Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis is set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We are a San Diego-based commercial-stage biopharmaceutical company with a strong focus on innovation in women's health. Our first commercial product, PHEXXI, was approved by the FDA on May 22, 2020. PHEXXI is the first and only non-hormonal prescription contraceptive gel. It is locally acting, with no systemic activity, and used on-demand by women only when they have sex. Because PHEXXI is a non-hormonal contraceptive, it is not associated with side effects of exogenous hormone use like depression, weight gain, headaches, loss of libido, mood swings and irritability. Taking hormones may not be right for some women, especially those with certain medical conditions, including clotting disorders hormone-sensitive cancer, diabetes or a BMI over 30, or those who are breast feeding or smoke. More than 23.3 million women in the U.S. will not use a hormonal contraceptive.

Evofem has delivered PHEXXI net sales growth in each consecutive year since it was launched in Sept 2020. Key growth drivers for 2025 include expanded use of PHEXXI in women who take oral birth control pills in conjunction with GLP-1 prescription medications like Ozempic, Mounjaro and Zepbound for weight loss. These drugs may make oral birth control pills less effective at certain points in the dosing schedule. Per the USPI, prescribers are instructed to "advise patients using oral contraceptives to switch to a non-oral contraceptive method or add a barrier method" to prevent unintended pregnancy during these times.

Outside the U.S., PHEXXI was approved in Nigeria on October 6, 2022, as Femidence™ by the National Agency for Food and Drug Administration and Control. To-date, PHEXXI has been submitted for approval in Mexico, Ethiopia and Ghana. We intend to commercialize PHEXXI in all other global markets through partnerships or licensing agreements.

On July 17, 2024, we licensed exclusive commercial rights to PHEXXI in the Middle East to Pharma 1 Drug Store, an emerging Emirati health care company. The licensed territory includes the United Arab Emirates (UAE), Kuwait, Saudi Arabia, Qatar and certain other countries in the region. Pharma 1 is responsible for obtaining and maintaining any regulatory approvals required to market and sell PHEXXI, and will handle all aspects of distribution, sales and marketing, pharmacovigilance and all other commercial functions in these countries. Evofem will supply PHEXXI to Pharma 1 at cost-plus. Pharma 1 is expected to file for regulatory approval of PHEXXI in the UAE in the first half of 2025.

In July 2024 we acquired global rights to SOLOSEC. This FDA-approved single-dose oral antimicrobial agent provides a complete course of therapy for the treatment of two common sexual health infections - bacterial vaginosis (BV) and trichomoniasis. The SOLOSEC acquisition aligns with and advances our mission to improve access to innovative and differentiated options that impact women's daily lives. We expect commercialization of SOLOSEC will benefit from our commercial infrastructure and strong physician relationships.

We halted clinical development of our investigational product candidates in October 2022 to focus resources on growing domestic sales of PHEXXI for the prevention of pregnancy.

Recent Developments

Notice of Default and Termination of Forbearance Agreement

On September 27, 2024, Future Pak, LLC, as agent for the Purchasers (in such capacity, the Designated Agent) provided a Notice of Event of Default and Reservation of Rights (the Notice of Default) relating to the Securities Purchase and Security Agreement dated April 23, 2020, as amended (SPA), by and among the Company, Designated Agent, as certain guarantors and the purchasers (each a "Purchaser" and collectively Purchasers). The Notice of Default claims that by entering into arrangements to repay certain existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the SPA.

According to the Notice of Default, the Designated Agent has accelerated repayment of the outstanding principal balance owed by the Company under the Securities Purchase Agreement. If all Purchasers exercise the Section 5.7 Option (as defined below), the repurchase price would be equal to $106.8 million. Pursuant to Section 5.7(b) of the SPA, upon the occurrence of an Event of Default, each Purchaser may elect, at its option, to require the Company to repurchase the Note held by such Purchaser (or any portion thereof) at a repurchase price equal to two times the sum of the outstanding principal balance and all accrued and unpaid interest thereon, due within three business days after such Purchaser delivers a notice of such election (the Section 5.7 Option).

On October 27, 2024, the Designated Agent sent an amended and supplemented notice to the Notice of Default which adds additional claims of default based on the Company's current repayment agreements of existing obligations, including obligations owed to the U.S. Department of Health and Human Services, an Event of Default has occurred under Section 9.1(e) of the Securities Purchase and Security Agreement dated April 23, 2020, as amended. Furthermore, the Amended Notice stated that, because the events of default described in the Amended Notice of Default are not the certain prior events of default listed in the Forbearance Agreement (the Specified Defaults), the Designated Agent and the holders of the senior secured promissory notes described in the SPA thereby provided notice to the Company that the Forbearance Agreement is terminated as of October 27, 2024.

Subsequently, on November 8, 2024, the Designated Agent sent an amended and supplemented notice to the Notices (the Third Amended Notice of Default) which adds new claims of default based on (i) the Company's failure to maintain a cash position of $1.0 million or greater, as required under Section 5(b) of the Forbearance Agreement (ii) the Company's failure to deliver financial and operating reports in accordance with the timeline required under the Section 8.1(n) of the Baker Stock Purchase Agreement, and (iii) to clarify the outstanding balance under the notes of the Baker Stock Purchase Agreement plus all accrued and unpaid interest thereon, in the sum of approximately is $107.0 million as opposed to the Repurchase Price as defined in the Fourth Amendment.

The Company strongly disagrees with the Designated Agent's claim that any Event of Default has occurred. The Company intends to vigorously contest any attempt by the Designated Agent and the Purchasers to exercise their default rights and remedies under the SPA.

