TherapeuticsMD (TXMD): Is it really a $1 billion company?

by By Sonya Colberg, Senior Investigative Reporter - 2/14/2014 10:15:11 AM


Everybody wanted a piece of TherapeuticsMD (NASDAQ:TXMD).

The wannabe pharmaceutical company attracted investors ranging from a “consultant” whose patience paid off in multiples to an ex-football player with both an MBA and a head lice-treatment company.  

Now, nearly three years later, the company stock is booming even though it’s way too early to know whether the vitamin company can ever pull off plans to launch hormone-based drugs for women.

Can it overcome ties to people with a history of securities problems and fallen companies?

Can it overcome huge losses, daunting litigation, and indistinguishable products?

Can it rise above a series of head-scratching business deals?

And can a reverse merger company selling only $2 million in vitamins really be worth almost $1 billion?


  Here’s the key to a daunting near-term risk. Common sense dictates that as soon as the quiet period ends the first week of March, smart insiders will begin selling some of their stock – about 34 million shares – like crazy.

The stock price is howling near record TXMD highs and they’ve got shares to sell, including a truckload of options and warrants that they can exercise for as little as a quarter apiece.

That stash includes roughly 22 million shares in options and warrants just waiting in line to be cashed in.

The proof is in the SEC filings. They show the vested and exercisable options and warrants up for grabs:

Options – 10,101,920

Warrants – 12,190,468

The exercise price averages $1.67 for warrants – some as low as 24 cents – and just 65 cents for options.


Under the company’s most recent offering, insiders also can begin dumping up to 12 million shares of highflying stock – quietly registered by the company a few weeks ago and already cleared by the SEC for release. Company insiders have held that stock since TXMD debuted on the public stock exchange in 2011 through a reverse merger.

All those shares would mount up to about $213 million in today’s market. Why not sell?

In fact, four insiders have sold shares in the past month. And they did this through setting up brand-new automatic sales plans dated Dec. 6 or Dec. 9  - by the CEO, director/cofounder, strategy officer and president.



The TXMD story essentially began in 2011 when CEO Robert Finizio and Dr. Brian Bernick chose to rev up their prenatal vitamin business by taking an unconventional route to going public. They conducted a reverse merger with a company whose CEO had collapsed companies and securities regulators across the nation biting at his ankles.

A maker of specialized pharmaceuticals, such as head lice tonic, wanted a piece of the emerging TherapeuticsMD and offered to buy $1 million worth of stock a few months before the reverse merger. Mr. Finizio signed the deal, penned to take effect the day after the reverse merger – and handed over stock for just 38 cents a pop. The then-president of the lice-fighting company - a handsome former Florida Gators football player named Cooper Collins -  became a TXMD director four months later.  And that company walked away with 2.6 million freshly minted TXMD shares.

Mr. Collins’ company unloaded every share at $1.75 last summer just before the stock made the run into the $3-$6 range. On behalf of his Pernix Therapeutics, he kicked his cheap TXMD shares into a $4.6 million payday. Additionally, TXMD paid Pernix over $96,000 for unspecified purchases and still has nearly $400,000 in related party business deals from the last two years yet to be paid to Pernix.

That’s nothing compared to another payday.               

A consultant who waited two years to get paid $210,000 elected just weeks before the merger to get paid in shares at a rate of 1 penny apiece.

That consultant walked away with 20 million shares of stock!

Most TXMD investors today are paying about 60,000 percent more for their stock. But talk about a return on investment for the consultant.

At today’s stock price, that lucky consultant would get paid $120 million for $210,000 worth of work.

The consultant is actually made up of two companies, “Energy Capital LLC” and “First Conquest Investment Group.”

The companies’ managing members – Robert J. Smith and Steven G. Johnson respectively - signed the papers. Besides TXMD, both Mr. Smith and Mr. Johnson are closely aligned with a company listed on the   OTCBB, CareView Communications.


Those two paydays offer a glimpse into the links among TXMD and two reverse merger companies – Pernix and CareView Communications.

These two healthcare companies share classic signs of deterioration: heavy operating losses, departing senior managers, analyst indifference or downgrades and sharply falling stock prices over the last year – below $3 for Pernix and under 50 cents for CareView Communications.

Investors will see more on the complicated connections to these companies and TXMD folks in the section “Mixed Bag of Insiders, Investors.”


TXMD is riding a share price explosion approaching its 2-year high of $6.90, partially spurred by its two recent reports on a study of its treatment for menopause symptoms. Soured by so-so vitamin sales, the company is shifting focus toward estrogen based treatments primarily for menopause symptoms.

