Veru Inc. — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022; balance-sheet comparisons are with September 30, 2022. Veru is a biopharmaceutical company developing drug candidates for viral/ARDS-related diseases and cancers, with approved products FC2 and ENTADFI. Most revenue came from FC2.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net revenue | $2.5 million | $14.1 million |
| Gross profit / margin | $0.7 million / 28% | $11.8 million / 84% |
| Research and development | $18.7 million | $10.1 million |
| Selling, general and administrative | $17.5 million | $6.7 million |
| Operating loss | $35.6 million | $5.0 million |
| Net loss / loss per share | $36.8 million / $0.46 | $6.4 million / $0.08 |
| Cash used in operating activities | $34.5 million | $8.7 million |
- Cash and cash equivalents were $46.9 million at December 31, down from $80.2 million at September 30. Working capital was $32.9 million and stockholders’ equity was $49.1 million.
- Total liabilities were $54.7 million. The former $10.0 million SWK term loan was repaid in August 2021; the continuing FC2 residual royalty liability was $12.2 million, including a $5.0 million embedded derivative. The agreement requires a 5% royalty on FC2 product revenue and had an estimated $1.7 million of quarterly revenue-based payments due over the following 12 months.
- Financing activities provided $1.6 million, principally from a $1.4 million premium-finance agreement for D&O insurance; its outstanding balance was $1.3 million. Capital expenditures were $0.3 million.
Material changes and operating results
- Revenue declined 82%. FC2 U.S. prescription-channel revenue fell 99% to $0.16 million, which management attributed mainly to lower telemedicine-customer volumes and order slowdowns. Global public-health FC2 revenue fell 9% to $2.34 million; it represented 93% of FC2 revenue in the quarter versus 18% in the prior-year quarter.
- FC2 average selling price per unit fell 72%, largely because of the shift toward lower-priced global public-health sales. Management also cited pricing pressure from large global agencies and donor governments, and noted that public-health sales can vary with large-order timing.
- Gross margin contracted to 28% from 84%, reflecting lower sales of higher-margin U.S. prescription-channel product and higher unit costs associated with reduced production.
- R&D rose mainly with clinical-program costs, including $8.0 million of manufacturing costs for pre-launch inventory, and increased personnel and share-based compensation. SG&A included $8.4 million of commercialization costs in preparation for a potential sabizabulin COVID-19 launch; share-based compensation also increased.
- ENTADFI contributed $7,793 in revenue. Management said its launch faces challenging conditions in a genericized market and that its potential market size is uncertain.
Outlook, development programs, and risks
- Management believes cash, expected FC2 sales, and potential financing alternatives will fund planned operations for the next 12 months. It expects continued cash consumption and losses; additional equity or debt financing may be pursued.
- The FDA EUA request for sabizabulin remained under consideration, with no timing for a decision provided. The FDA advisory committee voted 8–5 that known and potential benefits did not outweigh risks. Management said a confirmatory Phase 3 trial may be needed; the FDA’s decision is not bound by the committee vote. The company also described regulatory reviews or pathways in several other countries and regions.
- Management reported ongoing enrollment in oncology trials, including Phase 3 studies of enobosarm in breast cancer and sabizabulin in prostate cancer. The filing cautions that clinical, regulatory, financing, manufacturing, market-demand, and reimbursement outcomes remain uncertain.
- A putative securities class action filed in December 2022 alleges misleading statements about sabizabulin COVID-19 treatment. Veru disputes the allegations and intends to defend the case, but cannot estimate potential losses.
- Veru reported effective disclosure controls and no material changes in internal control over financial reporting. It reported no material changes to the risk factors in its FY2022 Form 10-K.
Important facts for investors to verify
- Whether the FDA acts on the sabizabulin EUA request, and whether additional clinical evidence or a confirmatory trial is required.
- Whether FC2 U.S. prescription orders recover, and how global public-health order timing, pricing, and sales mix affect revenue and margins.
- Actual cash burn relative to the $46.9 million quarter-end cash balance and management’s 12-month funding assessment; availability and dilution implications of potential financing.
- Progress, enrollment, costs, and results of key clinical trials, along with commercialization prospects for ENTADFI and other pipeline candidates.
- Developments in the securities class action and the FC2 residual royalty liability, including changes in its assumptions-based derivative valuation.