Veru Inc.
Q4 2018 Earnings Call Transcript

Published: 13 Dec 2018

[Operator:]

Good morning, ladies and gentlemen, and welcome to Veru Inc's Investor 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 that this event is being recorded. The statements made on this conference call that are not historical in nature are forward-looking statements. Such forward-looking statements reflect the company's current assessment of the risks and uncertainties related to our businesses. Our actual results and future developments could differ materially from the results or developments in such forward-looking statements. Factors that may cause actual results or developments to differ materially include such things as the risks related to the development of the company's product portfolio, risks related to the ability of the company to obtain sufficient financing on acceptable terms when needed to fund development and company operations, risks related to competition, government contracting risks and other risks detailed in the company's press release, shareholder communications and Securities and Exchange Commission filings. For additional information regarding such risks, the company urges you to review the 10-Q and 10-K SEC filings. I would now like to turn the conference over to Dr. Mitchell Steiner, Veru Inc's Chairman, CEO and President. Dr. Steiner, please go ahead.

[Mitchell Steiner:]

Thank you, Operator, and good morning. This is Dr. Mitchell Steiner, Chairman, President and CEO of Veru Inc; and joining me are Michele Greco, CFO and CAO; and Phil Greenberg, Executive Vice President, Legal. Thank you for joining our call. Veru is a urology and oncology biopharmaceutical company focusing on prostate cancer novel medicines. Today, we will update you on the clinical development of our drug pipeline and the commercialization of our products, as well as provide financial highlights for the fourth quarter and year-end fiscal year 2018. We had a successful year, and are well on our way to transforming our company into a biopharmaceutical company. We have advanced several near-term and mid-term urology products at the same time to have multiple shots on goal, to file drug approval applications on and to commercialize several drugs in oncology and urology. We have also begun to see our strategic plan for our existing commercial products taking hold as we anticipate solid revenue growth in these commercial products. With this strong foundation in place, it is time for our company to further articulate to our shareholders our business plans and priorities as this will inform our investors on objectives and goals for the next year and beyond. Our strategy is to eventually be known as the prostate cancer company. Rather than focusing on one drug class or one research platform, we aspire to be disease-focused by providing a continuum of care for prostate cancer patients. This means we expect our drug development and commercial activities to align with the clinical management of prostate cancer patients. Although prostate cancer remains the second most frequent cause of cancer deaths in men, advances in the diagnosis and effective treatment of prostate cancer have resulted in many men living longer, even decades with the disease. Thus, prostate cancer is becoming a chronic disease with new challenges as the prostate cancer develops resistance with these current drugs and progresses and as the patient suffers from the long-term side effects of these treatments. Accordingly, advanced prostate cancer care centers are being established across the country in the world, and urologists and medical oncologists are now actively managing all aspects of prostate cancer from monitoring disease for disease progression and modifying treatments and prostate cancer supportive care. Prostate cancer supportive care addresses the management of the various acute and chronic side effects of prostate cancer drugs like bone loss and fractures, hot flashes, loss of libido, erectile dysfunction, loss of muscle strength and frailty. The markets for prostate cancer treatment and prostate cancer supportive care is well established as a multibillion dollar market, and given our core expertise and the number and type of drugs in our pipeline, we are uniquely position to understand, develop, and commercialize medicines for these unmet medical needs of prostate cancer patients. For example, Veru is developing the drug product called VERU-111 for multiple unmet needs and advanced prostate cancer treatment, and zuclomiphene citrate VERU-944 in prostate cancer supportive care for the treatment of hot flashes caused by androgen depravation therapy. With respect to these drug products, VERU-111, a novel first-in-class priority next-generation oral tubulin inhibitor has advanced into an open label Phase 1b/2 clinical trial in men who have progressive metastatic castration resistant prostate cancer with prostate cancers now resistant to androgen blocking agents like abiraterone or enzalutamide. We submitted the IND to FDA in November, and this week the FDA gave Veru the green light to begin the Phase 1b/2 clinical study, which is expected to be conducted in up to five centers in the United States. The Phase 1B study will involve approximately 15 men. The purpose of this phase of the study is to escalate the doses of VERU-111 so that the optimal dose maybe selected for testing in the Phase 2 clinical study. Phase 1B is expected to be completed in the first-half of 2019. Because of this trial design, the Phase 2 study can start as soon as the dose is selected, and this part of the study is expected to involve approximately 26 men who have progressive metastatic castration resistance prostate cancer that is now resistant to novel androgen blocking agents such as abiraterone and enzalutamide. As an open label study, we will be