Veru Inc. Q3 FY2021 Earnings Call

Good morning, everyone, and welcome to the Veru Inc. Investors Conference Call. I would now like to hand the call over to Mr. Sam Fisch, the Director of Investor Relations at Veru Inc. Please proceed.

Good morning. The statements made on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, statements of the company's plans, objectives, expectations or intentions regarding its business, operations, finances and development and product portfolio. Such forward-looking statements are subject to known and unknown risks and uncertainties, and our actual results may differ significantly from those projected, suggested or included in any forward-looking statements. Risks that may cause actual results or developments to differ materially are contained in our 10-Q and 10-K SEC filings. I'd now like to turn the conference call 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; Michael Purvis, EVP, General Counsel and Corporate Strategy; and Sam Fisch, Director of Investor Relations. Thank you for joining our call. Veru is a late clinical stage oncology biopharmaceutical company with a focus on developing novel medicines for the management of two of the most prevalent cancers, prostate cancer and breast cancer. We're also committed to developing an effective drug therapy for COVID-19, which is a Phase 3 program. We invest cash generated from our Sexual Health commercial business into the clinical development of our potentially high-value oncology and COVID-19 drug candidates. This morning, we will discuss the progress of our late clinical stage prostate cancer and breast cancer drug programs as well as the sabizabulin Phase 3 study for the treatment of COVID-19. We will then provide financial highlights for our record third quarter fiscal year 2021. Veru anticipates having four registration clinical trials in prostate cancer, breast cancer, and for COVID-19 and two potentially registration-enabling clinical trials in breast cancer up and running by the end of the calendar year 2021 to a total of six pivotal or potentially pivotal studies. Two of these, the Phase 3 VRACITY study in prostate cancer and the Phase 3 COVID-19 clinical study, have already commenced. We have been very busy executing on this bold plan, and you will see that we're making significant progress. In our prostate cancer clinical program, the company has initiated and is enrolling two clinical trials, a Phase 3 VERACITY study to evaluate sabizabulin for the treatment of metastatic castration and androgen receptor targeting agent resistant prostate cancer and a Phase 2 dose-finding clinical study for VERU-100, a GnRH antagonist three-month long-acting depot delivery formulation for androgen deprivation therapy of advanced hormone-sensitive prostate cancer. Sabizabulin is an oral first-in-class new chemical entity that targets, cross-links, and disrupts alpha and beta tubulin subunits of microtubules to disrupt the cytoskeleton. In prostate cancer, this also results in the disruption of androgen receptor's transport from the cytoplasm into the nucleus. The Phase 1b/2 clinical study enrolled 39 men in the Phase 1 and 41 men in the Phase 2 portion. The Phase 2 portion is completely enrolled and is still ongoing. The safety of sabizabulin appears to be similar to the androgen receptor targeted agents like abiraterone and enzalutamide based on what has been reported in their package inserts. Long-term daily chronic drug administration appears to be feasible and safe. We have patients in the Phase 1b portion that have been on treatment for over two years without evidence of prostate cancer tumor progression. At the recommended Phase 2 dose of 63 milligrams, the most common adverse events were mostly grade 1 and 2 diarrhea, fatigue, and nausea. There have been no clinically relevant reports of neutropenia, neurotoxicity, or hair loss. The Phase 1b/2 study also has yielded promising and significant efficacy outcomes. The efficacy results show PSA declines and responses as well as objective and durable tumor responses, including partial and complete responses. For the intent-to-treat population of all men with measurable disease at baseline, which is 29, the objective tumor response rate is 21%, and all men that received 63 milligrams or greater dose of sabizabulin, which is 55 men, the median radiographic progression-free survival has not been reached as the study is still ongoing, but it's estimated to be greater than 7.4 months. We initiated this past quarter the Phase 3 VERACITY clinical study, which is an open label, 2:1 randomization study evaluating the efficacy and safety of sabizabulin 32 milligrams oral double dosing versus an alternative androgen receptor targeted agent in men with metastatic castration-resistant prostate cancer who have failed at least one androgen receptor targeted agent, but prior to IV chemotherapy. The primary endpoint is median radiographic progression-free survival. The trial assumption expects the median radiographic progression-free survival is 7.4 months for sabizabulin versus 3.7 months for the alternative androgen receptor targeted agent, which if achieved would represent a doubling in improvement of median radiographic progression-free survival with sabizabulin compared to the active control. The study's statistical assumptions to estimate sample size of 245 subjects included using an alpha of 0.05, a power of 98%, and a dropout rate of 30%. We expect enrollment to take 10 months recruitment time and 12 months follow-up after the last patient is first dosed. The study is open and enrolling patients in 45 clinical sites across the United States. The lead principal investigator is Dr. Robert Reiser. He's a Deputy Director at the University of Virginia Cancer Center, Director of Solid Tumor Oncology, and Professor of Hematology and Oncology. In summary, sabizabulin is an oral agent with a novel targeted mechanism of action that based on scientific literature and package insert has a similar safety profile as a novel androgen receptor targeted agent, and sabizabulin has efficacy at least comparable to, if not better, than IV docetaxel chemotherapy in this patient population. Furthermore, chronic oral administration is feasible. Thus, so far, it appears we have met our clinical target product profile goal of having an agent that can be prescribed prior to IV chemotherapy by both urologists and medical oncologists. Thus, sabizabulin could be potentially the next go-to drug to be prescribed in the management of men with metastatic castration and androgen receptor targeting agent resistant prostate cancer. Current global sales for androgen receptor targeted agents like abiraterone, enzalutamide, and apalutamide are approaching $6 billion. Unfortunately, all men will develop resistance to these drugs and have prostate cancer progression. This means the only option they will have is to proceed to IV chemotherapy. Thus, sabizabulin, if approved, will address a large part of the metastatic