VERU - Veru: Down And Possibly Out After FDA Rejects COVID Therapy

2023-03-06 12:07:23 ET

Summary

• Veru's stock price has hit highs of >$20 and its market cap valuation risen >$1.5bn based on the promise of COVID therapy Sabizabulin.
• Last week however the FDA declined to approve the drug, sending Veru stock tumbling >$3 and valuation to ~$200m.
• Veru's Phase 3 clinical study of Sabizabulin drew criticism for having an extremely high placebo death rate, potential unblinding issues, and questionable patient selection.
• Management says the FDA provided some encouragement for another Phase 3 study in COVID but funds are running low and two commercial assets sales are tanking.
• There are various cancer studies ongoing including Enobosarm in breast cancer - although this drug has failed in several different oncology indications. The omens do not look great for Veru at this time.

Investment Overview - FDA's Sabizabulin Rejection Sends Veru Share Price Into Freefall

When I last covered Veru (VERU) for Seeking Alpha back in November 2022, the company was reeling from the results of a vote conducted by an Advisory Panel, convened by the FDA, in relation to its cancer drug turned COVID therapy Sabizabulin. I noted that on Nov. 10 last year:

The advisory committee voted 8-5 that the known and potential benefits of Sabizabulin when used for the treatment of adult patients hospitalized with COVID-19 at high risk of ARDS do not outweigh the known and potential risks of Sabizabulin.

Veru was hopeful that Sabizabulin would gain a favorable verdict from the FDA AdComm, based on Phase 3 study data that showed patients receiving Sabizabulin achieved a 22.4% absolute reduction in deaths vs placebo, and an 81.2% relative reduction in deaths vs placebo.

The headlines figures seemed impressive - and it should be noted an independent monitoring committee deemed an interim readout, suggesting a 55% reduction in deaths sufficient to end the trial early - although after Veru submitted its final data to the FDA, the agency took its time to review the study, and opted to put the data before an Advisory Committee.

Ultimately, the FDA has followed the recommendation of its AdComm and opted against approving Sabizabulin to treat hospitalized adult patients with moderate to severe COVID-19 who are at high risk for Acute Respiratory Distress Syndrome ("ARDS").

Veru revealed the news in a press release after market close Friday. When the AdComm voted against Sabizabulin in November, Veru's share price had fallen from ~$15, to ~$7 overnight, a drop of >50%. Friday's news appears to have been just as devastating, with Veru shares falling in afterhours trading from ~$3.8, to ~$2.4.

Veru's market cap, which had been valued >$1.5bn as recently as August last year, now stands at ~$200m.

Why Did The FDA Opt Against Sabizabulin?

In its briefing notes ahead of the Advisory Committee meeting, as I covered in more detail in my last post , the FDA highlighted "uncertainties" which included:

High placebo group mortality rate • Potential for unblinding events with enteral tube administration • Baseline imbalances in standard of care therapies • Differences in hospitalization duration prior to trial enrollment • Uncertain effects of goals of care decisions on all-cause mortality • Negative studies with other microtubule disruptors in COVID-19 • Uncertainty in identification of a clinically relevant patient population

The FDA agreed with Veru and the Independent Data Monitoring Committee that the study met its primary endpoint of all-cause mortality at Day 60 of the study, and agreed the study also met secondary endpoints, which included days in hospital (mean 14.2 days for Sabizabulin vs 23.6 for placebo), days in an Intensive Care Unit ("ICU") (mean 4.4 days vs 17.4 days for placebo), and days on mechanical ventilation (mean 3.2 vs 16.6 days for placebo.

The FDA's objections certainly seemed to have some merit however. First of all, it is certainly contestable that the placebo death rate in Veru's study was high. In its briefing notes the FDA stated:

The Sponsor utilized a reasonable assumption that the placebo mortality rate would lie between 15% and 30%, consistent with other studies with comparable severity. However, the Day 60 mortality rate at the final analysis in the placebo group in Study 902 was 39.7%.

At the interim analysis, the Day 60 mortality rate in the 52 subjects in the placebo group who completed study was 45.1% and among subjects within North America was 63.6%, specifically, 61.9% (13 of 21 subjects) in the US and 100% (1 of 1 subject) in Mexico.

A short report published by Culper Research back in May last year points out that in trials of Gilead Sciences' Remdesivir the placebo group mortality rate was - in World Health Organisation category 4 and 5 severity patients, which match the patients selected for Veru's trial - just 12.7%, and that a historically accurate rate would be ~23% - half that of Veru's study.

Interestingly, in a presentation released by Veru covering the study results, there is no mention of a mortality rate of 45.7% - the highest figure that I can find is 27.6%, although that refers to category 4 patients only - meaning the rate is still unusually high.