Aditxt Merger

On December 11, 2023, the Company entered into an Agreement and Plan of Merger, as amended, (the Merger Agreement) with Aditxt, Inc., a Delaware corporation (Aditxt), Adifem, Inc., a Delaware corporation and wholly-owned Subsidiary of Aditxt (Merger Sub), pursuant to which, and on the terms and subject to the conditions thereof, Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Aditxt (the Merger).

On July 12, 2024, the Company, the Merger Sub and Aditxt entered into the Amended and Restated Merger Agreement (the A&R Merger Agreement) which amends and restates in its entirety the Agreement and Plan of Merger (as amended January 10, 2024, January 30, 2024, February 29, 2024, and May 2, 2024 (collectively, the Original Merger Agreement)). Except as described below, the terms and provisions of the A&R Merger Agreement are consistent with the terms and provision of the original Merger Agreement.

	●	As consideration for the Merger, Parent will (i) pay $1.8 million less an amount equal to the product of (x) the number of Dissenting Shares represented by Company Common Stock and (y) the Common Exchange Ratio (as defined in the A&R Merger Agreement) (the Common Consideration)
	●	Each share of the Company's Series E-1 Preferred Stock, par value $0.0001 (the Series E-1), issued and outstanding as of the Effective Time (as defined in the A&R Merger Agreement) shall automatically be converted into the right to receive from Aditxt one share Parent Preferred Stock (the Preferred Merger Consideration)

At the Effective Time of the Merger:

	(i)	The Company Convertible Note Holders will enter into an Exchange Agreement, pursuant to which these Note Holders exchange the value of their then-outstanding Company Convertible Notes and purchase rights for an aggregate of not more than 88,161 shares of Parent Preferred Stock.
	(ii)	Each stock option of the Company (the Options), that was outstanding and unexercised immediately prior to the Effective Time will be cancelled without the right to receive any consideration.
	(iii)	all shares of Company Common Stock or Company Preferred Stock held by Parent or Merger Sub or by any wholly-owned Subsidiary thereof, shall be automatically cancelled and retired and shall cease to exist and no consideration shall be delivered or deliverable in exchange therefore;

Further, Aditxt agreed to, on or prior to: (a) July 12, 2024, purchase 500 shares of the Company's Series F-1 Preferred Shares for an aggregate purchase price of $0.5 million (the July Purchase) (b) August 9, 2024, purchase an additional 500 shares of F-1 Preferred Shares for an aggregate purchase price of $0.5 million (the August Purchase), (c) the earlier of August 30, 2024 or within five business days of the closing of a public offering by Aditxt resulting in aggregate net proceeds to Aditxt of no less than $20.0 million, purchase an additional 2,000 shares of F-1 Preferred Shares for an aggregate purchase price of $2.0 million (the Third Parent Equity Investment); and (d) September 30, 2024, purchase an additional 1,000 shares of F-1 Preferred Stock at an aggregate purchase price of $1.0 million (the Fourth Parent Equity Investment). The July Purchase and subsequent August Purchase of 500 shares of the Company's Series F-1 Preferred Shares in each respective purchase were completed as scheduled.

On August 16, 2024, the Company, Parent and Merger Sub entered into the first amendment to the A&R Merger Agreement (the First Amendment), to change the funding date for the Third Parent Equity Investment Date (as defined in the A&R Merger Agreement) from August 30, 2024 to the earlier of (i) September 6, 2024 or (ii) within five (5) business days of the closing of a public offering by Parent resulting in aggregate net proceeds to Parent of no less than $20.0 million.

On September 6, 2024, the Company, Parent and Merger Sub entered into the second amendment to the A&R Merger Agreement (the Second Amendment), to (i) change the date of the Third Parent Equity Investment Date and Fourth Parent Equity Investment Date (as defined in the A&R Merger Agreement) from September 6, 2024 and September 30, 2024 to September 30, 2024 and October 31, 2024, respectively and (ii) to change the required consummation date to November 29, 2024.

On October 2, 2024, the Company, Parent and Merger Sub entered into the third amendment to the A&R Merger Agreement (the Third Amendment), to (i) change the date of the Third Parent Equity Investment Date (as defined in the A&R Merger Agreement) from September 30, 2024 to October 2, 2024, (ii) change the Third Parent Equity Investment from 1,500 shares of Series F-1 Preferred Shares to 720 shares of Series F-1 Preferred Shares, and (iii) amend the Fourth Parent Equity Investment (as defined in the A&R Merger Agreement) from 1,500 shares of Series F-1 Preferred Shares to 2,280. The Third and Fourth Parent Equity Investments were timely completed on October 2 and October 28, 2024, respectively.

On November 19, 2024, the Company, Parent and Merger Sub entered into the fourth amendment to the A&R Merger Agreement (the Fourth Amendment) to change the required consummation date to January 31, 2025.

On March 22, 2025, the Company, Parent and Merger Sub entered into the fifth amendment to the A&R Merger Agreement (the Fifth Amendment), to (i) change the required consummation date to September 30, 2025; (ii) add a Parent Investment of $1.5 million to be completed by April 7, 2025; and (iii) add a special meeting consummation date being on or prior to September 26, 2025.

On September 23, 2024, the Company filed a preliminary proxy statement with the SEC. Subject to certain exceptions, the Company's Board of Directors will recommend that the A&R Merger Agreement be adopted by the Company's stockholders at a special meeting of the Company's stockholders (the Company Board Recommendation). However, subject to the satisfaction of certain terms and conditions, the Company and the Board are permitted to take certain actions which may, as more fully described in the A&R Merger Agreement, include changing the Company Board Recommendation and entering into a definitive agreement with respect to a Company Change of Recommendation (as defined in the A&R Merger Agreement) if the Company Board or any committee thereof determines in good faith, after consultation with the Company's outside legal and financial advisors and after taking into account relevant legal, financial, regulatory, estimated timing of consummation and other aspects of such proposal that the Company Board considers in good faith and the Person or group making such proposal, would, if consummated in accordance with its terms, result in a transaction more favorable to the Company Shareholders than the Merger. If the Company has a Company Change of Recommendation, the Company must provide Aditxt with a ten (10) calendar day written notice thereof and negotiate with Aditxt in good faith to provide a competing offer.

