Veru Inc. 10-Q Summary
Business context and reporting period. This filing covers the fiscal first quarter ended December 31, 2018, compared with the three months ended December 31, 2017. Veru develops oncology and urology drug candidates and sells commercial products; nearly all revenue in both periods came from FC2 female condoms.
Key financial metrics
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Net revenue | $6.37 million | $2.59 million |
| Gross profit / margin | $4.64 million / 73% | $1.31 million / 51% |
| Operating loss | $1.01 million | $7.44 million |
| Net loss | $2.15 million; $0.03 per share | $4.26 million; $0.08 per share |
| Cash from operating activities | Used $1.51 million | Provided $0.30 million |
- Revenue rose 146%; FC2 unit sales increased 68% and average selling price per unit increased 46%, reflecting customer mix and U.S. price increases.
- Research and development expense was $2.36 million, up from $1.96 million. Selling, general and administrative expense was $3.29 million, up from $3.03 million.
- Cash was $8.98 million at quarter-end, including approximately $0.13 million of restricted cash. Working capital was $5.6 million, versus negative $2.4 million at September 30, 2018. Stockholders’ equity was $36.9 million.
- Cash and working capital benefited from an October 2018 public offering of 7.14 million shares, which generated net proceeds of $9.3 million. Operating activities used cash, primarily reflecting the net loss and reductions in accounts payable and accrued expenses, partly offset by collections of receivables.
- The SWK credit agreement had a $17.5 million aggregate repayment obligation, with $3.20 million in payments recorded against it by December 31. Its balance-sheet amount, including the related embedded derivative, was approximately $7.94 million; $4.94 million was classified as short-term. The separate residual royalty liability was $1.70 million. Q1 interest expense was $1.28 million, largely noncash amortization and accretion.
Material changes and management outlook
- Higher FC2 sales and margins, together with the absence of the prior-year $3.8 million loss on settlement of Brazilian receivables, contributed to the lower operating and net losses. Q1 FY2018 also included a $3.2 million income tax benefit; Q1 FY2019 had $0.09 million of tax expense.
- Management said cash and access to financing were adequate for planned operations for the next 12 months, while warning that the company expects continued cash consumption and substantial losses as it develops drug candidates. It expects R&D expense to increase during the remainder of fiscal 2019.
- The company anticipated submitting an NDA for its TADFIN tablet in the second half of calendar 2019. VERU-944 was in a Phase 2 trial and VERU-111 in an open-label Phase 1b/2 trial, as described in the filing.
- FC2 revenue is subject to uneven tender and large-order timing. Management noted spending pressure among large global agencies and donor governments, while U.S. prescription-channel sales were increasing. The South Africa tender award was for up to specified quantities and did not guarantee minimum orders.
- Additional financing could involve equity or debt. The company said use of the remaining $12.0 million Aspire Capital purchase-agreement capacity could require shareholder approval to increase authorized common shares. The SWK facility requires revenue-based quarterly payments; the company estimated approximately $4.9 million would be payable in the 12 months after December 31, 2018.
Risks, contingencies and unusual items
- Revenue and receivables are concentrated: three customers generated 77% of Q1 revenue, and two customers represented 65% of net receivables at quarter-end.
- Litigation related to the APP acquisition remained pending, with plaintiffs seeking, among other remedies, rescission and damages. Veru denied liability and said it was defending the case; no loss was accrued because a loss was not considered both probable and reasonably estimable.
- The company identified potential risks from clinical and regulatory outcomes, financing needs, tender volatility, customer concentration, competition, intellectual-property matters, and possible impairment of acquired in-process R&D and goodwill. It added Brexit-related trade, currency and legal uncertainty as a risk.
- Management reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether FC2 sales growth, U.S. prescription-channel gains and the higher average selling price are sustainable, and how much depends on tender timing and customer mix.
- Cash runway assumptions, expected R&D spending, and the timing and terms of any additional financing or shareholder vote on authorized shares.
- Actual SWK revenue-based payments and their impact on liquidity, alongside the agreement’s change-of-control provisions and residual royalty terms.
- Progress and regulatory milestones for VERU-944, VERU-111 and the planned TADFIN NDA submission.
- Developments in the APP acquisition litigation, customer receivable collections, and the assumptions supporting valuations of acquired R&D assets and goodwill.