Veru Inc (VERU) 2020 Q2 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 in 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 Sam Fisch, Director of Investor Relations. Thank you for joining our call. Veru is an oncology and urology biopharmaceutical company with a focus on developing novel medicines for the management of prostate cancer. Today, we will update you on the clinical development of our drug pipeline and the commercialization of our products as well as provide financial highlights for the second quarter fiscal year 2020.

Here is a brief update on the advancement of the prostate cancer drug pipeline, VERU-111 in prostate cancer. We have made significant progress in the clinical development program for VERU-111, a novel proprietary first-in-class oral-targeted antitubulin agent for men who have metastatic castration-resistant prostate cancer and have also become resistant to a novel androgen blocking agent, enzalutamide or abiraterone, but prior to IV chemotherapy, also referred to as the prechemotherapy stage. Unfortunately, there is a large number of these affected men.

According to published scientific reports, about 15% to 25% of men who have metastatic castration-resistant prostate cancer and started treatment with a novel androgen blocking agent will not respond all to this therapy. And about 75% to 85% of men will initially respond to treatment with an androgen blocking agent but their cancer will start progressing in about 9 to 15 months. So essentially, within 12 months, the majority of these men will have tumor progression. And a new orally available drug with a different mechanism of action that could be prescribed by urologists and medical oncologists, like the investigative drug VERU-111, is greatly needed for these men.

The Phase Ib portion of the Phase Ib/II clinical study enrolled 39 subjects from 7 clinical sites in the United States. A standard 3x3 design was used to establish the maximum tolerated dose to select a recommended clinical dose for the Phase II study and to assess the preliminary evidence of antitumor activity of VERU-111 in men with metastatic castration-resistant prostate cancer, who have also become resistant to at least 1 novel androgen blocking agent.

Oral dosing escalated from 4.5 to 81 milligrams in the 7 days of dosing, followed by 14 days of no drug for each 21-day cycle. After no dose-limiting toxicity was observed in the 7 days of dosing per cycle, the dose was then increased in the next cohort of patients. Additionally, the dosing schedule has expanded at 21 days of continuous dosing per cycle.

As for safety, the maximum tolerated dose of VERU-111 was determined to be 72 milligrams as 3 of 11 men had reversible grade 3 diarrhea, no grade 3 diarrhea was observed at doses of 63 milligrams or less per day. At doses of VERU-111 of 63 milligrams less per day, the most common adverse events were mild to moderate nausea, vomiting, diarrhea and fatigue. There were no reports of neurotoxicity and no neutropenia was observed at 63 milligrams and lower for the continuous oral dosing, daily dosing for a 21-day cycle.

Efficacy or antitumor activity was assessed by measuring serum PSA and by standard imaging with bone and CT scans. In the 8 men that received at least 4 21-day cycles of oral VERU-111 at any dose based upon their 21-day cycle baseline PSAs, 6 of the 8 men, which is 75%, had decreases in their PSA levels; 4 of 8 men had -- which is 50%, demonstrated greater than or equal to 30% decline in PSA; and 2 of 8 men, which is 25%, have greater or equal to 50% decline in PSA.

Based upon the Prostate Cancer Working Group 3 and the Response Evaluation Criteria in Solid Tumors, which is RECIST 1.1 criteria, these are conventional criteria, objective tumor responses we're seen in 2 of 8, which is 25% of patients, in soft tissue and bone, which were partial responses; and 5 of 8 men, 63%, had stable disease. Objective tumor responses and PSA declines lasted longer than 12 weeks. The primary end point used in the pivotal studies, efficacy studies for the treatment of metastatic castration-resistant prostate cancer is median time to cancer progression by imaging, bone and CT scans.

In the current study, the median duration of response or time to cancer progression has not been reached, as 7 of the 8 men are still being treated on the study with an average duration of response of 10 months. The range is between 6 and 14 months. There were an additional 3 subjects on the study that have not yet completed the 4-day -- the 4 21-day cycles. Therefore, there is a total of 10 men that is still being treated on the study.

To better understand the clinical relevance of these preliminary findings, it's important to note that all patients with metastatic castration-resistant prostate cancer at the time of enrollment in the Phase Ib had evidence of disease progression with at least 1 novel androgen blocking agent drug, whether it's abiraterone or enzalutamide. In a contemporary series recently reported in the scientific literature for this similar population of men, the median observed time to cancer progression, while being treated with an alternative androgen blocking agent, was about 3.4 months.

We have already initiated enrolling in an open-label Phase II portion of the clinical trial in approximately 26 men with metastatic castration and a novel androgen blocking agent-resistant prostate cancer prior to and prior to any IV chemotherapy using the recommended dose and schedule that was selected from the Phase Ib, which is the 63-milligram oral daily dosing for a continuous 21-day cycle. We are on track to complete enrollment this quarter.

We have the clinical safety and the antitumor data necessary from the Phase Ib clinical study to move forward to select the patient population, dose and schedule for the Phase III registration trial. We plan to meet with the FDA next quarter to discuss our proposed registration trial design, which is an open-label, single pivotal Phase III to evaluate the efficacy and safety of VERU-111 versus an alternative androgen blocking agent in men with metastatic castrate-resistant prostate cancer, who have developed cancer progression while receiving 1 androgen blocking agent.

These recent clinical results have allowed the company to potentially accelerate the clinical development of VERU-111 for the treatment of metastatic castration and androgen blocking agent of resistant prostate cancer. Consequently, Veru has changed its strategy of investing in an additional Phase II studies of other cancer types to focus on obtaining approval of VERU-111 as quickly as possible by focusing on the study design, obtaining FDA agreement and initiating and completing a Phase III registration trial for this unmet medical need. We look forward to updating everyone on the results of the FDA meeting.

