EVOFEM BIOSCIENCES, INC. The terms "we," "us," "our," "Evofem" or the "Company" refer collectively toEvofem Biosciences, Inc. and its wholly-owned subsidiaries, unless otherwise stated. All information presented in this quarterly report on Form 10-Q (Quarterly Report) is based on our fiscal year. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years endingDecember 31 and the associated quarters, months and periods of those fiscal years. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report. For additional context with which to understand our financial condition and results of operations, see the audited consolidated financial statements and accompanying notes contained therein as ofDecember 31, 2021 and 2020 (2021 Audited Financial Statements) in the Company's Annual Report on Form 10-K as filed with theSEC onMarch 10, 2022 (2021 Annual Report). This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under Item 1A of Part I of the 2021 Annual Report and Item 1A of Part II of this Quarterly Report and our Quarterly Reports on Form 10-Q as filed with theSEC onMay 10, 2022 andAugust 12, 2022 . Unless otherwise defined in this section, the defined terms in this section have the meanings set forth in the 2021 Audited Financial Statements.
Recent Developments
Our common shares was suspended from the Nasdaq Capital Market due to noncompliance with the Nasdaq's minimum bid price requirement. OnOctober 27, 2022 ,Nasdaq Stock Market, LLC filed a Notification of Removal From Listing and Registration under 12(b) of the Securities Exchange Act of 1934, and as such, our common stock was formally delisted from Nasdaq. The delisting of our shares from Nasdaq makes our shares of common stock less liquid and makes it more difficult for us to raise funds when and as needed to fund our operations.
Our common stock, par value
OnOctober 11, 2022 we announced that the Phase 3 EVOGUARD clinical trial evaluating EVO100 for the prevention of chlamydia and gonorrhea infection in women did not achieve its endpoints. Due to financial resources, we discontinued further investment in this clinical program. OnNovember 1, 2022 , our Board of Directors approved a reduction in workforce (RIF) intended to conserve our current cash resources; we reduced our workforce by 39 employees. We expect annualized future cost savings from the RIF to be approximately$9.2 million , which we intend to use to support our operations. We estimate we will incur aggregate pre-tax charges of approximately$0.6 million in connection with the RIF, primarily consisting of notice period and severance payments, employee benefits and related costs. We expect the RIF will be substantially complete by the end of 2022 and expect that these one-time charges will be predominantly incurred in the fourth quarter of 2022. OnDecember 16, 2022 , we filed a Certificate of Designation (the Certificate of Designation) creating a Series D Non-Convertible Preferred Stock, par value$0.0001 per share (the Series D Preferred Shares). An aggregate of 70 shares has been authorized, they are not convertible into shares of Common Stock, have limited voting rights equal to 1% of the total voting power of the then-outstanding shares of Common Stock entitled to voter per shares, are not entitled to dividends, and are required to be redeemed by us, once our shareholders have approved a reverse split, as described in the Certificate of Designation. OnDecember 19, 2022 , the Company entered into the First Amendment to Forbearance Agreement (the Amendment) effective as ofDecember 15, 2022 (the Amendment Effective Date) with the Guarantors identified on the signature pages thereto (the Guarantors and, together with the Company being collectively referred to as the Loan Parties), the 667, L.P. andBaker Brothers Life Sciences, L.P. (the Consenting Purchasers) andBaker Bros .Advisors LP , as agent and collateral agent for the Purchasers (in such capacity the Designated Agent), to amend certain provisions of the of the Forbearance Agreement datedSeptember 15, 2022 (the Forbearance Agreement). The Amendment revises the Forbearance Agreement to (i) amend the Fifth Recital Clause to clarify that the Purchasers consent to any additional indebtedness pari passu, but nor senior to that of the Purchases, in an amount not to exceed$5,000,000 , and (ii) strike and entirely replace Section 4 to clarify the terms of the Purchasers' consent to Interim Financing (as defined therein). OnDecember 20, 2022 , the Company entered into a securities purchase agreement (SPA), with certain investors (the Investors) providing for the sale and issuance of senior secured convertible notes due in the aggregate original principal amount of$2,307,692,31 (the Notes), warrants to purchase an aggregate 46,153,847 shares of common stock (Warrants) and an aggregate 70 shares of Series D Preferred Stock (the Preferred Shares) (collectively, the Offering). The Offering closed onDecember 21, 2022 with net proceeds to the Company from the Offering, after deducting offering expenses of approximately$1,250,000 . 34 -------------------------------------------------------------------------------- Table of Contents Overview We are aSan Diego -based commercial-stage biopharmaceutical company committed to developing and commercializing innovative products to address unmet needs in women's sexual and reproductive health. Our first commercial product, Phexxi, was approved by the FDA onMay 22, 2020 and is the first and only FDA-approved, hormone-free, woman-controlled, on-demand prescription contraceptive gel for women. We commercially launched Phexxi in September, 2020 inthe United States . We intend to commercialize Phexxi in global markets through partnerships or licensing agreements.
