The Female Health Company / Veru Healthcare (NASDAQ: FHCO) is “One to Watch”

The Female Health Company / Veru Healthcare (NASDAQ:FHCO) has established for itself an extremely robust footing in the global public health sector via its hormone-free, latex-free FC2 Female Condom, the only FDA-approved female condom in a market forecast to deliver nine percent plus CAGR over the next five years. The Americas, EMEA and APAC regions alone amount to roughly half a billion plus in revenues already, according to Technavio, and while the Americas’ female condom market accounts for nearly half of the global sum, China and India will most likely drive APAC to out-pace all other regions in terms of growth by a margin of a full one percent or more.

Having originally been founded back in the ’80s during the height of the AIDS epidemic, The Female Health Company’s clear vision of bringing a best-of-breed dual protection product for women to the public health table has now fully blossomed into one of the true frontline weapons in an ongoing struggle against both unwanted pregnancy and the spread of STD/STI (sexually-transmitted disease/infection). An ingenious example of design, the FC2 utilizes a non-latex nitrile sheath that is not only safe to use with oil or water-based lubricants, it also offers increased pleasure potential for both parties, as the material warms from body heat, and possesses a very natural feel. The FC2 also offers a higher rate of protection against unwanted pregnancy and sexually transmitted infection compared to male condoms, meaning that dual-use scenarios where both solutions are deployed often result in a strong additive relationship, leading to a higher overall rate of protected sex among populations.

Empowering women in 144 countries around the world with its FC2 product, FHCO’s combined two decades plus of extensive field experience doing education and distribution programs across the globe has earned the company impeccable credentials within the industry. Whether we are talking about big multilateral entities such as USAID and UNFPA, various national ministries of health, or the key NGOs whose confidence is often the deciding factor between massive contracts or relegation to obscurity. The Female Health Company offers free sexual and reproductive health training materials, as well as FC2 usage training materials, to providers and healthcare professionals via its website (from the same curricula used in FHCO’s worldwide education programs).

Q1 unit sales of the FC2 this year were on par with 2016’s first quarter at around 6.3 million, when you pull out the 9.1 million units attributable to the extraordinarily large Brazil Ministry of Health contract shipments that FHCO fulfilled last year. If you pull out related non-recurring acquisition-related costs and outlays for securing of vital IP, both the Q1 FY17 and FY16 financial data sets look quite good. The company also raked in a $2.8 million payment in early January from its exclusive Brazilian distributor Semina, and it has been informed that more payments on the $13.1 million outstanding ($7.8 million in 2016 invoices alone) are forthcoming for FY17. Quarter-to-quarter fluctuations are par for the course here and are related to timing and shipping of sizable orders, but the underlying fundamentals are solid, as is product throughput to end markets.

The overall success of the FC2 really primed FHCO for its transformational merger with Aspen Park Pharmaceuticals, Inc. (APP) late last year in October, which added a multi-faceted forward window to the company’s revenue profile in the form of APP’s attractive portfolio of men’s health-focused pharmaceuticals and consumer health indications. FHCO will be doing business as Veru Healthcare subsequent to the merger when it comes to pharmaceuticals for men’s and women’s health and oncology, as well as for consumer health and medical devices (as opposed to the division using the corporate name brand, The Female Health Company, which will oversee FC2 when it comes to the public health market). This distinct division, Veru Healthcare, will also deploy the company’s proprietary female condom as the FC2 Female Condom in the consumer health market and Female Disposable Contraceptive Device (FC2) in the U.S. prescription market.

President and CEO of FHCO, Mitchell Steiner, MD, certainly projected confidence about the company’s revenue growth-initiating merger last month, when FHCO released its Q1 FY17 financials, and noted of FC2 that it was “without equal” when it comes to contraceptive products for women who want to defend against both pregnancy and STDs. With HIV/AIDS still the top killer of women aged 15 to 44 globally, and around 80 percent of cases occurring via heterosexual transmission, the sheer utility of a product like the FC2, which can be inserted anywhere from hours or just minutes in advance of sexual intercourse, is unquestionable, particularly in at-risk populations like sex workers, where the existence of a female-use driven, dual-protectant product like the FC2 can potentially work wonders. Research has even shown substantial indirect healthcare cost benefits to the implementation of female condom programs, with two to three times return multiples on every dollar invested in countries such as Cameroon and Nigeria.