prostate cancer market. Next, I will update you on VRU-100, a long-acting androgen deprivation therapy for the treatment of hormone-sensitive advanced prostate cancer. Androgen deprivation therapy is currently the mainstay advanced prostate cancer treatment and is used as the foundation of treatment throughout the course of the disease. Furthermore, androgen deprivation therapy is continued even as other endocrine, chemotherapy, or radiation treatments are added or stopped. Standard medical practice for urologists and medical oncologists is to administer androgen deprivation therapy every 3 to 4 months in their office. These injections coincide with the follow-up office visits and imaging assessments for metastatic or advanced prostate cancer. Furthermore, these injections are administered as a buy-and-build product and are reimbursed on the Medicare Plan B. So the urologist is compensated for both the drug and administering the drug. Patients' compliance is 100% once the injection has been administered. Therefore, most physicians strongly prefer injections over oral agents. Gonadotropin releasing hormone antagonist treatments or GnRH treatments versus agonist are preferred because castration occurs rapidly with no surges or flares in testosterone. Testosterone levels also tend to be lower, which is better for tumor control. GnRH antagonists also lower FSH levels, which is thought to be the reason why there are fewer cardiovascular side effects with GnRH antagonists versus GnRH agonists. There are no GnRH antagonist depot injection formulations currently approved for treatment beyond a one-month duration. VERU-100 is a novel proprietary long-acting peptide, 3-month subcutaneous depot formulation injection designed to address the current limitations of commercially available agents with androgen deprivation therapy. In this past quarter, we have initiated and are enrolling a Phase 2 dose-finding clinical study evaluating VERU-100 in 35 men. We expect to have clinical data to report by year-end. The open label Phase 3 registration study whose design has already been agreed upon by the FDA will evaluate the efficacy and safety of VERU-100 in approximately 100 men with hormone-sensitive metastatic prostate cancer and is anticipated to start at the end of the calendar year of 2021. Next, I will discuss the progress of our breast cancer program. Veru is planning to initiate the following breast cancer studies during this half of the calendar year. In Phase 3, our test clinical study, evaluating enobosarm monotherapy in a third-line metastatic setting and in women with AR positive, ER positive, HER2-negative metastatic breast cancer will progress following estrogen blocking agents and CDK4/6 inhibitors. A Phase 2b clinical study evaluating enobosarm in combination of abemaciclib, a CDK4/6 inhibitor in a second-line metastatic setting in women who have progressed following first-line palbociclib, a CDK4/6 inhibitor in combination with an estrogen blocking agent, and a Phase 2b clinical study evaluating sabizabulin monotherapy and sabizabulin plus Trodelvy combination therapy versus Trodelvy monotherapy in women with metastatic triple-negative breast cancer that have failed at least 2 chemotherapies. By way of background, the most common type of breast cancer, which occurs in about 85% of women, is ER positive breast cancer, where estrogen is one of the main drivers of proliferation, tumor progression, and metastasis. Consequently, treatment is to target a block estrogen receptor for the mainstay of breast cancer therapy. According to the 2020 National Comprehensive Cancer Network guidelines, the recommended first-line treatment in the metastatic setting is either an aromatase inhibitor in combination with a CDK4/6 inhibitor or fulvestrant in combination with a CDK4/6 inhibitor. The recommended second-line treatment in a metastatic setting is fulvestrant in combination with a CDK4/6 inhibitor if a CDK4/6 inhibitor was not used in the first-line in metastatic setting. Fortunately, almost all women being treated with these regimens will eventually develop resistance to estrogen-blocking agents and CDK4/6 inhibitor therapies, and there are limited clinical data that allow recommendations for a treatment containing another CDK4/6 inhibitor for these patients. Alternative treatment approaches that target novel pathways will be required, as there are limited treatment options following CDK4/6 inhibitor and estrogen-blocking agent resistance and the management of ER positive HER2 negative metastatic breast cancer. Interestingly, like the estrogen receptor, the androgen receptor is found in over 85% of breast cancers. The androgen receptor is a tumor suppressor in estrogen-receptive positive breast cancer. This means that when the androgen receptor is activated, it strongly suppresses ER-positive breast cancer growth. This explains why historically, when synthetic androgens were used to treat breast cancer, they demonstrated good efficacy, but unfortunately, the masculinizing side effects such as facial hair, acne, increase in hematocrit, and liver toxicity have prohibited their use as a viable treatment. In contrast, enobosarm, an oral, first-in-class new chemical entity is a selective androgen receptor targeted agonist that is being developed for the treatment of AR positive, ER positive, HER2 negative metastatic breast cancer and would represent the first new endocrine therapy for advanced breast cancer in decades. Enobosarm has extensive nonclinical and clinical experience, having been evaluated in over 25 separate clinical studies involving more than 2,100 subjects, including 5 prior Phase 2 clinical studies in advanced breast cancer involving more than 250 patients. In addition to suppressing AR positive, ER positive breast cancer cell proliferation and tumor growth, enobosarm has other potential beneficial clinical properties. In pre-clinical studies, enobosarm has demonstrated that it builds and heals cortical trabecular bone and therefore has the potential to treat the osteoporosis caused by the estrogen deprivation and cancer skeletal-related events. Enobosarm has also been shown to build muscle and improve physical function in clinical studies involving elderly subjects, in patients with cancer cachexia, including breast cancer patients. Furthermore, because of its tissue selectivity, enobosarm has a favorable side effect profile with no masculinization, no increase in hematocrit, and no liver toxicity. Two positive Phase 2 studies involved in approximately 150 women with AR positive, ER positive metastatic breast cancer were conducted. The G200802 Phase 2 study was a 2-arm study that evaluated 9 and 80 milligrams of the enobosarm daily oral dosing in 136 women with AR positive, ER positive HER2 negative advanced breast cancer. Patients in the 802 study were heavily pre-treated and have failed on average, 3 estrogen-blocking agents and 88% had received prior chemotherapy. In this study, clinically meaningful