The potential for unblinding relates to the fact that Sabizabulin is yellowish in color, while the substance used for placebo was a white powder. Although Veru supplied all medication - placebo and Sabizabulin - in similar capsules, patients may have been able to decipher which medication they were receiving as the medicines were transferred to the enteral access device.

Imbalance in standard-of-care therapies refers to what medications patients had been exposed to prior to being enrolled in the study, which could have a marked effect on the success of the study - the FDA observed:

available data suggest that numerical imbalances in measured standard of care therapies were present at baseline, prior to randomization, and after randomization in Study 902.

Differences in hospitalization prior to trial enrollment follows a similar line of reasoning - imbalances in selection of patients based on how healthy they were when entering the study could skew the data. With regard to "goals of care," the FDA notes:

Goals of care decisions such as “do not intubate, ” “do not resuscitate,” and withholding or withdrawal of life-sustaining therapy were not formally recorded as data points in Study 902

The FDA then points to a lack of success within the same treatment class as Sabizabulin. The drug is described as follows in Veru's 2022 10K submission:

an oral microtubule disruptor with dual antiviral and anti-inflammatory activities

The FDA observes the similarities between Sabizabulin and Colchicine - a drug used to treat gout and Behçet's disease - and notes that:

in contrast to the results of Study 902, multiple randomized controlled trials of colchicine in COVID-19 have failed to provide evidence of the efficacy of this microtubule disruptor on mortality or other clinically relevant outcomes in COVID-19.

The FDA concludes by noting the uncertainty in identification of a clinically relevant patient population. Veru's study took place at 57 different locations, and six different countries where standards of care varied significantly, making it hard to draw accurate conclusions.

Ultimately, the FDA concluded in its briefing notes that:

Based on our review, none of these uncertainties or imbalances alone invalidate the mortality benefit observed in Study 902, but all of these issues together in a small trial which is more vulnerable to imbalances raise questions about the results. We conducted sensitivity analyses to investigate the potential impact of the noted imbalances.

The FDA AdComm's vote of 8-5 was not an overwhelming defeat for Veru, therefore some hope may have remained that the company might see Sabizabulin approved to treat hospitalized COVID patients, but that hope was likely extinguished last week - at least for the time being.

Veru's Response - What Does Company Do Next?

Veru's press release announcing the FDA's rejection of Sabizabulin to treat COVID opted to focus on the positives.

Veru notes that "the FDA remains committed to working with the Company for the development of Sabizabulin, " and points to the agency making recommendations regarding a:

proposed confirmatory Phase 3 study protocol submitted by the Company for hospitalized moderate to severe COVID-19 patients at risk for ARDS and death that could support a new EUA authorization and/or NDA approval

Veru seems to imply that such a study could be terminated early if signs of efficacy are observed early enough, and notes that the "ending of the declaration of the U.S. public health emergency on May 11, 2023" ought not prevent the Emergency Use Authorization ("EUA") or full approval of COVID therapies.

Veru's CEO, Chairman and President Mitchell Steiner M.D. comments in the press release:

Unfortunately, COVID-19 remains a serious threat as the third leading cause of death in the U.S. with over 250,000 lives lost in 2022. We lost 510 Americans to COVID-19 just yesterday despite existing FDA authorized and approved standard of care treatments. We reaffirm our strategy to deliver Sabizabulin, a potentially life-saving treatment, to this vulnerable patient population facing inadequate therapeutic options to address the threat of ARDS and death from COVID-19.

Steiner's point that COVID remains a significant threat is absolutely true, but can the company realistically plan and execute another confirmatory study of Sabizabulin in hospitalised COVID patients and get the drug over the line?

It would be fair to say at this juncture that the market does not believe that such an outcome is possible, given Friday's sell-off. Veru stock is now trading at its lowest price since September 2020m, before Sabizabulin had ever been considered as a COVID therapy.

As of Dec. 31, 2022, Veru reported a cash position of $47m - down from $80m 1 year prior - and a net loss for the quarter of $37m. This spending is unsustainable and it is therefore questionable if Veru would have the funds to complete another Phase 3 study.

Other than the study Veru conducted itself, which was fraught with serious issues, there is no evidence that a drug with Sabizabulin's mechanism of action ("MoA") can successfully treat hospitalized COVID patients.

The prospects of Veru raising funds with at-the-market fundraisings seem remote given the low share price and the significant dilution that existing shareholders would experience owing to the additional shares - and who would buy the new shares?

What About Veru's Commercial Products and Drug Development Pipeline?

