Veru (NASDAQ:VERU) is set to discuss on May 10 with the Food and Drug Administration a pre-Emergency Use Authorization (EUA) meeting for its Phase 3 Covid-19 drug, sabizabulin (VERU-111). That could potentially be a turning point for Veru stock.
However, the only problem is that there is a research report dated May 2 from a short-seller firm, Culper Research. The allegations the firm makes are of a nature that most potential investors in Veru stock are likely to read.
To put bluntly the research report implies that Veru’s Phase 3 study is not likely to succeed in helping VERU-111 obtain a EUA. The report points out two major issues: first, the Phase 3 Covid-19 study contains “glaring issues, compounded by management misrepresentations.”
For example, on April 11 Veru announced its Covid-19 drug brought down the mortality rate by 55% but the Culper report said that this was a manipulation of how high mortality rates were with Covid-19. Also, apparently, most of the patients in the study were outside of the U.S.
The second major issue the Culper report has with Veru is the quality of management. The report lists numerous ethical, integrity, and past performance issues with the key personnel running the company. The report seems to imply that Veru will be another failure just like other drug companies the management has run. The points Culper makes are quite compelling and raise substantial questions about the history of the CEO, Mitchell Steiner, and the EVP of Clinical Affairs, Robert Getzenberg.
Where This Leaves Investors in Veru Stock
Veru has a market capitalization of $750 million at $8.46 as of May 6. The problem is it has just $116.1 million in cash as of Dec. 31 and is burning through its cash.
Veru has sales revenue from other medical assets it owns. But it burnt through almost $9 million in free cash flow (FCF) during its latest quarter ending Dec. 31., according to its 10-Q filing.
This implies that it could end up wasting a lot of its cash if the Phase 3 clinical study is not successful in obtaining FDA EUA approval. For example, if it has to redesign the study and start from scratch the costs could go up.
For most investors the likely risks, as outlined by the Culper Research article, probably outweigh the potential upside in Veru stock. Nevertheless, if somehow the FDA does give its Covid-19 vaccine a EUA, all bets are off on the stock. The problem is this is a highly speculative play for most investors.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.