Veru Inc (VERU) 2020 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.

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

Good morning. The statements made on this conference call that are not historical in nature are forward-looking statements. Such forward-looking statements reflect the company's current assessment of the risks and uncertainties related to our businesses. Our actual results and future developments could differ materially from the results or developments in such forward-looking statements.

Factors that may cause actual results or developments to differ materially include such things as the risks related to the development of the company's product portfolio, risks related to the ability of the company to obtain sufficient financing on acceptable terms we need 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.

Thank you, Sam, and good morning. With me on this morning's call are Michele Greco, CFO and CAO; Phil Greenberg, Executive Vice President, Legal; and you met Sam Fisch, Director of Investor Relations. Thank you for joining our call.

We have made several important and exciting announcements this morning. It's been a busy quarter. We actually released 2 separate press releases this morning, our earnings release and an update on our oncology drug pipeline. This morning, we will discuss these new announcements and its impact on Veru's business strategy, the clinical development of our drug pipeline and the commercialization of our products. We will also provide financial highlights for our record fourth fiscal quarter and record year-end fiscal year 2020.

Veru has made the transformation into a late clinical stage oncology biopharmaceutical company focused on developing novel medicines for the management of 2 of the most prevalent cancers, prostate cancer and breast cancer. We continue to invest cash generated from our sexual health commercial business into the clinical development of our high-value oncology drug candidates so that our current shareholders can realize the maximum value of our oncology biopharmaceutical company.

In fiscal year 2017, the year that The Female Health Company acquired Aspen Park Pharmaceuticals to create Veru, the annual revenues were $13.7 million. And this year, I'm pleased to report that we had a record year of $42.6 million in revenue. In fact, we expect fiscal year 2021 revenue generation will continue to grow robustly for what could be another record year.

We accomplished this great and significant company milestone because we set a new commercial strategy for FC2 and launched PREBOOST. We focused on creating an FC2 commercial sector in the U.S. And in the U.S., we launched FC2 as a prescription product to retail pharmacies and partnered with multiple telemedicine and Internet pharmacy partners. We decreased our reliance on the global public sector, which was volatile and inconsistent. We've launched PREBOOST, which is marketed online in the United States through a distributor arrangement under the Roman Swipes brand name by Roman Health Ventures, Inc. Roman is a leading telemedicine company that sells men's health products via the Internet website, www.getroman.com. PREBOOST is also marketed in the U.S. to bricks-and-mortar retail channel by Playboy Enterprises International as Playboy's Intimate Wipes.

Now let's focus on some of the financial highlights on Veru's commercial segment, which is made up of FC2, PREBOOST Roman Swipes, Playboy Intimate Wipes and drug commercialization costs. We had net revenues in the United States FC2 prescription business in Q4 fiscal year 2020 of $8.7 million compared to $4.7 million in Q4 fiscal year 2019, which is up 87%. Net revenues for fiscal year 2020 were $42.6 million compared to $31.8 million in fiscal year 2019, which was up 34%. In fact, gross profit for fiscal year 2020 was $30.8 million compared to fiscal year 2019 of $21.7 million, which was up 42%.

Operating loss was $14.7 million, which includes a $14.1 million impairment noncash charge. Operating loss before adjustment for impairment was only $600,000 for all of fiscal year 2020 compared to a loss of $6.4 million in fiscal year 2019. In fact, the operating profit for Q4 fiscal year 2020 before adjustment for impairment was $2.8 million.

Our compound annual growth rate since fiscal year 2017 has been 46% and we will continue -- we're still growing this segment of our business. In fact, to give you a sense of our growth trajectory, for all of fiscal year 2019, we sold 159,000 units of FC2 in the U.S. prescription market, while in fiscal year 2020, we sold 342,000 units of FC2 in the U.S. prescription market, an increase of 115%.

I'm pleased to report that we announced today that we sold our PREBOOST business to Roman Health Ventures for $20 million, further strengthening our financial balance sheet. The sexual health business continues to generate record revenues and we expect robust and growing revenues in the sexual health business for another year -- another record year in fiscal 2021, which further enhances its potential value as a stand-alone business if the company were to decide to monetize this asset like we did with PREBOOST to streamline the company into a pure oncology biopharmaceutical company with significant cash resources.

TADFYN, which is tadalafil 5 milligrams/finasteride 5 milligrams combination capsule, is being developed to treat lower urinary tract symptoms caused by benign prostatic hyperplasia. The company had a successful pre-NDA meeting with FDA and the required 1-year stability testing on 3 manufacturing commercial batches is being completed. Consequently, we expect to submit the NDA for TADFYN in early calendar year 2021 with the launch, if approved, via telemedicine channels in late 2021. This will be another near-term source of additional revenue for Veru.

Consequently, I am pleased to report that based on current clinical development plans, we expect that the company will have sufficient resources generated from our sexual health business and existing sources of cash to fund the clinical development of all of the oncology drug programs that I will discuss without the need for new equity financing through the end of fiscal year 2022. By progressing our own pipeline and recently acquiring the worldwide rights to a Phase III-ready novel breast cancer drug, Veru has made the transformation into a late clinical stage oncology biopharmaceutical company focused on developing novel medicines for the management of 2 of the most prevalent cancers globally, prostate cancer and breast cancer.

Prostate cancer is the most commonly diagnosed cancer in men with an estimated 191,930 new cases and 33,330 deaths expected for 2020 in the United States. One in 9 men is expected to develop prostate cancer in a lifetime. Prostate cancer has become a chronic disease with new challenges as prostate cancer develops resistance to current drugs and spreads through the body and as the patient suffers from the long-term side effects of prostate cancer treatments like hot flashes, bone loss and fractures, loss of libido, erectile dysfunction, loss of muscle strength and frailty.

Breast cancer is the most commonly diagnosed cancer in women with an estimated 276,480 new cases and 42,170 deaths expected for 2020 in the United States. One in 8 women is expected to develop invasive breast cancer in their lifetime.