We have strong IP protection for VERU-111. The composition of matter patents are issued, with expiry in 2031 in the U.S., with a possible patent extension to 2036. Method of use patents for prostate cancer in the U.S. are issued and expiry date is in 2031. We have issued composition and method of use patents in the major markets -- major world markets, including EU and Japan.

The prechemotherapy space in men, who have metastatic castration and androgen blocking agent-resistant prostate cancer, is currently one of the fastest-growing unmet medical need segments in advanced prostate cancer. There are currently no FDA-approved drugs for this indication. According to Accuvia, oral drugs like abiraterone and enzalutamide for advanced prostate cancer had over $6 billion in 2018 global annual sales and $3.1 billion in the U.S. Men who have failed these novel androgen blocking agents are the patients that VERU-111 is currently targeting, which we estimate represents a $5 billion annual global market.

In summary, the clinical development objective is to position VERU-111, which has a unique drug mechanism of action as it does not target the androgen receptor, as the next go-to drug in men who have metastatic castration-resistant prostate cancer and who have developed prostate cancer progression while being treated with an androgen blocking agent, like abiraterone or enzalutamide, but prior to IV chemotherapy. An advantage of VERU-111 is that it could be potentially prescribed by not only the medical oncologists but also the urologists, who is the usual physician managing these types of patients. We plan to present the full clinical data set in an upcoming major scientific meeting. These clinical results firmly position Veru as an oncology-focused biopharmaceutical company.

Next, I will update you on VERU-100, our proprietary peptide drug candidate for the treatment of hormone-sensitive advanced prostate cancer, an established multibillion-dollar global market. The target product profile of VERU-100 is commercially and scientifically compelling as having a number of anticipated advantages over currently available androgen deprivation therapies.

VERU-100 is a long-acting gonadotropin-releasing hormone, called GnRH antagonist, designed to be administered as a small-volume subcutaneous 3-month depot injection without a loading dose. As a GnRH antagonist, it is intended to immediately suppress testosterone, with no testosterone surge upon initial or repeated administration and no testosterone micro increases, which may adversely affect patient outcomes, a problem which potentially occurs with the approved LHRH agonist drugs like Lupron, Zoladex and Eligard. Currently, there are no GnRH antagonists commercially approved for treatment beyond 1 month, making VERU-100, if approved, the only commercially available GnRH antagonist 3-month depot, which is an attractive choice for androgen deprivation therapy.

As previously mentioned, we have received agreement from FDA that the development program for VERU-100 may follow an expedited pathway. Based on this FDA input, the company plans to commence a single open-label, multicenter, dose-finding Phase II clinical trial in approximately 35 men, followed by a single open-label, multicenter Phase III clinical trial in only approximately 100 men. Veru is in the process of scaling up GMP manufacturing of drug product to prepare the clinical trial -- prepare for the clinical trial to VERU-100. Given the effects of COVID-19, it will be at least a quarter delay in this program. But otherwise, we expect the company's development program to resume as workers are returning to the GMP facility.

The company intends to submit an Investigational New Drug Application in the second half of 2020, so we can commence the open-label Phase II study by Q4 calendar year 2020. As it is an open-label Phase II study, we will be able to update you periodically on our progress towards reaching the primary end point, the reduction of testosterone to castrate levels in real-time during late 2020 and early 2021. The planned development pathway for VERU-100 agreed upon by FDA represents a lower-cost investment opportunity for a major product that can address the shortfalls of the current $2.6 billion global ADT market.

Our next product candidate in clinical trial is zuclomiphene, a novel proprietary oral nonsteroidal estrogen receptor agonist being evaluated to treat hot flashes, the most common side effect in men on androgen deprivation therapy for advanced prostate cancer and a major reason why men want to stop androgen deprivation therapy. We enrolled 93 men in a multicenter, double-blind, placebo-controlled dose finding study, Phase II study. And we're evaluating 2 doses, 10-milligram and 50-milligram zuclomiphene versus placebo. We reported positive top line interim results a few weeks ago. We determined that the 10-milligram dose was the no-effect dose, and the 50-milligram zuclomiphene demonstrated estrogenic activity and a reduction in the frequency of hot flashes from baseline to day 42.

We also reported on the safety from the current blinded aggregate clinical database from our placebo-controlled trial. Based on the study's interim findings, zuclomiphene appears to be well tolerated. We have not received any reports of gynecomastia, painful breasts or venous thromboembolic events, which are common side effects in men treated with high doses of estrogen.

Because of the continuing effects of COVID-19 and the related strains on the health system and regulatory agencies, we will be delayed in obtaining a face-to-face end-of-Phase II meeting with FDA for the zuclomiphene program in order to obtain agreement on the Phase III clinical program design that will be acceptable for approval. We will provide details of the design and timing of this study after we have our FDA meeting. Veru estimates that the peak U.S. revenue potential for zuclomiphene citrate to be between $580 million to $639 million. Currently, there are no FDA-approved drugs for this indication.

Although Veru is focused in prostate cancer and oncology, due to the urgency of the current global pandemic and the fact that VERU-100 has the potential to treat both SARS-CoV-2 infection and the associated reactive, severe lung inflammation in COVID-19 patients at risk for acute respiratory distress syndrome, the company is compelled to pursue this COVID-19 indication even though this indication is not the primary focus of our company. Drugs that target microtubules have broad antitumor -- antiviral activity by disrupting the intracellular transport of viruses, such as SARS-CoV-2, along the microtubules.

Microtubule trafficking is critical for viruses that cause infection. Furthermore, microtubule depolymerization agents that target alpha and beta tubulin subunits of microtubules, like a drug called colchicine, also have strong anti-inflammatory effects, including the potential to treat the cytokine-release syndrome, also known as the cytokine storm, which is induced by the SARS-CoV-2 viral infection that seems to be associated with the high COVID-19 mortality rates.

