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spk06: Good morning, ladies and gentlemen, and welcome to Veru Inc.' 's Investors Conference Call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After this morning's discussion, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Sam Fish, Veru Inc.' 's Director of Investor Relations. Please go ahead.
spk01: 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 are related to the development of the company's product portfolio. Risks are related to the ability of the company to obtain sufficient financing on acceptable terms we need to fund development and company operations. Risks relate to competition, government contracting risks, and other risks detailing 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 10Q and 10K SEC filings. I would now like to turn the conference over to Dr. Mitchell Steiner, Baru Inc.' 's Chairman, CEO, and President.
spk02: Thank you, Sam, and good morning. With me on this morning's call are Michelle Greco, CFO and CAO, Phil Greenberg, Executive Vice President, Legal, and you've met Sam Fish, 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 two 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 Vera'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. Bureau has made the transformation into a late clinical stage oncology biopharmaceutical company focused on developing novel medicines for the management of two 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 VIRU, 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 launched Preboost which is marketed online in the United States through a distributor arrangement under the Roman Swipes brand name by Roman Health Ventures Incorporated. 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 US through Bricks and Mortar retail channel by Playboy Enterprises International as Playboy's Intimate Wife. Now, let's focus on some of the financial highlights on Viru's commercial segment, which is made up of FC2, pre-boost romance wives, playboy intimate wives, 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 profits 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 non-cash charge. Operating loss before adjustment for impairment was only $600,000 for all of fiscal year 2020, compared to the 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'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 pre-boost 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 from the sexual health business for another record year in fiscal 2021, which further enhances its potential value as a standalone business. If the company were to decide to monetize this asset like we did with pre-boost, to streamline the company into a pure oncology biopharmaceutical company with significant cash resources. Tadfin, 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 one-year stability testing on three manufacturing commercial batches is being completed. Consequently, we expect to submit the NDA for Tadfin in early calendar year 2021 with a launch, if approved, via telemedicine channels in late 2021. This will be another near-term source of additional revenue for Viru. 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 three ready novel breast cancer drug, Vero has made the transformation into a late clinical stage oncology biopharmaceutical company focus on developing novel medicines for the management of two 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 nine 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 eight 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 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-receptive 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, VIRU 111 and VIRU 100, as well as our breast cancer drug candidates who recently acquired Anobisarm and a new additional indication for VIRU 111 into registration clinical studies. VIRU anticipates the potential for four registration clinical trials for four oncology indications commencing in calendar year 2021. In prostate cancer, the company continues to make strong clinical progress, advancing VERA-111 as a treatment for metastatic castration and antigen receptor targeting agent-resistant prostate cancer, and VERA-100 for antigen deprivation therapy for advanced prostate cancer. First, an update. VIR-111 for the treatment of men with metastatic castration-resistant prostate cancer who have also become resistant to the androgen receptor targeting agent. VIR-111 is an oral first-in-class new chemical entity that targets, cross-links, and disrupts the alpha and beta tubulin subunits of microtubules to disrupt the cytoskeleton. We're calling it a cytoskeleton disruptor. VIR-111 is being evaluated in an open-label Phase Ib and Phase II clinical studies in men with metastatic castration and antigen receptor targeting agent-resistant prostate cancer, and the Phase 1B clinical study completed the enrollment of 39 men and is ongoing. The Phase 1B study has yielded promising efficacy and safety clinical results. Based on the Phase 1B study results, the recommended Phase 2 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 two dose, there were no reports of neutropenia, neurotoxicity, or grade three diarrhea. The efficacy results show PSA declines in responses, as well as objective and durable tumor responses. Furthermore, the median treatment duration without cancer progression in men who have had at least four cycles of VERA-111 is greater than 11 months. We still have patients on the study. In September of 2020, The Phase II clinical study completed the enrollment of approximately 40 men with metastatic castrate-resistant prostate cancer who have also become resistant to an androgen receptor-targeting agent 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, single report of minor neurotoxicity, and manageable cases of diarrhea. Like the Phase 1b, 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 2 study in the first half of 2021. As we have already enough safety and efficacy data to select a dose for Vero 111 and to proceed to a Phase 3, The company had an FDA meeting in July of 2020 and received positive input from FDA on the pivotal Phase III trial design for VIR-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 VERA111 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 starting the VERACITY Phase III study in the first quarter of