There are many different types of breast cancer with diverse clinical molecular characteristics. The most common type is hormone receptor positive, where estrogen is one of the main drivers of prostate -- of breast cancer proliferation, tumor progression and metastasis. Consequently, treatments that target the estrogen receptor are the mainstay of breast cancer therapy, but unfortunately, almost all women will eventually develop resistance to endocrine therapies and alternative treatment approaches will be required, including IV chemotherapy.

Another form of breast cancer that occurs in 15% of all breast cancers is called triple-negative breast cancer. Triple-negative breast cancer does not have an estrogen receptor or progesterone receptor and does not make something called human epidermal growth factor 2, also known as HER2. And as a consequence, triple-negative breast cancer is an endocrine-resistant aggressive cancer that grows and spreads faster than hormone receptor positive breast cancers. Triple-negative breast cancer also develops resistance to the currently used chemotherapy drugs like taxanes, and as such, alternative treatment options for triple-negative breast cancer are very limited.

Accordingly, we are dedicated to the development and commercialization of drug candidates to address unmet medical needs for prostate and breast cancer management and for which we have made great progress. We are excited to advance our prostate cancer drug candidates, VERU-111 and VERU-100, as well as our breast cancer drug candidates, the recently acquired enobosarm and the new additional indication for VERU-111 into registration clinical studies. Veru anticipates the potential for 4 registration clinical trials for [4] oncology indications commencing in calendar year 2021.

In prostate cancer, the company continues to make strong clinical progress, advancing VERU-111 as a treatment for metastatic castration and androgen receptor targeting agent-resistant prostate cancer and VERU-100 for androgen deprivation therapy for advanced prostate cancer.

First, an update on VERU-111 for the treatment of men with metastatic castration-resistant prostate cancer who have also become resistant to the androgen receptor targeting agent. VERU-111 is an oral first-in-class new chemical entity that targets, cross-links and disrupts the alpha-beta tubulin subunits of microtubules to disrupt the cytoskeleton. We're calling it a cytoskeleton disruptor. VERU-111 is being evaluated in an open-label Phase Ib and Phase II clinical studies in men with metastatic castration and androgen receptor targeting agent-resistant prostate cancer. And the Phase Ib clinical study completed enrollment of 39 men and is ongoing.

The Phase Ib study has yielded promising efficacy and safety clinical results.

Based on the Phase Ib study results, the recommended Phase II dose is 63 milligrams oral daily continuous dosing for 21 days. Daily chronic drug administration appears to be feasible and safe. At the recommended Phase II dose, there were no reports of neutropenia, neurotoxicity or Grade 3 diarrhea. The efficacy results show PSA declines and responses as well as objective and durable tumor responses. Furthermore, the median treatment duration without cancer progression in men who have had at least 4 cycles of VERU-111 is greater than 11 months. We still have patients from the study.

In September of 2020, the Phase II clinical study completed enrollment of approximately 40 men with metastatic castration-resistant prostate cancer who have also become resistant to androgen receptor targeting agents such as abiraterone, enzalutamide or apalutamide, but prior to proceeding to IV chemo. Although the study is still ongoing, daily chronic drug administration appears to be feasible and safe. At 63 milligrams daily continuous dosing, there were no reports of neutropenia, some reported minor neurotoxicity and manageable cases of diarrhea. Like the Phase Ib, we have observed efficacy results, including PSA declines and responses as well as objective and durable tumor responses. We plan to report the results of the Phase II study in the first half of 2021.

As we have already enough safety and efficacy data of selected dose for VERU-111 and to proceed to a Phase III, the company had an FDA meeting in July of 2020 and received positive input from FDA on the pivotal Phase III trial design for VERU-111. The company received regulatory clarity that the indication of treatment in men with metastatic castration-resistant prostate cancer who have failed one androgen receptor targeting agent but prior to IV chemotherapy was acceptable, that an open-label randomized study using an alternative androgen receptor targeting agent as an active control is reasonable and that the primary endpoint may be radiographic progression-free survival. By allowing radiographic progression-free survival as a primary endpoint, the sample size of the Phase III clinical study could be potentially around 200 men.

The Phase III pivotal clinical study will evaluate VERU-111 for men with metastatic castration-resistant prostate cancer who have become resistant to one androgen receptor targeting agent and will be called the VERACITY Phase III study. The company anticipates that the VERACITY Phase III study in the first quarter -- anticipates starting the VERACITY Phase III study in the first quarter of calendar year 2021.

Next, I will update you on VERU-100 as an androgen deprivation therapy for palliative treatment of advanced prostate cancer. VERU-100 is a novel proprietary long-acting gonadotropin-releasing hormone, GnRH, antagonist peptide 3-month subcutaneous depot formulation, designed to address the current limitations of commercially available androgen deprivation therapies, also known as ADT.

Androgen deprivation therapy is currently the mainstay of advanced prostate treatment used as a foundation of treatment throughout the course of the disease. Furthermore, ADT is continued as other endocrine chemotherapy or radiation treatments are added or stopped. Specifically, VERU-100 is a chronic long-acting GnRH antagonist peptide administered as a small volume, 3-month depot subcutaneous injection without a loading dose. VERU-100 is expected to immediately suppress testosterone with no testosterone surge upon initial or repeated administration, a concern that occurs with currently approved luteinizing hormone-releasing hormone agonists used for ADT. There are no GnRH antagonist depot injectable formulations commercially approved for treatment beyond 1-month duration. A Phase II study to evaluate VERU-100 dosing is anticipated to begin early in the first quarter of calendar year 2021 and a registration Phase III study in approximately 100 men is anticipated to start in the second half of calendar year 2021.

