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Edited Transcript of FHCO earnings conference call or presentation 13-Dec-18 1:00pm GMT

Q4 2018 Veru Inc Earnings Call

CHICAGO Jan 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Veru Inc earnings conference call or presentation Thursday, December 13, 2018 at 1:00:00pm 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. - Chairman, President & CEO

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Conference Call Participants

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* Deepankar Roy

* Jason Wesly McCarthy

Maxim Group LLC, Research Division - Senior MD

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to Veru Inc.'s Investor Conference Call. (Operator Instructions) Please note that 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 release, shareholder communications and Security Exchange Commission filings. For additional information regarding such risks, the company urges you to review the 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. Dr. Steiner, please go ahead.

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

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Thank you, operator, and good morning. This is Dr. Mitchell Steiner, Chairman, President and CEO of Veru Inc., and joining me are Michele 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. Today, we will update you on the clinical development of our drug pipeline and the commercialization of our products as well as provide financial highlights for the fourth quarter and year-end fiscal year 2018.

We had a successful year and are well on our way to transforming our company into a biopharmaceutical company. We have advanced several near-term and mid-term urology products at the same time to have multiple shots on goal, to file drug approval applications on and to commercialize several drugs in oncology and urology. We have also begun to see our strategic plan for our existing commercial products taking hold as we anticipate solid revenue growth from these commercial products.

With this strong foundation in place, it is time for our company to further articulate to our shareholders, our business plans and priorities, as this will inform our investors on our objectives and goals for the next year and beyond. Our strategy is to eventually be known as the prostate cancer company. Rather than focusing on one drug class or one research platform, we aspire to be disease focused by providing a continuum of care for prostate cancer patients. This means, we expect our drug development and commercial activities to align with the clinical management of prostate cancer patients. Although prostate cancer remains the second most frequent cause of cancer deaths in men, advances in the diagnosis and effective treatment of prostate cancer have resulted in many men living longer, even decades with the disease. Thus prostate cancers are becoming a chronic disease, with new challenges as the prostate cancer develops resistance to these current drugs and progresses and as the patient suffers from the long-term side effects of these treatments. Accordingly, advanced prostate cancer care centers are being established across the country in the world, and urologists and medical oncologists are now actively managing all aspects of prostate cancer, from monitoring disease, disease progression and modifying treatments and prostate cancer supportive care. Prostate cancer supportive care addresses the management of the various acute and chronic side effects of prostate cancer drugs by bone loss and fractures, hot flashes, loss of libido, erectile dysfunction, loss of muscle strength and frailty.

The markets for prostate cancer treatment and prostate cancer supportive care are well established as a multibillion dollar markets, and given our core expertise and the number and type of drugs in our pipeline, we are uniquely positioned to understand, develop and commercialize medicines for these unmet medical needs of prostate cancer patients. For example, Veru is developing a drug product called VERU-111 for multiple unmet needs in advanced prostate cancer treatment and zuclomiphene citrate, VERU-944, in prostate cancer support of care for the treatment of hot flashes caused by androgen deprivation therapy.

With respect to these drug products, VERU-111, a novel first-in-class proprietary next-generation oral tubulin inhibitor, has advanced into an open-label Phase Ib/II clinical trial in men who have progressive metastatic castration-resistant prostate cancer, whose prostate cancer is now resistant to androgen blocking agents like abiraterone or enzalutamide. We submitted the IND to FDA in November. And this week, the FDA gave Veru the green light to begin the Phase Ib/II clinical study, which is expected to be conducted in up to 5 centers in the United States. The Phase Ib study will involve approximately 15 men. The purpose of this phase of the study is to escalate the doses of VERU-111, so that the optimal dose may be selected for testing in the Phase II clinical study. The Phase Ib is expected to be completed in the first half of 2019. Because of this trial design, the Phase II study can start as soon as the dose is selected, and this part of the study is expected to involve approximately 26 men who have progressive metastatic castration-resistant prostate cancer that is now resistant to novel androgen blocking agents such as abiraterone and enzalutamide. As an open label study, we'll be able to monitor the progress of the drug safety and efficacy. The study's efficacy end point is achieved if the patient has a greater -- 50% or greater reduction in his PSA blood levels during treatment. We plan to release open-label clinical results on the efficacy and safety during 2019, as the study progresses.

