Overview
Veru is an oncology biopharmaceutical company with a focus on developing novel
medicines for the management of prostate and breast cancers.
The Company's prostate cancer drug pipeline includes sabizabulin, VERU-100 and
zuclomiphene citrate.
Sabizabulin (VERU-111) for the treatment of men with metastatic castration
resistant prostate cancer who have also become resistant to at least one
androgen receptor targeting agent
Sabizabulin (VERU-111) is an oral, first-in-class, new chemical entity that
targets and inhibits microtubules to disrupt transport of the androgen receptor
into the nucleus (androgen receptor transport disruptor). Open label Phase 1b
and Phase 2 clinical studies with sabizabulin in men with metastatic castration
and androgen receptor targeting agent resistant prostate cancer are ongoing. The
Phase 1b clinical study completed enrollment of 39 men. The Phase 1b study has
yielded promising efficacy and safety clinical data. Daily chronic drug
administration appears feasible and safe. The Phase 2 clinical study has
completed enrollment of 41 men with metastatic castration resistant prostate
cancer who have also become resistant to at least one androgen receptor
targeting agent, such as abiraterone or enzalutamide, but prior to proceeding to
IV chemotherapy. Evidence of tumor efficacy including PSA declines and objective
tumor responses (partial and complete responses) were observed, and sabizabulin
was well tolerated with no clinically relevant neutropenia or neurotoxicity. The
safety profile is similar to what has been reported in the FDA package inserts
for an androgen receptor targeting agent, enzalutamide or abiraterone. In July
2020, the Company had a meeting with the FDA and received positive input from
the FDA on the pivotal Phase 3 trial design for sabizabulin. The indication is
for the treatment in men with metastatic castration resistant prostate cancer
who have failed one androgen receptor targeting agent, but prior to IV
chemotherapy. The Phase 3 VERACITY clinical study is an open label, randomized,
multicenter, registration study evaluating sabizabulin daily dosing versus an
alternative androgen receptor targeting agent as the active control. The primary
endpoint is radiographic progression-free survival. The Phase 3 study is
expected to enroll approximately 245 men with a 2:1 randomization of sabizabulin
versus the active control. The Company is currently enrolling patients in its
pivotal Phase 3 VERACITY study, which is expected to be conducted in
approximately 45 clinical sites across the U.S.
VERU-100 for androgen deprivation therapy (ADT) of advanced prostate cancer
VERU-100 is a novel, proprietary long-acting gonadotropin-releasing hormone
(GnRH) antagonist peptide three-month subcutaneous depot formulation designed to
address the current limitations of commercially available ADT. Androgen
deprivation therapy is currently the mainstay of advanced prostate cancer
treatment and is used as a foundation of treatment throughout the course of the
disease even as other endocrine, chemotherapy, or radiation treatments are added
or stopped. Specifically, VERU-100 is a chronic, long-acting GnRH antagonist
peptide administered as a small volume, three-month depot subcutaneous injection
without a loading dose. VERU-100 immediately suppresses testosterone with no
testosterone surge upon initial or repeated administration, a problem that
occurs with currently approved luteinizing hormone-releasing hormone (LHRH)
agonists used for ADT. There are no GnRH antagonist depot injectable
formulations commercially approved beyond a one-month injection. The Company is
currently enrolling patients in its VERU-100 Phase 2 study. The Phase 2 clinical
trial is an open label, multicenter, dose finding study evaluating the efficacy
and safety of subcutaneous injected doses of VERU-100 in men with hormone
sensitive advanced prostate cancer. The VERU-100 Phase 2 study is expected to
enroll approximately 35 patients. The primary efficacy endpoint is percent of
men that reach castrate levels of total testosterone (<50 ng/dL) by Day 28 and
maintain castrate testosterone levels for 90 days. If the Phase 2 trial is
successful, the Phase 3 clinical trial of approximately 100 men is planned to
initiate in the fourth quarter of calendar year 2021.
Zuclomiphene citrate for the treatment of men who have hot flashes caused by
androgen deprivation therapy for advanced prostate cancer
Zuclomiphene citrate is an oral nonsteroidal estrogen receptor agonist being
developed to treat hot flashes, a common side effect caused by ADT in men with
advanced prostate cancer. Following an End of Phase 2 meeting with the FDA, the
Company plans to advance zuclomiphene citrate to a Phase 3 clinical trial in men
with advanced prostate cancer who experience moderate to severe hot flashes.
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The Company's breast cancer drug pipeline includes enobosarm and sabizabulin.
Enobosarm, selective androgen receptor targeted agonist, for the treatment of
androgen receptor positive (AR+), estrogen receptor positive (ER+) and human
epidermal growth factor receptor 2 negative (HER2-) metastatic breast cancer
(3rd line metastatic setting)
Enobosarm is the first new class of targeting endocrine therapy in advanced
breast cancer in decades. Enobosarm is an oral, first-in-class, new chemical
entity, selective androgen receptor agonist that activates the androgen receptor
(AR) in AR+ ER+ HER2- metastatic breast cancer, which results in tumor
suppressor activity without the unwanted masculinizing side effects. Enobosarm
has extensive nonclinical and clinical experience having been evaluated in 25
separate clinical studies in approximately 1,450 subjects dosed, including three
Phase 2 clinical studies in advanced breast cancer involving more than 250
patients. In the two Phase 2 clinical studies conducted in women with AR+ ER+
HER2- metastatic breast cancer, enobosarm demonstrated significant antitumor
efficacy in heavily pretreated cohorts that failed estrogen receptor targeting
agents, chemotherapy, and/or CDK 4/6 inhibitors and was well tolerated with a
favorable safety profile. In the fourth quarter of calendar 2020, the FDA agreed
to the Phase 3 multicenter, international, open label, and randomized (1:1)
ARTEST registration clinical trial design to evaluate the efficacy and safety of
enobosarm monotherapy versus physician's choice of either exemestane ?
everolimus or a SERM as the active comparator for the treatment of metastatic
AR+ ER+ HER2- breast cancer in approximately 210 patients with ? 40% AR staining
in breast cancer tissue who have failed a nonsteroidal aromatase inhibitor,
fulvestrant, and a CDK4/6 inhibitor. The primary endpoint is radiographic
progression-free survival. The pivotal Phase 3 ARTEST study is anticipated to
commence in the second half of calendar year 2021.