We have been opportunistic and we added a new late clinical stage breast cancer drug pipeline, which includes enobosarm and VERU-111. Enobosarm is a selective androgen receptor targeting agonist being developed for the treatment of androgen receptor positive, estrogen receptor positive and HER2- metastatic breast cancer but prior to IV chemotherapy. Veru has exclusively in-licensed full worldwide rights to enobosarm from the University of Tennessee Research Foundation and the Ohio State Research Foundation.

Enobosarm is an oral first-in-class new chemical entity selective androgen receptor targeted agent. Our first indication for the clinical development of enobosarm will be for the treatment of ER+/HER2- metastatic breast cancer but prior to IV chemotherapy. Enobosarm, by targeting the androgen receptor, which is present in up to 90% of advanced hormone receptor positive breast cancers, represents the first new class of targeting endocrine therapies in advanced breast cancer in decades. Enobosarm has extensive nonclinical and clinical experience, having been evaluated in over 25 separate clinical studies in more than 2,100 subjects, including 5 prior Phase II clinical studies in advanced breast cancer involving more than 250 patients.

Enobosarm binds to the androgen receptor of breast cancer tissue to inhibit AR+/ER+ cancer cell proliferation and tumor growth. And this is seen in Phase II human clinical studies as well as in animal models. Unlike testosterone, enobosarm cannot be aromatized to estrogen.

Enobosarm has additional selective clinical properties that it could have potential benefit in women with hormone receptor positive metastatic cancer. More specifically, preclinical studies have shown that enobosarm builds and heals cortical and trabecular bone with the potential to treat -- treatment-induced -- hormone treatment-induced osteoporosis and skeletal-related cancer events. Enobosarm has also been shown to build muscle to reduce fat, to improve physical function in the clinical studies involving elderly subjects and patients with cancer cachexia, including breast cancer. Furthermore, the tissue selectivity of enobosarm also results in a favorable side effect profile with no virilization, that's facial hair and acne, no increase in hematocrit and no liver toxicity. The science supporting the efficacy of enobosarm in targeting the androgen receptor and hormone receptor positive advanced breast cancer will imminently be published in Nature Medicine by an independent group of breast cancer experts.

In the 2 Phase II clinical studies evaluating enobosarm in an advanced AR+/ER+/HER2- breast cancer, enobosarm as an oral endocrine therapy demonstrated significant antitumor efficacy in heavily pretreated cohorts and was very well tolerated with a favorable side effect profile.

The first Phase II clinical study, G200801, was a single-arm study evaluating a 9-milligram oral daily dose of enobosarm in a heavily pretreated endocrine-resistant cohort of 22 patients with AR+/ER+/HER2- advanced breast cancer. The patients participating in the study on average had 3 previous lines of endocrine therapy and 68% had previous chemotherapies. The clinical benefit rate at 6 months was 35.3% and 6-month Kaplan-Meier estimate for radiographic progression-free survival was 43.8%. Enobosarm was well tolerated without evidence of virilization, no increases in hematocrit and no liver toxicity.

The second Phase II clinical trial, G200802, was a 2-arm study evaluating 9 milligrams and 18 milligrams of enobosarm daily oral dosing in 136 women with ER+/HER2- advanced breast cancer. The patients in this study were also heavily pretreated, having failed an average of 4 endocrine treatments, and 88% had received prior chemotherapy.

The Primary Investigator for the study was Dr. Beth Overmoyer, Founder and Director of the Inflammatory Breast Cancer Program at Dana-Farber Cancer Institute in Boston, Massachusetts, and Assistant Professor of Medicine at Harvard Medical School. The completed Phase 2 study results will be presented as a spotlight presentation at the San Antonio Breast Cancer Symposium tomorrow, December 10th, at 2:15 pm, by Professor Carlo Palmieri, Professor of Translational Oncology and Medical Oncologist at the University of Liverpool. The abstract is number 811 and it's entitled, "The efficacy and safety of enobosarm, a selective androgen receptor modulator, to treat -- to target androgen receptor in women with advanced ER+/AR+ breast cancer - final results from an international Phase II randomized study."

Overall, these metastatic breast cancer clinical studies with enobosarm in heavily pretreated subjects with hormone receptor positive breast cancer strongly establish the relevance of targeting the androgen receptor with a selective androgen receptor agonist both in efficacy and safety and with additional other benefits. Owing to its high tissue selectivity, enobosarm increases muscle and physical function, decreases fat, improves bone strength and lacks the androgenic adverse effects, including virilization, liver toxicity and increases in hematocrit. By targeting the androgen receptor and hormone receptor positive metastatic breast cancer, enobosarm introduces a novel endocrine therapy to patients with breast cancer that have exhausted endocrine therapies targeting the estrogen receptor but prior to IV chemotherapy.

The company met with FDA in October 2020 to discuss the enobosarm clinical breast cancer program. The FDA has agreed to the Phase III registration clinical trial of this study to evaluate the efficacy and safety of enobosarm versus an active control, which will be either exemestane or tamoxifen, physician's choice, for the treatment of metastatic ER+/HER2- breast cancer in approximately 240 women that have failed a nonsteroidal aromatase inhibitor, anastrozole or letrozole, fulvestrant and a CDK4/6 inhibitor.

The Phase III study will be called the ARTEST study, A-R-T-E-S-T study. The primary endpoint is radiographic progression-free survival. The pivotal Phase III open-label randomized active control study is anticipated to commence in the first half of calendar year 2021.

It should be noted that enobosarm has strong intellectual patent protection with U.S. composition of matter patents that expire in 2029 with a potential for a 5-year patent extension through an NCE to 2034 and with method of use patents that will expire as early as 2033.

Enobosarm is a large market opportunity as it represents the first new class of targeted endocrine therapy in hormone receptor positive advanced breast cancer in decades. Enobosarm targets the androgen receptor in ER+/HER2- metastatic breast cancer as a potential second line and/or third line oral daily dosing endocrine therapy option in breast cancer patients that have exhausted endocrine therapies targeting the estrogen receptor but prior to IV chemotherapy. The global annual market for an oral agent in an ER endocrine-resistant setting is expected to be $6 billion.

