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Edited Transcript of FHCO earnings conference call or presentation 14-Aug-18 12:00pm GMT

Q3 2018 Veru Inc Earnings Call

CHICAGO Aug 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Veru Inc earnings conference call or presentation Tuesday, August 14, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michele Greco

Veru Inc. - CFO, Executive VP of Finance & Chief Administrative Officer

* Mitchell S. Steiner

Veru Inc. - President, CEO & Director

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Conference Call Participants

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* Jason Wesly McCarthy

Maxim Group LLC, Research Division - Senior MD

* Kumaraguru Raja

Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to Veru's Inc.'s Investors Conference Call. (Operator Instructions) Please note, this event is being recorded.

The statements made on this conference call that are not historical in nature are forward-looking statements. Such forward-looking statements reflect the company's current assessment of the risks and uncertainties related to our businesses. Our actual results and future developments could differ materially from the results or developments in such forward-looking statements.

Factors that may cause actual results or developments to differ materially include such things as the risks related to the development of the company's product portfolio, risks related to the ability of the company to obtain sufficient financing on acceptable terms when needed to fund development and company operations, risks related to competition, government contracting risks and other risks detailed in the company's press releases, shareholder communications and Securities and Exchange Commission's filings. For additional information regarding such risks, the company urges you to review its 10-Q and 10-K SEC filings.

I would now like to turn the conference over to Dr. Mitchell Steiner, Veru Inc.'s Chairman, CEO and President. Please go ahead.

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [2]

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Thank you, operator, and good morning. This is Dr. Mitchell Steiner. I'm the Chairman, President and CEO of Veru Inc., and joining me are Michelle Greco, CFO and CAO; and Phil Greenberg, Executive Vice President, Legal. Thank you for joining our call.

Veru is a urology and oncology biopharmaceutical company, focusing on prostate cancer, novel medicines and urology specialty pharmaceuticals. Today, we will update you on the clinical development of our drug pipeline and on the commercialization of our products as well as provide financial highlights for the third fiscal quarter 2018.

Let's start with the novel medicines being developed for prostate cancer and prostate cancer supportive care. Zuclomiphene, also known as VERU-944 and cis-clomiphene citrate, is an oral estrogenic agent being evaluated for the treatment of hot flashes in men who are on hormone therapy, also known as androgen deprivation therapy, to treat their advanced prostate cancer.

Currently, there are no drugs approved by FDA for the indication. Androgen deprivation therapy includes drugs like Lupron, Eligard, Firmagon and Zoladex. Over 600,000 men are on androgen deprivation therapy for the treatment of their prostate cancer in the U.S.

Androgen deprivation therapy works by lowering testosterone levels to very low castrate levels in order to stop the progression and spread of prostate cancer. In men, we make estrogen from testosterone. Low testosterone then means low estrogen levels as well.

Normal estrogen levels are important for men, too. By lowering estrogen levels, we're converting these men essentially into postmenopausal women since these men have essentially the same estrogen deficiency symptoms of hot flashes, loss of bone mineral density, bone fractures and loss of libido. In fact, hot flashes are one of the most common side effects of androgen deprivation therapy. Up to 80% of these men experience treatment-related hot flashes and 30% to 40% have moderate-to-severe hot flashes even up to 8 years later.

Hot flashes are the episodic sensation of heat, uncontrollable sweating, which may even cause the individual to stop his daily activities until the hot flashes resolve. Many men find these hot flashes debilitating and want to stop or intermittently use androgen deprivation therapy because of this side effect.

Zuclomiphene could be the solution to manage these unwanted estrogen deficiency-related side effects caused by androgen deprivation therapy. Because zuclomiphene is a component of a drug called Clomid, which was originally approved by the FDA in 1967, there is a lot of known clinical history about the drug. As for efficacy, zuclomiphene, the cis-isomer of clomiphene, is a nonsteroidal agent known to have estrogenic activity, which we have confirmed in our own animal studies. We know from the scientific literature that steroidal estrogens do work for this indication, but steroidal estrogens are not FDA approved for the treatment of hot flashes and thus are being used off-label without an established dose or an understanding of potential safety risks.

One of the main reasons that potent steroidal estrogens are not widely used is because of the potential for the serious safety concerns when given to men. In contrast, zuclomiphene is a weak nonsteroidal estrogenic agent, so we'll be able to reduce hot flashes caused by androgen deprivation therapy with a different safety profile. In fact, we have direct and indirect safety evidence, based on the FDA safety databases as well as from the scientific literature, that zuclomiphene is different and appears to be well tolerated.