VERU-111 is an oral, first-in-class microtubule depolymerization agent that targets the colchicine binding site of alpha and beta tubulin subunits to inhibit microtubules. The company met with the FDA and has received agreement on the clinical development of VERU-111 as a potential dual, antiviral and anti-inflammatory agent to combat COVID-19 under the new FDA program Coronavirus Treatment Acceleration Program, CTAP. As reported yesterday, FDA granted Veru commission to proceed with a Phase II double-blind, randomized 1:1 placebo-controlled clinical trial evaluating daily doses of VERU-111 versus placebo for 21 days in 40 hospitalized patients. There'll be 20 in the VERU-111 and 20 in the placebo subjects, and these are subjects that tested positive for SARS-CoV-2 virus and are deemed to be at high-risk for acute respiratory distress syndrome.

The primary efficacy end point will be the proportion of patients that are alive and without respiratory failure at day 29. Secondary end points will include measured improvements on the WHO disease severity scale. It's an 8-point ordinal scale, which captures the COVID-19 disease symptoms and signs, including hospitalization, to progression of pulmonary symptoms, to mechanical ventilation as well as death. The study is expected to commence in 2 weeks. We're excited about the potential for VERU-111 to treat both the viral infection and potential for -- to treat both the viral infection and the inflammatory response caused by the virus. The Phase II primary end point -- this is critical, the Phase II primary end point is being alive without respiratory distress is a clinically meaningful one.

Because of the urgent need for effective and timely therapeutics to combat COVID-19, the company has applied for significant grant funding through both the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services, called BARDA, and the Defense Advanced research Projects agency of the U.S. Department of Defense, called DARPA, to expedite the clinical development of VERU-111 for COVID-19.

The coronavirus pandemic continues to paralyze the economy and threaten lives across the world. An effective drug to treat COVID-19 is still desperately needed. And this Phase II study will expeditiously determine whether VERU-111 has efficacy and safety against COVID-19. There's really no downside to conducting this small study, especially as we get the nondilutive funding. And if VERU-111 has efficacy, the upside is substantial for patients.

Veru's ability to advance the clinical development of our proprietary prostate cancer drugs that address unmet medical needs in large markets is being substantially supported by investments from 2 commercial sources of revenue: the FC2 Internal Condom as well as PREBOOST Roman Swipes, which is a 4% benzocaine wipe for premature ejaculation. The company also expects revenues from TADFIN, which the NDA is expected to be submitted in late 2020, early 2021, which will provide additional resources to support the company's clinical development program. As you can see from the earnings release, in Q2 fiscal year 2020, we continue to have significant growth in revenue and gross profit from these commercial products.

Although Ms. Greco will cover the detailed financial result highlights in a few moments. I would like to make a few comments. We again have the pleasure of reporting robust growth in fiscal year 2020 and expect further increases of FC2 sales in both the public sector and prescription sales in the U.S. for the rest of the year. We had a $7 million -- we had $7 million in revenue from the prescription business for Q2 fiscal year 2020 compared to $2.6 million for Q2 fiscal year 2019, an increase of 168%. In fact, to give you a sense of the growth trajectory for all of fiscal year 2019, we sold 159,000 FC2 prescribed units. And for just the first quarter -- first 2 quarters of fiscal year 2020, we sold 171,891 FC2 prescribed units.

Focusing on the Veru's commercial segment, which is made up of FC2, PREBOOST Roman Swipes and drug commercialization costs, we have net revenues increase in Q2 fiscal year 2020 to $9.9 million compared to $7 million in Q2 fiscal year 2019, which is up 43%. Gross profits for Q2 fiscal year 2020 was $7.4 million compared to $4.6 million in Q2 for fiscal year 2019, which is up 61%. In fact, our gross margin climbed to 75% of net revenues from 66%.

Our operating income from this segment significantly increased to $6.2 million from $2.8 million. Net revenue for fiscal year-to-date 2020 was $20.5 million compared to fiscal year-to-date 2019 of $13.3 million. This is an increase of 54%. Our income from operations for this segment of the business was $12 million for fiscal year-to-date 2020, up from $6.2 million in fiscal year-to-date 2019, an increase of 94.6%.

As you can see, our base commercial business is doing very well. And as a stand-alone business would be quite valuable, experiencing significant growing revenue and incomes from operations. This continued revenue growth and profit and positive cash flow from this base commercial business has allowed us to substantially invest in the development of our prostate cancer clinical programs, which enhances the entire value of Veru for our shareholders.

We intend to continue this revenue growth trajectory, with not only the current growth of revenues from FC2 and PREBOOST but also from the revenues that we expect to generate from the commercialization of the company's proprietary Tadalafil and Finasteride Combination capsule for the treatment of BPH, called TADFIN. We're collecting 12-month stability data on TADFIN manufacturing batches and expect to submit the NDA by the end of 2020 to just beginning of 2021.

In the United States, we're exploring commercially launching TADFIN through telemedicine channels. As you have seen, we've had great success with our other products using this sales channel. We expect to -- revenues from TADFIN to add substantially to near-term revenues with high gross margins, to existing and growing revenues from FC2 and the PREBOOST Roman Swipes business.

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

Thank you, Dr. Steiner. As Dr. Steiner indicated, we started off the year with 2 great quarters. Let's start our highlight with the second quarter results for the 3 months ended March 31, 2020.

FC2 unit sales totaled $6.9 million compared to $9.8 million in the prior year second quarter. Total net revenues were up 43% to $9.9 million from $7 million in the prior year second quarter. The company reported quarterly sales growth in its U.S. prescription business and in PREBOOST. Net revenue from the U.S. prescription business was up 168% to $7 million from $2.6 million in the prior year second quarter. Gross profit was up 61% to $7.4 million from $4.6 million in the prior year second quarter. Gross margin increased to 75% from 66% in the prior year second quarter. The increase in gross margin is driven primarily by the increase in the U.S. prescription business.