Phexxi as a Contraceptive; Commercial Strategies
Our sales force promotes Phexxi directly to obstetrician/gynecologists and their affiliated health professionals, who collectively write the majority of prescriptions for contraceptive products. As ofSeptember 30, 2022 , our sales force consisted of 50 sales representatives and 6 business managers, supported by a self-guided virtual health care provider (HCP) learning platform. After the RIF, as discussed below, our sales force consists of 20 sales representatives and 3 business managers. Additionally, we offer women direct access to Phexxi via our telehealth platform. Using the platform, women can directly meet with an HCP to determine their eligibility for a Phexxi prescription and, if eligible, have the prescription written by the HCP, filled, and mailed directly to them by a third-party pharmacy. Our comprehensive commercial strategy for Phexxi includes marketing and product awareness campaigns targeting women of reproductive potential inthe United States as well as certain identified target HCP segments. Our target audience includes the approximately 23 million women who are not using hormonal contraception and the approximately 18.8 million women who are using a prescription contraceptive, some of whom, particularly pill users, may be ready to move to an FDA-approved, non-invasive hormone-free contraceptive. In addition to marketing and product awareness campaigns, our commercial strategy includes payer outreach and execution of our consumer digital and media strategy.
According to our market research since Phexxi's commercial launch, HCPs indicate they would recommend Phexxi to approximately:
•47% of patients experiencing side effects from current contraception; •37% of patients using non-hormonal prescription contraception; •36% of patients seeking pregnancy prevention; and •19% of patients using hormonal prescription contraception.
Additional research into the demographics of more than 5,000 women who are using Phexxi revealed that 79% of Phexxi users are between 18 to 34 years of age. Among the subset of Phexxi users for whom prior contraceptive data is available (n=2,512), 80% of women who had recently started Phexxi were not on any method of prescription contraception. Another 20% switched to Phexxi from either oral contraceptives, hormonal rings or patches. InFebruary 2021 , we launched a direct-to-consumer advertising campaign, known as "Get Phexxi," designed to increase awareness and educate women on the benefits of Phexxi. The campaign highlighted some of the struggles women face when choosing among the many available methods of contraception, including the lack of control with condoms, daily use of the pill, and abstinence required for cycle tracking. InSeptember 2021 , we launched a national brand ambassador campaign featuring Emmy Award-winning celebrityAnnie Murphy , designed to broaden awareness and drive uptake of Phexxi. This award-winning campaign, known as "House Rules," has significantly raised our target audience awareness of Phexxi. To date, the House Rules campaign has grown brand awareness by 45% and garnered 42 million video views and over 33,000 telehealth exits. More importantly, it has also helped drive significant increases in new HCPs recommending and prescribing Phexxi. Over the course of 2021, ex-factory units grew quarter over quarter, with the most significant growth in the fourth quarter following "House Rules;" Phexxi units shipped increased 73% as compared to the prior quarter, propelled by a 56% increase in new patients starting Phexxi and a 111% increase in refills as compared to the prior quarter. The first quarter of 2022 reflected anticipated softness in Phexxi prescription and dispensed unit growth due to the annual reset of patient healthcare deductibles, which impacted most contraceptive brands, as well as from adjustments to Evofem's patient support programs inJanuary 2022 intended to increase the profit margin on Phexxi units dispensed and support continued net product sales growth. As forecasted, Phexxi total prescriptions and dispensed units rebounded inMarch 2022 and continued to grow in the second and third quarters of 2022. Approved claims for Phexxi have increased throughout 2022, and currently 71% of Phexxi claims are being approved, up from a low of 55% at launch inSeptember 2020 . In the second quarter of 2022, we successfully negotiated an agreement with one of the nation's largest pharmacy benefit managers (PBMs) to ensure most women covered by this plan can fill their Phexxi prescription. The agreement took effect onJuly 1, 2022 and is representative of approximately 48 million lives. 35
