Veru Inc (VERU) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Veru Inc.'s Investors Conference Call. (Operator Instructions) Please note that this event is being recorded.

The statements made on the 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 CEO and President. Please go ahead.

Thank you, operator, and good morning. This is Dr. Mitchell Steiner, President and CEO of Veru Inc. And joining me are Michele Greco, Executive Vice President of Finance; and Kevin Gilbert, Senior Vice President, Corporate Development and Legal.

I'm very proud of our team and our accomplishments to date as we transition to a urology and oncology biopharmaceutical company. Today, we will provide an update on the progress we are making with our clinical developments of our drug pipeline; commercialization of our products, FC2 and PREBOOST; as well as provide financial highlights for the fourth fiscal quarter and year-end fiscal year 2017.

It has been a very productive year for Veru, building the foundation for growth. Veru is now well positioned to become a leading urology and oncology biopharmaceutical company. We are initially focused on low-cost, near-term and high-reward pharmaceuticals, using an expedited regulatory pathway known as 505(b)(2). Our goal is to have several near-term and midterm products progressing at the same time to have multiple shots to ensure that, in the near future, we file and commercialize several drugs in urology and oncology, putting our company on a trajectory of solid growth.

We are delivering on this goal. We have advanced Tamsulosin DRS, a new slow-release granule formulation for the most popular medicine for symptoms of enlarged prostate causing difficulty in urination also known as BPH and is currently marketed under the name FLOMAX. As stated in the FDA package insert, FLOMAX capsules should not be crushed, chewed or opened because it may lead to serious side effects of low blood pressure and dizziness. A slow-release granule formulation will allow us to target up to 60% of men in long-term care or nursing homes and the 15% of men in the general population over 60 years of age that can -- that have difficulty or cannot swallow tablets or capsules.

On August 2016, FDA agreed that a single bioequivalence study would be all that is required clinically for the NDA. When we conducted the bioequivalence studies, we discovered that this new granule formulation, unlike FLOMAX, does not have to be taken with meals because there appears to be no food requirement with our slow-release granules compared to the existing FLOMAX formulation. We plan to put these proprietary granules also into a capsule as Tamsulosin extended release, XR, capsules. Tamsulosin XR capsules will allow us to target the broader urology and primary care markets, including those men who can actually swallow tablets or capsules. The final bioequivalence study will be conducted in and the NDA will be filed in 2018.

We also purchased and licensed the proprietary Solifenacin DRG, delayed-release granule, formulation, which has the same delivery technology platform as our Tamsulosin DRS slow-release granule formulation. Solifenacin is the active ingredient in VESIcare, a drug for the treatment of overactive bladder, which is urgency -- urge in continence and frequency in both men and women. Like FLOMAX, the FDA package insert states that Solifenacin tablets must be swallowed whole. There is no granule formulation available for men and women who have the common condition of overactive bladder.

In November 2017, FDA agreed that a single bioequivalence study would be acceptable for a 505(b)(2) NDA filing. We plan to conduct the bioequivalency study in 2018 and file the NDA in 2019.

The overactive bladder market is a multibillion-dollar opportunity. The prevalence of overactive bladder is between 16% and 23% in the United States and increases with age. According to a recent study conducted by the Department of Health and Human Resources, 37% of short-term and 70% of long-term nursing home residents did not have complete bladder control. Consequently, the initial target population will be men and women in long-term care facilities with overactive bladder symptoms and who have difficulty or cannot swallow tablets, which will utilize the same sales channel that will be already in place for Tamsulosin DRS.

To further ensure we have multiple urology products progressing at the same time, we purchased and licensed another new proprietary formulation, Tadalafil 5 milligrams, finasteride 5 milligram combination capsules. This proprietary formulation contains the active ingredients of Cialis, Tadalafil 5 milligrams, which is approved for the treatment of symptoms of BPH and erectile dysfunction; and Proscar, which is finasteride 5 milligrams, approved for shrinking an enlarged prostate to treat BPH. The Tadalafil-finasteride combination formulation will allow us to offer a family of BPH drugs that have different mechanisms to treat the symptoms and signs of BPH. Where Tamsulosin treats the immediate symptoms of BPH in men with smaller prostates, Tadalafil-finasteride combination capsule treats the initial symptoms and shrinks the size of the prostate of men who have an enlarged prostate.