able to monitor the progress of the drug safety and efficacy. The study's efficacy endpoint is achieved if the patient has a greater -- 50% or greater reduction in his PSA blood levels during treatment. We plan to release open label clinical results on the efficacy and safety during 2019 as the study progresses. The company's zuclomiphene citrate drug product is being evaluated in a Phase 2 clinical trial for the treatment of hot flashes caused by androgen depravation therapy in men with advanced prostate cancer. We are now actively enrolling subjects in approximately 15 clinical sites across the United States. The goal is to enroll approximately 120 men in the study with a length of treatment being short of 12 weeks. The primary endpoint of the study is the reduction in the number of moderate to severe hot flashes in men from their baseline and comparing that to the placebo. We plan to report top line clinical results in the first-half of calendar year 2019. Zuclomiphene has the potential to be the first drug approved by FDA for this indication. We have also recently received an independent preliminary market assessment that has determined the potential United States market for zuclomiphene is large about $600 million in annual sales. I want to emphasis that this is a -- these novel, proprietary prostate cancer drug products are now in human clinical trials with initial clinical data results on efficacy and safety anticipated in the first-half of calendar year 2019. Our strategy is to become known as the prostate cancer company, and to be supported in part by two sources of revenue. First, we are establishing a specialty pharmaceutical business in urology by developing low cost, near-term pharmaceuticals using an expedited regulatory pathway known as a 505(b)(2). The three drug products currently in clinical development they are utilizing this regulatory pathway with tadalafil/finasteride fix combination tablets and Tamsulosin XR capsules and sprinkles. Tamsulosin treats the immediate symptoms of benign prostatic hyperplasia or BPH in men with smaller prostates with tadalafil/finasteride combination tablets treat symptoms of BPH and shrinks the size of the prostate in men who have large prostates as well as treat erectile dysfunction. As for Tamsulosin XR capsules and sprinkles, we have identified and selected a formulation that has the desired invitro dissolution profile. And this selected Tamsulosin formulation is slated to begin GMP production so that the final bioequivalency study can start in January 2019 with clinical results later in that quarter. As for tadalafil/finasteride combination tablets, the bioequivalent study is in progress with results expected early next quarter. With successful bioequivalence results, we plan to submit two NDAs for these three-drug products to FDA in 2019. Second, our strategy with respect to company's existing commercial product is showing progress as we anticipate growing revenue from our commercial products. The FC2 female condoms now also known in the U.S. as FC2 internal condom and PREBOOST with the 4% Benzocaine wipes for premature ejaculation. For FC2, the female health company division should continue its growth because of both the public sector in U.S. commercial sales. In the public sector, we won 75% South African tender representing up to $120 million units over three years. So, for us, that will be an award of approximately 30 million units a year and potentially $10.4 million in revenue per year for a total of approximately $30 million. In addition, we recently were notified that we won up to a 6 million unit order for this fiscal year from Brazil. We have also expanded our U.S. business to a strategy that utilizes both contracted independent sales force, and by partnering with leading telemedicine marketing and sales channels. To give you a sense of the meaningfulness of the U.S. growth with respected FC2 business, let's examine some of the high level financial results. First, U.S. prescription businesses -- let's view it first, U.S. prescription revenues in fiscal year 2018 were 15% of the total FC2 net revenues. In Q4 fiscal year 2018, the U.S. prescription business net revenues for FC2 is 67% of the total U.S. FC2 prescription net revenues for the full fiscal year. This growing U.S. prescription trend appears to be continuing as already through the first two months of the current fiscal year 2019, the U.S. prescription net revenues for FC2 are 120% of the U.S. prescription net revenues of Q4 fiscal year 2018. Now, if we add the revenues from the award of South African and Brazil tenders, we expect significant revenue growth for FC2 in fiscal year 2019. Furthermore, we're also seeing revenue growth for PREBOOST. We have a co-promotion and distribution agreement with Tim Medical Technology, a specialty urology sales organization, and we recently entered into a U.S. distribution agreement with the premier and fast-growing men's health and telemedicine company that discretely sells men's health products via the Internet and social media. This approach appears to be a very effective way to market and sell men's health products directly to the consumer. I look forward to reporting on these revenues soon as well. We have accomplished quite a lot this past year to advance our business strategy. We pay for these activities this past year in part by revenue produced from our commercial products, the FC2 female condom business, from the female health division, and from PREBOOST. We also successfully closed an equity financial that allowed key pharma and biotech investment institutions to become shareholders in Veru, including perceptive advisors, AWM Investment Company, Aspire Capital, and UBS O'Connor, to name a few. I will now turn the call over to Michele Greco, CFO and CAO to discuss the financial highlights. Michele?