These financial results do not reflect the new tender orders that will be coming from South Africa. We previously announced that we won 75% of the South African tender, representing up to 120 million units over 3 years for the total tender. This translates to approximately 30 million units per year for our company and potentially $10.4 million in revenue per year for a total of approximately $30 million over 3 years. We expect these new orders from South Africa to ship in greater volumes during the third quarter of this fiscal year.

Operating expenses for the quarter increased by $1 million to $7.7 million compared to the prior year second quarter of $6.7 million due to the increase in research and development costs of $1 million. Nonoperating expenses were $644,000 compared to $1.9 million in the prior year second quarter and primarily consisted of interest expense and the change in the fair value of the derivatives liabilities 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 $133,000 compared to a tax expense of $25,000 in the prior year second quarter. The effective tax rate for this quarter of 14% is due to recording a valuation allowance against the net operating loss generated for the quarter in the U.S. The bottom line results for the second quarter of fiscal 2020 was a net loss of $811,000 or $0.01 per diluted common share compared to a net loss of $4 million or $0.06 per diluted common share in the prior year second quarter.

Now turning to highlights of the results for the 6 months ended March 31, 2020. For the first 6 months of fiscal 2020, the FC2 unit sales totaled 17 million compared to 17.2 million units in the prior year period. Total net revenues were up 54% to $20.5 million from $13.3 million in the prior year period. The company reported growth in FC2 sales in the U.S. prescription business and in PREBOOST. Net revenue from the U.S. prescription business was up 158% to $13 million from $5 million in the prior year period.

And just to note, for all of fiscal year 2019, the U.S. prescription revenue was $14.1 million. Net revenue for PREBOOST Roman Swipes was $574,000 compared to $180,000 in the prior year period. Gross profit was up 59% to $14.7 million from $9.3 million in the prior year period. Gross margin increased to 72% from 69% in the prior year period due primarily to the increase in the U.S. prescription business.

Operating expenses increased by $4.4 to $16.8 million compared to the prior year period of $12.4 million driven primarily by the increase in research and development costs of $4 million. Nonoperating expenses were $2.2 million compared to $2.9 million in the prior year period, and primarily consisted of interest expense and the change in the fair value of the derivative liabilities related to the synthetic royalty financing.

For the 6-month period, we recorded a tax benefit of $210,000 compared to a tax expense of $118,000 in the prior year period. The effective tax rate for the 6 months of 4.9% is due to recording a valuation allowance against the net operating loss generated for the 6 months in the U.S. The company has net operating loss carryforwards for U.S. federal tax purposes of $42.7 million with $14.4 million expiring in years through 2038, and $28.3 million, which can be carried forward indefinitely. And our U.K. subsidiary has net operating loss carryforwards of $61.7 million, which do not expire.

The bottom line results for the first 6 months of fiscal 2020 was a net loss of $4.1 million or $0.06 per diluted common share compared to a net loss of $6.2 million or $0.10 per diluted common share in the prior period. The reduction in the net loss of $2.1 million is due primarily to the increase in our net revenues, which is offset by the increase in our research and development costs.

Turning to our balance sheet. As of March 31, 2020, our cash balance was $2.6 million and our accounts receivable were $5.8 million compared to a cash balance of $6.3 million and accounts receivable of $5 million at September 30, 2019. During the 6 months ended March 31, 2020, we used cash of $4.9 million for operating activities compared with using cash of $4 million in the prior period.

Overall, we're delighted to see the continued increases in sales in the U.S. FC2 prescription business and the increasing sales of PREBOOST Roman Swipes to Roman Health Ventures and look forward to increasing sales in the global public sector business in the third quarter. These revenue sources continue to be a source of funds we use to invest in our promising pharmaceutical clinical programs as we continue to transform our company into an oncology and urology biopharmaceutical company with a focus on developing novel medicines for the management of prostate cancer.

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

Thank you, Michele. We have enjoyed yet another strong financial quarter, which has allowed us to significantly advance our clinical programs. In fact, we now have had 10 straight quarters of growth in our FC2 U.S. prescription business. Looking forward to the rest of fiscal year 2020 and early fiscal year 2021, we expect our revenues to continue to be strong and growing towards a record year.

With the improving performance of the commercial business, we believe that we'll be able to substantially invest in the continued clinical development of our prostate cancer and other cancer drug product candidates as well as to submit the NDA and if approved, commercially launch TADFIN to -- through Internet sales, which would provide even more revenue, adding to the already growing revenue from FC2 and from PREBOOST Roman Swipes. We are creating a very valuable commercial business, which includes both the urology specialty pharmaceuticals and the female health company divisions.

With the new clinical data from the VERU-111 prostate cancer program, we must prioritize and focus our efforts towards the execution of the Phase III registration program for this unmet need in prostate cancer. This begins by obtaining regulatory clarity from both FDA and EMA on the clinical trial design. We have reached an important company clinical milestone that well positions Veru as an oncology biopharmaceutical company.

We anticipate a steady flow of important positive news for Veru over the next few months to a year. One, for VERU-111, our oral selective antitubulin, we will report an open-label efficacy and safety clinical results from the Phase II clinical trials of VERU-111. And we will meet with the FDA and report on the Phase III clinical trial program.

For VERU-100, our novel peptide GnRH antagonist 3-month depot formulation, we will complete GMP manufacturing of clinical supply, we'll submit the IND, and we'll initiate the Phase II clinical trial. With zuclomiphene, our oral estrogen receptor agonist, we will have a face-to-face meeting with the FDA for -- face-to-face and a Phase II meeting with FDA.

We plan to initiate and complete the Phase II clinical program for COVID-19 and subjects of high-risk to acute respiratory distress syndrome. We'll submit the NDA for TADFIN. We would have secured partnerships with some of our drug products. And we plan to continue to demonstrate robust growing revenues for our commercial products FC2 and PREBOOST Roman Swipes.