calendar year 2021. Next, I will update you on VERA100 as an androgen deprivation therapy for palliative treatment of advanced prostate cancer. VERA100 is a novel proprietary long-acting gonadotropin-releasing hormone, GnRH antagonist peptide, three months of subcutaneous depo 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, Vero 100 is a chronic long-acting GnRH antagonist peptide administered at a small volume, three-month deep post-subcontinuous injection without a loading dose. Vero 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 one month duration. The phase two study to evaluate Vero 100 dosing is anticipated to begin early in the first quarter of calendar year 2021. And the registration phase three 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 Inovus Arm and VIRU-111. So Inovus Arm is a selective antigen receptor targeting agonist being developed for the treatment of antigen receptor positive, estrogen receptor positive, and HER2 negative metastatic breast cancer, but prior to IV chemotherapy. VIRU has exclusively in-licensed full worldwide rights to Inovus Arm from the University of Tennessee Research Foundation and the Ohio State Research Foundation. Inovus Arm is an oral, first-in-class, new chemical entity, selective androgen receptor targeted agent. Our first indication for the clinical development of Inovus Arm will be for the treatment of ER-positive, HER2-negative, metastatic breast cancer, but prior to IV chemotherapy. Inovus Arm, 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. Inovasarm has extensive non-clinical and clinical experience, having been evaluated in over 25 separate clinical studies in more than 2,100 subjects, including five prior Phase II clinical studies in advanced breast cancer involving more than 250 patients. Inovasarm binds to the androgen receptor in breast cancer tissue to inhibit AR, ER-positive cancer cell proliferation and tumor growth. This is seen in Phase II human clinical studies as well as in animal models. Unlike testosterone, Inovasarm cannot be aromatized to estrogen. Inovasarm 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 Inovasarm builds and heals cortical and trabecular bone with the potential to treat hormone treatment-induced osteoporosis and skeletal-related cancer events. Inovasarm has also been shown to build muscle, to reduce fat, to improve physical function in clinical studies involving elderly subjects and patients with cancer cachexia, including breast cancer. Furthermore, the tissue selectivity of a novus arm 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 a novus arm and targeting the androgen receptor and hormone receptor positive advanced breast cancer will eminently be published in Nature Medicine by an independent group of breast cancer experts. In the two Phase II clinical studies evaluating Inovus arm in an advanced AR-positive, ER-positive HER2-negative breast cancer, Inovus arm as an oral endocrine therapy demonstrated significant anti-tumor 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 Inovus arm in a heavily pretreated endocrine-resistant cohort of 22 patients with AR-positive, ER-positive, and HER2-negative advanced breast cancer. The patients participating in the study, on average, had three previous lines of endocrine therapy, and 68% had previous chemotherapy. The clinical benefit rate at six months was 35.3%. The six-month Kaplan-Meier estimate for radiographic progression-free survival was 43.8%. Inovus arm was well-tolerated without evidence of virilization, no increases in hematocrit, and no liver toxicity. The second Phase II clinical study, G200802, was a two-arm study evaluating 9 milligrams and 18 milligrams of Inovus arm daily oral dosing in 136 women with ER-positive HER2-negative advanced breast cancer. The patients in this study were also heavily pretreated, having failed an average of four endocrine treatments, and 88% have 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 two study results will be presented as a spotlight presentation at the San Antonio Breast Cancer Symposium tomorrow, December 10th at 2.15 p.m. by Professor Carlo Palmieri, Professor of Translational Oncology and he's a medical oncologist in the University of Liverpool. The abstract is number 811 and it's entitled The Efficacy and Safety of the Novus Arm, a Selective Angio-Receptor Modulator to Target Angio-Receptor in Women with Advanced ER-Positive, AR-Positive Breast Cancer final results from an international Phase II randomized study. Overall, these metastatic breast cancer clinical studies for the novus arm and heavily pretreated subjects with hormone receptor-positive breast cancer strongly established the relevance of targeting the androgen receptor with a selective androgen receptor agonist both for efficacy and safety and with additional other benefits. Owing to its high tissue selectivity, Inobisarm increases muscle and physical function, decreases fat, improves bone strength, and lacks the androgenic adverse effects including virilization, liver toxicity, increases hematocrit. By targeting the androgen receptor and hormone receptor positive metastatic breast cancer, Inobisarm 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 of 2020 to discuss the Inovus arm clinical breast cancer program. The FDA has agreed to the phase three registration clinical trial study to evaluate the efficacy and safety of Inovus arm versus an active control, which will be either Examestane or Tamoxifen, physician's choice, for the treatment of metastatic ER-positive HER2-negative breast cancer in approximately 240 women that have failed a nonsteroidal aromatase inhibitor, anastrozole or letrozole, fulvestrin, 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 Inova's arm has strong intellectual patent protection with U.S. composition of matter patents that expire in 2029 with a potential for a five-year patent extension for an NCE to 2034 and with method of use patents that will expire as early as 2033. Inova's arm is a large market opportunity as it represents the first new class of targeted endocrine therapy in hormone-receptive positive advanced breast cancer in decades. Novosone targets the endocrine receptor in ER-positive HER2-negative 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 ester 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 