But the market has vastly overestimated the significance of the product and the study results behind this run-up, according to a medical doctor who spoke to TheStreetSweeper on condition of anonymity. He is involved with an investment management company but holds no position in TXMD.

“The product is another worthless estrogen preparation,” he said.

Indeed, TXMD is trying to get approval for more me-too copycat products already in the market – using the very drugs that are already in use.


If there ever was a sliver of a chance for TXMD’s proposed VagiCap candidate – it appears to have vanished.

Novo Nordisk has already beaten TXMD to the punch. TXMD has just completed phase 1 testing for its VagiCap, while Novo Nordisk has already firmly established the same low-dose hormones in a product called Vagifem for the same purposes. Though an analyst said TXMD’s will be superior, another said, “prove it,” and suggests a legion of Novo Nordisk reps will have plenty of time to get the product more entrenched by the time TXMD’s product makes its way through the costly, time-consuming phase 3 trials. Though the phase 1 trial was reported to be positive, there’s still a long way to go. If it ever makes it.

This product, like the other TXMD candidates, is not a new drug. Novo Nordisk and its peers use the same estrogen-type drug used in TXMD’s VagiCap. The only real difference is the delivery design. Novo Nordisk’s is a tiny pill delivered through a disposable pre-loaded pen-like device, while TXMD’s is a soft gel capsule digitally inserted. Maybe TXMD’s product is better and maybe it isn’t.


TXMD has quietly abandoned another menopause therapy, TX12-003-HR, indicate company filings with the Securities and Exchange Commission.

But aside from TXMD’s remaining peanut oil-free progesterone candidate that gets little attention, the lead candidate is still standing. It is designed to treat hot flashes and other menopause symptoms. Though the company recently initiated phase 3 clinical trials of TX12-001-HR, this candidate faces significant hurdles, too.

The company touts this product candidate’s two “bioidentical” hormones packed into one dose.

But the U.S. Food and Drug Administration has already refuted the claims the company has made about bioidenticals.

“We believe our novel combination of solubilized, natural API may provide a safer and more effective alternative compared to current products, as they are the same molecular structures as the body naturally produces,” said Mr. Finizio in a conference call.

The Food and Drug Administration has debunked this misconception.

Here is what the FDA has to say about bio-identicals’ mythical safety and efficacy:

Myth: "Bio-identical" hormones are safer and more effective than FDA-approved MHT drugs.

Fact: FDA is not aware of any credible scientific evidence to support claims made regarding the safety and effectiveness of compounded "BHRT" drugs. "They are not safer just because they are 'natural,'" says Kathleen Uhl, M.D., Director of FDA's Office of Women's Health.

Some analysts and TXMD management tried to use the bill regarding compounding pharmacies to the company’s advantage. A stricter version of the bill was pushed by The Working Group on Pharmaceutical Safety, headed by none other than Tommy Thompson, TXMD director and former Health and Human Services chief and former FDA staffer.

The bill signed into law last December authorizes the FDA to regulate pharmacies that custom-mix drugs needed by people with allergies and other issues. 

But some TXMD pundits (rather artfully we’ll admit, according to this third positive article on TXMD by this Investment Relations firm, likely bought and paid for) earlier took the pending legislation as an opportunity to suggest that TXMD’s combo-pill is the safe and effective option, and that TXMD would be in the cat-bird seat if the bill became law. The implication that the pharmacies will embrace the company’s pill candidate appears to be just wishful thinking.

Compounding pharmacies are still trying to determine just what the law means.

“Whether the new law will have an impact on competition in certain areas, we can’t speculate and believe it is too soon to tell,” said David Ball, spokesman for the International Academy of Compounding Pharmacists.

The passage of the bill into law last December ultimately did two things for TXMD. First, it helped the stock price maintain momentum. Second, it gave TXMD a reason to throw more fluff at investors and generate a bump to almost $5 at the end of October.

“We are proponents of FDA oversight to ensure that safety, efficacy and quality standards of pharmacy-compounded products safeguard public health and restore trust in the products produced and sold by these pharmacies,” said Mr. Finizio in a statement.

The deal is over. The catalyst is gone. It’s already figured into the stock price.

But  look what happened: Insider selling. Nearly half-a-million bucks worth.



Those balloons in the graphic show that insiders think it’s time to start selling.

In the past month – courtesy of their brand-new automatic sales plan - officers and directors have unloaded 152,500 shares  in the $5.13-$6.33 range.

Mr. Finizio sold more than any other insider, selling off 50,000 shares worth about $285,000.

