Veru Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2022; filed August 11, 2022. Veru is a biopharmaceutical company developing medicines for cancer and viral and respiratory diseases. Its approved products include FC2 and ENTADFI, but all reported revenue for the quarter and nine-month period came from FC2.
Financial results and liquidity
| Metric | Three months ended June 30, 2022 | Nine months ended June 30, 2022 |
|---|---|---|
| Revenue | $9.6 million, down 46% year over year | $36.8 million, down 19% |
| Gross profit and margin | $7.1 million; 74% (79% prior year) | $30.1 million; 82% (78% prior year) |
| Operating expenses | $28.9 million | $68.6 million |
| Operating loss | $21.8 million | $38.6 million |
| Net loss | $22.2 million, or $0.28 per diluted share | $42.8 million, or $0.53 per diluted share |
| Cash used in operating activities | Not stated for the quarter | $26.6 million |
At June 30, cash and cash equivalents were $100.6 million, versus $122.4 million at September 30, 2021. Working capital was $100.6 million and stockholders’ equity was $116.9 million. Management said existing cash and expected product-sale cash flows should fund planned operations for at least 12 months, while noting that spending and capital needs may change.
The company reported $14.6 million in residual royalty agreement liabilities, including $3.1 million due within 12 months. The original $10 million SWK loan was repaid in August 2021; an ongoing royalty of 5% of FC2 revenue remains. The filing estimates approximately $3.1 million of royalty payments over the 12 months after June 30. Nine-month investing cash inflow was $4.4 million, largely from collecting the final $5.0 million of PREBOOST sale notes; financing provided $0.4 million.
Changes versus the prior comparable period
- Quarterly FC2 revenue fell in both U.S. prescription sales (down 50%) and global public health sales (down 31%). Nine-month FC2 unit sales declined 47%, while average selling price per unit rose 54%, principally reflecting a higher proportion of U.S. prescription-channel sales.
- Management attributed weaker U.S. prescription sales to reduced orders from telemedicine customers facing business challenges; timing of a return to historical ordering patterns is uncertain. Public health sales declined largely because Brazil and South Africa tender-related sales in the prior year did not recur.
- Quarterly gross margin fell to 74%, mainly because the prior-year quarter had a more favorable U.S. prescription sales mix. Nine-month gross margin improved to 82% as that channel represented a larger share of revenue.
- Research and development expense increased to $43.8 million for nine months from $24.4 million; selling, general and administrative expense rose to $24.9 million from $14.7 million. Higher clinical-program, personnel, ENTADFI commercialization, and potential sabizabulin launch costs contributed.
- The nine-month comparison shifted from $11.7 million net income in 2021 to a $42.8 million net loss in 2022. The prior-year period included an $18.4 million pretax gain on the PREBOOST business sale; the 2022 period also reflects substantially higher operating expenses.
Outlook, risks and unusual items
- Sabizabulin for COVID-19: An interim analysis in April 2022 led the independent monitoring committee to stop the Phase 3 trial for efficacy. Veru reported a 55.2% relative reduction in deaths versus placebo (p=0.0042), with no safety issues identified. The company submitted an FDA EUA request on June 7. The FDA’s pre-EUA feedback, as described by Veru, indicated no additional efficacy studies were required and that safety data collected under an EUA may support an NDA. Authorization was not assured; the filing warns the FDA could request more data, delay, deny or later revoke an EUA. After quarter-end, the company reported UK expedited-review support and initiation of an EU emergency-use review.
- Pipeline and commercialization: Veru was conducting multiple Phase 3 and Phase 2 studies, including cancer programs, and expects R&D spending to remain elevated. ENTADFI’s commercial launch began after FDA approval of product-release criteria; the filing reports no ENTADFI revenue in the period.
- Revenue, manufacturing and funding risks: FC2 sales are exposed to tender timing, customer concentration and public-sector pricing pressure. Three customers accounted for 92% of quarterly revenue; two customers represented 88% of net current and long-term receivables. The company also cited inflation and input-cost pressure, possible Malaysian manufacturing or shipping disruptions, and dependence on third-party manufacturing for sabizabulin. It may need additional financing to support development and commercialization.
- Other items: The residual royalty’s embedded derivative is a Level 3 fair-value estimate using significant unobservable assumptions. The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors other than added sabizabulin-related risks, and effective disclosure controls.
Key facts for investors to verify
- Progress and outcome of the FDA EUA review, any requests for additional evidence, and regulatory decisions in other jurisdictions.
- Whether telemedicine customer ordering recovers, and the timing and economics of FC2 tender orders, particularly in public health markets.
- ENTADFI sales traction and any contribution to revenue, given that FC2 generated all reported revenue through June 30.
- Cash burn relative to the stated 12-month funding outlook, including increased clinical and commercialization spending and any need for new capital.
- FC2 customer concentration, public-sector pricing pressure, manufacturing supply risks, and the amount and terms of ongoing residual royalty payments.