On December 23, 2024, Evofem announced its decision to cancel its special meeting and the withdrawal from consideration by the stockholders of the Company the proposals set forth in its preliminary proxy statement.

In connection with the Merger Agreement, Aditxt, the Company and the holders (the Holders) of certain senior indebtedness of Evofem (the Notes) entered into an Assignment Agreement dated December 11, 2023 (the December Assignment Agreement), pursuant to which the Holders assigned the Notes to Aditxt in consideration for the issuance by Aditxt of (i) an aggregate principal amount of $5.0 million in secured notes of Aditxt due on January 2, 2024 (the January 2024 Secured Notes), (ii) an aggregate principal amount of $8.0 million in secured notes of Aditxt due on September 30, 2024 (the September 2024 Secured Notes), (iii) an aggregate principal amount of $5.0 million in ten-year unsecured notes (the Unsecured Notes), and (iv) payment of $0.2 million in respect of net sales of PHEXXI in respect of the calendar quarter ended September 30, 2023.

On February 26, 2024, Aditxt and the Holders entered into an Assignment Agreement (the February Assignment Agreement), pursuant to which the Company consented to the assignment of all remaining amounts due under the Notes from Aditxt back to the Holders.

On February 29, 2024, as part of the Third Amendment, Aditxt agreed to have, as a condition of closing, that the outstanding balance, plus all accrued and unpaid interest thereon, in an amount not to exceed the Repurchase Price, shall have been paid in full. The A&R Merger Agreement, as amended, entered into on July 12, 2024, maintains the same condition to closing. As discussed above, the A&R Merger Agreement was amended on August 16, 2024, September 6, 2024, October 2, 2024, November 19, 2024, and March 22, 2025; none of the amendments updated this closing condition.

PHEXXI as a Contraceptive; Commercial Strategies

In September 2020, we commercially launched PHEXXI in the United States. Our sales force promotes PHEXXI directly to obstetrician/gynecologists and their affiliated health professionals, who collectively write the majority of prescriptions for contraceptive products. Our sales force comprises approximately 16 regional sales representatives, two business directors and an SVP of Commercial Operations, supported by a self-guided virtual health care provider (HCP) learning platform. Additionally, we offer women direct access to PHEXXI via a telehealth platform. Using this 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, then 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 in the U.S., including the approximately 23.3 million women who are not using hormonal contraception and the approximately 20.0 million women who are using a prescription contraceptive, some of whom, particularly oral birth control pill users, may be ready to move to an FDA-approved, non-invasive, non-systemic hormone-free contraceptive, as well as certain identified target HCP segments. In addition to marketing and product awareness campaigns, our commercial strategy includes payer outreach and execution of our consumer digital and media strategy.

Key growth drivers for 2025 include expanded use of PHEXXI in women who take oral birth control pills in conjunction with GLP-1 prescription medications like Ozempic, Mounjaro and Zepbound for weight loss. These drugs may make oral birth control pills less effective at certain points in the dosing schedule. Per the USPI, prescribers are instructed to "advise patients using oral contraceptives to switch to a non-oral contraceptive method or add a barrier method" to prevent unintended pregnancy during these times.

We continue working to increase the number of lives covered and to gain a preferred formulary position for PHEXXI.

Payer wins in 2024 include the removal of the Prior Authorization requirement for PHEXXI by the Washington State Health Care Authority effective January 1, 2024, and, as a result of the Company's successful renegotiation, a 7.4% reduction in the rebate paid by the Company to Medi-Cal on PHEXXI prescriptions dispensed to Medi-Cal members. The approval rate was over 80% for all of 2024.

Since the second quarter of 2022, we have been under contract with one of the largest pharmacy benefit managers (PBMs) in the nation, which added PHEXXI to its formulary with no restrictions for most women covered by the plan. The agreement was retroactive and took effect January 1, 2022 and is representative of approximately 46 million lives.

An additional 13.7 million lives are covered under our December 2020 contract award from the U.S. Department of Veterans Affairs.

We also participate in government programs, including the 340B and the Medicaid Drug Rebate Program. As a result of our participation in the Medicaid National Drug Rebate Program, the U.S. Medicaid population gained access to PHEXXI on January 1, 2021. As of May 2024, Medicaid provides health coverage to approximately 73.8 million members; nearly two-thirds of adult women enrolled in Medicaid are in their reproductive years (19-44). Additionally, we recently began participating in a 340B Group Purchasing Organization (GPO) that serves safety-net clinics throughout the U.S. This GPO has over 6,500 members, which expands our reach among safety-net providers.

Approximately 83% of commercial and Medicaid PHEXXI prescriptions are being approved by payers.

PHEXXI is classified in the databases and pricing compendia of Medi-Span and First Databank, two major drug information databases that payers can consult for pricing and product information, as the first and only "Vaginal pH Modulator."

Effective as of January 1, 2023, most insurers and PBMs must provide coverage, with no out-of-pocket costs (e.g. $0 copay) to the subscriber or dependent, for FDA-approved contraceptive products, like PHEXXI, prescribed by healthcare providers.

