Overview
Veru is principally an oncology biopharmaceutical company with a focus on
developing novel medicines for the management of breast and prostate cancers.
One of our anticancer drugs, sabizabulin, also has dual antiviral and
anti-inflammatory effects and is also being developed for the treatment of
hospitalized COVID-19 patients at high risk for acute respiratory distress
syndrome (ARDS). The Company has a commercial Sexual Health Division which
includes a drug candidate, ENTADFI™, for the treatment of benign prostatic
hyperplasia (BPH) and a commercial product, the FC2 Female Condom® (Internal
Condom) (FC2), an FDA-approved product for the dual protection against unplanned
pregnancy and the transmission of sexually transmitted infections.
The Biopharmaceutical Business:
The Company's breast cancer drug pipeline has four clinical development programs
for two drugs: enobosarm, oral selective androgen receptor agonist, and
sabizabulin, oral cytoskeleton disruptor.
Hormone receptor positive HER2- metastatic breast cancer:
Phase 3 clinical study - Enobosarm as a 3rd line treatment of AR+ER+HER2-
metastatic breast cancer (AR nuclei staining ?40%). We are enrolling the Phase 3
multicenter, international, open label, and randomized (1:1) ARTEST registration
clinical trial design to evaluate the efficacy and safety of enobosarm
monotherapy versus physician's choice of either exemestane ? everolimus or a
SERM as the active comparator for the treatment of AR+ ER+ HER2- metastatic
breast cancer in approximately 210 patients with AR nuclei staining ?40% in
their breast cancer tissue who had tumor progression on a nonsteroidal aromatase
inhibitor, fulvestrant, and a CDK4/6 inhibitor. We have identified that patients
who have greater than 40% androgen receptor nuclei staining in their breast
cancer tissue are most likely to respond to enobosarm. Based on the
recommendation of the FDA to have a companion diagnostic test to determine the
patient's AR status, we are partnering with Roche/Ventana Diagnostics, a global
oncology diagnostics company, who will develop and commercialize a companion
diagnostic AR test.
Phase 2b clinical study - Sabizabulin as a 3rd line treatment of AR+ER+HER2-
metastatic breast cancer (AR nuclei staining <40%). We also intend to conduct a
Phase 2b clinical study of sabizabulin, a novel oral cytoskeleton disruptor, for
the treatment of AR+ ER+ HER2- metastatic breast cancer in patients with an AR
nuclei staining <40%. The Phase 2b clinical trial will be an open label,
multicenter, and randomized (1:1) study evaluating the efficacy and safety of
sabizabulin 32mg monotherapy versus physician's choice of either exemestane ?
everolimus or a SERM as the active comparator for the treatment of ER+ HER2-
metastatic breast cancer in approximately 200 patients with AR nuclei staining
<40% in their breast cancer tissue who had tumor progression on a nonsteroidal
aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor. The Phase 2b study is
expected to commence during the first quarter of calendar year 2022.
Phase 3 clinical study - Enobosarm + abemaciclib combination as a 2nd line
treatment of AR+ER+HER2- metastatic breast cancer (AR nuclei staining ?40%). We
intend to conduct a Phase 3 multicenter, open label, randomized (1:1), active
control clinical study, named ENABLAR-2 to evaluate the efficacy and safety of
enobosarm plus abemaciclib combination therapy versus an alternative estrogen
blocking agent (fulvestrant or an aromatase inhibitor) in subjects with AR+ ER+
HER2- metastatic breast cancer who have failed first line palbociclib (a CDK4/6
inhibitor) plus an estrogen blocking agent (non-steroidal aromatase inhibitor or
fulvestrant) and have an AR nuclei staining ? 40% in their breast cancer tissue.
We plan to enroll approximately 186 subjects in this Phase 3 clinical study
which is expected to commence during the first quarter of calendar year 2022.
Metastatic triple negative breast cancer:
Phase 2b clinical study - Sabizabulin + enobosarm combination therapy for the
treatment of patients who have AR+ metastatic triple negative breast cancer and
who have tumor progression after receiving at least 2 systemic chemotherapies.
The Company plans to commence a single arm, sabizabulin plus enobosarm
combination therapy Phase 2b clinical study in the first quarter of calendar
year 2022 in approximately 111 women.
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The Company's prostate cancer drug pipeline includes sabizabulin, VERU-100 and
zuclomiphene citrate.
Sabizabulin 32mg for the treatment of metastatic castration resistant and
androgen receptor targeting agent resistant prostate cancer-
Phase 1b/2 clinical studies to determine maximum tolerated dose and recommended
dosing of sabizabulin. We are completing the Phase 1b open label clinical trial
of sabizabulin in 39 men with metastatic castration resistant and androgen
receptor targeting agent resistant prostate cancer ± taxane chemotherapy and the
Phase 2 clinical study in 41 men with metastatic castration resistant prostate
cancer who have also become resistant to at least one androgen receptor
targeting agent, but prior to proceeding to IV chemotherapy. In the Phase 1b/2
studies, sabizabulin was both well tolerated and demonstrated promising
preliminary efficacy data.
Phase 3 VERACITY clinical study. We are currently enrolling the Phase 3 VERACITY
registration study evaluating sabizabulin 32mg in men approximately 245 men who
have metastatic castration resistant prostate cancer and who had tumor
progression while receiving at least one androgen receptor targeting agent, but
prior to IV chemotherapy.
?
VERU-100, long acting GnRH antagonist subcutaneous depot, for the treatment of
advanced hormone sensitive prostate cancer-
Phase 2 dose finding clinical study. Currently enrolling study to determine
optimal dose of VERU-100 in men with advance hormone sensitive prostate cancer.