In June 2021 at the American Society of Clinical Oncology (ASCO) 2021 Annual
Meeting, the Company announced additional clinical results from the enobosarm
Phase 2 study demonstrating that the anticancer benefits of enobosarm were
related to the presence and amount of AR expression in breast cancer tissue in
subjects with AR+ ER+ HER2- metastatic breast cancer. In the Phase 2 study, the
presence and the amount of AR receptor expression in breast cancer tissue
correlated with the antitumor response. The best overall target lesion reduction
of >30% occurred only in subjects who were AR+ (>10% AR nuclei staining). In a
post-hoc analysis of 84 women (9mg and 18 mg cohorts combined) who had AR+ ER+
HER2- metastatic breast cancer, measurable disease, and centrally confirmed AR
status at study entry, an AR positivity threshold of ?40% staining in breast
cancer tissue distinguished patients that were most likely to respond to
enobosarm. AR positivity ?40% was common as 52% of subjects in study met this
threshold.
Focusing on the post-hoc analysis in the 9mg cohort, the dose selected for the
Phase 3 ARTEST study, the objective response rate (percent of patients with a
best overall response of complete response or partial response) was 48% for ?40%
AR positivity versus 0% for <40% AR positivity (p<0.0001). Similarly, the
clinical benefit rate (percentage of patients with a best overall response of
complete response, partial response, or stable disease) was 79% for ?40% AR
positivity versus 18% for <40% AR positivity (p<0.0001). The median radiographic
progression free survival was 5.5 month for ?40% AR positivity versus 2.75
months for <40% AR positivity (p<0.001). Enobosarm was very well tolerated
without masculinizing side effects, increases in hematocrit, or liver toxicity.
Conclusions from Phase 2 study presented at ASCO 2021:
?Enobosarm, a selective AR agonist, targets AR, a tumor suppressor, in AR+ ER+
HER2- metastatic breast cancer
?Objective tumor responses (efficacy) to enobosarm monotherapy require the
presence and a threshold level of AR expression (?40% AR cutoff) in heavily
pretreated AR+ ER+ HER2- metastatic breast cancer
?AR may be used as a biomarker to identify patients with AR+ ER+ HER2-
metastatic breast cancer that are most likely to respond to enobosarm
?Enobosarm treatment was well tolerated as an endocrine therapy without
masculinizing side effects, increases in hematocrit, or liver toxicity
?Targeting the AR tumor suppressor pathway to be studied prospectively in a 3rd
line metastatic setting in the Phase 3 ARTEST registration clinical trial of
enobosarm monotherapy versus active control (exemestane ? everolimus or a SERM)
for the treatment of AR+ ER+ HER2- metastatic breast cancer patients who have
failed a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor.
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We intend to also conduct a Phase 2 clinical study to evaluate the efficacy and
safety of enobosarm plus CDK4/6 inhibitor, abemaciclib, combination therapy
versus an alternative estrogen blocking agent (fulvestrant or an aromatase
inhibitor) in subjects with AR+ ER+ HER2- metastatic breast cancer who have
failed first line CDK4/6 inhibitor, palbociclib, plus an estrogen blocking agent
(non-steroidal aromatase inhibitor or fulvestrant) and have an AR nuclei
staining ? 40% in breast cancer tissue. We plan to enroll approximately 106
subjects in this Phase 2 clinical study which is expected to commence in the
second half of calendar year 2021.
Sabizabulin for the treatment of taxane resistant metastatic triple negative
breast cancer
Metastatic triple negative breast cancer (TNBC) is an aggressive form of breast
cancer that occurs in approximately 15% of all breast cancers. This form of
breast cancer does not express ER, progesterone receptor (PR), or HER2 and is
resistant to endocrine therapies. The first line of treatment usually includes
IV taxane chemotherapy. Almost all women will eventually develop taxane
resistance. Sabizabulin is an oral, first-in-class, new chemical entity that
targets and inhibits microtubules to disrupt the cytoskeleton. Sabizabulin is
not a substrate for P-glycoprotein drug resistance protein. Over expression of
P-glycoprotein is a common mechanism that results in taxane resistance in TNBC.
Preclinical studies in human triple negative breast cancer grown in animal
models demonstrate that sabizabulin significantly inhibits cancer proliferation,
migration, metastases, and invasion of triple negative breast cancer cells and
tumors that have become resistant to paclitaxel (taxane). Using the safety
information from the Phase 1b and Phase 2 sabizabulin prostate cancer clinical
studies in a total of approximately 80 men, the Company plans to meet with the
FDA in calendar year 2021 and to commence a Phase 2b clinical study in the
second half of calendar year 2021 to evaluate sabizabulin in women with
metastatic TNBC. The planned Phase 2b clinical study will evaluate daily oral
dosing of sabizabulin for TNBC in a three-arm study of sabizabulin monotherapy,
sabizabulin + Trodelvy® (sacituzumab govitecan-hziy) combination therapy, and
Trodelvy monotherapy (control arm) in approximately 156 women with metastatic
TNBC that have become resistant to at least two systemic chemotherapies
including a taxane IV chemotherapy.
Trodelvy® (sacituzumab govitecan-hziy) is a registered trademark of Gilead
Sciences, Inc.
Sabizabulin for the treatment of hospitalized COVID-19 patients at high risk for
acute respiratory distress syndrome (ARDS)
Sabizabulin is a novel once-a-day orally dosed small molecule that has both
broad anti-inflammatory and anti-viral properties which may serve as a
two-pronged approach to the treatment of COVID-19 virus infection and the
subsequent debilitating inflammatory effects that can lead to ARDS and death.
