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Edited Transcript of FHCO earnings conference call or presentation 12-Dec-19 1:00pm GMT

Q4 2019 Veru Inc Earnings Call

CHICAGO Jan 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Veru Inc earnings conference call or presentation Thursday, December 12, 2019 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

* Samuel Fisch

Veru Inc. - Director of IR

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Conference Call Participants

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* Alexandra D. Heller

Oppenheimer & Co. Inc., Research Division - Associate

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* Edward Dean Marks

H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate

* James Rowe;Rowe and Company;Founder and CEO

* Kumaraguru Raja

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

* Peter McMullin

Independent Portfolio Consultants, Inc. - Investment Strategist

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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.

I would now like to turn the conference over to Mr. Sam Fisch, Vero Inc.'s Director of Investor Relations. Please go ahead.

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Samuel Fisch, Veru Inc. - Director of IR [2]

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Good morning. 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 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. - Chairman, President & CEO [3]

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Thank you, Sam, and good morning. Also joining me today are Michele Greco, CFO and CAO; Phil Greenberg, Executive Vice President, Legal; and Sam Fisch, Director of Investor Relations. Thank you for joining our call.

Veru is an oncology and urology biopharmaceutical company developing novel medicines for the management of prostate cancer as well as other cancer types. 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 fiscal quarter and year-end fiscal year 2019.

We are delivering on our strategy to be the prostate cancer company. We are dedicated to the development and commercialization of products to address unmet medical needs for prostate cancer treatment and supportive care. We will remain opportunistic as our cancer drug product candidates have shown efficacy against other cancer types in animal models and may ultimately show efficacy in man as well.

The markets for prostate cancer treatment and prostate cancer supportive care are well established as 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 this unmet medical needs of prostate cancer patients.

Here's a brief update on the advancement of the prostate cancer drug pipeline. We have made significant progress with our open-label Phase Ib/II clinical trial of VERU-111 in novel, proprietary, first-in-class oral selective antitubulin agent for metastatic castration-resistant prostate cancer patients who have also become resistant to novel androgen-blocking agents, enzalutamide or abiraterone, but prior to IV chemotherapy, also referred to as a prechemotherapy stage or chemotherapy naive.

In other words, the open-label Phase Ib/II trial is targeting those patients whose prostate cancer is progressing, that is, spreading, but before they are offered IV cabazitaxel/taxane chemotherapy. This prechemotherapy space in men who have failed a novel androgen-blocking agent is currently the fastest-growing unmet medical need segment in advanced prostate cancer.

We have reached a point in our Phase Ib/II clinical study that our clinical results have become relevant to our decisions going forward for the clinical development of VERU-111 and positions Veru very solidly as an oncology biopharmaceutical company. Accordingly, I will share some of the pertinent details while the full results will be released formally in an upcoming scientific meeting.

As a relevant benchmark, a New England Journal of Medicine article was recently published in October of 2019 by Dr. de Wit et al on the use of cabazitaxel in men with metastatic castration-resistant prostate cancer, who were previously treated with docetaxel, but who had cancer progression while receiving an androgen-blocking agent either abiraterone, enzalutamide. These men are at a similar stage of treatment as the men we are currently enrolling in our Phase Ib portion of the Phase Ib/II study. Interestingly, imaging-based progression-free survival was the primary endpoint, which was defined as the time from randomization until objective tumor progression, progression of bone metastasis or death. A total of 255 men underwent randomization to either IV cabazitaxel or another androgen-blocking agent. With -- this study's results noted that the imaging-based progression-free survival for the additional androgen-blocking agent was a median of 3.7 months with a range of 2.8 to 5.1 months. And for cabazitaxel, it was a median of 8 months with a range of 5.7 to 9.2 months. Veru did not run a head-to-head study with cabazitaxel versus VERU-111. So any comparison has limitations, but nonetheless, the intent is to use this valuable information to put into perspective our current ongoing results when compared to a recently reported contemporary study.

Now let's turn our attention to our Phase Ib/II clinical study. In the Phase Ib/II study, the objective is to determine the maximum tolerated dose of VERU-111 by finding the dose-limiting toxicity that indicates that higher doses are not tolerated by the patients. By the study's design, the maximum tolerated dose is determined by treating 3 patients at a time with an oral daily dose of VERU-111 for 7 days followed by 2 weeks off drug, which treatment schedule represents 1 cycle.

For patients that tolerate treatment, we increased the schedule to 2 weeks on drug and 1 week off, and then 3 weeks continuously on drug until there's evidence of prostate cancer progression. This will allow us to assess the durability of the anticancer response. We have treated 33 men to date. The escalating doses of VERU-111 tested so far are 4.5, 9, 18, 27, 36, 45, 54, 63, 72 and 81 milligrams.

As for safety, VERU-111 appears to be generally well tolerated. There are no reports of neutropenia, which is the dose-limiting toxicity of an IV taxane. There have been no reported complaints of neurotoxicity, a side effect that also commonly occurs with IV taxanes. There have been a few isolated mild liver enzyme changes that in some instances resolved while on drug. There have been reports of side effects consistent with VERU-111 or other antitubulin cytotoxic effects such as mild-to-moderate diarrhea, nausea, vomiting and fatigue. We have not yet reached a dose-limiting toxicity with VERU-111 in order to determine a maximum tolerated dose.

We know that with oral dosing with VERU-111, it's getting absorbed into the bloodstream, which means we have bioavailability, with VERU-111 concentrations going up with increasing drug doses. In fact, we have achieved VERU-111 blood concentrations in humans that match the efficacy concentrations we measured in the preclinical animal studies where prostate cancer tumors shrunk. Furthermore, we are achieving drug concentrations of VERU-111 in a range of those of docetaxel and cabazitaxel-approved doses without the safety observations that are typically observed with these drugs. Although this is a safety study, we do see significant antitumor activity.