Phase 2 clinical results are expected in early 2022.
Phase 3 registration clinical study. If the Phase 2 trial is successful, and as
discussed with and agreed upon by the FDA, the Phase 3 clinical trial will be a
single arm, multicenter, open-label study in approximately 100 men with hormone
sensitive advanced prostate cancer using the achievement and maintenance of
castration levels of testosterone as the primary endpoint. The Phase 3
registration study is planned to initiate in the first half of calendar year
2022.
?Zuclomiphene citrate, estrogen receptor agonist, for the treatment of hot
flashes caused by prostate cancer hormonal therapies in men with advanced
prostate cancer-
Phase 2b zuclomiphene clinical study. The Company reported positive dose finding
Phase 2 study in January 2020. The Company plans to further optimize the dosing
schedule of zuclomiphene citrate in a Phase 2b study.
The Company is opportunistically developing sabizabulin 9mg, which has both
broad anti-inflammatory and anti-viral properties as a two-pronged approach to
the treatment of COVID-19 virus infection.
Phase 3 COVID-19 registration trial: Sabizabulin 9mg for the treatment of
hospitalized moderate to severe COVID-19 patients at high risk for acute
respiratory distress syndrome- We are enrolling a global Phase 3 COVID-19
clinical registration trial which is a double-blind randomized (2:1)
placebo-controlled trial evaluating daily oral doses of 9 mg sabizabulin for 21
days versus placebo in approximately 300 moderate to severe COVID-19
hospitalized subjects who are at high risk for developing ARDS, which remains an
unmet medical need. The Company anticipates having results for Phase 3 clinical
trial in the first half of calendar year 2022.
Sexual Health Division
The Company's Sexual Health Division includes a drug candidate, ENTADFI™,
for the treatment of benign prostatic hyperplasia (BPH) and a commercial
product, the FC2 Female Condom® (internal condom) (FC2), an FDA-approved product
for the dual protection against unplanned pregnancy and the transmission of
sexually transmitted infections.
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ENTADFI™ (tadalafil 5mg and finasteride 5mg capsule) is being developed to treat
urinary tract symptoms caused by BPH. The co-administration of tadalafil and
finasteride has been shown to be more effective for the treatment of BPH than
finasteride alone with no adverse effects on sexual function. The NDA was
submitted in February 2021, filed by the FDA in April 2021 with a PDUFA date in
December 2021. If approved, ENTADFI™ is expected to be marketed and distributed
by telemedicine (telemedicine being the remote diagnosis and treatment of
patients by means of telecommunications technology) and telepharmacy channels.
The Company's Sexual Health Business segment will include future revenues for
ENTADFI, if approved. Costs associated with the development of ENTADFI™ are
currently included in our Research and Development segment.
The Company sells FC2 in both the commercial sector and in the public health
sector both in the U.S. and globally. In the U.S., FC2 is available by
prescription through multiple telemedicine and internet pharmacy channels as
well as retail pharmacies. The Company is establishing its own dedicated direct
to patient telemedicine and pharmacy services portal/platform to continue to
drive sales growth. FC2 is also available to public health sector entities such
as state departments of health and 501(c)(3) organizations. In the global public
health sector, the Company markets FC2 to entities, including ministries of
health, government health agencies, U.N. agencies, nonprofit organizations and
commercial partners, that work to support and improve the lives, health and
well-being of women around the world.
All of the Company's net revenues are currently derived from sales of FC2 in the
commercial and public health sectors.
PREBOOST® Sale
On December 8, 2020, the Company entered into an Asset Purchase Agreement (the
"Purchase Agreement") with Roman Health Ventures Inc. (the "Purchaser").
Pursuant to, and subject to the terms and conditions of, the Purchase Agreement,
the Purchaser purchased substantially all of the assets related to the
Company's PREBOOST® business. PREBOOST® is a 4% benzocaine medicated
individual wipes for the treatment of premature ejaculation and was a commercial
product in the Company's Sexual Health Division during fiscal 2020 and in fiscal
2021 through the date the transaction closed. The transaction closed on
December 8, 2020. The purchase price for the transaction was $20.0 million,
consisting of $15.0 million paid at closing, $2.5 million payable 12 months
after closing and $2.5 million payable 18 months after closing.
COVID-19 Environment
In December 2019, a novel strain of coronavirus was reported to have emerged in
Wuhan, China. COVID-19, the disease caused by the coronavirus, has since spread
to over 100 countries, including every state in the United States. On March 11,
2020, the World Health Organization declared COVID-19 a pandemic, and on March
13, 2020, the United States declared a national emergency with respect to the
COVID-19 outbreak.
In an effort to contain and mitigate the spread of COVID-19, many countries,
including the United States, the United Kingdom and Malaysia, have imposed
unprecedented restrictions on travel, and there have been business closures and
a substantial reduction in economic activity in countries that have had
significant outbreaks of COVID-19. In addition, and in an attempt to slow the
rapid growth of the COVID-19 infection rate, many governments around the world,
including in the United States at the federal, state and local levels as well as
in the United Kingdom and Malaysia, have from time to time imposed mandatory
sheltering in place and social distancing restrictions that severely limit the
ability of its citizens to travel freely and to conduct activities.
The COVID-19 pandemic has substantially impacted the global healthcare system,
including the conduct of clinical trials. Many healthcare systems have
restructured operations to prioritize caring for those suffering from COVID-19
and to limit or cease other activities. The severe burden on healthcare systems
caused by this pandemic has also impaired the ability of many research sites to
start new clinical trials or to enroll new patients in clinical trials. The
imposed mandatory sheltering in place and social distancing restrictions may
delay the recruitment of patients and impede their ability to effectively
participate in such trials. Significant fees may also be owed to contract
research organizations associated with starting and stopping clinical trials,
typically more so than delaying the start of a clinical trial.
