Veru Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended September 30, 2017. The filing was signed December 29, 2017. Veru changed its name from The Female Health Company in July 2017 and, following its October 2016 acquisition of Aspen Park Pharmaceuticals (APP), is developing a urology and oncology drug portfolio while continuing to sell FC2 and PREBOOST.
Financial results and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $13.66 million | $22.13 million |
| Gross profit / gross margin | $7.02 million / 51% | $13.35 million / 60% |
| Operating expenses | $15.51 million | $10.33 million |
| Operating income (loss) | $(8.49) million | $3.02 million |
| Net income (loss) attributable to common shareholders | $(8.60) million, or $(0.25) per share | $0.34 million, or $0.01 per share |
| Cash from (used in) operations | $0.98 million | $(1.71) million |
Fiscal 2017 revenue declined 38% and FC2 unit sales fell 37%, mainly because fiscal 2016 included shipments under Brazil’s 2014 tender that did not recur. Cost per unit increased 20% to $0.25, contributing to the gross-margin decline. R&D expense rose to $3.50 million from $0.10 million, reflecting drug-candidate development; SG&A increased 27% to $11.02 million. The reported common-shareholder loss includes a $1.99 million preferred-stock dividend; loss before that dividend was $6.61 million.
Fiscal fourth-quarter revenue was $3.69 million and gross profit was $1.79 million. Operating expenses were $4.57 million; net loss attributable to common shareholders was $4.67 million, including the $1.99 million preferred-stock dividend. Loss before the dividend was $2.68 million.
At September 30, 2017, cash was $3.28 million, working capital $4.81 million, total assets $55.31 million, and stockholders’ equity $48.45 million. There was no debt outstanding; the $10 million BMO Harris revolving facility expired December 29, 2017 and was not renewed. Management said current cash and potential financing alternatives were expected to fund operations for 12 months. At December 6, 2017, cash was approximately $1.6 million.
Business developments and outlook
- Nearly all FY2017 revenue came from FC2. USAID represented 44% and UNFPA 25% of unit sales, underscoring customer concentration and exposure to government procurement timing.
- Tamsulosin DRS met the AUC bioequivalence measure in Stage 2 testing but did not meet the peak-concentration (Cmax) criterion. Veru planned a reformulated study and targeted an NDA submission in the first half of 2018 if successful.
- Veru acquired worldwide rights to solifenacin delayed-release granules and tadalafil-finasteride combination capsules after the reporting year. It planned bioequivalence studies in 2018 and NDA filings in 2019 for both.
- VERU-944 was planned for Phase 2 development for hot flashes in men receiving prostate-cancer hormone therapy. VERU-722 remained in development for male infertility; VERU-111/112 were preclinical candidates for cancer and inflammatory conditions.
- PREBOOST launched in the U.S. in January 2017; a 26-person Phase 4 study reported improvement in ejaculation latency and that 82% of treated participants were no longer considered to have premature ejaculation. A co-promotion and distribution agreement followed in October 2017.
- Management expected R&D spending to increase in FY2018 as multiple candidates advanced. The company entered a discretionary, 36-month agreement allowing it to sell up to $15 million of common stock to Aspire Capital; 304,457 shares were issued for entering the agreement.
Risks, contingencies and unusual items
- Brazil receivables: At September 30, $7.84 million was classified as long-term trade receivables, principally related to the Brazil tender; Semina represented 78% of total trade receivables. Average days’ sales outstanding was approximately 377. A December 27 settlement provided for $2.25 million paid and another $1.5 million due by February 28, 2018, to settle net amounts due of $7.5 million. Veru expected a $3.75 million loss in the quarter ending December 31, 2017, citing uncertainty about the timing of Brazilian government payments.
- The company reported an $8.60 million common-shareholder loss and said it expected significant development expenditures and would need additional financing. Equity financing could dilute shareholders.
- Two lawsuits related to the APP acquisition continued on fiduciary-duty and alleged voting-rule claims after other claims were dismissed without prejudice. Veru said it considered the action without merit and was defending itself.
- Drug candidates remain subject to clinical, regulatory, manufacturing, commercial, and financing risks. Tamsulosin DRS’s unmet Cmax criterion could delay its development. Acquired in-process R&D and goodwill are exposed to impairment if development prospects or assumptions weaken.
- The filing identified a $440,000 out-of-period tax adjustment relating to a prior-period foreign tax-credit calculation and stated it was not material to FY2017 or prior interim and annual periods. The December 2017 U.S. tax-law change could affect deferred-tax balances; its impact was still being assessed.
Important facts for investors to verify
- Progress, results, and timing of the reformulated Tamsulosin DRS bioequivalence study and planned NDA filing.
- Collections under the Semina settlement, the expected $3.75 million impairment, and the remaining Brazil-related receivables.
- Cash burn, available liquidity after the BMO facility expired, and actual use of the Aspire Capital equity-purchase agreement.
- FC2 sales recovery, customer concentration, tender awards, and gross-margin trends.
- Clinical and regulatory progress, spending requirements, and impairment assumptions for the acquired pipeline assets.