In November of 2017, FDA agreed that a single bioequivalence study would be acceptable for a 505(b)(2) NDA filing for the Tadalafil-finasteride combination capsules as well. We plan to conduct the bioequivalency study in 2018 and file the NDA in 2019.

We are well positioned to take advantage of the multibillion-dollar BPH and overactive bladder opportunities. These 4 products, Tamsulosin DRS granules, Tamsulosin XR capsules, Solifenacin DRG granules and Tadalafil-finasteride combination capsules, will allow us to file, launch and partner when appropriate multiple urology drugs over the next 2.5 years.

The next wave of urology or oncology pharmaceuticals will come from VERU-944, which is cis-clomiphene citrate for the treatment of hot flashes in men on hormone therapy to treat their advanced prostate cancer. In May of 2017, FDA agreed that we can advance into a Phase II dose-finding clinical trial. We will file the IND and initiate the Phase II clinical trial in early 2018. It should be noted that the U.S. patent for VERU-944 was recently issued and will expire in 2035.

Finally, an FDA advisory committee met to review VERU-722, which is our fixed combination -- excused me, fixed-ratio clomiphene citrate, for the treatment of male infertility in December of 2016. Based on their feedback, VERU-722 is ready to advance into Phase II clinical studies. We will continue to be opportunistic in both internally developing and/or finding new pharmaceutical products to license in urology and oncology.

Separate from the 505(b)(2) programs, we're also developing a new chemical entity for the treatment of metastatic prostate, breast, ovarian, endometrial and other advanced cancers called VERU-111. VERU-111 is a novel oral anti-tubulin therapy that targets the alpha and beta tubulin subunits of microtubules. We are completing the required preclinical studies, and we're ready to treat cancer patients by the second half of 2018. We will initially target men with metastatic castration-resistant prostate cancer who have failed current hormonal therapies and women that have metastatic breast cancer, ovarian or endometrial cancers in a Phase I/II open-label clinical trial, which means we will start to have clinical data in 2018. In the Phase II portion of the clinical study, we will target men with metastatic castration-resistant prostate cancer who have become resistant to or have failed ZYTIGA, which is abiraterone; and XTANDI, which is enzalutamide. These are blockbuster prostate cancer hormone drugs that are generating several billion dollars in annual revenue today.

In addition, VERU-111 can be developed as an oral therapy for other tumor types that is currently being treated by intravenously giving anti-tubulin chemotherapies, which is also a large market opportunity, well over $5 billion of annual revenue today. The initial investment for this program over the next 2 years will be relatively modest and would increase as VERU-111 enters into Phase II clinical trials.

We have accomplished quite a lot this past year. We're able to do this with our existing resources and without undertaking a separate debt or equity financing. We paid for these activities this past year in part by the revenue produced from our commercial products, the FC2 Female Condom business from the Female Health Company division and PREBOOST.

The Female Health Company division has revenue from both the global public sector and the U.S. market. In the global public health sector, FC2 is the world's leading female condom. With growing international competition, now more than ever, we need to protect our brands, beat our competition and aggressively grow our product revenues in the global public sector, the channel where FC2 is purchased in bulk quantities by governments and nongovernmental donor agencies for public health distribution.

This past year, we felt the impact of 2 of our largest customers, Brazil and South Africa, who did not place orders this past year due to the normal procurement cycles. We believe fiscal year 2018 should be better as Brazil is awarding a 50 million unit tender for this year and South Africa is expected to award this year a 40-million-unit tender per year for 3 years, totaling 120 million units. We are confident that we will get orders from both of these tenders in early 2018.

In the U.S. market, FC2 is uniquely positioned as the only FDA-approved female condom which is used to prevent both unwanted pregnancies and the sexual transmission of sexually transmitted infections, including HIV/AIDS and the Zika virus. Our challenge was to create the distribution and marketing sales efforts to take advantage of the large U.S. market opportunity. I'm happy to report that we're seeing traction with new growing revenue in 6 different sales channels.