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To date, COVID-19 has not impacted the Company's ability to supply product
demand for FC2. We have experienced, and continue to experience, some temporary
disruptions to our manufacturing facility due to the implementation of
government policies. On March 16, 2020, the Malaysian government issued an order
closing non-essential businesses in that country due to the COVID-19 pandemic.
As a result, the sole facility where the Company manufactures FC2 was unable to
manufacture or ship product starting March 16, 2020. Because FC2 is a health
product, the Company received an exemption to reopen the facility with limited
staff to ship existing inventory on March 27, 2020, to reopen for manufacturing
with 50% of the regular number of workers and social distancing requirements on
April 20, 2020 and to return to 100% of the regular number of workers but with
continued social distancing requirements on May 4, 2020. On June 1, 2021, the
Malaysian government issued a nationwide lockdown order placing limitations on
social and economic activity in the country. The Company was able to secure the
required approvals, as a health product, to continue to partially operate by
reducing the number of employees physically allowed in the facilities to 60% of
the total workforce. On July 3, 2021, the lockdown was strengthened in the
region in which the Company operates and the Company entered into a two-week
period ceasing all operations, in common with similar manufacturing businesses.
On July 19, 2021, after allowing some time for staff testing, operations resumed
at the required levels of 60% of the total workforce. The Company has partially
mitigated the disruption to production by changing staffing patterns. From time
to time, we have temporarily paused operations as part of our contact tracing
protocols and to allow for cleaning and disinfection of our production facility.
The Company has enrolled manufacturing staff in a vaccination program. More than
95% of the staff have received two doses of vaccination. This has allowed shift
patterns to return to normal and the facility is allowed to operate at 100%
capacity under the current Malaysia control orders.
The Company has had and believes it continues to have a sufficient quantity of
FC2 inventory both inside and outside of Malaysia to satisfy expected customer
demand. The recent closure and reduced operating capacity did not have a
material impact to the Company's consolidated operating results in fiscal 2021
and we do not expect them to have a material impact on the Company's
consolidated operating results in foreseeable future periods. The Company
continues to operate enhanced health and safety protocols to protect the
employees at its Malaysian facility, to respond in the event an employee at the
facility is determined to have tested positive for COVID-19, and to mitigate the
impact of COVID-19 on the Company's Malaysian manufacturing operations. However,
no such measures can eliminate risks relating to the COVID-19 pandemic, and if
the Company's Malaysian manufacturing facility is subject to future government
mandates to counter COVID-19 or encounters labor or raw material shortages,
transportation delays or other issues, our ability to supply product to our
customers could be disrupted.
The sole supplier of the nitrile polymer sheath for FC2 also produces surgical
gloves and has at times prioritized their production during the COVID-19
pandemic and may continue to do so, which could disrupt the Company's supply of
a critical raw material. Malaysian ports are currently open for shipment but at
reduced capacity, and the Company may also encounter issues shipping product
into key markets or through freight or other carriers. To mitigate these
factors, the Company continues to build strategic stock to ensure supply is
available during a period of potential disruption. The COVID-19 pandemic and
related economic disruption may also adversely affect customer demand for FC2.
For example, sales of FC2 could be impacted in the U.S. prescription channel if
insurance coverage is affected by job losses and in the global public health
sector if governments delay future tenders or reduce spending on female condoms
due to financial strains or changed spending priorities caused by the COVID-19
pandemic. The COVID-19 pandemic did not have a material net impact on our
consolidated operating results during fiscal 2021.
To protect the health and safety of our workforce, we closed our offices in the
United States and the United Kingdom temporarily. Offices have reopened but
non-essential staff and our personnel have largely continued to work remotely.
Travel between our facilities in the United States, the United Kingdom and
Malaysia has also been restricted. As of the date of this report, our operations
have not been significantly impacted by such remote work requirements and travel
restrictions.
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Significant uncertainty remains as to the potential impact of the COVID-19
pandemic on our operations, and on the global economy. It is currently not
possible to predict how long the pandemic will last or the time that it will
take for economic activity to return to prior levels as a result of
uncertainties, including the extent and rate of the spread of the virus that
continue to fluctuate, the potential for additional peaks in infection rates,
and the timing and availability of vaccines, treatments or cures to slow and
eventually stop the spread. We do not yet know the full extent of any impact on
our business or our operations; however, we will continue to monitor the
COVID-19 situation and its impact on our business closely and expect to
reevaluate the timing of our anticipated clinical trials as the impact of
COVID-19 on our industry becomes clearer.
Sales of FC2 in commercial and global public health sectors
FC2 Commercial Sector. In 2017, the Company began expanding access to FC2 in the
U.S. by making it available by prescription. With a prescription, FC2 is covered
by most insurance companies with no copay under the ACA and the laws of 20+
states prior to enactment of the ACA. In 2018, we dissolved our small-scale
marketing and sales program to focus our efforts in accessing fast-growing,
highly reputable telemedicine firms to bring our much-needed FC2 product to
patients with a prescription in a cost-effective and highly convenient manner.
As a result of these efforts, the Company now supplies FC2 to telemedicine
providers in the U.S. prescription channel. The Company is working to develop
supply and distributor relationships with additional telemedicine and other
providers. The Company is establishing its own dedicated direct to patient
telemedicine and pharmacy services portal to continue to drive sales growth.