[Michele Greco:]

As Dr. Steiner indicated, during the fourth quarter, we were delighted to see the increase in the U.S. prescription net revenues and being awarded a substantial portion of the South Africa tender, which would result in orders in fiscal 2019 and beyond. In the U.S. FC2 prescription market, we saw an increase of 238% in units sold during the fourth quarter compared to the units sold during the combined three quarters of this fiscal year. Let's review our fourth quarter results. FC2 net revenues for the quarter totaled $5.2 million, an increase of 41% from the prior year quarter of $3.7 million. This increase occurred even though the FC2 unit sales for the fourth quarter of fiscal 2018 had a reduction of 1% from the fourth quarter of fiscal 2017 to 6.3 million units. Gross profit increased 78% to $3.2 million for a margin of 61%, compared with $1.8 million for a margin of 49% in the prior year quarter. Net revenue per unit was $0.77 compared to $0.54 in the prior year quarter. The increase in the U.S. prescription net revenues resulted in the increase in our net revenue per unit and the increase in our gross margins. Operating expenses increased $2.4 million from the prior year quarter to $7 million. The increase in operating expenses was primarily due to an increase in research and development expenses of $1.6 million for our clinical development programs. The operating loss for the fourth quarter of fiscal 2018 was $3.7 million compared to $2.8 million in the prior year quarter; the increase being primarily due to the increase in research and development expenses. With after-tax expense of $4 million, the bottom line results for the fourth quarter of fiscal 2018 was a net loss of approximately $7.9 million, or $0.14 per diluted common share. In the prior year, after the preferred stock dividend of $2 million, the net loss was $4.7 million or $0.10 per diluted common share. Now, for the results of the fiscal year ended September 30, 2018; FC2 net revenues for the fiscal year totaled $15.9 million, an increase of 16% from the prior year of $13.7 million, while the FC2 unit sales had decreased from 26.3 million units in the prior year to 25.3 million units in the current year. Net revenue per unit was higher at $0.63 compared to $0.52 in the prior year. Gross profit was higher at $8.8 million compared with $7 million in the prior year. Operating expenses increased $14.1 million to $29.6 million from $15.5 million in the prior year. This increase was driven primarily by increased research and development expenses for multiple drug product candidates of $7.8 million. The $4 million charge related to settlement agreement we entered into with our Brazilian distributor Semina during December 2017, and increases in salaries of $500,000 for our FC2 teams, severance costs of $500,000 and an overall increase in corporate expenses. During the year, we incurred interest expense net of changes in the fair value derivative liabilities of $2.1 million. The bottom line result was a net loss for the fiscal year of $23.9 million or $0.44 per diluted common share. In fiscal 2017, after a tax benefit of $2 million and a preferred stock dividend of $2 million the net loss was $8.6 million or $0.25 per diluted common share. The increase in the net loss of $15.3 million was primarily due to the increase in operating expenses of $14.1 million. The company has net operating loss carry forwards for U.S. federal tax purposes of $33.2 million with $14.4 million expiring in years through 2037 and $18.8 million, which can be carried forward indefinitely. And our UK subsidiary has net operating loss carry forwards of $62.3 million which do not expire. Turning to our balance sheet, as of September 30, 2018 our cash balance was $3.8 million and accounts receivable were $4 million. During the year ended September 30, 2018 we used cash of $11.5 million for operating activities compared with producing cash from operations of $1 million in the prior year. During the year, we undertook the following financing activities to invest in our drug development programs. The first was entering into a three-year common stock purchase agreement with Aspire Capital under which we can direct Aspire Capital purchase up to $50 million of the company's common stock. During the year, we sold Aspire Capital 1,717,010 shares of common stock under the purchase agreement resulting in proceeds of $3 million. We have $12 million remaining under the purchase agreement. The second was completing a non-diluted $10 million synthetic royalty financing and FC2 product sales, which provided immediate funds to support our drug development program and operations. And lastly, we completed a public offering of 7,142,857 shares of common stock resulting in net proceeds of approximately $9.2 million after deducting underwriting discounts and commissions and expenses payable by the company, which closed just after year-end on October 1, 2018. Overall, we're delighted to see significant increases in the U.S. FC2 prescription sales and the global public sector sales returning to historical volumes. These revenues will be a source of funds to invest in our promising pharmaceutical clinical programs as we continue to transform our company into the prostate cancer company. Now I'll turn the call back to Dr. Steiner.

