Veru Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2021, compared with fiscal 2020. This is an annual report, not a standalone fourth-quarter report.
Business context
Veru is an oncology-focused biopharmaceutical company developing treatments for breast and prostate cancer, with sabizabulin also being studied for hospitalized COVID-19 patients. Its commercial Sexual Health Division sells FC2 Female Condom; all reported net revenue came from FC2 and PREBOOST sales before PREBOOST was sold in December 2020. ENTADFI, for benign prostatic hyperplasia, was awaiting FDA action at the time of the report.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $61.3 million | $42.6 million |
| Gross profit / gross margin | $47.9 million / 78% | $30.8 million / 72% |
| Research and development expense | $32.7 million | $16.9 million |
| Selling, general and administrative expense | $20.7 million | $14.5 million |
| Net income (loss) | $7.4 million | $(19.0) million |
| Net income (loss) per diluted share | $0.09 | $(0.28) |
| Cash and cash equivalents at year-end | $122.4 million | $13.6 million |
Revenue increased 44%. FC2 revenue rose 49% to $60.4 million: U.S. prescription-channel revenue increased 71% to $46.5 million, while global public-health revenue increased 4% to $13.9 million. Management attributed the higher gross margin largely to the greater share of sales from the higher-margin U.S. prescription channel. FC2 unit sales grew 15%, and average selling price per unit increased 29%.
Operating activities used $15.6 million of cash, versus $1.9 million in FY2020. The FY2021 net income included a $18.4 million pretax gain on the PREBOOST sale; cash flow was also affected by higher accounts receivable and prepaid expenses. Investing activities provided $14.6 million, including $15.0 million of cash proceeds from the sale. Financing activities provided $109.7 million, primarily from a February 2021 stock offering that generated about $108.0 million net. Cash increased by $108.8 million during the year.
Working capital was $136.0 million and stockholders’ equity was $152.3 million at year-end. The company said cash on hand and expected cash from commercial sales were sufficient to fund planned operations for the next 12 months, while noting it expects continued cash use for drug development.
Debt, material changes, and unusual items
- Veru repaid its SWK Credit Agreement in August 2021 and had no remaining obligation under that loan at year-end. The separate Residual Royalty Agreement continues to require payments equal to 5% of FC2 revenue; its reported liability was $12.6 million, including $3.2 million classified as current. Management estimated about $3.2 million of royalty payments over the following 12 months.
- FY2021 earnings included the $18.4 million PREBOOST sale gain. The prior-year loss included a $14.1 million impairment charge on acquired in-process research and development assets after Veru discontinued or deprioritized certain programs. No impairment charge was recorded in FY2021.
- Interest expense was $4.9 million, and a $3.7 million noncash expense reflected an increase in the fair value of embedded derivative liabilities.
- The company issued 7.4 million shares in the public offering. Shares outstanding increased from 69.9 million at FY2020 year-end to 80.0 million at FY2021 year-end, creating dilution.
Outlook, management commentary, and risks
- Management expected R&D expense to continue increasing in FY2022 as multiple programs advanced. Planned or ongoing work included Phase 3 trials of enobosarm in breast cancer, sabizabulin in prostate cancer, and sabizabulin in COVID-19; the company anticipated COVID-19 Phase 3 results in the first half of calendar 2022.
- ENTADFI’s FDA decision date was December 2021. If approved, Veru planned to use telemedicine and telepharmacy channels. These statements are expectations in the filing, not assurances of approval or commercialization.
- Veru reported positive Phase 2 COVID-19 results, including an 82% relative reduction in mortality, but emphasized that sabizabulin remained investigational and Phase 3 results could differ.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, competition, the need for future capital, and the possibility that investment in the COVID-19 program could affect other development programs.
- FC2 revenue is concentrated: two customers represented 75% of FY2021 net revenue. Government tenders may not guarantee purchases, and international public-health sales face timing and pricing uncertainty.
- FC2 depends on a single Malaysian manufacturing facility and a key sheath supplier. A supplier-facility fire in August 2021 disrupted production; Veru cited inventory buffers and expected the supplier to resume full production in December 2021. Rising material costs, COVID-related operating constraints, and shipment disruption remain risks.
- Management reported effective disclosure controls and effective internal control over financial reporting. The independent auditor issued an unqualified opinion on the financial statements; it did not provide an opinion on internal control effectiveness.
Important facts for investors to verify
- Subsequent FDA action and commercial launch progress for ENTADFI, including actual access, pricing, and adoption.
- Updated enrollment, endpoint results, safety data, and regulatory plans for the sabizabulin and enobosarm trials, including the COVID-19 program.
- FC2 customer concentration, U.S. prescription-channel growth, public-health tender deliveries, and the effects of supplier recovery and inventory levels.
- Cash burn against the reported 12-month funding assessment, future financing needs, dilution, and ongoing 5% FC2 royalty payments.
- Assumptions supporting the $13.0 million net deferred tax asset and remaining acquired intangible assets, given the company’s U.S. losses and sensitivity of development-stage asset values.