The company's zuclomiphene citrate drug product is being evaluated in a Phase II clinical trial for the treatment of hot flashes caused by androgen deprivation therapy in men with an advanced prostate cancer. We are now actively enrolling subjects in approximately 15 clinical sites across the United States. The goal is to enroll approximately 120 men in this study with the length of treatment being short of 12 weeks. The primary end point of this study is the reduction in the number of moderate to severe hot flashes in men from their baseline and comparing that to the placebo. We plan to report top line clinical results in the first half of calendar year 2019. Zuclomiphene has the potential to be the first drug approved by FDA for this indication. We have also recently received an independent preliminary market assessment that has determined that potential United States market for zuclomiphene is large, about $600 million in annual sales. I want to emphasize that this is a -- these novel proprietary prostrate cancer drug products are now in human clinical trials, with initial clinical data results on efficacy and safety anticipated in the first half of calendar year 2019.

Our strategy is to become known as the prostate cancer company and to be supported in part by 2 sources of revenue. First, we're establishing a specialty pharmaceutical business in urology by developing low cost, near-term pharmaceuticals, using an expedited regulatory pathway known as the 505(b)(2). The 3 drug products currently in clinical development that are utilizing this regulatory pathway with Tadalafil/finasteride fixed combination tablets and Tamsulosin XR capsules and sprinkles. Tamsulosin treats the immediate symptoms of benign prostatic hyperplasia, or BPH, in men with smaller prostates, whereas Tadalafil/finasteride combination tablets treat symptoms of BPH and shrinks the size of the prostate in men who have enlarged prostate as well as treats erectile dysfunction. As for Tamsulosin XR capsules and sprinkles, we have identified and selected a formulation that has a desired in vitro dissolution profile, and this selected tamsulosin formulation is slated to begin GMP production, so that the final bioequivalency study can start in January of 2019, with clinical results later in that quarter. As for Tadalafil/finasteride combination tablets, the bioequivalence study is in progress, with results expected early next quarter. With successful bioequivalence results, we plan to submit 2 NDAs for these 3 drug products to FDA in 2019.

Second, our strategy with respect to company's existing commercial products is showing progress as we anticipate growing revenue from our commercial products. The FC2 Female Condoms, now also known in the U.S. as FC2 internal condom, and PREBOOST, which is the 4% Benzocaine Wipes of Premature Ejaculation. For FC2, The Female Health Company division, should continue its growth because of both the public sector and U.S. commercial sales. In the public sector, we won 75% of the South African tender, representing up to 120 million units over 3 years. So for us, that will be an award of approximately 30 million units a year and potentially $10.4 million in revenue per year for a total of approximately $30 million. In addition, we recently were notified that we won up to a 6 million unit order for this fiscal year from Brazil. We have also expanded our U.S. business to a strategy that utilizes both contracted independent sales force and by partnering with leading telemedicine marketing and sales channels.

To give you a sense of the meaningfulness of the U.S. growth with respect to these FC2 business, let's examine some of the high-level financial results. First, U.S. prescription businesses -- first, U.S. prescription revenues in fiscal year 2018 were 15% of the total FC2 net revenues. In Q4 fiscal year 2018, the U.S. prescription business net revenues for FC2 was 67% of the total U.S. FC2 prescription net revenues for the full fiscal year. This growing U.S. prescription trend appears to be continuing as already through the first 2 months of the current fiscal year 2019, the U.S. prescription net revenues for FC2 are 120% of the U.S. prescription net revenues of Q4 fiscal year 2018. Now if we add the revenues from the awarded South African and Brazil tenders, we expect significant revenue growth for FC2 in fiscal year 2019.

Furthermore, we're also seeing revenue growth for PREBOOST. We have a co-promotion and distribution agreement with Timm Medical Technology, which is a specialty urology sales organization, and we've recently entered into a U.S. distribution agreement with a premier and fast-growing men's health and telemedicine company that discreetly sells men's health products via the Internet and social media. This approach appears to be a very effective way to market and sell men's health products directly to the consumer. I look forward to reporting on these revenues soon as well.

We've accomplished quite a lot this past year to advance our business strategy. We paid for these activities this past year in part by revenue produced from our commercial products, the FC2 Female Condom business from The Female Health division and from PREBOOST. We also successfully closed an equity financing that allowed key pharma and biotech investment institutions to become shareholders in Veru, including Perceptive Advisors, AWM Investment Company, Aspire Capital and UBS O'Connor, to name a few.

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, during the fourth quarter, we were delighted to see the increase in the U.S. prescription net revenues and being awarded a substantial portion of the South Africa tender, which will result in orders in fiscal 2019 and beyond. In the U.S. FC2 prescription market, we saw an increase of 238% in units sold during the fourth quarter compared to the units sold during the combined 3 quarters of this fiscal year.