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We continue working to increase the number of lives covered and to gain a
preferred formulary position for Phexxi. Currently Phexxi has coverage for
approximately 60% of
•U.S.Department of Veterans Affairs : OurDecember 2020 contract award from theU.S. Department of Veterans Affairs covers approximately 13.7 million commercial lives.
•The
•Pharmacy Benefits Manager: As mentioned above, we successfully negotiated a contract with one of the largest PBMs in the nation, which added Phexxi to its formulary with no restrictions for most women covered by the plan. The agreement took effectJuly 1, 2022 .
Approximately 18 million commercial lives have access to Phexxi at no
out-of-pocket cost. This is due in part to one of the largest plans in
Coverage for and access to, Phexxi is expected to further increase as additional insurers and PBMs comply with theJanuary 2022 guidance regarding access to contraception in theU.S from theHealth Resources and Services Administration (HRSA) and theU.S. Department of Labor . The new guidance specifies that most insurers and PBMs must provide coverage, with no out-of-pocket costs to women, for FDA-approved contraceptive products, like Phexxi, prescribed by healthcare providers. Compliance with theJanuary 2022 guidance is expected on or beforeJanuary 1, 2023 . Phexxi is classified in the databases and pricing compendia of Medi-Span andFirst Databank , two major drug information databases that payers can consult for pricing and product information, as the first and only "vaginal pH modulator." InJuly 2022 , we developed and introduced a new educational chart that provides high-level information about birth control methods that are currently available to women inthe United States , adding new categories including vaginal pH modulator. It is intended to replace a long-outdated chart that is still in use at many obstetrics and gynecology offices, thereby better supporting healthcare providers in their contraceptive counseling.
EVO100 for the Prevention of Chlamydia and Gonorrhea
Based on positive and statistically significant top-line results of our Phase 2B/3 AMPREVENCE trial, inOctober 2020 we initiated the Phase 3 EVOGUARD clinical trial to evaluate EVO100 for the prevention of urogenital chlamydia and gonorrhea infections in women. This randomized, placebo-controlled clinical trial enrolled 1,903 women with a prior chlamydia or gonorrhea infection who were at risk for future infection. OnOctober 11, 2022 , we reported that EVOGUARD did not meet its primary efficacy endpoint. The Company believes COVID-19 related changes in clinical site operations, subject behavior and actions including deviations from following the clinical study protocol requirements related to STI acquisition, detection, and prevention contributed to this outcome. The product safety profile was consistent with what has been observed in prior clinical trials, and only two women (0.1%) in the study discontinued due to adverse events. Due to financial constraints, we discontinued investment in this clinical program.
Multipurpose Prevention Technology Vaginal Gel for HIV Prevention
InDecember 2021 , we launched a collaboration withOrion Biotechnology Canada, Ltd. (Orion) to evaluate the compatibility and stability of Orion's novel CCR5 antagonist, OB-002, in Phexxi with the goal of developing a Multipurpose Prevention Technology (MPT) product candidate for indications including the prevention of human immunodeficiency virus (HIV) in women. This collaboration is focused on determining compatibility and stability of OB-002 in Phexxi. Evofem and Orion expect to seek government and philanthropic funding for subsequent development of the MPT product candidate.