We're committed to driving shareholder value by transforming Veru into an oncology company. We will initially focus our efforts to providing substantial benefits to prostate cancer patients by developing and commercializing VERU-111 as well as our other oncology products to address unmet medical needs in the management of their disease.

With that, I now open the call to questions. Operator?

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

Congratulations on all the progress. And on VERU-111, granted you haven't met with the regulatory agencies, could you perhaps just elaborate about how you're thinking about the Phase III design? Anything you can say maybe around the size and number of patients?

And then how are you thinking about what is the hurdle you think physicians in practice will want to see in that Phase III to use VERU-111 in practice? And then, lastly, maybe just on COVID-19. Should we think of this as a potential revenue-generating opportunity for the company? Or is this going to be similar to what we think from other companies, where it's really just a public duty-type thing?

Thank you. All excellent questions. So let's talk about the Phase III design for the -- for VERU-111. So what I can do is I can refer you to the ALAPARIB, that's A-L-A-P-R-I-B -- so A-L-A-P-A-R-I-B study that's in front of the FDA as we speak. It's very instructive in terms of how we're thinking about our clinical trial. So this is one I believe will get approved. This is a patient population that's similar to our patient population. These are patients with metastatic castration-resistant prostate cancer that have failed an androgen blocking agent. Some of them had chemo, but just some -- but mostly the same patient population.

And the reason I bring that up is because it is a registration trial, and the FDA has allowed them to use as an active comparator patients that have placed on an alternative androgen blocking agent. So that means if you think of our patient populations, they fail castration, so they're castration resistant. They put on an androgen blocking agent, either enzalutamide or abiraterone, and then they get randomized to alternative androgen blocking agent. It means if they start out with abiraterone, they get put on enzalutamide. If they start with enzalutamide, they get put on abiraterone. That's what I mean by alternative androgen blocking agent, okay?

And that's your comparator arm. The FDA has allowed that in 3 of the nonmetastatic studies that have been approved, and it's being allowed in this study. So that's why we feel pretty good. The end point of that study, just like those other 3 clinical studies were nonmetastatic, is progression-free survival, radiographic progression-free survival or imaging-based progression-free survival. Another way of saying that is when cancer progresses and you can see it on either bone scan or CT scan, that's deemed a failure, okay? They've accepted that, okay?

The active comparator, in this case, is an oral agent that's going after patients -- that ALAPARIB is going after patients that have a genetic mutation, which is really a small segment of the population. That's why we want to be the go-to drug. We want to be the drug that will treat anybody, not anybody that has a genetic mutation. So that's a much bigger market.

And the -- and in that study, interestingly, they hit -- the hurdle they have to hit is in the treatment and then back up, in terms of the trial size, because you can do progression-free survival, imaging-based progression-free survival, sort of 800 patients or 1,000 patients in the study. That study, I think, is about 250 patients. So the range is going to be around the 250 to 300 mark. It's a much smaller study. And quite frankly, it's a shorter study. And the reason it's a shorter study is because the comparator arm, the active control, fails in about 3.4 to 3.6 months. So if you go for a year, you've got 3 of those cycles. And so follow-up is not very long, unfortunately, for the patient. But your benchmark that you're going up against is about 3.4, 3.6 months median progression-free survival and radiographic progression-free survival. And for ALAPARIB, they showed a 7.4-month advantage. And everybody believes it's going to get approved, okay?

So I shared that with you because I think we're going to be very similar to that. I think our trial design -- our trial size will be between 250 and 300. I think we're going to have an end point of imaging-based progression-free survival. I think we'll be able to compare our agent VERU-111 against an alternative blocking -- alternative androgen blocking agent. I think the hurdle that we need to hit is going to be about 3.4 to 3.6 months.

I have comfort to know that in the Phase Ib, the median duration of response is 10 months, with a range between 6 and 14 months. It feels good but of course, you have to be careful. It is Phase Ib, but that gives you comfort that we should be in good shape from the standpoint of being able to beat that. And that's the kind of design.

So it feels safe because we're not asking the agency to do something new. And -- but it also gives you a sense of why we're excited about going into a Phase III registration program because these patients are around so recruitment should be pretty straightforward. And it's completely an unmet medical need. And there's enough regulatory precedent that we can feel comfortable around trial design.

As it relates to your second question, which has to do with COVID-19. That's nice you're doing it, and you're going to do like Gilead and just kind of give it away and give all the doses to the government and show 3 or 4 days of hospital benefit and move on. Now we're a small company, and we think we have an innovative compound, VERU-111.

VERU-111 has the potential for dual activity. As we know, the microtubules, or basically the transport system, in which viruses make their way and hijack the cell and get replicated and come out of the cell and infect other cells. If you disrupt the railroad tracks, just like we do in cancer, you're going to disrupt the railroad tracks just in the viral infection. The fact that this class of compound has been used in gout and been used in familial Mediterranean fever and Behcet's disease, all which are very -- [all the] inflammation and lung inflammation and heart inflammation and toe inflammation and even opiates and nonsteroidal anti-inflammatories can't touch it and colchicine does. So it's -- we bind it to colchicine-binding site.

What makes us different than colchicine is that colchicine has a very narrow therapeutic index. And even in the recommended therapeutic dose, you can get into toxicity. We're not a substrate for people like a protein. We don't have those drug-drug interactions. It is -- we already can tell from the 39 patients, we have a wide safety margin. So I think we have a very unique opportunity to step in and have a dual function.