Let's review our fourth quarter results. FC2 net revenues for the quarter totaled $5.2 million, an increase of 41% from the prior year quarter of $3.7 million. This increase occurred even though the FC2 unit sales for the fourth quarter of fiscal 2018 had a reduction of 1% from the fourth quarter of fiscal 2017 to 6.3 million units. Gross profit increased 78% to $3.2 million for a margin of 61% compared with $1.8 million for a margin of 49% in the prior year quarter. Net revenue per unit was $0.77 compared to $0.54 in the prior year quarter. The increase in the U.S. prescription net revenues resulted in the increase in our net revenue per unit and the increase in our gross margin.

Operating expenses increased $2.4 million from the prior year quarter to $7 million. The increase in operating expenses was primarily due to an increase in research and development expenses of $1.6 million for our clinical development programs. The operating loss for the fourth quarter of fiscal 2018 was $3.7 million compared to $2.8 million in the prior year quarter. The increase being primarily due to the increase in research and development expenses.

With after tax expense of $4 million, the bottom line result for the fourth quarter of fiscal 2018 was a net loss of approximately $7.9 million or $0.14 per diluted common share. In the prior year, after the preferred stock dividend of $2 million, the net loss was $4.7 million or $0.10 per diluted common share.

Now for the results of the fiscal year ended September 30, 2018. FC2 net revenues for the fiscal year totaled $15.9 million, an increase of 16% from the prior year of $13.7 million, while the FC2 unit sales decreased from 26.3 million units in the prior year to 25.3 million units in the current year. Net revenue per unit was higher at $0.63 compared to $0.52 in the prior year. Gross profit was higher at $8.8 million compared with $7 million in the prior year.

Operating expenses increased $14.1 million to $29.6 million from $15.5 million in the prior year. This increase was driven primarily by increased research and development expenses for multiple drug product candidates of $7.8 million, the $4 million charge related to the settlement agreement we entered into with our Brazilian distributor, Semina, during December 2017, and increases in salaries of $500,000 for our FC2 team, severance costs of $500,000 and an overall increase in corporate expenses. During the year, we incurred interest expense, net of changes in the fair value derivative liabilities of $2.1 million.

The bottom line result was a net loss for the fiscal year of $23.9 million or $0.44 per diluted common share. In fiscal 2017, after a tax benefit of $2 million and a preferred stock dividend of $2 million, the net loss was $8.6 million or $0.25 per diluted common share. The increase in the net loss of $15.3 million is primarily due to the increase in operating expenses of $14.1 million. The company has net operating loss carryforwards for U.S. federal tax purposes of $33.2 million, with $14.4 million expiring in years through 2037 and $18.8 million, which can be carried forward indefinitely, and our U.K. subsidiary has net operating loss carryforwards of $62.3 million, which do not expire.

Turning to our balance sheet. As of September 30, 2018, our cash balance was $3.8 million and accounts receivable were $4 million. During the year ended September 30, 2018, we used cash of $11.5 million for operating activities compared with producing cash from operations of $1 million in the prior year. During the year, we undertook the following financing activities to invest in our drug development programs. The first was entering into a 3-year common stock purchase agreement with Aspire Capital, under which we can direct Aspire Capital to purchase up to $15 million of the company's common stock. During the year, we sold Aspire Capital 1,717,010 shares of common stock under the purchase agreement resulting in proceeds of $3 million. We have $12 million remaining under the purchase agreement. The second was completing a nondilutive $10 million Synthetic Royalty Financing on FC2 product sales, which provided immediate funds to support our drug development program an operations. And lastly, we completed a public offering of 7,142,857 shares of common stock, resulting in net proceeds of approximately $9.2 million after deducting underwriting discounts and commissions and expenses payable by the company, which closed just after year-end on October 1, 2018.

Overall, we're delighted to see significant increases in the U.S. FC2 prescription sales and the global public sector sales returning to historical volumes. These revenues will be a source of fund to invest in our promising pharmaceutical, clinical programs as we continue to transform our company into the prostate cancer company.

Now I'll turn the call back to Dr. Steiner.

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

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Thank you, Michele. In summary, we're poised to see open-label clinical data for VERU-111, the novel proprietary first-in-class oral tubulin inhibitor for refractory metastatic castration-resistant prostate cancer as well as top line clinical results for Phase II clinical trial evaluating zuclomiphene for the treatment of hot flashes caused by androgen deprivation during the first half of 2019. We plan to primarily use revenues from these urology specialty pharmaceutical assets and our commercial products, FC2 and PREBOOST, to invest in the clinical development of our pipeline of drugs for large markets in prostate cancer and prostate cancer supportive care. We're committed to driving shareholder value, while becoming known as the prostate cancer company by providing a continuum of care to prostate cancer patients.

