<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 June 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)
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 July 31, 2000, 17,484,906 shares of common stock, par value $.001
per share, were outstanding.
<PAGE> 2
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>
ITEM 1 - FINANCIAL STATEMENTS (Unaudited) PAGE
<S> <C>
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...................................................... 14
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS........................ 15
ITEM 5 - OTHER INFORMATION ............................................... 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................. 22
</TABLE>
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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 18,200,093 $ 32,719,263
Accounts receivable, net 1,491,489 1,916,174
Inventory 1,149,277 1,459,733
Receivable from related party 155,096 682,484
Prepaid expenses and other current assets 775,268 649,926
------------ ------------
Total current assets 21,771,223 37,427,580
Property and equipment, net 1,193,755 1,035,240
Intangible assets, net 3,496,126 3,745,110
Other assets 1,180,075 1,439,629
------------ ------------
Total assets $ 27,641,179 $ 43,647,559
============ ============
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 1,671,921 $ 2,481,581
Payable to related party 1,836,364 482,321
Accrued salaries and employee benefits 2,058,855 1,972,889
Other accrued liabilities 3,463,470 1,991,439
------------ ------------
Total current liabilities 9,030,610 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; 17,484,906
shares issued and outstanding at June 30, 2000, and 17,596,195 shares
issued, 54,900 shares to be
issued, and 17,255,878 shares outstanding at December 31, 1999 17,485 17,310
Treasury stock (99,660) (99,660)
Additional paid-in capital 80,752,807 80,761,285
Deferred compensation (518,118) (1,080,135)
Accumulated deficit (61,541,945) (42,879,471)
------------ ------------
Total stockholders' equity 18,610,569 36,719,329
------------ ------------
Total liabilities and stockholders' equity $ 27,641,179 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue $ 4,510,069 $ 5,064,863 $ 9,069,228 $ 9,367,554
Net revenue with related party 1,316,330 - 4,276,339 -
------------ ------------ ------------ ------------
5,826,399 5,064,863 13,345,567 9,367,554
Costs and expenses:
Cost of sales (including purchases from
related party of $2,065,587 and
$2,998,160 for the three and six months
ended June 30, 2000) 4,092,202 3,461,918 6,417,913 6,244,771
Marketing and sales 9,878,055 5,315,242 20,793,878 10,300,981
General and administrative 1,993,142 2,379,056 4,383,684 4,978,141
Research and development 119,075 335,131 388,357 626,671
Restructuring charges 734,665 - 734,665 -
------------ ------------ ------------ ------------
Total costs and expenses 16,817,139 11,491,347 32,718,497 22,150,564
------------ ------------ ------------ ------------
Loss from operations (10,990,740) (6,426,484) (19,372,930) (12,783,010)
Interest income (expense), net 326,680 (169,054) 710,456 (150,747)
------------ ------------ ------------ ------------
Net loss available to common stockholders (10,664,060) (6,595,538) (18,662,474) (12,933,757)
============ ============ ============ ============
Net loss per share (basic and diluted) $ (0.61) $ (0.83) $ (1.07) $ (1.65)
============ ============ ============ ============
Weighted average shares used in computing
net loss per share (basic and diluted) 17,479,867 7,979,015 17,425,666 7,833,313
============ ============ ============ ============
</TABLE>
See accompanying notes.
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WOMEN FIRST HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(18,662,474) $(12,933,757)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization 294,370 103,828
Amortization of intangibles 250,150 239,255
Amortization of deferred compensation 403,357 696,745
Amortization of warrants issued with debt - 83,579
Write-down of assets and other charges - -
Changes in operating assets and liabilities 3,239,567 1,111,001
Accounts receivable 424,685 (599,728)
Inventory 310,456 (1,116,521)
Receivable from related party 527,388 (1,383,612)
Prepaid expenses and other current assets (125,342) (128,215)
Accounts payable (809,660) 622,726
Payable to related party 1,354,043 -
Accrued salaries and employee benefits 85,966 652,312
Other accrued liabilities 1,472,031 1,423,840
------------ ------------
Net cash used in operating activities (14,475,030) (10,699,349)
INVESTING ACTIVITIES
Purchases of property and equipment (289,563) (245,274)
Acquisition of subsidiary - (1,059,897)
Refund of deposits 108,952 -
Acquisition of licenses and other assets, net (13,886) (888,517)
------------ ------------
Net cash used in investing activities (194,497) (2,193,688)
FINANCING ACTIVITIES
Issuance of Series A preferred stock - 5,286,218
Issuance of common stock 150,357 -
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 - -
Repayment of short-term notes payable - -
------------ ------------
Net cash provided by financing activities 150,357 12,776,218
------------ ------------
Net increase (decrease) in cash and cash equivalents (14,519,170) (116,819)
Cash and cash equivalents at beginning of the period 32,719,263 4,438,445
------------ ------------
Cash and cash equivalents at end of the period $ 18,200,093 $ 4,321,626
============ ============
</TABLE>
See accompanying notes.