FC2 Global Public Health Sector. FC2's use is for the prevention of HIV/AIDS and
the transmission of other sexually transmitted diseases and prevention of
unplanned pregnancies, and the global public health sector has been an important
market for FC2. Within the global public health sector, various organizations
supply critical products such as FC2, at no cost or low cost, to those who need
but cannot afford to buy such products for themselves.
FC2 has been distributed in the U.S. and 149 other countries. A significant
number of countries with the highest demand potential are in the developing
world. The incidence of HIV/AIDS, other sexually transmitted infections and
unplanned pregnancy in these countries represents a remarkable potential for
significant sales of a product that benefits some of the world's most
underprivileged people. However, conditions in these countries can be volatile
and result in unpredictable delays in program development, tender applications
and processing orders.
The Company is working to further develop a global market and distribution
network for FC2 by maintaining relationships with global public health sector
groups and completing strategic arrangements with companies with the necessary
marketing and financial resources and local market expertise.
The Company currently has a limited number of customers for FC2 in the global
public health sector who generally purchase in large quantities. Over the past
few years, significant customers have included large global agencies, such as
UNFPA, USAID, the Brazil Ministry of Health through Semina Indústria e Comércio
Ltda (Semina), the Company's distributor in Brazil, and the Republic of
South Africa health authorities that purchase through the Company's various
local distributors. Other customers include ministries of health or other
governmental agencies, which either purchase directly or via in-country
distributors, and NGOs.
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Purchasing patterns for FC2 in the public health sector vary significantly from
one customer to another and may reflect factors other than simple demand. For
example, some governmental agencies purchase FC2 through a formal procurement
process in which a tender (request for bid) is issued for either a specific or a
maximum unit quantity. Tenders also define the other elements required for a
qualified bid submission (such as product specifications, regulatory approvals,
clearance by the World Health Organization, unit pricing and delivery
timetable). Bidders have a limited period of time in which to submit bids. Bids
are subjected to an evaluation process which is intended to conclude with a
tender award to the successful bidder. The entire tender process, from
publication to award, may take many months to complete, including administrative
actions or appeals. A tender award indicates acceptance of the bidder's price
rather than an order or guarantee of the purchase of any minimum number of
units. Many governmental tenders are stated to be "up to" the maximum number of
units, which gives the applicable government agency discretion to purchase less
than the full maximum tender amount. Orders are placed after the tender is
awarded; there are often no set dates for orders in the tender and there are no
guarantees as to the timing or amount of actual orders or shipments. Orders
received may vary from the amount of the tender award based on a number of
factors including vendor supply capacity, quality inspections and changes in
demand. Administrative issues, politics, bureaucracy, exchange rate risk,
process errors, changes in leadership, funding priorities and/or other pressures
may delay or derail the process and affect the purchasing patterns of public
health sector customers. As a result, the Company may experience significant
quarter-to-quarter sales variances in the global public health sector due to the
timing and shipment of large orders of FC2.
On August 27, 2018, the Company announced that through six of its distributors
in the Republic of South Africa, the Company had received a tender award to
supply 75% of a tender covering up to 120 million female condoms over three
years. The tender was extended until January 2022. The Company began shipping
units under this tender award in the third quarter of fiscal 2019 and we have
shipped approximately 16.1 million units through September 30, 2021. In October
2020, the Company was awarded up to 20 million units through its distributor in
Brazil under the new Brazil female condom tender. These units are expected to be
delivered over two years. The Company began shipping units under this tender
award in the first quarter of fiscal 2021 and we have shipped approximately
9.7 million units through September 30, 2021.
FC2 Unit Sales. Details of the quarterly unit sales of FC2 for the last five
fiscal years are as follows:
Period 2021 2020 2019 2018 2017
October 1 - December 31 12,318,988 10,070,700 7,382,524 4,399,932 6,389,320
January 1 - March 31 8,189,552 6,884,472 9,792,584 4,125,032 4,549,020
April 1 - June 30 11,201,588 10,532,048 10,876,704 10,021,188 8,466,004
July 1 - September 30 6,095,332 5,289,908 9,842,020 6,755,124 6,854,868
Total
37,805,460 32,777,128 37,893,832 25,301,276 26,259,212
Revenues. The Company's revenues are primarily derived from sales of FC2 in
the U.S. prescription channel and global public health sector. The Company also
had revenues from sales of PREBOOST® (Roman Swipes) through the date the
PREBOOST® business was sold on December 8, 2020. These sales are recognized upon
shipment or delivery of the product to the customers depending on contract
terms.
The Company's most significant customers have been telemedicine providers in the
U.S. who sell into the prescription channel and global public health sector
agencies who purchase and/or distribute FC2 for use in preventing the
transmission of HIV/AIDS and/or family planning.
The Company manufactures FC2 in a leased facility located in Selangor D.E.,
Malaysia, resulting in a portion of the Company's operating costs being
denominated in foreign currencies. While a significant portion of the
Company's future unit sales are likely to be in foreign markets, all sales
are denominated in the U.S. dollar. Effective October 1, 2009, the Company's
U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional
currency, further reducing the Company's foreign currency risk.
Operating Expenses. The Company manufactures FC2 at its Malaysian facility. The
Company's cost of sales consists primarily of direct material costs, direct
labor costs and indirect production and distribution costs. Direct material
costs include raw materials used to make FC2, principally a nitrile polymer.
Indirect production costs include logistics, quality control and maintenance
expenses, as well as costs for electricity and other utilities. All the key
components for the manufacture of FC2 are essentially available from either
multiple sources or multiple locations within a source.