As many readers will be aware, Veru does have two commercial products in the form of its FC2 Female Condom/Internal Condom, for "dual protection against unplanned pregnancy and the transmission of sexually transmitted infections," and its ENTADFI capsules, indicated to treat Benign Prostatic Hyperplasia.

The news on these two assets is not good either, however. In Fiscal Q123, Veru announced that revenues had fallen to $2.5m, from $14.1m in the prior year, even as R&D expenses to $18.7m, from $10.1m in the prior year, and SG&A expenses increased to $17.5m, va. $6.7m in the prior year.

Meanwhile, Veru does have 3 Phase 3 studies ongoing. The first two are related to Enobosarm, a "selective androgen receptor agonist. " Veru is enrolling Enobosarm in a Phase 3 designed to:

evaluate the efficacy and safety of enobosarm monotherapy vs. physician’s choice of either exemestane everolimus or a SERM as the active comparator for the treatment of AR+ ER+ HER2- metastatic breast cancer in approximately 210 patients with sufficient AR nuclei staining in their breast cancer tissue who had tumor progression on a nonsteroidal aromatase inhibitor, fulvestrant, and a CDK4/6 inhibitor.

The second Phase 3 involving Enobosarm is evaluating an Enobosarm + abemaciclib combination as a 2nd line treatment of AR+ER+HER2- metastatic breast cancer. Based on Phase 2 studies discussed in its Q123 10Q submission , Veru says that:

treatment with enobosarm, a novel oral selective androgen receptor agonist, resulted in clinically significant objective tumor responses, improvement in quality of life, and favorable safety profile in a heavily pretreated population of women with AR+ER-HER2- metastatic breast cancer.

The issue appears to be that Enobosarm may only work in small, distinct patient sets, or a more negative interpretation is that Veru is attempting to find correlations between patients that responded to treatment to put together a working hypothesis that the drug can work in a specific subset of patients, which lacks conviction. All patients in Enobosarm studies had been heavily pretreated, so there seems to be a lack of clarity about what effect the drug may be having.

Sabizabulin is progressing through a Phase 3 study in patients with prostate cancer which is:

evaluating Sabizabulin 32mg in men approximately 245 men who have metastatic castration resistant prostate cancer and who had tumor progression while receiving at least one androgen receptor targeting agent, but prior to IV chemotherapy.

As with Enobosarm, Sabizabulin is being evaluated as a late stage candidate - almost a candidate of last resort, and although a Phase 1b/2 study has shown the drug to be "well tolerated and demonstrating a promising preliminary efficacy data", this appears to be another long shot for a full commercial approval.

Management discusses an $18bn market opportunity in breast cancer, and a $6.5bn opportunity in prostate, but the reality is that an approval for either drug may not result in even a >$100m market opportunity, given the late stage nature of the therapy - and approvals are by no means guaranteed.

Conclusion - The Sabizabulin COVID Opportunity May Have Passed And Veru Is Running Out Of Funds - Few Reasons To Buy Stock

Unfortunately, as noted in Culper's short report, Veru's Senior management team do not have a track record of success, with many having served under CEO Steiner at former company GTx , which performed poorly for shareholders and tried and failed to secure approval for Enobosarm.

During the pandemic, companies developing COVID-related therapies, from vaccines to treatments for the virus, received special attention from the market, with some achieving seemingly impossible highs based on their potential to help patients fight the disease.

Scores of biotechs opted to pivot their lead drugs into the COVID space - as Veru did - to see if they could have a positive effect, and from a cynical perspective, perhaps noting the huge rise in share prices of other companies doing the same.

In the end, very few - if any - of these companies succeeded, and most of their valuations eventually fell back to the same levels they traded at prior to the COVID outbreak. Veru's Sabizabulin progressed further than most, into and beyond a Phase 3 study and all the way into an FDA Adcomm, and a final approval decision.

The rejection of Sabizabulin feels like it could be a very challenging blow for Veru as a company, leaving them with two commercial products that sell >$3m per quarter between them, and several expensive late stage trials of drugs, the merits of which are questionable, and funding that may last beyond the end of 2023.

In my view at least, although it may be possible to make a bull case for the stock based on another Phase 3 study of Sabizabulin in COVID being successful, or Enobosarm finally showing its worth in oncology, the reality is that Veru likely deserves to have had ~35% wiped off its valuation at the end of last week, and likely never deserved a valuation >$1bn.

Nothing is ever certain in biotech, and the fact that the stock has been highly volatile in the past is arguably a reason for keeping the faith with Veru's drugs and management.

After last week's losses, however, there doesn't appear to be a strong case for "buying the dip," and management's problems seem to be mounting on several fronts.

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