As a reminder, in the de Wit study published in New England Journal of Medicine, adding another androgen-blocking agent resulted in imaging-based progression-free survival median of 3.7 months and treatment with IV cabazitaxel resulted in imaging-based free progression medium of 8 months. In our Phase Ib, we have 20 men in the study that have the potential to be treated for 4.5 months, which means they're in that lower dosing range because they were in the studies earlier. And even without having determined an optimal dose or a dose schedule yet, there were 4 men who are still ongoing in the trial with no tumor progression at 9.75, 8.4, 8.4 and 5.6 months. All of these men have experienced PSA reductions from base of peak values. Another 6 men have progressed at 4.2 months. The patients still in the trial at 9.75 months have had a PSA reduction of 63% and had 2 of its cancer's lymph nodes shrink as measured by CT scan.

Another patient on the study with stable disease stopped losing weight, reported that his fatigue resolved and had a PSA reduction. It appears looking at the de Wit study that VERU-111 is an active compound, similar to cabazitaxel, but better than adding another androgen-blocking agent, and that is also well tolerated with a wide safety margin.

Wide safety margin means that we are seeing anticancer activity at doses where we're not seeing drug toxicity. Again, we will present the full clinical results in an upcoming major scientific meeting.

As we have not yet reached dose-limiting toxicity, we will continue to test higher doses of VERU-111 until we reach a maximum tolerated dose in the current Phase Ib/II study. Nonetheless, given the current efficacy and safety profile, early in 2020, we plan to expand the clinical program of VERU-111 to a study of 3 additional tumor types or indications where we've had demonstrated anti-cancer activity in preclinical animal studies. The planned new cancer types are: metastatic pancreatic cancer, metastatic breast cancer and postchemotherapy metastatic castration- and taxane-resistant prostate cancer. Furthermore, we intend to meet with the FDA next quarter to discuss the possibility of a registration Phase III clinical trial for the current Phase Ib/II clinical trial population, which is the prechemotherapy, metastatic, castrate-resistant, androgen-blocking agent-resistant prostate cancer.

According to IQVIA, oral drugs, abiraterone, enzalutamide for advanced prostate cancer had over $6 billion in 2018 global annual sales.

Men who have failed these novel androgen-blocking agents are the very patients that VERU-111 is currently targeting, which we estimate represents a $4.5 billion annual global market. There are currently no FDA-approved drugs for men who have failed both ADT and one of these novel androgen-blocking agents.

Next, I will update you on VERU-100, our proprietary peptide drug candidate for the treatment of hormone-sensitive advanced prostate cancer, which is an already established multibillion-dollar global market. The target product profile for VERU-100 is commercially and scientifically compelling as it's having a number of anticipated advantages over currently available androgen-deprivation therapies.

VERU-100 is a long-acting gonadotropin-releasing hormone, also known as a GnRH antagonist, designed to be administered as a small volume subcutaneous 3-month depot injection without a loading dose. As a GnRH antagonist, it is intended to immediately suppress testosterone with no testosterone surge upon initial or repeated administration and no testosterone micro increases, which may adversely affect patient outcomes, a problem which is -- which potentially can occur with approved LHRH agonist drugs like Lupron, Zoladex and Eligard.

Currently, there are no GnRH antagonists commercially approved for treatment beyond 1 month, making VERU-100, if approved, the only commercially available GnRH antagonist 3-month depot, an attractive choice for androgen deprivation therapy. We've received agreement from FDA that the development program for VERU-100 may follow an expedited pathway. Based on the -- on this FDA input, the company plans to commence a single open-label multicenter dose-finding Phase II clinical trial in approximately 60 men, followed by a single open-label multicenter Phase III clinical trial in only approximately 100 men.

Veru is in the process of scaling up the GMP manufacturing of the drug protein product to better prepare for the clinical trials of VERU-100. The company intends to submit an investigational new drug application by early 2020, so we can commence the Phase II clinical study. The planned development pathway for VERU-100 agreed by the FDA represents a lower cost investment opportunity for a major product that can address the shortfalls of the current $2.6 billion global ADT market.

Our next product candidate in clinical trials is zuclomiphene, a novel, proprietary, oral, nonsteroidal estrogen-receptor agonist being evaluated to treat hot flashes, the most common side effect in men on androgen deprivation therapy for advanced prostate cancer and a major reason why men want to stop androgen deprivation therapy. We enrolled approximately 95 men in a multicenter double-blind placebo dose-finding Phase II clinical trial, evaluating 2 doses, 10 milligrams and 50 milligrams of zuclomiphene versus placebo. We anticipate top line interim results at any time, and hopefully, latest by next month. The objective of this study is to determine a minimally effective and effective doses of zuclomiphene.

Based on the current aggregate clinical data from our placebo-controlled trial, we can make the following general clinical observations. Men are experiencing substantial reductions in hot flashes. And as for safety, zuclomiphene appears to be well tolerated in the aggregate safety database, which is made up of both zuclomiphene and placebo-treated men. We have not received any reports of estrogen-related type side effects such as gynecomastia, painful breasts or venous thromboembolic events. This is good.

Based on a market research report -- a recent market research report by DelveInsight published in December of 2019, the number of men on ADT with hot flashes in the U.S. in 2020 will be 475,561 men, with 243,487 men having moderate or severe hot flashes.

Based on an independent market analysis sponsored by the company, which included interviews with payers covering 259 million U.S. lives, urologists and medical oncologists, the market research estimates that the U.S. potential sales for zuclomiphene citrate will be over $600 million annually with a 25% market penetration. This independently confirms that zuclomiphene for the indication of treatment of hot flashes in men on androgen deprivation therapy for advanced prostate cancer is a major market opportunity. Currently, there are no FDA-approved drugs for this indication.

