Veru Inc. — Q1 Fiscal 2021 Form 10-Q
Reporting period: Three months ended December 31, 2020; comparisons are with the three months ended December 31, 2019, unless otherwise noted. Veru is an oncology biopharmaceutical company with a commercial sexual-health business centered on FC2. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $14.6 million | $10.6 million |
| Gross profit and margin | $10.8 million; 74% | $7.3 million; 69% |
| Research and development | $5.7 million | $5.3 million |
| Selling, general and administrative | $4.4 million | $3.8 million |
| Operating income (loss) | $19.2 million | ($1.8 million) |
| Net income (loss) | $17.2 million | ($3.3 million) |
| Diluted earnings (loss) per share | $0.23 | ($0.05) |
| Cash from (used in) operating activities | $0.7 million | ($2.5 million) |
Revenue rose 38%. FC2 generated $13.8 million, up 32%, reflecting 22% higher unit sales and an 8% increase in average selling price. U.S. prescription-channel FC2 revenue grew 50%; global public-health-sector FC2 revenue grew 6%. FC2 accounted for 94% of current-quarter revenue. Gross margin improved mainly from a greater U.S. prescription-channel mix and lower labor and equipment-maintenance costs.
Reported earnings included an $18.4 million pretax gain on the PREBOOST business sale; therefore, net income and operating income do not represent recurring operating performance. The quarter’s $0.7 million operating cash inflow also included adjustments that removed this noncash gain.
At December 31, 2020, cash and cash equivalents were $30.9 million, versus $13.6 million at September 30, 2020; working capital was $30.5 million, versus $12.3 million. Total assets were $72.8 million and stockholders’ equity was $48.7 million. The PREBOOST sale generated $15.0 million cash at closing and $5.0 million in notes receivable, payable in installments 12 and 18 months after closing. Investing cash flow was $15.0 million, mainly from the sale.
The balance sheet reported a $5.3 million credit-agreement liability and a $7.9 million residual royalty-agreement liability. The company estimated approximately $5.3 million of credit-agreement payments and $1.9 million of residual royalty payments over the 12 months after quarter-end. It stated that remaining credit-agreement payments were expected to be paid during that period. These arrangements are linked to FC2 revenue; the lenders’ recourse is limited to FC2-related assets.
Material changes, outlook and risks
- PREBOOST divestiture: Sold substantially all business assets on December 8, 2020 for $20.0 million total consideration, including $15.0 million received at closing and two $2.5 million notes. The sale produced the $18.4 million gain; PREBOOST revenue was included through the sale date.
- Liquidity outlook: Management said available cash and expected commercial-product sales were adequate to fund planned operations for the next 12 months. The company expects to continue consuming cash to develop drug candidates and may seek debt or equity financing, including through its Aspire Capital purchase agreement.
- Development plans: Management anticipated starting the VERU-111 VERACITY Phase 3 prostate-cancer study in calendar Q1 2021; a VERU-100 Phase 2 study in Q1 2021 and Phase 3 study in H2 2021; and the enobosarm ARTEST Phase 3 breast-cancer study in Q2 2021. It planned to submit the TADFIN NDA in February 2021. These are forward-looking plans, not reported outcomes.
- COVID-19 program: The filing reported positive Phase 2 results for VERU-111 in hospitalized patients at high risk for ARDS: treatment failures were 5.6% (18 treated patients) versus 30% (20 placebo patients) among patients receiving more than one dose; the company reported p=0.05. An expedited FDA meeting was expected to discuss a confirmatory Phase 3 study of approximately 200 patients. BARDA had granted a meeting to discuss possible grant funding. Results are preliminary and require confirmation.
- Key risks: Clinical results may not be replicated or lead to approval; trials and enrollment may be delayed by COVID-19; funding needs and development costs are uncertain. FC2 sales can vary with large tender timing, customer orders and public-sector budgets, and the company cited pricing pressure from large agencies. Two customers represented 61% of quarterly revenue; four customers represented 81% of receivables. Manufacturing in Malaysia and reliance on a key nitrile-polymer supplier expose supply to pandemic, labor, raw-material and shipping disruptions.
- Other disclosures: Management reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. The filing reported no material COVID-19 impact on consolidated results for the quarter.
Investor verification points
- Separate recurring FC2 operations from the $18.4 million PREBOOST sale gain when assessing earnings and cash generation.
- Track collection of the $5.0 million sale notes and the timing and terms of FC2-linked credit and royalty payments.
- Verify subsequent progress, trial design, enrollment, regulatory interactions and funding for the planned clinical programs, especially VERU-111’s COVID-19 confirmatory study.
- Monitor FC2 sales mix, public-sector tender orders, customer concentration, pricing, and Malaysia-based manufacturing and supplier continuity.
- Assess whether operating cash flow and commercial sales support planned R&D spending, or whether additional financing and potential dilution become necessary.