Next, we have made a decision to advance VERU-111 into a Phase IIb clinical study for the treatment of taxane-resistant metastatic triple-negative breast cancer. As I mentioned, metastatic triple-negative breast cancer is an aggressive form of breast cancer that represent -- that's present in approximately 15% of all breast cancers. This form of breast cancer does not express the estrogen receptor, the progesterone receptor of HER2 and is resistant to endocrine therapies. The first line of treatment usually includes an IV taxane chemotherapy. Almost all will eventually develop taxane resistance. Over expression of P-glycoprotein pumps that cancer toward back out of the cancer cell to avoid cancer cell death. And this is a common mechanism that results in taxane resistance in triple-negative breast cancer.

VERU-111, on the other hand, is an oral cytoskeleton disruptor. It cannot be pumped out of the cancer cell by P-glycoprotein drug resistance protein. Preclinical studies in human triple-negative breast cancer grown in animal models demonstrate that VERU-111 significantly inhibits cancer proliferation, migration, metastasis and invasion of triple-negative breast cancer cells and tumors that have become resistant to paclitaxel, which is a taxane.

In fact, a poster is being presented this morning at 9:00 a.m. Eastern at the San Antonio Breast Cancer Symposium virtual meeting on the preclinical efficacy data entitled, "VERU-111 as an orally available tubulin inhibitor suppressing both taxane-sensitive and taxane-resistant triple-negative breast cancer". And this will be presented by Dr. Wei Li at the University -- from the University of Tennessee Health Science Center.

Using the safety information from the Phase Ib and Phase II VERU-111 prostate cancer clinical studies in a total of 80 men, we will meet with the FDA in the first half of calendar year -- of calendar 2021 to discuss the Phase II clinical trial design for possible accelerated approval for VERU-111 versus active control, Trodelvy, for patients with taxane-resistant triple-negative breast cancer, making the proposed trial a potential registration trial. The Phase IIb clinical study is planned to commence in the second half of calendar year 2021. And as I mentioned, this would represent a second major clinical oncology indication for VERU-111.

The number of new U.S. breast cancer cases in 2020 totaled 276,480, with triple-negative breast cancer accounting for 10% to 15% or approximately 41,472 patients. [A variety of] women will receive IV chemotherapy, including taxanes. All of these women will develop -- almost all of these women will develop taxane resistance and will be a candidate for VERU-111. The annual new U.S. market for taxane-resistant metastatic triple-negative breast cancer is estimated to be over $1 billion.

The company's other indications include VERU-111 for the treatment of SARS-CoV-2 in subjects at high-risk for Acute Respiratory Distress Syndrome. VERU-111 is being evaluated in a Phase II clinical trial to assess the efficacy of VERU-111 in combating COVID-19 to prevent ARDS. VERU-111, by targeting microtubules, may have broad antiviral and strong anti-inflammatory effects, including the potential to treat cytokine release syndrome that's associated with high COVID-19 mortality rate.

Veru is currently enrolling a double-blind, randomized, placebo-controlled Phase II clinical study evaluating daily doses of VERU-111 18 milligrams versus placebo for 21 days in 40 hospital patients who tested positive for SARS-CoV-2 virus and are at high risk for ARDS. The primary endpoint is the proportion of patients that are alive and without respiratory failure at day 22. Secondary endpoints include the measured improvements in the WHO disease severity scale, which is an 8-point ordinal scale that captures COVID-19 disease symptoms and signs, including hospitalization, to progression of pulmonary symptoms, to mechanical ventilation as well as death.

We expect enrollment to be completed this month. If the clinical results of the Phase II clinical trial were positive, the company intends to apply for grant funds through third-party agencies. And as you know, COVID-19 is now worse than ever and no effective treatments have been found.

As for zuclomiphene and the other drugs that are not in the oncology treatment -- that are not oncology treatment drugs, now that we have 4 late clinical stage studies for 3 drugs in 4 premium oncology treatment indications, the company has to even further focus and reprioritize resources to maximize shareholder value. Zuclomiphene citrate is an oral nonsteroidal estrogen receptor agonist being developed to treat hot flashes, a common side effect caused by ADT in men with advanced prostate cancer. The company is planning an End of Phase II meeting with FDA. We'll assess the next steps after that meeting.

In light of the promising progress of the prostate cancer and breast cancer late clinical stage programs to achieve the company's strategic objectives, we do not plan to further develop Tamsulosin DRS, VERU-722 and VERU-112 drug candidate assets.

I will now turn the call over to Michele Greco, CFO, CAO, to discuss the financial highlights. Michele?

Thank you, Dr. Steiner. As Dr. Steiner indicated, we had a record-breaking fourth quarter and a record-breaking year. Let's start with our fourth quarter results for fiscal year 2020.

Overall, net revenues were up 35% to $11.7 million from $8.7 million in the prior year fourth quarter due to the growth in our U.S. FC2 prescription business. The company reported significant FC2 sales growth in its prescription business with net revenues up 87% to $8.7 million from $4.7 million from the prior year fourth quarter. We are pleased with the overall net revenue increase despite the decline in FC2 unit sales to 5.3 million units from 9.8 million units in the prior year fourth quarter due to a decline in low-margin public health sector unit sales. Net revenues for the public health sector were $2.2 million compared to $3.8 million in the prior year fourth quarter.

Overall, gross profit was $9.6 million or 81% of net revenue compared to $5.8 million or 67% of net revenue in the prior year fourth quarter. The increase in gross profit and gross margin is driven primarily by increased sales in our U.S. FC2 prescription business, partially offset by an increase in labor and equipment maintenance costs as we have ramped up production to meet demand.