Veru's ability to advance the clinical development of our proprietary prostate cancer drugs that address unmet medical needs in large markets is substantially supported by investments on 2 commercial sources of revenue, the FC2 female internal condom as well as PREBOOST/Roman Swipes, which is a 4% benzocaine wipe for premature ejaculation.

As you can see from the earnings release, in Q4 fiscal year 2019 and fiscal year 2019, we continue to have significant growth in revenues and gross profit from these commercial products.

Although Ms. Greco will cover the detailed financial results' highlights in a few moments, I'd like to make a few comments. We continue to have robust growth in fiscal year 2019 and expect further increases of FC2 sales in both the public sector and prescription sales in the U.S. We expect to continue to have significant growth in sales as we have signed agreements to supply FC2 by prescription to telemedicine companies and to pharmacy distributors.

We have also dramatically shifted the ratio of FC2 sales in the global public sector to U.S. prescription sales. In fiscal year 2018, the U.S. prescription net revenues were 15% compared to the global public sector net revenues of 85% versus fiscal year 2019, the U.S. prescription net revenues were 46% compared to global public sector net revenues of 54%. The robust growth of the U.S. FC2 business -- prescription business remains noteworthy as it allows us to be less reliant on the intermittent ordering patterns typically seen in our traditional FC2 public sector business.

For our premature ejaculation product marketed as Roman Swipes, the company has entered into a multiyear U.S. distributor agreement with Roman Health Ventures, a premier and fast-growing men's health and telemedicine company that discretely sells men's health products via the Internet website, www.getroman.com. We have begun to see these revenues grow as well.

Focusing now, this is the fun part, on Vera's commercial segment, which is FC2, PREBOOST/Roman Swipes and drug commercialization costs, we had net revenues in Q4 of fiscal year 2019 of $8.7 million compared to $5.2 million in Q4 fiscal year 2018, which is up 68%.

Net revenues for fiscal year 2019 were $31.8 million compared to $15.9 million in fiscal year 2018, which is up 100%.

In fact, gross profits for fiscal year 2019 was $21.7 million compared to fiscal year 2018 of $8.8 million, which is up 147%.

Operating income. I repeat, operating income was $15.9 million in fiscal year 2019 compared to $1.9 million in fiscal year 2018, up 737%. In fact, the operating income for Q4 fiscal year 2019 was $4.5 million.

With continued revenue growth and profit, we have been able to substantially fund the development of our prostate cancer clinical programs and our urology specialty pharmaceuticals for the past year. We intend to continue this revenue growth trajectory with not only the current growth of revenues from FC2 and PREBOOST but also from the revenues that we expect to generate from the commercialization of the company's proprietary tadalafil and finasteride combination capsule for the treatment of BPH called TADFIN. We expect this to be the company's first pharmaceutical urology asset to move into commercialization.

Veru submitted a pre-NDA briefing package to the FDA that outlined the company's preliminary data package being prepared for the NDA submission, including bioequivalence and bioavailability clinical study results, CMC and other regulatory elements with a 505(b)(2) submission. Based on Veru's in-person meeting and written communications to FDA regarding our pre-NDA briefing package, we believe that all of the requested components of our upcoming TADFIN NDA will be available to fulfill the FDA's requirement for submission after we've reached 12 months of stability data for the TADFIN manufacturing batches.

Veru is excited to advance our 505(b)(2) development program to an NDA submission by the end of 2020. In the U.S., we don't intend to have a marketing and selling team. We're exploring commercially launching TADFIN through a telemedicine channels. As you have seen, we've had great success with other products using this sales channel. We're also in discussions with potential commercial partners outside the U.S. having TADFIN revenues from U.S. sales and potential partnerships with upfront payments and royalties from outside the U.S. should add substantial near-term revenues with high gross margins to the existing and growing revenues from the FC2, PREBOOST/Roman Swipes products.

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 [4]

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Thank you, Dr. Steiner. As Dr. Steiner indicated, we had a great fourth quarter and a great year. Let's start with our fourth quarter results for fiscal year 2019.

FC2 unit sales totaled $9.8 million, up 46% over the prior year fourth quarter of $6.8 million. FC2 net revenues for the quarter totaled $8.5 million, an increase of 63% from the prior year quarter of $5.2 million. In the U.S., FC2 prescription market net revenues were $4.7 million, an increase of 199% over the prior year fourth quarter of $1.6 million.

Net revenues for the public sector business were $3.8 million compared to $3.6 million in the prior year fourth quarter.

Net revenues for PREBOOST/Roman Swipes were $261,000 compared to $5,000 in the prior year quarter.

Gross profit increased 83% to $5.8 million for a margin of 67% compared with $3.2 million for a margin of 61% in the prior year quarter.

FC2 net revenue per unit was $0.86 compared to $0.77 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 $329,000 from the prior year quarter to $7.3 million. The operating loss for the fourth quarter of fiscal 2019 was $1.5 million compared to $3.8 million in the prior year quarter. The reduction is due to the increase in gross profit.

For the fourth quarter of fiscal 2019, we had a tax benefit of $421,000 compared to a tax expense of $4.2 million in the prior year quarter, which is primarily due to the valuation allowance recorded against U.S. net operating losses. After income taxes, the bottom line results for the fourth quarter of fiscal 2019 was a net loss of approximately $3.1 million or $0.05 per share. In the prior year, the net loss was $7.9 million or $0.14 per share.

Now for the results for the fiscal year ended September 30, 2019. Net revenues for the fiscal year totaled $31.8 million, an increase of 100% from the prior year of $15.9 million. FC2 net revenues represents 97% of total net revenues and PREBOOST represents the remaining 3%. FC2 unit sales increased from 25.3 million in the prior year to 37.9 million in the current year.