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We have recently seen an increase in the cost of the nitrile polymer used to
produce FC2 and may experience increases in other material costs due to the
impact of COVID-19 and increased inflation. Our costs of sales and gross margins
may be adversely impacted if we are unable to pass along cost increases to our
customers.
Conducting research and development is central to our business model. The
Company's Research and Development segment includes multiple products and
management routinely evaluates each product in its portfolio of products.
Advancement is limited to available working capital and management's
understanding of the prospects for each product. If future prospects do not meet
management's strategic goals, advancement may be discontinued. We have invested
and expect to continue to invest significant time and capital in our research
and development operations. Our research and development expenses were
$32.7 million and $16.9 million for fiscal 2021 and 2020, respectively. In
fiscal 2022, we expect to continue this trend of increased expenses relating to
research and development due to advancement of multiple drug candidates.
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Results of Operations
YEAR ENDED SEPTEMBER 30, 2021 COMPARED TO YEAR ENDED SEPTEMBER 30, 2020
The Company generated net revenues of $61.3 million and net income of
$7.4 million, or $0.10 per basic common share and $0.09 per diluted common
share, in fiscal 2021, compared to net revenues of $42.6 million and net loss of
$19.0 million, or $(0.28) per basic and diluted common share, in fiscal 2020.
Net revenues increased 44% year over year.
FC2 net revenues increased 49% year over year. There was a 15% increase in total
FC2 unit sales and an increase in FC2 average sales price per unit of 29%. The
principal factor for the increase in the FC2 average sales price per unit
compared to prior year was the change in the sales mix with the U.S.
prescription channel representing 77% of total FC2 net revenues in fiscal 2021
compared to 67% of total FC2 net revenues in fiscal 2020. The Company
experienced an increase of 71% in FC2 net revenues in the U.S. prescription
channel and an increase of 4% in FC2 net revenues in the global public health
sector.
Cost of sales increased to $13.3 million in fiscal 2021 from $11.8 million in
fiscal 2020 primarily due to an increase in unit sales. An increase in cost of
raw materials was substantially offset by decreases in labor, transportation,
and equipment maintenance costs.
Gross profit increased to $47.9 million in fiscal 2021 from $30.8 million in
fiscal 2020. Gross profit margin for fiscal 2021 was 78% of net revenues,
compared to 72% of net revenues for fiscal 2020. In fiscal 2021, the Company
experienced an increase in FC2 sales in the U.S. prescription channel with
higher profit margins, contributing to the increase in overall gross profit and
gross profit margin.
Significant quarter-to-quarter variances in the Company's results have
historically resulted from the timing and shipment of large orders rather than
from any fundamental changes in the business or the underlying demand for FC2.
The Company is experiencing a significant increase in revenue from sales in the
U.S prescription channel, which is helping grow net revenues quarter to quarter
and year to year. The Company is also currently seeing pressure on pricing for
FC2 by large global agencies and donor governments in the developed world. As a
result, the Company may continue to experience challenges for revenue from sales
of FC2 in the global public health sector.
Research and development expenses increased to $32.7 million in fiscal 2021 from
$16.9 million in fiscal 2020. The increase is primarily due to increased costs
associated with the multiple in-process research and development projects and
increased personnel costs. In fiscal 2021, the Company initiated two Phase 3
clinical trials and one Phase 2 clinical trial with additional clinical trial
initiations planned to soon commence. This ongoing clinical trial activity has
resulted in increased costs. Additionally, in fiscal 2020, research and
development expenses were reduced by $0.1 million due to the funds received
under the Paycheck Protection Program. See Note 15 to the financial statements
included in this report for additional information related to the Paycheck
Protection Program.
Selling, general and administrative expenses increased to $20.7 million in
fiscal 2021 from $14.5 million in fiscal 2020. The increase is primarily due to
increased personnel costs, drug commercialization costs, and insurance costs.
Additionally, in fiscal 2020, selling, general, and administrative costs were
reduced by $0.4 million due to the funds received under the Paycheck Protection
Program. See Note 15 to the financial statements included in this report for
additional information related to the Paycheck Protection Program.
During the first quarter of fiscal 2021, we recorded a pre-tax gain on sale of
the Company's PREBOOST® business of $18.4 million. See Note 2 to the financial
statements included in this report for additional information.
During the fourth quarter of fiscal 2020, we recorded an impairment charge of
$14.1 million related to IPR&D associated with the APP Acquisition. The charge
was primarily a result of deferred development timelines and the decision to
cease development work on Tamsulosin DRS, VERU-722 (male infertility), and
VERU-112 (gout), in response to management's strategic decision to prioritize
the development of other research projects. The Company has several other highly
differentiated, unique, patent-protected drugs under development addressing
larger and potentially more profitable markets. The Company met the criteria for
abandonment under applicable accounting standards. This resulted in writing off
the carrying amounts for these three IPR&D assets during the year ended
September 30, 2020. The remaining book value of other IPR&D assets acquired in
the APP Acquisition is $3.9 million as of September 30, 2021 and 2020. There was
no impairment charge recorded in fiscal 2021.
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Interest expense, which primarily consists of items related to the Credit
Agreement and Residual Royalty Agreement, was $4.9 million in fiscal 2021,
increased from $4.6 million in fiscal 2020. The increase is due to an increase
in the accretion of the Residual Royalty Agreement, for which payments began
during fiscal 2021, partially offset by decreases in the amortization of
discounts and deferred issuance costs related to the Credit Agreement.
Expense associated with the change in fair value of the embedded derivatives
related to the Credit Agreement and Residual Royalty Agreement was $3.7 million
in fiscal 2021 compared to expense of $0.6 million in fiscal 2020. The
liabilities associated with embedded derivatives represent the fair value of the
change of control provisions in the Credit Agreement and Residual Royalty
Agreement. The increase in the fair value of the embedded derivates is due to an
increase in projected FC2 net revenues in future periods and decrease in the
discount rates used, driven by external market factors. See Note 3 and Note 9 to
the financial statements included in this report for additional information.
