Veru Inc.
Q3 2018 Earnings Call Transcript

Published: 14 Aug 2018

[Operator:]

Good morning ladies and gentlemen and welcome to Veru Inc.'s investors conference call. All participants will be in listen-only mode. [Operator Instructions]. After this morning's discussion, there will be an opportunity to ask questions. 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 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.

[Mitchell Steiner:]

Thank you operator and good morning. This is Dr. Mitchell Steiner. I am the 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 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 zuclomiphene citrate is an oral estrogenic agent being evaluated for the treatment of hot flashes in men who are in 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 andro deprivation therapy for the treatment of their prostate cancer in the U.S. Andro 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 are 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 andro deprivation therapy. Up to 80% of these men experienced treatment related hot flashes and 30% to 40% have moderate to severe hot flashes even up to eight 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 andro deprivation therapy because of the side effect. Zuclomiphene could be the solution to manage these unwanted estrogen deficiency related side effects caused by andro 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-isomers 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 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 it will 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 one of the two 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 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 are formally evaluating zuclomiphene as a 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 on June 2018 and the FDA has now officially given us a green light to enter Phase 2 testing. The first patient should be rolled in the Phase 2 clinical trial this month. The Phase 2 clinical trial is a randomized, blinded, placebo-controlled, dose finding study. It is a four 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 three different oral daily doses of zuclomiphene, 10 miligrams, 50 miligrams and 100 miligrams, 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 four weeks and maintained by 12 weeks in the study. We expect to report the final Phase 2 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 two 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 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 are 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 and metastatic prostate cancer have 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 anti-tumor 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 are planning to initially developed 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 will be having a pre-IND meeting with the FDA soon and anticipate filing the IND this quarter and then initiating an open label Phase 1B/2 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 2018, as part of the American Society of 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 anti-tumor 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 bioequivalence 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 three NDAs for four 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 two drug products, Tamsulosin DRS, which is extended release granules for oral suspension and Tamsulosin XR capsules. These two new drug formulations address the administration concerns of the branded Flomax. Flomax has a food effect, which means that according to the label greater amount of drugs up to 70% more gets rapidly absorbed with 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 or POTS, 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 two bioequivalency studies that we have 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 miligrams, finasteride 5 miligrams combination tablet formulation. This proprietary fixed combination formulation, which we call the male pill, contains the active ingredients of Cialis, which is tadalafil 5 miligrams approved for the treatment of symptoms of BPH and erectile dysfunction and Proscar, finasteride 5 miligrams 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 that prevents the progressive growth of the prostate in men who 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 be crushed or chewed. There are no granule formulations 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 formulation utilizes the same delivery technology platform as we have for Tamsulosin DRS slow release granules and we expect that Solifenacin DRG slow release granules for the treatment of overactive bladder in men and women final bioequivalence 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 of 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 reported our best quarter this fiscal quarter since the acquisition of Aspen Park Pharmaceuticals in October 2016. We had a great quarter with 10 million units sold, which is an increase of 18% from fiscal Q3 2017. Michele will provide financial details shortly. Furthermore, this past fiscal year and for the first and second fiscal quarters of this year, we felt the impact of two 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 three 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 are 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 the corner. We have seen better-than-expected growth in U.S. prescription 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 and business. The FC2 business has and will provide additional resources to partially fund our main objective which is the creation of shareholder value through 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?

[Michele Greco:]

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 the demand creation in the various countries through affiliation and working with governments who are committed to sustainable female condom program. 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 this historically 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 two quarters 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. We have 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 costs internal sales force and instead contracted an independent sales force, which resulted in one-time severance cost of approximately $500,000, which were 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 per unit sales resulted in the increase in our net revenue per unit and the increase in a 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 clinical development program, additional headcount associated with the FC2 prescription launch and severance cost associated with the change in the 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 expenses of $1.8 million and the increase in the tax expense of $1.7 million. Now for the results for the nine-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 nine-months totaled $10.7 million, an increase of 7% from the prior year. Net revenue per unit was higher at $0.57, compared $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 2017 and severance cost associated with the change in our U.S. sales and marketing efforts. During the nine-months, we incurred interest expense and change in derivative liabilities of $2.1 million. The bottom line result was a net loss for the nine-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 and 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 three-months and the nine-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 carry forwards for U.S. federal tax purposes of $10.5 million, expiring in years through 2037. And our U.K. subsidiary has net operating loss carry forwards 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 2018. During the nine-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 nine-months period. During the second quarter, we completed a non-dilutive $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 profits on our clinical programs. We believe will be awarded a significant portion of the South Africa tender. We are seeing the results of our efforts to enter new geographical markets and partner with new distributors to generate new revenues in the global public sector. And we are starting the increase in orders from our U.S. FC2 prescription market and the new U.S. sales channel. Now I would like to turn the call back to Dr. Steiner.