In the U.S., FC2 prescription market net revenues were $14.1 million, a fivefold increase over the prior year of $2.4 million. Net revenues for the public sector business were $16.8 million compared to $13.5 million in the prior year. Net revenues for PREBOOST/Roman Swipes increased to $884,000 from $12,000 in the prior year. FC2 net revenue per unit was higher at $0.82 compared to $0.63 in the prior year.

Gross profit increased 147% to $21.7 million for a margin of 68% compared with $8.8 million for a margin of 55% in the prior year. The increase in the U.S. prescription net revenues resulted in an increase to our net revenue per unit and increase in the gross profit and an increase in our gross margin.

Operating expenses increased $2.5 million to $28.1 million from $25.6 million in the prior year, which excludes the $4 million charge related to the settlement agreement we entered with our Brazilian distributor, Semina, during December of 2017. This increase was driven primarily by increased research and development expenses for our multiple drug product candidates.

During the year, the nonoperating expenses increased approximately $3.7 million, primarily due to an increase in interest expense and changes in the fair value of derivative liabilities.

The bottom line result was a net loss for fiscal year of $12 million or $0.19 per share compared to a net loss of $23.9 million or $0.44 per share in the prior year. The decrease in the net loss of $11.9 million is primarily due to the increase in U.S. prescription net revenues.

The company has net operating loss carryforwards for U.S. federal tax purposes of $42.7 million with $14.4 million expiring in years 2022 to 2038 and $28.3 million, which can be carried forward indefinitely. And our U.K. subsidiary has net operating loss carryforwards of $61.7 million, which do not expire.

Turning to our balance sheet. As of September 30, 2019, our cash balance was $6.3 million and our accounts receivable was $5 million compared to a cash balance of $3.8 million and accounts receivable of $4 million in the prior year.

During the year ended September 30, 2019, we used cash of $5.5 million for operating activities compared with $11.5 million in the prior year. Overall, we're delighted to see the significant increases in sales in the U.S. FC2 prescription market, the increase in global public sector volumes as well as the increasing sales of PREBOOST/Roman Swipes to Roman Health Ventures. These revenue sources will be a source of funds to invest in our promising pharmaceutical clinical programs as we continue to transform our company into the prostate cancer company.

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

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [5]

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Thank you, Michele. We have enjoyed yet another strong financial quarter, which has allowed us to significantly advance our clinical programs. In fact, we have had 8 strong quarters in a row, showing revenue growth in the commercialization of our products. I congratulate the Veru team for making this happen.

Looking forward to fiscal year 2020, with our first quarter almost -- also almost completed, we expect the revenues to continue to be strong and grow. With the improving performance of the commercial products and the strengthening balance sheet, we believe that we'll be able to substantially invest in the continued clinical development of our prostate cancer and other cancer drug product candidates as well as to submit NDAs, and if approved, commercially launch TADFIN, which would provide even more revenue, adding to the already growing revenues in the female health division and from PREBOOST/Roman Swipes.

In fact, based on our existing resources on hand and the anticipated performance of our commercial business together with already existing sources of capital, we believe that we have sufficient resources to execute our clinical drug trial programs through year-end 2021.

We anticipate a steady flow of important news of Veru over the next few months to 1 year. We expect to report open-label efficacy and safety clinical results for the Phase Ib/II clinical trial for VERU-111, an oral antitubulin inhibitor for metastatic castration and novel androgen-blocking agent-resistant prostate cancer as well as potentially start a Phase III study.

We will initiate new open-label Phase II clinical studies in other indications and tumor types, including postchemotherapy, castration and taxane-resistant metastatic prostate cancer; metastatic breast cancer; and metastatic pancreatic cancer. We plan to report top line clinical results with the Phase II clinical trial evaluating zuclomiphene for the treatment of hot flashes caused by androgen deprivation therapy, submit the NDA for TADFIN, complete GMP manufacturing of clinical supply for VERU-100, submit the IND and complete the Phase II clinical trial. We've secured partnerships with some of the other drug products and continue to demonstrate robust growing revenues from our commercial products, PREBOOST/Roman Swipes and FC2. We are committed to driving shareholder value by becoming the prostate cancer and providing a continuum of care for prostate cancer patients.

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) The first question today comes from Brandon Folkes of Cantor Fitzgerald.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [2]

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Congratulations on all the progress during the quarter and year. Firstly, can you provide some color around the cohorts, that the 4 men that you called out the 9 months, the 2 at 8 months and the 5.6 months. Any color around what dosing cohorts those gentlemen received? And then following on from that, can you just elaborate a bit more in terms of, if you are seeing a dose response regarding efficacy?

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

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Yes. It's a good question. So really the question is, can you give more color to those 4 patients? And I will -- because of the way the trial is designed, the safety part, they come in at whatever dose is supposed to come in, so it's 4.5 or it's 9 or it's 18, that's the first dose those 3 patients would receive for 7 days, and then they go to 14 days with that dose, and then they will continue with that dose. And if they're still stable, then we keep going up. And so yes, what we are seeing is, as the schedule goes up, now as you go from 7 days, the 21 days, continuously on each day, and you go up on the dose, you are seeing that, that correlates with the PSA response, for example, because they're already stable.