The income tax benefit in fiscal 2021 was $3.1 million, compared to the income
tax benefit of $1.1 million in fiscal 2019. The increase in the income tax
benefit of $2.0 million is primarily due an increase in the income tax benefit
of $2.4 million for the change in U.K. tax rates, $3.8 million due to the
exercise of stock options and warrants, and $2.8 million in R&D credits,
partially offset by the increase in income tax expense of $5.5 million resulting
from the increase in income before income taxes and $1.3 million from the
increase in the valuation allowance.
Liquidity and Sources of Capital
Liquidity
Our cash and cash equivalents on hand on September 30, 2021 was $122.4 million,
compared to $13.6 million on September 30, 2020. On September 30, 2021, the
Company had working capital of $136.0 million and stockholders' equity of
$152.3 million compared to working capital of $12.3 million and stockholders'
equity of $30.1 million as of September 30, 2020. The increase in working
capital is primarily due to the increase in cash on hand and an increase in
prepaid research and development costs.
We anticipate that we will continue to consume cash as we develop our drug
candidates. Because of the numerous risks and uncertainties associated with the
development of pharmaceutical products, we are unable to estimate the exact
amounts of capital outlays and operating expenditures necessary to fund
development of our drug candidates and obtain regulatory approvals. Our future
capital requirements will depend on many factors. See Part I, Item 1A, "Risk
Factors - Risks Related to Our Financial Position and Need for Capital" for a
description of certain risks that will affect our future capital requirements.
The Company believes its current cash position and cash expected to be generated
from sales of the Company's commercial product are adequate to fund planned
operations of the Company for the next 12 months. To the extent the Company may
need additional capital for its operations or the conditions for raising capital
are favorable, the Company may access financing alternatives that may include
debt financing, common stock offerings, or financing involving convertible debt
or other equity-linked securities and may include financings under the Company's
current effective shelf registration statement on Form S-3 (File No. 333-239493)
or under a new registration statement.
Operating activities
Our operating activities used cash of $15.6 million in fiscal 2021. Cash used in
operating activities included net income of $7.4 million, adjustments to
reconcile net income to net cash provided by operating activities totaling a
reduction of $15.7 million and changes in operating assets and liabilities of
$7.3 million. Adjustments to net income primarily consisted of $18.4 million for
the gain on sale of the PREBOOST® business, $3.6 million of interest paid in
excess of interest expense, and $3.6 million of deferred income taxes, partially
offset by share-based compensation of $5.1 million and an increase in the fair
value of derivative liabilities of $3.7 million. The decrease in cash from
changes in operating assets and liabilities included an increase in accounts
receivable of $3.6 million and an increase in prepaid expenses and other assets
of $8.6 million, partially offset by a decrease in accrued expenses and other
current liabilities of $4.2 million.
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Our operating activities used cash of $1.9 million in fiscal 2020. Cash used in
operating activities included a net loss of $19.0 million, adjustments for
non-cash items totaling $21.4 million and changes in operating assets and
liabilities of $4.3 million. Adjustments for non-cash items primarily consisted
of $14.1 million of impairment of intangible assets, $4.3 million of non-cash
interest expense, and $2.6 million of share-based compensation, partially offset
by deferred income taxes of $1.3 million. The decrease in cash from changes in
operating assets and liabilities included an increase in inventory of
$3.3 million and a decrease in accrued expenses and other current liabilities of
$1.0 million.
Investing activities
Net cash from investing activities was $14.6 million in fiscal 2021, attributed
to $15.0 million received from the sale of the Company's PREBOOST® business,
partially offset by $0.4 million in capital expenditures for manufacturing and
office equipment.
Net cash used in investing activities in fiscal 2020 $0.1 million, associated
with capital expenditures.
Financing activities
Net cash provided by financing activities in fiscal 2021 was $109.7 million and
primarily consisted of proceeds from the underwritten public offering of the
Company's common stock, net of fees and costs paid through September 30, 2021,
of $108.0 million (see discussion below) and proceeds from stock option
exercises of $1.8 million.
Net cash provided by financing activities in fiscal 2020 was $9.3 million and
primarily consisted of $13.4 million from the sale of shares under the 2020
Purchase Agreement and 2017 Purchase Agreement with Aspire Capital (see
discussion below), less principal payments on the Credit Agreement (see
discussion below) totaling $4.4 million.
Sources of Capital
Common Stock Offering
On February 22, 2021, we completed an underwritten public offering of 7,419,354
shares of our common stock, which included the exercise in full of the
underwriters' option to purchase additional shares, at a public offering price
of $15.50 per share. Net proceeds to the Company from this offering were
$108.0 million after deducting underwriting discounts and commissions and costs
incurred by the Company. All of the shares sold in the offering were by the
Company. The offering was made pursuant to the Company's shelf registration
statement on Form S-3 (File No. 333-239493).
Credit Agreement
On March 5, 2018, the Company entered into a Credit Agreement (as amended, the
"Credit Agreement") with the financial institutions party thereto from time to
time (the "Lenders") and SWK Funding LLC, as agent for the Lenders (the
"Agent"), for a synthetic royalty financing transaction. On and subject to the
terms of the Credit Agreement, the Lenders provided the Company with a term loan
of $10.0 million, which was advanced to the Company on the date of the Credit
Agreement. Under the Credit Agreement, the Company was required to make
quarterly payments on the term loan based on the Company's product revenue from
net sales of FC2 until the earlier of receipt by the Lenders of a return premium
specified in the Credit Agreement or a required payment upon termination of the
Credit Agreement on March 5, 2025 or an earlier change of control of the Company
or sale of the FC2 business. The Company repaid the loan and return premium
specified in the Credit Agreement in August 2021, and as a result has no further
obligations under the Credit Agreement.