We conducted a double-blind, randomized, placebo-controlled Phase 2 clinical
trial evaluating daily oral once-a-day dosing of sabizabulin 18mg versus placebo
in approximately 40 hospitalized COVID-19 patients who were at high risk for
ARDS. This trial was conducted in 5 sites across the United States. Patients
that were hospitalized with documented evidence of COVID-19 infection with
symptoms and who were at high risk for ARDS were enrolled. Subjects received
either sabizabulin 18mg or placebo as well as standard of care for 21 days or
until released from the hospital. The primary efficacy endpoint was the
proportion of patients that were alive without respiratory failure at Day 29. On
February 8, 2021, we announced positive results from this Phase 2 clinical trial
evaluating sabizabulin for the treatment of hospitalized patients with COVID-19
who were high risk for ARDS. For the primary endpoint in hospitalized patients
in a modified intent to treat population, sabizabulin treatment compared to
placebo had a statistically significant and clinically meaningful improvement in
the proportion of patients with treatment failures (death or alive with
respiratory failure) being 5.6% in the sabizabulin treated group (n=18) and 30%
in the placebo treated group (n=20) at Day 29. This represents an 81% relative
reduction in treatment failures and shows statistical significance with p=0.05.
Sabizabulin was tolerated with a good safety profile.
In February 2021, the FDA agreed to advancing sabizabulin into Phase 3 clinical
registration trial. The Phase 3 clinical trial is a double-blind randomized
(2:1) placebo-controlled trial evaluating daily oral doses of 9mg sabizabulin
for 21 days versus placebo in 300 hospitalized patients (200 subjects will be
treated with sabizabulin and 100 subjects will receive placebo) who tested
positive for the SARS-CoV-2 virus and who are at high risk for ARDS. The primary
efficacy endpoint will be proportion of patients alive at Day 60. Secondary
endpoints will include proportion of patients alive without respiratory failure,
days in ICU, days on mechanical ventilations, days in the hospital, and viral
load. The Company is currently enrolling patients in its sabizabulin for
COVID-19 Phase 3 pivotal study. The Company has selected clinical sites in the
U.S., Brazil, Argentina, Colombia, and Mexico. The Company anticipates
completion of the Phase 3 trial during the fourth calendar quarter of 2021.
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The Biomedical Advanced Research and Development Authority of the U.S.
Department of Health and Human Services (BARDA) and Veru have had several
meetings to discuss possible grant funding for the Phase 3 study and
manufacturing scale up.
Sexual Health Division
The Company's Sexual Health Division includes a drug candidate, TADFIN™,
for the treatment of benign prostatic hyperplasia (BPH) and a commercial
product, the FC2 Female Condom/FC2 Internal Condom® (FC2), an FDA-approved
product for the dual protection against unplanned pregnancy and the transmission
of sexually transmitted infections.
TADFIN™ (tadalafil 5mg and finasteride 5mg combination capsule) is being
developed to treat urinary tract symptoms caused by BPH. Tadalafil (CIALIS®) is
currently approved for treatment of BPH and erectile dysfunction and finasteride
is currently approved for treatment of BPH (finasteride 5mg PROSCAR®) and male
pattern hair loss (finasteride 1mg PROPECIA®). The co-administration of
tadalafil and finasteride has been shown to be more effective for the treatment
of BPH than finasteride alone. The Company had a successful pre-New Drug
Application (NDA) meeting with the FDA and submitted the NDA for TADFIN™ in
February 2021. An NDA was filed by the FDA in April 2021 with a PDUFA date in
December 2021. If approved, TADFIN™ is expected to be marketed and distributed
by telemedicine (telemedicine being the remote diagnosis and treatment of
patients by means of telecommunications technology) and telepharmacy channels.
The Company's Sexual Health Business segment will include future revenues for
TADFIN™, if approved. Costs associated with the development of TADFIN™ are
currently included in our Research and Development segment.
The Company sells FC2 in both the commercial sector in the U.S. and in the
public health sector in the U.S. and globally. In the U.S., FC2 is available by
prescription through multiple telemedicine and internet pharmacy channels as
well as retail pharmacies. It is also available to public health sector entities
such as state departments of health and 501(c)(3) organizations. In the global
public health sector, the Company markets FC2 to entities, including ministries
of health, government health agencies, U.N. agencies, nonprofit organizations
and commercial partners, that work to support and improve the lives, health and
well-being of women around the world.
Most of the Company's net revenues during the three and nine months ended
June 30, 2021 and 2020 were derived from sales of FC2 in the commercial and
public health sectors.
Sale of PREBOOST® Business
On December 8, 2020, the Company entered into an Asset Purchase Agreement,
pursuant to which the Company sold substantially all of the assets related to
the Company's PREBOOST® business. PREBOOST® is a 4% benzocaine medicated
individual wipe for the treatment of premature ejaculation and was a commercial
product in the Company's Sexual Health Division during fiscal 2020. The
transaction closed on December 8, 2020. The purchase price for the transaction
was $20.0 million, consisting of $15.0 million paid at closing, $2.5 million
payable 12 months after closing and $2.5 million payable 18 months after
closing.
COVID-19 Environment
In December 2019, a novel strain of coronavirus was reported to have emerged in
Wuhan, China. COVID-19, the disease caused by the coronavirus, has since spread
to over 100 countries, including every state in the United States. On March 11,
2020, the World Health Organization declared COVID-19 a pandemic, and on March
13, 2020, the United States declared a national emergency with respect to the
COVID-19 outbreak.
In an effort to contain and mitigate the spread of COVID-19, many countries,
including the United States, the United Kingdom and Malaysia, have imposed
unprecedented restrictions on travel, and there have been business closures and
a substantial reduction in economic activity in countries that have had
significant outbreaks of COVID-19. In addition, and in an attempt to slow the
rapid growth of the COVID-19 infection rate, many governments around the world,
including in the United States at the federal, state and local levels as well as
in the United Kingdom and Malaysia, have from time to time imposed mandatory
sheltering in place and social distancing restrictions that severely limit the
ability of its citizens to travel freely and to conduct activities.
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The COVID-19 pandemic has substantially impacted the global healthcare system,
including the conduct of clinical trials. Many healthcare systems have
restructured operations to prioritize caring for those suffering from COVID-19
and to limit or cease other activities. The severe burden on healthcare systems
caused by this pandemic has also impaired the ability of many research sites to
start new clinical trials or to enroll new patients in clinical trials. The
imposed mandatory sheltering in place and social distancing restrictions may
delay the recruitment of patients and impede their ability to effectively
participate in such trials. Significant fees may also be owed to contract
research organizations associated with starting and stopping clinical trials,
typically more so than delaying the start of a clinical trial.
To date, COVID-19 has not impacted the Company's ability to supply product
demand for FC2. We have experienced, and continue to experience, some temporary
disruptions to our manufacturing facility due to the implementation of
government policies. On March 16, 2020, the Malaysian government issued an order
closing non-essential businesses in that country due to the COVID-19 pandemic.