As a result, to comply with these Guidelines, payers are increasingly covering PHEXXI by:

	-	Adding PHEXXI to formulary (commercial insurers) or preferred drug list (Medicaid)
	-	Removing the requirement for a Prior Authorization letter from the HCP (commercial insurers)
	-	Moving PHEXXI to $0 copay (commercial insurers)

In 2022, Evofem developed and introduced a new contraceptive educational chart for patients and HCPs that details high-level information about birth control methods currently available to women in the U.S., including the vaginal pH modulator. This new contraceptive educational tool has been extremely well received and has had a positive impact with HCPs and patients alike.

SOLOSEC

In July 2024, we expanded our commercial portfolio by acquiring global rights to SOLOSEC® (secnidazole) 2g oral granules, a single-dose oral antimicrobial agent that provides a complete course of therapy with just one dose for the treatment of two common sexual health infections. SOLOSEC is FDA-approved for the treatment of:

	1)	Bacterial vaginosis (BV), a common vaginal infection, in females 12 years of age and older, and
	2)	Trichomonas vaginalis, a common sexually transmitted infection (STI), in people 12 years of age and older.

SOLOSEC has the same call point as PHEXXI, enabling us to leverage our commercial infrastructure and strong physician relationships. We re-launched the brand in November 2024.

Bacterial Vaginosis

Bacterial vaginosis (BV) affects an estimated 21 million women in the U.S., approximately 29% of the U.S. population, making it the most common vaginal condition in women ages 15-44. It results from an overgrowth of bacteria, which upsets the balance of the natural vaginal microbiome and can lead to symptoms including odor and discharge. Of interest, BV raises the pH of the vagina, making it a more friendly environment for trichomoniasis and other STIs; approximately 20% of BV patients also have trichomoniasis.

If left untreated, BV can have serious health consequences. Untreated or improperly treated BV is associated with increased risk of infection with STIs like HPV, herpes, trichomoniasis, chlamydia, gonorrhea and HIV, as well as transmission of STIs to a partner. Additional risks include developing pelvic inflammatory disease (PID), which can threaten a women's fertility, and complications with gynecological surgery.

Research has shown that as many as 50% of patients with BV do not adhere to a full course of metronidazole treatment (500mg BID x 7d) 14 doses. 58% of women who do not complete therapy will have a recurrence within one year. Noncompliance to a multiple-day metronidazole regimen is a contributing factor to persistent BV.

In clinical trials, SOLOSEC demonstrated clinically and statistically significant efficacy in the treatment of BV with just one dose; 68% of patients treated with SOLOSEC did not require any additional treatment for BV. Guidelines for the American College of Obstetricians and Gynecologists (ACOG) in 2020 and the U.S. Centers for Disease Control (CDC) in 2021 each include single dose SOLOSEC for the treatment of BV.

Trichomoniasis

Trichomoniasis (Trich) is the most common non-viral STI in the world. It is caused by a parasite called Trichomonas vaginalis and affects both women and men. All sexual partners of an infected person must be treated to prevent reinfection with the parasite. In 2018, there were an estimated 6.9 million new T. vaginalis infections in the U.S. According to the CDC, the U.S. prevalence of T. vaginalis is 2.1% among females and 0.5% among males, with the highest rates among Black females (9.6%) and Black males (3.6%). A study of STD clinic attendees in Birmingham, Alabama, identified a prevalence of 27% among women and 9.8% among men. Approximately 70% of women with trichomoniasis are also infected with the bacteria that cause BV.

In clinical trials, a single dose of SOLOSEC demonstrated a cure rate of 92.2% for Trich in women, while reported cure rates in males range from 91.7%-100%.

SOLOSEC's one-and-done dosing and the resulting high level of compliance is believed to be a significant differentiator. Non-compliance to a multi-day metronidazole regimen is a contributing factor to persistent Trich or BV; and ACOG and the CDC no longer recommend single dose metronidazole to treat Trich in women.

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, telehealth companies, and a mail-order specialty pharmacy. We have recognized net product sales in the U.S. since the commercial launch of PHEXXI in September 2020; SOLOSEC net product sales were added to our revenue beginning in July 2024.

For the year ended December 31, 2024, there was an approximate 7% increase in net product sales as a result of an increase to the PHEXXI wholesale acquisition cost (WAC) in January 2024, more favorable PHEXXI payer coverage despite a single digit decrease in unit shipments to customers compared to the year ended December 31, 2023, and the addition of SOLOSEC net revenue in the current year. Gross revenues, as discussed in Note 3 - Revenue, were adjusted for variable consideration, including our patient support programs.

Cost of Goods Sold

Inventory costs include all purchased materials, direct labor and manufacturing overhead. In addition, we are obligated to pay quarterly royalty payments pursuant to our license agreement with Rush 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 $0.1 million to the extent these earned royalties do not equal or exceed $0.1 million in a given year. Such royalty costs were $0.8 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively, and were included in the costs of goods sold in the consolidated financial statements. No further royalties will be due to Rush University after the patent expiration.

We are also obligated to pay quarterly royalty under the SOLOSEC Asset Purchase Agreement dated July 14, 2024; this royalty is based on a percentage of SOLOSEC net sales, adjusted for co-pay program costs. There are no minimum quarterly or annual royalty amounts. Such royalty costs were immaterial for the year ended December 31, 2024.

Operating Expenses

Research and Development Expenses

Our research and development expenses primarily consist of costs associated with ongoing improvements related to our products. These expenses include:

	●	continuous improvements of manufacturing and analytical efficiency;
	●	ongoing product characterization and process optimization;
	●	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.

