Veru Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2023. The financial statements are unaudited. Veru is a late-stage biopharmaceutical company whose revenue during the period came primarily from FC2 female condoms; its pipeline includes enobosarm and sabizabulin.
Financial performance and liquidity
| Metric | Three months ended March 31, 2023 | Six months ended March 31, 2023 |
|---|---|---|
| Revenue | $6.6 million, down 49% year over year | $9.1 million, down 67% |
| Gross profit / margin | $4.1 million / 62%, versus $11.2 million / 86% | $4.8 million / 53%, versus $23.0 million / 85% |
| Operating loss | $39.4 million | $75.0 million |
| Net loss | $38.8 million, or $0.48 per diluted share | $75.6 million, or $0.94 per diluted share |
For the six-month period, research and development expense was $41.6 million, up from $25.6 million; selling, general and administrative expense was $30.4 million, up from $14.1 million. Results included a $3.9 million provision for credit losses related to The Pill Club and a $3.9 million impairment charge for abandoned development assets.
Cash and cash equivalents were $23.5 million at March 31, down from $80.2 million at September 30, 2022. Operating activities used $60.1 million of cash in the six months; capital expenditures used $0.4 million, while financing activities provided $3.8 million. Working capital was $4.0 million, compared with $63.3 million at fiscal year-end. Stockholders’ equity was $16.7 million.
Veru reported $11.6 million of residual royalty agreement liabilities, including an embedded derivative; the agreement requires ongoing payments equal to 5% of FC2 product revenue. The original $10 million loan under the related credit agreement was repaid in 2021. A separate insurance premium financing balance was $0.9 million at March 31.
Material changes and business developments
- FC2 revenue fell substantially in the U.S. prescription channel: second-quarter sales were $4.1 million versus $11.6 million a year earlier. Global public-health sales rose to $2.4 million from $1.4 million, including shipments under the South Africa tender. The shift toward lower-priced public-health sales contributed to lower average selling prices and gross margins.
- The Pill Club generated $3.9 million of second-quarter revenue. Veru recorded an allowance for its $3.9 million receivable after uncertainty about collection; the customer filed for Chapter 11 on April 18, 2023. Following payment and shipment-acceptance disputes, Veru says its sales contract with The Pill Club terminated. The company expects sales to it to be substantially reduced or possibly eliminated.
- Veru refocused development on selected programs, discontinued sabizabulin development for prostate cancer and zuclomiphene, and paused VERU-100 development while seeking a partner. It also announced personnel reductions and other cost-saving measures; the filing does not quantify expected savings.
- The FDA declined Veru’s sabizabulin COVID-19 Emergency Use Authorization request on February 28, 2023. After the quarter, on April 27, Veru said it had agreed with the FDA on a 408-patient confirmatory Phase 3 trial design. Enrollment was expected to begin in the second half of 2023, with the first interim analysis anticipated in 2024. These are plans, not assured outcomes.
Outlook, risks and subsequent events
Management said cash on hand, expected FC2 sales, proceeds expected from the ENTADFI sale, and potential financing were expected to fund planned operations for the next 12 months. The company also expects continued cash consumption and losses; its capital needs depend on development and regulatory requirements, and additional financing may be needed.
- On April 19, 2023, Veru sold substantially all ENTADFI-related assets for $20 million: $6 million at closing and the remainder in scheduled payments through September 2024, plus up to $80 million tied to future net revenue. Veru considered milestone payments remote and expected an approximately $17.7 million gain.
- On April 12, Veru issued 5 million shares to Frost Gamma Investments Trust for $5 million. After the quarter, Veru also sold 859,700 shares to Aspire Capital for $0.8 million. On May 2, it entered a purchase agreement permitting up to $100 million of stock sales to Lincoln Park over three years, subject to contractual limits; 800,000 commitment shares were issued.
- FC2 supply faces a transition risk: the sole supplier of its principal nitrile material plans to close the facility making the current specialty grade. Veru expects to qualify an alternative grade, which requires testing and FDA approval, and warns that a transition could interrupt supply.
- A putative securities class action concerning statements about sabizabulin is pending. Veru disputes the allegations but said it could not estimate any potential loss.
- Revenue concentration, customer credit and ordering patterns, pricing pressure, clinical-trial and regulatory uncertainty, financing needs, and possible dilution are significant risks. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track cash burn, available financing, and whether management’s stated 12-month funding expectation remains supportable.
- Verify collection and any bankruptcy-related recovery of The Pill Club receivable, and the extent to which FC2 sales can be replaced.
- Monitor FC2 U.S. prescription demand, public-health tender timing and margins, and progress and cost of the nitrile supply transition.
- Confirm FDA and trial milestones for sabizabulin and enobosarm, including enrollment timing, funding, and regulatory requirements.
- Review receipt of the ENTADFI installment payments, any actual milestone proceeds, and the dilution and pricing terms of equity financing arrangements.