Financial Operations Overview
Net Product Sales
Our revenue recognition is based on unit shipments from our third-party logistics warehouse to our customers, which consist of wholesale distributors, retail pharmacies, and a mail-order specialty pharmacy. We have recognized net product sales inthe United States since the commercial launch of Phexxi inSeptember 2020 . We intend to out-license commercialization rights for Phexxi to one or more pharmaceutical companies or other qualified potential partners for countries or regions outside ofthe United States . We are currently in discussion with potential partners for various geographies. We cannot forecast when or if these arrangements will be secured, the structure or potential amount of revenues from these arrangements, whether upfront, milestone-related or related to future Phexxi sales (assuming approval of Phexxi for commercial sale outside ofthe United States ), or to what degree these arrangements would affect our development plans, future revenues and overall capital requirements. 36 -------------------------------------------------------------------------------- Table of Contents InOctober 2021 , we submitted the registration for our hormone-free contraceptive vaginal gel to the Mexican Regulatory Agency Comisión Federal para la Protección contra Riesgos Sanitarios. In addition to submitting for registration inMexico , we have also submitted marketing applications for Phexxi under the trademark Femidence™ inNigeria ,Ethiopia , andGhana . These were the first of several strategic regulatory submissions planned under Evofem's 2020 Global Health Agreement withAdjuvant Capital . InOctober 2022 , Phexxi was approved inNigeria , where the product will be potentially marketed under the brand name Femidence™. This is the first regulatory approval for the contraceptive vaginal gel outside theU.S.
Cost of Goods Sold
Inventory costs include all purchased materials, direct labor and manufacturing overhead.
We are obligated to pay quarterly royalty payments pursuant to our license agreement withRush University , in amounts equal to a single-digit percentage of the gross amounts we receive on a quarterly basis less certain deductions incurred in the quarter based on a sliding scale. We are also obligated to pay a minimum annual royalty amount of$100,000 to the extent these earned royalties do not equal or exceed$100,000 in any given year. A minimum annual royalty amount of$100,000 was first required for the annual period commencing onJanuary 1, 2021 . These royalty costs were$0.2 million and$0.1 million for the three months endedSeptember 30, 2022 and 2021, respectively, and$0.7 million and$0.2 million for the nine months endedSeptember 30, 2022 and 2021, respectively, and was included in the costs of goods sold in the condensed consolidated financial statements.
Operating Expenses
Research and Development Expenses
Our research and development expenses primarily consist of costs associated with
the recently reported EVOGUARD trial and costs associated with the continuous
improvements related to Phexxi commercialization efforts. These expenses
include:
•external development expenses incurred under arrangements with third parties,
such as fees paid to clinical research organizations (CROs) relating to our
clinical trials, costs of acquiring and evaluating clinical trial data such as
investigator grants, patient screening fees, laboratory work and statistical
compilation and analysis, and fees paid to consultants;
•costs to acquire, develop and manufacture clinical trial materials, including
fees paid to contract manufacturers;
•costs related to compliance with drug development regulatory requirements;
•continuous improvements of manufacturing and analytical efficiency;
•ongoing product characterization and process optimization;
•back-up contract manufacturing organization's evaluation to support future
commercial forecast and reduce cost of goods sold;
•alternative raw material evaluation to secure an uninterrupted supply chain and
reduce cost of goods sold;
•employee-related expenses, including salaries, benefits, travel and noncash
stock-based compensation expense; and
•facilities, depreciation and other allocated expenses, which include direct and
allocated expenses for rent and maintenance of facilities, depreciation of
leasehold improvements and equipment, and research and other supplies.
