Biotech company Veru (VERU -7.57%) aims to make products to treat cancer and infectious diseases. Today, however, its revenue comes primarily from its FC2 Female Condom. But that's not what has been grabbing investors' attention this year. Instead, it has been the company's potential COVID treatment that has been getting investors excited. And speculation on whether the Food and Drug Administration (FDA) authorizes it or not has sent the stock on a wild ride this year.
With the stock recently crashing and now at its lowest levels since March, is now the time to buy shares of Veru?
Investors should brace for volatility
Veru is hoping that the FDA will grant Emergency Use Authorization (EUA) for its COVID-19 drug, sabizabulin. It's currently under review, and positive news could mean an influx of revenue for the business, especially given COVID case numbers are still climbing around the world.
But on Nov. 9, the company announced that an FDA advisory committee voted against the treatment, saying that the risks don't outweigh the potential benefits. That doesn't mean the FDA won't grant it an EUA, but it's certainly not good news. The following day, the stock crashed by more than 50%.
That tells you that investors buying shares of Veru are banking on its COVID treatment and not much else. That injects considerable risk into the stock and can make the investment an incredibly volatile one to hold, especially since its financials aren't that great.
Veru's sales nosedived last quarter
When the company last reported earnings in August, its revenue of $9.6 million for the period ending June 30 was down 46% from the prior-year period. The company said orders were down for FC2, "because of some business challenges experienced by our customers." While the company expects a recovery in revenue, it didn't offer a timeline as to when business might pick up. If sales can drop off that suddenly, that's a cause for concern for investors.
Veru, however, has recently launched Entadfi, which is used to treat men who have enlarged prostates. It could be key in making up for FC2's volatile revenue as the company estimates that sales from Entadfi may reach over $200 million.
The company reports its year-end earnings on Dec. 5, which will give investors early signs of how Entadfi is doing and if FC2's sales are showing signs of recovery.
The company is unprofitable and burning through cash
Another risk investors need to consider is that while Veru does have some growth potential in Entadfi and sabizabulin (should it obtain EUA), the business isn't in a good place right now. Over the trailing 12 months, it has incurred net losses totaling $47 million -- that's nearly as much revenue it has generated during that time ($52.4 million). And it's also burning through millions in cash from its day-to-day operations.
VERU Cash from Operations (Quarterly) data by YCharts
This is a problem for investors because if a company isn't generating money, it will need to get it from somewhere to keep its operations running. And often, that comes by issuing shares, which dilutes existing shareholders and puts downward pressure on the stock price.
With Veru having more than $100 million in cash and cash equivalents, that's not a huge concern for it right now, but it's something investors should keep an eye on.
Should you buy Veru stock?
Veru is a highly speculative and risky buy, and it wouldn't make for a suitable investment for most people. The lack of stability the business offers, both with respect to fluctuating demand for its FC2 product and huge losses, is enough of a reason to avoid the healthcare stock right now.