In connection with the Credit Agreement, Veru and the Agent also entered into a
Residual Royalty Agreement, dated as of March 5, 2018 (as amended, the "Residual
Royalty Agreement"), which provides for an ongoing royalty payment of 5% of
product revenue from net sales of FC2, which continues after the repayment of
the loan and return premium under the Credit Agreement. The Residual Royalty
Agreement will terminate upon (i) a change of control or sale of the FC2
business and the payment by the Company of the amount due in connection
therewith pursuant to the Credit Agreement, or (ii) mutual agreement of the
parties.
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The Company made total payments under the Credit Agreement of $7.3 million and
$4.7 million during fiscal 2021 and 2020, respectively. The Company began making
payments under the Residual Royalty Agreement during fiscal 2021, totaling
$1.1 million during the year. The Company currently estimates the aggregate
amount of quarterly revenue-based payments payable during the 12-month period
subsequent to September 30, 2021 will be approximately $3.2 million under the
Residual Royalty Agreement.
Common Stock Purchase Agreements
On June 26, 2020, the Company entered into a common stock purchase agreement
(the "2020 Purchase Agreement") with Aspire Capital which provides that, upon
the terms and subject to the conditions and limitations set forth therein, the
Company has the right, from time to time in its sole discretion during the
36-month term of the 2020 Purchase Agreement, to direct Aspire Capital to
purchase up to $23.9 million of the Company's common stock in the aggregate.
Upon execution of the 2020 Purchase Agreement, the Company issued and sold to
Aspire Capital under the 2020 Purchase Agreement 1,644,737 shares of common
stock at a price per share of $3.04, for an aggregate purchase price of
$5,000,000. Other than the 212,130 shares of common stock issued to Aspire
Capital in consideration for entering into the 2020 Purchase Agreement and the
initial sale of 1,644,737 shares of common stock, the Company has no obligation
to sell any shares of common stock pursuant to the 2020 Purchase Agreement and
the timing and amount of any such sales are in the Company's sole
discretion subject to the conditions and terms set forth in the 2020 Purchase
Agreement. As of September 30, 2021, there was $18.9 million remaining under the
2020 Purchase Agreement, which is registered under the Company's shelf
registration statement on Form S-3 (File No. 333-239493). Effective June 26,
2020, upon the execution of the 2020 Purchase Agreement, the Company's prior
purchase agreement with Aspire Capital was terminated.
Critical Accounting Estimates
The Company prepares its financial statements in accordance with accounting
principles generally accepted in the United States. The Company is required to
adopt various accounting policies and to make estimates and assumptions in
preparing its financial statements that affect the reported amounts of assets,
liabilities, net revenues and expenses. On an ongoing basis, the Company
evaluates its estimates and assumptions. The Company bases its estimates on
historical experience to the extent practicable and on various other assumptions
that it believes are reasonable under the circumstances and at the time they are
made. If the Company's assumptions prove inaccurate or if future results are not
consistent with historical experience, the Company may be required to make
adjustments in its policies that affect reported results. The Company's
significant accounting policies are disclosed in Note 1 to the financial
statements included in this report.
The Company's most critical accounting estimates include: valuation of tax
assets and liabilities, measurement of fair value, and valuation of goodwill and
intangible assets. The Company has other key accounting policies that are less
subjective and, therefore, their application is less subject to variations that
would have a material impact on the Company's reported results of operations.
The following is a discussion of the Company's most critical policies, as well
as the estimates and judgments involved.
Income Taxes
The Company files separate income tax returns for its foreign subsidiaries. ASC
Topic 740 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred
tax assets are also provided for carryforwards for income tax purposes. In
addition, the amount of any future tax benefits is reduced by a valuation
allowance to the extent such benefits are not expected to be realized.
The Company accounts for income taxes using the liability method, which requires
the recognition of deferred tax assets or liabilities for the tax-effected
temporary differences between the financial reporting and tax bases of assets
and liabilities, and for net operating loss and tax credit carryforwards.
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The Company completes a detailed analysis of its deferred income tax valuation
allowances on an annual basis or more frequently if information comes to its
attention that would indicate that a revision to its estimates is necessary. In
evaluating the Company's ability to realize its deferred tax assets, management
considers all available positive and negative evidence on a country by country
basis, including past operating results and forecasts of future taxable income,
and the potential Section 382 limitation on the net operating loss carryforwards
due to a change in control. In determining future taxable income, management
makes assumptions to forecast U.S. federal and state, U.K. and Malaysia
operating income, the reversal of temporary differences, and the implementation
of any feasible and prudent tax planning strategies. These assumptions require
significant judgment regarding the forecasts of the future taxable income in
each tax jurisdiction and are consistent with the forecasts used to manage the
Company's business. It should be noted that the Company realized significant
losses through 2005 on a consolidated basis. From fiscal 2006 through fiscal
2015, the Company generated taxable income on a consolidated basis. However, the
Company had a cumulative pretax loss in the U.S. for fiscal 2020 and the three
preceding fiscal years. Forming a conclusion that a valuation allowance is not
needed is difficult when there is significant negative evidence such as
cumulative losses in recent years. Management has projected future pretax losses
in the U.S. driven by the investment in research and development and based on
their analysis concluded that an additional valuation allowance of $4.7 million
should be recorded against the U.S. deferred tax assets related to federal and
state net operating loss carryforwards as of September 30, 2021. In addition,
the Company's U.K. holding company for the non-U.S. operating companies, The
Female Health Company Limited, continues to have a full valuation allowance of
$3.2 million, which increased by $0.8 million due to the change in U.K. tax
rates (see below). The operating U.K. subsidiary, The Female Health Company (UK)
plc does not have a valuation allowance due to projections of future taxable
income for the next 10 years.
