Veru Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019; this is an annual report, not a standalone fourth-quarter filing. The company combines commercial health products—primarily FC2 female condoms—with oncology and urology drug development. Financial statements were audited by RSM US LLP, which issued an unqualified opinion.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Net revenue | $31.8 million | $15.9 million |
| Gross profit / margin | $21.7 million / 68% | $8.8 million / 55% |
| Operating loss | $6.4 million | $20.9 million |
| Net loss | $12.0 million | $23.9 million |
| Loss per share, basic and diluted | $0.19 | $0.44 |
| Cash used in operating activities | $5.5 million | $11.5 million |
| Cash and cash equivalents at year-end | $6.3 million | $3.8 million |
| Working capital at year-end | $2.8 million | $(2.4) million |
- Revenue rose 100% year over year. FC2 generated 97% of revenue; total FC2 unit sales increased 50% and average selling price per unit rose 30%.
- FC2 global public-sector revenue increased 25% to $16.8 million; U.S. prescription-channel revenue increased 488% to $14.1 million. PREBOOST revenue was $0.9 million, versus $12,000 in FY2018.
- Research and development expense rose to $13.7 million from $10.9 million; selling, general and administrative expense declined to $14.3 million from $14.8 million. FY2018 included a $4.0 million loss from settling Brazil-related receivables.
- Stockholders’ equity was $32.3 million, versus $29.5 million. Shares outstanding at year-end were 65.0 million, up from 55.3 million; the company issued shares through a $9.1 million public offering and its Aspire Capital purchase agreement.
- Cash used in investing activities was $0.1 million; financing activities provided $8.1 million. Management cited a $1.4 million increase in receivables and a $1.5 million increase in inventory as operating cash uses.
Debt, liquidity and financing
- The SWK synthetic-royalty financing began as a $10.0 million term loan in March 2018. At September 30, 2019, the balance-sheet carrying amounts were $8.3 million for the credit agreement and $3.8 million for the residual royalty agreement. These include accounting discounts and embedded derivatives; the contractual repayment obligation is revenue-linked and differs from carrying value.
- Payments are based on FC2 revenue. The company paid $4.9 million under the credit agreement in FY2019 and estimated approximately $5.4 million of quarterly revenue-based payments over the 12 months after year-end. The arrangement also provides for a 5% residual royalty after specified repayment conditions, and includes covenants and change-of-control provisions.
- At November 30, 2019, cash was approximately $5.2 million, net trade receivables $4.6 million and current trade payables $4.2 million. Management said cash, expected commercial-product cash generation and access to financing were adequate for planned operations for the next 12 months; this depends partly on the availability of financing on acceptable terms.
- As of September 30, 2019, $8.4 million remained available under the $15.0 million Aspire Capital purchase agreement. Further equity financing could dilute shareholders.
Material changes, outlook and risks
- Commercial growth: U.S. FC2 prescription sales drove much of the year’s growth and improved gross margin. One telemedicine customer accounted for 36% of FY2019 revenue; the three largest customers together accounted for 64%.
- Pipeline milestones: VERU-111 was in an open-label Phase 1b/2 study; 33 patients had been enrolled and dosed through December 12, 2019, with dose escalation continuing. Zuclomiphene citrate completed enrollment in its Phase 2 study; interim topline results were expected in Q1 calendar 2020. VERU-100 was expected to enter a Phase 2 dose-finding study in early 2020. The company planned to submit a TADFIN NDA in the second half of calendar 2020.
- Development spending: Management expected R&D expense to continue increasing in FY2020 as multiple drug candidates advanced. The company reported ongoing operating losses since FY2016 and expected continued cash consumption and losses during development.
- Commercial and operating risks: Public-sector FC2 orders depend on tenders, budgets and timing, and awards do not guarantee minimum purchases. International competition and pricing pressure may weigh on FC2. The company also faces customer concentration, reliance on a single Malaysian FC2 manufacturing facility and key suppliers, clinical and regulatory uncertainty, and intellectual-property and reimbursement risks.
- Legal and accounting items: Two shareholder lawsuits were resolved in the company’s favor in July 2019, with no appeal filed during the permitted period. Management recorded an additional $2.2 million valuation allowance against U.S. deferred tax assets. Goodwill was $6.9 million and acquired in-process R&D was $18.0 million; impairment could materially affect results if expectations or development outcomes deteriorate.
- Management reported effective disclosure controls and effective internal control over financial reporting as of year-end. The independent auditor did not provide an internal-control attestation, as the company was a non-accelerated filer.
Important facts for investors to verify
- Whether U.S. FC2 prescription-channel growth and improved pricing are sustainable, particularly given the 36% revenue concentration in one customer.
- Actual FC2 orders and collections under public-sector tenders, including the South Africa award covering up to 120 million units over three years.
- Cash runway and financing needs relative to the estimated $5.4 million of near-term SWK payments and planned clinical-development spending.
- Clinical-trial results and timing for VERU-111, zuclomiphene citrate and VERU-100, and the regulatory progress of TADFIN and Tamsulosin XR.
- The contractual cost and repayment schedule of the SWK financing, including revenue-based payments, residual royalties, covenants and change-of-control provisions.