As a result, the sole facility where the Company manufactures FC2 was unable to
manufacture or ship product starting March 16, 2020. Because FC2 is a health
product, the Company received an exemption to reopen the facility with limited
staff to ship existing inventory on March 27, 2020, to reopen for manufacturing
with 50% of the regular number of workers and social distancing requirements on
April 20, 2020 and to return to 100% of the regular number of workers but with
continued social distancing requirements on May 4, 2020. On June 1, 2021, the
Malaysian government issued a nationwide lockdown order placing limitations on
social and economic activity in the country. The Company was able to secure the
required approvals, as a health product, to continue to partially operate by
reducing the number of employees physically allowed in the facilities to 60% of
the total workforce. On July 3, 2021, the lockdown was strengthened in the
region in which the Company operates and the Company entered into a two week
period ceasing all operations, in common with similar manufacturing businesses.
On July 19, 2021, after allowing some time for staff testing, operations resumed
at the required levels of 60% of the total workforce. The Company has partially
mitigated the disruption to production by changing staffing patterns.
Furthermore, the Company has enrolled staff in a vaccination program that has
commenced and is ongoing. From time to time, we have temporarily paused
operations as part of our contact tracing protocols and to allow for cleaning
and disinfection of our production facility. The Company has had and continues
to have a sufficient quantity of FC2 inventory both inside and outside of
Malaysia to satisfy customer demand. We do not anticipate that the recent
closure, or currently ongoing reduced operating capacity, will have a material
impact to the Company's consolidated operating results in the fourth quarter of
fiscal 2021 or foreseeable future periods. The Company continues to operate
enhanced health and safety protocols to protect the employees at its Malaysian
facility, to respond in the event an employee at the facility is determined to
have tested positive for COVID-19, and to mitigate the impact of COVID-19 on the
Company's Malaysian manufacturing operations. However, no such measures can
eliminate risks relating to the COVID-19 pandemic, and if the Company's
Malaysian manufacturing facility is subject to future government mandates to
counter COVID-19 or encounters labor or raw material shortages, transportation
delays or other issues, our ability to supply product to our customers could be
disrupted.
The sole supplier of the nitrile polymer sheath for FC2 also produces surgical
gloves and has at times prioritized their production during the COVID-19
pandemic and may continue to do so, which could disrupt the Company's supply of
a critical raw material. Malaysian ports are currently open for shipment but at
reduced capacity, and the Company may also encounter issues shipping product
into key markets or through freight or other carriers. To mitigate these
factors, the Company continues to build strategic stock to ensure supply is
available during a period of potential disruption. The COVID-19 pandemic and
related economic disruption may also adversely affect customer demand for FC2.
For example, sales of FC2 could be impacted in the U.S. prescription channel if
insurance coverage is affected by job losses and in the global public health
sector if governments delay future tenders or reduce spending on female condoms
due to financial strains or changed spending priorities caused by the COVID-19
pandemic. The COVID-19 pandemic did not have a material net impact on our
consolidated operating results during the three and nine months ended June 30,
2021.
To protect the health and safety of our workforce, we have closed our offices in
the United States and the United Kingdom to non-essential staff and our
personnel have largely been working remotely. Travel between our facilities in
the United States, the United Kingdom and Malaysia has also been restricted. As
of the date of this report, our operations have not been significantly impacted
by such remote work requirements and travel restrictions.
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Significant uncertainty remains as to the potential impact of the COVID-19
pandemic on our operations, and on the global economy. It is currently not
possible to predict how long the pandemic will last or the time that it will
take for economic activity to return to prior levels as a result of
uncertainties, including the extent and rate of the spread of the virus that
continue to fluctuate, the potential for additional peaks in infection rates,
and the timing and availability of vaccines, treatments or cures to slow and
eventually stop the spread. We do not yet know the full extent of any impact on
our business or our operations; however, we will continue to monitor the
COVID-19 situation and its impact on our business closely and expect to
reevaluate the timing of our anticipated clinical trials as the impact of
COVID-19 on our industry becomes clearer.
Sales of FC2 in the public health and commercial sectors
FC2 Commercial Sector. In 2017, the Company began expanding access to FC2 in the
U.S. by making it available by prescription. With a prescription, FC2 is covered
by most insurance companies with no copay under the ACA and the laws of 20+
states prior to enactment of the ACA. In 2018, we dissolved our small-scale
marketing and sales program to focus our efforts in accessing fast-growing,
highly reputable telemedicine firms to bring our much-needed FC2 product to
patients with a prescription in a cost-effective and highly convenient manner.
As a result of these efforts, the Company now supplies FC2 to telemedicine
providers in the U.S. prescription channel. The Company is working to develop
supply and distributor relationships with additional telemedicine and other
providers.
FC2 Global Public Health Sector. FC2's use is for the prevention of HIV/AIDS and
the transmission of other sexually transmitted diseases and prevention of
unintended pregnancies, and the global public health sector has been an
important market for FC2. Within the global public health sector, various
organizations supply critical products such as FC2, at no cost or low cost, to
those who need but cannot afford to buy such products for themselves.
FC2 has been distributed in the U.S. and 149 other countries. A significant
number of countries with the highest demand potential are in the developing
world. The incidence of HIV/AIDS, other sexually transmitted infections and
unintended pregnancy in these countries represents a remarkable potential for
significant sales of a product that benefits some of the world's most
underprivileged people. However, conditions in these countries can be volatile
and result in unpredictable delays in program development, tender applications
and processing orders.
The Company is working to further develop a global market and distribution
network for FC2 by maintaining relationships with global public health sector
groups and completing strategic arrangements with companies with the necessary
marketing and financial resources and local market expertise.
The Company currently has a limited number of customers for FC2 in the global
public health sector who generally purchase in large quantities. Over the past
few years, significant customers have included large global agencies, such as
UNFPA, USAID, the Brazil Ministry of Health through Semina Indústria e Comércio
Ltda (Semina), the Company's distributor in Brazil, and the Republic of
South Africa health authorities that purchase through the Company's various
local distributors. Other customers include ministries of health or other
governmental agencies, which either purchase directly or via in-country
distributors, and NGOs.