tumor responses were observed with the enobosarm monotherapy, and it strongly establishes the relevance of targeting the androgen receptor with a selective androgen receptor agonist in women that were heavily pre-treated with estrogen-blocking agents and resistant, and had AR positive, ER positive metastatic breast cancer. Enobosarm appears safe and well tolerated without masculinizing effects, increasing hematocrit or liver toxicity. Quality of life measurements demonstrated overall improvement, including mobility, anxiety, depression, and pain. The 9 milligram dose was selected for our Phase 3 study, and the 9 milligram cohort compared to the 80 milligram cohort had a similar tumor response at a slightly better toxicity profile. Furthermore, and most importantly, we also performed a post-hoc subset analysis of this Phase 2 clinical data to evaluate the relationship of the androgen receptor status with enobosarm anti-tumor efficacy. The subset analysis showed that the presence of the androgen receptor and the amount of the androgen receptor expression in the breast cancer tissue predicted those women who are more likely to have a positive response to an enobosarm treatment. More specifically, the subset analysis combined randomized subjects in both the 9 and 80 milligram cohorts who had known androgen receptor status determined by central lab, and we had measurable disease in those 84 subjects. The cut-off at greater than or equal to 40% AR expression appears to be the best level to enrich the subjects that were most likely to respond to enobosarm. The clinical benefit rate of 24 weeks was 52% at greater than or equal to 40% AR staining versus 14% for less than 40% AR staining, and that p-value was less than 0.0004. The best objective tumor response of partial responses plus complete responses was 34% at greater than or equal 40% AR staining versus only 2.7% for less than 40% AR staining, and that p-value was less than 0.0003. And the median radiographic progression-free survival was 5.47 months at greater than or equal to 40% AR staining versus 2.7 months for less than 40% AR staining, and that p-value is less than 0.001. Using this 40% cut-off, 57% of all women with AR positive, ER positive, HER2 negative metastatic breast cancer would qualify for treatment with enobosarm. Thus, the presence and the degree of androgen receptor expression in breast cancer tissue was important for enobosarm's anti-tumor activity, which is consistent with enobosarm being a targeted agent or biomarker that could be selected or enriched for subjects most likely to respond to an enobosarm therapy. As recommended by the FDA based on these clinical data, AR expression status by immunohistochemistry will be validated as a companion diagnostic test and is a critical inclusion criterion in our clinical trial design. We are collaborating with a large global diagnostic company, which we'll announce when our agreement is complete that has the expertise to help us with the development and validation of an AR companion diagnostic test in parallel with our Phase 3R test clinical study. By targeting the androgen receptor in ER positive metastatic breast cancer, enobosarm introduces a novel endocrine therapy to patients with breast cancer that have exhausted estrogen-blocking agents and CDK4/6 inhibitors, but prior to IV chemotherapy. We're developing enobosarm in two major indications in ER positive, HER2 metastatic breast cancer. The first indication is to evaluate enobosarm monotherapy in a third-line metastatic setting. We will conduct this Phase 3R test registration study as an open label, multi-centered, multinational randomized 1:1 active control pivotal study evaluating the efficacy and safety of an enobosarm 9 milligrams daily oral dose versus an active control, which is either going to be exemestane plus or minus everolimus or standard of physician's choice in essentially confirmed greater than or equal 40% AR staining, AR positive, ER positive, HER2 negative metastatic breast cancer subjects who have failed a nonsteroidal AI, fulvestrant, and the CDK4/6 inhibitor. The primary endpoint is median radiographic progression-free survival. The statistical assumptions include an estimated median radiographic progression-free survival of 6 months for enobosarm monotherapy versus less than 3 months for the active control. With an alpha of 0.05, 99% power, and a 20% dropout rate, the sample size will be approximately 210 subjects. We expect enrollment to take 10 months recruitment time and 12 months follow-up after the last patient is first dosed. We expect that the androgen receptor companion diagnostic tests will be developed in parallel with the Phase 3R test study with our diagnostic company partner. The Phase 3R test study will be conducted in 49 clinical sites across the United States and Europe and is anticipated to commence soon. The second indication to evaluate enobosarm plus a CDK4/6 inhibitor combination therapy in the second-line metastatic setting, we will conduct a Phase 2b clinical trial to evaluate the efficacy and safety of enobosarm plus a CDK4/6 inhibitor abemaciclib in combination versus an alternate androgen-blocking agent, either fulvestrant or nonsteroidal aromatase inhibitor in an AR positive, ER positive, HER2-negative metastatic breast cancer patients who have failed their first-line therapy, which is commonly palbociclib, a CDK4/6 inhibitor plus an estrogen-blocking agent. This is an open label, 2:1 randomization clinical study in approximately 186 subjects and is expected to commence in a few months. Both of these indications represent large market opportunities as palbociclib global sales are approaching $6 billion in breast cancer. Unfortunately, almost all of these women will develop resistance to palbociclib and tumor progression. The goal is to position enobosarm as the next go-to attractive option in both the second-line and third-line setting for AR positive, ER positive, HER2 negative metastatic breast cancer. Next, I will update you on the third clinical study in our breast cancer program, a Phase 2b clinical study for chemotherapy-resistant metastatic triple negative breast cancer. Metastatic triple-negative breast cancer is an aggressive form of breast cancer that is present in approximately 15% of all breast cancers. This form of breast cancer does not express the estrogen receptor, progesterone receptor, or HER2 and is resistant to estrogen-blocking agents. Thus, the first-line of treatment usually consists of multiple systemic chemotherapies, including IV taxane chemotherapy. Unfortunately, almost all of these women will eventually develop resistance and exhibit tumor progression. In pre-clinical studies of human triple-negative breast cancer that have become resistant to paclitaxel, which is a taxane, sabizabulin significantly inhibits cancer proliferation, migration, metastasis, and invasion. We plan to initiate an open-label 3-arm Phase 2b clinical trial to evaluate the efficacy and safety