During the fourth quarter, we recorded a noncash impairment charge of $14.1 million related to in-process research and development associated with the acquisition of Aspen Park Pharmaceuticals in fiscal 2017. The charge was primarily a result of deferred development time lines and the decision to cease development work on Tamsulosin DRS, VERU-722 for male infertility and VERU-112 for gout in response to management's strategic decision to prioritize the development of our premium oncology drug product candidates, which are highly differentiated, unique, new chemical entities and formulations, patent-protected drugs under the development addressing larger and potentially more profitable markets. The impairment charge results in a book value of 0 for these in-process research and development assets. The remaining book value of other in-process research and development assets acquired in the APP acquisition was $3.9 million as of September 30, 2020. There was no impairment charge recorded in fiscal 2019.

Operating expenses for the quarter increased by $13.5 million to $20.8 million compared to the prior year fourth quarter of $7.3 million, primarily due to the noncash impairment charge of $14.1 million. Excluding the effect of the impairment charge for the fourth quarter, we've had operating expenses of $6.7 million, a reduction of $600,000 compared to the prior year period of $7.3 million.

Operating loss for the quarter was $11.3 million. Excluding the effect of the impairment charge, adjusted operating income was $2.8 million for the quarter compared to the operating loss in the prior year fourth quarter of $1.5 million.

Nonoperating expenses were $1.7 million compared to $2 million in the prior year fourth quarter and primarily consisted of interest expense and change in the fair value of derivative liability related to the synthetic royalty financing. We entered the synthetic royalty financing during March of 2018.

For the quarter, we recorded a tax benefit of $1.1 million compared to a tax benefit of $421,000 in the prior year fourth quarter. The effective tax rate for this quarter is 8.6% and 12.1% for the prior year quarter due to recording a valuation allowance against the net operating loss generated for the quarter in the U.S., which is most of the pretax loss for the period.

The bottom line results for the fourth quarter of fiscal 2020 was a net loss of $11.8 million or $0.17 per diluted common share compared to a net loss of $3.1 million or $0.05 per diluted common share in the prior year fourth quarter.

Turning to the results for the fiscal year ended September 30, 2020. Net revenues for the fiscal year 2020 were up 34% to a record $42.6 million from $31.8 million in the prior year. Overall, FC2 unit sales totaled 32.8 million compared to 37.9 million units in the prior year. Net revenue from the U.S. prescription business is up 93% to $27.1 million from $14.1 million in the prior year period. Net revenue for the public health sector business was $13.4 million compared to $16.8 million in the prior year. Net revenue for PREBOOST increased to $2 million from $884,000 in the prior year.

Gross profit was up 42% to $30.8 million from $21.7 million in the prior year. Gross margin was 72% compared to 68% in the prior year. Gross profit and gross margin increased compared to the prior year despite the increases in cost of sales resulting from increased labor, transportation and equipment maintenance costs and increased costs incurred due to the temporary manufacturing shutdown in Malaysia at the end of the second quarter as a result of the COVID-19 pandemic.

FC2 unit sales for fiscal year 2020 includes 5.8 million units to South Africa under the tender award announced in August 2018 for a total of 120 million units. We started shipping these orders from South Africa during the third quarter of fiscal year 2019. And through the end of fiscal year 2020, we have shipped 10.1 million units. We will continue shipping South Africa orders during fiscal year 2021.

Operating expenses increased to $45.5 million compared to the prior year of $28.1 million, primarily due to the noncash impairment charge of $14.1 million. Excluding the effect of the impairment charge for the year, operating expenses were $31.4 million, an increase compared to the prior year of $28.1 million, with $3.2 million due to increased research and development costs.

During the third quarter, the company received a potentially forgivable loan of approximately $540,000 under the Paycheck Protection Program of the CARES Act. The forgivable loan was treated like a government grant and recognized as a reduction in operating expenses. In November, we were notified the loan was forgiven in full by the U.S. Small Business Administration.

Operating loss for the year was $14.7 million. Excluding the effect of the impairment charge, operating loss was $647,000 compared to the operating loss in fiscal 2019 of $6.4 million. Nonoperating expenses were $5.3 million compared to $5.9 million in the prior year, which primarily consisted of interest expense and change in the fair value of the derivative liabilities related to the synthetic royalty financing.

For the year, we recorded a tax benefit of $1.1 million compared to $304,000 in the prior year. The effective tax rate for this year was 5.4% compared to 2.5% in the prior year and is due to recording a valuation allowance against the net operating loss generated during those years in the U.S., which represents the majority of the pretax loss for the years.

The company had net operating loss carryforwards for U.S. federal tax purposes of $41.7 million, with $13.5 million expiring in years through 2038 and $28.2 million, which can be carried forward indefinitely. And our U.K. subsidiary has net operating loss carryforwards of $61.3 million which do not expire.

The bottom line results for fiscal year 2020 was a net loss of $19 million or $0.28 per diluted common share compared to a net loss of $12 million or $0.19 per diluted common share in the prior year.

Now looking at the balance sheet. As of September 30, 2020, our cash balance was $13.6 million and our accounts receivable balance was $5.2 million. Our net working capital was $12.3 million at September 30, 2020, compared to $2.8 million at September 30, 2019. Added to the balance sheet after year-end is $15 million in cash from the recently announced sale of PREBOOST, with another $5 million as notes receivable to be collected over 18 months.

Overall, we are delighted to see the continued increases in sales in the U.S. FC2 prescription business and look forward to increasing FC2 sales in both the prescription and global public health sector businesses. These revenue sources continue to be important sources of funds to invest in our promising pharmaceutical clinical development program as we continue to transform our company into an oncology biopharmaceutical company with a focus on developing novel medicines for the management of prostate and breast cancers.

Now I'll turn the call back to Dr. Steiner.

Thank you, Michele.