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Purchasing patterns for FC2 in the public health sector vary significantly from
one customer to another and may reflect factors other than simple demand. For
example, some governmental agencies purchase FC2 through a formal procurement
process in which a tender (request for bid) is issued for either a specific or a
maximum unit quantity. Tenders also define the other elements required for a
qualified bid submission (such as product specifications, regulatory approvals,
clearance by the World Health Organization, unit pricing and delivery
timetable). Bidders have a limited period of time in which to submit bids. Bids
are subjected to an evaluation process which is intended to conclude with a
tender award to the successful bidder. The entire tender process, from
publication to award, may take many months to complete, including administrative
actions or appeals. A tender award indicates acceptance of the bidder's price
rather than an order or guarantee of the purchase of any minimum number of
units. Many governmental tenders are stated to be "up to" the maximum number of
units, which gives the applicable government agency discretion to purchase less
than the full maximum tender amount. Orders are placed after the tender is
awarded; there are often no set dates for orders in the tender and there are no
guarantees as to the timing or amount of actual orders or shipments. Orders
received may vary from the amount of the tender award based on a number of
factors including vendor supply capacity, quality inspections and changes in
demand. Administrative issues, politics, bureaucracy, exchange rate risk,
process errors, changes in leadership, funding priorities and/or other pressures
may delay or derail the process and affect the purchasing patterns of public
health sector customers. As a result, the Company may experience significant
quarter-to-quarter sales variances in the global public health sector due to the
timing and shipment of large orders of FC2.
On August 27, 2018, the Company announced that through six of its distributors
in the Republic of South Africa, the Company had received a tender award to
supply 75% of a tender covering up to 120 million female condoms over three
years. The tender was extended until January 2022. The Company began shipping
units under this tender award in the third quarter of fiscal 2019 and we have
shipped approximately 14.0 million units through June 30, 2021. In October 2020,
the Company was awarded up to 20 million units through its distributor in Brazil
under the new Brazil female condom tender. These units are expected to be
delivered over two years. The Company began shipping units under this tender
award in the first quarter of fiscal 2021 and we have shipped approximately
9.7 million units through June 30, 2021.
FC2 Unit Sales. Details of the quarterly unit sales of FC2 for the last five
fiscal years were as follows:
Period 2021 2020 2019 2018 2017
October 1 - December 31 12,318,988 10,070,700 7,382,524 4,399,932 6,389,320
January 1 - March 31 8,189,552 6,884,472 9,792,584 4,125,032 4,549,020
April 1 - June 30 11,201,588 10,532,048 10,876,704 10,021,188 8,466,004
July 1 - September 30 5,289,908 9,842,020 6,755,124 6,854,868
Total 31,710,128 32,777,128 37,893,832 25,301,276 26,259,212
Revenues. Most of the Company's net revenues during the three and nine
months ended June 30, 2021 and 2020 were derived from sales of FC2 in the U.S.
prescription channel and global public health sector. The Company also had
revenues from sales of PREBOOST® (Roman Swipes) through the date the PREBOOST®
business was sold on December 8, 2020. These sales are recognized upon shipment
or delivery of the product to the customers depending on contract terms.
The Company's most significant customers have been telemedicine providers in the
U.S. who sell into the prescription channel and global public health sector
agencies who purchase and/or distribute FC2 for use in preventing the
transmission of HIV/AIDS and/or family planning.
The Company manufactures FC2 in a leased facility located in Selangor D.E.,
Malaysia, resulting in a portion of the Company's operating costs being
denominated in foreign currencies. While a significant portion of the
Company's future unit sales are likely to be in foreign markets, all sales
are denominated in the U.S. dollar. Effective October 1, 2009, the Company's
U.K. and Malaysia subsidiaries adopted the U.S. dollar as their functional
currency, further reducing the Company's foreign currency risk.
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Operating Expenses. The Company manufactures FC2 at its Malaysian facility. The
Company's cost of sales consists primarily of direct material costs, direct
labor costs and indirect production and distribution costs. Direct material
costs include raw materials used to make FC2, principally a nitrile polymer.
Indirect production costs include logistics, quality control and maintenance
expenses, as well as costs for electricity and other utilities. All the key
components for the manufacture of FC2 are essentially available from either
multiple sources or multiple locations within a source.
We have recently seen an increase in the cost of the nitrile polymer used to
produce FC2 and may experience increases in other material costs due to the
impact of COVID-19 and increased inflation. Our costs of sales and gross margins
may be adversely impacted if we are unable to pass along cost increases to our
customers.
On August 7, 2021, the Company learned that a fire had occurred at the
manufacturing site used by our supplier to produce component sheaths for FC2.
The preliminary analysis by the supplier indicates that production will be
impacted for at least two months before it can restart. We have robust levels of
inventory of FC2 in our U.S. warehouses and of FC2 and component sheaths in our
facility in Malaysia. As a result, we believe that this supply disruption will
have no impact on sales of FC2 in the fourth quarter of fiscal 2021 and, based
on historic ordering and our forecasts, we believe that it will not have a
significant impact on sales of FC2 in the first quarter of fiscal 2022. Given
our inventory position, and the initial guidance given to us by our supplier at
this stage, we expect any impact from this temporary disruption would be limited
to the global public health sector market and that it would have no impact on
sales in the U.S. market.
Conducting research and development is central to our business model. The
Company's Research and Development segment includes multiple products and
management routinely evaluates each product in its portfolio of products.
Advancement is limited to available working capital and management's
understanding of the prospects for each product. If future prospects do not meet
management's strategic goals, advancement may be discontinued. We have invested
and expect to continue to invest significant time and capital in our research
and development operations. Our research and development expenses were
$11.2 million and $4.4 million for the three months ended June 30, 2021 and
2020, respectively, and $24.4 million and $13.7 million for the nine months
ended June 30, 2021 and 2020, respectively. We expect to continue this trend of
increased expenses relating to research and development due to advancement of
multiple drug candidates.
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Results of Operations
THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO THREE MONTHS ENDED JUNE 30, 2020
The Company generated net revenues of $17.7 million and net loss of
$2.7 million, or $(0.03) per basic and diluted common share, for the three
months ended June 30, 2021, compared to net revenues of $10.3 million and net
loss of $3.0 million, or $(0.05) per basic and diluted common share, for the
three months ended June 30, 2020. Net revenues increased 71% over the prior
period.