Cofounder Dr. Bernick also sold 62,500 of his indirectly owned shares. This follows his massive sale last August of 1.6 million shares that handed him $2.5 million, second only to the previously mentioned sale of every last one of Mr. Collins’ 2.6 million shares, indirectly held through Pernix Therapeutics.  A couple of weeks ago, President John Milligan also unloaded 25,000 shares for a little over $6 apiece. Mitchell Krassen, strategy officer, apparently just went ahead and cashed out.

Maybe they read the Ford Equity Research report.

TXMD ranks an unusual “strong sell,” according to Ford.

“We project that TXMD will strongly underperform the market over the next six to 12 months,” Ford announced.

TXMD has some die-hard fans, however. The stock has a median price target ranging from $4 to $9. Stifel Nicolaus initiated coverage in November with a “buy” rating and two other analysts –  co-managers of TXMD’s March public offering – also call it a buy.

But Ford gives it a rating so poor it’s reserved for just the lowest 5 percent of stocks.

 “This historical performance should lead to below average price performance in the next one to three months,” reports Ford, an independent research firm with no investment banking, or brokerage businesses or affiliations.


An analyst noted that the biotech road can be a tough one that kills some companies and strengthens others. But a look behind TXMD reveals links to people who’ve wound up in several reverse merged companies together, again and again. Oftentimes those businesses end up in shambles.

Does this mean red flags are whipping around TXMD? Investors must judge for themselves.

Below are highlights on some of the people behind TXMD.

Robert Finizio. TXMD’s chief executive cofounded CareFusion in 2001 before teaming up with his wife’s obstetrician on a new venture. Mr. Finizio and Dr. Bernick opened their VitaMed pre-natal vitamin business in 2008.

That business became TherapeuticsMD. This video and articles like this  may give investors the impression that TXMD made its public entrance through an initial public offering.

But this was not an IPO. The partners took the quick and cheap route to going public in 2011 through a reverse merger with AMHN. This was a company that couldn’t pay its debts, claimed zero revenue in the first half of 2011 and 2010, and failed to attract more than a handful of investors willing to pay 4 cents for a share of stock.

AMHN’s sole officer, Jeffrey D. Howes formed a subsidiary called Vitamed Acquisition LLC, and wrangled a three-way reverse merger.

All very quietly. A source close to the situation told TheStreetSweeper that a company representative explained that TXMD chose what is arguably the less reputable, less transparent route to the stock market because executives wanted to surprise those competing in the hormone niche.

Yet for this important public entrance, they chose someone who flaunted and teased securities regulators until he had half the nation growling and biting at his feet.

 Regulators had dogged Mr. Howes over his reverse merger company American Wireless Systems – including watchdogs in Oregon who ultimately fined him in 1995 – see the link here - for the way his team allegedly promoted and sold $26.9 million in investments squeezed out of 1,800 people. The team got booted out of Oregon and told to stay out.

More cease and desist orders built up as securities regulators in 22 states began investigating.

The Federal Trade Commission started its own investigation into the company’s sales practices, too.

 "After 10 months of investigation, (FTC investigators) haven't come up with a single practice that is deceptive,” Mr. Howes said to the Los Angeles Times. "And they've been peppering our investors with questions."

Mr. Howes piled up a dozen disclosure events, according to FINRA, most related to unregistered securities allegations, ensuring that he won’t be working at a brokerage firm anytime soon. Though FINRA indicates he was last registered in 2009, he claimed he was still registered in this 2011 filing with the SEC.

And what of Mr. Howes’ reverse merged company? American Wireless Systems merged with Heartland Wireless Communications. Heartland filed for bankruptcy and the Over The Counter Bulletin Board (OTCBB) deleted its listing in 2002.

Steven G. Johnson. Aside from the previously noted consultant deal, Mr. Johnson also served as part of the American Wireless Systems team sanctioned by securities regulators. Mr. Johnson is president of CareView Communications (OTC:CRVW) - a cratered company trading over-the-counter for about 47 cents a share. The CareView board included TXMD chairman Tommy Thompson and former director Samuel Greco, though they recently stepped down as CRVW directors.

Indeed, Mr. Johnson is the beneficial owner of a huge 4.9 million shares, many handed to him through various entities for pennies on the dollar in exchange for a string of loans to TXMD. With his current 3.29 percent of the company, he essentially takes a boardroom seat right next to the big boys.