[Mitchell Steiner:]

Thank you, Michele. In summary, we are poised to see open label clinical data for VERU-111, the novel, proprietary first-in-class oral tubulin inhibitor for refractory metastatic castration resistant prostate cancer as well as top line clinical results for Phase 2 clinical trial evaluating zuclomiphene for the treatment of hot flashes caused by androgen deprivation during the first half of 2019. We plan to primarily use revenues from the urology specialty pharmaceutical assets and our commercial products FC2 and PREBOOST to invest in the clinical development of our pipeline of drugs for large markets in prostate cancer and prostate cancer supportive care. We are committed to driving shareholder value, we're becoming known as the prostate cancer company, by providing a continuum of care for prostate cancer patients. With that, I now will open the call to questions, Operator?

[Operator:]

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] We will pause momentarily to assemble our roster. The first question comes from Jason McCarthy with Maxim Group. Please go ahead.

[Jason McCarthy:]

Hey, good morning, thanks for the question.

[Mitchell Steiner:]

Hey, Jason.

[Jason McCarthy:]

So with regards to 111, we're looking at the changing prostate cancer landscape. It looks like PARPs could soon be a part of it at least in the BRCA-harboring subpopulation, who are no longer responsible to ADTs like Zytiga or Xtandi. So could you tell us where VERU-111 might fit into the treatment paradigm?

[Mitchell Steiner:]

Sure. So, everybody is familiar with the PARP inhibitors. So the PARP inhibitors were primarily in patients that have a mutation involved with DNA repair, and so you would actually have to -- and you'll see the trials, they're looking for patients that have for example BRCA-1 and BRCA-2 mutations, and so, I was recently at a urology clinical site that was running one of our studies and I asked him about that, and he said he's having a hard time finding those patients, and one of our board members who is a -- Mario Eisenberger who takes care of advanced prostate cancer patients, and he said the same thing. He said these patients are rare. Now that doesn't mean anything. From a prostate cancer standpoint what that means to me is that for those patients that you can identify with a genetic test that have those mutations, BRCA-1, BRCA-2 and others related to DNA repair that that should be an effective oral drug for them. Now for the other 98% plus of patients who do not have that mutation that's where VERU-111 would fall best. As you know as an anti-tubulin just like the taxanes, cabazitaxel and docetaxel we hope to be given prior to that -- and not only prior to that, but be given by urologists before the patient goes to the medical oncologist. And one of the things that's very important is that when we had the pre-ID meeting with the FDA now and having filed the IDs of VERU-111 and have clear understanding of the FDA's position, the FDA is allowing us to take patients that have failed abiraterone and enzalutamide before they go to taxanes, before they go to PARP inhibitors, before they go to any of those other drugs and allowing us to begin the Phase 1 B2 for those patients and for that indication, which as you know, Jason is the largest growing segment of patients that are failing prostate cancer treatment today. So I think that PARP inhibitors would be for a select group, and I can envision even a combination therapy in the future with VERU-111 and PARP inhibitors, because if you look at PARP right now they're trying to combine it docetaxel. So can you imagine now having instead of an oral drug PARP inhibitor and an IV drug docetaxel being given by a urologist, they don't give IV, medical oncologists do. So can you imagine now a PARP inhibitor oral and VERU-111 oral? It would be given by the urologist, and as you know the urologists are managing these patients.

[Jason McCarthy:]

That some day would be very helpful.

[Mitchell Steiner:]

Yes. Great, thank you.

[Operator:]

[Operator Instructions] The next question comes from Deepankar Roy with Brookline Capital Markets. Please go ahead. Mr. Roy, your line is open.

[Deepankar Roy:]

Oh, sorry. I was just talking to myself. Thanks for taking my question. I was wondering a bit about the update on the Brazil order for FC2 and if you can add any more color to like how it is going to go for the next year for the FC2 orders?

[Mitchell Steiner:]

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

[Deepankar Roy:]

Yes…

[Mitchell Steiner:]

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

[Deepankar Roy:]

Okay. Thank you.

[Mitchell Steiner:]

Thank you.

[Operator:]

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

[Mitchell Steiner:]

Thank you, Operator. 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, happy New Year, have a nice holiday, and look forward to seeing everybody next year, thank you.

[Operator:]

The digital replay of the conference will be available beginning approximately noon Eastern Time today, December 13th 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 10126693. Please record your name and company when joining. This conference has now concluded. Thank you for attending today's presentation, you may now disconnect.