FC2 net revenues increased 83% year over year. There was a 6% increase in total
FC2 unit sales and an increase in FC2 average sales price per unit of 72%. The
principal factor for the increase in the FC2 average sales price per unit
compared to prior period was the change in the sales mix with the U.S.
prescription channel representing 76% of total FC2 net revenues in the current
year period compared to 56% of total FC2 net revenues in the prior year period.
The Company experienced an increase of 150% in FC2 net revenues in the U.S.
prescription channel and a decrease of 2% in FC2 net revenues in the global
public health sector.
Cost of sales remained consistent at $3.8 million in the three months ended
June 30, 2021 compared to the three months ended June 30, 2020. The cost per
unit decreased due to decreased labor costs and period costs in the prior year
period of approximately $0.3 million resulting from decreased production due to
the temporary shutdown of the Company's manufacturing facility in Malaysia as a
result of the COVID-19 pandemic in the prior year.
Gross profit increased to $13.9 million in the three months ended June 30, 2021
from $6.5 million in the three months ended June 30, 2020. Gross profit margin
for the fiscal 2021 period was 79% of net revenues, compared to 63% of net
revenues for the fiscal 2020 period. The increase in the gross profit margin is
primarily due to an increase in net revenues in the U.S. prescription channel
and a decrease in labor costs.
Significant quarter-to-quarter variances in the Company's results have
historically resulted from the timing and shipment of large orders rather than
from any fundamental changes in the business or the underlying demand for FC2.
The Company is also currently seeing pressure on pricing for FC2 by large global
agencies and donor governments in the developed world. As a result, the Company
may continue to experience challenges for revenue from sales of FC2 in the
global public health sector. The Company is experiencing a significant increase
in revenue from sales in the U.S. prescription channel, which is helping grow
net revenues quarter to quarter and year to year.
Research and development expenses increased to $11.2 million in the three months
ended June 30, 2021 from $4.4 million in the same period in fiscal 2020. The
increase is primarily due to increased costs associated with the multiple
in-process research and development projects and increased personnel costs.
During the fiscal 2021 period, the Company initiated two Phase 3 clinical trials
and one Phase 2 clinical trial with additional clinical trial initiations
coming. This ongoing clinical trial activity has resulted in increased costs.
Additionally, in the fiscal 2020 period, research and development expenses were
reduced by $0.1 million due to the funds received under the Paycheck Protection
Program. See Note 14 to the financial statements included in this report for
additional information related to the Paycheck Protection Program.
Selling, general and administrative expenses increased to $5.6 million in the
three months ended June 30, 2021 from $3.5 million in the three months ended
June 30, 2020. The increase is due primarily to increased personnel and
share-based compensation costs. Additionally, in the fiscal 2020 period,
selling, general and administrative expenses were reduced by $0.4 million due to
the funds received under the Paycheck Protection Program. See Note 14 to the
financial statements included in this report for additional information related
to the Paycheck Protection Program.
Interest expense, which consists of items related to the Credit Agreement and
Residual Royalty Agreement, was $1.3 million in the three months ended June 30,
2021, which is comparable with $1.2 million in the three months ended June 30,
2020.
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Expense associated with the change in fair value of the embedded derivatives
related to the Credit Agreement and Residual Royalty Agreement was $1.3 million
in the three months ended June 30, 2021, compared to expense of $0.2 million in
the three months ended June 30, 2020. The liabilities associated with embedded
derivatives represent the fair value of the change of control provisions in the
Credit Agreement and Residual Royalty Agreement. The increase in the fair value
of the embedded derivatives is due to an increase in projected FC2 net revenues
in future periods and decreases in the discount rates. See Note 3 and Note 8 to
the financial statements included in this report for additional information.
Income tax benefit in the third quarter of fiscal 2021 was $2.9 million,
compared to income tax expense of $0.2 million in the third quarter of fiscal
2020. The increase in the income tax benefit of $3.1 million is primarily due to
the benefit recognized from the increasing the value of the U.K. net operating
losses due to the increase in the U.K. tax rates from 19% to 25%.
NINE MONTHS ENDED JUNE 30, 2021 COMPARED TO NINE MONTHS ENDED JUNE 30, 2020
The Company generated net revenues of $45.6 million and net income of
$11.7 million, or $0.16 per basic common share and $0.14 per diluted common
share, for the nine months ended June 30, 2021, compared to net revenues of
$30.8 million and net loss of $7.1 million, or $(0.11) per basic and diluted
common share, for the nine months ended June 30, 2020. Net revenues increased
48% over the prior period.
FC2 net revenues increased 51% year over year. There was a 15% increase in total
FC2 unit sales and an increase in FC2 average sales price per unit of 31%. The
principal factor for the increase in the FC2 average sales price per unit
compared to prior period was the change in the sales mix with the U.S.
prescription channel representing 74% of total FC2 net revenues in the current
year period compared to 62% of total FC2 net revenues in the prior year period.
The Company experienced an increase of 79% in FC2 net revenues in the U.S.
prescription channel and an increase of 6% in FC2 net revenues in the global
public health sector.
Cost of sales increased to $10.0 million in the nine months ended June 30, 2021
from $9.6 million in the nine months ended June 30, 2020 primarily due to an
increase in unit sales partially offset by a decrease in labor, equipment
maintenance, and transportation costs.
Gross profit increased to $35.6 million in the nine months ended June 30, 2021
from $21.2 million in the nine months ended June 30, 2020. Gross profit margin
for the fiscal 2021 period was 78% of net revenues, compared to 69% of net
revenues for the fiscal 2020 period. The increase in the gross profit margin is
primarily due to an increase in net revenues in the U.S. prescription channel
and a decrease in labor, equipment maintenance, and transportation costs.
Significant quarter-to-quarter variances in the Company's results have
historically resulted from the timing and shipment of large orders rather than
from any fundamental changes in the business or the underlying demand for FC2.
The Company is also currently seeing pressure on pricing for FC2 by large global
agencies and donor governments in the developed world. As a result, the Company
may continue to experience challenges for revenue from sales of FC2 in the
global public health sector. The Company is experiencing a significant increase
in revenue from sales in the U.S. prescription channel, which is helping grow
net revenues quarter to quarter and year to year.