of oral sabizabulin monotherapy and sabizabulin plus Trodelvy combination therapy versus Trodelvy monotherapy in the treatment of approximately 216 subjects in a 1:1:1 randomization in metastatic triple-negative breast cancer patients who have failed at least two systemic chemotherapies. The primary endpoint will be objective tumor response rates to ORR in human prostate cancer trials, where chronic oral daily administration of sabizabulin is well tolerated and there were no reports of neutropenia. By the way, it will be interesting to see whether sabizabulin in combination with Trodelvy could result in less neutropenia with better efficacy, similar to what has been observed in the recently reported successful metastatic non-small cell lung cancer clinical trial with Plinabulin, an IV culturing-targeted antitubulin with a similar mechanism as sabizabulin, in combination with docetaxel, prevented the docetaxel induced neutropenia, improved radiographic progression-free survival, and overall survival, even compared to docetaxel. The Phase 2b clinical study is planned to commence soon. The clinical developments of sabizabulin in metastatic breast cancer represent a second major clinical oncology indication for sabizabulin. Next, we will discuss our third clinical program, sabizabulin 9 milligrams for the treatment of hospitalized patients with COVID-19, who had high-risk acute respiratory distress syndrome. Sabizabulin in this setting is a novel once-daily orally dosed small molecule with both broad antiviral and anti-inflammatory activities, which may serve as a two-pronged approach to the treatment of COVID-19 virus infection and the subsequent debilitating inflammatory effects that lead to acute respiratory distress syndrome and death. We conducted a double-blind, randomized, placebo-controlled Phase 2 clinical trial, evaluating once-daily oral dosing of acute respiratory distressed syndrome 80 milligrams versus placebo in 39 hospitalized COVID-19 patients who have a high risk for acute respiratory distress syndrome. In the attempt to treat population, sabizabulin reduced the proportion of patients who died on study from 30% or six in 20 in a placebo group to 5.3%, one in 19 in the sabizabulin treated group, and that p-value was 0.044. This is an 82% relative reduction in mortality in the sabizabulin treated group. Sabizabulin also showed significant and clinically meaningful reduction in days in the ICU of sabizabulin on average is 3 days versus placebo of 9.55 days. Sabizabulin reduced the days on mechanical ventilation from an average of 5.4 days in the placebo group to 1.6 days in the sabizabulin treated group. Sabizabulin was well tolerated with a good safety profile. We're currently enrolling a COVID-19 Phase 3 clinical trial, which is a double-blind, multi-centered, multinational, randomized 2:1 placebo-controlled trial evaluating daily oral doses of 9 milligrams sabizabulin for up to 21 days versus placebo in 300 hospitalized COVID-19 patients, of which 200 subjects will be treated with sabizabulin and 100 subjects will receive placebo, who had high risk for acute respiratory distress syndrome. Subjects in both the sabizabulin and the placebo arms will be allowed to receive standard of care. The primary efficacy endpoint will be the proportion of patients who would die on study up to day 60. Secondary endpoints include the proportion of patients without respiratory failure, days in ICU, WHO ordinal scale for clinical improvement, change from baseline, days on mechanical ventilation, days in the hospital, and viral load. The study is being conducted in the United States, Brazil, Argentina, Mexico, and Colombia. Enrollment is on track to be completed by the calendar year-end. The company has sufficient clinical drug supply on hand to complete this Phase 3 clinical study. We are still seeking funding from the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services, BARDA, and other agencies to try to fund the estimated amount of commercial drug to supply the needs of the United States, assuming confirmatory positive clinical results and FDA approval. We believe we have the resources to conduct our planned sabizabulin COVID-19 Phase 3 without impacting our other cancer drugs clinical development. As you're aware, we're not out of the woods with the COVID-19 pandemic. COVID-19 cases, hospitalizations, and tests are once again increasing in nearly all states and are fueled by the Delta variant, which is much more contagious than the past versions of the virus. Other variants are still emerging. The highest spread of cases with severe outcomes is happening in places with low vaccination rates. COVID-19 infection rates and hospitalizations are at a serious level, and the CDC is reversing their recommendation back to those used during the peak of the pandemic. There's no doubt, we have had a major setback in the fight against COVID-19. It is clear that an effective and safe oral therapeutic that can prevent deaths in hospitalized patients with moderate to severe COVID-19 disease with risk for acute respiratory distress syndrome is desperately needed alongside an effective vaccination campaign. We strongly believe that sabizabulin, with its anti-inflammatory and antiviral properties and its favorable safety profile, can be that greatly needed oral therapy. Based on the strength of these Phase 2 clinical study and promising clinical results, the company continues to be duty bound during this persistent global pandemic to pursue this COVID-19 indication, even though it's not the primary focus of the company. Finally, I will comment on TADFIN. TADFIN is our combination tadalafil 5 milligrams finasteride 5 milligrams capsule developed to treat lower urinary tract symptoms caused by Benign Prostatic Hyperplasia. The combination product contains tadalafil, which is approved for the treatment of BPH and erectile dysfunction, and finasteride for BPH. A PDUFA decision date for TADFIN is in December of 2021. We plan to launch TADFIN, if approved, via digital marketing and telemedicine channels. And when launched, it should be a near-term source of additional revenue for Veru to invest in our promising oncology pipeline. Although Ms. Greco will provide the full financial highlights on Veru's commercial segment, which is FC2 and drug commercialization costs, I am happy to report that we've achieved another record quarter and year-to-date. In fact, our nine-month year-to-date revenue increased 48% to $46 million, which has already beat the revenue of $43 million we had for the entire fiscal year of 2020. Our growing base commercial business, which is now in its fourth year of growth and the prospect of additional growing revenue from FC2 plus the future revenue from TADFIN places Veru on solid financial footing to have the resources to continue to invest in our promising drug pipeline for large market opportunities. I will now turn the call over to Michele Greco, CFO and CAO, to discuss the financial highlights.

