Veru Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2018; filed May 10, 2018. Financial statements are unaudited. Veru combines commercial sales—primarily FC2 Female Condom—with biopharmaceutical research and development.
Financial performance
| Metric | Three months ended March 31, 2018 | Six months ended March 31, 2018 |
|---|---|---|
| Revenue | $2.57 million, up 7% year over year | $5.16 million, down 9% year over year |
| Gross profit / margin | $1.20 million / 47%, versus $1.28 million / 53% | $2.51 million / 49%, versus $2.93 million / 52% |
| Operating loss | $4.70 million, versus $2.58 million | $12.13 million, versus $4.45 million |
| Net loss | $3.83 million, or $0.07 per share, versus $1.78 million, or $0.06 per share | $8.09 million, or $0.15 per share, versus $3.14 million, or $0.10 per share |
| Operating cash flow | $4.18 million used in the six-month period, versus $1.06 million used a year earlier |
For the six months, R&D expense rose to $4.04 million from $1.37 million, and selling, general and administrative expense rose to $6.85 million from $5.07 million. The period also included a $3.76 million loss on settlement of Semina receivables. The $4.55 million income tax benefit (versus $1.35 million) included the effect of U.S. tax-rate changes and the period’s larger loss.
Cash, debt and liquidity
- Cash, including restricted cash, was approximately $9.0 million at March 31, 2018, up from $3.3 million at September 30, 2017. Operating activities used $4.18 million; financing provided $9.88 million net, primarily from SWK.
- Working capital was $5.6 million and stockholders’ equity was $41.3 million, compared with $4.8 million and $48.5 million, respectively, at fiscal year-end.
- In March, Veru received a $10 million initial advance under a SWK facility permitting up to $12 million in total draws, subject to conditions. The filing reports a $17.5 million aggregate repayment obligation before credits for payments, with quarterly payments tied to FC2 revenue and repayment due by March 2025 or earlier in specified circumstances. FC2-related assets secure the obligations. A separate 5% FC2 revenue royalty applies after the facility is paid in full.
- Management said existing cash and potential equity or other financing were adequate for the next 12 months. The Aspire Capital agreement permits, at Veru’s discretion, up to $15 million of stock sales over three years; no shares had been sold under it as of the filing date.
Material changes and business developments
- Quarterly revenue rose despite a 9% decrease in FC2 units sold, as average selling price per unit increased 18%. For the six months, FC2 unit sales fell 22%; revenue declined, although average price per unit increased 17%. Management attributed the six-month decline principally to shipment timing.
- Nearly all revenue continued to come from FC2. Management reported pressure on FC2 spending by large global agencies and donor governments and warned that public-sector unit sales could remain challenging through fiscal 2018.
- The company continued developing candidates in urology and oncology. Management expected higher fiscal 2018 R&D spending. Tamsulosin DRS still needed to meet a peak-concentration bioequivalence criterion; the company planned another study and targeted an NDA submission in 2018 if successful. Solifenacin DRG and tadalafil/finasteride bioequivalence studies were planned for 2018, with NDAs targeted for 2019. VERU-944 Phase 2 plans and timing remained subject to development progress.
- After quarter-end, Veru changed its U.S. FC2 sales strategy to rely principally on an independent sales organization, with approximately $513,000 in expected severance payments, substantially payable in fiscal Q3.
Risks, contingencies and unusual items
- Customer collection: Semina paid $2.25 million under a settlement of amounts due but missed a further $1.5 million payment due February 28, 2018. Veru expected payment in fiscal Q3. The settlement generated a $3.76 million loss; Semina represented 50% of reported accounts receivable at March 31.
- Concentration and sales volatility: FC2 sales depend on a limited number of large customers, tenders, public-health funding and order timing. Extended customer payment terms also affect working capital.
- Litigation: Claims relating to the APP acquisition remained in discovery, including allegations concerning fiduciary duties and voting requirements. Veru said it was vigorously defending the case and recorded no loss accrual because a loss was not both probable and reasonably estimable.
- Development and valuation risk: Clinical, regulatory and commercialization outcomes remain uncertain. The filing notes that acquired in-process R&D and goodwill could be impaired if expectations change.
- Other obligations and risks: A $500,000 upfront payment for acquired drug rights was included in accounts payable and expected to be paid in fiscal Q3; future installment and milestone payments may apply. Risks also include financing needs, competition, foreign-exchange and raw-material exposure, and uncertainty about the full tax-law impact.
No formal earnings or revenue guidance is provided. Management’s stated outlook includes higher R&D spending, possible continued FC2 public-sector sales challenges, and liquidity expected to fund operations for the next 12 months, subject to financing availability and other risks.
Important facts for investors to verify
- Whether Semina makes the overdue $1.5 million payment and how much of the remaining settlement balance is ultimately collected.
- FC2 unit volumes, pricing, customer concentration and tender/order timing, especially given pressure on public-health spending.
- Cash burn, financing needs, availability and potential dilution under the Aspire agreement, and headroom under the 77 million authorized-share limit.
- The full economic cost and payment mechanics of the SWK facility, including revenue-based payments, change-of-control provisions, collateral and the later 5% royalty.
- Progress and timing of planned bioequivalence studies, clinical programs and regulatory submissions; assess the risks underlying the company’s development and asset valuations.
- The filing reports 55,696,650 common shares in the March 31 equity statement, while the cover reports 53,512,946 shares outstanding as of May 8; verify the share-count basis and reconciliation.