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We expense internal and third-party research and development expenses as incurred. The following table summarizes research and development expenses by product candidate (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Allocated third-party development expenses: EVO100 for prevention of chlamydia/gonorrhea- Phase 3 (EVOGUARD)
$ 2,811
2,811 6,890 16,553 17,078
Unallocated internal research and development
expenses:
Noncash stock-based compensation expenses 150 160 491 1,122
Payroll related expenses 607 1,048 3,269 3,988
Outside services costs 408 275 1,199 1,291
Other 1,231 328 1,830 991Total unallocated internal research and development expenses
2,396 1,811 6,789 7,392
Total research and development expenses $ 5,207 Costs for our clinical development programs and clinical trials in general are very difficult to predict and may vary significantly between clinical trials and over the life of a program owing to the following: •the phase of development of the product candidate; •the number of patients participating in the trial; •per patient trial costs; •the number of sites included in the trial; •the length of time and level of marketing required to enroll eligible patients; •the number of doses patients receive; •potential additional safety monitoring or other trials requested by regulatory agencies; and •the efficacy and safety profile of the product candidate. We anticipate that we will determine which programs and/or product candidates to pursue, if any, as well as the most appropriate funding allocations for each program and/or product candidate, on an ongoing basis in response to the outcomes of pre-clinical and clinical trials, regulatory developments, and our ongoing assessments of the commercial potential of each program and/or product candidate.
We expect research and development expenses to decrease slightly in 2022
compared to 2021 primarily due to the completion of EVOGUARD in the third
quarter of 2022. As previously noted, we have discontinued this program and
therefore expect a significant reduction in clinical trial expense in 2023.
Additionally, going forward, we expect an annualized costs saving of
Selling and Marketing Expenses
Our selling and marketing expenses consist primarily of Phexxi commercialization costs, including direct to consumer (DTC) and HCP advertising, the Phexxi telehealth platform, our sample program, training, salaries, benefits, travel, noncash stock-based compensation expense, and other related costs for our employees and consultants. In connection with our overall cost reduction strategy, we expect our selling and marketing expenses to decrease significantly in 2022 compared to 2021 due to reductions in media and marketing activities related to ongoing Phexxi promotional strategies and the 2022 RIF. Going forward, we expect an annualized costs saving of$6.3 million in our selling and marketing expenses from the 2022 RIF.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits,
travel, business development expenses, investor and public relations expenses,
noncash stock-based compensation, and other related costs for our employees and
consultants performing executive, administrative, finance, legal and human
resource functions. Other general and administrative expenses include
facility-related costs not otherwise included in research and development or
selling and marketing, and professional fees for accounting, auditing, tax and
legal fees, and other costs associated with obtaining and maintaining our patent
portfolio.
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We expect our general and administrative expenses to increase in 2022 compared
to 2021 primarily due to increased general legal expenses and recruiting and
financing related fees. Going forward, we expect an annualized costs saving of
$0.5 million in our general and administrative expense from the 2022 RIF.
Other Income (Expense)
Other income (expense) consists primarily of interest expense, loss on issuance and the change in fair value of financial instruments issued in various capital raise transactions. The change in fair value of financial instruments was recognized as a result of mark-to-market adjustments for those financial instruments.
Results of Operations
Three Months EndedSeptember 30, 2022 Compared to Three Months EndedSeptember 30, 2021 (in thousands): Net Product Sales Three Months Ended September 30, 2022 vs. 2021 2022 2021 $ Change % Change Product sales, net $ 6,371$ 1,712 $ 4,659 272 % The increase in product sales, net, was primarily due to the continued growth in Phexxi ex-factory unit sales from the impact of Phexxi promotional strategies, and gross-to-net improvement initiatives implemented inJanuary 2022 .
Cost of Goods Sold
Three Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Cost of goods sold $ 1,680 $ 955 $ 725 76 %
The increase in cost of goods sold was primarily due to the increase in ex-factory unit sales in the current period versus the same period in the prior year.
Research and Development Expenses
Three Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Research and development $ 5,207 $ 8,701 $ (3,494) (40) %
The decrease in research and development expenses was primarily due to a $4.4
million decrease in clinical trial costs associated with EVOGUARD, for which the
last patient last visit occurred in July 2022 . This decrease was partially
offset by a $0.9 million increase in facilities costs and a $0.4 million
increase in outside services associated with regulatory related activities.