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):

		Years Ended December 31,
		2024				2023
Allocated third-party development expenses:
EVO100 for prevention of chlamydia/gonorrhea - Phase 3 (EVOGUARD)		$	-			$	(92	)
Total allocated third-party development expenses			-				(92	)
Unallocated internal research and development expenses:
Noncash stock-based compensation expenses			33				117
Payroll related expenses			741				1,330
Outside services costs			742				481
Other			329				1,103
Total unallocated internal research and development expenses			1,845				3,031
Total research and development expenses		$	1,845			$	2,939

As anticipated, research and development expenses continued to decrease in the year ended December 31, 2024 compared to the year ended December 31, 2023; we do not anticipate investing in clinical development for the foreseeable future. Specifically, the amounts related to noncash stock-based compensation expenses decreased by $0.1 million, or 72%, payroll related expenses decreased by $0.6 million, or 44%, outside services costs increased by $0.3 million, or 54%, and other costs decreased by $0.8 million, or 70%. Allocated third-party development expenses had a benefit of approximately $0.1 million in the prior year and no activity in the current year.

Selling and Marketing Expenses

Our selling and marketing expenses consist primarily of PHEXXI and SOLOSEC commercialization costs, the PHEXXI telehealth platform, 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, our selling and marketing expenses continued to decrease in the year ended December 31, 2024 compared to the prior year. Key drivers were reductions in media and marketing activities for PHEXXI, including direct to consumer (DTC) and HCP advertising and termination of the sample program.

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.

Our general and administrative expenses decreased in the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily due to a decreased use of professional and other outside services.

Other Income (Expense)

Other income (expense) consists primarily of interest expense and the fair value adjustments of financial instruments issued in various capital raise transactions, including loss on issuance of financial instruments, quarterly change in fair value adjustments, and gains or losses on debt extinguishment. The change in fair value of financial instruments was recognized as a result of mark-to-market adjustments for those financial instruments. Additionally, other income (expense) also includes a gain (loss) on debt modification or extinguishment in the current period and loss on issuance of financial instruments in each of the presented periods.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) in the U.S. The preparation of consolidated financial statements requires us to make use of estimates, assumptions and judgments that affect the reported amounts of assets, expenses, and liabilities, as well as the disclosure of contingent liabilities on the date of the consolidated financial statements. Management bases its estimates, assumptions, and judgments on historical experience and on various other factors it believes to be reasonable under the circumstances. Different estimates, assumptions and judgments may change the estimate used in the preparation of our consolidated financial statements, which, in turn, could materially change our results from those reported. Management evaluates its use of estimates, assumptions, and judgments on an ongoing basis. However, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may have a material adverse effect on our consolidated statements of operations, liquidity, and financial condition. We believe the following critical accounting policies involve significant areas where management applies estimates, assumptions, and judgments in the preparation of our consolidated financial statements. See Note 2 - Summary of Significant Accounting Policies.

Revenue Recognition and Trade Accounts Receivable

The Company recognizes revenue from the sale of our products in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606). The provisions of ASC 606 require the following steps to determine revenue recognition: (1) Identify the contract(s) with a customer; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to the performance obligations in the contract; (5) Recognize revenue when (or as) the entity satisfies a performance obligation.

In accordance with ASC 606, the Company recognizes revenue when its performance obligation is satisfied by transferring control of the product to a customer. In accordance with the Company's contracts with customers, control of the product is transferred upon the conveyance of title, which occurs when the product is sold to and received by a customer. The Company's customers consist of wholesale distributors, retail pharmacies, and a mail-order specialty pharmacy. Payment terms vary by customer, but typically range from 31 to 66 days and include prompt pay discounts. Trade accounts receivable due to the Company from contracts with its customers are stated separately in the consolidated balance sheets, net of various allowances as described in the Trade Accounts Receivable policy in Note 2 - Summary of Significant Accounting Policies.

The amount of revenue recognized is equal to the amount of consideration which is expected to be received from the sale of product to its customers. Revenue is only recognized when it is probable that a significant reversal will not occur in future periods. To determine the amount of revenue to recognize, the Company assesses both the likelihood and magnitude of any such potential reversal of revenue.

Our products are sold to customers at the wholesale acquisition cost. However, the Company records product revenue net of estimates for applicable variable consideration.

Revenue recognition is subject to uncertainty due to the variable consideration estimates that are required to be made by management. These estimates include chargebacks, rebates and patient support programs. Management must estimate and accrue for these amounts primarily by estimating the portion of product in the distribution supply channel at the reporting date that will be sold through to an entity or end user that will result in a variable consideration expense, which is recorded as a reduction of revenue. To accomplish this, management relies on historical sales data showing the amount of various end-user consumer types, inventory reports from the wholesale distributors and mail-order specialty pharmacy, and other relevant data reports. The recorded variable consideration is directly sensitive to the estimated inputs made by management that are used in the calculation. The total reserves for variable consideration was $7.2 million and $3.5 million, as of December 31, 2024 and 2023, respectively.

Fair Value of the Baker Notes

The owner of the Baker Notes became Future Pak, LLC under the July 2024 Assignment (as defined in Note 4 - Debt ) in July 2024.

We elected the fair value option under ASC 825, Financial Instruments, for the Baker Notes issued pursuant to that certain Baker Bros. Purchase Agreement with the Baker Purchasers, and Baker Bros. Advisors LP, as designated agent, dated April 23, 2020, as they are qualified financial instruments and are, in whole, classified as liabilities. Under the fair value option, we recognized the hybrid debt instrument at fair value inclusive of embedded features.