We have enjoyed a record financial quarter and a record year, which has allowed us to significantly advance our clinical oncology programs. In fact, we are now into our third year of growth in our FC2 U.S. prescription business. With the improving performance of our sexual health business, we believe that we'll be able to substantially invest in the continued clinical development of our prostate and breast cancer drug product candidates as well as to submit the NDA, and if approved, commercially launch TADFYN, which would provide even more revenue, adding to the already growing revenues from FC2. We have created a very valuable sexual health business. We had a profitable Q4 fiscal year 2020 before the adjustment for impairment, record revenue fiscal year 2020 and sold PREBOOST for $20 million.

Looking forward to fiscal year 2021, we expect our revenues to continue to be strong and growing towards yet another record year. To continue -- as a consequence, the company expects to have sufficient resources generated from our sexual health business and existing sources of cash to fund the clinical development of all of our currently planned registration clinical trials without the need for new equity financing through the end of fiscal year 2022.

With resources in place, we will continue to advance our late clinical programs to and through the highest value point, which is enrolling Phase III clinical studies and having Phase III positive clinical results. Registration oncology clinical studies are ideal as they typically are single clinical studies with premium large global markets. As such, we anticipate a steady flow of important positive news to Veru over the next few months to 1 year.

So we have 4 registration studies planned to commence in calendar year 2021. For VERU-111 for the metastatic castration-resistant prostate cancer, we will report open-label efficacy and safety clinical results of the Phase IIb clinical trial. We plan to submit the Phase III pivotal trial protocol and start the VERACITY Phase III registration clinical trial in calendar year Q1 2021.

For VERU-100, our novel peptide GnRH antagonist 3-month depot formulation for advanced prostate cancer, we will initiate the Phase II clinical study in early calendar year 2021 and by second half of calendar year 2021 to start a Phase III pivotal registration clinical study.

With enobosarm, the AR targeting agent without the unwanted virilizing adverse side effects and our newest drug asset to treat ER+/HER2- metastatic breast cancer, we plan to commence the ARTEST Phase III clinical registration study in the first half of calendar year 2021.

For VERU-111 for its second indication in triple-negative breast cancer, we will meet with the FDA in the first half of calendar year 2021 to discuss the Phase IIb trial design for possible accelerated approval for VERU-111 versus Trodelvy for patients with taxane-resistant triple-negative breast cancer. The Phase IIb clinical study is planned to commence in the second half of calendar year 2021.

Additional milestones will include: We plan to complete the Phase II clinical program for COVID-19 in subjects at high-risk for ARDS, submit the NDA for TADFYN and we'll continue to explore partnerships to license and distribute and sell our drug products.

We continue -- we plan to continue to generate robust, growing revenues for the sexual health business, which, as a stand-alone business, is very valuable. Coming off a record year of $42.6 million in revenue with gross margins of 72% and expecting another record year in fiscal year 2021, we could have options to monetize the business as we did the PREBOOST business. We have successfully transformed our company into a late clinical stage oncology biopharmaceutical company supported by a growing revenue cash-generating sexual health business.

With that, I'll now open the call for questions. Operator?

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

Congratulations on all the progress and the deal. Sorry if I missed this, but can you just maybe elaborate a little bit on the economics of the premium oncology deal? Any color on the upfront royalty, any milestones? And then just any color on the size of the trial you're thinking for that product?

And then maybe just one sort of clarification question. This cash runway through the end of 2022, does that just contemplate FC2 sales and the cash flow generation from that? Or do you contemplate any sale of asset in that cash run rate?

Okay. Good. So the first part has to do with enobosarm and have we disclosed any of the deal terms. And the answer is we -- it's undisclosed, but it was -- enobosarm is a late stage asset from University of Tennessee and Ohio State. So I will -- what I can tell you is that it's a very favorable deal for the company, that it includes very reasonable milestones and a low single-digit royalty on net sales. So it's a very good deal for our company. And -- but we haven't disclosed the rest of it, but it's a good deal for the company given the size of the market and where we're going. And I think everybody is going to be very, very happy once we get past this next trial, which gets to your next question, and that is have we told you about the size.

We believe that the size of the enobosarm ER+/HER2- metastatic trial in endocrine-resistant women is going to be about 240 patients. 240 patients is the number, okay? And that -- it's one-to-one randomization, so it's not a huge study. And that's -- again, a single open-label study should be sufficient for, and if it's successful, for approval. So that's why we're excited about it.

And interestingly, with the other -- just to make a comment with the other 25 studies, all of the studies that you would expect for Phase I, like the drug/drug interaction studies, the QT studies, renal impairment, liver impairment studies, all that has been done. There's no QT issues, food effect issues. I mean it's a really nice, clean profile on this drug. And so you can imagine, for a cancer product, having that kind of clean profile, this could be very, very attractive as another endocrine therapy for women that just want to avoid the toxic IV chemo.

As it relates to your -- so that's why we're so excited about this. It fits our model, right? Like VERU-111, kind of a very favorable side effect profile for cytotoxic to be used in prostate cancer as an oral agent before IV chemo, so same thing here. Breast cancer, an oral agent that can be used with a favorable toxicity profile, efficacy and have benefits of muscle building and bone building. You'll see the data tomorrow that we present at San Antonio and you'll see it's got a great side effect profile, quality of life, et cetera, and -- before chemo. So we're -- this is a great space. This pre-chemo space, it's a great space to be.

As it relates to the cash runway, the cash runway includes cash on hand and we did -- we just sold PREBOOST for $20 million, which gives us $15 million. We've already closed it. So we've got $15 million in cash added to our balance sheet. Plus, we're going to get another $5 million that's unconditional, non-conditional. It's just a note basically. And so we don't have to hit anything to get that money over the next 18 months, of which we'll get $2.5 million within the year, another $2.5 million 6 months after that. So within the next 18 months, we'll get a full $20 million.