Selling and Marketing Expenses
Three Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Selling and marketing $ 11,948 $ 30,468 $ (18,520) (61) %
The decrease in selling and marketing expenses was primarily due to a $18.2
million decrease in media and marketing costs related to promotional strategies,
especially those focused on DTC campaigns, a $0.3 million decrease in costs
related to the Phexxi sample program, and a $1.2 million decrease in payroll and
related expenses due to lower headcount. This decrease was partially offset by a
$1.7 million increase in noncash stock-based compensation.
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General and Administrative Expenses
Three Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
General and administrative $ 6,260 $ 4,957 $ 1,303 26 %
The increase in general and administrative expenses was primarily due to a $1.6
million increase in legal, corporate, and financing related expenses, partially
offset by a $0.2 million decrease in facilities costs.
Total Other Income (Expense), net
Three Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Total other income (expense), net $ 108,243 $ (30,692) $ 138,935 (453) %
Total other income, net, for the three months ended September 30, 2022 primarily
included a $106.9 million recorded gain from the change in fair value of the
liability-classified warrants issued in 2022 and a $2.5 million gain on the
partial extinguishment of the Adjuvant debt, partially offset by a $0.8 million
loss from change in fair value of the May 2022 Notes due to mark-to market
adjustment at the time of the debt extinguishment as part of the September debt
restructuring and $0.6 million in interest expense on Adjuvant Notes.
Total other expense, net, for the three months ended September 30, 2021 ,
primarily included $1.2 million in interest expense related to the convertible
senior secured promissory notes issued to Baker Bros . Advisors LP (the Baker
Notes) and the unsecured convertible promissory notes issued to each of Adjuvant
Global Health Technology Fund, L.P. and Adjuvant Global Health Technology Fund
DE, L.P. (the Adjuvant Notes) as described in Note 4- Debt and a $29.5
million loss from the change in fair value of the Baker Notes as a result of
mark-to-market adjustments during the current quarter.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30,
2021 (in thousands):
Net Product Sales
Nine Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Product sales, net $ 16,656 $ 4,674 $ 11,982 256 %
Phexxi was commercially launched in
Cost of Goods Sold
Nine Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Cost of goods sold $ 4,031 $ 2,300 $ 1,731 75 %
The increase in cost of goods sold was primarily due to the increase in ex-factory sales in the current period versus the same period in the prior year.
Research and Development Expenses
Nine Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Research and development $ 23,342 $ 24,470 $ (1,128) (5) %
The decrease in research and development expenses was primarily due to a $1.3
million decrease in clinical trial costs associated with EVOGUARD and a $0.6
million decrease in noncash stock-based compensation. This decrease was
partially offset by a $0.7 million increase in facilities costs and a $0.6
million increase in outside services associated with regulatory related
activities.
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Selling and Marketing Expenses
Nine Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Selling and marketing $ 36,951 $ 88,230 $ (51,279) (58) %
The decrease in selling and marketing expenses was primarily due to a $45.7
million reduction in media and marketing costs related to promotional
strategies, especially those focused on DTC campaigns, a $3.9 million decrease
in payroll and related expenses due to lower headcount, a $1.2 million decrease
in costs related to the Phexxi sample program, and a $0.8 million decrease in
costs for outside services associated with medical affairs, marketing, and
market access. This decrease was partially offset by a $0.7 million increase in
noncash stock-based compensation.
General and Administrative Expenses
Nine Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
General and administrative $ 24,404 $ 19,057 $ 5,347 28 %
The increase in general and administrative expenses was primarily due to a $7.9
million increase in legal, corporate, and financing related expenses. This
increase was partially offset by a $2.6 million decrease in noncash stock-based
compensation.