Research and development expenses increased to $24.4 million in the nine months
ended June 30, 2021 from $13.7 million in the same period in fiscal 2020. The
increase is primarily due to increased costs associated with the multiple
in-process research and development projects and increased personnel costs.
During the fiscal 2021 period, the Company initiated two Phase 3 clinical trials
and one Phase 2 clinical trial with additional clinical trial initiations
coming. This ongoing clinical trial activity has resulted in increased costs.
Additionally, in the fiscal 2020 period, research and development expenses were
reduced by $0.1 million due to the funds received under the Paycheck Protection
Program. See Note 14 to the financial statements included in this report for
additional information related to the Paycheck Protection Program.
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Selling, general and administrative expenses increased to $14.7 million in the
nine months ended June 30, 2021 from $11.0 million in the nine months ended
June 30, 2020. The increase is due primarily to increased personnel costs,
patent-related legal costs, and increased insurance costs. Additionally, in the
fiscal 2020 period, selling, general and administrative expenses were reduced by
$0.4 million due to the funds received under the Paycheck Protection Program.
See Note 14 to the financial statements included in this report for additional
information related to the Paycheck Protection Program.
During the first quarter of fiscal 2021, we recorded a pre-tax gain on sale of
the Company's PREBOOST® business of $18.4 million. See Note 2 to the financial
statements included in this report for additional information.
Interest expense, which consists of items related to the Credit Agreement and
Residual Royalty Agreement, was $3.7 million in the nine months ended June 30,
2021, which is comparable with $3.5 million in the nine months ended June 30,
2020.
Expense associated with the change in fair value of the embedded derivatives
related to the Credit Agreement and Residual Royalty Agreement was $2.0 million
in the nine months ended June 30, 2021, compared to expense of $94,000 in the
nine months ended June 30, 2020. The liabilities associated with embedded
derivatives represent the fair value of the change of control provisions in the
Credit Agreement and Residual Royalty Agreement. The increase in the fair value
of the embedded derivatives is due to an increase in projected FC2 net revenues
in future periods and decreases in the discount rates. See Note 3 and Note 8 to
the financial statements included in this report for additional information.
Income tax benefit in the first nine months of fiscal 2021 was $2.8 million,
compared to income tax expense of $31,000 in the first nine months of fiscal
2020. The increase in the income tax benefit of $2.8 million is primarily due to
the benefit recognized from the increasing the value of the U.K. net operating
losses due to the increase in the U.K. tax rates from 19% to 25%.
Liquidity and Sources of Capital
Liquidity
Our cash and cash equivalents on hand at June 30, 2021 was $123.2 million,
compared to $13.6 million at September 30, 2020. At June 30, 2021, the Company
had working capital of $137.2 million and stockholders' equity of $155.0 million
compared to working capital of $12.3 million and stockholders' equity of
$30.1 million as of September 30, 2020. The increase in working capital is
primarily due to the increase in cash on hand and an increase in prepaid
research and development costs.
We anticipate that we will continue to consume cash as we develop our drug
candidates. Because of the numerous risks and uncertainties associated with the
development of pharmaceutical products, we are unable to estimate the exact
amounts of capital outlays and operating expenditures necessary to fund
development of our drug candidates and obtain regulatory approvals. Our future
capital requirements will depend on many factors. See Part I, Item 1A, "Risk
Factors - Risks Related to Our Financial Position and Need for Capital" in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2020 for a description of certain risks that will affect our future capital
requirements.
The Company believes its current cash position and cash expected to be generated
from sales of the Company's commercial product are adequate to fund planned
operations of the Company for at least the next 12 months. To the extent the
Company may need additional capital for its operations or the conditions for
raising capital are favorable, the Company may access financing alternatives
that may include debt financing, common stock offerings, or financing involving
convertible debt or other equity-linked securities and may include financings
under the Company's shelf registration statement on Form S-3 (File No.
333-239493) or under a new registration statement.
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Operating activities
Operating activities used cash of $14.8 million in the nine months ended
June 30, 2021. Cash from operating activities included net income of
$11.7 million, adjustments to reconcile net income to net cash provided by
operating activities totaling a reduction of $17.9 million and changes in
operating assets and liabilities of $8.5 million. Adjustments to net income
primarily consisted of $18.4 million related to the gain on sale of the
PREBOOST® business, $2.9 million of interest paid in excess of interest expense,
and $2.9 million of deferred income taxes, partially offset by $3.7 million of
share-based compensation and $2.0 million for the change in fair value of
derivative liabilities. The decrease in cash from changes in operating assets
and liabilities included an increase in prepaid expenses and other assets of
$9.6 million and an increase in accounts receivable of $3.1 million, partially
offset by an increase in accrued expenses and other current liabilities of
$2.8 million.
Our operating activities used cash of $1.6 million in the nine months ended
June 30, 2020. Cash used in operating activities included a net loss of
$7.1 million, adjustments for noncash items totaling $6.2 million and changes in
operating assets and liabilities of $0.6 million. Adjustments for noncash items
primarily consisted of $3.5 million of noncash interest expense and $2.0 million
of share-based compensation. The decrease in cash from changes in operating
assets and liabilities included an increase in inventories of $1.8 million,
partially offset by an increase in accounts payable of $0.6 million and an
increase in accrued expenses and other current liabilities of $0.6 million.
Investing activities
Net cash from investing activities was $14.8 million in the nine months ended
June 30, 2021, attributed to $15.0 million received from the sale of the
Company's PREBOOST® business.
Net cash used in investing activities in the nine months ended June 30, 2020 was
$73,000 and was associated with capital expenditures at our U.K. and Malaysia
locations.
Financing activities
Net cash provided by financing activities in the nine months ended June 30, 2021
was $109.5 million and primarily consisted of proceeds from the underwritten
public offering of the Company's common stock, net of fees and costs paid
through June 30, 2021, of $108.0 million (see discussion below) and proceeds
from stock option exercises of $1.5 million.