From the third quarter of 2022 through the second quarter of 2023, the fair value of the Baker Notes issued, as described in Note 4 - Debt, and subsequent changes in fair value recorded at each reporting date, was determined by estimating the fair value of the Market Value of Invested Capital (MVIC) of the Company. This was estimated using forms of the cost and market approaches. In the cost approach, an adjusted net asset value method was used to determine the net recoverable value of the Company, including an estimate of the fair of the Company's intellectual property. The estimated fair value of the Company's intellectual property was valued using a relief from royalty method which required management to make significant estimates and assumptions related to forecasts of future revenue, and the selection of the royalty and discount rates. The guideline public company method served as another valuation indicator. In this form of the market approach, comparable market revenue multiples were selected and applied to the Company's forward revenue forecast to ultimately derive a MVIC indication. If the resulting fair value from these approaches was not estimated as greater than the contractual payout, the fair value of the Baker Notes became only the Company MVIC available for distribution to this first lien note holder.

Starting in the third quarter of 2023, the fair value of the Baker Notes is determined using a Monte Carlo simulation-based model. The Monte Carlo simulation was used to take into account several embedded features and factors, including the exercise of the repurchase right, the Company's future revenues, meeting certain debt covenants, the maturity term of the note and dissolution. For the dissolution scenario, the cost approach, an adjusted net asset value method was used to determine the net recoverable value of the Company, including an estimate of the fair value of the Company's intellectual property. The estimated fair value of the Company's intellectual property was valued using a relief from royalty method which required management to make significant estimates and assumptions related to forecasts of future revenue, and the selection of the royalty (5.0%) and discount (15.0%) rates.

The fair value of the Baker Notes is subject to uncertainty due to the assumptions that are used in the Monte Carlo simulation-based model. These factors include but are not limited to the Company's future revenue, and the probability and timing of the exercise of the repurchase right. The fair value of the Baker Notes is sensitive to these estimated inputs made by management that are used in the calculation.

The fair value of the Baker Notes was $13.8 million and $13.5 million as of December 31, 2024 and 2023, respectively.

Fair Value of the SOLOSEC Asset Acquisition Intangible Asset and Contingent Liabilities

The fair value of the total SOLOSEC consideration, including cash paid and future sales-based payments, is determined using a Monte Carlo simulation model, which assumes the Company's revenue follows a geometric Brownian motion. Using specific revenue factors, including expected growth, risk adjustments, and revenue volatility, future revenues were simulated through the Earnout Term to assess whether sales-based payments would be triggered in each relevant period, as stipulated by the SOLOSEC Asset Purchase Agreement. The average output of the Monte Carlo simulations for each period provides the expected payment value, which is then discounted to its present value to derive the fair value of future sales-based payments and recorded as contingent liabilities. The discount rate is based on (i) the risk-free rate, plus (ii) a credit spread reflecting the Company's interest-bearing debt, (iii) an additional spread to account for credit migration as of the valuation date, and (iv) a further incremental spread to reflect that the contingent liabilities is subordinated obligations relative to the Company's other debt obligations.

The fair value of the SOLOSEC contingent liabilities is subject to uncertainty due to the assumptions made by management that are used in the Monte Carlo simulation-based model. These factors include the estimated future SOLOSEC net revenue, the risk-neutral revenue calculation and simulation assumptions, payment timing, and the discount rate.

The fair value of the SOLOSEC contingent liabilities will be updated at each reporting period using the methodology described above. Any changes to the fair value will be recorded as an adjustment to the carrying value of both the contingent liabilities and the SOLOSEC IP intangible asset as per ASC 323, Investments - Equity Method and Joint Ventures (ASC 323). Periodic intangible amortization will also be updated based on the new fair value of the SOLOSEC IP.

The fair value of the SOLOSEC intangible asset and contingent liabilities were $10.2 million (before accumulated amortization) and $9.6 million, respectively as of December 31, 2024.

Fair Value of Stock Options, Purchase Rights, and Warrants

Upon issuance of financial instruments, they are initially measured at fair value and reviewed for the appropriate classification (liability or equity). Financial instruments determined to require liability accounting are subsequently re-measured with changes in fair value being recognized as a component of other income (expense), net in the consolidated statements of operations. Financial instruments are valued using an option pricing model (OPM), such as Black-Scholes, based on the applicable assumptions, which include the exercise price of the warrants, option, or purchase right, time to expiration, expected volatility of our peer group, risk-free interest rate, and expected dividends. The Company re-evaluates the classification of its financial instruments at each balance sheet to determine the proper balance sheet classification for them. The assumptions used in the OPM are considered level 3 assumptions and include, but are not limited to, the market value of invested capital, the Company's cumulative equity value as a proxy for the exercise price, the expected term the instruments will be held prior to exercise and a risk-free interest rate, and probability of change of control events.

Inventories

Inventories, consisting of purchased materials, direct labor and manufacturing overheads, are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At each balance sheet date, the Company evaluates ending inventories for excess quantities, obsolescence, or shelf-life expiration. The evaluation includes an analysis of current and future strategic plans, anticipated future sales, the price projections of future demand, and the remaining shelf life of goods on hand. To the extent that the Company determines there is excess or obsolete inventory or quantities with a shelf life too near its expiration to reasonably be expected to be sold prior to their expiration, the Company adjusts the carrying value to estimated net realizable value in accordance with the first-in, first-out inventory costing method.

Results of Operations

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 (in thousands):

Net Product Sales

		Years Ended December 31,									2024 vs. 2023
		2024				2023					$ Change				% Change
Product sales, net		$	19,363			$	18,218			$	1,145				6	%

The increase in product sales, net, was primarily due to the impact of the PHEXXI price increase that took effect on January 1, 2024, lower returns leading to a better gross to net ratio, and sales of SOLOSEC commencing mid July 2024.

Cost of Goods Sold

		Years Ended December 31,								2024 vs. 2023
		2024				2023				$ Change				% Change
Cost of goods sold		$	3,834			$	6,512			$	(2,678	)			(41	)%

The decrease in cost of goods sold was primarily due to the units sold in the prior year having been re-packaged to reflect the extended shelf life approved by the FDA in June 2022; this added costs to re-worked units that were sold in the prior year, whereas the units sold in the current year did not need to be re-packaged. Finally, there was a $1.1 million inventory excess and obsolescence reserve recorded in the 2023 period that was not repeated in the current year.