Cooper Collins. As noted earlier, board member Mr. Collins is also an executive and top shareholder of Pernix Therapeutics, offering head lice cream and other specialty pharmaceuticals. That company’s stock has swooned 62 percent over the past year and Mr. Collins, who is now chief strategic officer rather than president, has been busy in the last couple of months selling over 260,000 shares of Pernix.

Tommy Thompson. TXMD’s chairman of the board, who has already filled up a boatload of cash since he split from government service, is sitting on 630,000 shares of TXMD worth about $3.7 million. Even Mr. Thompson’s son got the right to buy 100,000 shares of TXMD on the same day in 2012 that his dad got an award of 75,000 stock options, according to a filing. No explanation why.

The elder Mr. Thompson’s experience and government resume have helped him make millions of dollars in stock, options and cash from his associations with some 20 companies across the U.S.

But three of six of the companies where he served as board member received a rare “F” grade from ratings agency, GMI Ratings. Problems cited included poor disclosure practices and restricting stockholder rights.

The most controversial company the former secretary of the US Department of Health and Human Services has been involved with is C.R. Bard – socked with a $48.26 million fine for making false claims to Medicare. The messy affair involved kickbacks, a whistle-blower lawsuit and some serious warnings issued last May to would-be copycats.

“Medicare beneficiaries should never have to question whether treatment recommendations are based on their doctors’ best financial interests rather than their best medical advice,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services.  “Companies paying these kickback bribes should expect aggressive investigation and prosecution.”

The company previously agreed to $184 million to resolve 2,600 lawsuits related to its mesh hernia patch, while Bard and other manufacturers have been named in thousands of unresolved trans-vaginal mesh lawsuits.

“Either he has really bad luck choosing companies … or he is one of the directors on company boards who is not exercising sufficient oversight,” said a GMI Ratings research analyst.

Robert LaPenta. TXMD director Mr. LaPenta is also CEO and chairman of a light bulb company. Since TheStreetSweeper warned investors about risks associated with Mr. LaPenta’s Revolution Lighting (NASDAQ:RVLT) last July, the share price has fallen about 25 percent.

Robert J. Smith.  Aside from his consultant ties noted earlier, the Florida businessman is a big time investor in TXMD and the cratered company CareView. Directly and through his entity Plato, he’s now the proud owner of 11.8 million shares of TXMD, giving him control of 7.93 percent of the company. Mr. Smith’s entities also loaned the company money and on Feb. 24, the company must repay his entities a lump sum of about $3.6 million.


That lump sum payment is another strike against this money-hungry company. It’s already burning $4 million to $5.3 million per quarter and real costs are about to kick in due to phase 3 trials.

We think on its current path TXMD will need more than $70 million by the time it expects to release phase 3 data at the end of 2015. It now has $59.6 million.


Lawsuits add another layer of financial risk, too. And while suits aren’t unheard of in the course of operating a business, TXMD has shot the “You’ve-gotta-be-kidding” factor through the roof with this one.

The company has been sued by its own financial advisor.

That’s right. Read the link right here.

The dispute over the advisor not being named sole book-runner arose after TXMD received about $33 million for a public offering of 13.75 million shares that closed last Sept. 30. The advisor wants $2.3 million damages plus court costs.

That case with Jefferies appears to have been recently settled under undisclosed terms.

Court records show TXMD has recently reached a settlement in a lawsuit alleging the company infringed on Avion Pharmaceutical’s “Prenate” trademark with its prenatal vitamin packaging, as well as false advertising claims by Aceto. These remain a concern to investors because the unknown settlement figures will take another whack at TXMD’s finances.

The settlements present yet another red flag. Mr. Finizio contends that women look for the TXMD brand of prenatal vitamins. If so, what will changing the offending trademarks (which will be costly) do to the company’s brand?

All in all, the lawsuits represent a sobering potentially multimillion-dollar dose of reality for a company that lost $7.7 million last quarter.


TheStreetSweeper is not buying into the company’s implications that it will somehow live up to its market cap.

And we seriously doubt TXMD is worth 70 times this year’s projected sales of $12.8 million.

Here are highlights on why:

  1. Securities regulators, tattered companies link to reverse-merger.
  2. Copy-cat products.
  3. FDA contradicts “bioidenticals” claims.
  4. Burning too much cash.
  5. Insiders yell, “Sell.”
  6. Even an insider’s relative gets a piece of TXMD.
  7. Its financial advisor, plus others, sue TXMD, projected to cost multi-millions.
  8. Company gives up millions of shares on the cheap for financing, services and self-enrichment.


* Important Disclosure: The owners of TheStreetSweeper hold a short position in TXMD and stand to profit on any future declines in the stock price.

  • Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to



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