Thank you, Dr. Steiner. As Dr. Steiner indicated, we're having another great year. In December, the company sold PREBOOST for $20 million. In February, the company completed an equity raise, which resulted in $107.9 million in net proceeds after deducting underwriting commissions and costs. And in the third quarter, the company achieved record level net revenues and gross profits related to the sales of FC2. For the first three months of fiscal year 2021, our net revenues were $45.6 million, surpassing $42.6 million in net revenues for the entire fiscal year of 2020. We have already achieved a record year for net revenues versus any prior full fiscal year after only three quarters. Let's start our highlights with third-quarter results for the three months ended June 30, 2021. Overall, net revenues were up 71% to $17.7 million from $10.3 million in the prior year third quarter due to the growth of our FC2 U.S. prescription business. The company reported significant FC2 sales growth and its prescription business with net revenues up 150% to $13.5 million from $5.4 million in the prior year third quarter. Gross profit rose 113% to $13.9 million or 79% of net revenues compared to $6.5 million or 63% of net revenues in the prior year third quarter. The increase in gross profit and gross margin is driven primarily by increased sales in our U.S. FC2 prescription business. Operating expenses for the quarter increased to $16.7 million compared to the prior year quarter of $7.9 million. Research and development costs were $11.2 million compared to $4.4 million in the prior year quarter due to the commencement of several new phases in our clinical trials. The operating loss for the quarter was $2.9 million compared to $1.4 million in the prior year quarter. In the prior year, the company received a 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 during the quarter. As a result, we recorded a reduction to selling, general and administrative expenses of approximately $420,000 and a reduction to payroll-related research and development costs of approximately $120,000. Non-operating expenses were $2.7 million compared to $1.4 million in the prior year third quarter and primarily consisted of interest expense and change in 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 $2.9 million compared to a tax expense of $241,000 in the prior year third quarter. The tax benefit recorded for the quarter is primarily due to the increased value of the U.K. net operating losses due to an increase in the U.K. tax rate from 19% to 25%. The bottom line results for the third quarter of fiscal year 2021 was a net loss of $2.7 million or $0.03 per diluted common share compared to a net loss of $3 million or $0.05 per diluted common share in the prior year third quarter. Turning to the results for the nine months ended June 30, 2021. For the first nine months of fiscal year 2021, total net revenues were up 48% to $45.6 million from $30.8 million in the prior year period, again, a record high for any fiscal year. The company reported growth in FC2 sales and the U.S. prescription business and the global public sector business. Net revenue from the U.S. prescription business was up 79% to $32.9 million from $18.4 million in the prior year period. Net revenue for the global public health sector business was up 6% to $11.8 million from the nine-month period. Overall, gross profit was $35.6 million or 78% of net revenues compared to $21.2 million or 69% of net revenues in the prior year period. The increase in gross profit and gross margin is due primarily to the increase in the U.S. prescription business and a decrease in labor, transportation, and equipment maintenance costs. Operating expenses increased by $14.5 to $39.2 million compared to the prior year period of $24.7 million. The increase is primarily driven by research and development costs, which increased by $10.8 to $24.4 million from $13.7 million in the prior year period. Operating income for the period was $14.8 million compared to an operating loss of $3.5 million in the prior year period, an increase of $8.3 million. The increase is primarily due to gain on sales of PREBOOST of $18.4 million. Excluding this gain, we had an operating loss of $3.6 million for the period. Non-operating expenses were $5.9 million compared to $3.6 million in the prior year period and primarily consisted of interest expense and change in the fair value of the derivative liabilities related to the synthetic royalty financing. For the nine-month period, we recorded a tax benefit of $2.8 million compared to a tax expense of $30,000 in the prior year period. The company has net operating loss carryforwards for U.S. federal tax purposes of $42 million with $13.8 million expiring in years through 2040 and $28.2 million, which can be carried forward indefinitely. Our U.K. subsidiary has net operating loss carryforwards of $61.3 million, which do not expire. The bottom line results for the first nine months of fiscal year 2021 was net income of $11.7 million or $0.14 per diluted common share compared to a net loss of $7.1 million or $0.11 per diluted common share in the prior period. Excluding the gain on sale of PREBOOST, the adjusted net loss was $6.7 million or $0.09 per diluted common share in the current period. Now turning to our balance sheet. As of June 30, 2021, our cash balance was $123.2 million. Our accounts receivable were $8.3 million. Due to our sale of PREBOOST in December, we added $15 million in cash during December and $5 million in notes receivable, which will be collected over the next 10 months. In February, we completed an underwritten public offering of 7,419,354 shares of our common stock at a public offering price of $15.50 per share. Net proceeds were $107.9 million. Our net working capital was $137.2 million at June 30, 2021, compared to $12.3 million at September 30, 2020. During the nine months ended June 30, 2021, we used cash of $14.8 million for operating activities compared with $1.6 million used for operating activities in the prior period. Overall, we're delighted to see the continued increases in sales in the FC2 business. This revenue source, together with our strong balance sheet, continues to be the sources of funds we use to invest in our promising pharmaceutical clinical development programs as we continue to transform our company into a premium oncology biopharmaceutical company seeking large market opportunities. Now I'd like to turn the call back to Dr. Steiner.