And so unlike in the Phase II study where you just say, okay, this is the schedule I'm going to pick, it's going to be continuous, and this is the dose I'm going to pick, and you run everybody that way. That's the only way you're going to be able to get "a percentage" of 20 patients, for example, that have responded to that dose or schedule. But I could say in general, what's interesting is that these 20 patients are really the first 20 patients in the study. We're at 33 right now. And so that's what makes it so encouraging. And the study, again, is not designed to be an efficacy study. But yet, when you see a lymph node shrink, you get pretty excited about that.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [4]

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Great. And just 1 follow-up, if I may. How are you thinking about dose selection for the 3 Phase II trials you talked about initiating in early 2020?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [5]

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So it's a great question, again. So here's our dilemma, the dilemma is that we have not reached dose-limiting toxicity. And so -- but we're seeing anticancer activity. So another way of saying that is there's a -- it appears to be a wide margin of safety, so that you can push the drug levels up, and you're not seeing the neutropenia, you're not seeing the neurotoxicity. We're seeing a little nausea, vomiting, that kind of stuff. And so the idea is we're going to pick a dose in the upper range of what we've already tested because we're seeing activity, and we're going to move it into the Phase II. And if need be, we can always continue to increase the dose in that Phase II as long as the patient is tolerating it. So rather than just sit here and wait until we get to a point where we actually have a dose-limiting toxicity, if it's got a wide margin, there is a situation that, and we talk about this internally, that it may not make sense to be at that high, high range anyway.

I mean if you're seeing activity at a much lower range, then that's where you move forward. So it will become clear as we go forward. So we're going to pick a dose that's somewhere in the middle, and then we're going to -- almost certainly, it feels like the schedule should be something like continuous, but it gives us the ability to go back to 14 days, 1 week off, if we need to, or drop the dose if we need to. And we're picking the tumor types to where we have seen in our preclinical animal models, the concentrations that we're achieving now in these men, we've achieved, and for example, triple-negative breast which -- cancer, which was recently published; pancreatic cancer, that's also published; and also, interestingly, in the postchemotherapy space because, and I'll make this very clear, because VERU-111 is not a substrate for P-glycoprotein, which is an MDR. So one of the main mechanisms by which taxanes become resistant is that the cell has these pumps called P-glycoprotein and it pumps out the chemotherapy, so that cell doesn't get killed by the chemotherapy. So docetaxel fits right into that pump and gets pumped out.

Cabazitaxel, which is used after docetaxel, fits into the pump, but not as well, and so you see activity. VERU-111 doesn't fit in the pump at all. And so when you look at the animal models in breast cancer and pancreatic cancer and lung cancer, prostate cancer. When we treat a cell that's become resistant to a taxane, it dies just like a cell that's never seen a taxane. And so that's a -- that could be a really cool way to get to market. So each one of these cancer types that we picked, we have -- as I said, we have preclinical data and we have good scientific rationale for why those should be the next ones that we should go for. And they're small, they're small. So you don't need big studies in hundreds. These are Phase IIs that will inform you for the Phase III. And so that's the other advantage of doing a few of these Phase IIs. And again, if we can show in addition to prostate cancer, and stay with prostate cancer that's a warehouse, but also show in the other tumor types, that will tremendously increase the value of the asset.

And as you know, oral targeted therapies is where the world is moving right now. And our biggest concern was what was going to happen if you fed this to a patient orally. Were they going to be able to -- was it going to get into the bloodstream? It gets into the bloodstream. The biggest issue with taxanes, it doesn't get into the blood stream. And then the second thing, the biggest issue is, are you going to be able to give that and not have so much toxicity that you can't achieve the same levels as you can with IV? And we're not seeing that. So this is all very positive.

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Operator [6]

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The next question today comes from Yi Chen of H.C. Wainwright.

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Edward Dean Marks, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [7]

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This is Edward Marks on for Ram. Just a few questions from me. I'm wondering how many tablets patients have to take on VERU-111 at the 81-milligram dose?

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

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It's a good question. But as you know, we haven't done the full formulation. So there is no reason why once we have the formulation that we believe will be the dose that would go forward and we have 1 tablet a day or 1 capsule a day. So what we've done to make the trial easier is we made 9-milligram tablets -- excuse me, capsules. And so you get 9x9 in that situation. But we can make -- there's no limitation here. The bioavailability is very good. And so whatever the to-be-marketed form will be, it'll be a single pill and given once a day. And also, the idea would be that we would also have a pill that would have the lower dose, so the patient needs to have a dose reduction, they will be happy to, and this is a key point. These are patients that don't -- do not need to be premedicated like the IV taxanes.

IV taxanes because of the hypersensitivity reactions that they get because of the solvents they use to try to make taxane soluble in IV form, they have to be premedicated with antihistamines and prednisone and all this other stuff. We don't have to do any of that. We had not seen 1 hypersensitivity reaction in the 33 patients nor than we expected. And so really, the number of pills the patient will have to take will be 1 a day, and that's -- as you know, that's much better than with some of these androgen-blocking agents and others that not only do you have to take multiple pills a day but you also have to take prednisone. So clinical trials, we're using 9-milligram capsules as we go up in the safety -- in the 3-plus-3 design. But there's nothing about the drug that will stop us from just providing a single pill a day.

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Edward Dean Marks, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [9]

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Okay. That's good to know. I have a follow-up just based on sort of the last question as well, just sort of a clarifying point. I'm wondering if you're going to use that same dosing scheme for all 3 Phase III -- Phase II trials, I'm sorry, both -- the pancreatic cancer, breast cancer and the prostate cancer. And then just on this current trial, it seems that you're not going to be enrolling any more patients to reach that maximum tolerated dose. So it doesn't seem like the start of the Phase II trials are going to be affected. Is that correct?