Total Other Income (Expense), net
Nine Months Ended September 30, 2022 vs. 2021
2022 2021 $ Change % Change
Total other income (expense), net $ 3,746 $ (24,244) $ 27,990 (115) %
Total other income, net, for the nine months ended September 30, 2022 included a
$86.8 million recorded gain primarily from the change in fair value of the
liability-classified warrants issued in 2022 and a $2.5 million gain on the
partial extinguishment of the Adjuvant debt, partially offset by $72.0 million
recorded loss on issuance of warrants, primarily from the June 2022 Baker
Warrants, a $10.3 million and a $2.0 million loss from the change in fair value
of the Baker Notes and May Notes, respectively, as a result of mark-to-market
adjustments, and a $1.6 million in interest expense related to the Adjuvant
Notes.
Total other expense, net, for the nine months ended September 30, 2021 ,
primarily included $3.5 million in interest expense related to the Baker Notes
and the Adjuvant Notes as described in Note 4- Debt and a $20.7 million loss
from the change in fair value of the Baker Notes as a result of mark-to-market
adjustments in the first half of 2021.
Liquidity and Capital Resources
Overview
As ofSeptember 30, 2022 , we had a working capital deficit of$84.9 million and an accumulated deficit of$930.4 million . We have financed our operations to date primarily through the issuance of preferred stock, common stock, warrants and convertible and term notes; cash received from private placement transactions; and, to a lesser extent, product sales. As ofSeptember 30, 2022 , we had$7.7 million in cash and cash equivalents, and$1.0 million in restricted cash available for use from the Adjuvant Notes (as defined in Note 4- Debt ). Our cash and cash equivalents include amounts held in checking accounts, money market funds, and investments in fixed income debt securities with original maturities of less than three months. We have incurred losses and negative cash flows from operating activities since inception and anticipate that we will continue to incur net losses for the foreseeable future. During the nine months endedSeptember 30, 2022 , we received gross proceeds of$10.0 million from the sale of notes and warrants in two registered direct offerings, gross proceeds of$7.4 million from the sale and issuance of common stock pursuant to the Stock Purchase Agreement, net proceeds of$18.1 million upon the sale and issuance of common stock and warrants from theMay 2022 Public Offering, and$25.2 million from the exercise of common warrants. As ofSeptember 30, 2022 , our significant commitments for capital expenditures include our office lease, fleet lease, and supply and manufacturing agreement with our Phexxi manufacturer, as described in Note 7- Commitments and Contingencies , and our agreement with our clinical research organization. The purpose of these commitments is to further the commercialization of Phexxi and manage the EVOGUARD trial. We expect to fund these commitments through debt and equity issuances and, to a lesser extent, product sales, until we reach cash flow breakeven. 41
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We currently expect our liquidity resources as ofDecember 22, 2022 to be sufficient to fund our planned operations into the second half ofJanuary 2023 . Our operating and capital requirements may differ materially as a result of certain factors, including, but not limited to, those set forth under Item 1A of Part I of the 2021 Annual Report and Item 1A. In particular if our debt holders were to request an acceleration or redemption of amounts owed pursuant to their respective debt arrangements, our existing liquidity resources would be insufficient to fund our ongoing operations and, absent additional funding, we may be required to cease our operations entirely. Our management is currently evaluating different strategies to obtain the required funding for our operations. These strategies may include, but are not limited to: public and private placements of equity and/or debt, licensing and/or collaboration arrangements and strategic alternatives with third parties, or other funding from the government or third parties. Our ability to secure funding is subject to numerous risks and uncertainties, including the impact of the COVID-19 pandemic, geopolitical turmoil related to the ongoing hostilities inUkraine and economic uncertainty related to rising inflation and disruptions in the global supply chain. As a result, there can be no assurance that these funding efforts will be successful. Our ability to raise additional funds, and the terms on which those funds may be raised, will be dependent, in part, on how successful the commercialization of Phexxi is, the success of our cost reduction and gross-to-net improvement efforts, the accuracy of our estimates regarding cash needed to fund our operations, our ability to comply with the terms of our debt arrangements, and whether we are able to gain revenue further traction prior to raising additional