Thank you, Michelle. Our company's fundamentals are strong. We have enjoyed another strong record financial quarter with also another record for U.S. FC2 prescription revenues, which has allowed us to significantly advance our clinical programs. Based on year-to-date performance, we'll have a record year in revenue, with the robust performance of the commercial business, plus the prospects for additional future revenues in TADFIN, coupled with our strong cash position, we believe that we'll be able to substantially invest in the continued clinical development of our prostate and breast cancer product candidates as well as the sabizabulin COVID-19 Phase 3 clinical study. We plan to continue to generate robust growing revenues for our sexual health business. We have successfully transformed our company into a late clinical stage oncology biopharmaceutical company supported by growing revenue from our cash-generating sexual health business. We are already currently enrolling or plan to enroll a total of six pivotal or potentially pivotal studies this calendar year for major indications and large market opportunities. To summarize, in the prostate cancer clinical program, the company has initiated and is enrolling two clinical trials. Prostate cancer remains a very serious cancer as it is the second leading cause of cancer deaths in men. The drug product candidates that we're developing over two important indications. First, VERU-100, GnRH antagonist depot delivery formulations for androgen deprivation therapy of advanced hormone-sensitive prostate cancer has attributes to address the commercial limitations of other androgen deprivation treatments. The Phase 2 dose-finding clinical study is enrolling, and we expect to report results in the second half of the calendar year, and the Phase 3 clinical study has already been agreed upon by the FDA and is expected to be initiated shortly thereafter. The second major indication of market opportunity takes advantage of the adoption and the widespread use of androgen receptor targeted agents, which have moved very early in the care of advanced prostate cancer, in which all men will develop resistance to these drugs and their prostate cancer will progress. The market for androgen receptor targeted agents is approaching $6 billion annually. We're developing sabizabulin, an oral agent which has the efficacy that appears to be similar, if not greater, to what has been reported in the literature for chemotherapy but have side effect profiles that are similar to what has been reported in the package inserts of androgen receptor targeted agents. This will allow sabizabulin, if approved, to be prescribed by both urologists and medical oncologists for men after progressing on androgen receptor-targeted agents or before IV chemotherapy. The Phase 3 VERACITY clinical study to evaluate sabizabulin for the treatment of metastatic castration and androgen receptor targeted agent resistant prostate cancer is enrolling. In the breast cancer program, the company expects to initiate three clinical trials soon. Breast cancer also remains a very serious cancer as it is also the second leading cause of cancer deaths in women. ER positive breast cancer occurs in 85% of all breast cancers. The standard of care now uses CDK4/6 inhibitors in combination with an estrogen-blocking agent in the first and second line metastatic settings. Almost all women will become resistant to CDK4/6 inhibitors, and the standard of care in this setting is now being defined. The drugs we are developing offer two important indications in AR positive, ER positive breast cancer. Using a companion diagnostic to select women who have greater than or equal to 40% AR staining in breast tissue, which would represent approximately 50% of all women who are ER positive with metastatic breast cancer. The first indication for enobosarm monotherapy is in the third-line setting. The second indication is a Phase 2b clinical study that will evaluate enobosarm in combination with abemaciclib, the CDK4/6 inhibitor in the second-line setting. Enobosarm by targeting and activating the androgen receptor represents the first new hormone therapy in breast cancer in decades. For the other 15% of women have triple-negative breast cancer, we plan to initiate the Phase 2 clinical study evaluating sabizabulin monotherapy and sabizabulin plus Trodelvy combination therapy versus Trodelvy monotherapy in women with metastatic triple-negative breast cancer who have failed at least two chemotherapies. The goal is to see if sabizabulin alone or in combination with Trodelvy, will have better efficacy and safety profile, specifically for possible protection against neutropenia than Trodelvy alone. Finally, we're enrolling a Phase 3 clinical trial to evaluate sabizabulin in hospitalized COVID-19 patients with high-risk for ARDS. We're still in the middle of a global pandemic. The fact is that COVID will be a long war. We have witnessed evidence of this over and over. The bottom line is that although we have effective vaccines for now, we still need effective drugs to win the war. We have to continue to be steadfast in the execution of our Phase 3 clinical study. If we confirm the promising results observed in the completed Phase 2 clinical study, we expect to seek emergency use authorization for this indication. We are committed. COVID is not going away. In summary, we have a portfolio of premium late clinical stage drug candidate products for large global market indications, and we expect a stream of steady positive news flow achieving clinical trial milestones and reports of clinical trial data. We are open to the possibility of a pharmaceutical partnership if it enhances shareholder value. And we have a rapidly growing commercial-based business, which affords us strategic options. With that, I'll now open the call to questions.