Research and Development Expenses

		Years Ended December 31,								2024 vs. 2023
		2024				2023				$ Change				% Change
Research and development		$	1,845			$	2,939			$	(1,094	)			(37	)%

The decrease in research and development expenses was primarily due to a decrease of approximately $0.7 million in personnel costs and a decrease of approximately $0.9 million in clinical and facilities costs, which was partially offset by an increase in outside services costs of $0.5 million.

Selling and Marketing Expenses

		Years Ended December 31,								2024 vs. 2023
		2024				2023				$ Change				% Change
Selling and marketing		$	9,176			$	11,664			$	(2,488	)			(21	)%

The decrease in selling and marketing expenses was primarily due to a $1.1 million decrease in marketing and DTC promotion costs, including media agency fees, a $1.1 million decrease in personnel costs due to reduced headcount and lower noncash stock-based compensation, and a $0.7 million decrease in facilities costs. The decreases were partially offset by an increase of $0.5 million in outside services and other costs.

General and Administrative Expenses

		Years Ended December 31,								2024 vs. 2023
		2024				2023				$ Change				% Change
General and administrative		$	11,565			$	14,950			$	(3,385	)			(23	)%

The decrease in general and administrative expenses was primarily due to a $3.6 million decrease in facilities and outside services costs and a $1.2 million decrease in professional services fees related to legal and finance as well as a decrease of $0.1 million in personnel costs partially offset by the $0.8 million contingent liability recognized in conjunction with the potential settlement with TherapeuticsMD and a $0.7 million impairment of construction in-process.

Total Other Income (Expense), Net

		Years Ended December 31,								2024 vs. 2023
		2024				2023				$ Change				% Change
Total other income (expense), net		$	(1,184	)		$	70,843			$	(72,027	)			(102	)%

Total other expense, net, for the year ended December 31, 2024 primarily included a $3.3 million loss on the issuance of financial instruments related to the anti-dilution adjustment for the purchase rights and $2.2 million interest expense related to the Adjuvant Note and $0.2 million interest expense related to Medicaid payments. The losses were partially offset by a $3.7 million gain on the change in fair value of financial instruments and a gain of $1.0 million related to the Baker Notes extinguishment.

Total other income, net, for the year ended December 31, 2023 primarily included a $75.3 million gain related to the Baker Fourth Amendment, which was treated as a debt extinguishment and $4.9 million in gain on the change in the fair value of financial instruments as a result of mark-to-market adjustments. The gains were partially offset by $6.8 million in loss on the issuance of financial instruments and $2.3 million of interest expense related to the Adjuvant Note.

Liquidity and Capital Resources

Overview

As of December 31, 2024, we had a working capital deficit of $66.8 million and an accumulated deficit of $897.7 million. We have financed our operations to date primarily through the issuance of preferred stock, common stock and warrants, cash received from private placement transactions, the issuance of convertible notes and, to a lesser extent, product sales. As of December 31, 2024, we had approximately $0.7 million in cash and cash equivalents comprised entirely of restricted cash available for use as prescribed in the Adjuvant Notes (as defined in Note 4 - Debt). Our cash and cash equivalents include amounts held in checking accounts. Management believes that the Company's cash and cash equivalents as of December 31, 2024 are insufficient to fund operations for at least the next 12 months from the date on which this Annual Report on Form 10-K is filed with the SEC.

We have incurred losses and negative cash flows from operating activities since inception. In 2023, we focused on further improving and increasing PHEXXI access and delivered our third consecutive year of PHEXXI net sales growth. We have restructured many of our trade payables with extended terms and implemented measures to better align our cost structure with projected revenues.

In 2024, we focused on further improving and increasing PHEXXI access, acquired global rights to SOLOSEC, and delivered our fourth consecutive year of PHEXXI net sales growth. We also paid our outstanding balance, including interest and penalties, to the FDA for the fiscal years 2023, 2024, and 2025 Prescription Drug User Fee Act (PDUFA) invoices for PHEXXI and the 2025 PDUFA invoice for SOLOSEC.

In 2025, we will continue to focus on top-line growth and while maintaining a lean operating structure. We will continue to explore opportunities for organic growth, entry into new markets, and potential expansion of our product offerings beyond PHEXXI and SOLOSEC.

As of December 31, 2024, the Company's significant commitments include the Baker Notes, Adjuvant Notes, and SSNs as described in Note 4 - Debt and fleet leases, Rush University royalty, SOLOSEC contingent liability, and the potential settlement amount with TherapeuticsMD as described in Note 7 - Commitments and Contingencies. The purpose of these commitments is to further the commercialization of PHEXXI and SOLSOEC. Management's plans to meet the Company's cash flow needs in the next 12 months include generating revenue from the sale of PHEXXI and SOLOSEC, further restructuring of its current payables, and obtaining additional funding through means such as the issuance of its capital stock, non-dilutive financings, or through collaborations or partnerships with other companies, including license agreements for PHEXXI and/or SOLOSEC in the U.S. or foreign markets, or other potential business combinations.