Furthermore, zuclomiphene as 1 of the 2 drugs that make up Clomid, has and is being used by over 88,000 men in the U.S. each year for a different off-label indication, such as infertility or hypogonadism. Thus, as a nonsteroidal estrogenic agent, zuclomiphene should be effective against hot flashes in men on prostate cancer hormone therapy, and the existing available safety clinical data suggest it should have a similar safety profile. For these reasons, we're formally evaluating zuclomiphene as the treatment for hot flashes caused by hormone therapy in men with advanced prostate cancer to ascertain the appropriate dose based on the efficacy and safety profile.

As for the clinical development of zuclomiphene, we filed the IND with FDA in June of 2018, and the FDA has now officially given us a green light to enter Phase II testing. The first patient should be enrolled in the Phase II clinical trial this month. The Phase II clinical trial is a randomized, blinded placebo-controlled, dose-finding study. It is a 4-arm study with 30 men per study arm for a total of approximately 120 men that will be conducted in over 10 clinical sites in the U.S.

We plan to evaluate 3 different oral daily doses of zuclomiphene: 10 milligrams, 50 milligrams and 100 milligrams compared to placebo. It is expected to be a short study as the treatment period is only 12 weeks. The primary endpoint is the reduction in the frequency of moderate-to-severe hot flashes from baseline to 4 weeks and maintained by 12 weeks in the study. We expect to report the final Phase II clinical data for zuclomiphene in the first half of 2019.

It should be noted, we have strong intellectual property protection. Even though Clomid, which is made up of 2 drugs -- enclomiphene and zuclomiphene -- is an old drug, zuclomiphene in its pure form without enclomiphene has never been approved for any indication worldwide. We have been granted by the U.S. Patent Office a method of use patent for zuclomiphene with an expiration date in 2035. As I mentioned earlier, there are an estimated 600,000 men on hormone therapies for prostate cancer, making this potentially an over $600 million annual market in the U.S. alone.

Next, we're developing VERU-111, our second novel medicine for the treatment of advanced prostate cancer. By way of background, the only effective drug so far against advanced metastatic prostate cancer had been either hormonal, like androgen deprivation therapy, or intravenously given anti-tubulin therapies. VERU-111 is a novel next-generation oral anti-tubulin therapy that targets alpha and beta tubulin subunits of microtubules.

In animal models, VERU-111, as an oral anti-tubulin, indeed has demonstrated significant antitumor activity against metastatic hormone-sensitive prostate cancer, metastatic castration-resistant prostate cancer, metastatic castrate-resistant and taxane-resistant prostate cancer, and metastatic castration and novel androgen blocking agent like abiraterone- and enzalutamide-resistant prostate cancer. We're planning to initially develop VERU-111 for the unmet medical need in men who have metastatic castration-resistant prostate cancer and who have also become resistant to, who have failed to respond to ZYTIGA, which is abiraterone, or XTANDI, which is enzalutamide.

We'll be having a pre-IND meeting with the FDA soon and anticipate filing the IND this quarter and then initiating an open-label Phase Ib/II clinical trial by the end of the year. An open-label study means that every patient will receive VERU-111, and so we expect to have early evidence of safety and efficacy in late 2018 and the early part of 2019. We plan to work closely with Johns Hopkins and other highly regarded clinical sites to conduct this study.

In June of 2018, as part of the American Society for Clinical Oncology Annual Meeting, we reported preclinical results not only showing the efficacy of VERU-111 against novel androgen blocking agent resistant human prostate cancer, but we also reported preclinical data showing VERU-111's antitumor activity against taxane-sensitive and resistant triple negative breast, ovarian and pancreatic cancers.

This provides further evidence that VERU-111 may also be developed as an oral therapy for other tumor types that are currently being treated by intravenously given anti-tubulin chemotherapies. The markets for advanced prostate cancer and other cancer types that could be treated with an oral anti-tubulin represents a multibillion-dollar opportunity today.

Veru is also executing on its strategy for near-term revenue growth by having several urology specialty pharmaceutical new formulated drugs under clinical development that fill important unmet medical needs in urology and that will not require any additional efficacy or safety studies but, instead, will require just a bioequivalent study. Following completion of successful bioequivalency studies, we plan to file several NDAs and commercialize multiple drugs in urology in the near term. In fact, we expect to file 3 NDAs for 4 drugs over the next 18 months.