VERA-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's present in approximately 15% of all breast cancers. This form of breast cancer does not express the estrogen receptor, the progesterone receptor, or HER2, and is resistant to endocrine therapies. The first line of treatment usually includes an IV taxane chemotherapy. Almost all women will eventually develop taxane resistance. Overexpression of peak glycoprotein pumps that cancer drug 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. VIR-111, on the other hand, is an oral cytoskeleton disruptor. cannot be pumped out of the cancer cell by peak glycoprotein drug resistance protein. Preclinical studies in human triple negative breast cancer grown in animal models demonstrate that Vera-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 a.m. Eastern. at the San Antonio Breast Cancer Symposium virtual meeting on the preclinical efficacy data entitled, Vera-111 as an Orally Available Tubulin Inhibitor Suppressing Both Taxane-Sensitive and Taxane-Resistant Triple Negative Breast Cancer. And this is going to be presented by Dr. Wei Li from the University of Tennessee Health Science Center. Using the safety information from the Phase 1B and Phase 2 Vera-111 Prostate Cancer Clinical Studies, and 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 two clinical trial design for possible accelerated approval for VIR-111 versus active control triodality for patients with taxane-resistant triple negative breast cancer, making the proposed trial a potential registration trial. The phase two B clinical studies plan to commence in the second half of calendar year 2021. And as I mentioned, this would represent a second major clinical oncology indication for VIR-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%, approximately 41,472 patients. The majority of women will receive IV chemotherapy, including taxanes. Almost all of these women will develop taxane resistance. and will be a candidate for VERA-111. The annual U.S. market for taxane-resistant metastatic triple-negative breast cancer is estimated to be over $1 billion. The company's other indications include VERA-111 for the treatment of SARS-CoV-2 in subjects at high risk for acute respiratory distress syndrome. So VERA-111 is being evaluated in a Phase II clinical trial to assess the efficacy of VERA-111 in combating COVID-19 to prevent ARDS. Vera-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. Vera is currently enrolling a double-blind randomized placebo-controlled Phase II clinical study, evaluating daily doses of Vera-111 18 milligrams versus placebo for 21 days in 40 hospitalized 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 eight-point ordinal scale and 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 2 clinical trial are positive, the company intends to apply for grant funding from third-party agencies. And as you know, COVID-19 is now worse than ever, and no effective treatments have been found. As for Zuclomifene and the other drugs that are not in the oncology treatment drugs, now that we have four late clinical stage studies, For three drugs and four premium oncology treatment indications, the company has to even further focus and reprioritize resources to maximize shareholder value. So, clomiphene citrates and oral non-soil estrogen receptor agonists 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 two meeting with FDA and will 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, Vero 722, and Vero 112 drug candidate assets. I will now turn the call over to Michelle Greco, CFO, CAO, to discuss the financial highlights. Michelle?
spk05: 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 in 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 its 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 revenues, compared to $5.8 million or 67% of net revenues in the prior year fourth quarter. The increase in gross profit and gross margin is driven primarily by increased sales in our U.S. FCQ 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 non-cash 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 timelines and the decision to cease development work on Tamsulosin DRS, Vero 722 for male infertility, and Vero 112 for doubt. 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 or formulations, patent-protected drugs under the development addressing larger and potentially more profitable markets. The impairment charge results in a book value of zero 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 is $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 non-cash impairment charge of $14.1 million. Excluding the effect of the impairment charge for the fourth quarter, we 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. Non-operating expenses were $1.7 million compared to $2 million in the prior year fourth quarter and primarily consisted of interest expense and changing the fair value of the derivative 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 $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 evaluation allowance against the net operating loss generated for the quarter in the U.S., which is most of the pre-tax loss for the period. The bottom-line results for the fourth quarter of fiscal 2020 was a net loss of $11.8 million, or 17 cents per diluted common share, compared to a net loss of $3.1 million, or 5 cents 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 was 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 pre-boost 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 non-cash 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 $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. Non-operating 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 evaluation allowance against the net operating loss generated during those years in the U.S., which represents the majority of the pre-tax loss for the years. The company has net operating loss carried forward 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 UK subsidiary has net operating loss carry-forwards of $61.3 million, which do not expire. The bottom line result for fiscal year 2020 was a net loss of $19 million, or 28 cents per diluted common share, compared to a net loss of $12 million, or 19 cents 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 increase 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.