So when you put up those numbers, you get -- plus the growing FC2 business, yes, the answer to your question is it will -- we feel comfortable going -- running all of these -- all of our clinical development, including the potential for registration trials through the end of fiscal year 2022. I wish we can guide beyond that, but that's where the auditors tell us we can stop. But yes, we're going to still have money coming from the business and we're still -- the clinical trials is expensive, but if you think about it, I mean, we have 4 -- let's say all 4 registration trials are going on: The enobosarm one, I just told you, is 240 patients; the VERU-100 is 100 patients; VERU-111 is around 200 patients; and then triple-negative breast, probably about 100, 150 patients. You add all those together, you're still going to be less than 500 patients for 4 trials. And 500 to 600 patients with -- 5, 6, 7, too -- about 500 to 600 patients. And you're not getting them all at once. These trials will be done over 18 months to 2 years. And so it's very manageable, particularly with the revenues that we have coming in and cash on hand. And so anyway, I think that answers your question.

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

Congratulations for the in-licensing and the new candidate. So my first question is could you give us some more color on the existing population of the ER+/HER2- breast cancer patient in the U.S. and the new occurrences every year?

And my second question is relative to the sales of FC2. Could you break -- provide us with some breakdown in terms of private prescription sales versus public sales?

Yes. So I'm going to have Michele answer the second question, which is FC2 breakdown, Rx versus -- you want the public global or public U.S. or both?

Both.

Both. Okay. So while Michele is getting that, I'll answer your first question. We have not said much about the market size, except to say that the market size is very similar to the CDK4/6 inhibitors because the CDK4/6 inhibitors is a endocrine -- it's a therapy that's done in combination with the endocrine therapies.

And so I will tell you that 85% of women, so if you go back and look at the number of women with breast cancer that I quoted in my presentation, 85% of those women are going to have ER+ disease. So automatically, that's our patient population. And 15% will have triple-negative breast cancer, which will be ER-. That's 276,480 new cases a year, which 85% of those cases will be ER+.

And so I would say -- we're going to continue to do the market research, but it ends up being at about -- by the time you take the metastatic cases, you're ending up at about 30,000 to 40,000 cases a year. And the good news is they're not dying. With endocrine therapy, you're continuing to treat them and looking for the next thing and the next thing they're looking for is IV chemo. And so we're trying to take a step before that.

So we're going to continue to give you some more granularity on the market size, except to tell you that if for anything, if we're priced like a CDK4/6 inhibitor, which is a surrogate, if you will, for that market, that's a $6 billion worldwide market right now. And we're going after those patients that fail the nonsteroidal aromatase inhibitor, which is usually what they get first; fulvestrant, which is what they get second. They usually get one or the other in combination with a CDK4/6 inhibitor. So we could be either second line or third line, so that's still a big piece of the pie.

And who would not want to take another endocrine therapy that has some potential benefits besides treating the tumor and not be virilizing and to avoid IV chemo? So I think it's going to be a very attractive area.

Michele, would you like to answer the question on FC2?

Sure. In the U.S. prescription channel, as we've indicated, revenues are $27.1 million. And in the public sector, the U.S., we had about $1.2 million; rest of the world, we had about $12.2 million for a total of $13.4 million. And as you saw, we had sales of around $2 million for PREBOOST for the year. So that's $42.6 million.

(Operator Instructions) The next question comes from Leland Gershell of Oppenheimer.

Wanted to ask, as the company continues to refine its profile and with the sale of PREBOOST and also the -- recognized by the impairment charge shifting strategy away from some other assets, I want to ask about any thoughts of perhaps monetizing the FC2 business through a similar type transaction. Any interest you've had there? And then I have a follow-up.

Yes. Yes. Good question. And so as I said a couple of times during the prepared comments that the PREBOOST model is a great model. I mean we were able to monetize PREBOOST and see those resources for what's important to us, which is our company strategy, which is to be in clinical development of premium oncology products.

It's a big market. With a single study, you can access those big markets globally. And so that's what we need to do. And so the smaller products, it doesn't make sense to put the resources behind it because basically the oncology products dwarf it in terms of the potential. And so putting our bet and our confidence in the 2 prostate programs and 2 breast cancer programs make the most sense.

With that said, we have also been able to do that. The model works. I mean we've been able to do that with primarily the money we're generating on our own, like we just monetized PREBOOST. So it makes perfect sense that here we are now at $42.6 million in revenue -- and I told you the gross profit is like 72%. This is a very valuable business. And as I mentioned in my other call, I don't even think our market cap is reflecting just the base business, forget about the enterprise value of the drugs.

And so I made the point that there's so much potential here. And to unlock that potential, we will -- we have to take a serious look at how to take the base business and create enough cash and cash resources so that we'll be completely independent as we move forward -- independent financially as we move forward with going into these markets.

I mean, Immunomedics just sold their product, Trodelvy. We have accelerated approval with 108 patients and they finally -- this confirmed their Phase III -- one single product in triple-negative breast cancer is $21 billion. I mean there's many examples. I think there's a new -- it's a new set point now for oncology products. I mean, you're not seeing a $1 billion, $2 billion deals anymore. You're seeing $14 billion, $20 billion. So the neighborhood just got expensive. For us to have 4 drugs that are going for that neighborhood -- that kind of real estate in that neighborhood is a big deal. So it makes sense to monetize the FC2 business in a way that allows us to preserve holding on to as much as possible the drugs and do that.

And another way to say this, we're always going to consider maximizing shareholder value and by unlocking the potential of FC2 and stand-alone pharmaceutical company versus a pure pharma play, biotech play, because that's what we are, and we've got the new chemical entities and we have the data and the trial to show that. So it's an exciting time for us. And we have to seriously consider how do we uncouple -- unlock the value of the assets that we have.

All right. Great. And then a question just on TADFYN, with that product on track to come to market in about a year's time, I wanted to ask about just how the company is going to approach -- given that it's going to be going through telemedicine and it's probably going to be seen as kind of a more convenient and better alternate to what are 2 generic drugs that are taken together quite frequently, how the company's new approach, just making that product visible, growing awareness, what that will look like and how we should think about expenses?

