Veru Inc. — Form 10-Q Summary
Business context and period: Late-stage biopharmaceutical company developing enobosarm for obesity-related muscle loss and breast cancer, and sabizabulin for viral-induced ARDS. Its principal commercial product is FC2 female condoms. This report covers the three months ended December 31, 2023, Veru’s fiscal first quarter of 2024. The comparative December 2022 results and September 2023 balance sheet were restated.
Financial results and liquidity
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter, restated |
|---|---|---|
| Net revenue | $2.14 million | $2.51 million |
| Gross profit / margin | $1.15 million / 54% | $0.70 million / 28% |
| Research and development | $1.65 million | $20.61 million |
| Selling, general and administrative | $8.30 million | $17.55 million |
| Net loss | $8.28 million; $0.08 per share | $38.71 million; $0.48 per share |
| Cash used in operations | $6.02 million | $34.53 million |
FC2 revenue fell 15% overall. U.S. prescription-channel revenue rose to $0.63 million from $0.16 million, while global public-health revenue declined to $1.51 million from $2.34 million. The higher-margin U.S. channel represented 30% of FC2 revenue, versus 7% a year earlier; global public-health sales were affected by order timing and shipment patterns. Three customers accounted for 66% of quarterly revenue.
Cash and cash equivalents were $40.58 million at quarter-end, up from $9.63 million at September 30, 2023. Working capital was $36.72 million, compared with $5.12 million. The increase primarily reflected a December public offering that generated approximately $35.2 million net. The company reported $51.60 million of stockholders’ equity. It had no outstanding balance under the repaid SWK term loan, but recorded a $9.71 million residual royalty agreement liability; the agreement requires a 5% royalty on FC2 revenue and includes a change-of-control payment provision. Management estimated about $0.8 million of royalty payments over the next 12 months.
Material changes and unusual items
- Operating expenses and net loss decreased sharply, mainly because prior-year spending included sabizabulin COVID-19/EUA trial and commercialization costs. Development activity was limited in the current quarter while the company refocused its pipeline.
- Quarter-end cash benefited from substantial equity issuance: 52.7 million shares were sold in the public offering at $0.72 per share. Shares outstanding increased to 146.4 million at December 31 from 91.8 million at September 30.
- The company recognized a $0.92 million gain related to BWV preferred shares received in connection with the ENTADFI asset sale, partly offset in non-operating results by a $0.38 million fair-value loss on those shares. The preferred shares had a reported fair value of $0.54 million at quarter-end. Veru said it believed BWV was insolvent after the reporting date and warned that future installment payments and any value from the preferred shares were uncertain.
- After quarter-end, Veru settled a supplier dispute over sabizabulin-related costs for $8.3 million, versus the supplier’s approximately $10 million claim. Terms include $2.3 million payable upon signing, $3.5 million in equal monthly installments over 48 months, and a $2.5 million balance due by December 31, 2025, subject to specified terms. The settlement reduced the liability recorded at quarter-end by $0.6 million, to be reflected in the following quarter.
- The filing restated prior financial statements after errors in estimating R&D work performed by third-party service providers. The restatement increased December 2022 quarterly R&D expense and net loss by $1.87 million.
Outlook, risks and contingencies
- Management said cash on hand and expected FC2 sales should fund planned operations for the next 12 months, while noting continued expected cash consumption and losses. This assessment should be considered alongside the $8.3 million supplier settlement and restricted access to financing channels.
- FDA clearance for an enobosarm Phase 2b obesity study was received in February 2024. The approximately 90-patient trial was expected to begin in April 2024, with topline results expected in the fourth quarter of calendar 2024; results from a planned extension were expected in the second quarter of 2025. These are expectations, not guarantees.
- Further breast-cancer development is dependent on sufficient funding; the company completed Stage 1a of its Phase 3 trial but will not proceed with Stage 1b until funding is available. Sabizabulin Phase 3 development for viral-induced ARDS is on hold absent government, partner or other external funding.
- Late SEC filings made Veru ineligible to file new Form S-3 registration statements until no earlier than March 1, 2025, and may limit use of its existing shelf and Jefferies sales agreement. The company stated it could not make further Jefferies sales unless the non-compliance is waived; it also described a period when securities sales under the current shelf, including under the Lincoln Park agreement, would be unavailable.
- Disclosure controls were deemed ineffective as of December 31, 2023 because of material weaknesses involving complex/nonrecurring transaction accounting and estimates of third-party R&D costs. Remediation was underway. Several shareholder and derivative lawsuits related primarily to sabizabulin statements remain pending; potential losses were not estimable.
- FC2 faces global public-health pricing pressure, customer and order-timing concentration, and reliance on a key nitrile supplier. Telehealth customer consolidation and bankruptcy have also affected sales. BWV receivables and ENTADFI milestone payments carry significant collection risk.
Important facts for investors to verify
- Whether the enobosarm Phase 2b study began on schedule and whether its expected enrollment and data timelines remain achievable.
- Actual cash use, FC2 sales and gross margins, and the cash impact and payment schedule of the supplier settlement.
- Veru’s ability to access capital during Form S-3 ineligibility and whether the Jefferies restriction is waived or otherwise resolved.
- Collection of BWV notes and any ENTADFI-related payments, and the recoverable value of the BWV preferred shares.
- Progress in remediating internal-control weaknesses and developments in the shareholder litigation.