spk02: Thank you, Michelle. 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 growth in our FC2 US 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 to submit the NDA and, if approved, commercially launch Tadfin, 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 pre-boots with $20 million. Looking forward to fiscal year 2021, We expect our revenues to continue to be strong and growing towards yet another record year. 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 lay clinical programs to and through the highest value point, which is enrolling phase three clinical studies and having phase three positive clinical results. Registration oncology clinical studies are ideal, as they typically are single clinical studies for premium large global markets. As such, we anticipate a steady flow of important positive news for Vero over the next few months to one year. So we have four registration studies planned to commence in calendar year 2021. So VERA 111 for the metastatic castration-resistant prostate cancer, we will report open-label efficacy and safety clinical results of the Phase 2B clinical trial. We plan to submit the Phase 3 pivotal trial protocol and start the veracity Phase 3 registration clinical trial in calendar year Q1 2021. For VERA 100, our novel peptide GnRH antagonist three-month depot formulation For advanced prostate cancer, we will initiate the Phase II clinical study in the early calendar year 2021, and by second half of the calendar year 2021, to start a Phase III pivotal registration clinical study. For inobus arm, the AR targeting agent, without the unwanted virilizing adverse side effects, and our newest drug asset to treat ER-positive HER2-negative metastatic breast cancer, we plan to commence the ARTEST Phase III clinical registration study in the first half of calendar year 2021. The VERA-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 a Phase IIb trial design for possible accelerated approval for VERA-111 versus Trodelvi 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 two clinical program for COVID-19 in subjects at high risk for ARDS, submit the NDA for Tadfin, and we'll continue to explore partnerships to license and or distribute and sell drug products. We plan to continue to generate robust growing revenues for the sexual health business, which as a standalone 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 pre-boost 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?
spk06: Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, we ask that you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue. Once again, that is star then one to rejoin the question queue. We will pause momentarily to assemble our roster. The first question today comes from Brandon Foulkes of Cantor Fitzgerald. Please go ahead.
spk04: Hi, thanks for taking my questions and 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, maybe 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 assets in that cash round note? Thank you.
spk02: Okay, good. So the first part has to do with Inova's arm, and have we disclosed any of the deal terms? And the answer is it's undisclosed, but Inova's arm is a late-stage asset from the University of Tennessee in Ohio State. So 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. 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 in. I think everybody's going to be very, very happy once we get past this next trial, which gets to your next question, and that is, you know, have we told you about the size? We believe that the size of the Novosarm ER-positive, HER2-negative metastatic trial in endocrine-resistant women is going to be about 240 patients. 240 patients is the number, okay? And it's a one-to-one randomization, so it's not a huge study. And that's, again, a single open label study, you know, 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 20, just to make a comment, with the other 25 studies, all of the studies that you would expect for phase one, you know, like the drug-drug interaction studies, the QT studies, you know, renal impairment, liver impairment studies, all that's 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. And so that's why we're so excited about this. It fits our model, right? I've got Vero 111, kind of a very favorable side effect profile for cytotoxic to be used in in prostate cancer as an oral agent before IV chemo. So the same thing here, you know, breast cancer, an oral agent that can be used with a favorable toxicity profile, but, you know, efficacy and other benefits with muscle building and bone building. And, you know, you'll see the data tomorrow that we present at San Antonio, and you'll see it's got a great side effect profile and quality of life, et cetera, and before chemo. So, you know, this is a great space. This pre-chemo space is a great space to be. As it relates to the cash runway, the cash runway includes cash on hand. And we just sold pre-boost 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 and 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 Two and a half within the year, another two and a half six months after that. So within the next 18 months, we get a full $20 million. So when you put those numbers together, plus the growing FC2 business, yes, the answer to your question is we feel comfortable running all of our clinical development, including the potential for four registration trials. through the end of fiscal year 2022. I wish we can guide beyond that, but, you know, that's what the auditors told us we can stop. But, yeah, we can still have money coming from the business, and we're still, you know, clinical trials is, you know, is expensive. But if you think about it, you know, we have four, let's say all four registration trials are going on. The Inovus arm one, I just told you, is 240 patients. The Vero 100 is 100 patients. The Vero 111 is around 200 patients. And then triple negative breaths, probably about 100, 150 patients. You add all those together, you're still going to be less than 500 patients for four trials. And five to 600 patients, excuse me, about five to 600 patients. And you're not getting them all at once. These trials will be done over 18 months to two 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.