I will now briefly update you on the progress of our urology specialty pharmaceuticals. First, we have a proprietary new slow-release granule formulation of tamsulosin in 2 drug products: tamsulosin DRS, which is extended-release granules for oral suspension; and tamsulosin XR capsules. These 2 new drug formulations address the administration concerns of the branded Flomax. Flomax has a food effect, which means that, according to the label, the greater amount of drug, up to 70% more, gets rapidly absorbed, which results in 30% higher blood drug levels when given on an empty stomach. As a precaution to prevent unwanted side effects like dizziness, fainting, orthostatic hypotension and falls, the FDA label states that Flomax must be given 30 minutes after a meal.

Our novel slow-release granule formulation appears to not have a food effect based on 2 bioequivalent studies that we've already conducted. This lack of a food effect provides a major clinical advantage for tamsulosin granules and capsules in both drug administration and compliance compared to Flomax and its current generics. We expect final bioequivalency data in 2018. The launch is planned for 2019.

Our third urology drug in late clinical development is a new proprietary Tadalafil 5 milligrams/finasteride 5 milligrams combination tablet formulation. This proprietary fixed combination formulation, which we call the male pill, contains the active ingredients of Cialis, which is Tadalafil 5 milligrams, approved for the treatment of symptoms of BPH and erectile dysfunction; and PROSCAR, finasteride 5 milligrams approved for shrinking enlarged prostate to treat BPH. Hence, Tadalafil/finasteride combination tablet formulation quickly treats urinary symptoms of BPH while it also shrinks the size and prevents the progressive growth of the prostate in men to present with an enlarged prostate. It also has the added advantage of having an erectile dysfunction medicine as one of its active ingredients. We anticipate for Tadalafil/finasteride combination tablet, the male pill formulation, final bioequivalency clinical data and filing an NDA in 2019.

Our fourth urology drug in clinical development is called Solifenacin DRG. It's a proprietary delayed-release granule formulation of Solifenacin, an active ingredient in VESIcare, a popular drug for the treatment of overactive bladder, which is urgency, urge incontinence and frequency in both men and women. Solifenacin tablets must be swallowed whole and are not to be crushed or chewed.

There are no granule formations available for any of the selective M3 muscarinic receptor antagonists for men or for women, who have the common condition of overactive bladder and have difficulty or cannot swallow tablets. Our proprietary Solifenacin DRG formation utilizes the same delivery technology platform as we have for tamsulosin DRS slow-release granules, and we expect the Solifenacin DRG slow-release granules for the treatment of overactive bladder in men and women final bioequivalency data and filing an NDA in 2019.

As you can see, we have made great progress this year by obtaining regulatory clarity and advancing the clinical development of our pipeline for multiple drugs. We paid for these activities this year in part by the revenue produced from our commercial products, the FC2 Female Condom and PREBOOST.

The Female Health Company division has revenue from both the Global Public Health sector and the U.S. markets. In the Global Public Health sector, FC2 is the world's leading female condom. This is the channel where FC2 is purchased in bulk quantities by governments and nongovernmental donor agencies for public health distribution. For this division, we've reported our best quarter this fiscal quarter since the acquisition of Aspen Park Pharmaceuticals in October of 2016. We had a great quarter with 10 million units sold, which is an increase of 18% from fiscal Q3 2017. Michele will provide the financial details shortly.

Furthermore, this past fiscal year and for the first and second fiscal quarters of this year, we felt the impact of 2 of our largest customers, Brazil and South Africa, who did not place orders this past year due to their normal procurement cycles. Looking forward to support our funding needs in part, we know that South Africa is expected to award, any day now, a 40 million unit tender per year for 3 years totaling 120 million units tender award. We are confident that we will receive a substantial amount of the new tender from South Africa, and we're looking forward to announcing the South African tender awards results soon. We also expect to be awarded a portion of the Brazil tender of 35 million units in 2018.

Finally, the U.S. FC2 business has turned a corner. We have seen better-than-expected growth in U.S. prescriptions and nonprescription sales. This is in part the reason we saw the increase in unit sales price in fiscal Q3, which is expected to be even better in fiscal Q4. As I mentioned before, we continue to increase the value of the FC2 product in business. The FC2 business has and will provide additional resources to partially fund our main objective, which is the creation of shareholder value to the clinical development and commercialization of novel proprietary prostate cancer and prostate cancer supportive care medicines as well as urology specialty pharmaceuticals.

