Veru Inc. — Q2 FY2021 Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended March 31, 2021. The filing was signed May 12, 2021. Veru is an oncology-focused biopharmaceutical company, with commercial revenue primarily from FC2 female/internal condoms and a pipeline spanning prostate cancer, breast cancer and COVID-19. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Three months ended March 31, 2021 | Six months ended March 31, 2021 |
|---|---|---|
| Net revenue | $13.34 million, up 34% year over year | $27.96 million, up 36% |
| Gross profit / margin | $10.91 million / 82% (75% in prior year) | $21.74 million / 78% (72% in prior year) |
| Research and development expense | $7.57 million | $13.25 million |
| Selling, general and administrative expense | $4.81 million | $9.19 million |
| Net income (loss) | $(2.85) million; $(0.04) per basic and diluted share | $14.38 million; $0.20 basic and $0.18 diluted per share |
The six-month profit included an $18.41 million pretax gain on the PREBOOST business sale; excluding that unusual gain, the reported period was not representative of recurring operating profitability. The quarter itself recorded an operating loss of $1.47 million. Interest expense was $1.25 million for the quarter and $2.44 million for six months.
- Revenue mix: FC2 revenue was $13.34 million for the quarter, up 40%; U.S. prescription-channel revenue rose 48% and global public-health revenue rose 18%. For six months, FC2 revenue increased 36%, with unit sales up 21% and average selling price per unit up 12%. The U.S. prescription channel accounted for a larger share of FC2 sales; management attributed higher average pricing primarily to this mix shift.
- Cash flow: Operating activities used $1.93 million in the six months, versus $4.93 million used in the prior-year period. Investing activities provided $14.99 million, mainly from the PREBOOST sale. Financing activities provided $110.03 million, principally from the stock offering.
- Liquidity: Cash and cash equivalents were $136.68 million at March 31, versus $13.59 million at September 30, 2020. Working capital was $137.2 million and stockholders’ equity was $155.5 million. Management said existing cash and expected commercial-product cash generation should fund planned operations for at least 12 months.
- Debt and royalty obligations: The recorded Credit Agreement liability was $4.47 million; the remaining contractual repayment obligation was $4.86 million before unamortized discounts and issuance costs. A separate residual royalty liability totaled $8.72 million, including embedded derivatives. The company estimated approximately $4.9 million of Credit Agreement payments and $2.8 million of residual royalty payments in the 12 months after March 31. Quarterly payments are tied to FC2 revenue.
Material changes and unusual items
- In February 2021, Veru sold 7.42 million shares at $15.50 per share, receiving approximately $107.9 million net. The share issuance increased dilution; 79.68 million shares were outstanding as of May 10, 2021, compared with 69.86 million at September 30, 2020.
- Veru sold substantially all PREBOOST assets on December 8, 2020, for $20.0 million: $15.0 million at closing and two $2.5 million notes due 12 and 18 months later. The sale generated the $18.4 million pretax gain; PREBOOST revenue ceased after the sale.
- R&D spending increased substantially as the company advanced multiple drug candidates. Management expected the trend of higher R&D expense to continue.
Outlook, management commentary and risks
- Clinical and regulatory plans stated in the filing: Management expected to begin the sabizabulin VERACITY Phase 3 prostate cancer study and the COVID-19 Phase 3 study in May 2021; it anticipated COVID-19 Phase 3 completion in Q4 2021. The filing also described planned 2021 starts for VERU-100, enobosarm and other studies. These were expectations, not assurances.
- COVID-19 program: Veru reported positive Phase 2 results in a small hospitalized-patient trial: treatment failures were 5.6% (1/18) with sabizabulin and 30% (6/20) with placebo at Day 29 (p=0.05). The company said the FDA agreed to advancement to Phase 3. BARDA discussions about potential grant funding were ongoing; funding was not assured.
- Other pipeline: The TADFIN NDA was submitted in February 2021. The company described FDA-agreed Phase 3 designs for sabizabulin in prostate cancer and enobosarm in breast cancer, while other programs remained in development.
- Commercial and operational risks: FC2 revenue can fluctuate with large public-health orders, tender timing and customer purchasing. Management noted pricing pressure from large global agencies and donor governments. Two customers represented 77% of quarterly revenue; customer and receivable concentrations remain important. The company also cited potential disruption from its Malaysian manufacturing site, a key nitrile-polymer supplier, labor and shipping constraints, and COVID-related effects on demand and clinical trials.
- Development and financing risks: Clinical outcomes, regulatory decisions, trial enrollment, timing and costs are uncertain. Management stated that it may need additional capital depending on future requirements, despite its view that current resources covered at least 12 months of planned operations. No specific revenue or earnings guidance was provided.
- The filing reported no material pending legal proceedings, no material changes to previously disclosed risk factors, and effective disclosure controls. Management said COVID-19 had not materially affected consolidated operating results for the reported periods, while uncertainty remained.
Important facts for investors to verify
- Whether FC2 growth, particularly in the U.S. prescription channel, is sustained and offsets public-health pricing pressure and order variability.
- Progress, enrollment, results, regulatory feedback and funding for the planned clinical trials, especially the small Phase 2 COVID-19 result and follow-on Phase 3 study.
- Actual cash use and R&D commitments relative to the company’s stated 12-month liquidity outlook.
- Timing and amounts of Credit Agreement and residual royalty payments, which are linked to FC2 revenue and include fair-value-sensitive derivative provisions.
- Effects of the public offering and outstanding equity awards on dilution, and collection of the two PREBOOST sale notes.