spk04: Great, thank you very much.
spk02: All right, thank you.
spk06: The next question comes from Yi Chen of HC Wainwright. Please go ahead.
spk09: Hi, thank you for taking my questions. Congratulations for the licensing of the new candidate. So my first question is, could you give us some more color on the existing population of the ER-positive, HER2-negative breast cancer patient in the U.S. and the new occurrences every year? And my second question is related to the sales of FC2. Could you provide us with some breakdown in terms of private prescription sales versus public sales? Thank you.
spk02: Yeah, so I'm going to have Michelle answer the second question, which is, you know, FC2 breakdown with RX versus public. You want public global or public U.S.? Both.
spk09: Both, thank you.
spk02: Both, okay. All right, so while Michelle's 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 are is 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 gonna have ER-positive disease. So automatically, that's our patient population. And 15% will have triple negative breast cancer, which will be ER negative. So it's 276,480 new cases a year, which 85% of those cases will be ER positive. 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 in 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 they're 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. But we're going to continue to give you some more granularity on the market size, except to tell you that if we price 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 non-steroidal aromatase inhibitor, which is usually what they get first, fluvestrin, which is what they get second, and they usually get one or the other in combination with the 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. Michelle, would you like to answer the question on FC2? Sure.
spk05: 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. The 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 previous for the year. So that's our 42.6 million.
spk09: Got it. Thank you.
spk03: Okay.
spk06: Again, if you would like to ask a question, please press star then 1. To withdraw your question, please press star then 2. The next question comes from Leland Gershel of Oppenheimer. Please go ahead.
spk07: Good morning, Mitch. Thanks for taking my question. I wanted to ask, you know, as the company continues to refine its profile and with the sale of Preboost and also the, you know, as recognized by the impairment charge shifting strategy away from some other assets, I wanted to ask about any thoughts of perhaps monetizing the FC2 business through a similar type transaction, any interest you've had there, and then have a follow-up. Thanks.
spk02: Yeah, yeah, it's a good question. And so, as I said a couple of times during the prepared comments, that the pre-boost model is a great model. I mean, we were able to monetize pre-boost and, you know, see those resources for what's important to us, which is a company strategy, which is to be in clinical development of premium oncology products in big markets, you know, 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 the oncology products dwarf it in terms of the potential. And so putting our bet and our confidence in the two prostate programs and two breast cancer programs make the most sense. With that said, we have also been able to do that. And, you know, the model works. I mean, we've been able to do that with, you know, primarily the money we're generating on our own or like we just monetized pre-boost. So it makes perfect sense that, you know, here we are now at $42.6 million in revenue. And, you know, I told you the gross profit is about 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 have to take a serious look at how to take the base business and create enough cash and cash resources so that we'd be completely independent as we move forward, independent financially as we move forward with going into these markets. I mean, immunogenics just sold their product, Trodelvi. You know, they had accelerated approval with 108 patients. And they got, you know, they finally, you know, just confirmed their phase three. One single product in triple negative breast cancer is $21 billion. I mean, there's many examples. I think there's a new, you know, 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, you know, $14 billion, $20 billion. So, you know, the neighborhood just got expensive. For us to have four drugs that are going for that neighborhood, you know, that kind of real estate in that neighborhood is a big deal. So it makes sense to, you know, 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 it is we're always going to consider maximizing shareholder value and by unlocking the potential of FC2 and the standalone 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 trials 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.
spk07: All right, great. And then another question just on Tadfin with that product on track to come to market in about a year's time. I wanted to ask about just how the company's 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 two generic drugs that are taken together quite frequently. How are the companies going to approach just making that product visible, growing awareness, what that will look like? how we should think about expense associated with it.