Our first question comes from Brandon Folkes from Cantor Fitzgerald.

Congratulations on all the progress. Firstly, having transformed Veru into an oncology company, you have quite a bit going on. Do you feel any urgency to sell the FC2 business to streamline the company and reinvest those funds? Additionally, has there been any change in your thinking about funding the COVID program you sold, considering what you might see in the data?

The first question addresses our transformation into an oncology company, which is clearly evident from our Phase 3 and Phase 2b trials focused on two significant cancers in large markets. We're feeling very confident about this progress. Regarding the FC2 business, we are exploring strategic options, but it's interesting to note that there isn't a pressing need to make any changes. The urgency mentioned is not applicable since the FC2 business has generated $45 million over the past nine months, and if we maintain that growth, it covers our clinical trial funding. Our cash position is solid; we've raised $107 million and have about $120 million, possibly up to $140 million when including accounts receivable, indicating that we are not depleting our cash reserves. This gives us an advantageous position to decide our next steps with that asset. Notably, exploring strategic options doesn’t necessarily mean selling the business; there are various ways to enhance shareholder value and benefit our investors. We're attentive to this without losing focus on our oncology initiatives. As for the second question regarding COVID-19 and our readiness to fund it following positive results, we have the necessary resources and supplies for our clinical trials. We are positioned to conduct the study seamlessly without relying on external funding. If we obtain successful data, we will again find ourselves in a strong position. We've commenced scaling up the production of sabizabulin for multiple trials, including COVID-19, though the production level required for mass distribution is greater. We currently have a 9-milligram dose that requires ample supply for a 21-day treatment regimen, with the possibility of administering it at 7-day intervals, allowing for flexibility in distribution. The ideal scenario would mirror what Merck experienced, where government support facilitated resource scaling to ensure widespread access to the drug, including internationally. We're advancing toward that goal since we've already secured the resources for the Phase 3 trial. However, I believe that funding dynamics will transform significantly as we receive positive data, particularly because of the current fatigue surrounding COVID-19. The perception is that despite earlier hopes for an end, the situation hasn’t improved as expected. Discussions at conferences seem to be reverting as well. Ultimately, success in this battle against COVID-19 hinges on effective vaccines and treatments, and I anticipate that funding opportunities will shift positively with promising data.

Next question comes from Yi Chen from H.C. Wainwright.

The first question is, has the Delta variant in any way affected the enrollment speed?

Yes, the answer is yes, and here's why. When we began the clinical trial for the COVID-19 Phase 3, we noted that the U.S. contribution to trial enrollment was hindered because hospitalization and death rates had significantly declined. I regularly check in with personnel in various ICUs to understand the current situation, and it seems like the urgency has diminished. However, just a week ago, I received a call from one of them indicating that they're still working on this drug due to the ongoing challenges we face. The news clearly shows that the situation has shifted. The Delta variant is indeed aiding our efforts in the U.S., and it's already been prevalent in Brazil and other parts of South America, which have been severely impacted. In those countries, conditions still resemble what we experienced four to six months ago. Additionally, we're hearing from sites globally that they're preparing for the Delta variant's impact, mirroring the situation in the U.S. This is becoming increasingly urgent. As I mentioned earlier, our drug, sabizabulin, operates by disrupting microtubules, which are essential for transporting the virus into the cell's nucleus for replication. Once new viruses are created, they need to exit the cell, and our drug inhibits that process by affecting these vital microtubules. It doesn't matter whether the virus takes different forms; the pathway for its movement is blocked. Therefore, we are confident that we won't encounter the same issues that specific antibodies or vaccines might face with variants. I believe this is a key strength of our compound, making it resilient against different variants like Delta or Lambda. This positions us well, especially if we can replicate the Phase 2 results, to offer a broad-spectrum treatment.

Got it. Does this slow down the enrollment for the Phase 3 prostate cancer trials?

No, we have not seen that. Interestingly, I previously mentioned that with cancer patients, cancer is metastatic and it spreads, which can cause fear. In the first half, during the Phase 1b and Phase 2 trials, we observed that a few patients were hesitant to come to the hospital for their scans. They were already enrolled in the trial, but there were some delays in getting CT or MRI scans, although these were rare instances. Most participants stayed on track. I can now confirm that the sabizabulin Phase 3 trial is open and enrolling, and we are right on target, or even slightly ahead of schedule, regarding enrollment. So far, we have not faced that issue. Referring back to your earlier question about COVID-19, we are experiencing a significant increase in inbound inquiries for sites in the U.S. Previously, we received very little communication, but that has changed dramatically. We are optimistic that this will help us reach our enrollment goals.

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

So with regard to the completion of enrollment by the end of the year for the COVID-19 trial, does that take into consideration the recent uptick in cases? And also in terms of dosing either orally or by the nasogastric route, do you see any difference in efficacy based on how the drug is being administered?

I'm addressing the second question first. You're asking whether sabizabulin in COVID-19 being a capsule presents any challenges in the ICU setting. We haven't encountered any issues because patients require medication. Since it's a capsule filled with powder, we have successfully administered it both orally and via an NG tube. Regarding your question about the increase in cases and meeting our goals, we had set a target to complete this by year-end, and we were getting anxious about having a significant U.S. component. However, we’re no longer worried because there has been a notable increase in U.S. cases—averaging 108,000 new daily cases with an increase in hospitalizations, which typically precedes a rise in deaths. Now, as we enter this fourth wave, we can reliably predict trends, and aside from vaccinations, the pattern among unvaccinated patients has been consistent. Therefore, due to the rise in cases, we are more confident that we will meet our goal.

And with regard to sabizabulin as well as enobosarm, with regard to Europe, what's happening in that front? And also, you talked talk a little bit about pharmaceutical partnerships. So how should we think about it? Would it be like just like partnership for Europe? Or maybe a little bit of color on that?

Yes, we're in a fortunate position to enter Phase 3 with both our breast cancer and prostate cancer programs. With Phase 3 underway, the focus shifts to how we view partnerships. If we split the relationships, it could diminish the opportunity for a global partner. Our approach is to focus on sabizabulin for prostate cancer, which we are conducting only in the U.S., while the enobosarm Phase 3 study is taking place in both the U.S. and Europe. We're also starting discussions with the EMA, especially considering the complexities posed by Brexit. Currently, our priority is to execute the trials, which are open label and subject to oversight by our DSMB. It's crucial for us to fill these trials and maintain progress. We are engaged in ongoing discussions with various pharmaceutical companies, large and medium-sized, across all our programs. We believe that by combining strong Phase 2 data with promising Phase 3 data, we can create significant value for our shareholders. Fortunately, our shareholders' support and our base business provide us with the necessary resources to bide our time and secure the best deal possible. Nonetheless, we anticipate that some of our programs may benefit more from a pharmaceutical partnership, particularly on the commercial side. Therefore, we are keeping our discussions open with both large global companies and medium-sized firms, aiming to maintain dialogue until we receive a compelling offer.

