Veru Inc (VERU) 2009 Q1 法說會逐字稿

Hello and welcome to the Female Health Company first-quarter FY 2009 conference call. All participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. An operator will give instructions on how to ask your questions at that time.

The statements made on this conference call which are not historical fact are forward-looking statements based upon the Company's current plans and strategies and reflects the Company's current assessment of the risks and uncertainties related to its business, including such things as product demand and market acceptance; the economic and business environment; and the impact of government pressures, currency risks, capacity, efficiency, and supply constraints; and other risks detailed in the Company's press releases, shareholder communications, and Securities and Exchange Commission filings. For additional information, the Company urges you to consider reviewing its 10-Q and 10-K SEC filings.

(Operator Instructions) Please note this conference is being recorded. Now I would like to turn the conference over to Mr. O.B. Parrish. Mr. Parrish, you may proceed.

Thank you, Amy. Good morning to everybody and welcome to our first-quarter 2009 conference call. Donna Felch, our Vice President and Chief Financial Officer is here with me in Chicago. Mike Pope, our Vice President of UK and Malaysian operations, is participating from our London office.

We will review the financial results, the outlook, and our earnings guidance for 2009; and we will take some questions. Whenever I refer to years, unless I state otherwise I am referring to FHC's fiscal year, which ends September 30.

Results for the first quarter were impacted by certain factors that don't reflect the year's outlook, and I will go through those. Unit sales were up, but net revenues for the first quarter decreased 7% to $5.3 million from $5.7 million in the prior-year quarter. This was due primarily to the shift to FC2, which is lower-priced but has higher margins.

A key factor was that unit sales are in part temporarily limited by production capacity for FC1, our first-generation product. Two of our key customers, USAID and South Africa, have significantly increased their orders for FC1. USAID cannot purchase FC2 until final FDA approval occurs. And unlike other international markets, South Africa has indicated it will purchase FC2 only after final FDA approval. But in the meantime they have significantly increased the orders for FC1.

We elected not to invest on expanding FC1 production capacity in anticipation of FC2 FDA approval and discontinuance of FC1.

On December 11, 2008, the FDA Obstetrics/Gynecology Devices Advisory Committee unanimously recommended that FC2 be approved, and we are working with FDA to secure the final approval. It is going along uneventfully and we expect approval to occur soon.

Had we not anticipated FDA approval, then we would have -- on FC2, we would have expanded capacity on FC1. We are now planning the discontinuance of FC1 and investing in the expansion of FC2 capacity in Malaysia.

Now, given final FDA approval, USAID and South Africa will switch to FC2, eliminating the short-term limitations meeting increased product demand.

Our gross profit was actually up 3% on a 7% revenue decline, reflecting the impact of higher-margin FC2 sales. I'd like to point out that our gross margin as a percentage of sales was 45.7%, up sharply from 41.3% for the prior-year quarter. This provides I think a good idea of what can happen as we transition entirely from FC1 to FC2 over the next year.

Operating expenses were up in part due to substantial one-time expenses for the preparation for and participation in the December 11 FDA FC2 Advisory Committee on December 11.

Operating earnings were down 40% to $438,935 for the quarter versus $729,645 for the prior-year quarter. In part this was due to a negative hit on currency at the operating earnings line.

However at the pretax line, due primarily to the strengthening of the Malaysian currency, the ringgit, against the pound and the US dollar against the British pound, FHC experienced a positive currency impact of $1,194,107 for the quarter. As a result, net income attributable to common shareholders was $1,608,816 or $0.06 a share, up 98% versus $813,968 or $0.03 a share from the prior-year quarter.

We ended the quarter with a very strong balance sheet. Cash flow generated from operations during the quarter totaled $3.4 million. We ended the quarter with about $3.4 million of cash, no debt, and $1.5 million in unused credit lines.