FC2 is reimbursable with a prescription by both public and private payers under the Affordable Care Act and under the laws of numerous states prior to the Affordable Care Act. We now have the pharmacy distribution, market access and reimbursement infrastructure in place so that FC2 is available and reimbursable in over 98% of retail pharmacies across the country.

We have a small sales force that markets to OB/GYN and primary care physicians. We have eliminated the middleman FC2 distributors, and we now sell directly to departments of health and community organizations with better margins. We've signed a master service agreement to sell directly to 340B covered entities. There's approximately 56,000 of these entities, and these entities are like HIV and STD clinics.

We have partnered with the HeyDoctor telemedicine app so that an FC2 prescription can be obtained by the patient via an Apple or Android smartphone, where the prescription is sent to their local pharmacy and shipped to their home -- the actual product shipped to their home by a specialty pharmacy. We have an uninsured and underinsured assistance program where the individual can purchase FC2 at a discount from our website. And finally, we have an active colleges and universities program that continues to grow. We are seeing new revenue being generated and growing in the U.S.

Our other revenue opportunity is PREBOOST 4% benzocaine wipes for the prevention of premature ejaculation. We received positive final results from our Phase IV PREBOOST clinical trial, which was press released by the American Urological Association during their scientific meeting in May of 2017. We launched PREBOOST via digital and social media marketing. We also entered into a co-promotion and distribution agreement with Timm Medical Technologies, Inc., which is a specialty urology sales organization. Our diversification strategy has been making good progress towards our goal to become a leading urology and oncology biopharmaceutical company.

I will now turn the call over to Michele Greco, Executive Vice President of Finance, to discuss the financial highlights. Michele?

Thank you, Dr. Steiner. First, let's review our fourth quarter results. FC2 unit sales totaled 6.9 million compared to 6.7 million from the fourth quarter of 2016. Net revenues for the quarter totaled $3.7 million compared to $3.6 million in the prior year quarter. Gross margin was 49% compared with 52% in the prior year quarter.

Operating expenses increased to $4.6 million as compared to $2.2 million in the prior year quarter. The increase in operating expenses was primarily due to $1.5 million of research and development expense for our clinical development programs which were not present in the prior year and increased costs for additional headcount from the APP acquisition and costs associated with the prescription launch of FC2.

Overall, there was a net loss for the quarter of $4.7 million or $0.10 per diluted common share compared to a net loss of $1.8 million or $0.06 per diluted common share in the prior year quarter.

For the year ended September 30, 2017, unit sales totaled 26.2 million, which was down 38% from the prior year of 42 million units. Excluding Brazil sales of 11.5 million units, our unit sales were down 13% from the prior year. Net revenues for the year totaled $13.7 million, a decrease of 38% from the prior year. Excluding Brazil net revenues of $6 million, our net revenues were down 15% from the prior year.

This year, we've seen a decline in public sector volume over the prior years. The recent decline is primarily due to timing of tenders but is also impacted by the U.S. political and geopolitical donor uncertainty that caused declines in our order frequency and in the order size from some of our customers, such as USAID and UNFPA, who are dependent on charitable donations or government aid, especially those dependent on funding coming directly from the U.S. via any source. We are optimistic that we will see improving financial results as we work to expand our customer base and our markets.

Gross profit decreased 47% to $7 million for a margin of 51% compared to gross profit of $13.3 million for a margin of 60% in the prior year. The decrease in the gross margin percentage is primarily due to higher per-unit cost allocation of fixed costs due to the lower unit sales.

Operating expenses increased 50% from $10.3 million for the prior year to $15.5 million, again driven primarily by R&D expenses, increased cost for additional headcount from the APP acquisition, costs associated with the prescription launch of FC2 and other increased administrative costs. The bottom line result was a net loss for the year of $8.6 million or $0.25 per diluted common share compared to net income of $344,000 or $0.01 per diluted common share in the prior year.