I will now turn the call over to Michele Greco, CFO and CAO, to discuss the financial highlights. Michele?

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Michele Greco, Veru Inc. - CFO, Executive VP of Finance & Chief Administrative Officer [3]

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As Dr. Steiner indicated, we were encouraged to see the sales in the public sector recover during the third quarter to volumes closer to historical averages. This quarter marks the highest unit volumes since the third quarter of fiscal 2016.

In the global public sector, we provide training and work on demand creation in the various countries through affiliations and working with governments who are committed to sustainable female condom programs. This integrated approach has resulted in increased ordering patterns. With the near-term potential for substantial South Africa orders, when the large tender is awarded soon, we may be able to exceed its historical unit volumes.

In the U.S. FC2 prescription market, we saw an increase in unit sales during the third quarter of 11% compared to the units sold during the first 2 quarter of this fiscal year. We continue to see significant increases in the U.S. FC2 high-margin prescription market. As an example, in July, we added a new sales channel, another telemedicine company, however, this one also has a pharmacy, and we've already seen recurring orders placed by this customer.

During the third quarter in the U.S., we changed our sales and marketing efforts, whereby we eliminated our fixed cost internal sales force and instead contracted an independent sales force, which resulted in onetime severance cost of approximately $500,000, which we recorded during the quarter.

Let's review our third quarter results. Our unit sales totaled 10 million, which is an 18% increase from the 8.5 million from the third quarter of 2017. Net revenues for the quarter totaled $5.5 million, an increase of 28% from the prior year quarter.

Gross profit increased 34% to $3.1 million for a margin of 56% compared with $2.3 million for a margin of 53% in the prior year quarter. Net revenue per unit was $0.55 compared to $0.51 in the prior year quarter.

The change in our sales mix and, in U.S., FC2 higher price per unit sales resulted in the increase in our net revenue per unit and the increase in our gross margin. Operating expenses increased $4.5 million from the prior year quarter to $8 million. The increase in operating expenses was primarily due to increase in research and development expenses of $3.5 million for our clinical development programs, additional headcount associated with the FC2 prescription launch and severance cost associated with the change in our U.S. sales and marketing efforts.

During the quarter, we incurred interest expense and change in fair value of the derivative liabilities related to our synthetic royalty financing of $1.8 million. The bottom line result was a net loss for the quarter of approximately $7.9 million or $0.15 per diluted common share compared to a net loss of $800,000 or $0.03 per diluted common share. The increase in the net loss for the quarter of $7.1 million is due primarily to the increased research and development cost of $3.5 million, the severance cost of $500,000, the interest and related expense of $1.8 million, and the increase in the tax expense of $1.7 million.

Now for the results in the 9-month period ended June 30, 2018. Unit sales totaled 18.5 million compared to 19.4 million from the prior year. Net revenues for the 9 months totaled $10.7 million, an increase of 7% from the prior year. Net revenue per unit was higher at $0.57 compared to $0.51 in the prior year. Gross profit was higher at $5.6 million compared with $5.2 million in the comparable prior year period.

Operating expenses increased $11.8 million to $22.7 million from $10.9 million in the prior year. This increase was driven primarily by increased research and development expenses of $6.1 million; the $4 million related to the settlement agreement we entered into with our Brazilian distributor, Semina, during December of 2017; and severance cost associated with the change in our U.S. sales and marketing efforts.

During the 9 months, we incurred interest expense and change in derivative liabilities of $2.1 million. The bottom line result was a net loss for the 9 months of $16 million or $0.30 per diluted common share compared to a net loss of $3.9 million or $0.13 per diluted common share in the prior year. The increase in the net loss of $12.1 million is primarily due to the increased research and development cost of $6.1 million, the cost of the settlement agreement of $4 million, the severance cost of $500,000 in interest and other related expense of $2.1 million, all of which are offset by an increase in the tax benefit of $1.5 million.

Also to note regarding our results for operations for the 3 months and the 9 months ended June 30, 2018, we recorded a tax expense of $1.2 million and a tax benefit of $3.3 million, respectively. The company has net operating loss carryforwards for U.S. Federal Tax purposes of $10.5 million, expiring in years through 2037, and our U.K. subsidiary has net operating loss carryforwards of $62.2 million, which do not expire.