We do not -- we do think also that the end point that we're going after is a clinically meaningful one. I think people have scratched their heads of why some of these companies have gotten -- and again, I'll just point out Gilead, why we've gotten so much press over 3 or 4 days leaving the hospital. And I would argue that, in that crazy period of time, people were leaving the hospital because beds were needed for sicker patients. And is that end point really a relevant end point because people can leave the hospital for reasons independent of the disease? But you can't fake a death and you can't fake being on a respirator, and so if you have an end point of being alive and not in respiratory distress, that's a pretty clinically meaningful end point.

Our thinking is to get nondilutive funding to help us do 2 things: one is to continue to develop the clinical trial development; and second is to be able to manufacture the doses that are going to be required. They're asking about 20 million doses. And so to get to that number, of course, we don't have the money for that, so that's only going to happen if we get nondilutive resources from government agencies that are focused on this.

No, I see this is going to be -- this is not charity, guys. This is not called the duty for charity. We're a small company that can use these resources to help move our other programs along and to well-capitalize our company so we can become a major force in oncology. And that's going to -- and so this product turns out to have activity, which we'll find out here by summer, then we're going to be in a different place. This is going to be substantial upside, yes, for the patient, but also for the company. So no, this is not -- it's a call of duty and we're compelled to do because we understand the mechanism of our drug and similar compounds in the world.

And we feel that we will -- we feel there's a very good chance. It's a fascinating hypothesis. And there's enough pharmacologic rationale and evidence that we should be doing this. But I would also say that we will be looking for this to be a drug that we would sell, not only for COVID-19, but for any other COVID-20, COVID-21, COVID-20, or whatever. Because whatever the mechanism is being done for a very common virus like coronavirus, it can be used across others. So we may end up having an antiviral section of our oncology company, but that's okay.

Great. And congratulations again on every -- all the progress.

Thank you.

The next question comes from Leland Gershell of Oppenheimer.

And congratulations, it's really great to hear of all the terrific progress that you're making, particularly with 111. And I want to ask about -- as you think about that overall development program, in addition to going into those who are refractory to the most novel androgen blockers, I wanted to ask about your thoughts in terms of moving that earlier in the paradigm before you're trying to squeeze that last bit of sort of androgen-blocking ability out with those agents. It's harder and harder to get to benefit as you get further down the kind of androgen access with compounds. I wanted to ask about how you might move 111 to be earlier in the treatment paradigm for advanced prostate cancer. Also want to ask in terms of the dose you are going to be using in the COVID-19 program, would that be the same as the 63-milligram that you have for oncology?

Great. 2 good questions. So I'll answer the second question first. The dose that we're using in the COVID-19 is 18 milligrams. So it's really much lower than the 63 milligrams. We know we get good drug levels with that. But there's a big difference of trying to be an antiviral versus being an anticancer drug. So for anticancer drug, you tend to get as close as you can to the maximally tolerated dose. And with an antiviral, we've got plenty of drug around 18 milligrams. And so it will differentiate those 2 doses.

As it relates to your question related to can you go earlier in the treatment paradigm for prostate cancer. And the answer is definitely yes. But let me tell you why this is -- what we've learned in the Phase Ib that is critical, critical as you think about going earlier. If we were an oral cytotoxic drug that had a side effect profile similar to other ones, like platinum-based and taxane-based, and just think of all those IV cytotoxic agents, those drugs are given by medical oncologists for a reason.

They're given to the medical oncologist because the patients have to be premedicated with antihistamines and prednisone because of the hypersensitivity reactions that can threaten their life. The dose-limiting toxicities for those kinds of drugs in neutropenia, which means if you have neutropenia, you have sepsis and ICU visits. And unfortunate patients can pass away from the sepsis. You have neurotoxicity. You have basically a side of adverse event -- side effects and a series of side effects that really need to be managed by the medical oncologist. Okay?

So in that setting, even if you want to go earlier, you may not be able to. In prostate cancer because -- and I'll tell you why I brought that up in a moment. In prostate cancer is a very unique circumstance because the urologist will manage the prostate cancer patient from the time they're diagnosed to the time they develop hormone-sensitive prostate cancer -- metastatic hormone-sensitive prostate cancer, all the way to now because of the oral agents, enzalutamide and abiraterone, which can be given with reasonable side effects.

They have created these centers to manage prostate cancer, from an acute disease to a chronic disease. And so they're using all of these oral agents. Remember, they have a busy practice and so they can't be sitting in the hospital managing sepsis and all this other stuff. And so they really need to have an agent that has fewer side effects that could be given by a urologist versus the medical oncologist. So that's a key test.

Once the patient needs IV chemotherapy, or if that's the option they choose, then they're going into a center that has chemotherapy chairs and has all the wherewithal to handle the side effects. So VERU-111 has demonstrated in the Phase Ib study that the side effect profile is consistent with a drug a urologist can give in their practice. So we could potentially think about going earlier but not because we want to go earlier, but because the drug has a side effect profile that potentially will allow us to go earlier.

And so what do I mean by that? So going earlier would mean going after patients that -- 3 drugs have recently been unapproved for. And again, these are androgen blocking agents. And 1 is enzalutamide, apalutamide and darolutamide. These are all androgen-blocking agents that have been moved in the nonmetastatic castrate resistance space. So these are patients who do not have metastatic disease. They will put an androgen deprivation therapy to treat their PSA, unfortunately. And now that PSA is going back up, they still don't have any mets and they're freaked out because they're worried that they're going to get a bone met.

And so they put them on 1 of those 3 agents, and it will delay time to that bone met for about 2 years. Very effective. However, there are about 1/3 of those patients, it doesn't help. And so what can we do with those 1/3? They can't -- you've exhausted the androgen receptor as a target. And so at that point, they need a new medicine with a new mechanism of action. And these patients are being treated by urologists. And so VERU-111 could potentially be positioned as a therapy, almost like we did. So it's castration, in this case, it's nonmetastatic, castrate-resistant and androgen blocking-resistant but still you have -- you're trying to stop them from developing the first met. So that would be a great spot to go.