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

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You are good up to that point. So the answer is yes. We are going to continue dosing to try to get the maximally tolerated dose and -- because we haven't reached it, and so we'd like to be able to put a bow on that. But because we're seeing anticancer activity that looks very, very good at the lower doses, we don't have to wait. So as you know, most cancer trials, they wait to get to a maximally tolerated dose, but they're usually getting a maximally tolerated dose. At the same time, they're seeing the efficacy. Because as you know, at the end of the day, it's a poison, and you push the poison to a point that you kill more cancer cells and normal cells. In our situation, it seems to be a wide window. So in that -- so we do see that we're going to try our best to get to a dose-limiting toxicity. And at some point, we're going to -- I think it'll be GI because the GI tract has turnover cells and all that stuff. And so when we do that, then you can back off and then pick the dose below that. But because -- again, because it's a wide margin, it's going to give us tremendous flexibility in the Phase II. So it gets started. And will the dose change? It could. But the good news is it will in the sense that you're going to try to get more efficacy out of it, not less. And so I think we're in a unique situation, but we have not hit a dose-limiting toxicity, and yet, we've reached a point where it makes good sense at the concentrations that we're achieving in these patients based on the preclinical models, we're there. And not only that, we're at the top range of those concentrations, where we saw dramatic tumor responses in the preclinical models. So it doesn't make sense to keep pushing up from an efficacy standpoint.

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Edward Dean Marks, H.C. Wainwright & Co, LLC, Research Division - Equity Research Associate [11]

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Right. I appreciate that clarity. And just a final -- just a housekeeping item. Just wondering if you can elaborate on some of the total operating expenses you expect for 2020?

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

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Michele?

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Michele Greco, Veru Inc. - CFO, Executive VP of Finance & Chief Administrative Officer [13]

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Yes. We're going to continue to see the R&D expenses continue to increase. If you look at this year, we'll be reporting the -- issuing the 10-K here shortly today. And as I indicated, what our R&D expenses were, I can just go over that again. In 2018, you saw a $10.8 million, and in 2019, you saw $13.7 million. The rest of the SG&A is relatively flat year-to-year, and we'll stay at that level. And the emphasis is going to be in our spend going into drug development.

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Operator [14]

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The next question comes from Kumar Raja of Brookline Capital.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [15]

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Congratulations on all the progress. On the prostate cancer trials, maybe you can touch a little bit on the patients who are progressing -- who are not progressing -- who are progressing. So these patients, are they more -- do they have like a more aggressive cancer? And they are not able to reach the efficacious dose, that's what is happening with these patients? Maybe you can elaborate a little bit on that.

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [16]

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So I want to make sure I understand the question. So the question is for the patients that are not responding, are they having a more aggressive disease, that's the question?

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [17]

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Yes.

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [18]

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Okay. Yes, yes. So as you know, in clinical trials, even the best medicine, so for example -- so I'm going to answer it 2 ways, I'm going to tell you a little bit about the other medicines and their rates, and then I'll come back to this one.

So even in the other medicines like abiraterone and postchemo, if you go back and look at the PSA response in that New England Journal of Medicine paper, it was about 28%. If you look at enzalutamide in the same space, it's about 50%, which is another way of saying that anywhere between 72% and 50% of men are just going to march right through it, no matter how great the drug is. And that's because prostate cancer is heterogeneous. There's all kinds of different kinds of mutations and so on. And so -- and that's in a Phase III setting where you've optimized everything.

Cabazitaxel and docetaxel, the same thing. It's in the range of 30%, 32% to 45%, 50%. So clearly, there are different kinds of prostate cancers. Our situation, we cannot comment, and the reason we can't comment is because think with me for a moment, we're taking patients that have failed abiraterone, enzalutamide and ADT, and we're starting slow. So we're giving them a low dose and we're giving them a low dose at a small period of time, 7 days and then 14 days off, then they go 14 days and then 1 week off, and they go 21 days, continuous. So every time you make that change, it's another 3 weeks, another 3 weeks, another 3 weeks, another 3 weeks. So there's no question.

There are many patients in our study that are being underdosed and underscheduled as we try to understand the safety. And so that's why you can't take a Phase Ib and say I have 10 patients and 75% responded because of the heterogeneity of the dosing and the schedule. So we're hoping that once we find the right dose and the right schedule and the fact that we're seeing this kind of activity at the inconsistent dose, inconsistent schedule, certainly tells us that we'll be similar, if not, hopefully, better than what's currently available.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [19]

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And in terms of pancreatic cancer and breast cancer, at what doses do you see response in the animal models? And how does it (inaudible)?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [20]

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Good question. So the question basically is, if you look at the human equivalent dose in the animal model and you're trying to make it -- point back to the human, so the human equivalent dose in the animal models is, first of all, in the animal model, whether it was breast cancer, pancreatic cancer or postchemotherapy taxane, and quite frankly, any of the other ones, even lung cancer, is all kind of the same. And that is, you start seeing activity at about -- and this is in the mouse, which is 5 mg/kg, and then you see great activity at 10 mg/kg, 12.5 mg/kg, 15 mg/kg and 20 mg/kg. And by the time you hit 12 to 15 (inaudible) the equivalent dose in the human study.

So the equivalent doses anywhere between 63 milligrams and 72 milligrams gets us in that sweet spot, and we're beyond that. We're at 81 mg/kg right now. So that's why we're saying, look, guys, we're reaching concentrate -- we've measured the blood levels post trough. And so we know that it's getting in, and we know we're seeing those concentrations. And so we're feeling -- so if you're doing that, then it turns out funny. We're more like the rat and the mouse in terms of the way we handle the drug. And so the human equivalent dose to get to those concentrations where we saw efficacy in the animal model is we're in that sweet spot.