Now turning to our balance sheet. As of June 30, 2018, our cash balance was $5.6 million, and accounts receivable were $3.7 million. Included in accounts receivable is $1.3 million related to Brazil, which we collected in July of 2018. During the 9 months ended June 30, 2018, we used cash of $8.7 million for operating activities compared with producing cash from operations of $400,000 in the prior year 9-month period.

During the second quarter, we completed a nondiluted $10 million synthetic royalty financing on FC2 product sales, which provided immediate funds to support our drug development program and operations. During the third quarter, we sold 1,176,470 shares under our purchase agreement with Aspire Capital for $2 million. Our plans have been and continue to be to advance our clinical programs using cash available from our commercial operations in part. We are optimistic about the near-term prospects of meaningful FC2 profit and expect the global public sector to return to historical volumes and the U.S. FC2 prescription market sales units to continue to increase, both of these contributing to increasing our operating profit.

As Dr. Steiner discussed earlier, we continue to make significant [process] on our clinical programs. We believe, we'll be awarded a significant portion of the South Africa tender. We're seeing the results of our efforts to entering new geographical markets and partner with new distributors to generate new revenues in the Global Public sector. And we are starting to see the increase in orders from our U.S. FC2 prescription markets and the new U.S. sales channel.

Now I'd like to turn the call back to Dr. Steiner.

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [4]

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Thank you, Michele. We have transformed our company to a biopharmaceutical company focused on prostate cancer novel medicines and urology specialty pharmaceuticals as well as we're well positioned to offer numerous oncology and urology drugs to take advantage of a multibillion market.

Zuclomiphene and VERU-111 will be the foundation of our high-value, large-market oncology and cancer supportive care franchise. And our urology specialty pharmaceuticals will initially consist of 4 products: tamsulosin granules and capsules, Tadalafil/finasteride combination tablets, and Solifenacin DRG granules. Through these urology specialty pharmaceuticals, we're in a near-term position to file several NDAs as well as a launch in part and when appropriate, multiple urology drugs over the next 2.5 years.

With that, I'll now open the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Jason McCarthy of Maxim Group.

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Jason Wesly McCarthy, Maxim Group LLC, Research Division - Senior MD [2]

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Just a question around 111. There was some news about a month ago around label expansion for XTANDI. It's kind of moving towards earlier lines of therapy, as you know. Can you discuss a little bit about how that impacts the potential for 111 in the prostate cancer space? And just an add-on to that, the Phase Ib/II study. What are the expectations of the target drop in PSA that you would consider to be significant in how that outlines the path forward for 111 development?

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [3]