Yes. Let me tell you how I'm thinking about that. It's a great question, okay. And I think what we were able to tap into and we've been successful with FC2 and with PREBOOST is we tapped into the telemedicine, okay? The telemedicine market is growing exponentially now, particularly because of COVID-19. And so what would have taken 10 years is now happening in months. And what it has done is the whole world has moved away from I want to go to CVS and take 2 generic drugs with co-pay to if I can punch a number on my phone and it can show up via Amazon the next day discreetly, then that will be wonderful.

And so you'll see a lot of these forhims and other companies, getroman and others, they're seeing -- they're taking basically generic erectile dysfunction products and they are selling the hell out of them, okay? And for some of these groups, they're seeing $200 million, $300 million of revenue. I mean, it's just unbelievable for what you and I would have called a generic product, okay? And so there is a completely untapped group of men in the case of TADFYN, that if they have this available through telemarketing and it can be sent to the home discreetly and we price it appropriately, that's the key thing, that it's a whole new universe, okay? And if I would have told you, with FC2, when we did marketing and selling with 12 salespeople, okay? And they ran around there visiting OB/GYN doctors. We've got 400 prescriptions a month for 12 people. We hit telemedicine, I don't know, we just reported, what, 348,000 prescriptions this past year, and the year before that, 158,000 prescriptions. You don't realize the power of the Internet. So -- and by the way, we don't spend anything, almost nothing on marketing and selling as a company. And so that money can go into drug development.

So same thing with TADFYN. We don't have an appetite to set up a marketing and selling sales force to sell TADFYN. We think the advantage of TADFYN is going to be the discreetness, convenience and being able to get it into telemedicine and not use our marketing and selling dollars to do that as a company and let our partners do that. And I can tell you, we're an active partner discussions around TADFYN internationally and nationally. And it will be great for us because, again, we've got to keep our eye on the ball, which is the $6 billion market, $3 billion market with our prostate cancer and breast cancer products and got to get those trials filled, get it done on time and [hold it]. And so for TADFYN to add a little extra cash to the pile of cash that we're accumulating so that we can keep this moving, I think it's attractive. We're basically -- we're almost there.

And we also heard from the FDA that they're going to waive the fee, the PDUFA fee, I think, is the technical term for it, so the NDA because we're a small company. So we're not going to even spend that filing fee for this product. So it's upside for us.

The next question comes from Kumar Raja of Brookline Capital Markets.

Congratulations on the in-license. For enobosarm Phase III trial, are you planning to go forward with the 9-milligram dose or the 18-milligram dose? What can you share with regard to the safety and efficacy profile for both those doses? And also for -- what needs to be done before you can start the Phase III trial? Do you have enough drug supply? And how easy or difficult it is to manufacture this drug?

Good. Thank you for both the questions. So this has -- this refers to the new acquisition, enobosarm. The Phase II study had 9-milligram and 18-milligram doses. Today, the presentation will happen at 9 -- no, tomorrow. Tomorrow is the presentation on that part of it, so stay tuned. So I can't give you -- I can't give you the actual details, but I can give you some general comments.

General comments, after being in 25 trials, this is a very well tolerated drug. It's not even a cancer drug, just it's a drug, in general, even if there was -- a quality of life drug. I mean, it's amazingly well tolerated. And so we're going to announce the safety there. Things that you would worry about with an agent of this sort would be hematocrit increases, liver toxicity, you're worried about virilization in women. We just don't see that, okay?

And so we'll give you the -- we'll share with you the exact safety profile in the future right after that presentation. So the presentation, a spotlight presentation in San Antonio, we'll have that information and then we'll put it out subsequently so everybody can get access to it if they're not getting into the program. So with that said, it's very well tolerated.

Now with that said, the 9-milligram and the 18-milligram, you'll see the efficacy. And again, I don't want to share much more than that, except to say that like the phase -- like the first Phase II that was done in 22 patients, it showed good activity, and you're going to see that. And -- but we are going to go with the 9-milligram and you'll see the reason why after the presentation. And that's what we met with the FDA and the FDA agreed to the 9-milligram.

So drug definitely has activity in a heavily pretreated patient population. When I say heavily pretreated, not only multiple lines of endocrine therapy but also chemotherapy. And so these are patients that are not the patients who are going to be in our Phase III in which it will not have had chemotherapy and they'll be even more likely to respond to enobosarm.

As it relates to what are we waiting for, we had to meet with the FDA and we've got that out of the way. And the next thing is, you're absolutely right, we do have to have the IIb marketed drug product. And so we're doing that now. It's not hard to make. It's -- but you have to go through the process where you want to bridge from the new IIb marketed form into the form that was used in the other 25 trials. And so it's not complicated. It just takes time. And so with all that's happening as we speak right now, and so we are on target to start in the first half. Hopefully by early summer, we'll get started with the actual Phase III part of it. And so it will take about 1 quarter, 1.5 quarter to do the GMP stuff.

The next question comes from Peter McMullin of McMullin Consulting.

Congratulations, Mitch.

Thank you, Peter.

We talk about maximizing assets. And if you were to sell off FC2, for example, how would you propose to maximize the tax losses, which are considerable?

Great. Yes, that's a great question. So I'm going to let Michele answer that question. And Michele, would you like to take that one on?

Sure. Peter, we would be selling the company in the U.K., which holds $63 million in NOL. And so we would take that into consideration when we look at the value that we're looking for if we were to sell the FC2 business.

Good thought. And what about the U.S. side?

The U.S. side, if we were to sell the FC2 business, it's just assets in the U.S. All the NOLs will be retained by Europe.

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, operator.

Again, I appreciate everybody joining us on today's call and I look forward to updating all of you on our progress in our next investors' call. Have a merry Christmas and happy new year. And hopefully, 2021 will look a lot different than 2020. Thank you.

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