Also noteworthy regarding our P&L, for the 3 months and the year ended September 30, 2017, we recorded tax benefits of $127,000 and $2 million respectively, which represent an effective tax rate of 4.5% and 23%, respectively. Our net operating loss added to our NOLs, which, as of September 30, 2017, are $62 million in the U.K., $12.1 million and $15.4 million in the U.S. for federal and state taxes, respectively. Our cash tax payments during the year ended September 30, 2017, were $231,000, which is primarily due to taxes in Malaysia, where we operate at a small profit due to international transfer pricing regulation.

In addition, in the P&L for the 3 months and the year ended September 30, 2017, there is a preferred stock dividend of $2 million, which represents the difference in the valuation of the preferred stock granted to the APP shareholders on October 31, 2017, the date of the merger, and the actual value which cannot be recognized until July 28, 2017, when the shares were available for conversion, which is when the shareholders voted to increase the number of authorized common shares. The $2 million does not represent a cash dividend. However, it's an increase in the net loss when computing earnings per share.

Moving on to our balance sheet. As of September 30, 2017, our cash balance was $3.3 million and our accounts receivable balance was $11.4 million. This is broken out on our balance sheet between short term of $3.6 million and long term of $7.8 million.

As for our cash position and liquidity, our net working capital, which is our short-term assets less our short-term liabilities, it was $4.8 million as of September 30, 2017, which is down $8.1 million from our prior balance as of September 30, 2016, of $12.9 million. We generated $1 million in cash from operating activities during the year ended September 30, 2017, compared to using $1.7 million in operations in the prior year.

We've made significant progress on our clinical programs. We've advanced portions of each program. Our plans have been and continue to be to advance our clinical programs, at least through in part, using cash available from our commercial operations. We are optimistic about the near-term prospects of meaningful FC2 process and expect the global public sector to return closer to historical volumes and operating process.

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

Thank you, Michele. Fiscal year 2017 has been a transformational year for Veru. We have established a foundation to make Veru a leading urology and oncology biopharmaceutical company. We have several near-term and midterm drug candidates progressing at the same time to have multiple shots to be able to file and launch new drugs in urology and oncology. We aspire to file at least 1 NDA each year for the next 5 years. This will provide the engine for growth. We will continue to develop and commercialize existing 505(b)(2) products. Currently, we seek new 505(b)(2) products from the outside -- from outside the company.

We're excited about VERU-111 as a novel targeted oral therapy for multiple types of cancer and look forward to obtaining a partner at the right time. We will continue to finance clinical development and commercialization of products through PREBOOST and FC2 sales. We will drive shareholder value through lower cost and expedited clinical development for large market opportunities in urology and oncology. We're committed to becoming a leading urology and oncology biopharmaceutical company.

And with that, I'll now open the call for questions.

(Operator Instructions) The first question will come from Yi Chen of H.C. Wainwright.

My first question is on the sales cycle of the global public-sector customers for FC2. So generally speaking, is this so that they order every -- once every 2 years so that if fiscal year 2018 has a higher revenue -- is projected to be -- to have a higher revenue than 2017, then it will typically be followed by lower sales in fiscal year 2019?

Yes, great question. So I'll -- I'm going to answer it as I see this going forward, and then I'm going to ask Michele who's been with the company for over 5 years to discuss historically. So going forward, the expectation is that the Brazilian government will order 50 million units, which is the largest order they have sought ever. So historically -- so this is a big order compared to typical when they order 15 million to 20 million. So this is a big number. With that said, I don't think -- if we get that full order, that would be a year to 18 months to maybe even 2 years to provide order even though it's an annual order. The second one in terms of South Africa, this is again the largest order that they are going to be putting in, and that's 40 million units over 3 -- a year for 3 years, 120 million units. Now we're not going to get all of it because there's competition, but our expectation and we're confident we're going to get the bulk of it. And that will go on for 3 years, but that may go on to 4 years. And so at least for the near term, the next 3 to 4 -- next 2 to 4 years, the expectation for Veru is that our biopharmaceutical pipeline will be moving along, and hopefully, the revenue that we will see from Tamsulosin and Solifenacin and from Tadalafil/finasteride and VERU-944 and VERU-111 will dwarf what we're getting revenue-wise from FC2. So that's kind of where we're heading in the future. Historically, I'll let Michele tell you kind of what the -- how the lumpiness plays out from the cycle standpoint.