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Great. Thank you for the questions. So the first question is actually an interesting one, and I'll frame it. And then the second question is for the PSA reductions, what would we consider a success. And a lot of it depends on the patient population, so I'll come back to that. So Jason, you bring up a very important point, and I was sitting at the ASCO -- it's called GU ASCO meetings in San Francisco, when apalutamide, which is a different flavor of enzalutamide, got approved by Johnson & Johnson for a very interesting space, which I'll talk about in a moment. And then as you mentioned, a few minutes weeks ago, enzalutamide, which is also an AR-blocking agent, also got approved for the same space. Now why is this important for VERU-111? Well it turns out, as I mentioned in my comments, that the only 2 agents that have shown activity -- significant activity in prostate cancer with hormone therapies, which enzalutamide and apalutamide are examples of, and the others are the anti-tubulins, like that taxanes, docetaxel and cabazitaxel and VERU-111, which is an oral agent. And what has happened is that, because urologists have been treating PSAs and were not treating necessarily metastatic disease, we've actually created a new class of patients. So all these new drugs the 5 or 6 that have been approved have been all approved for what's called metastatic castration-resistant prostate cancer. That means they were put on androgen deprivation therapy because they presented with metastatic disease, their PSAs went up, and now nothing can work except these new AR-blocking agents. The problem with these new AR-blocking agents, is if you use one, you can't use another. So for example, if we treat somebody with metastatic castrate-resistant prostate cancer because they broke through the androgen deprivation therapy with enzalutamide or abiraterone, and you pick one, let's say, pick abiraterone and they fail, which means the PSA starts to go up, and now you give them enzalutamide, you don't get much benefit and vice versa. And the reason for that is if you really, really, really lower androgen -- testosterone levels really, really low to just get the cancer to stop growing and it starts to grow again, can you really get testosterone any lower? And the answer is you really can't, and so that's a reason why you can't really sequence these androgen-blocking type drugs. So you need to go now to IV chemotherapy, which is docetaxel or cabazitaxel, or we're hoping in the future, it'll be our drug, VERU-111. So that's why, in our Phase Ib/II, we're going after those patients that failed androgen deprivation therapy and they failed one of those drugs, abiraterone and enzalutamide, but they had metastatic disease. Well, what has happened is we create a new class of patients, and these are patients that have, listen to this, nonmetastatic castrate-resistant prostate cancer. That means they have -- they started out with just a high PSA. The cancer hadn't spread anywhere. Because of the high PSA, they insisted they get treated, so they get androgen deprivation therapy. And then, the PSA start to go up. They still don't have metastatic disease, but because the PSA is rapidly going up, you're afraid they're going to get metastatic disease. And so the -- Johnson & Johnson with apalutamide and now Pfizer and Astellas with enzalutamide, so that's the space we want to go into. And they were able to show both those studies. They were able to take patients with no metastasis, with a rising PSA, because they broke through androgen deprivation therapy to delay that first metastasis for 2 years roughly for each study. 2 years. Well, that's great news. That means literally the standard of care for somebody with a rising PSA, no metastatic disease, asymptomatic, is going to get one of these agents. And if they do, that means the first time they develop metastatic disease, that metastatic lesion will no longer be responsive to any of these androgen receptor new drugs. They have to go to IV docetaxel. They have to go to cabazitaxel. So essentially, VERU-111 has the potential of stepping up to be the first medicine to be used when the patient develops metastatic disease in this scenario. So that's a big -- that was -- that's a big step for the potential for this agent sort of being around at the right time, the right place if the efficacy and safety plays out. Now in the Phase I and Phase -- Phase Ib/Phase II, these are patients that have failed androgen deprivation therapy. They do have metastatic disease. And they've also failed abiraterone or enzalutamide, which means giving one or the other is not going to work, and so that whole group has grown exponentially in terms of patients now presenting in that situation. The idea is to treat them with the oral agent VERU-111, which is an anti-tubulin, and if you would've treated those patient with an IV anti-tubulin, you would see response rates between 30% and 45%. And just to put that in perspective, abiraterone, when it got into its Phase III program -- not Phase I or II, but Phase III program, it showed only a 28% PSA response, which means PSA greater than 50% reduction and enzalutamide was 50%. So we see something in the order of 25% to 45%, then we're going to be very, very happy, and particularly in this patient population that's already marched through androgen deprivation therapy and, they've marched through enzalutamide or abiraterone. So the first part of the study will be done later this year. It's a 3+3 design, which is safety. And we're hoping that, at one of these safety cohorts, we'll start to see PSA declines. And then it'll expand into a Phase II portion where we take these patients and treat them for longer periods of time and actually look for the PSA declines as well. And so we're expecting, with an open label, to see a lot of news flow towards the end of the year and beginning of next year. And as you know, we show that, and that's an unmet medical need, and we'll certainly accelerate the excitement around the product. So thank you for those 2 questions.

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Operator [4]

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(Operator Instructions) Our next question will come from Kumar Raja of Brookline Capital Markets.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [5]

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So my question is on VERU-944. Obviously, there's a wide spectrum of patients with hot flashes, including infrequent, mild or severe, who might have about 6 to 10 flashes a day. So in terms of patient selection, is there a specific number of the hot flashes these patients need to have for being selected into the trial? And also in terms of effectiveness, obviously, the female hormones are very effective, but the side effect profile is onerous, so what is the expectation in terms of the side effect profile?

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [6]

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Okay. So I'll answer the second question first. And so the question that you're asking is the side effect profile that we are expecting for zuclomiphene?

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [7]

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That is right. Yes.

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Michele Greco, Veru Inc. - CFO, Executive VP of Finance & Chief Administrative Officer [8]