I should note this includes approximately $1.4 million that was spent for the repurchase of shares during the first quarter. Subsequent to the inception of our share buyback program in January 2007, we have repurchased about 1.4 million shares out of the 2 million that is authorized. The program currently goes through the end of calendar 2009, and our Board of Directors routinely considers whether or not we should expand the program or increase the number of shares.

I would like to note the Company has tax loss carryforwards of $85 million in the UK which do not expire, and $66 million in federal and state NOLs in the US which do expire according to a schedule.

Now at the end of each year, as we did last year, at the end of this year we will look the results and our outlook and consider whether or not we should take a tax benefit from this.

I'd like to note we are pleased with the first-quarter results. We are pleased with the increase in demand from some key customers for FC1 even though it limited what we could ship out. And we are particularly pleased with the impact of the FC2 on our margins as we go forward.

However the single most important event of the quarter was the unanimous vote by the FDA Advisory Committee that they approve FC2. This final approval will permit us to sell FC2 in the United States, for example to New York City, which is a good customer, but also to USAID and to South Africa; to discontinue production and distribution of FC1; and transition worldwide distribution to FC2.

The Company is positive about the outlook and maintains its annual earnings guidance for 2009. Specifically, that unit sales will be up 20% to 25% and operating earnings up 50% to 75% over 2008.

There are six key factors that contribute to this outlook. First, in reference to the HIV-AIDS pandemic, it continues without the near-term prospect for new prevention products, such as microbicides and vaccines, due to the challenges involved in developing such products. There are only two products currently available that will help prevent transmission of AIDS through sexual intercourse -- male and female condoms.

The second factors is our proprietary position. We remain the only woman-initiated pregnancy/HIV-AIDS prevention method, with a broad range of regulatory approvals and clearance by WHO in proof of safety and efficacy. In other words, we are the only game in town in reference to female condoms on a practical basis.

The third item is funding. I would like to note we have had some questions from people that have come in and asked about the funding in the stimulus package, which is currently being I guess voted on today by the Senate. Originally there was some funding in there for STD prevention, which I believe was removed, of $300 million or $400 million.

Some people asked, well, is this really a negative that they took it out? Our position is that we never counted on anything being in the stimulus package. If it had remained, it would have been a modest plus, but it certainly wasn't something we counted on.

However, I would like to point out that during 2008 there was a remarkable increase in funding for HIV-AIDS. In June the British government appropriated $11.8 billion for AIDS prevention and treatment over seven years. In July the US government passed the PEPFAR Act for $48 billion; $45 billion of that is for HIV-AIDS prevention over five years. And in September I believe it was the Global Fund for AIDS and Malaria issued grants of $2.7 billion; $1.1 billion was for HIV-AIDS prevention to be used over two years.

So in 2008 there was more than $60 billion of new funding committed to HIV-AIDS treatment and prevention.

The fourth point is advocacy. Women and HIV-AIDS groups have been increasingly and dramatically supportive of the female condom. As an example, before the December 11 Advisory Committee Meeting, more than 250 women's health organizations signed letters to FDA encouraging approval of FC2.

The fifth factor impacting the outlook is the Obama administration in the United States. They have actually already or are likely to eliminate certain restrictions that have existed. The first is elimination of US funding of organizations that permit abortions. The second is requiring elimination of a requirement that recipients of US funds sign a document indicating they oppose prostitution. And the third probably to be eliminated is that a portion of US funds be used to promote abstinence.

The net result of this is that more funds will go into education and the use of currently available products, male and female condoms.

The sixth and final favorable outlook factor is the highly probable near-term approval of FC2 by FDA, following the Advisory Committee Meeting last September.

In summary, we are optimistic and we believe 2009 will be another record year for the Female Health Company. Amy, I would like to turn it over back to you and we will take some questions.

(Operator Instructions) Mr. Parrish, we are showing no questions in the queue at this time.

Okay.

I would like to turn the conference back to you for any closing remarks.

I'd just like to thank every for their support and joining us this morning, and we look forward to another call a quarter from now. Thank you.

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