Interestingly, based on the STAMPEDE and the CHAARTED data, one of the things that we've learned is that if patients come in with bulky hormone-sensitive disease, meaning that they haven't been castrated yet, that the standard of care is now emerging that you combine it with either an androgen blocking agent or with docetaxel. So that means a patient will come in with hormone-sensitive disease, which is about as early as you can be, and then they get IV docetaxel plus androgen deprivation therapy, and that has shown a benefit.

So I could see a situation where, as an oral antitubulin, we could be in that space as well. So the beauty of the side effect profile and the beauty of the -- of understanding extremely well the entire spectrum of where we could be in prostate cancer, the 2 mechanisms that have continued to show promise has been androgen receptor-targeted agents and antitubulins. And so I think we're well positioned to take advantage of other indications.

With that all said, we have to focus, focus, focus on metastatic prostate cancer. Metastatic castration-resistant prostate cancer has failed an androgen blocking agent, and if we can win with that trial and in a single trial and do it correctly, we can be on the market and have significant revenue. And we can use those resources to continue to expand the indications.

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

So my first question is for the trial in COVID-19, do you plan to enroll patients who have received remdesivir or any other drugs who are currently being evaluated in a clinical trial but did not respond?

Yes. At this point, no, because that would -- first of all, for a couple of reasons. First of all, there's tons of patients out there, unfortunately. Even though New York has shown a flattening -- I wouldn't say reduction but a flattening of the curve. What we're seeing in the rest of the country between those areas because that's where we're running the clinical trial, we have a CRO in place. We've already done the feasibility. So we have a real keen sense of what's really happening in the country. And this has not gone away.

I don't care what Trump is saying about let's reopen the schools and all that stuff. I'm not trying to be political here. I'm just trying to be realistic here. Just go look at the newspapers. Those numbers are still pretty damn scary. So there will not be a shortage of patients. And so if you want your study to be informative, it's best to do it in patients that will give you the information.

And so the idea would be that we'd take patients that have been deemed by the critical care specialists to be at high risk for acute respiratory distress syndrome. And we know who those patients are. It's based on -- a, it's based on comorbidities. They've already started to show they're moving down the path of trouble, and they're hospitalized. And so that's going to be the patient population.

Quite frankly, if that patient population is addressed, and we're going to feel much more comfortable reopening schools and reopening businesses and that kind of stuff. And so that's the ones we're focused. Remdesivir, and quite frankly, if you take a step back, hydroxychloroquine and azithromycin combination, has been shown over and over and over not to work. So even though we jumped to that initially, I think everybody is pretty comfortable that, that really doesn't have activity.

And now with remdesivir, people are scratching their head because they had 3 trials that were questionable, and they had this trial that was successful. And again, I'm not taking anything away from them. I'm going to use what Fauci said. He said, basically, it's a good start, and we have to build upon it. And to me, build upon, that means you need drugs with multiple mechanisms of action. And we have a completely different mechanism of action that we'd now only look at the virus, but more importantly, the sequel of the virus.

I think, today, the common cold is not managed by treating the underlying virus. It's managed by treating the symptoms. I mean, if you have a runny nose, you get an antihistamine. If you have a fever, you get an antipyretic, and you just run the course. In this situation, too, it's the cytokine storm. It's the cytokine release syndrome. It's a very, very characteristic of this disease.

Interestingly, the other characteristic of this disease that makes it different is the total body inflammation. So we focus on the lungs. But we're seeing now that -- we're seeing the pericarditis and that's really a strange pericarditis. And by the way, if you look at colchicine, it's kind of used with pericarditis. The other thing is these kids are starting to show up with what's called Kawasaki disease, which is very similar to -- it's basically a total body inflammation of the blood vessels, and familial Mediterranean fever and Behcet's disease. Behcet's disease is basically a total body vessel inflammation, and they use colchicine to treat those patients.

So we're thinking we have a really good mechanism of action and that's why we want to focus, focus, focus on patients that can give us the most information, the fewest numbers of patients who can give the most information and then decide where we want to go from there. But starting, initially, we're going to take patients that have not been on any of those drugs. Okay?

His line has disconnected. I'm sorry. .

No worries.

So we can go back to questioner if he comes back, right? So Peter McMullin of Peter McMullin Consulting, please go ahead.

2 quick questions. One, I think Malaysia has done a pretty good job of controlling COVID-19. Can you give us a status report on the factory or your source of cash flow? And is it open? Will it open? Is it producing the female condoms?

Second question is -- second question, just -- you got both VERU-111 is making great progress. There's other people developing competing drugs out there, some of which have better balance sheets. Can you just talk about how you feel about the competitive profile in the future?

Sure. So the first question has to do with how did COVID-19 affect our supply chain, so to speak. So when we saw that things were starting -- I mean, remember, this happened rapidly, where all of a sudden, in February, everybody is sitting in the picnic, and then by March, the bottom falls out of the market. And what we saw was -- we saw that. And as you know, our #1 area of high-margin business is the U.S. So the first thing we did is we stockpiled FC2 prescription, 12-count supply -- 12-pack supply in the U.S. And we did so that we ended up stockpiling what we thought we would need for the whole year. So we really got to the bolus there. So there was no interruption at all in the U.S. business.

In the ex U.S. business, we were able to meet the needs of most of the large governments, but some of the large government shut down. So South Africa and Brazil, I mean, just read the newspapers, they're freaked out and having some real issues. So even though we made it, we couldn't ship it because they couldn't have -- they didn't have the people at work to do the testing to bring the product in.

So you'll see for Q3, our fiscal year Q3, we had a slight decrease in units. We had a decrease in units outside the U.S., but the units in the U.S. will allow us to make our money. And so we have a good quarter. And so next quarter, we're going to see an overabundance and overrepresentation of public sector because now they're opening up and taking product.