With that, I now will 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) The first question comes from Jason McCarthy with Maxim Group.

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

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So with regards to 111, if we're looking at the changing prostate cancer landscape, it looks like PARPs could soon be a part of it at least in the back of harboring subpopulation were no longer responsible to ADCs like ZYTIGA or XTANDI. So could you tell us where VERU-111 might fit into the treatment paradigm?

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

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Sure. So that everybody is familiar with the PARP inhibitor, so the PARP inhibitors work primarily in patients that have a mutation involved with DNA repair. And so you would actually have to -- and you'll see in the trials, they're looking for patients who have, for example, BRCA1 and BRCA2 mutations. And so I was recently at a urology clinical site that was running one of our studies, and I asked him about that. And he said, he is having a hard time finding those patients. And one of our board members who is Mario Eisenberger, who takes care of advanced prostate cancer patients, and he said the same thing. He said these patients are rare. Now that doesn't mean anything. From a prostate cancer standpoint, what that means to me is that, for those patients that you can identify with a genetic test that have those mutations, BRCA1, BRCA2 and others related to DNA repair, that should be an effective oral drug for them. Now for the other 98% plus of patients who do not have that mutation, that's where Veru-111 would fall best. As you know, as an anti-tubulin, just like the taxanes, cabazitaxel and docetaxel, we hope to be given prior to that, and not only prior to that, but be given by the urologist before the patient goes to the medical oncologist. And so I'm -- one of the things that's very important is that when we had the pre-IND meeting with the FDA now, having filed the IND at VERU-111 and have clear understanding of the FDA's position, the FDA is allowing us to take patients that have failed abiraterone and enzalutamide before they go to taxanes, before they go to PARP inhibitors, before they go to any of those other drugs and allowing us to begin the Phase Ib/II for those patients for that indication, which, as you know, Jason, is the largest growing segment of patients that are failing prostate cancer treatment today. So I think the PARP inhibitors will be for a select group. And I can envision even a combination therapy in the future with VERU-111 and PARP inhibitors because if you look at PARP right now, they're trying to combine it with docetaxel. So you can imagine now having instead of an oral drug PARP inhibitor and an IV drug docetaxel being given by urologists, they don't give IV, medical oncologists do. So can you imagine now a PARP inhibitor oral and VERU-111 oral, would be given by the urologists. And as you know, the urologists are managing these patients.

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Operator [4]

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(Operator Instructions) The next question comes from Deepankar Roy with Brookline Capital Markets.

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Deepankar Roy, [5]

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I'm sorry. I was on mute. I was just talking to myself. I was wondering if there is any update on the Brazil order for FC2 and if you can add any more color to like how it is going to go for the next year for the (inaudible)?

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

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Okay. To make sure I understand the question. So the question is, can I give you -- can we give you any update on the Brazil order? Is that what you said?

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Deepankar Roy, [7]

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Yes.

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [8]

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Yes, that's what I heard. And then any -- so my comments were that we -- during the call was we just heard from Brazil. Brazil has a much smaller order than it's ever had in the past. And as you know, it's been a very difficult year with Brazil mainly because of the government and the government changes. Now with the new President, very, very quickly they came back and said, we're going to order up to 6 million units of FC2. And we don't know what the future is going to hold, but we think it should be more as they get settled politically. As it to relates to South Africa, what I can guide you is, it looks -- we got 75% of the tender, which is 120 million units over 3 years, that's roughly 30 million additional units a year, which money-wise will be $10.4 million additional a year. Our base business, which is UNFPA, USAID and others, historically, it's been between 14 million and 15 million a year. We actually think this year, it will be better. And -- but the biggest change in the FC2 business, and I tried to give some clarity on where it's heading from the trend is in the U.S. prescription business. The U.S. prescription business has high margins and this U.S. prescription business is growing rapidly. And I think we have really embraced some of the new ways that people were selling these kinds of products in the U.S., and through social media, telemedicine, through prescriptions going to doctor's offices, with the 1099 group. And so we have told you about a year ago, we felt that the U.S. business would potentially match in revenue of what we're seeing ex-U. S., and 2019 may be that year.

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Operator [9]

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

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

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Thank you, operator. I appreciate you joining us on today's call. And I'd look forward to updating you all on our progress at our next investors call. Happy New Year, have a nice holiday. And look forward to seeing everybody next year. Thank you.

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Operator [11]

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The digital replay of the conference will be available beginning approximately noon Eastern Time today, December 13, by dialing 1 (877) 344-7529 in the U.S. and 1 (412) 317-0088 internationally. You'll be prompted to enter the replay access code, which will be 10126693. Please record your name and company when joining. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.