Veru Inc. Q2 FY2023 Earnings Call

Good morning, ladies and gentlemen, and welcome to Veru Inc. Investor Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Sam Fisch, Veru Inc.'s Executive Director, Investor Relations and Corporate Communications.

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, regulatory interactions, 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 as well as in our press releases from time to time. I would now like to turn the conference call over to Dr. Mitchell Steiner, Veru Inc.'s Chairman, CEO, and President.

Good morning. With me on this morning's call are Dr. Gary Barnette, Chief Scientific Officer; Michele Greco, the CFO and CAO; Michael Purvis, EVP, General Counsel and Corporate Strategy; and Sam Fisch, Executive Director of Investor Relations and Corporate Communications. Thank you all for joining our call. Veru Inc. is a late-stage clinical biopharmaceutical company focused on developing novel medicines for the treatment of breast cancer and for SARS-CoV-2 and other viral acute respiratory distress syndrome (ARDS)-related diseases. Our drug development program includes enobosarm, a Selective Androgen Receptor Agonist for the management of advanced breast cancer, and sabizabulin, a Microtubule Disruptor for the treatment of hospitalized COVID-19 and other viral-related ARDS. The company also has an FDA-approved commercial product, the FC2 Female Condom, which provides dual protection against unplanned pregnancy and sexually transmitted infections. The revenue from the sexual health program is being used to partially fund the clinical development of our late-stage therapeutic candidates, which aim to address multi-billion dollar market opportunities. This morning, we will provide an update on our prioritization strategy, the progress of the breast cancer and viral ARDS drug pipeline, as well as the commercialization of our FC2 product. We will also provide financial highlights for our second quarter of fiscal year 2023. This past quarter, we implemented a prioritization strategy to focus our drug development efforts on those drug candidates that we believe have the best opportunity to lead to long-term success and shareholder value creation while conserving cash, including a reduction in personnel and certain other measures to further reduce costs. The refocused research and development strategy includes the following: plans for our ongoing Phase IIb/III study of enobosarm and abemaciclib combination in the second-line metastatic setting for AR+ ER+ HER2- metastatic breast cancer, with the company's clinical trial collaboration partner, Eli Lilly Company supplying abemaciclib; a planned Phase III study of enobosarm in bone-only nonmeasurable ER+ HER2- metastatic breast cancer; plans for continued development of sabizabulin in a Phase III confirmatory COVID-19 study in hospitalized moderate to severe COVID-19 patients at high risk for ARDS; and a planned Phase III clinical study of sabizabulin in hospitalized influenza patients at high risk for ARDS. In addition, the company announced that Veru is reserving sabizabulin for clinical development only in infectious disease indications, and accordingly, has terminated the Phase III VERACITY trial with sabizabulin in prostate cancer. Our oncology drug pipeline has two clinical development programs for enobosarm, an oral selective androgen receptor agonist for the treatment of advanced metastatic breast cancer. Enobosarm is a first-in-class new chemical entity that activates the androgen receptor in AR+ ER+ HER2- metastatic breast cancer, resulting in tumor suppressor activity without unwanted masculinizing side effects. Enobosarm has extensive non-clinical and clinical experience, having been evaluated in 25 separate clinical studies involving approximately 1,450 subjects dosed, including three Phase II clinical studies in advanced breast cancer involving over 250 patients. In the two completed Phase II studies conducted in women with AR+ ER+ HER2- metastatic breast cancer, enobosarm demonstrated significant antitumor efficacy in heavily pretreated cohorts that failed estrogen blocking agents, chemotherapy, or CDK4/6 inhibitors, and was well tolerated with a favorable safety profile. The first clinical development study is a Phase IIb/III clinical study called ENABLAR-2, which combines enobosarm with abemaciclib for second-line AR+ ER+ HER2- metastatic breast cancer. On March 30, 2023, the company met with the FDA to gain further regulatory clarity for the ongoing Phase IIb/III clinical trial design and program. The Phase IIb/III study has been amended to accommodate the FDA's latest recommendations to support a potential registration. In the first stage of the trial, the dosage of the enobosarm and abemaciclib combination is being optimized, and the efficacy and safety of the combination therapy is being assessed in three arms of 40 patients each: the abemaciclib plus enobosarm 9 milligram combination therapy, abemaciclib plus enobosarm 1 milligram combination therapy, and an estrogen blocking agent as the control arm. The primary endpoint for Stage I of the study is the objective response rate (ORR), which measures objective tumor responses as partial or complete. ORR is recognized by the FDA as an appropriate surrogate endpoint for clinical benefit for possible accelerated approval, which is consistent with the new FDA guidance issued on March 24, 2023, entitled clinical trial considerations to support accelerated approval of oncology therapeutics. In Stage II of the Phase IIb/III study, we plan to enroll approximately 210 subjects in a multi-center, open-label, randomized, one-to-one active control clinical study to evaluate the efficacy and safety of enobosarm plus abemaciclib combination therapy versus an alternative estrogen blocking agent, which is either a selective androgen receptor degrader or an aromatase inhibitor in subjects with AR+ ER+ HER2- metastatic breast cancer who have failed a CDK4/6 inhibitor plus an estrogen blocking agent. The primary endpoint is progression-free survival, which is used to confirm the ORR findings in Stage I. We anticipate having clinical data for the Phase IIb/III ENABLAR-2 study in 2024. Turning our attention now to the viral ARDS infectious disease program. ARDS is associated with systemic inflammatory conditions, and viruses can cause up to one-third of community-acquired pneumonia while triggering the immune system to release an overwhelming amount of inflammatory proteins, known as the cytokine storm. The cytokine storm causes lung tissue damage, leading to ARDS, which remains a significant unmet medical need with limited treatment options. Common viral infections that can cause ARDS include COVID-19, influenza, and Respiratory Syncytial Virus (RSV), which pose a serious public health risk. Sabizabulin, which is a host-targeted antiviral and broad-spectrum anti-inflammatory agent, has the potential to address both the viral infection and the inflammation caused by the cytokine storm. The company is developing sabizabulin for the treatment of hospitalized moderate to severe COVID-19 patients at high risk for ARDS and death. As reported, up to 33% of hospitalized COVID-19 patients have ARDS, and 75% to 92% of patients admitted to the ICU with COVID-19 have ARDS. The mortality rate of COVID-19 associated ARDS is extremely high. We have completed positive Phase II and Phase III clinical trials evaluating sabizabulin, with the Phase III study being a double-blind randomized placebo-controlled study in 204 patients at high risk for ARDS. The primary endpoint was the proportion of patients who died by day 60. Based on the interim analysis of the first 150 patients randomized, the independent data monitoring committee recommended stopping the study for clear evidence of clinical efficacy, identifying no safety concerns.

