Veru Inc. — Q3 FY2020 Form 10-Q
Reporting period: Fiscal quarter and nine months ended June 30, 2020. Unaudited results; amounts in U.S. dollars. Veru’s commercial business sells FC2 female condoms and PREBOOST, while its R&D business develops oncology and urology drug candidates.
Financial results and liquidity
| Metric | Three months ended June 30, 2020 | Nine months ended June 30, 2020 |
|---|---|---|
| Net revenue | $10.32 million, up 6% year over year | $30.84 million, up 34% |
| Gross profit / margin | $6.52 million / 63%, versus 68% | $21.22 million / 69%, unchanged |
| Operating loss | $1.39 million, versus $1.84 million | $3.48 million, versus $4.98 million |
| Net loss / diluted loss per share | $3.03 million / $0.05, versus $2.77 million / $0.04 | $7.14 million / $0.11, versus $8.96 million / $0.14 |
For the nine months, operating cash use was $1.59 million, investing cash use $0.07 million, and financing cash provided $10.76 million. Cash rose to $15.39 million from $6.30 million at September 30, 2019. Working capital was $9.5 million and stockholders’ equity $41.3 million at quarter-end. Inventory increased to $5.19 million from $3.65 million.
At June 30, the balance sheet reported $6.60 million of current credit-agreement liability and $5.76 million of residual royalty liability, including embedded derivatives. The company estimated contractual revenue-based credit-agreement payments of approximately $8.2 million and residual royalty payments of approximately $0.4 million over the following 12 months. Credit-agreement payments are tied to FC2 revenue; lender recourse is limited to FC2-related assets.
Changes versus comparable periods
- FC2 revenue increased 4% in the quarter and 32% year to date. U.S. prescription-channel FC2 revenue rose 23% and 95%, respectively; global public-health FC2 revenue fell 13% and 14%. YTD FC2 unit sales declined 2%, while average selling price increased 35%, principally reflecting channel mix.
- PREBOOST revenue was $0.68 million for the quarter and $1.25 million year to date, compared with $0.44 million and $0.62 million.
- Quarterly gross margin fell five percentage points, primarily from higher labor and maintenance costs and about $0.3 million of additional period costs from reduced production during a Malaysian facility shutdown. YTD margin held at 69%.
- YTD R&D expense increased to $13.67 million from $10.14 million as development and personnel costs rose. SG&A increased to $11.03 million from $10.66 million. The nine-month net loss narrowed despite increased R&D investment.
- Financing included $13.4 million of Aspire Capital share-sale proceeds and $3.3 million of credit-agreement payments. Shares issued increased during the period; the June 2020 Aspire agreement permits up to $23.9 million of additional share purchases over 36 months at the company’s discretion.
Outlook, commentary and risks
- Management said existing cash, expected commercial-product cash generation and access to financing were adequate for planned operations for the next 12 months. The company also said it expects continued cash use and substantial losses as it develops drug candidates; no specific revenue or earnings guidance was provided.
- VERU-111 was being studied for metastatic, treatment-resistant prostate cancer and in a Phase 2 COVID-19 trial. BARDA and DARPA grant applications were not accepted because Phase 2 data were not yet available; the company said it intended to reapply if results were positive. VERU-100 Phase 2 dosing study was anticipated in Q4 calendar 2020; a TADFIN NDA was expected in Q4 2020 or early 2021. These are plans, not assured outcomes.
- COVID-19 temporarily halted Malaysian FC2 production and shipping from March 16; limited shipping resumed March 27, manufacturing at reduced staffing April 20, and full staffing May 4. Management said available inventory met demand and the pandemic had no material net impact on quarterly operating results, but warned of possible further supply, raw-material, transport, demand and clinical-trial disruptions.
- The company recognized approximately $540,000 of PPP proceeds as reductions to expenses, believing forgiveness probable. Forgiveness was not assured; repayment, penalties or reputational effects remained possible if eligibility or compliance were challenged.
- Other key risks include dependence on a small number of customers and lumpy government tenders, pressure on public-health-sector FC2 pricing, clinical and regulatory uncertainty, continued capital needs, and potential dilution from equity financing. Management reported no material pending litigation and stated disclosure controls were effective.
Investor facts to verify
- Whether FC2 U.S. prescription-channel growth can offset declining public-health-sector sales and pricing pressure.
- Whether the company can meet the estimated $8.2 million credit-agreement payments and $0.4 million residual royalty payments over the next 12 months while funding R&D.
- Current enrollment, timing and results for VERU-111 and progress toward the stated VERU-100 and TADFIN milestones, including COVID-19-related delays.
- Whether the PPP loan is ultimately forgiven and whether Malaysian manufacturing and critical raw-material supply remain reliable.
- Further Aspire Capital share sales, their pricing and resulting dilution; verify current shares outstanding, as the filing reports 69,863,681 at August 11, 2020.