[Mitchell Steiner:]

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 are well-positioned to offer numerous oncology and urology drugs to take advantage of the multibillion dollar 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 four products, tamsulosin granules and capsules, tadalafil/finasteride combination tablets and Solifenacin DRG granules. Through these urology specialty pharmaceuticals, we are in the near-term position to file several NDAs as well as to launch and partner, when appropriate, multiple urology drugs over the next two-and-a-half years. With that, I will now open the call to questions. Operator?

[Operator:]

[Operator Instructions]. Our first question today will come from Jason McCarthy of Maxim Group. Please go ahead.

[Jason McCarthy:]

Hi Mitch. Thanks for taking the question. Congratulations on the progress. Just a question around 111. There was some news about a month ago around label expansion for Xtandi 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 then to add on to that, the Phase 1B/2 study

[Mitchell Steiner:]

Great. Thank you for the question. So that the first question is actually an interesting one and I will frame it and then the second question is for the PSA reductions, what when will we consider a success. And a lot of it depends on the patient populations. So I will 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 will talk about in a moment. And then as you mentioned, a few 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 two agents that have shown activity. Significant activity in prostate cancer have been hormone therapies, which enzalutamide and enzalutamide are examples of. And the others are the antitubulins like the taxanes, docetaxel and cabazitaxel and VERU-111, which is an oral agent. And what has happened is that because urologist have been treating PSA's and we are not treating necessarily metastatic disease, we have actually created a new class of patients. So all these new drugs, the five or six that have been approved have been all approved for what's called metastatic castration resistant prostate cancer. That means they will put on androgen deprivation therapy, because they are present with metastatic disease. Their PSA's 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 you 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, you 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 testosterone levels are 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 reason why you can't do sequence these androgen blocking type drugs. So you need to go now to IV chemotherapy, which is docetaxel and cabazitaxel or we are hoping in the future it will be our drug VERU-11. So that's why in our Phase 1B/2, we are going after those patients that failed androgen deprivation therapy and they failed one of those drugs, abiraterone and enzalutamide, but they have metastatic disease. Well, what has happened is, we have created a new class of patients and these are patients that have, listened to this, non-metastatic castrate resistant prostate cancer. That means they started out with just a high PSA, the cancer hadn't spread anywhere. Because the high PSA being cysted, they get treated. So they get androgen deprivation therapy. And then, the PSA starts to go up, they still have metastatic disease but because the PSA is rapidly going up, you are afraid they are going to get metastatic disease. And so the Johnson & Johnson with apalutamide and now Pfizer and Astellas with enzalutamide said, that's the space we want to go into. And they were able to show both those studies. They were able to take patient with no metastasis with a rising PSA because they through androgen deprivation therapy to delay that first metastasis for two years roughly for each study. Two years. Well, that's great news. That means literally the standard of care is 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 a patient develops metastatic disease in this scenario. So that's a big step for the potential for this agent sort of being around the right time at the right place if the efficacy and safety plays out. Now in the Phase 1B/Phase 2, these are patients that have failed androgen deprivation therapy. They do have metastatic disease and they have 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 antitubulin and if you were to treat those with an IV antitubulin you would see response rates between 30% and 45%. And just to put that in perspective, abiraterone when it got into its Phase 3 program, not Phase 1 or 2, but Phase 3 program, it showed only a 28% PSA response, which means PSA greater than 50% reduction and enzalutamide was 50%. So if we see something in the order of 25% to 45%, then we are going to be very, very happy and particularly in this patient population has already marched through androgen deprivation therapy and they have 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 are hoping that at one of these safety cohorts, we will start to see PSA declines. And then it will expand into a Phase 2 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 are 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 that's an unmet medical need and will certainly accelerate the excitement around the product. So thank you to those two questions.

[Jason McCarthy:]

Great. Thank you so much Mitch.

[Operator:]

[Operator Instructions]. Our next question will come from Kumar Raja of Brookline Capital Markets. Please go ahead.

[Kumar Raja:]

Hi. Good morning. Thanks for taking my question. So my question is on VERU-944. Obviously, there is a wide spectrum of patients with hot flashes, including infrequent, mild or severe who might have about six to 10 flashes a day. So in terms of patient selection, is there a specific number of 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?

[Mitchell Steiner:]

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

[Kumar Raja:]

That is right, yes.

