Veru Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; filed August 10, 2023. The company is a clinical-stage biopharmaceutical business whose commercial revenue is primarily from FC2 female condoms. Financial statements are unaudited.
Financial results and liquidity
| Metric | Three months ended June 30, 2023 | Nine months ended June 30, 2023 |
|---|---|---|
| Revenue | $3.3 million, down 65% year over year | $12.4 million, down 66% |
| Gross profit and margin | $1.2 million; 37% (prior year: $7.1 million; 74%) | $6.0 million; 48% (prior year: $30.1 million; 82%) |
| Net income (loss) | $6.3 million, or $0.07 per diluted share (prior year: $22.2 million loss) | $(69.3) million, or $(0.83) per diluted share (prior year: $42.8 million loss) |
| Research and development | $2.9 million (prior year: $18.1 million) | $44.5 million (prior year: $43.8 million) |
| Selling, general and administrative | $10.9 million (prior year: $10.8 million) | $41.3 million (prior year: $24.9 million) |
| Cash used in operating activities | Not provided for the quarter | $78.5 million (prior year: $26.6 million) |
Quarterly net income was principally driven by a $17.5 million gain on the sale of ENTADFI assets, not by improved underlying sales. Nine-month results included $12.9 million of sabizabulin commercialization preparation costs, a $3.9 million provision for Pill Club receivables, and a $3.9 million impairment charge for abandoned development assets.
Cash and cash equivalents were $16.2 million at June 30, 2023, down from $80.2 million at September 30, 2022. Working capital was $15.5 million, versus $63.3 million, and stockholders’ equity was $34.4 million, versus $80.8 million. Total liabilities were $40.8 million. The company had no remaining obligations under its repaid SWK term loan, but carries a $10.3 million residual royalty agreement liability; the agreement also requires ongoing payments of 5% of FC2 product revenue. Management said cash, expected FC2 receipts, ENTADFI sale proceeds and potential financing should fund planned operations for the next 12 months, while noting continuing cash consumption and potential need for additional capital.
Business changes and outlook
- FC2: U.S. prescription-channel revenue fell sharply after major telehealth customer The Pill Club entered bankruptcy and another customer stopped ordering. Nine-month U.S. prescription revenue was $5.2 million, down from $29.9 million; global public-health revenue was $7.2 million, up from $6.9 million, supported in part by shipments under South Africa’s tender. The lower-margin public-health mix and reduced production contributed to gross-margin decline. Management reported over 115% growth in new prescriptions through its FC2 portal during the quarter, but gave no quantified revenue guidance.
- ENTADFI sale: Veru sold substantially all ENTADFI assets to Blue Water Vaccines for $20 million plus up to $80 million of revenue-based milestone payments. It received $6 million at closing; the remaining fixed consideration is due in installments, with $8.5 million recorded as short-term and $4.4 million as long-term notes receivable at quarter-end. Milestone-payment likelihood was not determinable.
- Drug development: Enobosarm’s Phase 3 ENABLAR-2 study has a dose-optimization Stage 1 and a planned approximately 200-patient Stage 2; management expected Stage 1 results in late 2024 or early 2025. Sabizabulin’s EUA request for COVID-19 was declined by the FDA in February 2023. The company agreed with FDA on a 408-patient confirmatory COVID-19 Phase 3 design, and planned a September 2023 discussion about a broader viral-lung-infection/ARDS study. FDA approval and trial success remain uncertain.
- Portfolio refocus: Veru indefinitely ceased development of sabizabulin for prostate cancer and zuclomiphene and impaired the related $3.9 million of in-process research assets.
- Funding and dilution: The company raised $5 million in an April private placement and $3.4 million through its Aspire agreement, which expired June 26. It established a Lincoln Park facility of up to $100 million and a Jefferies at-the-market program of up to $75 million; no Jefferies shares had been sold by June 30. One million Lincoln Park shares were sold after quarter-end for $1.2 million. Shareholders approved an increase in authorized common shares from 154 million to 308 million in July 2023.
Risks, contingencies and unusual items
- The Pill Club owed $3.9 million at quarter-end; Veru fully reserved the receivable and filed a claim in bankruptcy. Recovery is uncertain. Customer and distribution concentration, telehealth-sector disruption, public-sector order timing and pricing pressure remain material risks.
- FC2 relies on a sole supplier for its principal nitrile material. The supplier plans to close the facility producing the current specialty grade; transition to an alternative grade requires testing and FDA approval and could disrupt supply, particularly for global public-health orders.
- Veru faces a securities class action relating to statements about sabizabulin and a derivative action filed in July 2023. The company disputes the allegations; potential losses could not be estimated.
- Additional risks include clinical and regulatory setbacks, financing availability, continued operating cash burn, and possible dilution from equity facilities. Management reported effective disclosure controls and no material changes in internal control during the quarter.
Important facts for investors to verify
- FC2 sales recovery, portal growth, customer diversification, public-health tender shipments and gross-margin trends.
- Cash burn relative to available cash; timing and collectability of ENTADFI installments and any contingent milestone payments.
- Progress and FDA feedback on sabizabulin trials, and ENABLAR-2 enrollment, supply and result timing.
- Recovery prospects for Pill Club receivables and the outcome or potential costs of the pending lawsuits.
- Raw-material transition status and any resulting FC2 supply interruption, as well as actual share issuance under the Lincoln Park and Jefferies financing programs.