-EST(R) requires us to obtain replacement sources of supply for
ORTHO-EST(R) before April 2002. Our failure to do so will result in Women First
paying significantly higher prices for product acquired after that date. If we
have not obtained a replacement source of supply by June 2003, our license for
ORTHO-EST(R) will be terminated.
Our quarterly financial results are likely to fluctuate, perhaps
significantly, and may fail to meet or exceed the expectations of investors,
which could cause the price of our stock to continue to be depressed. 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 and
Laboratories Fournier,
- whether we achieve the specified sales calls to receive
compensation under our agreements with Ortho-McNeil and
Laboratories 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, the change in our product mix
beginning in 2001 as a result of terminating our co-promotion of ORTHO-PREFEST
and difficulty in predicting demand for the products we offer, we are unable to
accurately forecast our revenues. 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 investors,
which could continue to depress 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, the oral
estrogen product, and the Esclim(TM) estradiol
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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, an oral estrogen
product, and Prempro and Premphase, combination oral estrogen and progestin
products. The HRT products we market also compete with HRT products marketed by
Pfizer, Solvay Pharmaceuticals, Inc., Duramed Pharmaceuticals, Inc., 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 product competes with other
cholesterol-lowering products marketed by Merck & Co., Inc., 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 Health(TM) 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
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. 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 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. In a similar fashion, sales of Esclim(TM) estradiol transdermal
system could be subject to therapeutic substitution.
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
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products could adversely affect the demand for the products we currently offer
if the new product has the same or similar indications as one or more of the
products we currently offer.
We are dependent on single sources of supply for all of the products we
offer. If one of our suppliers fails to supply adequate amounts of a product we
offer 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, professional liability and employee 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, Chairman, 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 a life insurance policy
on the life of Mr. Calesa in the amount of $2.0 million. We do not have life
insurance policies on the lives of any other members of our management team.
Our 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 November 7, 2000, Edward F. Calesa and Randi
C. Crawford jointly own approximately 36.2% 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 57.5% 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
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management and policies of Women First and the outcome of certain corporate
transactions or other matters submitted to our stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
our assets.
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 November 7, 2000, we had 17,505,173 shares
of common stock outstanding. All of these shares are eligible for sale in the
public market. An additional 2,029,000 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
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Exhibits:
10.1a ORTHO-EST(R) Asset Transfer & Supply Agreement effective
September 30, 2000 between Women First HealthCare, Inc.
and Ortho-McNeil Pharmaceutical, Inc.
10.1b ORTHO-PREFEST Co-Promotion Agreement effective September
30, 2000 between Women First HealthCare, Inc. and
Ortho-McNeil Pharmaceutical, Inc.
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month period
ended September 30, 2000.
</TABLE>
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: November 13, 2000 By: /s/ Charles M. Caporale
---------------------------------------
Charles M. Caporale
Vice President and Chief Financial Officer
(Principal Financial and Accounting
Officer)
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