[Mitchell Steiner:]

Yes. So here is the interesting thing. So zuclomiphene is cis-clomiphene, which is one of the isomers that is part of Clomid. As I mentioned, Clomid has been around since 1967. So we know that men have been getting the drug Clomid for 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 pullout zuclomiphene by itself as a separate entity, so there is 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 half to 30% zuclomiphene, then in some ways you have got an insight to what the safety looks like in many men over long periods of time. So it appears to be incredibly well tolerated, whereas potent steroidal estrogens tend to be not so well tolerated in men and it's dose dependent. So the higher dose, the more you are going to see trouble. The trouble that you tend to see is gynecomastia which is painful breasts and enlargement of breast due to the estrogen. And second is what's called VTE. VTE is venous thromboembolic event. 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 are 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 if you look in the literature, there is some data with an oral drug called diethylstilbestrol that at 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 is not being used is it is not available and the problem is the dose that is available the one miligram, the three miligrams, the five miligrams is jut too high. I don't know how you take a one milligram and break it into microgram. So that's a big issue. So that's to 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 and I have got it in front of me, so I am going to give you the answer, because you asked and the answer is, for the inclusion criteria they need to have moderate to severe vasomotor symptoms defined as a minimum of four 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 are doing and get out of the room and get to a fan, stick their head out of the window, so it does affect them. In fact, there are many patients just wanting 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 and 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 are calling the zuclomiphene because that is its name in the literature.

[Kumar Raja:]

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 your efforts to increase the sales in U.S. are fructifying? And how should we think about the growth margins going forward?

[Mitchell Steiner:]

I am going to have Michele answer that.

[Michele Greco:]

Yes. As I mentioned, we changed out our sales strategy this quarter and we have gone to an outsourced sales group. We are also looking at new sales channels in the U.S. We have brought on a new customer. We started to see the pickup in reordering patterns happening here in July and looking like they are continuing into August. The U.S. prescription market has lot higher-margin here. We are also seeing the benefit of a lot of work we have 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 an increase in our margins.

[Kumar Raja:]

Thank you so much.

[Mitchell Steiner:]

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

[Operator:]

Our next question will come from Peter McMullen of Tiger Management. Please go ahead.

[Peter McMullen:]

Hi Mitch.

[Mitchell Steiner:]

Hi Peter. How are you doing?

[Peter McMullen:]

Tip-top. Thank you. Tamsulosin, you seem to tweaking the formula a bit and I just wondered, are you there yet? It was little delayed, probably in the low but how do you fuel about that at this point in time? And then I have a follow-up.

[Mitchell Steiner:]

Sure. So the tamsulosin, what we are doing is, we are trying to convert, it's basically an alpha blocker into a slow release granular formulation. We have done two bioequivalency studies. The last one, 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 and that we outsourced it, that we are at the mercy of the outsourced manufacturer and the outsourced 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 would like and the trade-off 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 trade-off. 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 are 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 are looking for those studies again here in 2018. So, I don't know which one will come out first, but we are looking for both of those. And so now we have a situation. We have two NDAs to file for three different products almost on top of each other. So that's the latest. And you said you had a follow-up question?

[Peter McMullen:]

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

[Mitchell Steiner:]

Yes. Good question. So as you know, we have been, what do you call it dippy-doodling or whatever?

[Peter McMullen:]

Dipsy-doodling. It's a Canadian expression.

[Mitchell Steiner:]

Dipsy-doodling. I love it. We have been dipsy-doodling though this whole process and dipsy-doodling means that we do, is we take the cash that's coming in, we match it with the program. And we have been able to do that now and the idea behind it is that the programs that we are running now are not very expensive. So for example, other than the Phase 2 study that's about to start, all these bioequivalency studies, you are looking at 36 patients. They are done over a two to three week period. So that's not a lot of money. And then the Phase 2 program, as I said, that's about $3.5 million, $4 million, we are just starting that. And then you have the Phase 1B/2 in Hopkins and other sites, again that's a small 15 patients then going to expanding that up to 20 to 30 patients. So the good news is, we have been able to move forward without having to do significant investment. Now we will have to do significant investment in the future and people expect that because you are going to be now in Phase 2/3s and Phase 3 trials and launching products and all that stuff. So we are hoping to have a slew of good news before that, which would translate to a higher stock price. We are also expecting, now since the time we have taken the company has moved from the 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 are 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 are 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 ex-U.S. versus unit. So you don't need many units to see more revenue. So as Michele said, we have been able to match our cash bandwidth for the most part with our drug development and we are hoping that when our market cap reflects a larger number that 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 will be the future of our company, which is the NDAs that we will be filing next year and the drugs that would 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 are executing exactly as expected and in a reasonably short time, we have turned the company and transformed it into what will be a high-value business.

[Peter McMullen:]

I appreciate it. Thank you.

[Mitchell Steiner:]

Thank you.

[Operator:]

[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.

[Mitchell Steiner:]

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

[Operator:]

Thank you. 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.