If the Company is not able to obtain the required funding through a significant increase in revenue, equity or debt financings, license agreements for PHEXXI in the U.S. or foreign markets, or other means, is enjoined from selling under the PHEXXI mark, or is unable to obtain funding on terms favorable to the Company, there will be a material adverse effect on commercialization and development operations and the Company's ability to execute its strategic development plan for future growth. If the Company cannot successfully raise additional funding and implement its strategic development plan, the Company may be forced to make further reductions in spending, including spending in connection with its commercialization activities, extend payment terms with suppliers, liquidate assets where possible at a potentially lower amount than as recorded in the consolidated financial statements, suspend or curtail planned operations, or cease operations entirely. Any of these could materially and adversely affect the Company's liquidity, financial condition and business prospects, and the Company would not be able to continue as a going concern. The Company has concluded that these circumstances and the uncertainties associated with the Company's ability to obtain additional equity or debt financing on terms that are favorable to the Company, or at all, and otherwise succeed in its future operations raise substantial doubt about the Company's ability 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 consolidated 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 consolidated 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 consolidated financial statements as of and for the years ended December 31, 2024 and 2023 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Future reports on our consolidated financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. Our audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023 included in this Annual 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.

Debt and Equity Financings

As described in Note 4 - Debt, we entered into an insurance premium financing agreement with FIF, which resulted in a financing inflow of $0.4 million in the statement of cash flows in the year ended December 31, 2024. As described in Note 8 - Convertible and Redeemable Preferred Stock and Stockholders' Deficit, during the year ended December 31, 2024, as part of the funding requirement by Aditxt pursuant to the A&R Merger Agreement, the Company issued a total of 4,000 Series F-1 Shares to Aditxt for an aggregate purchase price of $4.0 million plus the $1.0 million in reinstatement proceeds for a total of $5.0 million from Aditxt.

During the year ended December 31, 2023, we received gross proceeds before issuance costs, of approximately $5.6 million, in aggregate, from the sale and issuance of senior subordinated convertible notes and warrants, and $0.3 million from the exercise of common warrants.

Summary Statements of Cash Flows

The following table sets forth a summary of the net cash flow activity for the years ended December 31, 2024 and 2023 (in thousands):

		Years Ended December 31,								2024 vs. 2023
		2024				2023				$ Change				% Change
Net cash and restricted cash used in operating activities		$	(3,885	)		$	(8,968	)		$	5,083				(57	)%
Net cash and restricted cash used in investing activities			(569	)			(4	)			(565	)			14,125	%
Net cash and restricted provided by financing activities			4,615				4,776				(161	)			(3	)%
Net change in cash and restricted cash		$	161			$	(4,196	)		$	4,357				(104	)%

Cash Flows from Operating Activities. During the years ended December 31, 2024 and 2023, the primary use of cash, cash equivalents and restricted cash was to fund commercialization of PHEXXI and SOLOSEC and to support selling and marketing and general and administrative operations.

Cash Flows from Investing Activities. During the year ended December 31, 2024, the primary use of cash, cash equivalents and restricted cash was the acquisition of the SOLOSEC asset.

Cash Flows from Financing Activities. During the year ended December 31, 2024, the primary source of cash, cash equivalents, and restricted cash was from the $1.0 million received from Aditxt in order to reinstate the Merger Agreement as described above as well as the $4.0 million in Series F-1 Preferred Stock purchased by Aditxt, and the finance agreement with First Insurance Funding for $0.4 million. These inflows were offset by $0.8 million payments under the Baker Notes and short-term debt.

During the year ended December 31, 2023, the primary source of cash, cash equivalents and restricted cash was the issuance of senior subordinated convertible notes and warrants for proceeds of approximately $5.9 million, in aggregate, before debt issuance costs. Proceeds were offset, in part, by the $1.0 million upfront payment and $0.2 million quarterly cash payment required under the Baker Fourth Amendment.

Operating and Capital Expenditure Requirements

Our specific future operating and capital expense requirements are difficult to forecast. However, we can anticipate the general types of expenses and areas in which they might occur. In 2025, while we expect to maintain a lean operating structure at approximately the same level as 2024; should resources become available we may increase marketing spend to drive further sales growth.

Contractual Obligations and Commitments

Operating Leases

On December 31, 2024, operating lease ROU assets and lease liabilities were $0.1 million each, and were $0.1 million each on December 31, 2023. See Note 7 - Commitments and Contingencies for more detailed discussions on leases and financial statements information under ASC 842, Leases.

Other Contractual Commitments

As described in Note 7 - Commitments and Contingencies, in November 2019, the Company entered into a supply and manufacturing agreement with a third-party to manufacture PHEXXI, with potential to manufacture other product candidates, in accordance with all applicable current good manufacturing practice regulations. There were approximately $2.0 million in purchases under the supply and manufacturing agreement for the year ended December 31, 2024 and no such purchases during the year ended December 31, 2023.

As described in Note 7 - Commitments and Contingencies, the Company also has commitments related to the SOLOSEC asset acquisition including a commitment to purchase inventory from the seller through November 2026 at a pre-defined unit price. The Company is also obligated to pay contingent liabilities and quarterly royalties based on SOLOSEC net revenue over the Earnout Term as described in Note 7 - Commitments and Contingencies.

Intellectual Property Rights

As described in Note 7 - Commitments and Contingencies, royalty costs owed to Rush University pursuant to the Rush License Agreement were $0.8 million and $0.7 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, approximately $2.0 million and $1.1 million were included in accrued expenses in the consolidated balance sheets and will be paid via the agreed upon payment plan.

As described in Note 7 - Commitments and Contingencies, the Company is also obligated to pay a quarterly royalty in amounts equal to a certain percentage of the SOLOSEC net revenue, beginning July 14, 2024. There are no minimum quarterly or annual royalty payment amounts. Such royalty costs were immaterial for the year ended December 31, 2024 and none of the other milestones triggering payment of any contingent liabilities were triggered. As of December 31, 2024, an immaterial amount related to the SOLOSEC royalty was included in contingent liabilities in the consolidated balance sheet.