With that said, we're not seeing the dose-limiting toxicity. We're not seeing neutropenia. We're not seeing neurotoxicity, which are classic side effects of taxanes. And as you know, the dose-limiting toxicity of docetaxel and cabazitaxel, which are very, very active in prostate cancer is neutropenia. And so we're -- so we feel comfortable taking the dose that we're currently giving in our study and using it in those other tumor types because it's amazingly consistent across tumor types to their response to the same concentration of the drug.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [21]

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Okay. And in terms of the zuclomiphene, once we have the Phase II data, how long will it be before we can start the Phase III trial? And in terms of the Phase III, you think that you will have similarly 2 doses there? And what is the expectation in terms of number of patients?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [22]

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It's a great question. So a lot of it depends on when we see the data -- what we see in the data, whether we go with 1 dose or more than 1 dose. We hope that the Phase III will be just 1 dose versus treatment. About -- I'm going to keep open the flexibility. And the plan is, if we are able to determine the minimally effective dose and we're able to determine the effective dose with the top line data, as you know, it's top line, then we get the full data set, hopefully, January, February, but -- beginning of January, any time from now until the beginning of January, we hope to get the top line data. Then the plan would be to have an end of Phase II with FDA, and by the time we get you into Phase II meeting with FDA and get everything ready for the Phase III, the goal we'll have the Phase III start in sort of the May, June time frame.

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Kumaraguru Raja, Brookline Capital Markets, LLC, Research Division - Director & Senior Biotechnology Analyst [23]

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And maybe a final question on the female condoms. What's happening in terms of this contracting in South Africa and Brazil? And how should we think about revenues for fiscal 2020?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [24]

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So what I'm going to do is I'm going to tell you what I think about Brazil and South Africa, and then I'll have Michele comment on what she is thinking in terms of the numbers.

As it relates to the Brazil, we ended up getting more orders than expected from Brazil. And part of that is because the people are voting in Brazil, the women are voting, they like our product better than they like the competitor's product. And as a result, they keep ordering. And so Brazil has been very interesting in that regard. Michele can kind of guide you on the numbers. So we've ended up with more orders than expected from Brazil, and we actually expect that to continue to increase.

In terms of South Africa, they were slow to get started, and now they're starting to get started. And interestingly, as you know, they had a 3-year contract for 120 million units, of which we picked up about 75%. And now because it is so slow, it looks like this is just [me saying] based on hearsay right now that they're probably going to go to a 5-year contract instead of just 3. So it'll be not 120 over 5, it'll be more condoms, but the same players will be able to get more over more time. And this has happened many times with South Africa. So what I'm saying, it's not unusual. And so from that standpoint, all of a sudden, now our numbers are not reflecting this Q4 all the additional orders because, as you know, we can't recognize those orders until we ship it. And so they're sitting there ready to ship. They've been ordered. And so you'll see it in our Q1 fiscal year 2020 numbers, but South Africa has started kicking in.

I don't know, Michele, do you want to comment?

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Michele Greco, Veru Inc. - CFO, Executive VP of Finance & Chief Administrative Officer [25]

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No. What Mitch said is correct. We shipped a significant amount of what we won under the Brazil tender by September 30. However, they have also gone above what their original tender order was. That's going to be shipped here in Q2 of this fiscal year. And South Africa was slow. A lot of these countries test product on their own, and they were testing our product. And as Mitch said, we couldn't ship it. We couldn't recognize it by September 30. So we're starting to see the sales pick up in Q1 here. And you'll see that once we report those results, and then it'll go into Q2 and Q3. And we are getting a lot of indications that the 3-year will turn into a 5-year, especially how slow it was upfront to start the whole process.

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Operator [26]

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(Operator Instructions) The next question comes from Alexandra Heller of Oppenheimer.

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Alexandra D. Heller, Oppenheimer & Co. Inc., Research Division - Associate [27]

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This is Alex Heller on for Leland Gershell. Congrats on the great quarter and data. My questions have actually been answered, but -- already. But now that you have some additional data for VERU-111, can you walk us through your thoughts and provide any additional color on trial design for the next studies?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [28]

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You mean the next Phase IIs?

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Alexandra D. Heller, Oppenheimer & Co. Inc., Research Division - Associate [29]

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Yes. And (inaudible) if you have thoughts on that?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [30]

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Yes, yes, yes. So for the phase -- yes, I'll just tell you what I'm -- what we're thinking at this point. Nothing is etched in stone. In the Phase IIs, the idea would be that we would have approximately 20 patients of each tumor type. It'll be open-label. And since these patients, just like the prostate cancer patients we have now, which -- let me just emphasize, the Phase Ib/II that we're doing now, these are patients that have actively progressing disease coming into the study. So that means they failed abiraterone, enzalutamide and ADT, and their PSA is going up, and they have tissue evidence, whether it's a bone scan or CT scan that the tumor is progressing. So when we say stable disease, they came in progressing.

Similarly, we believe, in the Phase II for the other 3 cancer types, again, prostate cancer that's resistant to taxane and abiraterone, enzalutamide as well as breast cancer and in pancreatic cancer, they will be progressing. So it'll be very similar. And so the trial design will be the same. We're going to pick continuous because continuous looks like the best way into tolerating. Continuous means the drug will be given every day and the patient will take 1 pill once a day and every day.

And what we'll do is, it's a Phase II, and you can play with dose finding, if you like. And if they're tolerating it and they're responding, then we'll keep escalating, but we haven't reached an MTD. So that's kind of what I'm thinking for the Phase II.

As it relates to the Phase III for the prostate cancer drug -- I mean, for the prostate cancer indication, in that situation, you're now looking at a patient population that has failed abiraterone or enzalutamide, following failing ADT. So they're castration-resistant and an androgen-blocking agent-resistant. So for example, if they failed abiraterone, then the understanding would be that you would -- it's almost like the study that I just mentioned from de Wit, a similar design. It will take patients in with that situation and you would randomize them to either oral VERU-111 at the right dose and schedule that we would have picked from the Phase Ib/II, randomize against whatever the androgen-blocking agent they did not have. So they start out with abiraterone, and if they fail that, they can be randomized to either enzalutamide or our drug. And if they failed enzalutamide, they can be randomized to abiraterone or our drug.