Thank you, Dr. Steiner. As Dr. Steiner indicated, we continue to have a lot of ongoing activity at Veru. Let's start with the second-quarter results for the three months ended March 31, 2023. Overall, net revenues were $6.6 million compared to $13 million in the prior year’s second quarter. We reported quarterly sales for our U.S. prescription business of $4.1 million compared to $11.6 million in the prior year’s second quarter. The decrease in the prescription business is due to lower volume from our customers resulting from ongoing business challenges, including changes in strategy, the impact of rebranding, a reduction in marketing spend, and the recent bankruptcy filing of The Pill Club, an important FC2 customer, all resulting in a slowdown of orders. Net revenue from the global public sector business for the quarter was $2.4 million compared to $1.4 million in the prior year's quarter. The increase in the public sector business is due to shipments to South Africa under the recent tender and increased orders in the U.S. public sector from two contracts executed last year. Overall, gross profit was $4.1 million or 62% of net revenues compared to $11.2 million or 86% of net revenues in the prior year quarter. The decrease in gross profit and gross margin is driven primarily by decreased sales in our U.S. FC2 prescription business. Operating expenses for the quarter increased to $43.5 million compared to the prior year's quarter of $22.9 million, mainly due to research and development costs which increased due to ongoing clinical trials. During the quarter, we recorded an impairment charge totaling $3.9 million related to in-process research and development assets recorded for sabizabulin for prostate and zuclomiphene due to the company's strategy change. The operating loss for the quarter was $39.4 million compared to $11.8 million in the prior year quarter. The bottom line results for the quarter were a net loss of $38.8 million or $0.48 per diluted common share compared to a net loss of $14.2 million or $0.18 per diluted common share in the prior year second quarter.