3
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WOMEN FIRST HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
JUNE 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 six-month periods ended June 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 reorganization 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. 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.
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<PAGE> 8
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.
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 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:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Pharmaceutical products $ 600,252 $ 837,462
Self-care products 549,025 622,271
---------- ----------
Total inventory $1,149,277 $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
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 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.
5
<PAGE> 9
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 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 June 30, 2000, the Company had not
met the minimum requirements necessary to record any revenue under the
agreement. As of June 30, 2000, the Company had met the minimum requirements
required to receive compensation under the agreement, and recorded revenue of
$121,000 during the three-month period ended June 30, 2000. Based upon the
results of our selling efforts during the period ended June 30, 2000, the
Company has entered into discussions with Bristol-Myers to revise the agreement
to improve the Company's revenue opportunities. If these discussions do not
result in terms more favorable to the Company, the Company may not continue to
promote Pravachol(R).
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 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 March 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 were no write-offs related to the
discontinued product.
Women First is continuing to co-promote ORTHO-PREFEST(TM) , the 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, but may be terminated earlier by Ortho-McNeil in
the event certain minimum performance goals are not met. Effective June 27,
2000, the Company reduced its sales force as part of a restructuring. After the
reduction, the size of the Company's sales force is not in compliance with the
requirements of the co-promotion agreement. In addition, the sales force
reduction will impair the Company's ability to meet the specified portion of
minimum sales calls in future periods. As of June 30, 2000, the Company had met
the minimum requirements to receive compensation under the agreement, and
recorded revenues of $155,000 under the agreement during the three-month period
ended June 30, 2000. We are currently in
6
<PAGE> 10
discussions with Ortho-McNeil which could significantly change our agreements
with respect to ORTHO-PREFEST(TM) and ORTHO-EST(R).
5. RESTRUCTURING CHARGES
The Company recorded restructuring charges of $735,000 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 65
management and sales employees ($695,000) and other estimated costs ($40,000).
Of the total termination benefit charges, $169,000 were non-cash expenses and
$489,000 was paid as of July 15, 2000.
7
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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 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 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 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.
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, and 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.
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 began selling and distributing the Esclim(TM) estradiol transdermal
system in November 1999.
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 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.
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<PAGE> 12
Our product co-promotion agreement with Bristol-Myers Squibb 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. Prior to the three months ended June 30, 2000, we had not met the
minimum requirements required to record any revenue under the agreement. During
the three months ended June 30, 2000, we met the minimum performance levels
required to receive compensation of $121,000 under the co-promotion agreements
with Bristol-Myers Squibb relating to Pravachol(R), a cholesterol-lowering drug.
Based upon the results of our selling efforts during the period ended June 30,
2000, we have entered into discussions with Bristol-Myers Squibb to revise the
agreement to improve our revenue opportunities. If these discussions do not
result in terms more favorable to us, we may not continue to promote
Pravachol(R).
Our product co-promotion agreement with Ortho-McNeil also requires us to
achieve minimum performance levels to receive compensation or to prevent
contract termination. Effective June 27, 2000, the Company reduced its sales
force as part of a restructuring. After the reduction, the size of the Company's
sales force is not in compliance with the requirements of the co-promotion
agreement. In addition, the sales force reduction will impair our ability to
meet the specified portion of minimum sales calls in future periods. As of June
30, 2000, we had met the minimum requirements to receive compensation under the
agreement, and recorded revenues of $155,000 under the agreement during the
three-month period ended June 30, 2000. We are currently in discussions with
Ortho-McNeil which could significantly change our agreements with respect to
ORTHO-PREFEST(TM) and ORTHO-EST(R).
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 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. 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 $62.8 million as of June 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.
9
<PAGE> 13
RESULTS OF OPERATIONS
Net Revenue. For the three and six months ended June 30, 2000, total net
revenue was $5.8 million and $13.3 million, respectively, as compared to $5.1
million and $9.4 million for the same periods in 1999.
Revenue for the three and six months ended June 30, 2000 was derived
primarily from pharmaceutical product sales of $1.8 million and $4.1 million,
respectively, from the ORTHO-EST(R)oral estrogen product and the Esclim(TM)
estradiol transdermal system, and sales by our subsidiary As We Change, LLC, a
national mail-order catalog and Internet retailer of $2.4 million and $4.7
million, respectively. Revenue for the three and six months ended June 30, 1999
was derived primarily from pharmaceutical product sales of $3.1 million and $5.5
million, respectively, from the ORTHO-EST(R)oral estrogen product and sales by
As We Change, LLC, of $1.6 million and $3.2 million respectively. Sales of
ORTHO-EST(R) for the three and six months ended June 30, 2000 declined $1.5
million and $2.6 million, respectively from comparable periods in 1999 due to
competition from generic brands.