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Yes. So here's the interesting thing. So zuclomiphene is cis-clomiphene, which is one of the isomers that has been -- is part of Clomid. As I mentioned, Clomid has been around since 1967, so we know that men have been getting the drug Clomid f off-label use for infertility and hypogonadism. If you give Clomid by itself, you actually get hot flashes, so that's why it's important to pull out zuclomiphene by itself as a separate entity. So there's no danger of Clomid, which has been around since 1967, to be used in place of the pure zuclomiphene to treat hot flashes. So that's not an issue. But what you do learn is a lot of information about safety. Because if 88,000 men are getting Clomid, of which Clomid is 0.5% to 30% zuclomiphene, then in some ways, you've gotten an insight to what the safety looks like in many men over the long period of time. So it appears to be incredibly well tolerated. Whereas, potent steroidal estrogens tend to be not so well-tolerated in men and its dose-dependent, so the higher the dose the more you're going to see trouble. The trouble that you tend to see is gynecomastia, which is painful breasts and enlargement of breasts due to the estrogen. And second is what's called VTE. VTE is venothromboembolic events. So blood clots is a big issue, and you see that in the advertisements for estrogens for women with birth control pills. And so you would see the same thing, but it is dose-dependent. For some reason, you don't see that with Clomid in big numbers, and we're seeing zuclomiphene in there, so we do know that a weak estrogen is different. Now with that said, is a weak estrogen going to be strong enough to treat hot flashes? And we do know that it does not take much of an estrogen replacement to treat hot flashes. And there are -- and if you look in the literature, there's some data with an old drug called diethylstilbestrol that had very, very low doses, in the microgram levels. They were able to treat hot flashes pretty effectively, at least in that paper, between 70% and 90% improvement. Again the reason why that drug's not being used is it's not available and the problem is the dose that is available, the 1 milligram, the 3 milligram, the 5 milligrams, is just too high. And I don't know how you take a 1-milligram, break it into micrograms, and so that's a big issue. So that's that question. The question related to the actual trial design in terms of the number of hot flashes, I believe, we have to go back to the protocol and look and let you know, but usually the -- and I've got it in front of me, so I'm going to give you your answer because you asked. And the answer is for the inclusion criteria, they need to have moderate to severe vasomotor symptoms to find as a minimum of 4 moderate to severe hot flashes per day or 12 per week at baseline. And again, just to review, this is moderate to severe hot flashes, so a mild hot flash is somebody that has just a heat sensation. A moderate hot flash is the heat sensation and the uncontrollable sweating. And a severe hot flash is the heat sensation, uncontrollable sweating, and they have to literally stop what they're doing and get out of the room or get into a fan or stick their head out of the window, so it does affect them. In fact, there are many patients who just want to get off the medicine, even their cancer treatment medicine, because of these side effects. And then just to add one more thing is even though I spoke a lot about androgen deprivation therapy like Lupron, it does turn out that these newer agents that patients are being placed on -- the enzalutamide, the abiraterone, the apalutamide -- these androgen-blocking novel agents will exacerbate the hot flashes because they make estrogen levels go down even lower, so that -- and the patients are living longer. So this certainly does expand the market opportunity for 944, which we're calling zuclomiphene because that is its name in the literature.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [9]

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Maybe I can sneak in a question on the gross margin improvement. Obviously, this is driven by the sales mix in the U.S. Maybe you can talk a little bit about how the -- how your efforts to increase the sales in U.S. are fructifying? And how should we think about the gross margins going forward?

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [10]

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(inaudible) I'll have Michele answer that.

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Michele Greco, Veru Inc. - CFO, Executive VP of Finance & Chief Administrative Officer [11]

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Yes. As I mentioned, we changed out our sales strategy this quarter, and we've gone to an outsourced sales group. We're also looking at new sales channels in the U.S. We brought on a new customer. We started to see the pickup in reordering patterns happening here in July and looking like they're continuing into August. The U.S. prescription market has lot higher margins here. We're also seeing the benefit of a lot of work we've been doing over the past 18 months in expanding our Global Public sector, so both of those are going to be contributing. But the increase in the U.S. prescription channel is going to contribute significantly to our increase in our margins.

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [12]

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And just to add to that is that the telemedicine customer has been incredibly impressive. I mean, they just literally -- just -- what we say, July, and they've already -- already have recurring -- 2 recurring orders, and they're large orders. So there is a real market out there, and we're tapping into it. And so we do believe that the future for the FC2 business is going to be U.S. sales.

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Operator [13]

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Our next question will come from [Peter McMullin] of [Tiger Management].

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Unidentified Analyst, [14]

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Mitch, tamsulosin, we seem to be tweaking the formula of it, and I just wondered, are you there yet? There was a little delay probably in the rollout, but how do you feel about that at this point in time? And I have a follow-up.