funds. If we are not able to obtain required additional funding when and as needed, through equity financings or other means, or if we are unable to obtain funding on terms favorable to us, the shortfall in funds raised, or such unfavorable terms, will likely have a material adverse effect on our operations and strategic plan for future growth. If we cannot successfully raise the funding necessary to implement our current strategic plan or as necessary to comply with obligations pursuant to our debt arrangements (including any acceleration of those obligations), we may be forced to make further reductions in spending, suspend or terminate development programs, extend payment terms with suppliers, liquidate assets where possible, suspend or curtail planned programs, and/or cease operations entirely. Any of these developments would materially and adversely affect our financial condition and business prospects and could even cause us to be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and, in doing so, we may receive less than the value at which those assets are carried on our financial statements. Any of these developments would materially and adversely affect the price of our stock and the value of an investment in our stock. As a result, our financial statements include explanatory disclosures expressing substantial doubt about our ability to continue as a going concern. The opinion of our independent registered public accounting firm on our audited financial statements as of and for the years endedDecember 31, 2021 and 2020 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Our unaudited condensed consolidated financial statements as ofSeptember 30, 2022 and for three and nine months endedSeptember 30, 2022 and 2021 included in this Quarterly Report do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should we be unable to continue our operations.
2022 Debt and Equity Financings
As described in Note 4- Debt , we received gross proceeds of$10.0 million , before issuance costs, from the sale of notes and warrants in two registered direct offerings in the first quarter of 2022. These notes were then exchanged for theMay 2022 Notes during theMay 2022 Exchange transaction, as defined in Note 4- Debt , which were subsequently exchanged for Purchase Rights during the debt restructuring inSeptember 2022 . with a total outstanding balance of$21.8 million immediately prior to the restruturing. As described in Note 8- Stockholders' Deficit , we received net proceeds of$18.1 million upon the sale and issuance of common stock and warrants from an underwritten public offering, gross proceeds of$7.4 million from the sale and issuance of common stock pursuant to the Stock Purchase Agreement, and$25.2 million from the exercise of common warrants.
2021 Equity Financings
As described in Note 8 - Stockholders' Deficit , we received proceeds of$28.0 million , net of underwriting discounts, from a public offering inMarch 2021 , upon the issuance of 1,142,857 shares of our common stock, and$4.2 million , net of underwriting discounts, from the issuance of 171,428 shares of common stock upon exercise of the underwriters' overallotment option inApril 2021 . As described in Note 8 - Stockholders' Deficit , we received proceeds of$46.8 million , net of underwriting discounts and fees, from a public offering inMay 2021 , upon the issuance of 3,333,333 shares of common stock and common warrants to purchase 3,333,333 shares of common stock. We received$2.4 million and$0.1 million , both net of underwriting discounts, from the issuance of 169,852 shares of common stock and 500,000 common warrants, respectively, upon exercise of the underwriter's overallotment option inMay 2021 . 42 -------------------------------------------------------------------------------- Table of Contents As described in Note 8 - Stockholders' Deficit , we received proceeds of$9.6 million , net of offering expenses, from a registered direct offering inOctober 2021 , upon the issuance of 5,000 shares of Series B-1 Convertible Preferred Stock and 5,000 shares of Series B-2 Convertible Preferred Stock.
2020 Debt and Equity Financing
As described in Note 4- Debt , we received aggregate gross proceeds of$25.0 million upon the first and second closings of convertible senior secured promissory notes pursuant to the Baker Bros. Purchase Agreement during the second quarter of 2020. We also received gross proceeds of$25.0 million from the closing of convertible unsecured promissory notes pursuant to the Adjuvant Purchase Agreement during the fourth quarter of 2020. We received net aggregate proceeds of$103.7 million inJune 2020 upon the issuance and sale of 2,113,333 shares of our common stock from our 2020 Public Offering and net aggregate proceeds of$3.8 million during the first half of 2020 upon the issuance and sale of 45,110 shares of our common stock pursuant to the "at the market" (ATM) program. The ATM program was terminated inJune 2020 .
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