Right. And again, as Mitch said, if you look at it historically, you'll see some lumpiness. We have 4 main customers. And as I mentioned, UNFPA and USAID are governmental agencies. And they continue to order year-over-year so there is no up and down with them. It all depends on which countries are asking for donations from them, that they place the orders for those countries. Our -- the Republic of South Africa and Brazil go through what they call a tender process or request for proposal, if you will. And sometimes, the -- there is a gap between when they put out the new tender process and when the last one closed. And in other times, South Africa is working to close that gap so that when one tender ends, the other tender will start. But in the past, the lumpiness you have seen is because there'll be a gap between when a tender ended and the next one comes out and then we'll have a year where we have no shipments to those 2 countries, and they are large customers.

But historically, if you look at the last 5 to 10 years, on average, it's been about 40 million units a year.

On average.

On average. And so that's something to keep in mind. The other thing to keep in mind is this year is the first year that we put a major effort behind the U.S. market. And the U.S. market, both from a pricing standpoint and reimbursement standpoint, is premium. And so as I mentioned in the call, we have 6 channels that we have now shown proof of concept and traction in revenue. So the U.S. market could very easily match or surpass what we're seeing in the global market, and so we feel confident with the -- given the right time and being careful with our resources, we'll be able to realize that. So there is an opportunity here, but -- and it will allow us to again bridge into the pharmaceutical.

And then the other thing that I mentioned during the call is that we've been working globally to expand into new markets. We've entered relationships with new large distributors globally. We're exploring new markets globally. So we have a new distributor in South America serving 8 countries, DKT. They're also going to be looking at working with Mexico and Pakistan. We're exploring opportunities in Asia and in Latin America. So we're working on new distributors, new arrangements and new markets.

Actually, my second question is going to be what kind of revenue effect is FC2 in the U.S. can we reasonably expect in 2018? Or in other words, how soon a sales ramp-up can we expect to see in 2018?

So to make sure I understand the question, the question is what kind of revenues are we expecting in 2018? So...

Right. Because you just talked about -- you just mentioned that you expect the potential market size of FC2 in the U.S. could be comparable to the global public...

Yes. That's exactly true. And so what we're seeing this year is -- we've looked at 6 different channels, as I mentioned in the call, and each of those channels is now producing revenue. We launched in the U.S. in April so here we are now literally 8 months later. And so we really need to have another quarter or 2 under our belts so we can actually see how we can project that growth and to answer your question specifically. So we're being very, very careful because we're excited. We're seeing growth in each one of these channels, but we're going to refrain from making an actual guidance statement until we have a little bit more data under our belt. But it is -- I'm telling you, it is promising.

Okay, got it. My third question is when targeting the patients in the long-term care facilities, how large are the markets for Solifenacin DRG and Tadalafil-finasteride combination capsules compared to the markets of Tamsulosin DRS?