And so this way, we'll be adding the alternative androgen-blocking agent versus our drug. So this is all prechemo. So this is -- because we're a new chemical entity, we're not a taxane, we bind to the alpha, beta tubulin subunits. So we're very, very different. And so this is not really a taxane to taxane. As you know, some companies are developing an oral taxane because they recognized that oral was the way to go. But in that situation, when you look at the blood, it's a taxane, and that taxane is going to have to be compared to the IV taxanes. The fact that we're not a taxane, we're a new chemical entity allows us to be in that prechemo space. Does that help?

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Alexandra D. Heller, Oppenheimer & Co. Inc., Research Division - Associate [31]

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Yes, that does.

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Operator [32]

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The next question today comes from Peter McMullin, a private investor.

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Peter McMullin, Independent Portfolio Consultants, Inc. - Investment Strategist [33]

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We're 2 months plus into the first quarter. Obviously, we've got some color from Michele, but any more color on how the quarter is going? Getting that cash flow from the 2 commercial products is important to financing the rest. And I just wonder if you could give us a little more color on what's going on in Q1.

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [34]

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Yes. Yes. So what I said in my comments was that every quarter for the last 8 quarters, we've been growing. And I expect this quarter to be exactly the same, growing. And so that's remarkable. So we are on the streak. So our ninth quarter is going to look -- it's a strong growth. And it's coming from our products. It's coming from getting additional contracts.

Again, let me make a comment. This is so important. We're not spending any money on marketing and selling. We are basically wholesaling to get Roman and for the premature ejaculation product, for the FC2 in the U.S. It's all -- and we don't spend any money on marketing and selling. We are providing product to telemedicine in the retail pharmacies and the Internet pharmacies. And so it's really a different model. So with that, it allows us actually to have a better prediction for how we're going to do. And I don't come and show you, look, we've got $50 million in revenue and I spent $20 million to get it. I'm telling you, I mean, give you an example for PREBOOST. I don't know, 0.1 FTEs is being spent on managing that product, and that's growing. We did a multiyear contract with Get Roman. So I think the model is allowing us to use that gross profit which, as you can see, has more operating margin to use that to pay for our products, and we just had to make a decision. The decision was not to be a commercial enterprise. The decision was, how do you take your resources and invest it in these much bigger markets.

We can always decide down the road once we hit approval or preapproval what we want to do. But at this point now, this was the most efficient way to keep the company from having to have to raise money constantly to keep up with all these clinical programs. We have not raised money. And as I mentioned, we look good until the end of 2021, and then we'll reassess them because money is coming in.

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Peter McMullin, Independent Portfolio Consultants, Inc. - Investment Strategist [35]

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Well, that's brilliant. Now you did make 1 comment about potential partners down the road. Would these be something like Europe or any -- what other products could you do a deal where you've got some progress, payments, royalties, whatever?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [36]

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Yes. So the one that's the best -- yes, so we are actively pursuing partnerships. The one that we're most active with is TADFIN. We've spent the last year or so doing that. And so we're mature along in terms of some of the discussions that we've had in Europe and South America are the 2 areas primarily. Zuclomiphene will be the next one that we would look for a partner. We just want to wait until we have the data, and that one's easy because Europe, we can get -- again, that would be primarily Europe or Asia. VERU-111, we have not -- we've informed large pharma and our feeling is, especially now it was the right decision to sit tight until we get more and more data because it will be much more attractive. And so from that standpoint, that could be a very different kind of relationship. That could be a U.S. and ex U.S. relationship. But primarily, we're looking for Europe and Asia, but TADFIN would be Europe and South America.

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Operator [37]

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The next question today comes from James Rowe of Rowe and Company.

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James Rowe;Rowe and Company;Founder and CEO, [38]

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Mitch, congratulations. Can you take the VERU-111, the VERU-100, and I'm going to mispronounce zuclomiphene? And what's the sort of time frame from here to assuming things that go the way you expect to be able to get to market with each of these 3 products?

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Mitchell S. Steiner, Veru Inc. - Chairman, President & CEO [39]

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It's a good question. I actually have a little cheat sheet, which I don't have in front of me. But what we've been saying is, I can just work it out with my mind. So basically, you're looking at TADFIN, I'll give you that one, that we will get the launch beginning of 2021. The zuclomiphene, the Phase IIIs would go through 2020 and 2021. And therefore, that looks like it's going to be a filing in 2022 with a 2023 launch is what I'm saying. We're pulling it up right now, hold on a second. Give me just 2 seconds, and I'll pull it up here for you. So this might give you the right information, hold on one moment, please. Okay. So we're looking -- I'll just give you the bottom line.

So for VERU-100, we're looking at a 2023; for zuclomiphene, 2022, 2023; and VERU-111, I can't tell you now because it's moving quickly. Originally, we were thinking it would be a 2022 NDA, but that could change, but we call it 2022, 2023. So as you can see, this investment is allowing us to have 3 shots on goal, 3 large shots on goal to have a significant revenue-producing opportunity between 2022 and 2023. And so VERU-111 is a $4.5 billion market, zuclomiphene is $600 million to $800 million sales to us at peak with a 25% to 28% market penetration, and VERU-100, we've 28% of global share, that's about $700 million. And so these are big markets, and that's why we're just so glad that we can use our own resources to continue to move these things along and not dilute our shareholder.

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Operator [40]

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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. - Chairman, President & CEO [41]

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Thank you, operator. I appreciate everybody joining us on today's call, and I look forward to updating all of you on our progress at our next investors call. Have a happy holidays and happy new year. Thank you.

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Operator [42]

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The digital replay of the conference will be available beginning approximately noon Eastern time today, December 12 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 10136891. Please record your name and your company when joining.

The conference has now concluded. Thank you for attending today's discussion. You may now disconnect.