In addition, we recorded related party revenue of $1.3 million and $4.3
million, respectively, during the three and six months ended June 30, 2000 for
work performed under our agreement with Ortho-McNeil. Under this agreement, we
develop educational programs 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. We
recorded $1.5 million of related party revenue for our sales efforts related to
ORTHO TRI-CYCLEN(R), an oral contraceptive product, during the three months
ended March 31, 2000 pursuant to the amendment to the co-promotion agreement
with Ortho-McNeil.
Costs and Expenses. Costs and expenses increased $5.3 million to $16.8
million for the three months ended June 30, 2000 from $11.5 million for the
three months ended June 30, 1999. Costs and expenses increased $10.5 million to
$32.7 million for the six months ended June 30, 2000 from $22.2 million for the
six months ended June 30, 1999. The increase in costs and expenses was due
primarily to the expansion of our direct field sales force and increased
marketing activities.
Cost of sales was $4.1 million, or 70.2% of total net revenue, for the
three months ended June 30, 2000 as compared to $3.5 million, or 68.4% of total
net revenue, for the same period in 1999. Cost of sales was $6.4 million, or
48.1% of total net revenue, for the six months ended June 30, 2000 as compared
to $6.2 million, or 66.7% of total net revenue, for the same period in 1999.
Cost of sales consists primarily of the amounts we pay for products under supply
agreements. Increases and decreases in cost of sales is primarily due to
differences in the revenue mix in these periods and inventory adjustments.
Marketing and sales expense was $9.9 million for the three months ended
June 30, 2000 compared to $5.3 million for the three months ended June 30, 1999.
Marketing and sales expense was $20.8 million for the six months ended June 30,
2000 compared to $10.3 million for the six months ended June 30, 1999. The
increase in these expenditures was primarily due to our expansion of our sales
organization to 150 sales territories for the launch of ORTHO-PREFEST(TM) , the
oral combination HRT product, 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. We
expect marketing and sales expense to decrease in future periods.
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General and administrative expense decreased $386,000 to $2.0 million
for the three months ended June 30, 2000 from $2.4 million for the three months
ended June 30, 1999. General and administrative expense decreased $594,000 to
$4.4 million for the six months ended June 30, 2000 from $5.0 million for the
six months ended June 30, 1999. The decrease in these expenses was primarily due
to decreases in employee related costs.
Research and development expense was $119,000 for the three months ended
June 30, 2000 and $388,000 for the six months ended June 30, 2000 compared to
$335,000 and $627,000, 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 $735,000 during the three months
ended June 30, 2000. We are seeking to increase effectiveness and efficiency by
restructuring Women First into three operating divisions. The charges include
costs pertaining to the termination or resignation of 65 management and sales
employees ($695,000) and other estimated costs ($40,000). Of the total
termination benefit charges, $169,000 were non-cash expenses and $489,000 was
paid as of July 15, 2000.
Loss from Operations. For the reasons discussed above, the loss from
operations increased $4.6 million to $11.0 million for the three months ended
June 30, 2000 from $6.4 million for the three months ended June 30, 1999. Loss
from operations increased $6.6 million to $19.4 million for the six months ended
June 30, 2000 from $12.8 million for the six months ended June 30, 1999.
Interest Income (Expense), net. Interest income (expense), net increased
$496,000 to a net interest income of $327,000 for the three months ended June
30, 2000 from a net interest expense of $169,000 for the three months ended June
30, 1999. Interest income (expense), net increased $861,000 to a net interest
income of $710,000 for the six months ended June 30, 2000 from a net interest
expense of $151,000 for the six months ended June 30, 1999. Interest income
(expense), net consists primarily of earnings on our cash and cash equivalents
netted against interest expense on short-term borrowings. The increase in
interest income (expense), net for the three-month and six-month periods ended
June 30, 2000 compared to the prior year periods was primarily due to increased
average cash balances.
FACTORS AFFECTING RESULTS OF OPERATIONS
We incurred operating losses of $30.8 million in the year ended December
31, 1999 and $19.4 million in the six months ended June 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 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 ORTHO-EST(R), the 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 or failure of our sales force in distributing and/or
co-promoting our current product line and changes in market
acceptance of those products,
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- our success or failure in maintaining our existing distribution and
co-promotion agreements,
- our ability to introduce new products through co-promotion or
distribution agreements or otherwise,
- legislative changes that affect our products and the way we market
them and our ability to comply with new or existing regulations,
- the amount and timing of expenditures for the expansion of our
operations,
- changes in the competitive environment that could cause us to change
our pricing or marketing strategy,
- 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. Failure
to meet these expectations could have a material adverse effect on our stock
price.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $18.2 million at June 30, 2000 compared
to $32.8 million at December 31, 1999. At June 30, 2000, our working capital
totaled $12.7 million compared to $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. 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,
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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 $14.5 million for the six
months ended June 30, 2000 and was $10.7 million for the same period in 1999.