Although management uses the best information available, it is reasonably
possible that the estimates used by the Company will be materially different
from the actual results. These differences could have a material effect on the
Company's future results of operations and financial condition.
On June 10, 2021, the U.K. Finance Act 2021 was enacted increasing the U.K. tax
rate from 19% to 25% effective April 1, 2023. The increase in the tax rate
increased the value of the deferred tax assets in the U.K. by $3.7 million with
a corresponding valuation allowance of $0.8 million, which resulted in a net
income tax benefit of $3.0 million.
Our effective tax rates have differed from the statutory rate primarily due to
the tax impact of foreign operations, state taxes and addition of the valuation
allowance against the NOL carryforwards. Our future effective tax rates could be
adversely affected by earnings being lower than anticipated in countries where
we have lower statutory rates and higher than anticipated in countries where we
have higher statutory rates, changes in the valuation of our deferred tax assets
or liabilities, or changes in tax laws, regulations, and accounting principles.
In addition, we are subject to the continuous examination of our income tax
returns by the IRS and other tax authorities. We regularly assess the likelihood
of adverse outcomes resulting from these examinations to determine the adequacy
of our provision for income taxes.
Fair Value Measurements
As of September 30, 2021, the Company's financial liabilities measured at fair
value on a recurring basis, which consisted of embedded derivatives, represents
the fair value of the change of control provisions in the Residual Royalty
Agreement. See Note 9 to the financial statements included in this report.
The fair value of these liabilities were estimated based on unobservable inputs
(Level 3 measurement), which requires highly subjective judgment and
assumptions. The Company determined the fair values of the embedded derivatives
using a Monte Carlo simulation model. This valuation model incorporates the
contractual terms of the instruments and assumptions including projected FC2
revenues over a 10-year period, expected cash outflows, probability and
estimated dates of a change of control, expected volatility, and risk-free
interest rates and applicable credit risk. The assumptions used in calculating
the fair value of financial instruments represent the Company's best estimates,
but these estimates involve inherent uncertainties and the application of
management judgment. As a result, the use of different estimates or assumptions
would result in a higher or lower fair value and different amounts being
recorded in the Company's financial statements. Material changes in any of these
inputs could result in a significantly higher or lower fair value measurement at
future reporting dates, which could have a material effect on our results of
operations. See Note 3 to the financial statements included in this report.
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The fair value of the embedded derivatives at September 30, 2021 was $7.9
million compared to $4.2 million at September 30, 2020. The Company recognized
non-operating expense of $3.7 million to adjust the fair value of these
instruments. The increase in the fair value of the embedded derivates is due to
an increase in projected FC2 net revenues in future periods and decreases in the
discount rates, resulting from external market factors.
Goodwill and Intangible Assets
The Company has $6.9 million recorded as goodwill at September 30, 2021 and 2020
and $4.0 million and $5.8 million in intangible assets at September 30, 2021 and
2020, respectively. The Company evaluates the carrying value of its goodwill and
indefinite-lived intangible assets, which consists of in-process research and
development (IPR&D), on an annual basis in the fourth quarter of each fiscal
year or more frequently when indicators of impairment exist. An impairment of
goodwill could occur if the carrying amount of a reporting unit exceeded the
fair value of that reporting unit. An impairment of indefinite-lived intangible
assets would occur if the fair value of the intangible asset is less than the
carrying value. Intangible assets with finite lives are tested for impairment
when events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. If these facts and circumstances exist, the
Company assesses for recovery by comparing the carrying values of the assets
with their future undiscounted net cash flows. Significant management judgment
is required in the forecast of future operating results that are used in the
preparation of expected undiscounted cash flows.
Regarding goodwill, the estimated fair value of a reporting unit is highly
sensitive to changes in projections and assumptions; therefore, in some
instances changes in these assumptions could potentially lead to impairment. We
perform sensitivity analyses around our assumptions in order to assess the
reasonableness of the assumptions and the results of our testing. See further
discussion in Note 1 to the financial statements included in this report.
IPR&D assets are considered to be indefinite-lived until the completion or
abandonment of the associated research and development projects. During the
period the assets are considered indefinite-lived, they are tested for
impairment. If the related project is terminated or abandoned, the Company may
have a full or partial impairment related to the IPR&D assets, calculated as the
excess of their carrying value over fair value. The valuation process is very
complex and requires significant input and judgment using internal and external
sources with respect to the Company's future volume, revenue and expense growth
rates, changes in working capital use, the selection of an appropriate discount
rate, asset groupings, and other assumptions and estimates. See further
discussion in Note 1 and Note 8 to the financial statements included in this
report.
Recent Accounting Pronouncements
See Note 1 to the financial statements included in this report for additional
information on recently adopted accounting pronouncements and recently issued
accounting pronouncements not yet adopted.
Impact of Inflation and Changing Prices
Although the Company cannot accurately determine the precise effect of
inflation, the Company has experienced increased costs of product, supplies,
salaries and benefits, and increased general and administrative expenses. The
Company has, where possible, increased selling prices to offset such increases
in costs.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements as defined in Item 303(a)(4)
of Regulation S-K.
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