As it relates to the factory, the Malaysian factory was shut down. And we all looked at each other and say, "Oh my gosh, what's going to happen there?" But that -- I think it happened for about 2 or 3 weeks, and then the government said, for any essential businesses, they were allowed to open up. And so we got an exemption. The team did a great job opening up. We're not at 100% capacity. We're about 50% or 60% capacity. But that's fine because of all the stockpile that we put in the U.S. and all the product we already have on hand, we're going to be able to meet the needs of our customers, not only in Q3 but also in Q4. And then we just have to take it after that and see what happens when Malaysia is back online.

As it relates to your second question about the competitive landscape, so really, the competitive landscape with companies with bigger balance sheets, and I'm not worried about that because look how much progress we've been able to do with being smart and efficient. And being able to take a program like VERU-111 to a registration trial in the period of 2.5 years from the time we started the first -- Phase I, it's pretty impressive. I congratulate my team.

But as it relates to the competitive landscape, there's really existing drugs like the taxanes, which are IV and given by medical oncologists, and we already know the side effects and why patients are trying to avoid that. And there's nothing in the space. If I had to pick a class of drugs that is coming in, and again, in prostate, immunotherapy has just not been very effective, and I'll tell you that. There's another drug, which is a radiation-based or radio isotope-based drug, and that one tend to be for patients later in their course of disease.

But in the exact space that we're in, there's a class of compounds called PARP inhibitors. And these are indeed being backed by some of the biggest companies, AstraZeneca, Merck, Pfizer, I mean, this is sort of the next big thing. But these drugs are indicated for patients that have certain mutations that you can actually measure.

So for example, you've heard of BRCA1 and BRCA2, which are common in breast cancer, well, in prostate cancer, those occur. And those mutations are the mutations that they're driving to treat these patients. So for example, ALAPARIB -- and ALAPARIB, which is the one in front of the FDA now, I mean, as I mentioned in my previous comments, the New England Journal of Medicine Article shows a 3.4-month progression-free survival for the control arm. And for the treatment arm, which is going after those mutations, meaning 7.4 months. So we were able to double it, and that's the degree of benefit that we're seeing with these kinds of drugs.

And if you ask, can we coexist? The answer is absolutely yes. It's about 5% to 15% of the patient population with half these mutations, which means with the 95% to 85% of patients, they need another drug with a different mechanism. As another -- while we're on the topic, there's another set of drugs called androgen receptor-degrading agents. These are agents that -- one of the thoughts is just to keep pounding on the androgen receptor. And my personal view on that is, I think we're doing a pretty good job on squeezing testosterone as low as we can. And so those agents are successful. I think they're just going to cannibalize the androgen blocking agent population and will not add anything incrementally once you've exhausted that target.

So I think we're in good shape. I think time is of the essence that we need to get into the registration trial as quickly as possible and be that go-to drug.

And we have a follow-up from Yi Chen from H.C. Wainwright.

I just wonder, are there any animal data published on the antiviral property of VERU-111? And also, do you think, based on the mechanism of 111, that it can treat moderately ill COVID-19 patients as well?

Yes. So the -- I think the first part of your question was whether there's any VERU-111 animal data for COVID-19?

Yes.

Yes. So the answer is no. And we do have -- what we do have is not for COVID-19, specifically, but we have done -- but there are data showing that colchicine has antiviral and anti-inflammatory activity. And there are data that show that the way colchicine works is that it works by microtubule depolymerization agents. So it binds to microtubulin and guess what? Colchicine binds the colchicine-binding sites, and that's why they named it that. And so the primary mechanism of action is inhibiting microtubules.

We have done in vitro and in vivo. In vivo in cancer models, but in vitro, we have done those assays where we compete against colchicine, and we bind to the colchicine-binding site. We have more -- we have -- in the published data, we show that we're more potent than colchicine in preventing microtubular polymerization in vitro. We also have molecular data showing where our -- where VERU-111 binds to alpha and beta tubulin. So we've been mass spec and molecular modeling, and we know exactly how it fits in the microtubule, and we fit exactly where colchicine fits.

So it's not surprising that we're basically a derivative of colchicine and more potent with a better side effect profile because of drug-drug interaction. So I don't think we're making a big leap from that standpoint. So that's why I think it's worth testing it.

As it relates to your second question, which is -- so again, strong rationale. And I do think it's the anti-inflammatory component that's going to win the day here. As it relates to your second question, yes, I mean, our situation is that we have a cancer program, and we've been developing VERU-111 as a cancer product. And so it makes sense that the first place to start is in patients that are severely ill and/or potentially could become severely ill. But as in most antivirals and drugs of this sort, once you've demonstrated in that patient population, then it makes sense to go earlier. And so we would do the same thing. But we would start with getting a signal in a patient population that are heavily dependent on whether an inflammatory reaction occurs because of the underlying virus infection, and in an end point that's not ambiguous that you can clearly say it's related to the drug. If we can do that, then I think the program will take off on its own.

And just lastly, I just want to confirm, you currently do have enough drug to support both prostate cancer and COVID-19 trials, right?

Correct. We have plenty of drug, but we do not have enough drug to support the United States or the world, in the event we're successful. With that said, it's not -- it doesn't take long to make it. It is a small molecule, so there's nothing complex about it. And we've already identified sources that can help us do that and help us scale up.

So we're ready for it. In the event that we get news back this summer that we have activity, and in which case you do, you do scale up at the same time you're doing your Phase III. Because when the Phase III is done, you have to be ready for distribution. You saw how quickly remdesivir had to get distributed. But we're not going to make that decision until we see a signal. And usually, you don't make -- you don't do the expansion unless you find nondilutive money from government agencies that will help you do that. So that's how we're thinking about it.

Okay. 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. Thank you. I appreciate you joining us on today's call. And I look forward to updating all of you about our progress in our next investors call. Thank you.

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