Veru Inc. (VERU) is a late-stage biopharmaceutical company dedicated to developing innovative medicines that address critical unmet medical needs. The company's diverse pipeline includes promising drug candidates targeting metabolic diseases, oncology, and viral-induced acute respiratory distress syndrome (ARDS).

Company Background

Founded in 1988 as The Female Health Company, Veru has a long history in the healthcare industry. The company initially focused on the development and distribution of the FC2 Female Condom, which received FDA approval in 2009 for use as a contraceptive and protection against sexually transmitted infections. In 2016, Veru made a strategic shift by acquiring Aspen Park Pharmaceuticals, a biopharmaceutical company specializing in oncology and infectious disease drug development. This acquisition expanded Veru's pipeline to include promising drug candidates such as enobosarm and sabizabulin.

Throughout its history, Veru has faced various challenges in developing and commercializing its drug candidates. In 2022, the company experienced a setback when the FDA declined to grant Emergency Use Authorization for sabizabulin as a treatment for COVID-19, prompting a reevaluation of its development strategy. Despite these challenges, Veru has achieved notable milestones, including the FDA approval of ENTADFI, a new treatment for benign prostatic hyperplasia, in 2021. However, in 2023, the company sold the ENTADFI assets to Onconetix, Inc. as part of its strategic shift to focus on core drug development programs.

Financials

Veru's financial performance has been marked by consistent revenue growth, driven primarily by the commercial success of its FDA-approved FC2 Female Condom. In fiscal year 2023, the company reported total revenue of $16.3 million, with the FC2 business contributing the majority of these sales. However, Veru's focus has shifted towards advancing its pharmaceutical pipeline, positioning the company for potential long-term value creation.

As of the company's latest 10-Q filing in August 2024, Veru reported total assets of $64.6 million and stockholders' equity of $37.6 million. The company's cash and cash equivalents stood at $29.2 million, providing a solid foundation to fund its ongoing clinical development efforts. Veru's current ratio of 3.62 and quick ratio of 3.16 suggest a healthy liquidity position, further bolstering the company's ability to execute its strategic priorities.

Veru's key financial ratios paint a picture of a well-managed, resource-efficient organization. The company's gross profit margin of 33.4% in the most recent quarter indicates the profitability of its core business activities. Additionally, Veru's return on assets (ROA) and return on equity (ROE) of -0.82 and -1.39, respectively, highlight the company's focus on efficient capital deployment and shareholder value creation.

In the most recent fiscal year (2023), Veru reported a net income of -$93.15 million, operating cash flow of -$88.01 million, and free cash flow of -$88.68 million. For the most recent quarter (Q3 2024), the company reported revenue of $3.95 million, net income of -$10.97 million, operating cash flow of -$5.65 million, and free cash flow of -$5.70 million. Notably, revenue decreased by 18% compared to Q3 2023, primarily due to a decline in sales in the U.S. prescription channel, offset partially by an increase in global public health sector sales.

Veru's debt-to-equity ratio stood at 0.25x as of June 30, 2024, indicating a relatively low level of leverage. The company's cash and cash equivalents balance of $29.15 million as of June 30, 2024, provides a cushion for ongoing operations and development activities. However, Veru has not disclosed any available credit lines.

Pipeline and Development Programs

One of Veru's most promising pipeline candidates is enobosarm, which is being developed as a treatment to augment fat loss and prevent muscle loss in overweight or obese patients receiving glucagon-like peptide-1 (GLP-1) receptor agonist therapies. This unmet medical need is particularly prevalent among older adults, as up to 34.4% of obese patients over the age of 60 have sarcopenic obesity, a condition characterized by both obesity and age-related muscle loss.

Veru has completed five previous clinical trials involving 968 patients, which have demonstrated enobosarm's ability to increase muscle mass and physical function, as well as significantly reduce fat mass. The company is currently conducting a Phase 2b clinical trial evaluating the safety and efficacy of enobosarm in combination with the GLP-1 receptor agonist semaglutide (Wegovy) in approximately 150 sarcopenic obese or overweight elderly patients. The primary endpoint of this study is the change in total lean body mass, with key secondary endpoints focusing on fat mass, total body weight, insulin resistance, and physical function.

In addition to the enobosarm program, Veru is developing sabizabulin, a microtubule disruptor, for the treatment of hospitalized patients with viral-induced ARDS. The company has completed positive Phase 2 and Phase 3 clinical trials for sabizabulin in patients with COVID-19-related ARDS, demonstrating a mortality benefit. However, Veru has decided to prioritize the development of enobosarm and is currently seeking external funding to advance the sabizabulin program.

Commercial Products

Veru's commercial product, the FC2 Female Condom, continues to generate steady revenue, contributing to the company's overall financial stability. In the most recent quarter, the FC2 business accounted for $3.95 million in net revenues, with $0.55 million from the U.S. prescription channel and $3.40 million from the global public health sector. For the nine months ended June 30, 2024, FC2 net revenues were $10.23 million. The gross profit margin for the FC2 business was 34% in the three-month period and 31% in the nine-month period, reflecting a change in sales mix with a higher proportion of lower-margin global public health sector sales.

The majority of Veru's revenues come from sales of its FC2 Female Condom in the global public health sector, primarily to government agencies, NGOs, and commercial partners. In the U.S., FC2 is sold through telehealth providers in the prescription channel.

Risk Factors

One potential risk factor for Veru is its reliance on a limited number of large customers for its FC2 business. In the past, the bankruptcy of a key telehealth customer, The Pill Club, resulted in a $3.9 million provision for credit losses. The company is actively working to diversify its customer base and expand its FC2 distribution channels to mitigate this risk.

Additionally, Veru's failure to timely file certain regulatory reports with the SEC has temporarily impacted the company's ability to access the capital markets through new registration statements on Form S-3. This may increase the company's cost of capital and create challenges in funding its ongoing drug development efforts. Veru is committed to addressing these filing delinquencies and regaining its Form S-3 eligibility.

Investment Opportunity

Despite these risks, Veru's focus on high-potential pipeline candidates, particularly enobosarm for weight management, presents a compelling investment opportunity. The company's strong liquidity position, efficient operations, and promising clinical data support its ability to navigate the challenges and capitalize on the significant market opportunities in the metabolic disease and infectious disease spaces.

As Veru continues to execute on its strategic priorities, investors will closely monitor the progress of the enobosarm Phase 2b clinical trial, which is expected to deliver topline results by the end of 2024. Additionally, the company's ability to secure external funding for the sabizabulin program will be a key factor in determining Veru's long-term growth trajectory.

Conclusion

In conclusion, Veru Inc. is a versatile biopharmaceutical company with a diverse pipeline and a solid commercial foundation. The potential of enobosarm to address the muscle-wasting side effects of weight loss medications, coupled with the company's financial discipline and efficient operations, make Veru a compelling investment opportunity in the dynamic biotech sector. While the company faces challenges, including a recent decline in revenue and ongoing losses, its focus on advancing high-potential drug candidates and maintaining a strong liquidity position positions it well for future growth. Investors should closely monitor the progress of Veru's clinical trials and its ability to secure additional funding to support its development programs.