Veru Inc

Veru Inc (NASDAQ: VERU) is an oncology biopharmaceutical entity that focuses on developing novel medicines for breast cancer and prostate cancer.

Investment Rationale – SPECULATIVE BUY at USD 8.19

• Veru demonstrated historical growth in quarterly FC2 net revenues and recorded a solid cash balance at the end of March 2021 to fund upcoming development programmes.
• The Company has advanced its novel oral drug candidates for treating breast and prostate cancer.
• It has started enrolling for Phase 3 clinical trial of Sabizabulin (novel oral agent to reduce mortality in hospitalized COVID-19 patients), which is expected to be completed by Q4 CY21 (calendar year).
• From a technical standpoint, 14-day RSI (43.71) is moving towards the oversold position and supporting the upside potential.
• Over the past six months, the stock has yielded a remarkable return of over 171% and significantly outperformed the NASDAQ Composite index.
• Over the past four years (FY16 to FY20), revenue and gross have grown significantly at a CAGR of nearly 17.78% and 23.23%, respectively.

Risk Assessments

• Inability to obtain sufficient funds for the development of Sabizabulin can negatively impact the Covid-19 drug program.
• Increased operational expenses, higher marketing expenses amid intense competition can put pressure on pricing and impact revenue generation.
• The potential delay in the clinical trial and FDA approvals amid the Covid-19 disruption can extend drug commercialization and lead to significant cash burn.
• The product demand and market acceptance for its products are uncertain, which can impact the growth trajectory.
• The impact of macroeconomic uncertainties over customer receivables, activity level and demand disruption cannot be ruled out.

Recent News

24 May 2021: Veru unveiled that for the presentation at the ASCO (American Society of Clinical Oncology) annual meeting, its two abstracts have been accepted. It underpins excellent clinical results and progress towards the development of critical drugs for unmet medical needs pertinent to refractory breast and prostate cancers’ treatment.

Financial Highlights for the quarterly period ended 31 March 2021 (Q2 FY21) (as on 12 May 2021)

 (Source: Company Website)

• During Q2 FY21, Veru reported a 34% jump in revenue against Q2 FY20 with strong FC2 prescription net revenues. Therefore, gross profit surged 47% to US$10.9 million in Q2 FY21.
• The gross margin increased to 82% of net revenues in Q2 FY21 from 75% in Q2 FY20.
• The operating loss increased from US$0.3 million in Q2 FY20 to US$1.5 million in Q2 FY21.
• Subsequently, net loss stood at US$2.8 million in Q2 FY21, representing US$0.04 of loss per share.
• As of 31 March 2021, Veru’s liquidity reported a robust profile with US$136.7 million in cash and cash equivalents (as on 30 September 2020: US$13.6 million).

Share Price Chart    

 (Research done by Kalkine Group)

Conclusion

Veru has shown encouraging revenue growth and there are favourable trends underneath with the development of Sabizabulin for the treatment of COVID-19 virus infection. The Company also expects to commence enobosarm phase 3 trial of ARTEST clinical study in Q2 CY21. Moreover, it has witnessed record growth in FC2 business; however, it has a limited number of customers in the global public health sector. Also, the increased R&D expenses for advancing multiple drug candidates can impact profitability in the short term. On the bright side, the Company has decent liquidity post the disposal of PREBOOST® business and it has substantial funds to manage the operations over the next 12 months. In a nutshell, the Company has decent grounds to generate substantial value for its shareholders. The stock made a 52 week High and Low of USD 24.57 and USD 2.30, respectively. On the technical chart, the next important support level is at USD 6.96.

Based on the strong revenue growth, progress towards clinical trials, and record growth in the FC2 US prescription business, we have given a “SPECULATIVE BUY” stance on Veru Inc at the closing price of USD 8.19 (as on 25 May 2021).

Biomerica Inc

Biomerica Inc (NASDAQ: BMRA) provides biomedical technology to develop advanced diagnostic and therapeutic products leveraged for the treatment of various diseases and medical conditions.

Investment Rationale – SPECULATIVE BUY at USD 3.46

• Biomerica has a robust portfolio of around 83 diagnostic products and approximately 100 international patents filed, and it serves some of the most respected healthcare institutions.
• The Company expects top-line analysis from the InFoods® IBS endpoint clinical trial by the end of Q3 CY21. This patent product is targeting to address the US$30 billion Irritable Bowel Syndrome market.
• Its 15-Minute nasal swab test for Covid-19 is quite cost-effective and highly portable, which is a testament to Company’s underlying technology strength.
• The Company has no debt and preferred equity, around 24% insider ownership, which is reflecting a conservative capital structure.
• Over the past four years (FY16 to FY20), revenue has grown at a CAGR of nearly 6.81%.
• From a technical standpoint, 14-day RSI (34.05) is nearly hovering at an oversold position, which is supporting the trend reversal and upside potential.

Risk Assessments

• BMRA’s stock price has given a negative return of ~30.52% on a YTD basis, reflecting an underperformance against the NASDAQ Composite index.
• The Company does not intend to pay dividends in the foreseeable future, which can impact the lucrativeness of the stock price.
• The supply chain disruption, financial risk, operational challenges, and government restriction arising with the Covid-19 pandemic can impact the business performance.
• Ineffectiveness or inability to gain acceptance for the Covid-19 test could materially harm the operations. As new mutations of the virus can impact the test effectiveness and expected commercialization might not be achieved.
• The changing regulations for approvals and inability to control margins with exceptionally higher inventory reserves can also impact its ability to be profitable in the near future.

Recent News

11 May 2021: Biomerica announced its 15-Minute COVID-19 Antigen Test with the invasive nasal swab, which would speed up identifying the infected patients and prevent further spread of the virus.

Financial Highlights for the quarter ended 28 February 2021 (Q3 FY21) (as on 27 April 2021)

 (Source: Company Website)

• During Q3 FY21, BMRA reported 208% growth in revenue against Q3 FY20, driven by sales of COVID-19 Antigen Rapid Test post January 2021 in Europe.
• The Company cost of sales surged due to its large inventory reserves. The gross margin without exceptionally higher reserves would have been 38% in Q3 FY21.
• Biomerica also increased R&D expenses and incurred higher general and administrative expenses due to higher reserves and planned commercialization.
• Therefore, the Company reported an aggravated net loss in Q3 FY21 and reduced cash and cash equivalents as on 28 February 2021 as compared to 30 September 2020.

One Year Share Price Chart    

 (Research done by Kalkine Group)

Conclusion

Evidently, Biomerica reported robust revenue growth in the last quarter and shown progress in enrolling patients for InFoods® IBS endpoint clinical trial. Adjacently, the Company’s InFoods® products can revolutionize the treatment of gastrointestinal diseases and generate sizeable revenue opportunities. Moreover, the launch of COVID-19 tests at a low cost shall support further revenue growth. Meanwhile, FDA continued to review their products in the US market. Overall, the Company has considerable opportunities for testing globally. The stock made a 52 week High and Low of USD 12.75 and USD 3.30, respectively. On the technical chart, the next important support level is at USD 2.94.

Based on the decent revenue growth, announcement of the new Covid-19 test, higher operating expenses, and robust product portfolio, we have given a “SPECULATIVE BUY” stance on Biomerica Inc at the closing price of USD 3.46 (as on 25 May 2021).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

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