Net cash used in investing activities was $194,000 for the six months ended June
30, 2000 and was $2.2 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 $150,000 for
the six months ended June 30, 2000 and was $12.8 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 six months ended June 30, 2000, we made net capital expenditures
of $290,000 primarily for computer equipment. We made net capital expenditures
of $1.2 million during the six months ended June 30, 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 are not in compliance with the requirement
regarding the size of our sales force after the restructuring, and meeting the
size requirement in future periods would require a significant outlay of working
capital which we are not prepared to make at this time.
We also are obligated to make significant minimum payments under certain
of our agreements with our collaborative partners. The minimum purchase
commitment for ORTHO-EST(R), the 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.
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We are currently in discussions with Ortho-McNeil which could
significantly change our agreements with respect to ORTHO-PREFEST(TM) and
ORTHO-EST(R).
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 over the next 12
months, and 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 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.
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, $700,000 to
purchase machinery, equipment and leasehold improvements, and $28.9 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 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 $62.8 million through June 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.
Certain 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
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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
ORTHO-PREFEST(TM) , the 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, a director and the former President and Chief Executive Officer, is no
longer associated with Women First (other than as a result of death or
disability). As part of the restructuring, we reduced our sales force by
approximately 50% to 75 field sales territories. After the reduction, the size
of our sales force is not in compliance with the requirements of the
co-promotion agreement. In addition, the sales force reduction will impair our
ability to meet the specified portion of minimum sales calls in future periods.
As of June 30, 2000, we had met the minimum requirements to receive compensation
under the agreement, and recorded revenues of $155,000 under the agreement
during the three-month period ended June 30, 2000. We are currently in
discussions with Ortho-McNeil which could significantly change our agreements
with respect to ORTHO-PREFEST(TM) and ORTHO-EST(R).
Our co-promotion agreement with Bristol-Myers Squibb U.S.
Pharmaceuticals Group relating to the cholesterol-lowering drug Pravachol(R)
provides that Bristol-Myers Squibb may terminate the agreement in the event that
Pravachol(R) prescriptions written in the United States by 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.
Under an amendment effective April 1, 2000, Bristol-Myers Squibb and Women First
restructured the agreement to reduce the baseline amounts. The amendment 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. Prior to the three months
ended June 30, 2000, we had not met the minimum requirements required to record
any revenue under the agreement. During the three months ended June 30, 2000, we
met the minimum performance levels required to receive compensation of $121,000
under the co-promotion agreements with Bristol-Myers Squibb relating to
Pravachol(R), a cholesterol-lowering drug. Based upon the results of our selling
efforts during the period ended June 30, 2000, we have entered into discussions
with Bristol-Myers Squibb to revise the agreement to improve our revenue
opportunities. If these discussions do not result in terms more favorable to us,
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. 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.
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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 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 over the next twelve
months. 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 various days in
August 2000, the price of our common stock has fallen below Nasdaq's $1 per
share minimum bid price requirement. If Nasdaq delists the common stock from the
National Market, our stockholders' ability to buy and sell shares of our common
stock could adversely affect our ability to enter into future equity financing
transactions or to effect an acquisition or merger with other businesses.
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
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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 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 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 and
Laboratoires Fournier,
- 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 recently have revised the terms of our co-promotion agreements
relating to Pravachol(R) and ORTHO TRI-CYCLEN(R). Accordingly, we have little
basis to estimate our revenues under these agreements, as revised. 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 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
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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 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 Parke-Davis, 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-ESToral estrogen product and the Esclim(TM) estradiol
transdermal system may be adversely affected by formularies that require
substitution
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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.
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.
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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 July 21, 2000, Edward F. Calesa and Randi C.
Crawford jointly own approximately 36.3% 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 60.7% of the outstanding common stock. Accordingly, if all or
certain of such stockholders were to act together, they would be able to
exercise significant influence over or control the election of our Board of
Directors, the management and policies of Women First and the outcome of certain
corporate transactions or other matters submitted to our stockholders for
approval, including mergers, consolidations and the sale of all or substantially
all of our assets.
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 July 21, 2000, we had 17,484,906 shares of
common stock outstanding. All of these shares are eligible for sale in the
public market. An additional 2,327,930 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:
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three-month period
ended June 30, 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: August 14, 2000 By: /s/ EDWARD F. CALESA
----------------------------------------------
Edward F. Calesa
President and Chief Executive Officer
(Principal Executive Officer and Acting
Principal Financial and Accounting Officer)
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