Veru Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2017; unaudited results compared with the three months ended December 31, 2016. Veru is a biopharmaceutical company focused on urology and oncology, while FC2 female-condom sales remained the principal source of revenue.
Financial performance and position
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Revenue | $2.59 million | $3.24 million |
| Gross profit / margin | $1.31 million / 51% | $1.65 million / 51% |
| Operating loss | $7.44 million | $1.87 million |
| Net loss | $4.26 million | $1.37 million |
| Net loss per share | $0.08 | $0.04 |
| Cash from operating activities | $0.30 million | $1.17 million |
- Revenue declined 20%; FC2 unit sales fell 31%, partly offset by a 16% increase in average selling price. Gross profit declined 20%, while gross margin was unchanged.
- Research and development expense rose to $2.04 million from $0.17 million, reflecting increased development activity and personnel costs. Selling, general and administrative expense increased 17% to $2.95 million.
- A $3.76 million loss from settling Brazil distributor Semina receivables materially contributed to the larger operating loss. The filing reports an income tax benefit of $3.25 million, versus $0.53 million a year earlier; the benefit included the effect of the U.S. corporate tax-rate change.
- At December 31, cash was $3.57 million, current assets $10.27 million, current liabilities $6.23 million, and working capital approximately $4.0 million. Stockholders’ equity was $44.75 million. The filing reports no outstanding borrowings; its $10 million revolving credit facility expired December 29, 2017.
- There was no material capital expenditure: investing cash outflow was $1,914. The net increase in cash was $0.29 million.
Material changes and unusual items
- FC2 revenue decreased primarily because of shipment timing for large customers. Management also cited pressure on FC2 spending by large global agencies and donor governments; quarterly sales can vary with public-sector tenders and orders.
- On December 27, 2017, Veru settled net amounts due from Semina totaling $7.5 million for $3.75 million: $2.25 million had been paid and a further $1.5 million was due by February 28, 2018. The settlement produced the $3.76 million loss. Semina represented 50% of accounts receivable at quarter-end.
- The Tax Act reduced the U.S. federal corporate rate from 35% to 21%. Veru recorded provisional tax effects and said it was still evaluating the law’s full impact. The balance sheet included a $12.12 million net deferred tax asset.
- Veru issued 304,457 shares to Aspire Capital as consideration for a 36-month equity purchase agreement permitting, but not requiring, sales of up to $15 million of common stock. No shares had been sold under the agreement as of the filing date.
Outlook, management commentary, and risks
- Management believed cash and potential financing alternatives were adequate to fund operations for the next 12 months. It noted that future financing could include equity or debt and that Aspire Capital sales or a marketed offering were possible; funding and dilution remain risks.
- Management expected research and development expenses to increase in fiscal 2018 as multiple drug candidates advance. It planned an adjusted Tamsulosin DRS bioequivalence study, expected to be completed in the first half of calendar 2018, and said it planned an NDA submission in 2018 if the study succeeded. Solifenacin DRG and Tadalafil/finasteride bioequivalence studies were planned for 2018, with NDA filings planned for 2019. These are forward-looking plans, not assured outcomes.
- The company acquired rights to Solifenacin DRG and Tadalafil/finasteride formulations and had $500,000 of upfront payments due by March 2018, plus future installment and milestone payments.
- Risks include clinical and regulatory delays or failure, commercialization and market acceptance, financing needs, customer concentration and delayed payments, tender timing, competition, manufacturing disruption, and possible impairment of acquired intangible assets. Management noted that development-stage intangible assets are particularly susceptible to impairment.
- Litigation concerning the APP acquisition continued on claims alleging fiduciary-duty breaches and violations of Wisconsin corporate law and NASDAQ voting requirements. Veru said it believed the claims were without merit; no loss was accrued because a loss was not both probable and reasonably estimable.
- The company reported no material changes to previously disclosed risk factors other than the added Tax Act risk. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Semina paid the remaining $1.5 million by the February 28, 2018 deadline and whether any further collection or settlement exposure remains.
- Subsequent cash use, financing activity, and any share issuance under the Aspire Capital agreement, including resulting dilution.
- Actual progress and results for the planned bioequivalence studies and the timing and regulatory basis for proposed NDA submissions.
- Whether FC2 shipment volumes, major-customer purchasing, and public-sector demand recover or remain under pressure.
- Final effects of the Tax Act on deferred tax assets, tax expense, and cash taxes, and developments in the APP acquisition litigation.