Next question comes from Chris Howerton from Jefferies.

I guess just two for me. First, on the FC2, obviously, great to see the continued growth on that program. I guess, I'm curious if you could provide a little color as to what is driving that growth currently? And what is the expectations going into the second half of the year, perhaps like there is some seasonality to the trends that you might expect for contraception, that would be helpful for us to know about. So that's one question. And then the second question, I guess, maybe I missed it, but I'm just wondering when we might expect the Phase 2 portion for the ongoing study in prostate cancer?

Great. The first question was about the factors driving FC2 growth. There's no seasonality, and it's completely resistant to COVID-19. The growth comes from our telemedicine partners who are effectively marketing our services to women seeking birth control. This approach is very efficient for us because a small team is generating significant revenue, allowing us to reinvest in the company. We're also seeing a strong reorder rate from telemedicine, indicating customer satisfaction, and we're in talks with new telemedicine groups to increase our prescription volume. Additionally, we're exploring more digital marketing channels. The public sector revenue has remained steady, but we expect the majority of our growth to come from the U.S. prescription market. We're entering our fifth year of growth and maintaining our momentum is crucial for funding our clinical trials while ensuring we have cash reserves. We're well positioned for negotiations with pharmaceutical partners. This growth is driven by our active business development efforts. The second question was about the ongoing Phase 2 study. The Phase 1b is completed, but some patients remain in the study. We anticipate having more detailed data by the end of the year as we better understand median progression-free survival. The Phase 3 study is underway, with promising data encouraging urologists and oncologists. We see potential for expansion into triple-negative breast cancer based on our prostate cancer findings, and we look forward to sharing updates from the Phase 2 sabizabulin study towards the year's end.

That's great. And I guess, I think we've discussed this in the past, but maybe if I can ask, is there any information that you anticipate learning from either the ongoing Phase 1b, obviously, the longer-term follow-up or within the Phase 2 patients that would in any way change your current Phase 3 plans? Or do you feel pretty solid about those Phase 3 designs at this point?

I think we feel very solid about the Phase 3 design. The reason we're continuing is because if I would have told you that on average, these patients are failing in three months, 3.5 months with an alternative androgen receptor targeted agent, and we've got some patients in the Phase 1b, 12 months and now heading into two years, that's pretty good. But that doesn't change our Phase 3 design. And then the Phase 2 is also providing us information that we use to help the trial design assumptions and understanding the PFS and that kind of stuff. So I would say that we've learned what we needed to learn in the Phase 1b and the Phase 2, that's the reason we went to Phase 3 because we felt at that point there was nothing new we're going to learn, and we just can't take the drug away and stop the study. So we have to keep providing drug for the patients that are responding. No, I think we're on firm and solid assumptions for the Phase 3.

The next question comes from Alexandra Heller from Oppenheimer.

Congrats on the quarter. Can you walk us through how you see the VERU-100 fitting into the existing treatment landscape for hormone-sensitive prostate resistant cancer and then also your strategic plans for the asset?

For VERU-100, we have had the advantage of observing the evolution of this field over the past few decades. We’ve discovered that medical castration is preferred over surgical options. With the emergence of new drugs enabling patients to live longer, such as androgen receptor targeted agents, chemotherapy, and PARP inhibitors, we see that patients are surviving longer, all while relying on androgen deprivation therapy. The duration of treatment has extended significantly, with patients now potentially experiencing treatment timelines that are double or triple what they used to be, remaining on ADT consistently. We have learned that existing agonist treatments like LUPRON and ELIGARD maintain elevated testosterone levels for about two weeks post-injection, which is less than ideal. On the other hand, antagonists eliminate testosterone levels immediately, leading to quicker castration, while also reducing FSH, which is significant for cardiovascular health. Data suggests that patients on LUPRON-like drugs have a relatively high risk of subsequent cardiovascular events. This highlights that the advancement towards GnRH antagonists is vital. The challenge remains in how we integrate these new treatments into standard medical practice. Currently, patients typically return every three to four months for imaging and to see their doctors, and any new GnRH antagonist must align with these practices to gain acceptance in the community. Our aim is to offer a three or four-month GnRH antagonist option, which could seamlessly fit into current routines, thus improving patient compliance. It's known that patients often experience discomfort during castration, leading to a desire for breaks in treatment. Addressing compliance is critical as fluctuations in testosterone can worsen the condition, necessitating reliance on more costly therapies down the line. Therefore, we believe that at the onset of advanced hormone-sensitive prostate cancer, our drug, VERU-100, should be the first-line treatment due to its compatibility with standard practices. Urologists and physicians are incentivized to provide our drug, ensuring adherence to established care protocols. Moreover, recent data indicates that mono-therapy with ADT is uncommon nowadays, often being paired with other treatments to lessen the pill burden on patients. The global market for ADT is estimated at $2.6 billion, primarily based on leuprolide prices, while the true value, including GnRH antagonists, may be much larger. Even capturing a small portion of this market would significantly benefit us. Our strategy includes possibly forming regional partnerships in Europe and Asia while maintaining U.S. operations, as that’s central to engaging with urologists and oncologists concerning prostate cancer treatments. Furthermore, we have sabizabulin for patients who fail ADT along with androgen receptor inhibitors, creating a comprehensive approach to our treatment offerings.

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference call back over to Dr. Mitchell Steiner for any closing remarks.

I appreciate you all joining us on today's call, and I look forward to updating all of you on our progress in our next investors call. Thank you for joining us today.

The digital replay of the conference call will be available beginning approximately noon Eastern time today, August 12, 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 10157539. Please record your name and company when joining. The conference call has now concluded. Thank you for attending today's discussion.