Solid financials and a healthy logistical footprint, as essentially a preferred provider in the public health/female condom market, amply supports FHCO’s expansion/growth strategy, and it is noteworthy how shrewd a move this is from a PR standpoint for a company already so well established in women’s health. Branching out boldly into pharmaceuticals with a focus on men’s health through Veru Healthcare is marketing gold, and with such IP-reinforced, exciting sexual health products for men as PREBOOST® in the pipeline (an OTC-available, convenient, discreet, medicated individual wipe designed to curb premature ejaculation), serious multi-pronged revenue growth may be on the near horizon for FHCO.

A disposable, pre-moistened wipe that employs a highly effective yet safe topical anesthetic, PREBOOST was designed by Clinical Professor of Urology and Reproductive Medicine at New York Presbyterian Hospital/Weill Medical College of Cornell University Dr. Fisch to solve application problems associated with industry-standard creams and sprays, while simultaneously providing powerful, yet subtle, skin desensitization. Available in easy to carry single-use packets, roughly the size of an individually-wrapped condom, PREBOOST is easy to apply without mess, and it doesn’t interfere with the pleasure from an orgasm.

The company has already sought Orphan Drug status from the FDA for its MSS-722, a patented and proprietary treatment for male infertility that would be the first orally-available option for such indications to come to market (only currently FDA-approved standard is HCG/FSH injections). The company is in a very good position here as the Trump administration moves to speed up the new drug approval process, and MSS-722 can effectively piggyback on extant clinical and nonclinical data for CLOMID (clomiphene citrate) tablets, which are currently being used as first line therapy in 90 percent of idiopathic (having an unknown pathogenesis, or spontaneous origin) infertile men. With a nice guidance follow up late last year in December to the company’s earlier pre-IND meetings with the FDA, FHCO is now gearing up for Phase 2 clinical trials of MSS-722 and expects an NDA filing sometime in 2019.

Another near-term viability (NDA expected this year) indication picked up under the merger is Tamsulosin DRS, a delayed-release sachet, novel oral powder-like formulation targeting Benign Prostatic Hyperplasia (BPH), which is set to hit $4.9 billion by 2024, according to research and consulting firm GlobalData, over which time the space will cook along at an impressive 8.23 percent CAGR. Tamsulosin DRS contains the same API (active pharmaceutical ingredient) as Tamsulosin hydrochloride, developed by Astellas (OTC: ALPMY; ALPMF) and typically marketed in the U.S. under the trade name FLOMAX®, for BPH, or enlarged prostate. A new formulation here by FHCO would knock directly on the front door of the roughly $3.5 billion domestic generic/FLOMAX market, as well as address the broader $4.5 billion (QuintilesIMS) U.S. BPH alpha blocker space. The development strategy here should seem familiar to readers, as FHCO can once again utilize extant safety and efficacy data (in this case FLOMAX data), in order to significantly benefit shareholders.

Also in the pipeline from FHCO’s Veru Healthcare division are APP-944 for hot flashes in men undergoing prostate cancer hormone therapy, which would be the first approved oral drug in this area (NDA expected in 2020), and two more oral drugs slated to NDA in 2022, APP-111/APP-112. The first of these, APP-111, is a third line hormonal therapy for advanced prostate cancer with phase 1 studies planned to take place in 2018. This will lead directly to an IND filing and APP-112 studies in gout (the most common form of inflammatory arthritis in men) the following year.

FHCO is making all the right moves to wrangle a revenue growth herd through the Veru Healthcare portfolio, and this growth strategy seems to have been marvelously handcrafted by management. Moreover, the company has recently executed a series of key appointments in support of its growth strategy, from the most recent tapping of 20-year veteran analytical chemist Matthew C. Gosnell, Ph.D. for the Senior V.P. of Manufacturing role, to the appointment in January of sales and marketing heavyweight Brian J. Groch (who has over three decades in pharma and biotech) as the company’s new CCO.

To learn more, visit www.veruhealthcare.com or www.fc2femalecondom.com

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