As Michele said, the main reason for the increase in the net loss relates to the large expense of preparing for the potential launch of sabizabulin for COVID-19. This required building a commercial team and engaging vendors to assist in the commercial preparation. We have strategically positioned Veru on late-stage clinical programs in both advanced breast cancer with enobosarm and the viral-induced ARDS infectious disease program with sabizabulin, both areas of significant unmet need. Our cash position stands at $23.5 million as of March 31, 2023. Since then, we have taken proactive steps, including entering into stock purchase agreements that ensure we can meet our funding needs while minimizing dilution to our shareholders. We intend to use any net proceeds from the sale of common stock to further fund our clinical programs. We are actively seeking partnerships for enobosarm in breast cancer and sabizabulin in viral-induced ARDS as another source of non-dilutive capital. All of these resources and business development activities should allow us to advance our important drug candidates that could yield Phase III clinical data in 2024.

Our first question will come from Yi Chen with H.C. Wainwright.

I'm sorry if I missed this during your prepared remarks, my line was a little choppy. But any color on if you have to rehire or rebuild a commercial team following the potential positive pivotal study results from sabizabulin and also any learnings from your previous efforts?

Thank you for that question. The learnings are as follows: It’s crucial to have a drug ready to go as well as the distribution capabilities established before we enter the market. We've learned the importance of solid partnerships and being patient rather than rushing into building a commercial team prematurely. In hindsight, it would have been wiser to wait for clear FDA authorization before incurring significant expenses. We need to be ready to ramp up on commercialization, but it’ll depend greatly on the timing of FDA approvals and the clinical study outcomes. Until then, we will reassess our strategies and partnerships accordingly.

Our next question will come from Leland Gershell with Oppenheimer.

Could you update us on some of the ongoing discussions with European and ex-U.S. authorities regarding ongoing sabizabulin reviews? Have there been any communications around the confirmatory Phase III trial?

Yes. After the FDA's decision to decline the Emergency Use Authorization, we have resumed conversations with other agencies. The European Medicine Agency indicated that they would be willing to review additional clinical information, and we plan to proceed with a Phase III study, which they believe will suffice for a positive opinion. In terms of funding for the additional ARDS studies, the planned cost for the Phase III confirmatory COVID-19 trial is roughly $16 million to reach 204 patients for the first interim assessment. We are actively seeking non-dilutive funding options to support these initiatives.

Our next question will come from Brandon Folkes with Cantor Fitzgerald.

Can you dive deeper into the assumptions regarding your funding strategy and the stock purchase agreements?

We are committed to securing non-dilutive funding first, but also have a stock purchase agreement that allows us to raise up to $100 million without impacting market conditions with Lincoln Park Capital. We have structured this to avoid pressure on our stock and ensure access to funding as needed.

Our operational expenses will start to reduce as we have halted many of the vendor payments and scaled back on our commercialization efforts. We're anticipating a decrease in cash burn in the upcoming quarters.

We will continue to refine our investments into FC2 and expand our telemedicine services, which we believe will strengthen our financial position and revenue growth moving forward. We’ll review our expenditures thoroughly and capitalize on our existing partnerships to ensure that we can sustain through any financial pressures.

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

Thank you. I appreciate everybody who joined our call today, and I look forward to updating you all on our progress in our next investors call. Thank you.

The digital replay of the conference call will be available beginning approximately noon Eastern Time today. Please record your name and company when joining. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.