Yes. So I can tell you based on some data that I've looked at, which is IMS data for Tamsulosin, and it's 2015 so it's recent enough. In 2015, it was roughly 29 million prescriptions in the U.S. for Tamsulosin -- excuse me, for alpha blockers. Tamsulosin comprised 22 million prescriptions a year, okay? 1 out of 10 men on FLOMAX, Tamsulosin, the generics, are sitting in a nursing home, and so that number is roughly about 3 million prescriptions a year. If you ask the question how many men in nursing homes are not swallowing tablets, the answer is 60%. But let's use the number [50%]. So there's 3 million men sitting in nursing homes that can't take pills and they have BPH, then that means there's about 3 million men in nursing homes that cannot take pills that have a diaper or catheter and have to go through surgery. So the number is about 3 million. Is -- what we're using is 3 million new prescriptions -- 3 million prescriptions a year that represents men who cannot swallow or have difficulty swallowing tablets in a nursing home long-term care setting. So that's a big number. We think, because the other alpha blockers, and there's about 3 or 4 of them, also are not available by powder or slow granules, we'll get some of those. So maybe north of 3 million, so maybe 3.6 million or something like that. Now Solifenacin, as you know -- now you open it up to women, so it's not just men with BPH. Now you give them to women. And now these drugs are very different. As you know BPH is -- because the flow of the urine is restricted, the Solifenacin is taking care of the bladder. And the bladder is overactive, meaning it keeps wanting to squeeze and it doesn't act as a storage facility. And so by having a drug like Solifenacin, you can open up the bladder, relax it and can be more for storage. In fact, men with BPH can also take drugs for overactive bladder, so they're not mutually exclusive. So there could be overlap. With that said, we would imagine that the Solifenacin market will be similar, if not larger, in nursing homes because you're dealing with both men and women.

The next question will come from Matt Kaplan of Ladenburg.

Congrats on the progress during 2017. Just to follow up on the Tamsulosin DRS. In terms of your strategy, focusing on the long-term care facilities, is there an opportunity outside of that initial market to go after the overall market as well? Have you contemplated formulating it as a tablet or a capsule as well?

Yes. So the answer is -- because of the fact that this does not appear to have a food effect, then that's pretty exciting because, as you know, one of the biggest issues outside of -- just in general with Tamsulosin is it has to be taken with food. And patients, like doctors, we don't always take our advice, and they take the medicine on an empty stomach. And they end up getting dizzy and they pass out, and that's a problem. So to be able to have something without a food effect is certainly helpful to the administration compliance and potentially safety. So when we found out that these granules did not -- appear not to have a food effect or food requirement, then we said to ourselves, "Boy, wouldn't it be great because if we're going to be using a powder, the powder really is -- the slow-release granule powder really is focused in nursing homes and long-term care because that's where, right now, the formularies have nothing, which means that if you come in with this capsule or tablet in nursing homes, they're going say, "Look, we've got generic Tamsulosin. Why do we need another capsule?" But with a powder that is not even on the formulary, it gets on the formulary. So we're going to be able to get on every one of these formularies, pharmacies in long-term care because they don't have the alternative. And certainly, they don't want to admit to the fact they're giving -- breaking capsules for patients that are in the nursing homes that potentially can fall and break their hip and things of that nature. So medically and legally, they're going to want to have a powder available. So what we found out was, as you said, my gosh, if you have the slow-release granules in the nursing home setting, outside the nursing home, in urology and primary care, you know what, the vast majority of those patients are going to be patients that can swallow pills, swallow capsules. So we're putting the granules back into a capsule so that we can go after the broader urology and primary care markets. And because the capsule has the same drug inside the capsule, then we're going to go to the FDA and see if we can demonstrate an in vitro dissolution study as a way to bridge into the clinical data. And if not, if they want to a bioequivalency study, again, that's quick and easy to do. But the point is, is that you can get into the much broader urology and primary care markets. The real question is, what do we do as a company? Initially, as a company, because we don't want to have a big sales force and that fixed infrastructure, I think that you can service all of the nursing homes and long-term care with 15 people, 15 account managers. But now when you start talking about urology, that's 60 salespeople. When you start talking about primary care, now you're at 100. It may make sense in that scenario to partner that with existing sales forces that are already out there. And the fact that Solifenacin is basically using the same technology and through the same channels, we can manage Solifenacin in the nursing home setting and we probably could bundle Solifenacin with Tamsulosin to attract a significant partner in urology and in primary care.

That's helpful. And then just shifting gears a little bit in terms of some of your propriety programs. VERU-111, can you help us understand where that fits in, in terms of -- for the treatment of prostate cancer, how that plays a role?