spk02: 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 market, okay? And the telemedicine market is growing exponentially now, particularly because of COVID-19. And so, you know, 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 two generic drugs for a copay, to if I can punch a number in my phone and it can show up by Amazon the next day discreetly, then that'd be wonderful. And so you'll see a lot of these for him and other companies, you know, Get Roman and others, they're seeing, they're taking, you know, basically generic erectile dysfunction products and they're selling the hell out of them. Okay. And for some of these groups, they're seeing $200 million, $300 million in revenue. I mean, it's just unbelievable for what you and I would have called a generic product. And so there is a completely untapped group of men, in the case of Tad Finn, that if they had this available through telemarketing and it can be sent to their home discreetly and we price it appropriately, that's the key thing, that it's a whole new universe. And if I would have told you, with FC2, when we did marketing and selling with 12 salespeople, and they ran around there visiting OBGYN doctors, we got 400 prescriptions a month, 12 people. In 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. And by the way, we don't spend almost nothing on marketing and selling as a company. And so that money can go into drug development. So same thing with Tadfin. We don't have an appetite to set up a marketing and selling sales force to sell Tadfin. We think the advantage of Tadfin is going to be discreteness, convenience, and being able to get it through 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 to discussions around TAPFIN 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 and get it done on time and the whole bit And so for Tadfin to add a little extra cash, you know, to the pile of cash that we're accumulating so that we can keep this moving, I think it's attractive. We're basically, you know, we're almost there. And we also heard from, you know, the FDA that they're going to waive the fee, you know, 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, you know, it's upside for us.
spk07: Great. Thanks so much for the further coverage. Thank you.
spk06: The next question comes from Kumar Raja of Brookline Capital Markets. Please go ahead.
spk03: Congratulations on the in-licensing and thanks for taking my questions. For Enobasm Phase 3 trial, are you planning to go forward with the 9 milligram dose or the 80 milligram dose? What can you share with regard to the safety and efficacy profile for both those doses? And also, what needs to be done before you can start the phase three trial? Do you have enough drug supply? And how easy or difficult is it to manufacture this drug?
spk02: Good. Thank you for both the questions. This refers to the new acquisition in Oversarm. The phase two study had 9 milligram and 18 milligram doses. Today, the presentation will happen at 9 a.m. tomorrow. Tomorrow's the presentation on that part of it, so stay tuned. 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. Not even for a cancer drug, just as a drug in general. Even if it was a quality-of-life drug, it's amazingly well-tolerated. And so we're going to announce, you know, the safety there. And, you know, things that you would worry about with an agent of this sort would be, you know, hematocrit increases, liver toxicity. You'd be worried about virilization in women. We just don't see that, okay? And so, you know, we'll give you the – we'll share with you the exact – safety profile in the future right after that presentation. So the presentation, that spotlight presentation to San Antonio will 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 two that was done in 22 patients you know you it's a 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 and that's what we met with the FDA and the FDA agreed to the 9 milligram so drug it definitely has activity and a heavily pretreated patient population But I say heavily pre-treated, not only multiple lines of endocrine therapy, but also chemotherapy. And so these are patients that are not the patients that are going to be in our phase three, in which they would not have had chemotherapy, and they'll be even more likely to respond to Inovasar. As it relates to what are we waiting for, we had to meet with the FDA. And we got that out of the way. And the next thing is, you're absolutely right. We do have to have the to-be-marketed drug product. And so we're doing that now. It's not hard to make. But you have to go through the process where you want to bridge from the new to-be-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 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 three part of it. And so it'll take us about a quarter, quarter and a half to do the GMP stuff.
spk03: Okay, thank you so much. Thank you.
spk06: The next question comes from Peter McMullen of McMullen Consulting. Please go ahead.
spk08: Congratulations, Mitch. Thank you, Peter. We talk about maximizing assets, and if you were to sell off the FC2, for example, how would you propose to maximize the tax losses, which are considerable?
spk02: Great question. Yeah, that's a great question. So I'm going to let Michelle answer that question. And Michelle, would you like to take that one on?
spk05: Sure. You know, Peter, we would be selling the company in the U.K., which holds the $63 million in NOL. And so we would take that into consideration when we look at the that we're looking for if we were to sell the FC2 business.
spk08: Ah, good thought. And what about the U.S. side?
spk05: The U.S. side, you know, if we were to sell the FC2 business, it's just assets in the U.S. All the NOLs will be retained by Vero.
spk08: Okay, thank you.
spk06: 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.
spk02: 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 investor's call. Have a Merry Christmas, Happy New Year, and hopefully 2021 will look a lot different than 2020. Thank you.
spk06: The digital replay of the conference will be available beginning approximately noon Eastern time today, December 9th, by dialing 1-877-344-7529 in the U.S. and 1-412-317-0088 internationally. You will be prompted to enter the replay access code, which will be 1-0149625. Please record your name and company when joining. The conference is now concluded. Thank you for attending today's discussion. You may now disconnect.
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