Net cash provided by financing activities in the nine months ended June 30, 2020
was $10.8 million and consisted of $13.4 million from the sale of shares under
common stock purchase agreements with Aspire Capital Fund, LLC (see discussion
below), proceeds from the Premium Finance Agreement of $0.8 million, which were
used to finance the Company's directors and officers liability insurance
premium, and proceeds from stock option exercises of $0.4 million, less payments
on the Credit Agreement (see discussion below) of $3.3 million and payments on
the Premium Finance Agreement of $0.6 million.
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Sources of Capital
Common Stock Offering
On February 22, 2021, we completed an underwritten public offering of 7,419,354
shares of our common stock, which included the exercise in full of the
underwriters' option to purchase additional shares, at a public offering
price of $15.50 per share. Net proceeds to the Company from this offering were
$107.9 million after deducting underwriting discounts and commissions and costs
incurred by the Company through June 30, 2021. All of the shares sold in the
offering were by the Company. The offering was made pursuant to the Company's
shelf registration statement on Form S-3 (File No. 333-239493).
SWK Credit Agreement
On March 5, 2018, the Company entered into a Credit Agreement (as amended, the
"Credit Agreement") with the financial institutions party thereto from time to
time (the "Lenders") and SWK Funding LLC, as agent for the Lenders (the
"Agent"), for a synthetic royalty financing transaction. On and subject to the
terms of the Credit Agreement, the Lenders provided the Company with a term loan
of $10.0 million, which was advanced to the Company on the date of the Credit
Agreement. Under the Credit Agreement, the Company is required to make quarterly
payments on the term loan based on the Company's product revenue from net sales
of FC2 until the earlier of receipt by the Lenders of a return premium specified
in the Credit Agreement or a required payment upon termination of the Credit
Agreement on March 5, 2025 or an earlier change of control of the Company or
sale of the FC2 business. The recourse of the Lenders and the Agent for
obligations under the Credit Agreement is limited to assets relating to FC2. On
May 13, 2019, the Company entered into an amendment to the Credit Agreement (the
"Second Amendment") which included a reduction to the percentages to be used to
calculate the quarterly revenue-based payments due on product revenue from net
sales of FC2 during calendar year 2019, a return to the original percentages to
calculate the quarterly revenue-based payments due on product revenue from net
sales of FC2 during calendar year 2020 and an increase to the percentages to be
used to calculate the quarterly revenue-based payments due on product revenue
from net sales of FC2 during calendar year 2021 and thereafter until the loan
has been repaid.
In connection with the Credit Agreement, Veru and the Agent also entered into a
Residual Royalty Agreement, dated as of March 5, 2018 (as amended, the "Residual
Royalty Agreement"), which provides for an ongoing royalty payment of 5% of
product revenue from net sales of FC2 commencing after the Lenders would have
received their return premium based on the return premium and calculation of
revenue-based payments under the Credit Agreement without taking into account
the amendments effected by the Second Amendment. The Residual Royalty Agreement
will terminate upon (i) a change of control or sale of the FC2 business and the
payment by the Company of the amount due in connection therewith pursuant to the
Credit Agreement, or (ii) mutual agreement of the parties.
The Company made total payments under the Credit Agreement of $6.4 million and
$3.3 million during the nine months ended June 30, 2021 and 2020, respectively.
As a result of the Second Amendment, the Company currently estimates the
aggregate amount of quarterly revenue-based payments payable during the 12-month
period subsequent to June 30, 2021 will be approximately $0.9 million under the
Credit Agreement. The Company began making payments under the Residual Royalty
Agreement during the quarter ended June 30, 2021, totaling $0.3 million during
the period. The Company currently estimates the aggregate amount of quarterly
revenue-based payments payable during the 12-month period subsequent to June 30,
2021 will be approximately $3.7 million under the Residual Royalty Agreement.
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Aspire Capital Purchase Agreement
On June 26, 2020, the Company entered into a common stock purchase agreement
(the "2020 Purchase Agreement") with Aspire Capital Fund, LLC (Aspire Capital)
which provides that, upon the terms and subject to the conditions and
limitations set forth therein, the Company has the right, from time to time in
its sole discretion during the 36-month term of the 2020 Purchase Agreement, to
direct Aspire Capital to purchase up to $23.9 million of the Company's common
stock in the aggregate. Upon execution of the 2020 Purchase Agreement, the
Company issued and sold to Aspire Capital under the 2020 Purchase Agreement
1,644,737 shares of common stock at a price per share of $3.04, for an aggregate
purchase price of $5,000,000. Other than the 212,130 shares of common stock
issued to Aspire Capital in consideration for entering into the 2020 Purchase
Agreement and the initial sale of 1,644,737 shares of common stock, the Company
has no obligation to sell any shares of common stock pursuant to the 2020
Purchase Agreement and the timing and amount of any such sales are in the
Company's sole discretion subject to the conditions and terms set forth in
the 2020 Purchase Agreement. As of June 30, 2021, the amount remaining under the
2020 Purchase Agreement was $18.9 million, which is registered under the
Company's shelf registration statement on Form S-3 (File No. 333-239493).
Effective June 26, 2020, upon the execution of the 2020 Purchase Agreement, the
Company's prior purchase agreement with Aspire Capital was terminated.
Fair Value Measurements
As of June 30, 2021 and September 30, 2020, the Company's financial liabilities
measured at fair value on a recurring basis, which consisted of embedded
derivatives, represent the fair value of the change of control provisions in the
Credit Agreement and Residual Royalty Agreement. See Note 8 to the financial
statements included in this report for additional information.
The fair values of these liabilities were estimated based on unobservable inputs
(Level 3 measurement), which requires highly subjective judgment and
assumptions. The Company determined the fair value of the embedded derivatives
at inception and on subsequent valuation dates using a Monte Carlo simulation
model. This valuation model incorporates transaction details such as the
contractual terms of the instruments and assumptions including projected FC2
revenues, expected cash outflows, expected repayment dates, probability and
estimated dates of a change of control, expected volatility, and risk-free
interest rates and applicable credit risk. The assumptions used in calculating
the fair value of financial instruments represent the Company's best estimates,
but these estimates involve inherent uncertainties and the application of
management judgment. As a result, the use of different estimates or assumptions
would result in a higher or lower fair value and different amounts being
recorded in the Company's financial statements. Material changes in any of these
inputs could result in a significantly higher or lower fair value measurement at
future reporting dates, which could have a material effect on our results of
operations. See Note 3 to the financial statements included in this report for
additional information.
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