Absolutely. So here's the exciting part. We know in urology -- in prostate cancer, to make a blanket statement, it's a true statement that for advanced prostate cancer, hormone therapies and taxanes have been the most effective therapies, period. So that means docetaxel and cabazitaxel have shown overall survival and activity. And then when the hormone therapies fail, then they go to docetaxel and they go to cabazitaxel, okay? And so the problem with docetaxel and cabazitaxel, besides the fact they're given intravenously, there are other issues related to neutropenia, neurotoxicity, muscle weakness. And so it's not ideal. And also, because of the hormone therapies, oral hormone therapies like abiraterone and enzalutamide, urologists have been pretty much involved with taking care of their patients. They start out by giving them a Lupron or a drug similar to Lupron, androgen deprivation therapy so they primarily castrate them. And then when they break through, the primary castration which they all do, then they go on to enzalutamide or abiraterone. It's a pill, the urologist gives it. And then when they fail that, now they have to send them to the medical oncologist. And in some ways, patients get really upset because that means now they have to go to IV therapy and they have to [recognize] again the end of the disease and then losing the relationship they have with the urologist. Now by having an oral agent that's basically an anti-tubulin that we know will -- we know from our animal models has activity in prostate, in fact, it has activity even in taxane-resistant prostate cancer, that this would be ideal because it will allow the urologist to continue the therapy after they fail enzalutamide or abiraterone. There was a recent publication from Mario Eisenberger, where they were looking at low dose, 20 -- I think it's 20 mg per meter square of cabazitaxel in patients that have failed enzalutamide and abiraterone. And they showed in the subpopulation of those men who failed abiraterone that almost 40% -- 42% of these men actually responded to cabazitaxel. So if we had an agent that was oral and had a similar response rate that could be given to men that have failed abiraterone and enzalutamide, then that would be a blockbuster. So that's what we want to see in the prostate cancer setting. So post-ADT -- you keep ADT, androgen deprivation going, enzalutamide or abiraterone failures, because we know if you have abiraterone and you fail it and you add enzalutamide, you don't get much more bang for your buck because if you squeeze testosterone way down, squeezing it further is not going to help and vice versa. So adding in now a taxane like anti-tubulin that's oral can make a big difference. It also turns out that in other tumor types, we've shown activity in the 28 publications. And so if you can show activity with VERA-111 as an oral anti-tubulin, then all of a sudden you've gone from just being prostate specific, prostate only to opening it up to a whole bunch of tumor types, which will add to the value of the opportunity. So that's why in the clinical study that we're going to start in 2018 -- and we are in discussions with Johns Hopkins right now to help us with this, and they're very excited about the opportunity because having an oral like taxane, they're having a lot of trouble dealing with IV in patients that just don't want to sit in chairs anymore. The world has moved. That other tumor types like ovarian, breast cancer, endometrial cancer and others, pancreatic and so on, so we're like -- because some of the taxanes have such utility across so many tumor types, it really gives us an opportunity to see how broadly we can make this product. So we want to start out even in the Phase I safety part of the study to show -- in addition to prostate, PSA responses, we want to be able to show we have activity across other tumor types. And so hopefully, towards the end of this year, we're going to start seeing those data. And so this is the biotechy part of the company but -- and has big potential for enterprise value, but we make sure that we got the FC2 program going so we have money coming in and the 505(b)(2)s so we have more revenue coming in. And so we're building a nice floor base, and -- but VERU-111 is something really to look forward to, a really exciting product.

The next question is a follow-up from Yi Chen of H.C. Wainwright.

Just a quick follow-up. With all the bioequivalence study and the additional trials for 944 and 111 in 2018, do you expect the operating expenses in fiscal 2018 to be significantly higher than 2017?

I expect it to be higher than 2017 because we're now finally getting to the point that we're moving the products. Now with that said, bioequivalency studies are not expensive and they're easy to do and they're small. So the big expense is going to be VERU-944. VERU -- when I say big expense, so you can understand what that means, VERU-944, we're expecting about 120 patients. And our budget is roughly around $4 million, so it's not huge numbers.

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.

Thank you. I appreciate everybody joining us on today's call, and I look forward to updating you all on our progress at the next investors call. Thank you very much.

The digital replay of the conference will be available beginning approximately noon Eastern time today, January 5, 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 10114690. Please record your name and company when joining.

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