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [15]

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Sure. So tamsulosin, what we're doing is that we're trying to convert -- it's basically an alpha blocker, into a slow-release granule formulation. We've done 2 bioequivalency studies. The last one, the -- we hit the formal definition of bioequivalence for what's called AUC, which is drug levels, and we showed again that we didn't have a food effect. The Cmax, which is how fast the drug gets in, was a little bit higher than we liked, and we know that we can tweak the formulation to fix that. We have tweaked the formulation, and we have several formulations that will release it slower. The problem that we have is, because we don't have our own internal manufacturing, that we outsource it, that we're at the mercy of the outsourced manufacturer and the outsource group to get in their queue to run these studies, so something would take a few weeks to a few months ends up taking a lot longer than we'd like. And the tradeoff is we don't want to pay for the overhead of having -- owning the manufacturing plant and owning all the people, so that's the tradeoff. So the good news is we do have formulations that we can move forward with to the bioequivalency study. The bad news is it's taking a little bit longer to get it through the system so that we can actually run the study, so that's on that point. In terms of -- and so the only other comment I want to make is that another product that we're making, which is the male pill, which is Tadalafil/finasteride, that one is moving faster than expected. And so that one, I don't know, it's going to be head-to-head on both of those bioequivalency studies showing up here soon, and we're looking for those studies again here in 2018. So I don't know which one will come out first, but we're looking for both of those. And so now we have a situation, we have 2 NDAs to file with 2 different -- with 3 different products almost on top of each other, so that's the latest. And you said you had a follow-up question?

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Unidentified Analyst, [16]

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Yes. I just wondered with the cash loss in the quarter and the $5-point-whatever-it-is million in cash and you collected some in July, how you feel about the cash burn? And will we be able to dipsy-doodle through the thing without resorting to some financing?

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [17]

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Yes, good question. So as you know, we've been -- what do you call it, dippy-doodling or whatever...

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Unidentified Analyst, [18]

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Dipsy-doodling.

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [19]

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Dipsy-doodling. So we've been...

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Unidentified Analyst, [20]

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It's a Canadian expression.

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [21]

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I love it. We've been dipsy-doodling through this whole process and dipsy-doodling means that we do. If we take the cash that's coming in, we match it with the programs. And we've been able to do that now, and the idea behind it is that the product -- the programs that we're running now are not very expensive. So for example, other than the Phase II study that's about to start, all these bioequivalency studies, you're looking at 36 patients. They've done over a 2-, 3-week period, so that's not a lot of money. And then the Phase II program, as I said, that's about $3.5 million, $4 million, just starting that. And then you have the Phase Ib/II at Hopkins and other sites, again, that's small, 15 patients, then going to expanding that up to 20 to 30 patients. So the good news is, we've been able to move forward without having to do significant investment. Now we will have to do significant investment in the future but people expect that because you're going to be now in phase II/IIIs and Phase III trials and launching products and all that stuff. So we're hoping to have a slew of good news before that, which would translate to a higher stock price. We're also expecting for the -- now since the time we've taken the -- the company has moved from Female Health Company to Veru, we are now going to start seeing the governments that order large amounts of FC2 come back into the game. And so, as I mentioned in my comments and Michele mentioned in her comments, we're expecting to hear any day now from South Africa, and Brazil will be a little bit later. And those are significant orders that can do a lot to help advance our drug development, and so that will be in place. And the U.S. business for FC2, gosh, you know those our high-margin products, so even though we sell fewer units, we make more money per unit, and money-wise, we could equal what we see x U.S. versus units. So you don't need many units to see more revenue. So we feel -- we've been able to -- as Michele said, we've been able to match our cash spend with -- for the most part, with our drug development, and we're hoping that, when our market cap reflects a larger number that we -- if we do need to do financing and we need to be opportunistic, we would do that. And the idea would be we do that so we can continue to invest in what would be the future of our company, which is the NDAs that we'll be filing next year and the drugs that we'll be selling in this urology specialty pharmaceutical part of the company and for the high-value proprietary prostate cancer and prostate cancer supportive care products. So we're executing exactly as expected. And in a reasonably short time, we've turned the company and transformed it into what will be a high-value business.

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Operator [22]

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(Operator Instructions) Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Dr. Mitchell Steiner for any closing remarks.

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Mitchell S. Steiner, Veru Inc. - President, CEO & Director [23]

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Thank you. I appreciate you joining us on today's call, and I look forward to updating you all on our progress in our next investors call. Thank you. Turn it back to you, operator.

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Operator [24]

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The digital replay of the conference will be available beginning approximately noon Eastern Time today, August 14, by dialing 1 (877) 344-7529 in the U.S. and 1 (412) 317-0088 internationally. You will be prompted to enter the replay access code, which will be 10122133. Please record your name and company when joining. The conference has now concluded. Thank you for attending today's discussion.