Veru Inc. — Form 10-Q Summary
Reporting period: Three months ended December 31, 2019 (Veru’s fiscal 2020 first quarter); comparative period is the three months ended December 31, 2018. Financial statements are unaudited.
Business context and key financial metrics
Veru operates commercial and research and development businesses. Commercial revenue is primarily from FC2 female condoms, with a smaller contribution from PREBOOST. The company is also developing oncology and urology drug candidates.
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Net revenue | $10.6 million | $6.4 million |
| Gross profit / margin | $7.3 million / 69% | $4.6 million / 73% |
| Operating loss | $1.8 million | $1.0 million |
| Net loss | $3.3 million | $2.1 million |
| Loss per share, basic and diluted | $0.05 | $0.03 |
| Cash used in operating activities | $2.5 million | $1.5 million |
- FC2 accounted for 99% of revenue. FC2 revenue increased 65%; units sold rose 36% and average selling price per unit increased 21%.
- FC2 U.S. prescription-channel revenue grew 148% to $6.1 million; global public-sector revenue rose 13% to $4.4 million. PREBOOST revenue was $153,000.
- Research and development expense increased to $5.3 million from $2.4 million, largely reflecting development-program and personnel costs. Selling, general and administrative expense rose to $3.8 million from $3.3 million.
- At December 31, cash and cash equivalents were $4.2 million, compared with $6.3 million at September 30, 2019. Working capital was negative $0.1 million, versus positive $2.8 million at September 30; stockholders’ equity was $29.6 million.
- Credit Agreement and residual royalty liabilities totaled $13.2 million on the balance sheet, including $6.5 million classified as current for the credit agreement. Estimated revenue-based payments under the credit agreement for the following 12 months were approximately $6.5 million. The agreement’s repayment obligation is linked to FC2 revenue and includes change-of-control provisions.
Material changes versus the prior period
- Revenue increased 66%, driven by growth in both FC2 channels, particularly the U.S. prescription channel. Gross profit increased, but gross margin declined four percentage points, which management attributed mainly to higher labor, transportation and equipment-maintenance costs.
- Operating and net losses widened as increased R&D spending more than offset the higher gross profit. Net loss also reflected a $394,000 expense from revaluing embedded derivative liabilities, compared with $225,000 of income in the prior-year quarter.
- Operating cash use rose by approximately $1.0 million year over year. Working-capital cash outflows included a $0.6 million increase in receivables and a $1.1 million increase in inventory.
- The company adopted the new lease standard on October 1, 2019, recording operating lease right-of-use assets and liabilities; management said adoption did not materially affect operations or cash flows.
Outlook, management commentary, and risks
- Management said cash, expected commercial-product sales and access to potential financing were adequate to fund planned operations for the next 12 months. The company also stated it expects to continue consuming cash and incurring substantial losses while developing drug candidates; financing may include equity or debt.
- Management expected increased R&D spending as multiple candidates advance. Pipeline timing described in the filing included a planned Phase 3 study of zuclomiphene citrate in the first half of calendar 2020, a Phase 2 dose-finding study of VERU-100 in early 2020, and an expected TADFIN NDA submission in the second half of 2020. These are plans, not assurances.
- FC2 public-sector orders can be irregular and tender awards do not guarantee purchases. Management also cited pricing pressure from large global agencies and donor governments. Three customers represented 86% of quarterly revenue, and three customers represented 87% of net receivables at period end.
- FC2 is manufactured at a single facility in Malaysia. The filing added coronavirus and other contagious-disease outbreaks as a risk to manufacturing, suppliers, shipping, demand and results.
- The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors other than the added epidemic-related risk. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether U.S. prescription-channel growth continues and offsets variability or pricing pressure in public-sector FC2 sales.
- Customer concentration, receivable collection timing, and the cash implications of inventory growth.
- FC2 revenue-based debt payments, covenant compliance, residual royalty terms, and financing availability given negative working capital and ongoing losses.
- Clinical and regulatory progress against the stated pipeline timelines, along with associated R&D spending and funding needs.
- Whether the Malaysia manufacturing site and its supply chain remain operational amid epidemic, regulatory, and logistics risks.